TABLE OF CONTENTS

Page

ARGUMENT................................................................................................................................... 3

I.......... THE DISTRICT COURT’S DECISION WILL PREVENT STATES FROM EFFECTIVELY ENFORCING THEIR ANTITRUST LAWS........................................................................ 3

A........ States have the independent discretion to enforce their antitrust laws or to challenge a merger 3

B......... Puerto Rico’s decision to challenge a merger occurring entirely within its border is a valid exercise of its police powers........................................................................................................ 5

II......... PUERTO RICO’S LEGITIMATE EFFORTS TO ENFORCE ITS ANTITRUST LAWS AND PREVENT WAL-MART FROM OBTAINING MONOPSONY POWER DID NOT VIOLATE THE COMMERCE CLAUSE....................................................................................................... 9

A........ The decision below is inconsistent with a long and well-established precedent rejecting Commerce Clause challenges to state antitrust laws.................................................................... 10

B......... Puerto Rico’s efforts to prevent Wal-Mart from obtaining and abusing monopsony power did not violate Wal-Mart’s rights under the Commerce Clause............................................. 12

C........ Making requests and taking certain positions throughout the course of a negotiation does not constitute an action placing an undue burden on interstate commerce......................... 16

III....... ALLOWING WAL-MART TO EVADE ANTITRUST SCRUTINY THROUGH A LEGALLY UNSUPPORTABLE SELECTIVE OR VINDICTIVE ENFORCEMENT CLAIM WILL UNDERMINE EFFORTS BY FEDERAL AND STATE ENTITIES TO ENFORCE THEIR ANTITRUST LAWS 17

A........ Wal-Mart failed to demonstrate that it was a class of one treated differently by Puerto Rico from others similarly situated............................................................................................ 18

B......... The efforts of the PRSOJ to enforce Puerto Rico’s antitrust laws did not constitute vindictive enforcement............................................................................................................. 21

CONCLUSION............................................................................................................................. 23

TABLE OF AUTHORITIES

Page

FEDERAL CASES

California v. Am. Stores Co., 495 U.S. 271 (1990)................................................................. 2, 4, 5

California v. Am. Stores Co., 872 F.2d 837 (9th Cir. 1989)............................................................ 4

California v. Arc Am. Corp., 490 U.S. 93 (1989)................................................................... passim

Campagna v. Mass. Dep’t of Envtl. Prot., 206 F. Supp. 2d 120 (D. Mass. 2002)........................ 19

Chambers v. City of Calais, 2001 WL 727038 *2 (D. Me. June 26, 2001)................................... 20

City of Pittsburgh v. Macy Dep’t Stores, 1986-2 Trade Cas. (CCH) ¶ 67,340 (W.D. Pa. 1986).... 7

Connecticut v. Koninklijke Ahold, NV, et al, Civ. Act No. 396CV01349

..... (D. Conn. July 23, 1996)............................................................................................................. 6

Connecticut v. Wyco New Haven, Inc., 1990-1 Trade Cas. (CCH) ¶ 69,024 (D. Conn. 1990)........ 7

Connecticut and Rhode Island v. Suiza Foods, Inc., No. 301CV1178 (D. Conn. 2001)................. 6

Donovan v. City of Haverhill, 311 F.3d 74 (1st Cir. 2002)........................................................... 18

Exxon Corp. v. Governor of Maryland, 437 U.S. 117 (1978)............................................ 2, 10, 11

F.T.C. v. Mylan Labs. Inc., 62 F. Supp. 2d 25 (D.D.C. 1999)......................................................... 6

Futernick v. Sumpter Township, 78 F.3d 1051 (6th Cir.1996)...................................................... 21

Knevelbraard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000).............................. 11, 13

Leach v. Manning, 105 F. Supp. 2d 707 (E.D. Mich. 2000)........................................................... 22

Maine v. Key Bank of Maine, Inc., 1991-2 Trade Cas. (CCH) ¶ 69,649 (D. Me. 1991).................. 7

Massachusetts v. Campeau Corp., 1988-1 Trade Cas. (CCH) ¶ 68,093 (D. Mass. 1988)........... 7, 8

Massachusetts v. Doane Beal & Ames, Inc., 1994-1 Trade Cas. (CCH) ¶ 70,516 (D. Mass. 1994) 7

Massachusetts v. Stop & Shop Cos., No. 95-12377NG (D. Mass. 1995)........................................ 8

Rhode Island v. Koninklijke Royal Ahold NV, CA No. 96-405 (D.R.I. 1996)................................. 8

Rubinovitz v. Rogato, 60 F.3d 906 (1st Cir. 1995)......................................................................... 19

Telecor Communications, Inc. v. Southwestern Bell, 305 F.3d 1124 (10th Cir. 2002).................. 13

Todd v. Exxon, 275 F.3d 191 (2nd Cir. 2001)......................................................................... 13, 15

Toys R Us v. FTC, 221 F.3d 928 (7th Cir. 1999)..................................................................... 13, 15

United States v. Cargill, Inc. and Continental Grain Corp., 1:99CV01875

..... (D.D.C. July 23, 1999).............................................................................................................. 13

United States, et al. v. Echostar Communications Corp., 1:02CV02138 (D.D.C. 2002)............... 6

United States v. Lanove, 137 F.3d 656 (1st Cir. 1998)................................................................. 21

United States v. Pennzoil, 252 F. Supp. 962 (W.D. Pa. 1965)...................................................... 14

United States v. Rice Growers, 1986-2 Trade Cas. (CCH) ¶ 67,288 (E.D. Cal. 1986).................. 14

Village of Willowbrook v. Olech, 528 U.S. 562 (2000)................................................................. 17

Vogel v. Am. Soc’y of Appraisers, 744 F.2d 598 (7th Cir. 1984)................................................... 14

Wojik v. Mass. Lottery Comm’n, 300 F.3d 92 (1st Cir. 2002)....................................................... 18

STATE CASES

Alaska v. Safeway, Inc., 1999 WL 1209785 (Alaska Sup. Apr. 13, 1999)....................................... 8

Texas v. Coca-Cola Bottling Co. of the Southwest, 1986-1 Trade Cas. (CCH) ¶ 67,169 (Tex. Dist. Ct. 1986)................................................................................................................................................... 7

