Good morning. We examine how the Biden administration's lawsuit against Apple tests antitrust boundaries; scoop Michael Eisner backing Bob Iger in Disney's fight with Nelson Peltz; analyze why regulators are looking to redefine bank merger rules; and take a look at where China leads the U.S. on A.I. (Was this newsletter forwarded to you? Sign up here.)
A shot at Apple's moneymakerWith its antitrust lawsuit against Apple, the Biden administration has joined a growing list of regulators taking on the iPhone giant. But the Justice Department is taking a more ambitious approach than the others by aiming at the company's tight control of the iPhone ecosystem, which officials say hurts consumers and developers while producing giant profits. If successful, the case could upend a business model that has made Apple one of the most profitable companies in history — but victory would require courts to accept a redefinition of decades-old antitrust law. Prosecutors zeroed in on Apple's efforts to lock-in consumers. The Justice Department argues that the company unlawfully restricted competition by blocking key iPhone features to prevent consumers from switching devices. Apple is profiting "not by making its own products better, but by making other products worse," Attorney General Merrick Garland said yesterday. The lawsuit identified five areas: smart watches, digital wallets, cloud-based gaming, messaging apps — yes, the green-bubble debate is key here — and so-called "super apps" that bundle different programs. (It also suggests that Apple's behavior affects an even wider array of products, including cars.)
Apple said the approach amounted to excessive interference in business. "If successful, it would hinder our ability to create the kind of technology people expect from Apple — where hardware, software, and services intersect," a spokeswoman said, adding that it would let the government have a heavy hand in designing people's technology. Regulators globally are already changing how Apple operates. The European Union's sweeping Digital Markets Act aims to open up iOS and the App Store, and the bloc has also fined the company $2 billion for hampering music-streaming competitors. South Korea and the Netherlands have adopted legislation to require app store owners to allow alternative payment systems. (Skeptics say Apple is seeking to undermine those efforts.) The new case pushes the boundaries of traditional antitrust policy. That's in keeping with the stated aim of regulators like Jonathan Kanter, the Justice Department's antitrust chief, and Lina Khan, the head of the F.T.C.
"We want to help real people by making sure that our antitrust laws work for workers, work for consumers, work for entrepreneurs and work to protect our democratic values," Kanter told The Times in January, declining to comment on specific cases. But some experts think this lawsuit is a stretch. Gus Hurwitz, a senior fellow at the University of Pennsylvania Carey Law School, told DealBook that antitrust policy traditionally hasn't focused on issues like porting consumer data to different platforms. He added that while prosecutors were seeking to help some consumers — those who favor switching devices — the lawsuit could end up hurting others. Users of iOS "derive a lot of value from their closed ecosystem," he said. "Apple users like the closed ecosystem and the benefits that confers on them."
Reddit soars in its first day of trading. Shares in the social media company jumped 48 percent yesterday, putting its valuation at $9.5 billion — just shy of the $10 billion it attained in a fund-raising round three years ago. That warm reception could persuade other companies to go public, reopening an I.P.O. market that has been largely frozen for several months.
