An anonymous reader quotes a report from the San Francisco Chronicle: Elon Musk returned to the witness stand Wednesday in Oakland federal court for a second day of testimony in his case against OpenAI, detailing his shift from being an enthusiastic supporter of the nonprofit to feeling betrayed. He also clashed repeatedly with OpenAI's attorney over questions that Musk believed were unfair. He said his feelings towards OpenAI CEO Sam Altman and President Greg Brockman shifted from a "phase one" of support, "phase two" of doubts, and finally "phase three, where I'm sure they're looting the nonprofit. We're currently in phase three," Musk said with a chuckle. Musk said he was a "fool" for giving OpenAI "$38 million of essentially free funding to create what would become an $800 billion company," of which he has no equity stake. In his 2024 lawsuit, Musk alleged breach of charitable trust and unjust enrichment, arguing OpenAI abandoned its original nonprofit mission to benefit humanity to pursue financial gain. OpenAI's lawyer William Savitt argued Tuesday during his opening statement that the nonprofit entity remains in control of the for-profit public benefit corporation and is now one of the most well-funded nonprofits in the world. Musk is seeking to oust Altman from OpenAI's board and upwards of $134 billion in damages, which he said would be used to fund OpenAI's nonprofit mission. During cross-examination, Savitt clashed with Musk over questioning. Savitt asked whether Musk had contributed $38 million to OpenAI, rather than the $100 million that he later claimed to have invested on X. Musk said he also contributed his reputation to the company and came up with the idea for the name, leading Savitt to ask Musk to respond yes or no to "simple" questions. "Your questions are not simple. They're designed to trick me, essentially," Musk said, adding that he had to elaborate or it would mislead the jury. He compared Savitt's questions to asking, "have you stopped beating your wife?" Judge Yvonne Gonzalez Rogers intervened, leading Musk to answer yes to the $38 million investment amount. The world's richest man said his doubts grew and by late 2022, he thought "wait a second, these guys are betraying their promise. They're breaking the deal." "I started to lose confidence that they were telling me the truth," Musk said. A turning point was co-defendent Microsoft's investment of billions of dollars into OpenAI, Musk said. On October 23, 2022, Musk texted Altman that he was "disturbed" to see OpenAI's valuation of $20 billion in the wake of the Microsoft deal. Musk called the deal a "bait and switch," since a nonprofit doesn't have a valuation. OpenAI had "for all intents and purposes" become primarily a for-profit company, Musk argued. Altman responded to Musk by text that "I agree this feels bad," saying that OpenAI had previously offered equity in the company but Musk hadn't wanted it at the time. Altman said the company was happy to offer equity in the future. Musk said it "didn't seem to make sense to me" to hold equity in what should be a nonprofit. Musk also testified about former OpenAI board member Shivon Zilis, who lives with him, is the mother of four of his children, and served as a senior advisor at Neuralink. He denied that she shared sensitive OpenAI information with him. Court evidence showed Musk had encouraged her to stay close to OpenAI to "keep info flowing" and had approved Neuralink recruiting OpenAI employees, which he defended by saying workers are free to change jobs. "It's a free country," Musk said. Recap: Musk Testifies OpenAI Was Created As Nonprofit To Counter Google (Day Two) Elon Musk and OpenAI CEO Sam Altman Head To Court (Day One)

