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Four Takeaways from Staples-Office Depot Merger Block

After last month’s bench trial, Judge Emmet G. Sullivan has granted the FTC a preliminary injunction enjoining the merger between Staples and Office Depot.  As a result, the companies have decided to end their efforts to merge.  Judge Sullivan’s reasoning is not yet publicly available, but the court’s three-page order answers many of the questions that had been swirling around the trial.

First, the Court accepted the FTC’s market definition of the sale of certain office supplies to large business-to-business customers, concluding that the FTC had met its burden of showing that there is a “reasonable probability that the proposed merger will substantially impair competition in the sale and distribution of consumable office supplies to large Business-to-Business customers.”  Thus, despite comments from Judge Sullivan at trial expressing concern over the FTC’s proposed market, it appears that the court was not convinced that the large company business-to-business market was too narrow or that FTC “cherry-pick[ed]” the particular consumable office supplies to be included in that market.

Second, the Court apparently determined that Amazon’s presence in the market would not provide sufficient competition to a merged Staples-Office Depot in the large company business-to-business market.  Staples and Office Depot had argued that market conditions had changed dramatically since the companies first tried to merge in 1997.  The Court’s ruling shows that courts do not always consider e-commerce to be a perfect substitute for established brick-and-mortar retailers.

Third, Staples and Office Depot’s decision not to call any witnesses at trial may have backfired.  It appears that their confidence that FTC did not carry its burden in defining the market in which the merger would harm competition was misplaced.

Fourth, the Court’s order illustrates the Court’s recognition of the need to balance thorough and prompt public disclosure of court proceedings with companies’ concerns about the dissemination of confidential and proprietary business information.  Judge Sullivan gave the parties six days to submit proposed redactions to the court’s opinion, and the court has committed to issuing promptly a public version of its reasoning once the redactions have been submitted.  The Court’s timeframe is short, but it should provide some comfort to parties concerned that confidential information could be exposed if they decide to go to trial.

We will provide a further update once Judge Sullivan’s full opinion is released.