WASHINGTON — Whole Foods Market's ongoing tangle with the Federal Trade Commission flared up again last week when the retailer filed a complaint in U.S. District Court seeking to bar the agency from holding an administrative trial on the legality of Whole Foods' acquisition of Wild Oats.
In a press conference announcing the lawsuit, as well as an effort to rally Congress for FTC reform, John Mackey, chief executive officer of Whole Foods, ripped the agency for what he called “ridiculous” claims of Whole Foods gaining monopoly power as a result of the acquisition, and for denying the company rights by prejudging the case it is to hear.
“There's only one place where Whole Foods has a monopoly, and that's in the minds of the lawyers for the Federal Trade Commission,” said Mackey, adding that the FTC was acting as if it had a “vendetta” against the company.
The dispute between the retailer and federal regulators dates back to Whole Foods' 2007 acquisition of rival Wild Oats. Although antitrust regulators initially said the deal would cause a monopoly, federal judges later allowed it to go forward. The FTC subsequently won an appeal, and has planned a procedural hearing — what lawyers called a “mini-trial” — on the legality of the case in February.
This, Whole Foods charges in its lawsuit, violates the retailer's right to due process since the FTC would be reviewing the same evidence it used in having previously declared the merger anticompetitive. It also constitutes a “rush to trial” that forces Whole Foods to defend itself in 29 separate geographic jurisdictions with only a few months to prepare, court papers said.
Under FTC procedures, the losing party in an administrative trial would appeal the decision to FTC administrators themselves. Mackey last week spoke as if Whole Foods was resigned to losing in both cases.
“After we lose in the administrative procedure and after we lose to the commissioners, then and only then would we appeal to the federal court system,” he said. “Why don't we just cut the charade and go right to the federal court system? That's the only place Whole Foods will get fairness and justice.
“This is about intimidation and bullying and trying to get us to cave in and make for a settlement that is very unfavorable to us,” Mackey added. “This is about an abuse of regulatory power, and it is an abuse of Whole Foods Market's due process rights.”
The FTC declined comment on the lawsuit.
Antitrust lawyers contacted by SN last week said that while Whole Foods' complaint may spark debate about the FTC's procedures, they were skeptical of its ultimate success.
Steven Newborn, head of the antitrust practice at the Washington law firm Weil Gotshal, told SN that Whole Foods was “in no worse a situation than any company” facing review of a merger. The agency, he added, was set up specifically to handle cases like this, including “unscrambling the eggs” as a remedy, if necessary.
Peter Love, a partner specializing in antitrust practice at Jones Day, agreed, saying the FTC is only following typical procedure in a case where it felt there was a potential for unlawful competition under the Clayton Act. Whole Foods' lawsuit, he added, was “extremely unlikely to be successful,” in his opinion.
“Winning the appeal was vindication for [the FTC], which means there probably is real potential violation of law here,” Love said. “From the FTC's perspective, that's a good grounds to proceed to administrative litigation. The suggestion that this is some kind of vendetta is overstated.”
Whole Foods' complaint calls for the court to issue an injunction barring the FTC from holding the trial, and from reviewing the case, although it would still be free to re-file the case in District Court. Mackey argued the retailer would get a fair trial in federal courts, not in the FTC.
“Let the federal court system decide whether Whole Foods needs to be broken up. Because that is exactly what the FTC wants to do. They think we're the Standard Oil of the 21st century,” Mackey said. “If that's what the FTC wants to do, let's do it, but in a federal court, not a kangaroo court. Because that's all the justice we're going to get from the FTC.”
Mackey last week joined members of Whole Foods as they argued for FTC reform to various members of Congress. He added that the chain's recent struggles should indicate flaws in the FTC's conclusions.
“They've made up an imaginary market called PNOS [premium natural and organic stores] that nobody has ever used, and it only includes companies like us, so of course we're a monopoly,” Mackey said. “But how can a monopolist have negative same-store sales? Are people going to starve now? The whole thing is ridiculous. Everybody knows it's ridiculous.”