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A federal judge denied Sam Bankman-Fried's request for a new trial, calling his claims of DOJ witness intimidation "wildly conspiratorial" and unsupported by the record. Judge Lewis Kaplan said (PDF) the FTX founder's motion appeared tied to a pre-indictment plan to recast himself as a Republican victim of Biden's DOJ in hopes of gaining sympathy, leniency, or even a Trump pardon. Ars Technica reports: Bankman-Fried was sentenced to 25 years in prison in 2024 for "masterminding one of the largest financial frauds in American history," US District Judge Lewis Kaplan wrote in his order. He was convicted on all charges, including wire fraud, conspiracy to commit securities fraud, commodities fraud, and money laundering. There is already an appeal pending in another court, the judge noted. But Bankman-Fried filed a separate motion for a new trial, claiming that there were "newly discovered" witnesses and evidence that might have helped his defense, if Joe Biden's Department of Justice hadn't intimidated them into refusing to testify or, in one case, lying on the stand. He also asked for a new judge, wanting Kaplan to recuse himself. However, Kaplan pointed out that "none of the witnesses" were "newly discovered." And more concerningly, Bankman-Fried offered no evidence that the witnesses could prove the "wildly conspiratorial" theory the FTX founder raised, claiming that their absence at the trial was a "product of government threats and retaliation," the judge wrote. Bankman-Fried's theory is "entirely contradicted by the record," Kaplan said. He emphasized that granting Bankman-Fried's request "would be a large waste of judicial resources as it could require another judge to familiarize himself or herself with an extensive and complicated record." Additionally, all three witnesses that Bankman-Fried claimed could give crucial testimony in his defense were known to him throughout the trial, and he never sought to compel their testimony. And the "self-serving social-media posts" of one witness who now claims that he lied when testifying against Bankman-Fried -- "Ryan Salame, who pleaded guilty" -- must be met with "utmost suspicion," Kaplan said. "If one were to take Salame at his current word, he lied under oath when pleading guilty before this Court," Kaplan wrote. Even if taken seriously, "his out-of-court, unsworn statements could not come anywhere close to clearing the bar to warrant a new trial," Kaplan said, deeming Salame's credibility "highly questionable." Further, "even if these individuals had testified for Bankman-Fried, his protestations that one or more of them would have supported his claims that FTX was not insolvent and that his victims all were compensated fully in the bankruptcy proceedings are inaccurate or misleading," Kaplan concluded. In the order, Kaplan's frustration seems palpable, as there may have been no need for him to rule on the motion at all after Bankman-Fried requested to withdraw it. But the judge said the ruling was needed after Bankman-Fried waited to file his withdrawal request until after the DOJ and the court wasted time responding and reviewing filings, the judge said. Troublingly, Bankman-Fried's request to withdraw his request without prejudice would have allowed him to potentially request a new trial after the appeal ended. Based on the substance of the filing, that risked wasting future court resources, Kaplan determined. To prevent overburdening the justice system, Kaplan deemed it necessary to deny Bankman-Fried's motion and request for recusal, rather than allow him to withdraw the filing without prejudice.

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Elon Musk testified on day two of his trial against OpenAI, saying he helped create the company as a nonprofit counterweight to Google and would not have backed it if the goal had been private profit. CNBC reports: Musk on Tuesday was the first witness called to testify in the trial. He spoke about his upbringing, his many companies, his role in founding OpenAI and his understanding of its structure. Musk said in his testimony that he was not opposed to the creation of a small for-profit subsidiary, "as long as the tail didn't wag the dog." Musk said he was motivated to start OpenAI to serve as a counterweight to Google. He got the idea after an argument he had with Google co-founder Larry Page, who called Musk a "speciesist for being pro-human," he testified. "I could have started it as a for profit and I chose not to," Musk said on the stand. Earlier, attorneys for Musk and OpenAI presented their opening arguments to the jury. Musk's lead trial lawyer, Steven Molo, delivered the opening statement for the Tesla and SpaceX CEO. OpenAI lawyer William Savitt gave the opening statement for the AI company, Altman and Brockman. OpenAI has characterized Musk's lawsuit as a baseless "harassment campaign." The company said Monday in a post on X that it "can't wait to make our case in court where both the truth and the law are on our side." During his testimony on Tuesday, Musk repeatedly emphasized that he founded OpenAI to serve as a counterweight to Google. He said he got the idea after an argument about AI safety with Google co-founder Larry Page, who Musk said called him "a speciesist for being pro-human." Musk said he was concerned Page was not taking AI safety seriously, so he wanted there to be an nonprofit, open source alternative to Google. "I could have started it as a for profit and I chose not to," Musk said on the stand. Further reading: Elon Musk and OpenAI CEO Sam Altman Head To Court

