Federal Trade Commission v. Whole Foods Market, Inc. et alMemorandum in opposition to re MOTION for Protective OrderD.D.C.June 20, 2007UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA FEDERAL TRADE COMMISSION, ) ) Plaintiff, ) ) v. ) Civ. No. 07-cv-01021-PLF ) WHOLE FOODS MARKET, INC., ) ) - and - ) ) WILD OATS MARKETS, INC., ) ) Defendants. ) PLAINTIFF’S MEMORANDUM IN OPPOSITION TO DEFENDANT WHOLE FOOD MARKET, INC.’S MOTION FOR ENTRY OF A FINAL PROTECTIVE ORDER Defendant Whole Foods Market, Inc.’s (“Whole Foods”) effort to amend the current Protective Order to allow its General Counsel unfettered access to all third party documents – including sensitive commercial information – should be denied for several reasons. First, contrary to the stated conclusions in her incomplete Declaration, Whole Foods’ General Counsel serves in non-legal roles that appear inherently involved in competitive decision-making. Second, unlimited access by Whole Foods’ General Counsel to third party information would chill third party cooperation with future Commission investigations to the public detriment. Third, in precluding access by Whole Food’s General Counsel to confidential third party information, the Interim Protective Order mirrors the provisions of protective orders entered in similar merger cases previously litigated in this court. Nevertheless, if the Court is inclined to grant some access to third party confidential information to Whole Foods’ General Counsel, the Commission would support the same access Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 1 of 12 2 terms allowed by the District Court in the protective order issued in FTC v. Foster, No. CIV 07- 532 JB/ACT (D.N.M. April 26, 2007) (Exhibit D to Doc. No. 12), a decision relied on heavily by Whole Foods. In that case, the district court permitted the general counsels of the merging firms access only to un-redacted legal briefs and deposition and investigational hearing transcripts (without exhibits), and only in their outside counsel’s offices where they could not remove any notes taken therein. Id. at 15. BACKGROUND During its investigation of the proposed merger of Whole Foods and Wild Oats Markets, Inc. under the Hart-Scott-Rodino Antitrust Improvements Act, 15 U.S.C. § 18a, the Commission obtained confidential business information from a large number of third parties pursuant to Civil Investigative Demands (CIDs) issued under Section 20 of the FTC Act, 15 U.S.C. § 57b-1. The information obtained via third party CIDs allowed the Commission staff to learn more about the industry as a whole and to evaluate the competitive effects of the proposed merger. That third party information is currently being turned over to outside counsel for Whole Foods and Wild Oats pursuant to discovery requests under the terms of the operative Interim Protective Order. Typical information sought by the third party CIDs included, inter alia: • the projected opening date of any new store; • the reasons and projected dates for any relocation, remodeling, closing, or expansion of any store; • gross revenues, net sales, and gross margins for each store; • number of product lines (i.e.,, stock keeping units, or “SKUs”) and transactions at each store; • price indices used at each store; The Court’s Interim Protective Order (“IPO”) (Doc. No. 11), issued on June 18, 2007, established a two-tier confidentiality system to protect competitively sensitive information. The Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 2 of 12 1 See Defendant’s Memorandum of Points and Authorities in Support of the Motion of Defendant Whole Foods Market, Inc. For Entry of a Final Protective Order dated June 11, 2007, at 3 (Doc. No. 12) (“Whole Foods’ Mem.”). 2 Motions to Intervene were filed on June 18, 2007 by H.E. Butt Grocery Company, Trader Joe’s Company, Safeway, Inc., Kroger Co., Wegmans Food Markets, Inc., Supervalu Inc., Publix Super Markets, Inc., Walmart Stores. Inc., and Apollo Management Holding L.P., and granted on June 19-20, 2007. 3 IPO permitted a third party to designate business records as “Confidential,” limiting access thereto to certain people including an in-house representative See IPO at 2 (¶4) and 9-10 (¶ 9). Alternatively, third parties could designate certain highly sensitive materials – marketing plans, pricing plans, financial information, trade secrets, and the like – as “Restricted-Confidential,” prohibiting disclosure even to the designated in-house representative of the party. Id. at 5 (¶16) and 9 (¶8). Whole Foods proposal to amend the Interim Protective Order would collapse the two levels of designations and would authorize Whole Foods to transfer all third party documents and data to its General Counsel, Ms. Lang, for her review at its corporate