Catalysts for Apple, Alphabet, GSK, and Visa

name is Elliot Stein. I'm a senior litigation analyst covering litigation in the financial sector, and I'll be your host for today May thirty first, twenty twenty four. If you have any questions about any of the matters that we'll be talking about 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 today. First, we'll start with our TMT litigation and policy analyst, Matt Shettenhelm, who's waiting for a Supreme Court decision concerning how the First Amendment shields companies like Google, Meta and other big tech platforms from regulation. Matt will also update us on lobbying efforts by broadband Internet service providers to extend federal

subsidies for low income Americans. After that, Justin Teresi will tell us about an upcoming hearing seeking approval of a thirty billion dollars settlement between Visa and MasterCard on the one hand and merchants on the other hand, in decades long antitrust litigation over interchange fees. Sticking with antitrust, jen Ree will then update us on the Justice Department versus Google Search case, where she expects a liability verdict very soon, as well as a key ruling that she expects in

Epic versus Apple litigation over app store rules. I'll then talk about the latest in litigation challenging the CFPB's rule capping credit card late fees, and I'll also talk about a ruling I expect in litigation challenging the SEC's private funds rule. After that, Holly Frome, who covers nonpatent healthcare litigation, among other things, will tell us what she's watching for

in cases alleging that Zantac causes cancer. After that, Dwayne Wright, who covers healthcare policy in Washington, d C for US, will tell us about bipartisan support to expand the inflation reduction acts, orphan drug exemption, and whether it's enough to pass Congress this year. And then last but not least, we'll end with Nathan Dean, our financials policy analyst in DC, and he'll tell us what's going on with a major

crypto bill making its way through Congress. As always, all of our research is available on the Bloomberg terminal at big 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 industries. All right, So with all that, let's get started with the content.

That and they would be potentially subject to liability lawsuits if they remove content in a way that is biased or one sided, that if they aren't passive in passing along content. And that's a huge deal for the companies because content moderation is critical to how these companies operate

their businesses. They're flooded with social media content, and if they can't make editorial choices to prioritize or to deprioritize content, that risk jeopardizing the experience for users and ultimately for advertisers, which is fundamental to their business.

and that's important for the companies. And you know, it's not a total win, a huge win, because a big win could wipe out the potential to do, you know, a lot of regulation of these companies, but it will at least knock out these sorts of laws that force the companies to be common carriers. And I think that's

important for the business model going forward. Based on the February oral argument, I had Justices Kavanaugh, Roberts, Kagan, and Barrett all pretty strongly inclined to protect that principle, and I think Justices Soda, Mayor, and Jackson will go along with them. Three justices, Justices Alito, Thomas, and Gorsich, I think are probably more likely to rule for the States.

So at the end of the day, I expect a ruling in June that is supportive of the key and most important principle for these companies, but still leaves room for regulation going forward.

And so now it's just it's I think you're going to see continued pressure from some lawmakers to try to get something done, but there's real resistance from House Republicans and certain Senate Republicans to include this. I think it's unlikely to get done. This year. They're trying to get it seven billion dollars of additional funding for twenty twenty four, and it's significant for company like Charter that has five

million subscribeds that benefit from this program. But I just don't think it looks good in terms of any sort of vehicle to pass this year. More likely in twenty twenty five twenty twenty six, there's going to be a remake of all of the FCC's universal several service programs. I think this gets wrapped into that. But kind of bad news, I think in terms of the prospects for an extension this year.

is not an understatement. But what we're seeing now in this case, it's a thirty billion dollar equitable relief class proposed settlement between Visa and a MasterCard and issuing and banks that issue credit cards or Chase, Bank of America and the like on the one hand, and then several merchants who accept those credit cards as are forms of

as a form of payment nationwide. There's a June thirteenth preliminary approval hearing set before Judge Brode, Chief Judge Brodie in the Eastern District of New York where this has been pending now for almost twenty years. But first and foremost, what are interchange fees? So these are the fees that are collected by issuing banks whenever there's a credit card transaction that occurs, and those typically range between one percent

and three percent of the total transaction costs. How that works is that cheaper credit cards are those credit cards you see that don't have really any rewards associated with them, so just a straight away credit card. But there's cards that we all know and love the ones that come to airline miles or cash back wards. Those typically carry a higher interchange fee with them every time the card is swiped, so more money going to the issuing bank

when those cards are used. So what the issue here is too, is that, you know, a few years ago, there was a settlement that folks might remember with this case two and then address a monetary damages class. And the way to think about that versus what's on the table now is the previous settlement that was approved by the court was one that really addressed the past harms, you know, the damage that had already been done to folks by virtue of these alleged antitrust harms when issuers

collect at these interchange fees. What we're looking at now in this settlement is really an attempt to address the future harms that could happen if rules aren't changed in the way that these fees are collected, and what the fees and the rates associated with them actually are moving forward.