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An anonymous reader quotes a report from NPR: A divided U.S. Supreme Court on Monday heard a dispute over labels on the popular Roundup weed killer, which thousands of people blame for their cancers. How the Supreme Court rules could have implications for tens of thousands of lawsuits against Roundup maker Monsanto, which is now owned by Bayer. The case centers on who decides about warning labels on chemicals: the federal government -- or states or juries. [...] The justices will not be evaluating whether glyphosate causes cancer. Rather, they'll consider who should decide what appears on warning labels and whether states have a role to play after the EPA weighs in. The current U.S. solicitor general backed Monsanto. Sarah Harris, his principal deputy, said the Environmental Protection Agency is in the driver's seat, not anyone in Missouri. "Missouri thus requires adding cancer warnings but federal law requires EPA to approve new warnings and tasks EPA with deciding what label changes would mitigate any health risks," Harris argued. "State law must give way." Several justices, including Brett Kavanaugh, appeared to agree with Monsanto's argument about the need for a single, uniform standard across the country. But others, like Chief Justice John Roberts, wondered what would happen if the federal government moved more slowly than states did, who wanted to act quickly on information about new dangers. "Well, it does undermine the uniformity," Roberts said. "On the other hand, if it turns out they were right, it might have been good if they had an opportunity to do something, to call this danger to the attention of people while the federal government was going through its process," he said about states. Justice Ketanji Brown Jackson asked about the emergence of new science, and the EPA's reviews. "There's a 15-year window between when that product has to be re-registered again and lots of things can happen in science, in terms of development about the product," she said. Bayer, which now owns Monsanto, only sells Roundup that contains glyphosate to farmers and businesses these days. Bayer has been pushing to resolve scores of the residential cases through a sweeping settlement, trying to put the costly claims behind it.

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An anonymous reader quotes a report from the Associated Press: Technology tycoons Elon Musk and Sam Altman are poised to face off in a high-stakes trial revolving around the alleged betrayal, deceit and unbridled ambition that blurred the bickering billionaires' once-shared vision for the development of artificial intelligence. The trial, which started Monday with jury selection, centers on the 2015 birth of ChatGPT maker OpenAI as a nonprofit startup primarily funded by Musk before evolving into a capitalistic venture now valued at $852 billion. The trial's outcome could sway the balance of power in AI -- breakthrough technology that is increasingly being feared as a potential job killer and an existential threat to humanity's survival. Those perceived risks are among the reasons that Musk, the world's richest person, cites for filing an August 2024 lawsuit that will now be decided by a jury and U.S. District Judge Yvonne Gonzalez Rogers in Oakland, California. The civil lawsuit accuses Altman, OpenAI's CEO, and his top lieutenant, Greg Brockman, of double-crossing Musk by straying from the San Francisco company's founding mission to be an altruistic steward of a revolutionary technology. The lawsuit alleges they shifted into a moneymaking mode behind his back. OpenAI has brushed off Musk's allegations as an unfounded case of sour grapes that's aimed at undercutting its rapid growth and bolstering Musk's own xAI, which he launched in 2023 as a competitor. Gonzalez Rogers questioned potential jurors Monday about their views on Musk, Altman and artificial intelligence. Some jurors said they had negative views of Musk, but most said they would still be able to treat him fairly and focus on the facts of the case. [...] "Part of this is about whether a jury believes the people who will testify and whether they are credible," Gonzalez Rogers said during a court hearing earlier this year while explaining why she believe the case merited a trial. The judge will make the final decision on the case, with the jury serving in an advisory role. The latest development is that a jury has been seated. During selection, several prospective jurors expressed negative views of Elon Musk, but Judge Yvonne Gonzalez Rogers rejected attempts by Musk's lawyer to remove some of them solely on that basis, saying dislike of Musk does not automatically mean someone can't be fair. The court is selecting nine jurors, and the case is expected to wrap by May 21, when it would go to the jury. Tomorrow, April 28th, will feature opening statements.

