States Pursue AmEx Antitrust Appeal Without Federal Backing

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By Liz Crampton

Eleven states are doing what the Justice Department declined to do — asking the U.S. Supreme Court to review an appeals court win for American Express Co. that allows it to continue telling merchants not to steer customers to cheaper credit cards.

But the DOJ’s decision not to appeal its antitrust loss, its first in more than a decade, could narrow the chances of the high court taking up the case because the federal government is no longer involved, antitrust practitioners told Bloomberg BNA.

“It is always bad to lose your partner in a fight, particularly when the partner is bigger and stronger,” Robin Feldman, a professor at University of California’s Hastings College of Law, told Bloomberg BNA. “Having the Justice Department bow out leaves the states in a far worse position. The move is tantamount to the Justice Department waving its arms and telling the Supreme Court, ‘Don’t take this case.’”

On June 2, the DOJ declined to ask the Supreme Court to review its suit challenging AmEx’s rules preventing merchants from asking customers to use lower priced credit cards. But 11 states that initially joined the DOJ’s suit pressed on and filed their own petition for a writ of certiorari.

Tough Road Ahead

The Justice Department might have chosen not to appeal for several different reasons, Eleanor Fox, a professor at New York University School of Law, told Bloomberg BNA. It’s possible the DOJ under the current administration liked the U.S. Court of Appeals for the Second Circuit’s decision against the government, and current leaders feared that if they brought the case to the Supreme Court, they could win, she said.

But it’s also possible that the DOJ didn’t want to risk a loss from the Supreme Court, she added. Then the DOJ would be on record as adopting the wrong position in an emerging area of law involving “two-sided markets,” where the seller gets revenue from two different sources. American Express gets money from card holders and merchants.

The case was brought in 2010 by antitrust officials in the Obama administration, and it involves legal questions that haven’t been widely explored by the courts. Siding with the government, a district court in 2015 found that American Express’s rules constituted an unreasonable restraint on trade and resulted in higher prices for consumers.

But in September, the Second Circuit said the district court got it wrong by only considering the interests of merchants, which are just one side of a two-sided market that also includes card holders. The DOJ had argued that it was sufficient to examine the market generally. The lower court judge in the case, Nicholas Garaufis, has had only 11.1 percent of his decisions reversed, according to a Bloomberg Law’s Litigation Analytics.

The DOJ ran up to the deadline to file for Supreme Court review after exhausting all available extensions. Staff had twice requested more time to file a petition for a writ of certiorari to allow new leadership to consider the government’s position.

Stephen Calkins, a professor at Wayne State University Law School, said it makes a difference that Republican antitrust officials tend to be more conservative than Democratic enforcers. “A Trump antitrust division might have a different view than the Obama antitrust division,” Calkins told Bloomberg BNA. “It is not surprising that a more conservative antitrust division might decide not to pursue a case on which reasonable people can disagree.”

States May Need to Step Up

There are procedural effects to the DOJ dropping the case. Calkins said that during litigation, the DOJ presumably did most of the work. The states may now need to proceed without the assistance of the federal government. They would need to write the merits brief and reply on their own if the request is granted, he said. The Ohio attorney general has taken the lead on the appeal.

“My hat is off to the states for carrying on even after the DOJ walked away,” Calkins said. “It will be fascinating to see whether the court invites the views of the [Justice Department’s] solicitor general, and, if so, how the solicitor general will phrase opposition to certiorari. But it seems very unlikely that certiorari will be granted.”

The states’ decision to pursue the case is reminiscent of a divergence of antitrust thought in the Reagan era, when states had to take the lead in antitrust enforcement because of “the weakness of federal enforcement,” Peter Carstensen, a professor at University of Wisconsin Law School, told Bloomberg BNA.

“Getting the court to take a case is always a challenge,” Carstensen said. “Without the U.S. as a party, this will increase the difficulty of getting the court to review the decision.”

Some of the nation’s largest merchants, such as United Airlines Inc., Marriott International Inc., and Target Corp, supported the government’s case. They said in court filings that AmEx’s rules prevent price competition for credit card network services.

“We are delighted that the states appealed and will wholeheartedly support them in this undertaking,” Retail Litigation Center President Deborah White said in a statement provided to Bloomberg BNA. The legal advocacy group for the retail industry filed a brief with the Second Circuit in support of the DOJ’s case.

States’ Arguments

The states argued in their appeal that the Supreme Court should review the AmEx case because of an increasing need for guidance on the “rule of reason” antitrust legal standard and because the Second Circuit’s decision conflicts with past cases.

The Second Circuit panel analyzed the case under the “rule of reason” doctrine, which often requires extensive analysis of a certain conduct’s impacts on a relevant market, as opposed to the “quick look” or “per se” theory of liability to anticompetitive conduct.

None of the Supreme Court’s recent cases explain how the rule of reason should operate in practice once it is determined the case isn’t a “per se” violation. The court has “offered only generalities,” the brief said.

Before the AmEx decision, the Second Circuit had ruled that the credit card industry contains more than one market for antitrust purposes, the states said. That view guided a discovery period that lasted several years and a lengthy trial.

“Only after this costly litigation did the government learn from the Second Circuit that it had allegedly focused on the wrong market,” the appeal says. “Years of litigation that were financed through taxpayer dollars were wasted by the rule of reason’s uncertainties.”

The Second Circuit’s insistence that enforcers must view each side of a two-sided market separately is a departure from the test the appeals court has “long used” to identify antitrust markets, the states said.

“Rather than apply the established market-definition test, the Second Circuit adopted a new one,” the appeal stated.

To contact the reporter on this story: Liz Crampton in Washington at lcrampton@bna.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bna.com

For More Information

The text of the Second Circuit decision is at http://src.bna.com/pmB

Bloomberg Law subscribers can access Litigation Analytics at http://src.bna.com/pmE

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