Ohio v. American Express Co.

Last updated
Ohio v. American Express Co.
Seal of the United States Supreme Court.svg
Argued February 26, 2018
Decided June 25, 2018
Full case nameOhio, et al., Petitioners v. American Express Company, et al.
Docket no. 16-1454
Citations585 U.S. ___ ( more )
138 S. Ct. 2274; 201 L. Ed. 2d 678
Case history
PriorUnited States v. Am. Express Co., 88 F. Supp. 3d 143 (E.D.N.Y. 2015); reversed, 838 F.3d 179 (2d Cir. 2016); cert. granted, 138 S. Ct. 355 (2017).
Holding
American Express' steering provisions do not violate federal antitrust law.
Court membership
Chief Justice
John Roberts
Associate Justices
Anthony Kennedy  · Clarence Thomas
Ruth Bader Ginsburg  · Stephen Breyer
Samuel Alito  · Sonia Sotomayor
Elena Kagan  · Neil Gorsuch
Case opinions
MajorityThomas, joined by Roberts, Kennedy, Alito, Gorsuch
DissentBreyer, joined by Ginsburg, Sotomayor, Kagan

Ohio v. American Express Co., 585 U.S. ___ (2018), was a United States Supreme Court case regarding the nature of antitrust law in relationship to two-sided markets. The case specifically involves policies set by some credit card banks that prevented merchants from steering customers to use cards from other issuers with lower transaction fees, forcing merchants to pay higher transaction fees to the banks. While Visa and MasterCard settled with the United States Department of Justice in 2010, American Express defended its practice by arguing that the anti-steering policies benefited its cardholders, the higher transaction fees helping to maintain member services. While the Department of Justice and several states prevailed during a District Court trial in 2015 citing harm to the merchants, the Appeals Court reversed the District Court's ruling in 2016 by ruling that the plaintiffs had not shown harm to both sides of the two-side market, a novel test in antitrust law. This decision led to some of the states to appeal to the Supreme Court. The case was heard by the Court in February 2018.

Contents

The Court issued its decision on June 25, 2018, affirming the Appeals Court's ruling that steering provisions do not violate antitrust laws. With this decision upheld, the two-market test could be applied to other venues, particularly to the high tech sector where two-side markets are common.

Background

Within the United States, credit card transactions are controlled by four main financial institutions: Visa, MasterCard, American Express, and Discover, making it an oligopoly. [1] Credit cards work as a two-sided market, with the institutions providing benefits to consumers (by allowing them to access lines of credit to make instant purchases) and merchants (by providing them the funds for that purchase instantly). The institutions support this by taking a transaction fee off the merchant's funds, with the fee varying between each institution.

Of the four institutions, Discover was the latest offering, created in 1985. To try to compete with the other three institutions on the market, Discover developed a low-cost transaction fee model compared to the other three institutions, which gave incentive for merchants to steer customers towards using Discover cards. [2] To counter this, Visa, MasterCard, and American Express all developed anti-steering contractual language to merchants that prevented them from steering customers into using other cards; this included informing their customers of the different fees and offering discounts and other incentives by using other cards. This also affected the promotion of other cards offered within the institution's network, such as using debit cards with lower fees compared to credit cards. [3]

District Court

In October 2010, the United States Department of Justice (DOJ), after receiving numerous complaints that the anti-steering language violating antitrust laws and following two years of investigation, filed a civil antitrust lawsuit against Visa, MasterCard, and American Express in United States District Court for the Eastern District of New York. The DOJ asserted that with US$35 billion in transaction fees each year, the practices of these three institutions prevented merchants from reducing their own costs of business, and requiring them to raise prices to consumers. The DOJ's suit was joined by the states of Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio and Texas. [4] Visa and MasterCard immediately settled with the DOJ without any fines, agreeing to remove the anti-steering language imposed on merchants. However, American Express defended its practice, and continued to fight the lawsuit. [3] During the pre-trial period, additional states also joined the other plaintiffs, including Arizona, Idaho, Illinois, New Hampshire, Montana, Nebraska, Rhode Island, Tennessee, Vermont, and Utah; Hawaii had also joined but later dismissed its claims before the trial.