Texas v. Mid-America Dairymen, Inc., 1997 WL 669970 (Tex. Dist. Ct. Sept. 3, 1997)................. 6

FEDERAL STATUTES

15 U.S.C. § 18 ................................................................................................................................ 7

15 U.S.C. § 18(a)).......................................................................................................................... 18

ARTICLES, PUBLICATIONS, AND SECONDARY SOURCES

AAI, Public Comment to the FTC, Matter No. 021-0090, December 20, 2002........................... 8, 13

ABA Section of Antitrust Law, Antitrust Federalism: The Role of State Law, 10 (1988)............... 10

ABA Antitrust Section, State Merger Enforcement (1995)............................................................... 6

Areeda, Hovenkamp & Solow, Antitrust Law ¶ 980 (rev. ed. 1998)................................................ 14

Roger D. Blair & Jeffery L. Harrison, Antitrust Policy and Monopsony, 76 Cornell L. Rev. 297, 306 (1991) 12, 13

Jose L. Carmona, Ferre-Rangel: Decision to Sell Puerto Rican Cement Difficult, Caribbean Business, Construction, June 20, 2002...................................................................................................... 20

CB & WOW News, Dean Foods signs agreement to sell Suiza to Grupo Gloria, Caribbean Business, Retail, November 14, 2002.................................................................................................................. 19

CB & WOW News, V. Suarez Acquires Cadierno Corp., Caribbean Business, Retail, May 10, 2001 20

FTC and DOJ Horizontal Merger Guidelines §0.1.................................................................... 6, 14

FTC HSR Annual Report to Congress 2001 at 5............................................................ 6

GAO, Federal Trade Commission, Study Needed to Assess the Effects of Recent Developments on Competition in Retail Markets at 4 (2002)................................................................................ 8

Herbert Hovenkamp, State Antitrust in the Federal Scheme, 58 Ind. L.J. 375, 386 (1983)............. 9

Robert H. Lande, When Should States Challenge Mergers: A Proposed Federal/State Balance, 35 N.Y. L. Sch. L. Rev. 1047, 1052 (1990).................................................................................................. 9

Jon Lauck, Toward an Agrarian Antitrust: A New Direction for Agricultural Law, 75 N.D. L. Rev. 449, 474 (1999)....................................................................................................................................... 15

Commissioner Thomas B. Leary, Guidelines for Merger Remedies: Prospects and Principles, Joint U.S./E.U. Conference, Paris, France, January 17, 2002............................................................................. 18

Richard Mosk, State Antitrust Enforcement and Coordination with Federal Enforcement, 21 A.B.A. Antitrust Section 358, 363 (1962)............................................................................................................. 3

NAAG Antitrust Rep., Mar. 4, 1998........................................................................................ 6

NAAG Horizontal Merger Guidelines (1993).................................................................................. 6

New York v. Great Atlantic & Pacific Tea Co., 55 Antitrust & Trade Reg. Rep. (BNA) 1073-74 (Dec. 22, 1988)...................................................................................................................................... 7, 8

New York v. R.H. Macy & Co., 54 Antitrust & Trade Reg. Rep. (BNA) 502-3 (Mar. 24, 1988)....... 7

BRIEF OF THE AMICUS CURIAE

The Organization for Competitive Markets (“OCM”), the Puerto Rico Farm Bureau (“PRFB”), and Professor Joseph Brodley submit this brief in support of the Commonwealth of Puerto Rico and respectfully request that the decision of the District Court of Puerto Rico be reversed.

Identity and Interests of the Amicus Curiae

OCM is a multidisciplinary nonprofit group comprised of farmers, ranchers, academics, attorneys, political leaders and business people. OCM provides research, information and advocacy towards a goal of increasing competition in the agricultural marketplace and protecting those markets from abuses of corporate power. The President of OCM is Thomas F. Stokes, a cattle rancher. OCM has listed the names of all of the members of its Board of Directors in Exhibit A attached hereto. OCM recognizes that States have played a vital role in enforcing both Federal and State antitrust laws and must continue to do so to increase competition in the agricultural marketplace and protect those markets from abuses of corporate power.

PRFB is a nonprofit organization formed in 1924 by farmers, fishermen, merchants, businessmen, and agriculture professionals. PRFB represents farmers and fishermen before the agencies, departments, and sections of the Federal and State governments and negotiates measures for the betterment of the country’s agricultural interests. The President of PRFB is Ramon Gonzales, and PRFB has listed the names of all of the members of its Board of Directors in Exhibit B attached hereto.

Professor Joseph F. Brodley is The Honorable Frank R. Kenison Distinguished Scholar in Law and Professor of Law at the Boston University School of Law. He is recognized nationally and internationally for his experience in antitrust issues.

The decision below will severely impair the ability of states to enforce their antitrust laws and is inconsistent with the precedent of the Supreme Court and this Court. The Supreme Court has declared that antitrust “is an area traditionally regulated by the states…. Congress intended the federal antitrust laws to supplement, not displace, state antitrust remedies.” California v. Arc America Corp., 490 U.S. 93, 102 (1989) (quotations omitted). In a case remarkably similar to this one, the Court permitted California to seek to enjoin a significant supermarket merger even though the FTC had resolved its concerns with a modest divestiture, holding that state antitrust enforcement officials can seek relief above and beyond the relief sought by a Federal enforcement agency. California v. American Stores Co., 495 U.S. 271 (1990). Remarkably, the district court fails even to cite Arc America and American Stores in its decision enjoining Puerto Rico from enforcing its laws before its courts. No case in modern jurisprudence has struck down a state antitrust enforcement action on Constitutional grounds, and there has never been a decision enjoining a state merger enforcement action on that basis.

The holding of the court below that Puerto Rico violated Wal-Mart’s Constitutional rights by seeking to enforce its facially neutral antitrust laws is inconsistent with Commerce Clause and Equal Protection jurisprudence. It is undisputed that the Puerto Rico antitrust law is facially neutral, and the Supreme Court has clearly articulated that it will not strike down a state’s enforcement of a facially neutral antitrust law based on allegations that it violates the Commerce Clause. Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 128 (1978). The court below mischaracterizes the legitimate efforts of the Puerto Rican Secretary of Justice (“PRSOJ”) to prevent Wal-Mart from obtaining monopsony power as discriminating against interstate commerce. Moreover, the court holds that Puerto Rico engaged in selective prosecution because it had not brought merger enforcement actions in connection with three other recent mergers. There is no evidence, however, that Wal-Mart was similarly situated to the parties in the other mergers reviewed in Puerto Rico. The lower court’s ruling would permit creative defendants to enjoin practically any merger enforcement action as “selective prosecution” merely by reference to other mergers that were not challenged even where they bear no similarities to the transaction at issue.