headquarters in Austin, Texas.1 Subsequent to the filing of Whole Food’s motion on June 11, 2007, several third parties have moved to intervene to oppose entry of Whole Foods’ proposed Final Protective Order.2 ARGUMENT I. Whole Foods’ General Counsel Should Not Have Access to Third Party Business Information Because She is Likely Involved in Competitive Decisionmaking. The Commission and Whole Foods apparently agree that whether the General Counsel, Ms. Lang is engaged in “competitive decisionmaking” is the key factual question in determining whether she should continue to be denied access to competitively sensitive third party information. However, Whole Foods’ description of the concept of competitive decision-making Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 3 of 12 4 is far too narrow. In addition, as detailed below, Ms. Lang’s role is far broader than depicted in her June 11, 2007 Declaration submitted in support of Whole Foods’ motion. The starting point is the decision in United States Steel Corp. v. United States, 730 F.2d 1465 (Fed. Cir. 1984), in which the court rejected the view that counsel could be denied access to discovery solely due to his in-house status. However, contrary to Whole Foods’ suggestion, the court did not then extend access to discovery to all in-house counsel except those who made operational “pricing” or “product design” decisions. Instead, “‘competitive decisionmaking’ . . . would appear serviceable as shorthand for a counsel’s activities, association, and relationship with a client that are such as to involve counsel’s advice and participation in any or all of the client’s decisions (pricing, product design, etc.) made in light of similar or corresponding information about a competitor.” Id. at 1468 n.3 (italics added). In other words, an attorney who gives any legal advice to management about the competitive business decisions is intimately involved in the “competitive decisionmaking” itself. The decisions cited by Whole Foods suggest that, under United States Steel, the release of discovery to a general counsel like Ms. Lang is inappropriate. Instead, disclosure is limited to an attorney with responsibilities unique to the litigation at hand. In Brown Bag Software v. Symantec Corp., 960 F.2d 1465 (1992), for example, the court precluded the party’s sole in- house counsel from access to discovery because disclosure “would place in-house counsel in the ‘untenable position’ of having to refuse his employer legal advice on a host of contract, employment, and competitive marketing decisions lest he improperly or indirectly reveal” the confidential discovery. Id. at 1471. On the other hand, a specialized staff attorney who had dedicated responsibility for hiring and monitoring outside counsel was given access to discovery, but only because she had “no responsibility for and give[s] no advice to management . . .about Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 4 of 12 5 competitive sales, marketing, pricing, product design, development or research . . .employment matters or scientific or technical matters.” Volvo Penta, Inc. v. Brunswick Corp., 187 F.R.D. 240 (E.D. Va. 1990) (italics added). Finally, perhaps the most instructive decision for the pending motion is Carpenter Tech. Corp. v. Armco, 132 F.R.D. 24 (E.D. Pa. 1991), also cited by Whole Foods. There, the plaintiff’s staff attorney with “absolutely no involvement” in the business decisions was given access to confidential materials. Id. at 27-28. At the same time, the company’s Director of Law, who inevitably was involved in all the company’s legal affairs, was denied access to discovery. Id. With this backdrop, Ms. Lang’s responsibilities as Whole Foods’ General Counsel, as a member of Whole Foods’ self-described “Leadership Team,” and as an officer and/or director of approximately seventy (70) Whole Foods’ subsidiaries, betray the notion that she is not involved in competitive decisionmaking. Ms. Lang admits that she gives “legal advice” to Whole Foods’ “Eteam” which makes “decisions about Whole Foods business and policy at a national level.” (Roberta Lang Decl. at ¶5). She affirms that she is also one of only 27 voting members of the Whole Foods Leadership Network, which she admits “may discuss the competitive landscape generally....” Id. at ¶7. Ms. Lang also concedes that she is the “inside lawyer who worked on the negotiation of the transaction at issue,” Id. at ¶8. She also acknowledges that she is “called upon daily to provide legal advice to the Eteam, the board of directions, and our senior leadership concerning this transaction.” Id. at 10. Finally, although Ms. Lang may not, as she affirms in her declaration (see ¶ 4), personally select vendors or make purchasing decisions, she carefully does