Staples/Office Depot, Round 2

Amazon, printer ink and the importance of market definition

It seemed as though the ink had barely dried on the Federal Trade Commission’s 2013 statement closing its investigation of the Office Depot/OfficeMax merger when rumours began to swirl that Staples would try to acquire Office Depot. Office Depot and OfficeMax had been the second- and third-largest office supplies vendors in the country when they merged in 2013. They argued, among other things, that a merger was necessary to allow them better to compete with Staples, the largest office supplies vendor. And the FTC credited the competitive presence of Staples as a factor in its decision not to challenge their merger.

In September 2014, however, a Credit Suisse report suggested that Staples and Office Depot should merge. By December that year, press reports indicated that activist investor Starboard, a long-time investor in Office Depot, had taken a position in Staples and was pushing for a merger. When Staples and Office Depot announced the transaction in early 2015, they reported they had been in talks since September, around the time of the investor report. Reports at the time suggested Office Depot had considered a merger with Staples even earlier.

The merger talks were, perhaps, inevitable. The 2013 statement made clear that the office supply superstore business had changed dramatically in the 16 years since the FTC successfully sued to block Staples and Office Depot from merging in 1997. At the time of the first challenge, the FTC successfully argued that office supply superstores had special attributes, including convenience to customers, and thus constituted a distinct market segment. The district court at that time found that reducing the number of office supply superstores from three to two, as the merger would have done, would damage competition and raise prices for those in need of office supplies. But the statement the FTC published when clearing Office Depot/OfficeMax highlighted two changes in the retail sale of office supplies since 1997. First, customers now relied more heavily on retailers other than office supply superstores, such as mass merchandisers like Walmart, for their office supplies. Second, there had been an explosive growth of online commerce.

The 2013 statement also noted that the FTC had decided against any challenge to the Office Depot/OfficeMax merger based on its potential to restrict competition in the sale of office supplies to businesses and other customers on a contract basis – a segment that had not been at issue in the 1997 case. The statement cited four reasons for this conclusion, including that contract customers had tools they could use to discipline their suppliers, and that suppliers of related products could leverage their existing relationships with contract customers to enter the office supplies market.

Staples and Office Depot would ultimately seize upon the 2013 statement – and particularly the discussion of the contract channel – in advocating for their second attempt to merge. When relying on the statement in their arguments, Staples and Office Depot tended to avoid mentioning the references to the presence of Staples as a key competitor, and to Office Depot and OfficeMax not being close rivals. Those points would prove to be key, and ultimately decisive, distinctions between the two deals.

Staples/Office Depot: the sequel

With weeks of chatter about a potential merger, it was hardly a surprise when Staples and Office Depot announced their transaction on 4 February 2015. Nor were the parties’ lawyers strangers to the industry. Jeff Perry of Weil, Gotshal & Manges, representing Staples, had been at the FTC overseeing the Office Depot/OfficeMax investigation. Matt Reilly, then with Simpson Thacher & Bartlett, repre­sented Office Depot in both transactions.

At the FTC, we quickly assembled a team. Kevin Hahm, lead lawyer in the Office Depot/OfficeMax investigation, had been promoted to deputy assistant director of the FTC’s Mergers IV Division. He worked with Alexis Gilman, the assistant director, to oversee the new investigation. Stelios Xenakis, an experienced staff lawyer, was the lead.

I tried (only partly in jest) to recruit Phill Broyles to the team. Before he retired at the end of 2015, Phill was the assistant director in charge of the Mergers III Division and, before that, one of the key members of the FTC team that opposed the 1997 Staples/Office Depot merger. In October 1997, Phill had been pictured, along with others, on the front page of The American Lawyer, in a cover story about the FTC’s successful suit to block the merger. But not even the prospect of a second cover feature could tempt Phill not to retire.

As with all its investigations, the FTC conducted the new Staples/Office Depot investigation on a non-public basis. The FTC makes no statements about the progress or direction of merger investigations, and what comes out in press reports is the result of statements or speculation by the companies or others that may or may not be accurate. In this case, there was relatively little press discussion of the investigation. Occasional articles suggested reasons the FTC might or might not challenge the transaction. And the shares of both companies took a notable dip when the FTC successfully blocked the Sysco/US Foods transaction in June 2015. But for the most part, the investigation proceeded uneventfully from the outside.