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An anonymous reader quotes a report from the New York Times: When the Call Federal Credit Union outside Richmond, Va., was robbed at gunpoint in 2019, the suspect took $195,000 from the bank's vault and fled before the police arrived. A detective interviewed witnesses and reviewed the bank's security footage. But with no leads, the officer relied on a so-called geofence warrant to sweep up location data from all the cellphones in the vicinity of the bank for the 30 minutes before and after the robbery. The data he gathered eventually led to the identification and conviction of Okello T. Chatrie, now 31, a Jamaican immigrant who came to the United States in 2017. Geofence searches have become increasingly popular as a tool for law enforcement, but critics say they put at risk the personal data of everyday Americans and violate the Constitution. Mr. Chatrie challenged the use of a geofence warrant in his conviction, in a case that will be heard by the Supreme Court on Monday. The justices will examine how the Constitution's traditional protections apply to rapidly changing technology that has made it easier for the police to scoop up vast amounts of data to assemble a detailed look at a person's movements and activities. It has been eight years since the court last took up a major Fourth Amendment case involving the expectations of privacy for the millions of people carrying cellphones in the digital age. In that 2018 case, the court ruled that the government generally needs a warrant to collect location data drawn from cell towers about the customers of cellphone companies. The court has also limited the government's ability to use GPS devices to track suspects' movements, and it has required that law enforcement get a warrant to search individual cellphones. In Mr. Chatrie's case, the government did obtain a warrant, but one that his legal team said was overly broad, violating Fourth Amendment protections against unreasonable searches.

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An anonymous reader quotes a report from the Associated Press: New York is suing Coinbase and Gemini, two of the newest players in the prediction market industry, arguing that the companies' unregulated and unlicensed platforms are illegal gambling operations. Attorney General Letitia James' lawsuit, filed Tuesday in state court in Manhattan, seeks to bar the companies' platforms from operating in the state unless and until they obtain licenses from the state Gaming Commission. "Gambling by another name is still gambling, and it is not exempt from regulation under our state laws and Constitution," James said in a statement. "Gemini and Coinbase's so-called prediction markets are just illegal gambling operations, exposing young people to addictive platforms that lack the necessary guardrails." Both companies began as cryptocurrency trading platforms before branching into the prediction space, which has been dominated by Kalshi and Polymarket. [...] New York's lawsuit alleges that the Coinbase and Gemini are seeking "to avoid the legal and financial consequences" of the state's close regulation of gambling "by offering what is quintessentially wagering under the guise of offering 'event contracts' on a 'prediction market.'" By operating without licenses, the lawsuit says, Coinbase's and Gemini's prediction market businesses aren't paying the same taxes as licensed casinos and mobile sportsbooks, which are taxed by the state at a rate of approximately 51% of gross revenues. In addition, the lawsuit says, Coinbase and Gemini allow users as young as 18, while state law prohibits wagering by anyone under 21.

