Monday, December 22, 2008

Retail Memo: Only Slightly More Than Half the 93 Natural Foods Retailers Issued Subpoenas By Whole Foods in its Case against the FTC Have Complied

FTC v. Whole Foods Market - and the subpoenas

Nearly three weeks ago Natural~Specialty Foods Memo first reported that to date then only about 50 of the 93 natural foods retailing companies that received subpoenas for sales data, financial information and other trade secrets from Whole Foods Market, Inc. had complied with the subpoenas and submitted the information, and that a number of the retailer's that did comply thus far have submitted only partial information, omitting some of the proprietary information demanded in the legal document.

Today, weeks later, still only about 50 of the 93 natural foods retailers issued the subpoenas have complied, according to a recent filing with the federal court by Whole Foods Market, Inc. in which it has asked for an extension on submitting various legal arguments because it still needs the data from the companies yet to provide in order to do so, it says. The deadline to comply with the subpoena was November 4, over six weeks ago.

Whole Foods issued the subpoenas for the trade secrets as part of its defense against the U.S. Federal Trade Commission's (FTC) legal case in which the regulatory agency is trying to overturn the natural grocery chain's friendly acquisition last year of Wild Oats Market, Inc., on the grounds a combined Whole Foods-Wild Oats is a monopolist in numerous U.S. markets in what the FTC calls the "premium natural and organic retailing segment."

Most of the 93 U.S.-based natural foods retailing companies Whole Foods Market, Inc. issued the subpoenas to are privately-held companies. As such they aren't required to report sales and related financial information on a quarterly basis like public companies, such as Whole Foods, are required to do. Hence the subpoenas to obtain this proprietary information.

This isn't the only reason Whole Foods took the subpoena route though. The natural foods grocery chain also is demanding information from the 93 retailers such as if they have any plans in the future to open new stores in their respective market regions. The 93 retailers have natural foods stores in about 29 U.S. markets where the FTC says Whole Foods post the Wild Oats acquisition holds a monopolist position in.

The subpoenas also demand information from these 93 retailers such as providing the court and Whole Foods' lawyers with internal company e-mails in which discussion via-a-vis competition with Whole Foods and related topics might have been discussed.

Whole Foods' Market, Inc. and its outside legal counsel say all this information is needed in order for it to prove the chain does not pose an anti-competitive force to consumers or other retailers in the various U.S. markets where the FTC argues it does. Whole Foods' also says, as does the FTC, that only Whole Foods' legal council and the FTC commissioners will view the information.

As we've been reporting on and writing about, one of the 94 retailers, Portland, Oregon-based New Seasons Market, a nine-store natural foods chain, fought the Whole Foods subpoena in court. Last week a judge ruled against New Seasons and in Whole Foods' favor, giving the Portland natural grocer until December 29 to submit the information demanded in the subpoena.

Brian Rohter, the CEO of New Seasons, said last week he is huddling with his lawyers looking into the potential of appealing the decision. As of today, December 22, he has yet to decide if New Seasons will file an appeal.

Meanwhile it looks like the other 42 natural foods retailers that received the subpoenas have just decided to ignore them rather than fight the demands for information in court like New Seasons has done. After all, November 4 is long passed. New Seasons is the only one of the 93 natural products retail companies that's challenged the subpoena in court to date.

Additionally, in its court filing requesting an extension, Whole Foods Market, Inc. says much of the information it has received from those retailers who've complied with its subpoenas is lacking the detailed information demanded in the legal documents.

As of today, Whole Foods' legal counsel had no comment on what if anything it plans to do to require the remaining retailers to comply with the subpoenas or to get the additional information it says it needs from those retailers who have complied but only submitted partial information, other than to issue the retailers another subpoena and demand in writing they comply.

One of the demands in the subpoenas is that the retailers locate and print any and all e-mails within the company, both at headquarters and store-level, that might discuss competitive issues as they relate to Whole Foods and its acquisition of Wild Oats. This was the only aspect of the subpoena the FTC Administrative Law Judge, D. Michael Chappell, ruled in favor of last week for New Seasons Market in its appeal, saying New Seasons had to comply with all demands in the subpoena except for that one, ordering the Portland grocer to provide just the e-mails from corporate headquarters' staff and not those from store-level employees. The judge held New Seasons must comply with all other demands in the subpoena though.

New Seasons Market CEO Rohter says his biggest concern about submitting the trade secrets information to Whole Foods Market is that he doesn't believe the natural grocery chain's promise, which it says is backed by the court and the law, or the FTC Administrative Law Judge's agreement with Whole Foods in this one instance at least, that other than its legal counsel no other employees of Whole Foods Market, Inc. will be able to view the information.

"I can only shake my head at the judge's position that our private files will somehow be protected,"Rohter wrote in his company Blog on Friday regarding the judge's decision. "The reason I'm doubtful is because this same promise was made in this same case in 2007 and what really happen was quite different. First of all, one of Whole Foods lawyers, who is actually an employee of their company and who is on their Leadership Team, was allowed to see confidential information that was submitted. Second, the FTC accidentally posted information that was marked 'confidential' on their web site."

As it stands now, New Seasons Market has seven days, until December 29, to either comply with the subpoena in whole or in part like many of the other retailers have, do nothing and avoid complying, or file some sort of an appeal to the FTC Administrative Law Judge's ruling requiring the natural foods grocer to submit its trade secrets to Whole Foods Market, Inc.'s lawyers.

