[Oral Argument Scheduled for April 23, 2008] PUBLIC COPY - PROTECTED INFORMATION REDACTED Case No. 07-5276 IN THE UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT FEDERAL TRADE COMMISSION, Appellant, V. WHOLE FOODS MARKET, INC., Appellee. APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA CORRECTED BRIEF FOR APPELLEE WHOLE FOODS MARKET, INC. Of Counsel: Paul T. Denis Paul H. Friedman Jeffrey W. Brennan Roberta Lang James A. Fishkin Vice-President of Legal Affairs Michael D. Farber and General Counsel Nory Miller Whole Foods Market, Inc. Rebecca Dick 550 Bowie Street DECHERTLLP Austin, Texas 78703 1775 I Street, N.W. Washington, DC 20006 Telephone: (202) 261-3430 Facsimile: (202) 261-3333 March 18, 2008 Attorneys for Whole Foods Market, Inc. · . CERTIFICATE OF THE PARTIES, RULINGS, AND RELATED CASES · · The Parties on Appeal · Appellant . Appellees * · ·. Federal Trade Commission Whole Foods Market, Inc . 600 Pennsylvania Ave., N. W. 550 Bowie Street Washington, D.C! . 20580 Austin, Texas 78703 ' . *Wild Oats Markets, Inc~, 1821 30th Street, Boulder, Colorado 80301, an appellee · when this appeal was filed, is now a wholly~owned s-µbsidiary of appellee Whole · · Foods Market, Inc. ... Amicion Appeal - Motion for Stay Pending Appeal . •, . ··. AIDerican Antitrust Institute. Organization for Competitive · 2929. Ellicott Street; Suite 1000 Markets Washington, D.C ~ 20008 1.620 lStreet, NW - Suite 200 · Washington, DC·20006 Consumer Federation of America P.O. Box 6486 · Lincoln, NE 68506 · Amici on Appeal - Merits . American Antitrust Institute* . Organic Trade Association* 2929 ElliCott Street, Suite 1000 POBox547 Washington, D.C. 20008 Greenfield MA .o1302 · .*Has filed amicus.brief o~ ·behalf of. *Has moved to file out of time Appellant Federal Trade Commission · amicus briefon behalf of Appellee Whole Foods Market, Inc.; FTC opposes 1 . The Parties in the District Court . Plaintiff · . Defendants · Federal Trade Commission .Whole Foods Market, Inc. ·600 Pemisylvania Ave.;N.W. · 550 Bowie Street · Washington, D.C. 20580 Austin, Texas 78703 : . Wild Oats Markets, Inc. : . 1821 30thStreet . ·Boulder, Colorado.8030 I • . .. Intervenors in the District Court (regarding the Protective Order only) .Apollo Management Holding LP ·. · ·. Delhaize Ainerica . 2 Manhattiuiville Rd: . Sqt1are Marie Curie 40 ·. ·· . Purchase, NY 10577 · l 070 Brussels, Belgium .· . ·a~E. ,Butt Grocery . Co~pany · ·. .•• KrogerCo. .· . J>.O. Box 839999 . ·. 1014 Vine-Street . ··. San Antonio,. TX 78283~3999 · Cincinnati, Ohio 45202~1100 · . Publix Sl.lper Markets, Inc. .TraderJoe's Company . .· P~O. Box 407 · .. .. 800 South Shamrock Ave~ Lakeland, FL 33 802~0407 Monrovia, CA 91016 . : . Safeway Inc. Wal~Mart Stores, Inc. · 5918 Stoneridge Mall Rd. Bentonville, Arkansas 72716-8611 Plea5anton, CA 94588-3229 Wegrnans Food Markets, Inc. .Supervalu Inc. 1500 Brooks Avenue . 11840 Valley View Road . P.O. Box30844 Eden Prairie, Minnesota 55344 · Rochester, NY 14603.;.0844, Target Corp9ration · Winn-Dixie Stores Inc. 1000 Nicollet Mall 5050 Edgewood Ct. · ·. Minneapolis, MN 55403 Jacksonville, FL 32254-3699 .. 11 Amici in the DistrictCourt American Antitrust Institute Organization· for Competitive 2929 Ellicott Street, Suite 1000 Markets Washington, D.C. 20008 1620 I Street, NW - Suite 200 Washington, DC 20006 Consumer Federation of America P.O. Box 6486. Lincoln, NE 68506 Ruling Under Review The ruling·under review is the August 16, 2007 decision of the District Court in FTC v. Whole Foods Market, Inc., et al., No. 07-1021, denying the FTC's motion for a preliminary injunction, published at 502 F. Supp.2d 1(D.D.C.2007). Related Cases Appellees are not aware of any related cases before this or any other court. Paul T. Denis 111 CORPORATE DISCLOSURE STATEMENT PURSUANT TO FEDERAL RULE OF APPELLATE PROCEDURE 26.1 AND CIRCUIT RULE 26.1 Appellee Whole Foods Market, Inc., operates retail food stores.nationwide. It has no parentcompany, and no publicly held company owns 10% or more of its stock. Former appellee Wild Oats Markets, Inc. is wholly owned by Whole Foods Market, Inc. lV .TABLE OF CONTENTS ·.Page TABLE OF AUTBORITIES· ........................... :...... ;.......•.. u .................viii . ·GLOSSARY ........... :....................................... ~···························~~................ ~xi . INTRODUCTION ......· .......................... · ..................... ~ ........ ;......... ~ ............· l COUNTERSTATEMENT OF THE CASE ......... ~ ....... ~ ..... ;.............. ~ .... 2 COUNTERSTATEMENTOFTBE FACTS .............. :.... ;.................... ;3 ·Whot·e Foo·ds·.~··"····-···········-·············'!····················· .. ·•··································· 3 Wild-Oats.· ............. ~ ......