Shareholders are set to vote on taking Donald Trump's social media company public. Investors in Digital World Acquisition Corporation, the shell company that has agreed to give Truth Social its stock market listing, are expected to approve the transaction, meaning that Trump's platform could begin trading next week. That would be good news for Trump, who could then borrow against his $3 billion stake in the company to raise money for legal bills. BlackRock pushes back against Texas. The Wall Street giant said it had made more than $250 million for the state's Permanent School Fund, after the fund withdrew $8.5 billion, citing a 2021 law barring it from working with investment managers seeking to divest energy stocks. It's the latest clash between conservative states and financial firms over the investing approach known as E.S.G. A former Disney chief hits back at PeltzAs the showdown between Disney and the activist investor Nelson Peltz nears — shareholders are set to vote on board nominees at the company's annual meeting on April 3 — prominent supporters are emerging on both sides. DealBook is the first report on a new one: Michael Eisner, who was the company's C.E.O. for more than two decades. Eisner gave DealBook an exclusive statement: In 1983, Disney was under attack by corporate raiders trying to take over the company. That would have ended the Disney Company as we know it, for the studio, theme parks, and hotels were suggested to be sold off. The board turned to me and Frank Wells, and a different story was written, one that was continued by Bob Iger and his executive team. Today, a similar situation exists, so let's remember the lessons from 40 years ago. Bringing in someone who doesn't have experience in the company or the industry to disrupt Bob and his eventual successor is playing not only with fire but earthquakes and hurricanes as well. The company is now in excellent hands and Disney shareholders should vote for the Disney slate. Others have weighed in, following the proxy advisory firm Glass Lewis and Disney's top individual shareholder, the filmmaker George Lucas (both backed Disney and its current chief, Bob Iger):
I.S.S. advised withholding votes for an incumbent board member, Maria Elena Lagomasino, citing "multi-year concerns" about her role on the compensation committee. (Interestingly, the firm didn't recommend that shareholders vote to add Jay Rasulo, the former Disney C.F.O. whom Peltz has also nominated as a director candidate.) Regulators rethink big bank dealsThe regional banking crisis spurred a wave of consolidation just over a year ago. Now, regulators want to increase the scrutiny of big bank acquisitions — which could worsen the odds for deals like Capital One's $35 billion bid for Discover Financial. The F.D.I.C. is proposing the first overhaul of takeover rules since the 2008 financial crisis. Under the new framework, which would apply to deals that create a bank with more than $100 billion in assets, regulators would need to consider the transaction's effects on public interest grounds, including financial stability, communities and competition. That would represent a big shift. Bank merger reviews traditionally focused on deposits and branches. But Jonathan Kanter, the Justice Department's antitrust chief, said yesterday that lenders now offer so many different services that a more expansive approach was needed to take into account how a deal would actually affect competition. (The Office of the Comptroller of the Currency is also pushing for rules to prevent big banks from buying rivals.) The Discover deal was already poised for tight scrutiny. Rohit Chopra, the director of the Consumer Financial Protection Bureau, told DealBook that the credit card market had been consolidating for years, and that "any proposed transaction is going to get a very close look." Progressive advocacy groups have also pushed for close examination of the transaction. A broader mandate could better capture the deal's competitive dynamics, Aaron Klein at the Brookings Institution and a former Treasury Department official, told DealBook. "It's the merger of a credit card bank with a payment rail owner," he said. "It's a merger driven by the economics of payments, not the economics of banking." "Some people call it a windfall. We just call it God smiling down on us."— Ellis Webster, the premier of Anguilla, on the money the British territory has made from the boom in artificial intelligence. The tiny Caribbean island collects a fee from every registration for internet addresses that end in ".ai," earning about $32 million last year. Why China leads in A.I. talentThe U.S. and China are in a cutthroat technological competition that some have likened to a new cold war, and a crucial front is the race to dominate in artificial intelligence. American companies lead in breakthroughs that power products like ChatGPT and investment, while China produces far more research and is ahead in another crucial aspect: talent. China accounts for almost half of the world's top A.I. researchers, according to a study from the Marco Polo think tank, part of the Paulson Institute. By contrast, U.S. undergraduate institutions produce about 18 percent. That's a big jump: Three years ago, China produced less than a third of the top A.I. researchers. But it has added more than 2,000 undergraduate A.I. programs since 2018, with a focus on applying the tech to industry and manufacturing. The countries' tech sectors remain linked despite a push to "decouple" the economies. Chinese companies are tapping into American open-source A.I. systems to build their own models. And almost 40 percent of the top A.I. researchers in the U.S. are from China, often after moving to American universities to complete doctorate degrees. A.I. companies' reliance on Chinese researchers poses a conundrum for policymakers. Attracting the world's top talent is key to U.S. tech leadership but policymakers worry about potential espionage in a crucial sector. A Chinese citizen working as an engineer at Google was charged with stealing secrets for a Beijing-based company this month, highlighting the challenge to get the balance right. "We're the world leader in A.I. because we continue to attract and retain talent from all over the world, but especially China," Matt Sheehan, who studies Chinese A.I. as a fellow at the Carnegie Endowment for International Peace, told The Times. We hope you've enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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Friday, March 22, 2024
DealBook: The Apple fight could redefine antitrust
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