Ohio v. American Express Co.
138 S.Ct. 2274 (2018)
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Rule of Law:
When analyzing an antitrust claim under the rule of reason for a two-sided transaction platform, the relevant market must include both sides of the platform, and the plaintiff bears the initial burden of proving that the challenged restraint caused a net anticompetitive effect on the market as a whole.
Facts:
- American Express (Amex) operates a two-sided transaction platform, connecting credit card holders and merchants.
- Amex's business model focuses on attracting high-spending cardholders by offering them superior rewards compared to its competitors.
- To fund these extensive rewards, Amex charges merchants significantly higher fees than competitors like Visa and MasterCard.
- Some merchants attempt to avoid these higher fees by 'steering' customers at the point of sale, encouraging them to use a different, lower-fee credit card.
- To combat this practice, Amex includes 'antisteering' provisions in its contracts with merchants.
- These provisions contractually prohibit merchants from discouraging the use of Amex cards or expressing a preference for other payment methods.
Procedural Posture:
- The United States and several states sued American Express in the U.S. District Court for the Eastern District of New York for violating §1 of the Sherman Antitrust Act.
- Following a seven-week bench trial, the District Court ruled for the plaintiffs, finding the antisteering provisions were anticompetitive.
- American Express, as the appellant, appealed the decision to the U.S. Court of Appeals for the Second Circuit, with the government as the appellee.
- The Second Circuit reversed the trial court's judgment, holding that the plaintiffs had failed to prove anticompetitive harm in the properly defined two-sided market.
- The plaintiffs (Ohio et al.) petitioned for, and were granted, a writ of certiorari by the U.S. Supreme Court.
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Issue:
Does American Express's antisteering provision, which prohibits merchants from encouraging customers to use other credit cards, violate Section 1 of the Sherman Antitrust Act?
Opinions:
Majority - Justice Thomas
No. American Express's antisteering provisions do not violate federal antitrust law because the plaintiffs failed to prove net harm in the relevant two-sided market. For a two-sided transaction platform like a credit card network, where a sale to one side (merchants) cannot occur without a simultaneous sale to the other side (cardholders), the relevant market must be analyzed as a single, integrated whole. The plaintiffs improperly focused only on the harm to merchants (higher fees) without considering the corresponding benefits to cardholders (more robust rewards). To meet their burden, plaintiffs must show that the restraint increased the net price of a transaction or reduced overall output. Here, plaintiffs failed to prove that the overall cost of credit card transactions rose to an anticompetitive level, and in fact, the market saw expanding output and procompetitive innovations spurred by Amex's business model. The provisions also have a procompetitive justification by preventing free-riding on Amex's investments and ensuring a frictionless 'welcome acceptance' for cardholders.
Dissenting - Justice Breyer
Yes. American Express's antisteering provisions violate federal antitrust law because they have clear anticompetitive effects in the market for merchant services. The majority's novel approach of combining two distinct groups of customers—merchants and cardholders—into a single market is contrary to established antitrust precedent, which typically analyzes the market where the restraint occurs. There was direct evidence of harm, as the provisions suppressed price competition among credit card networks and allowed Amex to raise merchant fees without losing business. This harm was not offset by benefits to cardholders; the district court found that merchant price increases resulted in a higher net price for transactions overall. The majority errs by requiring a formal market definition and proof of reduced output where direct evidence of actual detrimental effects on competition exists, and it improperly considers procompetitive justifications at step one of the rule of reason analysis.
Analysis:
This decision establishes a significant precedent for antitrust law concerning two-sided markets, prevalent in the modern digital economy (e.g., ride-sharing apps, online marketplaces). By requiring plaintiffs to prove net harm across both sides of a platform, the ruling raises the bar for bringing successful antitrust challenges against these companies. It provides a strong defense for platforms whose business models involve subsidizing one side of the market by charging the other, potentially shielding conduct that harms one set of consumers (like merchants) if it can be linked to benefits for another set (like cardholders). This framework complicates antitrust enforcement in a platform-dominated economy.