In February 2015, following a seven-week trial hearing, the District Court ruled in favor of the DOJ and states, finding that American Express's anti-steering terms violated antitrust laws. [5] Judge Nicholas Garaufis wrote that the language was "an unlawful restraint on trade" and considered the language to violate Section 1 of the Sherman Antitrust Act. American Express asserted that it would appeal the decision. [6] Garaufis issued a permanent injunction on American Express from enforcing its anti-steering language in April 2015. [7]

Appeals Court

American Express's appeal was heard in the 2nd Circuit Appeals Court in December 2015. After the oral testimony, the Appeals Court lifted the injunction placed by Judge Garaufis. [8] The full ruling of the Appeals Court in September 2016 reversed the lower court ruling; the Appeals Court argued that the plaintiffs had not shown harm that American Express's anti-steering had to merchants or consumers, and that the government would have been required to show how higher prices to merchants set by the transaction fees would harm consumer or not benefit them. [1] The Appeals Court also argued that merchants overburdened by high transaction fees could simply cease accepting that card. [9] [10] This decision was considered to have created a new type of rule that could make it difficult to seek antitrust litigation; with credit cards being a two-sided market serving two distinct sets of customers, a successful antitrust argument would have to show how both sides of the market were harmed. [1]

The DOJ petitioned the Appeals Court to reconsider the case at an en banc hearing, believing that their decision looked at both merchants and consumers, instead of focusing only on the impact to merchants alone, and that the onus should be for American Express to show how its anti-steering clauses would promote competition. [11] The Appeals Court refused to reconsider its decision by January 2017. [12]

Supreme Court

While the Department of Justice and other states dropped the suit, eleven states continued to appeal to the Supreme Court of the United States and filed petition to hear the case in June 2017; Ohio (leading the petition for appeal), Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Montana, Rhode Island, Utah and Vermont. [13] The States' appeal raised questions of the Second Circuit's decision in conflict with past case law, and that Supreme Court guidance was needed on how antitrust measures should be applied a two-sided market, which was becoming a significant portion of the national economy. [14] The Supreme Court accepted the case in October 2017. [15]

Oral arguments were heard on February 26, 2018; court observers reported that both sides were equally asked tough questions, and it was difficult to determine which direction the Court would take. Questions asked in the oral session were principally from Justices Sonia Sotomayor and Neil Gorsuch. [16]

The Court issued its 5-4 decision on June 25, 2018, affirming the Appeals Court's ruling, and that the American Express steering provisions did not violate antitrust law. The majority opinion, written by Justice Clarence Thomas and joined by Justices Roberts, Kennedy, Alito, and Gorsuch, found that the petitioners had not shown any harm of the steering provisions that otherwise would not have occurred if no steering provisions were in place, nor have the provisions stifled competition in the market. Justice Stephen Breyer wrote the dissenting opinion, joined by Justices Ginsburg, Sotomayor, and Kagan, taking issue with how the rule of reason had been applied for this case throughout its judicial history. [17]

Related Research Articles

A debit card is a plastic payment card that can be used instead of cash when making purchases. It is similar to a credit card, but unlike a credit card, the money is immediately transferred directly from the cardholder's bank account to pay for the transaction.

EFTPOS Type of electronic payment system

Electronic funds transfer at point of sale is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS technology originated in the United States in 1981 and was adopted by other countries. In Australia and New Zealand, it is also the brand name of a specific system used for such payments; these systems are mainly country-specific and do not interconnect.

<i>United States v. Microsoft Corp.</i> Antitrust lawsuit in 2001

United States v. Microsoft Corporation, 253 F.3d 34 is a noted American antitrust law case in which the U.S. government accused Microsoft of illegally maintaining its monopoly position in the personal computer (PC) market primarily through the legal and technical restrictions it put on the abilities of PC manufacturers (OEMs) and users to uninstall Internet Explorer and use other programs such as Netscape and Java. At trial, the district court ruled that Microsoft's actions constituted unlawful monopolization under Section 2 of the Sherman Antitrust Act of 1890, and the U.S. Court of Appeals for the D.C. Circuit affirmed most of the district court's judgments.

Visa Inc. Multinational financial company best known for credit and debit cards

Visa Inc. is an American multinational financial services corporation headquartered in Foster City, California, United States. It facilitates electronic funds transfers throughout the world, most commonly through Visa-branded credit cards, debit cards and prepaid cards. Visa is one of the world's most valuable companies.

American Express American multinational financial services corporation

The American Express Company (AmEx) is a multinational financial services corporation headquartered at 200 Vesey Street in the Battery Park City neighborhood of Lower Manhattan in New York City. The company was founded in 1850 and is one of the 30 components of the Dow Jones Industrial Average. The company's logo, adopted in 1958, is a gladiator or centurion whose image appears on the company's well-known traveler's cheques, charge cards, and credit cards.

Mastercard American multinational financial services corporation

Mastercard Inc. is an American multinational financial services corporation headquartered in the Mastercard International Global Headquarters in Purchase, New York. The Global Operations Headquarters is located in O'Fallon, Missouri, a municipality of St. Charles County, Missouri. Throughout the world, its principal business is to process payments between the banks of merchants and the card-issuing banks or credit unions of the purchasers who use the "Mastercard" brand debit, credit and prepaid cards to make purchases. Mastercard Worldwide has been a publicly traded company since 2006. Prior to its initial public offering, Mastercard Worldwide was a cooperative owned by the more than 25,000 financial institutions that issue its branded cards.

