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FTC Opposes Supermarket and Fashion Mergers · Bloomberg Law

0:03
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
0:11
Speaker 1: A new dimension to the Federal Trade Commissions challenged to
0:15
Speaker 1: Kroger's twenty four point six billion dollar acquisition of rival
0:19
Speaker 1: grocer Albertson's. Kroger has filed a motion in federal court
0:23
Speaker 1: in Ohio to stop the FTC from proceeding against it
0:28
Speaker 1: in house in an administrative hearing, claiming that proceeding is unconstitutional.
0:34
Speaker 1: Joining me is Bloomberg Intelligence. Senior litigation analyst Jennifer ree
0:38
Speaker 1: Jen tell us about the FTC's objections to the Kroger
0:42
Speaker 1: Albertson's deal.
0:44
Speaker 2: Well, you know, essentially, the FDC is just saying this
0:47
Speaker 2: is a merger of two competitors and in a market
0:49
Speaker 2: that the FTC is defined, which is somewhat narrow. I
0:52
Speaker 2: think that'll be a point of contention in the trial.
0:54
Speaker 2: But they say these are traditional grocery stores, one traditional
0:57
Speaker 2: grocery store buying another, and they really only compete with
1:00
Speaker 2: other traditional grocery stores, so that leaves out specialty grocery
1:05
Speaker 2: and club stores like Costco, and that in many many
1:08
Speaker 2: regions in the United States, this merger will end up
1:11
Speaker 2: leaving markets that are overly concentrated, you know, when they're
1:14
Speaker 2: local markets like grocery, because people aren't going to drive
1:17
Speaker 2: hundreds of miles just to go grocery shopping. It's like
1:20
Speaker 2: thousands of little mini mergers that have to be assessed
1:22
Speaker 2: across a map. And they look at these regions where
1:25
Speaker 2: those stores compete, and they look at who the other
1:28
Speaker 2: competitors are in the region, and they draw circles around
1:30
Speaker 2: the ones they think will be too concentrated. And here,
1:33
Speaker 2: they say, look too concentrated in many, many regions. And
1:37
Speaker 2: even though the companies have offered to divest stores in
1:40
Speaker 2: quite a few of these regions, the FTC says, not
1:43
Speaker 2: good enough. It doesn't fix some of the other concerns
1:45
Speaker 2: we have about the impact on labor. And also, we
1:48
Speaker 2: are not in love with the buyer who you've chosen
1:51
Speaker 2: for these stores. We are not so sure that buyer
1:53
Speaker 2: can take these stores and be a viable competitor. And
1:56
Speaker 2: that's what's needed in a divestge remedy.
1:58
Speaker 1: So the SUP it's proposed to sell nearly six hundred
2:02
Speaker 1: stores and lower grocery prices by one billion, How is
2:06
Speaker 1: that going to work?
2:07
Speaker 2: Well, you know, that's the thing you know, promises to
2:10
Speaker 2: lower prices or promises not to increase prices don't really
2:13
Speaker 2: hold much water. You know, the FTC is not going
2:16
Speaker 2: to be a pricing regulator, so they're not going to
2:19
Speaker 2: put something like that in a consent agreement to say
2:22
Speaker 2: you must price at x, or you must lower your
2:24
Speaker 2: prices by x, y or z. And when the companies
2:27
Speaker 2: make promises like that, that's all they are. There's nothing
2:30
Speaker 2: the FTC can do to hold them to that, so
2:32
Speaker 2: it doesn't really mean very much, even though the companies
2:34
Speaker 2: very well may have every intention to do that.
2:37
Speaker 1: The trial is set to begin on August twenty sixth.
2:41
Speaker 1: Is that an in.
2:42
Speaker 2: House trial, No, so that trial is in a federal
2:45
Speaker 2: court in Oregon. And this is the Federal Trade Commission
2:48
Speaker 2: only seeking a preliminary or a temporary block on the
2:51
Speaker 2: closing of the deal pending their in house process, which
2:54
Speaker 2: is called up Part three. Basically, it's an administrative lock
2:57
Speaker 2: hearing to actually determine this deal is illegal or not.
3:01
Speaker 2: So this is just to seek a preliminary block to
3:04
Speaker 2: allow the FTC to complete that internal process, which takes
3:07
Speaker 2: quite a long time. It could be another year before
3:10
Speaker 2: if they actually go through with that internal process. It
3:13
Speaker 2: could be another year before there's a decision there.
3:15
Speaker 1: So now Kroger sued the FTC. It's not about the
3:19
Speaker 1: preliminary injunction, it's about trying to prevent the in house process.
3:23
Speaker 1: So explain why they say the in house process should
3:26
Speaker 1: be blocked.
3:27
Speaker 2: So this is something new that's happening in these merger
3:30
Speaker 2: deals in front of the FTC. And it's all because
3:34
Speaker 2: about a year ago there was a Supreme Court decision
3:37
Speaker 2: that opened the door to constitutional challenges to that in
3:40
Speaker 2: house process. Companies have always objected to it because it
3:44
Speaker 2: really basically kills deals because they take too long. So
3:49
Speaker 2: when companies don't win at the preliminary injunction phase and
3:52
Speaker 2: they have to face this internal process, a deal can't
3:55
Speaker 2: last and the deal tends to fall apart or get abandoned.
3:58
Speaker 2: So there's always been objections. But in the past when
4:00
Speaker 2: companies have said this is unconstitutional, what the courts have
4:04
Speaker 2: ruled is that, well, you have to bring that claim
4:07
Speaker 2: in this process, in the administrative process, and then you'll
4:10
Speaker 2: have an opportunity to appeal to the federal courts and
4:13
Speaker 2: get to the federal courts after that. Well, that doesn't
4:16
Speaker 2: work you know, that hasn't worked in the past because
4:19
Speaker 2: that's too late, the deal has already been abandoned or
4:21
Speaker 2: broken up. But last year the Supreme Court said, no,
4:24
Speaker 2: that's incorrect. These companies have the right to challenge the
4:27
Speaker 2: constitutionality of the process in a federal court early on,
4:31
Speaker 2: before the process has even started. So what that's led
4:34
Speaker 2: to June Since that decision, really many deals that have
4:38
Speaker 2: been challenged have actually brought these counterclaims alleging that this
4:42
Speaker 2: internal process by the FTC's on constitutional. Now, not many
4:45
Speaker 2: of them have gone very far because either the companies
4:48
Speaker 2: won at the preliminary junction, they closed their deal, a
4:51
Speaker 2: litigation got dropped, or let's say, in the case of
4:54
Speaker 2: Amgen and Horizon, the FDC settled the matter, and when
4:57
Speaker 2: they settled the matter, the companies dropped their constitutional claims.