The FTC brings suit

When the FTC did speak, it did so unanimously with all four sitting commissioners voting to challenge the acquisition on 7 December 2015. While the FTC’s 1997 challenge had centered on retail sales, this time the commissioners found reason to believe that the merger would dramatically reduce competition for the sale of office supplies to large business customers. The contract channel that had warranted a discussion – but not a challenge – in the Office Depot/OfficeMax investigation was the central focus of the Staples/Office Depot lawsuit redux.

With litigation at hand, we had assembled an extensive courtroom team, joined by members of the FTC’s litigation group: Tara Reinhart, chief trial counsel, and Chuck Loughlin, then deputy and now chief trial counsel. Both were experienced private-sector litigators. As always, we were up against a formidable courtroom opponent. During the investigation, Diane Sullivan of Weil Gotshal had appeared at certain depositions and meetings, taking notes but rarely speaking. But with the FTC filing suit, she now took centre stage as Staples’ lead litigation counsel. Sullivan’s résumé made clear this would not be an ordinary antitrust litigation. She had significant jury trial experience and routinely spent her time on toxic tort and pharmaceutical injury cases. While our team could not match Sullivan’s stand-up trial experience, we hoped that our perseverance, and what we believed were the better facts, would prevail in the end.

Within hours of filing, we learned that Judge Emmet G Sullivan of the US District Court in Washington, DC (no relation), would hear our suit for a preliminary injunction. Judge Sullivan had been presiding over the DOJ’s challenge to the General Electric/Electrolux merger but, in a remarkable twist of timing, GE abandoned the transaction in the midst of trial on the morning of 7 December – the very day that the FTC voted to challenge Staples/Office Depot. With the GE/Electrolux trial over, space was cleared on Judge Sullivan’s docket, and he was randomly assigned the FTC’s Staples/Office Depot complaint.

We pored over the GE/Electrolux docket and reached out to members of the DOJ’s trial team to glean as much as we could about Judge Sullivan’s litigation practices and approach to hearing an antitrust merger case. We took to heart all procedural rulings and insights. But with GE abandoning before the end of trial, nobody could be sure how he would have ruled in GE/Electrolux. There was no roadmap for how he might approach the antitrust merits in our case.

The litigation is joined

From the beginning, the litigation was hard-fought. At an initial status conference on 8 December, Staples and Office Depot advised Judge Sullivan that his ruling on the FTC’s motion for a preliminary injunction would decide the fate of the merger. If he granted the motion, they would decline to pursue a full trial before an administrative judge at the FTC. To that end, defendants threw their energy into contesting the preliminary injunction case before Judge Sullivan with full vigour.

Discovery opened soon after the initial status conference, and proceeded at breakneck pace through the middle of March. Defendants pursued discovery on all fronts, ultimately issuing subpoenas to over 300 third parties and taking more than 40 depositions.

Defendants even sought to obtain the FTC staff’s internal notes and memoranda from interviewing third parties during the investigation. We argued that those materials were protected by both the work product and deliberative process privileges, and that defendants had ample ability to talk to, and take discovery from, their own customers and others in the industry. Defendants suggested they were not requiring us to disclose work product, but only the “facts” contained in our interview notes and memoranda (purportedly distinct from attorney impressions) and that, in any event, they had a significant need for such materials given the length of the FTC’s investigation and comparatively shorter period of discovery in the litigation.

In an early-round victory for the FTC, Judge Sullivan denied the defendants’ motion. The win was important for both the case at hand and for the FTC’s protection of its investigative process. In the case at hand, the defendants’ demand would have required that we turn over our notes and memoranda in full, or that we undertake a laborious and intractable effort to find non-privileged “facts” that could be teased out from hundreds of sets of notes and memoranda. More broadly, such a ruling would have been contrary to normal discovery practice between the agency and defendants, and could have been a significant blow to how the FTC carries out its investigations.

Another discovery skirmish would affect the hearing. During the investigation, the case team had collected declarations from customers and competitors, including Amazon Business, which had announced its intention to sell office supplies to businesses through its online marketplace some three months after Staples and Office Depot announced their merger. A key question in our investigation – and now in the ensuing litigation – was whether Amazon Business’s recent entry, and any potential expansion, would be timely, likely and sufficient to replace competition lost from the merger.

