The U.S. Supreme Court on Monday agreed to decide an 11-state antitrust challenge to American Express Co.'s merchant rules, a case that the U.S. Justice Department litigated with the states for more than six years and then abandoned at the high court's door.
In Ohio v. American Express, the states argue that American Express Co. is violating antitrust laws through rules that contractually bar merchants from encouraging customers to use other credit cards that charge lower prices to businesses.
The Justice Department and the states had sued American Express over the rules in 2010 in federal district court in New York. The district court held that the government proved the anti-steering rules were anti-competitive because they stifled competition among credit card companies. The trial judge also found that American Express failed to prove pro-competitive benefits from its rules.
The U.S. Court of Appeals for the Second Circuit in September 2016 reversed. The panel said the government must show not just that the provisions had anti-competitive pricing effects on the merchant side, but also that those effects outweighed any benefits on the cardholder side. The appellate court denied the government's request for en banc review.
The question the justices will decide is whether under the so-called "rule of reason" it was sufficient to prove the anti-competitive effects on the merchant side and thus shift to American Express the burden of proving the pro-competitive benefits.
In the high court, the Justice Department urged the justices not to review the ruling. Filed by then Acting U.S. Solicitor General Jeffrey Wall, the government's brief said the Second Circuit "seriously departed from sound antitrust principles" but the case did not meet the high court's traditional criteria for review.
"The court of appeals rested its decision almost entirely on the 'two-sided' nature of the credit card industry, and neither this court nor any other circuit has squarely considered the application of the antitrust laws to two-sided platforms as such," Wall wrote. "Consistent with its usual practice of awaiting further percolation in the lower courts before taking up such novel legal issues, the court should deny review here."
A group of former federal antitrust officials, who filed an amicus brief in support of the state attorneys general, disagreed with the government's argument for "further percolation." The amicus brief said "unusual circumstances" might explain why the Justice Department was no longer supporting the states.
"It likely reflects 'the interregnum in the [Antitrust] Division's leadership resulting from the change in administration,' rather than the considered judgment of the department or the solicitor general," Deepak Gupta of Washington's Gupta Wessler wrote in the brief for the former officials. "Indeed, the Antitrust Division has had two acting heads since January, and the Solicitor General’s Office still lacks Senate-confirmed leadership. In these circumstances, the petition for rehearing in the court of appeals, filed by state plaintiffs and the Department of Justice, is a better indication of the federal authorities' considered position with respect to this litigation—and the legal question presented."
American Express, represented by Evan Chesler of New York's Cravath, Swaine & Moore, had urged the justices to deny review.
"This case is an especially poor candidate for review. No member of the panel dissented. No judge expressed support for rehearing," Chesler argued. "No other appellate court has had occasion to apply the relevant antitrust principles to transactions in the credit card industry, or to any industry with similar two-sided characteristics—let alone reached a result in conflict with the one below."
Despite the Justice Department's argument that the issue needed "further percolation" in the lower courts, the states' petition, filed by Ohio Solicitor General Eric Murphy, had urged the justices to take the case now. The petition argued about the importance of the case to the national economy and it said "the Second Circuit’s dominance in antitrust litigation involving the credit card industry makes a specific split unlikely."
The states' petition drew support from the Retail Litigation Center, Discover Financial Services, Ahold USA and Southwest Airlines Co., among others.