"YOU get a lawsuit! And YOU get a lawsuit! And YOU get a lawsuit! LAWSUITS FOR EVERYONE!"
Corporate America keeps winning the worst game show prize ever, and other fun news.
You probably want to know why my “weekly” isn’t the same as your “weekly”…
Not gonna lie here, I’m sort of time strapped right now. I’ve got a lot on my plate (don’t we all?!), and not really willing to give anything up.
Aside from this newsletter, I’ve got:
my family (including a kid celebrating a big birthday with a birthday party this weekend I somehow ended up on the short stick of doing all the planning),
work (I help companies get to revenue and offer educational workshops),
my Pitch Spaces (I bring investors in and teach people to build relationships with potential investors and co-founders through introductory pitches called QuickPitches),
my subscribers (on Twitter/ X - I do separate educational content for them), and
a show I’m working on developing for startup founders.
It’s a lot, I know. But I love it all, so we’re kind of going on the more flexible “island time” version of weekly here. Which might mean bi-weekly, but it’s still coming!
Now, back to the newsletter stuff..
Only the lawyers are happy these days…
So many lawsuits! And big ones, like industry defining (or redefining) ones. It’s important to keep track, because these present major openings for those looking to make changes or overturn the leaders in an industry.
Earlier this year, we had that huge one in Loper Bright, which overturned Chevron. For those who don’t remember, Chevron gave the federal agencies deference in applying the law when the law is unclear or ambiguous. It wasn’t supposed to be a major decision, but the Chevron doctrine basically ended up pushing the courts to defer to the agencies on their opinion of legal decision as subject matter experts even when the courts would disagree with the agency’s interpretation. That gave federal agencies HUGE amounts of power.
Loper Bright overturned that, saying basically that consideration of the Administrative Procedures Act required the courts to consider agencies opinions, but not defer to them, instead maintaining independence in their opinions even in ambiguity.
This will have massive impact for areas that operate in ambiguity, where most of the law is interpretation by agency rather than a clear law that states the rules of the industry. That includes blockchain, web3, social media, AI, “cottage industry” companies like home childcare, neutraceuticals, 3D printing, etc. Accordingly, it offers a chance for people operating in these industries to make clear rules and impact in the industry and challenge the federal regulators for poor or improper regulation. And each of these industries has areas that MUST be challenged.
Google
There are TWO big Google lawsuits. In 2020, the US Department of Justice filed an antitrust lawsuit against Google for illegal search engine monopoly, and for the first time in decades, didn’t settle - it won a ruling in August 2024 saying Google violated Section 2 of the Sherman Act and illegally held a monopoly in its search, which is the first major ruling since the ruling against Microsoft in the late 90’s (1998, I think).
The second one was filed in 2023, and the US Department of Justice is claiming Google violates Sections 1 and 2 of the Sherman Act in their monopoly of the advertising tech market. This one has been heard, but the ruling isn’t out yet. It’s the more important one, in my opinion.
These are both reported like they’re one case - but they’re not, and that’s a problem, because they have very different impact for Google and the market at large.
Case 1: Search engine
The search engine one is OVER. Google has an illegal monopoly, and the prosecution has until late December to come up with recommendations for penalties. They’re now figuring out what they are going to do, and they are putting a lot on the table, including breakup. Breakup of some sort, which will be a forced sale of some aspect of the business, looks most likely, and it seems (from what I can tell, which isn’t much) that it will come through the distribution end.
So, what’s really interesting here, aside from the law, is that of all the search engines you think exist out there (Google, Yahoo, Bing, Duck Duck Go, Safari, Brave, etc), only Google and Bing are even producing independent search results any longer. Everyone else is just buying from these two. And 94% of mobile searches are coming from Google (80%+ coming from Google on desktop). It’s like Luxxotica - you think you’ve got options of all these different brands of eyeglasses, but really it’s just…Luxxotica.
