Latest / Bloomberg Law / Anthropic Sues Government & Paramount-WBD Deal

Transcript

Anthropic Sues Government & Paramount-WBD Deal · Bloomberg Law

• 0:02
  Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio. Anthropic,
• 0:09
  Speaker 1: the AI company is suing the Trump administration to stop
• 0:14
  Speaker 1: what it calls an unlawful campaign of retaliation. The Pentagon
• 0:19
  Speaker 1: designated Anthropic as a supply chain risk following a dispute
• 0:24
  Speaker 1: over limits the company wants on how its products are used,
• 0:29
  Speaker 1: in particular, its technology not being used for mass surveillance
• 0:33
  Speaker 1: of Americans or to power fully autonomous weapons. It's the
• 0:38
  Speaker 1: first time the federal government is known to have used
• 0:41
  Speaker 1: the designation against a US company. Anthropic is asking a
• 0:46
  Speaker 1: court to issue a preliminary injunction to block the government's
• 0:49
  Speaker 1: ban while the legal fight plays out. My guest is
• 0:53
  Speaker 1: Dorothy Lund, a professor at Columbia Law School and co
• 0:57
  Speaker 1: director of the school's Ira M. Milstein Center for Global
• 1:01
  Speaker 1: Markets and Corporate Ownership. Dorothy Defense Secretary Pete Hegsif designated
• 1:07
  Speaker 1: Anthropic as a national security supply chain risk. That's a
• 1:12
  Speaker 1: designation that's usually used to bar companies that are linked
• 1:16
  Speaker 1: to foreign adversaries.
• 1:18
  Speaker 2: Yeah, this is quite unusual. I think this is the
• 1:20
  Speaker 2: first time in US history that an American company has
• 1:24
  Speaker 2: been given this designation. So if you look at the
• 1:27
  Speaker 2: companies typically on this list, it's companies with ties to China,
• 1:32
  Speaker 2: ties to Russia that you know, the government wants to
• 1:35
  Speaker 2: say there's particular risks. You know, we would be very
• 1:38
  Speaker 2: cautious about contracting you know, this Chinese company or this
• 1:41
  Speaker 2: Russian company. It's never happened before that US company has
• 1:45
  Speaker 2: been given this designation.
• 1:48
  Speaker 1: What are the grounds for Anthropics suit against the government.
• 1:51
  Speaker 2: My understanding is that essentially Anthropic is saying this designation
• 1:56
  Speaker 2: is not being given for the right reasons. Instead, this
• 1:59
  Speaker 2: is fora for our refusal to accede to certain demands
• 2:05
  Speaker 2: that you made that we didn't want to accede to.
• 2:08
  Speaker 2: So you have it really identified a security threat that
• 2:12
  Speaker 2: would cause us to really deserve this label. Instead, you're
• 2:17
  Speaker 2: just punishing us and retaliating against us for not going
• 2:21
  Speaker 2: along with what you've demanded from us in a way
• 2:23
  Speaker 2: that violates our rights.
• 2:25
  Speaker 1: Anthropic had said that it refused to remove guard rails
• 2:30
  Speaker 1: against its technology being used for mass surveillance of Americans
• 2:35
  Speaker 1: or to power fully autonomous weapons. Can companies like this
• 2:40
  Speaker 1: when they're dealing with, you know, depending on the military,
• 2:44
  Speaker 1: put in sort of reservations like that in their contracts.
• 2:48
  Speaker 2: Yeah. You know, the typical sort of thinking here is that,
• 2:52
  Speaker 2: you know, it's a matter of corporate governance or you know,
• 2:55
  Speaker 2: corporate decision making for a company that is providing a
• 3:00
  Speaker 2: service to set certain guardrails on that, right. You know,
• 3:03
  Speaker 2: this should only be used in certain ways. And the client,
• 3:07
  Speaker 2: even if the client is the Pentagon, the client has
• 3:11
  Speaker 2: the right to say, well, I don't want to work
• 3:13
  Speaker 2: with you. I don't like this contractual limitation that you've
• 3:16
  Speaker 2: given me. But I can break my contract with you.
• 3:19
  Speaker 2: I can go with somebody else, and you know, we'll
• 3:21
  Speaker 2: deal with whatever repercussion to the contract says about that.
• 3:25
  Speaker 2: But this is how things work in the free world, right,
• 3:28
  Speaker 2: And it's sort of another interesting moment where the Trump administration.
• 3:33
  Speaker 2: You know, historically the conservative ideology has been very accepting
• 3:39
  Speaker 2: of this idea that private markets will lead to the
• 3:43
  Speaker 2: right results. Right, you wouldn't want to have the government
• 3:45
  Speaker 2: interfering with private markets. And if a private entity doesn't
• 3:50
  Speaker 2: want to do a deal on certain terms, you know,
• 3:54
  Speaker 2: that's that and the market will sort it out there.
