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Federal Trade Commission v. Staples, Inc.

United States District Court, District of Columbia

May 17, 2016

FEDERAL TRADE COMMISSION, COMMONWEALTH OF PENNSYLVANIA, AND THE DISTRICT. OF COLUMBIA, Plaintiffs,
v.
STAPLES, INC. and OFFICE DEPOT, INC., Defendants.

          MEMORANDUM OPINION

          EMMET G. SULLIVAN UNITED STATES DISTRICT JUDGE.

         I. Introduction

         Drawing an analogy to the fate of penguins whose destinies appear doomed in the face of uncertain environmental changes, Defendant. Staples Inc.- ("Staples") and Defendant Office Depot, Inc. ("Office Depot") (collectively "Defendants") argue they are like "penguins on a melting iceberg, " struggling to survive in an increasingly digitized world and an office-supply industry soon to be revolutionized by new entrants like Amazon Business. Prelim. Inj. Hrg Tr. ("Hrg Tr.") 60:15 (Opening Statement of Diane Sullivan, Esq.). Charged with enforcing antitrust laws for the benefit of American consumers, the Federal Trade Commission ("FTC") and its .co-plaintiffs, the. Commonwealth of Pennsylvania and the District of Columbia, commenced this action in an effort to block Defendants' proposed merger and alleged that the merger would "eliminat[e] direct competition between Staples and Office - Depot" resulting in "significant harm" to large businesses that purchase office supplies for their own use. Compl., Docket No. 3 at ¶ 4. The survival of Staples' proposed acguisition of Office Depot hinges on two critical issues: (1) the reliability of Plaintiffs' market definition and market share analysis; and (2) the likelihood that the competition resulting from new market entrants like Amazon Business will be timely and sufficient to restore competition lost as a result of the merger.

         Subsequent to Defendants' announcement in February 2015 of their intent to merge, the FTC began an approximate year-long investigation into the $6.3 billion merger and its likely effects on competition. Defs.' Proposed Findings of Fact and Conclusions of Law ("Defs.' FOF") ¶ 58. On December 7, 2015, by a unanimous vote, the FTC Commissioners found reason to believe that the proposed merger would substantially reduce competition in violation of Section 7 of the Clayton Act and Section 5 of the FTC Act. Compl. ¶ 34. That same day, Plaintiffs commenced this action seeking a preliminary injunction pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53 (b) to enjoin the proposed merger until the FTC's administrative proceedings are complete. Pls..' Mot. Prelim. Inj., Docket No. 5 at 1.

         This antitrust case involved an extraordinary amount of work. As a result of the FTC's investigation and seven weeks of discovery, more than fifteen million pages of documents were produced, more than seventy depositions around the country were taken, and five expert reports were completed. Defs.' FOF ¶ 60. The Court presided over an evidentiary hearing and heard testimony from ten witnesses from March 21, 2016 to April 5, 2016. Id. Nearly 4, 000 exhibits were admitted into evidence. Id. ¶ 61. Despite onerous time constraints created by the nature of this unique litigation, lawyers for the parties and non-parties completed this work with civility and professionalism while demonstrating the highest level of sophistication and competency in their written and oral advocacy.[1] The Court commends the lawyers and the paralegals for their outstanding work.[2]

         At the conclusion of Plaintiffs' case, Defendants chose not to present any fact or expert witnesses, arguing that Plaintiffs failed to establish their prima facie case. Hrg Tr. 2889:20-25 (Ms. Sullivan: "It's going to be the defendants' position that we're going to rest on the record as it exists, so there'll be no need for additional evidence or rebuttal."). And, although entitled to a trial on the merits before an Administrative Law Judge at the FTC, Defendants indicated that they will not proceed with the merger if Plaintiffs' motion is granted. Hrg Tr. at 3034:18-22; Defs.' FOF ¶ 17.[3]

