The Supreme Court and American Express on merchant fees

WASHINGTON – American Express has not violated antitrust laws by insisting in its contracts with merchants that they are doing nothing to encourage customers to use other cards, the Supreme Court ruled on Monday.

The decision has implications not only for what is known as an "astronomical number of retail transactions" but also for other types of markets, particularly on the Internet, in which services connect consumers and consumers. companies.

According to the court, such "two-sided platforms" require a special and apparently more tolerant antitrust review.

The vote was 5 to 4, with the most conservative members of the court in the majority. Judge Clarence Thomas, speaking for the majority, stated that the specialized nature of credit card transactions justified what, in other circumstances, could have been anti-competitive behavior.

Retailers pay sweep fees when customers use credit cards. American Express charges higher fees than Visa or Mastercard, which means that merchants have good reason to prefer these other cards.

But credit card networks create "bilateral platforms," ​​writes Judge Thomas, and they "differ from traditional markets significantly." As card companies deal with both merchants and consumers, people dispute anticompetitive actions. the effect on the two groups of market participants.

From this perspective, Justice Thomas wrote that American Express promoted competition by designing reward programs to attract wealthy clients.

"The economic model of Amex sometimes causes friction with traders," he writes. "In order to retain its cardholders, Amex must continually invest in its rewards program, but to fund these investments, Amex has to charge higher fees to merchants than its rivals."

"Even if Amex investments benefit traders by encouraging cardholders to spend more money, traders would prefer not to pay the higher fees," wrote Judge Thomas. "One way that marketers are trying to avoid them, while encouraging Amex cardholders to shop at their stores, is by deterring cardholders from using Amex at the point of sale. "

Guidance agreements were justified in these circumstances, wrote Judge Thomas.

"While these agreements were in place," wrote Judge Thomas, "the credit card market has seen expansion in production and quality improvement.Amex's business model has prompted Visa and Mastercard to offer new premium card categories with higher rewards, and it has increased the availability of card services, including free banking and card payment for low-income customers who would otherwise not be served. "

Chief Justice John G. Roberts Jr. and Justices Anthony M. Kennedy, Samuel A. Alito Jr. and Neil M. Gorsuch concurred with the majority opinion.

Judge Stephen G. Breyer read his dissent from the bench, a rare gesture indicating deep disagreement. He said the implications of the decision were broad and could undermine competition in many areas.

"I particularly fear the interpretative impact of the majority's discussion of what it calls" two-sided platforms, "at a time when this term could apply to many goods and services Internet-related issues that are becoming more and more important, Breyer said.

The traders expressed their disappointment with the decision.

"Today's decision undermines competition and transparency in the credit card market," said Stephanie Martz of the National Retail Federation. "The American Express rules in question consisted of a gag order on retailers' ability to educate their customers on how high sweeping costs drive up the price of goods."

American Express said the long legal battle was well worth the fight because important issues were at stake: consumer choice, fair competition and the ability to provide innovative products and services to our customers, consumers and merchants.

In 2010, the Department of Justice and 17 states sued several credit card companies, claiming that their guidance practices had violated antitrust laws. Visa and Mastercard settled, but American Express fought the case.

In 2015, Judge Nicholas G. Garaufis of the US District Court in Brooklyn ruled that contracts prohibiting traders from directing customers to other forms of payment constituted an illegal trade restriction.

The US Court of Appeals for the Second Circuit, New York, Disagree, stating that Judge Garaufis was unduly focused on the interests of the traders "while taking into account the interests of the cardholders".

"This approach does not advance overall consumer satisfaction," Justice Richard C. Wesley wrote for a panel of three unanimous judges. "While merchants may want lower fees, these fees are necessary to maintain cardholder satisfaction – and whether a particular merchant believes that Amex's costs outweigh the benefits that they offer." withdrawing by accepting Amex cards, the merchant may choose not to accept Amex cards. "

Eleven states have asked the Supreme Court to hear the Ohio v. American Express, No. 16-1454, claiming that the decision of the Court of Appeal was inconsistent with established antitrust principles and affected "an astronomical number of retail transactions in the United States. "

The Supreme Court upheld the decision of the court of appeal.

In dissent, Judge Breyer blamed all parts of the majority analysis. He said that the way American Express treats merchants should be viewed in isolation and that its contracts were anti-competitive.

He added that bilateral transactions were commonplace.

"Consider a farmers' market," wrote Judge Breyer. "It brings together local farmers and local buyers, and the transactions will only happen if a farmer and a buyer simultaneously agree to make one."

"What about travel agents that connect airlines and passengers?", He asked. "What about Internet retailers, who, in addition to selling their own goods, allow (for a fee) other producers of goods to sell on their networks?"