5:01
Speaker 2: So there's not a lot of precedent. And the only
5:04
Speaker 2: thing in that case, that particular merger that the Supreme
5:07
Speaker 2: Court did decide was just that procedural timing issue that
5:10
Speaker 2: they have the right to bring these arguments. So Kroger
5:14
Speaker 2: and Albertsons have gone ahead and done that because they can,
5:17
Speaker 2: and they are making an allegation that there are two
5:20
Speaker 2: different reasons that that process is unconstitutional. One having to
5:25
Speaker 2: do with the administrative law judge who will decide the
5:28
Speaker 2: outcome having two layers of four cause protection from presidential removal,
5:33
Speaker 2: and they say that violates one article in the Constitution.
5:36
Speaker 2: And the other argument is that this is in the
5:37
Speaker 2: adjudication of Kroger's private rights. They say it's Kroger's contracting rights,
5:42
Speaker 2: which is a private right. And when a private right
5:45
Speaker 2: is adjudicated, the Constitution says it must be in the
5:48
Speaker 2: judicial branch and not in the executive branch.
5:51
Speaker 1: The case that you were referring to was that a
5:53
Speaker 1: case involving the FTC or the SEC.
5:56
Speaker 2: So that was the case actually involving the FTC. Not
5:59
Speaker 2: as well known as the SEC case which is called
6:02
Speaker 2: Jarkazy and was talked about a lot. This was a
6:04
Speaker 2: case called Axon. Axon was acquiring a company called Vivu,
6:08
Speaker 2: and that case ultimately settled. So what happened there was
6:12
Speaker 2: the Supreme Court decided the one element that I mentioned
6:16
Speaker 2: that timing was okay that the companies can bring this
6:19
Speaker 2: challenge before the administrative internal hearing has even started. But
6:23
Speaker 2: on all the other constitutional claims, which were similar to
6:26
Speaker 2: the claims Kroger's making. The Supreme Court remanded to the
6:29
Speaker 2: district court and say, okay, you have to decide on
6:32
Speaker 2: these claims. But then they settled, so those claims never
6:35
Speaker 2: got decided on. The Jarkaesi case, which involved the Securities
6:40
Speaker 2: and Exchange Commission, decided that where a plaintiff is seeking
6:44
Speaker 2: monetary civil penalties or monetary damages, that the defendant has
6:49
Speaker 2: the right to a trial by a jury. So that
6:52
Speaker 2: automatically would pull a hearing out of an administrative agency
6:55
Speaker 2: and put it in the judicial branch in a court.
6:58
Speaker 1: Kroger sued in Ohio. Why in Ohio?
7:02
Speaker 2: Well, I think they sued in Ohio because that's where
7:04
Speaker 2: Kroger has its corporate headquarters. So that's why they picked Ohio.
7:09
Speaker 2: It is the Sixth Circuit, and we don't have president there.
7:12
Speaker 2: They may expect it to be a conservative circuit like
7:15
Speaker 2: the Fifth Circuit. That's the one place where we do
7:17
Speaker 2: have some precedent that would be helpful to them. I'm
7:19
Speaker 2: guessing they believe that they'll get helpful president from the
7:22
Speaker 2: Sixth Circuit too.
7:23
Speaker 1: Well, shouldn't they have sued in the court that's holding
7:27
Speaker 1: the preliminary injunction in Oregon.
7:29
Speaker 2: Well, they may believe that that's not the best place for
7:32
Speaker 2: them to sue, and they can sue wherever they're doing business.
7:35
Speaker 1: I just wondered if the government might move to remove
7:38
Speaker 1: the suit to the place where the case is being litigated.
7:42
Speaker 2: They may, they may, but I doubt that they'll get
7:44
Speaker 2: it transferred. I mean, they had the right to bring
7:47
Speaker 2: it in Cincinnati, and I don't think they would get
7:50
Speaker 2: it transferred over there. And I think now that I
7:52
Speaker 2: think more about it, that it's definitely that they're not
7:55
Speaker 2: all that happy with the pickup judge there and they
7:58
Speaker 2: think they might be better off in front of a Sixth
8:00
Speaker 2: Circuit Ohio judge.
8:01
Speaker 1: So Kroger said that in the lawsuit against the FTC,
8:05
Speaker 1: it said that in house review could take years. Is
8:08
Speaker 1: that an exaggeration years?
8:10
Speaker 2: You know, Judet really isn't. And I'll tell you why,
8:13
Speaker 2: because the FDC subtly changed something also about two years ago.
8:18
Speaker 2: It used to be that the Administrative law judge would rule,
8:21
Speaker 2: would write a decision, and then the loser of that
8:24
Speaker 2: decision could appeal to the commissioners, and the commissioners would vote,
8:28
Speaker 2: and then the loser of that process could then appeal
8:31
Speaker 2: to the federal courts. But the FTC changed it and
8:34
Speaker 2: they said the ALJ no longer issues an opinion, They
8:36
Speaker 2: just issue an advisory. Here's how they think the FDC
8:40
Speaker 2: should rule, and then the commissioners decide. Well, if you
8:43
Speaker 2: look at their situation, these are the very commissioners that
8:46
Speaker 2: voted to sue Kroger and Albertons to begin with. So
8:49
Speaker 2: we know how that's going to come out, right, and
8:51
Speaker 2: that whole process, given the timing that is allotted in
8:54
Speaker 2: the rules, the FTC's rules, can take about a year
8:57
Speaker 2: and a half and it wouldn't be until that time
9:00
Speaker 2: that the commissioners actually issued a final decision that the
9:04
Speaker 2: companies could appeal to the federal court.