         Upon consideration of the evidence presented during the hearing, the parties' proposed findings of fact and conclusions of law, and the relevant legal authority, the Court concludes that the Plaintiffs have established their prima facie case by demonstrating that Defendants' proposed merger is likely to reduce competition in the Business to Business ("B-to-B") contract space for office supplies. Defendants' response relies in large part on the prospect that Amazon Business will replace any competition lost because of the merger. Although Amazon Business may transform how some businesses purchase office supplies, the evidence presented during the hearing fell short of establishing that Amazon Business is likely to restore lost competition in the B-to-B space in a timely and sufficient manner. For the reasons discussed in Section IV infra, Plaintiffs' Motion for Preliminary Injunction is GRANTED.[4]

         In Section II of this Memorandum Opinion, the Court sets forth important background information, including many critical findings of fact underpinning the Court's analysis. Section III establishes the relevant legal standard pursuant to the Clayton Act. The Court's analysis in Section IV proceeds as follows: (A) legal principles considered when defining a relevant market; (B) application of legal principles to Plaintiffs' market definition; (C) Defendants' arguments in opposition to Plaintiffs' alleged market; (D) conclusions regarding the relevant market; (E) analysis of the Plaintiffs' arguments relating to the probable effects on competition based on market share calculations; (F) Defendants' arguments in opposition to Plaintiffs' market share calculations; (G) conclusions regarding Plaintiffs' market share; (H) Plaintiffs' evidence of additional harm; (I) Defendants' response to Plaintiffs' prima facie case; and (J) weighing the equities. In Section V, the Court concludes that the proposed merger must be enjoined due to the likelihood of anticompetitive effects that would result were the merger to be consummated.

         II. Background

         A. Overview

         Every day millions of employees throughout the United States utilize office supplies in the course of their daily work. To sustain employees' use of pens, Post-it notes and paperclips, large companies purchase more than two billion dollars of office supplies from Defendants annually. Hrg Tr. 10:23-24, (Opening Statement of Tara Reinhart, Esq.). Companies that purchase office supplies for their own use operate in what the industry refers to as the B-to-B space. B-to-B customers prefer to work with one vendor that can meet all of the companies' office supply needs. Hrg Tr. at 204:1-20 (Gregg O'Neill, Category Manager for Workplace Services at American Electric Power ("AEP") testifying that because the company spends two million dollars on office supplies, its leverage with one vendor is greater than it would be if it utilized twenty vendors); Id. at 1617:1-1618:4 (Leo J. Meehan, III, CEO of WB Mason testifying about the benefits of utilizing one primary vendor, including lower prices, growth rebates, assistance with controlling leakage, etc.).

         To establish a primary vendor relationship, companies in the B-to-B space request proposals from national suppliers like Staples and Office Depot. See e.g., Hrg Tr. (AEP) 194: 10-195:16. The request for proposal ("RFP") process typically results in a multi-year contract with a primary vendor that guarantees prices for specific items, includes an upfront lumpsum rebate, and a host of other services. Pls..' Proposed Findings of Fact and Conclusions of Law ("Pls..' FOF") SISI 41-46. Because the office supplies consumed by large companies are voluminous, such companies typically pay only half the price for basic supplies as compared to the average retail consumer. Plaintiffs' Exhibit ("PX") 06100, Pls..' Expert Dr. Carl Shapiro's Report ("Shapiro Report") at 019.[5]

         B. Defendants Staples and Office Depot

         Established as big-box retail stores in the 1980s, Defendants are the primary B-to-B office supply vendors in the United States today. Hrg Tr. 59. Plaintiffs allege that Defendants sell and distribute upwards of seventy-nine percent of office supplies in the B-to-B space. Hrg Tr. 20-21. Since the 2013 merger of Office Depot and Office Max, Defendants consistently engage in head-to-head competition with each other for B-to-B contracts. See, e.g., PX04322 Staples ("SPLS") 001 (identifying only Office Depot as "Key Competitor[]").

         Staples and Office Depot are publicly traded corporations. Compl. ¶¶ 29 and 30. Staples is the largest office supplier of consumable office supplies to large B-to-B customers in the United States and operates in three business segments: (1) North American stores and online sales; (2) North American commercial; and (3) international operations. Id. ¶ 29. In fiscal year 20l4, Staples generated $22.5 billion in sales, with more than half of all sales coming from office supplies. Id. In fiscal year 2013, 34.8 percent of Staples' total revenue came from the North American commercial segment. Id.