• 3:56
  Speaker 2: Maybe there'll be somebody else that's willing to provide that
• 3:58
  Speaker 2: product at that price or that's service under those terms,
• 4:01
  Speaker 2: but that the government wouldn't then, you know, try to
• 4:05
  Speaker 2: get into that space and influence it. And so I
• 4:08
  Speaker 2: think it's sort of this interesting moment again of the
• 4:10
  Speaker 2: Trump administration doing something that historically conservative politicians have not
• 4:16
  Speaker 2: wanted to do, which is to interfere with markets and
• 4:18
  Speaker 2: sort of how markets set prices and terms and contracting.
• 4:22
  Speaker 2: Parties that don't like it can walk away, but there's
• 4:24
  Speaker 2: nobody forced to contract with anybody else.
• 4:27
  Speaker 1: The government filed papers in opposition to Anthropics motion for
• 4:32
  Speaker 1: a preliminary injunction, and it said that Anthropics showed hostility
• 4:37
  Speaker 1: in its negotiations with the Pentagon and that led the
• 4:41
  Speaker 1: government to question whether it was a trusted partner and quote,
• 4:46
  Speaker 1: for national security reasons, the terms of service for a
• 4:49
  Speaker 1: plaintiff Anthropic PBC's artificial intelligence technology have become unacceptable to
• 4:56
  Speaker 1: the executive branch. But the government didn't point to anything
• 4:59
  Speaker 1: that would be a security justification for the designation as
• 5:04
  Speaker 1: a supply chain risk, so it sort of missed the point.
• 5:08
  Speaker 2: Yeah, and just back to where we started in this conversation.
• 5:13
  Speaker 2: You know, the idea of somebody posing a supply chain risk,
• 5:17
  Speaker 2: is this idea of like you know, foreign infiltration, the
• 5:20
  Speaker 2: idea that some foreign government that is hostile to the
• 5:23
  Speaker 2: United States is going to get some information or some
• 5:27
  Speaker 2: advantage by virtue of this you know, organization freely contacting
• 5:32
  Speaker 2: in the United States. So even under the terms that
• 5:34
  Speaker 2: the government is bringing up in its lawsuit, the idea
• 5:38
  Speaker 2: that there's hostility towards the government, it doesn't really even
• 5:41
  Speaker 2: speak to this idea of you know, foreign infiltration. It
• 5:45
  Speaker 2: just sounds like, you know, negotiations didn't go so well.
• 5:49
  Speaker 2: And so again I think the hook to the designation
• 5:53
  Speaker 2: seems to be quite tenuous.
• 5:55
  Speaker 1: Anthropic is asking the court for a preliminary injunction, as
• 5:58
  Speaker 1: I mentioned, saying it could damage the company's reputation and
• 6:02
  Speaker 1: cause multiple billions of dollars in losses this year. The
• 6:07
  Speaker 1: hurdles to get a preliminary injunction are high. Do you
• 6:11
  Speaker 1: think Anthropic might clear those hurdles?
• 6:13
  Speaker 2: Typically a preliminary injunction an order to win, you have
• 6:17
  Speaker 2: to show that without getting this injunction, there's going to
• 6:21
  Speaker 2: be irreparable harm, and there has to be a strong
• 6:24
  Speaker 2: likelihood of winning on the merits right. And by the way,
• 6:27
  Speaker 2: this harm can't be something that can be fixed after
• 6:30
  Speaker 2: the fact using money damages and so I think here
• 6:34
  Speaker 2: in this case, I think this is a really a
• 6:35
  Speaker 2: good example of where a preliminary injunction would make a
• 6:38
  Speaker 2: lot of sense. You know, I think, Okay, so open
• 6:40
  Speaker 2: Aye is going to lose this government contract, right the
• 6:44
  Speaker 2: Department of Defense, and so that is hundreds of millions
• 6:48
  Speaker 2: of dollars, but it's you know, ultimately not a big deal.
• 6:51
  Speaker 2: But I think the bigger impact here is the government's
• 6:55
  Speaker 2: demand that no federal agency do work with Anthropic and
• 6:59
  Speaker 2: all also that other third party entities that contractor the
• 7:03
  Speaker 2: government also stopped doing business and Nthropic and that for
• 7:08
  Speaker 2: a company that is in an early stage of growth
• 7:12
  Speaker 2: that is, you know, in a really competitive race AI race,
• 7:16
  Speaker 2: not just in the United States but also globally, for
• 7:19
  Speaker 2: them to sort of be blacklisted like this is really
• 7:23
  Speaker 2: quite harmful. I mean, you know, I think they're prommentators
• 7:26
  Speaker 2: who've looked at this and said, this is the equivalent
• 7:28
  Speaker 2: of giving Anthropic the death penalty. And I don't think
• 7:32
  Speaker 2: that's a real exaggeration. I think, you know, in this moment,
• 7:35
  Speaker 2: for Anthropic to lose the ability to contract with a
• 7:39
  Speaker 2: broad swath of entities would really be damaging. It might
• 7:44
  Speaker 2: not be able to recover from that.
• 7:45
  Speaker 1: Forgetting the legalities for a moment. Even if Anthropic wins
• 7:50
  Speaker 1: and this is lifted this ban, I mean, is any
• 7:54
  Speaker 1: agency in the government and the Trump administration then going
• 7:57
  Speaker 1: to start doing business with Anthropic knowing how the Trump
• 8:01
  Speaker 1: administration feels about Anthropic, I mean, what the consequences are
• 8:06
  Speaker 1: even if it wins this lawsuit.
