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SCOTUS Decision in AMEX Case Puts Credit Card Networks in Favorable Negotiating Position with Retailers

In the latest development in the battle between retailers and the card networks over swipe fees, the Supreme Court ruled on Monday, June 25, 2018, that American Express' anti- steering rules, which prevent merchants from encouraging customers to use other card types, such as Visa and Mastercard, do not violate antitrust laws.

Stores sometimes will not accept American Express cards since American Express typically charges merchants a higher interchange, or "swipe fee," than its competitors do. When consumers buy items with their American Express cards, the credit card company charges the store an average of 2.37 percent globally. That compares to the less than 2 percent that Visa and Mastercard say they charge merchants. Given those rates, it is understandable why merchants would prefer to steer customers toward the use of Visa or Mastercard over American Express.

Justice Thomas, writing for a 5-4 majority, stated that the unique "two-sided" nature of credit card networks, in which a service provider links consumers to businesses, requires different treatment for antitrust purposes. In particular, the Court reasoned that because of their "two-sided" nature, engaging in anti-competition analysis with respect to credit card networks requires consideration of the impact on both sides of the market. By ruling in favor of American Express, the Court noted it was indirectly protecting the American Express rewards benefits offered to cardholders. Viewed that way, Justice Thomas wrote, American Express promoted competition by designing rewards programs to attract affluent customers.

"While these agreements have been in place," Justice Thomas wrote, "the credit-card market experienced expanding output and improved quality. 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."

For its part, the dissent, written by Justice Breyer, took particular issue with the majority's apparent different treatment of so-called "two-sided" platforms, noting that the concept could be expanded to apply to several internet-related goods and services.

Notably, the Court's decision may also impact ongoing settlement negotiations between several retailers and Visa and Mastercard over their own anti-steering rules. The decision likely puts Visa and Mastercard in a stronger negotiating position than they previously were due to the Court's apparent application of a more deferential antitrust scrutiny for credit card networks. Given the Court's American Express decision, Visa and Mastercard may be unwilling to make more substantial changes to their anti-steering rules than they otherwise would have.

Eli A. Rosenberg

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