Ohio v. American Express Co.: The Supreme Court's Decision Explained

The Supreme Court's decision in Ohio v. American Express Co. was a significant one, and it's essential to understand the context behind it. The case centered around American Express's merchant agreements, which prohibited merchants from promoting competing credit cards.

In 2010, the Ohio Attorney General's Office filed a lawsuit against American Express, alleging that these agreements were anti-competitive. The court ultimately ruled in favor of American Express, stating that the agreements did not violate federal antitrust laws.

The Court's decision hinged on the idea that American Express's agreements were not anti-competitive, but rather a way to maintain the card network's integrity. The Court found that the agreements did not prevent merchants from offering competing credit cards, but rather ensured that American Express's cardholders were not incentivized to use competing cards.

The court proceedings in the Ohio v. American Express Co. case were quite complex and involved multiple stages. The case began in the United States District Court for the Eastern District of New York in 2010.

The DOJ filed a civil antitrust lawsuit against Visa, MasterCard, and American Express, alleging that their anti-steering language prevented merchants from reducing their costs and forced them to raise prices to consumers. Eleven states joined the lawsuit, including Ohio, Connecticut, and Illinois.

The District Court ruled in favor of the DOJ and states in 2015, finding that American Express's anti-steering terms violated antitrust laws. However, the states continued to appeal the decision to the Supreme Court of the United States.

The Supreme Court accepted the case in October 2017 and heard oral arguments in February 2018. The Court ultimately issued a 5-4 decision in June 2018, affirming the Appeals Court's ruling that American Express's steering provisions did not violate antitrust law.

Here is a summary of the key players involved in the case:

The Supreme Court Decision in Ohio v. American Express Co.

The Supreme Court issued its decision on June 25, 2018, affirming the Appeals Court's ruling that American Express' antisteering provisions did not violate antitrust law.

The court voted 5-4 in favor of American Express, with Justice Clarence Thomas writing the majority opinion. Thomas was joined by Chief Justice John G. Roberts and Justices Anthony Kennedy, Samuel Alito, and Neil Gorsuch.

The majority opinion held that the plaintiffs had not shown any harm caused by the steering provisions that would not have occurred if no steering provisions were in place, nor had the provisions stifled competition in the market.

Justice Stephen Breyer wrote the dissenting opinion, joined by Justices Ginsburg, Sotomayor, and Kagan, who took issue with how the rule of reason had been applied in this case throughout its judicial history.

The Supreme Court accepted the case in October 2017, after eleven states continued to appeal to the Court despite the Department of Justice and other states dropping the suit.

Oral arguments were heard on February 26, 2018, with both sides facing tough questions from Justices Sonia Sotomayor and Neil Gorsuch.

Justice Stephen Breyer dissented from the court's judgment, joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan.

Breyer believed that the anti-steering provisions "clearly ha[d] serious anticompetitive effects." He argued that American Express has disrupted the normal price-setting mechanism in the market, allowing it to raise merchant prices repeatedly without losing business.

The provisions also suppressed competitors' incentives to offer lower prices, resulting in higher profit-maximizing prices across the network services market. Breyer believed this was a clear anticompetitive effect.

Breyer rejected the majority's conclusion that the market at issue should include both the market for merchants and the market for credit-card holders. He argued that anticompetitive effects alleged in the case "appear only in American Express' contracts with merchants."

He concluded that unless there was something unusual about this case, there was no justification for treating shopper-related services and merchant-related services as if they were part of a single market.

The dissent considered matters from the point of view of merchants, who purchase credit-card services and want credit-card networks to compete for their business. Steering encourages credit-card networks to compete.

A credit-card network has to optimize its pricing, but it could optimize that pricing subject to the recognition that merchants have the right, as a matter of antitrust law, to discourage the use of a card that is over-priced from the merchants' point of view.

The dissent would have found it sufficient that the steering provisions impeded competition, leading to higher fees, in the sale of credit-card services to merchants. It would have left to AmEx the burden of showing that any benefits to cardholders outweighed the harm to merchants.