• 8:08
  Speaker 2: For sure, I think the Trump administration really believes in loyalty,
• 8:13
  Speaker 2: and now that they've sort of been given this scarlet
• 8:17
  Speaker 2: letter by President Trump and Pete Hegsas, I'm sure that
• 8:23
  Speaker 2: you know loyalists and individuals across the government will be
• 8:27
  Speaker 2: wary to work with Anthropic. I think you know the
• 8:30
  Speaker 2: government has directed all federal agencies to stop using Anthropic,
• 8:35
  Speaker 2: So I think your intuition is right there. Although I
• 8:38
  Speaker 2: think you know the consequences for Anthropic, although that's not great,
• 8:42
  Speaker 2: there's a much broader market, right Anthropic is looking to
• 8:46
  Speaker 2: a lot of different places for clients, including other governments,
• 8:50
  Speaker 2: you know, other corporate clients. And by the way, there's
• 8:54
  Speaker 2: been a little bit of backlash already against open AI
• 8:58
  Speaker 2: in the wake of their signing up a deal with
• 9:01
  Speaker 2: the government so you know, you could imagine that I
• 9:03
  Speaker 2: don't know quite how this would sort out. Would Anthropic
• 9:06
  Speaker 2: be rewarded by some swath of clients for sticking to
• 9:09
  Speaker 2: its guns and would be able to make up that
• 9:12
  Speaker 2: loss in the future maybe, And will Open Air I
• 9:17
  Speaker 2: suffer some backlash for its decision to kind of get
• 9:21
  Speaker 2: in there and essentially poach this client. Maybe. So I
• 9:25
  Speaker 2: think it's just not clear how this is all going
• 9:26
  Speaker 2: to shake out.
• 9:27
  Speaker 1: Other tech companies have filed legal briefs to support Anthropic.
• 9:33
  Speaker 1: Do you think that there is a concern that if
• 9:37
  Speaker 1: this punitive label on Anthropic sticks, that it would establish
• 9:42
  Speaker 1: a precedent.
• 9:44
  Speaker 3: Oh?
• 9:44
  Speaker 2: Yeah, absolutely. I mean, we're already in a moment. It's
• 9:48
  Speaker 2: sort of unprecedented moment in American history of executive branch
• 9:54
  Speaker 2: interference with private markets. And I don't want to say
• 9:58
  Speaker 2: this is only a feature of this administration. That's happened
• 10:01
  Speaker 2: in during the Biden administration and prior administrations as well,
• 10:04
  Speaker 2: but I think we've really seen the Trump administration take
• 10:06
  Speaker 2: this to new heights. And so I'm sure tech executives
• 10:11
  Speaker 2: all over are looking at this and saying, we don't
• 10:13
  Speaker 2: want to be in a situation where we don't want
• 10:16
  Speaker 2: to agree to certain terms with the US government, whether
• 10:19
  Speaker 2: it be price or substance, and then the US government
• 10:22
  Speaker 2: basically puts us on a list that ensures that we
• 10:24
  Speaker 2: can't survive. You know, I think that's a scary thought.
• 10:27
  Speaker 2: That's a scary path to lock down. And I think,
• 10:29
  Speaker 2: you know, even beyond just sort of the typical tech company,
• 10:32
  Speaker 2: I think AI companies should be looking at this moment
• 10:35
  Speaker 2: and be quite chilled because I think, you know, the
• 10:37
  Speaker 2: AI industry is looking down the barrel of a complex
• 10:43
  Speaker 2: relationship with government. You know, it could be some people say, well,
• 10:46
  Speaker 2: because this technology is so important, it should be nationalized.
• 10:50
  Speaker 2: Others say, you know, this is going to have to
• 10:52
  Speaker 2: be really carefully regulated, and so those regulations haven't come.
• 10:56
  Speaker 2: And I think Anthropic thought, well, let's get in with
• 10:58
  Speaker 2: the government and hopefully will have some ability to influence
• 11:02
  Speaker 2: the path and future direction of how this goes. And
• 11:04
  Speaker 2: it didn't work out so well for them. So again
• 11:06
  Speaker 2: I think, you know, for the subset of tech executives,
• 11:09
  Speaker 2: they are also working in art official intelligence. You know,
• 11:12
  Speaker 2: this is sort of a chilling moment because it's just
• 11:16
  Speaker 2: showing you how the government is really willing to go
• 11:20
  Speaker 2: far and interfering with private markets and they're functioning, and
• 11:24
  Speaker 2: it to just again the people that say, well, artificial
• 11:27
  Speaker 2: intelligence should be subject to really burden some regulation and
• 11:29
  Speaker 2: a lot of government interference. It's suggests that, yeah, the
• 11:32
  Speaker 2: Trump administration is on board for that.
• 11:34
  Speaker 1: Does it fit in anywhere that the government is using
• 11:38
  Speaker 1: Anthropics AI in the war where they ran right now?