Many of the remaining 42 or so retailers are taking the second approach, avoiding responding to the subpoena all together. It's Christmas week, then the New Year holiday period. Much of Washington, D.C., including the federal courts, will be closed. Therefore, nothing much can happen in terms of Whole Foods' getting any action on the subpoenas for the next few weeks, as a result.

The FTC's administrative hearing on the Wild Oats' acquisition is set for the third week in February. That gives Whole Foods little time after the new year to obtain and compile the information it says is key in order to prove its case that it's not monopolist at that February, 2009 hearing.

Reader Resources

FTC v. Whole Foods Market - Whole Foods Market v. FTC: Recent coverage and analysis in Natural~Specialty Foods Memo (NSFM):

December 22, 2008: Retail Memo: Whole Foods Market Wants to Depose and Obtain Internal E-Mails From FTC Commissioner, Suggesting Possible Conflict of Interest Situation....December 22, 2008: Retail Memo: At Hearing Today Judge Tells FTC to Provide Road Map of How Whole Foods Could Take About Merged Companies Should Ruling Go In its Favor....

December 19, 2008: Retail Memo: Whole Foods' Lobbying Effort Baring More Fruit - House Committee Leaders Send Letter to FTC Chair Similar to One Sent By Senate Leaders.... December 18, 2008: Retail Memo: 'This Isn't Over Yet' - New Seasons Market CEO On Judge's Decision the Natural Gorcer Must Turn Over Trade Secrets to Whole Foods Market.... December 18, 2008: Retail Memo: The 'Whole Primary Source Scoop' -- FTC and U.S. Federal Court Documents on the FTC v. Whole Foods Market, Inc. Case....

December 17, 2008: Breaking News: Judge Orders New Seasons Market to Comply With Whole Foods' Subpoena and Submit Sales Data, Financial Records and Other Trade Secrets....December 16, 2008: Retail Memo: Whole Foods, Wild Oats and Boulder, CO...And the Rocky Mountain News' Editorial Take On FTC v. Whole Foods Market, Inc....December, 15, 2008: Retail Memo: Eight Members of U.S. Senate Judiciary Committee Send Letter to FTC Chairman Regarding FTC's Legal Case Against Wild Oats' Acquisition....

December, 13, 2008: Retail Memo - Analysis & Commentary: More On FTC v. Whole Foods Market, Inc. and Whole Foods Market, Inc. v. FTC....December 9, 2008: Organics Category Memo: Wither Organics? Organic Food & Grocery Category Sales Down; But Double-Digit Growth Still Likley With Mass Market Lift....December 9, 2008: Retail Memo: Whole Foods Markets' 'Whole Legal Paycheck:' Three Top Washington, D.C. Law Firms Teaming Up On The Natural Grocery Chain's FTC Lawsuit....

December 9, 2008: Retail Memo: Whole Foods Market CEO John Mackey and Team Launch First Aggressive Attack Against the FTC's Legal Case at Press Conference This Morning....December 8, 2008: Retail Memo: Mr. Mackey (and the Whole Foods Market Troops) Goes to Washington....December 8, 2008: Retail Memo: Breaking News - Whole Foods Market, Inc. Files Lawsuit Against the FTC; Argues the Regulator Violated the Company's Due Process Rights....

December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter and Whole Foods Market Co-President Walter Robb Discuss and Debate the Subpoena Issue Online....December 7, 2008: Retail Memo: New Seasons Market CEO Brian Rohter Speaks Out Again Today on the Whole Foods Market, Inc. Subpoena of His Company's Data....December 7, 2008:Retail Memo: Whole Foods Market Retains Top Washington D.C. lawyers and Politically-Connected Lobbyists to Plead its Case Against the FTC....

December 6, 2008: Retail Memo: Fast-Growing and Scrappy Sunflower Farmers Market Ventures Deep in the Heart of (Whole Foods Country) Texas....December 6, 2008: Retail Memo: Fast-Growing NF Chain Sunflower Farmers Market Responds to Whole Foods Market, Inc. Subpoena For Sales, Financial and Related Information....December 3, 2008: Retail Memo: More on the Whole Foods Market-New Seasons Market Subpoena Issue; FTC Holding Firm For February, 2009 Hearing....

December 2, 2008: Retail Memo: Whole Foods Market, Inc. Closes $425 Sale of Stock to Private Equity Firm; Adds Members of the Firm to its Board of Directors....December 2, 2008: Retail Memo: Portland, Oregon-Based New Seasons Market CEO Brian Rohter Responds to Whole Foods Market's Paige Brady....December 2, 2008: Retail Memo: Whole Foods' Paige Brady Responds to Yesterday's New Seasons Market Piece; Lots of E-Mails; Issue Heats Up On the New Seasons Market Blog....December 1, 2008: Retail Memo: Whole Foods Wants A Court-Mandated Financial Records Dump from Portland-based New Seasons Market; it Says For its Battle Against the FTC.

FTC v. Whole Foods: Linkage from the Natural~Specialty Foods Memo (NSFM) archives:

Click here, here and here for stories about the FTC-Whole Foods issue from our archives, including pieces about mass market and natural foods class of trade retail competitors.

No comments: