Abbott, Apple, Citi, Nexstar, Musk, OpenAI

industries and one hundred market industries, currencies, and commodities. This podcast series examines the intersection of business policy and law, and today we'll be looking at the litigation and policy catalysts that we're watching in March twenty twenty five and that we think will impact companies across a number of

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, February twenty eighth, twenty twenty five. If you have any questions about any of the matters that we'll be discussing on this 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, Matt Schettenhelm, who covers TMT policy and litigation for US. We'll discuss the March nineteenth court hearing where Nextstar and other broadcasters will present their arguments and a challenge to the FCC's limits on TV and radio station ownership. After that, Holly Frome, who covers consumer and industrials litigation and policy,

and also healthcare litigation. We'll discuss the March twenty fourth here into bar experts and suits alleging that infant formulas made by Abbott and Records meet Johnson Unit caused necritizing terra colitis. After that, we'll talk antitrust, and we'll bring in Jen Reed to talk about Epic Games versus Apple and an anticipated ruling by the judge in that litigation on whether to sanction Apple for violating an injunction imposed after its app store rules were found to violate California law.

After that, Justin Teresi will discuss the rule and he expects in litigation by Elon Musk and XAI against Sam Altman and others seeking to halt open ais conversion to for profit status. Then we'll move on to healthcare and we'll bring in Dwayne Wright, who covers health care policy out of Washington, DC, and he'll update us on potential cuts of ten billion dollars to medicare advantage as part of the ongoing budget negotiations and why that matters for

companies like Humana and United Health. Well, then close out with financials. First, we'll bring in Nathan Dean, our financials policy analyst also in Washington, d C, to talk some more about reconciliation and FED chair Jerome Powells testimony recently

concerned and in bank capital rules. And then I'll wrap it all up with a pair of cases I'm watching challenging Biden era financial regulations, one concerning the CFPB rule that would cost credit card issuers about ten billion dollars in late fees, and the other is the SEC's climate disclosure rule. All of our research is available on the Bloomberg terminal at bi GO. But with all that out of the way, let's get started with the content. Matt Settinhelm,

let's start with you. Bring you in to talk about limits on TV and radio station ownership. You're tracking litigation by Nextstar and other broadcasters they sued to challenge such limits, and it sounds like there's a key hearing you'll be watching on March nineteenth. In that case, you want to come in, Yes, tell us about the case, tell us about the hearing and why it all matters.

based companies don't face. And one of the most important areas of regulation is is these FCC media ownership rules that limit how many TV and radio stations these US companies can own. They've been on the books for decades, and I think finally there's a chance for the companies to chip away at them. So what happens March nineteenth?

That's the day that the National Association of Broadcasters and Nexstar and other companies will present oral argument to a three judge panel at the a Circuit Court of Appeals, a federal Court of Appeals in Saint Louis, and the broadcasters are challenging a Biden era FCC order from decem member of twenty twenty three that basically said, look, we're going to keep all of our broadcast ownership rules in place, and in some cases, we're even going to tighten those rules.

And so what's at issue here is a challenge to that decision by the Biden.

will be heard by three Republican appointed judges. Again, this is at the Eighth Circuit Court of Appeals in Saint Louis. And so my question isn't whether the FCC will lose. I think it will lose. The question is how badly will it lose? And so you know, I put it about an eighty percent chance of an FCC loss, but a forty percent chance of sort of that drastic remedy that the industry is seeking, that these rules just get stricken from the books entirely. And so that's a real

possibility here. So and the reason that matters is timing. If the court keeps the rules on the books, the Trump FCC, I do think, is going to work to tear those rules down, to take them down, but that has to go through the Administrative Procedure Act, and so that takes six to nine months in a rule making. If the court rules in this case to wipe the rules off the books, that could expedite the deregulation. So again, hearing March nineteenth, we'll get a chance to look at

how these three judges are thinking about this case. They'll issue a decision three to six months later. I think it should go well for the industry. The only question is how well with that. I'll toss it back to you.

cases so far have been filed in federal court. Where as you mentioned, we were waiting hearings on bidstabur or plaintiff's experts. Those hearings are set to take place March twenty fourth. If those motions are granted, federal cases likely get dismissed because plaintiffs cannot prove their case without an expert. We've said we think plaintiffs will have a harder time

in federal court admitting experts. From what we've read in the briefing, it looks like plainiffs experts will have weaknesses, primarily because they cannot identify the dose required to cause a problem, and one causation expert relies on animal studies rather than human studies, which are known to be you know,

have a less evidentiary persuasion than human studies. Still, the briefing is incomplete, but we expect we may get a better idea of what the judge is thinking at the hearing in March, and we expect a decision on that motion before the first trial, which is set for May. And with that, I'll turn it back to you, Elliott.

And honestly, it could cost the company billions of dollars in app store revenue. So as a recap because it has been a winding road. When Epics sued Apple back in August of twenty twenty, it was about rules for its app store and iOS. Generally, Apple operates as a walled garden, and what that means is that it generally maintains control of any apps that you can download on its mobile devices. So the app store, you know, as we know, whoever has an Apple phone is the only

distribution point for apps that you might want. And if you make any app purchases that takes place in the App Store and always flows through Apple's own payment processing systems. Now, Epic is a really big digital gaming company, and it wanted its own storefront on Apple devices. Google too, but that's a whole different litigation. And it wanted the ability to use its own payment processors for purchases of its

games in the app Store. Now, this is not just because it wants to sell apps and make some money doing that, but it also didn't want to pay Apple's fees, and those fees are pretty high. So for transactions in the app Store, they are fifteen percent and thirty percent, depending on the size of the developer, whether they're under

a million in revenue per year or over. So when it sued Apple from anopolization, it claimed that it was unlawfully monopolizing the distribution of apps on iOS devices and the payment for apps. Now, oddly, because I just set a reckonings coming for Apple, Epic did lose on all of its anti trust claims, and that's mostly because the judge disagreed with the way Epic defined the market In antitrust, this can often be the downfall of plaintiffs. It's really

kind of a dispositive issue. Epic kind of said, Apple doesn't compete with any other entity, but the judge said, well, it's really a mobile digital gaming market where Apple does compete with others and doesn't have monopoly power. But the thing is that judge did find that one of Apple's rules violated a California's state law prohibiting unfair business practices, and these are Apple's anti steering rules. These prevent developers from communicating with users within the app in the app store.

So if the developer, let's say, offer that app for a lower price on its own way website, they can't communicate that to a user within the app, as that user may be opening the app for the first time. So she ordered Apple to drop the rules and then also to allow developers to communicate within the app to users and to include a link so a user could click that link to take them out of the app store into the web, and they could pay for the purchase in the web if they wanted to. Apple had

to comply. Once the Supreme Court ruled in January of twenty twenty four, I guess I should say refuse to hear the appeal, and it said it had done so. In March of last year, but Epic challenged its compliance and asked the court to find Apple in contempt. And that's because as part of its compliance, what Apple did, which is that it charged developers twelve percent and twenty seven percent as opposed to the fifteen percent and thirty percent for any purchases that started in the app store

but then ultimately were made on the web. Now here's the thing. Developers have to pay at least three percent or more for payment processing in their own website, so this didn't change their costs and it essentially disincentivized any developer from actually taking up this option of including this link. So there were hearings on epics challenge last May last

year and also this week. The judge is expecting post heering briefing on both sets of hearings by March seventh, and she has said she's going to rule very quickly after that, So in my mind, I think that's going to be about a month. She is visibly angry with Apple, so I think not only is she going to find the company in contempt civil contempt, I think there will be ramifications for the injunction and compliance with the injunction. Now a contemporarily might just mean a fine, which I

don't think will be material to Apple. But where they're going to end up here is that they're going to have to charge much lower fees or no fees at all for these purchases that are linked out of the app store. Apple makes billions of dollars in App store revenue, and the majority of that comes from the twenty to thirty biggest apps. Those are the ones that can easily set up payment within their own websites and use this

linking out option. And Apple's own finance department has modeled the impact on Apple of a lower fee or even no fee. Now, those figures were kept confidential in the hearings, but what was clear is that it could be in the multimillions, if not billions of dollars if they have to drastically lower that fee. So, like I said, the judge is going to decide soon within a month. I think after that it's just going to just give Apple whatever time it technically it needs to make the technological

changes to implement whatever it needs to implement here. And so that means very likely this year, and that is it. Back to you, elliott O.