During the investigation, the case team had interviewed Prentis Wilson, the executive who oversaw Amazon Business. The team then worked with Amazon’s in-house counsel to prepare a declaration memorialising the facts learned during that interview and follow-up consultations. Both FTC staff and Amazon’s in-house counsel team prepared drafts of the declaration based on their recollections of the interview. Amazon’s in-house counsel later circulated a draft internally to Amazon Business executives with comments for consideration, including some based on the FTC’s questions.

Now in litigation, the FTC produced to defendants the initial draft declarations that FTC staff had drafted and shared with Amazon. And Amazon produced versions of its draft declarations, but with redactions of comment bubbles from Amazon’s in-house counsel. Amazon explained that the comment bubbles reflected in-house counsel’s communications with Amazon Business executives, which Amazon believed were privileged. Defendants nevertheless sought unredacted versions of the drafts, triggering another significant pre-hearing dispute.

Addressing the dispute, Judge Sullivan conducted an in-camera review of Amazon’s drafts, and called for a conference on the issue. At that conference, a protective order shielded Amazon’s comment bubbles on the drafts from public view. But the public nevertheless got a hint of their content. Judge Sullivan commented that Amazon’s declaration seemed like a “joint product” of the FTC and Amazon, and noted that some of the comment bubbles referred to FTC requests that Amazon add or clarify certain points in the declaration.1 He ultimately ordered Amazon to produce the drafts to defendants with redactions only of “comments that are internal in nature and do not reference the FTC’s preferred language or requests.”2

Judge Sullivan’s ruling proved consequential, as those drafts and internal comment bubbles would feature prominently in the defendants’ high-­profile cross-examination of Wilson at the preliminary injunction hearing. More broadly, defendants seized on Judge Sullivan’s apparent scepticism of the independent nature of Amazon’s declaration to cast doubts on the propriety of the FTC’s declarations process throughout the hearing. Indeed, defendants would make the theme a prominent feature of their cross-examinations of nearly all the FTC’s witnesses, and of their summation and closing arguments.

The hearing arrives

After 12 whirlwind weeks of fact and expert discovery, the first day of the hearing arrived early on a Monday morning at the end of March 2016.3 One of the FTC’s first witnesses was Jason Cervone from McDonald’s. FTC staffers and others packed the DC courtroom to watch Chuck Loughlin question Cervone.

At the nightly post-hearing team meeting, I shared with the team how well the examination had gone, and how I had heard the same from lawyers representing third parties. But there was a lingering nervousness as Judge Sullivan had probed, seemingly with scepticism, certain parts of Cervone’s testimony. For example, Cervone testified that Staples and Office Depot were the two best options to provide office supplies to the numerous McDonald’s corporate locations around the country. But Judge Sullivan mused that it was “hard to believe” that “this worldwide conglomerate, you know, that’s been highly successful” wouldn’t be “up to the challenge” of finding other options if the merger went through.4 He wondered why McDonald’s couldn’t buy office supplies from a collection of small vendors: “You won’t know [if small suppliers are suitable] until you ask, right? That’s a fair statement, fair question.”5

As the hearing continued, so did Judge Sullivan’s active questioning. Judge Sullivan asked questions of the FTC’s witnesses that seemed to reflect a theme raised in defendants’ cross-examinations: whether existing contracts with Staples or Office Depot protected customers from price increases.6 In another set of questions, he wondered whether large companies were willing to give Amazon Business a try; if not, how would Amazon ever demonstrate that it could satisfy large companies’ office supplies needs?7 The judge questioned another customer witness about a spreadsheet the witness had prepared, asking about the accuracy of the title, “Office Supply Spend”.8

