Federal Trade Commission v. Whole Foods Market, Inc.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 23, 2008 Decided July 29, 2008

Amended and Reissued November 21, 2008

No. 07-5276

FEDERAL TRADE COMMISSION,

APPELLANT

v.

WHOLE FOODS MARKET, INC., ET AL.,

APPELLEES

Appeal from the United States District Court

for 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 him

on 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.

2

Albert A. Foer was on the brief for amicus curiae

American Antitrust Institute in support of appellant.

Before: TATEL, BROWN, and KAVANAUGH, Circuit

Judges.

Judgment of the Court filed by Circuit Judge BROWN.

Opinion filed by Circuit Judge BROWN.

Opinion concurring in the judgment filed by Circuit

Judge TATEL.

Dissenting opinion filed by Circuit Judge KAVANAUGH.

BROWN, Circuit Judge: The FTC sought a preliminary

injunction, under 15 U.S.C. § 53(b), to block the merger of

Whole Foods and Wild Oats. It appeals the district court’s

denial of the injunction. I conclude the district court should

be reversed, though I do so reluctantly, admiring the

thoughtful opinion the district court produced under trying

circumstances in which the defendants were rushing to a

financing deadline and the FTC presented, at best, poorly

explained evidence. Nevertheless, the district court

committed legal error in assuming market definition must

depend on marginal consumers; consequently, it

underestimated the FTC’s likelihood of success on the merits.

I

Whole Foods Market, Inc. (“Whole Foods”) and Wild

Oats Markets, Inc. (“Wild Oats”) operate 194 and 110 grocery

stores, respectively, primarily in the United States. In

February 2007, they announced that Whole Foods would

acquire Wild Oats in a transaction closing before August 31,

3

2007. They notified the FTC, as the Hart-Scott-Rodino Act

required for the $565 million merger, and the FTC

investigated the merger through a series of hearings and

document requests. On June 6, 2007, the FTC sought a

temporary restraining order and preliminary injunction to

block the merger temporarily while the FTC conducted an

administrative proceeding to decide whether to block it

permanently under § 7 of the Clayton Act. The parties

conducted expedited discovery, and the district court held a

hearing on July 31 and August 1, 2007.

The FTC contended Whole Foods and Wild Oats are the

two largest operators of what it called premium, natural, and

organic supermarkets (“PNOS”). Such stores “focus on high-

quality perishables, specialty and natural organic produce,

prepared foods, meat, fish[,] and bakery goods; generally

have high levels of customer services; generally target

affluent and well educated customers [and] . . . are mission

driven with an emphasis on social and environmental

responsibility.” FTC v. Whole Foods Market, Inc., 502 F.

Supp. 2d 1, 28 (D.D.C. 2007). In eighteen cities, asserted the

FTC, the merger would create monopolies because Whole

Foods and Wild Oats are the only PNOS. To support this

claim, the FTC relied on emails Whole Foods’s CEO John

Mackey sent to other Whole Foods executives and directors,

suggesting the purpose of the merger was to eliminate a

competitor. In addition the FTC produced pseudonymous

blog postings in which Mr. Mackey touted Whole Foods and

denigrated other supermarkets as unable to compete. The

FTC’s expert economist, Dr. Kevin Murphy, analyzed sales

data from the companies to show how entry by various

supermarkets into a local market affected sales at a Whole

Foods or Wild Oats store.

4

On the other hand, the defendants’ expert, Dr. David

Scheffman, focused on whether a hypothetical monopolist

owning both Whole Foods and Wild Oats would actually have

power over a distinct market. He used various third-party

market studies to predict that such an owner could not raise

prices without driving customers to other supermarkets. In

addition, deposition testimony from other supermarkets

indicated they regarded Whole Foods and Wild Oats as

critical competition. Internal documents from the two

defendants reflected their extensive monitoring of other

supermarkets’ prices as well as each other’s.

The district court concluded that PNOS was not a distinct

market and that Whole Foods and Wild Oats compete within

the broader market of grocery stores and supermarkets.

Believing such a basic failure doomed any chance of the

FTC’s success, the court denied the preliminary injunction

without considering the balance of the equities.

On August 17, the FTC filed an emergency motion for an

injunction pending appeal, which this court denied on August

23. FTC v. Whole Foods Market, Inc., No. 07-5276 (D.C.

Cir. Aug. 23, 2007). Freed to proceed, Whole Foods and

Wild Oats consummated their merger on August 28. The

dissent argues that a reversal today contradicts this earlier

decision, but our standard of review then was very different,

requiring the FTC to show “such a substantial indication of

probable success” that there would be “justification for the

court’s intrusion into the ordinary processes of . . . judicial

review.” Wash. Metro. Area Transit Comm’n v. Holiday

Tours, Inc., 559 F.2d 841, 843 (D.C. Cir. 1977). It is hardly

remarkable that the FTC could fail to meet such a stringent

standard and yet persuasively show the district court erred in

applying the much less demanding § 53(b) preliminary

injunction standard.

5

II

At the threshold, Whole Foods questions our jurisdiction

to hear this appeal. The merger is a fait accompli, and Whole

Foods has already closed some Wild Oats stores and sold

others. In addition, Whole Foods has sold two complete lines

of stores, Sun Harvest and Harvey’s, as well as some

unspecified distribution facilities. Therefore, argues Whole

Foods, the transaction is irreversible and the FTC’s request

for an injunction blocking it is moot.

Only in a rare case would we agree a transaction is truly

irreversible, for the courts are “clothed with large discretion”

to create remedies “effective to redress [antitrust] violations

and to restore competition.” Ford Motor Co. v. United States,

405 U.S. 562, 573 (1972). Indeed, “divestiture is a common

form of relief” from unlawful mergers. United States v.

Microsoft Corp., 253 F.3d 34, 105 (D.C. Cir. 2001) (en banc).

Further, an antitrust violator “may . . . be required to do more

than return the market to the status quo ante.” Ford Motor,

405 U.S. at 573 n.8. Courts may not only order divestiture

but may also order relief “designed to give the divested [firm]

an opportunity to establish its competitive position.” Id. at

575. Even remedies which “entail harsh consequences”

would be appropriate to ameliorate the harm to competition

from an antitrust violation. United States v. E.I. du Pont de

Nemours & Co., 366 U.S. 316, 327 (1961).

Of course, neither court nor agency has found Whole

Foods’s acquisition of Wild Oats to be unlawful. Therefore,

the FTC may not yet claim the right to have any remedy

necessary to undo the effects of the merger, as it could after

such a determination, du Pont, 366 U.S. at 334. But the

whole point of a preliminary injunction is to avoid the need

for intrusive relief later, since even with the considerable

6

flexibility of equitable relief, the difficulty of “unscrambl[ing]

merged assets” often precludes “an effective order of

divestiture,” FTC v. Dean Foods Co., 384 U.S. 597, 607 n.5

(1966). Section 53(b), codifying the ability of the FTC to

obtain preliminary relief, FTC v. Weyerhaeuser Co., 665 F.2d

1072, 1082 (D.C. Cir. 1981), preserves the “flexibility” of

traditional “equity practice,” id. at 1084. At a minimum, the

courts retain the power to preserve the status quo nunc, for

example by means of a hold separate order, id., and perhaps

also to restore the status quo ante.

Thus, the courts have the power to grant relief on the

FTC’s complaint, despite the merger’s having taken place,

and this case is therefore not moot. See Byrd v. EPA, 174

F.3d 239, 244 (D.C. Cir. 1999) (“The availability of a partial

remedy is sufficient to prevent [a] case from being moot.”).

The fact that Whole Foods has sold some of Wild Oats’s

assets does not change our conclusion. To be sure, we have

no “authority to command return to the status quo,”

Weyerhaeuser, 665 F.2d at 1077, in a literal way by forcing

absent parties to sell those assets back to Whole Foods, but

there is no reason to think that inability prevents us from

mitigating the merger’s alleged harm to competition. The

stores Whole Foods has sold are only those under the

Harvey’s and Sun Harvest labels, which were never relevant

to the anticompetitive harm the FTC fears. Our inability to

command their return does not limit the relief available to the

FTC. As to the distribution facilities, neither party has

described what they are, suggested Wild Oats would not be a

viable competitor without them, or explained why the district

court could not order some provisional substitute. Moreover,

the FTC is concerned about eighteen different local markets.

If, as appears to be the situation, it remains possible to reopen

or preserve a Wild Oats store in just one of those markets,

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such a result would at least give the FTC a chance to prevent

a § 7 violation in that market.

III

“We review a district court order denying preliminary

injunctive relief for abuse of discretion.” FTC v. H.J. Heinz

Co., 246 F.3d 708, 713 (D.C. Cir. 2001). However, if the

district court’s decision “rests on an erroneous premise as to

the pertinent law,” we will review the denial de novo “in light

of the legal principles we believe proper and sound.” Id.

Despite some ambiguity, the district court applied the

correct legal standard to the FTC’s request for a preliminary

injunction. The FTC sought relief under 15 U.S.C. § 53(b),

which allows a district court to grant preliminary relief

“[u]pon a proper showing that, weighing the equities and

considering the Commission’s likelihood of ultimate success,

such action would be in the public interest.” The relief is

temporary and must dissolve if more than twenty days pass

without an FTC complaint. Id. Congress recognized the

traditional four-part equity standard for obtaining an

injunction was “not appropriate for the implementation of a

Federal statute by an independent regulatory agency.” Heinz,

246 F.3d at 714. Therefore, to obtain a § 53(b) preliminary

injunction, the FTC need not show any irreparable harm, and

the “private equities” alone cannot override the FTC’s

showing of likelihood of success. Weyerhaeuser, 665 F.2d at

1082–83.

In deciding the FTC’s request for a preliminary

injunction blocking a merger under § 53(b), a district court

must balance the likelihood of the FTC’s success against the

equities, under a sliding scale. See Heinz, 246 F.3d at 727;

FTC v. Elders Grain, Inc., 868 F.2d 901, 903 (7th Cir. 1989).

8

The equities will often weigh in favor of the FTC, since “the

public interest in effective enforcement of the antitrust laws”

was Congress’s specific “public equity consideration” in

enacting the provision. Heinz, 246 F.3d at 726. Therefore,

the FTC will usually be able to obtain a preliminary

injunction blocking a merger by “rais[ing] questions going to

the merits so serious, substantial, difficult[,] and doubtful as

to make them fair ground for thorough investigation.” Heinz,

246 F.3d at 714–15. By meeting this standard, the FTC

“creates a presumption in favor of preliminary injunctive

relief,” id. at 726; but the merging parties may rebut that

presumption, requiring the FTC to demonstrate a greater

likelihood of success, by showing equities weighing in favor

of the merger, Weyerhaeuser, 665 F.2d at 1087. Conversely,

a greater likelihood of the FTC’s success will militate for a

preliminary injunction unless particularly strong equities

favor the merging parties. See Heinz, 246 F.3d at 727; Elders

Grain, 868 F.2d at 903.

In any case, a district court must not require the FTC to

prove the merits, because, in a § 53(b) preliminary injunction

proceeding, a court “is not authorized to determine whether

the antitrust laws . . . are about to be violated.” FTC v. Food

Town Stores, Inc., 539 F.2d 1339, 1342 (4th Cir. 1976). That

responsibility lies with the FTC. Id. Not that the court may

simply rubber-stamp an injunction whenever the FTC

provides some threshold evidence; it must “exercise

independent judgment” about the questions § 53(b) commits

to it. Weyerhaeuser, 665 F.2d at 1082. Thus, the district

court must evaluate the FTC’s chance of success on the basis

of all the evidence before it, from the defendants as well as

from the FTC. See FTC v. Beatrice Foods Co., 587 F.2d

1225, 1229–30 (D.C. Cir. 1978) (App’x to Stmt. of

MacKinnon & Robb, JJ.) (“[W]e are also required to consider

the inroads that the appellees’ extensive showing has made

9

. . . [S]everal basic contentions of the FTC are called into

serious question.”). The district court should bear in mind the

FTC will be entitled to a presumption against the merger on

the merits, see Elders Grain, 868 F.2d at 906, and therefore

does not need detailed evidence of anticompetitive effect at

this preliminary phase. Nevertheless, the merging parties are

entitled to oppose a § 53(b) preliminary injunction with their

own evidence, and that evidence may force the FTC to

respond with a more substantial showing.

The district court did not apply the sliding scale, instead

declining to consider the equities. To be consistent with the

§ 53(b) standard, this decision must have rested on a

conviction the FTC entirely failed to show a likelihood of

success. Indeed, the court concluded “the relevant product

market in this case is not premium natural and organic

supermarkets . . . as argued by the FTC but . . . at least all

supermarkets.” Whole Foods, 502 F. Supp. 2d at 34. It also

observed that several supermarkets “have already repositioned

themselves to compete vigorously with Whole Foods and

Wild Oats for the consumers’ premium natural and organic

food business.” Id. at 48. Thus, considering the defendants’

evidence as well as the FTC’s, as it was obligated to do, the

court was in no doubt that this merger would not substantially

lessen competition, because it found the evidence proved

Whole Foods and Wild Oats compete among supermarkets

generally. If, and only if, the district court’s certainty was

justified, it was appropriate for the court not to balance the

likelihood of the FTC’s success against the equities.

