Three Things to Watch after One Week of the Staples-Office Depot Merger Trial
On Monday, Staples and the Federal Trade Commission began presenting arguments in the D.C. District Court on whether the FTC should be entitled to a preliminary injunction to halt a potential merger between Staples and Office Depot. We previously reported on the Staples-Office Depot merger here and here. Judge Emmet G. Sullivan, who is overseeing the bench trial, presided over a similar hearing just a few months ago related to the DOJ’s attempt to stop General Electric from selling its appliances division to Electrolux, a transaction that GE eventually abandoned. After one week of trial, here are three things to watch going forward:
1. Will the federal government’s “business-to-business” market definition withstand judicial scrutiny?
The FTC is arguing that a Staples-Office Depot merger would harm competition in the market of supplying large businesses with office supplies. Right now, according to the FTC, Staples and Office Depot compete with one another for national accounts, but a merged office superstore entity would serve 79% of the nation’s largest businesses. This is not the first time the federal government has narrowly defined a market to focus on enterprise customers (businesses as consumers). The Department of Justice invoked the harm to competition for business accounts when it sued to prevent AT&T from acquiring T-Mobile in 2011, and the FTC relied on the fact that Sysco and US Foods would have a combined 75% of the market share for “broadline” food distribution to “national customers” when challenging the merger of those two companies in 2015. In this case, Staples has criticized the FTC for its “tunnel vision” and for “protecting the most powerful, richest companies on Earth.” While the FTC’s strategy proved successful in the Sysco-US Foods merger, the FTC argued in that case that higher food prices due to foreclosed competition could trickle down to consumers making everyday purchases. Such an argument is much more attenuated here where the “national customers” are not redistributing the office supplies they purchase to other consumers further down in the supply chain.
2. How will Amazon’s testimony affect the proceedings?
A merger trial, like politics, makes strange bedfellows. One of Staples’ chief arguments against halting the merger is Amazon’s entrance into the enterprise office supply space, which Staples has called the “800 pound gorilla” in the room. Both sides have called Amazon Business Vice President Prentis Wilson as a witness, with Staples trying to emphasize Amazon’s ability to compete in the space and the FTC seeking to downplay Amazon as a potential threat to Staples and Office Depot. On Tuesday, Wilson testified that Amazon Business consistently fails to land large business customers because it lacks features like a retail presence and the ability to offer custom prices and catalogs. While this portion of Wilson’s testimony appears helpful to the FTC, calling him might end up backfiring. On Wednesday afternoon, Judge Sullivan reported that Wilson had given “very disturbing” testimony that the FTC had tried to get Wilson to sign a draft declaration that included untrue statements.
3. How will the court balance the public’s interest in access to information with companies’ interest to maintain the secrecy of their sensitive business information?
Striking the balance between public disclosure and protecting the privacy of sensitive information is not easy. There is also a natural tendency for people to speak with more candor behind closed doors. Judge Sullivan has made clear that he wants the proceedings in this bench trial to be as open to the public as possible. Perhaps stemming from the frustration of having to often seal the courtroom in the GE-Electrolux trial, the judge has warned that he would “redefine the word sanctions” if any of the third parties in the case were caught over-designating materials. Following Wilson’s revelation about the FTC’s conduct, which occurred behind closed doors, Judge Sullivan gave the parties less than 24 hours to submit redactions so that he could release portions of the testimony to the public. During the sections of Wilson’s testimony that were open to the public, he gave answers so terse that they elicited laughs from the audience. The judge’s insistence on openness, and if that has any affect on the proceedings, should be monitored going forward.