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Philly DA Sues Musk & Appeal by Tapestry and Capri · Bloomberg Law

• 0:03
  Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
• 0:13
  Speaker 2: Every day, every day from now until the election. We're
• 0:18
  Speaker 2: giving out a million dollar prize. That is, and all
• 0:21
  Speaker 2: you have to do is sign a petition in support
• 0:23
  Speaker 2: of a constitution. It's very straightforward. You don't even have
• 0:28
  Speaker 2: to vote. You don't have to vote, You just have
• 0:30
  Speaker 2: to sign a petition saying you believe in the constitution.
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  Speaker 1: The Department of Justice has warned Elon Musk that his
• 0:36
  Speaker 1: pro Trump packs one million dollars a day sweepstakes targeting
• 0:41
  Speaker 1: swing state voters might violate federal law. But now the
• 0:45
  Speaker 1: Philadelphia District Attorney has taken the first legal action against
• 0:50
  Speaker 1: the sweepstakes. DA Larry Krasner is suing Musk and his
• 0:54
  Speaker 1: pack and asking a Pennsylvania state court to stop the
• 0:58
  Speaker 1: illegal lottery, which quote lulls Philadelphia's citizens and others in
• 1:03
  Speaker 1: the Commonwealth to give up their personal identifying information and
• 1:07
  Speaker 1: make a political pledge in exchange for the chance to
• 1:10
  Speaker 1: win one million dollars. Here's President Joe Biden's reaction after
• 1:15
  Speaker 1: he cast his early vote in Delaware. Today, Sir Elon
• 1:18
  Speaker 1: Musk is handing out checks to registered voters.
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  Speaker 3: Do you think that's legal conduct?
• 1:26
  Speaker 4: Do you think that's election in our parents?
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  Speaker 1: I think it's joining me is election? Law expert Douglas Spencer,
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  Speaker 1: a professor of law at the University of Colorado, explain
• 1:37
  Speaker 1: the concerns about Musk's million dollar a day giveaway.
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  Speaker 4: The concern is that Elon Musk is using this lottery
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  Speaker 4: to encourage voter registration and voting, which on its face
• 1:48
  Speaker 4: doesn't sound bad. We want more people to be registered
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  Speaker 4: and to vote. It does promote democracy, but there are
• 1:54
  Speaker 4: federal laws that prevent people from paying or buying votes,
• 1:58
  Speaker 4: or paying people to register, and so there's been allegations
• 2:02
  Speaker 4: that the scheme that he has created is doing just that,
• 2:05
  Speaker 4: rewarding people for registering and then turning out to vote.
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  Speaker 4: The DA in Philadelphia has raised the lawsuit is challenging
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  Speaker 4: this not just as a violation of these federal laws,
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  Speaker 4: but it sounds like there's also some state laws about
• 2:19
  Speaker 4: consumer protection and some other issues related to fraud. There
• 2:24
  Speaker 4: is some sense of seriousness about the allegations that these
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  Speaker 4: federal laws are being violated, which is why the Department
• 2:31
  Speaker 4: Justice itself has commenced an investigation. They haven't charged him
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  Speaker 4: with any crime, but they see some of the concerns
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  Speaker 4: about the way this program is being run and they're
• 2:39
  Speaker 4: investigating it.
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  Speaker 1: So the DA in Philadelphia is going on a different
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  Speaker 1: kind of track. He's saying that this is a lottery
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  Speaker 1: and as such, it's illegal in Pennsylvania because all lotteries
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  Speaker 1: have to be operated and administered by the state. So
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  Speaker 1: he's trying to get around the questions about federal law.
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  Speaker 4: That sounds right. There's been a concern about operating a lottery,
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  Speaker 4: you know, and whether it's been regulated or registered or
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  Speaker 4: as you said, as operated by the state itself. And
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  Speaker 4: then also, at least in the statement that I read,
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  Speaker 4: says that the lottery is being used to kind of
• 3:21
  Speaker 4: lull or dupe Philadelphians and Pennsylvanians into giving away their
• 3:26
  Speaker 4: personal data in exchange for money, which could be a
• 3:29
  Speaker 4: violation of you know, a state false advertising or some
• 3:33
  Speaker 4: kind of consumer protection law.
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  Speaker 1: I mean, it would put it into a whole different
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  Speaker 1: sphere because now he would have to follow all the
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  Speaker 1: rules for sweep stakes in Pennsylvania and the other swing states.
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  Speaker 4: That's right, And what I don't know is in the
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  Speaker 4: state how to define a sweet stake or a lottery
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  Speaker 4: because nobody's buying a ticket or giving Musk any cash
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  Speaker 4: in order to enter the lottery. They're entering the lottery
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  Speaker 4: by signing a political petition. And so one, there could
• 4:04
  Speaker 4: be an argument that the active sending a petition is
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  Speaker 4: different than buying a lottery ticket, which would distinguish this.