IV

However, the court’s conclusion was in error. The FTC

contends the district court abused its discretion in two ways:

first, by treating market definition as a threshold issue; and

10

second, by ignoring the FTC’s main evidence. The district

court acted reasonably in focusing on the market definition,

but it analyzed the product market incorrectly.

A

First, the FTC complains the district court improperly

focused on whether Whole Foods and Wild Oats operate

within a PNOS market. However, this was not an abuse of

discretion given that the district court was simply following

the FTC’s outline of the case.

Inexplicably, the FTC now asserts a market definition is

not necessary in a § 7 case, Appellant’s Br. 37–38, in

contravention of the statute itself, see 15 U.S.C. § 18 (barring

an acquisition “where in any line of commerce . . . the effect

of such acquisition may be substantially to lessen

competition”); see also Brown Shoe Co. v. United States, 370

U.S. 294, 324 (1962) (interpreting “any line of commerce” to

require a “determination of the relevant market” to find “a

violation of the Clayton Act”); Elders Grain, 868 F.2d at 906

(“[A]ll this assumes a properly defined market.”). The FTC

suggests “market definition . . . is a means to an end—to

enable some measurement of market power—not an end in

itself.” Appellant’s Br. 38 n.26. But measuring market power

is not the only purpose of a market definition; only

“examination of the particular market—its structure, history[,]

and probable future—can provide the appropriate setting for

judging the probable anticompetitive effect of the merger.”

Brown Shoe, 370 U.S. at 322 n.38.

That is not to say market definition will always be crucial

to the FTC’s likelihood of success on the merits. Nor does

the FTC necessarily need to settle on a market defintion at

this preliminary stage. Although the framework we have

11

developed for a prima facie § 7 case rests on defining a

market and showing undue concentration in that market,

United States v. Baker Hughes Inc., 908 F.2d 981, 982–83

(D.C. Cir. 1990), this analytical structure does not exhaust the

possible ways to prove a § 7 violation on the merits, see, e.g.,

United States v. El Paso Natural Gas Co., 376 U.S. 651, 660

(1964), much less the ways to demonstrate a likelihood of

success on the merits in a preliminary proceeding.

Section 53(b) preliminary injunctions are meant to be readily

available to preserve the status quo while the FTC develops

its ultimate case, and it is quite conceivable that the FTC

might need to seek such relief before it has settled on the

scope of the product or geographic markets implicated by a

merger. For example, the FTC may have alternate theories of

the merger’s anticompetitive harm, depending on inconsistent

market definitions. While on the merits, the FTC would have

to proceed with only one of those theories, at this preliminary

phase it just has to raise substantial doubts about a

transaction. One may have such doubts without knowing

exactly what arguments will eventually prevail.1 Therefore, a

district court’s assessment of the FTC’s chances will not

depend, in every case, on a threshold matter of market

definition.

1

For example, a merger between two close competitors can

sometimes raise antitrust concerns due to unilateral effects in highly

differentiated markets. See generally Horizontal Merger

Guidelines, 57 Fed. Reg. 41,552, 41,560–61, § 2.2 (1992). In such

a situation, it might not be necessary to understand the market

definition to conclude a preliminary injunction should issue. The

FTC alludes to this theory on appeal, but to the district court it

argued simply that the merger would result in a highly concentrated

PNOS market.

12

In this case, however, the FTC itself made market

definition key. It claimed “[t]he operation of premium natural

and organic supermarkets is a distinct ‘line of commerce’

within the meaning of Section 7,” and its theory of

anticompetitive effect was that the merger would

“substantially increase concentration in the operation of

[PNOS].” Compl. ¶¶ 34, 43. Throughout its briefs, the FTC

presented a straightforward § 7 case in which “whether the

transaction creates an appreciable danger of anticompetitive

effects . . . depends upon . . . [the] relevant product . . . [and]

geographic market . . . and the transaction’s probable effect

on competition in the product and geographic markets.”

FTC’s Br. Mot. Prelim. Inj. 11–12. It purported to show

“undue concentration in the relevant market,” as the mainstay

of its case. Id. at 12. Because of the concentration in the

supposed PNOS market, the FTC urged the district court to

hold the merger “presumptively unlawful,” and this was its

sole reason for blocking the merger. FTC’s Proposed

Conclusions of Law ¶¶ 57–63, 99–108. At oral argument, the

FTC’s counsel suggested it had other ideas about the

anticompetitive effect of the merger even if its PNOS market

definition is wrong; but the FTC never offered those ideas to

the district court. It is incumbent on the parties to shape a

case, and it was hardly an abuse of discretion for the district

court to focus on the questions as the FTC presented them.

B

Thus, the FTC assumed the burden of raising some

question of whether PNOS is a well-defined market. As the

FTC presented its case, success turned on whether there exist

core customers, committed to PNOS, for whom one should

consider PNOS a relevant market. The district court assumed

“the ‘marginal’ consumer, not the so-called ‘core’ or

‘committed’ consumer, must be the focus of any antitrust

13

analysis.” Whole Foods, 502 F. Supp. 2d at 17 (citing

Horizontal Merger Guidelines, 57 Fed. Reg. 41,552 (1992)).

To the contrary, core consumers can, in appropriate

circumstances, be worthy of antitrust protection. See

Horizontal Merger Guidelines § 1.12, 57 Fed. Reg. at 41,555

(explaining the possibility of price discrimination for

“targeted buyers”). The district court’s error of law led it to

ignore FTC evidence that strongly suggested Whole Foods

and Wild Oats compete for core consumers within a PNOS

market, even if they also compete on individual products for

marginal consumers in the broader market. See, e.g.,

Appellant’s Br. 50, 53.

A market “must include all products reasonably

interchangeable by consumers for the same purposes.”

Microsoft, 253 F.3d at 52. Whether one product is reasonably

interchangeable for another depends not only on the ease and

speed with which customers can substitute it and the

desirability of doing so, see id. at 53–54, but also on the cost

of substitution, which depends most sensitively on the price of

the products. A broad market may also contain relevant

submarkets which themselves “constitute product markets for

antitrust purposes.” Brown Shoe, 370 U.S. at 325. “The

boundaries of such a submarket may be determined by

examining such practical indicia as industry or public

recognition of the submarket as a separate economic entity,

the product’s peculiar characteristics and uses, unique

production facilities, distinct customers, distinct prices,

sensitivity to price changes, and specialized vendors.” Id.

To facilitate this analysis, the Department of Justice and

the FTC developed a technique called the SSNIP (“small but

significant non-transitory increase in price”) test, which both

Dr. Murphy and Dr. Scheffman used. In the SSNIP method,

one asks whether a hypothetical monopolist controlling all

14

suppliers in the proposed market could profit from a small

price increase. Horizontal Merger Guidelines § 1.11, 57 Fed.

Reg. at 41,560–61. If a small price increase would drive

consumers to an alternative product, then that product must be

reasonably substitutable for those in the proposed market and

must therefore be part of the market, properly defined. Id.

Experts for the two sides disagreed about how to do the

SSNIP of the proposed PNOS market. Dr. Scheffman used a

method called critical loss analysis, in which he predicted the

loss that would result when marginal customers shifted

purchases to conventional supermarkets in response to a

SSNIP.2 Whole Foods, 502 F. Supp. 2d at 18. He concluded

a hypothetical monopolist could not profit from a SSNIP, so

that conventional supermarkets must be within the same

market as PNOS. In contrast, Dr. Murphy disapproved of

critical loss analysis generally, preferring a method called

critical diversion that asked how many customers would be

diverted to Whole Foods and how many to conventional

supermarkets if a nearby Wild Oats closed. Whole Foods’s

internal planning documents indicated at least a majority of

these customers would switch to Whole Foods, thus making

the closure profitable for a hypothetical PNOS monopolist.

One crucial difference between these approaches was that Dr.

Scheffman’s analysis depended only on the marginal loss of

sales, while Dr. Murphy’s used the average loss of customers.

Dr. Murphy explained that focusing on the average behavior

of customers was appropriate because a core of committed

customers would continue to shop at PNOS stores despite a

SSNIP.

2

Dr. Scheffman did not actually calculate the amount of this loss.

He simply predicted that because many Whole Foods and Wild

Oats customers also shop at conventional supermarkets, the loss

would at any rate be too large.

15

In appropriate circumstances, core customers can be a

proper subject of antitrust concern. In particular, when one or

a few firms differentiate themselves by offering a particular

package of goods or services, it is quite possible for there to

be a central group of customers for whom “only [that

package] will do.” United States v. Grinnell Corp., 384 U.S.

563, 574 (1966); see also United States v. Phillipsburg Nat’l

Bank & Trust Co., 399 U.S. 350, 360 (1970) (“[I]t is the

cluster of products and services . . . that as a matter of trade

reality makes commercial banking a distinct” market.). What

motivates antitrust concern for such customers is the

possibility that “fringe competition” for individual products

within a package may not protect customers who need the

whole package from market power exercised by a sole

supplier of the package. Grinnell, 384 U.S. at 574.

Such customers may be captive to the sole supplier,

which can then, by means of price discrimination, extract

monopoly profits from them while competing for the business

of marginal customers. Cf. Md. People’s Counsel v. FERC,

761 F.2d 780, 786–87 (D.C. Cir. 1985) (allowing natural gas

pipelines to charge higher prices to captive customers would

be anticompetitive). Not that prices that segregate core from

marginal consumers are in themselves anticompetitive; such

pricing simply indicates the existence of a submarket of core

customers, operating in parallel with the broader market but

featuring a different demand curve. See United States v.

Rockford Mem’l Corp., 898 F.2d 1278, 1284 (7th Cir. 1990).

Sometimes, for some customers a package provides “access to

certain products or services that would otherwise be

unavailable to them.” Phillipsburg Nat’l Bank & Trust, 399

U.S. at 360. Because the core customers require the whole

package, they respond differently to price increases from

marginal customers who may obtain portions of the package

elsewhere. Of course, core customers may constitute a

16

submarket even without such an extreme difference in

demand elasticity. After all, market definition focuses on

what products are reasonably substitutable; what is

reasonable must ultimately be determined by “settled

consumer preference.” United States v. Phila. Nat’l Bank,

374 U.S. 321, 357 (1963).

In short, a core group of particularly dedicated, “distinct

customers,” paying “distinct prices,” may constitute a

recognizable submarket, Brown Shoe, 370 U.S. at 325,

whether they are dedicated because they need a complete

“cluster of products,” Phila. Nat’l Bank, 374 U.S. at 356,

because their particular circumstances dictate that a product

“is the only realistic choice,” SuperTurf, Inc. v. Monsanto

Co., 660 F.2d 1275, 1278 (8th Cir. 1981), or because they

find a particular product “uniquely attractive,” Nat’l

Collegiate Athletic Ass’n v. Bd. of Regents of the Univ. of

Okla., 468 U.S. 85, 112 (1984). For example, the existence of

core customers dedicated to office supply superstores, with

their “unique combination of size, selection, depth[,] and

breadth of inventory,” was an important factor distinguishing

that submarket. FTC v. Staples, Inc., 970 F. Supp. 1066,

1078–79 (D.D.C. 1997). As always in defining a market, we

must “take into account the realities of competition.” Weiss v.

York Hosp., 745 F.2d 786, 826 (3d Cir. 1984). We look to the

Brown Shoe indicia, among which the economic criteria are

primary, see Rothery Storage & Van Co. v. Atlas Van Lines,

Inc., 792 F.2d 210, 219 n.4 (D.C. Cir. 1986).

The FTC’s evidence delineated a PNOS submarket

catering to a core group of customers who “have decided that

natural and organic is important, lifestyle of health and

ecological sustainability is important.” Whole Foods, 502 F.

Supp. at 223 (citing Hr’g Tr. 43–44, Aug. 1, 2007). It was

undisputed that Whole Foods and Wild Oats provide higher

17

levels of customer service than conventional supermarkets, a

“unique environment,” and a particular focus on the “core

values” these customers espoused. Id. The FTC connected

these intangible properties with concrete aspects of the PNOS

model, such as a much larger selection of natural and organic

products, FTC’s Proposed Findings of Fact 13–14 & ¶ 66

(noting Earth Fare, a PNOS, carries “more than 45,000 natural

and organic SKUs”) and a much greater concentration of

perishables than conventional supermarkets, id. 14–15 & ¶

69–70 (“Over 60% of Wild Oats’ revenues” and “[n]early

70% of Whole Foods sales are natural or organic

perishables.”). See also Whole Foods, 502 F. Supp. 2d at 22–

23 (citing defendants’ depositions as evidence of Whole

Foods’s and Wild Oats’s focus on “high-quality perishables”

and a large variety of products).

Further, the FTC documented exactly the kind of price

discrimination that enables a firm to profit from core

customers for whom it is the sole supplier. Dr. Murphy

compared the margins of Whole Foods stores in cities where

they competed with Wild Oats. He found the presence of a

Wild Oats depressed Whole Foods’s margins significantly.