from a non time to a for profit. Hopefully I have that all right, But why don't you come in and make sure I have that right and get us up to speed on the case and why it's important for investors exactly.

complaint now in a lawsuit. The last two were withdrawn by Musk and Xai before a court could even rule on the dismissal for the case. So we're really getting our first look here as to whether or not there's anything to the allegations that have been brought by Musk. And here this is where the case gets a little crazy. There are twenty six distinct, distinct counts claims in this case alone, so really every corner of the law that

you could think of is involved with this litigation. Really, looking back to my own first year of law school here, I can't tell you how many different classes have really come into play, but trying to understand what's happening with the litigation here moving forward, the case appears personal in several different ways. It's really aimed at slowing the growth of a open AI, we think, but it does purport to open a space to more AI competitors for consumer

facing aspects of AI and how it develops moving forward. So, originally the case was just Elon Musk and XAI versus Sam Altman and open AI on a series of claims that stemmed from Musk's original fifty million dollar donation to open AI that was made several years ago. Other claims in the lawsuit now are really the standing comes in on the grounds of Xai being a competitor of open ai.

And the chief issue here is really Musks asked to block open ai from becoming a for profit entity on grounds that that would violate open AI's nonprofit charter, which generally says that it's supposed to exist for the greater good of humanity. So Musk's claim was relation to that, is that to convert to a for profit status, it'd

be a breach of treedable trust under California state of law. Now, whether Mosk has any standing to bring that particular claim, that is in and of itself a whole issue that is about to be the subject of ongoing motion to dismiss briefing in the case. The case has also got claims related to breaches of fiduciary duty, breaches of contract, reco violations, you name it. It is here in this litigation every last kind of claim you could think of

in a business context. The most recent complaint added Microsoft and Microsoft's Cena Templeton along with ried Hoffman, has defended in the case, and this is really on the basis of Microsoft's fourteen billion dollar investment into open Ai and their partnership that involves exchange of technology is back and forth between each other to develop their consumer facing products. So that's really caused us to take note now that

there's Microsoft involved in the case. It continues to be organized in chief open AI as a nonprofit entity, but there's several arms of the organization that are LLC's and also named as defendants in the litigation. I kind of piggyback in what Jen was saying just now about Epic vehple. The same judge hearing that case is hearing this litigation.

She's very steep in technological issues, very steep in edge a dress law, which we'll get to in a minute, and the original hearing she had on a preliminary injunction related to some of these claims. She expressed her to state, I think at the litigants involved in the litigation, she said, quote, I've got billionaires versus billionaires involved in this litigation. She couldn't believe that there was no contract in place for a fifty million dollar donation that Mosk made to open AI.

Just really critical of this whole situation before her in the courtroom. And what we have here is there's a practice around a preliminary injunction and emotion to dismiss happening at the very same time, we think there's an eighty percent chance that preliminary injunction fails on the grounds that the accounts that were included as part of that motion, there's really not a showing of a reparable harm here that would meet that standard for issuing a preliminary injunction.

Musk is saying, Look, if you allow this entity to convert to a for profit status, it's going to be too difficult to unwind that later on. If you don't issue preliminary injunction as to interlocked boards of directors, then that's a problem for later on too. But at the moment,

there's no interlocking of the boards. And the last thing that Musk is really accusing here under the preliminary injunction bucket is that there's this fund no competitors edict that basically claiming that open Ai and Sam Altman told folks who were investing in open Ai as part of a funding round that they couldn't invest in Xai or other competitors, and that's proceeding under this group boycott theory of anti

dress law. We'll get to that why that's a little bit of a weak argument a second, but I think more importantly for the complaint itself and the preliminary injunction asks, there's really no evidence outside of just anecdotes in the media that these kinds of prohibitations were made on folks looking to invest in both open ai and Xai. So

you know, again, Judge very skeptical of that claim. We think there's a seventy percent chance that the antitrust claims in the case are tossed as part of the dismissed but it does appear, based on our judges comments, at least some of these claims are going to make their way through to discovery and possibly on to trial. The one that really stood out as having an issue in the judge based on the judge's comments, was this issue

of interlocked boards. Right, You've got Microsoft, who claims to be a competitor with consumer facing AI products, you know, with open Ai. But there are folks for Microsoft and out Temple To namely in the past, who served in an advisory function as an kind of an overseer on the board of directors and open Ai. The judge had had an issue with that, even though that's not in

place anymore. Saw some problems with how that was kind of shape and how that rolls out from a competition standpoint, So we could see that Clayton that claim continuing on

pass emotion to dismiss. Now, though the amended complaint doesn't really outline monetary damages that are sought, we think the real risk here probably stems to threats to Microsoft's partnership with and its investment in open Ai, including that effort to halt that conversion from open Ai to afford profitity and what we think, you know, also what be an issue here is alleged favorable pricing terms between the duo.

Open ais technology is said to be behind many of Microsoft's new product launches, which could increase cloud revenue by five to seven billion dollars in the next year for Microsoft, outside of its cloud offerings like Microsoft three sixty five Copilot could bring in another one to two billion in sales during that span the next coming year. So not small change from Microsoft here with relation to its partnership with OpenAI. But really we think the risk here for

this partnership comes from other sources. The FTC completed a six p study related to these Ai partnership situations just before Lena Khan left in January. Whether the new FTC will continue to be involved in competition issues related to this partnership, that remains to be seen. We're all kind of scratching our heads still as to what new leadership

at the FTC will do. We also note there are already discussions underway with the California Attorney General's Office and the Delaware Attorney General's Office taking interest in this particular case. We think development's happening there from an enforcement perspective could have a greater impact than what a few sure of this partnership looks like versus this actual litigation between Musk

and allmen. And lastly, just kind of zeroing in here on those those anti trust issues again, you know, the pricing issues between the two. The judge was very skeptical as to whether those could continue. And with relation again to that fund of competitor's edicts where XAI is saying, look, this isn't fair, we can't we can't be funded, you know, if folks are banned from funding us if they participate

in open AI. The judges again to point out that XAI is raised successfully billions and billions of dollars as parts of funding arounds, we're on our way I think to a seventy five dollars billion dollar there's discussions on our way to a seventy five billion dollar valuation at XAI. If that were the case that folks couldn't invest in XAI, I think she kind of indicate already at the preliminary injunction phase that it's hard to believe that that such an edict could be in place with the amount of

funding that's actually happening. There, so a lot going on. We think of ruling on that preliminary injunction is luckily to deep be denied sometime in March, and a ruling on the motion dismiss we're expecting that other than a second or third order this year.

seen from Republicans about potential Medicaid cuts. And so maybe to take a small step back to provide some background, private health plans in Medicare get extra payment for beneficiaries that are above average in terms of their risk profile. In other words, they're less healthy than your average Medicare beneficiary. And the goal is twofold one to ensure that these plans don't market to a select group of patients that are healthier, and to ensure that every beneficiary does have

access to these plans. And then also these insurers are adequately compensated for treatment. But there's evidence that these plans upcode or and or search for more diagnoses codes to get more revenue. But there's a lack of evidence of corresponding care. Now, the underlying law already recognizes this and accounts for this so called upcoding by shaving off about five point nine percent six percent of payments to health plans,