9:06
Speaker 1: I mean, is there a drop dead date on this merger?
9:10
Speaker 2: There is, but I think it's going to be changed.
9:12
Speaker 2: It's October fifth or sixth, something like that. But at
9:15
Speaker 2: this point the companies are going to have to push
9:17
Speaker 2: it back because they made an agreement with a Colorado
9:20
Speaker 2: State court. I should mention there are separate proceedings going
9:24
Speaker 2: on in both the Colorado State Court and the Washington
9:26
Speaker 2: State Courts, brought separately by the attorney generals of those states,
9:30
Speaker 2: and in the Colorado Court there was going to be
9:33
Speaker 2: a preliminary injunction process and a permanent injunction process, and
9:37
Speaker 2: the companies convinced that court to do it all in
9:40
Speaker 2: one and just a permanent injunction process. But the only
9:44
Speaker 2: way they could get that was by promising they wouldn't
9:47
Speaker 2: close the deal until a decision had been issued on that,
9:50
Speaker 2: and that's not going to be done till about the
9:51
Speaker 2: middle of October.
9:52
Speaker 1: So they're facing basically five separate legal challenges. Do they
9:57
Speaker 1: have to with them all for the margin to go forward?
10:01
Speaker 2: I don't think so. I think that the state court judges,
10:06
Speaker 2: in my view, are going to be nervous about the
10:09
Speaker 2: idea of enjoining. Let's say they want to rule for
10:13
Speaker 2: the ags of enjoining a nationwide deal that the FTC
10:18
Speaker 2: can't manage to enjoin in federal court. So let's say
10:20
Speaker 2: the parties win on this preliminary injunction process that's starting
10:24
Speaker 2: later this month. I don't think those state ags would
10:27
Speaker 2: go against that. They may enjoin it just for their state,
10:32
Speaker 2: but not nationally. So I think the most important thing
10:35
Speaker 2: happening here is this preliminary injunction process in Oregon, which
10:38
Speaker 2: will be the very first one to start and the
10:41
Speaker 2: very first one to get a decision. There is also
10:43
Speaker 2: a private lawsuit. My guess is that'll ultimately settle, but
10:47
Speaker 2: my guess is also that it won't be successful if
10:49
Speaker 2: the FTC is not successful. So I really think if
10:52
Speaker 2: they can be successful in the preliminary injunction process, they'll
10:55
Speaker 2: probably ultimately down the road be able to get it closed.
10:58
Speaker 1: The private laws a group of consumers suit over the
11:01
Speaker 1: deal last year that was unsuccessful, right.
11:04
Speaker 2: Right, I have to check that too. You know, these
11:07
Speaker 2: suits are brought all the time, and they are honestly
11:09
Speaker 2: never successful, never, because these judges are just going to
11:12
Speaker 2: stay these matters and wait to see what happens in
11:14
Speaker 2: the federal government, you see, right. So I believe that
11:17
Speaker 2: matter at this point is stayed, but I don't think
11:20
Speaker 2: that matter is ultimately going to impact whether this deal
11:24
Speaker 2: closes or not.
11:25
Speaker 1: I mean, is anti trust a red blue issue? Because
11:28
Speaker 1: Republican attorneys general in Ohio, Iowa, Alabama, and Georgia slam
11:34
Speaker 1: the challenge saying it was devoid of economic justification, and
11:39
Speaker 1: they filed an amicus brief in Oregon.
11:42
Speaker 2: It used to be more of a red blue issue
11:44
Speaker 2: than it is today. I think there's a wing of
11:48
Speaker 2: the Republican Party that actually is aligned with the idea
11:51
Speaker 2: of aggressive anti trust enforcement and has liked what Lena
11:54
Speaker 2: Khan has done. It doesn't surprise me, though, that for
11:57
Speaker 2: the amicus brief there were no Democratic States Attorney generals
12:02
Speaker 2: that joined, because I think for something like this, probably
12:05
Speaker 2: it is a little bit more of the business friendly
12:07
Speaker 2: approach versus the anti big business approach.
12:11
Speaker 1: Does the FDC have a good case?
12:14
Speaker 2: I think the FTC has a good case in terms
12:17
Speaker 2: of the buyer that's been offered up for the remedy
12:20
Speaker 2: has some weaknesses, and one can't be particularly certain or
12:24
Speaker 2: feel comfortable that that company will actually be able to
12:29
Speaker 2: compete or even has the incentive to compete with those
12:31
Speaker 2: six hundred ors those stores for many years or even
12:35
Speaker 2: in the short run. Where I think it gets a
12:37
Speaker 2: little more difficult is with market definition, because the markets
12:42
Speaker 2: have changed a lot over the years in grocery, as
12:45
Speaker 2: they have in many many goods that you can buy
12:47
Speaker 2: now online all over the place, and the SEC is
12:50
Speaker 2: using the same market definition they have used for years
12:53
Speaker 2: for grocery deals. They've not changed it at all. But
12:55
Speaker 2: things are a little bit different today and they may
12:58
Speaker 2: have defined the market a little narrowly. The judge could
13:01
Speaker 2: agree that other stores should be included, such as whole
13:04
Speaker 2: foods and health food stores, stores like Trader Joe's, Dollar stores, Costco.
13:08
Speaker 2: All of these stores have been excluded. Walmart and Target
13:12
Speaker 2: have been included where they are supercenters and sell groceries.
13:15
Speaker 2: And if the judge agrees that the market should be
13:18
Speaker 2: a little broader, what that will do is reduce the
13:20
Speaker 2: number of regions in which this deal is considered anti
13:23
Speaker 2: competitive and reduce the number of stores that might have
13:26
Speaker 2: to be divested. And possibly if this number of stores
13:30
Speaker 2: that have to be sold is reduced, it may be
13:33
Speaker 2: a package that would be more manageable for this buyer.
13:36
Speaker 2: I will tell you I still lean toward the sec
13:38
Speaker 2: winning this case, but that would be the argument on
13:40
Speaker 2: the other side, and it is a defensible argument.
