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Elliot Stein
Hello and welcome to the Votes and Verdicts podcast hosted by the Litigation and policy team at Bloomberg Intelligence, the investment research platform of Bloomberg LP on the Bloomberg Terminal. Bloomberg Intelligence has 500 analysts and strategists working across the globe and focused on all major markets. Our coverage includes over 2,000 equities and credits, and we have outlooks on more than 90 industries and 100 market indices, currencies and commodities. This podcast series examines the intersection of business policy and law, and today's our periodic look at the litigation and policy catalysts that we're watching and that we think will impact companies across a number of different sectors. My name's Elliot Stein. I'm an analyst with Bloomberg Intelligence covering litigation in the financial sector, and I am delighted today, as always, to be joined by a handful of my BI colleagues. Just a quick reminder, you can find all of our research on the Bloomberg Terminal at BI Go, and you can access our litigation and Policy dashboard on the terminal at bilawsgo just to timestamp this episode because things move quickly. Today is Thursday, May 28, and it's about 11:40am here in New York. All right, so let's start with something that is on the radar of any parent with Teenage kids like me. And also Matt Chattenhelm, our analyst covering TMT litigation and policy. The issue is social media addiction, and I know there's a fair amount of litigation on this issue that Matt, you're tracking. Meta and other social media companies settled the first bellwether case brought by schools, I believe, last week. That was set to go to trial in June. But maybe, like, you know, give us the context. Put the settlement in the context of the larger litigation landscape. What are you watching for next? And how big a deal might this actually be for the social media companies?
Matt Chattenhelm
Yeah, thanks, Elliot. So I think it is starting to be an issue that the companies need to take seriously in this litigation. So what I've been watching most closely is a consolidated federal case that brings together three categories of cases. One category is personal injury suits. It's individual teens suing the companies one by one, saying they're harmed. Basically, that's not a class action. Each teen has to sue by themselves. The second category is school districts. There are about 1,200 school districts across the United States suing, saying, look, our students have been harmed by your services, and that inflicts costs on us as school districts, and you are negligent. You've created a public nuisance. We're pursuing that. And then the third category are state attorneys general, and There are over 30 state attorneys general suing in this consolidated case, just Meta, for alleged unfair and deceptive practices. This mostly focuses on statements that Meta has made about the safety of its product and how it. How it treats young users and the allegation that the company was deceptive. And to me, when you ballpark those three categories of cases, it's that last category, the state attorneys general, which is the most significant one because it pools together the ability to seek massive financial civil penalties against the companies. Whereas you take the first category, personal injury suits. Since this can't really be a class action for damages because everyone's harmed differently, the courts are making each victim sue individually. That's not as big a deal for the companies. But these state attorneys general suits, and then second in line, the school suits, are the big ones. And what happened last week was the first bellwether trial for a school was teed up for mid June. We were supposed to go to a jury on that one, and the company's all settled, made that one go away. That doesn't really change, you know, how this litigation takes shape. It just means we move on to the next one, and it delays. It kicks the can down the road a little bit.
Elliot Stein
So that. That just resolved that particular bellwether school district or the entire. Okay, not the entire school.
Matt Chattenhelm
Class action one Kentucky small school, you know, very small Kentucky school district was teed up to go first. The company's resolved it with that particular school district. So the judge moves to the next two bellwethers on her list. And she's already set trial for it may be early next year. So it delays things is what it does, because you gotta prepare for trial. But the real thing I wanted to focus clients on is what's next is we now move to the state attorneys general, which is set for trial in August. August 17th is the trial on that one. And as I said, I think that's the big ticket item. We just had a headline come out today saying Kentucky. Kentucky is one of 18 states that are suing for unfair and deceptive statements. Say, look, we are seeking. I don't remember if it was 30. No, it was $40 billion in civil penalties. That's Kentucky. Kentucky has 3% of the teens involved here. So the math gets absurd very quickly in terms of what they're asking for. Now, that's not realistic in terms of actually ballparking where this lands, but it's a big deal. And so the pressure on Meta to settle around this August 17th trial and for significant dollars and potential changes to its platform is going to be real. So that's the date I'm really watching.
Elliot Stein
And that trial in Aug, that's all the states, or just some of them.