         Office Depot is the second largest office supplier of consumable office supplies to large B-to-B customers in the Unites States. Id. ¶ 30. Like Staples, Office Depot operates in similar business segments: (1) North America retail; (2) North American business solutions; and (3) an international division. Id. In fiscal year 2014, Office Depot made $16.1 billion in revenue, with nearly half of those sales coming from office supplies and 37.4 percent of overall sales from B-to-B business. Id.

         Staples' "commercial" and Office Depot's "business solutions" segments focus on the B-to-B contracts at issue in this case. While both companies serve businesses of all sizes, this case focuses on large B-to-B customers, defined by Plaintiffs as those that spend $500, 000 or more per year on office supplies. Hrg Tr. 30:4-6. Approximately 1200 corporations in the United States are included in this alleged relevant market. Hrg Tr. 2473:17-18.

         C. FTC Investigation

         On February 4, 2015, Defendants entered into a merger agreement in which Staples would acquire Office Depot for a combination of cash and Staples' stock. Compl. ¶ 32. Shortly after the merger was announced, the FTC launched an investigation into the competitive effects of the proposed merger. Defs.' FOF ¶ 58. Ultimately, the FTC commissioners filed an administrative complaint before an FTC Administrative Law Judge ("ALJ") and also authorized the Plaintiffs to seek a preliminary injunction to prevent the Defendants from consummating the merger to maintain the status quo pending a full hearing on the merits. Compl. ¶ 34. Plaintiffs filed this suit the same day. Pls..' Mot. Prelim. Inj.

         D. Regional and local vendors

         Regional and local office supply vendors exist throughout the country. Hrg Tr. 84:2. However, they typically do not bid for large B-to-B contracts. Hrg Tr. 907:7-14 (James Moise, Senior Vice President and Chief Sourcing Officer for Fifth Third Bank testifying that regional suppliers Office Essentials and WB Mason declined to bid on their RFP); Hrg Tr. 1941:18-20 (Leonard Allen Wright, Vice President of Strategic Sourcing for Health Trust Purchasing Group ("HPG") noting that neither WB Mason nor MyOfficeProducts could meet HPG's needs nationwide). When regional office supply vendors compete for large RFPs, they are rarely awarded the contract. PX02138 (Sears (Realogy) Dep. 156: 15-21, 191:6-17) (". . .1 was concerned about [WB Mason's] ability to service the entire country . . . .") .

         WB Mason is a regional supplier that targets its business to thirteen northeastern states plus the District of Columbia (known in the industry as "Masonville"). Id. WB Mason "ranks a distant third" behind Staples and Office Depot. PX03021-002, Meehan Decl. It 6. In fiscal year 2015, WB Mason generated approximately $1.4 billion in total revenue. Id. WB Mason has no customers in the Fortune 100 and only nine in the Fortune 1000. Hrg Tr. 1611:21-1611:24. According to WB Mason's CEO, Leo Meehan, "Staples and Office Depot are the only consumable office supplies vendors that meet the needs of most large B2B customer[s] across the entire country, or even most of it." Meehan Decl. ¶ 19.

         WB Mason recently abandoned a plan to expand nationwide. Hrg Tr. 1672 (Mr. Meehan: "And then I just got cold feet about it _____.") When asked during the i 'hearing if WB Mason would accept a divestiture of cash assets from the Defendants to cover the expenses of nationwide expansion, Mr. Meehan would not commit to accepting such a proposal. Id. 1790 (Mr. Meehan: "I don't know if I would. That's a big challenge.").