Discover is a credit card brand issued primarily in the United States. It was introduced by Sears in 1985. When launched, Discover did not charge an annual fee and offered a higher-than-normal credit limit, features that were disruptive to the existing credit card industry. A subsequent innovation was "Cashback Bonus" on purchases.

Dynamic currency conversion Foreign exchange process

Dynamic currency conversion (DCC) or cardholder preferred currency (CPC) is a process whereby the amount of a Visa or MasterCard transaction is converted by a merchant or ATM to the currency of the payment card's country of issue at the point of sale.

Interchange fee

Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card-based transactions. Usually for sales/services transactions it is a fee that a merchant's bank pays a customer's bank ; and for cash transactions the interchange fee is paid from the issuer to acquirer, often called reverse interchange.

Discover Financial Services is an American financial services company that owns and operates Discover Bank, which offers checking and savings accounts, personal loans, home equity loans, student loans and credit cards. It also owns and operates the Discover and Pulse networks, and owns Diners Club International. Discover Card is the third largest credit card brand in the United States, when measured by cards in force, with nearly 50 million cardholders. Discover is currently headquartered in the Chicago suburb of Riverwoods, Illinois.

Credit card card for financial transactions from a line of credit

A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt. The card issuer creates a revolving account and grants a line of credit to the cardholder, from which the cardholder can borrow money for payment to a merchant or as a cash advance.

Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299 (1978), is a unanimous U.S. Supreme Court decision holding that state anti-usury laws regulating interest rates cannot be enforced against nationally chartered banks based in other states. Justice William Brennan wrote that it was clearly the intent of Congress when it passed the National Banking Act that nationally chartered banks would be subject only to federal regulation by the Comptroller of Currency and the laws of the state in which they were chartered, and that only Congress or the appropriate state legislature could pass the laws regulating them.

Smiley v. Citibank, 517 U.S. 735 (1996), is a U.S. Supreme Court decision upholding a regulation of the Comptroller of Currency which included credit card late fees and other penalties within the definition of interest and thus prevented individual states from limiting them when charged by nationally-chartered banks. Justice Antonin Scalia wrote for a unanimous court that the regulation was reasonable enough under the Court's own Chevron standard for the justices to defer to the Comptroller.

Card schemes are payment networks linked to payment cards, such as debit or credit cards, of which a bank or any other eligible financial institution can become a member. By becoming a member of the scheme, the member then gets the possibility to issue cards or acquire merchants operating on the network of that card scheme. Visa and MasterCard are two of the largest global brands, known as card schemes, or card brands. Billions of transactions go through their cards on a yearly basis.

Surcharge (payment systems)

A surcharge, also known as checkout fee, is an extra fee charged by a merchant when receiving a payment by cheque, credit card, charge card or debit card which at least covers the cost to the merchant of accepting that means of payment, such as the merchant service fee imposed by a credit card company. Retailers generally incur higher costs when consumers choose to pay by credit card due to higher merchant service fees compared to traditional payment methods such as cash.

Payment card interchange fee and merchant discount antitrust litigation United States class-action lawsuit filed in 2005

The payment card interchange fee and merchant discount antitrust litigation is a United States class-action lawsuit filed in 2005 by merchants and trade associations against Visa, Mastercard, and numerous financial institutions that issue payment cards. The suit was filed due to price fixing and other allegedly anti-competitive trade practices in the credit card industry. A proposed settlement received preliminary approval from the judge overseeing the case in November 2012 but the majority of named class plaintiffs have objected and many have vowed to opt out of the settlement.

The Durbin amendment also known as Regulation II is a provision of United States federal law, 15 U.S.C. § 1693o-2, that requires the Federal Reserve to limit fees charged to retailers for debit card processing. It was passed as part of the Dodd-Frank financial reform legislation in 2010, as a last-minute addition by Illinois Senator Richard Durbin, after whom the amendment is named.

<i>Mitchel v Reynolds</i>

Mitchel v Reynolds (1711) 1 PWms 181 is decision in the history of the law of restraint of trade, handed down in 1711. It is generally cited for establishing the principle that reasonable restraints of trade, unlike unreasonable restraints of trade, are permissible and therefore enforceable and not a basis for civil or criminal liability. It is largely the basis in US antitrust law for the "rule of reason." William Howard Taft, then Chief Judge of the Sixth Circuit Court of Appeals, later US President and then Chief Justice of the Supreme Court, quoted Mitchel extensively when he first developed the antitrust rule-of-reason doctrine in Addyston Pipe & Steel Co. v. United States, which was affirmed in 1899 by the Supreme Court. The doctrine also played a major role in the 1911 Supreme Court case Standard Oil Company of New Jersey v. United States 221 U.S. 1 (1911).

