January 13 (Austin, TX) Jim Sud, executive vice-president of growth and development for Whole Foods Market, held a media call today to talk about how the FTC is forcing Whole Foods Market to defend itself in 29 markets. The FTC alleges that Whole Foods Market's already-complete, friendly merger with Wild Oats will restrict competition in these specific markets.

Here is the script of the call: The FTC is trying to unravel our friendly merger with Wild Oats merger even though the transaction closed some 18 months ago and the integration with WFM for all intents and purposes is complete. In September, 2008, approximately 12 months after our merger was consummated with Wild Oats, using powers unique to the FTC and different than that of the Department of Justice regarding the prosecution of similar merger cases, the FTC filed suit against us in their Administrative Court in a further attempt to block (or in this case, unwind) the merger. As a result of the FTC's action, WFM is forced to defend itself in 29 markets around the country where the FTC alleges that our friendly merger with Wild Oats will restrict competition, notwithstanding the current realities of the marketplace that exist today. Furthermore, we are being forced to defend ourselves in these 29 markets in a trial schedule imposed by the FTC over our objections that seriously compromises our ability to adequately and properly defend ourselves. For more than 18 months now, the FTC has contended that our merger with Wild Oats would result in higher prices, reduced quality, and a reduction in service levels.  In fact, the exact opposite has occurred and we will put on evidence to demonstrate that. To further demonstrate this point I'd like to read a quote from a blog post that appeared in the Austin American Statesman this morning in which this person states: “It would be a shame if the Wild Oats stores acquired by Whole Foods were to revert back to Wild Oats. The closest Whole Foods to me is a former Wild Oats in the Pinecrest area of Miami, and the quality and variety of their offerings have improved substantially since being taken over by Whole Foods. Their service has improved as well.” The FTC further alleges that Whole Foods Market does not compete with other supermarkets around the country, like Safeway, Trader Joe's, Wegmans and others.  In fact the FTC bases their case on a very narrow made-up market definition that includes only two other competitors besides WFM and the former Wild Oats, one being a chain of 7 stores in Portland, Oregon and another chain of 15 stores in the South. We know, and the overwhelming majority of people in the US know that the marketplace has never been more competitive and that WFM faces significant competition from supermarkets across the country besides just the 22 stores that the FTC has deemed to be our competition. As a result, in order to defend ourselves in the 29 markets around the country that the FTC has determined are relevant competition markets, it is necessary for WFM's outside attorney's to obtain certain 3rd party information and our outside attorneys have previously sent out requests for such information to 93 retailers across the country. Many of these retailers have been willing to cooperate with these requests and others have not.  For those who have not, in order to defend ourselves, our outside attorney's have not choice but to file motions with the FTC's Administrative Law Judge to force production of those documents. Over the past nearly two years, WFM has spent significant amounts of time and money defending ourselves and this merger.  The FTC's ongoing, relentless, and we believe misguided actions against us will now cause other retailers to be burdened as well.  We believe this has been an enormous waste of time and money for our company and for the taxpayers of the United States to shoulder this burden in these tough economic times. We do not like being put in this position and empathize with the other retailers who must be inconvenienced in order for WFM to defend itself.

A few important points about these information requests:

 

  • No employee at Whole Foods Market will see this information. Whole Foods is a company of high integrity and our outside attorneys and we will take every precaution to ensure the information that competitors deem confidential is kept confidential from any Whole Foods Market employee and anyone else in the marketplace.

 

  • The competitive companies themselves will determine what documents are confidential and Whole Foods will not challenge that determination nor will be able to see any of these documents.

 

  • Only third-party outside lawyers and experts retained by Whole Foods will see the documents.

 

  • WFM will have signed an agreement to abide by the protective order.

 

  • At the conclusion of all judicial proceedings all documents will be returned to those submitting documents.

 

  • Confidential material will be disclosed only to:

     

    • 1) the Administrative Law Judge and his assistants;
    • 2) the Commission, its employees and personnel retained as experts or consultants for this proceeding, who are not employees of Whole Foods or any other third party involved in the matter, provided they sign an agreement to abide by the protective order;
    • 3) judges and other court personnel of any court having jurisdiction over appeals; and
    • 4) any witness or author of the information in question, or who is employed by the third party producing the information.

     

 

To further guard against leaks, we are asking the FTC to be especially careful and sanction anyone who inadvertently releases information.

 

 

  • The extra precaution is necessary as the FTC did in fact release certain confidential, proprietary information about Whole Foods Market in the initial court proceedings in 2007.

 

  • We are demanding the FTC abide by its own Rules of Practice and punish anyone involved with the disclosure of confidential material.

 

  • We are encouraging other CEOs to join us in signing a letter to the FTC insisting that their information remain truly confidential.

 

  • We look forward to ending this ongoing and relentless battle against our company in the near future and believe that all retailers and consumers alike, particularly in this current economic environment, should challenge unfair regulatory behavior that ignores the realities of the marketplace.