ARGUMENT

I. THE DISTRICT COURT’S DECISION WILL PREVENT STATES FROM EFFECTIVELY ENFORCING THEIR ANTITRUST LAWS

A. States have the independent discretion to enforce their antitrust laws or to challenge a merger

States may exercise their own independent judgment in deciding whether they should challenge a merger, regardless of what actions the Federal Trade Commission (“FTC”) has taken action to challenge the same merger. The contention of the court below that the states should defer to, or are preempted by, the FTC is incorrect as a matter of law. In enacting a federal antitrust regime, Congress did not preempt existing state antitrust laws but merely added a new layer of enforcement to the already twenty-one state antitrust enforcement regimes in effect at the time.[1] Federal courts have recognized that States may enforce their own antitrust laws and have the ability to initiate private actions to challenge anticompetitive behavior under Federal antitrust law. California v. American Stores Co., 495 U.S. 271 (1990). The lower court’s decision diminishes the states’ long-standing right separately to enforce state and federal law.

The Supreme Court has repeatedly held that Federal antitrust law does not preempt the ability of States to enforce their own antitrust laws. In California v. Arc America Corp., the Supreme Court acknowledged that States – through their own antitrust regimes - could offer relief to a greater scope of plaintiffs than that provided under the equivalent federal antitrust laws. 490 U.S. 93 (1989). The Court specifically found that federal law did not preempt the various state antitrust laws at issue even though they permitted indirect purchasers to recover overcharges while Federal law did not. The Court declared “given the long history of state common-law and statutory remedies against monopolies and unfair business practices it is plain that [antitrust] is an area traditionally regulated by the states.” Id. at 101. The Supreme Court recognized that given the history of state regulation, “Congress intended the Federal antitrust laws to supplement, not displace, state antitrust remedies.” Id. at 102, quoting 21 Cong. Rec. 2457 (1890) (remarks of Sen. Sherman). The Court concluded that state causes of action are not preempted “solely because they impose liability over and above that authorized by federal law.” Id. at 105.

Even in instances when a federal antitrust agency has taken action to challenge a merger, state antitrust enforcement officials are free to exercise their discretion and initiate a separate challenge. In California v. American Stores Co., the Supreme Court addressed California’s suit under Federal antitrust laws challenging the merger of two supermarket chains, American Stores and Lucky’s. The FTC permitted the merger after negotiating a divestiture of 37 stores. After the FTC approved the merger, California brought a separate suit seeking the divestiture of all 262 Lucky’s stores. The district court granted the divestiture, but the defendants appealed arguing that California was unlikely to prevail because the FTC order resolved the competitive issues. The Ninth Circuit rejected the argument holding that “private and public Clayton Act actions were designed to be cumulative, not mutually exclusive . . . . California may have different interests than does the FTC in protecting its citizens from antitrust violations.” California v. American Stores Co., 872 F.2d 837, 843 (9th Cir. 1989). The Ninth Circuit, however, declined to enter the injunction, holding that a federal court lacked the power to enjoin a merger challenge brought by a state under Section 16 of the Clayton Act.

The Supreme Court reversed and in doing so recognized the concurrent nature of antitrust enforcement. “The Act’s other provisions manifest a clear intent to encourage vigorous private litigation against anticompetitive mergers . . . . Private enforcement of the Act was in no sense an afterthought; it was an integral part of the congressional plan for protecting competition.” American Stores, Co., 495 U.S. at 284. The American Stores Court never questioned California’s ability to sue under the federal antitrust laws or to seek additional remedies after the FTC had already conducted its investigation and settled with the merging parties.

American Stores is almost directly on point with the facts here. California, like Puerto Rico, challenged a supermarket merger after the FTC had settled with the parties. Quite surprisingly, the opinion of the court below ignores American Stores and Arc America altogether. The clear disregard for the Supreme Court precedent is grounds alone for reversal of the entire lower court ruling.

B. Puerto Rico’s decision to challenge a merger occurring entirely within its border is a valid exercise of its police powers

Arc America and American Stores unambiguously demonstrate Puerto Rico’s challenge to the proposed merger between Wal-Mart and Amigo was a legitimate antitrust enforcement action. Federal enforcement powers were never intended to preempt a state from enforcing its own antitrust laws. State and private antitrust actions serve as a check on, and fill gaps in, federal enforcement efforts.

Like Puerto Rico, all states have passed statutes under which anticompetitive mergers can be challenged.[2] Although states frequently join the federal agencies in bringing enforcement actions,[3] in some cases, the states may demand and secure relief that is more extensive than that requested by the federal authorities.[4] In other cases, states have brought enforcement actions where the federal government has chosen not to act.[5] This result is not surprising, because the federal antitrust authorities have limited resources to investigate mergers and are hesitant to expend these limited resources on mergers with a strictly intrastate character.[6]

The decision of the Court below disregards the well-established power of States to enforce their antitrust laws, challenge mergers raising competitive concerns, and enter into consent decrees resulting in divestitures.[7] The District Court improperly concluded that the FTC’s decision to approve the merger preempted the ability of the PRSOJ to make an independent determination regarding the merger’s impact on competition:

It is in the best interest of the people of Puerto Rico that under circumstances such as this one, where a federal and a state agency are conducting parallel investigations and one has more resources available to it than the other, their government recognizes with full faith and credit the decisions of a federal agency such as the FTC when there is no indication that such decision was incorrect or unjust.

Opinion, at 52. (emphasis added). The District Court’s decision precludes Puerto Rico from enforcing its antitrust, a decision even more remarkable because the FTC had already decided that the merger violated Section 7 of the Clayton Act. 15 U.S.C. § 18.

