The Supreme Court delivered a big win to American Express last week, finding that the anti-steering rules AmEx imposes on merchants do not violate the federal Sherman Act.
As discussed in the case, American Express requires merchants who accept its card to avoid encouraging customers to use other credit cards. In Ohio v. American Express Co., a group of states led by Ohio challenged this practice as an unreasonable restraint of trade in violation of Section 1 of the Sherman Act, and after a lengthy trial on the matter, a New York district court agreed. The Second Circuit Court of Appeals subsequently reversed, determining that the trial court should have considered the effect of the restriction on both merchants and customers, since both use the services of American Express.
In a 5-4 decision, the Supreme Court affirmed. For the majority, Justice Thomas wrote that the credit card market is a “two-sided transaction platform” where the effect of AmEx’s anti-steering rule must be considered on both merchants and cardholders. The court found that evidence of a price increase on one side of the two-sided transaction platform cannot by itself demonstrate an anti-competitive effect, and that the plaintiffs must also prove that AmEx’s provisions increased the cost of transactions to consumers, reduced the number of credit card transactions, or otherwise stifled competition. The court found that Ohio did not provide such evidence, and thus failed to show anti-competitive effects caused by the anti-steering provisions.
In dissent, Justice Breyer wrote that AmEx had previously raised the price of its merchant fees 20 times in five years, and that the anti-steering rules had effectively prevented another credit card provider, Discover, from lowering the fees on its credit card. Justice Breyer also noted that the district court had found at trial that rewards provided to AmEx card holders (such as gift cards and flight upgrades) only partially offset the higher prices associated with higher merchant fees. On the issue of relevant market, the dissent disagreed with the majority and argued that merchants and cardholders should not be considered as part of the same market.
Going forward, the AmEx ruling represents a very positive outcome for businesses that can plausibly argue that they operate a “two-sided transaction platform” which serves separate groups of interrelated customers. This includes several well-known technology platforms such as Amazon, which serves merchants and consumers, or Uber, which serves drivers and riders.
The AmEx decision provides a powerful shield for those companies should they come to face a similar Sherman Act challenge as that put forward by Ohio in the AmEx case.