Notably, while there was no effect on Whole Foods’s margins

in the product category of “groceries,” where Whole Foods

and Wild Oats compete on the margins with conventional

supermarkets, the effect on margins for perishables was

substantial. Confirming this price discrimination, Whole

Foods’s documents indicated that when it price-checked

conventional supermarkets, the focus was overwhelmingly on

“dry grocery,” rather than on the perishables that were 70% of

Whole Foods’s business. Thus, in the high-quality

perishables on which both Whole Foods and Wild Oats made

most of their money, they competed directly with each other,

and they competed with supermarkets only on the dry grocery

items that were the fringes of their business.

18

Additionally, the FTC provided direct evidence that

PNOS competition had a greater effect than conventional

supermarkets on PNOS prices. Dr. Murphy showed the

opening of a new Whole Foods in the vicinity of a Wild Oats

caused Wild Oats’s prices to drop, while entry by non-PNOS

stores had no such effect. Similarly, the opening of Earth

Fare stores (another PNOS) near Whole Foods stores caused

Whole Foods’s prices to drop immediately. The price effect

continued, while decreasing, until the Earth Fare stores were

forced to close.

Finally, evidence of consumer behavior supported the

conclusion that PNOS serve a core consumer base. Whole

Foods’s internal projections, based on market experience,

suggested that if a Wild Oats near a Whole Foods were to

close, the majority (in some cases nearly all) of its customers

would switch to the Whole Foods rather than to conventional

supermarkets. Since Whole Foods’s prices for perishables are

higher than those of conventional supermarkets, such

customers must not find shopping at the latter interchangeable

with PNOS shopping. They are the core customers.

Moreover, market research, including Dr. Scheffman’s own

studies, indicated 68% of Whole Foods customers are core

customers who share the Whole Foods “core values.” FTC

Proposed Findings of Fact ¶ 135.

Against this conclusion the defendants posed evidence

that customers “cross-shop” between PNOS and other stores

and that Whole Foods and Wild Oats check the prices of

conventional supermarkets. Whole Foods, 502 F. Supp. 2d at

30–32. But the fact that PNOS and ordinary supermarkets

“are direct competitors in some submarkets . . . is not the end

of the inquiry,” United States v. Conn. Nat’l Bank, 418 U.S.

656, 664 n.3 (1974). Of course customers cross-shop; PNOS

carry comprehensive inventories. The fact that a customer

19

might buy a stick of gum at a supermarket or at a convenience

store does not mean there is no definable groceries market.

Here, cross-shopping is entirely consistent with the existence

of a core group of PNOS customers. Indeed, Dr. Murphy

explained that Whole Foods competes actively with

conventional supermarkets for dry groceries sales, even

though it ignores their prices for high-quality perishables.

In addition, the defendants relied on Dr. Scheffman’s

conclusion that there is no “clearly definable” core customer.

Whole Foods, 502 F. Supp. 2d at 28. However, this

conclusion was inconsistent with Dr. Scheffman’s own report

and testimony. Market research had found that customers

who shop at Whole Foods because they share the core values

it champions constituted at least a majority of its customers.

Scheffman Expert Report 56–57. Moreover, Dr. Scheffman

acknowledged “there are core shoppers [who] will only buy

organic and natural” and for that reason go to Whole Foods or

Wild Oats. Hr’g Tr. 31, July 31, 2007. He contended they

could be ignored because the numbers are not “substantial.”

Id. Again, Dr. Scheffman’s own market data undermined this

assertion.

In sum, the district court believed the antitrust laws are

addressed only to marginal consumers. This was an error of

law, because in some situations core consumers, demanding

exclusively a particular product or package of products,

distinguish a submarket. The FTC described the core PNOS

customers, explained how PNOS cater to these customers, and

showed these customers provided the bulk of PNOS’s

business. The FTC put forward economic evidence—which

the district court ignored—showing directly how PNOS

discriminate on price between their core and marginal

customers, thus treating the former as a distinct market.

Therefore, I cannot agree with the district court that the FTC

20

would never be able to prove a PNOS submarket. This is not

to say the FTC has in fact proved such a market, which is not

necessary at this point. To obtain a preliminary injunction

under § 53(b), the FTC need only show a likelihood of

success sufficient, using the sliding scale, to balance any

equities that might weigh against the injunction.

V

It remains to address the equities, which the district court

did not reach, and see whether for some reason there is a

balance against the FTC that would require a greater

likelihood of success. The FTC urges us to carry out the rest

of this determination, but “[w]e believe the proper course of

action at this point is to remand to the district court,

Chaplaincy of Full Gospel Churches v. England, 454 F.3d

290, 304 (D.C. Cir. 2006). Since the district court “expressly

withheld consideration,” id. at 305, of the equities, we have

not had the benefit of its findings. Although the equities in a

§ 53(b) preliminary injunction proceeding will usually favor

the FTC, Heinz, 246 F.3d at 726, the district court must

independently exercise its discretion considering the

circumstances of this case, including the fact that the merger

has taken place. The district court should remember that a

“risk that the transaction will not occur at all,” by itself, is a

private consideration that cannot alone defeat the preliminary

injunction. See id.; Weyerhaeuser, 665 F.2d at 1082–83.

I appreciate that the district court expedited the

proceeding as a courtesy to the defendants, who wanted to

consummate their merger just thirty days after the hearing,

Whole Foods, 502 F. Supp. 2d at 4, but the court should have

taken whatever time it needed to consider the FTC’s evidence

fully. For the reasons stated above, the district court’s

conclusion that the FTC showed no likelihood of success in

21

an eventual § 7 case must be reversed and remanded for

proceedings consistent with this opinion.

So ordered.

TATEL, Circuit Judge, concurring in the judgment: I

agree with my colleagues that the district court produced a

thoughtful opinion under incredibly difficult circumstances,

that this case presents a live controversy, and that the district

court generally applied the correct standard in reviewing the

Federal Trade Commission’s request for a preliminary

injunction. I also agree with Judge Brown that the district

court nonetheless erred in concluding that the FTC failed to

“raise[] questions going to the merits so serious, substantial,

difficult and doubtful as to make them fair ground for

thorough investigation, study, deliberation and determination

by the FTC in the first instance and ultimately by the Court of

Appeals.” FTC v. H.J. Heinz Co., 246 F.3d 708, 714-15

(D.C. Cir. 2001). Specifically, I believe the district court

overlooked or mistakenly rejected evidence supporting the

FTC’s view that Whole Foods and Wild Oats occupy a

separate market of “premium natural and organic

supermarkets.”

I

“Section 7 of the Clayton Act prohibits acquisitions,

including mergers, ‘where in any line of commerce or in any

activity affecting commerce in any section of the country, the

effect of such acquisition may be substantially to lessen

competition, or to tend to create a monopoly.’” Id. at 713

(quoting 15 U.S.C. § 18). “Congress used the words ‘may be

substantially to lessen competition,’ to indicate that its

concern was with probabilities, not certainties.” Brown Shoe

Co. v. United States, 370 U.S. 294, 323 (1962).

When the FTC believes an acquisition violates section 7

and that enjoining the acquisition pending an investigation

“would be in the interest of the public,” section 13(b) of the

Federal Trade Commission Act authorizes the Commission to

ask a federal district court to block the acquisition. 15 U.S.C.

§ 53(b); Heinz, 246 F.3d at 714. Because Congress concluded

2

that the FTC—an expert agency acting on the public’s

behalf—should be able to obtain injunctive relief more readily

than private parties, it “incorporat[ed] a unique ‘public

interest’ standard in 15 U.S.C. § 53(b), rather than the more

stringent, traditional ‘equity’ standard for injunctive relief.”

FTC v. Exxon Corp., 636 F.2d 1336, 1343 (D.C. Cir. 1980)

(citing H.R. REP. NO. 93-624, at 31 (1973)). Under this more

lenient rule, a district court may grant the FTC’s requested

injunction “[u]pon a proper showing that, weighing the

equities and considering the Commission’s likelihood of

ultimate success, such action would be in the public interest.”

15 U.S.C. § 53(b). In this circuit, “the standard for likelihood

of success on the merits is met if the FTC ‘has raised

questions going to the merits so serious, substantial, difficult

and doubtful as to make them fair ground for thorough

investigation, study, deliberation and determination by the

FTC in the first instance and ultimately by the Court of

Appeals.’” Heinz, 246 F.3d at 714-15 (quoting FTC v.

Beatrice Foods Co., 587 F.2d 1225, 1229 (D.C. Cir. 1978)

(Appendix to Joint Statement of Judges MacKinnon &

Robb)); accord FTC v. Freeman Hosp., 69 F.3d 260, 267 (8th

Cir. 1995); FTC v. Warner Commc’ns Inc., 742 F.2d 1156,

1162 (9th Cir. 1984).

Critically, the district court’s task is not “to determine

whether the antitrust laws have been or are about to be

violated. That adjudicatory function is vested in the FTC in

the first instance.” Heinz, 246 F.3d at 714 (quoting FTC v.

Food Town Stores, Inc., 539 F.2d 1339, 1342 (4th Cir. 1976)).

As Judge Posner has explained:

One of the main reasons for creating the

Federal Trade Commission and giving it

concurrent jurisdiction to enforce the Clayton

Act was that Congress distrusted judicial

3

determination of antitrust questions. It thought

the assistance of an administrative body would

be helpful in resolving such questions and

indeed expected the FTC to take the leading

role in enforcing the Clayton Act . . . .

Hosp. Corp. of Am. v. FTC, 807 F.2d 1381, 1386 (7th Cir.

1986).

The dissent accuses Judge Brown and me of “dilut[ing]

the standard for preliminary injunction relief in antitrust

merger cases, such that the FTC . . . need not establish a

likelihood of success on the merits.” Dissenting Op. at 17-18

(internal quotation marks omitted). This is baffling given that

our opinions scrupulously follow Heinz’s articulation of the

likelihood-of-success standard, which even Whole Foods

insists we apply, see Appellee’s Br. 32 (urging that “the

district court performed the role Congress delegated” to it by

“applying the standard of review this Court prescribed in

Heinz”). The Supreme Court’s recent decision in Munaf v.

Geren, 128 S. Ct. 2207 (2008), does nothing to undermine

this precedent: it concerns the common law standard for

preliminary injunctions, not section 13(b)’s “unique ‘public

interest’ standard,” Exxon Corp., 636 F.2d at 1343. Cf.

Dissenting Op. at 20-21. In his zeal to reach the merits and

preempt the FTC, it is in fact our dissenting colleague who

ignores both circuit precedent and section 13(b).

II

In this case the district court concluded that the FTC had

failed to raise the “serious, substantial” questions necessary to

show a likelihood of success on the merits. FTC v. Whole

Foods Market, Inc., 502 F. Supp. 2d 1, 49 (D.D.C. 2007).

Following the FTC’s lead, the court focused on defining the

4

product market in which Whole Foods and Wild Oats operate,

saying:

[I]f the relevant product market is, as the FTC

alleges, a product market of “premium natural

and organic supermarkets” . . . , there can be

little doubt that the acquisition of the second

largest firm in the market by the largest firm in

the market will tend to harm competition in

that market. If, on the other hand, the

defendants are merely differentiated firms

operating within the larger relevant product

market of “supermarkets,” the proposed

merger will not tend to harm competition.

Whole Foods, 502 F. Supp. 2d at 8. Thus, the “‘case

hinge[d]’—almost entirely—‘on the proper definition of the

relevant product market.’” Id. (quoting FTC v. Staples, Inc.,

970 F. Supp. 1066, 1073 (D.D.C. 1997)). And after

reviewing the evidence, the district court concluded that

“[t]here is no substantial likelihood that the FTC can prove its

asserted product market and thus no likelihood that it can

prove that the proposed merger may substantially lessen

competition or tend to create a monopoly.” Id. at 49-50.

I agree with the district court that this “‘case hinges’—

almost entirely—‘on the proper definition of the relevant

product market,’” for if a separate natural and organic market

exists, “there can be little doubt that the acquisition of the

second largest firm in the market by the largest firm in the

market will tend to harm competition in that market.” Id. at 8

(quoting Staples, 970 F. Supp. at 1073). But I respectfully

part ways with the district court when it comes to assessing

the FTC’s evidence in support of its contention that Whole

Foods and Wild Oats occupy a distinct market. As the

5

Supreme Court explained in Brown Shoe Co. v. United States:

“The outer boundaries of a product market are determined by

the reasonable interchangeability of use or the cross-elasticity

of demand between the product itself and substitutes for it.”

370 U.S. at 325. In this case the FTC presented a great deal

of credible evidence—either unmentioned or rejected by the

district court—suggesting that Whole Foods and Wild Oats

are not “reasonabl[y] interchangeab[le]” with conventional

supermarkets and do not compete directly with them.

To begin with, the FTC’s expert prepared a study

showing that when a Whole Foods opened near an existing

Wild Oats, it reduced sales at the Wild Oats store

dramatically. See Expert Report of Kevin M. Murphy ¶¶ 48-

49 & exhibit 3 (July 9, 2007) (“Murphy Report”). By

contrast, when a conventional supermarket opened near a

Wild Oats store, Wild Oats’s sales were virtually unaffected.

See id. This strongly suggests that although Wild Oats

customers consider Whole Foods an adequate substitute, they

do not feel the same way about conventional supermarkets.

