Judge Garaufis Denies Defendants’ Summary Judgment Motion In Government’s Antitrust Case Against American Express Based On Government’s Theories Concerning The Significance Of Undisputed Facts

In a May 7, 2014 order in United States v. American Express Co, No. 10-CV-4496 (NGG) (RER), Judge Nicholas G. Garaufis denied summary judgment to defendant American Express in the government’s antitrust action against Amex arising out of the company’s “anti-steering” rules. These rules impose certain restrictions on merchants that accept American Express cards, which, generally speaking, prohibit merchants from expressing to customers a preference for other cards or imposing conditions on use of the Amex card that are not also imposed on users of other cards.

The United States and the attorneys general of 17 states allege that the anti-steering rules are anti-competitive in violation of Section 1 of the Sherman Act. Under Second Circuit precedents, to prove anti-competitive effect plaintiffs had to establish either an actual adverse effect on competition or market power in the relevant market. See Slip Op. 9, 12. The government’s theory of “actual adverse effect” on competition rested largely on the higher fees Amex charged merchants compared to Visa and Mastercard. Id. at 13. The government contended that absent the anti-steering rules, Visa and Mastercard could have competed with Amex to urge merchants to convey to customers a preference among cards, as was done in the 1990s with merchants’ displays of signs such as “We Prefer Visa,” and that this would have driven down prices across the industry.

Based on these conceptual arguments, the Court concluded that material issues of fact existed as to whether the anti-steering rules had an actual adverse effect on competition. The Court’s ruling that material issues of fact existed as to whether Amex had market power was also based arguments that were conceptual rather than evidence-based. The Court found that “the basic facts relating to Amex’s market share are not in dispute.” Id. at 18. But the government had a “customer insistence theory,” under which cardmember brand loyalty allegedly gave Amex control over how much merchants would use the Amex card, which allegedly enhanced Amex’s market power. Id. at 18. The Court’s approach, in short, was closer to a motion to dismiss than to a summary judgment analysis, with the court assessing the plausibility of the government’s theories of anti-competitive effect and market power, rather than whether it had presented sufficient evidence to suggest that Amex’s anti-steering rules have an actual anti-competitive effect or that Amex has market power.