Amazon testifies

After opening our case with customer witnesses, we called Wilson from Amazon Business to testify. By this time, Diane Sullivan was referring to Amazon as “the most important witness in this case”, signalling just how much weight defendants were placing on the question of Amazon’s entry and potential expansion.9 Even before Wilson was sworn in, things got interesting. He was originally scheduled to testify live via video conference from Seattle, but at the final prehearing conference, Judge Sullivan found out that Wilson had spoken at a conference in Baltimore the day before. Judge Sullivan appeared disturbed: “He was here in Baltimore yesterday, but he can’t be here next Monday? Bring him here.”10 Amazon’s counsel started to explain Wilson’s business obligations, but Judge Sullivan overruled him, stating: “[h]e’s going to be here, testify live. He’s a critical witness. I may have questions. I want to be able to examine his demeanour testifying, so just bring him here . . . . That’s a court order.”11

On the afternoon of 22 March, Prentis Wilson took the stand in person. In response to Reinhart’s questions, Wilson acknowledged that Amazon Business was not currently a primary supplier of office supplies to any large business customers,12 and that the company had only responded to enterprise customers’ requests for proposals in a “limited way”.13 Indeed, Amazon Business had won only one request for proposal (RFP) to sell office supplies to a business customer.14 Wilson also admitted that Amazon Business did not offer desktop delivery, customer-specific pricing or product curation – services large, corporate purchasers of office supplies said were important when choosing a supplier.15

As with previous witnesses, Wilson was peppered by questions from the bench during his testimony. At one point, Judge Sullivan asked Wilson to predict whether Amazon Business would be in a better position to respond to RFPs in five years, to which Wilson replied that he planned to request the resources to make that happen.16 Wilson also testified that he reviewed the company’s declaration before he signed it to ensure that it was accurate. At this point, the hearing went into closed session and Reinhart concluded her direct examination.

The next morning, Diane Sullivan began her cross-examination of Wilson, focusing on Amazon Business’s success to date, including the hundreds of thousands of business customers who had signed up already and the potential growth that lay ahead. Wilson was thoughtful and precise in his answers, being careful not to overstate Amazon Business’s current features or future success. When we returned to open court after several hours in closed session, Judge Sullivan referenced testimony during the closed-door hearing about drafts of Wilson’s declaration and the process by which that declaration was prepared. And he made the following statement:

I will say one thing: The court’s disturbed from comments with respect to draft declarations that the government attempted to have the witness say things that weren’t true. And that was his testimony under oath today. He wasn’t going to say it. He wasn’t concerned about retaliation from the government or anything else.

But it’s very disturbing when the United States of America . . . attempts to persuade any declarant or witness to say something for the benefit of the United States of America that is not true.17

Reinhart respectfully disagreed. “Your Honor, I do not think that’s happened,” she said.18 She defended the FTC’s process, explaining that drafting of declarations involves a back-and-forth between the FTC staff and the third party to ensure that the statements contained in the declaration are accurate. Nevertheless, Judge Sullivan ordered that portions of the transcript dealing with Wilson’s testimony about the drafts be unsealed and filed publicly, noting that he felt that the public should draw its own conclusions and that “the comments speak for themselves.”19

Shortly after this exchange, Judge Sullivan recalled that the FTC had filed a sealed brief in early March addressing its process for obtaining declarations generally and the specific process with respect to Amazon’s declaration. He ordered the FTC to file that brief on the public docket, which we did that evening.20

But the FTC’s brief explaining the declaration process – and Judge Sullivan’s acknowledgement of that brief – went largely unnoticed by the press. Instead, it focused its headlines on Judge Sullivan’s stern statement that afternoon. And although Judge Sullivan’s reference to the FTC’s brief seemed like recognition that nobody at the FTC had sought inaccurate testimony,21 that afternoon was difficult and marked a low point in the morale of many team members.

In issuing his ruling, Judge Sullivan would ultimately clarify things further in noting there was no evidence of an improper motive on the FTC’s part in obtaining any declaration:

Throughout the hearing defendants argued that the FTC’s declaration drafting process, especially as it pertained to Mr Wilson, was “wrong”. As is routine in antitrust cases, the FTC began drafting declarations based on the interviews that were conducted. The companies and the FTC then engaged in a back-and-forth process of edits. Some companies found the FTC’s drafts to be accurate while others, like Amazon, sought significant edits. Although the court expressed its concern about this process at various times during the hearing, no evidence of an improper motive on the part of the FTC was ever presented.22

Keeping our footing

At the time, however, it seemed that we faced a daily barrage of news articles reporting on Judge Sullivan’s apparent scepticism of our case. And with the press reports came well-intentioned comments and advice from courtroom observers on what we should do to get our case back on track. Internally, we believed we had the right strategy, were building a compelling evidentiary record and our witnesses had held up well. And we believed that we were making headway in explaining our case to Judge Sullivan.

That feeling grew when we put on WB Mason, a regional office supplies vendor. Its president, Leo Meehan, testified to WB Mason’s strong capabilities to supply companies in the north-east and mid-Atlantic, but also to its struggles to supply companies elsewhere. The testimony sharply contradicted the picture of WB Mason as a national office supplies vendor that the defendants had been presenting throughout the hearing. That point was punctuated with a well-placed final question by Maggie DiMoscato:

Q. Outside of this litigation have you ever heard Staples characterize WB Mason as a national competitor?

A. No. This is what’s so funny about this whole ordeal, is that I’m going to leave here and it’s going to be the same as it’s been for the last 15 years, is that they’re going to pound into my customers, our customers, that we are competing with, that we’re only a regional player . . .  Staples, Depot, Max Corporate, they will all agree [that WB Mason is a regional competitor]. But I came down here and suddenly I’m a national player.23

What’s in a name?

The government’s final witness was our economic expert, Professor Carl Shapiro. Shapiro had twice served as chief economist at the DOJ’s Antitrust Division, and had been instrumental in writing the 2010 update to the DOJ and FTC’s Horizontal Merger Guidelines. His direct testimony, conducted by Krisha Cerilli, lasted almost an entire day, spanning from Thursday afternoon to the afternoon of Friday 1 April.

During the direct examination, Shapiro explained that the market at issue in the merger was an aggregated group of office supplies sold to large business customers. Each distinct office supply (eg, pens, notepads, binders) was actually a distinct relevant market. But given that there were thousands of such products at issue, Professor Shapiro had aggregated and analysed them together for analytical convenience. This approach – called a clustermarket – is widely accepted by antitrust economists as long as competitive conditions for the aggregated products are similar.

Shapiro described how he and his team, led by Bharati Mandapati and Matt Johnson of the consulting firm Charles River Associates (CRA), had analysed bidding data from the defendants’ files and painstakingly assembled market share data through a survey of the Fortune 100’s office supply purchases. The results were striking: Staples and Office Depot were overwhelmingly the top two suppliers of office supplies to large business customers, and they won business from – and lost business to – each other much more than any other firm.

Diane Sullivan, who had conducted most of the defendants’ cross-­examinations, then stood up to cross-examine Shapiro. She originally said she would need only an afternoon, but her cross of Shapiro, combined with a re-cross and a further re-cross, eventually extended for nearly a day and a half, from Friday afternoon until the end of the day on Monday after a weekend break. Shapiro had spent that weekend sequestered, instructed by Judge Sullivan not to speak to his CRA team or us about his testimony. We spent that weekend poring through the huge binder of documents Diane Sullivan had distributed on Friday for use during the cross-examination, hoping to decipher the direction of her cross and prepare re-direct examination questions. In the end, she barely used
any documents.

While lengthy, Ms Sullivan’s examination of Shapiro showed a repeated focus on a few issues. She repeatedly questioned his decision to use a sample, drawn from the Fortune 100, to calculate market shares, rather than survey every customer in the market. Teasing out the criticism, she said the FTC’s market was a like a bus, and that Shapiro had erroneously focused on a neighbouring car in calculating market shares. No, Shapiro explained, accepting the analogy: if the FTC’s market were a bus, he had calculated market share by taking a sample survey of bus passengers.24 It was impractical to collect data from every bus passenger (every customer), but that sample (the Fortune 100 survey) was reliable and corroborated by other evidence.

Ms Sullivan also focused on the relevant market definition, particularly the fact that the FTC’s alleged “consumable office supplies” market did not include sales of ink and toner. One of her lines of enquiry emphasised that ink and toner are, in fact, office supplies that are consumed, namely used up and reordered.25 Professor Shapiro (and we) readily conceded that point.26 But antitrust market definition turns on the availability of substitutes, not on high-level descriptions. In this case, as Shapiro explained, ink and toner were not substitutes for any of the items in the FTC’s cluster market.27 Thus, ink and toner constituted a distinct relevant market. And moreover, it would be inappropriate to aggregate the distinct ink and toner market into a cluster market alongside other office supplies because the presence of significant direct sales by manufacturers meant that ink and toner faced different competitive conditions.28

Diane Sullivan’s questions nonetheless highlighted the sometimes confusing distinction between everyday language and antitrust market definition. And it elicited exchanges that seemed like the antitrust equivalent of Who’s on First?

