Washington, D.C., USA: The US Supreme Court In Ohio v. American Express Co., on Monday, affirmed 5-4, a US Court of Appeals for the Second Circuit ruling, that steering practices by the credit card company which contractually barred merchant customers from steering cardholder customers to credit cards with lower prices are not a violation of federal antitrust law.
A group of states led by Ohio argued that under Section 1 of the Sherman Act, American Express participated in anti-competitive practices by stifling competition among credit card companies and failed to establish any pro-competitive benefits.
Ohio and other states argued that it showed “anti-competitive harm” “by proving that American Express’ anti-steering provisions have stifled interbrand price competition.” Therefore, the burden would shift to American Express.
The US Court of Appeals for the Second Circuit held that the government had to show contractual provisions not only had anti-competitive effects, but those effects outweighed any benefits on the cardholder side in order to burden American Express with having to prove pro-competitive benefits. The Supreme Court affirmed 5-4 on Monday.
Justice Clarence Thomas, writing for the majority, said that the states had not carried their burden to prove anticompetitive effects in the relevant market. “The plaintiffs stake their entire case on proving that Amex’s agreements increase merchant fees. We find this argument unpersuasive.”
“Amex’s business model has spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions. And it is ‘[t]he promotion of interbrand competition,’ after all, that is … ‘the primary purpose of the antitrust laws.'”
“If a merchant accepts the four major credit cards, but a cardholder only uses Visa or Amex, only those two cards can compete for the particular transaction,” Thomas wrote. “Thus, competition cannot be accurately assessed by looking at only one side of the platform in isolation.”
Justice Stephen Breyer wrote a dissenting opinion in which he argued that Amex should be required to compete with other card networks on the price of the fees they charge to merchants.
The government’s lawsuit was filed eight years ago, when the credit card industry was still contending with mountains of consumer debt that went bad during the financial crisis.
Numerous states had sued Amex, arguing that provisions in the company’s contracts with retailers were harmful to competition. Amex’s contracts essentially bar merchants that accept American Express cards from steering consumers to pay with rival cards that charge lower fees.
If the state’s argument had prevailed, retailers that accept American Express but aren’t happy about the fees Amex charges could have encouraged customers to use Visa, Mastercard or Discover, perhaps by posting a sign near the cash register in an effort to influence which card the customer pulls out of the wallet.
The decision is also a setback for retailers, which persuaded Congress to rein in debit card swipe fees in 2010, but have been unable to replicate that success in the credit card market. The ruling’s impact on Discover, Visa and Mastercard, as well as banks that issue credit cards on the latter two networks, is murkier.
The court’s ruling drew praise from American Express and others in the credit card industry.
“The Supreme Court’s decision is a major victory for consumers and for American Express,” Amex CEO Stephen Squeri said in a written statement. “This was a long battle, but well worth the fight because important issues were at stake: consumer choice, fair market competition, and the ability to deliver innovative products and services to our customers, both consumers and merchants.”
Retail industry groups were most critical of the court’s decision, arguing that the fees that merchants pay get passed along to consumers arguing that by maintaining the status quo, the lack of transparency and competition in the U.S. will lead to higher prices at point of sale.
But others contended that the Amex lawsuit, if it had been decided differently, had the potential to shake up the market for credit card rewards.
Shares in Amex were up 1.5% in midday trading on Monday, even as the major stock indexes were down by more than 1%. Shares in Visa and Mastercard fell by more than 3%.