13:43
Speaker 1: Kroger sold ten and a half billion dollars of notes
13:46
Speaker 1: yesterday to fund the acquisition. They think that they're going
13:49
Speaker 1: to be successful.
13:51
Speaker 2: Obviously they do. I have to tell you I was
13:53
Speaker 2: a little bit surprised by that. I mean, essentially, given
13:56
Speaker 2: with all of the lawsuits that are pending against this
13:58
Speaker 2: deal and the fact that it looks like the FTC
14:00
Speaker 2: pulled a pretty good judge and it will take some time.
14:04
Speaker 2: If the companies lose this preliminary injunction and appeal, that's
14:07
Speaker 2: going to take quite a lot of time, and it
14:09
Speaker 2: means that this deal is going to have to hang
14:10
Speaker 2: together for another you know, six months to a year
14:14
Speaker 2: in order to get that appeal decision, if that's where
14:16
Speaker 2: they think they can win. So I was a little
14:18
Speaker 2: surprised by that.
14:20
Speaker 1: And this may not surprise you. Kroger and Albertson have
14:23
Speaker 1: so far spent more than eight hundred million dollars in
14:26
Speaker 1: fees on lawyers, bankers and advisors. Eight hundred million.
14:32
Speaker 2: That is so much.
14:34
Speaker 1: You know, the deal's twenty four point six billion.
14:37
Speaker 2: I mean, I know, well here, that's a lot of money.
14:41
Speaker 2: When I practice law. It's definitely far more than I
14:44
Speaker 2: think the defense of many of the deals that I
14:46
Speaker 2: worked on. I will say, you know, as we mentioned,
14:49
Speaker 2: they're facing five lawsuits and so that's possibly part of
14:52
Speaker 2: the reason they need huge teams. You know, it's taking
14:55
Speaker 2: a lot of time, a lot of attorney hours, it's
14:58
Speaker 2: taking a lot of work, and most deals face If
15:02
Speaker 2: it's DOJ, they faced one lawsuit because the DJ just
15:05
Speaker 2: goes to federal court and seeks a permanent injunction. Or
15:08
Speaker 2: if it's FTC, they're just facing two. They're facing the
15:11
Speaker 2: preliminary injunction effort and then the internal trial called a
15:14
Speaker 2: Part three. So I think that's part of the reason
15:18
Speaker 2: these fees are so exorbitant.
15:20
Speaker 1: So we'll see what happens. I mean, it seems like
15:22
Speaker 1: we've been talking about Kroger Albertson's for years, and now
15:26
Speaker 1: that I look it up, I see that we have
15:28
Speaker 1: been talking about it for nearly two years. It was
15:31
Speaker 1: first announced in October of twenty twenty two.
15:33
Speaker 2: I know, I'm guessing a decision is going to be
15:36
Speaker 2: coming out some point in October, you know, maybe toward
15:38
Speaker 2: the end of October. That's just a guest because judges
15:41
Speaker 2: don't really have time constraints on their decisions. And we
15:44
Speaker 2: now know that companies have agreed not to close until
15:47
Speaker 2: this Colorado process is over, which takes a little bit
15:49
Speaker 2: of the pressure off the judge because they tend to
15:51
Speaker 2: try to decide before an end date for a deal.
15:54
Speaker 2: So I'm thinking sometime around the end of October.
15:56
Speaker 1: Coming up next on the Bloomberg Law Show, I'll continue
15:59
Speaker 1: this conversation with Bloomberg Intelligence senior litigation analyst Jennifer Ree,
16:04
Speaker 1: and we'll discuss the FTC's first attempt to block a
16:08
Speaker 1: fashion accessories deal. I'm June Grosso and you're listening to Bloomberg.
16:13
Speaker 1: So let's go from groceries to something that I find
16:16
Speaker 1: more interesting, luxury handbags or semi luxury handbag. So this
16:22
Speaker 1: marks the first time the Biden administration has intervened on
16:26
Speaker 1: antitrust grounds in the fashion accessories sector. Tapestry, the company
16:32
Speaker 1: behind Coach, Kate Spade and Stuart Weitzman, would acquire Capri,
16:37
Speaker 1: which controls Michael Core's Versace and Jimmy Cho in a
16:42
Speaker 1: deal valued at eight and a half billion dollars tell
16:45
Speaker 1: us more.
16:46
Speaker 2: So, this, just like the Kroger Albersons deal, is really
16:49
Speaker 2: a basic deal that combines two competitors, what we call
16:52
Speaker 2: a horizontal deal, the typical type of deal that's often
16:56
Speaker 2: challenged by the anti trust agencies. And one of these
16:59
Speaker 2: companies has the Core's brand and another has the coach
17:02
Speaker 2: in Kate's Bade brand, and what the FTC's claiming is
17:06
Speaker 2: this creates too much concentration in a market that they're
17:09
Speaker 2: calling affordable luxury handbags. So they think of a Kate's
17:12
Speaker 2: Bade bag and a Cores bag and a coach bag
17:14
Speaker 2: to be in this segment. They haven't defined it by
17:17
Speaker 2: dollar amount, but they've defined it just by calling it
17:19
Speaker 2: affordable luxury. And just like Kroger and Oppertons, I think
17:23
Speaker 2: that's where the big fight is going to be in
17:25
Speaker 2: this trial over this market definition, because it's a hard
17:29
Speaker 2: market definition to put the boundaries around. You know, what
17:32
Speaker 2: exactly is an affordable luxury handbag? Who else is in
17:36
Speaker 2: that market? What is the competition? And that's obviously really
17:39
Speaker 2: important to determine what the market concentration will be after
17:43
Speaker 2: the company's merge.
17:44
Speaker 3: What is included?
