Google, LiveNation, Uber and Other Catalysts

name's Elliott Stein. I'm a senior litigation analyst covering litigation in the financial sector, and I'll be your host for today May second, twenty twenty four. If you have any questions about any of the matters that we'll be talking about on this episode, please do not hesitate to reach out to us at your convenience with your question. All right, So we'll be discussing a handful of sectors today. First,

we'll start with a few antitrust matters. Our antitrust analyst Jenrie is listening to closing arguments in the DOJ versus Google Search case, but in her place, our colleague Justin Teresi will update us on that case, as well as a potential DOJ action against Live Nation and a key hearing in Epic versus Apple over app store rules. After that, I'll talk about a few cases in the financials sector that I'm watching, including a case against BNP Pariba and

Society General alleging violations of sanctions on Cuba. I'll also talk about a case against BNP accusing it of aiding genocide in Sudan, and I'll also talk about what I expect to happen in litigation challenging the CFPB's rule capping

credit card late fees. Well then bringing Nathan Dean, our financials policy analyst in Washington, DC, and Nasan will talk about possible regulatory action terrain in executive compensation for bankers, and he'll also talk about the impact of the DEA's anticipated move to replassify marijuana as a Schedule three drug

instead of Schedule one. After that, Matt Schuttenhelm, our TMT litigation and policy analysts, will discuss the Supreme Court rule in that is anticipated to limit judicial deference to regulators, and Matt will also update us on important litigation in California's Supreme Court that could affect Lyft and Uber, and last but not least, our healthcare policy analyst Dwyane Wright will discuss congressional hearings on May one that focused on

United Health's sprawling portfolio and the Change Healthcare cyber attack in particular. All of this research, of course, is available on the Bloomberg term 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 industries.

All right, so it's all that. Let's get started with the content justin let's bring you in big shoes today to fill filling it for our antitrust guru gen Read. But I know you are up to the task, So let's start with Live Nation. There seem to be rumors going around that Live Nation is going to be the focus of a lawsuit by the Justice Department. But my question to you is it wasn't this resolved a few years back?

a dull moment. We're hearing that DOJ might move to file a monopolization suit against Live Nations this month, and whether the deliberations on whether or not they choose to do so are certainly confidential, but several news reports have been stating that it's likely to happen this month in May, and this aligns with our expectations given what we do

know about this investigation. But to your point, Elliott, you're right, Live Nation entered consent orders with DOJ both in twenty ten and twenty nineteen related to its acquisition of ticket Master and otherwise other anticompetitive contact that was alleged in violation of antitrust laws. So what's being what's happening now is that it's being alleged, or we anticipate it will be alleged that there's been violations of those consent orders, and if those are proven, there could be a fine.

But the main risk here to Live Nation if this does happen is it will be an effort by DOJ, we think, to break up the company, and at least in doing so, they'll probably move for a sale of Ticketmaster away from the rest of Live Nation's assets. So those issues are arising from the dominance that Live Nation has in a number of areas as an entertainment business and the alleged tying of its services together to block

out some rivals from participating in that sphere. So Live Nation itself has four distinct businesses, a ticketing arm that we all know as Ticketmaster, a concert promotion business and division that owns or manages venues, along with an artist

management business. When Live Nation acquired Ticketmaster, it promised not to tie its products together or to seek to force any venues to use Ticketmaster for ticketing services, But in twenty nineteen it was found that Live Nation did just that, essentially bullying venues into using Ticketmaster or otherwise facing a boycott Bylive Nation with respect to the other lines of businesses, which include events and artists tours, effectively shutting them out

of that concert space altogether. Even though Live Nation signed a DJ order prohibiting this conduct, According to venues and many others in the industry, Live Nation just hasn't abided by the terms. It's also accused of locking out other ticket service by entering long term exclusive agreements with venues and artists. Exclusive agreements can violate antitrust laws if they

foreclose rivals from a substantial share of access. So I think DOJ can bring a suit that they'll be very fairly straightforward at this point and very strong with a good success, with a good chance of success on liability. A divestiture orders like telling Type Live Nation that it needs to basically sell off it ticke a master line is rare and it certainly asks a lot of a judge. But we think if there's any case in which DOJ might win one of these orders, it's got to be

this one. So moving on to Epic versus Apple, So this gave it been going on for a long time now. Epic's been battling Apple for years over Apple's policies with respect to how it operates the App Store. Epic objects the commission fees Apple collects from developers with paid for apps and the requirement that Apple and the requirement that they have to use Apple's payment services in the app

store itself. Epic also objects to Apple's walled GOP model, which prohibits it prohibits any distribution of apps on iOS devices other than through the App Store. Epic lost the trial and on appeal to Apple on all antitrust claims with federal and state, but the judge had the Apple's anti steering rules violated a California unfair business practices law.