• 11:43
  Speaker 2: Yeah, So I think this is a way in which
• 11:47
  Speaker 2: this decision for the government to not just decide you know, okay, sure,
• 11:53
  Speaker 2: maybe Pete Hegsath doesn't like how the conversations are going
• 11:56
  Speaker 2: with Anthropic Maybe Pete Hegxsast says, we don't like all
• 12:00
  Speaker 2: these conversations are going. We no longer want to work
• 12:03
  Speaker 2: with them going forward, and let's let's figure out a
• 12:05
  Speaker 2: way to sort of disentangle this. You know, this this
• 12:07
  Speaker 2: second step though, of trying to basically to coapitate this
• 12:10
  Speaker 2: company that is really providing a valuable service for the
• 12:14
  Speaker 2: US military and it's ongoing operations that I think most
• 12:19
  Speaker 2: sensible people think there aren't great replacements available. So, you know,
• 12:24
  Speaker 2: this is sort of a moment where government is handcapping
• 12:26
  Speaker 2: its own military and causing the military. You know, if
• 12:31
  Speaker 2: you have everything sort of up and running on Anthropic,
• 12:34
  Speaker 2: to then pivot to a completely different platform that most
• 12:38
  Speaker 2: people think is not as well cut out for this task.
• 12:41
  Speaker 2: You know, that's a time consuming, distracting, burdens expensive endeavor.
• 12:47
  Speaker 2: So to sort of handicap yourself like that and then
• 12:49
  Speaker 2: sort of again this is Anthropic is one of the
• 12:52
  Speaker 2: most important and vital artificial intelligence companies that's produced in America, right,
• 12:57
  Speaker 2: So it's also handicapping a home grown champion company in
• 13:02
  Speaker 2: this race for AI dominance. So again, it's sort of
• 13:06
  Speaker 2: a funny strategy on multiple fronts. And you know, if
• 13:11
  Speaker 2: we want to be generous to the US government, sure
• 13:14
  Speaker 2: that's totally within their right. If they think that their
• 13:17
  Speaker 2: contracting party has terms that they don't want to bide by,
• 13:20
  Speaker 2: that you know, you have the right to walk away.
• 13:21
  Speaker 2: But then to take this extra step of kneecapping them
• 13:25
  Speaker 2: is just bizarre.
• 13:27
  Speaker 1: It may be bizarre, but is it unusual for the
• 13:30
  Speaker 1: Trump administration? And what's the real goal here?
• 13:34
  Speaker 2: But I think this gets back to where we started
• 13:36
  Speaker 2: to with a sort of free speech element. You know,
• 13:38
  Speaker 2: the goal I think in this moment is to send
• 13:40
  Speaker 2: a message to the market, which is your failure to
• 13:45
  Speaker 2: bend the knee is going to cause huge punitive repercussions.
• 13:50
  Speaker 1: Right.
• 13:50
  Speaker 2: That's a message that they're trying to send. And it's
• 13:53
  Speaker 2: just sort of funny from a conservative, quote unquote conservative
• 13:58
  Speaker 2: executive because the tip conservative ideology here is like what
• 14:03
  Speaker 2: markets sort themselves out. We're not going to We're not
• 14:05
  Speaker 2: going to have a heavy handed government thumb on how
• 14:09
  Speaker 2: markets work. Right, And so in this moment, you know,
• 14:12
  Speaker 2: it's almost like we're seeing something from a playbook of
• 14:16
  Speaker 2: a you know, a socialist country or something like that,
• 14:19
  Speaker 2: where fuelty to the executive is everything.
• 14:22
  Speaker 1: Well, we'll see what the court thinks about this. A
• 14:25
  Speaker 1: hearing is scheduled for next Tuesday. Thanks so much for
• 14:29
  Speaker 1: joining me, Dorothy. That's Columbia Law School professor Dorothy Lund.
• 14:34
  Speaker 1: The dust is settled, with Paramount winning the bidding war
• 14:38
  Speaker 1: for Warner Brothers Discovery with an offer that valued the
• 14:41
  Speaker 1: company at about one hundred eleven billion dollars, including debt,
• 14:45
  Speaker 1: for the acquisition of the entire company wbd's film library, studio,
• 14:52
  Speaker 1: and HBO Max streaming service, as well as its cable assets,
• 14:56
  Speaker 1: including CNN. The Jonstice Department's Anti Trump division didn't take
• 15:01
  Speaker 1: any action to delay the closing of the deal before
• 15:05
  Speaker 1: the termination of the statutory waiting period. But that doesn't
• 15:09
  Speaker 1: stop the DOJ from stepping in, and the States can
• 15:13
  Speaker 1: also step in and investigate the deal, which is exactly
• 15:17
  Speaker 1: what California Attorney General Rob Bonta says is happening. My
• 15:21
  Speaker 1: guest is Anti Trust attorney Richard Wolfram, why you think
• 15:26
  Speaker 1: the Justice Department didn't take any action at all to
• 15:30
  Speaker 1: delay the closing of this deal.