17:45
Speaker 2: Would you include you know, higher level designer bags that
17:48
Speaker 2: are sold used for a lower price. And I think
17:51
Speaker 2: that's going to be a difficult part for the FTC now,
17:54
Speaker 2: having said that, they issued new merger guidelines last year,
17:58
Speaker 2: and what they've said is, hey, we no longer have
18:01
Speaker 2: to define a market where we can prove that the
18:04
Speaker 2: companies are each other's primary competitors, and if they really
18:08
Speaker 2: just view each other as each other's main competitor and
18:11
Speaker 2: don't pay that much attention to others. That's good enough,
18:14
Speaker 2: and that's what they're claiming here. They're saying that in
18:16
Speaker 2: their investigation, all the documents they collected support the idea
18:21
Speaker 2: that these companies really don't pay attention to other competitors.
18:25
Speaker 2: In other words, their price isn't constrained by other competitors.
18:29
Speaker 2: That's how the judge will look at it. That's how
18:31
Speaker 2: economists look at it. Only by each other, particularly in
18:35
Speaker 2: outlet malls. So if one goes on sale, the other
18:37
Speaker 2: goes on sale. If one raises their prices, the other
18:40
Speaker 2: raises their prices. And what they're going to claim is
18:42
Speaker 2: that this is good enough to show that you lose
18:45
Speaker 2: that entire rivalry, that entire competitive dynamic if you allow
18:49
Speaker 2: these two firms to merge.
18:50
Speaker 1: So that's a rule that they made up. Yes, so hello,
18:55
Speaker 1: are judges following that rule?
18:58
Speaker 2: You're exactly right. These are guidelines written by the FPC,
19:01
Speaker 2: and what they're meant to do is tell the market
19:05
Speaker 2: how they're going to look at these deals and also
19:07
Speaker 2: to help guide a judge. But they don't buying the judge.
19:11
Speaker 2: So the past merger guidelines to judges usually use them.
19:14
Speaker 2: They usually say align with them. Here's what the merger
19:17
Speaker 2: guidelines say, and so we agree they don't have to.
19:21
Speaker 2: And so this will be very interesting because we just
19:23
Speaker 2: don't have a lot of precedent. We don't have litigation
19:27
Speaker 2: yet where the fpc's tried to use these new guidelines
19:31
Speaker 2: and get a judge to accept them, and it's up
19:33
Speaker 2: to the judge and they may not.
19:35
Speaker 1: My initial reaction is, why block a fashion deal. It's
19:39
Speaker 1: not like there's no competition in the fashion industry.
19:42
Speaker 2: Well, you know, this is exactly what the companies are arguing, Hey,
19:45
Speaker 2: we have so much competition and.
19:47
Speaker 1: There's easy entry into that market.
19:50
Speaker 2: That is exactly what they're arguing, that there's easy entry,
19:53
Speaker 2: that we always have to worry about entry because one
19:55
Speaker 2: influencer carries some mom and pop bag and that bag
19:58
Speaker 2: will blow up. And that's what they're going to argue.
20:00
Speaker 2: And I think it's a pretty good argument. Honestly. You
20:03
Speaker 2: know a lot of times people ask why would the
20:05
Speaker 2: FDC or DOJ challenge this deal? That industry is not
20:09
Speaker 2: that important or that's not a crucial industry. People don't
20:12
Speaker 2: have to go out and buy a luxury you know,
20:14
Speaker 2: affordable luxury handbag. That's not how they think of it.
20:18
Speaker 2: They're looking at any industry in which a merger would
20:20
Speaker 2: create undue concentration. It doesn't matter if it's affordable luxury
20:24
Speaker 2: handbag or it's essential like food. If they believe the
20:27
Speaker 2: antitrust laws are being broken by a deal, they're going
20:30
Speaker 2: to challenge the deal. And that's what they believe here.
20:33
Speaker 2: And as you said, this is really going to be
20:35
Speaker 2: about the market and how it's defined, and who competes
20:37
Speaker 2: and who doesn't, and how easy entry is, because I
20:40
Speaker 2: think a lot of people view the market that way,
20:42
Speaker 2: and we're very surprised by this challenge.
20:44
Speaker 1: And affordable luxury is almost a contradiction in terms. I agree,
20:49
Speaker 1: if it's affordable, then you don't consider it really luxury,
20:52
Speaker 1: do you exactly?
20:54
Speaker 2: You know, The interesting thing is the parties and I
20:56
Speaker 2: don't blame them at all. Very early on, right after
20:58
Speaker 2: this lawsuit was filed, as the judge to require the
21:01
Speaker 2: FTC to provide a better definition exactly what do you
21:04
Speaker 2: mean by affordable luxury? Put the boundaries around it, what
21:07
Speaker 2: are the dollar amounts? And who are the other competitors
21:09
Speaker 2: and I think it was a reasonable ask because they
21:12
Speaker 2: need to defend themselves, and the judge said, no, that's
21:14
Speaker 2: the kind of thing that can come out in the hearing.
21:17
Speaker 1: Now, what happens next. There's a trial? Is that in house?
21:20
Speaker 2: Yes, so there is a trial just like the Croker
21:23
Speaker 2: Albertson zeal. There's a trial in federal court that's in
21:25
Speaker 2: the Southern District of New York that'll be starting in September.
21:28
Speaker 2: That's on the preliminary injunction. And then there is a
21:31
Speaker 2: Part three that's the internal hearing that would start toward
21:34
Speaker 2: the end of September. The companies ask the FTC to
21:38
Speaker 2: push the date back. It used to be customary that
21:41
Speaker 2: the part threes were always pushed back so that the
21:43
Speaker 2: preliminary injunction could be decided first, because there's no point
21:47
Speaker 2: in trying a Part three. If the companies lose the
21:49
Speaker 2: preliminary junction, they usually abandon the deal. So why waste
21:53
Speaker 2: the time starting the part three when that's usually what happens.
21:56
Speaker 2: You want to wait and see what happens in the
21:58
Speaker 2: preliminary injunction. But the FTC said no and June so interestingly,
22:03
Speaker 2: they did the same thing with Kroger and Albertson, and
22:05
Speaker 2: that internal process was supposed to start July thirty one.