Rejecting this study, the district court explained that it was

“unwilling to accept the assumption that the effects on Wild

Oats from Whole Foods’ entries provide a mirror from which

predictions can reliably be made about the effects on Whole

Foods from Wild Oats’ future exits if this transaction occurs.”

Whole Foods, 502 F. Supp. 2d at 21. But even if exit and

entry events differ, this evidence suggests that consumers do

not consider Whole Foods and Wild Oats “reasonabl[y]

interchangeab[le]” with conventional supermarkets. Brown

Shoe, 370 U.S. at 325.

The FTC also highlighted Whole Foods’s own study—

called “Project Goldmine”—showing what Wild Oats

customers would likely do after the proposed merger in cities

where Whole Foods planned to close Wild Oats stores.

6

According to the study, the average Whole Foods store would

capture most of the revenue from the closed Wild Oats store,

even though virtually every city contained multiple

conventional retailers closer to the shuttered Wild Oats store.

See Murphy Report ¶ 70 & app. C; Rebuttal Expert Report of

Kevin M. Murphy ¶¶ 31-32 (July 13, 2007) (“Murphy

Rebuttal”). This high diversion ratio further suggests that

many consumers consider conventional supermarkets

inadequate substitutes for Wild Oats and Whole Foods. The

district court cited the Project Goldmine study for the

opposite conclusion, pointing only to cities in which Whole

Foods expected to receive a low percentage of Wild Oats’s

business. Whole Foods, 502 F. Supp. 2d at 34. These

examples, however, do not undermine the study’s broader

conclusion that Whole Foods would capture most of the

revenue from the closed Wild Oats, and the district court

never mentioned the FTC expert’s testimony that the

diversion ratio estimated here “is at least four times the

diversion ratio[] needed to make a price increase of 5%

profitable for a joint owner of the two stores.” Murphy

Rebuttal ¶ 32. The dissent also ignores this testimony, saying

incorrectly that the Project Goldmine study “says nothing

about whether Whole Foods could impose a five percent or

more price increase.” Dissenting Op. at 11.

Several industry studies predating the merger also

suggest that Whole Foods and Wild Oats never truly

competed with conventional supermarkets. For example, a

study prepared for Whole Foods by an outside consultant

concludes that “[Whole Foods] will not encounter significant,

if any, competition from leading mainstream retailers[’]

(Safeway, Wal-Mart, Costco, etc.) entry into organics.”

Tinderbox Consulting, Exploring Private Label Organic

Brands 4. Another study concludes that “[w]hile th[e] same

consumer shops” at both “mainstream grocers such as

7

Safeway” and “large-format natural foods store[s] such as

Wild Oats or Whole Foods Market,” “they tend to shop at

each for different things (e.g., Wild Oats for fresh and

specialty items, Safeway for canned and packaged goods).”

THE HARTMAN GROUP, ORGANIC 2006, at ch. 8, p. 1 (May 1,

2006). In addition, Wild Oats’s former CEO, Perry Odak,

explained in a deposition why conventional stores have

difficulty competing with Whole Foods and Wild Oats: if

conventional stores offer a lot of organic products, they don’t

sell enough to their existing customer base, leaving the stores

with spoiled products and reduced profits. But if

conventional stores offer only a narrow range of organic

products, customers with a high demand for organic items

refuse to shop there. Thus, “the conventionals have a very

difficult time getting into this business.” Investigational

Hearing of Perry Odak 77-78 (quoted in Murphy Report ¶ 77)

(“Odak Hearing”). The district court mentioned none of this.

In addition to all this direct evidence that Whole Foods

and Wild Oats occupy a separate market from conventional

supermarkets, the FTC presented an enormous amount of

evidence of “industry or public recognition” of the natural and

organic market “as a separate economic entity”—one of the

“practical indicia” the Supreme Court has said can be used to

determine the boundaries of a distinct market. Brown Shoe,

370 U.S. at 325. For example, dozens of record studies about

the grocery store industry—including many prepared for

Whole Foods or Wild Oats—distinguish between “traditional”

or “conventional” grocery stores on the one hand and “natural

food” or “organic” stores on the other. See, e.g., FOOD MKTG.

INST., U.S. GROCERY SHOPPER TRENDS 2007, at 20-22 (2007).

Moreover, record evidence indicates that the Whole Foods

and Wild Oats CEOs both believed that their companies

occupied a market separate from the conventional grocery

store industry. In an email to his company’s board, Whole

8

Foods CEO John Mackey explained that “[Wild Oats] is the

only existing company that has the brand and number of

stores to be a meaningful springboard for another player to get

into this space. Eliminating them means eliminating this

threat forever, or almost forever.” Email from John Mackey

to John Elstrott et al. (Feb. 15, 2007). Echoing this point,

former Wild Oats CEO Perry Odak said that “there’s really

only two players of any substance in the organic and all

natural [market], and that’s Whole Foods and Wild Oats. . . .

[T]here’s really nobody else in that particular space.” Odak

Hearing 58. Executives from several conventional retailers

agreed, explaining that Whole Foods and Wild Oats are not

“conventional supermarkets” because “they focus on a

premium organic-type customer” and “don’t sell a lot of the

things that . . . a lot of people buy.” Dep. of Rojon Diane

Hasker 128-29 (July 10, 2007) (“Hasker Dep.”). As Judge

Bork explained, this evidence of “‘industry or public

recognition of the submarket as a separate economic’ unit

matters because we assume that economic actors usually have

accurate perceptions of economic realities.” Rothery Storage

& Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 n.4

(D.C. Cir. 1986).

The FTC also presented strong evidence that Whole

Foods and Wild Oats have “peculiar characteristics”

distinguishing them from traditional supermarkets, another of

the “practical indicia” the Supreme Court has said can be used

to determine the boundaries of a distinct market. Brown Shoe,

370 U.S. at 325. Most important, unlike traditional grocery

stores, both Whole Foods and Wild Oats carry only natural or

organic products. See http://www.wholefoodsmarket.com/pr

oducts/index.html (“We carry natural and organic products . . .

unadulterated by artificial additives, sweeteners, colorings,

and preservatives . . . .”). Glossing over this distinction, the

dissent says “the dividing line between ‘organic’ and

9

conventional supermarkets has been blurred” because “[m]ost

products that Whole Foods sells are not organic” while

“conventional supermarkets” have begun selling more organic

products. Dissenting Op. at 8. But the FTC never defined its

proposed market as “organic supermarkets,” it defined it as

“premium natural and organic supermarkets.” And everything

Whole Foods sells is natural and/or organic, while many of

the things sold by traditional grocery stores are not. See, e.g.,

Hasker Dep. 130-34; http://www.wholefoodsmarket.com/prod

ucts/unacceptablefoodingredients.html (explaining that Whole

Foods refuses to carry any food item containing one of dozens

of “unacceptable food ingredients,” ingredients that can be

found in countless products at traditional grocery stores).

Insisting that all this evidence of a separate market is

irrelevant, Whole Foods and the dissent argue that the FTC’s

case must fail because the record contains no evidence that

Whole Foods or Wild Oats charged higher prices in cities

where the other was absent—i.e., where one had a local

monopoly on the asserted natural and organic market—than

they did in cities where the other was present. This argument

is both legally and factually incorrect.

As a legal matter, although evidence that a company

charges more when other companies in the alleged market are

absent certainly indicates that the companies operate in a

distinct market, see, e.g., Staples, 970 F. Supp. at 1075-77,

that is not the only way to prove a separate market. Indeed,

Brown Shoe lists “distinct prices” as only one of a non-

exhaustive list of seven “practical indicia” that may be

examined to determine whether a separate market exists. 370

U.S. at 325. Furthermore, even if the FTC could prove a

section 7 violation only by showing evidence of higher prices

in areas where a company had a local monopoly in an alleged

market, the FTC need not prove a section 7 violation to obtain

10

a preliminary injunction; rather, it need only raise “serious,

substantial” questions as to the merger’s legality. Heinz, 246

F.3d at 714. Thus, the dissent misses the mark when it cites

the FTC’s Horizontal Merger Guidelines to suggest that the

Commission may obtain a preliminary injunction only by

“mak[ing] a sufficient showing that the merged company

could . . . profitably impose a significant and nontransitory

increase in price” of 5% or more. Dissenting Op. at 2

(internal quotation marks omitted). Such evidence in a case

like this, which turns entirely on market definition, would be

enough to prove a section 7 violation in the FTC’s

administrative proceeding. See Hosp. Corp., 807 F.2d at 1389

(stating that “[a]ll that is necessary” to prove a section 7 case

“is that the merger create an appreciable danger of [higher

prices] in the future”). Yet our precedent clearly holds that to

obtain a preliminary injunction “[t]he FTC is not required to

establish that the proposed merger would in fact violate

section 7 of the Clayton Act.” Heinz, 246 F.3d at 714.

Moreover, the Merger Guidelines—which “are by no means

to be considered binding on the court,” FTC v. PPG Indus.,

Inc., 798 F.2d 1500, 1503 n.4 (D.C. Cir. 1986)—specify how

the FTC decides which cases to bring, “not . . . how the

Agency will conduct the litigation of cases that it decides to

bring,” Horizontal Merger Guidelines § 0.1 (emphasis added);

see also id. (“[T]he Guidelines do not attempt to assign the

burden of proof, or the burden of coming forward with

evidence, on any particular issue.”).

In any event, the FTC did present evidence indicating

that Whole Foods and Wild Oats charged more when they

were the only natural and organic supermarket present. The

FTC’s expert looked at prices Whole Foods charged in

several of its North Carolina stores before and after entry of a

regional natural food chain called Earth Fare. Before any

Earth Fare stores opened, Whole Foods charged essentially

11

the same prices at its five North Carolina stores, but when an

Earth Fare opened near the Whole Foods in Chapel Hill, that

store’s prices dropped 5% below those at the other North

Carolina Whole Foods. See Tr. of Mots. Hr’g, Morning

Session 125-30 (July 31, 2007); Supplemental Rebuttal

Expert Report of Kevin M. Murphy ¶¶ 2-6 (July 16, 2007)

(“Murphy Supp.”). Prices at that store remained lower than at

the other Whole Foods in North Carolina for nearly a year,

until just before the Earth Fare closed. See Murphy Supp. ¶¶

4-5. Whole Foods followed essentially the same pattern when

an Earth Fare opened near its stores in Raleigh and Durham—

the company dropped prices at those stores but nowhere else

in North Carolina. See id.; Tr. of Mots. Hr’g, Morning

Session 127 (July 31, 2007). The FTC’s expert presented

similar evidence regarding Whole Foods’s impact on Wild

Oats’s prices, showing that a new Whole Foods store opening

near a Wild Oats caused immediate and lasting reductions in

prices at that Wild Oats store compared to prices at other

Wild Oats stores. See Tr. of Mots. Hr’g, Morning Session

132 (July 31, 2007); Murphy Report ¶¶ 57-59 & exhibit 5. In

addition to this quantitative evidence, the FTC pointed to

Whole Foods CEO John Mackey’s statement explaining to the

company’s board why the merger made sense: “By buying

[Wild Oats] we will . . . avoid nasty price wars in [several

cities where both companies have stores].” Email from John

Mackey to John Elstrott et al. (Feb. 15, 2007).

The dissent raises two primary arguments against this

pricing evidence. First, it relies on a study by Whole Foods’s

expert to conclude that Whole Foods’s prices remain steady

regardless of the presence or absence of a nearby Wild Oats,

Dissenting Op. at 5-6, calling this “all-but-dispositive price

evidence,” id. at 7. In fact, this study is all-but-meaningless

price evidence because it examined Whole Foods’s pricing on

a single day several months after the company announced its

12

intent to acquire Wild Oats; this gave the company every

incentive to eliminate any price differences that may have

previously existed between its stores based on the presence of

a nearby Wild Oats, not only to avoid antitrust liability, but

also because the company was no longer competing with

Wild Oats. See Hosp. Corp., 807 F.2d at 1384 (“[E]vidence

that is subject to manipulation by the party seeking to use it is

entitled to little or no weight.”). Second, the dissent asserts

that all Mackey’s statements are irrelevant because—it

claims—anticompetitive “intent is not an element of a § 7

claim.” Dissenting Op. at 12. But the Supreme Court has

clearly said that “evidence indicating the purpose of the

merging parties, where available, is an aid in predicting the

probable future conduct of the parties and thus the probable

effects of the merger.” Brown Shoe, 370 U.S. at 329 n.48

(emphasis added); see also 4A PHILLIP E. AREEDA ET AL.,

ANTITRUST LAW ¶ 964a (2d ed. 2006) (“[E]vidence of

anticompetitive intent cannot be disregarded.”).

To be sure, the pricing evidence here is unquestionably

less compelling than the pricing evidence in some other cases,

and perhaps this will make a difference in the Commission’s

ultimate evaluation of this merger. Cf. Staples, 970 F. Supp.

at 1075-77 (showing price differences of up to 13% where

competitors were absent). But at this preliminary, pre-hearing

stage, the pricing evidence here, together with the other

evidence described above, is certainly enough to raise

“serious, substantial” questions that are “fair ground for

thorough investigation, study, deliberation, and determination

by the FTC.” Heinz, 246 F.3d at 714-15.

