In the wake of endless media coverage surrounding the early retirement of Justice Anthony Kennedy, the United States Supreme Court has quietly issued one of their most significant rulings of the last decade — one that could, for the foreseeable future, undermine America’s current anti-trust laws that prevent big businesses from having unfair strangleholds on the free market.
The case is known as Ohio v. American Express (№16–1454), which came down to a vote of 5 to 4 where conservative members maintained their majority ruling. According to a report from The New York Times, it was Justice Clarence Thomas who wrote the deciding opinion, stating this was a “specialized” case where the credit card giant engaged in conduct that would, in other circumstances, constitute anti-competitive infringements.
American Express (AmEx), the nation’s fourth most prosperous credit card company, was questioned on whether they violated The Sherman Act, the 1890s anti-trust legislation which prohibits single companies from enforcing predatory behavior so they can eliminate their competition and wield power over the market for themselves.
In this case, judges were asked to decide whether AmEx’s contracts, which forbid salespeople who process their credit cards from telling customers which credit cards have cheaper swipe fees, is a potential violation of the law. For decades, “anti-steering” provisions have allowed AmEx to indefinitely censor businesses, both big and small, from being able to inform customers their credit card company is screwing their stores with these higher fees.
According to Reuters, this drew bipartisan criticism from the 12 states who sued the credit card company and members of the Trump administration, even despite their recently appointed Justice Neil Gorsuch supporting AmEx’s behavior. The government has argued anti-steering provisions keep fees artificially high and only result in higher prices, regardless of whether people use credit cards.
When the company accounts for about 26 percent of all U.S. credit card transactions, that’s a total of over 49 million AmEx users who are regularly screwing over retailers, and they can’t say anything about it. Other companies, competing within AmEx’s unfair rules, were also forced to artificially increase their fees if not for the provision’s existence. That’s $80 billion companies profit off of retailers per year, resulting in the average consumer getting screwed by having to pay higher prices for goods.
Vox reports a similar lawsuit was brought about by the federal government and 17 states in 2010, suing AmEx, MasterCard, and Visa for these kind of anti-steering provisions they argued prevent both market competition and free speech. The District Court of the Eastern District of New York found these were illegal, citing that it would give AmEx cause to routinely hike up their prices, “20 times in five years,” which causes problems for users and the retailers silenced by their power.
The Second Circuit Appeals Court reversed the district court’s decision, saying that credit card companies are “two-sided platforms” where the plaintiffs must show anti-competitive harm to both merchants and card-holders, whose desires are somewhat dramatically opposed. It would be like saying to have economic regulations, lawsuits must show benefits to both main street and wall street, who are two completely differing sides.
That’s not how monopoly laws work. If there is predatory behavior against one group, the retailer, and it’s being used to justify the benefit of their members, it is still predatory behavior to hold onto the market and make their business models possible. The second court concluded harm was only shown to retailers, considering the extra costs they literally couldn’t protest, while card-holders benefited from those neat little rewards AmEx offers.
AmEx is the only company which hasn’t settled any related lawsuits or abandoned the provisions entirely, unlike MasterCard and Visa. AmEx argued they’ve been forced to tighten these provisions against merchants so advertising doesn’t “discriminate” against their cards for their high fees. Because suddenly their greedy fees are some immutable characteristic being oppressed by capitalist bigotry. In case you’re wondering, no, Press Secretary Sarah Huckabee-Sanders is not AmEx’s CEO. Advertising, which incentivizes certain brands over others, is not sales discrimination. It’s just business.
But Justice Thomas ignores the central issues of censorship to justify price increases, agreeing credit card networks are “two-sided platforms” which “differ from traditional markets.” He cited American Express’ unique business model which incentivizes rewards for its customers, which they say are at the cost of higher swipe fees the retailers must bear. This is a lie since the lower court found AmEx’s price hikes exceeded the value of the cardholder rewards. This means fee increases are being used to ensure artificial profit is pushed rather than to cover the cost of customer rewards used to justify the provision.
“[This] sometimes causes friction with merchants,” the justice wrote. “[but] to maintain the loyalty of its cardholders, Amex must continually invest in its rewards program. But, to fund those investments, Amex must charge merchants higher fees than its rivals.” Except nobody is disputing AmEx’s rewards offered through their increased fees. This isn’t an argument that’s being challenged by the plaintiffs. Their concern are these rewards, through AmEx contract coercion, are only made possible by forcing retailers to stay silent when customers use cards that hurt their business.
“Even though Amex’s investments benefit merchants by encouraging cardholders to spend more money, merchants would prefer not to pay the higher fees,” he continued. “One way that merchants try to avoid them, while still enticing Amex’s cardholders to shop at their stores, is by dissuading cardholders from using Amex at the point of sale.”
What kind of precedent this decision sets against business free speech and anti-trust laws going forward is for time to tell. We know the problems rogue big businesses can cause, whether it’s classic cases of depressing wages and increasing prices, to new data-scandals where companies such as Google and Facebook have free reign to use billions of peoples data as bargaining chips. To abandon the history of free-market principles because silence pays for customers’ free gift cards and plane tickets is a dangerous sign for the pro-corporate supreme court going forward.
“Nothing in antitrust law, to my knowledge, suggests that a court, when presented with an agreement that restricts competition in any one of the markets my examples suggest, should abandon traditional market-definition approaches and include in the relevant market services that are complements, not substitutes, of the restrained good,” Justice Stephen Breyer wrote of the dissenting opinion, joined by Justices Ginsburg, Sotomayor and Kagan.
“If American Express’ merchant fees are so high that merchants successfully induce their customers to use other cards, American Express can remedy that problem by lowering those fees or by spending more on cardholder rewards so that cardholders decline such requests,” he continued. “What it may not do is demand contractual protection from price competition.”
