3M, Google, Bank Rules, Other 2H Catalysts

different sectors. My name is Elliott Stein. I'm a senior litigation analyst covering litigation in the financial sector, and I'll be your host for today, July seventeenth, twenty twenty three. If you have any questions about any of the matters we're discussing on today's episode, please don't hesitate to reach out to us at your convenience with questions. So we'll

be discussing a handful of sectors and issues today. First, Jenrie, our senior antitrust analyst, will give us an update on the FTC's bid to block Microsoft's acquisition of Activision, and she'll also preview the Justice Department's upcoming trial in September against Google over its search business. Sticking with Tech, Matt

Shettenhelm who covers TMT policy and litigation. We'll discuss in anticipated FTC rulemaking that threatens the targeted advertising business of companies like Alphabet and Meta, imperiling billions in revenue, and he'll also talk about the Supreme Court likely taking up a case that could shape Internet regulation as we know it.

We'll then turn to financials and bring in Nathan Dean, our senior financials policy analyst, to discuss new capital requirements and post Silicon Valley bank rules that banks are likely to see. I'll discuss potential penalties that Swiss Bank QBS is likely to incur related to residential mortgage backed securities and our KAGOS issues that UBS inherited from Credit Suisse.

And I'll also discuss key rulings in crypto cases, one of which came last week, and others that I expect to be issued in the second half of this year.

After that, we'll turn to healthcare and Dwyane Wright, our senior healthcare policy analyst, will give us his thoughts on the government releasing a list of ten Medicare Part D drugs that will be subject to government price cuts, and he'll also discuss other potential rules targeting drugmaker revenue from Medicare Part D drugs cleared through the Accelerated Approval Pathway.

Tis Walker, our senior healthcare patent litigation analyst, will preview an upcoming patent trial over Exelixis's cancer drug Cabometics, and last but not least, Holly from will discussed the Justice Department's upcoming trial against Teva over False Claims Act violations, and she'll also discuss an appeals court ruling that she

expects in three M Earplug litigation. All of this research is available on the Bloomberg terminal at bi go And just a quick word about Bloomberg Intelligence for those who don't know. We are the investment research platform on the Bloomberg terminal, providing in depth research on industries, companies, and markets and delivering key data from bi analysts in their given industry. So with all that, let's get started with the content. Jen, Let's bring you in first to talk antitrust.

Last week, Microsoft and Activision got a good ruling against the FTC, but it sounds like the FTC is appealing. And then you're also going to tell us a little bit more about the upcoming trial in the Justice Department's lawsuit against Google over its search business. So do you want to come in and tell us about these cases?

only jurisdiction that stands in their way. And right now what they've done is they've offered up new remedies, or at least a new restructuring of the deal to the UK's Competition and Markets Authority, which is their anti trust agency, and that authority is reopened discussions and they think they need about four six weeks so I think the prospects for a settlement there are really good. We'll probably hear about that in about four weeks, and I think this

deal is probably going to be able to close after that. Now, one thing is that they have an end date for their agreement as of July eighteenth, but they're probably going to extend that sometimes in sometimes in the next couple of days. Now the thing is in the US, the NTC could still pursue.

But here the question is are these outlets really tied up?

We're going to stick with tech. You expect the FTC to propose rules they're threatening the targeted ad business of companies like Alphabet and Meta, and you've also said that you expect the Supreme Court to take up a case that could shape Internet regulation. As we know. It sounds like super important stuff. Why don't you come in and tell us about it? Yeah?

by setting legal standards. So companies like Alphabet and Meta make hundreds of billions of dollars a year using data for ad and there are almost no direct legal limits in the United States on that. Congress has tried to pass a law to limit how they use data for advertising, but no bill has made it through the process to the finish line. That's where the FTC is likely to step in and likely moving ahead with the process in

the second half of this year. It's likely to adopt the rules that go directly at when is it unfair or deceptive to use data, in this case for advertising purposes. The FTC first launched this rule making almost a year ago in August of twenty twenty two, and what we expect this in the coming months is the next key step in that process, and that's when the FTC is due to release a Notice of Proposed Rulemaking, when I expect they'll kind of more concretely set out what sorts

of rules they envision. So far, they've been very open ended. I think we should have a much clearer sense of what they're going to go after, and this FTC has given us every indication that it will go big, that it will be aggressive in what it's trying to pursue. That will likely lead to an effort to push final rules in place in probably late twenty twenty four, and then you're going to see litigation over it following that.