Matt Chattenhelm
So it's all the states in this consolidated litigation are all pooled. It's strange in that sense because they're each applying their own law. And so you would typically think of each state attorney general doing its own suit. And some states are doing that. So New Mexico jumped ahead of the line.
Elliot Stein
Right. I recall there was a trial or a settlement.
Matt Chattenhelm
Yep. Yeah. And I think that's sort of the best measure of, as we're ballparking, how this is going to play out. New Mexico brought these claims to a jury in state court, and the jury entered a verdict against the company for $375 million. And so that's really what's going to guide me as I sort of ballpark, you know, what. What could be at stake here. So, you know, I basically, I think you get to the low billions of dollars in a potential settlement. You can do the math to get to the high teens, 20s, billions of dollars, obviously. But I think when you think about realistic settlement value, you're probably looking at the low billions of Dollars, you know,
Elliot Stein
as a reasonable estimate across all three categories of cases, or just with the states.
Matt Chattenhelm
So I think, you know, the states are the big one, I think, and then the schools are a little bit lower, and I'm looking at comparable litigation to do that. You know, Juul was sued by the same categories of users, and in inflicting harm on young users, and it played out where it paid the most of the states and a little less to schools and then less to personal injury suits. So I ultimately come down in low billions of dollars. And I don't have a, you know, precise mathematical formula on any of this, but. But I think it lands somewhere in that, for, in. In that ballpark with the states getting the bigger, bigger piece of the pie and then schools and then personal injury.
Elliot Stein
And which companies are involved? I mean, Meta, obviously, but are there still other companies that are involved in these trials upcoming?
Matt Chattenhelm
Yeah. So in this consolidated litigation, there are four companies, Meta, Google, through YouTube, TikTok and Snap. And. But the, the big difference is only Meta is being sued by the state attorneys general.
Elliot Stein
Oh, interesting.
Matt Chattenhelm
Yeah. Yeah. So I think TikTok is separately being sued by state's attorneys general, but it's not in this consolidated litigation. YouTube and Snap may much smaller in terms of the state attorney general risk for them, but for the personal injury and the school suits, they. They go after all four companies sort of equally. So, but, but as I said, the big dollar amount risk here is, is the state attorney general suit, and that's what's up next for Meta.
Elliot Stein
So.
Matt Chattenhelm
So really that's my focus at this point.
Elliot Stein
And that's in August, right?
Matt Chattenhelm
Yes. Yeah. August 17th. Trials start. Start is teed up.
Elliot Stein
Nothing like a trial in the middle of August.
Matt Chattenhelm
Yes.
Elliot Stein
All right, Matt, good stuff. We'll probably check back in later this summer to see what's going on there.
Matt Chattenhelm
Sounds good.
Elliot Stein
All right, Justin Teresi, let's bring you in. Talk some antitrust and corn and soybean seeds. So it sounds like the Justice Department is looking at these sectors for potential antitrust violations. You got to come in and tell me what this is all about, because I haven't really been following it closely.
Justin Teresi
Yeah, you know, before anyone stops listening, I'm just going to start by saying this has got everything you want here. This has got affordability, this has got tariffs, this has got electoral politics. So don't hit pause, don't hit stop on the recording right now. I think that's the first message I think I need to send to folks. But look, this. This is actually I think, super interesting, right? So I think what we're seeing here is yet another kind of move by the Trump administration to, to appease farmers, I think, in a lot of, a lot of ways for, you know, in light of the midterms that are rapidly approaching here. And I say that because there was a lot of fallout, I would say, from the heartland related to reciprocal tariffs as a result of the tariffs at the US Tariffs that the US Instituted last year. And especially. So that's true with regard to soybeans. Right. China said, hey, we're not going to buy a lot of this soy, which really hit a lot of American farming hard. And I think now what we're seeing is a situation, situation where folks who are growing corn and soybeans really are facing, you know, a lot of challenges from, from a fiscal perspective. So with all of that in mind, kind of moving, moving ahead here, the DOJ announced last year, fourth quarter, that it was going to be entering a memorandum of understanding with the Department of Agriculture. And the purpose of that is to really look at all these inputs that go into growing crops to see where there are possible antitrust issues that are occurring, whether it be price fixing, whether it be monopolization, all those different things. Right. The idea was that they would jointly look together where there might be problems. And folks, fast forward a bit to first quarter of this year. News reports indicated that civil investigative demands or subpoenas went out to folks who don't know who in the corn and soybean space really looking at antitrust