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Florida's attorney general has launched a criminal investigation into OpenAI over allegations that the accused gunman in a shooting at Florida State University last year used ChatGPT to help plan the attack. OpenAI says the chatbot is "not responsible for this terrible crime" and only provided factual information available from public sources. NPR reports: The Republican attorney general, James Uthmeier, said at a press conference in Tampa on Tuesday that accused gunman Phoenix Ikner consulted ChatGPT for advice before the shooting, including what type of gun to use, what ammunition went with it, and what time to go to campus to encounter more people, according to an initial review of Ikner's chat logs. "My prosecutors have looked at this and they've told me, if it was a person on the other end of that screen, we would be charging them with murder," Uthmeier said. "We cannot have AI bots that are advising people on how to kill others." Uthmeier's office is issuing subpoenas to OpenAI seeking information about its policies and internal training materials related to user threats of harm and how it cooperates with and reports crimes to law enforcement, dating back to March 2024. At the press conference, Uthmeier acknowledged the investigation is entering into uncharted territory and is uncertain about whether OpenAI has criminal liability. "We are going to look at who knew what, designed what, or should have done what," he said. "And if it is clear that individuals knew that this type of dangerous behavior might take place, that these types of unfortunate, tragic events might take place, and nevertheless still turned to profit, still allowed this business to operate, then people need to be held accountable." [...] Ikner, 21, is facing multiple charges of murder and attempted murder for the April 2025 shooting near the student union on FSU's Tallahassee campus, where he was a student at the time. His trial is set to begin on Oct. 19. According to court filings, more than 200 AI messages have been entered into evidence in the case.

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A Manhattan federal jury found that Live Nation and Ticketmaster illegally maintained monopoly power in the ticketing market. The findings follow an antitrust case brought by states after a separate DOJ settlement. CNN reports: The verdict was reached following a lengthy trial in New York federal court that included testimony from top executives in the music and entertainment industries. Jurors began deliberating on Friday. The Justice Department and 39 state attorneys general, including California and New York, and Washington, DC, sued Live Nation in 2024 alleging its combination with Ticketmaster and control of "virtually every aspect of the live music ecosystem" have harmed fans, artists, and venues. During the second week of trial, in a move that surprised even the judge, the Justice Department reached a secret settlement with Live Nation. A handful of states signed onto the deal, but more than two dozen proceeded to trial. Under the DOJ deal, Live Nation agreed to allow competitors, like SeatGeek or StubHub, to offer tickets to its events, cap ticketing service fees at 15%, and divest exclusive booking agreements with 13 amphitheaters. The deal includes a $280 million settlement fund for state damages claims for the handful of states that signed onto the deal. The DOJ settlement requires the judge's approval.

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An anonymous reader quotes a report from Bloomberg: Alphabet's Google is facing billions of dollars in potential damage claims as part of mass arbitration tied to the company's online search and advertising technology businesses, which courts have ruled were illegal monopolies. Advertisers are banding together to seek payouts through mass arbitration proceedings. While many companies that displayed ads purchased through Google -- including USA Today Co. and Advance Publications -- have sued for damages since the rulings in 2024, advertiser contracts with the search giant require mandatory arbitration over legal disputes. In arbitration, legal disputes are handled by a mediator, a process that tends to favor companies in individual claims. Mass arbitration -- where 25 or more claims against the same company are pooled together -- have become more common and provide a greater likelihood of settlement awards for claimants. Ashley Keller, a Chicago lawyer whose firm has handled mass arbitrations against DoorDash, Postmates and TurboTax-maker Intuit, said he's already signed up a "significant number" of advertisers to participate in claims against Google. The first of those are expected to be filed this week. "Two federal judges have already adjudicated Google to be a monopolist," Keller said in an interview with Bloomberg. "It seems sensible to seek redress." Keller, who is also representing Texas and other states in a lawsuit against Google for monopolization of advertising technology, estimates potential claims for online search and display ads could reach $218 billion or more, based on calculations from an economist his firm has hired. Similar mass arbitrations have lasted 12 to 24 months between the filing of claims and resolution, he said. "Given the nature of these matters, we cannot estimate a possible loss," Google said in a recent corporate filing. "We believe we have strong arguments against these open claims and will defend ourselves vigorously."