So moving into kind of the details of the settlement very complicated, but what proponents of the deal say is that currently less than twenty percent of all transactions nationwide can be surcharged right now with the fees passed on to consumers. So what the deal would do when it would raise that percentage in ninety six percent, and when it's also say that the deal opens interchange fee competition

between those issuing banks who actually collect the fees. What would permit is discounting un surcharges, so basically steering customers to use what would be less costly cards, those cards that might not have those rewards associated with them, and discounting could happen both on the product level, so that's the individual cards, you know, an airline rewards card versus a different non reward bearing card issued by the same issuer. Discounting could also happen on the issuing level, so bank

to bank, you know, being accepted a particular merchant. And then also it can be discounting could be happening on a more branded type as well, so kind of splintered across the different types of discounting that can happen to the terms of the deal. But perhaps most importantly and where that thirty billion dollar figure comes from, is the fact that for a five year term there'd be a cap on these interchange fees. What's actually charged to merchants

by the issuing bank. It couldn't be raised for five years, and that would be effective on the date of preliminary approval if the deal reaches that point this month. It would also roll back the existing fees by three to four basis points per merchant, and then a seven basis point reduction on the average fees that are collected in

that five year period. It also removes some of the limitations in the agreements between merchants and the credit card companies that would limit the ability to collect SIR charges on Visa and MasterCards when the same aren't collected for amex.

If the merchant also accepts for payment, and then it also gives them a little bit more flexibility as to whether or not to accept a particular company's digital wallet like Apple Pay or Google Pay if a merchant isn't necessarily in favor of the terms for those wallets when they accept them at their point of sale. So what we're seeing here too is a situation where buying groups

from merchants are also part of the deal. So what that does is smaller merchants that might not have a strong negotiating ability when they go to make a deal with the credit card company as to the terms of their acceptance, can band together and hope to get a better deal than they would otherwise. Larger merchants typically are having an easier time getting more favorable terms. But again,

all of this is only valid for five years. The cap, the rollbacks, the terms that make acceptance favorable in terms of Visa MasterCard even when they might not be able to for Amex, the buying groups, all of that is a five year term here, and the question then becomes, does this just open the door to future litigation after

that five year period. Do we see appause in this twenty year litigation and then the restarts again five years later, or is this really the finality that everybody's looking for at this point. So that's one big question is whether or not this deal can actually be approved. But really, you know, I think standing in opposition here to the deal are a lot of big retailers who say, not so fast. What we're really getting out of this deal

isn't so much at all. We've just got an over or some summary judgment motions that were opposed by the credit card companies. We're try already, and what we could do now is take us swipe with these these rules and their entirety. So why would we accept the settlement at this point that limits these rules for a five year term when what we're doing is trying to eliminate these rules as anti competitive altogether in the first place.

the table here in terms of the deal. Isn't aren't really making a financial impact on our business and the way that these fees are collected anyway, They note that role the rollback associated with the fees actually reduces the fees to a point the tire when the litigation even began in two thousand and five, So really, what is the what is the benefit here for a larger retailer? And also, I think an important aspect of this too is that compliance with existing state laws is really questionable

under the terms of the deal. There's a whole a lot out there in terms of stay consumer protection statutes that needs to be addressed and it's unclear whether the terms of the deal really have taken that into account

last week. Kind of looking forward here from a prediction standpoint, if the deal is going to have opt outs to it, and these larger folks like Walmart, Target, Starbucks can walk away and say we're going to go it alone here, and smaller merchants still have this ability to continue on with the settlement, it makes sense for them to participate right now because from a standpoint of kind of insurance, how this works is they'll be able to take advantage

of things like buying groups and surcharging customers right now. Well, the larger folks still duke it out and say, hey, you know, we're going to fight these rules as being anti competitive on their face. So in the meantime, smaller folks get to take advantage of the of the lay of the land. Larger folks fight it out, and if the deal is anti competitive for them, it's anti competitive for everybody.

of everybody in the class here. And I think for the same reasons that we're seeing here that could be a problem in the sense that the smaller merchants and their interests really are being covered by the plaintiff's council here who's who's really fought for this deal to be approved. But the larger folks, led by National Retail Federation and others, are saying, yes, that's great for small emerchants, but our interests really aren't accounted for right now, and the way to settlem is laid out.