         E. Amazon Business

         Amazon.com Inc.'s ("Amazon") effort to compete in the. office supply industry, including the B-to-B space, is Amazon Business. Amazon began exploring how to target companies' procurement of office supplies more than fourteen years ago. PX02166, Mendelson Dep. 178:24-179:7; Hrg Tr. 525:10-526:10. In 2002, Amazon launched an "office product store at Amazon.com, " a cooperative effort with Office Depot. Mendelson Dep. 178:24-179:7. In 2007, Amazon launched the All Business Center. Id. 175:18-176:21. In April 2012, Amazon launched Amazon Supply, a marketplace for selling a variety of products, including office supplies to business customers. Hrg Tr. 524:3-4.

         Amazon Business was launched just over one year ago, in April 2015. Amazon Business is a "top priority" for Amazon, Hrg Tr. 659:17-20, and a "must win" opportunity. Id. 660:8-14. In 2016, Amazon Business forecasts making $___ profit. Defendants' Exhibit ("DX") 05038. By 2020, Amazon Business's forecasts estimate $___ revenue, ___ percent($____) coming from the sale of basic office supplies. Hrg Tr. 719:25 - 720:3, 856: 5-16. ___ Hrg Tr. 573:3-574:24.

         Although in its infancy, Amazon's vision is for Amazon Business to be the "preferred marketplace for all professional', business and institutional customers worldwide." DX00030 at 1. Amazon Business has several undisputed strengths: tremendous brand recognition, a user-friendly marketplace, cutting edge technological innovation, and global reach.[6] Hrg Tr. 663:13 (Vice President of Amazon Business, Prentis Wilson: "We actually don't worry a lot about our competitors. Our focus has been on serving our customers."). Amazon Business also has several weaknesses with regard to its entry into the B-to-B space. One weakness is that Amazon Business" is inexperienced in the RFP process. Amazon Business has not bid on many RFPs and has yet to win a primary vendor contract. Hrg Tr. 551:11-13 ("Q: Has Amazon Business ever won an RFP for the role as primary supplier of office supplies? A: No."). Amazon Business' marketplace model is also at odds with the B-to-B industry because half of the sales made through the marketplace are from independent third-party sellers over whom Amazon Business has no control. Hrg Tr. 843: 7-9 ("Q: You have no plans to force the third parties to offer particular prices? A: No, we'll never do that. No.").

         III. Legal Standards

         A. The Clayton Act

         Section 7 of the Clayton Act prohibits mergers or acquisitions "the effect of [which] may be substantially to lessen competition, or to tend to create a monopoly, " in any "line of commerce or in any activity affecting commerce in any section of the country." 15 U.S.C. § 18. When the FTC has "reason to believe that a corporation is violating, or is about to violate, Section 7 of the Clayton Act, " it may seek a preliminary injunction under Section 13(b) of the FTC Act to "prevent a merger pending the Commission's administrative adjudication of the merger's legality." FTC v. Staples, Inc., 970 F.Supp. 1066, 1070 (D.D.C. 1997) (citing' 15 U.S.C. § 53(b)); see also Brown Shoe v. U.S., 370 U.S. 294, 317 (1962) ("Congress saw the process of concentration in American business as a dynamic force; it sought to ensure the Federal Trade Commission and the courts the power to brake this force . . . before it gathered momentum.") "Section 13(b) provides for the grant of a preliminary injunction where such action would be in the public interest-as determined by a weighing of the equities and a consideration of the Commission's likelihood of success on the merits." FTC v. Heinz Co., 246 F.3d 708, 714 (D.C. Cir. 2001) (citing 15 U.S.C. § 53(b)).

         B. Section 13(b) Standard for Preliminary Injunction

         The standard for a preliminary injunction under Section 13(b) requires plaintiffs to show: (1) a likelihood of success on the merits; and (2) that the equities tip in favor of injunctive relief. FTC v. Cardinal Health, 12 F.Supp.2d 34, 44 (D.D.C. 1998).[7] To establish a likelihood of success on the merits, the government must show that "there is a reasonable probability that the challenged transaction will substantially impair competition." Staples, 970 F.Supp. at 1072 (citation omitted) (internal quotation marks omitted). "Proof of actual' anticompetitive effects is not required; instead, the FTC must show an- appreciable danger of future coordinated interaction . based on predictive judgment." FTC v. Arch Coal, Inc., 329 F.Supp.2d 109, 116 (D.D.C. 2004) (internal quotations omitted).

