(CN) – A divided Supreme Court found Monday that American Express did not violate antitrust laws by banning merchants from asking consumers to use lower-fee cards, in a decision that could weaken future enforcement efforts against other companies.
In October 2010, Ohio and several other states joined the Justice Department in a federal lawsuit that accused American Express of imposing anticompetitive steering rules on merchants that prevent them from promoting other credit cards, including those with lower transaction fees.
Each year, credit card companies collect tens of billions of dollars for swipe fees, or card acceptance fees, at the point of sale.
Prosecutors claim AmEx, which has the highest merchant fees of any credit card company, is preventing merchants from encouraging customers to use less expensive cards, like Discover cards.
This “anti-steering” policy – also referred to as nondiscrimination provisions, or NPDs – means that merchants are locked into paying higher fees to AmEx and passing those costs onto consumers in the form of higher prices for goods and services, according to the lawsuit.
Merchants have also allegedly been prohibited from posting signs stating a preference for another card at the point of sale.
The Justice Department settled claims against Visa and Mastercard, which were also named as defendants, but AmEx held firm and argued that it needs the NPDs to offer cardholders a broader range of benefits and services.
A federal judge in New York found the NPDs anticompetitive, but the Second Circuit reversed in 2016, saying the lower court failed to consider both sides of the credit card market.
AmEx found an ally in Justice Neil Gorsuch during oral arguments in February, as the newest member of the U.S. Supreme Court said that nothing was restraining the credit card company’s competitors from charging merchants lower fees, or making consumers aware that AmEx charges merchants more.
“It’s just the difference between Cadillacs and Kias,” Gorsuch said at the hearing. “People can choose. Do they want a high cost, high reward, a low-cost, cheaper alternative? And the two sides can compete with one another.”
On Monday, the nation’s highest court ruled for AmEx in a 5-4 decision that could hinder antitrust enforcement actions by the government.
The court’s majority rejected the claims of the federal and state governments, which had argued that the AmEx’s steering rules on merchants stifled competition and hurt consumers.
Justice Clarence Thomas penned the majority opinion upholding the Second Circuit, writing that the government had failed to demonstrate how AmEx’s rules increased costs to merchants in a way that rose to a violation of federal antitrust laws.
“They have not carried their burden of proving that Amex’s anti-steering provisions have anticompetitive effects. Amex’s business model has spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions,” Thomas wrote in a 20-page opinion.
Justice Stephen Breyer dissented, saying the majority incorrectly adopted the Second Circuit’s decision to consider both sides of the market – in this case, services related to the merchant as well as services related to the cardholder – as a single market rather than two.
Breyer said the effect of AmEx’s rule was to increase fees on merchants and said he was not aware of any support for the single-market approach in antitrust law.
“Nothing in antitrust law, to my knowledge, suggests that a court, when presented with an agreement that restricts competition in any one of the markets my examples suggest, should abandon traditional market-definition approaches and include in the relevant market services that are complements, not substitutes, of the restrained good,” Breyer wrote.
The first page of Breyer’s dissent includes a misspelling of the hands-off economic policy of laissez-faire. He spelled it “lassez-faire.”
“For more than 120 years, the American economy has prospered by charting a middle path between pure lassez-faire and state capitalism, governed by an antitrust law ‘dedicated to the principle that markets, not individual firms and certainly not political power, produce the optimal mixture of goods and services,’” Breyer wrote. “This lawsuit is emblematic of the American approach.”
The court’s liberal justices – Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan –joined Breyer’s dissent.
AmEx Chairman and CEO Stephen Squeri said the majority’s decision was a victory not just for the company but also for consumers, and would allow the company to deliver innovative products and services to both merchants and cardholders.
“We are generating strong momentum across American Express, and today’s decision will help us use our differentiated business model to help merchants build their businesses and to provide competitive value to our card members,” Squeri said in a prepared statement.
The Justice Department did not immediately respond Monday to a request for comment.
After the Supreme Court agreed to hear the case, the Open Markets Institute filed an amicus brief in support of the government and said that a ruling in favor of the credit company could immunize dominant tech firms such as Amazon, Google and Facebook from antitrust actions by increasing the burden on regulators to show that the companies are using anticompetitive practices.
But Matthew Schruers of the trade organization Computer & Communications Industry Association, whose members include those tech firms, said fears that antitrust enforcement actions might be undermined are “not well founded.” His group had filed a brief urging the court to uphold the Second Circuit ruling.
“In deciding the case, the Supreme Court actually moved US law closer in line to EU law, which I don’t think anybody would characterize as underenforcement,” Schruers said in an interview.
He cited a case in the European Court of Justice that he said had resolved similar legal questions involving two-sided markets and credit cards fees charged by the French Groupement des cartes bancaires. In September 2014, the court referred the case back to the General Court of the EU and annulled a finding that the fees were anticompetitive.
“Businesses competing hard against one another in providing a multi-sided market might be perceived as doing something untoward when they’re really just trying to promote the interests of both sides of the platform,” Schruers said.