FTC V. Whole Foods Market (D.C. Cir.)
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PUBLIC COPY - SEALED MATERIAL DELETED ORAL ARGUMENT NOT YET SCHEDULED No. 07-5276 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT FEDERAL TRADE COMMISSION, Plaintiff-Appellant, v. WHOLE FOODS MARKET, INC., and WILD OATS MARKETS, INC., Defendants-Appellees. Appeal from the United States District Court for the District of Columbia, Civ. No. 07-cv-Ol021-PLF PROOF BRIEF FOR APPELLANT FEDERAL TRADE COMMISSION JEFFREY SCHMIDT WILLIAM BLUMENTHAL Director General Counsel Bureau of Competition JOHN D. GRAUBERT KENNETH L. GLAZER Principal Deputy General Counsel Deputy Director JOHNF.DALY MICHAEL J. BLOOM Deputy General Counsel for Litigation Director of Litigation MARILYN E. KERST THOMAS J. LANG Attorney THOMAS H. BROCK Federal Trade Commission CATHARINE M. MOSCATELLI 600 Pennsylvania Ave., N.W. MICHAEL A. FRANCHAK Washington, D.C. 20580 JOAN L. HElM Ph. (202) 326-2158 Attorneys Fax (202) 326-2477 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES Pursuant to Circuit Rule 28(1)(1), Appellant Federal Trade Commission certifies as follows: (A) PARTIES FEDERAL TRADE COMMISSION (Plaintiff) WHOLE FOODS MARKET, INC. (Defendant) WILD OATS MARKETS, INC. (Defendant) APOLLO MANAGEMENT HOLDING LP (Intervenor) DELHAIZE AMERICA. INC. (Interested Party) H.E. BUTT GROCERY COMPANY (Intervenor) KROGER CO. (Intervenor) PUBLIX SUPER MARKETS, INC. (Intervenor) SAFEWAY INC. (Intervenor) SUPERVALU INC (Intervenor) TRADER JOE'S COMPANY (Intervenor) TARGET CORPORATION (Movant) WAL-MART STORES, INC. (Intervenor) WINN-DIXIE STORES INC (Intervenor) WEGMANS FOOD MARKETS, INC. (Movant) AMICI CURIAE AMERICAN ANTITRUST INSTITUTE CONSUMER FEDERATION OF AMERICA ORGANIZATION FOR COMPETITIVE MARKETS (B) RULING UNDER REVIEW Federal Trade Commission v. Whole Foods Market, Inc., 502 F. Supp. 2d I (D.D.C. 2007). (C) RELATED CASES The case on review has not previously been before this Court or any other court. Appellant is not aware of any related cases in this Court or any other court. -} TABLE OF CONTENTS CERTIFICATE AS TO PARTIES, RULINGS AND RELATED CASES -i- TABLE OF CONTENTS -ii- TABLE OF AUTHORITIES -v- GLOSSARY -x- JURISDICTIONAL STATEMENT 1 STATEMENT OF ISSUES PRESENTED FOR REVIEW 2 STATEMENT OF THE CASE 3 STATEMENT OF FACTS 5 A. The Parties. .......................................... .. 5 B. Direct Evidence of Market Definition and Likely Competitive Effects 6 1. Each of the merging parties treated the other as its closest competitor. 7 2. The merging parties did not consider conventional supermarkets to be effective competitors now or in the future 10 3. The purpose and effect of the merger was to terminate the price and non-price competition that existed between the merging parties 11 C. The District Court's Treatment of the Direct Evidence from the Merging Parties....................................... .. 