At this point, it could go either way. By June, the U.S.
Supreme Court will decide whether American Express' rules, which bar
Amex-accepting merchants from steering customers to less expensive forms of
payments, are anticompetitive. On Monday, U.S. Supreme Court justices heard
arguments from both sides.
Eleven
state attorneys general, led by Ohio attorney general Mike DeWine, claim
Amex's rules are anticompetitive because they restrain trade for cardholders
and merchants. They also argue the Second Circuit Court erred in deciding that the
cost of anti-steering rules is offset by the benefit to cardholders through
rewards and services.
According to Monday's court transcript, Ohio state solicitor
Eric Murphy, representing the states suing Amex, stated that the government had
previously proved that Amex's anti-steering rules have stifled competition
among merchants, raised the prices major credit card companies charge merchants
and barred merchants from accurately informing customers of these costs and
from offering them incentives to use less expensive forms of payment.
Like Murphy, Justice Elena Kagan noted that on the case's
most basic level, a district court had found that merchants could not steer
customers to cheaper forms of payment; that the credit card firms had
consistently raised their prices; that the price increases were not being passed on
to consumers; and that it was "impossible" for a credit card company
to offer a competitively priced card product. "That sounds like a market
that is not working in the way it's supposed to, at least not sufficiently to
get on to the second step, where [Amex] can make all [its] arguments about why
a market where the prices only go up and where no low-price competition can
emerge is nonetheless a good market," Kagan said.
Considering the credit card industry functions within a
two-market system, cardholders and merchants, Amex attorney Evan Chesler argued
that the court had to take both markets into consideration when making its
decision. "Every one of those findings dealt only with the merchant
relationship and had nothing to do with consumers," Chesler said. Earlier
in the hearing, Justice Neil Gorsuch, who seemed to sympathize with Amex, had
told Murphy: "We're not here to protect competitors … or necessarily even
merchants. The antitrust laws are aimed at protecting consumers."
Still, other Supreme Court justices, in particular Justice
Sonia Sotomayor, seemed to side with the 11 states. When Chesler argued that
Amex's rules require merchants not to undermine its cardholder relationships
and investments if they're going to be "American Express
representatives," Sotomayor said the "essence of
competition" is "to have somebody work against you ... [and have]
someone come and offer the people involved in the transaction something better
[but that] this anti-steering removes that competition." Putting herself
in the consumer's shoes, she said: "I don't care about brands. I care
about my price. … That's what price competition is about."
Chesler then argued that the court hadn't proved the effect
of on the cardholder market of merchants steering cardholders to less expensive
cards. "Every time your rewards are reduced, that's a price increase for
you. … When you aggregate those rewards and if you've collected fewer rewards,
you've paid a price increase," he said. Sotomayor maintained that Amex
still takes that choice away from the consumer. "You're making the choice
for me. You're not giving me a choice, and that's what price competition is
about: my choice, not your choice about what's more valuable to me," she
said.
Longstanding Effects
The Supreme Court's impending ruling could shape future
anti-trust cases. "Judicial errors are a lot harder to correct than an
occasional monopoly where you can hope and assume that the market will
eventually correct it," Gorsuch said on Monday according to a U.S.
government transcript of the hearing. He attributed his caution to a previous
warning from Judge Frank Easterbrook of the Seventh Circuit Court.
Chesler cautioned the court against allowing prosecutors to make
a case without proving that a price increase had resulted in excess profits, had
restricted output and had resulted in a harmed product. Building a case without
proof, he said, would halt true competition and spur a "tsunami of false
positives in the lower courts."
Since the Supreme Court decided to take the case, 22 amicus
briefs have been filed, seven in support of Amex. Notably, as a Law360 article
first pointed out, the Australian Taxpayers' Alliance supported Amex because it
argued that the premise of the case—that eliminating anti-steering rules has
benefited merchants and consumers in Australia and that it will do the same in
the U.S.—is "fundamentally flawed." Rather, the alliance claims,
eliminating them has been "devastating for Australian consumers while
merchants have benefited significantly from these regulations … and there is no
proof that merchants have passed any savings on to consumers," according
to the amicus brief filed in January.