decision that affirmed the trial court. But somehow the companies have managed to continue the fight. And that is because when the Supreme Court denied review, it meant Apple had to comply with an injunction that was issued by the trial court, and that injunction directed Apple to eliminate something called its anti steering rules for app developers because it was found that they violate a California state law against

un their business practices. Now, I should say Apple won on all the other claims, including the federal laws and antitrust, but this one law they were found to violate. And what these anti STI rules were, essentially were rules that banned developers from communicating with any of their users that the user could buy the app or make an in that purchase more cheaply for less a lower price in

the developer's website instead of in the app store. So the purpose of the injunction was to open a path for developers to be able to offer apps and in that purchase is at lower prices to consumers, because if the consumer bought through the developer's website, the developer doesn't have to pay Apples fifteen to thirty percent fee. That's what it charges some developers fifteen percent, some thirty percent

if the purchase is made through the app Store. So what Apple did in order to comply with the injunction was to tell developers, sure, you can steer customers, no problem, but if a user clicks out of the app Store to make the purchase in your website, hey, by the way, you still have to pay us twelve to twenty seven

percent fees. So, given that most developers have to pay about three percent to a payment processor to handle the transaction in their own website, they're not able to do their costs and therefore they're not able to reduce the price to consumer. So while Apple didn't really technically violate

the Judge's order. It certainly violated the spirit of the order, and Epic challenged Apple's compliance, and now the judge has been holding hearings on this that the last or at least the penultimate hearing is actually this afternoon morning because it's in California, but for me, this afternoon, and I think the judge is probably going to decide pretty quickly. That's why I think will have a decision in June. She's clearly been very angry with Apple, so she's made

that very clear through the hearings. She's been hard on the Apple witnesses, and I think Apple will probably be held in contempt of court and also have to change the way it's complying with the injunction, and I think that's going to result in some forced.

search and certain search advertising. The primary accusation is that it blocked search engine competitors, which are really just being in duc dung go, primarily in the US, by paying off third parties to install Google Search as the default search engine pretty much wherever a search engine is needed, somewhere behind a website or behind an app. And these payments that Google was making to third parties were well over twenty billion a year, so you know, obviously really

important to Google to have that default position. We lean toward the DOJ on this one. The reason is because in the trial the agency presented really strong evidence about how sticky and important that default search position is. I mean, people can go in and change it, but I guess they don't know that, or don't know how, or just

don't do it. And they also provided pretty compelling evidence showing that these agreements prevented Being and other startup search engines from developing into a better product because they lack the scale the volume of search is necessary to gather the data needed to actually improve their own search engine.

And I think they could be anything from a prohibition on paying off third parties for the default position, or some force sharing of search data or algorithm data, or choice screens for new Android phones and then Chrome as they've done in Europe, or any combination of those measures. So I do think the dj may actually seek some kind of a breakup of the company, but I highly doubt that will be the result here, even if it's a strong decision on my ability.

the main regulator for the consumer finance sector. In March, the agency issued a rule that would effectively reduce the typical late fee that credit card issuers charge from thirty two dollars down to eight dollars. And that would and eight roughly ten billion dollars in credit card late fees for credit card issuers that have at least one million open accounts, so think of banks like JP Morgan or other companies like American Express, City Bank, Capital One, Bank

of America, Discover, and Synchrony Financial Bank. Trade groups are challenging the rule in court, and they've succeeded in putting the rule on hold at least. But the fight that's happening now is over venue because the lawsuit was filed in Texas Federal Court, which is generally pretty hostile to the government and the CFPB is trying to move the case to federal court in Washington, DC, which would be

more favorable to the CFPB. The trial court judge on May twenty eighth transferred the case to Washington, DC, but that transfer has since been put on hold already by the Fifth Circuit Appeals Court while the party's briefed this venue issue in more detail. So what I'm watching for in June is a ruling by the Fifth Circuit as to whether the case will indeed be transferred to Washington,

d C. Or whether it will stay in Texas. I expect we'll get a decision on that in mid to late June, and I think the Fifth Circuit will rule that the case should stay in Texas, which we think will further bolster the chances that the bank trade groups ultimately prevail in getting this CFPB credit card late feed

rule struck down. I won't go into the details of why I think this case will stay in Texas, except I'll just say that the reasons for transfer that the trial judge articulated are things like the location of the attorneys on the case, and you know the business. You know how busy the DC courts are versus the Texas Court. But these are reasons that we're already rejected in this case by by the Fifth Circuit one judge on the Fifth Circuit when the venue issue surfaced earlier in the litigation.

