Recount for Lina Khan
A federal judge’s decision to allow Microsoft to close its $70 billion takeover of video game maker Activision Blizzard didn’t just represent a victory for the tech giant. It’s also a major blow to the FTC, which sought to block the transaction.
That leaves Lina Khan, the agency’s chief and a proponent of broader antitrust regulation, facing a tough question: Is her strategy of aggressively fighting mergers backfiring and actually encouraging more negotiations?
Microsoft is close to reaching the agreement. In her 53-page ruling, Judge Jacqueline Scott Corley wrote that the FTC had not shown that Microsoft buying the maker of Call of Duty would substantially reduce competition in the video game market.
In more good news for Microsoft, Britain’s Competition and Markets Authority – the last remaining regulator opposed to the transaction – said on Tuesday that it was now ready to hear solutions from the company. That means the Activision deal, the biggest tech acquisition ever, could close as soon as next week. (The deadline for the transaction is July 18.)
Tuesday’s ruling was the latest setback for Ms. Khan’s FTC, who gave up a fight earlier this year against Meta’s purchase of virtual reality startup. And last fall, the FTC suffered a defeat on what it assumed was friendlier ground: a judge in its own administrative court. rejected the regulator’s argument that the $7 billion takeover of the gene-sequencing company Illumina by Grail, a cancer-detection specialist, was illegal.
Ms Khan is unlikely to change direction, at least for now. The FTC could appeal Judge Corley’s decision immediately wednesday. Its argument may revolve around what Robert Lande, a professor at the University of Baltimore School of Law, said DealBook was the judge’s reliance on an erroneous legal standard about the likelihood of reduced competition.
And Eleanor Fox, a professor at NYU School of Law, told The Times that Ms. Khan’s broader approach is more in line with what regulators in Europe and Britain are doing. (That said, EU officials cleared Activision’s deal in May.)
But skeptics say the FTC is in a weaker position. One corporate consultant told DealBook that the agency’s losses were strengthening the limits of existing antitrust jurisprudence. “Khan is trying to do very ambitious things against a very entrenched ideology,” Columbia Law School’s Anu Bradford told DealBook. “This ruling suggests that courts may not be ready.”
Negotiators feel increasingly emboldened. Executives and advisers told DealBook that companies are ready to roll the dice when it comes to ambitious deals. (Of course, they cautioned, it all depends on the circumstances of each situation.)
Many still see the FTC suing to block large transactions, but they believe the agency’s repeated losses mean they have a better chance of winning in court.
THIS IS WHAT IS HAPPENING
Bank of America is fined $150 million. Federal regulators accused the lending giant of withholding promised benefits from credit card customers, double-charging overdraft fees and opening card accounts in customers’ names without their knowledge or consent. The penalty reflects in part the Biden administration’s effort to punish companies for what it calls “dumping fees,” which it says hurt consumers.
Senators will examine the prospect of more bank mergers. The Senate Banking Committee will hold a hearing on Wednesday on the subject, given the chaos wrought by the collapse of Silicon Valley Bank this spring. Treasury Secretary Janet Yellen has suggested that more mergers could strengthen the banking system; Senator Elizabeth Warren, the Democratic chair of the committee, is skeptical of the argument.
Another big insurer is pulling out of Florida. Farmers said it would stop offering coverage in the state, terminating about 100,000 policies, citing a need to “manage risk exposure.” It is the fourth insurance provider to limit its business in Florida as the state battles more natural disasters amid climate change.
Tesla is reportedly looking into a company-financed house for Elon Musk. Known internally as “Project 42”, the proposal called for expansive glass-wall structure near the electric car maker’s headquarters in Texas, according to The Wall Street Journal. Board members examined the plan to see if company money was misused, although The Journal said the outcome of the project and the investigation could not be determined.
Lifting the lid on the PGA-LIV talks
The PGA Tour came under fire Tuesday in a Senate hearing over its proposed deal with LIV Golf, its Saudi-backed rival. The deal could see the kingdom pour more than $1 billion into the sport, but the deal has been slammed by lawmakers, and the Justice Department is expected to scrutinize it.
Here are key takeaways from the hearing and documents released by the Senate:
The deal was announced before it was done. Jimmy Dunne, the investment banker and PGA Tour director who helped orchestrate it, said “the launch was very misleading and inaccurate, which is everybody’s fault.” He said no merger had been agreed upon.