These rules essentially banned developers from communicating with users that they can buy the app or make in app purchases more cheaply on a developer's website instead of getting it through the App store itself. The judge in that case and joined Apples anti steering rules for both parties thought Supreme Court review and were denied at that time. So this could have been a pretty huge hit to Apple's

resource revenues. But when it complied with the injunction, what it did with it altered its rule to allow developers to it alters. It altered its rule to allow developers to steer, but added twelve percent and twenty seven percent fees for any app sales made outside of the App Store via the developer's websites. That's thus preserving its App

store revenues. This technically didn't violate the order itself, but it certainly violated the spirit of the order and makes it so the developers really can't lower their prices for consumers epics challenge Apple's compliance, and the judge agreed as a preliminary matter that Apple's compliance plan does in fact violate the spirit of the order. She's holding. A hearing on this issue on may A's probably will go a

few days longer if needed. We believe Apple will have to come up with a new plan to comply with the injunctions that involves lowering fees charged developers for these purchases. Fairly quick decision on this one is expected, possibly within days after the hearing, and last, but definitely not least, moving on to Google's antitrust issues, DUJ and a group of states sued Google in fourth quarter of twenty twenty from monopolistic conduct with respect to search and certain search advertising.

A trial on liability was held last September, and closing arguments are being held today and tomorrow. The decision is likely to be issued sometime in the second half, and we lean toward DOJ winning on this one. The primary allegation is that Google blocked out search engine competitors like Bing and Duck dust Go by paying off third parties to install Google Search as a default search engine pretty

much wherever a search engine is needed. So, for instance, if Apple and Mozilla, it paid Apple and Mozilla to install Google Search and Safari and Firefox browsers, and it paid OEMs like Samsung to sell Android phones with the Google Search app pre installed and also set as default default elsewhere, these payments amounted to well over twenty billion

dollars a year. We leaned toward DJ winning this one as well, because the agency presents a pretty strong evidence at trials about how sticky and imported default search position is and also the agreements that prevented Being and others from developing into The agreements that involved prevented Being and other search engines from developing it to better search engines because they lacked the volume of search is necessary to

gather the data needed to improve. So that's a roundup of what we have our anti trust cases here looking forward to May.

are now. So it's also possible choice screen. It's possible possibly could be choice screens for new phones and computers that has been done on the EU, or a combination of any of these measures. DJ might seek a breakup of the company, but we doubt that would be ordered at this point, so we'd expect the decision in the liability phase second half of this year, and if needed, probably going to be hearing on a remedy late in the year at a decision in the first half of twenty five.

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. That would eliminate roughly ten billion dollars in credit card late fees for credit card issuers with at least one

million open head accounts. Morgan City Bank America and this is important because the rule has an effective date of May fourteenth, and credit card issuers want to avoid the costs of complying with the rule if the rule is

indeed going to be struck down by the courts. So based on developments this week, it looks like the trial court in the case will rule on a preliminary injunction motion by May tense, and we think the trial court is likely to grant that motion, and even if it doesn't, we think the Fifth Circuit Court of Appeals will put the rule on hold while the appeals court reviews the

trial court's decision on that motion. Ultimately, we think the bank trade groups have compelling arguments and a friendly judicial environment for striking down the rule entirely, but as an immediate catalyst, look for the rule to be put on hold by the May fourteenth effective date. All right, let me now turn to some company specific cases that I'm watching this month. Just yesterday on May first, French Banks BNP,

Pariba and Society General. We're in an appeals court to argue for preserving dismissal of a case against them used them of violating US sanctions on Cuba. Under US law, anyone, including non US entities, that knowingly traffic in property that was confiscated by the Cuban government honor after January first, nineteen fifty nine, when the Fidel Castro's revolution started, those companies can be held liable for money damages to a

US national who owns the claim to such property. The suits here were filed by family members of the former owners of a pair of Cuban banks that were seized by Castro's government in nineteen sixty. In terms of what's at stake, we think about three billion dollars could be an issue here, based on the value of the seized banks in the value in nineteen sixty of the seised banks,

plus interest that has compounded since then. BNP and SoC Gen one dismissal of this case in the trial court and based on oral arguments in the appeals court yesterday.