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  Speaker 4: And secondly, the active sending a petition is a First
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  Speaker 4: Amendment protected act that buying a lottery ticket is not.
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  Speaker 4: And so you'd have to see the interaction of this
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  Speaker 4: regulation of lotteries to the First Amendment. But if the
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  Speaker 4: state defines sweepstakes as you know, entering yourself for a
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  Speaker 4: chance to win a large sum of money based on
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  Speaker 4: chance or random draw then this lottery is in violation
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  Speaker 4: of that state laws. He has not properly registered or
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  Speaker 4: operating under those state regulations.
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  Speaker 1: Interesting he also alleges because Musk said that the winners
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  Speaker 1: are at random, and he said that appears false because
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  Speaker 1: multiple winners that have been selected are individuals who have
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  Speaker 1: shown up at Trump rallies in Pennsylvania.
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  Speaker 3: Correct.
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  Speaker 4: So that's an allegation that in order to prove it,
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  Speaker 4: if a judge is willing to take the case. In
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  Speaker 4: one element of a lawsuit is what's called discovery, and
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  Speaker 4: elon Us would have to provide some evidence of the
• 5:02
  Speaker 4: selection mechanism to prove that the decisions were being made randomly.
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  Speaker 4: He'd have to have a record of the random number
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  Speaker 4: generation or a video of him pulling a ping pong
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  Speaker 4: ball out. And if he's not, then he's not actually
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  Speaker 4: running a lottery, in which case he's falsely advertising what
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  Speaker 4: he's actually doing. But at the same time, if he's
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  Speaker 4: not randomly choosing people, then what he's doing may not
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  Speaker 4: be a lottery, and that could cut in favor of
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  Speaker 4: Elon Musk because then he can say I'm not actually
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  Speaker 4: violating the state prohibition because I'm just giving money away
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  Speaker 4: to the people that I want to give money away to.
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  Speaker 1: I know you don't know Pennsylvania courts per se, but
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  Speaker 1: do you think that they could move this quickly? I
• 5:39
  Speaker 1: mean election day is next week.
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  Speaker 4: Yeah, I don't because typically speaking, when you file charges
• 5:45
  Speaker 4: against the state law civil charges like this, the opposing
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  Speaker 4: party has fourteen days to respond. The state courts will
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  Speaker 4: likely ask for a response much sooner. But that's basically
• 5:56
  Speaker 4: the phase of the litigation.
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  Speaker 3: Would get to.
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  Speaker 4: We'd have an allegation in the public sphere, we'd have
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  Speaker 4: a response so we could say what the arguments are.
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  Speaker 4: There'd be no time to hold a trial to do
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  Speaker 4: this kind of discovery unless a judge really decided it
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  Speaker 4: was in the public's interest to move extraordinarily quickly. But
• 6:12
  Speaker 4: even nine or ten days, including weekends, is just too
• 6:17
  Speaker 4: fast to pull this all off.
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  Speaker 1: And as you mentioned last week, the Justice Department sent
• 6:23
  Speaker 1: Trump and his pack a letter warning that this could
• 6:27
  Speaker 1: be a violation of federal election law. And apparently Musk
• 6:31
  Speaker 1: is ignoring it because he's still giving away million dollar checks,
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  Speaker 1: so it doesn't appear so far that anything is going
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  Speaker 1: to stop him before election day.
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  Speaker 4: I think the letter from the Department of Justice does
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  Speaker 4: two things. Once the public statement that lets everyone in
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  Speaker 4: the public know that what Elon Musk is doing maybe
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  Speaker 4: a violation of the law, but under the federal life,
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  Speaker 4: a violation is punishable by a fine up to ten
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  Speaker 4: thousand dollars unless you are knowingly and willingly violating the law,
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  Speaker 4: in which case then you can serve jail time up
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  Speaker 4: to five years. So I think this letter from the
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  Speaker 4: DOJ puts the pack on notice that you are doing
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  Speaker 4: something willfully and knowingly even though we've told you that
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  Speaker 4: what you're doing risks of violation, so that the potential
• 7:19
  Speaker 4: penalties which will come after the election in any case,
• 7:22
  Speaker 4: could be much more serious trying to get them to change.
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  Speaker 4: I will note that the lottery has changed a little
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  Speaker 4: bit since the DJ sent its letter. It used to expire.
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  Speaker 4: Eligibility used to expire on midnight October twenty first, which
• 7:36
  Speaker 4: was the deadline for voter registration in Pennsylvania, which was
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  Speaker 4: a really strong signal that the motivation for this lottery
• 7:42
  Speaker 4: was to pay people to register, not something else. That
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  Speaker 4: deadline has now changed until election day, so there was
• 7:49
  Speaker 4: some recognition that that was a problem for them, and
• 7:53
  Speaker 4: they have changed their tactics a little bit. So they
• 7:55
  Speaker 4: are aware and they're reading these letters, and the question
• 7:58
  Speaker 4: will be after the fact if there's any accountability.