So I think that was sort of a preview of how the Fifth Circuit is going to see these arguments again. All right, let me turn to the second case I want to talk about. This is yet another Fifth Circuit case. This one is a lawsuit by trade groups on behalf of hedge funds and private equity firms challenging SEC rules from August that increase that would increase regulations for private fund advisors. Specifically, the rules require private fund advisors to

give investors quarterly statements detailing performance, fees, and expenses. The rules also call for private fund advisors to obtain annual audits for each private fund. The rules also prohibit prohibit providing preferential treatment to investors. They impose restrictions on expenses and fees related to government investigations. You know, so a

lot of things. And all told, the rules are estimated to cost funds about five billion dollars per year to comply with, and it could result in you know, loss of investor capital and higher fees for investors. So oral argument was held in the Fifth Circuit on February fifth before three judge panel, and you know, like I said earlier, this is a very business friendly court. We expected ruling by the end of June, although you know it could

come after that. And we went into oral arguments thinking that the bank trade groups that are suing had a seventy percent chance of striking down the rules, since we thought they had a strong argument that the SEC is exceeding its authority by relying on a section of Dodd Frank that doesn't really mention private funds but instead is focused on retail investors, which aren't really at issue here.

And indeed oral arguments confirmed our view. You know, the judges did appear to be wrestling with ambiguities in the statutory text, and they pointed to Congress history treating retail investors differently from private funds. And so as a result, we think the court will find that the rule violates the Major Questions doctrine because Congress didn't explicitly give the SEC this power to regulate private funds in this manner.

And so if the SEC loses, as we expect it can you know, it can try to get what's called nbank review by the full Fifth Circuit Court of Appeals, or it could go to the Supreme Court. But you know, I just don't think the agency is going to do any better with either of those options. So we're waiting for a ruling, like I said, probably in June, possibly after all. Right, So that's what I'm watching in the

financial sector. Let's keep on moving here and we'll bring in Holly Frome to talk about litigation that alleges that heartburn medicine Zantech causes cancer. Holly, why don't you come in here remind us what this case is about and what you're watching for this month?

prove their case without an expert. And so what happened in the Florida multi district case is that the court found that the experts Planeffs put forth were unreliable, so she refused to allow them to testify and then dismissed about fifty thousand claims. But there are still thousands of cases pending. In a Delaware court where we estimate about seventy thousand cases are pending, and the court there is

deciding whether planiffs experts can be admitted. It held earrings in January and we expect a decision as early as June. If the court there also decides that experts are unreliable, the cases most likely will be dismissed. And what we said is we think that the case will be narrowed but not completely dismissed. So, in other words, we think the court will bar experts from testifying. The FanTac causes certain types of cancer where the scientific evidence reporting to

show causation is particularly weak. Those were so called abandoned cancers in the MDL, But we think the court will allow experts to testify us to some cancers. We've estimated the cases could settle for around two point five to four billion among all manufacturers, which which estimate assumes the

number of cases will be dismissed. Recently, it was announced that Fizer settled more than ten thousand claims for twenty five million, which is in line with our per case estimate, assuming the Delaware court allows those cases to proceed to trial.

that were abandoneding an MDL colon cancer. Only five cancers were pursued in the multi district case, and colon cancer was not one of them, And for that reason, we don't think that verdict has much read through if other cases are allowed to get to trial. But if the court decides that the experts are unreliable and dismisses those experts bars them from testifying. It's likely that, you know, the vast majority of cases will be dismissed.

a submission is made to the FDA. And that's because it allows companies to qualify for various intentives, including R and D tax credits and eventually marketing exclusivity. FDFD is proved for additional context. The tax credits worth about twenty five percent of clinical trial costs. The designation gives an exemption from market marketing application fees, which is roughly about three million dollars, and the drug, if approved for marketing,

gets exclusivity or market exclusivity for seven years. As an example, Astrosenica has two orphan drugs to Griso for lung cancer, cal Quins for lymphoma and leukemia. Even though Astrosenica is this big company, they still get the benefits of the orphan drug designation. And when we look at the data, we find that there's roughly sixty one hundred designations in

the database since two thousand. Granted not all of them ended up getting approved by the FDA, some were withdrawn, but that said, roughly a third are cancer related with myloma. Lymphoma leukemia is with the most designations.

