A Dozen States File Suit Against New Coal Rules

By CORAL DAVENPORT August 1, 2014

WASHINGTON — Twelve states filed a lawsuit against the Obama administration on Friday seeking to block an Environmental Protection Agency proposal to regulate coal-fired power plants in an effort to stem climate change.

The plaintiffs are led by West Virginia and include states that are home to some of the largest producers of coal and consumers of coal-fired electricity.

Republicans have attacked the E.P.A. proposal as a "war on coal," saying that it will shut down plants and eliminate jobs in states that depend on mining. But the rule is also opposed by the Democratic governors of West Virginia and Kentucky.

"This lawsuit represents another effort by our office to invalidate the E.P.A.'s proposed rule that will have devastating effects on West Virginia's jobs and its economy," the state's attorney general, Patrick Morrisey, said in a statement.

On Thursday, Alpha Natural Resources notified 1,100 employees that layoffs and reduced operations were possible at 11 West Virginia mines. The company cited numerous reasons for the possible cutbacks, including the new regulation.

Mr. Morrisey said his office would "use every legal tool available" to protect coal miners and their families. "We can't afford to see more announcements like we saw with Alpha Natural Resources yesterday," he said.

The suit was filed in the United States Court of Appeals for the District of Columbia. The other plaintiffs are Alabama, Indiana, Kansas, Kentucky, Louisiana, Nebraska, Ohio, Oklahoma, South Carolina, South Dakota and Wyoming.

The E.P.A. rule, announced by President Obama on June 2, is aimed at slashing carbon emissions from coal-fired power plants, the nation's largest source of planet-warming pollution. Under the rule, each state would have to design and submit a plan to cut carbon pollution, which must then be approved by the E.P.A.

The states' lawsuit contends that the E.P.A. lacks legal authority in the matter. The agency wants to release the final rule under the terms of the Clean Air Act, which requires the federal government to regulate all substances defined as pollutants. The E.P.A. determined in 2009 that carbon dioxide met the definition of a pollutant, a decision that has withstood numerous legal challenges.

But the states say that the E.P.A. may not issue separate regulations on power plants using different sections of the Clean Air Act.

In 2011, the E.P.A. issued regulations governing mercury emissions; thus, the plaintiffs say, it does not have the authority to issue a new regulation on carbon emissions from the same power plants.

Scott Segal, a lawyer who represents companies and utilities lobbying against the rule, predicted that the lawsuit was the first of more to come. "I wouldn't be surprised if one gets kicked to the Supreme Court," he said.

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Bits Blog: Microsoft Sues Samsung 0ver Android Royalty Payments

Photo Microsoft and Samsung reached a patent licensing deal three years ago.Credit Kim Hong-Ji/Reuters

SEATTLE — Apple and Samsung have been suing each other for years over patent disagreements. But Microsoft and Samsung took a different tack, signing a patent licensing deal in 2011 that has kept the peace between the two companies.

Until now. On Friday, Microsoft filed a lawsuit against Samsung, accusing the company of going back on the patent licensing deal the two signed three years ago.

In the lawsuit, Microsoft said that Samsung stopped making royalty payments on time last fall and is refusing to pay interest for the delay, as required by their 2011 agreement, which related to Samsung's use of Microsoft's intellectual property in its Android smartphones and tablets. Samsung threatened to violate the agreement again, according to Microsoft, because it felt that Microsoft's acquisition of Nokia's mobile business amounted to a breach of contract.

Microsoft denied that the Nokia deal, which was completed in April, violated the previous agreement. In a blog post, David Howard, Microsoft's deputy general counsel and corporate vice president, suggested that the real reason Samsung decided to stop paying was that its smartphones sales have quadrupled since the two companies signed their agreement. While the terms of the deal are confidential, royalty payments by licensees like Samsung typically go up as sales increase.

In a statement, Samsung said it was still reviewing the complaint and would "determine the appropriate measures in response."

The heavily redacted lawsuit does not say how much money Microsoft believes it is owed by Samsung. Analysts have estimated that Microsoft receives billions of dollars a year in payments through licensing agreements with Android-device makers.