The government doesn’t like that Google controls so much through its deals with Apple, Microsoft, etc, as well as controlling Android, Google Play, Chrome, and more. It can’t stop it from doing deals, but it looks like it might do something like “unbundling” in Android to stop it from control over the majority of non-Apple mobile tech (which it has a lock on).
It also might have to sell YouTube, which is the number two search engine. That would be a major hit, as driver of ad revenue for Google - and would change the dynamics of YouTube enormously, which benefits from the Google ad loop and dominance on results.
This is MAJOR news for the EU, which is using it as cover to act against Google, as well. Android is the primary mobile device outside of the US, and, while US action against its mobile lock won’t do much within the boundaries of the US, it could be devastating outside of it if the rest of the world uses this moment of weakness to act (as many have been wanting). Anything like a required selling off of or significant limitation to the Android business unit would be disastrous for them. Google Play would have similar, though smaller, impact.
Google can still appeal, so look for this to drag itself out for a few more years.
Otherwise, the search itself is not a huge issue.
Even though Satya Nadella, Microsoft’s CEO, testified about how hard it is to break into search, calling it “the Google web” when he testified last year, it’s definitely not, especially not any longer.
LLMs are here, including the Microsoft/OpenAI LLM Chat GPT, which is the search engine that’s eating Google. In a year or so the Google web you see now is likely going to be the ChatGPT/ Google/ CoPilot/ Claude web in a year (probably in that order), so this breakup may or may not make sense then.
This may have a role in the appeal, and save Google, which would be funny in a Christopher Nolan sort of way. (Like future me has to give you the gun that kills me in order to save my life, knowing you’re going to kill me, but if you killed me, how can I have the gun to give you….aaaaaand my brain just exploded.)
Case 2: Adtech
The second case, on adtech, has been heard, but the judge hasn’t ruled yet - ruling expected in late November. This one has much bigger immediate impact on Google, because it’s not a search company, and hasn’t been for years. It’s an ad company (hence the monopoly). Nearly 80% of its revenue is advertising. Its search is subservient to its ads, and has been for a long time - organic search results are the last thing you see.
Everything, from the AI overview, to add placement, to initial search results, is all there to “open new business opportunities for … business.” Most of the SEO work for organic results are not designed to impact the top results - which are marketing results. Which is why I say search is subservient to ads. This is not the first time they have discussed the primacy of ads to search. Most people think they understand Google and its “do no evil” mission to search. One look at its financial statements and marketing team, rather than its PR, will give you a different view.
Now, this one might ALSO result in an order to break up, but the sale of different units - like the ad unit, which is basically the revenue unit at Google. That would kill Google. This also might lead to the sale of YouTube, discussed earlier. Or a number of other permutations, each and all of which would result in a much smaller Google, much less powerful Google.
Interesting side note: “search services” means those ads that run next to search results. It generally competes against…. Yahoo (right? who thought that was a main competitor?), and the court found the agreements Google has in place creates a barrier to entry in this on devices (iPad, iPhone, Android devices, etc), so it was a monopoly. HOWEVER, there is no monopoly in GENERAL search advertisement (?) because that’s not a market, so no monopoly there. I’m guessing the fact that they use their advertisers as the primary pool for initial results didn’t enter the picture, which is a shame. Because that’s just bad search results.
Net Results
If Google loses the adtech case, its very bad. Already, Alphabet, the parent of Google, has seen a stock drop, and is likely to drop further. Look for other countries and the EU to jump on these losses for more regulatory trouncing of their own - most of them have been waiting for these opportunities. Anything that hits their dominance in ads, Google Play or Android will be incredibly difficult to come back from. Google is not great at adapting, and hasn’t been over the last decade, at least.
Search doesn’t actually have to come from them - as long as they can access search results, even licensing access to search results generated by someone else, they can still use their ad play.
But that’s them (which you can consider when you think about which stocks may rise and fall). What about how the rest of us will fare? Well, that’s pretty good news.
