The road to success is not a bed of roses. Although their deal was approved by more than thirty authorities around the globe, Bayer A.G. (“Bayer”), the German conglomerate chemical firm, still faces a legal challenge in the United States to win antitrust approval to buy American seeds supplier Monsanto Company (“Monsanto”). The U.S. government is worried that $62.5 billion deal could seriously hurt competition.

Looking back to August of last year, the decision on whether to approve the symbolic transaction has been postponed twice and suspended four other times. The deadline for the merger approval is currently scheduled to take place on April 5, 2018.

The significant proposed acquisition between Bayer and Monsanto would make the company the world’s largest integrated pesticide and seeds business. In fact, this would create a company with a market share of more than a quarter of the world’s seed and pesticides business. The transaction will constitute to the destruction of competition in at least three markets: pesticides, seeds, and traits.

In the United States, EU, and Brazil, the authorities are attempting to conduct further investigation of how combining Bayer and Monsanto will impact the price and supply of key products for farmers.

One of the effective solutions to solve potential antitrust issues is to sell a company’s assets when company seeking regulatory approval for a deal. After the CEO meetings, Bayer decided to resolve antitrust issue by selling assets to another company in order to carry out its project and achieve its $60 billion-plus takeover of St. Louis-based Monsanto. In particular, Bayer agreed to sell parts of its seed and herbicide assets to rival, BASF, for $7 billion to solve EU regulatory concerns. Moreover, Bayer agreed to divest its vegetable seeds business to BASF.

In the EU, the review of the Monsanto deal by the European Commission (“the Commission”) is set to greenlight after in-depth investigation by the Commission. The European Competition Commissioner, Margrethe Vestager, indicated that Bayer properly addressed its concern by selling its assets to competitor. She firmly stated that “Our decision ensures that there will be effective competition and innovation in seeds, pesticides and digital agriculture markets also after this merger.” The competitors can effectively compete with each other and the number of the competitors in these relevant markets will remain the same.

However in the United States, the intense review procedure is being led by Assistant Attorney General for the Antitrust Division, Makan Delrahim, who also spearheaded the filing of the antitrust lawsuit to block AT&T Inc.’s takeover of Time Warner Inc.

From the Justice Department’s antitrust division’s view, although selling the assets to BASF, a good buyer who can compete effectively in the business, does help with some of the issues, the officials do not think it goes far enough.  The government would like Bayer to take a step further and divest more.

In its substantive standard of review of the proposed merger, the Justice Department is analyzing the economic relationship among entities on the same level of market (“horizontal restraint”) as well as the economic relationship along supply chains (“vertical restraint”)

No one knows what the future holds, but the companies still have hope after two previous deals – the combination of Dow Chemical Co. and DuPont Co. and China National Chemical Corp.’s takeover of Syngenta AG that won antitrust clearance.

Bayer Faces U.S. hurdles for Monsanto Antitrust Nod

The venture capital investing world is ruled by risk, and people are willing to take those risks trusting in little more than their personal instincts. One investor who has done so with mastery is Softbank Group tech magnate, Masayoshi Son, UC Berkeley alumni. In 1981, Son founded SoftBank as a software distributor, leading to investments in more than 1,300 companies. The group, and Mr. Son, gained even more importance in the industry after the launching of Vision Fund, which started with under $100 billion in investments and a 12-year term, ushering a new force into a tech-investment world long dominated by Western bankers and Silicon Valley financiers.

But how Mr. Son spends his money shocks people in this industry due to the large sums he is willing to pay for start-up companies, and this astonishment affects even Mr. Son’s directors. Many were against him when he purchased Arm Holding PLC, an U.K. chip-design firm that Mr. Son paid $32 billion for after only two weeks of negotiations. They affirmed that this transaction marked a “paradigm shift” at the company to invest in the Internet of Things. Another time, he decided to invest $200 million in a startup that grows vegetable indoors after a 30 minute of contemplation. Subsequently, he continued a “buying spree,” purchasing stakes in several other companies, many of them characterized as being what is known as “unicorns” – startups that have grown to valuations over $1 billion – such as Uber Technologies, Inc. or WeWork Companies, Inc. In several of those deals, Mr. Son had to argue with his directors and advisors who were saying that he was paying too much.