22:08
Speaker 2: But the Administrative law judge, who is the chief alj
22:12
Speaker 2: the acronym for administrative law judge, and who actually is
22:16
Speaker 2: aligned with the concept that the Part three should get
22:18
Speaker 2: pushed back or stayed pending the preliminary injunction, used his
22:22
Speaker 2: own powers that he has as alj to say, we
22:25
Speaker 2: will start on July thirty first, but we're going to
22:27
Speaker 2: do the introductory notices of appearance on the record, and
22:30
Speaker 2: then I'm going to stay the entire trial until the
22:32
Speaker 2: preliminary in junction process is over. Interesting the commissioners have
22:36
Speaker 2: to decide whether to push back the start. He couldn't
22:38
Speaker 2: do that, and they ruled against that. But what he
22:41
Speaker 2: could do is stay the trial, and that's what he did.
22:43
Speaker 2: I don't know that the administrative law judge that's overseeing
22:47
Speaker 2: the Tapestry Capri deal, who is a new administrative law judge,
22:51
Speaker 2: will do the same.
22:52
Speaker 1: Who do you think has the advantage in the Tapestry Capri.
22:55
Speaker 2: I think that one's really close. You know. My gut
22:58
Speaker 2: reaction to it was exactly like you are, Oh, come on,
23:00
Speaker 2: this is a really competitive market, and how do you
23:03
Speaker 2: really define that market? I mean, this is this big
23:06
Speaker 2: span of pricing and some people will buy a lower
23:09
Speaker 2: end bag and some a higher end bag, and you
23:11
Speaker 2: can buy us designer bags for those prices. And that
23:14
Speaker 2: was my initial reaction. But you know what was telling
23:17
Speaker 2: is that when the FTC voted to sue, it was
23:20
Speaker 2: a five to zero vote, meaning the two Republicans also
23:23
Speaker 2: voted to sue, and one made a statement that she
23:26
Speaker 2: did so based on the evidence she'd seen showing that
23:29
Speaker 2: these two companies were each other's primary competitors. And that
23:31
Speaker 2: means to me there are probably a lot of documents
23:34
Speaker 2: that support the FTC's case. So I'm very much in
23:37
Speaker 2: the middle on this one. I will be going to
23:38
Speaker 2: trial and I'll have a better feel after the trial,
23:42
Speaker 2: but I'm really fifty to fifty on it.
23:44
Speaker 1: Please come back after the trial, Jen and describe what
23:47
Speaker 1: an almost luxury handbag is and how much it costs.
23:51
Speaker 1: Before you go, let's talk Google and the remedies that
23:54
Speaker 1: are possible there after that landmark decision that Google is
23:58
Speaker 1: a monopolist, Google said it will appeal the decision, but
24:02
Speaker 1: Judge A. Meta has ordered both sides to begin plans
24:06
Speaker 1: for the second phase of the case, which will involve
24:09
Speaker 1: the government's proposals for restoring competition, including a possible breakup request.
24:16
Speaker 1: So the judge has asked the Justice Department in Google
24:20
Speaker 1: to come up with a process for determining a fix
24:22
Speaker 1: by September fourth. So you know, what is the Justice
24:26
Speaker 1: Department considering here?
24:29
Speaker 2: Oh, I think they're probably considering all options and probably
24:32
Speaker 2: even getting creative coming up with things I'm sure I
24:35
Speaker 2: haven't come up with. But they won, and they won
24:38
Speaker 2: I think based on the opinion fairly resoundingly right. So
24:43
Speaker 2: I think they will definitely seek some sort of a
24:45
Speaker 2: structural breakup of the company. That could be breaking off Chrome.
24:49
Speaker 2: It could be breaking off Android. It could be breaking
24:52
Speaker 2: off a product that Google has that's called AdWords, that
24:56
Speaker 2: basically is used for selling the text advertising that comes
25:01
Speaker 2: up on a search page when you do a Google search.
25:04
Speaker 2: It could be any of those three that they seek.
25:07
Speaker 2: They could ask to ban the agreements that Google has
25:12
Speaker 2: or the payments I should say that Google makes to
25:14
Speaker 2: browser companies to set Google Search as the default, and
25:18
Speaker 2: the payments that it makes to Android phone makers to
25:20
Speaker 2: install the Google Search widget in front and center and
25:23
Speaker 2: not install competitors search widgets, and any other kind of
25:26
Speaker 2: agreements that has with other companies to install Google Search
25:30
Speaker 2: as the default at key access points to the Internet.
25:33
Speaker 2: I think they might now also ask for something called
25:36
Speaker 2: like a choice screen. If somebody buys a new Android
25:39
Speaker 2: phone and they set it up, you have a choice
25:41
Speaker 2: screen that allows them to pick which search engine they
25:43
Speaker 2: want to set as their default, rather than the phone
25:46
Speaker 2: just coming with that default already set. And I think
25:48
Speaker 2: also they may try to require Google to provide some
25:52
Speaker 2: of the click data that it's developed collected over the
25:55
Speaker 2: years through the millions and millions of searches that have
25:57
Speaker 2: been done, because that is how it's engine has improved.
26:01
Speaker 2: At least that's what the judge decided that it was
26:03
Speaker 2: that search engines to get good need scale, and scale
26:06
Speaker 2: comes from a lot of searches being done because that
26:09
Speaker 2: improves the search engine because it learns from every search.
26:12
Speaker 2: And the rivals like being in duc dot Go weren't
26:14
Speaker 2: able to develop in the same way because they were
26:17
Speaker 2: pushed out of the market by all of the default
26:20
Speaker 2: positions that Google had paid for. So it may be
26:23
Speaker 2: that the DJ asks for data to have to be
26:27
Speaker 2: shared with these rivals to allow them to try to
26:28
Speaker 2: improve their search engines.
26:30
Speaker 1: It's going to be so interesting to see whether despite
26:34
Speaker 1: all these fixes, people still want to Google. It is
26:38
Speaker 1: a verb after all. Thanks so much, Jen for taking
26:41
Speaker 1: us through all this antitrust. That's Bloomberg Intelligence senior litigation
26:45
Speaker 1: analyst Jennifer Ree turning out of other legal news. The
26:49
Speaker 1: Pregnant Workers Fairness Act has been more than a decade
26:53
Speaker 1: in the making. It was first introduced in Congress in
26:56
Speaker 1: twenty twelve and reintroduced in almost every legislate native session.