Attempting to make these serious questions disappear,

Whole Foods points to evidence the district court cited in

concluding that the FTC could never prove a separate natural

and organic market. That evidence, however, fails to

13

overcome the “serious, substantial” questions the FTC’s

evidence raises.

To begin with, the district court relied on a study by a

Whole Foods expert concluding that the post-merger

company would be unable to impose a statistically significant

non-transitory increase in price because the “actual loss” from

such an increase would exceed the “critical loss”—the point

at which the revenue gained from raising prices equals the

revenue lost from reduced sales. The FTC’s expert, however,

reached the exact opposite conclusion, finding that the

combined company could impose a statistically significant

non-transitory increase in price. Murphy Report ¶ 147. He

also raised a number of criticisms of the Whole Foods

expert’s study. Most important, he pointed out that the Whole

Foods expert “provide[d] literally no quantitative evidence for

the magnitude of the Actual Loss . . . and no methodology for

calculating the Actual Loss.” Murphy Rebuttal ¶ 11. He

further argued that the Whole Foods expert’s study embodied

a widely recognized flaw in critical loss analysis, namely that

such analysis often overestimates actual loss when a company

has high margins—which Whole Foods does. See id. ¶¶ 6-16

(explaining that when a company has high margins the critical

loss is small, so one might predict an “Actual Loss greater

than the Critical Loss,” but “this story is very incomplete

because a high margin tends to imply a small Actual Loss”

given that high margins suggest customers are price

insensitive (quoting Michael L. Katz & Carl Shapiro, Further

Thoughts on Critical Loss, ANTITRUST SOURCE, March 2004,

at 1, 2)); see also Daniel P. O’Brien & Abraham L.

Wickelgren, A Critical Analysis of Critical Loss Analysis, 71

ANTITRUST L.J. 161, 162 (2003). In light of these cogent

criticisms—which neither Whole Foods’s expert nor the

district court ever addressed—this study cannot eliminate the

“serious, substantial” questions the FTC’s evidence raises.

14

Although courts certainly must evaluate the evidence in

section 13(b) proceedings and may safely reject expert

testimony they find unsupported, they trench on the FTC’s

role when they choose between plausible, well-supported

expert studies.

The district court next emphasized that when a new

Whole Foods store opens, it takes business from conventional

grocery stores, and even when an existing Wild Oats is

nearby, most of the new Whole Foods store’s revenue comes

from customers who previously shopped at conventional

stores. According to the district court, this led “to the

inevitable conclusion that Whole Foods’ and Wild Oats’ main

competitors are other supermarkets, not just each other.”

Whole Foods, 502 F. Supp. 2d at 21. As the FTC points out,

however, “an innovative [product] can create a new product

market for antitrust purposes” by “satisfy[ing] a previously-

unsatisfied consumer demand.” Appellant’s Opening Br. 50.

To use the Commission’s example, when the automobile was

first invented, competing auto manufacturers obviously took

customers primarily from companies selling horses and

buggies, not from other auto manufacturers, but that hardly

shows that cars and horse-drawn carriages should be treated

as the same product market. That Whole Foods and Wild

Oats have attracted many customers away from conventional

grocery stores by offering extensive selections of natural and

organic products thus tells us nothing about whether Whole

Foods and Wild Oats should be treated as operating in the

same market as conventional grocery stores. Indeed, courts

have often found that sufficiently innovative retailers can

constitute a distinct product market even when they take

customers from existing retailers. See, e.g., Photovest Corp.

v. Fotomat Corp., 606 F.2d 704, 712-14 (7th Cir. 1979)

(finding a distinct market of drive-up photo-processing

companies even though such companies took photo-

15

processing customers from drugstores, camera stores, and

supermarkets); Staples, 970 F. Supp. at 1077 (finding a

distinct market of office supply superstores even though such

stores took sales primarily from mail-order catalogues and

stores carrying a broader range of merchandise).

The district court also cited evidence that Whole Foods

compares its prices to those at conventional stores, not just

natural foods stores. But nearly all of the items on which

Whole Foods checks prices are dry grocery items, even

though nearly 70% of Whole Foods’s revenue comes from

perishables. Murphy Report ¶ 77. As Judge Brown’s opinion

explains, this suggests that any competition between Whole

Foods and conventional retailers may be limited to a narrow

range of products that play a minor role in Whole Foods’s

profitability. Op. at 17.

Finally, the district court observed that more and more

conventional stores are carrying natural and organic products,

and that consumers who shop at Whole Foods and Wild Oats

also shop at conventional stores. But as noted above, other

record evidence suggests that although some conventional

retailers are beginning to offer a limited range of popular

organic products, they have difficulty competing with Whole

Foods and Wild Oats. See Murphy Report ¶ 77. As Whole

Foods CEO John Mackey put it: “[Wild Oats] is the only

existing company that has the brand and number of stores to

be a meaningful springboard for another player to get into this

space. Eliminating them means eliminating this threat

forever, or almost forever.” Email from John Mackey to John

Elstrott et al. (Feb. 15, 2007) (emphasis added). Other studies

show that “[w]hile th[e] same consumer shops” at both

“mainstream grocers such as Safeway” and “large-format

natural foods store[s] such as Wild Oats or Whole Foods,”

“they tend to shop at each for different things.” THE

16

HARTMAN GROUP, ORGANIC 2006, at ch. 8, p. 1 (May 1,

2006); see also Photovest, 606 F.2d at 714 (“The law does not

require an exclusive class of customers for each relevant

submarket.”).

In sum, much of the evidence Whole Foods points to is

either entirely unpersuasive or rebutted by credible evidence

offered by the FTC. Of course, this is not to say that the FTC

will necessarily be able to prove its asserted product market in

an administrative proceeding: as the district court recognized,

Whole Foods has a great deal of evidence on its side,

evidence that may ultimately convince the Commission that

no separate market exists. But at this preliminary stage, the

FTC’s evidence plainly establishes a reasonable probability

that it will be able to prove its asserted market, and given that

this “‘case hinges’—almost entirely—‘on the proper

definition of the relevant product market,’” Whole Foods, 502

F. Supp. 2d at 8 (quoting Staples, 970 F. Supp. at 1073), this

is enough to raise “serious, substantial” questions meriting

further investigation by the FTC, Heinz, 246 F.3d at 714.

III

Because we have decided that the FTC showed the

requisite likelihood of success by raising serious and

substantial questions about the merger’s legality, all that

remains is to “weigh the equities in order to decide whether

enjoining the merger would be in the public interest.” Id. at

726. Although in some cases we have conducted this

weighing ourselves, see, e.g., id. at 726-27, three factors lead

me to agree with Judge Brown that the better course here is to

remand to the district court for it to undertake this task. First,

in cases in which we have weighed the equities, the district

court had already done so, giving us the benefit of its

factfinding and reasoning. See, e.g., id. Here, by contrast, the

district court never reached the equities and the parties have

17

not briefed the issue, leaving us without the evidence needed

to decide this question. See Whole Foods, 502 F. Supp. 2d at

50. Second, this case stands in a unique posture, for in cases

where we reversed a district court’s denial of a section 13(b)

injunction, either the district court or this court had enjoined

the merger pending appeal. See Heinz, 246 F.3d at 713; PPG

Indus., 798 F.2d at 1501 n.1. Here, by contrast, the companies

have already merged, and although this doesn’t moot the case,

it may well affect the balance of the equities, likely requiring

the district court to take additional evidence. Finally, given

this case’s unique posture, the usual remedy in section 13(b)

cases—blocking the merger—is no longer an option.

Therefore, if the district court concludes that the equities tilt in

the FTC’s favor, it will need to craft an alternative, fact-bound

remedy sufficient to achieve section 13(b)’s purpose, namely

allowing the FTC to review the transaction in an

administrative proceeding and reestablish the premerger status

quo if it finds a section 7 violation. To accomplish this, the

district court could choose anything from issuing a hold

separate order, see FTC v. Weyerhaeuser Co., 665 F.2d 1072,

1083-84 (D.C. Cir. 1981), to enjoining further integration of

the companies, to ordering the transaction partially or entirely

rescinded, see FTC v. Elders Grain, 868 F.2d 901, 907-08

(7th Cir. 1989) (Posner, J.). Without more facts, however, we

are in no position to suggest which remedy is most

appropriate.

Given the novel and significant task the district court

faces on remand, I think it important to emphasize the

principles that should guide its weighing of the equities. To

begin with, as this court has held, “a likelihood of success

finding weighs heavily in favor of a preliminary injunction

blocking the acquisition,” Weyerhaeuser, 665 F.2d at 1085,

“creat[ing] a presumption in favor of preliminary injunctive

relief,” Heinz, 246 F.3d at 726. That said, the district court

18

must still weigh the public and private equities “to decide

whether enjoining the merger would be in the public interest.”

Id. “The principal public equity weighing in favor of issuance

of preliminary injunctive relief is the public interest in

effective enforcement of the antitrust laws.” Id. That is,

because “[a]dministrative experience shows that the

Commission’s inability to unscramble merged assets

frequently prevents entry of an effective order of divestiture”

after administrative proceedings, FTC v. Dean Foods Co., 384

U.S. 597, 607 n.5 (1966), the court must place great weight on

the public interest in blocking a possibly anticompetitive

merger before it is complete. Here, of course, the merger has

already been consummated, although as the FTC points out,

the process of combining the two companies is far from

complete. Thus, the district court must consider the extent to

which any of the remedial options mentioned above would

make it easier for the FTC to separate Wild Oats and Whole

Foods after the Commission’s administrative proceeding

(should it find a section 7 violation) than it would be if the

court did nothing. The court must then weigh this and any

other equities opposing the merger against any public and

private equities that support allowing the merger to proceed

immediately.

In conducting this weighing, if Whole Foods can show no

public equities in favor of allowing the merger to proceed

immediately—such as increased employment or reduced

prices—the district court should go no further, for “[w]hen the

Commission demonstrates a likelihood of ultimate success, a

countershowing of private equities alone [does] not suffice to

justify denial of a preliminary injunction barring the merger.”

Weyerhaeuser, 665 F.2d at 1083. But if Whole Foods can

show some public equity favoring the merger, then the court

should also consider private equities on Whole Foods’s side of

the ledger, such as whether it would allow an otherwise failing

19

firm to survive. That said, “[w]hile it is proper to consider

private equities in deciding whether to enjoin a particular

transaction, we must afford such concerns little weight, lest

we undermine section 13(b)’s purpose of protecting the

public-at-large, rather than the individual private

competitors.” Heinz, 246 F.3d at 727 n.25 (quoting FTC v.

Univ. Health, Inc., 938 F.2d 1206, 1225 (11th Cir. 1991))

(internal quotation marks omitted). Moreover, “[w]e do not

rank as a private equity meriting weight a mere expectation of

private gain from a transaction the FTC has shown is likely to

violate the antitrust laws.” Weyerhaeuser, 665 F.2d at 1083

n.26. In other words, even if allowing the merger to proceed

would increase Whole Foods’s profits, that is irrelevant to the

private equities under section 13(b).

KAVANAUGH, Circuit Judge, dissenting:1 The Federal

Trade Commission has sought a preliminary injunction to

block the Whole Foods-Wild Oats merger as anticompetitive

under § 7 of the Clayton Act. As in many antitrust cases, the

analysis comes down to one issue: market definition. Is the

relevant product market here all supermarkets? Or is the

relevant product market here only so-called “organic

supermarkets”? If the former, as Whole Foods argues, the

Whole Foods-Wild Oats merger would be lawful because it

would not lessen competition in the broad market of all

supermarkets: Whole Foods and Wild Oats together operate

about 300 of the approximately 34,000 supermarkets in the

United States. If the latter, as the FTC contends, the merger

may be unlawful: Whole Foods and Wild Oats are the only

significant competitors in the alleged organic-store market

and their merger would substantially lessen competition in

such a narrowly defined market.

More than a year ago, after a lengthy evidentiary hearing

and in an exhaustive and careful opinion, the District Court

found that the record evidence overwhelmingly supports the

following conclusions: Whole Foods competes against all

supermarkets and not just so-called organic stores; the

relevant market for evaluating this merger for antitrust

purposes is all supermarkets; and the merger of Whole Foods

and Wild Oats would not substantially lessen competition in a

market that includes all supermarkets. The court therefore

denied the FTC’s motion for a preliminary injunction.

1

In light of changes made by Judge Brown and Judge Tatel to

their opinions in response to the petition for rehearing – most

notably, the fact that Judge Tatel no longer joins Judge Brown’s

opinion, meaning there is no majority opinion for the Court – this

dissent contains changes throughout, including a new Part III, from

the dissenting opinion released on July 29, 2008.

2

Also more than a year ago, a three-judge panel of this

Court unanimously denied the FTC’s request for an injunction

pending appeal, thereby allowing the Whole Foods-Wild Oats

deal to close. Since then, the merged entity has shut down,

sold, or converted numerous Wild Oats stores and otherwise

effectuated the merger through many changes in supplier

contracts, leases, distribution, and the like.