•.................... ~ .......... ~ ....... ~ .. ~ ........ ~ ... :.............. 4 ·Industry trends .........•..... ;.......... :·········'.····• ....... '. .... :.... '.. ;..... '. ....•.. , .... 5 Competition faced by Whole Foods ............................................ 11 .· Whole Foods' competition with WHd Oats .......... :; .......•............. 17 ' " Pricing······~·········'.·'··································································· 17 · · - .EconoD1ic studies of Wild Oats/Whole Foods competition ........ 19 ' ' ~nticipated iDlpact ofmerger on comp"tition.... '. ....................... 25 .Wild __ Qats'··value ··········'!·············~· ............ ~ .... ·...... _..... _... ~_ ....... -25 ·Transfer-estimates .................•............................ ~ ..............• 26 Critical loss study .............................. :................................ 28 Post-merger ........................................................................ 3 0 v Page COUNTERSTATEMENT OF STANDARD OF REVIEW .............. 32 SUMMARY OF ARGUMENT ......•...................................................... .32 .. ARGUMENT;........................................ ~.-........................................... ~ ..... :. 33 ..I •. THIS._APPE-AL IS MOOT: .. -....................... ~ ................................. ~.33 . .·· . II.. THE COURT BELOW ARTICULATED AND APPLIED . THE SAME STANDARD THE FTC ARGUES IS ·APPROPRIATE.HERE .. '. .........................•.....- ........ ~.: ................ 38 ..A. Tbe FTC Misconstrues tbe Role of tbe District . Ce>.utt ···············~··· ................................... ;.......................... 39 . ·: ·. , ' ··. B •. · Tbe Standard the _FTC Urges is ldentiCalto · The District Court's ..................................................... 42 . .·•. C. -The I~istrict Court Did Not Subject Produ~t Market . · Definition to a Different Standard .... ~ .......................43 m:. TiIE:FTC HAS SHOWN NO LIKELmOOD OF . ULTIMATELY ESTABLISHING ITS PROPOSED . PRODUCT.MARKET................. · ................................................. 4·6· A. The FTC's Proposed Market Definition is Incapable Of Application. ~ ........ -..... ~.... ~ ......... _.......... _.......... -............ ~ ..... 46 . B. Market Research, Third-Party and Ordinary-Course Evidence. Overwhelmi_ngly Show There. is No . .Separate Market .................................... ~···········~········· 48 IV. THE FTC HAS. SHOWN NO LIKELillOOD. OF ESTABLISHING THAT THE MERGER MAY SUBSTANTIALLY LESSEN COMPETITION....................... 51 Vl Page . V. THEFTC'SCRITICISMSCANNOTBERESOLVED. WITH FURTHER STUDY .................. ~ .................................... 52 CONCLUSION ..... ~ ................................... ;................................................. 59 Vil TABLE OF AUTHORITIES Page CASES A.A. Poultry Farmsv. Rose Acre Farms, 881 F.2d l396(7th Cir. 1989) .. ~ ... ~ .... ~ .............................. ;.... ~ ..... ~ .............. 57 .. Bell Atlantic Corp. y.· Twomhly, . .127 s. Ct :1955 (2007); .. ~~ ... ;.... ~ .............. ~.~ ............· .~ ............. ·... ;~····~••U•••••••• 57 .· . BrownShoeCo; v. 'f!nitedStates, 370 U.S. 294 (1962).~ ...........•. ~···••·, .: .................................. ;....... ~; ..... :... ·.. ;.... 48 . Byrd v. EPA, ·. ·.· . : 174 F.3d 239{0.C. Cir.1999) ........................ ;... ~ .... ~: ....... ~:.~ ... ~.n-~ .............. '36 .. .. FTCy~ Beatrice:Foods Co., . 587F~2d1?25 (D.C. Cir. 1978) .... ;............................ ;........ ~ ...................... ~ 35 FTCv. FoodTownStores, Inc., 539 F~2d 1339 (4th Cir.1976} .................•.. ~.; ..... ;........... :.............. ; .... ~ ...... 35 *FTC v. HJ. Heinz Co., . 246.F.3d 708 (D.C. Cir. 2001) ............ : ................................ 32; 40, 42.-46, 58 .*FTC v. Owens-Illinois, Inc;, 850 F.2d 694 (D;C. Cir. 1988) ........... ; ..................... , .. ;............... ;.; ............ ·35 -·Authorities upon which we·chiefly rely are marked with·asterisks - · Vlll Page ·· · FTC v. Staples, Inc., 970 F. Supp.1066(D.D.C'.1997) ............................... »••••••••• ~ ··············· 47, 51 .· . .· FTC v. Weyerhaeuser Co., · 665 F.2d 1072 (D~c. Cir. 1981) ............................................ ~.-:-···;· 36, 37, 44 . GullAirborne Instruments, Inc. v, Wei~berger, 694 F.2d 838 (D.C. Cir.1982) .. ; ................... ~ ............................. ~ ............... 36 .. ·. Indus. Bank v. Tobriner, 405 F.2d 1321 (IJ.C. Cir.1968) ... ;...................... ;................... ~ ........... ~ ..... 36 .. .· · · . lfnitedSiates v. Bl1ke~ Hughes Inc., 908 F.2d 98} (D.C. Cir. 1990) ...... ;~ .................................. '. .... ~~ .... ::.41, 44,