• 15:33
  Speaker 3: The Justice Department looked at two primary markets, although we
• 15:39
  Speaker 3: don't know because all it did was take no action,
• 15:43
  Speaker 3: and in taking no action, it issues no statement. And
• 15:47
  Speaker 3: it presumably looked at the streaming market and the market
• 15:51
  Speaker 3: for the studios themselves. There are five big studios in
• 15:55
  Speaker 3: the streaming market. What the THEJ and the FTC do
• 15:59
  Speaker 3: to when we assess mergers is look at the concentration.
• 16:03
  Speaker 3: There are various angles or criteria by which to assess
• 16:08
  Speaker 3: the change in concentration, and in this case, simply adding
• 16:12
  Speaker 3: up the streaming markets you get less than thirty percent.
• 16:18
  Speaker 3: Thirty percent is viewed traditionally under a Seminole Supreme Court
• 16:23
  Speaker 3: antitrust case called Philadelphia National Bank as the minimum threshold
• 16:29
  Speaker 3: beyond which a concentration would trigger a presumption of illegality
• 16:34
  Speaker 3: under Section seven of the Clayton Act. It is a prophylactic,
• 16:39
  Speaker 3: kind of prospectively looking statute that says that a merger
• 16:43
  Speaker 3: could be illegal if the effect of the merger may
• 16:46
  Speaker 3: be substantially to affect competition. There are other criteria, as
• 16:51
  Speaker 3: an economic test called the Hirfindhal Hirschmann tests. Another way
• 16:55
  Speaker 3: of looking at would be a loss of head to
• 16:57
  Speaker 3: head competition. They did not use that. Interestingly, the DOJ
• 17:03
  Speaker 3: did rely on a loss of head to head competition
• 17:06
  Speaker 3: in the HPE Juniper merger, but that's a longer story.
• 17:10
  Speaker 3: The second market would be the studio consolidation, and in
• 17:14
  Speaker 3: overall percentages that also, by some measures, and I have
• 17:19
  Speaker 3: no inside information, but by most measures, that also would
• 17:23
  Speaker 3: come under thirty percent. And the HHIS also would not
• 17:27
  Speaker 3: trigger the presumption of ilegality under section seven. So that's
• 17:31
  Speaker 3: why I think that the DOJ did not act. Interestingly,
• 17:36
  Speaker 3: there is another element to this, and that is the
• 17:40
  Speaker 3: inclusion of CNN in the purchase. It was not to
• 17:45
  Speaker 3: be included in the Netflix deal. It was going to
• 17:47
  Speaker 3: be divested or hived off to another separate company with
• 17:51
  Speaker 3: the other cable channels.
• 17:54
  Speaker 1: Last week we saw the state step in to continue
• 17:57
  Speaker 1: the Live Nation antitrust trial after the federal government settled.
• 18:02
  Speaker 1: So might the states step in here as well?
• 18:05
  Speaker 3: Yes. The Attorney General for California, Rob Banta, announced two
• 18:10
  Speaker 3: Fridays ago that California is investigating. He said the deal
• 18:15
  Speaker 3: is not done or it's not over, and he is
• 18:19
  Speaker 3: enlisting other states. Prominently New York and Illinois have been mentioned.
• 18:22
  Speaker 3: I wouldn't be surprised if there were not others, And
• 18:25
  Speaker 3: I think the states have a bone in their teeth,
• 18:28
  Speaker 3: to put it a little crudely, because of this recent
• 18:33
  Speaker 3: example of the settlement by the DOJ in the Live
• 18:36
  Speaker 3: Nation case, and there is a lot of smoke around
• 18:40
  Speaker 3: how that happened. It appears to have happened without any
• 18:45
  Speaker 3: consultation with the forty attorney team of the DOJ on
• 18:50
  Speaker 3: the case or with the states. And now as we
• 18:52
  Speaker 3: have something like thirty two or thirty three states with
• 18:56
  Speaker 3: the District of Columbia pursuing it and they're stepping into that,
• 19:00
  Speaker 3: into that vacuum, they see this as part of a trend.
• 19:03
  Speaker 3: So I think that absolutely the states are interested in this,
• 19:10
  Speaker 3: I think they will be re examining several of these perspectives.
• 19:14
  Speaker 3: I don't think they're going to have an easy time
• 19:17
  Speaker 3: in showing any presumptive illegality with respect to the streaming market.
• 19:21
  Speaker 3: And by the way, Rob Monta has articulated these two
• 19:25
  Speaker 3: markets in particular, I think that they may have some arguments.
• 19:29
  Speaker 3: I'm not advocating, but I think they have some arguments
• 19:32
  Speaker 3: with respect to the studio consolidation. The figure I've seen
• 19:36
  Speaker 3: among the five majors is that a combined Paramount Warner
• 19:41
  Speaker 3: entity would have something like twenty seven percent of the market.
• 19:46
  Speaker 3: That doesn't ring the bell under that Philadelphia National Bank
• 19:50
  Speaker 3: threshold standard that I mentioned, nor likely under the HHI analysis,
• 19:57
  Speaker 3: But there's a breakdown of that and their pros cons
• 20:00
  Speaker 3: about that. So that twenty seven percent sort of represents
• 20:03
  Speaker 3: the total revenue across all business lines of the studios.