The Court’s splintered decision in this case seeks to

unring the bell. In my judgment, this Court got it right a year

ago in refusing to enjoin the merger, and there is no basis for

a changed result now. Both a year ago and now, the same

central question has been before the Court in determining

whether to approve an injunction: whether the FTC

demonstrated the necessary “likelihood of success” on its § 7

case. A year ago, the Court said no. Now, the Court says yes.

The now-merged entity, the industry, and consumers no doubt

will be confused by this apparent judicial about-face.

The law does not allow the FTC to just snap its fingers

and temporarily block a merger. Even at the preliminary

injunction stage, the relevant statutory text and precedents

expressly require that the FTC show a “likelihood of success

on the merits.” FTC v. H.J. Heinz Co., 246 F.3d 708, 714

(D.C. Cir. 2001); see also 15 U.S.C. § 53(b) (“likelihood of

ultimate success”); cf. Munaf v. Geren, 128 S. Ct. 2207, 2218-

19 (2008). Because “[m]erger enforcement, like other areas

of antitrust, is directed at market power,” Heinz, 246 F.3d at

713, the FTC therefore needs to make a sufficient showing

that the merged company could exercise market power and

profitably impose a “small but significant and nontransitory

increase in price,” typically meaning a five percent or greater

price increase. Horizontal Merger Guidelines § 1.11 (internal

quotation marks omitted); see 15 U.S.C. § 18. As the District

Court concluded, the FTC did not come close to presenting

3

that kind of evidence in this case; the FTC completely failed

to make the economic showing that is Antitrust 101.

By seeking to block a merger without a sufficient

showing that so-called organic stores constitute a separate

product market and that the merged entity could impose a

significant and nontransitory price increase, the FTC’s

position – which Judge Brown and Judge Tatel largely accept

– calls to mind the bad old days when mergers were viewed

with suspicion regardless of their economic benefits. See

generally ROBERT H. BORK, THE ANTITRUST PARADOX

(1978). I would not turn back the clock. I agree with and

would affirm the District Court’s excellent decision denying

the FTC’s motion to enjoin the merger of Whole Foods and

Wild Oats. See FTC v. Whole Foods Mkt., Inc., 502 F. Supp.

2d 1 (D.D.C. 2007).

I

A

Section 7 of the Clayton Act prohibits mergers “where in

any line of commerce or in any activity affecting commerce in

any section of the country, the effect of such acquisition may

be substantially to lessen competition, or to tend to create a

monopoly.” 15 U.S.C. § 18. The Horizontal Merger

Guidelines jointly promulgated by two Executive Branch

agencies (the Department of Justice and the FTC) implement

that statutory directive and recognize that the key initial step

in the analysis is proper product-market definition. See

Horizontal Merger Guidelines § 1.11; see also 2B PHILLIP E.

AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 536, at

284-85 (3d ed. 2007). Proper product-market analysis focuses

on products’ interchangeability of use or cross-elasticity of

demand. A product “market can be seen as the array of

4

producers of substitute products that could control price if

united in a hypothetical cartel or as a hypothetical monopoly.”

Id. ¶ 530a, at 226. In the merger context, the inquiry therefore

comes down to whether the merged entity could profitably

impose a “small but significant and nontransitory increase in

price” typically defined as five percent or more. See

Horizontal Merger Guidelines § 1.11 (internal quotation

marks omitted). If the merged entity could profitably impose

at least a five percent price increase (because the price

increase would not cause a sufficient number of consumers to

switch to substitutes outside of the alleged product market),

then there is a distinct product market and the proposed

merger likely would substantially lessen competition in that

market, in violation of § 7 of the Clayton Act.

In considering whether the merged entity could increase

prices, courts of course recognize that “future behavior must

be inferred from historical observations.” 2B AREEDA &

HOVENKAMP, ANTITRUST LAW ¶ 530a, at 226. Therefore, the

courts scrutinize existing markets to assess the probable

effects of a merger.

This approach was applied sensibly by Judge Hogan in

his thorough and leading opinion in FTC v. Staples, 970 F.

Supp. 1066 (D.D.C. 1997). There, Judge Hogan found that

office products sold by an office superstore were functionally

interchangeable with office products sold at other types of

stores, but he nonetheless found that office-supply superstores

constituted a distinct product market. One key fact led Judge

Hogan to that conclusion: In areas where Staples was the

only office superstore, it was able to set prices significantly

higher than in areas where it competed with other office

superstores (Office Depot and OfficeMax). See id. at 1075-

76. For example, the FTC presented “compelling evidence”

that Staples’s prices were 13 percent higher in areas where no

5

office-superstore competitors were present. Id. Judge Hogan

ultimately concluded that “[t]his evidence all suggests that

office superstore prices are affected primarily by other office

superstores and not by non-superstore competitors.” Id. at

1077 (emphasis added). For that reason, the Court enjoined

the merger of Staples and Office Depot.

B

Consistent with the statute, the Executive Branch’s

Merger Guidelines, and Judge Hogan’s convincing opinion in

Staples, the District Court here carefully analyzed the

economics of supermarkets, including so-called organic

supermarkets. The court considered whether Whole Foods

charged higher prices in areas without Wild Oats than in areas

with Wild Oats. After an evidentiary hearing and based on a

painstaking review of the evidence in the record, the court

concluded that “Whole Foods prices are essentially the same

at all of its stores in a region, regardless of whether there is a

Wild Oats store nearby.” FTC v. Whole Foods Mkt., Inc., 502

F. Supp. 2d 1, 22 (D.D.C. 2007). That factual conclusion was

supported by substantial evidence offered by Dr. Scheffman,

Whole Foods’s expert, and by the lack of any credible

evidence to the contrary.

Dr. Scheffman analyzed Whole Foods’s actual prices

across stores and concluded that “there is no evidence that

[Whole Foods] and [Wild Oats] price higher” where they face

no competition from so-called organic supermarkets

compared with where they do face such competition.

Scheffman Expert Report ¶ 292, at 113. At a regional level,

his studies revealed that only a “very small percentage” of

products vary in price within a region, indicating that “prices

are set across broad geographic areas.” Id. ¶ 300, at 116. He

also analyzed prices at the individual store level, examining

6

how many products sold at a specific store have prices that

differ from the most common price in the region. He found

that “differences in prices across stores are generally very

small (less than one half of one percent) and there is no

systematic pattern as to the presence or absence of [organic-

supermarket] competition.” Id. ¶ 305, at 116.

Moreover, the record evidence in this case does not show

that Whole Foods changed its prices in any significant way in

response to exit from an area by Wild Oats. In the four cases

where Wild Oats exited and a Whole Foods store remained,

there is no evidence in the record that Whole Foods then

raised prices. Nor was there any evidence of price increases

after Whole Foods took over two Wild Oats stores.

The facts here contrast starkly with Staples, where

Staples charged significantly different prices based on the

presence or absence of office-superstore competitors in a

particular area. The evidence there showed that Staples

charged prices 13 percent higher in markets without office-

superstore competitors than in markets with such competitors.

There is nothing remotely like that in this case.

In the absence of any evidence in the record that Whole

Foods was able to (or did) set higher prices when Wild Oats

exited or was absent, the District Court correctly concluded

that Whole Foods competes in a market composed of all

supermarkets, meaning that “all supermarkets” is the relevant

product market and that the Whole Foods-Wild Oats merger

will not substantially lessen competition in that product

market.

7

In addition to the all-but-dispositive price evidence,2 the

District Court identified other factors further demonstrating

that the relevant market consists of all supermarkets.

The record shows that Whole Foods makes site selection

decisions based on all supermarkets and checks prices against

all supermarkets, not only so-called organic supermarkets. As

Dr. Scheffman concluded, Whole Foods “price checks a broad

set of competitors . . . nationally, regionally and locally.” Id.

¶ 224, at 86. This “demonstrates that [Whole Foods] views

itself as competing with a broad range of supermarkets and

that these supermarkets, in fact, constrain the prices charged

by [Whole Foods].” Id. Those other supermarkets include

conventional supermarkets such as Safeway, Albertson’s,

Wegman’s, HEB, and Harris Teeter, as well as so-called

organic supermarkets like Wild Oats. Id. ¶¶ 225-26, at 86-87.

As Professors Areeda and Hovenkamp have explained, a

“broad-market finding gains some support from long-standing

documents indicating that A or B producers regard the other

product as a close competitor.” 2B AREEDA & HOVENKAMP,

ANTITRUST LAW ¶ 562a, at 372. The point here is simple:

Whole Foods would not examine the locations of and price

check conventional grocery stores if it were not a competitor

of those stores. Whole Foods does not price check Sports

Authority; Whole Foods does price check Safeway.

The record also demonstrates that conventional

supermarkets and so-called organic supermarkets are

aggressively competing to attract customers from one another.

After reviewing a wide variety of industry information and

2

Judge Tatel’s opinion disparages the evidence about Whole

Foods’s prices, calling it “all-but-meaningless” and implicitly

suggesting that Whole Foods manipulated its prices just for the

expert study. Tatel Op. at 11. But Judge Tatel offers no evidence

for that suggestion.

8

trade journals, Dr. Scheffman concluded that “‘[o]ther’

supermarkets are competing vigorously for the purchases

made by shoppers at [Whole Foods] and [Wild Oats].”

Scheffman Expert Report ¶ 212, at 77. Whole Foods

“recognizes the fact that it has to appeal to a significantly

broader group of consumers than organic and natural focused

consumers.” Id. ¶ 279, at 108. The record shows that Whole

Foods has made progress: Most products that Whole Foods

sells are not organic. Conversely, conventional supermarkets

have shifted towards “emphasizing fresh, ‘natural’ and

organic” products. Id. ¶ 215, at 80. “[M]ost of the major

chains and others are expanding into private label organic and

natural products.” Id. ¶ 220, at 85; see also id. ¶ 219, at 83-85

(listing changes in other supermarkets).

So the dividing line between “organic” and conventional

supermarkets has blurred. As the District Court aptly put it,

the “train has already left the station.” Whole Foods, 502 F.

Supp. 2d at 48. The convergence undermines the threshold

premise of the FTC’s case. This is an industry in transition,

and Whole Foods has pioneered a product differentiation that

in turn has caused other supermarket chains to update their

offerings. These are not separate product markets; this is a

market where all supermarkets including so-called organic

supermarkets are clawing tooth and nail to differentiate

themselves, beat the competition, and make money.

The District Court’s summary of the evidence warrants

extensive quotation:

In sum, while all supermarket retailers, including

Whole Foods, attempt to differentiate themselves in some

way in order to attract customers, they nevertheless

compete, and compete vigorously, with each other. The

evidence before the Court demonstrates that conventional

9

or more traditional supermarkets today compete for the

customers who shop at Whole Foods and Wild Oats,

particularly the large number of cross-shopping

customers – or customers at the margin – with a growing

interest in natural and organic foods. Post-merger, all of

these competing alternatives will remain. Based upon the

evidence presented, the Court concludes that many

customers could and would readily shift more of their

purchases to any of the increasingly available substitute

sources of natural and organic foods. The Court

therefore concludes that the FTC has not met its burden

to prove that “premium natural and organic

supermarkets” is the relevant product market in this case

for antitrust purposes.

Id. at 36.3

II

In an attempt to save its merger case despite its inability

to meet the test reflected in the Merger Guidelines and applied

in Staples, the FTC cites marginally relevant evidence and

advances a scattershot of flawed arguments.

First, the FTC says that so-called organic supermarkets

like Whole Foods and Wild Oats constitute their own product

3

A showing that the merged entity would possess market

concentration in a defined product market is necessary but not

sufficient to establish an antitrust violation. See United States v.

Baker Hughes Inc., 908 F.2d 981, 985 (D.C. Cir. 1990) (listing

factors that might militate against finding an antitrust violation,

even assuming market concentration exists). I need not address the

other necessary components of the FTC’s case, however, because

the FTC has not satisfied the threshold requirement of showing that

the merged entity would have such market concentration.

10

market because they are characterized by factors that

differentiate them from conventional supermarkets. Those

factors include intangible qualities such as customer service

and tangible factors such as a focus on perishables.

This argument reflects the key error that permeates the

FTC’s approach to this case. Those factors demonstrate only

product differentiation, and product differentiation does not

mean different product markets. “For antitrust purposes, we

apply the differentiated label to products that are

distinguishable in the minds of buyers but not so different as

to belong in separate markets.” 2B PHILLIP E. AREEDA &

HERBERT HOVENKAMP, ANTITRUST LAW ¶ 563a, at 385 (3d

ed. 2007). As the District Court noted, supermarkets

including so-called organic supermarkets differentiate

themselves by emphasizing specific benefits or characteristics

to attract customers to their stores. See FTC v. Whole Foods

Mkt., Inc., 502 F. Supp. 2d 1, 24-26 (D.D.C. 2007). They

may differentiate themselves along dimensions such as “low

price, ethnic appeal, prepared foods, health and nutrition,

variety within a product category, customer service, or

perishables such as meats or produce.” Stanton Expert Report

¶ 23, at 6.

The key to distinguishing product differentiation from

separate product markets lies in price information. As

Professors Areeda and Hovenkamp have stated, differentiated

sellers “generally compete with one another sufficiently” that

the prices of one are “greatly constrained” by the prices of

others. 2B AREEDA & HOVENKAMP, ANTITRUST LAW ¶ 563a,

at 384. To distinguish differentiation from separate product

markets, courts thus must “ask whether one seller could

maximize profit” by charging “more than the competitive

price” without “losing too much patronage to other sellers.”

