Staples judge slams FTC on Amazon testimony in merger case

March 25, 2016

A federal judge criticized the U.S. Federal Trade Commission for attempting to elicit false information from an Amazon.com Inc. executive to support its lawsuit to block Staples Inc.’s takeover of rival Office Depot Inc.

U.S. District Judge Emmet Sullivan in Washington said Wednesday it’s "very disturbing" when the U.S. tries to persuade a witness "to say something for the benefit of the United States of America that is not true," according to a transcript of the hearing.

Sullivan made the comments after Prentis Wilson, a vice president of a new Amazon unit that sells office supplies to companies, testified in the trial over the $6.3 billion deal about Amazon’s capabilities for entering the market.

Wilson testified that in discussions with the FTC before the trial, the agency had suggested that Wilson say in a statement that Amazon doesn’t believe it will be in a position to bid on office supply contracts with large businesses until early 2017, according to a transcript of a closed-door session during the trial.

“And that wasn’t true, was it?” the judge asked Wilson.

“That’s why we were unwilling to say that,” the Amazon executive answered. “We weren’t sure if that was going to be true or not.”

“Were you surprised that the government was telling you what to say and not say?” Sullivan said.

“Yes,” Wilson replied, subsequently adding, “I was signing this thing, it was going to be factual.”

Tara Reinhart, a lawyer for the FTC, told Sullivan that the agency "certainly never asked" Wilson to say something "that wasn’t true." The agency said in a court filing dated March 2 and made public late Wednesday that the process used to develop Wilson’s declaration wasn’t "unusual or inappropriate."

Shares of Staples and Office Depot surged Thursday on investor speculation that the deal can overcome the FTC’s objections. Staples shares were up 7 percent to $10.75 after jumping as much as 10 percent in New York, the best intraday performance since February 2015. Office Depot rose 9 percent to $6.92 after soaring as much as 14 percent, also the biggest rally in more than a year.

Wilson was called to testify by the FTC, which sued Staples in December, about Amazon’s nascent business selling office supplies to corporations. Amazon’s entry into the office-supply market is central to the case because Staples and Office Depot claim the online retailer will be a formidable competitor to an enlarged Staples. The agency says that the two companies dominate the market for sales to large corporate customers and the tie-up would lead to higher prices for corporate customers.

Responding to FTC questioning on Tuesday, Wilson said Amazon had secured only one contract from a company with more than $250 million in revenue. On Wednesday, in response to questions from a lawyer for Staples, Wilson said that overall, about 300,000 businesses had opened accounts with Amazon in the first 11 months of its Amazon Business service.

Wilson’s lawyer, William Monts of Hogan Lovells US LLP, didn’t reply to an emailed request for comment on the in-court exchange. FTC spokeswoman Betsy Lordan and Craig Berman, an Amazon spokesman, declined to comment.

Wilson wasn’t the only FTC witnesses whose testimony came under Sullivan’s scrutiny. Sullivan also questioned comments by a McDonald’s Corp. executive on March 22 who said the merger would lead to higher prices of office supplies for the restaurant chain and that it wouldn’t be practical to do business with a number of smaller vendors as an alternative to Staples, according to a transcript.

If McDonald’s can source food all over the world from multiple vendors, why can’t it do the same for office supplies, Sullivan asked.

"If the merger goes through and the contract is terminated, you’re going to have to figure out a way to do business, right?" Sullivan asked Jason Cervone, a global sourcing and procurement manager at McDonald’s.

"Right, and it would not be favorable to McDonald’s at all," Cervone said.

"That’s what I find hard to believe," Sullivan said, "because that – this worldwide conglomerate, you know, that’s been highly successful, I’m actually kind of shocked you said that."

The case is Federal Trade Commission v. Staples Inc., 15-cv-2115, U.S. District Court, District of Columbia (Washington).


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