FTC v Whole Foods (DC Cir)

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 23, 2008 Decided July 29, 2008Amended and Reissued November 21, 2008 No. 07-5276F

EDERAL

T

RADE

C

OMMISSION

,A

PPELLANT

v.W

HOLE

F

OODS

M

ARKET

,

I

NC

.,

ET AL

.,A

PPELLEES

Appeal from the United States District Courtfor the District of Columbia(No. 07cv01021)

Marilyn E. Kerst

, Attorney, Federal Trade Commission,argued the cause for appellant. With her on the briefs were

John F. Daly

, Deputy General Counsel, and

Richard B. Dagen

and

Thomas H. Brock

, Attorneys.

Paul T. Denis

argued the cause for appellees. With himon the brief were

Paul H. Friedman

,

Nory Miller

, and

Rebecca Dick

.

Clifford H. Aronson

and

Alden L. Atkins

entered appearances.

David A. Balto

was on the brief for

amici curiae

American Antitrust Institute, et al. in support of appellant.

Case: 07-5276 Document: 01214533812 Page: 1

2

Albert A. Foer

was on the brief for

amicus curiae

American Antitrust Institute in support of appellant.Before: T

ATEL

, B

ROWN

, and K

AVANAUGH

,

Circuit Judges

.Judgment of the Court filed by

Circuit Judge

B

ROWN

.Opinion filed by

Circuit Judge

B

ROWN

.Opinion concurring in the judgment filed by

Circuit Judge

T

ATEL

.Dissenting opinion filed by

Circuit Judge

K

AVANAUGH

.B

ROWN

,

Circuit Judge

: The FTC sought a preliminaryinjunction, under 15 U.S.C. § 53(b), to block the merger of Whole Foods and Wild Oats. It appeals the district court’sdenial of the injunction. I conclude the district court should be reversed, though I do so reluctantly, admiring thethoughtful opinion the district court produced under tryingcircumstances in which the defendants were rushing to afinancing deadline and the FTC presented, at best, poorlyexplained evidence. Nevertheless, the district courtcommitted legal error in assuming market definition mustdepend on marginal consumers; consequently, itunderestimated the FTC’s likelihood of success on the merits.IWhole Foods Market, Inc. (“Whole Foods”) and WildOats Markets, Inc. (“Wild Oats”) operate 194 and 110 grocerystores, respectively, primarily in the United States. InFebruary 2007, they announced that Whole Foods wouldacquire Wild Oats in a transaction closing before August 31,

Case: 07-5276 Document: 01214533812 Page: 2

32007. They notified the FTC, as the Hart-Scott-Rodino Actrequired for the $565 million merger, and the FTCinvestigated the merger through a series of hearings anddocument requests. On June 6, 2007, the FTC sought atemporary restraining order and preliminary injunction to block the merger temporarily while the FTC conducted anadministrative proceeding to decide whether to block it permanently under § 7 of the Clayton Act. The partiesconducted expedited discovery, and the district court held ahearing on July 31 and August 1, 2007.The FTC contended Whole Foods and Wild Oats are thetwo largest operators of what it called premium, natural, andorganic supermarkets (“PNOS”). Such stores “focus on high-quality perishables, specialty and natural organic produce, prepared foods, meat, fish[,] and bakery goods; generallyhave high levels of customer services; generally targetaffluent and well educated customers [and] . . . are missiondriven with an emphasis on social and environmentalresponsibility.”

FTC v. Whole Foods Market, Inc.

, 502 F.Supp. 2d 1, 28 (D.D.C. 2007). In eighteen cities, asserted theFTC, the merger would create monopolies because WholeFoods and Wild Oats are the only PNOS. To support thisclaim, the FTC relied on emails Whole Foods’s CEO JohnMackey sent to other Whole Foods executives and directors,suggesting the purpose of the merger was to eliminate acompetitor. In addition the FTC produced pseudonymous blog postings in which Mr. Mackey touted Whole Foods anddenigrated other supermarkets as unable to compete. TheFTC’s expert economist, Dr. Kevin Murphy, analyzed salesdata from the companies to show how entry by varioussupermarkets into a local market affected sales at a WholeFoods or Wild Oats store.

Case: 07-5276 Document: 01214533812 Page: 3