"Samsung predicted it would be successful, but no one imagined their Android smartphone sales would increase this much," Mr. Howard wrote, adding that Microsoft has spent months trying to resolve its disagreement with Samsung.

Correction: August 1, 2014
An earlier version of this post misstated a Microsoft claim in its lawsuit against Samsung. The suit claims that Samsung did not pay interest on late royalty payments as required under the terms of the agreement between the two companies, not that Samsung did not make royalty payments at all.
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Bits Blog: Amazon Wants Cheaper E-Books. But Should 1t Get to Enforce Prices?

Photo A screen shot of books available through Amazon's Kindle Unlimited subscription service on an iPhone.Credit Associated Press

In a short blog post meant to shed light on its  contract dispute with the publisher Hachette, Amazon argued this week that its data proved that lower e-book prices were better for everyone in the market for books. That includes authors, publishers, customers and Amazon itself.

Amazon also said that in addition to looking for cheaper books, it was asking for just 30 percent of the price of an e-book — far less than many in the publishing industry had feared the company was seeking in its dispute with Hachette.

At first blush, the retailer's numbers, and its transparency, are encouraging.

But when you compare the market for e-books with other thriving digital markets, a larger question emerges: Why should the price of books be contractually enforced at all?

Amazon says its data shows that e-books are "price elastic" goods — meaning that sales are sensitive to changes in price. Lower-priced e-books sell vastly more copies than high-priced books, so cheap books result in higher total revenue than if books were more expensive.

The company gives one example to support this argument. Based on its sales data, the firm says that an e-book that would sell 100,000 copies at $14.99 each would sell about 174,000 copies at the lower price of $9.99.

"Total revenue at $14.99 would be $1,499,000," the company notes. "Total revenue at $9.99 is $1,738,000." Not only would authors and publishers get 16 percent more money at the lower price, they'd get 74 percent more readers. And each customer, of course, would get to spend a third less.

This sounds reasonable. But as you think about Amazon's example, a couple of red flags pop up. Amazon declined to discuss its blog post on the record, but its post notes that its data is based on aggregate sales over a wide number of books in its Kindle store. This suggests that price elasticity for specific titles varies widely according to author, genre, length, difficulty and perhaps several other factors.

This makes intuitive sense: Wouldn't people pay more for a 750-page book by Steven King than, say, a 100-pager by an unknown debut novelist, Steven Qing? So while it may be true that $9.99 is better than $14.99 in general, certain books might make the most money at $10.99, $11.99, $12.99 — or even $2.99.

Then there's the question of the market for print books. Some of the people who are willing to buy an e-book at $9.99 but not at $14.99 might be coming over from the market for print books. So what if the increased revenue that authors and publishers get from low-priced e-books is outweighed by lowered revenue through cannibalized print sales? Amazon, which sells print books, would know whether this is the case, but its post says nothing about print titles.

That gets to the larger problem with Amazon's post. If the optimal market price for an e-book is $9.99, why does Amazon need to push for the lower price as part of a contract negotiation? Why can't it let publishers set prices for themselves, preferably with the help of Amazon's sales data, in the hope that they will eventually hit on the economically optimal price?

You might say that publishers can't be trusted to act in their own interest. After all, a federal court has found that publishers illegally colluded with Apple to collectively raise the price of books; that collusion resulted in higher prices and lower sales of e-books. So perhaps Amazon feels that it needs to force publishers to settle on $9.99 in most cases because otherwise they'd shoot themselves in the foot.

That could be so. But it's worth noting that contractually enforcing prices is something of an antiquated practice in digital marketplaces. Sure, when Apple set up the iTunes store, it created a set price for songs. But that was more than a decade ago; since then, digital marketplaces have matured, and we've seen a dizzying array of new business models. There are subscription-based music and media services, games funded by in-app purchases, social networks funded by ads, and hardware companies funded by e-commerce.