and this is called the coding intensity adjustment. There have been calls for this to go higher, and that's largely based on evidence from the Office of the Inspector General, lawsuits, whistleblower lawsuits, and other events that have focused the spotlight or shined the spotlight on these billing practices. Now, in most cases where health plans have been dinged for this, they've settled out the court. The cost of business of doing this or the punishment was not all that high

given the amount of money that they bring in. But I think we need to look at the Grassly Letter, the dog investigation in a different light now because, as I mentioned earlier, Republicans are trying to pass a reconciliation bill that may look for offsets to offset tax cuts or new spending if they can't get all of that from certain programs like Medicaid or from hospitals. And one could make the argument that Medicare advantage could be on

the table. Given some concerns here. Now, let's put this in perspective though, when you had mentioned the potential ten billion dollars in cuts, when you go over ten years, that's probably about one hundred and forty hundred and fifty billion, depending on when you start it. Medicare payment for private health plans by twenty thirty three will be about one

trillion dollars. It's about half of all Medicare spending. So it's a bit of a drop in the bucket for some of these companies and for this sector as a whole. But for the purposes of meeting revenue targets or saving targets, this could be a place to go with these billing concerns as an excuse. Now it's early innings. We still need the House and Senate to agree on a budget and then to find the underlying cuts, So stay tuned for some potential clarity on where they'll go overall and

how this may or may not impact Medicare advantage. And with that, I'll turn it back to you.

Financial Services. He essentially said a couple of things. He said first that this position, the FED Vice chair position, does bring a little bit more political instability to the FED. And that's certainly interesting because our working theory at this point is because Michael Barr is staying on the FED board but not leaving. President Trump's replacements or potential replacements that he could pick is fairly fairly limited. I mean, there is some thought out there that FED Governor Michelle

Bowman could be the next Vice Chair of Supervision. But our take is is that we think that this position is essentially going to be left open for a while.

But if the Basil three endgame were to be reproposed, we think it would be done in a capital neutral layer, or in capital neutral manner so as to not increase capital requirements like the proposed nine percent that we were seeing under the end of the Biden administration. But again, there's a couple of folks here in Washington that think that the BOSAL three endgame shouldn't be finalized at all, and I think that debate is going to have to

take place over the next six to nine months. But the more interesting thing that Jerome Paul said is he called for the enhanced supplemental the leverage ratio. This is a proposal that goes back to twenty sixteen. This takes what's known as the SLR or the EESLR in case for the g sibs, the Bank of Americas, the JP Morgans to the city groups of the world, puts the

American SLR on par with how it's constructed internationally. Now, this is a proposal that was originally proposed to twenty sixteen, wasn't done during the Trump administration, wasn't completed during the Biden administration, and I don't think it's going to be completed anytime soon this year. But within that proposal, or within the idea of the SR, relief banks have been pushing for treasuries and centrally clear deposits to be held at the FED to be excluded from the SLR. This

happened during COVID times. It was actually a temporary emergency measure, and State straight Bank of New York and Northern Trust we're able to permanently get this type of relief through a bill that passed in twenty eighteen. But the JP Morgans and the city groups and the Bank of Americas now want this same relief. I actually think this could happen.

So we have to wait and see what happens with the OCC in the FDIC, but I could see this proposal coming out later this year, so stay tuned on that. I certainly think that was one of the more interesting pieces that comes up from his testifying now when it

comes to reconciliation. Just to further support what Dwayne was talking about, I wanted to talk about the Inflation Reduction Act a little bit because you know, if you haven't talked to our colleague Andrew Silverman about the tax reform, you know, to extend the Trump air tax cuts using the current baseline as policy would cost around four point five trillion dollars to do that, and as a result, Republicans are gonna be looking for pay for us, whether

it's Dwayne's Medicare cuts, you know, and other types of aspects. But there are other things to keep in mind, and that is the Inflation Reduction Act. Now, the Inflation Reduction Act, this was passed to via reconciliation under the Biden administration back in twenty twenty two. It's about four hundred and thirty three billion dollars in terms of grants, loans, tax incentives. Now the Trump administration has already frozen the grants. You know that money has already been frozen. He can do