• 20:08
  Speaker 3: If that is broken down into theatrical movie gross receipts,
• 20:13
  Speaker 3: then that percentage defined as a sub market amounts to
• 20:17
  Speaker 3: something like forty percent. You've got a large percentage of
• 20:21
  Speaker 3: those big five, So that becomes a concern in the
• 20:25
  Speaker 3: HHIS in that case would trigger a presumption of illegality.
• 20:29
  Speaker 3: Then the question becomes who is getting hurt, where is
• 20:34
  Speaker 3: the competition being affected, and who does that effect.
• 20:38
  Speaker 1: You're going to stay with me, Richard. Coming up, we're
• 20:40
  Speaker 1: going to talk more about what might happen, including whether
• 20:44
  Speaker 1: the States may step in. I'm June Grosso and you're
• 20:48
  Speaker 1: listening to bloom. Paramount won the bidding for Warner Brothers
• 20:54
  Speaker 1: Discovery with an offer that valued the company at approximately
• 20:58
  Speaker 1: one hundred and eleven billion dollars including debt, and included
• 21:03
  Speaker 1: the acquisition of the entire company. The Justice Department's Anti
• 21:08
  Speaker 1: Trust's division didn't take any action to delay the closing
• 21:11
  Speaker 1: of the deal, but that doesn't stop the DOJ from
• 21:14
  Speaker 1: stepping in, and the States can also step in and
• 21:18
  Speaker 1: investigate the deal, which is what California Attorney General Rob
• 21:23
  Speaker 1: Bonta recently announced that state was doing. I've been talking
• 21:27
  Speaker 1: to Anti trust attorney Richard Wolfram. If the States step in,
• 21:31
  Speaker 1: would this end up then going to trial?
• 21:34
  Speaker 3: Not necessarily, I mean, there's always room for negotiation and signaling.
• 21:41
  Speaker 3: The States could present to the party's a form of
• 21:46
  Speaker 3: a complaint or say that they're going to sue, but
• 21:49
  Speaker 3: they won't. If the parties would agree to certain conditions
• 21:54
  Speaker 3: or else they sue they actually file, which of course
• 21:57
  Speaker 3: makes it a more meaningful kind of threat, and then
• 22:00
  Speaker 3: you know, we would see how that plays out. As
• 22:03
  Speaker 3: far as any conditioning that they might seek, I mean,
• 22:07
  Speaker 3: of course they could seek and might articulate it in
• 22:10
  Speaker 3: such a way as to express the desire to enjoin
• 22:12
  Speaker 3: the merger completely. The likelihood of their being able to
• 22:16
  Speaker 3: do that is I think very small. The question is,
• 22:21
  Speaker 3: as often happens in these mergers, you know, what part
• 22:24
  Speaker 3: of this could be carved out and where competition could
• 22:27
  Speaker 3: be preserved as they see it.
• 22:29
  Speaker 1: The biggest concern we've seen, especially among Democratic lawmakers, is
• 22:34
  Speaker 1: the independence of CNN, considering that the Ellison family is
• 22:39
  Speaker 1: one of the President's biggest allies and mega donors, and
• 22:43
  Speaker 1: we've seen changes at CBS since they took over, and
• 22:48
  Speaker 1: Paramount CEO David Ellison has said some conflicting things about CNN.
• 22:53
  Speaker 1: I mean, would that be one point? Is there a
• 22:56
  Speaker 1: way to solve that without disrupting the deal?
• 23:00
  Speaker 3: Well, it would disrupt the deal. I don't think there's
• 23:03
  Speaker 3: any way to solve it without disrupting the deal. From
• 23:06
  Speaker 3: the perspective of Paramount, because they want CNN. You know,
• 23:11
  Speaker 3: query why they want CNN. You know, it has its
• 23:14
  Speaker 3: own financial issues. I understand Query, it's independence financially to
• 23:21
  Speaker 3: stand on its own, but assuming it can, it's not
• 23:24
  Speaker 3: going to be a great provider of revenue for Paramount.
• 23:28
  Speaker 3: So why do they want it so badly? And the
• 23:31
  Speaker 3: points you mentioned suggests exactly why they do want it
• 23:35
  Speaker 3: so badly, So they're not necessarily going to sort of say, okay, fine,
• 23:40
  Speaker 3: we can you know, get rid of CNN. And David
• 23:43
  Speaker 3: Ellison has made statements both to the effect that they're
• 23:49
  Speaker 3: looking to transform it from a news casting perspective, possibly
• 23:54
  Speaker 3: from an editorial perspective, and he is also more recently
• 23:58
  Speaker 3: stated that he promises the editorial independence of CNN. It
• 24:05
  Speaker 3: is one thing, I think, and it's a distinction that
• 24:08
  Speaker 3: has to be drawn finally, to promise the editorial independence.
• 24:11
  Speaker 3: So in this case, presumably that would mean between CBS,
• 24:15
  Speaker 3: whose history under Paramount is now pretty clear, and with
• 24:20
  Speaker 3: the appointment of Barry Weiss as the editor in chief
• 24:23
  Speaker 3: and as bias Onbudsman, and now there's apparently already an
• 24:29
  Speaker 3: appointment of someone with no experience in this area. I
• 24:32
  Speaker 3: believe at or promised to be for CNN of a
• 24:37
  Speaker 3: bias on budsman. So independence from CBS is one thing,
• 24:41
  Speaker 3: but control over editorial content from above is another question.