When you think of a breakup, you have to think of the big breakups that have occurred in US history: Standard Oil, which launched the oil and gas industry we have now, Bell Telephone, which launched modern telecom, etc. (You can’t count the rail industry because the freight companies own the tracks, which is an entirely different monster - prohibiting us from getting real high speed rail. Well, that and Elon Musk, who pitched hyperloop to stop the LA/SF route from developing, then ghosted it like that guy you friendzoned on a Friday night.).
The point is industry breakups are BIG, and present massive shakeups and openings in industries that you couldn’t even speculate on years later. Baby companies of new industries sprout and grow that were just stuck in the brain of the broken company. It’s what capitalism is all about. But we rarely encourage it these days, since we’ve become all about “too big to fail.” That’s also “too big to innovate” and “too big to compete.” So really - too big for capitalism. But big enough to fund entire elections, so officials LOVE it.
There’s a lot more to this, but my newsletters are pretty long already, so….moving on.
Crypto.com
Look, I’m part of blockchain and web3, but at this point all I’m feeling is:
I mean, I’m starting to think this is all a plot to kill me with ulcers and bashing my own head into my wall with frustration. Because, WTF people?
Let’s talk about what happened.
The Wells Notice
The SEC issued a Crypto.com, a centralized exchange that trades cryptocurrency, a Wells notice.
A Wells notice is issued by the SEC enforcement division when they finish an initial investigation and decide they will file charges against the company. The company doesn’t know about the investigation prior to that time (it’s confidential), and the notice itself is confidential, but can be used as part of the later trial.
What follows is a series of obscenities and communal pants-shitting at the offices of the company, and various types of freaking out and declaring the SEC to be some form of devil incarnate. This is all normal(ish) behavior. Then someone remembers to tell the lawyer, who gets in touch with the SEC, and things proceed like any litigation, and usually end up in settlement unless you did something really bad, like committing fraud or have bad lawyers or something like that.
It’s the company’s choice to publicly disclose the Wells notice - they can wait until the complaint is actually filed, because technically it’s just intent to file, not actual filing, and they could decide not to file. Most people do publicly disclose.
The Crypto Hard Left
Crypto cases generally decided to go super aggressive on this, instead of just following the above pants-shitting, calling, waiting, settling routing - several have decided to aggressively sue the SEC.
When I say aggressively, I mean actually aggressively, like with angry actions and words, and even death threats to people working there.
Many seem to personally hold the SEC at fault for being required to register for selling tokens to build blockchains, even though, conceptually, selling something that you profess will increase in value (or “moon”), putting it on a market or allowing it to be sold on a market, lauding the price of the token, and using the proceeds as working capital to build your product does, indeed, seem like what every other company in every other industry has to register with the SEC, so it seems at least understandable why the SEC might be interested. Because that’s pretty much a textbook security.
Now, we have excellent legal arguments for why the SEC, and even other regulatory agencies, are not suited as regulators for tokens. But we do not make those arguments.
Instead, we are making the argument that our tokens aren’t securities. And that’s the purview of the SEC, and has been since it’s inception. The idea that any industry gets to decide that it doesn’t need to be regulated by an agency for doing the same thing every other industry does, with even greater risk (because far more retail investors are involved), is not only ridiculous, it’s incredibly selfish.
The registration requirement is literally just information. Not a block on action.
By not providing the information the SEC requires, whether or not we register, we are actively hurting the investors in our industry by failing to protect them. And the act of providing information actively protects the companies, as well - because if whatever you try fails, investors can’t sue, because they knew you were going to do it (or should have known). The information is actually a good thing.
This is a terrible hill for us to die on. We need to provide this information, and as investors get more educated, they are going to require it. It’s definitely not worth hundreds of millions lost in lawsuits, and no greater clarity. The SEC is doing its job, and doesn’t have the ability to just say fine, we won’t enforce it here.
You need legislation for that.
We should be spending this money building real projects that solve real problems, educating investors, and lobbying for the clear legislation we created, including getting rid of the accredited investor rule.
