Antitrust Law Daily Wrap Up, ANTITRUST—E.D.N.Y.: American Express must inform co-brand merchants of freedom to steer customer transactions, (Dec 16, 2015)

By Greg Hammond, J.D.

American Express (Amex) has been ordered to give co-brand merchants notice that they are free to steer customer transactions to less costly payment cards, should they choose. In granting the U.S. Justice Department’s motion to enforce an April 2015 permanent injunction, the federal district court in Brooklyn, New York, determined that co-brand merchants, like all other merchants, have been liberated from Amex’s anti-steering rules and are therefore entitled to notice concerning the changes to those rules (U.S. v. American Express Co., December 15, 2015, Garaufis, N.).

A permanent injunction was granted in this case following the court’s February 19 decision, finding that the U.S. Department of Justice and 17 state attorneys general established at trial that Amex’s anti-steering rules violated Section 1 of the Sherman Act. The permanent injunction required, in part, that Amex provide notice to merchants of the terms of the injunction and the changes to Amex’s anti-steering rules that it imposes.

Amex proposed sending notices to their ten existing co-brand merchants in which they inform the co-brand merchants that—unlike other merchants, who may now favor any credit card brand they wish—“in light of your American Express co-brand Card relationship, the terms of your existing Card acceptance agreement and co-brand Card agreement are not altered by [the court’s] ruling. Thus all terms of your Card acceptance agreement and co-brand Card agreement remain in full force and effect.”

The Justice Department challenged this notice, arguing that co-brand merchants, like all other merchants, have been liberated from Amex’s anti-steering rules and that they should be given notice that they are free to steer if they choose.

The court sided with the Justice Department, finding that the permanent injunction does not exempt co-brand merchants and that Amex would violate the permanent injunction by sending a notice to co-brand merchants informing them that they have not gained the ability to steer.

Amex’s argument that existing co-brand merchants have already agreed, under two agreements, not to steer away was rejected. The court reasoned that Amex ignored the court’s finding that Amex imposed the anti-steering rules through exercise of market power, and the record demonstrates that co-brand merchants have actually been frustrated by the effects of the anti-steering rules contained in their merchant agreements.

The case is No. 10-CV-4496 (NGG)(RER).

Attorneys: Andrew J. Ewalt, U.S. Department of Justice. Evan R. Chesler (Cravath, Swaine & Moore) for American Express Co. and American Express Travel Related Services Co., Inc.

Companies: American Express Co.; American Express Travel Related Services Co., Inc.

Cases: Antitrust NewYorkNews