issues. And we don't really know a lot about what those are, other than DOJ has now said that they involve, quote, exclusionary conduct. Right. That could mean a lot of different things, but I think at the heart of it all, potential monopolization in this space. What do we know? We know that between Corteva And Bayer, those two companies control 85% of the intellectual property rights that are tied to corn seed and 76% of those rights that are tied to soybeans. And that matters because we're really seeing the burgeoning here of genetically modified seed. Right. So if you own the ip, you kind of own that space. And that's why Bayer and Cordiva have really been able to take off as leaders, as the two leaders, if you will, in this space. DOJ has been really active the last month or so in this space. I think in many ways, with the election fast approaching, there's right now an IP suit going on between Corteva and a smaller rival. Related, when and how folks should be able to see these seeds that are patented. The DOJ filed a statement of interest in that case saying, look, you know, this isn't just like some, you know, scientific diagram that's been patented. This isn't some mechanical invention. Seeds are these biological materials, and for that reason, maybe they should be deposited in a depository. Go figure. Where folks can actually see that product, they can see that patented seed, so they can improve upon it or actually get really quickly into production of that patented item once the expiration on it ends. So DOJ kind of stepping in, looking at those IP issues. And then last week on May 20, DOJ said that in the course of its investigation, they reached a commitment from Bayer. Not a settlement, but a commitment where Bayer will look at its loyalty program it has in place, where its sales of corn seed and soybean seed were allegedly tied together in the sense that if a farmer wants to get a discount on one of those particular, one of those particular lines based on the volume they're purchasing, they'd have to meet sales targets for both of those lines to get a discount on the other. So the products are tied, kind of entrenching a monopoly on one by virtue of forcing one on the other. So interesting to see that too. Where the investigation is going from here, we really don't know. We don't know the scope of the exclusion, exclusionary conduct that's under review. But you know, it's really interesting here, I think, to see, you know, coupled with investigations that we, we've seen news reports on and things like fertilizer, you know, we've seen investigations happening in the beef space, but not just the beef prices paid by consumers. We're looking at how big beef might be affecting those small ranchers, you know, that we're thinking about on farms in the Midwest or, or the Northwest. Right. So it's interesting here too. I think we're seeing kind of this antitrust issue across the board in agriculture, and a lot of it at a time with the midterms coming up. So that's kind of what we're looking at there. I think a lot of different alleys this investigation could go, tying claims, if that's what we're looking at here. They can be hard to prove. Folks will offer their justifications that are pro competitive for doing things the way they are. It would be really speculative to guess what, what DOJ might find or what they're looking into. But just to put this on the radar, I think this is another piece of that larger Agricultural pie that's really being served up by the administration right now.
Elliot Stein
That's so interesting, such an interesting issue. Is there anything in particular you're looking for next? I mean, it's hard to know because these investigations are done behind closed doors. But is there anything. I mean, have the companies said anything about it as well?
Justin Teresi
So the companies have not, per se. The doj, I thought this was really interesting, but the DOJ announced this commitment with Bayer on May 20th. Right. And it did so not only announcing this commitment with the changes to its loyalty program, but it also acknowledged in that announcement that there was an ongoing investigation happening. Typically these things are so much more confidential and you're not going to see any kind of product of that investigation until it's finished and over with. But this is just another way of business at doj, I think, being done differently from, from what the norm has been in the past. Right. But I haven't seen too much from the companies. I haven't seen anything frankly from Corteva, which makes sense that the DOJ only filed a statement of interest and litigation. I haven't seen anything about CID being received by them. But it's speculative. I would say the investigations in its early stages, if these subpoenas just went out earlier in the spring or winter even, it's would seem to me that it's early. But you look at a thing, at something like the loyalty program and what might on its face be a really easy thing to point and say, hey, that's tying. And maybe that's why they were able to get a commitment so early on in the scope of their investigation. But as far as anything else progressing, I think we're pretty early on here and I wouldn't expect that we would see a lawsuit, if there even is going to be one, you know, anytime this year.
Elliot Stein
And when you say tying, you mean like the price of one type of seed is tied to.
