On August 23, 2017, the Federal Trade Commission (“FTC”) approved Amazon.com, Inc.’s (“Amazon”) proposed $13.7 billion acquisition of Whole Foods Market, Inc. (“Whole Foods”).[1] Bruce Hoffman, acting director of the FTC, announced that the FTC will not further investigate the acquisition after finding it does not “substantially lessen[] competition under Section 7 of the Clayton Act, or constitute[] an unfair method of competition under Section 5 of the FTC Act.”[2] Whole Foods shareholders then immediately approved the acquisition for $42 per share.[3]

The acquisition marked Amazon’s shift from exclusively online retail by introducing broad brick-and-mortar operations.[4] Accordingly, it raises the question of whether current anti-trust law can adequately govern modern commerce. The number of companies readjusting their business models to become friendlier towards ecommerce further complicates this question.

The purpose of the FTC is to protect consumers and promote competition by enforcing the FTC and Clayton Antitrust Acts.[5] The FTC based its approval of the acquisition on Section 5 of the FTC Act and Section 7 of the Clayton Act.[6] The former prohibits “unfair methods of competition” and extends to conduct that violates antitrust laws.[7] The latter prohibits acquisitions should they “substantially [sic.] lessen competition, or tend to create a monopoly.”[8] Under the current statutory framework, the FTC approved the acquisition within a 30-day review period without an in-depth investigation.[9] The governing standard for antitrust concerns is whether the proposed acquisition “is likely to create or enhance market power or facilitate its exercise.”[10] Despite its large-scale implications, the acquisition easily satisfied this standard because of Amazon’s vertical business model.

Currently, the FTC primarily deals with horizontal acquisitions, which are directly between competitors within an industry. It provides an analytical framework[11] for determining when a horizontal acquisition violates the standard.[12] Contrarily, the FTC has not updated its interpretation tools for vertical mergers since the 1984 Merger Guidelines.[13] The reason being that vertical mergers are considered to pose less of a threat to competition.[14] Since there is no clear guideline for vertical acquisitions, the FTC likely applied the usual analytical framework for horizontal mergers. Under this framework, Amazon and Whole Foods are not considered competitors within the same industry.[15] Consumers and competitors have adequate purchase options for their groceries, thus the acquisition satisfies the standard.[16]

However, the FTC overlooks vertical acquisitions, which are likely to increase in the future. Retail giant Wal-Mart Stores, Inc. and Google are already looking to join forces.[17] While vertical mergers may have posed less of a threat in the past, their threat will likely be relevant with the rise of Internet retail coupled with brick-and-mortar stores.

It remains too early to definitively determine whether vertical business models will have harmful effects.[18] Nonetheless, anti-trust law is generally forward-looking and the FTC tends to prohibit potentially harmful acquisitions.[19] By hastily deciding to drop its investigation, the FTC missed an opportunity to reassess its analytical framework and standard for acquisitions.[20] The current framework focuses on horizontal acquisitions and separates competition by industry. This separation is becoming increasingly difficult with the rise of ecommerce and technological developments.

In determining whether Amazon’s acquisition satisfied the standard, the FTC glossed over variables that did not fit its outdated framework. For instance, Amazon’s acquisition of Whole Foods increases its access to large consumer data sets (“big data”), which is critical for future business growth.[21] Given the value of big data in the modern market, the FTC needs to redefine consumer harm and unfair competition.[22] Without set definitions, Amazon may exclusively control this data, using vertical integration to set consumer prices and stifle competition.

Accordingly, the standard cannot be limited to whether Amazon’s acquisition of Whole Foods threatens the grocery industry. The FTC took the easy route for this acquisition. However, it acknowledges this issue will likely reappear by stating that it reserves the option to investigate any anticompetitive conduct as necessary.[23] Perhaps a clearer regulatory framework and standard for vertical mergers is on the horizon.

[1] See Whole Foods Market, Inc., Preliminary Proxy Statement (Schedule 14A), at 43 (June 15, 2017), https://www.sec.gov/Archives/edgar/data/865436/000157104917006539/t1702003-prem14a.html; see also Press Release, FTC, Statement of Federal Trade Commission’s Acting Director of the Bureau of Competition on the Agency’s Review of Amazon.com, Inc.’s Acquisition of Whole Foods Market (Aug. 23, 2017), https://www.ftc.gov/news-events/press-releases/2017/08/statement-federal-trade-commissions-acting-director-bureau [hereinafter, FTC, Amazon Statement).

[2] FTC, Amazon Statement, supra note 1.

[3] See Whole Foods Market, Inc., Current Report (Form 8-K), at 2 (Aug. 23, 2017), https://www.sec.gov/Archives/edgar/data/865436/000114420417045261/v474128_8k.html.

[4] See David McLaughlin, Amazon’s Whole Foods Deal Wins Swift U.S. Antitrust Approval, Bloomberg Technology (Aug. 23, 2017), https://www.bloomberg.com/news/articles/2017-08-23/amazon-s-whole-foods-deal-wins-fast-track-u-s-antitrust-nod.

[5] See A Brief Overview of the Federal Trade Commission’s Investigative and Law Enforcement Authority, FTC, https://www.ftc.gov/about-ftc/what-we-do/enforcement-authority [hereinafter, FTC, Authority].

[6] See The Antitrust Laws, FTC, https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws.

[7] 15 U.S.C. §45(A)(1), https://www.ftc.gov/system/files/documents/public_statements/section-5-ftc-act-principles-navigation/131018section5.pdf; accord FTC, Authority, supra note 5.

[8] 15 U.S.C §18.

[9] See McLaughlin, supra note 4.

[10] Mergers, FTC, https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/mergers.

[11] See generally DOJ & FTC, Horizontal Mergers Guidelines (Aug. 19 2010), https://www.ftc.gov/sites/default/files/attachments/mergers/100819hmg.pdf.

[12] See generally DOJ & FTC, Commentary on the Horizontal Mergers Guidelines (Mar. 2006), https://www.ftc.gov /sites/default/files/attachments/mergers/commentaryonthehorizontalmergerguidelinesmarch2006.pdf.

[13] See FTC Commissioner, Christine A. Varney, Vertical Merger Enforcement Challenges at the FTC (1995).

[14] Id.

[15] See McLaughlin, supra note 4.

[16] Id.

[17] See Daisuke Wakabyashi, Google and Walmart Partner with Eye on Amazon, N.Y. Times (Aug. 2017), https://www.nytimes.com/2017/08/23/technology/google-walmart-e-commerce-partnership.html?mcubz=0.

[18] See Leon B. Greenfield, Vertical Mergers in the United States, Wilmer Hale (2000), http://www.wilmerhale.com /uploadedFiles/WilmerHale_Shared_Content/Files/PDFs/ICL%20Conference%20Paper_2000.pdf.

[19] See Mergers, supra note 10.

[20] See generally Matthew Perlman, Sen. Calls Out FTC for Quick Amazon-Whole Foods Nod, Law 360 (Aug. 2017), https://0-www.law360.com.lawpac.lawnet.fordham.edu/articles/957876/ sen-calls-out-ftc-for-quick-amazon-whole-foods-nod.

[21] See Matthew Perlman, Sen. Calls Out FTC for Quick Amazon-Whole Foods Nod, Law 360 (Aug. 2017), https://0-www.law360.com.lawpac.lawnet.fordham.edu/articles/957876/sen-calls-out-ftc-for-quick-amazon-whole-foods-nod.

[22] Id.

[23] See FTC, Amazon Statement, supra note 1.


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Fordham Journal of Corporate & Financial Law