PayPal has defeated antitrust claims accusing the payments company of using merchant rules to suppress competition from cheaper payment options and inflate prices paid by online shoppers.
The case centered on PayPal provisions that restrict merchants from steering customers toward alternative forms of payment, including by offering discounts or expressing a preference for another payment method. Consumers challenging the rules argued they insulated PayPal from price competition and ultimately caused shoppers to pay more.
The litigation was brought in U.S. District Court for the Northern District of California by consumers led by Christian Sabol. They alleged PayPal’s merchant agreements violated Section 1 of the Sherman Act as well as state antitrust and consumer protection laws.
The consumers’ theory was that PayPal charges relatively high transaction fees but prevents merchants that accept the service from encouraging shoppers to use less expensive alternatives. Merchants therefore have less ability to steer transactions toward competing payment providers, according to the complaint.
The plaintiffs also argued that payment-processing costs are incorporated into the retail prices merchants charge consumers, meaning restrictions on payment competition can affect shoppers even when they do not use PayPal for a particular purchase.
But the court repeatedly found problems with the connection between those restrictions and the alleged consumer injury.
U.S. District Judge Jeffrey S. White previously ruled that the consumers had not adequately established PayPal’s market power. The plaintiffs’ allegations about the reach of PayPal’s rules among online merchants did not provide enough information about competing payment platforms to show PayPal could exercise power over the relevant market.
Market power — broadly, the ability to raise prices above competitive levels or otherwise restrain competition — is a central issue in many antitrust cases challenging agreements under the Sherman Act.
The court also questioned the plaintiffs’ theory that PayPal’s rules translated into higher retail prices.
The consumers alleged transaction fees are an important merchant expense that gets incorporated into the prices shoppers ultimately pay. But White previously found that they had not adequately explained the significance of those fees compared with the numerous other costs and factors that determine retail prices.
That left the alleged injury too indirect and speculative to support the federal antitrust claim, the court found.
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The dispute dates to 2023, when consumers sued PayPal over provisions in agreements governing merchants that accept its payment services.
One provision prevents merchants from imposing a surcharge or other fee for accepting PayPal, while another restricts merchants from expressing a preference for other payment methods or discouraging customers from using PayPal.
The consumers characterized those provisions collectively as “anti-steering rules.”
Their challenge echoed a broader antitrust debate over restrictions imposed by payment and technology platforms that limit businesses’ ability to tell consumers about cheaper alternatives.
But the PayPal litigation also illustrates the hurdles private antitrust plaintiffs face even when challenging a business practice that they contend limits price competition. It is not enough to identify a restraint and allege that prices would be lower without it. Plaintiffs must plausibly connect the challenged conduct to competitive harm and their own economic injuries.
The consumers attempted to strengthen that connection after an earlier version of their case was dismissed in August 2024. They added allegations and additional plaintiffs, including claims under the laws of Florida, Minnesota, North Carolina and Oregon.
White again dismissed the federal antitrust claim in November 2025, finding deficiencies in the allegations concerning both market power and antitrust injury. At that point, however, he gave the consumers a final opportunity to amend their Sherman Act allegations.
The case is Sabol et al. v. PayPal Holdings Inc. et al., U.S. District Court for the Northern District of California, No. 4:23-cv-05100.
Source: Bloomberg