Justin Teresi
Well, the products are tied right in, in the sense that to get a discount on one, you know, you need to, you need to also hit a sales target on the other. Right. So, so tied in that sense. Or, you know, product bundling could be another thing that perhaps, you know, they're looking into. But again, we don't know that. That's, you know, if, if you want to buy one, you got to buy it with the other one. Similar to tying. And that's in that way too.
Elliot Stein
Got it. All right. Well, we will stay tuned, I guess. Right. Since without a docket to track, it's hard to know exactly what the next catalyst or when the next catalyst is going to be. But I know you'll let us know when that happens, so we will stay tuned. All right, thanks, Justin. Let's bring in Andrew Silverman, our taxman. This is where every time I bring you in, I want to play like the Beatles taxman intro. But until we do that, we'll just talk. So you put out a couple notes this week that are really interesting about taxes and artificial intelligence. One note was titled AI Could Shift the Federal Tax Burden. And another note was titled AI Likely to Totally Reshape State and Local Taxes. So I mean, it sounds like the ground may be shifting here in terms of how AI is treated in terms of its tax treatment. But what have you been seeing and what are you expecting?
Andrew Silverman
Yeah, so that's actually the interesting part about it. I think governments haven't really grappled with the fact that the tax landscape may be changing completely. There may be a total earthquake in, in taxation. And I don't say that lightly. I think it really does. AI really does pose a risk for states, for the federal government, and for foreign governments as well. Because governments not only in the United States, but also abroad, they get the majority of their tax revenue from people, from human labor. Right. Government's tax, wages, payrolls, consumer spending. Yeah. So if they rely. Well, obviously I guess we all know that. But if AI shifts economic activity away from labor and towards compute, infrastructure
Elliot Stein
and
Andrew Silverman
energy, then they're going to have to tax data centers, semiconductor companies, electricity generation and cloud infrastructure rather than workers. And like I said, if our tax system is based largely on revenue from employment, that's a huge problem for governments. Right. I mean, in The United States, 80% of federal revenue comes from workers. Right. States and cities depend on wage income and also labor driven consumption. So if AI reduces labor intensity across the economy economy, governments could face a structural revenue problem.
Elliot Stein
Have any governments sort of said this already and started moving towards a different system? I guess no. Okay.
Andrew Silverman
That's the thing. Yeah. Governments haven't thought about it at all. In fact, the tax community hasn't really written about it either, as far as I can tell. I'm actually the first person to raise this point. Sort of put two and two together.
Elliot Stein
Yeah. Interesting. So what do you think they need to do?
Andrew Silverman
Yeah, they're going to have to go where the revenue is if it's not going to be employees. Now, I'm not saying that they're not going to be able to tax individuals at all anymore. We're talking about it's sort of a low AI automation shift. We're talking about 1 to 3% of individuals losing their employment or having to shift jobs. But, but in a high automation scenario we're talking about 15%. So it's not nothing, but, but it, it is something. Right? And if we're talking about 15%, that's like $800 billion a year.
Elliot Stein
So are there, but are there already, I mean data centers have been around for a while. The cloud's been around for a while. Is, are there taxes on these types of products or are you just saying the taxes that are already in place for sort of non labor elements will have to be higher?
Andrew Silverman
Well, I mean obviously we already have corporate taxes, we already have other taxes on businesses, but I think that companies or governments are going to have to shift to more specific taxes on AI companies. So you know, instead of taxing like a, a hospital or taxing a service company that's going to be reliant on individuals and the governments want to encourage, to keep employing individuals, they're going to have to focus those taxes just on the industries that are going to be sort of sucking up all that revenue. So higher electricity taxes, higher utility surcharges, higher property taxes and data specific fees as well. So that's a revolution in taxation.
Elliot Stein
Yeah, yeah, that'd be, that's like music to your ears, right?
Andrew Silverman
Exactly. Yes, yes. Right.
Elliot Stein
And do you expect to see the changes first at the federal level or the state and local level?