         The Court's task,, therefore, is to "measure the probability that, after an administrative hearing on the merits, the Commission will succeed in proving that the effect of the [proposed] merger 'may be substantially to lessen competition, or tend to create a monopoly' in violation of Section 7 of the Clayton Act.'" Heinz, 246 F.3d at 714 (quoting 15 U.S.C. § 18). This standard is satisfied if the FTC raises questions going to the merits "so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination by the FTC in the first instance and ultimately by the Court of Appeals." Id. at 714-15 (citations omitted) (internal quotation marks omitted). As reflected by this standard, Congress' concern regarding potentially anticompetitive mergers was with "probabilities, not certainties." Brown Shoe Co., 370 U.S. at 323 (other citations omitted).

         In sum, the Court "must balance the likelihood of the FTC's success against the equities, under a sliding scale." F.T.C. v. Whole Foods Market, Inc., 548 F.3d 1028, 1035 (D.C. Cir. 2008). The equities or "public interest" in the antitrust context include: "(1) the public interest in effectively enforcing antitrust laws, and (2) the public interest in ensuring that the FTC has the ability to order effective relief if it succeeds at the merits trial." Sysco, 113 F.Supp. 3d at 86.

         Nevertheless, "[t]he issuance of a preliminary injunction prior to a full trial on the merits is an extraordinary and drastic remedy." FTC v. Exxon Corp., 636 F.2d 1336, 1343 (D.C. Cir. 1980)(citations omitted) (internal quotation marks omitted). The government must come forward with rigorous proof to block a proposed merger because "the issuance of a preliminary injunction blocking an acquisition or merger may prevent the transaction from ever being consummated." Id.

         C. Baker Hughes Burden-Shifting Framework

         In United States v. Baker Hughes, Inc., 908 F.2d 981, 982-83 (D.C. Cir. 1990), the U.S. Court of Appeals for the D.C. Circuit established a burden-shifting framework for evaluating the FTC s likelihood of success on the merits. See Heinz, 246 F.3d at 715. The government bears the initial burden of showing the merger would result in "undue concentration in the market for a particular product in a particular geographic area." Baker Hughes, 908 F.2d at 982. Showing that the merger would result in a single entity controlling such a large percentage of the relevant market so as to significantly increase the concentration of firms in that market entitles the government to a presumption that the merger will substantially lessen competition. Id.

         The burden then shifts to the defendants to rebut the presumption by offering proof that "the market-share statistics [give] an inaccurate account of the [merger's] probable effects on competition in the relevant market." Heinz, 246 F.3d at 715 (quoting United States v. Citizens & S. Nat'1 Bank, 422 U.S. 86 (1975) (alterations in original)). "The more compelling the prima facie case, the more evidence the defendant must present to rebut it successfully." Baker Hughes, 908 F.2d at 991. "A defendant can make the required showing by affirmatively showing why a given transaction is unlikely to substantially lessen competition, or by discrediting the data underlying the initial presumption in the government's favor." Id.

         "If the defendant successfully rebuts the presumption, the burden of producing additional evidence of anticompetitive effect shifts to the government, and merges with the ultimate burden of persuasion, which remains with the government at all times." Id. at 983. "[A] failure of proof in any respect will mean the transaction should not be enjoined." Arch Coal, 329 F.Supp.2d at 116. The court must also weigh the equities, but if the FTC is unable to demonstrate a likelihood of success on the •merits, the equities alone cannot justify an injunction. Id.

         IV. Discussion

         The Court's analysis proceeds as follows: (A) legal; principles considered when defining a relevant market; (B) application of legal principles to Plaintiffs' market definition; (C) Defendants' arguments in opposition to Plaintiffs' alleged market; (D) conclusions regarding the relevant market; (E) analysis of the Plaintiffs' arguments relating to the probable effects on competition based on market share calculations; (F) Defendants' arguments in opposition to Plaintiffs' market share calculations; (G) conclusions regarding Plaintiffs' market share; (H) Plaintiffs' evidence of additional harm; (I) Defendants' response to Plaintiffs' prima facie case; and (J) weighing the equities.