• 8:01
  Speaker 1: I mean, they also changed it a little bit, and
• 8:03
  Speaker 1: that he said at one of the giveaways, one of
• 8:06
  Speaker 1: the early ones, that all you have to do is
• 8:09
  Speaker 1: now be a spokesperson for us, so sort of making
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  Speaker 1: it into a job offer.
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  Speaker 4: I guess correct. He's trying lots of different ways. A
• 8:16
  Speaker 4: judge will have to determine whether or not they think
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  Speaker 4: that's his true intent or not. If I pay you
• 8:22
  Speaker 4: to register to vote, but I also say that you
• 8:26
  Speaker 4: have to walk outside and breathe fresh air and then
• 8:29
  Speaker 4: you get the money. A judge will say, I know
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  Speaker 4: you told me that you're paying these people for breathing
• 8:34
  Speaker 4: fresh air, but they also have to register. I just
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  Speaker 4: think that's a scam. So the question is for somebody
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  Speaker 4: signing a petition that doesn't ask for anything, just says
• 8:43
  Speaker 4: I think the First and Second Amendment are important. Is
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  Speaker 4: that something that's a legitimate petition or do we think
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  Speaker 4: that the Musk has been using it as a way
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  Speaker 4: to insulate himself from just out and out buying people
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  Speaker 4: to register to vote. To make it look somewhat differently,
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  Speaker 4: and that will be a fact determining by a judge
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  Speaker 4: if it gets to this litigation. They can look at
• 9:03
  Speaker 4: emails between Musk and his pack and other communications. They
• 9:06
  Speaker 4: can make determinations based on public statements where America packs
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  Speaker 4: as we want to get a million people registered to
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  Speaker 4: vote in these swing states, and they'll make a determination
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  Speaker 4: whether or not that was the intent of this lottery.
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  Speaker 4: Even though there are facts that cut in different directions.
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  Speaker 1: A lot of people are going to say this is
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  Speaker 1: a move by a Democratic da against Mosk who's spending
• 9:30
  Speaker 1: millions to get Trump elected.
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  Speaker 4: I will say I think the political side of this
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  Speaker 4: is as important as the legal side. So the Department
• 9:38
  Speaker 4: of Justice sending this letter does send a signal for voters,
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  Speaker 4: whether or not there's an actual violation, that what they're
• 9:45
  Speaker 4: doing is a close violation of the law. And it
• 9:48
  Speaker 4: could be the same for a district attorney who wants
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  Speaker 4: to make sure that this issue is framed in the
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  Speaker 4: press and in the political sphere as a legal mumbo jumbo,
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  Speaker 4: as a opposed to a really exciting money giveaway. So
• 10:02
  Speaker 4: there's a political aspect where bringing these charges changes the
• 10:05
  Speaker 4: news coverage, changes the dynamics, and that may be just
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  Speaker 4: as important as any finding of guilt or innocence. And
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  Speaker 4: so that's not something that the lawyers like me can
• 10:14
  Speaker 4: really comment on whether that's the right way to go
• 10:16
  Speaker 4: about it. But there's definitely a political angle to this.
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  Speaker 1: Do you remember anything else like this in our history,
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  Speaker 1: any kind of giveaways like this?
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  Speaker 4: Not in our modern history. Way back in the seventeen
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  Speaker 4: to eighteen hundreds, you used to have this was before
• 10:31
  Speaker 4: the ballot was secrets, but you'd have parties who would
• 10:34
  Speaker 4: basically give away free booze to people you'd vote for
• 10:38
  Speaker 4: their party'd get whiskey, and it's very well known. And
• 10:41
  Speaker 4: in part to avoid that kind of bribery, we adopted
• 10:44
  Speaker 4: the secret ballot and since then nothing so open as
• 10:50
  Speaker 4: not driven by the parties. The parties, of course, are
• 10:52
  Speaker 4: always trying to incentivize and motivate people to get out
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  Speaker 4: to vote, not with payments, but no lottery like this,
• 10:58
  Speaker 4: specifically from a healthy billionaire either.
• 11:02
  Speaker 1: Thanks so much for joining me today. That's Douglas Spencer,
• 11:05
  Speaker 1: a professor of law at the University of Colorado. A
• 11:08
  Speaker 1: court hearing on the Philadelphia DA's application for a preliminary
• 11:13
  Speaker 1: injunction against Mosque and his pack that would block them
• 11:16
  Speaker 1: from continuing the sweepstakes is set for Friday morning in Philadelphia.
