The Nov. 14 scrapping of the planned $8.5 billion merger between handbag makers Tapestry Inc. and Capri Holdings Ltd. is the latest fallout of the Federal Trade Commission’s recent shift toward pursuing antitrust enforcement outside of Washington—and, specifically, in New York.
On Oct. 24, Judge Jennifer Rochon of the US District Court for the Southern District of New York granted the FTC’s motion for a preliminary injunction halting the merger between Tapestry and Capri.
This decision is the third major antitrust challenge to a transaction the FTC or a private plaintiff won in 2024 in the SDNY. In all three cases, the court accepted the plaintiff’s product market definition and adopted presumptions of illegality based on relatively low concentration thresholds.
Rochon’s 169-page opinion stops short of adopting some of the government’s novel legal theories, but the win highlights the FTC’s recent shift towards litigating merger challenges in federal courts outside of Washington and suggests that New York is likely to remain a key venue for antitrust litigation.
The order blocking the bid by Tapestry, which owns the Kate Spade and Coach brands, to acquire Capri, which controls the Michael Kors brand, was the FTC’s second major victory in the SDNY in less than a year.
Over the last two-plus decades, the FTC has leaned heavily on the US District Court for the District of Columbia as a venue for seeking preliminary injunctions against proposed mergers. Indeed, the agency litigated at least 10 merger challenges in the DC federal court between 2000 and 2021. But under FTC Chair Lina Khan’s leadership, the FTC has been litigating in other federal jurisdictions including California, Texas, and now, New York.
The FTC filed its case to block the Tapestry-Capri merger in the SDNY in April 2024, just four months after the agency’s December 2023 victory over IQVIA Holdings and Propel Media in the same court. Looking to continue the momentum, the FTC asserted several novel legal theories against Tapestry and Capri from the government’s newly adopted 2023 merger guidelines. Rochon cited the guidelines favorably as persuasive on certain points, but she declined to endorse some of the FTC’s less traditional legal positions.
For instance, Rochon accepted the FTC’s position that a merger may be presumptively anticompetitive if the merging firms’ combined market share would exceed 30%. This threshold, which is based on the US Supreme Court’s 1963 decision in United States v. Philadelphia National Bank, is much lower than the thresholds that the FTC and the Department of Justice previously applied to proposed mergers under the pre-2023 merger guidelines.
Nevertheless, Rochon agreed with the IQVIA court that this threshold is legally valid under binding Supreme Court precedent.
On the other hand, Rochon rejected the FTC’s assertion that the merger was presumptively illegal simply because Tapestry’s Coach and Kate Spade brands competed head-to-head against Capri’s Michael Kors brand. The FTC argued that a merger may be deemed presumptively anticompetitive merely because it would eliminate substantial head-to-head competition.
According to the 2023 merger guidelines, the FTC may seek to block a merger between head-to-head competitors without defining a relevant market or proving that the merger would increase concentration in the market to anticompetitive levels.
Rochon also declined to accept the FTC’s argument that a relevant antitrust market can be defined solely based on empirical evidence regarding the market’s particular characteristics without any regard for qualitative economic evidence. Instead, Rochon conducted a more traditional analysis that weighed both qualitative and quantitative evidence to find that a relevant product market existed for “accessible luxury” handbags with prices ranging from $100 to $1,000.
Accessible luxury handbags, according to Rochon, are qualitatively distinct from sub-$100 “mass market” bags and more expensive luxury bags due to differences in their comparative supply chains, manufacturing locations, and the quality and types of materials used. However, Rochon also found that traditional economic evidence, including analyses of consumer surveys and sales data, supported the FTC’s view on the relevant market and, consequently, the likely effects of the transaction.
Ultimately, the abundance of “hot” business documents from the parties supporting the FTC’s views of the transaction tipped the balance in Rochon’s analysis.
Throughout the trial, the FTC introduced numerous internal business emails, presentations, and other documents from the parties demonstrating that Tapestry and Capri not only viewed themselves as competitors in the market for affordable luxury handbags but that their products didn’t compete with either “mass market” or “European luxury” brands. The court was particularly focused on documents showing that the parties monitored each other’s pricing and marketing strategies.
Likewise, Rochon’s opinion also emphasizes documents reflecting the parties’ view that price increases at Michael Kors would be possible post-merger and that discounting and promotional pricing could be reduced or eliminated across all three brands following the merger. These documents also undermined the court’s view of the credibility of Tapestry and Capri executives, whose testimony struck the court as “self-serving” and unreliable.
With the parties abandoning their appeal, Rochon’s decision will stand as potentially useful precedent for the FTC and DOJ, and SDNY is likely to remain an attractive venue for future enforcement actions.
Key Takeaways
Harmful documents make it difficult for defendants to defeat the government. Because of the numerous ordinary course “bad” documents, Rochon didn’t view many of the witnesses as credible since the executives’ testimony came off as “self-serving” and was contradicted by the internal documents.
Finally, on product market definition, this opinion indicates that the government may not have to provide with absolute certainty the boundaries or demarcations for the product market definition. This is particularly true for consumer product transactions where the merging parties’ internal documents support the FTC’s product market definition.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Elai Katz is partner at McDermott Will & Emery with experience handling mergers and acquisitions, litigation, counseling and government investigations.
Joel R. Grosberg is partner at McDermott Will & Emery and co-head of the firm’s antitrust mergers focus group.
Zachary Sproull is an associate at McDermott Will & Emery represents clients in connection with investigations and complex litigation involving antitrust.
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