Q. Well, did the FTC tell you, or did you see, that each and every customer and each and every competitor – the participants in this market – all think ink and toner is a consumable office suppl[y]? Did you see that? Everyone?

A. In that sense of language, I’m not disputing that. You can add me to the list if you’re just describing that they’re consumed, used in the office and replenished. Add me to the list, make it 10 [witnesses].

Q. So you agree that ink and toner is in the consumable office supply market?

A. Now, you see, the word “market” is very special to me.29

As we listened to these enquiries, the thought crossed our minds: should we have simply named the cluster market something other than “consumable office supplies”? Would that have avoided any potential confusion about the status of ink and toner?

Another line of enquiry focused on whether the FTC “told” Shapiro to “take ink and toner out” of the market, because we believed the defendants’ market shares were lower for ink and toner.30 This line of enquiry was even more perplexing than the first. Shapiro explained that Ms Sullivan’s inference was misguided: he worked collaboratively with the FTC, but was offering his own independent opinion concerning the propriety of the FTC’s alleged market.31 Moreover, her suggestion that defendants had lower shares in ink and toner was precisely why ink and toner did not belong in a cluster market with other office supplies.32 Lower shares meant ink and toner faced different competitive conditions than other office supplies, thus violating the basic rule for inclusion in a cluster market.

Round and round this went. But as persistent as Ms Sullivan’s questions were, she was not denting Shapiro’s analyses or conclusions, which were grounded in sound antitrust economics. By the end of the day on Monday, Shapiro’s examination was complete and those of us who had worked closely with him exhaled. Attention now turned to the team preparing to cross-examine
defendants’ witnesses.

The defence rests

The next morning, we filed into the courtroom expecting to provide a brief summary of our case and then have testimony resume with the defendants’ first witness. Judge Sullivan opened the day’s proceedings by noting that he was weighing a pending question about the scope of potential FTC rebuttal testimony. But before that colloquy could finish, Diane Sullivan interjected to say that the issue was no longer relevant: defendants were resting their case – without calling any witnesses. So, there would be no need for the FTC to call rebuttal witnesses. According to Ms Sullivan, the defendants saw no need to call witnesses because of “a fatal flaw” in the FTC’s case: the “failure to prove relevant market” and to “do a market share calculation”.33

As she spoke, a murmur grew in the courtroom. Even Judge Sullivan was taken off guard. He noted that his law clerk had picked up on a passing comment from her the day before that was equivocal on whether the defendants would call any witnesses. But Judge Sullivan had not picked up on the comment, and had not anticipated this development.34 Working his way through the implications, Judge Sullivan called for a 30-minute recess for everyone to regroup.

Exiting the courtroom for a private room in the courthouse, our team tried to figure out what this meant. A jumble of thoughts went through our heads. Those who had worked so hard to prepare would not get to cross-examine defendants’ executives. Should we have called those executives during our case-in-chief? Shapiro would not be back for rebuttal. Findings of fact and conclusions of law would now be due earlier. And the hearing, which we expected to proceed for at least another week, was now over.

Once back from recess, Judge Sullivan settled on a path forward. He would hear summation arguments from both sides that day, but then both sides should submit findings of fact and conclusions of law, and we would reconvene for closing arguments two weeks later. Tara Reinhart skillfully gathered herself to present our summation, but we knew that it was just a prelude to the more critical closing argument.

Our thoughts immediately turned to the significant, but now focused, challenge in front of us: to use our closing arguments and briefing to assemble a clear explanation of why we should prevail. The defendants may have made a dramatic courtroom statement, but Judge Sullivan still had to issue an opinion, guided by antitrust precedents. And we had assembled a robust evidentiary record, filled with customer and industry testimony, expert analysis and the defendants’ own “hot” documents.