that via the executive branch. I mean, obviously there's going to be lawsuits about this, and there are lawsuits about this, But I want to talk about the congressional aspect because Republicans have said that they would like to repeal the ira IS as a way to help pay for these tax cuts, and our piece that we put out on the terminal essentially says that we don't think that's going

to happen, at least not in its entirety. The tax cuts of many of those bush that boost US domestic energy production, like the forty A five X tax credit or the forty five C tax credit, A lot of that has popularity within Republican states, especially Republican states in the South, there's a lot of non US cap X that's coming into those states that are building factories, and you know, seven hundred jobs here, nine hundred jobs there.

And we've already seen statements, including a letter from eighteen House Republicans to Speaker Mike Johnson saying please don't touch these tax credits. So you know, as we get into further debate of reconciliation, we're still just in the early stages of this, but our message to clients is that we do think the IRA is going to be tweaked.

Things like the electric vehicle tax credit, or the Greenhouse Gas Fund or the energy efficiency rebates, those could be on the chopping block, but when it comes to these tax credits in particular that are key for the solar industry, we think they're sticking around. So with that, Elliott, I'll pass it back to you.

disclosures and climate risk disclosures for almost all companies. One of the major themes that we're tracking is what happens to all these Biden era rules and regulations and the lawsuits that were filed challenging them now that Trump's regulators are in place and no longer support the Biden error rules. The CFPB credit card fee case and the SEC Climate Disclosure Rule litigation are just a couple of example of how that process plays out. In both instances, the rules

are on hold. In the CFPB credit card lakefee case, the industry groups challenging the rule one a preliminary injunction in court that put the rule on hold while the litigation plays out. And in the SEC Climate Disclosure rule case, the agency itself put the rule on hold after the litigation was filed so that you could see how the litigation plays out as well. In the CFIB case, the court reached just a couple of weeks ago asked the new CFB leadership to tell the court by March twelfth

how it plans to proceed in that litigation. And in the SEC case, the new interim leadership at the SEC issued a statement that it no longer supports the SEC Climate Disclosure Rule, and it asked the Eighth Circuit or told the Eighth Circuit that the agency would update the court by March twenty eighth about how it wants to proceed in that litigation. Written arguments are done in the SEC Climate dis Disclosure Rule case, and so we're just

waiting for the Eighth Circuit to schedule argument. And the SEC basically told the court, Hey, you know, before you schedule anything, let us tell you how we plan to proceed. So again, we think both these cases are good examples where the agency will no longer wish to defend the

Biden era rules in court. But you know, I tend to think that the industry groups that sued may want to press on with their litigation because they probably have pretty strong convictions that they're likely to get good court decisions. And so in that scenario, if that happens and the agencies don't want to support the rules anymore, then most likely third parties, whether they be blue states or progressive trade groups might intervene in the litigation to defend the rules.

If the Trump administration no longer wants to and If that happens, we expect both rules to fall in court on the merits. But again, these are just two examples that we're watching. Not every case will play out the same way. In some cases, you know, with some rules like the cfpp's overdraft rule, you know that's likely to

get struck down by the Congressional Review Act. And then in other cases, you know, litigation may go on hold completely and the rule will then get rescinded via the regulatory process, which.

of Special Counsel, and the Merit Systems Protection Board. But I'm really watching these because I'm interested in what these cases mean for President Trump's ability to fire Federal Reserve Board members, including fed. Shared's your own Powell, I won't you know, in the interest of time, I'm not going to go into detail right now on this episode, but i have published a note on this on the terminal a couple of weeks ago, and I'm happy to answer

any questions if any listeners want to reach out. But with that, we will wrap up this episode of Votes and Verdicts. As always, thank you for listening. As a reminder, you can find all of our research on the Bloomberg Terminal at big and we encourage you to reach out to us with any questions that you may have, and we also encourage you to listen to other episodes of Votes and Verdicts on whatever platform do you like to get your favorite podcasts. Thanks for listening and have a