Id. ¶ 563a, at 385. Here, in other words, could so-called

11

organic supermarkets maximize profit by charging more than

a competitive price without losing too much patronage to

conventional supermarkets? Based on the evidence regarding

Whole Foods’s pricing practices, the District Court correctly

found that the answer to that question is no. So-called organic

supermarkets are engaged in product differentiation; they do

not constitute a product market separate from all

supermarkets.

Second, the FTC points to internal Whole Foods studies

and other evidence showing that if a Wild Oats near a Whole

Foods were to close, most of the Wild Oats customers would

shift to Whole Foods. But that says nothing about whether

Whole Foods could impose a five percent or more price

increase and still retain those customers (and its other

customers), which is the relevant antitrust question. In other

words, the fact that many Wild Oats customers would shift to

Whole Foods does not mean that those customers would stay

with Whole Foods, as opposed to shifting to conventional

supermarkets, if Whole Foods significantly raised its prices.

And even if one could infer that all of those former Wild Oats

customers would so prefer Whole Foods that they would shop

there even in the face of significant price increases, that

would not show whether Whole Foods could raise prices

without driving out a sufficient number of other customers as

to make the price increases unprofitable. In sum, this

argument is a diversion from the economic analysis that must

be conducted in antitrust cases like this. The District Court

properly found that the expert evidence in the record leads to

the conclusion that Whole Foods could not profitably impose

such a significant price increase.4

4

According to Judge Tatel’s opinion, the FTC’s expert

purported to say that Whole Foods could impose a five percent or

greater price increase because of the number of Wild Oats

12

Third, the FTC cites comments by Whole Foods CEO

John Mackey as evidence that Whole Foods perceived Wild

Oats to be a unique competitor. Even if Mackey’s comments

were directed only to Wild Oats, that would not be evidence

that Whole Foods and Wild Oats are in their own product

market separate from all other supermarkets. It just as readily

suggests that Whole Foods and Wild Oats are two

supermarkets that have similarly differentiated themselves

from the rest of the market, such that Mackey would be

especially pleased to see that competitor vanish. Beating the

competition from similarly differentiated competitors in a

product market is ordinarily an entirely permissible

competitive goal. Saying as much, as Mackey did here, does

not mean that the similarly differentiated competitor is the

only relevant competition in the marketplace. Moreover,

Mackey nowhere says that the merger would allow Whole

Foods to significantly raise prices, which of course is the

issue here. In any event, intent is not an element of a § 7

claim, and a CEO’s bravado with regard to one rival cannot

customers who would switch to Whole Foods rather than

conventional supermarkets. Tatel Op. at 6 (citing Rebuttal Expert

Report of Kevin M. Murphy ¶ 32 (July 13, 2007)). But that

ambiguous statement constituted a single, unexplained sentence in

the middle of a lengthy report. Moreover, the expert apparently

based his conclusion entirely on the so-called “Project Goldmine”

analysis of diversion ratios associated with store closures – that is,

of the number of Wild Oats customers who would switch to Whole

Foods in the event that a Wild Oats store closes and Whole Foods

prices remain constant. As the expert himself appeared to

acknowledge, see Murphy Report ¶ 32 (noting that “marginal and

average diversion ratios could be different”), the data do not

necessarily shed any light on how many customers would continue

to shop at a merged Wild Oats-and-Whole Foods entity in the event

that the entity uniformly increased prices. All of this no doubt

explains why the FTC never even mentioned this aspect of its

expert’s report in the argument section of its opening brief.

13

alter the laws of economics: Mere boasts cannot vanquish

real-world competition – here, from Safeway, Albertson’s,

and the like. As Judge Easterbrook has explained, “Firms

need not like their competitors; they need not cheer them on

to success; a desire to extinguish one’s rivals is entirely

consistent with, often is the motive behind, competition.”

A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d

1396, 1402 (7th Cir. 1989). And “[i]f courts use the vigorous,

nasty pursuit of sales as evidence of a forbidden ‘intent’, they

run the risk of penalizing the motive forces of competition.”

Id. “Intent does not help to separate competition from

attempted monopolization . . . .” Id.

Fourth, the FTC says that a study by its expert, Dr.

Murphy, demonstrates that Whole Foods’s profit margins

decreased in geographic areas where it competed against Wild

Oats. But the relevant inquiry under the Merger Guidelines is

prices. And Dr. Murphy did not determine whether Whole

Foods prices ever differed as a result of competition from

Wild Oats.

Moreover, there was only a slight difference between

Whole Foods margins when Wild Oats was in the same area

and when it was not. The overall difference was 0.7 percent,

which Dr. Murphy himself recognized was not statistically

significant. The FTC’s evidence on margins is wafer-thin and

does not suffice to show that organic stores constitute their

own product market.

Fifth, the FTC points to evidence that Whole Foods’s

entry into a particular area, unlike the entry of conventional

supermarkets, caused Wild Oats to lower its prices. Dr.

Murphy’s reliance on Wild Oats’s reaction to Whole Foods’s

entry is questionable. Dr. Murphy based his entire analysis on

a meager two events, hardly a large sample size. In addition,

14

Dr. Murphy’s analysis did not control for the reaction of

conventional supermarkets to Whole Foods’s entry. In other

words, he assumed that the relevant product market was so-

called organic supermarkets (the point he was trying to prove)

and therefore assumed that all changes in Wild Oats’s prices

were directly caused by Whole Foods’s entry. But if

conventional supermarkets also lowered prices to compete

with Whole Foods when Whole Foods entered, Wild Oats’s

price decreases may well have been due to the overall

reduction in prices by all supermarkets in the area. If that

were true, the relevant product market would obviously be all

supermarkets, not just so-called organic supermarkets. Dr.

Murphy’s analysis never confronted that possibility or the

complexity of how competition works in this market; his

analysis appears to have assumed the conclusion and reasoned

backwards from there.

Moreover, the fact that Whole Foods and Wild Oats went

toe-to-toe on occasion does not mean that they did not also go

toe-to-toe with conventional supermarkets, which is the key

question. And it is revealing that despite having access to the

necessary data for six such events, Dr. Murphy did not

analyze the effect of a Wild Oats exit on Whole Foods’s

prices. As Dr. Scheffman wrote: “A number of [Wild Oats]

stores have closed . . . . [Dr. Murphy] has done no analysis to

assess the effects of those store exits in the local shopping

areas. . . . This is a curious omission, since such evidence, if

reliable and reliably analyzed, would be relevant to the issue

of what happens in local market areas in which a [Wild Oats]

store closes.” Scheffman Rebuttal ¶ 63, at 21.

The bottom line is that, as the District Court found, there

is no evidence in the record suggesting that Whole Foods

priced differently based on the presence or absence of a Wild

Oats store in the area. That is a conspicuous – and all but

15

dispositive – omission in Dr. Murphy’s analysis and in the

FTC’s case.

Sixth, the FTC cites the openings of three Earth Fare

stores near Whole Foods stores in North Carolina, which

caused decreases in Whole Foods’s prices in those areas. But

soon after those entries, Whole Foods’s prices returned to

normal levels. So the record hardly shows the sort of

“nontransitory” price changes that are the touchstone of

product-market definition. See Merger Guidelines § 1.11. A

price increase ordinarily must last “for the foreseeable

future,” id., considered by some to be more than a year, to

qualify as “nontransitory.” See 2B AREEDA & HOVENKAMP,

ANTITRUST LAW ¶ 537a, at 290. Moreover, the entry of a

Safeway store in Boulder, Colorado, had a similar short-term

impact on Whole Foods, indicating that whatever inference

should be drawn from the Earth Fare entries cannot be limited

to so-called organic supermarkets but rather applies to

conventional supermarkets.

The FTC’s reference to Earth Fare mistakenly focuses on

a few isolated trees instead of the very large forest indicating

a competitive market consisting of all supermarkets. In short,

I fail to see how Whole Foods’s temporary price changes to

compete against three Earth Fare stores in North Carolina

could possibly be a hook to block this nationwide merger of

Whole Foods and Wild Oats.

III

A

The opinions of Judge Brown and Judge Tatel rest on two

legal points with which I respectfully but strongly disagree.

16

First, the Court’s decision resuscitates the loose antitrust

standards of Brown Shoe Co. v. United States, 370 U.S. 294

(1962), the 1960s-era relic. See, e.g., Brown Op. at 16 (“We

look to the Brown Shoe indicia . . . .”); Tatel Op. at 9 (“Brown

Shoe lists ‘distinct prices’ as only one of a non-exhaustive list

of seven ‘practical indicia’ that may be examined to

determine whether a separate market exists.”) (citation

omitted). This is a problem because Brown Shoe’s brand of

free-wheeling antitrust analysis has not stood the test of time.

See, e.g., EINER ELHAUGE & DAMIEN GERADIN, GLOBAL

ANTITRUST LAW AND ECONOMICS 874 (2007) (“Modern

practice takes a much more rigorous approach to market

definition [than Brown Shoe]”); 4 PHILLIP E. AREEDA &

HERBERT HOVENKAMP, ANTITRUST LAW ¶ 913a, at 62 (2d ed.

2006) (“One alternative that we do not recommend is a return

to Brown Shoe’s language of ‘submarkets’”).

As demonstrated in this Court’s most recent merger case,

the practical indicia test of Brown Shoe no longer guides

courts’ merger analyses because it does not sufficiently

account for the basic economic principles that, according to

the Supreme Court, must be considered under modern

antitrust doctrine. See FTC v. H.J. Heinz Co., 246 F.3d 708,

715-16 (D.C. Cir. 2001) (not applying Brown Shoe practical

indicia test; instead using the economically grounded

Herfindahl-Hirschman Index test for market definition

employed in FTC v. Staples, Inc., 970 F. Supp. 1066 (D.D.C.

1997)); cf. Leegin Creative Leather Prods. v. PSKS, Inc., 127

S. Ct. 2705, 2718 (2007) (“the antitrust laws are designed

primarily to protect interbrand competition”); State Oil Co. v.

Khan, 522 U.S. 3, 14 (1997) (“Our analysis is also guided by

our general view that the primary purpose of the antitrust laws

is to protect interbrand competition.”); Hosp. Corp. of Am. v.

FTC, 807 F.2d 1381, 1386 (7th Cir. 1986) (Posner, J.) (noting

the “most important developments that cast doubt on the

17

continued vitality of such cases as Brown Shoe”). Judge Bork

forcefully catalogued the flaws in the Brown Shoe approach

30 years ago in his landmark antitrust book; indeed, his

cogent critique helped usher Brown Shoe and several other

cases to the jurisprudential sidelines. See ROBERT H. BORK,

THE ANTITRUST PARADOX 210, 216 (1978) (“It would be

overhasty to say that the Brown Shoe opinion is the worst

antitrust essay ever written. . . . Still, all things considered,

Brown Shoe has considerable claim to the title. . . . Brown

Shoe was a disaster for rational, consumer-oriented merger

policy.”); George L. Priest, The Abiding Influence of The

Antitrust Paradox, 31 HARV. J.L. & PUB. POL’Y 455, 459

(2008) (praising Judge Bork’s criticism of the “now

notorious, though then mainstream” Brown Shoe opinion).

The Court’s revival of the loose Brown Shoe standard

threatens to reverse this trend and to upend modern merger

practice.5

Second, the opinions of Judge Brown and Judge Tatel

both dilute the standard for preliminary injunction relief in

antitrust merger cases, such that the FTC apparently need not

establish a “likelihood of success on the merits.” Heinz, 246

5

As two antitrust commentators perceptively stated: “The

basic problem with the FTC’s position in Whole Foods was that it

lacked the pricing evidence it had in Staples, which showed that

customers did not go elsewhere if the office superstores increased

their prices. Whole Foods is an attempt by the FTC to persuade a

court that if you take a CEO’s statements about a merger and stir it

in with evidence showing the existence of several ‘practical indicia’

from Brown Shoe, the resulting mixture should trump objective

evidence about how customers would react in the event of a price

increase.” Carlton Varner & Heather Cooper, Product Markets in

Merger Cases: The Whole Foods Decision (Oct. 2007),

www.antitrustsource.com.

18

F.3d at 714. In particular, Judge Brown and Judge Tatel rely

heavily on their belief that: “In this circuit, the standard for

likelihood of success on the merits is met if the FTC has

raised questions going to the merits so serious, substantial,

difficult and doubtful as to make them fair ground for

thorough investigation, study, deliberation and determination

by the FTC in the first instance and ultimately by the Court of

Appeals.” Tatel Op. at 2 (internal quotations and citations

omitted); see also id. at 10, 12; Brown Op. at 8 (indicating

that “the FTC will usually be able to obtain a preliminary

injunction blocking a merger” by satisfying the same test).

In applying this watered-down test for issuing a

preliminary injunction in FTC merger cases, Judge Brown

and Judge Tatel rely on language contained in our opinion in

Heinz. However, Heinz only assumed this particular gloss on

the “likelihood of success on the merits” requirement for

preliminary injunctions based on a concession in the case.