• 11:22
  Speaker 1: Coming up next on the Bloomberg Law Show, we'll tell
• 11:25
  Speaker 1: you what's next. After a judge stopped the eight point
• 11:28
  Speaker 1: five billion dollar Tapestry Capri merger. I'm June Grosso and
• 11:32
  Speaker 1: you're listening to Bloomberg Today. Tapestry and Capri Holdings have
• 11:37
  Speaker 1: filed their notice to appeal last Thursday's decision by a
• 11:41
  Speaker 1: federal judge freezing Tapestry's eight point five billion dollar acquisition
• 11:46
  Speaker 1: of Capri. The decision was a major victory for the
• 11:50
  Speaker 1: FTC's chair, Lena Kahan, who's tried to sing takeovers deemed
• 11:55
  Speaker 1: anti competitive in sectors ranging from tech to grocer, with
• 12:00
  Speaker 1: mixed results. The FDC sued to block the deal six
• 12:04
  Speaker 1: months ago, saying it would eliminate direct competition between the
• 12:08
  Speaker 1: fashion company's brands like Coach and Michael Core's in the
• 12:12
  Speaker 1: so called affordable luxury handbag market and her consumers, and
• 12:17
  Speaker 1: the judge agreed following seven days of testimony. Joining me
• 12:21
  Speaker 1: is anti trust expert Harry First, a professor at NYU
• 12:25
  Speaker 1: Law School. Harry, this was FTC chair Lena Khan's first
• 12:30
  Speaker 1: foray into fashion. How big a victory is this for her?
• 12:34
  Speaker 3: So this is a big case, important case, and your
• 12:38
  Speaker 3: remark about fashion is good because the judge starts her opinion,
• 12:42
  Speaker 3: as you know, with a great line any trust has
• 12:45
  Speaker 3: come into fashion, so a nice double play on it's
• 12:50
  Speaker 3: in fashion and it's in the fashion industry. So the
• 12:54
  Speaker 3: FTC has been on sort of a little bit of
• 12:57
  Speaker 3: a successful run now and this is one of those
• 13:01
  Speaker 3: clear victories in a case that in many ways is
• 13:04
  Speaker 3: sort of a standard case. It's not a far out
• 13:07
  Speaker 3: legal theories, it's pretty close to sort of the middle
• 13:11
  Speaker 3: of the road legal theories, but a big win over
• 13:16
  Speaker 3: spread over many pages in which clearly the judge like
• 13:19
  Speaker 3: what the FCC was doing.
• 13:20
  Speaker 1: Explain what the judge's reasoning was here.
• 13:24
  Speaker 3: So you have a number of particularly important questions, But
• 13:28
  Speaker 3: a key question that starts out with is how do
• 13:31
  Speaker 3: you define the product market? You know, who are the competitors?
• 13:35
  Speaker 3: Because once you do that sort of everything doesn't quite
• 13:38
  Speaker 3: completely flow from it, but legally it goes in very
• 13:42
  Speaker 3: orderly fashion. Use the fashion word again. So the critical
• 13:47
  Speaker 3: question is is the market all handbags? Or actually started
• 13:53
  Speaker 3: out by saying, what's the definition of a handbag? So
• 13:57
  Speaker 3: I can answer that right, yes, trying not to use
• 14:01
  Speaker 3: the where we're going in a handbag race? But yeah,
• 14:04
  Speaker 3: that seems like an obvious thing, but you know that's
• 14:06
  Speaker 3: the kind of thing. You know, you have to define everything.
• 14:09
  Speaker 3: So we've got these three different ideas of what handbags
• 14:16
  Speaker 3: might be, and then a fourth. A fourth is all handbags,
• 14:19
  Speaker 3: you know, so everyone a handbag has a function. So
• 14:23
  Speaker 3: you could have a cheap handbag or a really expensive handbag.
• 14:27
  Speaker 3: But it's all the same thing, and they're all in
• 14:30
  Speaker 3: competition because consumers can decide among them. And then the
• 14:35
  Speaker 3: FTC comes in and says, well, actually, you have three
• 14:38
  Speaker 3: different types of handbags, and it depends in some large
• 14:43
  Speaker 3: part but not completely, on the price. So the mass
• 14:47
  Speaker 3: market which is fast fashion, accessible luxury, which is where
• 14:52
  Speaker 3: the parties to the merger compete, and true luxury, really
• 14:58
  Speaker 3: high luxury. I have to to say, I'm glad I
• 15:01
  Speaker 3: don't have to buy these handbags because the true luxury
• 15:04
  Speaker 3: handbags seem ridiculously expensive to me. In the thousands of dollars.
• 15:08
  Speaker 3: These handbags that the parties make are not there, sort
• 15:12
  Speaker 3: of between one hundred and five hundred dollars. And a
• 15:16
  Speaker 3: lot of the fight was do we accept these divisions
• 15:20
  Speaker 3: in the handbag market or do we look at it
• 15:23
  Speaker 3: all together. So the smaller you can make the market,
• 15:26
  Speaker 3: the more you can focus on those divisions, particularly since
• 15:30
  Speaker 3: these companies compete in that division. The higher the market share,
• 15:36
  Speaker 3: the more concentrated the market, the more it looks like
• 15:39
  Speaker 3: competition's going to be hurt.