Some of these work better than others. But it was only through experimentation that app makers figured out the best way to pay for their code. If Apple hadn't allowed for this experimentation in its app store — if Steve Jobs had decided that all apps would cost $2.99, period — the app market wouldn't be the thriving multibillion-dollar business it is now.

The same logic applies to books. I take Amazon at its word when it says it is interested in creating a thriving market for e-books. But the market for e-books is pretty new, and it stands to reason that the best business model for publishers, authors, readers, and booksellers has yet to be found. In the end, we may see many different ways to pay for books.

Creating a single, typical price for e-books would stifle that potentially glorious future; $9.99 might work fine some of the time, but no price is perfect for everyone, always.

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DealBook: Argentina Default 1s Ruled a Credit Event for Swaps

Photo The financial district of Buenos Aires on Friday morning.Credit Marcos Brindicci/Reuters

The repercussions of Argentina's sovereign debt default continued to spread through global markets on Friday, as an industry body decided that financial instruments used to insure against the default must pay out.

The International Swaps and Derivatives Association said Argentina's failure to make a payment on its bonds earlier this week would activate credit default swaps on the country's debt. In the coming days, investors who used the swaps to insure against the default will collect money from investors on the other side of the trade.

Holders of Argentina's foreign government bonds did not receive a payment that was supposed to occur on Wednesday, prompting Standard & Poor's to announce that the country was in default. Argentina had deposited money to make the payment with Bank of New York Mellon. But the bank did not want to distribute the money to the bondholders because doing so would have contravened an order from a federal judge in Manhattan.  Hedge funds suing Argentina brought the case that led to the court order. Argentina has fought the hedge funds in American courts but its efforts foundered in June when the Supreme Court declined to take up an appeal from the country.

Credit default swaps have become very popular way for investors and banks to place wagers on the creditworthiness of companies and countries. They can be dangerous. The swaps enabled a huge build up of risk in the banking system before the 2008 financial crisis. But changes to the market appear to have put it on a firmer footing. The market for the swaps, for instance, handled Greece's sovereign default in 2012 without hitch.

Photo Jonathan Blackman, left, and Carmine Boccuzzi, center, attorneys for Argentina arrive at a debt hearing in New York on Friday.Credit Carlo Allegri/Reuters

There are about $21 billion of the swaps written on Argentina's sovereign bonds, but once the trades are offset against each other, the total drops to $1 billion, according to data from Depository Trust and Clearing Corporation. There are, by contrast, $129 billion of swaps written on Brazilian sovereign debt.

In recent days, the cost of using the swaps to protect against an Argentine default had risen.

After the International Swaps and Derivatives Association decides that the swaps have been activated, they have to be settled so their holders can get paid. The price at which the swaps pay out is determined at a special auction. The association said it would publish details of the auction for Argentina swaps in due course.

The pay out on the swaps will depend on what investors believe they will recover on the defaulted Argentine bonds. The bonds were trading at around 85 cents on the dollar on Friday. If that price holds, investors who are owed a payment on the swaps would effectively receive 15 cents for every dollar of swaps they own.

The fact that the bonds are not trading at a much lower price suggests that investors believe that Argentina and the hedge funds may reach a settlement that would lead the court to lift its ban on payments to the country's bondholders.

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Job Market Shows New Gains, but Pace Eases

A recent job fair in Philadelphia. The average monthly gain in payrolls across the country has been above 200,000 for the last six months. By DIONNE SEARCEY August 1, 2014

The economy continued to advance at a sturdy pace in July, creating 209,000 jobs and adding to a string of positive economic news in recent weeks that suggested it was gaining strength after years of lackluster growth following the recession.

Last month's job gains were lower than in recent months and less than Wall Street had expected, helping to calm fears that the economy was about to accelerate to a point where the Federal Reserve might decide to start raising interest rates earlier than anticipated.

The new numbers were the sixth straight month in a row of job gains of more than 200,000, the healthiest pace of job creation over that length of time since 2006.

