Supreme Court Accepts Credit Card Antitrust Case Brought by States

In this Ohio v. American Express Ohio has asked the Supreme Court to offer guidance on its “rule of reason” test under antitrust law. The “quick-look” version of this test requires the government to show anticompetitive harms and the defendant to show procompetitive benefits. The party proving greater harms or benefits wins. This case is relevant to states because 11, including Ohio, have sued American Express claiming one of its contract provisions with merchants accepting American Express credit cards violates the Sherman Act (antitrust law).  

American Express charges merchants who accept its credit card higher fees than its competitors. American Express’s standard contract non-discriminatory provision (NDP) requires merchants to not say or imply that they prefer any payment method over American Express.   

Ohio sued American Express claiming that the NDP is an unreasonable restraint of trade in violation of antitrust law. The Second Circuit ruled in favor of American Express concluding that Ohio failed to prove the NDP caused a net harm to both merchants and cardholders.

Both parties and the court agreed the case should be analyzed under the “rule of reason” where Ohio had to show the NDPs reduce competition in the relevant market and American Express then had to show procompetitive effects of NDPs.

Credit cards are a two-sided market serving both merchants and cardholders. The Second Circuit concluded that both groups are included in the market analysis. But Ohio had only proven that the NDPs had an anticompetitive effect on the merchant market.

Ohio argues that the relevant market in this case should only be merchants and not cardholders. The Supreme Court has used the “reasonably interchangeable” test to determine the applicable market for antitrust purposes, that is whether a product or service is “reasonably interchangeable” with the product or service that is at issue in the specific antitrust case.

Ohio claims credit-card services to cardholders cannot meet this test because they are not “reasonably interchangeable” with credit-card services to merchants. “If the credit-card industry raised prices on merchants those merchants could not simply switch from the merchant services that they purchase to the cardholder services that cardholder customers purchase.”

Ohio also identifies what it believes is another error with the Second Circuit decision. The court required Ohio rather than American Express to prove that any anticompetitive effects caused on the prices for merchants and cardholders were not offset by any alleged countervailing benefits to American Express cardholders. According to Ohio “the [Supreme] Court has noted that a defendant—not the Government—bears the burden of establishing the procompetitive justifications for a restraint.”