There is no legal support for the District Court’s novel proposition that a state cannot enforce its antitrust laws because its judgment differs from that of the FTC. In fact, this proposition is wholly contradictory to the Supreme Court’s holdings in Arc America and American Stores. A merger occurring entirely within the Commonwealth of Puerto Rico clearly falls within the scope of Puerto Rico’s police power to regulate anticompetitive behavior. This is particularly true in the case of a supermarket merger, where the predicted effects are entirely local and intrastate. Moreover, the lower court’s decision ignores the fact that State enforcers are in a better position to investigate the uniquely local competitive issues that are critical when analyzing cases such as supermarket mergers.[8]

The district court further reveals its lack of understanding of Federal and State antitrust enforcement, when it asserted that “all . . . concerns had been resolved by the FTC under the appropriate and applicable divestiture guidelines which were lacking in the PRDOJ.” Opinion, at 17. The district court clearly fails to recognize the fact that there are no FTC divestiture guidelines. The FTC has acknowledged that “particular divestiture approaches are . . . based on the unique facts of each case and do not readily translate into written guidelines.” GAO, Federal Trade Commission, Study Needed to Assess the Effects of Recent Developments on Competition in Retail Markets at 4 (2002). There is not a set formula for determining whether to seek a divestiture. Given the Supreme Court’s view that Federal and State enforcement agencies are free to exercise their own judgment, it should be expected that at times their determinations would differ. In this instance, Puerto Rico was responding to the serious concerns about whether the merger would lead to the exercise of monopsony power and whether the divestiture was an arms-length transaction – concerns raised by several public commentators before the FTC.[9] The decision of the court below would deprive all State antitrust enforcement agencies of addressing similar concerns in their respective states once the FTC has made its determination.

II. PUERTO RICO’S LEGITIMATE EFFORTS TO ENFORCE ITS ANTITRUST LAWS AND PREVENT WAL-MART FROM OBTAINING MONOPSONY POWER DID NOT VIOLATE THE COMMERCE CLAUSE

By holding that Wal-Mart was likely to prevail in its Commerce Clause claim, the decision below effectively deprives Puerto Rico of its legitimate right to enforce its merger laws. The decision is unprecedented. In more than a century of antitrust jurisprudence, it is the first case to block a state’s efforts to enjoin a potentially anticompetitive merger under state law.[10] State antitrust laws and state enforcement efforts are rarely preempted by the application of the Commerce Clause because, as the Supreme Court has recognized, antitrust is an area of the law “traditionally regulated by the states . . . Congress intended the federal antitrust laws to supplement, not displace state antitrust remedies.” California v. Arc America Corp., 490 U.S. 93, 102 (1989). As one survey of commerce clause challenges to state antitrust statutes observes, “nearly all cases that condemn [the application of state antitrust laws on Commerce Clause grounds] were decided before 1935, when judges had a much more restrictive view of the power of the states to regulate in interstate commerce, or to exercise jurisdiction over persons outside the state.” Herbert Hovenkamp, State Antitrust in the Federal Scheme, 58 Ind. L.J. 375, 386 (1983). The magnitude of the District Court’s erroneous application of the Commerce Clause is compounded by the fact that this case involves a purely intrastate merger that the FTC held violated the Clayton Act and required the divestiture of four stores.

A. The decision below is inconsistent with a long and well-established precedent rejecting Commerce Clause challenges to state antitrust laws.

Unless the state antitrust law or enforcement action poses a threat to uniformity of law, a merging party cannot claim that the state enforcement of a neutral antitrust law violates its rights under the Commerce Clause merely because the regulation has an effect on interstate commerce. Wal-Mart’s claim based on an alleged violation of the Commerce Clause ignores the fact that “concurrent state [antitrust] jurisdiction over activities affecting interstate commerce seems settled.” ABA Section of Antitrust Law, Antitrust Federalism: The Role of State Law, 10 (1988). The Supreme Court and other Federal Courts have addressed the issue of whether antitrust laws violate the Commerce Clause and have universally rejected any attempt to strike down an antitrust law based on a Commerce Clause claim.

In Exxon Corp. v. Governor of Maryland, 437 U.S. 117 (1978), the Supreme Court clearly established that States may enact and enforce their antitrust laws, even those that have differing impacts on in-state and out-of-state entities, without violating the Commerce Clause. The Exxon plaintiffs, various out-of-state oil companies, alleged that a Maryland antitrust statute, which provided that “producers or refiners of petroleum products could not operate any retail service stations within Maryland and required all temporary price reductions to be extended uniformly to all service stations supplied,” violated the Commerce Clause. Id. at 117. The out-of-state oil companies contended that the statute violated the Commerce Clause, because “the effect of the statute is to protect in-state independent dealers from out-of-state competition.” Id. at 125. They supported this proposition by arguing that “the burden of the divestiture requirement falls solely on interstate companies.” Id. The Court rejected the plaintiffs’ claims, holding that the fact that the divestiture requirement only affected interstate companies “does not lead, either logically or as a practical matter, to a conclusion that the State is discriminating against interstate commerce.” Id. Plaintiffs also argued that the statute violated the Commerce Clause, because it weakened interstate businesses and “interfered with the natural functioning of the interstate market either through prohibition or through burdensome regulation.” Id. at 127 (quotations omitted). Once again, the court rejected the plaintiffs’ contention, observing, “the [Commerce] Clause protects the interstate market, not particular firms, from prohibitive or burdensome regulation.” The court concluded that it could not strike down this statute for being in violation of the Commerce Clause absent “a relevant congressional regulation of policy, or a showing of a specific discrimination against, or burdening of, interstate commerce.” Id. at 128–29.

States have also gone as far as to regulate and challenge activities in violation of antitrust laws that occur in other states without running afoul of the Commerce Clause. In Knevelbraard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000), the court allowed private milk producers to bring a claim under California’s antitrust law to challenge a conspiracy on the part of cheese manufacturers to depress the price they paid for milk. The plaintiffs alleged that the National Cheese Exchange (“NCE”), an out-of-state entity, “rigged the price for bulk cheese in order to depress their acquisition costs both for that commodity and for milk.” Id. at 982. NCE argued that because the alleged conspiracy took place outside of California and involved interstate commerce, allowing an action to proceed based on a state antitrust law “would run afoul of the Commerce Clause.” Id. The Court rejected this argument and allowed the dairy producers to bring a claim based on a state antitrust law, recognizing that “the Supreme Court has made clear that neither the Sherman Act nor the Commerce Clause preempts state antitrust laws.” Id.

