On June 25, 2018, the U.S. Supreme Court, in a 5-4 decision by Justice Thomas, held that provisions in American Express Company’s (“American Express”) and its operating subsidiary’s contracts with merchants that restricted the ability of these merchants to steer customers to other credit or charge cards did not violate the Sherman Act. Ohio v. American Express Co., 585 U.S. __, slip op. at 1 (2018). The Court held that plaintiffs—the United States Department of Justice and the Attorneys General of several states—failed to satisfy their burden of proving anticompetitive effects in the relevant market under the rule of reason. Id. at 10. The ruling has important implications for antitrust analysis, not only for the credit card industry, but for other industries that operate in two-sided markets where firms must compete simultaneously for different groups of customers whose demands are distinct but deeply interrelated.
Industry and Procedural BackgroundAmerican Express contracts with merchants to accept charges on American Express cards as payment for goods and services in return for American Express’s agreement to reimburse merchants for those charges, minus a designated merchant discount fee that American Express retains as compensation for its services. American Express’s acceptance contracts with merchants typically contain some form of non-discrimination provisions (“NDPs”) in which the merchant agrees not to discriminate against American Express by, inter alia, indicating a preference for another credit card or attempting to dissuade cardholders from using the American Express card (collectively, “steering”). United States v. American Express Co., 838 F.3d 179, 191 (2d Cir. 2016) (describing American Express’s standard form NDPs).
The DOJ, along with 17 state Attorneys General, challenged these agreements under Section One of the Sherman Act, alleging that American Express’s NDPs unreasonably restrained competition in the alleged “network services market” because, by inhibiting merchants from steering consumers to use cards with a lower cost to the merchant, they reduced the incentive of credit card networks to reduce merchant fees because reducing merchant fees would not necessarily result in greater volume. Id. at 192. After a lengthy bench trial, the District Court agreed with the DOJ, finding that the NDPs were unreasonable restraints on competition in violation of the Sherman Act. United States v. American Express Co., 88 F.Supp. 3d 143 (E.D.N.Y. 2015). Based on this finding, the court entered a sweeping injunction requested by the plaintiffs that not only prohibited American Express from enforcing the contractual NDPs, but prohibited American Express from unilaterally treating merchants differently based on whether they steered or not (i.e., the injunction prohibited not only the challenged contractual restraints, but any unilateral action by American Express based on a merchant steering or not steering American Express cardholders). United States v. American Express Co., 2015 WL 1966362 (E.D.N.Y. Apr. 30, 2015). On appeal, the Court of Appeals reversed the District Court’s order and directed the District Court to enter judgment for American Express, rejecting the District Court’s findings on market definition, and holding that the plaintiffs had failed to prove the NDPs violated the Sherman Act.
The Supreme Court’s DecisionThe parties all agreed that the NDPs are vertical restraints subject to analysis under the rule of reason. Thus, the Supreme Court began its analysis with market definition. The District Court, relying largely on United States v. Visa USA, Inc., 344 F.3d 229 (2d Cir. 2003), had found that the relevant market was for the provision of “network services,” meaning the “core enabling functions provided by networks, which allow merchants to capture, authorize, and settle transactions for customers who elect to pay with their credit or charge card.” 88 F. Supp. at 171. In doing so, the District Court had expressly rejected the idea that the market should be evaluated as a “single platform-wide market for transactions” that encompassed both merchant and consumer interactions, finding that this analysis would have taken “the concept of two-sidedness too...
