The United States Court of Appeals for the Second Circuit, a highly influential appellate court sitting in New York, on September 26 issued a unanimous ruling with major implications for antitrust and unfair competition laws, the payment card industry, and merchants that accept payments by credit card. The Second Circuit reversed a district court win by the U.S. Department of Justice in a suit that accused American Express of violating antitrust laws. Specifically, the DOJ had asserted that, by imposing rules barring merchants from steering consumers to other credit card brands, AmEx was improperly thwarting competition. On appeal, the Second Circuit held that the lower court ruling was in error, because it considered only one side of the market—-merchants, but not the consumers (the cardholders) transacting business in those merchants’ stores.
This was an outright reversal. The appeals court remanded the case with instructions to the lower court to find in favor of AmEx, saying U.S. District Judge Nicholas G. Garaufis erred in his 2015 decision in favor of the DOJ. The critical error occurred when he concluded that anti-steering rules were anti-competitive by focusing on the interests of merchants to the detriment of cardholders.
“This approach does not advance overall consumer satisfaction,” Judge Richard C. Wesley said in the court’s unanimous opinion.
Though merchants may desire lower fees [than AmEx charges to process the credit card transactions for the merchants], those fees are necessary to maintaining cardholder satisfaction—and if a particular merchant finds that the cost of AmEx fees outweighs the benefit it gains by accepting AmEx cards, then the merchant can choose to not accept AmEx cards.”
This common-sense approach to the facts in dispute vindicates the impassioned arguments made by AmEx in the district court. More broadly, it may boost AmEx’s fortunes after what has generally been a rough year or two marked by this high-profile case and the defection of Costco, which ended its long and profitable business alliance with AmEx in favor of a new relationship with Citibank and Visa.