         A. Legal principles considered when defining a relevant market

         As discussed supra, the burden is on the Plaintiffs to show that the merger would result in a single entity controlling such a large percentage of the relevant market that concentration is significantly increased and competition is lessened. See e.g. Baker Hughes, 908 F.2d at 982. To consider whether the proposed merger may have anticompetitive effects, the Court must first define the relevant market based on evidence proffered at the evidentiary hearing. See United States v. Marine Bancorp., 418 U.S. 602, 618 (1974) (Market definition is a "'necessary predicate' to deciding whether a merger contravenes the Clayton Act."). Examination of the particular market, including its structure, history and probable future, is necessary to "provide the appropriate setting for judging the probable anticompetitive effects of the merger." FTC v. Arch Coal, Inc., 329 F.Supp.2d at 116 (quoting Brown Shoe at 322 n. 28); see also United States v. General Dynamic, 415 U.S. 486, 498 (1974). "Defining the relevant market is critical in an antitrust case because the legality of the proposed merger [] in question almost always depends on the market power of the parties involved." Cardinal Health, Inc., 12 F.Supp.2d at 45.

         Two components are considered when defining a relevant market: (1) the geographic area where Defendants compete; and (2) the products and services with which the defendants' products compete. Arch Coal, Inc., 329 F.Supp. 2d. at 119. The parties agree that the United States is the relevant geographic market. Hrg Tr. (Shapiro) 2151:23-2152:4; see also Orszag Dep. 155:15-19.[8] The parties vigorously disagree, however, about how the relevant product market should be defined.

         The Supreme Court in Brown Shoe established the basic rule for defining a product market: "The outer boundaries of a product market are determined by the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it." Brown Shoe, 370 U.S. at 325. In other words, a product market includes all goods that are reasonable substitutes, even where the products are not entirely the same. Two factors contribute to an analysis of whether goods are "reasonable substitutes": (1) functional interchangeability; and (2) cross-elasticity of demand. See e.g., Sysco, 113 F.Supp. 3d at 25-26.

         As the following discussion demonstrates, the concepts of cluster and targeted markets are critical to defining the market in this case.

         a. Consumable office supplies as cluster market

         Cluster markets allow items that are not substitutes for each other to be clustered together in one antitrust market for analytical convenience. Shapiro Report at 007 (noting that cluster markets are "commonly used by antitrust economists.") The Supreme Court has made clear that "[w]e see no barrier to combining in a single market a number of different products or services where that combination reflects commercial realities." United States v. Grinnell Corp., 384 U.S. 563, 572 (1966). Here, Plaintiffs allege that items such as pens, file folders, Post-it notes, binder clips, and paper for copiers and printers are included in this cluster market. Compl. ¶¶ 36-37. Although a pen is not a functional substitute for a paperclip, it is possible to cluster consumable office supplies into one market for analytical convenience. ProMedica Health Sys., Inc. v. FTC, 749 F.3d 559, 565-68 (6th Cir. 2014). Defining the market as a cluster market is justified in this case because "market shares and competitive conditions are likely to be similar for the distribution of pens to large customers and the distribution of binder clips to large customers." Shapiro Report at 007; see also PX02167 (Orszag Dep. 91:11-15) ("So, for example, pens may not often be substitutes for notebooks in the context of this case, but a cluster market would be the aggregation of those two and then the analysis of those together for, as we talked about earlier, analytical simplicity.").

         b. Large B-to-B customers as target market

         Another legal principle relevant to market definition in this case is the concept of a "targeted" or "price discrimination" market. According to the Merger Guidelines:

When examining possible adverse competitive effects from a merger, the Agencies consider whether those effects vary significantly for different customers purchasing the same or similar products. Such differential impacts are possible when sellers can discriminate, e.g., by profitably raising price to certain targeted customers but not to others. [...]
When price discrimination is feasible, adverse competitive effects on targeted customers can arise, even if such effects will not arise for other customers. A price increase for targeted customers may be profitable even if a price increase for all customers would not be profitable because too many other customers would substitute away.

