The FTC Goes to the Mattresses (And Loses): Why Tempur Sealy/Mattress Firm Represents Another Setback for Vertical Merger Enforcement Efforts

The Southern District of Texas published an unsealed version of its January 31, 2025 opinion denying the Federal Trade Commission’s (FTC) motion for a preliminary injunction to enjoin Tempur Sealy’s acquisition of Mattress Firm. The decision marks another loss for vertical merger enforcement efforts, particularly agency efforts to block these deals outright rather than accept settlement “fixes.” This case—coupled with other agency losses like AT&T/Time Warner and Microsoft/Activision—will likely make it even more difficult for enforcers to win vertical merger challenges, particularly when the merging parties lack sufficient market share to foreclose competitors and offer remedies to fix the alleged competitive concerns.

The acquisition combines Tempur Sealy, one of the largest mattress manufacturers and a relatively small mattress retailer, with Mattress Firm, one of the largest mattress retailers in the U.S. The FTC alleged that the vertical merger would enable Tempur Sealy to harm rival “premium” mattress manufacturers—especially Purple and Serta Simmons—through total or partial foreclosure. The agency claimed Tempur Sealy could exclude rivals entirely from Mattress Firm stores or disadvantage them by limiting floor space, inventory, and commission incentives for sales associates at Mattress Firm. The FTC argued that such actions would foreclose competitors from a substantial pool of customers and in turn substantially lessen competition. The agency also argued that the parties’ proposed remedies were unenforceable, too limited in time (five years), and otherwise insufficient.

The court broadly disagreed and denied the FTC’s motion on several grounds, finding at a threshold level that the FTC failed to prove its affirmative case that the transaction would substantially lessen competition.

Product Market Definition

The court rejected the FTC’s attempt to define the relevant market as the market for “premium” mattresses priced over $2,000. In doing so, the court thoroughly applied the Brown Shoe “practical indicia” framework, finding that the evidence was too inconsistent to definitively prove the FTC’s market. The court found that the evidence more strongly suggested that mattresses are sold across a pricing spectrum, rather than within uniform and consistently applied price bands. Similarly, the court found that mattress companies were not consistent in how they viewed the market, with competitors employing “many and varied approaches” to the price points within the mattress industry, and that customers likewise routinely shopped across price points. 

The court also made it a point to distinguish the recently decided FTC v. Tapestry case, in which the Southern District of New York accepted the FTC’s argument that there was a distinct “accessible luxury” market for handbags (handbags that cost between $100-$1,000) within the broader handbag market. The court explained that the evidence in Tapestry was far more consistent because the merging parties, industry members, and ordinary-course documents “frequently and consistently” identified the existence of an “accessible luxury” or “affordable luxury” market. It also departed from the Tapestry court by not applying the new 2023 Merger Guidelines adopted by the FTC and DOJ to analyze the transaction.

Competitive Effects

Although the court found that the FTC proved defendants would have the ability and incentive to foreclose rivals (under both the independent ability and incentive test and the Brown Shoe vertical merger factors), it nonetheless found that any such foreclosure would not be substantial or cause anticompetitive effects for three central reasons. 

• Lack of Substantial Foreclosure – The court found that Mattress Firm’s retail sales accounted for only 25% of all premium mattress sales overall and for only 8.8% of the premium mattress sales made by competitors of Tempur Sealy, representing the maximum amount of market foreclosure—even considering the FTC’s narrow (and rejected) market definition. The court also found it persuasive that several meaningful competitors did not sell through Mattress Firm at all. Given this evidence, the court concluded that competing mattress manufacturers had ample alternative distribution channels to reach customers beyond Mattress Firm, including “thousands” of other mattress-focused retailers, as well as department stores, furniture stores, online platforms, and direct-to-consumer channels. Notably, it made these findings notwithstanding “hot” documents presented by the FTC that characterized Mattress Firm’s status in the industry as a “kingmaker,” referring to such evidence as “overstated” given the full record of evidence before the court.
• Insufficient Empirical Evidence of Anticompetitive Effects – As for the potential for anticompetitive effects, the court analyzed two central pieces of empirical evidence. First, the court discredited the economic model offered by the FTC’s expert, finding that the model impermissibly failed to account for any elimination of double marginalization that could be realized post-merger. Second, the court considered Mattress Firm’s decision in 2021 to stop selling Tempur Sealy mattresses as a useful “natural experiment.” In the view of the court, the fact that Tempur Sealy was not materially harmed by that past exclusion “necessarily demonstrates that Mattress Firm simply is not a critical sales channel.” 
• Biased Competitor Testimony – The court also roundly dismissed the testimony of competing mattress executives, particularly the testimony of one key competitor. The court found the testimony “self-serving” and lacking in “objective industry evidence in support,” largely because the competitor had previously predicted it would gain share at Mattress Firm post-merger in bankruptcy filings, contradicting its testimony in court. The court found the credibility problems to be present to “an unusually extreme degree” and said that its view of competitor testimony “extends equally to the testimony of all other rival suppliers[.]” 

Remedies

The court found defendants’ remedial commitments persuasive, including (i) divestiture of certain Tempur Sealy retail stores to another retailer (Mattress Warehouse), (ii) guaranteeing, for at least five years, a designated number of floor slots at Mattress Firm for competing third-party mattresses priced at $1,500 and above, and (iii) establishing firewalls to protect mattress competitors’ confidential information from being shared by Mattress Firm with Tempur Sealy post-merger. Interestingly, the court pointed out that Tempur Sealy had offered certain similar terms before the trial started but then agreed to improve them in response to the court’s questioning during closing arguments. The court was persuaded that these revised, more competitor-friendly terms were sufficient because they preserved almost 43% of the relevant floor slots for third-party competitors’ mattresses.

Notably, the court said that the appropriate place in merger analysis to consider defendants’ remedies was in the rebuttal phase (rather than require the FTC to prove its prima facie case considering the remedies), and that the proper standard was whether the remedies prevent the merger from substantially lessening competition (rather than require remedies to eliminate all competitive harm). Different courts have reached different conclusions on these issues.

Conclusion

At bottom, the decision is another blow to antitrust agencies’ efforts to revitalize vertical merger enforcement through litigation rather than behavioral remedy settlements. It is a thorough, lengthy decision that rejects the FTC’s narrow product market definition and competitive effects case based on the law, the evidence, and economics. Moreover, it is yet another win for the “litigate-the-fix” strategy in merger cases. In the words of the court: “defendants’ commitments to divest certain stores and to maintain going-forward slot allocations resolve any lingering concern.” Going forward, companies contemplating vertical acquisitions should consider proactive remedial strategies and robust economic defenses to navigate regulatory scrutiny effectively.