• 15:40
  Speaker 1: Did she accept the FTC's determination that this would create
• 15:46
  Speaker 1: a company where fifty nine percent share of the accessible
• 15:49
  Speaker 1: luxury market would be controlled by this new company.
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  Speaker 3: Yes, she did so, she accepted the definition, but she
• 15:58
  Speaker 3: really she went through all the facts.
• 16:02
  Speaker 1: You know.
• 16:02
  Speaker 3: It wasn't just sort of yeah, you're right, you know,
• 16:05
  Speaker 3: I got it. She pretty meticulously went through a lot
• 16:09
  Speaker 3: of the testimony, a lot of the documents, the documents,
• 16:13
  Speaker 3: you know, slides, the reasons for the merger, the SEC filings.
• 16:19
  Speaker 3: I love this. You know, they may make filings the SEC.
• 16:22
  Speaker 3: Way have to describe their business. What do they describe?
• 16:25
  Speaker 3: They don't describe. They described this market. So they were
• 16:30
  Speaker 3: caught every which way. Plus she then discredited the merging
• 16:35
  Speaker 3: parties expert witness, saying that her testimony basically wasn't incredible
• 16:41
  Speaker 3: and that you know, these parties compete directly. The two
• 16:47
  Speaker 3: brands that Tapestry controls and the one that pre controls
• 16:52
  Speaker 3: compete directly, and they compete in this segment of accessible luxury.
• 16:57
  Speaker 1: And was there correspondence that were kept confidential that she
• 17:03
  Speaker 1: also referred to to discredit some of the company's arguments.
• 17:08
  Speaker 3: Well, yeah, there was. There was some redacted stuff, but
• 17:12
  Speaker 3: there was a lot that was you know, emails and
• 17:16
  Speaker 3: you know, and a lot of explanation of why the
• 17:19
  Speaker 3: Tapestry wanted to acquire Cores and what they thought they
• 17:22
  Speaker 3: could do with the brand. There were emails about pricing
• 17:26
  Speaker 3: and how you know, this was a race to the
• 17:28
  Speaker 3: bottom because Cores keeps discounting and my god, we've got
• 17:32
  Speaker 3: a discount. So she relied a lot on what is
• 17:36
  Speaker 3: called ordinary course documents, documents that are kept in the
• 17:40
  Speaker 3: ordinary course of business, as opposed to some of their
• 17:44
  Speaker 3: you know, the executives from these firms coming in and saying,
• 17:47
  Speaker 3: oh no, we compete against everybody. Oh no, you know,
• 17:51
  Speaker 3: and you know, trying to put a different face on
• 17:54
  Speaker 3: what the reality was.
• 17:56
  Speaker 1: Tapestry and Capri say they're going to appeal the decision,
• 18:00
  Speaker 1: but they have a February tenth expiration date on the deal.
• 18:05
  Speaker 3: Yeah, well they have filed an appeal. You know, they're
• 18:08
  Speaker 3: free to extend things if they think they've got a
• 18:11
  Speaker 3: real shot at this or or not. And you know,
• 18:15
  Speaker 3: I don't know what they're going to do, but I
• 18:18
  Speaker 3: do think they're going to have a hard time getting
• 18:20
  Speaker 3: this reverse. So you know, if if you were in
• 18:24
  Speaker 3: management of these firms, you know, you might be leery
• 18:29
  Speaker 3: of extending this. And you know, staying in this limbo
• 18:33
  Speaker 3: for a while, you know, while it works through the
• 18:35
  Speaker 3: Court of Appeals.
• 18:36
  Speaker 1: This is a temporary measure that the judge has put
• 18:39
  Speaker 1: into place here. They have to go through an administrative hearing,
• 18:43
  Speaker 1: which is set for December ninth. I don't know how
• 18:46
  Speaker 1: these things interact.
• 18:49
  Speaker 3: Well, this is it's a preliminary injunction. So the formal
• 18:53
  Speaker 3: way of doing this is that the Federal Trade Commission
• 18:56
  Speaker 3: itself tries the case in its own administra of court
• 19:00
  Speaker 3: with an administrative law judge. But they have the power
• 19:04
  Speaker 3: in which they exercise here to go into federal court
• 19:08
  Speaker 3: to say, we want to stop this merger from happening
• 19:12
  Speaker 3: so that we can adjudicate its whether it's lawful or not.