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An anonymous reader quotes a report from Ars Technica: The Trump administration has stepped up an effort to unmask a Reddit user who criticized Immigration and Customs Enforcement (ICE). After failing to obtain information through a summons issued (PDF) to Reddit, the government reportedly issued a subpoena demanding that Reddit provide the information and appear before a grand jury in Washington, DC. The Intercept described the subpoena today. "According to a subpoena obtained by The Intercept, Reddit has until April 14 to provide a wide range of personal data on one of its users, whom US Immigration and Customs Enforcement agents have been trying unsuccessfully to identify for more than a month," the article said. The legal saga began in US District Court for the Northern District of California. On March 12, the anonymous Reddit user whose information is being sought filed a motion (PDF) to quash a summons seeking a host of information from Reddit. The summons was issued by the Department of Homeland Security and directed Reddit to turn information over to an ICE senior special agent. The summons cited authority under 19 U.S. Code 1509, which is part of the Smoot-Hawley Tariff Act of 1930. The motion to quash said the summons is not authorized by the law, which deals with imports of boats, alcoholic drinks, and animals, among other things. "J. Doe is a US citizen who has not traveled out of the country, is not engaged in any international commerce, has no business concerns outside the United States, and primarily uses their Reddit account to engage in political speech relevant to their local community," said the filing by the Civil Liberties Defense Center (CLDC), which represents the Reddit user. "Yet the government claims the right to obtain Doe's name, telephone number, home address, banking and credit card information, IP addresses, telephone model number(s), and the names of any other accounts associated with their Reddit account. The information sought by the government in no way pertains to customs or importing or exporting merchandise, and is clearly intended to chill free speech." "We should be very, very, very concerned that they've now taken one of these to a grand jury," said David Greene, senior counsel for the Electronic Frontier Foundation. "It's something to be taken very seriously." A Reddit spokesperson told Ars today that "we seek to inform users of any legal process compelling disclosure of their data, as we did in this case, because users should have the agency to protect their own information and are often better positioned to challenge requests that impact them." "We do not voluntarily share information with any government, especially not on users exercising their rights to criticize the government or plan a protest. We review every inquiry for legal sufficiency and routinely object to requests that are overbroad or threaten civil rights. When legally compelled to disclose data, we provide only the minimum required and notify the user whenever possible so they can defend their interests."

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A federal appeals court denied Anthropic's bid to temporarily block the Pentagon's blacklisting, meaning the company remains shut out of Defense Department contracts while the case continues, even though a separate court has allowed other federal agencies to keep using Claude for now. CNBC reports: "In our view, the equitable balance here cuts in favor of the government," the appeals court said in its decision. "On one side is a relatively contained risk of financial harm to a single private company. On the other side is judicial management of how, and through whom, the Department of War secures vital AI technology during an active military conflict. For that reason, we deny Anthropic's motion for a stay pending review on the merits." With the split decisions by the two courts, Anthropic is excluded from DOD contracts but is able to continue working with other government agencies while litigation plays out. Defense contractors will be prohibited from using Claude in their work with the agency, but they can use it for other cases. [...] In the ruling on Wednesday, the court acknowledged that Anthropic "will likely suffer some degree of irreparable harm absent a stay," but that the company's interests "seem primarily financial in nature." While the company claimed the DOD was standing in the way of its right to free speech, "Anthropic does not show that its speech has been chilled during the pendency of this litigation," the order said. Because of the harm Anthropic is likely to suffer, the appeals court said "substantial expedition is warranted." An Anthropic spokesperson said in a statement after the ruling that the company is "grateful the court recognized these issues need to be resolved quickly" and that it's "confident the courts will ultimately agree that these supply chain designations were unlawful." "While this case was necessary to protect Anthropic, our customers, and our partners, our focus remains on working productively with the government to ensure all Americans benefit from safe, reliable AI," Anthropic said.

