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Industry, Academics weigh in on Ohio vs. Amex

By  |  January 25, 2018

Next month, the US Supreme Court will hear what legal experts describe as one of the most important antitrust cases in years. The focus of this dispute is on credit card fees and the rights of credit card networks to restrict business from recommending or offering incentives for customers that charge them less fees. At issue, however, is a crucial point of interpretation on how the rule of reason applies to multisided platforms and markets, which are becoming increasingly pervasive business models across the world economy.

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    The simple facts of the case are:

    • A district court ruled American Express was illegally using its market power to restrict competition between credit card platforms.
    • The second circuit of appeals court overturned the decision, saying the practice could have positive effects on the economy.

    The second circuit decided it wasn’t fair to consider American Express’s relationship with retailers in isolation. Credit card networks run two-sided markets, peddling services simultaneously to shop owners and cardholders. Retailers want lower fees, and customers want airline miles and rental-car insurance. The networks cover these perks with revenue from transaction fees. Complaints about unfair treatment from stores had to be balanced against the way those decisions impact customers, the appeals court ruled.

    The two following briefs amici curiae, go to the heart of this discussion.

    Arguing in favor of the Second Circuit’s ruling, Scholars of Antitrust Law and Economics summarize by saying:

    This brief explains why basic economic principles underlying the analysis of multi-sided markets lead to the conclusion that a plaintiff should be required to demonstrate, at a minimum, that: (1) the allegedly unlawful restraint caused anticompetitive effects in the form of actual or probable restricted output market-wide—a showing that logically requires analyzing both sides of a two-sided market; and (2) the defendant had sufficient market power to restrict output in a properly defined market. These two requirements align with sound economics and would also provide clear guidance for courts in applying the rule of reason.

    Arguing for the ruling to be overturned, 28 Professors of Antitrust Law summarize:

    Efficient allocation of resources in the economy depends on undistorted competitive price signals. The correct “balance” between, say, merchant prices and consumer rewards in related or even interdependent markets is thus determined by competition itself; that role cannot be filled by a judicial scale-balancing exercise balancing different market participants’ welfare because that lies well beyond any judge’s (or economist’s) ken. That Amex manipulated this balance through a restraint that virtually eliminated horizontal price competition is the antitrust problem—not a defense— because antitrust law endeavors to preserve competition on all sides of any business’s operations, and let the free market’s invisible hand take the wheel from there.

    Arguing to uphold the ruling are: Babette E. Boliek, James C. Cooper, Richard A. Epstein, Stephen Haber, Thomas Winslow Hazlett, Justin (Gus) Hurwitz, Jonathan Klick, Thomas Lambert, Thomas Lambert, Abbott Lipsky, Geoffrey A. Manne, Steven Semeraro, David J. Teece & Joshua D. Wright

    Arguing to overturn are: Jon Baker, Darren Bush, Stephen Calkins, Michael A. Carrier, Peter Carstensen, Edward Cavanagh, Andrew Chin, Joshua P. Davis, Einer R. Elhauge, Robin Feldman, Harry First, Eleanor M. Fox, Thomas Greany, Warren Grimes, Jeffrey Harrison, Norman W. Hawker, Thomas J. Horton, Herbert Hovenkamp, Max Huffman, John B. Kirkwood, Robert H. Lande, Marina Lao, Barak Orbach, Mark R. Patterson, Barak Richman, Chris Sagers, Spencer Weber Waller & Tim Wu

     

    For access to all filings: http://www.scotusblog.com/case-files/cases/ohio-v-american-express-co/