But the big development for this second half is I think we'll get a more concrete sense of what's in play, and I expect the FTC to be aggressive about what it's trying to pursue.

go to their websites. States like Florida and Texas want to impose rules that control how the companies display content because there's a perception that the companies are biased in how they're presenting content, and so they have different ideas about how to regulate that, to mandate neutrality or to

mandate that the companies operate like common carriers. And that presents a really big legal question under the First Amendment because the companies claim that they are protected as speakers, that they get to frame their message just as the New York Times or the Wall Street Journal gets to frame its message. But the Supreme Court has never really given a clear standard of how the First Amendment applies

to regulation of the Internet. And so what I think will happen in the second half of this year is the Court is going to agree to take up this case about the Texas and Florida laws, and it's going to tee up a really important question about can these companies be regulated in how they display text. Is it the same as a newspaper or can they be regulated more aggressively, And it's all about how the First Amendment

applies to that. So I think that fight's going to take shape in the second half of this year, and then I would expect a final decision by June of next year. With that, let me toss it back to you Elliott.

about twenty percent. By what it would do is for every extra sorry, for every one hundred dollars of risk weighted assets. It would add two hundred basis points or two dollars to that. And so you know, this is one of those things where it was Basle. The Bossle three endgame is an international standard. It's already been designed in Europe. This is the American portion of it that's

playing catch up. But you know the reason why the FED, or one of the when the FED went forward with this two hundred basis point increased the use words like humble, that the banking system needs to be humble now in within the BOSO three end game. There are two other things to keep a note is for firms trading activities, there's going to be new market risk capital requirements and

this is going to hit the investment banks. It specifically is going to look at training books by these investment banks. We've heard anecdotally from the FED the capital requirements for specific desks could go up sixty percent. And it would also require standardization of credit risk models. So if you're Bank America or goldmin Sacks, you're not going to be able to use your own model. You're going to have to use the standardized credit risk model. So everything is

now apples to apples. Now, the most important thing here to note is that if you were to take this proposal, you know, this two hundred basis point increase, it would wipe out pretty much all of the one hundred and twenty one billion dollars of access capital that the big

gesips already have in play. However, the FED Vice chair also stated that he thinks that after a two year implementation period, if banks continue to maintain the profits that they have over the last few years, that they'll be able to get to this capital requirement without herming or being able to continue to pay out dividends. And that's the big question.

just looking at Bank of America or Goldman Sachs. But if you're looking at fifth third, or you know, some of the smaller banks out there, like Citizens and so forth like that, this is also going to be applicable to them, probably just not on the same scale. The other thing that really keep in mind is that there

are two other, really or three other major initiatives. Now this could come as part of the Bosle three proposal, or these could be separate proposals, but one is requiring regional banks to issue what is known as te LAC

debt total loss absorbing capacity debt. Now, if you were to take the big bank t LAC rules, so the rule that's currently in place for the biggest banks, and apply it to the banks that are hundred billion and up, as we suspect the FED is going to do, you're looking at a six one hundred and sixty eight billion dollars in new debt that the regional banks have to issue.

About ninety billion of that is for the banks that are hundred billion to two hundred and fifty billion, and then the rest is coming for those banks that are two hundred and fifty billion and up, like P and C, Truist, et cetera. Now, the regional banks. They're not thrilled about this, but from what we've heard, they're not as opposed to this as the big banks are to the capital requirements rule. But again it's something if you're on the credit side

you should be paying attention to. We think this is going to come out right around the same side. We also are going to see changes to the accounting standards for what are known as available for sales securities. This is applicable to those banks one hundred billion and up. This is something in the Silicon Valley certainly was playing.

these proposals they need to come out fairly soon. The regulators need to get this done before the twenty twenty four elections because if you run, if the Republicans win the White House, you potentially could have a changing of the guard at the OCC and the FDIC, and so we anticipate the regulators will put these proposals out. You're probably looking at a sixty day comment period and then they're going to try and spend the rest of twenty

twenty four putting this out there. As you can imagine, the banking industry is not overly happy about this, so they're going to be fighting this tooth and nail. But we're looking at finalization probably about a year from now, with a two year implement after that. We've got a lot more on the terminal available, but for right now, I'm going to push that back to you, Elliott.