Here's a breakdown of the dissent's key points:

The Supreme Court's decision in Ohio v. American Express Co. has significant implications for the legal framework surrounding two-sided markets. The holding of the case was extremely narrow, focusing only on the merchants' side of the platform.

The Court's decision highlights the importance of considering both sides of a two-sided platform when evaluating anticompetitive effects. In fact, the plaintiffs in the case did not satisfy the first step of a rule of reason analysis because they did not establish that Amex's anti-steering provisions have anticompetitive effects in the two-sided transaction market as a whole.

A challenge to Amex's anti-steering provisions that considers its effects on both merchants and cardholders is still possible. This is evident from the amended complaint filed in July by a group of merchants, which takes into account the effects on both sides of the platform.

The market definition for two-sided platforms is a factual issue, and the Supreme Court noted that it is not always necessary for a court to consider both sides of a two-sided platform. However, when indirect network effects are pronounced, the platform should be considered one market.

The following types of platforms are likely to be considered single markets: real estate and travel agents, stock exchanges, auction houses, ride share businesses, and farmers markets. These platforms exhibit pronounced indirect network effects, similar to the credit card industry.

On the other hand, non-transactional two-sided platforms with minor indirect network effects should be treated as separate markets. Examples of such single-sided markets include media markets, search engines, dating clubs, ticketing services, internet marketplaces, and health insurers.

The issues in Amex are limited to vertical restraints, which involve a supplier's dealings with two or more categories of customers. The principles announced in the decision do not apply to horizontal restraints, even if the defendants also may be otherwise engaged in vertical relationships.

The opinion in Ohio v. American Express Co. was delivered by Justice Thomas, who concluded that American Express' antisteering provisions do not violate federal antitrust law.

The court held that the government had to show that the anticompetitive effects of the provisions outweighed any benefits on the cardholder side, and without evidence of the net effect on both merchants and cardholders, the district court could not have properly concluded that the provisions unreasonably restrain trade.

Justice Thomas' opinion focused on the contracts between American Express and merchants, whereas Justice Breyer's dissent argued that the anticompetitive effects appear only in these contracts.

Justice Breyer was joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, and Elena Kagan in dissenting from the court's judgment, and he believed that the anti-steering provisions clearly have serious anticompetitive effects.

Here's a summary of the justices' opinions:

Justice Thomas delivered the opinion of the Court, concluding that American Express's antisteering provisions do not violate federal antitrust law.

The Court found that the plaintiffs failed to prove that Amex's antisteering provisions had anticompetitive effects. To demonstrate anticompetitive effects, the plaintiffs needed to show that the provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or stifled competition in the credit-card market.

The Court defined the relevant market as a two-sided market, with both merchants and credit-card holders. This means that the market must be analyzed as a whole, considering both sides of the transaction.

The Court concluded that the plaintiffs' argument focused on only one side of the market, merchant fees, and that this was insufficient to demonstrate anticompetitive effects.

To demonstrate anticompetitive effects, the plaintiffs needed to prove three things: that Amex's antisteering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or stifled competition in the credit-card market.

The Court held that the plaintiffs failed to satisfy the first step of the rule of reason, which requires proving that a restraint on trade has anticompetitive effects.

In dissent, Justice Stephen Breyer argued that the anti-steering provisions had serious anticompetitive effects.

He believed that American Express had disrupted the normal price-setting mechanism in the market, allowing it to raise merchant prices repeatedly without losing business.

The provisions also meant that competitors like Discover had little incentive to lower their merchant prices, because doing so didn't lead to any additional market share.

Breyer rejected the majority's conclusion that the market at issue should include both merchants and credit-card holders.

He argued that anticompetitive effects alleged in the case appeared only in American Express' contracts with merchants.

The court's analysis should have focused on those contracts instead of the two-sided market the majority identified.

Breyer concluded that there's no justification for treating shopper-related services and merchant-related services as if they were part of a single market.