Continuity and Change Were FTC Themes for 2009

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

In a speech to attendees of the American Bar Association’s Section of Antitrust Law Spring Meeting in Washington, D.C. in March, the newly-appointed FTC Chairman Jon Leibowitz said that he intended to build on the accomplishments of past FTC chairs and that there
would be continuity in enforcement.

The pledge for continuity was reiterated by Leibowitz in September at Fordham University’s annual conference on international antitrust law and policy. At that time, however, Leibowitz said that in addition to continuity, there would be change.

Merger Enforcement

There was continuity in merger enforcement. The agency wrapped up its challenge to specialty grocer Whole Foods Market, Inc.’s acquisition of rival Wild Oats Markets, Inc. in March 2009. The case was originally filed in 2007, when the parties announced their intention to merge.

In addition, the FTC approved two major mergers in the pharmaceutical industry. In October, the FTC conditionally approved Pfizer, Inc.’s proposed $68 billion acquisition of Wyeth, and Schering-Plough Corporation was permitted to proceed with its proposed $41.1 billion acquisition of Merck & Co. Inc. Outside the pharmaceuticals sector, the FTC approved the combination of Japanese consumer electronics makers Panasonic Corporation and Sanyo Electric Co., Ltd.

Administrative challenges also led parties to abandon mergers in 2009. The agency blocked the combination of providers of drycast hardscape sold at home improvement centers.

Two mergers in the health care area were abandoned. CSL Limited’s proposed $3.1 billion acquisition of Talecris Biotherapeutics Holdings Corporation was called off after the agency challenged the deal on the ground that it would substantially reduce competition in the U.S. markets for plasma-derivative protein therapies. And Thoratec Corporation abandoned its proposed $282 million acquisition of rival HeartWare International, Inc., after the FTC charged that the transaction would substantially reduce competition for left ventricular
devices.

Also in the health care area, Southwest Virginia’s dominant hospital system agreed to settle an FTC challenge to its 2008 acquisition of an outpatient imaging center and an outpatient surgical center.

Monopolization, Unfair Methods of Competition

In discussing change at the FTC in his Fordham address, Leibowitz talked about challenging monopolization and expanding the agency’s use of its authority to prohibit unfair methods of competition under the FTC Act.

The agency’s December complaint against computer chip maker Intel Corporation for monopolization can be seen as an example of change at the agency.

The FTC announced on December 16 that it had issued an administrative complaint against Intel for monopolizing the markets for central processing units and creating a monopoly in the markets for graphics processing units. The vote to issue the complaint was 3-0, with Commissioner William E. Kovacic recused.

Commissioner J. Thomas Rosch issued a separate statement, in which he concurred in part and dissented in part. Commissioner Rosch said that he concurred in the issuance of a complaint based on pure FTC Act, Section 5 claims, but dissented on public policy grounds to the extent the complaint contained Sherman Act, Section 2 ‘‘tag-along’’ claims.

Whole Foods Market Agrees to Divestitures to Settle FTC Suit

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

The FTC announced on March 6 that it has reached an agreement with Whole Foods Market, Inc., the largest premium natural and organic supermarket chain in the United States, to resolve the agency's charges that Whole Foods' acquisition of its closest rival, Wild Oats Markets, Inc., in 2007 violated federal antitrust laws.

Under a proposed consent order, Whole Foods would sell 32 premium natural and organic supermarkets and related assets in 17 geographic markets.

As a result of this settlement, American consumers will see more choices and lower prices for organic foods, said FTC Chairman Jon Leibowitz. Leibowitz further remarked that the settlement “allows the FTC to shift resources to other important matters and Whole Foods to move on with its business.”

Case History

After Whole Foods and Wild Oats announced in February 2007 their intention to merge, the FTC in June filed a federal court complaint seeking a temporary restraining order (TRO) and preliminary injunction, as well as an administrative complaint for permanent relief, claiming that the acquisition would be unlawfully anticompetitive. In each of the markets in which Whole Foods and Wild Oats overlapped, the agency claimed, they were each other’s closest competitor and competed directly on quality, service, and price.

Although the federal district court initially granted the TRO, in August 2007 it denied the FTC's motion for a permanent injunction pending an administrative proceeding (2007-2 Trade Cases ¶75,831), enabling the supermarket chains to consummate the transaction.

Administrative proceedings resumed after the U.S. Court of Appeals in Washington, D.C. reversed the district court’s denial of injunctive relief (2008-2 Trade Cases ¶76,233) in July 2008, finding that the FTC had demonstrated the requisite likelihood of success on the merits. The matter was scheduled to go to administrative trial this April.

Proposed Settlement

The 32 former Wild Oats stores that Whole Foods would have to divest under the proposed consent order comprise 13 currently-operating and 19 formerly-operating stores. These stores represent a significant portion of the Wild Oats stores that Whole Foods acquired and is currently operating, as well as all of the formerly operating Wild Oats stores for which leases still exist, within the alleged geographic markets.

The divestitures would provide competitive relief in the majority of geographic markets defined in the Commission’s administrative complaint and would allow consumers in these markets to once again enjoy competition among premium organic markets, the Commission noted. The agency added that newly divested stores also could provide a “springboard” from which an acquirer might expand into other geographic markets.

In addition to requiring the transfer or divestiture of all rights to 32 stores, the settlement also would require Whole Foods to divest related Wild Oats intellectual property, including unrestricted rights to the “Wild Oats” brand, which retains significant name recognition and loyalty among consumers, the FTC said. These assets will allow one or more Commission-approved buyers to re-establish competition with Whole Foods in the majority of the markets in which the agency alleged the acquisition would reduce competition and harm consumers through higher prices and reduced quality and services.

The proposed order would immediately place the responsibility for marketing and selling the stores with a divestiture trustee, who would have six months to sell the Wild Oats stores and related assets to one or more FTC-approved buyers. If the trustee were unable to sell the assets within six months, the Commission could extend the time provided to do so for an additional six months. The order also would require Whole Foods to maintain the viability and competitiveness of the stores until the divestiture is complete.

Opportunity for Public Comment

The proposed agreement will be subject to public comment through April 6, 2009, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, Room H-135, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.

The administrative action is In the Matter of Whole Foods Market, Inc. and Wild Oats Markets, Inc., Docket No. 9324. A news release on the proposed settlement appears here on the FTC website. An agreement containing consent orders and a decision and order—as well as other relevant documents—appear here.