Justice Department to sue in twenty eighteen. The litigation has moved slowly, but UBS took a six hundred and sixty five million dollar provision in one queue for this case, suggesting the bank is gearing up for a settlement based on settlements by other banks over the same issue. I think UBS is likely facing the settlement of about two and a half billion dollars, so it's possible that the bank may still to take some additional provisions for this matter.

I also expect UBS to settle government probes of Credit Suisse that stemmed from the Arcagos collapse in twenty twenty one. As I'm sure everyone knows, UBS bought its Swiss rival, Credit Swiese earlier this year, and as a result, Credit Sweez's multiple litigation issues are now UBS's problem to resolve. Among Archagos' prime brokers, Credit Sweez was the most exposed, given its outsized losses of about five billion dollars and

its apparent risk management lapses. The Financial Times reported in June that the Federal Reserve could exact as much as a three hundred million dollars fine for Credit Sweez's failings, and the UK could seek up to one hundred million pounds. I think the SEC may also impose a fine, so Credit SWEE has reportedly only provisioned thirty five million dollars for fines related to Ourcagos, so it's possible that UBS

will have to take additional provisions. Though I should note that UBS did take about four billion dollars in provisions for litigation and regulatory matters related to its acquisition of credit Suites, but it's unclear how much, if any, of that four billion dollars was related to our Chagos. Turning to crypto, we had a big decision in the SEC versus Ripple case last week, and that is going to have major implications for other crypto cases that we're watching,

most notably the SEC's case against Coinbase. The issue in this line of cases is whether crypto assets or securities or not, since the SEC's jurisdiction over the crypto spase basically turns on that question. The Ripple ruling was notable because it said that only certain direct sales by Ripple of its XRP token were securities, but that sales by Ripple of XRP on public public exchanges we're not securities.

The ruling also said that XRP itself is not a security, which is a major rejection of the SEC's theory that most digital assets are securities, and it underscores a point that we've been making, which is that a sale of a token in one context, let's say, for purposes of raising money, may be a security, but the sale of the same token in a different context, let's say, on

the secondary market, might not be a security. And that's a critical distinction for platforms like Coinbase, which we expect will hit this argument really hard as it begins to mount its defense against the SEC in the second half of this year. Another crypto case that we're watching and in which we expect a key ruling in two h is gray Scales action against the SEC over the company's

bid for a spot bitcoin ETF. Just as a reminder for maybe people who don't follow this space all that closely, Grayscale is a crypto asset manager and it's been seeking to convert its Grayscale Bitcoin Trust, known as GBTC into an ETF. The SEC rejected that application, and that prompted a lawsuit by Grayscale. The case was argued in March, which means we should get a ruin any day now.

The ruins come out on Tuesdays and Fridays, so if you want to check the DC Circuit's website on those days, you can join me and refreshing your browser at eleven am every day on those days. Based on that oral argument in March, I do think Grayscale is a good shot of getting a favorable ruling, but the language of

that ruin is going to be key. But we do think there's a good chance that opens up a pathway to the SEC approving a spot bitcoin ETF, which will then make it easier for investors, whether they be retail or institutional, to buy exposure to bitcoin. And last, let me just add that we found out last week that we'll have Supreme Court argument on October third in a key case that we're watching, which is a challenge to the constitutionality of the Consumer Financial Protection Bureau of the CFPB.

In the interest of time, I won't go into too much detail, but I think given the conservative majority on the Supreme Court's disdain for what's perceived to be the administrative state or administrative overreach, the CFPB, we think is likely to be weakened in that case, and that would be a good outcome for companies that are under the CFPB's jurisdiction companies like banks, services, credit bureaus and sintechs.

So with that, I think I will wrap up my portion and we will and with the financials discussion and go on to healthcare. So, Dwayne, let's bring you in to talk drugs, specifically Medicare drugs and steps you expect the government to take to reduce drug prices. Dwayne, you want to come in and tell us about that.

power to negotiate prices for high expenditure drugs. In lead up to release of this list, Weed to take a look at some of the symphony health data which you can find in the Drug Explorer section of the bi terminal to pull together the list of ten drugs we think Medicare will select based on their drug spending for June first, twenty twenty two. May thirtieth, twenty twenty three.