• 24:46
  Speaker 3: I think they's somewhat distinct, and he has he David
• 24:49
  Speaker 3: Ellison has said what we want to do is appeal
• 24:52
  Speaker 3: to the broad seventy percent of the market. That is,
• 24:55
  Speaker 3: you know, sort of on the left and sort of
• 24:57
  Speaker 3: on the right, and it's in the middle. We just
• 24:58
  Speaker 3: want the truth. We're in the truth business. What could
• 25:02
  Speaker 3: happen This is just theoretical. I don't know what the
• 25:05
  Speaker 3: States intend or if they're going after this, but typically
• 25:09
  Speaker 3: in a situation where the enforcer looks in order to
• 25:13
  Speaker 3: preserve competition, as they see the need to do that,
• 25:18
  Speaker 3: they may seek to divest a division where they see
• 25:22
  Speaker 3: an overlap of competition, or they may condition the merger
• 25:27
  Speaker 3: on guarantees through a firewall of some kind of you know,
• 25:32
  Speaker 3: independence of decision making. So in this case, that would
• 25:35
  Speaker 3: mean a firewall where CNN preserves its editorial independence. The
• 25:42
  Speaker 3: reliability of that is what is in question. And given
• 25:46
  Speaker 3: the alliance of the lessons and you know, with the administration,
• 25:50
  Speaker 3: that becomes a more acute question.
• 25:54
  Speaker 1: The jump administration has appeared to be a lax enforcer
• 25:59
  Speaker 1: of the anti trust laws. We talked about the Live
• 26:03
  Speaker 1: Nation settlement. After only four days of trial, the head
• 26:08
  Speaker 1: of the Antitrust Division was fired. Assuming this deal goes
• 26:13
  Speaker 1: through in years to come, if a new administration comes
• 26:17
  Speaker 1: in and doesn't like the deal, can they do anything
• 26:20
  Speaker 1: about it or is it too late?
• 26:22
  Speaker 3: It's not too late. Under the Hart Scott Redino Act,
• 26:27
  Speaker 3: which is the pre merger Notification Act that sets out
• 26:32
  Speaker 3: the procedures for review and the timing and so forth
• 26:37
  Speaker 3: a deal. The approval of a deal is never done.
• 26:40
  Speaker 3: The eggs could be scrambled, and there is precedent for
• 26:43
  Speaker 3: cases where they have been scrambled. It's a case called
• 26:48
  Speaker 3: the Chicago Bridge and Iron. The FTC went back after
• 26:53
  Speaker 3: the deal was consummated, after there had been a mixing
• 26:58
  Speaker 3: of divisions, and they saw that there was conduct as
• 27:03
  Speaker 3: a result of the merger that violated, in their view,
• 27:07
  Speaker 3: the anti trest laws, and they went in and they
• 27:10
  Speaker 3: undid it. Obviously, that's hard to do and it's a
• 27:12
  Speaker 3: rare thing, but it can happen. And so you know,
• 27:16
  Speaker 3: if there were let's just say, an administration with a
• 27:19
  Speaker 3: different view, a more aggressive view on this particular deal.
• 27:23
  Speaker 3: For instance, it could go back if it found that
• 27:27
  Speaker 3: in its view again that there was a violation of
• 27:29
  Speaker 3: Section seven of the Clayton Act. You know, it's a
• 27:32
  Speaker 3: very rare and difficult thing to show. Let me also
• 27:35
  Speaker 3: mention the states they have separate independent jurisdiction to enforce
• 27:40
  Speaker 3: the anti trest laws, separate from the federal authorities, and
• 27:44
  Speaker 3: they can sue under their own statutes, but they can
• 27:47
  Speaker 3: also sue under the federal statutes. And there's also another
• 27:50
  Speaker 3: technical thing to consider. Are they able to get documents?
• 27:55
  Speaker 3: How can they get documents from the second request review
• 27:59
  Speaker 3: that the deal undertook, and typically that's done by a
• 28:03
  Speaker 3: waiver by the parties. The parties i think would see
• 28:06
  Speaker 3: it as in their interest to cooperate with that. And
• 28:10
  Speaker 3: the second is what's the burden of persuasion for the
• 28:15
  Speaker 3: states to go ahead and what's the timing for them
• 28:18
  Speaker 3: going ahead? And the timing would be that Bonta has
• 28:21
  Speaker 3: said that this is on a really fast track and
• 28:24
  Speaker 3: he was specifically asked does that mean you'll try to
• 28:27
  Speaker 3: step in in months or weeks? And he said weeks.
• 28:30
  Speaker 3: And the showing that the states have to make to
• 28:33
  Speaker 3: preliminarily and join, you know, to try to stop the
• 28:36
  Speaker 3: thing in its tracks while they do a further review.
