United States consumers buy more than $2.3 trillion in goods and services each year using credit cards. As a result, merchants like those in the airline and supermarket industries are charged more than $50 billion in credit card fees. For decades, Visa, Mastercard, and American Express had rules in place that limited merchants’ ability to reduce those fees. Those rules prevented merchants from taking common-sense steps like providing information about credit card fee costs, stating a preference for a particular card, or providing discounts to consumers who use a certain card.
In October 2010, the Division and 17 state attorneys general challenged these rules. At the time the suit was filed, Mastercard and Visa accepted a settlement that, after it was approved by the district court in 2011, ensured that the companies allowed merchants to offer discounts or other benefits, promote particular forms of payment, provide information to customers, and otherwise encourage the use of particular payment forms.
American Express chose to litigate. Discovery lasted over two years and, because it was coordinated with parallel private suits, involved over 100 depositions. Thousands of pages of expert reports were exchanged. The United States and the state attorneys general defeated a summary judgment motion in early 2014, and the case proceeded to trial that summer.
The American Express team
During the seven-week trial, the court heard from four experts and more than 30 fact witnesses, and admitted over 1,000 exhibits into evidence. The Division offered testimony from a range of merchants. They described the substantial costs they incur when customers pay with credit cards. And they described how they could not foster competition among American Express and its competitors to reduce these costs by steering customers to particular brands or types of cards. These merchants demonstrated, in one’s words, that “the market is broken.” The Division also introduced evidence illustrating how American Express’s merchant restraints thwarted the ability of some competitors, like Discover, to offer lower and simpler pricing. Overall, the Division showed that these restraints stifled price competition among card networks, increased prices for merchants and consumers, and diminished innovation. At the conclusion of trial, the district court noted that it was one of the best-litigated trials the court had witnessed in 14 years on the bench.
In a 150-page opinion issued on February 19, 2015, the district court concluded that American Express’s merchant restraints violated Section 1 of the Sherman Act. Applying a rule of reason analysis, the court ruled in favor of the Division on the major disputed issues in the case. It held that the appropriate relevant market was general purpose credit card network services, where merchants are the customers. The court then found that American Express possesses market power in the relevant market. In doing so, the court found direct evidence of “actual adverse effects on competition” attributable to American Express’s rules. The court also found that American Express had market power because of its significant market share (26 percent), high barriers to entry, and the “amplifying effects” created from many cardholders’ insistence on using American Express cards.
The court held that the restraints had directly harmed competition by “sever[ing] the essential link between the price and sales of network services by denying merchants the opportunity to influence their customers’ payment decisions and thereby shift spending to less expensive cards.” The court found that interbrand price competition had been “frustrated to the point of near irrelevance” by American Express’s rules, and noted that the absence of steering “largely insulated [card networks] from the downward pricing pressure ordinarily present in competitive markets.” The restraints also blocked competition from low-cost business models, allowed American Express to more easily raise prices to merchants, and stifled innovation in network services.
Finally, the court rejected the procompetitive justifications proffered by American Express, holding that the “purported justifications do not offset, much less overcome, the more widespread and injurious effects” of American Express’s rules. Litigation is ongoing and the case is currently in the remedy phase. Briefing on the proposed final judgment was submitted by both sides on March 23, 2015, along with separate drafts of a proposed injunction. The court is expected to resolve the disputes over the scope of the injunction and enter a remedial order and final judgment.