Skip to main content

How the Supreme Court Handed a Huge Win to American Express

The court ruled on Monday that vendors can't nudge customers toward using other types of credit or debit cards, even though American Express typically charges higher fees.

Lost amid the commotion over the Supreme Court's decision to uphold President Donald Trump's travel ban is the court's ruling on Monday in favor of financial services giant American Express in Ohio v. American Express. The case concerned the company's contracts with merchants, which ban those who work with American Express from steering customers—via discounts or verbal encouragement—toward using other types of cards. The state of Ohio, along with the federal government and a number of other states, argued that the practice violated antitrust laws. It's important to note that American Express typically charges higher fees to vendors than credit card companies like Visa and Mastercard, making it in merchants' best interest to nudge customers toward using other cards.

But in a 5-4 decision written by Justice Clarence Thomas, the court's conservative justices ruled that the contracts were not a violation of antitrust laws. The credit card market, Thomas wrote, differs "from traditional markets in important ways"—namely, in its dealings with both merchants and card holders. The majority argued that antitrust cases involving such "two-sided platforms" must consider the effects of a company's policies on both markets.

Thomas argued that American Express' anti-steering provisions have increased competition on the consumer side of the market. "While these agreements have been in place, the credit-card market experienced expanding output and improved quality," Thomas wrote. "Amex's business model spurred Visa and Mastercard to offer new premium card categories with higher rewards. And it has increased the availability of card services, including free banking and card-payment services for low-income customers who otherwise would not be served."

The decision was lauded by American Express and slammed by retailers and advocates for low-income consumers, who argue that the anti-steering provisions disproportionately benefit wealthy cardholders, who enjoy the points and perks programs that American Express' higher merchant fees subsidize.

The court's four liberal justices, led by Justice Stephen Breyer, dissented. In addition to arguing that "nothing in antitrust law" justified different treatment for two-sided platforms, Breyer also raised concerns about the implications of such a ruling for other such businesses.

"I particularly fear the interpretive impact of the majority's discussion of what it calls 'two-sided platforms,' in an era when that term might be thought to apply to many Internet-related goods and services that are becoming ever more important," Breyer wrote.

Interestingly, it's this element of the ruling that may have the most far-reaching effects. A number of the biggest Internet companies—Google, Amazon, and Facebook, for example—are two-sided platforms. Advocates for more rigorous antitrust enforcement in the United States are concerned that the decision will make it harder to challenge anticompetitive practices of big tech companies. Here, for example, is what Lina Khan, the director of legal policy at the Open Markets Institute, which advocates for stricter antitrust enforcement, had to say on the topic in a recent op-ed for the New York Times:

If the Supreme Court ratifies the Second Circuit's approach, platforms will be able to engage in anticompetitive activity with one set of users, so long as they can plausibly claim that harmful conduct enabled them to benefit another group." Say, for example, that Uber prohibited its drivers from also serving rivals like Lyft, suppressing driver income. Under the current approach, these exclusive agreements would likely violate antitrust law. But under the Second Circuit's analysis, the case would go nowhere unless plaintiffs could show that this practice also harmed riders.

As Axios' David McCabe explained this morning, it's not clear that this ruling would apply to all types of two-sided platforms. Silicon Valley, however, is no doubt playing close attention to what happens next.