• 19:17
  Speaker 3: And we don't have to take the parties apart if
• 19:20
  Speaker 3: we find it's unlawful, so we can keep them from
• 19:23
  Speaker 3: merging until we make our final decision. So as a
• 19:26
  Speaker 3: technical matter, this just keeps the status quo. They can't
• 19:31
  Speaker 3: merge now until the FTC's administrative procedures are completed.
• 19:38
  Speaker 1: Now.
• 19:39
  Speaker 3: As a practical matter, most cases, most FTC merger cases
• 19:46
  Speaker 3: end up not all end up being decided at the
• 19:49
  Speaker 3: preliminary injunction stage because parties can't wait around for you know,
• 19:54
  Speaker 3: the FTC to go through its own full hearing, you know,
• 19:59
  Speaker 3: and that may involve this appeal to the Court of Appeals.
• 20:02
  Speaker 3: So if that's unsuccessful, if they do take the appeal
• 20:07
  Speaker 3: and the Court of Appeal says no, the preliminary junction
• 20:10
  Speaker 3: is correctly entered, then they would have to go to
• 20:14
  Speaker 3: this hearing before the Federal Trade Commission's own administrative law judge.
• 20:18
  Speaker 1: I mean, I understand the Court of Appeals backup as
• 20:21
  Speaker 1: something like a year. I mean, is there any way
• 20:24
  Speaker 1: they could get a Court of Appeals decision before the
• 20:28
  Speaker 1: February tenth expiration date of the deal?
• 20:31
  Speaker 3: To me, it seems highly unlikely forget whatever delay there is.
• 20:35
  Speaker 3: I mean, normally it takes probably about a year to
• 20:38
  Speaker 3: get from filing to decision. Maybe they could expedite it,
• 20:42
  Speaker 3: but just simply the timing of filing a brief, the
• 20:47
  Speaker 3: reply brief from the Federal Trade Commission or reply brief
• 20:51
  Speaker 3: to that your past the past February. So I don't
• 20:56
  Speaker 3: see how they can get something from the Court of
• 21:00
  Speaker 3: Appeals before that date passes. So they're going to have
• 21:04
  Speaker 3: to figure out really what they want to do about
• 21:07
  Speaker 3: this merger at this point.
• 21:09
  Speaker 1: Coming up next on the Bloomberg Law Show, I'll continue
• 21:11
  Speaker 1: this conversation with NYU law professor Harry First. What are
• 21:16
  Speaker 1: the company's chances on appeal? Tapestry and Capri Holdings have
• 21:21
  Speaker 1: filed their notice to jointly appeal the decision by a
• 21:24
  Speaker 1: federal judge to temporarily halt the merger between the makers
• 21:28
  Speaker 1: of Coach and Michael Core's Handbags. I've been talking to
• 21:32
  Speaker 1: anti trust expert Harry First, a professor at NYU Law School. So, Harry,
• 21:37
  Speaker 1: as far as the in house hearing, after you've had
• 21:41
  Speaker 1: a judge give one hundred and sixty nine page ruling
• 21:45
  Speaker 1: that really covered everything, I mean, what is left for
• 21:47
  Speaker 1: the in house hearing.
• 21:50
  Speaker 3: Hey, that's a great point. They could say, hey, just
• 21:53
  Speaker 3: why do just facts over that? You know they still
• 21:55
  Speaker 3: use facts. I guess the government the facts over that
• 21:58
  Speaker 3: opinion and will just rubber stamp. But well, what should happen?
• 22:02
  Speaker 3: I mean, you have to have a hearing, so you
• 22:04
  Speaker 3: know you have to represent this evidence. It doesn't look
• 22:08
  Speaker 3: good for I mean, maybe you do it quickly, maybe
• 22:12
  Speaker 3: you stipulate to the record. I don't know, but in
• 22:15
  Speaker 3: any way, something has to happen. That's some formal and
• 22:18
  Speaker 3: the administrative law judge has to you know, has to
• 22:21
  Speaker 3: then write an opinion and it has to be well considered.
• 22:25
  Speaker 3: Then that goes to the full Commission for sort of
• 22:30
  Speaker 3: an appeal process, and then it can be appealed to
• 22:33
  Speaker 3: a Court of Appeals. So that process in itself also
• 22:37
  Speaker 3: can be lengthy, and you know, it can be a
• 22:41
  Speaker 3: repeat of the hearing that they just had in Federal Court,
• 22:44
  Speaker 3: which was held fairly quickly. And you know, these days
• 22:49
  Speaker 3: every litigant is attacking the whole process in the Federal
• 22:53
  Speaker 3: Trade Commission. So if they're you know, if they decide
• 22:56
  Speaker 3: they've got all the time in the world, they'll probably
• 22:59
  Speaker 3: go back and Federal Court and seek to enjoin the
• 23:02
  Speaker 3: FTC from having this hearing, arguing that the Federal Trade
• 23:07
  Speaker 3: Commission is completely unconstitutional. That's been how these cases have
• 23:12
  Speaker 3: been going withly, there was.
