United States: Ohio v. American Express: The Supreme Court Credits American Express's Anti-Steering Provisions

In a 5-4 decision in Ohio v. American Express, the Supreme Court affirmed that the anti-steering provisions of American Express's merchant agreement do not violate Section 1 of the Sherman Act.

Credit card companies' core business involves two transactions. First, the credit card company provides credit services to its cardholders, as well as additional benefits such as frequent flier miles, cash back, etc. Second, in exchange for a per-transaction fee, the credit card company assumes the risk and costs the merchant would otherwise incur in extending credit to its customers. The credit card company also provides the merchant a customer base that will be more likely to patronize those merchants that accept the credit card.

Unlike Mastercard and Visa, which earn significant revenue by charging their cardholders interest, American Express makes most of its money from the merchants' per-transaction fee. As part of its merchant agreement, American Express forbids the retailer from steering the customer toward other credit cards that charge a lower transaction fee. American Express charges higher merchant fees than do Mastercard and Visa, but Mastercard and Visa also included anti-steering provisions in their merchant agreements.

After a full trial, a district court found that American Express's anti-steering provisions violate Section 1 of the Sherman Act by suppressing competition among credit card companies in offering merchants competitive transaction fees.

A majority of the Supreme Court, affirming the Second Circuit, disagreed. Justice Thomas's majority opinion found that the district court used an improper relevant market because it included only the merchant side of the transaction; the district court's analysis ignored the cardholder side of the transaction. The relevant product market, according to the majority, was a "two-sided platform" that includes both the cardholder and the merchant. American Express cannot complete a transaction unless 1) the cardholder chooses to acquire and use his or her American Express card, and 2) the merchant chooses to accept the American Express card. American Express cannot raise prices on one side of the transaction without suffering adverse consequences on the other side of the transaction. For example, if American Express raises its transaction fees on the merchants, fewer merchants will accept American Express, which, in turn, makes an American Express card less attractive to consumers. Indeed, the evidence revealed that 1) American Express charged higher merchant fees than did Mastercard and Visa, 2) fewer merchants accept American Express than accept Mastercard and Visa, and 3) fewer consumers have an American Express card than have Mastercard or Visa cards—exactly what one would expect to find with American Express charging higher transaction fees in a competitive market. Thus, the majority found that both sides of the transaction—the merchant and the cardholder—must be included in a single relevant market.

After defining the proper relevant market, the majority found that the anti-steering provision was a vertical restraint of trade, and subject to the rule of reason. The majority found that the plaintiffs failed to show that the anti-steering provisions had anticompetitive effects in the market. The majority explained that evidence of a price increase on one side of a two-sided transaction platform cannot demonstrate an anticompetitive exercise of market power. Rather, the plaintiffs were required to show that the anti-steering provisions increased the cost of credit card transactions above a competitive level, reduced the overall number of credit card transactions or otherwise stifled competition in the credit card market. The majority reviewed the record and found no evidence of any of these effects. Although the record showed price increases in American Express's merchant transaction fees, there was no evidence in the record that these increases arose from American Express anticompetitively exercising its market power. Thus, the Supreme Court affirmed the Second Circuit and found the anti-steering provisions did not violate Section 1 of the Sherman Act.

The dissent, written by Justice Breyer, agreed that American Express's anti-steering provisions should be analyzed under the rule of reason. But the dissent would have limited the relevant market to the merchant transaction. According to the dissent, the merchant transaction fee and the cardholder agreement are complementary products, not part of the same market. Under a narrower relevant market, the dissent would have upheld the district court's factual findings that the anti-steering provisions suppress competition.

The dissent also claimed that the majority opinion "seems categorically to exempt vertical restraints from the ordinary 'rule of reason' analysis that has applied to them since the Sherman Act's enactment in 1890." But the dissent's characterization exaggerates the majority's holding. The plaintiffs argued that they were not required to define the relevant market because they offered direct evidence of anticompetitive effects in the market, i.e., increased transaction fees. The majority rejected that argument because the plaintiffs relied on cases addressing horizontal agreements not to compete, which will necessarily have anticompetitive effects, so precise market definition was unnecessary. By contrast, vertical agreements rarely suppress competition unless the participant has market power, which can be determined only by defining the relevant market. The majority did not, however, find that vertical restraints are exempt from the rule of reason analysis.

The scope of American Express is somewhat narrow because it turned on the factual question of whether the proper relevant market was the credit card companies' transaction with the merchant, or whether the market was the two-sided platform transaction. However, three aspects of American Express are likely to be significant going forward.

First, the majority opinion underscores that the relevant product market definition must conform to market realities. The dissent complained that few, if any, Supreme Court decisions recognize a two-sided platform market. But the Supreme Court takes very few antitrust cases, so that absence should not be surprising. More important, the Supreme Court's willingness to find such a two-sided platform market emphasizes that no set formula exists to define the relevant product market. Rather, the relevant market definition must conform to the actual realities of how the product is sold. In American Express, it is unlikely that American Express, which had only about a 25 percent market share and two strong competitors in the marketplace—Mastercard and Visa—could profitably impose anticompetitive transaction fees on merchants. A narrow market definition, however, led to such a finding at the trial court.

Second, the majority set forth a clean statement of the three-step rule of reason analysis:

Under this framework, the plaintiff has the initial burden to prove that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market. If the plaintiff carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint. If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.

Although this language is not a substantive change to the rule of reason, it is a useful clarification of the analytical steps. The Supreme Court's rule of reason cases can be difficult to follow and often lack a clearly defined standard. If nothing else, American Express should make briefing rule of reason cases before trial courts easier.

Third, American Express continues the Supreme Court's and the Department of Justice's trend over the past several years in acknowledging that vertical restraints of trade are less likely to be anticompetitive than are horizontal restraints of trade.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions