A Lawsuit Over Credit Card Fees Could Further Empower Big Tech
Next month, the U.S. Supreme Court will hear what legal experts describe as one of the most important antitrust cases in years. The focus of this particular dispute is on credit card fees, but it may be more notable for the impact it could have on the economy of the internet.
The case—Ohio v. American Express—has no direct connection to tech giants like Google, Facebook Inc. or Amazon.com Inc. But Silicon Valley could be a major beneficiary if the Supreme Court upholds a lower court’s decision. This prospect is causing alarm in certain circles.
“These firms enjoy dominant positions in key markets that provide ample opportunity for anti-competitive conduct,” Deepak Gupta, a lawyer representing the Open Markets Institute, an advocacy group that favors tougher antitrust enforcement, wrote in a friend-of-the-court brief. But if the Supreme Court upholds an appeals court’s decision, he said, “A wide range of anti-competitive behavior would be virtually beyond reach.” It would be an unexpected development at a rare time when there’s a bipartisan appetite to reel in the tech industry’s power.
Few paid attention to the credit-card dispute until recently. The case began in 2010, when the U.S. government and 17 states sued American Express, MasterCard Inc. and Visa Inc. over contracts that let them to avoid competing with one another on the price of fees they charged retailers. MasterCard and Visa agreed to change their practices and settled the following year. American Express went to court.
At issue were the credit card network’s rules keeping stores from offering customers discounts or other benefits to use cards that charged them lower transaction fees. A district court ruled American Express was illegally using its market power to restrict competition. An appeals court overturned the decision, saying the practice could have positive effects on the economy.
The court decided it wasn’t fair to consider American Express’s relationship with retailers in isolation. Credit card networks run two-sided markets, peddling services simultaneously to shop owners and cardholders. Retailers want lower fees, and customers want airline miles and rental-car insurance. The networks cover these perks with revenue from transaction fees. Complaints about unfair treatment from stores had to be balanced against the way those decisions impact customers, the appeals court ruled.
If this interpretation holds, it would be a big shift in antitrust law. Consider a company accused of using its dominance in search engines, social networks or online retail to harm competing businesses. In any of those cases, are anti-competitive behaviors really so bad if Americans get lower prices or even free access to services? Gregory Sidak and Robert Willig, a pair of economists, filed a legal brief published Tuesday in support of American Express, saying similar antitrust interpretations have been used in the newspaper, shopping mall and executive recruiting industries.
Two-sided markets are especially common on the internet. Facebook serves its free users and its advertisers; Uber Technologies Inc. balances the marketplace for drivers against one for riders. Any ruling setting aside special consideration for two-sided marketplaces would be a huge boon to Silicon Valley. Uber could, say, ban drivers from working with Lyft Inc., or Amazon could make sellers charge lower prices on its platform than anywhere else.
Even the most extreme scenarios could be immune to antitrust complaints if the tech platforms could argue that benefits accrue to someone else, said Tim Wu, a professor at Columbia Law School. “Don’t you realize you’re insulating a whole class of business from the reach of the law?” he said.
Not everyone thinks this would be a bad thing. Geoffrey Manne, executive director of the International Center for Law & Economics, a research group, acknowledged that the Supreme Court may make it harder to bring cases alleging anti-competitive behavior by tech companies. “But ‘harder to bring a case’ isn’t the right metric,” he said. “The right metric is, ‘Does it make it harder to bring a good case?’—not, ‘Does it make it easier to win a bad one?’”
Given the complexity of antitrust law, the decision may not be black or white. Verizon Communications Inc. argued in a court brief that the justices should make their ruling as narrow as possible, keeping the impact centered on credit card merchant agreements. But with trust-busting seemingly back in fashion, the Supreme Court’s decision could be the biggest change on the horizon.
“It’s a big deal when the Supreme Court takes a case like this,” said Chris Sagers, a law professor at Cleveland State University. “It goes to very basic rules in antitrust.”
— With assistance by Gerrit De Vynck