The decision of the court below is inconsistent with Exxon and Knevelbraard. The Court fails to recognize the legitimate interests of Puerto Rico to protect its citizens from the unlawful aggregation of market power. The district court ignores the clear intent of Congress to allow States to continue to enforce their antitrust laws without fear of running afoul of the Commerce Clause.

B. Puerto Rico’s efforts to prevent Wal-Mart from obtaining and abusing monopsony power did not violate Wal-Mart’s rights under the Commerce Clause

When contemplating whether to formally challenge the Wal-Mart-Amigo merger, Puerto Rico expressed concerns, inter alia¸ over the increase in buying power that Wal-Mart would obtain as a result of the merger. Puerto Rico’s attempts to negotiate concessions from Wal-Mart to “maintain a high level of purchases from local suppliers, distributors, and manufacturers” reflected Puerto Rico’s legitimate goal of preventing Wal-Mart from aggregating monopsony power. Opinion, at 40. The lower court attempts to dismiss these concerns as “protectionism itself, or promoting in-state business by discriminating against out-of-state participants” but fails to recognize that Wal-Mart’s increased monopsony power resulting from the acquisition of Amigo was a legitimate antitrust concern.

Monopsony power has been characterized as “to the demand side of a market what monopoly power is to the supply side.” Roger D. Blair & Jeffery L. Harrison, Antitrust Policy and Monopsony, 76 Cornell L. Rev. 297, 306 (1991). A buyer gains monopsony power when the entity, or a small group of entities acting in concert, becomes the dominant buyer in a given market. This creates the ability to force “input prices below competitive levels, which requires the ability to restrict the quantity demanded of the input. Id. In the last four years, the Second,[11] Seventh,[12] Ninth[13] and Tenth[14] Circuits have all recognized that monopsony power is a legitimate cause of concern for antitrust law and enforcement agencies.[15] The competitive harms that result from monopsony power are two fold. First sellers are harmed because they are denied access to a competitive market into which they can sell their goods, see, e.g., Knevelbraard Dairies, (dairy farmers in California were the alleged victims of a scheme by the dominant buyers of cheese to drive down cheese prices and consequently milk prices), or services, see, e.g., Todd v. Exxon (employees of oil and gas companies authorized to pursue action against their employers for allegedly conspiring to depress wages). Over time, such harms have an adverse impact on the entire economy depriving producers and workers of income with which to buy goods and services. Second, consumers can be directly harmed when buying power is used to exclude or coordinate competition in the selling market, see, e.g., Toys R Us v. FTC (dominant toy retailer, with 20% national market share, unlawfully used its buying power to cause toy-makers to deny desirable products to its discount competitors).

Governmental guidelines recognize that monopsony power is just as bad as monopoly power and thus judge mergers that create excess buyer market concentration under the same rules as mergers that create excess seller market concentration.[16] In this case, Puerto Rico was concerned that Wal-Mart might use its monopsony power to harm producers or injure Wal-Mart’s rival retailers by coercing producers not to offer Wal-Mart’s rivals favorable terms of sale. This type of conduct is currently under investigation by Mexico’s Federal Competition Commission. Mexican suppliers have alleged that Wal-Mart “exerts undue pressure on suppliers to lower their prices, and sanctions them by removing their products from their stores if they participate in promotions organized by their rivals.” Geri Smith, Mexico’s War of the Megastores, Business Week, September 16, 2002, at 2.[17]

The court below is oblivious to the legitimate monopsony concerns, simply observing that “the antitrust laws which Defendant invokes as her source of authority to interfere in Plaintiffs’ transaction are intended to protect merger and not competitors, or suppliers, distributors, and manufacturers for that matter.” Opinion, at 41. This completely ignores the legitimate monopsony power concerns raised by this combination and fails to acknowledge that assessing monopsony power requires a different approach to antitrust analysis.

Because monopsony power involves the potential for abuses on the part of the buyer as opposed to the seller, a court must “reverse all of the factors involved in light of the buyer-side nature of the alleged activity.” Todd v. Exxon, 275 F.3d 191, 202 (2^nd Cir. 2001). When assessing monopsony power, a court must take the opposite view of the market and focus on the market of competing buyers rather than competing sellers. Id. (“[T]he proper focus is . . . the commonality and interchangeability of the buyers, not the commonality or merchantability of the sellers.”). Moreover, as Toys R Us, supra, illustrates, monopsony power in retailing contexts can arise from market shares, i.e., 20% of sales in the relevant market, that would not ordinarily raise concerns of market power in the evaluation of a traditional market context involving sales of goods.

By focusing on the potentially detrimental effect of the Wal-Mart/Amigo merger on producers, Puerto Rico was properly assessing a market for potential monopsony abuse. The fact that Puerto Rico is an island necessarily makes food producers in Puerto Rico especially vulnerable to the risks of monopsony power. There is a finite number of buyers in the market and, especially for producers of perishable products, it is, as a practical matter, impossible for them to sell to buyers outside of Puerto Rico. Wal-Mart’s buying power will give it the ability to exploit the small and comparatively disorganized farmers and agricultural producers, potentially leading to a decrease in output. See generally, Jon Lauck, Toward an Agrarian Antitrust: A New Direction for Agricultural Law, 75 N.D. L. Rev. 449, 474 (1999) (discussing the threat of monopsony power in agricultural markets). The decision of the PRSOJ to bring an enforcement action in an effort to curtail the ability of Wal-Mart to exercise monopsony power was a legitimate enforcement goal.

C. Making requests and taking certain positions throughout the course of a negotiation does not constitute an action placing an undue burden on interstate commerce.

Puerto Rico did not take an official action in violation of Wal-Mart’s rights under the commerce clause merely by presenting negotiating positions aimed at protecting Puerto Rico’s economy during the course of extensive settlement negotiations. The district court itself acknowledges that the allegedly unconstitutional bargaining positions related to “labor and purchase requirements . . . are not mentioned nor are they part of the state court law suit.” Opinion, at 31. When Puerto Rico finally took action against the merger, it did not pursue the very negotiating points that the court below argues raises Commerce Clause issues. Yet the District Court enjoined Puerto Rico’s enforcement action merely because of a negotiating position that Puerto Rico later abandoned. Puerto Rico has not taken any action other than attempting to enforce a facially neutral statute, and the district court’s injunction prevents Puerto Rico from even presenting its case.

