On February 19, 2015, the District Court for the Eastern District of New York issued its ruling on liability in United States v. American Express. Following a seven-week trial, the Court found that American Express violated Section 1 of the Sherman Act by imposing certain restrictions on merchants that prevent the merchants from offering their customers incentives to use competing credit cards with lower retail charges. The government alleged, and the Court ultimately concluded, that these "anti-steering" rules restricted competition between the major "general purpose credit card" companies—MasterCard, Visa, American Express, and Discover. (The government had brought similar claims against MasterCard and Visa, both of which settled prior to trial). The Court did not decide how to remedy the violations, reserving that decision for a later date.
We have previously discussed this case, noting that among other issues, the Court had raised the possibility that the government could prevail by presenting direct evidence of harm to competition, without the need to rely on indirect evidence—a showing that American Express possessed a significant share of a relevant market such that its actions could pose a significant risk of harm to competition. Ultimately, the Court concluded that direct and indirect evidence provided "[t]wo independent avenues" by which the government could prove its case, but noted that "these dual paths are two sides of the same coin. Just as an indirect market analysis represents a court's effort to discern whether a defendant firm has the capacity to harm competition and, relatedly, whether the challenged restraint is likely to have anticompetitive effect in the relevant market ... proof of actual adverse effects on competition is compelling evidence that the defendant firm does, in fact, possess sufficient power to profitably restrain competition in the relevant market."
After reviewing the trial evidence, the Court first found that the relevant market for purposes of its analysis was the market for general purpose credit and charge card network services, following the Second Circuit's previous decision in United States v. Visa, U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003). The Court rejected American Express's arguments that the market for debit cards should be included for purposes of the analysis, and the government's contention that a separate market existed specifically with respect to travel and entertainment-related purchases.
Reviewing the government's indirect evidence, the Court found that American Express's 26.4% share of the relevant market was "compelling evidence of market power" and that there were significant barriers to entry by new firms. The Court found, however, that market share alone would likely not have been sufficient to sustain the government's claims, had American Express not possessed a "highly insistent or loyal customer base" that "effectively prevents merchants from dropping American Express."
The Court also found that the government had proved harm to competition based on its direct evidence from American Express, other credit card companies, and merchants that American Express's restrictions in fact prevented price competition between credit card companies by "render[ing] merchant demand for [credit card] network services less responsive to changes in the price charged for those services." The Court further found that the government had proved that American Express's contractual agreements with merchants had prevented providers of lower-cost services from entering the market. It concluded that the restrictions accordingly resulted in higher costs to merchants and consumers.
Ultimately, the Court found that the government could have proved its case based on either direct or indirect evidence, and thus market share remained a relevant concern. But the Court's decision is a reminder that potential defendants in certain Section 1 monopoly cases should be prepared to address a plaintiff's "direct evidence" of harm to competition and may not be able to solely rely on its relative market share as a defense.
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