We don't expect the cases to be revived. The banks of Good arguments that they didn't know that their transactions with the Cuban National Bank were linked to confiscated assets, and claims that issue in the case were likely brought too late, so we expect the ruling by the appeals court sometime in the second half of twenty twenty four. And again we think the banks are well positioned to win, all right. Sticking with French banks. Let me turn to

another case, this one also involving BNP Pariba. This case is a proposed class action by potentially twenty five thousand victims of genocide by the Government of Sudan, who accused BNP of aiding and abetting the Sudanese government between nineteen ninety seven and twenty eleven when the alleged genocide took place. So last month, the trial court denied BNP's motion for summary judgment, which would have ended the case without a

t trial. So BNP can still try to undermine the case by denying plaintiffs' class certification, and that's what we'll be watching for this month, as there's a hearing on class certification on May seven. We think BNP is a slight favorite. We give it about a sixty percent chance to defeat class certification since the case poses a lot of individualized issues that make it unsuitable for class status.

Those issues include things like, you know, many different types of injuries suffered by the reported class, as well as who caused the injuries and how and where the injuries were incurred. So if BNP does beat class certification, the case will effectively be over since individual plaintiffs are unlikely to pursue claims on their own, you know, given the

costs that are attendant to bringing lawsuits. If BNP loses on class certification, however, then with I think the most likely outcome is that the case settles, and predicting a settlement amount is a little difficult at this point. As one comparable, there was a one point two five billion dollar Holocaust settlement by Swiss banks in nineteen ninety eight, and by our calculations, that would extraperate to roughly a seventy million dollars settlement for BNP in this case, just

based on the number of potential class members. But you know, we can't rule out a settlement that's higher than that, potentially for several hundred million dollars. And then just lastly, the last case I want to talk about. I'll be watching Appellet oral arguments on May eighth in a four

billion dollar Credit Swiez whistleblower case allegend tax evasion. In the interest of time, because I think I've spoken too long already, I won't go into detail about that case, but I do think Credit Sweese, which of course is now owned by UBS, is likely to win in that case.

But I should note that the the US government separately is probing the bank for potential tax evasion violations as well, and so the possibility of fines lingers related to that, though I don't think that such fines would be more than about two hundred million dollars. So a lot to watch in the financial sector. I'm going to stop now, but let's stay on financials and bringing Nathan Dean to

talk financials policy. Nathan. We saw news reports this week that the OCC and the FDIC are in the final stages of releasing their proposal on executive compensation for bankers. I don't know I should bankers be concerned that their pay is now going to be restricted or deferred in some way. Not yet. Not yet.

decided upon. Now, what this proposal does, and I'm just gonna use the twenty sixteen as a foundation, is that if you're at a bank and it's above fifty billion in assets, and you're either a named executive so think C suite, or maybe the top fifty individuals of a bank, or a significant risk taker, and those ideally are the traders that have a decent amount of ability to trade, You're gonna see your bonus to have a deferral amount

in a deferral period. So if you have a short term bonus, it could be deferred somewhere between three to four years, and it could be you know, forty to sixty percent of your variable compensation defer that amount. If you have a long term bonus, you know that the deferral per periods ironically are a little bit smaller, just one to two years, and that could be forty to fifty percent of that amount. So we're gonna wait and

see if this gets updated. But the OCC and the FDA are putting this out because we think this is a political exercise and that bankers actually don't need to be concerned about this for all. So the way this bonus works, or sorry, this proposal works, is that it's actually a six agency proposal. So it's the OCC and the FDIC, but it's also the FED, the SEC, the FHFA, and the NCUA, the National Credit Union Administration, and you need all six of them to agree on the same proposal.