not deny providing the necessary legal “advice . . . on any or all of these decisions.” United States Steel, 730 F.2d at 1468 n.3 Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 5 of 12 3 For example, Ms. Lang is a Vice President, Treasurer, Officer and Director of Whole Foods Market Group, Inc. See Franchak Decl. at 2. She is also Sole Director, President, VP & Treasurer of Whole Foods Market Rocky Mountain/Southwest I, Inc. Id. 6 In addition to the admissions in her Declaration, documents produced by Whole Foods show that Ms. Lang’s declaration is incomplete in describing her non-legal role in the operations of defendant Whole Foods and its subsidiaries. Specifically, as of January 2007, Ms. Lang holds legal and/or non-legal senior management, officer and/or director positions in approximately seventy (70) subsidiaries of defendant Whole Foods Market, Inc. See Declaration of Michael Franchak at 1-4 (attached hereto as Exhibit 1).3 As the General Counsel of Whole Foods, Ms. Lang is presumptively involved in the competitive decisionmaking upon which she provides legal advice. For that reason alone she should not have access to the Restricted Confidential materials here. Moreover, it simply strains all credulity to believe she is not involved in any competitive decisionmaking in any of her legal and non-legal roles with defendant Whole Foods or any of the 70 subsidiaries on which she serves in a management role. The Interim Protective Order properly balances the needs of the parties to prosecute and defend this action and the need to avoid unnecessarily prejudicing third parties by essentially turning over their competitively sensitive business information to other firms in the same industry. Allowing the chief legal officer of Whole Foods, with her self-described wide-ranging business-related duties, to have access to the competitively sensitive information of third party firms would disturb that delicate balance. Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 6 of 12 7 II. Granting Access to Whole Foods’ General Counsel Would Chill Future Third Party Cooperation in Commission Investigations. The public at large is also potentially prejudiced if Whole Foods’ General Counsel is permitted access to the competitive information of third parties in an investigation. It is axiomatic that if business secrets turned over to the Federal Trade Commission in furtherance of law enforcement efforts are thereby made available to firms in the same industry, companies will be less willing to provide that information to the Commission in the first instance. As a result, the Commission’s ability to enforce the antitrust laws, among others, is impeded to the public’s detriment. As the Federal Circuit noted (in reference to the International Trade Commission) The Commission’s reluctance to grant . . . an in-house counsel access to the confidential business information is that, in order to discharge its statutory responsibilities within the strict statutory time limits, the Commission is heavily dependent on the voluntary submission of information. Disclosure of sensitive materials to an adversary would undoubtedly have a chilling effect on the parties willingness to provide confidential information essential to the Commission’s fact-finding processes. Akzo N.V. v. ITC, 808 F.2d 1471, 1483 (Fed. Cir. 1986). The same is true here for the Federal Trade Commission. Given the particularly tight law enforcement schedule imposed by the Hart-Scott-Rodino Act, prompt availability to this Commission of competitively sensitive information from industry participants other than the merging parties is essential. As in Akzo, disclosure of sensitive information to another firm’s chief legal officer would have a “chilling effect” on the cooperation of firms whose confidential information is essential to the Commission’s fact finding and law enforcement functions. III. The Interim Protective Order is Typical for Merger Litigation in this Court. The Commission believes that the operative IPO should be made final. This is Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 7 of 12 4 Whole Foods argues that any concern by the Commission (or third parties) about its General Counsel’s access to third party competitive information somehow undermines the Commission’s allegation of a relevant product market that does not include the third parties. See Whole Foods’ Mem. at 2. However, nothing could be further from the truth. The Commission’s position is clear that while there is some level of competition between the merging parties and supermarkets operated by the third parties whose information is at issue here, there is distinct and unique competition between Whole Foods and Wild Oats in the premium natural and organic supermarket market: 