These high valued investment and expensive purchasing of startups has led to many in the tech industry to believe his investments help keep startup valuations high. “We all thought the unicorn stuff was going to start slowing down,” says Tim Connors, founder of Silicon Valley venture capital firm PivotNorth capital. “Then along comes SoftBank and lobs another $90 billion into what many people thought was already an overheated market.” Investors want to understand just how Mr. Son goes about deciding on his billions of dollars of bets, among the largest in the tech industry, and according to those working closely to him, his thought process can be as methodical as it can be haphazard.

Understanding how Mr. Son thinks matters because of his outsize impact. Softbank has led investments totaling about $145 billion in companies since 1995, including $22 billion to buy U.S. mobile carrier, Sprint. He managed the world’s biggest tech fund (Vision Fund), and a $6 billion affiliate, brandishing investments that often makes him the company’s biggest shareholder. He affirmed that his goal is to take big stakes in a coalition of companies driving technological change that will help the group sustain long-term growth for the next “300 years,” strengthening Softbank’s role as one of the biggest players in the industry.

How SoftBank, World’s Biggest Tech Investor, Throws Around Its Cash (PDF)

Eleven states including Ohio, Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Montana, Rhode Island, Utah, and Vermont, are involved in a lawsuit against American Express. These states argue that American Express’ unfair practice of prohibiting retail merchants from advising customers to use a credit card with lower transaction costs violates federal antitrust laws.

In the credit card industry where there are a small number of market players, as in an oligopoly, anti-competitive practices may result. In 2010, American Express, Visa, and MasterCard were accused of unfair practices. Subsequently, Visa and MasterCard voluntarily reached a settlement and agreed to give up their anti-steering provisions, which left America Express to proceed with a trial.

A policy known as an  “anti-steering” clause was imposed on merchants and retailers in American Express’ merchant agreement. This provision contractually forbids merchants from suggesting to customers that they should use competitors’ credit cards, such as Discovery, which has lower swipe fees. This was seen as stifling price competition. Merchants usually pass this hidden cost to customers in the price of goods or services. Therefore, the court has to determine whether businesses can encourage or discourage customers from using lower cost credit cards for their transaction payments.

The United States District Court for the Eastern District of New York, applying the rule of reason, found that American Express had violated antitrust laws because the anti-steering requirement in question caused harm to both merchants and credit card holders, who are the participants in American Express’ credit card network. The court further held that the restrictions on steering the customer’s free choice at the point of sale unreasonably restrains a competitive price, raises the cost of merchant fees, and inflates retail prices, which is in violation of Section 1 of the Sherman Act (15 U.S.C. 1). Notwithstanding the previous decision, the United States Court of Appeals for the Second Circuit conversely employed the two-sided market concept and reversed the District Court’s judgment by holding in favor of American Express. The Second Circuit held that the State of Ohio et al. had not shown that the anti-steering rules unreasonably restrain trade and cause harm to cardholders as well as merchants.

The credit card network is the cornerstone of a two-sided market, in which the credit card company is an intermediary linking two different user groups – customers and merchants. Merchants benefit from accepting a customer’s credit card only when there is an adequate volume of cardholders using that particular credit card, thereby covering the cost of the transaction fees charged by the credit card company. Meanwhile, using a credit card would be pointless for customers if the card could not be widely accepted by a full range of various merchants.

Even though the case has been pending in the United States Supreme Court, it is worth noting the possible vast impact if the Supreme Court upholds the Second Circuit’s judgment. This is because it may become the precedent case not only for credit card companies but also several large companies in other industries as well. It would enable numerous platform companies which have two-sides of users like Google, Amazon, Apple, Facebook, and Uber, among others, to be more powerful by taking advantage of such a ruling. Overall, the Supreme Court’s determination will carry great weight.

U.S. Supreme Court’s Pending Review of American Express Merchant Fees (PDF)

Telegram Messaging, a private digital communication application boasting approximately 180 million users, is poised to raise more than a billion dollars in potentially the largest ever I.C.O. (Initial Coin Offering). Over the past two months Telegram has already raised $850 million dollars for its newest concept, “Telegram Open Network” or “TON.” Moreover, over the next month Telegram plans to raise another $850 million.