• 23:15
  Speaker 1: This whole thing that Capri might fail if this deal
• 23:18
  Speaker 1: doesn't go through. Morning Star analyst David Schwart said, the
• 23:22
  Speaker 1: whole business has been run to be sold for quite
• 23:24
  Speaker 1: some time. They have to go back to square one
• 23:28
  Speaker 1: if Capri fails or is sold off. How does that affect.
• 23:33
  Speaker 1: I mean, Lena Khan's big victory if you're losing one
• 23:36
  Speaker 1: of the companies that's in competition here.
• 23:39
  Speaker 3: Well, we've had this in the airline industry too. You
• 23:43
  Speaker 3: know where recent merger at Blue Spirit and Spirit is
• 23:48
  Speaker 3: along the financial ropes. So the traditionally trust answer is
• 23:55
  Speaker 3: we have markets. So this company acquiring Capri, right, it
• 24:00
  Speaker 3: wouldn't be a defense that they were a failing company.
• 24:03
  Speaker 3: I mean it might be defense if they were a
• 24:05
  Speaker 3: failing company. They never raised this defense that they were
• 24:09
  Speaker 3: a failing company, so from the point of view of
• 24:12
  Speaker 3: the anty Trust court, they weren't. Whether they are in
• 24:16
  Speaker 3: fact or aren't as yet to be seen. And if
• 24:19
  Speaker 3: they can't maintain themselves as a separate business, the assets
• 24:23
  Speaker 3: get sold in some way or an other course, is
• 24:26
  Speaker 3: still a brand. Maybe some other company will take it,
• 24:29
  Speaker 3: or maybe you know, maybe the analysts or offer who
• 24:32
  Speaker 3: knows what exactly, And that's what markets will decide. But
• 24:37
  Speaker 3: I think what the judge is saying, this particular solution,
• 24:41
  Speaker 3: if it's a solution, may you know, may look good
• 24:43
  Speaker 3: to cores, but it does not look good to consumers.
• 24:47
  Speaker 3: You know, we're not in the business of trying to
• 24:49
  Speaker 3: protect companies, is the anti trust answers to protect competition.
• 24:54
  Speaker 1: If the deal falls apart, Tapestry will have to pay
• 24:57
  Speaker 1: Capri as much as fifty million to reimburse merger expenses.
• 25:02
  Speaker 3: So there is a breakup fee.
• 25:04
  Speaker 1: Ah, is that a breakup fee? Yeah, because I was
• 25:07
  Speaker 1: going to ask if merger expenses could be that much.
• 25:10
  Speaker 3: See if it is, I'm in the wrong business, sess.
• 25:14
  Speaker 3: I mean, that's a breakup fee. And you know, sometimes
• 25:18
  Speaker 3: companies use that to sort of invigorate their business. The
• 25:22
  Speaker 3: classic case is AT and T T Mobile, which fell apart,
• 25:27
  Speaker 3: and T Mobile got this big breakup fee and then
• 25:31
  Speaker 3: used it to reinvigorate its business. You know, again the
• 25:34
  Speaker 3: ins and outs of those things from an any trust
• 25:37
  Speaker 3: point of view. You know, these get negotiated among private parties,
• 25:40
  Speaker 3: and it's an interesting view about how the party saw
• 25:46
  Speaker 3: the merger and maybe how much Tapestry wanted the merger
• 25:51
  Speaker 3: they were willing to risk that big breakup fee. In
• 25:55
  Speaker 3: light of the documents, I don't get it. I mean
• 25:58
  Speaker 3: the documents were terrible from the point of view of
• 26:03
  Speaker 3: Tapestry in what way. Well, documents basically saying what we've
• 26:08
  Speaker 3: got to do is make consumers better off by raising
• 26:10
  Speaker 3: the prices of Cors handbags. I mean, you don't really
• 26:15
  Speaker 3: want to, you know, go in and justify your merger
• 26:19
  Speaker 3: by saying, you know, this is really great, Judge, We'll
• 26:20
  Speaker 3: be able to raise the prices. So you know, those
• 26:23
  Speaker 3: those women buying these bags will feel so much better
• 26:27
  Speaker 3: now that they're getting the same darn bags but paying more.
• 26:31
  Speaker 1: So.
• 26:31
  Speaker 3: I mean, that's how I read those documents, and those
• 26:33
  Speaker 3: are the documents that judge quota.
• 26:35
  Speaker 1: So I don't know when will they learn not to
• 26:37
  Speaker 1: put things in emails?
• 26:38
  Speaker 3: I don't know. No, this wasn't in emails. These were
• 26:41
  Speaker 3: slides that justify the deal. These were internal slides saying
• 26:47
  Speaker 3: this is what we're trying to achieve.