8 appropriate under Rule 26(c) of the Federal Rules of Civil Procedure, which provides: Upon motion by a party or by the person from whom discovery is sought . . . and for good cause shown, the court in which the action is pending . . . may make any order for which justice requires to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including . . . (7) that a trade secret or other confidential research, development, or commercial information not be revealed or be revealed only in a designated way . . . Fed. R. Civ. P. 26(c). The material submitted by third parties is also entitled to confidential treatment under Sections 6(f) and 21 of the FTC Act, 15 U.S.C. §§ 46(f), 57b-2. Section 21(d)(2) of the FTC Act. The same protections and access provisions found in the operative IPO have been implemented in protective orders entered in previous merger cases in this court. For example, in FTC v. Cardinal Health, Inc., Civ. Action No. 98-595(SS) (D.D.C., March 11, 1998), the parties implemented a one-tier system for the designation of materials as “Confidential,” where none of the designated materials could be disseminated to in-house counsel. (See attached Exhibit 2 at 3, ¶¶6-7.) Likewise, in FTC v. Staples, Inc., No. 97-0701 (April 16, 1997), the protective order established a two-tier confidentiality system (like the IPO here) and likewise precluded in-house counsel access to the more highly sensitive Restricted Confidential Material. (See attached Exhibit 3 at 3-4, ¶¶6-7 ).4 Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 8 of 12 The Federal Trade Commission does not for a moment contend that premium natural and organic supermarkets to not compete at some level with other supermarkets. We know they do. The question is whether despite that competition there is unique and important competition between and among premium natural and organic supermarkets such that one constrains another. 6/11/2007 Status Conference, 21:5-11. Thus, it is perfectly consistent with the Commission’s product market definition that both the Commission – and third parties who compete at some level outside the premium natural and organic supermarket market with Whole Foods – are concerned about their business plans, revenues, net sales, margins, price indices and other competitively sensitive information being reviewed by the chief legal officer of another firm operating in the same industry and who may compete in some manner with Whole Foods. 5 For example, in Glaxo Inc. v. Genpharm Pharmaceuticals, Inc, 796 F. Supp. 872, 874 (E.D.N.C. 1992), in-house counsel agreed not to be involved in any other aspect of the company’s operations except for the specific legal issues raised in the litigation. And, the two decisions entered by Magistrate Facciola, Intervet, Inc. v. Merial Ltd., 241 F.R.D. 55 (D.D.C. 2007), and United States v. Sungard Data Systems, Inc., 173 F. Supp.2d 20 (D.D.C. 2001), imposed a strict $250,000 personal fine on the in-house counsel for any violation of the protective order. 9 IV. At a Minimum, The Court Should Impose Restrictions on Access Equivalent to those in FTC v. Foster. Finally, the cases cited by Whole Foods clearly endorse the notion that, if in-house counsel is given access to the third party discovery, she should be carefully restricted in how the discovery is made available to her. Some restrictions that are regularly endorsed by the courts may be difficult to implement here.5 On the other hand, the limitations established in Federal Trade Commission v. Foster, No. CIV 07-532 JB/ACRT (D.N.M., April 26, 2007) (Exhibit D to Doc. No. 12), a case which is cited and relied by Whole Foods, offers sound guidance. There, the district court granted in-house counsel access to certain third party materials that would otherwise have been confidential and not accessible. However, the court severely limited the type and scope of the access available to the General Counsel. The court held that the general Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 9 of 12 10 counsel for the defendant could have access to only certain specified documents, specifically “confidential deposition transcripts, transcripts of FTC investigative hearings and un-redacted pleadings, without exhibits.” Further, any review of those few categories of confidential materials was allowed only in the offices of the defendants’ outside counsel and, while in-house counsel could take notes, he could not remove these notes from outside counsels’ offices. Id. at 15. These strict limitations are necessary and appropriate here if the Court is going to allow Whole Foods General Counsel to see competitive information about third parties. If Ms. Lang is permitted to read unredacted briefs, deposition transcripts and investigational hearings she