13 D. The Relevant Expert Testimony 15 -11 E. The District Court's Treatment of the Expert Testimony 21 SUMMARY OF ARGUMENT 22 ARGUMENT 26 I. STANDARD OF REVIEW 26 II. THE DISTRICT COURT APPLIED THE WRONG STANDARD FOR PRELIMINARY INJUNCTIONS IN SECTION B(b) MERGER CASES 27 A. Congress Has Given Primary Adjudicatory Responsibility to the Commission 28 B. This Court's Legal Standard Has Given Effect to the Statutory Scheme by Requiring Only a Showing of "Serious, Substantial" Questions to Support a Preliminary Injunction 30 C. The District Court Departed from This Court's Legal Standard 34 III. THE DISTRICT COURT FAILED TO ASSESS WHETHER THE COMMISSION HAD RAISED "SERIOUS, SUBSTANTIAL" QUESTIONS ON THE MERITS 37 A. The District Court Failed to Analyze the Commission's Evidence, Which Greatly Exceeded the Applicable Standard .40 1. Evidence of the parties' perceptions and characterizations 42 2. The expert economic evidence 45 B. The Evidence the District Court Did Rely on Was Flawed.. 48 -111 IV. THIS APPEAL PRESENTS A LIVE CONTROVERSY. 55 V. THIS COURT SHOULD ENTER AN INJUNCTION TO PREVENT FURTHER INTEGRATION OF WILD OATS INTO WHOLE FOODS DURING THE ADMINISTRATIVE ADJUDICATION ON THE MERITS. ....................................... .. 59 CONCLUSION 60 CERTIFICATE OF COMPLIANCE WITH RULE 32(a)(7), FRAP ADDENDUM OF STATUTES CERTIFICATE OF SERVICE -IV TABLE OF AUTHORITIES CASES PAGE Air Line Pilots Ass'n v. Eastern Air Lines, Inc., 863 F.2d 891 (D.C. Cir. 1988) 26 Ayuda, Inc. v. Thornburgh, 948 F.2d 742 (D.C. Cir. 1991) 26 Bailey v. Allgas, Inc., 284 F.3d 1237 (11th Cir. 2002) 52 Brooke Group v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) 52 *Brown Shoe Co. v. United States, 370 U.S. 294 (1962) 33,40 Byrdv. EPA, 174 F.3d 239 (D.C. Cir. 1999) 56 Calderon v. Moore, 518 U.S. 149 (1996) 56 California v. American Stores, 697 F. Supp. 1125 (C.D. Cal. 1988), aff'd in part and rev'd in part, 872 F.2d 837 (9th Cir. 1989), rev'd, 495 U.S. 271 (1990) 41 Church ofScientology v. United States, 506 U.S. 9 (1992) 56 * Authorities upon which we chiefly rely are marked with asterisks. -y Concord Boat v. Brunswick Corp., 207 F.3d 1039 (8th Cir. 2000) 52 Foundation on Economic Trends v. Heckler, 756 F.2d 143 (D.C. Cir. 1985) 26 FTC v. Beatrice Foods Co., 587 F.2d 1225 (D.C. Cir. 1978) 4,31 FTC v. Cardinal Health, Inc., 12 F. Supp. 2d 34 (D.D.C. 1998) 41 FTC v. Coca-Cola Co., 641 F. Supp. 1128 (D.D.C. 1986), vacated as moot, 829 F.2d 191 (D.C. Cir. 1987) 33,40 FTC v. Elders Grain, Inc., 868 F.2d 901 (7th Cir. 1989) 33 FTC v. Exxon Corp., 636 F.2d 1336 (D.C. Cir. 1980) 30 FTC v. Food Town Stores, 539 F.2d 1339 (4th Cir. 1976) 3,31 FTC v. Freeman Hospital, 69 F.3d 260 (8th Cir. 1995) 35 *FTC v. HI. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) 3,18,22,26,30,31 33,35,36,38,39,41 43,44,54,55 FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986) 28,38 FTC v. Lancaster Colony Corp., 434 F. Supp. 1088 (S.D.N.Y. 1977) 31 -VI FTCv. PPGIndus., 798 F.2d 1500 (D.C. Cir. 1986) 41 FTC v. Univ. Health, Inc., 938F.2d 1206 (1lthCir. 