So what happens if the OCC and the FDIC move out and the FED, because Jerome Paula has already said this year, this isn't really on their radar, doesn't do anything. Well, you get regulatory arbitrage, and we don't think that any of the regulators want to go forward with that, because then you're going to get into a situation where certain bankers that certain banks would be covered, but other bankers,

potentially at the same bank would not be covered. And then you would have bankers saying, well, why do I need to report to the OCC overseen entity of Bank

of Let's just say Bank of America. I want to be overseen by the FED portion of Bank of America, and it would just get very MESSI So the reason why the OCC and the FDAC are doing this is because progressive pressure from Capitol Hill has been on them for the last two years, and then specifically in the FDIC Chairman Martin Gruenberg's case, he's been telling folks in the House Financial Services Committee that this proposal is coming, it's coming, it's coming by the end of twenty twenty three.

It hasn't and it's unlikely to do so. So I think the FDIC and the OCC are saying, you know what, we're tired of waiting for the FED. We're just going to put it out there and maybe put some pressure on the FED. Now, what will happen is well, that really depends if President Biden wins reelection. If he wins reelection, you could potentially see the regulators have another go at

this in twenty twenty five. But even then, you know, a lot of folks think that the reason why six agencies have to agree, that's somewhat of a poison pill type aspect. So you know, we'll see if it actually gets done or not. But if you're a banker, I don't think you need to be too concerned about it at all for the next few years. Now, moving over to marijuana reschedulization, if you trade in marijuana equities, you know exactly what I'm referring to. These marijuana equities have

hot sauces. I describe them anything that happens in Washington. These equities go up fifteen to twenty percent. Sometimes they decline fifteen to twenty percent. And we saw that happen earlier this week when the Associated Press, followed up by Bloomberg News, reported that the DEA will release a proposal in the near future shifting marijuana status from a Schedule one drug to a Scheduled three drug. So Schedule one

drug today is something like heroin or cocaine. Moving it to Schedule three puts it on par with tile and all with codeine, for example. Now, this really only has one major impact on marijuana equities Remember, marijuana is still federally illegal. It is not a legal drug at the federal status. So despite the fact that there are thirty eight thirty nine states and entities out there that have decriminalized marijuana, it's still federally illegal and we don't anticipate

that changing anytime soon. But moving it from Schedule one to Schedule three invokes something known as to eighty e tax relief, specifically for these marijuana equities. Generally, the tax rate for these entities will go from around forty percent down to somewhere five to seven eight percent. We have research that my colleague Andrew Silverman has on that we could get you if you have any questions on that. Now, the problem is is that they have announced they've made

this announcement, and these marijuana equities moved up. In fact, the etfmsos went up twenty five percent at one point before it was halted. But now what, Well, they've made this announcement, there's going to be a proposal, and that proposal has to go through the Administrative Procedures Act. And so our view is is that if the proposal is released, say in the next few weeks, and that's a big if because it could be another month or two until

it comes out. But if it's released in the next few weeks, it's feasible that the Biden administration can finalize this by the end of the year. However, any blips on the process, any delay or anything like that, you're looking at twenty twenty five, if not later. So if you're trying to calculate the tax rates of these marijuana equities, more likely than not you're going to be looking at tail in a twenty twenty five before that actually comes

into effect. But we'll see, still a lot of stuff to happen on the horizon then, Elliott, I'll pass it back to you.

I believe can you give us a high level explanation for why this matters to companies.

agency is interpreting a statute that is uncertain. And so when you when you hear people talk about deference in this setting, it just means that the alphabet soup of regulators here, FAA, EPA, FCC is interpreting the federal law to say how far does it reach? And the courts, who aren't expert in each area don't get to say what's best. They defer to the agency as long as their readings are, you know, are reasonable. But all that's

changing now, and it's changing fast. We saw the Court announced the major Questions doctrine that already said that agencies don't get to make that judgment anymore for anything that's major. We just don't really know what is major and what isn't. But now that the case teed up for the court at this moment is whether that even on non major questions, whether an agency should still get to make that call.