The 29 markets the FTC identified where we have to defend ourselves include: Albuquerque, NM Boston, MA Boulder, CO Cleveland, OH Colorado Springs, CO Columbus, OH Denver, CO Evanston, IL Fairfield City, CT (Greenwich, Darien, Westport, Stamford, New Canaan, etc) Hinsdale, IL West Hartford, CT Henderson NV (Las Vegas) Kansas City, KS Las Vegas, NV Los Angeles, CA (Sta. Monica, Brentwood) Louisville, KY Miami Beach, FL Naples, FL Nashville, TN Omaha, NE Pasadena, CA Palo Alto, CA Phoenix, AZ Portland, ME Portland, OR Reno, NV Salt Lake City, UT Santa Fe, NM St. Louis, MO

Letter from John Mackey to CEOs

January 12, 2009 Dear [CEO], As CEO and Co-Founder of Whole Foods Market, I am writing to explain to you why our outside attorneys will be taking further legal measures to obtain documents from your company.  We have no choice.  The FTC is suing WFM claiming that our merger with Wild Oats may substantially lessen competition in 29 separate geographic areas across the country.  It is trying to unravel the Wild Oats merger even though the transaction closed some 18 months ago and the integration with WFM has long been completed.

The key issue for us to establish is that we actually or potentially compete with other supermarkets for customers in each of these 29 areas.  The documents our attorneys are asking from your companies relate to that issue.  We wish we didn't have to ask for these documents.  But we have no choice if we are to defend ourselves.

I understand that your company will have concerns about producing documents that have sensitive confidential information.  To address these concerns, our attorneys have agreed to a “protective order” issued by the Commission that prevents anyone in our company, including myself, senior management and our own general counsel, from ever seeing any documents you label confidential or having any access to your confidential information.  Only our outside attorneys, experts for both parties, and the FTC attorneys litigating the case may see them.  Under the protective order, even if there is a trial, your company's confidential documents may be disclosed only “in camera” – that is, in private, only seen by the administrative judge, the FTC, the outside attorneys, and their experts. I've attached a copy of the FTC's protective order, the violation of which would be contempt.

I have also attached a draft letter to the FTC that I plan to send – and I invite you to co-sign with me – asking the FTC to confirm in writing that it will protect your company's confidential information in strict compliance with the protective order.  Please let me know no later than close-of-business Friday, January 16, 2009 at john.mackey@wholefoods.com whether we can add your name to this letter.

I must say that if the FTC can act this way regarding WFM, it is possible that some day in the future your company similarly may be victimized.  In this respect, all of us in today's economic environment share a common interest in challenging regulatory behavior that ignores the realities and challenges of the market place.

Please feel free to contact Jim Sud, our executive vice-president of growth and development (jim.sud@wholefoods.com), if you want any further explanation to the situation Whole Foods Market is in and why we have no choice but to ask for these documents.

Sincerely, John Mackey Co-Founder & CEO, Whole Foods Market

Letter from John Mackey to FTC

January 16, 2009 The Honorable William E. Kovacic Chairman, Federal Trade Commission 600 Pennsylvania Avenue, NW Washington, DC 20580 Dear Chairman Kovacic: Due to the proceedings that the FTC has brought against the friendly merger between Whole Foods Market and Wild Oats involving 29 regional markets, we have had to file motions to compel discovery from our competitors.  Understandably, our competitors fear that proprietary business information could be disclosed inadvertently.  Unfortunately, this concern may be founded on the fact that the FTC has already improperly released proprietary information belonging to Whole Foods Market Inc.[1] To ensure that no proprietary information will be disclosed from the documents produced in response to third party subpoenas, we have drafted and agreed to a protective order that will prohibit any person from Whole Foods Market, including the company's General Counsel, from seeing any document that a competitor deems confidential.  In addition, the protective order allows any party complying with discovery requests to designate any responsive document or portion of that document as confidential material.  That designation will not be challenged unless the documents are already in the public domain and are clearly not confidential.

We, and our competitors signed below, request the FTC take the necessary actions and precautions to comply with the protective order and avoid repeating the mistakes the agency has made in the past.  To that end, we ask that any FTC attorney who violates the protective order be held accountable, pursuant to FTC Rule of Practice 4.1 (e), up to and including suspension or disbarment from practice before the Commission.

Thank you for your time and consideration.

Sincerely, John Mackey                       Co-Founder & CEO, Whole Foods Market,  Inc.       


[1] Rugaber, Christopher, Error by FTC Reveals Whole Foods' Trade Secrets, The Washington Post, August 15, 2007, at D03 (see also, Scott, Amy, Trade Secret Leak in Aisle 7, Market Place, National Public Radio, August 15, 2007, http://marketplace.publicradio.org/shows/2007/08/15/AM200708155.html