• 28:39
  Speaker 3: Is considerably higher than for the government. The government needs
• 28:44
  Speaker 3: to show only general public interest harm. The States need
• 28:49
  Speaker 3: to show specifically anti trust injury, which means they need
• 28:52
  Speaker 3: to show harm to their citizens, you know, both economically
• 28:57
  Speaker 3: and perhaps when we talk about CNN again more general way.
• 29:01
  Speaker 3: I think they can probably satisfy that, but it is
• 29:03
  Speaker 3: a higher burden and tell.
• 29:05
  Speaker 1: Us how viewpoint diversity plays in the States.
• 29:09
  Speaker 3: Might be interested in what we might generally call the
• 29:13
  Speaker 3: marketplace of ideas, otherwise known as the viewpoint diversity. It
• 29:18
  Speaker 3: is interesting and I think sort of most illuminating to
• 29:21
  Speaker 3: see what the DOJ did. In July. A group called
• 29:26
  Speaker 3: Children's Health it's an advocacy group in which RFK Junior
• 29:31
  Speaker 3: was involved before he became Secretary of HHS sued major
• 29:35
  Speaker 3: media outlets Washington Post, BBC, Reuters, some others for allegedly
• 29:40
  Speaker 3: colluding with major digital platforms to censor the anti vaccination
• 29:46
  Speaker 3: and other views of the plaintiff, and the DOJ weighed
• 29:50
  Speaker 3: in with what's called the statement of interest not on
• 29:53
  Speaker 3: the merits of the case, not saying how they thought
• 29:55
  Speaker 3: it should come out, but on the law, and what
• 29:58
  Speaker 3: they said was that the edged censorship would violate the
• 30:02
  Speaker 3: anti trest law as if there was an agreement that
• 30:04
  Speaker 3: was shown because it suppresses viewpoint diversity, that is, the
• 30:09
  Speaker 3: viewpoints of the plaintiffs as to these medical issues. In
• 30:13
  Speaker 3: the case of CNN, the question is not that antitrust
• 30:19
  Speaker 3: would be supporting the views or you might say the
• 30:22
  Speaker 3: positioning of CNN, but rather its importance. It's almost sort
• 30:27
  Speaker 3: of like the obscenity test. We know that CNN has
• 30:30
  Speaker 3: an important place in the media landscape for viewpoint diversity,
• 30:35
  Speaker 3: and not as an anti trust technical point, but you
• 30:38
  Speaker 3: could you know, people are pretty much aware that to
• 30:40
  Speaker 3: the right is Fox, to the left is ms formerly MSNBC,
• 30:45
  Speaker 3: and there's CNN. It has global scope, it's twenty four
• 30:48
  Speaker 3: to seven. I think, however, you measure it whether it's
• 30:51
  Speaker 3: broadcast news and cable as a market or you know, digital,
• 30:55
  Speaker 3: and in the first CNN is about twenty percent. If
• 30:58
  Speaker 3: it's digital, CNN is number one. If its independence were compromised,
• 31:04
  Speaker 3: then that is a serious hit that I think the
• 31:08
  Speaker 3: DOJ would have to be recognizing as something that is
• 31:13
  Speaker 3: important to it. Albeit that it did not raise this point,
• 31:19
  Speaker 3: you know, in effectively clearing the deal and taking no action.
• 31:23
  Speaker 3: Why it didn't you know, people can have assumptions, but
• 31:26
  Speaker 3: there is a significant precedent which the DOJ itself cited
• 31:30
  Speaker 3: going back at least fifty years, on which this advocacy
• 31:34
  Speaker 3: of viewpoint diversity stands. And then simply that, you know,
• 31:38
  Speaker 3: California and the other states would have to show that
• 31:41
  Speaker 3: any suppression of that constitutes the essential finding that's required
• 31:46
  Speaker 3: of antitrust injury. That this is it is a form
• 31:50
  Speaker 3: of non economic competition. In a number of newspaper cases,
• 31:55
  Speaker 3: what the courts have articulated, like in two newspapers in
• 31:58
  Speaker 3: a town, they've adulated both economic injury let's say, the
• 32:02
  Speaker 3: loss of advertising with that consolidation, but also editorial and
• 32:07
  Speaker 3: so this is a very challenging issue, but I think
• 32:12
  Speaker 3: also an extremely important one, and particularly at this time
• 32:16
  Speaker 3: in the country.
• 32:17
  Speaker 1: Well, we'll be watching to see whether the California ag
• 32:21
  Speaker 1: takes action within a few weeks. That's Anti Trust attorney
• 32:25
  Speaker 1: Richard Wolfram, And that's it for this edition of the
• 32:27
  Speaker 1: Bloomberg Law Show. Remember you can always get the latest
• 32:30
  Speaker 1: legal news on our Bloomberg Law podcast. You can find
• 32:33
  Speaker 1: them on Apple Podcasts, Spotify, and at www dot bloomberg
• 32:38
  Speaker 1: dot com, slash podcast, slash Law, and remember to tune
• 32:42
  Speaker 1: into The Bloomberg Law Show every weeknight at ten pm
• 32:45
  Speaker 1: Wall Street Time. I'm June Grosso and you're listening to
• 32:49
  Speaker 1: Bloomberg
• 32:52
  Speaker 3: A