Two weeks later, the hearing reopened early on a Tuesday morning, after an exhausting effort to finalise our briefing and prepare for oral argument. Our closing argument focused on several issues: the appropriateness of the cluster market; the reliability of our market share estimate; and the unlikelihood that Amazon would restore the current state of competition were the merger to happen. We also gave special attention to another issue: the bid data. Diane Sullivan had never asked Shapiro about bid data. Not one question, and not one note of criticism. We underscored that by using the bid data in multiple places in our closing slides with a large banner on each slide saying “unrebutted”.

Judge Sullivan was even-handed throughout the closing, asking questions of both sides and not forecasting his ruling. Yet, because defendants had not put on any witnesses, this was our first chance to see Judge Sullivan’s probing questioning of the defendants’ case. And in a passing, but telling, comment, Judge Sullivan noted that “people should not read too much into my questions.”35 We wondered if the defendants noticed that comment, and if it caused unease. If the defendants had rested their case because of Judge Sullivan’s sometimes sceptical questioning of the FTC’s witnesses, perhaps they were mistaken. Perhaps Judge Sullivan was simply testing the witnesses’ knowledge and credibility, and not conveying any view on the strength of the FTC’s case. Though we could not be certain of the outcome, we left that day feeling as though the tide had turned, and went to unwind at Penn Quarter Tavern.

Time to wait

After closing arguments, we waited. Judge Sullivan had promised Staples and Office Depot that he would issue a decision by 10 May. And we were not the only ones anxious for a decision: on the morning of 10 May, Judge Sullivan issued a minute order stating that “[d]ue to the high volume of calls received by chambers, the parties are hereby advised that the court’s ruling on Plaintiffs’ Motion for Preliminary Injunction will not be issued prior to 4.30pm.”36 So we waited some more.

As evening approached, we gathered at the FTC’s Constitution Center offices. Those of us who had worked on Sysco took the exact same places we had when we waited for that opinion: Krisha in her office and me in the open area facing 7th Street. Some tried to work in their offices despite the distraction of an impending decision; others played cards to bide the time. Finally, at 6.37pm, we got the ruling. Krisha shouted the news: “We won!” Team members flooded to the common area outside the Mergers IV offices. Those who had headed out to pick up kids quickly dropped them at home and returned, or brought the kids back to the office for an impromptu celebration.

When Judge Sullivan’s opinion explaining the ruling arrived the next day, team members read it carefully, remarking on its thoroughness and breadth, and feeling satisfied that their hard work and careful compiling of the hearing record had been rewarded.

In the end, Judge Sullivan got it exactly right. The evidence showed that Staples and Office Depot were the only two office supply options for large business customers that needed national distribution capabilities, sophisticated ordering interfaces, dedicated customer service, and the technological ability to monitor and control how much they spent. Amazon Business was not a realistic option for those customers, nor were smaller regional suppliers. As Shapiro put it, the market was dominated by two large suppliers, Staples and Office Depot, with a “fringe” of small competitors. Judge Sullivan accepted our cluster market of “consumable office supplies” sold to large business customers. And he accepted Shapiro’s conclusion that the merger would have given Staples an almost 80% share of that market and severely limited customers’ ability to negotiate price discounts.

Shortly after the decision, Staples and Office Depot followed through on their representation to Judge Sullivan and called off their merger. Our work was done.


