Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Consumer claims American Express anti-steering rules impede competition, (May 4, 2015)

By Linda O’Brien, J.D., LL.M.

Financial services company American Express entered into illegal vertical agreements with merchants that artificially inflated the cost of products and services sold by merchants who accept American Express credit cards, according to a complaint filed by a consumer in the federal district court in Brooklyn, New York (Tiemann v. American Express Company, May 1, 2015).

Services provided to merchants that accept credit cards are referred to as General Purpose Credit and Charge Card (GPCC) network services. GPCC network services allow merchants to capture, authorize, and settle transactions for customers who pay with their credit or charge card. There are four major competing firms in the GPCC network services market: American Express (AmEx), Visa, MasterCard, and Discover.

Maryli Tiemann is a consumer who purchased products or services using her MasterCard, Visa, or Discover credit cards from a merchant that accepts American Express payment cards.

The complaint states that, when a consumer uses an AmEx branded credit card for payment, the merchant is charged a merchant discount fee that is approximately three percent of the total transaction amount. Other credit cards—such as MasterCard, Visa, and Discover—carry much lower merchant discount rates than AmEx. If merchants were able to “steer” transactions to payment cards other than AmEx, the merchants would realize significant savings.

According to the complaint, beginning in 2007, AmEx contained “anti-steering” rules in its merchant acceptance agreements that expressly prohibited merchants from steering transactions to less costly payment cards, including (1) implying preference for other payment cards over AmEx, (2) prompting customers to use a different payment card, (3) criticizing or mischaracterizing AmEx cards, or (4) imposing a surcharge or any restriction for using AmEx branded payment cards. The intended and actual result of the anti-steering rules was the near total insulation from price-based competition in the payment card acceptance services markets.

The complaint also alleges that the fees that AmEx is able to charge merchants for processing transactions on the AmEx payment card network would be greatly diminished in the absence of the anti-steering rules. Merchants would incur lower costs and could pass the benefits to consumers in the form of lower retail prices. If merchants were free to give their customers incentives to use less costly credit cards, AmEx would face the prospect of losing business as consumers respond to these incentives. As a result of the anti-steering rules, AmEx’s ability to impose supracompetitive prices upon merchants is not meaningfully constrained by price competition from the other payment networks, the plaintiff maintained.

In 2010, the U.S. Department of Justice and 17 states brought an enforcement action against AmEx, MasterCard, and Visa, alleging that the anti-steering provisions in the company’s merchant agreements were anticompetitive (U.S. v. American Express Co, Dkt. No. 1:10-cv-04496). While MasterCard and Visa agreed to settle the charges, AmEx chose to litigate. Following a trial in February 2015, the court found that AmEx’s anti-steering rules were unlawful restraints on trade. On April 30, a preliminary injunction was issued, barring AmEx from enforcing its anti-steering rules and ordering the firm to delete language from its agreements with merchants that prevent them from encouraging customers to use other cards.

The plaintiff asserts claims for unfair competition, unjust enrichment, and violations of Section 1of the Sherman Act. The action seeks declaratory relief, restitution, rescission, treble damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 1:15-cv-02507.

Attorneys: Joseph J. Tabacco, Jr. and Todd A. Seaver (Berman DeValerio), Marvin A. Miller (Miller Law LLC), Sarah A. Bernstein (Sarah A. Bernstein, Attorney at Law), Simon Bahne Paris (Saltz, Mongeluzzi, Barrett and & Bendesky, P.C.), and Roberta D. Liebenberg (Fine, Kaplan and Black) for Maryli Tiemann.

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

News: Antitrust NewYorkNews