Judge Rules American Express Violated Antitrust Laws

United States District Court Judge, Hon. Nicholas G. Garaufis, on February 19, 2015, issued a 150-page decision concluding that Plaintiffs, the United States and the attorneys general of 17 states, proved by a preponderance of evidence that Defendants, American Express Company and American Express Travel Related Services Company, violated Section 1 of the Sherman Antitrust Act. In particular, the Court held that Non-Discrimination Provisions (“NDPs”)

contained in the Defendants’ standard acceptance agreements, which provide that merchants who accept American Express are not permitted to encourage customers to pay for their transactions with other, lower-cost credit cards, constituted an unlawful restraint on trade.

Visa Inc. and MasterCard International Incorporated were also named as defendants in the suit; however, the companies entered into consent decrees with the Government, in which they voluntarily agreed to remove or revise the bulk of the restraints Plaintiffs challenged. American Express Company and American Express Travel Related Services Company, though, elected to litigate Plaintiffs’ challenges to their anti-steering rules.

Under American Express’s NDPs, merchants are not allowed to “steer” customers into using other payment methods by, for example, enticing customers or offering motivations to use other credit cards, such as a Visa or MasterCard, that carry a lesser swipe fee than the American Express card.

In reaching its decision that such NDPs violate U.S. antitrust laws, the Court explained that American Express, as the second largest credit card provider in the nation, possesses a sufficient market share to harm competition and have the power to “repeatedly and profitably raise their merchant prices without worrying about significant attrition.” Further, the Court held that the record, in fact, reflected that merchant prices had risen dramatically in the absence of the ability for merchants to steer customers to other payment alternatives.

As such, Judge Garaufis determined Plaintiffs satisfied their burden, finding that Defendants’ NDPs “create an environment in which there is nothing to offset credit card networks’ incentives—including American Express’s incentive—to charge merchants inflated prices for their services.”

According to an article published in Bloomberg Business, American Express is disappointed with the decision and plans to appeal.

The case is: U.S. v. American Express Co., Case No. 1:10-cv-04496 (E.D.N.Y.)

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