where the approved indication is for the disease. Drugs with multiple or with designations for multiple rare diseases aren't exempt, even if the additional indications haven't been approved by the by the FDA, And so when an orphan drug does lose or if it loses its exemption when the drug is approved for an additional orphan or a non orphan disease, the time elapsed from the initial drug approval, not subsequent approvals,

would determine negotiation eligibility. So I mentioned two drug drugs earlier by Astrosenca that Griso for lung cancer has multiple designations sorry multiple indications within the same disease area, it is exempt. Otherwise it would be negotiation eligible, probably for twenty twenty seven based on how much Medicare drug spending

we saw last year. Astrosonicca's other drug, Calcuins for lymphoma and leukemia wouldn't be exempt because it has two different designations for rare two different rare diseases, and so we expect Calquins to make it onto the truck selectionalist if not in February twenty twenty five the following year for price cuts in twenty twenty seven or twenty twenty eight. Got it.

But really we're looking at an environment. What's needed is an environment where there's an openness and willingness to think about tweaks to the ira H. That's not this year, that could be next year, and it might largely be depended on who wins the election and who controls the

White House. I'm sorry that the House and Senate and just overall a willingness to make improvements to the law, and with the Obamacare there was always this threat hanging over it of a potential appeal with very few opportunities

for fixes. This might be an area where there there might be a willingness to look past repeal and look at some potential tweaks that wouldn't massively overhaul the program and would still provide some protection for those companies that would like to do additional research into different rare diseases.

So I think it's it's too early in the negotiation process too, you know, to make some changes without some clear cut evidence that we're seeing some changes in the market, and we could get that over the next few years.

cryptocurrency a new regulator framework. And it also comes after both the House and Senate, including Senator Schumer, voted to disapprove an sec staff accounting bulletin. So, long story short, has the policy momentum shifted in favor of crypto platforms and advocates in DC?

ninety years. Now, as Elliot and I have written about, in many many cases, it's now going to the courts. But there is this bill out there called the FIT twenty one. This came to the House Financial Services Committee and the House Agricultural Committee. Because Financial Services Committee has authority over securities, the agricultural community has authority over our commodities. And what this bill would do is it would establish

a regulatory framework for digital assets. So the Commodity Futures Trading Commission would be able to regulate digital assets as commodities if the block or the digital ledger is functional and decentralized. Essentially, this means that if it's decentralized, if no one person has unilateral authority to control it, or if no one person has more than twenty percent of the digital assets or the voting power of the digital assets.

The Securities and Exchange Commission, on the other hand, would regulate digital assets as a security if the blockchain is functional but not decentralized. So essentially it requires the CFTC and the SEC to most the jointly issued rules to define the terms in how they would actually exempt each other's platforms from having to be a security or as

a commodity. Great, well, so this is the bill. It's the most comprehensive bill, but there are still many detractors out there that think that this nineteen thirty thirties era securities laws still applies.

is bipartisan support. Now this bill is now past the House, and Patrick McHenry, who is the chairman of the House Financial Services Committee, was even on Bloomberg TV on May thirty of saying that Senator Schumer now needs to take this up. But I don't think Senator Schumer is going to do that. I actually think that this bill has

a low chance of success this year thirty percent. We saw language from Representative Tom Emmer, the Republican from Minnesota, talking about how he thinks this bill is a lame duck possibility possible. It really just depends, I think, on the election. But the momentum shift has changed, and why I think that this bill, if it doesn't pass this year,

could come back next year. And whether you get a Biden scenario or a President of Trump scenario, I think this bill has much better chances because you know, we have seen in addition to this, elliots talked about the SAB twenty one. We saw a handful of Democrats, including Senator Chuck Schumer vote to overturn an SEC staff accounting bullet done. That's what SAB stands for staff accounting bulletin. That would make it much harder for banks to service

digital assets. And the fact that you have Senator Schumer Nancy Pelosi voted in favor of the FIT twenty one, that's just a lot of political cover that the White House could potentially use to shift their philosophy on crypto. Now, the White House has until June third to make their decision on SAB one twenty one, so by the time that the listeners listened to this episode, it may have

come and gone. As of right now, I think President Biden may still veto it, but I certainly can see a path where he says that he's going to allow the overturn of SAB one twenty one to move forward. But ultimately I do think the crypto momentum has changed, and whether it doesn't and even if it doesn't get done this year, I certainly think it's a crypto regulatory framework has a decent chance of success within the first nine to twelve months.

of interesting things to watch in June and beyond. As always, thank you for listening, and 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 you like to get your favorite podcasts. Thank you again and have a great day.