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CEO Daily: Friday, 16th December

Good morning.

It’s hard for non-Americans to understand how a country that persistently spies on, and infiltrates the power structures of, even its closest allies can get so extraordinarily bent out of shape when someone tries the same trick back on it.

It is now the opinion of the CIA that the Russian government ordered its intelligence services to subvert the presidential elections. The President-elect describes the agency’s claim as a self-interested ploy to deflect attention from its own shortcomings and cover the behinds of its political masters in the current administration.

The outside observer has no trouble at all in giving credence to both claims.

Spying and subversion is what powers do to their neighbors and rivals, and woe to those who fail to protect themselves against it. Wasn’t that what the U.S. was telling France and Germany in the wake of Edward’s Snowden’s revelations? By the same token, if you were Vladimir Putin, and your intelligence services weren’t trying to manipulate every possible process to Russia’s advantage, you’d wonder what you were paying them for (and he pays them very handsomely).

So much for how we got here. Where do we go from here? Who believes that the GRU (Russia’s CIA-equivalent) and its hacker pals at Fancy Bear and Cozy Bear (with whom they very probably share an address) are going to stop now that they have achieved their goals for 2016?

At some point, escalation and deterrence will have to be part of a U.S. response to what has happened this year–assuming that the U.S. wants to continue to be a Power. However sincere the President-elect is in his desire for détente with Moscow, there may be one more parallel with Ronald Reagan’s presidency before too long. That’s not a happy thought for those of us who have already survived one Cold War. But it’s a more realistic thought than expecting Russia (or China or Iran or anyone else) to suddenly stop behaving as Powers have always behaved.

More news below.

Geoffrey Smith
@geoffreytsmith
geoffrey.smith@fortune.com

Top News

Facebook Is Not a Media Company* (*This Article Is Disputed by Third-Party Fact Checkers)

Facebook rolled out changes to its news feed algorithm in an effort to stamp out fake news. The new features add options for readers to and third-party fact-checkers to flag articles as incorrect. It will also cut off producers of content from hoax domains from buying on its ad networks, according to Bloomberg. A company official said the move was aimed at only “the worst of the worst” and that the company was not looking to get into the ‘gray area of opinion.’ Elsewhere, Facebook’s Ricky van Veen told Recode that the company is looking to buy or fund original TV-style content of its own, a move that appears to flatly contradict Mark Zuckerberg’s claim that it isn’t a media company. Fortune

States Sue Generic Drug Companies

Twenty U.S. states filed a lawsuit against a host of generic drug companies including Mylan, Heritage, Israel’s Teva and Australia’s Mayne Pharma, alleging that they conspired to fix prices. The news had a dramatic impact, but in parts short-lived, on the companies’ share prices, with Teva little changed in Tel Aviv but Mayne down 11% in Australian trading. The case revolves around the pricing of the generic drug Doxy DR, which the Department of Justice accuses the companies of rigging from 2013. Fortune

Gilead Told to Pay Merck $2.5 Billion in Patent Dispute

A federal jury awarded $2.54 billion in royalties to Merck & Co in a patent lawsuit it had launched against Gilead Sciences over the latter’s blockbuster hepatitis C drugs Sovaldi and Harvoni. The two drugs, which had unprecedented success in treating hepatitis C, had been among the first wave of drugs to attract attention from politicians and regulators due to their extraordinarily high prices. Those prices were naturally only achievable thanks to patent protection. The jury found that the patents at the heart of the suit rightfully belonged to Idenix Pharmaceuticals, a unit of Merck since 2014. Gilead is appealing. Fortune

Verizon Reportedly Threatens to Walk From Yahoo Deal

Yahoo’s share price slid over 6% after reports that Verizon had threatened legal action to extricate itself from its agreement to buy Yahoo’s core internet businesses, unless Yahoo agreed to cut the $4.8 billion price. The value of Yahoo’s already-challenged franchise is under serious scrutiny after news broke of another wholesale data breach that compromised over 1 billion accounts. Germany’s cyber-security authority publicly rebuked Yahoo yesterday for failing to use adequate encryption techniques to protect customers’ data. The White House said yesterday that the FBI is investigating the latest revelations. Fortune

Around the Water Cooler

Exit Tom Wheeler, the Face of Net Neutrality

Federal Communications Commission head Tom Wheeler confirmed he would step down January 20, the day of Donald Trump’s inauguration. That opens the way for the new Republican administration and Congress to reshape the Commission and roll back the policy of net neutrality that Wheeler championed (it may or may not help the cause of fellow Democratic Commissioner Jessica Rosenworcel, whom the Senate refused to reconfirm as long as Wheeler failed to confirm his departure). A thread common to many of the President-elect’s  nominations in the last month has been a desire to roll back much of the perceived regulatory overreach of the last eight years, and it would be a surprise if his nomination to the FCC broke with this pattern.  If the new President wants to tap one of Wheeler’s enemies to unpick his legacy, he won’t be short of choices. WSJ, subscription required

GM To Start Testing Self-Driving Cars

CEO Mary Barra said General Motors will immediately begin testing self-driving vehicles on public roads in Michigan. It’s just days since Gov. Rick Snyder signed a package of bills legalizing their operation, hoping to restore the state’s dented reputation for automotive innovation. Barra also announced that the Orion Township assembly plant, which produces the all-electric Chevrolet Bolt, will produce the next generation of autonomous test vehicles beginning early next year. The test vehicles will be equipped with light-sensitive radar known as LIDAR, cameras, sensors and other hardware designed to ensure system safety. Fortune

Fox in the U.K. Media Henhouse

Rupert Murdoch’s 21st Century Fox formalized a $16 billion offer for the 61% of U.K.-based Pay TV group Sky, in the teeth of opposition from two separate sources. On the one hand, Some of Sky’s independent shareholders say the price doesn’t reflect the true value of a franchise now well established in the German, Italian and Austrian markets (due largely to its dominance of pro soccer broadcasting rights). The deal will need the approval of 75% of them to go through. On the other, The U.K. is still twitchy about the influence of the Murdoch family over the British media scene. The government has two weeks to say whether it will intervene on the grounds of media plurality. Sky’s shares have risen 30% since news of the deal first broke, but are still nearly 10% below the offer price, reflecting the dual risks to the deal. Fortune

Super Mario Run Bolsters Nintendo’s Migration to Smartphones

Shares in Nintendo fell over 4% in Tokyo after an underwhelming start to life for Super Mario Run, the game that marks a smartphone debut for the company’s most famous character. The market’s concerns are chiefly about the pricing model – players will have to pay $9.99 upfront for full access, even though the download itself is free. This in a crowded marketplace where games makers rely increasingly on zero- or low-cost entry, followed by in-game add-ons for revenue. Nintendo’s shares are still up more than 50% this year, due to the mere fact of the migration of Super Mario and Pokemon, its biggest earners, to the smartphone ecosystem. The last leg up has also been helped by a 14% drop in the yen since Donald Trump’s election victory. Reuters

 

Summaries by Geoffrey Smith Geoffrey.smith@fortune.com;

@geoffreytsmith