  1. Hrg. Tr. 42:3-6, 45:3-15 (Mar. 4, 2016).
  2. Minute Order, Mar. 4, 2016.
  3. In a coincidence, the FTC was set to begin its preliminary injunction hearings against the Penn State/Hershey merger and the Advocate/NorthShore merger while the Staples/Office Depot hearing was ongoing, meaning that the FTC staff was litigating three merger preliminary injunction matters simultaneously.
  4. Hrg. Tr. 510:25-511:6 (Mar. 22, 2016).
  5. Hrg. Tr. 493:13-14 (Mar. 22, 2016); see also Hrg. Tr. 492:21-22; 493:10; 496:3-4.
  6. Hrg. Tr. 196:7-197:2 (Mar. 21, 2016); Hrg. Tr. 919:20-920:14 (Mar. 24, 2016); Hrg. Tr. 1312:12-1313:10 (Mar. 29, 2016); Hrg. Tr. 1898:16-1900:24 (Mar. 31, 2016).
  7. Hrg. Tr. 1135:14-1136:21 (Mar. 24, 2016); Hrg. Tr. 1324:9-1325:15 (Mar. 29, 2016); Hrg. Tr. 1943:14-1947:9 (Mar. 31, 2016).
  8. Hrg. Tr. 260:8-264:18 (Mar. 21, 2016).
  9. Hrg. Tr. 66:7-8 (Mar. 16, 2016).
  10. Hrg. Tr. 38:24-25 (Mar. 16, 2016).
  11. Hrg. Tr. 39:6-12 (Mar. 16, 2016).
  12. Hrg. Tr. 544:8-10 (Mar. 22, 2016).
  13. Hrg. Tr. 546:21-22 (Mar. 22, 2016).
  14. Hrg. Tr. 552:9-13 (Mar. 22, 2016).
  15. Hrg. Tr. 551:9-10; Hrg. Tr. 554:12-25 (Mar. 22, 2016).
  16. Hrg. Tr. 553:4-17 (Mar. 22, 2016).
  17. Hrg. Tr. 865:12-21 (Mar. 23, 2016).
  18. Hrg. Tr. 865:22-23 (Mar. 23, 2016).
  19. Hrg. Tr. 866:22-23 (Mar. 23, 2016).
  20. Hrg. Tr. 869:21-871:24 (Mar. 23, 2016). Dkt. No. 293, Plaintiff Federal Trade Commission’s Briefing Regarding Wilson Declaration (Mar. 23, 2016).
  21. Indeed, the next time this issue arose, Judge Sullivan’s tone was markedly different. At the 5 April 2016 summation, Ms Sullivan accused the FTC staff of “trying to put words in key witnesses’ mouths.” Hrg. Tr. 3016:3-7 (Apr. 5, 2016). Judge Sullivan pushed back, however, referring to the FTC’s public briefing regarding its declaration process: “What about the government’s explanation, though, for that give-and-take process that goes on with respect to the crafting of declarations?” Hrg. Tr. 3016:8-10 (Apr. 5, 2016).
  22. Federal Trade Commission v. Staples, Inc., 190 F. Supp. 3d 100, 136 n.14 (D.D.C. 2016).
  23. Hrg. Tr. 1837:8-22 (Mar. 30, 2016).
  24. Hrg. Tr. 2480:8-2483:4 (Apr. 1, 2016).
  25. Hrg. Tr. 2605:6-2606:17 (Apr. 4, 2016).
  26. Hrg. Tr. 2606:11-14 (Apr. 4, 2016).
  27. Hrg. Tr. 2783:8-2785:2 (Apr. 4, 2016).
  28. Hrg. Tr. 2123:4-2124:21 (Mar. 31, 2016); Hrg. Tr. 2783:1-2785:2 (Apr. 4, 2016); Hrg. Tr. 2832:9-23 (Apr. 4, 2016).
  29. Hrg. Tr. 2606:6-17 (Apr. 4, 2016).
  30. Hrg. Tr. 2816:21-2817:6 (Apr. 4, 2016).
  31. Hrg. Tr. 2619:2-2620:13 (Apr. 4, 2016); Hrg. Tr. 2829:1-2831:2 (Apr. 4, 2016); Hrg. Tr. 2844:17-25 (Apr. 4, 2016).
  32. Hrg. Tr. 2816:21-2817:2 (Apr. 4, 2016); Hrg. Tr. 2832:9-23 (Apr. 4, 2016).
  33. Hrg. Tr. 2889:20-2890:4 (Apr. 5, 2016). Ms Sullivan also proposed that defendants would stipulate that they would not increase prices and would agree to maintain other contract terms. Although there was an extended discussion about the issue that day, Judge Sullivan did not even mention the proposal in his decision granting the preliminary injunction.
  34. Hrg. Tr. 2890:8-22 (Apr. 5, 2016).
  35. Hrg. Tr. 3585:25-3586:1 (Apr. 19, 2016).
  36. Minute Order, Case No. 1:15-cv-02115-EGS, FTC et al v. Staples, Inc. et al (D.D.C.) (10 May 2016).

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