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An anonymous reader quotes a report from The Drive: Farmers have been fighting John Deere for years over the right to repair their equipment, and this week, they finally reached a landmark settlement. While the agricultural manufacturing giant pointed out in a statement that this is no admission of wrongdoing, it agreed to pay $99 million into a fund for farms and individuals who participated in a class action lawsuit. Specifically, that money is available to those involved who paid John Deere's authorized dealers for large equipment repairs from January 2018. This means that plaintiffs will recover somewhere between 26% and 53% of overcharge damages, according to one of the court documents (PDF) -- far beyond the typical amount, which lands between 5% and 15%. The settlement also includes an agreement by Deere to provide "the digital tools required for the maintenance, diagnosis, and repair" of tractors, combines, and other machinery for 10 years. That part is crucial, as farmers previously resorted to hacking their own equipment's software just to get it up and running again. John Deere signed a memorandum of understanding in 2023 that partially addressed those concerns, providing third parties with the technology to diagnose and repair, as long as its intellectual property was safeguarded. Monday's settlement seems to represent a much stronger (and legally binding) step forward. The report notes that a judge's approval of the settlement is still required but likely to happen. John Deere also faces another lawsuit by the U.S. FTC, accusing the company of forcing farmers to use its authorized dealer network and driving up their costs for parts and repairs.

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An anonymous reader quotes a report from TorrentFreak: Following on the heels of the landmark Cox v. Sony ruling, the Supreme Court has vacated the contributory copyright infringement verdict against ISP Grande Communications, ordering the Fifth Circuit to reconsider its decision in light of the new precedent. [...] The order (PDF) effectively removes the case from the Supreme Court docket, urging the Fifth Circuit Court of Appeals to take another look at its decision in light of the new ruling. Given the similarities between the two cases, it is no surprise that the Supreme Court came to this conclusion. It is now up to the Fifth Circuit to revisit whether Grande's conduct meets the intent threshold that was established in Cox. That is a significantly higher bar than the one applied in the original verdict, which found that continuing to provide service to known infringers was enough to establish material contribution. The music companies previously said they sent over a million copyright infringement notices, but that Grande failed to terminate even a single subscriber account in response. However, without proof of active inducement, these absolute numbers carry less weight now. Whether this translates into a win for Grande on remand remains to be seen. For now, however, the original $47 million verdict is further away than ever.

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An anonymous reader quotes a report from Reuters: A federal appeals court ruled on Monday that New Jersey gaming regulators cannot prevent Kalshi from allowing people in the state to use its prediction market to place financial bets on the outcome of sporting events. A three-judge panel of the Philadelphia-based 3rd U.S. Circuit Court of Appeals ruled 2-1 (PDF) in finding that the U.S. Commodity Futures Trading Commission has exclusive jurisdiction over the sports-related event contracts that Kalshi allows people to trade on its platform. The ruling marked the first time a federal appeals court has ruled on what has become the central issue in an escalating battle over the ability of state gaming regulators to police the activity of prediction market operators. Kalshi and companies like it allow users to place trades and profit from predictions on events such as sports and elections. States argue that firms like Kalshi are operating without required state licenses, in violation of gaming laws, including bans on wagers by those under 21. Those states include New Jersey, which last year sent Kalshi a cease-and-desist letter stating that its listing of sports-related event contracts on its platform violated state gambling laws that prohibit betting on collegiate sports. Kalshi sued the state, arguing its event contracts qualify as "swaps," a type of derivative contract, that under the Commodity Exchange Act can only be regulated by the CFTC, which had granted the company a license to operate a designated contract market (DCM). A lower-court judge had sided with New York-based Kalshi and issued a preliminary injunction, prompting New Jersey to appeal. But a majority of the judges on the 3rd Circuit panel concluded the Commodity Exchange Act likely preempted state law. "Kalshi's sports-related event contracts are swaps traded on a CFTC-licensed DCM, so the CFTC has exclusive jurisdiction," U.S. Circuit Judge David Porter wrote. The ruling was in line with the position advanced in other litigation by the CFTC under President Donald Trump's administration. The regulator last week sued Arizona, Connecticut and Illinois to prevent them from pursuing what it called unlawful efforts to regulate prediction markets.

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