Initial coin offerings rely on the creation and sale of a cryptocurrency to allow young companies to raise money. These digital vouchers can then be used in a secondary market to provide access to applications or services. As such, ICOs evade more traditional methods of fund raising, like relying on venture capitalists or initial public offerings.

Accordingly, ICOs offer the advantage of allowing companies to maintain complete ownership of their technology. Moreover, the crowd-funding facet of ICOs could potentially allow companies that may provide useful services but are often ignored by more conventional sources of funding, to raise money. One such sector of companies are start-ups working on open source projects such as Wikipedia.

Despite these potential advantages the relatively untested and unregulated nature of ICOs has created growing concerns about their legality in the United States and abroad. Many countries fear that ICOs may be used to defraud investors. That said, Telegam appears to be undeterred.

Telegram’s recent ICO comes on the heels of a 132-page white-paper released by Telegram that explains the company’s plans for “Telegram Open Network.” Telegram promises that “TON” will provide the support necessary to enable the creation of a new “third generation” digital currency Telegram calls “Grams.” Telegraph insists “TON” will improve upon efforts made by predecessors in the cryptocurrency field, such as Bitcoin. According to Telegraph “Grams” will offer a safer, more secure cryptocurrency, protected from the problems that have plagued other networks supporting virtual currencies. In particular, Telegraph claims “TON” will address theft via cyber-attacks and an inability to keep up with the rate of transactions.

In order to accomplish these objectives, Telegram plans to rely in part on its already existing private and secure communication network, which already provides encrypted voice and text message transmissions. Telegram plans to use its encrypted network to insure exchanges and transactions involving “Grams” remain anonymous. Telegram also claims that users of “TON” will be able to use “Grams” to transfer money across borders with low transaction fees and to pay for third party services. Telegram plans to release “TON” either late this coming year or during the beginning of next year.

Telegram Seeks Over $1 Billion in Potentially Historic Initial Coin Offering (PDF)

In an effort to avoid potential production issues of its devices, for the first time ever, Apple Inc.,  is in talks with miners to buy cobalt directly from them. Cobalt prices have soared of late because of an expected growth in demand thanks to the electric vehicle boom and there has been some fear of a shortage driven by this aforementioned boom. Apple wants to ensure that it will have enough of the key battery ingredient to avoid any problems, according to insiders.

Apple, is one of the largest users of cobalt for batteries in its electronic devices, but up until now it had left the buying of metal for its batteries to the companies that actually make its batteries. According to a Bloomberg report, citing an anonymous source, Apple is seeking contracts to buy several thousand metric tons of cobalt for five years or longer. Because Apple is still “in talks,” there is a possibility that Apple’s discussions will fall apart. Last year, rights group such as Amnesty international said that about a fifth of Congo’s Cobalt production is mined by hand by informal miners including children, often in dangerous conditions, which struck a nerve. To that end, almost a year ago, Apple announced that it would stop buying cobalt mined in the Congo by hand until it could ensure that companies in its supply chain had eliminated child labor practices and dangerous work conditions.

According to Darton Commodities, today, over half of the worlds’ cobalt supply is consumed in rechargeable batteries which are used in portable electronics, energy storage systems, electric vehicles and other applications. Although smartphones only use about eight grams of refined cobalt, the battery of an electric car requires over 1,000 times more. This means that in the future, Apple will be in direct and intense competition with carmakers such as BMW and Volkswagen who plan on going electric as well as battery producers like Samsung to secure supplies for its products in the future.

Apple in Talks to Buy Cobalt Directly from Miners (PDF)

On March 1, 2018, the board of directors at The Weinstein Company confirmed that the company is to sell its assets to an investor group led by Maria Contreras-Sweet and Ron Burkle.  New York Attorney General Eric T. Schneiderman confirmed the deal and also announced that the parties had committed to create a victims’ compensation fund at the new company along with new HR policies that would protect employees. The Attorney General stressed that his office would work with the parties to ensure they honor their commitment.