It's the first piece of it and two whether they have a generic or biosimilar competitor that's been marketed based on what we have, based on what we saw in the data we have on our list, Drugs by Bristol Meyers, squid Eloquist, Genuvia by Merk, Serralto by Jane Jay, and

Trusto by Novartis to name a few. Now, once this list comes out again by September first, Medicare will then negotiate prices of those drugs with manufacturers over a ten month period, with prices published September twenty twenty four and those prices implemented January one, twenty twenty six. And the law says cuts must be anywhere from twenty five percent to six percent off of the list price, depending on how long the product has been FDA approved and marketed.

But it all assumes that there aren't any delays with the negotiating process, given some of the quote challenges brought by Merk, Bristol Myers and the Chamber of Commerce and a flag Merk and Bristol Myers, they filed large because there's a general assumption that they will be on that list not just for this upcoming year, but for future years.

Giving their pipeline. So we're looking forward to the end of August for clarity on the drug selection process, what it means for upcoming discussions, as well as the implementation process moving forward. Who why that's happening. We think the Administration will use its regulatory authority to implement drug pricing demos targeted at a select group of Part B drugs or physician administrated administered drugs.

many deadlines missed. In fact, there's been a lot of activity with the FDA conducting a number of hearings, and out of those hearings, we've seen some drug companies pull their drugs off.

high cost therapy. So the Administration signaled and has signaled it would my team use its demonstration authority through the Centers for Medicare and Medicate Innovation to provide financial and centers for companies to complete their trials on time, their financial penalties for failing to complete their trials on time.

The administration signal is part of that white paper that there'll be potential rulemaking this year, and I expect we'll see some additional detail on their thinking in the fall as a run up to the election, given the amount of time it would take to go through the notice.

pursues the Accelerated Approval pathway. So we'll have more to come on what the Administration is planning to do and we're looking forward to seeing what the details are in terms of the impact on payment and other patient access. So with that, I will stop and turn it back to Elliott.

At least MSN Pharmaceuticals, Teva and one other generic are pursuing generic copies of CABA metic with the patent litigations against other generic makers besides MSN on hold why Exolexis plays out its litigation with MSN. SO In a decision on the first patent trial that was held last year, the district court maintained the validity of Exolexis's twenty twenty six composition a matter patent so that prevents any at risk launch by MSN while these additional patent issues are

resolved in October. The key second trial for October includes patents that expire in twenty thirty and twenty thirty two. We give Exolexis a sixty percent chance to prevail on the twenty thirty patents that would block MSN generic entry

until at least January twenty. While MSN was able to avoid infringement of a related twenty thirty expiring patent in the first trial, we don't think they can do so in this second trial because the patents at issue in October don't require a specific crystalline form they just require a specific crystal in salt. With respect to the twenty thirty two expiring broad formulation patent that's an issue in

the October trial. We don't think it will provide any exclusivity for Exlexis, as we favor MSN to invalidate the patent. As I mentioned earlier, Exolexis's litigation against Teva is currently on hold. That litigation against Teva includes additional tablet formulation patents that Exlicis has that expire in twenty thirty one to twenty thirty three, but those patents have not been

asserted against. MSN will continue to monitor and analyze the litigation landscape as the parties move towards trial in October. And with that, back to you.

It had argued that in order to show a false claim back violation, the government has to show that the prescription would not have been written absent the kickback, and here the government has not shown that any prescription was medically unnecessary, or any doctor would not have written the colpax on prescription, or that any patient would not have

filled that prescription without the copaxu on cope. The court rejected the argument, so exposure could exceed one billion, but the highest settlement we've found for this kind of SCA case is three hundred and sixty million dollars. And so turning to three M ear plug litigation, we expect a decision in three Q on three AM's appeal of the first bell Weather verdict overclaims ear plugs are defective and

cause hearing loss. Threem faces over two hundred thousand lawsuits by veterans who say they were injured by defect defective earplugs. Hearm argued to the Eleventh Circuit Court of Appeals on May first that three M had immunity because it was a government contractor which built the ear plugs to the government's specifications. The lower court, who tried the first bell Weather and which is presiding over the more than two

hundred thousand cases, rejected that argument. The Eleventh Circuit panel that heard the appeal seems inclined to affirm the lower court, But if Threem wins that argument, which we think is unlikely, many cases likely have to be dismissed. We expect that decision in three Q. And with that, I'll turn it back to you Elliott.