The Labor Department said Friday that unemployment increased to 6.2 percent. Economists had been expecting the unemployment rate to hold steady at 6.1 percent. Many economists viewed the slight rise in unemployment as a modestly positive sign, in part because more people reported that they were looking for work., suggesting that many of them were starting to see greater job opportunities.

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On the jobs numbers, the consensus among economists was an expectation of about 230,000 new jobs. The July figure was well below the revised 298,000 surge reported in June.

"This report is consistent with a moderation in economic growth in the second half of the year," said Dean Maki, chief United States economist at Barclays. "This is a labor market that is growing solidly, just not quite as fast as in prior months."

General optimism about the economy was supported on Wednesday when the Commerce Department, in its initial estimate of the economy's overall output for April, May and June, reported that the gross domestic product grew at a seasonally adjusted annual rate of 4 percent for the quarter, surpassing expectations, rebounding from a 2.1 percent decline during the harsh winter quarter.

But in July wages barely moved, inching up by just a penny and leaving them only 2 percent higher than a year ago, according to the Labor Department. That news contrasted with a report Thursday that American labor costs recorded their biggest gain since the third quarter of 2008. The Employment Cost Index report found that labor costs jumped 0.7 percent, up sharply from the 0.3 percent rate for the first quarter. The 0.5 percent average for the first half, though, was not far from the underlying trend over the previous year.

The fears on Wall Street that wages might be set to accelerate contributed to a market sell-off on Thursday, as some investors expressed concerns that an increasingly tight labor market might force the Federal Reserve to raise interest rates sooner than expected because of fears of higher inflation. On Friday morning, after the jobs report, Wall Street stabilized.

The numbers reported Friday showed that retail employment figures were higher for July, up by 27,000 jobs, and for the two previous months after revisions. Jack Kleinhenz, chief economist for the National Retail Federation, said the news was encouraging but that "no one can guarantee smooth sailing," adding that "choppy growth among business lines will continue."

Manufacturing added 28,000 jobs last month but the Alliance for American Manufacturing said the sector has recovered only 30 percent of the jobs lost during the recession. "There are many obstacles that stand in the way of a true resurgence: a paucity of investment in our infrastructure, high trade deficits and currency manipulation by countries like China and Japan," the alliance said in a news release.

Friday's report seemed to seal the notion that the economy had yet to burst free of its straitjacket.

Members of the Federal Reserve on Wednesday emerged from a two-day meeting to acknowledge that growth had rebounded, but stressed concern about the jobs market, saying conditions were below the level that most officials at the central bank considered healthy.

The labor force participation rate rose slightly in July to 62.9 percent. But Joshua Shapiro, chief United States economist for MFR, said in a note to clients that the historically low rate of participation was still troubling because some of the youngest workers were dropping out of the job force.

"The participation rate is at lows not seen since 1978," Mr. Shapiro said, "and therefore conditions in the labor market are certainly worse than indicated by the reported steep drop we have been seeing in the unemployment rate."

Correction: August 1, 2014

A headline on an earlier version of this article referred incorrectly to the unemployment rate. It is 6.2%, not 6.1%.

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U.S. Adds 209,000 Jobs; Unemployment 1nches Up to 6.2%

A recruiter meets applicants at a recent job fair in Philadelphia. By DIONNE SEARCEY August 1, 2014

The economy continued to advance at a healthy pace in July, creating 209,000 jobs and adding to a string of positive economic news in recent weeks that suggests it is gaining strength after years of lackluster growth following the recession.

But the job gains were lower than in prior months and less than Wall Street had expected, perhaps helping to calm fears that the economy is accelerating too quickly.

The Labor Department said Friday that unemployment increased to 6.2 percent. Economists had been expecting the unemployment rate to hold steady at 6.1 percent. On the jobs numbers, the consensus among economists was an expectation of about 230,000 new jobs.

The number of jobs added last month was well below the revised 298,000 surge reported in June. The average monthly gain in payrolls has been above 200,000 for the last six months, a healthy pace of job creation.