The announcement comes days after The Weinstein Company said it would pursue bankruptcy after talks with Contreras-Sweet and Burkle initially failed to reach a signed agreement. The Weinstein board of directors criticized Contreras-Sweet and Burkle’s investor group for failing to provide financing to keep Weinstein afloat in the meantime. However, the parties managed to reach a last-minute deal last week. Contreras-Sweet, the former head of the U.S. Small Business Administration, said she will bring a new vision to the company.

Attorney General Schneiderman had initially criticized the sale, arguing that it did not do enough to compensate Weinstein’s victims and protect employees from sexual harassment and assault, going so far as suggesting that the sale actually rewards those Weinstein Company officials who did nothing to stop Weinstein while he was at the company. The New York Attorney General’s office filed a lawsuit against Harvey and Bob Weinstein and the Weinstein Company for violating New York human rights, civil rights, and business laws; the suit is filed in New York State Supreme Court in Manhattan. The lawsuit threatened the sale of the company, but it appears that the parties have been able to work through any potential issues regarding the sale while also gaining the Attorney General’s support.

Contreras-Sweet and Burkle’s investor group will install a new board of directors, the majority of which will be female, and the group promises to issue in a new era at Weinstein. The financial details have not been made public, but people familiar with the deal said the previous bid was worth $500 million, with a $225 million assumption of debt.

The Weinstein Company Reaches Deal to Sell Assets (PDF)

Berkeley Law students had the privilege to meet the Honorable Tamika Montgomery-Reeves at the Leadership Lunch Talk hosted by the Berkeley Center for Law and Business (BCLB) on February 14, 2018.

Vice Chancellor Montgomery-Reeves received her law degree from the University of Georgia School of Law in 2006 and a B.A. from the University of Mississippi in 2003. She started her career as a law clerk for Chancellor William B. Chandler III of the Delaware Court of Chancery and then practiced in the securities and corporate governance department of Weil, Gotshal & Manges LLP. Before she was sworn in as a Vice Chancellor of the Delaware Court of Chancery on November 25, 2015, she was a partner at Wilson Sonsini Goodrich & Rosati in the Wilmington, Delaware office. As a partner, she focused on corporate governance, navigation of corporate fiduciary duties, stockholder class action litigation, derivative litigation, and complex commercial litigation.

While practicing in Delaware, the Vice Chancellor was able to focus on corporate governance issues, while in New York she had to do other types of work (i.e. securities, capital markets) even as part of the corporate governance group at Weil. She also shared that since the practice in Delaware is small, you end up running into the same people over and over again which creates a higher expectation in terms of diligence.

The Delaware court system is also very unique because it is a court with limited jurisdiction by statute and is formed by five judges: Chancellor Bouchard and four Vice Chancellors. The Delaware Court of Chancery does not have juries, a feature valued by businesses, and the judgments can be directly appealed to the Delaware Supreme Court. Consequently, the litigation timeframe in Delaware is shorter (normally 2 or 3 years) than in other states. From a substantive perspective, litigation in the Court of Chancery consists of three main categories of cases: commercial and contractual matters in general, corporate matters and corporate governance cases, and disputes related to property.

Vice Chancellor Montgomery-Reeves always wanted to do something related to public service and her current job is allowing her to do so. She is very happy to be back in Delaware, where she was a law clerk. Moreover, her actual position allows her to do what she loves: research and write what the law is, figuring out the solution for each case. However, she is facing new challenges such as living in the public eye and the limitation of resources. Her decisions are public and consequently, scrutinized by the public opinion. Also, when she was working in private practice, she used to work in teams of approximately ten lawyers but now she has to produce her decisions with the help of just two clerks. Nevertheless, she described her two years of experience as Vice Chancellor as absolutely amazing.

Recap- BCLB Leadership Lunch Talk- Vice Chancellor Tamika Montgomery-Reeves – The Corporate Judge (PDF)

Waymo has settled its lawsuit against Uber for allegedly stealing its confidential self-driving technologies. Its decision brings an abrupt end to a high-profile Silicon Valley lawsuit and enables Uber to move past the damaging press coverage. The case has important implications for tech companies’ willingness to refrain from fighting, and showcases how business and legal strategies can influence each other.