Additionally, Wal-Mart’s challenge to Puerto Rico’s enforcement action is simply premature at this juncture. There has not been a trial on the merits to determine the validity of Puerto Rico’s antitrust claims. Puerto Rico has not even conducted discovery. Preventing a state antitrust or any agency from enforcing a facially neutral statute based on a negotiating position that allegedly poses a threat to interstate commerce is without precedent and is a dangerous departure from established jurisprudence enabling State agencies to challenge anticompetitive behavior and, at the very least, have their day in court and obtain a decision on the merits. This opinion will have a chilling effect on the ability of enforcement agencies to engage in candid negotiation and will flood that courts with merger challenges that previously would have been settled out of court through heated negotiation.

III. ALLOWING WAL-MART TO EVADE ANTITRUST SCRUTINY THROUGH A LEGALLY UNSUPPORTABLE SELECTIVE OR VINDICTIVE ENFORCEMENT CLAIM WILL UNDERMINE EFFORTS BY FEDERAL AND STATE ENTITIES TO ENFORCE THEIR ANTITRUST LAWS

The court below erred in holding that Puerto Rico selectively enforced its antitrust laws against Wal-Mart, because Wal-Mart failed to demonstrate that it was similarly situated to other merging parties who did not receive similar treatment under the law. Wal-Mart does not claim to be a member of a protected class treated differently by the Puerto Rican statute; rather Wal-Mart contends that Puerto Rico violated its rights under the Equal Protection Clause by selectively enforcing Puerto Rico’s antitrust laws against Wal-Mart. The Supreme Court has recognized equal protection claims based on selective enforcement of the law brought “on behalf of a ‘class of one’ where the plaintiff did not allege membership in a class or group.” Village of Willowbrook v. Olech, 528 U.S. 562, 564 (2000). In order to bring an equal protection claim based on selective enforcement, a plaintiff must allege that he or she “has been intentionally treated differently from others similarly situated and that there is no rational basis for the difference in treatment.” Id. Wal-Mart failed to establish that it was similarly situated to other merging parties in Puerto Rico and therefore cannot prevail on a selective enforcement claim.

The decision of the court below broadens the ability of defendants to use selective prosecution claims to handcuff enforcement actions by state and federal prosecutors. In any case where the government sought enforcement, perhaps because competitive concerns had become more significant, merging parties could rouse selective prosecution claims. This would be particularly damaging for antitrust, where in the past three years, less than 2% of all mergers subject to reporting under the Hart-Scott-Rodino Act (15 U.S.C. § 18(a)) have been challenged.[18] Thus, the effects of the decision below would significantly impair all future government antitrust investigations.

A. Wal-Mart failed to demonstrate that it was a class of one treated differently by Puerto Rico from others similarly situated

In order to bring a claim for selective enforcement, Wal-Mart has the burden of demonstrating that there are others similarly situated that received differential treatment. Wojik v. Mass. Lottery Comm’n., 300 F.3d 92, 104 (1st Cir. 2002) (“In this case, appellant has failed to identify specific evidence concerning similarly situated individuals who received more lenient treatment.”); Donovan v. City of Haverhill, 311 F.3d 74, 77 (1st Cir. 2002) (“[Defendants] do not provide any information about how any other party was similarly situated . . . [t]hus . . . [defendants] do not allege the elements of a viable equal protection claim.”). It is not enough for Wal-Mart to allege that there were other mergers that did not receive the same level of scrutiny; rather Wal-Mart must demonstrate that the facts surrounding the mergers were so similar that Puerto Rico could not justify treating Wal-Mart differently from the other merging parties. Campagna v. Mass. Dept. of Envtl. Prot., 206 F. Supp. 2d 120, 127 (D. Mass. 2002) (dismissing claim for selective enforcement when there were two differences between plaintiff and those allegedly similarly situated that could have warranted defendants’ stricter treatment of the plaintiff). Wal-Mart cannot assert that they were treated differently from those similarly situated merely because Puerto Rico took action against Wal-Mart but not against the other merging entities; rather Wal-Mart “must first identify and relate specific instances where persons situated similarly in all relevant aspects were treated differently.” Rubinovitz v. Rogato, 60 F.3d 906, 910 (1^st Cir. 1995).

While the District Court takes judicial notice of the fact that there were three other mergers in Puerto Rico that did not receive the same level of scrutiny as the Wal-Mart /Amigo merger, it fails to establish that the circumstances surrounding the other mergers give rise to a conclusion that the parties were similarly situated. A closer of the examination of the other three mergers in Puerto Rico reveals that those merging parties were in no way similarly situated to Wal-Mart. The other three mergers cited by Wal-Mart, which were not challenged by the PRSOJ, were entirely different from the Wal-Mart/Amigo merger, and in no way were the parties similarly situated with Wal-Mart and Amigo.[19]

The first merger mentioned in the district court’s opinion was the merger between Dean Foods Co., a Puerto Rican company, and Grupo Gloria, a Peruvian company. See CB & WOW News, Dean Foods signs agreement to sell Suiza to Grupo Gloria, Caribbean Business, Retail, November 14, 2002, available at http://prowow.com/html/cbarchive.asp. Dean Foods Co. sold its Foods subsidiary to Grupo Gloria for $112 million. Grupo Gloria's Food division, Gloria SA, is a leader in the manufacture and distribution of dairy products, such as evaporated milk, UHT milk, condensed milk, juices, yogurt, and cheeses.

In the second merger, V. Suarez & Co., a Puerto Rican distributor, acquired Cadierno Corp.'s distribution lines. See CB & WOW News, V. Suarez Acquires Cadierno Corp., Caribbean Business, Retail, May 10, 2001, available at http://prwow.com.html.cbarchive.asp. Cadierno is a distributor of alcoholic beverages and groceries with 125 employees and $56 million in revenue. Suarez has more than $500 million in sales, about 400 employees, and distributes Coors, Volvic, Lipton, Chef Boyardee, and Welch.

