Fair Play: States Flex Antitrust Muscle in AmEx Fight


FAIR PLAY

Antitrust deciphered.

AmEx

Eleven states prevailed against American Express Co. last week when they convinced the U.S. Supreme Court to take their case challenging the credit card company’s rules with retailers. The high court review showcases the evolving power of the states in the Trump administration.

The states say AmEx’s contracts with merchants cut off competition because they forbid vendors from telling customers about cheaper cards that charge lower fees, such as Discover. As a result, cardholders are left in the dark about the true cost of credit, and credit card competitors can’t truly compete.

AmEx says the merchant fees help pay for cardholder rewards, and antitrust enforcers failed to account for those benefits.

This case is remarkable. The Justice Department brought it under the Obama administration and then decided to drop it under President Donald Trump. Then the states forged ahead and appealed to the high court alone. That puts the Ohio solicitor general, which took the lead among states in appealing the case, likely at the podium before the justices instead of the federal government. The high court is expected to hear oral arguments early next year.

When Republicans took over the White House, advocates for aggressive antitrust enforcement worried it would decline under new leadership. They predicted that states would need to bring antitrust cases on their own without the feds. The American Express litigation is the first instance where that forecast rings true.

The DOJ walked a fine line when it told the Supreme Court not to accept the case. The acting solicitor general maintained that the U.S. Court of Appeals for the Second Circuit was wrong in ruling for AmEx but recommended that the justices not consider the complex, emerging market questions before other circuits rule on it. The Second Circuit declared the DOJ failed to consider both sides of a “two-sided” market – retailers and cardholders – when it came to AmEx. The Justice Department said it needed only to consider the market generally. The decision not to take that argument to the high court left antitrust lawyers scratching their heads, particularly because the case represents an ugly court loss for the department.

Usually states defer to federal antitrust investigators and join lawsuits brought by the government if anticompetitive mergers or behavior is uncovered. That was the case last year when the Justice Department challenged the mergers of health insurers Anthem Inc. and Cigna Corp., Aetna Inc. and Humana Inc. Twelve states joined the government in suing to block Anthem-Cigna, and nine did so with Aetna-Humana.

If the AmEx case is any indication, states could move from the back to the front seat. We could see more situations of states stepping in when the federal government backs off.

What’s Happening

The DOJ antitrust chief Makan Delrahim will deliver his first speech on Friday in his new role as assistant attorney general. He’ll be talking about antitrust in developing countries in New York at an event hosted by Concurrences and NYU Law.

Quote of the Week

"I think he's going to be a tough and demanding boss, not someone who shies away from litigation," said Allen Grunes, an antitrust attorney with the Konkurrenz Group in Washington, of the White House’s pick for FTC chairman, Joseph Simons. 

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