27:01
Speaker 1: The act finally passed with bipartisan support in December of
27:05
Speaker 1: twenty twenty two, but Texas Attorney General Ken Paxton sued
27:09
Speaker 1: the Biden administration last year over the massive government funding
27:14
Speaker 1: package that passed largely by proxy votes due to the
27:18
Speaker 1: COVID nineteen pandemic. Paxton focused on the PWFA in particular,
27:24
Speaker 1: saying that it put an undue burden on the state
27:26
Speaker 1: government to accommodate its pregnant employees, and then in February,
27:31
Speaker 1: a federal judge in Lubbock, Texas, ruled the PWFA was
27:35
Speaker 1: unenforceable against the state government. That ruling is now being
27:40
Speaker 1: appealed to the Fifth Circuit Court of Appeals. Joining me
27:43
Speaker 1: is Dana Boulger, Senior staff attorney. At a Better Balance,
27:47
Speaker 1: the Work and Family Legal Center tell us about the
27:50
Speaker 1: Pregnant Worker's Fairness Act.
27:52
Speaker 3: The Pregnant Worker's Fairness Act is a new federal law
27:57
Speaker 3: that requires employers to provide pregnant and postpartum workers with
28:02
Speaker 3: reasonable accommodations such as more frequent bathroom breaks or excused
28:07
Speaker 3: absences to get pre needle care, or even to rush
28:11
Speaker 3: to the emergency room for a pregnancy really complication. And
28:16
Speaker 3: before the PWFA, pregnant workers across the country had no
28:20
Speaker 3: affirmative touttle right to accommodations like these for ordinary pregnancy
28:24
Speaker 3: needs or even for serious pregnancy complications. We had the
28:28
Speaker 3: Americans with Disabilities Act, which similarly provides reasonable accommodations to
28:33
Speaker 3: workers with disabilities. But again and again courts were telling
28:36
Speaker 3: pregnant workers, you don't have a disability, so you don't
28:38
Speaker 3: have a right to reasonable accommodation. Our organization A Better
28:41
Speaker 3: Balance runs a free legal help line, and on that
28:45
Speaker 3: health line, we were hearing from hundreds of workers who
28:48
Speaker 3: were being denied even really basic accommodations that they needed,
28:52
Speaker 3: like a school to sit on during the day. One worker, Rebecca,
28:58
Speaker 3: had to occasionally do heavy lifting it work, and during
29:01
Speaker 3: her pregnance she she had asked not to lift, but
29:04
Speaker 3: her supervisor refused and told her that if she didn't,
29:07
Speaker 3: she would lose her job. That put her, like so
29:10
Speaker 3: many of the other pregnant workers that we were hearing from,
29:13
Speaker 3: in the impossible position of choosing between jeopardizing her health
29:18
Speaker 3: or losing her income, and she ultimately kept lifting and
29:22
Speaker 3: miscarried shortly thereafter.
29:24
Speaker 1: It was first introduced in twenty twelve, and then it
29:27
Speaker 1: was reintroduced in almost every legislative session after that. Why
29:32
Speaker 1: did it take so much to get this passed?
29:36
Speaker 3: You know, this is a workplace civil rights law. I
29:38
Speaker 3: wouldn't say that it's every day these days that Congress
29:41
Speaker 3: is passing workplace rights laws. But it was over the
29:45
Speaker 3: course of years and years of work that our organization
29:48
Speaker 3: and others was able to bring on board organizations like
29:52
Speaker 3: the Chamber of Commerce. The Chamber actually became a big
29:56
Speaker 3: champion of the Pregnant Workers Farness Act. It actually did
30:00
Speaker 3: the law to its Congressional score cards, so that Congress
30:04
Speaker 3: people who voted for the PWFA would be scored positively
30:08
Speaker 3: for doing so, and just generally bringing along the business
30:12
Speaker 3: community on this law became a huge asset. Businesses came
30:16
Speaker 3: to support the law because it provided a consistent national
30:21
Speaker 3: standard for what they should do when a pregnant worker
30:23
Speaker 3: needed an accommodation. It provided really key predictability to businesses,
30:29
Speaker 3: and it helped boost employee morale and retention too.
30:33
Speaker 1: Did Texas attack the entire statute?
30:37
Speaker 3: Texas sued specifically over the Pregnant Workers Fairness Acts, But
30:42
Speaker 3: the PWFA, as you're alluding to, was passed as part
30:47
Speaker 3: of this massive three trillion dollar Appropriations Act, which included
30:52
Speaker 3: other pieces of permanent legislation, not just the PWFA, and
30:56
Speaker 3: Texas's argument and the court's ultimate holding said that Congress
31:03
Speaker 3: passed the entire act unconstitutionally, not just the PWSA. So
31:08
Speaker 3: the implications here are really far reaching.
31:10
Speaker 1: And explain why the judge said that it was passed unconstitutionally.
31:16
Speaker 1: What happened during the passage?
31:18
Speaker 3: Though, the District Court held incorrectly in my view, that
31:23
Speaker 3: the Constitution requires a physically present majority or a physically
31:28
Speaker 3: present quorum to vote on legislation. Congress passed this Massive
31:34
Speaker 3: Appropriations Act using a COVID era voting rule called proxy voting,
31:40
Speaker 3: and under that a House member could designate another House
31:45
Speaker 3: member to vote for them while they were not there
31:49
Speaker 3: because of the public health emergency. And so when the
31:52
Speaker 3: Act was passed, a number of House members voted via proxy,
31:57
Speaker 3: and the District Court said that that was a constitutional
32:01
Speaker 3: and basically read into the constitution a physical presence requirement
32:05
Speaker 3: that simply isn't there.
32:07
Speaker 1: I take it that other acts were passed in the
32:09
Speaker 1: same way during the COVID era.
32:12
Speaker 3: A number of other acts were passed over the couple
32:14
Speaker 3: of years that this the voting rule was in place,
32:18
Speaker 3: but never with so many members voting via proxy that
32:22
Speaker 3: there wasn't a physically present majority there to vote on it.