Andrew Silverman
So generally speaking, we, I think this is sort of a broad generalization, but we call the states the, the laboratory of legislation. Same thing with taxes. It's going to come from states first and they're probably going to feel it first because they're smaller. If they start losing revenue from sales taxes, from income taxes, things like that, they're going to feel it faster. They're going to have to adjust more quickly. And so I think the first place we're going to see it is at the state and local level. And then the federal government will probably feel it thereafter. And normally what happens is the federal government looks to the states to figure out how to address these sorts of problems, but the federal government is not going to react immediately. They're probably going to keep taxing employment until they can't tax employment anymore. And then they're going to react at the last minute and sort of maybe overreact and shift things more so to corporations. And then as things sort of adjust and people switch jobs to something that's sort of AI compliant, then they, they can sort of shift back to employment taxes again. So I see this as sort of a temporary shift, but it's something that's going to happen over the next 20, 30, 40 years. So it's temporary, but it's also sort of a slow moving process.
Elliot Stein
Gotcha. Yeah, I was going to ask on the timing. I mean, that's a pretty long time horizon. I mean, what's sort of the soonest you expect to see some changes and where like what states do you think might be the leaders here?
Andrew Silverman
Well, that's a good question. So the biggest data centers are in Virginia, Texas. They're more opening up in Ohio than any other state. So I would expect that those states would probably start adjusting the quickest. But states like California and New York, that's where all the people are. Right. So the people that are using the
Elliot Stein
AI and historically have not been shy about taxing residents.
Andrew Silverman
Exactly. And there's been this shift over the past decade or so because of the Wayfair case. If people aren't familiar with that, it went to the Supreme Court in 2017, 2018, something like that. It's a case that the Supreme Court said that states can tax out of state retailers for sales taxes applied to people within the state. And so it was a huge tax burden shift to companies like Amazon and Google and Meta and those sorts of companies. States have been sort of shifting not only their sales taxes, but their corporate taxes in that direction as well. And so I see this as another shift in that direction. But the interesting thing is that AI is not exactly sort of mapped on to that concept. And we're talking about the digital taxation. AI doesn't really. It's sort of a hybrid between the old school fiscal taxation and new digital taxation. So interestingly, something like a pillar one or pillar two, the base erosion and profit shifting initiative from the oecd. Those don't really apply very well to AI. And so all of these efforts that were being made at the international level, they're probably going to have to shift those too. But. But states like California, they're going to have to figure out how to capture that revenue in a different way than they have been trying to capture that Wayfair revenue. So yeah, it's an interesting problem. And states are going to have to rethink about how they tax on a broad scale.
Elliot Stein
So interesting. I feel like we should do a whole episode dedicated to this and get some state policymakers on or state tax tax policy legislators or whatever tax regulators on to talk about this. All right, Andrew, super interesting no one gets fired up talking about taxes quite like you do.
Andrew Silverman
That's true.
Elliot Stein
But super interesting issue. All right, I think with that, we're going to wrap up this episode of Votes and Verdicts. As always, thank you for listening. If you have any questions about any of the matters we discussed on this episode, please don't hesitate to reach out to us at your convenience with questions. We want to thank our producers Aditya Somani and Mariam Treore, without whom this podcast would never publish. Thank you for listening and have a great day.
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Episode Theme: Litigating Social Media Addiction, Antitrust Scrutiny in Seed Markets, and the Coming AI Tax Earthquake
Host: Elliot Stein (Bloomberg Intelligence), with Matt Chattenhelm, Justin Teresi, and Andrew Silverman
This episode of "Votes & Verdicts" explores three hot-button legal and policy issues at the intersection of business, law, and regulation:
(01:39–11:12)
Speakers: Elliot Stein, Matt Chattenhelm
Types of Lawsuits:
Recent Developments:
Potential Liabilities:
Relative Exposure:
(11:12–18:43)
Speakers: Elliot Stein, Justin Teresi
Background:
Market Dynamics:
Recent Developments:
Wider Pattern:
(19:49–28:05)
Speakers: Elliot Stein, Andrew Silverman
Threat to Traditional Tax Bases:
Implications:
Policy Readiness:
Anticipated Shift:
This episode of "Votes & Verdicts" highlights three unfolding dramas at the intersection of policy, law, and commerce. Social media companies face escalating multi-billion-dollar risks over youth harms, Big Ag's control of seed markets is drawing fresh regulatory fire, and the rise of AI could upend the tax assumptions of modern government. Listeners are guided through each issue with expert analysis, relatable analogies, and glimpses of what to watch for next.