• 26:49
  Speaker 1: Wow, okay, well we'll see why the judge came out
• 26:51
  Speaker 1: that way. So one FTC officials said, the ruling is
• 26:55
  Speaker 1: an endorsement of its new merger guidance that the Biden
• 26:59
  Speaker 1: administration should put out. Do you think that that is true?
• 27:03
  Speaker 3: So I think that's eighty percent true in this sense.
• 27:07
  Speaker 3: The judge, at the beginning of her opinion says, the
• 27:12
  Speaker 3: defendants say, no one's ever relied on those terrible guidelines.
• 27:17
  Speaker 3: Twenty twenty three guidelines, but you know, they just came out,
• 27:20
  Speaker 3: and in fact, the defendants were wrong that other courts
• 27:23
  Speaker 3: have begun to cite them, and she then cites them
• 27:27
  Speaker 3: a lot. So it's very clear that in certain ways,
• 27:31
  Speaker 3: in particular, she was endorsing. There's one change that I
• 27:36
  Speaker 3: think she did endorse, which is changing the threshold levels
• 27:40
  Speaker 3: of when Marcus would be considered concentrated. The twenty ten
• 27:45
  Speaker 3: guidelines had raised those thresholds, and she said, you know,
• 27:49
  Speaker 3: all the other guidelines had lower thresholds, were there, and
• 27:53
  Speaker 3: we're there with the twenty twenty three thresholds. On the
• 27:55
  Speaker 3: other hand, this didn't push the thresholds. These numbers are
• 28:00
  Speaker 3: ad under you know, any of the guidelines. So she
• 28:04
  Speaker 3: did endorse the approach in that sense, but didn't have
• 28:09
  Speaker 3: to really say, this is a case that you know
• 28:13
  Speaker 3: would have been okay under previous guidelines, but not under this,
• 28:17
  Speaker 3: and I'm following these guidelines. That's why I say it's
• 28:19
  Speaker 3: sort of eighty percent. She embraces them, but with numbers
• 28:23
  Speaker 3: that are comfortable under any approach you can think of.
• 28:28
  Speaker 3: And that's true of other parts of the series as well,
• 28:31
  Speaker 3: where you know she cites them over and over again,
• 28:35
  Speaker 3: but for propositions that in a sense are not that controversial.
• 28:40
  Speaker 1: She really did this quickly, Yet we're still waiting for
• 28:44
  Speaker 1: the Kroger Albertson's decision.
• 28:46
  Speaker 3: Right, Yes, that case has proceeded less quickly, and it's
• 28:55
  Speaker 3: also more complicated with some state litigation as well. Going
• 28:59
  Speaker 3: there's one aspect that this case may help the Kroger
• 29:04
  Speaker 3: Albertson's decision for the FTC because the judge in this case,
• 29:11
  Speaker 3: Jez Roshan, looked at documents where the parties clearly took
• 29:16
  Speaker 3: we're pre merger, we're taking account of competition from you know,
• 29:22
  Speaker 3: looking at prices of the commpetitor who was acquired and saying,
• 29:26
  Speaker 3: my god, they're putting pressure on us. So you know,
• 29:30
  Speaker 3: the people who were running the Kate Spade brand, they
• 29:36
  Speaker 3: were looking at cores and cores pricing, and Coach brand
• 29:39
  Speaker 3: looking at cores pricing, and there's a lot of similar
• 29:43
  Speaker 3: evidence in Kroger Albertson that they were very attuned to
• 29:47
  Speaker 3: each other's pricing. So, you know, this may be a
• 29:50
  Speaker 3: little boost to the relevance of you know, that kind
• 29:53
  Speaker 3: of head to head competition.
• 29:55
  Speaker 1: But do you think that this decision is pretty solid,
• 30:00
  Speaker 1: not likely to be overturned on appeal.
• 30:02
  Speaker 3: I think it's pretty hard to overturn it. She found
• 30:05
  Speaker 3: the facts very clearly in favor of the FTC, went
• 30:09
  Speaker 3: through methodically the weakness of the defense arguments. I think
• 30:14
  Speaker 3: it'd be hard to overturn, and the you know, the
• 30:16
  Speaker 3: legal approach. She took us very standard on you know,
• 30:20
  Speaker 3: on the nose, citing other District court opinions in the
• 30:24
  Speaker 3: Second Circuit of the Court of Appeals back to you
• 30:28
  Speaker 3: know a number of important Supreme Court cases. I think
• 30:30
  Speaker 3: it would be really hard to reverse.
• 30:32
  Speaker 1: Always a pleasure to have you on, Harry, Thanks so much.
• 30:35
  Speaker 1: That's Professor Harry First of NYU Law School. And that's
• 30:39
  Speaker 1: it for this edition of The Bloomberg Law Show. Remember
• 30:42
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• 30:44
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• 30:48
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• 30:56
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• 31:00
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