Supreme Court Sides With American Express on Merchant Fees

WASHINGTON — American Express did not violate the antitrust laws by insisting in its contracts with merchants which they do nothing to encourage patrons to use some other cards, the Supreme Court ruled on Monday.

The decision has implications not only for what one brief called “an astronomical number of retail transactions” nevertheless also for some other kinds of markets, notably ones on the internet, in which services link consumers along with also businesses.

Such “two-sided platforms,” the court said, require special along with also seemingly more forgiving antitrust scrutiny.

The vote was 5 to 4, with the court’s more conservative members within the majority. Justice Clarence Thomas, writing for the majority, said the specialized nature of credit-card transactions justified what in some other circumstances might have been anti-competitive conduct.

Retailers pay so-called swipe fees when customers use credit cards. American Express charges higher fees than Visa or Mastercard, meaning which merchants have not bad reason to prefer those some other cards.

nevertheless credit card networks create “two-sided platforms,” Justice Thomas wrote, along with also they “differ via traditional markets in important ways.” Since card companies deal with both merchants along with also consumers, he wrote, people challenging actions as anticompetitive must take account of the effect on both sets of market participants.

Viewed which way, Justice Thomas wrote, American Express promoted competition by designing rewards programs to attract affluent customers.

“Amex’s business type sometimes causes friction with merchants,” he wrote. “To maintain the loyalty of its cardholders, Amex must continually invest in its rewards program. nevertheless, to fund those investments, Amex must charge merchants higher fees than its rivals.”

“Even though Amex’s investments benefit merchants by encouraging cardholders to spend more money, merchants might prefer not to pay the higher fees,” Justice Thomas wrote. “One way which merchants try to avoid them, while still enticing Amex’s cardholders to shop at their stores, will be by dissuading cardholders via using Amex at the point of sale.”

The steering agreements were justified in these circumstances, Justice Thomas wrote.

“While these agreements have been in place,” Justice Thomas wrote, “the credit-card market experienced expanding output along with also much better quality. Amex’s business type spurred Visa along with also Mastercard to offer brand-new premium card categories with higher rewards. along with also the idea has increased the availability of card services, including free banking along with also card-payment services for low-income customers who otherwise might not be served.”

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

Justice Stephen G. Breyer read his dissent via the bench, a rare move indicating profound disagreement. He said the implications of the ruling were vast along with also could hurt competition in many realms.

“I particularly fear the interpretive impact of the majority’s discussion of what the idea calls ‘two-sided platforms,’ in an era when which term might be thought to apply to many internet-related goods along with also services which are becoming ever more important,” Justice Breyer said.

Merchants expressed disappointment with the decision.

“Today’s ruling will be a blow to competition along with also transparency within the credit card market,” said Stephanie Martz of the National Retail Federation. “The American Express rules in question have amounted to a gag order on retailers’ ability to educate their customers on how high swipe fees drive up the cost of merchandise.”

American Express issued a statement saying the long court battle was “well worth the fight because important issues were at stake: consumer choice, fair market competition, along with also the ability to deliver innovative products along with also services to our customers, both consumers along with also merchants.”

In 2010, the Justice Department along with also 17 states sued several credit card companies, saying which their steering practices had violated the antitrust laws. Visa along with also Mastercard settled, nevertheless American Express fought the case.

In 2015, Judge Nicholas G. Garaufis of the United States District Court in Brooklyn ruled which contracts forbidding merchants to steer customers toward some other forms of payment were an unlawful restraint of trade.

The United States Court of Appeals for the Second Circuit, in brand-new York, disagreed, ruling which Judge Garaufis had unduly focused on merchants’ interests “while discounting the interests of cardholders.”

“This particular approach does not advance overall consumer satisfaction,” Judge Richard C. Wesley wrote for a unanimous three-judge panel. “Though merchants may desire lower fees, those fees are necessary to maintaining cardholder satisfaction — along with also if a particular merchant finds which the cost of Amex fees outweighs the benefit the idea gains by accepting Amex cards, then the merchant can choose to not accept Amex cards.”

Eleven states asked the Supreme Court to hear the case, Ohio v. American Express, No. 16-1454, saying which the appeals court’s decision was at odds with established antitrust principles along with also affected “an astronomical number of retail transactions within the United States.”

The Supreme Court affirmed the appeals court’s decision.

In dissent, Justice Breyer faulted every part of the majority’s analysis. He said which the way American Express deals with merchants should be considered in isolation along with also which its contracts were anti-competitive.

He added which two-sided transactions were commonplace.

“Consider a farmers’ market,” Justice Breyer wrote. “the idea brings local farmers along with also local shoppers together, along with also transactions will occur only if a farmer along with also a shopper simultaneously agree to engage in one.”

“What about travel agents which connect airlines along with also passengers?” he asked. “What about internet retailers, who, in addition to selling their own goods, allow (for a fee) some other goods-producers to sell over their networks?”

“Nothing in antitrust law, to my knowledge, suggests which a court, when presented with an agreement which restricts competition in any one of the markets my examples suggest, should abandon traditional market-definition approaches along with also include within the relevant market services which are complements, not substitutes, of the restrained not bad,” Justice Breyer wrote.

Justices Ruth Bader Ginsburg, Sonia Sotomayor along with also Elena Kagan joined the dissent.

American Express, Justice Breyer concluded, had some other ways to achieve its goals.

“If American Express’ merchant fees are so high which merchants successfully induce their customers to use some other cards, American Express can remedy which problem by lowering those fees or by spending more on cardholder rewards to ensure which cardholders decline such requests,” Justice Breyer wrote. “What the idea may not do will be demand contractual protection via cost competition.”