The court is has teed up whether it should throw out the entire doctrine, and it hurt a case about what's known as Chevron deference, actually two cases in January, and we're waiting for those decisions.

and they even sector regulation. You saw recently the FTC's attempt to ban non compete clauses that turns on a claim of deference, and in most cases this, you know, ending deference or at least curtailing it will result in a much lighter touch playing field for industries because the regulators will be limited in how far they can stretch federal law. Only Congress could then change that, and we think Congress rarely will be able to build up enough consensus to do that.

this difference doctrine is in substantial trouble. You know, it's possible that the Court doesn't go all the way to throw the entire thing out, but even if it doesn't do that, I think it's going to curtail the doctrine even more than it's already been narrowed. So I think it should be a positive sign for a number of industries and companies when the Court releases this decision.

or as employees. The voters in two thousand past an initiative Proposition twenty two in twenty twenty to classify those drivers as independent contractors, but a court, a lower court struck it down and said only the legislature can do that, voters can't do that. That decision was appealed to an appeals court who reversed it and upheld the proposition, and

now the Supreme Court is reviewing that decision. And so the stakes are really high here for Lyft and Uber because you know, if they must treat their drivers as employees, if this proposition goes away, their costs sore you know, thousands of dollars per year per driver, and that math

adds up really quickly, basically forces business model changes. So the Supreme Court could have left a you know, proposition twenty two in place by denying review, and the fact that they took this case at all, is has to be a bad sign, and o'minous sign for Liftenuber when I look at the law, though, I think they have the stronger argument. I think this appeals court was correct to overturn the lower court and that the proposition should be upheld. So I think more likely than not they

can win this. But I would be very nervous if I were them going into this May twenty first argument, and that's going to be the best chance to see how the court's thinking about it. They're ruling by law has to be issued ninety d eight with in ninety days after that, so we should see a final word from California's High Court in July or August, and with that, I'll toss it back to you.

And how did that play out in terms of its Medicare advantage business, its physician acquisition strategy, and things like that.

In our note, we highlight the incremental steps United Health has taken over the last twenty twenty five years to get here, and which has ultimately contributed to what is now a company that brings in four hundred billion dollars or is expected to bring in four hundred billion dollars

in revenue in twenty twenty four. So, while Change Healthcare may have been the link in the chain that contributed to much of the disruption and the healthcare system in terms of providers getting paid a prior authorization getting approved

or not. It highlighted and shined the light on how the United Healthcare empire is so sprawling, and that even some part of its structure, which has nothing to do with the clearinghouse you ended up getting put under the microscope now Change, which United Healthcare acquired in twenty twenty two, it will have the destruction will have an impact on United health For the company's earnings call earlier this month highlighted that it expects about one point six billion a

one point six billion dollars hit to its revenue this year. That could rise if there's litigation, But again in terms of the direct impact on the company, one point six billion,

this small share of their revenue. I will add that some of the other companies in the space that may relied on parts or un Change for part of its claims processing services, they did note that there was some disruption and they've held off on or they've built their reserves to account for claims and payments that may have been delayed as a result of the challenges would change.

So overall, the hearing went as expected in terms of really looking at not just one piece of United but the entire the entire business.

Some examples Buddy Carter, the Republican on the Energy and Commerce Committee, which also held the hearing yesterday, He, among others, well, he said he was going to do something about the vertical integration of the company, and lots of committee members on the Senate Finance and Energy and Commerce mentioned that what that is is anybody's guests as it relates to

vertical integration and how these companies make acquisitions. I think any kind of effort for lawmakers to step in is going to highlight the tension between the free market crowd and the government intervention wings of Congress. And you look at Elizabeth Warren who brought up Medicare advantage and potential MA over payments. United is the big dog in the MA world, nine million members. It's about twenty five percent

of the overall population. MA was about one hundred was part of the one hundred and thirty billion in revenue fordic it's Medicare retirement segment, So looking at that bigger picture, that's about forty six percent of its total revenue. But a lot of what the complaints are about United and other health plans in general about their coding and billing practices. This has been known for a while and Congress hasn't done much, so I'm skeptical though all of a sudden

decide to legislate in this area. And it was talk about enhanced or minimum cybersecurity standards in the space from a Senator Warner on the Finance Committee, as well as Widen, the Finance Committee chairman. And what that is above and beyond what companies might be doing already remains to be seen. So I think this generates a lot of talk about

how Congress could move forward the calendar this year. The differing views and just the challenges of passing anything in Congress make it unlikely we'll see something even in the lame Duck. I believe so. I expect this conversation to carry over into the new Congress and potentially new president.

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