Michael Klein, the veteran businessman and adviser to Saudi Arabia, pushed the two sides to release information, according to the documents. “The announcement is too big to wait until the final one. If we don’t publish the messages, others will fill in,” he wrote to the parties involved in an email. “The worst thing we can do is let opponents lead the choir. “
The PGA Tour felt it had no choice. Mr Dunne and the tour’s chief operating officer, Ron Price, told the hearing that the billions behind LIV made it impossible for the PGA Tour to fight indefinitely. The wealth fund wanted to “destroy the tour”, Mr Dunne said, and is backed by “an unlimited horizon and an unlimited amount of money”.
The negotiators defended keeping the board and players in the dark. “We were really afraid that once the lawyers on the other side found out about it, it would be poof, gone,” said Mr. Dunne, who was one of the lead negotiators along with Ed Herlihy, a partner at Wachtell and co-director.
The PGA Tour executives were given a list of people and sponsors to call on the day the deal was announced. Top of the order for Jay Monahan, the tour commissioner: Rory McIlroy, director and one of LIV Golf’s most vocal critics, and Tiger Woods. One proposal floated the idea of the two players owning LIV teams.
Exclusive memberships for top Saudi officials were offered. The Saudi sovereign wealth fund floated the idea that Yasir al-Rumayyan, its governor, could acquire memberships at Augusta National Golf Club and the Royal and Ancient Golf Club of St. Andrews as part of the deal. Neither club is controlled by the PGA Tour, but both Mr. Dunne and Mr. Herlihy are members at Augusta.
The key question: governance. Mr. Dunne reiterated that the PGA Tour will continue to be in charge, despite the Saudi money. “What I can tell you is that the tour will continue to run the game,” he said. “The tour will appoint a majority of the board of directors.”
“The end is to allow things to continue until union members start losing their apartments and losing their houses.”
– An unnamed studio executive who told Deadline that Hollywood plans to let the weekly writers’ union strike continue into the fall, causing economic pain. Actors could join the writers on strike as a midnight deadline looms.
Tech giants are facing new AI cases
Chatbots and generative artificial intelligence have captured the public’s imagination, and the technology’s biggest proponents say it could add trillions in economic value over the next decade. It also generates lawsuits that present troubling new problems for courts and companies.
On Tuesday, Google was sued in a putative class action in federal court in California that accused the company of violating privacy laws and committing “perpetual theft” by scraping online data from Internet users to train its chat room without their consent. The Google case, and a parallel filed last month against Microsoft and OpenAIthe creator of ChatGPT, demands that the technology companies compensate internet users for this data appropriation.
The cases represent “an evolution of people’s understanding of the value of data,” said Tracey Cowan, a partner at Clarkson, who filed the lawsuits. People increasingly understand that their online footprint — think posts and likes — holds economic value to tech companies. In the social media economy, an industry of data brokers has emerged to buy and sell such data. In the age of AI, similar data is used to train new generative AI tools.
For that reason and others, tech executives themselves, including OpenAI CEO Sam Altman, have called on lawmakers to regulate AI in recent months.
The costumes go a step furtheradding to the public cries for a temporary halt to the commercialization of AI pending the development of guidelines. “We’re all just guinea pigs in their experiment,” said Ryan Clarkson, a partner at the firm. In the meantime, the suits are calling for letting users choose so they can better control how tech firms use their data.
“We have been clear for years that we use data from public sources — such as information published on the open web and public databases — to train the AI models behind services such as Google Translate, responsibly and in accordance with our AI Principles,” said Halimah DeLaine Prado, general counsel at Google. “US law supports using public information to create new useful uses, and we look forward to refuting these baseless claims.” Microsoft declined to comment; OpenAI did not respond.
Comedian Sarah Silverman also joined the AI lawsuit, signing a separate lawsuit against OpenAI and Meta for copyright infringement. She is the latest big-name creator to demand that AI companies that use her intellectual property license it first.
THE SPEED OF READING
Agreements
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ByteDance, the parent company of TikTok, is reportedly letting go of American employees to cash in their shares in the Chinese tech giant ahead of any IPO (Reuters)
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Nvidia is said to be in talks to become a cornerstone investor in the upcoming IPO of Arm, the British chip designer. (FT)
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The tech tycoon Sam Altman plans merge Oklo, a nuclear power startup he backed, with a blank-check vehicle he created, taking the company public. (WSJ)
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Disney is said to be weighing a sale of its Star India business, amid mounting losses at the division after it lost the streaming rights to Indian Premier League cricket matches. (WSJ)
Politics
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