1991) 31 FTC v. Warner Commc'ns, Inc., 742 F.2d 1156 (9th Cir. 1984) 31 FTC v. Weyerhaeuser, 665 F.2d 1072 (D.C. Cir. 1981) 29,30,56,57 Gull Airborne Instruments, Inc., v. Weinberger, 694 F.2d 838 (D.C. Cir. 1982) 56 Hospital Corp. ofAmerica v. FTC, 807 F.2d 1381 (7th Cir. 1986) 54 Humphrey's Executor v. United States, 295 U.S. 602 (1935) 28 Indus. Bank ofWashington v. Tobriner, 405 F.2d 1321 (D.C. Cir. 1968) 57 Jacksonville Port Auth. v. Adams, 556 F.2d 52 (D.C. Cir. 1977) 59 Mills v. Green, 159 U.S. 651 (1895) 56 Photovest v. Fotomart, 606 F.2d 704 (7th Cir. 1979) 41,51 *Rothery Storage & Van Co. v. Atlas Van Lines, 792 F.2d 210 (D.C. Cir. 1986), cert. denied, 479 U.S. 1033 (1987) ..... 40,43 Serono Labs., Inc., v. Shalala, 158 F.3d 1313 (D.C. Cir. 1998) 27 -VII Spencer v. Kemna, 523 U.S. 1 (1998) 56 Toys "R" Us, Inc. v. FTC, 221 F.3d 928 (7th Cir. 2000) 38 United States v. Alum. Co. ofAmerica, 148 F.2d416 (2dCir. 1945) 51 United States v. Baker Hughes, Inc., 731 F. Supp. 3 (D.D.C. 1990), affd, 908 F.2d 981(D.C. Cir. 1990) 35,37,43 United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586 (1957) 33 United States v. El Paso Natural Gas Co., 376 U.S. 651 (1964) 55 United States v. Gypsum Co., 333 U.S. 364 (1948) 49 United States v. Philadelphia Nat'l Bank, 374 U.S. 321 (1963) 33 United States v. Sun and Sand Imports, Ltd., 725 F.2d 184 (2d Cir. 1984) 32 United States v. WT. Grant Co., 345 U.S. 629 (1953) 55 Univ. of Texas v. Camenisch, 451 U.S. 390 (1981) 35 Washington Metro. Area Transit Comm 'n v. Holiday Tours, Inc., 559 F.2d 841 (D.C. Cir. 1977) 32 -V111 FEDERAL STATUTES Clayton Act Section 7, 15 U.S.C. § 18 1 Section 7, 15 U.S.C. § 21 1 Federal Trade Commission Act Section 5(b), 15 U.S.C. § 45(b) 28 Section 5(b), 15 U.S.C. § 45(c) 29 Section 13(b), 15 U.S.C. § 53(b) 1,2,3,29 28 U.S.C. § 1291 1 28 U.S.C. § 1292(a)(I) 1 28 U.S.C. § 2106 59 MISCELLANEOUS 51 Congo Rec. 14932-2 (1914) 27 FTC and USDOJ, 1992 Horizontal Merger Guidelines (1997) http://www.ftc.govlbc/docs/horizmer.htm 18,23,38,50 H.R. Conf. Rep. No. 624, 93rd Cong., 1st Sess. 31 (1973) 29 Jonathan Baker, Unilateral Competitive Effects Theories in Merger Analysis, 11 Antitrust ABA 21 (1997) 51 -IX GLOSSARY 1. Op. - District court opinion of August 16, 2007, denying preliminary injunction. 2. Record Citations: Tr. - Hearing transcript. PX - Plaintiffs exhibit. DPFF - Defendants' proposed finding offact. JA - Joint Appendix. -x JURISDICTIONAL STATEMENT The Federal Trade Commission ("Commission") appeals the denial of its motion for a statutory preliminary injunction under Section 13(b) of the FTC Act, 15 U.S.c. § 53(b). The Commission's motion sought to preserve its ability to render effective relief in a pending administrative proceeding to determine the legality of Whole Foods' acquisition of Wild Oats, under Section 7 of the Clayton Act, 15 U.S.c. § 18; see 15 U.S.c. § 21. The district court had jurisdiction under Section 13(b). Pertinent portions of Sections 7 and 13(b) are set out in the addendum attached to this brief.