Antitrust Law Daily Wrap Up, ANTITRUST NEWS: U.S. argues fact issues preclude summary judgment in American Express antitrust litigation, (Feb 24, 2014)

By Linda O’Brien, J.D., LL.M.

The Department of Justice Antitrust Division has filed a memorandum of law in the federal district court in Brooklyn, New York, in opposition to a motion for summary judgment by American Express in its antitrust action against three credit card networks for anti-competitive practices that prevent merchants from offering discounts and raise prices for consumers in violation of Section 1 of the Sherman Act (U.S. v. American Express Co., Case 1:10-cv-04496-NGG-RER).

Merchants pay American Express, Mastercard, Visa, and Discover over $40 billion annually to allow customers to make purchases using the credit card networks’ payment cards. On average, American Express charges merchants the highest prices of any credit card network. According to the memorandum, American Express imposes merchant restraints that prevent merchants from encouraging customers to use less expensive cards or give customers information about card-acceptance costs. American Express filed a motion for summary judgment, arguing that the plaintiffs have a threshold obligation to prove that American Express has market power.

The government contends that proof of market power is not required where the defendant’s conduct actually causes adverse effects on competition. First, merchant restrictions by American Express should be measured under the rule of reason. In this case, the government can demonstrate the merchant restraints have had an actual adverse effect on competition by: (1) reducing the incentives of the credit card networks to compete for preferred merchant treatment; (2) preventing merchants from offering discounts to encourage customers to pay with less expensive cards; (3) prohibiting merchants from giving customer information about credit card prices; and (4) eliminating the potential for merchants to pass cost savings to customers from reduced card acceptance fees.

American Express possesses market power with its high market share in a highly concentrated network market, strong cardholder insistence, and continued merchant acceptance despite price increases, according to the memorandum. Moreover, the government can present expert testimony to demonstrate that American Express has market power. Since American Express has proposed expert testimony with a different analysis, the differences cannot be resolved without a trial.

Additionally, American Express operates the network platform linking cardholders and merchants and serves as gatekeeper to cardholders accounting for 26 percent of charge card spending. Since millions of merchants want to access to those cardholders, American Express has been able to impose merchant restraints to reduce competition with other credit card networks. Finally, the government contended that entry barriers prevent new competitors from eroding American Express’ market power. Since genuine issues of material fact exist that American Express possesses market power, the defendant’s motion for summary judgment should be denied, the government concluded.

Attorneys: Craig W. Conrath for U.S. Department of Justice.

Companies: American Express Co.; American Express Travel Related Services Company, Inc.; Mastercard International Incorporated; Visa, Inc.

News: Antitrust