Apple Inc. v. Pepper, 587 U.S. ___ (2019), was a United States Supreme Court case related to antitrust laws related to third-party resellers. The case centers on Apple Inc.'s App Store, and whether consumers of apps offered through the store have Article III standing under federal antitrust laws to bring a class-action antitrust lawsuit against Apple for practices it uses to regulate the App Store. The case centers on the applicability of the "Illinois Brick doctrine" established by the Supreme Court in 1977 via Illinois Brick Co. v. Illinois, which determined that indirect consumers of products lack Article III standing to bring antitrust charges against producers of those products. In its 5–4 decision, the Supreme Court ruled that since consumers purchased apps directly through Apple, that they have standing under Illinois Brick to seek antitrust charges against Apple.

Wolf v. Vidal, 591 U.S. ___ (2020), was a case that was filed to challenge the Trump Administration's rescission of Deferred Action for Childhood Arrivals (DACA). Plaintiffs in the case are DACA recipients who argue that the rescission decision is unlawful under the Administrative Procedure Act and the Fifth Amendment. On February 13, 2018, Judge Garaufis in the Eastern District of New York addressed the question of whether the government offered a legally adequate reason for ending the DACA program. The court found that Defendants did not provide a legally adequate reason for ending the DACA program and that the decision to end DACA was arbitrary and capricious. Defendants have appealed the decision to the Second Circuit Court of Appeals.

References

  1. 1 2 3 Khan, Lina (March 2, 2018). "The Supreme Court Case That Could Give Tech Giants More Power". The New York Times . Retrieved March 2, 2018.
  2. ↑ Stohr, Greg (October 16, 2017). "American Express Fee Accusations Get U.S. High Court Hearing". Bloomberg Businessweek . Retrieved March 2, 2018.
  3. 1 2 Martin, Andrew (October 4, 2010). "U.S. Reaches Deal in Credit-Card Antitrust Suit". The New York Times . Retrieved March 2, 2018.
  4. ↑ "Justice Department Sues American Express, Mastercard and Visa to Eliminate Rules Restricting Price Competition; Reaches Settlement with Visa and Mastercard". United States Department of Justice. October 4, 2010. Retrieved March 2, 2018.
  5. ↑ United States v. American Express Co., 88F. Supp. 3d143 (E.D.N.Y.2015).
  6. ↑ Stout, Hilary (February 19, 2015). "American Express Violated Antitrust Laws, Judge Rules". The New York Times . Retrieved March 2, 2018.
  7. ↑ United States v. American Express Co., No.1:10-CV-4496 (E.D.N.Y.Apr. 30, 2015).
  8. ↑ Pierson, Brendan (December 18, 2015). "American Express can enforce anti-steering rules: court". Reuters . Retrieved March 2, 2018.
  9. ↑ Sidel, Robin; Matthews, Christopher (September 26, 2016). "Appeals Court Tosses Antitrust Judgment Against American Express". The Wall Street Journal . Retrieved March 2, 2018.
  10. ↑ United States v. American Express Co., 838F.3d179 (2d Cir.2016).
  11. ↑ Stempel, Jonathan (November 10, 2016). "U.S. urges court to overturn AmEx antitrust decision". Reuters . Retrieved March 2, 2018.
  12. ↑ Stempel, Jonathan (January 5, 2017). "U.S. loses bid to overturn AmEx antitrust decision". Reuters . Retrieved March 2, 2018.
  13. ↑ Andriotis, AnnaMaria (June 2, 2017). "Justice Department Drops Antitrust Case Against AmEx, But 11 States Press On". The Wall Street Journal . Retrieved March 3, 2018.
  14. ↑ "Petition For Writ Of Certiorari" (PDF). SCOTUS Blog. June 2, 2017. Retrieved March 2, 2018.
  15. ↑ Chung, Andrew (October 16, 2017). "U.S. top court to review antitrust claims against American Express". Reuters . Retrieved March 2, 2018.
  16. ↑ Kendall, Brent (February 26, 2018). "Supreme Court Grills Both Sides in States' Challenge of American Express". The Wall Street Journal . Retrieved March 2, 2018.
  17. ↑ Kendall, Brent; Andriotis, AnnaMaria (June 25, 2018). "Supreme Court Rules for American Express in Swipe-Fee Antitrust Case". The Wall Street Journal . Retrieved June 25, 2018.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.