U.S. Dep't of Justice & FTC Horizontal Merger Guidelines §3 (2010) (hereinafter Merger Guidelines).[9]

         Defining a market around a targeted consumer, therefore, requires finding that sellers could "profitably target a subset of customers for price increases ..." See Sysco, 113 F.Supp. 3d at 38 (citing Merger Guidelines Section 4.1.4.) . This means that there must be differentiated pricing and limited arbitrage. Dr. Shapiro concluded that arbitrage is limited here because "it is not practical or attractive for a large customer to purchase indirectly from or through smaller customers." Id.

         B. Application of, relevant legal principles to Plaintiffs' market definition

         The concepts of cluster and targeted markets inform the Court's critical consideration when defining the market in this case: the products and services with which the Defendants' products compete. Arch Coal, Inc., 329 F.Supp. 2d. at 119. The parties vigorously disagree on how the market should be defined. As noted supra, Plaintiffs argue that the relevant market is a cluster market of "consumable office supplies" which consists of "an assortment of office supplies, such as pens,, paper clips, notepads and copy paper, that are used and replenished frequently." Compl. ¶¶ 36-37. Plaintiffs' alleged relevant market is also a targeted market, limited to B-to-B customers, specifically large B-to-B customers who spend $500, 000 or more on office supplies annually. Hrg Tr. 30:4-6.[10]

         Defendants, on the other hand, argue that Plaintiffs' alleged market definition is wrong because it is a "gerrymandered and artificially narrow product market limited to some, but not all, consumable office supplies sold to only the most powerful companies in the world." Defs.' FOF ¶ 4 (emphasis in original). In particular, Defendants insist that ink and toner must be included in a proper definition of the relevant product market. Id. ¶ 101. Defendants also argue that no evidence supports finding sales to large B-to-B customers as a distinct market. Id. ¶ 77.

         1. Brown Shoe "Practical Indicia"

         The Brown Shoe practical indicia support Plaintiffs' definition of the relevant product market. The Brown Shoe "practical indicia" include: (1) industry or public recognition of the market as a separate economic entity; (2) the product's peculiar characteristics and uses; (3) unique production facilities; (4) distinct customers; (5) distinct prices; (6) sensitivity to price changes; and (7) specialized vendors. Brown Shoe, 37 0 U.S. at 325. Courts routinely rely on the Brown Shoe factors to define the relevant product market. See, e.g. Staples, 970 F.Supp. at 1075-80; Cardinal Health, 12 F.Supp.2d at 46-48; FTC v. Swedish Match, 131 F.Supp.2d 151, 159-64 (D.D.C. 2000); FTC v. CCC Holdings, 605 F.Supp.2d 26, 39-44 (D'.D.C. 2009); United States v. H & R Block, 833 F.Supp.2d 36, 51-60 (D.D.C. 2011) -[11]

         The most relevant Brown Shoe indicia in this case are: (a) industry or public recognition of the market as a separate economic entity; (b) distinct prices and sensitivity to price changes; and (c) distinct customers that require specializ-ed vendors that offer value-added services, including: (i) sophisticated information technology (IT) services; (ii) high quality customer service; and (iii) expedited delivery.

         a. Industry or public recognition of the alleged market as a separate economic entity

         Vendors in the office supply industry identify customers according to how much they spend annually and recognize B-to-B customers as a distinct group. Shapiro Report 006-008. For example, Staples defines "Enterprise" customers as those who spend over $1 million per year, "Commercial" customers as those who spend between $100, 000 and $1 million'per year,, and "mid-market" customers as those who spend between $6, 000 and $100, 000 per year. PX04062 (SPLS) at 009; PX04088 (SPLS) at 23. Office Depot maintains similar categories. PX02002 (Calkins, Office Depot ("ODP") IH 85:16-86:7). According to Staples, the $500, 000 spend mark ...


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