does not also need to see actual competitively sensitive documents or data submitted by third parties and she certainly does not need to have those documents in her office in Austin, Texas. The delivery and retention of those third party business records at Whole Foods’ headquarters creates too many uncertainties regarding the integrity of those materials as files can be lost or compromised. Therefore, in the alternative, the Commission proposes the addition of a new paragraph to the Protective Order specifying that Ms. Lang may have access to confidential deposition transcripts, transcripts of FTC investigative hearings and un-redacted pleadings, without exhibits, in the office of Whole Food’s outside counsel and may take notes regarding such material but may not remove these notices for the offices of Whole Foods’ outside counsel. Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 10 of 12 11 CONCLUSION For the foregoing reasons, the Interim Protective Order dated June 8, 2007, should be entered as a final Protective Order, or amended in conformance with the above proposal. Respectfully submitted, Dated: June 20, 2007 /s/ Thomas J. Lang Thomas J. Lang (DC Bar # 452398) Thomas H. Brock (DC Bar # 939207) Federal Trade Commission 601 New Jersey Avenue, N.W. Washington, D.C. 20580 Telephone: (202) 326-2813 Facsimile: (202) 326-3384 tlang@FTC.gov Counsel for the Federal Trade Commission Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 11 of 12 CERTIFICATE OF SERVICE This 20th day of June, 2007, I certify that a copy of the foregoing papers were uploaded to the CM/ECF system. In addition, a copy was served on the following counsel via e-mail: Christopher J. MacAvoy Howrey LLP 1299 Pennsylvania Ave., N.W. Washington, DC 20004 202-783-0800 MacAvoyC@howrey.com Attorney for Movants Publix Super Markets, Inc.; SUPERVALU Inc.; & Wegmans Food Markets, Inc. Danielle Monnig Clark Paul, Weiss, Rifkind, Wharton & Garrison LLP 1615 L Street, NW, Suite 1300 Washington, DC 20036-5694 202-223-7336 dclark@paulweiss.com Counsel for Movant H.E. Butt Grocery Company Dated: June 20, 2007 /s/ Thomas J. Lang Thomas J. Lang Attorney for Plaintiff Case 1:07-cv-01021-PLF Document 47 Filed 06/20/2007 Page 12 of 12 Case 1:07-cv-01021-PLF Document 47-2 Filed 06/20/2007 Page 1 of 5 Case 1:07-cv-01021-PLF Document 47-2 Filed 06/20/2007 Page 2 of 5 Case 1:07-cv-01021-PLF Document 47-2 Filed 06/20/2007 Page 3 of 5 Case 1:07-cv-01021-PLF Document 47-2 Filed 06/20/2007 Page 4 of 5 Case 1:07-cv-01021-PLF Document 47-2 Filed 06/20/2007 Page 5 of 5 Case 1:07-cv-01021-PLF Document 47-3 Filed 06/20/2007 Page 1 of 7 Case 1:07-cv-01021-PLF Document 47-3 Filed 06/20/2007 Page 2 of 7 Case 1:07-cv-01021-PLF Document 47-3 Filed 06/20/2007 Page 3 of 7 Case 1:07-cv-01021-PLF Document 47-3 Filed 06/20/2007 Page 4 of 7 Case 1:07-cv-01021-PLF Document 47-3 Filed 06/20/2007 Page 5 of 7 Case 1:07-cv-01021-PLF Document 47-3 Filed 06/20/2007 Page 6 of 7 Case 1:07-cv-01021-PLF Document 47-3 Filed 06/20/2007 Page 7 of 7 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 1 of 8 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 2 of 8 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 3 of 8 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 4 of 8 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 5 of 8 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 6 of 8 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 7 of 8 Case 1:07-cv-01021-PLF Document 47-4 Filed 06/20/2007 Page 8 of 8 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA FEDERAL TRADE COMMISSION, ) ) Plaintiff, ) ) v. ) Civ. No. 07-cv-01021-PLF ) WHOLE FOODS MARKET, INC., ) - and - ) WILD OATS MARKETS, INC., ) ) Defendants. ) [PROPOSED] ORDER DENYING DEFENDANT WHOLE FOODS MARKET, INC.’S MOTION FOR A FINAL PROTECTIVE ORDER Defendant Whole Foods Market, Inc.’s Motion for a Final Protective Order is denied, and IT IS HEREBY ORDERED that the Interim Protective Order dated June 8, 2007 is entered as the Final Protective Order. ALTERNATIVELY, IT IS HEREBY ORDERED that the Interim Protective Order dated June 8, 2007 is entered as the Final Protective Order, subject to the provision that Roberta Lang be granted access to confidential deposition transcripts, transcripts of FTC investigative hearings, and un-redacted pleadings, without exhibits, only in the office(s) of Whole Foods Market, Inc.’s outside counsel, and may take notes regarding such material but may not remove these notes from the office(s) of Whole Foods Market, Inc.’s outside counsel. ISSUED this __________ day of ____________________, 2007, at ________ a.m./p.m. ORDERED: ___________________________ Paul L. Friedman United States District Court Judge Case 1:07-cv-01021-PLF Document 47-5 Filed 06/20/2007 Page 1 of 1