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"The job market is kicking into a higher gear; that's been the story line since the start of the year," Mark Zandi, chief economist for Moody's Economics, said in a telephone interview before the Labor Department's release. "We're gaining traction."

Such optimism was supported on Wednesday when the Commerce Department, in its initial estimate of the economy's overall output for April, May and June, reported that the gross domestic product grew at a seasonally adjusted annual rate of 4 percent for the quarter, surpassing expectations, rebounding from a 2.1 percent decline during the harsh winter quarter.

But another sign of an improving economy was seen as a double-edged sword on Wall Street, where investors reacted negatively to the news on Thursday that American labor costs recorded their biggest gain since the third quarter of 2008. The Employment Cost Index report found that labor costs jumped 0.7 percent, up sharply from the 0.3 percent rate for the first quarter. The 0.5 percent average for the first half, though, was not far from the underlying trend over the previous year.

The suggestion that wages could finally be on the rise contributed to a market sell-off on Thursday, as some investors viewed the wage gain as an indication of an increasingly tight labor market that might force the Federal Reserve to raise interest rates sooner than expected because of fears of higher inflation.

But in July wages barely moved, leaving them only 2 percent higher than a year ago.

Not everyone was convinced this week that the economy was threatening to burst free of its straitjacket, however.

"The economy still has a huge amount of headwind out there from the popping of the credit bubble," said Joshua Shapiro, chief United States economist for MFR, in an interview before the labor market numbers were released. "We're not through that by any means."

Members of the Federal Reserve on Wednesday emerged from a two-day meeting to acknowledge that growth had rebounded, but stressed concern about the jobs market, saying conditions were below the level that most officials at the central bank considered healthy.

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DealBook: Societe Generale Profit Rises as Loan Problems Recede

LONDON – Société Générale reported a 7.8 percent rise in second-quarter earnings on Friday as France's second largest bank behind BNP Paribas benefited from a decline in exposure to risky loans.

The bank said that its net income for the three months through June 30 reached 1.03 billion euros, or $1.37 billion, compared with €955 million in the same period last year.

Earlier this year, Société Générale laid out plans to achieve a 3 percent annual growth between 2014 and 2016, and a return of equity, a measure of the bank's profitability, of more than 10 percent over the next three years.

On Friday, the French bank said that its return on equity rose to 8.8 percent in the second quarter, and that it had booked a 24 percent decline, to €752 million, in financial provisions to cover exposure to potential risky loans.

Société Générale said it had also benefited from the recent acquisition of the remaining 50 percent stake that it did not already own in Newedge Group, a derivatives brokerage.

"We confirmed the group's growth potential and our ability to improve our profitability," Société Générale's chief executive, Frédéric Oudéa, said in a statement.

Despite the bank's improving profitability, it still faces a number of potential risks.

That includes exposure to Russia, where Société Générale recently increased its stake in the large local financial institution Rosbank. The French bank originally had bought an 82 percent stake in Rosbank in 2006, and increased its holding to almost 100 in April.

The bank's net income from its retail banking operations in that country fell 36 percent, to €16 million in the quarter.

Société Générale also said that it had made a further €200 million provision for unspecified future litigation costs. The bank now has set aside a combined €900 million for potential legal issues.

The French financial giant is under investigation over whether it broke sanctions by providing banking services to countries blacklisted by the United States. Its local rival, BNP Paribas, already has agreed to a record $8.9 billion fine in relation to the ongoing investigation.

And last year, Société Générale also agreed to pay a €370 million fine related to the alleged rigging of European benchmark interest rates, though the bank has now appealed the ruling because it thought regulators may have miscalculated the size of the penalty.

The bank said that second-quarter net income in its global banking and investor solutions unit, which includes investment and private banking, increased 28 percent, to €585 million, compared with the same period last year.

Net income from its international retail banking division also jumped 31 percent, to €318 million, while profit from its French retail banking unit rose 2 percent, to €336 million euros.

Société Générale's common Tier 1 equity, a measure of a bank's ability to weather financial shocks, now stands at 10.2 percent, which is higher than what has been demanded by international regulators.

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