Case No. 16-1454 | 2d Cir. Decision
By granting certiorari in Ohio v. Amex, the Court continues to accept its role in shaping the world of antitrust law. And now, it will have to do so with a more complex arrangement involving a two-sided platform made up of both merchants and customers.
The basic premise of the case against American Express is that it allegedly thwarts competition by prohibiting its merchants from steering customers towards credit cards with lower fees. Specifically, American Express includes an anti-steering provision in its agreements with merchants which forbids the merchants from doing anything to encourage the use of competing cards. This includes providing discounts for using other credit cards or simply posting a sign saying they prefer a different credit card. American Express essentially relies on this model in order to continue charging merchants higher transaction fees so that it can provide its customers with high-end benefits and rewards.
This case began with several major credit card companies. Each of those companies settled years before trial, except for American Express—the company arguably with the most to lose. This case also began with the Department of Justice’s Antitrust Division attempting to enforce this country’s antitrust laws. But the DOJ backed out of the case during the transition of presidential administrations, and now Ohio is the namesake for the petitioner.
The Eastern District of New York, finding in favor of the Government, applied the rule of reason (rather than finding American Express’s conduct per se unconstitutional), meaning that American Express had to show that the behavior at issue had some reasonable basis besides being anticompetitive. The Judge held that the anti-steering provisions were, in fact, anticompetitive because they stifled competition among credit card companies. Further, because American Express failed to establish any procompetitive effects, the scheme violated Section 1 of the Sherman Act. The Second Circuit reversed, finding that the Government’s burden was actually higher in two-sided platform cases than the district court required of it. In fact, the Second Circuit held, the Government bore the burden of showing that the anti-steering provisions had anticompetitive pricing effects on the merchant side and that those anticompetitive effects outweighed any benefits on the cardholder-customer side.
In its brief to the Supreme Court, Ohio argues that the Government met its burden under the rule of reason by showing that the anti-steering provisions caused industry-wide increases in merchant prices. Despite the Second Circuit’s holding, Ohio claims the Government did not need to prove that the anticompetitive effects (the higher merchant prices) outweighed the benefits (higher cardholder rewards).
American Express, in response, points to its lack of market power, which undermines any anticompetitive effects of its anti-steering provisions. To prove its lack of market power, American Express noted that its rivals are free to meet market demand where American Express only accounts for 26% of all credit card transactions. Additionally, while merchant prices might be higher, the Government failed to prove reduced output, reduced quality, and/or supracompetitive prices. Higher merchant prices alone are insufficient to prove a violation, American Express argues.