Waymo agreed to drop the lawsuit in exchange for a $245 million increase in its equity stake in Uber and an agreement not to use Waymo’s confidential information. The claim alleged Uber’s chief engineer on its self-driving project took thousands of confidential documents when he moved from Waymo to Uber last year. The lawsuit put Uber behind in its development of self-driving vehicles, a critical component of its long-term profitability goals.

The trial and settlement negotiations illustrate how business motives can influence legal strategy. Both Uber and Waymo had good reasons to settle. Waymo initially sought a $1 billion settlement. Uber managed to negotiate down to $245 million. Purportedly having presented scant evidence of that Uber actually used any of Waymo’s technologies, Waymo agreed to the $245 million deal.

On the one hand, Waymo was having difficulty establishing key elements of its case. In a departure from company historical trends, Uber actually benefited from former CEO Travis Kalanick speaking out. Waymo’s attorneys failed in provoking him during his testimony; he remained calm, collected, and delivered well-prepared responses to their questions. Little evidence had been produced indicating Uber stole any of Waymo’s confidential information, which explains why Waymo settled for a quarter of its initial settlement asking price.

On the other hand, Uber came into the trial with heavy baggage. The case follows a series of bruising public revelations, including allegations of sexual harassment, a toxic workplace, internal investigations, employee turnover, and federal crime probes. The revelations during this trial were another set of challenges new CEO Dara Khosrowshahi has been handed.

The settlement allows both companies to move past the high-profile case that has jolted Silicon Valley. The case may make other companies more careful in managing trade secrets. Personnel working on driverless technologies at other companies may be siloed. Yet the settlement still primarily impacts Uber and Waymo. Experts agree an industrywide shift is unlikely.

The Self-Driving Technology Mega-Lawsuit Abruptly Settles (PDF)

In March 2017, Airbnb received more than $1 billion from investors and was valued at $31 billion. Airbnb was expected to continue its impressive growth, and several analysts anticipated that Airbnb would go public in 2018. However, increasing regulations stymied Airbnb’s momentum in the market, forcing the rental giant to reinvent itself. Airbnb responded to recent regulations in two ways: by focusing on margins and diversifying its services.

Airbnb is trying to increase margins by establishing a bigger presence in the luxury short-term rental market. On February 22, 2018, Airbnb launched “Airbnb Plus,” which includes properties that are inspected by Airbnb and guaranteed to have certain amenities, such as soap, shampoo, and empty cabinets. Concurrently, Airbnb launched “Beyond by Airbnb,” which is a tier beyond Airbnb Plus, and includes some of the most luxurious homes in the world.

In addition, Airbnb will place a greater emphasis on promoting “Airbnb Trips” in an attempt to diversify its services. This platform allows consumers to book experiences in conjunction with vacation housing. Airbnb’s biggest competitor in the space will be Viator, a TripAdvisor company. Airbnb is confident it is a more convenient platform for travelers who do not want to spend extensive time researching and want all of their vacation accommodations booked on a single website.

Many cities across the world – including New York, San Francisco, Los Angeles, and London – have regulated the market for short-term property rentals in order to restore the market for long-term housing. In unregulated markets, commercial operators tend to list real estate on Airbnb for short-term rental instead of making the real estate available for purchase. This makes it difficult for prospective property owners to purchase real estate, a critical resource; regulators insist this in turn inhibits social mobility.

Regulation presents many problems for Airbnb. First, the regulations curtail Airbnb’s core competency and most reliable revenue stream. For example, rentals in San Francisco decreased by 54% after the city instituted the regulations. In addition, the cities that have decided to regulate have done so in different ways. As a result, Airbnb must adapt itself to cities across the world based on local legislation, which is very costly. Lastly, short-term rental regulation continues to be a hot topic, even in cities that have already adopted legislation. According to one Senator, the issue is “not going away” any time soon. Thus, the future of short-term rentals is uncertain, and investors remain concerned about the prospects of Airbnb.

While Airbnb has been set back by regulations, it still seems to be well-positioned in the market. Airbnb has an opportunity to use its powerful brand in order to expand its footprint and become a more comprehensive platform to book travel. Nevertheless, with regulation often comes uncertainty; as a result, Airbnb’s plans to go public are on hold – at least for now.

Airbnb Reinvents Itself as Core Business is Halted by Regulations (PDF)