February 26, 2018
The U.S. Supreme Court seems unlikely to adopt a broad change to antitrust law that could make it easier for companies like Facebook, Amazon, and Uber to engage in anticompetitive practices.
The question for the justices is a narrow one despite the potentially far-reaching effects: What must plaintiffs show in order to prove an antitrust violation? The outcome could increase the price for all of the 22 billion credit card transactions that occur each year.
Only a few justices were active during the argument, making it hard to predict how exactly the court will rule.
But both parties urged the court to act narrowly so as not to affect other so-called two-sided markets without knowing what the consequences will be.
The label two-sided market is relatively new to antitrust law, Justice Stephen G. Breyer, once a professor of antitrust law, said. But the concept might not be, Justice Sonia Sotomayor suggested.
In a two-sided market, a company brings two different groups of consumers together. Here, that’s merchants who accept credit cards for purchases, and cardholders who use them.
The idea has attracted attention recently with the creation of high-profile two-sided markets like Facebook, Amazon, and Uber. But traditional businesses like newspapers operate in two-sided markets, too, Sotomayor noted.
The U.S. Court of Appeals for the Second Circuit below, though, didn’t apply traditional antitrust principles to analyze AmEx’s two-sided market.
Traditionally, courts apply a three-step approach to determining if there is an anticompetative agreement, Malcolm L. Stewart, of the Department of Justice, Washington, said. Stewart argued on behalf of the federal government as amicus curiae in favor of the states challenging American Express’s practices.
First, “the plaintiff attempts to establish an anticompetitive effect. Then the defendant attempts to establish a procompetitive justification,” Stewart said. “And then the third step is the plaintiff can show either that the justification could have been achieved in a different way or that it wasn’t really necessary,” he said.
In cases involving two-sided markets, plaintiffs must also show at the first step that the anti-competitive effects on one group isn’t outweighed by benefits to the other, the Second Circuit said.
Both the federal government and American Express urged the justices not to adopt that test for all two-sided markets.
Here, however, there are special circumstances that might require a special rule, American Express’s lawyer Evan R. Chesler, of Cravath, Swaine & Moore LLP, New York, told the justices.
In particular, the fact that there are only four credit card companies—American Express, Visa, MasterCard, and Discover—might be reason enough, Stewart said.
That special rule could lead to drastically different results in other contexts, though.
Here, a district court found that American Express’s anti-steering provisions—prohibiting merchants from steering customers to cards that charge the merchants less—violated antitrust law in part because they resulted in all four credit card companies charging higher prices to merchants. The district court prohibited American Express from enforcing its provisions.
Under its amended test, the Second Circuit allowed the provisions to stay in force. The states hadn’t shown that the higher prices to merchants weren’t offset by benefits to cardholders, it said.
Applying the traditional test to markets like credit card transactions would result in “false positives” that may seem anticompetive at first glance but actually help competition in the long run, Chesler said. Here, the higher fees to merchants have led to better rewards—like airline miles or concert tickets—to cardholders, he said.
An analysis of those benefits are already baked into the traditional test, Justice Elena Kagan said. After the government proves the anticompetitive effects, American Express can point to those cardholder benefits to defeat the challenge, she said.
Placing that burden on the credit card company makes sense because they are in a better position to understand the complexities of the market, Sotomayor said.
Although appearing disagree with Kagan and Sotomayor, Justice Neil M. Gorsuch seemed to suggest that the court should be cautious in the antitrust realm. “Judicial errors are a lot harder to correct than an occasional monopoly where you can hope and assume that the market will eventually correct it,” he said.
Read argument transcript.
The case is Ohio v. American Express Co., U.S., No. 16-1454 , argued 2/26/18 .
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