Finally, the third Puerto Rican merger cited by the court involved Cemex S.A.’s $250 million purchase of the Puerto Rican Cement Co. See Jose L. Carmona, Ferre-Rangel: Decision to Sell Puerto Rican Cement Difficult, Caribbean Business, Construction, June 20, 2002, available at http://prwow.com/html.cbarchive.asp. Founded in Mexico in 1906, Cemex is the world's third largest cement manufacture and No. 2 in the US.

The differences between the three mergers above and the Wal-Mart/Amigo merger are apparent. There are numerous legitimate reasons why Puerto Rico could have decided to take action against the Wal-Mart merger but not the others. None are supermarket mergers or involve a company with the market position of Wal-Mart or Amigo. Wal-Mart cannot allege that they were similarly situated to any of those entities, and thus the court erred in holding Puerto Rico engaged in selective enforcement. Chambers v. City of Calais, 2001 WL 727038 *2 (D. Me. 2001) (“all of the incidents are unique to the plaintiffs such that there can be no similarly situated persons”).

Additionally, permitting a selective enforcement action would handcuff antitrust enforcement and inhibit the ability of agencies to apply the law in a flexible and evolving fashion. This case was the first instance in which the FTC has challenged a Wal-Mart merger or included club stores in the relevant market. This is also the first Federal divestiture order in which club stores have been found to compete with supermarkets. By the lower court’s logic, Wal-Mart has an even stronger case against the FTC for selective enforcement, because there were instances in which the FTC did not take an enforcement action against a Wal-Mart merger. The record of antitrust enforcement in Puerto Rico, taking action against one merger but not three totally unrelated mergers, does not suggest any pattern of selective enforcement of its antitrust laws.

B. The efforts of the PRSOJ to enforce Puerto Rico’s antitrust laws did not constitute vindictive enforcement

The district court also erred in determining that Puerto Rico vindictively enforced its antitrust laws against Wal-Mart. The court does apply the correct standard for establishing a vindictive enforcement claim:

"(1) he or she exercised a protected right; (2) the prosecutor or state official had a stake in the exercise of that right; (3) the prosecutor’s or state official’s conduct was unreasonable; and (4) the prosecution or state enforcement "was initiated with the intent to punish the plaintiff for the exercise of the protected right.""

Opinion, at 46 (citing Futernick v. Sumpter Township, 78 F.3d 1051, 1056 n.7 (6th Cir.1996)). The First Circuit has traditionally allowed defendants to make a vindictive enforcement defense in a criminal context, when a prosecutor has allegedly punished the defendant for exercising a protected right.[20] The court below, however, erred in holding that Wal-Mart could establish the four elements necessary to succeed on a vindictive enforcement claim.

First, the court below held that Wal-Mart met the first element of the claim, because it had exercised its rights under the Commerce Clause. The court’s contention rests upon the flawed assumption that Puerto Rico’s efforts to negotiate allegedly protectionist negotiating points violated Wal-Mart’s rights under the Commerce Clause. The court erred for several reasons. First, as discussed above, these negotiating positions were part of a perfectly legitimate effort to restrict Wal-Mart’s monopsony powers. Second, the only entities whose rights could have been conceivably violated by the allegedly protectionist negotiating positions were the out of state suppliers, not Wal-Mart. Even if Puerto Rico were to have favored in state as opposed to out of state suppliers, the only entities whose rights were arguably violated were the out of state suppliers, not Wal-Mart. Finally, Wal-Mart has no right to enter into a merger that violated Puerto Rican antitrust law.

Next, the court mistakenly held that the Puerto Rican had a stake in the exercise of Wal-Mart’s rights under the Commerce Clause. Once again, the court improperly blends the rights of Wal-Mart with out-of-state suppliers to show that Puerto Rico had a stake in Wal-Mart’s exercise of its rights under the Commerce Clause. Puerto Rico only had a stake in ensuring that Wal-Mart did not consummate an anticompetitive merger.

The court below also erred in holding that Puerto Rico’s enforcement action was unreasonable. Puerto Rico entered into extensive and candid negotiations with Wal-Mart. When the two sides were unable to reach an agreement, Puerto Rico filed a complaint to block the Wal-Mart/Amigo merger. Nothing about Puerto Rico’s action suggested that it acted unreasonably in enforcing its antitrust laws.

Finally, the decision of the court that the state enforcement was initiated with the intent to punish Wal-Mart is completely inconsistent with its Commerce Clause analysis. It is counterintuitive for Wal-Mart to argue that Puerto Rico violated its Commerce Clause because it sought to protect local distributors and at the same time argue that Puerto Rico was challenging the merger merely to punish Wal-Mart. Puerto Rico sought to enforce its antitrust laws to prevent Wal-Mart from entering into a merger that would result in anticompetitive effects on the Puerto Rican economy. This fails to constitute vindictive enforcement.

CONCLUSION

As the Supreme Court recognized in Arc America and American Stores, State and federal antitrust authorities long have served concurrent roles in the enforcement of competition laws. The district court’s decision severely weakens state antitrust enforcement. The decision is inconsistent with well-established principles Constitutional principles and effectively weakens the authority of all antitrust enforcement officials to conduct investigations, negotiate with merging parties and bring antitrust enforcement actions under either state or federal antitrust law.

[1] Richard Mosk, State Antitrust Enforcement and Coordination with Federal Enforcement, 21 A.B.A. Antitrust Section 358, 363 (1962).

[2] The State Attorneys General have a multistate task force to coordinate merger investigations and have issued Merger Guidelines. See NAAG Horizontal Merger Guidelines (1993).

[3] See United States, et al. v. Echostar Communications Corp., 1:02CV02138 (D.D.C. 2002); F.T.C. v. Mylan Laboratories Inc., 62 F. Supp. 2d 25 (D.D.C. 1999).

[4] See State of Connecticut v. Koninklijke Ahold, NV, et al, Civ. Act. No. 396CV01349 AWT (D. Conn. July 23, 1996) (Connecticut secured a greater divestiture package and imposed broader restrictions on future conduct than the FTC in supermarket merger).

[5] See Texas v. Mid-America Dairymen, Inc., 1997 WL 669970 (Tex. Dist. Ct. 1997) (Texas challenged merger between two dairy processing plants); Connecticut and Rhode Island v. Suiza Foods, Inc., No. 301CV1178 (D. Conn. 2001) (Connecticut and Rhode Island, along with the other states, imposed restrictions on the asset sale of milk processing equipment by a supermarket to a major dairy processing company). See also NAAG Antitrust Rep., Mar. 4, 1998 (California required divestiture in supermarket merger involving Ralph’s and Hughes stores); ABA Antitrust Section, State Merger Enforcement (1995) (discussing several examples of state merger enforcement).

[6] Because of limited resources, the federal antitrust agencies, the Federal Trade Commission and Antitrust Division of the Department of Justice are able to investigate only a handful of mergers, typically less than 2-3% per year. FTC HSR Annual Report to Congress 2001 at 5. State antitrust enforcement is particularly important for mergers that are primarily local in character, such as the supermarket merger in this case.

[7] Massachusetts v. Campeau Corp., 1988-1 Trade Cas. (CCH) ¶ 68,093 (D. Mass. 1988) (Massachusetts, Maine, and New Hampshire obtained divestiture in department store merger). See also Massachusetts v. Doane Beal & Ames, Inc., 1994-1 Trade Cas. (CCH) ¶ 70,516 (D. Mass. 1994) (Massachusetts obtained divestiture in funeral home merger); Maine v. Key Bank of Maine, Inc., 1991-2 Trade Cas. (CCH) ¶ 69,649 (D. Me. 1991) (Maine obtained divestiture in bank merger); New York v. Great Atlantic & Pacific Tea Co., 55 Antitrust & Trade Reg. Rep. (BNA) 1073–74 (Dec. 22, 1988) (New York obtained divestiture in supermarket merger); New York v. R.H. Macy & Co., 54 Antitrust & Trade Reg. Rep. (BNA) 502–3 (Mar. 24, 1988) (New York obtained divestiture in department store merger); City of Pittsburgh v. Macy Dep’t Stores, 1986-2 Trade Cas. (CCH) ¶ 67,340 (W.D. Pa. 1986) (Pennsylvania obtained divestiture in department store merger); Texas v. Coca-Cola Bottling Co. of the Southwest, 1986-1 Trade Cas. (CCH) ¶ 67,169 (Tex. Dist. Ct. 1986) (Texas obtained divestiture in merger of soft drink vending companies.).

[8] Indeed, the states have challenged numerous supermarket and department store mergers. Massachusetts v. Stop & Shop Companies, No. 95-12377NG (D. Mass. 1995), Rhode Island v. Koninklijke Royal Ahold NV, CA No. 96-405 (D.R.I. 1996); Alaska v. Safeway, Inc., 1999 WL 1209785 (Alaska, 1999); Massachusetts v. Campeau Corp., 1988-1 Trade Cas. (CCH) ¶ 68,093 (D. Mass. 1988); New York v. Great Atlantic and Pacific Tea Co., 55 Antitrust & Trade Reg. Rep. (BNA) 1073-74 (Dec. 22, 1988).

[9] See American Antitrust Institute, Public Comment to the FTC, Matter No. 021-0090, December 20, 2002 (available at http://www.ftc.gov/os/comments/walmart/aai.pdf).

[10] Robert H. Lande, When Should States Challenge Mergers: A Proposed Federal/State Balance, 35 N.Y.L. Sch. L. Rev. 1047, 1052 (1990) (observing that no state merger enforcement action has been blocked on constitutional grounds).

[11] Todd v. Exxon, 275 F.3d 191, 202 (2nd Cir. 2001).

[12] Toys R Us v. FTC, 221 F.3d 928 (7th Cir. 1999)

[13] Knevelbraard Dairies v. Kraft Foods, Inc., 232 F.3d 979 (9th Cir. 2000) (recognizing that both California and federal antitrust law condemn anticompetitive use of monopsony power)

[14] Telecor Communications, Inc. v. Southwestern Bell, 305 F.3d 1124 (10th Cir. 2002) (applying Oklahoma antitrust law to condemn a scheme to control access to pay telephones).

[15] See American Antitrust Institute, Public Comment to the FTC, Matter No. 021-0090, December 20, 2002 (available at http://www.ftc.gov/os/comments/walmart/aai.pdf) (explaining that Wal-Mart’s increased monopsony power is one of several concerns concerning this merger); United States v. Cargill Inc. and Continental Grain Corp., Competitive Impact Statement 1:99CV01875 (D.D.C. July 23, 1999) (challenging merger between two corn and grain processors because of potential monopsony power).

[16] FTC and DOJ Horizontal Merger Guidelines §0.1; United States v. Pennzoil, 252 F. Supp. 962 (W.D. Pa. 1965) (granting preliminary injunction against merger of two of six purchasers of Pennsylvania crude oil); United States v. Rice Growers, 1986‑2 Trade Cas. (CCH) ¶ 67,288 (E.D. Cal. 1986) (granting preliminary injunction against merger of local rice buyers); Vogel v. American Soc'y of Appraisers, 744 F.2d 598, 601 (7th Cir. 1984) (Posner, J.) (“monopoly and monopsony are symmetrical distortions of competition from an economic standpoint”); see generally Areeda, Hovenkamp & Solow, Antitrust Law ¶ 980 (rev. ed. 1998) (“The exercise of market power by buyers, or monopsony, can impose social costs equivalent to those imposed by monopoly.”)

[17] Available at http://www.businessweek.com/magazine/content/02_37/b3799143.htm.

[18] In fact, in 2000, only 2.1% of all mergers even received a request for additional information. See Commissioner Thomas B. Leary, Guidelines for Merger Remedies: Prospects and Principles, Joint U.S./E.U. Conference, Paris, France, January 17, 2002 (available at http://164.62.7.30/speeches/leary/learyuseu.htm).

[19] The district court takes judicial notice of the three mergers in footnote 9 of the Opinion.

[20] See, e.g., United States v. Lanove, 137 F.3d 656 (1^st Cir. 1998) (criminal defendant alleged vindictive enforcement based on prosecutor's reinstatement of charges after defendant successfully appealed conviction and refused to accept plea bargain). The First Circuit has also allowed plaintiffs to seek Section 1983 vindictive enforcement claims, but these claims often involve regulators punishing individuals for exercising their First Amendment rights. See, e.g., Leach v. Manning, 105 F. Supp.2d 707 (E.D. Mich. 2000) (plaintiffs claimed that defendants issued civil citations in retaliation against plaintiff’s public criticism of defendants).