32:27
Speaker 3: So this Massive Appropriations Act was a little bit unique
32:29
Speaker 3: and that so many people were voting via proxy at
32:32
Speaker 3: that time. But I think it's really worth pointing out
32:34
Speaker 3: that the number of House members that participated in this vote,
32:38
Speaker 3: it was ninety nine percent of House members, I mean,
32:41
Speaker 3: a huge participation rate. So this wasn't a situation where,
32:44
Speaker 3: you know, some tiny fraction of members were voting. This
32:47
Speaker 3: was a rigorous voting process that many people participated in.
32:51
Speaker 1: Give us a little information about the judge.
32:54
Speaker 3: Yeah, it's Judge Hendrix's. He's a Trump appointee.
32:58
Speaker 2: You know.
32:58
Speaker 3: The political ba is that this case I think are
33:01
Speaker 3: actually quite interesting. He's a Trump appointee, and you know,
33:06
Speaker 3: Texas is obviously no friend of the Biden administration, but
33:09
Speaker 3: a really broad range of stakeholders weighed in in ancus
33:15
Speaker 3: Brits in this case last week. So Mitch McConnell, of
33:18
Speaker 3: all people, certainly no friend of the Biden administration and
33:22
Speaker 3: also not a feminist firebrand in any way, actually filed
33:25
Speaker 3: a brief in support of the Pregnant Workers Bar in
33:28
Speaker 3: a fact arguing, yeah, so he I mean, he actually
33:31
Speaker 3: voted for the PWFA, which was an overwhelmingly bipartisan piece
33:35
Speaker 3: of legislation. But more than that, Senator McConnell objected to
33:41
Speaker 3: the court's intrusion in Congress's authority to set its own
33:47
Speaker 3: voting rules and procedures.
33:49
Speaker 1: So was this decision and novel decision As.
33:52
Speaker 3: Far as I'm aware, this is the first time that
33:54
Speaker 3: the proxy voting was addressed by a judge in quite
33:58
Speaker 3: this way. Publicans actually did challenge the proxy voting procedure
34:03
Speaker 3: back in twenty twenty when it was adopted, and the
34:05
Speaker 3: DC Circuit ultimately rejected the case, but on different grounds.
34:09
Speaker 1: So now what happens now? What's the next step?
34:13
Speaker 3: Briefing at the Fifth Circuit should wrap up in the
34:16
Speaker 3: next couple months. We expect oral arguments and that the
34:20
Speaker 3: Fifth Circuit will then decide the case.
34:22
Speaker 1: The Fifth Circuit is the most conservative federal appellate court
34:26
Speaker 1: in the country, and we saw how many of its
34:29
Speaker 1: cases were overturned at the Supreme Court this past term.
34:34
Speaker 1: Are you confident that Judge Hendrick's decision will be overturned
34:38
Speaker 1: or are you concerned?
34:40
Speaker 3: I mean, I'm certainly hopeful that the Fifth Circuit will
34:43
Speaker 3: look at, frankly, all the really unlikely bedfellows who came
34:47
Speaker 3: together in Amica's support in this case to raise the alarm,
34:52
Speaker 3: and that bill reverse the District Court's decision. It's worth
34:55
Speaker 3: noting that, in addition to Senator McConnell, a group of bipartisans,
35:00
Speaker 3: high ranking national security officials actually files an anarchist brief
35:04
Speaker 3: in this case as well, and they argue that the
35:08
Speaker 3: District Court's novel reading of the quorum clause to require
35:12
Speaker 3: physical presence could actually hamstring our national security at moments when,
35:18
Speaker 3: for example, DC is under attack, or there's a national
35:21
Speaker 3: public health emergency, or air traffic is shut down. And
35:26
Speaker 3: it's at those moments of attack on the United States
35:29
Speaker 3: that Congress actually most needs to act and shouldn't be
35:33
Speaker 3: paralyzed from doing so simply because all the members can't
35:36
Speaker 3: physically convene together in a single location.
35:39
Speaker 1: Now the court's injunction, does it just apply to the
35:42
Speaker 1: state of Texas exactly.
35:44
Speaker 3: It says that the EEOC and the Department of Justice
35:48
Speaker 3: cannot enforce the Pregnant Workers Fairness Act against the State
35:52
Speaker 3: of Texas. So essentially it's really weakened, quite profoundly the
35:56
Speaker 3: rights of Texas state government employees to really under the
36:00
Speaker 3: Pregnant Workers standisac But it's important for pregnant workers across
36:03
Speaker 3: the country elsewhere to know that their rights are very
36:06
Speaker 3: much still in place.
36:07
Speaker 1: I've lost track of how many times Texas has sued
36:10
Speaker 1: the Biden administration.
36:12
Speaker 3: Yeah, Texas has certainly taken the lead in trying to
36:15
Speaker 3: attack the rights of workers across the country, including pregnant workers.
36:19
Speaker 3: I think it's really notable here that so many conservatives
36:24
Speaker 3: themselves have aligned against Texas in this suit. I mean,
36:28
Speaker 3: first of all, you don't have any other states attorney's
36:30
Speaker 3: general joining Texas in this case, which is quite striking.
36:34
Speaker 3: And then of course you have Senator McConnell and former
36:38
Speaker 3: national security officials that served in Republican administrations saying whoa
36:42
Speaker 3: wo woe. Stop. This is extreme, this will hamstring the
36:46
Speaker 3: federal government. This case needs to go.
36:48
Speaker 1: Thanks so much, Dana. That's Dana Bolger, senior staff attorney
36:51
Speaker 1: at a Better Balance the Work and Family Legal Center.
36:55
Speaker 1: And that's it for this edition of the Bloomberg Law Podcast.
36:58
Speaker 1: Remember you can always get the leaf its legal news
37:00
Speaker 1: by subscribing and listening to the show on Apple Podcasts, Spotify,
37:05
Speaker 1: and at Bloomberg dot com, slash podcast, Slash Law. I'm
37:09
Speaker 1: June Grosso, and this is Bloomberg