Unless we’re going to have a ton of suits going in a bunch of circuits, exploiting the Loper Bright rule now that we can (which doesn’t change anything going backwards, but could change things going forwards) - and this is a real strategy worth exploring - one company isn’t going to do much unless it goes to the Supreme Court and creates a general rule change.
Otherwise, most of this stuff is stupid and a waste of time, win or lose, and only makes the lawyers rich.
Back to the lawsuit
So, Crypto.com decided to follow its Wells notice (and presumed pants-shitting, etc) with a lawsuit against the SEC.
And there’s so much to deal with in this complaint, it’s hard to break it down in just one post without just saying screw it - just believe me, it’s not good. But we’re going to try. Note that this is SUPER quick, becuase this newsletter is already newsnovella, on its way to becoming a newsbook - and I’m not sure anyone wants to read about lawsuits enough for that.
In fact…
boobs!
heh heh heh
Everyone back again? Great! Let’s get back to this:
Let’s just get it out of the way: calling the tokens it trades network tokens doesn’t help. Network tokens is like fetch from Mean Girls. It’s not a thing. Stop trying.
Basically they have a few key arguments: that the tokens aren’t already declared securities, that the tokens aren’t securities under Howey, and that secondary market sales aren’t securities transactions. Those last two arguments are taken from the Ripple case.
The Tokens Aren’t Securities argument: That’s not really required. It’s unlikely the SEC will have to prove the underlying tokens are securities in a separate action first before going after the exchange. And one token being declared a security is all they need.
Side argument of not treating all tokens the same: They aren’t. Some actually do stuff. Some don’t do anything, or even exist. A memecoin and Bitcoin are not the same. That’s like saying all stock should be treated the same. IBM stock and stock belonging to a blank check company that has yet to do anything are fundamentally very, very different. And they are treated very differently.
The Howey argument: that’s not how Howey works. You don’t need to discuss profits or dividends or whatever. It doesn’t have to relate to the company itself - derivatives wouldn’t be securities if company investment were required. You just need passive investment by a third party intending to profit off of the efforts of others.
The secondary market argument: This one is an interesting one - but it really works from the perspective of the ISSUER of the token, not the marketplace. The XRP ruling is basically that XRP tokens weren’t a security under this argument because the buyers from the marketplace didn’t know if they were buying from the company or from a third party. But does that save the marketplace itself?
In the Binance case, which Crypto.com cites, the court said it agreed that this meant the transactions couldn’t be securities transactions for the marketplace.
I think this was a mistake, and the SEC clearly does, too - it filed Wells notices against Coinbase and Opensea, as well. And is appealing Ripple.
It’s unlikely the blind transaction ruling will hold up. Even if it does, if any token issuer ever sells on a secondary platform, at least some of those transactions will go back to the company, and there will be securities transactions. It will take real manipulation to find this to not be true.
The truth is, finding for the exchange will require legislating from the bench - the courts making up law. Which, personally, I hate. It makes things unpredictable. We don’t want people making up law from the bench. We want legislators legislating. Not courts.
Is the CFTC the answer?
They’re also petitioning the CFTC and SEC to get the CFTC to govern tokens.
It’s not like the CFTC is better. They’re just easier. Why? Because they’re so much smaller, and can’t enforce as often as the SEC.
If we want them to enforce everything, they’re going to hire more people and start enforcing more. And we’ll end up right where we are now.
CREATING NEW LEGISLATION IS THE ONLY ANSWER. (PS - FIT21 DOES NOT SOLVE THIS.
Finally! Coming up…
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Be ready! Look forward to seeing you there!
Also - be on the lookout for a new super cool show I’m starting on NOVEMBER 5!
Hope you enjoyed this issue! DON’T FORGET TO REFER IT TO SOMEONE ELSE!
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Very good with the whole thing. The Google part was the most interesting. I'm particularly excited for the. deceleration of that company. I despise using their products. Google in the last two years it has fallen apart. I would even almost consider them selling YouTube as a better thing.