See Heinz, 246 F.3d at 715 (D.C. Cir. 2001) (“This specific

standard was articulated by the court below, and it is a

standard to which the appellees have not objected.”) (citation

omitted). Heinz did not hold that this gloss was the proper

meaning of 15 U.S.C. § 53(b) in FTC preliminary injunction

merger cases.6

6

The gloss on § 53(b) appears to have arisen originally in

other circuits around the middle of the 20th century in connection

with a more general view that a lighter “likelihood of success”

standard is appropriate whenever the balance of equities weighs

strongly in favor of issuing an injunction. Compare FTC v.

Beatrice Foods Co., 587 F.2d 1225, 1229 (D.C. Cir. 1978)

(Appendix to Statement of MacKinnon & Robb, JJ.) (citing

Hamilton Watch Co. v. Benrus Watch Co., 206 F.2d 738, 740 (2d

Cir. 1953) (which noted in the FTC merger context that “if the

other elements are present (i.e., the balance of hardships tips

decidedly toward plaintiff), it will ordinarily be enough that the

19

This “serious questions” standard is inconsistent with the

relevant statutory text. The statute unambiguously requires

that courts consider “the Commission’s likelihood of ultimate

success” when the FTC seeks to preliminarily enjoin a

merger. 15 U.S.C. § 53(b).7

plaintiff has raised questions going to the merits so serious . . . .”)),

with Omar v. Harvey, 416 F. Supp. 2d 19, 28 (D.D.C. 2006) (citing

Washington Metro. Area Transit Comm’n v. Holiday Tours, 559

F.2d 841, 842-44 & n.1 (D.C. Cir. 1977) (which noted outside the

FTC merger context that courts may generally apply the relatively

lax “serious questions” approach only “when confronted with a case

in which the other three [preliminary injunction] factors strongly

favor interim relief”)). But as explained below in footnote 7,

Congress in 1973 codified a preliminary injunction standard for

FTC merger cases that specifically directs courts to consider the

Commission’s “likelihood of ultimate success.” 15 U.S.C. § 53(b).

And as explained in the text, the Supreme Court recently repudiated

the “serious questions” approach to preliminary injunctions in

general by requiring a likelihood of success showing in all cases,

regardless of whether the balance of equities weighs in favor of the

injunction. See Munaf v. Geren, 128 S. Ct. 2207, 2219 (2008).

7

In justifying his adoption of the “serious questions” test for

likelihood of success, Judge Tatel highlights the “unique ‘public

interest’ standard in 15 U.S.C. § 53(b).” Tatel Op. at 3 (citing FTC

v. Exxon Corp., 636 F.2d 1336, 1343 (D.C. Cir. 1980)); see also id.

at 3. But the statute explicitly preserves the traditional likelihood

of success requirement. See § 53(b) (“Commission’s likelihood of

ultimate success”). What makes § 53’s standard for preliminary

injunctions “unique,” as we have explained, is that the FTC need

not show irreparable harm and, secondarily, that private equities are

subordinated to public equities. See FTC v. Weyerhaeuser Co., 665

F.2d 1072, 1081-83 (D.C. Cir. 1981) (“The case law Congress

codified removes irreparable damage as an essential element of the

preliminary injunction proponent’s case and permits the judge to

presume from a likelihood of success showing that the public

interest will be served by interim relief.”); see also Heinz, 246 F.3d

at 727 n.25; Exxon Corp., 636 F.2d at 1343. Far from reading the

20

There is a significant difference, moreover, between the

relaxed “serious questions” standard applied by Judge Brown

and Judge Tatel and the traditional likelihood of success

standard – as the Supreme Court explained just a few months

ago in Munaf v. Geren, 128 S. Ct. 2207 (2008), rev’g sub

nom. Omar v. Harvey, 479 F.3d 1 (D.C. Cir. 2007). To be

sure, that case did not involve a merger; but the Supreme

Court there did address the general likelihood-of-success

preliminary injunction standard – the same standard that is

expressly articulated in 15 U.S.C. § 53(b). The District Court

in the Omar litigation – like Judge Brown and Judge Tatel

here – had concluded that a preliminary injunction was

justified because the case presented questions “so serious,

substantial, difficult and doubtful, as to make them fair

ground for litigation and thus for more deliberative

investigation.” Omar v. Harvey, 416 F. Supp. 2d 19, 23-24

(D.D.C. 2006) (citation omitted). This Court then affirmed

the District Court’s preliminary injunction. See Omar v.

Harvey, 479 F.3d 1, 11 (D.C. Cir. 2007) (concluding that the

Court “need not address” the merits of petitioner’s claims).

But the Supreme Court unanimously rejected that lesser

“serious questions” standard as too weak and not equivalent

to the “likelihood of success” necessary for a preliminary

injunction to issue. See Munaf, 128 S. Ct. at 2219 (“We begin

with the basics. . . . [A] party seeking a preliminary

injunction must demonstrate, among other things, ‘a

likelihood of success on the merits.’”) (citations omitted); see

also Winter v. NRDC, 2008 WL 4862464 at *9 (Nov. 12,

“likelihood of ultimate success” language out of the statute, we

have recognized that the statutory phrase “weighing the equities

and considering the likelihood of ultimate success” was specifically

added by the Conference Committee and that this “deliberate

addition” should not “be brushed aside as essentially repetitive or

meaningless.” Weyerhaeuser, 665 F.2d at 1081.

21

2008) (“A plaintiff seeking a preliminary injunction must

establish that he is likely to succeed on the merits”) (citing

Munaf, 128 S. Ct. at 2218-19). And the Supreme Court

directly criticized the approach of the District Court and this

Court in the Omar litigation: “one searches the opinions

below in vain for any mention of a likelihood of success as to

the merits.” Munaf, 128 S. Ct. at 2219.

The Court in this case repeats the same mistake made in

Omar of watering down the preliminary injunction standard.

Both Judge Brown and Judge Tatel approve the FTC’s request

for preliminary injunction without making the essential

“likelihood of success” finding that is required by the

statutory text and Supreme Court precedent. See Brown Op.

at 8, 20; Tatel Op. at 1-3, 15-16. To the extent the “serious

questions” standard they apply was ever appropriate for

preliminary injunction merger cases, the combination of the

clear statutory text in 15 U.S.C. § 53(b) and the Supreme

Court decision in Munaf convincingly demonstrates that it is

not the proper standard now.

In short, the approach of Judge Brown and Judge Tatel

revives the moribund Brown Shoe practical indicia test and

applies an overly lax preliminary injunction standard for

merger cases. I respectfully disagree on both counts. In my

judgment, the FTC may obtain a preliminary injunction only

by establishing a likelihood of success – namely, a likelihood

that, among other things, the merged entity would possess

market power and could profitably impose a significant and

nontransitory price increase.8

8

The precedential effect of today’s splintered decision is

muddied somewhat by the fact that Judge Brown and Judge Tatel

have issued individual opinions concurring in the judgment. That

said, it is of course well-settled that the mere fact that there is no

majority opinion does not mean that the decision constitutes no

22

precedent for future cases. This happens quite frequently with

splintered Supreme Court decisions where there is no majority

opinion. As the Supreme Court has repeatedly explained, in the

vast majority of cases without a majority opinion there is still a

binding holding of the Court – even if it can occasionally be

difficult to determine. This is known as the Marks principle. See

Marks v. United States, 430 U.S. 188, 193 (1977); King v. Palmer,

950 F.2d 771, 783 (D.C. Cir. 1991) (en banc) (“implicit agreement”

between judges can produce a “controlling” principle of law); see

generally Planned Parenthood of Southeastern Pennsylvania v.

Casey, 947 F.2d 682, 691-97 (3d Cir. 1991). Like the Supreme

Court, this Court has routinely recognized that a decision without a

majority opinion usually still constitutes a binding precedent. See,

e.g., In re Navy Chaplaincy, 534 F.3d 756, 759 n.2 (D.C. Cir. 2008)

(construing Hein v. Freedom From Religion Foundation, 127 S. Ct.

2553 (2007)); Shurberg Broadcasting of Hartford, Inc. v. FCC, 876

F.2d 902, 910 (D.C. Cir. 1989) (“a lower federal court must do its

level best to extract the holding that commanded a majority in each

case to arrive at the governing principles and limitations”), rev’d on

other grounds sub nom. Metro Broad., Inc. v. FCC, 497 U.S. 547

(1990); Martin v. Malhoyt, 830 F.2d 237, 247 n.28 (D.C. Cir. 1987)

(citing Marks and noting that Justice Black’s concurrence in Barr v.

Matteo, 360 U.S. 564 (1959), “provides the ‘narrowest grounds’ for

the Court’s disposition of the case and thus constitutes the Court’s

holding”). Only in very rare cases do the opinions making up a

majority of a court contain no common principles or common

ground on which to derive any precedential holding of the court.

See Nichols v. United States, 511 U.S. 738, 743-46 (1994)

(construing Baldasar v. Illinois, 446 U.S. 222 (1980)); King, 950

F.2d at 782-85.

It is unclear whether district courts and future courts of appeals

will construe this case as one of those rare situations that falls

entirely outside the Marks rule. At a minimum, this confused

decision will invite years of uncertainty and litigation over what the

holding of this case is – a separate but important problem with the

Court’s approach.

23

B

In reaching her conclusion, Judge Brown also relies on a

distinction between marginal consumers and core consumers.

See, e.g., Brown Op. at 19 (“In sum, the district court believed

the antitrust laws are addressed only to marginal consumers.

This was an error of law, because in some situations core

consumers, demanding exclusively a particular product or

package of products, distinguish a submarket.”). But the FTC

never once referred to, much less relied on, the distinction

between marginal and core consumers in 86 pages of briefing

or at oral argument. The terms “marginal consumer” and

“core consumer” are nowhere to be found in its briefs.

In any event, I respectfully disagree with Judge Brown’s

emphasis on core customers. For a business to exert market

power as a result of a merger, it must be able to increase

prices (usually by five percent or more) while retaining

enough customers to make that price increase profitable. See

2B PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST

LAW ¶ 501, at 109 (3d ed. 2007) (“A defendant firm has

market power if it can raise price without a total loss of

sales.”). If too many “marginal” customers are turned off by

a price hike, then the hike will be unprofitable even if a large

group of die-hard “core” customers remain active clients.

Therefore, a focus on core customers alone cannot resolve a

merger case. The question here is whether Whole Foods

could increase prices by five percent or more without losing

so many marginal customers as to make the price increase

unprofitable. See id. ¶ 536, at 284. As discussed above, the

FTC has not come close to making that showing. Moreover,

there is no support in the law for that singular focus on the

core customer. Indeed, if that approach took root, it would

have serious repercussions because virtually every merger

involves some core customers who would stick with the

24

company regardless of a significant price increase. So under

this “core customer” approach, many heretofore permissible

mergers presumably could be blocked as anticompetitive.

That cannot be the law, and it is not the law.

In a related vein, Judge Brown repeatedly suggests that

Whole Foods and Wild Oats engage in “price discrimination”

– more specifically, Judge Brown asserts that organic

supermarkets “discriminate on price between their core and

marginal customers, thus treating the former as a distinct

market.” Brown Op. at 17, 19. But this assertion has no

factual support in the record. For antitrust purposes, price

discrimination normally involves one seller charging different

prices to different customers for the same product. See 2B

PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST

LAW ¶ 517a (noting as an indication of market power

“systematic price discrimination, as when a seller can identify

two (or more) groups of customers with different demands

and charge each group different prices even though its cost of

serving each group is the same”). If there is price

discrimination in an industry, then under certain

circumstances a relevant market may be defined to include

only those customers who pay the higher price. See

Horizontal Merger Guidelines § 1.12. In this case, however,

neither Judge Brown nor the FTC has pointed to any evidence

suggesting either that price discrimination occurred before

this merger or that the merged entity will be able to price-

discriminate. In other words, there is no reason to think that

“core” as opposed to non-core customers ever pay higher

prices for the same products in organic supermarkets.

IV

In the end, the FTC’s case is weak and seems a relic of a

bygone era when antitrust law was divorced from basic

25

economic principles. The record does not show that Whole

Foods priced differently based on the presence or absence of

Wild Oats in the same area. The reason for that and the

conclusion that follows from that are the same: Whole Foods

competes in an extraordinarily competitive market that

includes all supermarkets, not just so-called organic

supermarkets. The merged entity thus could not exercise

market power such that it could profitably impose a

significant and nontransitory price increase. Therefore, there

is no sound legal basis to block this merger.

The issues presented in this case are important to antitrust

regulators and practitioners, to potentially merging

companies, and ultimately to the overall economy. The

splintered panel opinions will create enormous uncertainty,

debate, and litigation over the meaning and effect of this

decision. And to the extent common principles and holdings

are derived from the opinions of Judge Brown and Judge

Tatel, those principles will authorize the FTC to obtain

preliminary injunctions and block mergers based on a

watered-down preliminary injunction standard and without

sufficient regard for the economic principles that have

undergirded modern antitrust law. That will give the FTC far

greater power to block mergers than the statutory text or

Supreme Court precedents permit.

***

I respectfully dissent.