U.S. Supreme Court Weighs Amex Rules in Antitrust Enforcement TestBy
Justices appear divided over steering rules on merchants
U.S., states say Amex rules harm competition with other cards
U.S. Supreme Court justices appeared divided over whether rules American Express Co. imposes on merchants violate antitrust laws, in a case that will affect not only the credit-card business but may also limit future enforcement against dominant companies.
Two of the the court’s liberal members -- Justices Sonia Sotomayor and Elena Kagan -- signaled at arguments Monday that they back the government’s claim that the company’s rules harm competition by preventing retailers from encouraging customers to use lower-cost cards. Merchants can’t offer consumers a choice between earning a discount by using another card or sticking with an American Express card so they can earn rewards, Sotomayor said.
"You’re not giving me the choice," she said. "And that’s what price competition is about, my choice, not your choice about what’s more valuable to me."
The case centers on the fees credit-card companies charge to retailers for processing transactions. American Express’s "anti-steering" provisions bar retailers from doing anything like offering discounts to encourage the use of competing cards that are less expensive. As a result, the government says, stores are stuck with higher fees, which are passed on to consumers, even those that don’t use American Express cards.
The Justice Department’s antitrust division and a group of states sued American Express in 2010, saying the company’s rules thwarted competition from cards that charge lower fees.
‘Immunizing’ Tech Platforms
The outcome of the case could have broader implications for antitrust enforcers. The Open Markets Institute, a Washington organization that researches monopoly power, said in a brief to the justices that a lower court ruling in favor of American Express risks "immunizing" tech companies such as Amazon.com Inc., Google and Facebook Inc. from antitrust scrutiny by making it harder to prove competitive harm.
The Computer and Communications Industry Association, a technology trade group whose members include Amazon, Google and Facebook, urged the justices to uphold the appeals court ruling in favor of American Express. A reversal could undermine innovation, the group said in a court brief.
Justice Neil Gorsuch appeared to support American Express’s arguments. He said its rules don’t affect Mastercard Inc. or Visa Inc.’s ability to cut fees or advertise that American Express’s fees are higher.
"It’s just the difference between Cadillacs and Kias," Gorsuch said. "People can choose" between a high-cost, high-reward card, or a cheaper alternative. "And the two sides can compete with one another," he said.
American Express says the rules allow it to compete with Visa and Mastercard by offering cardholders different services and benefits. A federal appeals court in Manhattan sided with the company, ruling the government failed to show the steering rules are anticompetitive. The court said enforcers must weigh not just the harm to merchants, but also the benefits to cardholders.
Critics said imposing that balancing test would lead to perverse outcomes. It would open the door to companies using their power in one market to raise prices and direct the benefits elsewhere, said a group of antitrust law professors who filed a brief with the court. Google, for example, could impose a restraint on musicians selling music in the Google Play store and defend it as allowing the company to earn higher profits that can be used to sell phones more cheaply, they said.
"It is important that lower courts not confuse mere ‘lower prices’ somewhere in the economy with a ‘procompetitive effect,’" the professors said. "In important respects, the reality can be the exact opposite."
The case is Ohio v. American Express, 16-1454.