Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS—D. D.C.: Sysco’s executive team member barred from viewing competitor information, (Mar 13, 2015)

By Dan Selcke, J.D.

An executive of a defendant food company, whose acquisition of a competitor was challenged by the FTC, could not be allowed to view the competitor’s confidential information, the federal district court in Washington, D.C. held, because of the risk that he might inadvertently disclose the competitor’s confidential information to his employer (FTC v. Sysco Corporation, March 12, 2015, Mehta, A).

Protective order. The FTC brought suit against Sysco Corporation and US Foods, Inc. to keep the two companies from effectuating a merger. On February 23, 2015, the court entered a protective order that placed limits on the defendants’ ability to look at documents that had been designated as “Confidential Material.” Following a motion by the defendants to modify that order, the court allowed each of them to designate up to two members of their in-house legal teams to receive access to the Confidential Material so long as those members were not involved in the company’s “competitive decision-making.” The defendants each nominated two candidates, most of whom were accepted. However, the FTC objected the nomination of Russell Libby, Sysco’s Chief Legal Officer and Executive Vice President of Corporate Affairs.

Competitive decision-making. Competitive decision-making encompassed decisions on topics like pricing, marketing, or design of products. The concern was not that Libby would intentionally misuse information but that such information might be used or disclosed inadvertently.

The court agreed that Libby did not satisfy the test in FTC v.Whole Foods Market, Inc. Libby admitted that issues like pricing, purchasing, and marketing might be discussed at Sysco’s executive team weekly meetings. Although he did not have decision-making authority, his membership on the executive team brought him well within the orbit of Sysco’s competitive decision-making activities. Libby was also responsible for evaluating potential targets for acquisition, which raised the risk of inadvertent disclosure of a competitor’s confidential information.

Although prohibiting Libby from considering such information may limit his ability to advise Sysco, the risk of inadvertent disclosure of trade secrets outweighed the limited impairment Sysco might experience from Libby’s restricted access to certain discovery. Also, Sysco could still nominate someone else to take Libby’s place, the court noted.

Modified order. The interveners—two other food companies—also asked that the defendants’ representatives only be able to access the Confidential Material through a secure electronic document review platform like Relativity or Concordia, or in person at the offices of their outside counsel. The court approved of this additional limitation and modified the order accordingly. It also modified the order so as to require the defendants to report immediately to the court and to plaintiffs any confirmed or suspected unauthorized use of disclosure of Confidential Material.

The case number is 1:15-cv-00256

Attorneys: Stephen Weissman for Federal Trade Commission. Nicholas Alan Bush, Office of the Attorney General of District of Columbia, for District of Columbia. Natalie S. Manzo, Office of the Attorney General/CA, for State of California. Robert W. Pratt, Illinois Office of the Attorney General, for State of Illinois. Layne M. Lindebak, Iowa Department of Justice, for State of Iowa. Gary Honick, Office of the Maryland Attorney General, for State of Maryland. Haidee L. Schwartz (O'Melveny & Myers LLP) for Sysco Corp. Peter Coyne Thomas (Simpson Thacher & Bartlett, LLP) for USF Holding Corp., and US Foods, Inc.

Companies: Sysco Corp.; US Foods, Inc.

Cases: AcquisitionsMergers Antitrust DistrictofColumbiaNews FederalTradeCommissionNews