Ohio v. American Express Co.
| Industry | Financial services |
|---|---|
| Founded | 1850 |
| Products | Credit cards, payment services |
| Website | www |
Ohio v. American Express Co. (585 U.S. 529, 2018) represents a landmark Supreme Court decision concerning antitrust principles within the framework of two-sided markets. The case revolved around certain credit card issuers' contractual provisions that prohibited merchants from directing consumers toward cards with lower transaction fees, thereby sustaining elevated costs for merchants. While Visa and MasterCard reached settlements with the Department of Justice in 2010, American Express defended its anti-steering policies, asserting that the higher fees financed superior services that ultimately benefited cardholders. The Department of Justice, alongside multiple states, initially secured a victory in the District Court in 2015 by demonstrating harm to merchants; however, this ruling was overturned by the Appeals Court in 2016. The appellate court introduced a novel two-sided market analysis requiring evidence of injury to both merchants and cardholders. Consequently, the Supreme Court agreed to review the case and conducted oral arguments in February 2018.
On June 25, 2018, the Supreme Court affirmed the Appeals Court's decision, ruling that American Express’s steering restrictions did not breach antitrust statutes. This judgment solidified the two-sided market test as an essential analytical tool for future cases involving similar market dynamics, particularly within the high tech industry where such dual-sided platforms are common.
Background
The U.S. credit card sector is primarily controlled by four leading financial entities: Visa, MasterCard, American Express, and Discover, collectively constituting an oligopolistic market structure. Credit cards function as a two-sided platform by providing consumers with immediate credit access and enabling merchants to receive prompt payment, financed through merchant transaction fees that differ among issuers.
Since its introduction in 1985, Discover adopted a low-fee strategy aimed at attracting merchants by promoting customer usage of its cards. In retaliation, Visa, MasterCard, and American Express incorporated anti-steering clauses into merchant agreements to prevent retailers from guiding customers toward cards with cheaper fees. These contractual terms barred merchants from disclosing fee disparities or advocating for alternative payment methods within their networks, including lower-cost debit card options.
District Court
In October 2010, following a two-year inquiry, the United States Department of Justice (DOJ) initiated a civil antitrust action against Visa, MasterCard, and American Express in the United States District Court for the Eastern District of New York. The DOJ alleged that the defendants’ anti-steering policies—connected to annual transaction fees—restricted merchants' ability to reduce operating expenses, thereby inflating prices for consumers. The lawsuit was supported by Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio, and Texas. While Visa and MasterCard promptly settled without financial penalties by agreeing to eliminate anti-steering clauses, American Express chose to contest the allegations. Additional states including Arizona, Idaho, Illinois, New Hampshire, Montana, Nebraska, Rhode Island, Tennessee, Vermont, and Utah joined as plaintiffs; Hawaii subsequently withdrew its claims.
After a seven-week trial concluding in February 2015, the District Court ruled against American Express and in favor of the DOJ and state plaintiffs. Judge Nicholas Garaufis characterized American Express’s anti-steering provisions as "an unlawful restraint on trade" under Section 1 of the Sherman Antitrust Act. American Express announced intentions to appeal this decision. In April 2015, Judge Garaufis issued a permanent injunction barring American Express from enforcing its anti-steering restrictions.
Appeals Court
In December 2015, American Express's appeal was presented before the Second Circuit Appeals Court. Following oral arguments, the court lifted the injunction previously imposed by Judge Garaufis. The comprehensive decision issued in September 2016 overturned the lower court’s ruling, concluding that the plaintiffs had failed to prove that American Express’s anti-steering provisions caused harm to either merchants or consumers. The court emphasized that the government bore the burden of demonstrating how increased transaction fees imposed on merchants would adversely affect consumers. Additionally, it reasoned that merchants facing elevated fees could simply opt not to accept the card.
This judgment established a significant precedent, complicating antitrust actions within two-sided markets such as credit card networks by requiring evidence of injury to both merchants and consumers. The Department of Justice requested an en banc rehearing, contending that the inquiry should concentrate solely on merchant harm and that American Express should be required to show that its anti-steering rules foster competition. Nevertheless, by January 2017, the Appeals Court declined to revisit the case.
Supreme Court
Although the Department of Justice and several states withdrew from the litigation, eleven states—including Ohio (which led the appeal), Connecticut, Idaho, Illinois, Iowa, Maryland, Michigan, Montana, Rhode Island, Utah, and Vermont—persisted in petitioning the Supreme Court of the United States in June 2017. They sought Supreme Court intervention to clarify how antitrust principles apply to two-sided markets, which have grown increasingly important economically. The Supreme Court agreed to hear the case in October 2017.
Oral arguments were conducted on February 26, 2018; justices posed challenging questions to both parties, with particular scrutiny from Justices Sonia Sotomayor and Neil Gorsuch, rendering the decision difficult to predict.
On June 25, 2018, the Supreme Court delivered a narrow 5–4 verdict upholding the Appeals Court’s determination that American Express’s steering restrictions did not breach antitrust laws. The majority opinion authored by Justice Clarence Thomas—and supported by Chief Justice Roberts along with Justices Kennedy, Alito, and Gorsuch—found no proof that these provisions diminished competition or inflicted distinct harm absent such constraints. In dissent, Justice Stephen Breyer, joined by Justices Ginsburg, Sotomayor, and Kagan, criticized how the rule of reason was applied throughout the litigation.