Federal Trade Commission v. Staples, Inc.
2016 U.S. Dist. LEXIS 64909, 2016 WL 2899222, 190 F.Supp.3d 100 (2016)
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Rule of Law:
A merger between the two largest competitors in a highly concentrated market is presumptively illegal under the Clayton Act. This presumption can only be rebutted by showing that new market entrants will be timely, likely, and sufficient in scope to restore the competition that would be lost due to the merger.
Facts:
- Staples and Office Depot are the first and second largest sellers of consumable office supplies to large business-to-business (B-to-B) customers in the United States.
- Large B-to-B customers, defined as those spending over $500,000 annually, typically use a competitive request for proposal (RFP) process to select a primary vendor for multi-year contracts.
- These large customers obtain significant price discounts and specialized services, such as customized IT integration and nationwide desktop delivery, by leveraging head-to-head competition between Staples and Office Depot.
- In February 2015, Staples announced its intention to acquire Office Depot for approximately $6.3 billion.
- Other office supply vendors, such as regional supplier WB Mason, generally lack the national distribution network and infrastructure to adequately serve large B-to-B customers across the entire country.
- Amazon launched its "Amazon Business" platform in April 2015, approximately one year before the court's decision, with the goal of competing in the B-to-B space.
- At the time of the dispute, Amazon Business had not yet won a primary vendor contract with a large B-to-B customer, had limited experience with the RFP process, and its marketplace model could not accommodate key customer requirements like guaranteed pricing.
Procedural Posture:
- Staples Inc. and Office Depot, Inc. announced their intention to merge in February 2015.
- The Federal Trade Commission (FTC) conducted an approximately year-long investigation into the proposed merger's likely effects on competition.
- On December 7, 2015, the FTC Commissioners voted unanimously to challenge the merger, finding reason to believe it would violate Section 7 of the Clayton Act.
- The FTC, along with the Commonwealth of Pennsylvania and the District of Columbia as co-plaintiffs, filed suit in the U.S. District Court for the District of Columbia to block the merger.
- Simultaneously, the plaintiffs filed a motion for a preliminary injunction to prevent the merger from being consummated pending a full administrative trial.
- The District Court held a multi-week evidentiary hearing on the motion for a preliminary injunction.
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Issue:
Does the proposed merger between Staples and Office Depot likely violate Section 7 of the Clayton Act by substantially lessening competition in the market for the sale and distribution of consumable office supplies to large business-to-business customers?
Opinions:
Majority - Emmet G. Sullivan
Yes, the proposed merger is likely to violate Section 7 of the Clayton Act because it would substantially lessen competition. The court first defined the relevant market as the sale and distribution of consumable office supplies to large B-to-B customers, finding this to be a distinct submarket based on the Brown Shoe practical indicia. These customers have unique needs, such as sophisticated IT services and nationwide delivery, and use a competitive bidding process that makes them a valid 'targeted' market for antitrust analysis. The Federal Trade Commission (FTC) established a prima facie case by demonstrating that the merger would result in extreme market concentration, with the combined firm controlling approximately 79% of the market and the Herfindahl-Hirschmann Index (HHI) increasing by nearly 3,000 points, far exceeding the threshold for a presumptively anticompetitive merger. The burden then shifted to the defendants to rebut this presumption. Staples and Office Depot argued that new entrants, primarily Amazon Business, would be timely and sufficient to counteract the merger's anticompetitive effects. The court rejected this argument, finding that while Amazon Business has potential, the evidence showed it was not positioned to replace the lost competition within the required two-to-three-year timeframe. Amazon Business lacked experience with the RFP process, could not offer essential features like guaranteed pricing, and its own executives were uncertain about their ability to compete in this specific market segment in the near future. Therefore, the defendants failed to rebut the FTC's strong prima facie case.
Analysis:
This decision reaffirms the judiciary's willingness to define narrow, targeted submarkets for antitrust analysis, focusing on the specific competitive realities faced by a distinct group of customers. It underscores the high evidentiary burden defendants face when attempting to rebut a strong prima facie case based on market concentration statistics. The ruling serves as a significant precedent that speculative arguments about the future potential of a new market entrant, even a formidable one like Amazon, are insufficient to overcome concrete evidence of present-day anticompetitive harm. The court's focus on the 'timely, likely, and sufficient' standard for new entry solidifies this crucial element of merger analysis.
