United States v. Am. Express Co.

• Decision Date: 26 September 2016
• Docket Number: August Term, 2015,Docket No. 15–1672
• Citation: United States v. Am. Express Co., 838 F.3d 179 (2nd Cir. 2016)
• Parties: United States of America, State of Maryland, State of Missouri, State of Vermont, State of Utah, State of Arizona, State of New Hampshire, State of Connecticut, State of Iowa, State of Michigan, State of Ohio, State of Texas, State of Illinois, State of Tennessee, State of Montana, State of Nebraska, State of Idaho, State of Rhode Island, Plaintiffs–Appellees, State of Hawaii, Plaintiff, v. American Express Company, American Express Travel Related Services Company, Inc., Defendants–Appellants, Mastercard International Incorporated, Visa Inc., Defendants, CVS Health, Inc., Meijer, Inc., Publix Super Markets, Inc., Raley's, Supervalu, Inc., Ahold U.S.A., Inc., Albertsons LLC, The Great Atlantic & Pacific Tea Company, Inc., H.E. Butt Grocery Co., Hyvee, Inc., The Kroger Co., Safeway Inc., Walgreen Co., Rite–Aid Corp., Bi–Lo LLC, Home Depot USA, Inc., 7–Eleven, Inc., Academy, Ltd., dba Academy Sports + Outdoors, Alimentation Couche–Tard Inc., Amazon.com, Inc., American Eagle Outfitters, Inc., Ashley Furniture Industries Inc., Barnes & Noble, Inc., Barnes & Noble College Booksellers, LLC, Beall's, Inc., Best Buy Co., Inc., Boscovs, Inc., Brookshire Grocery Company, Buc-ee's Ltd, The Buckle, Inc., The Childrens Place Retail Stores, Inc., Coborns Incorporated, Cracker Barrel Old Country Store, Inc., D'Agostino Supermarkets, Inc., Davids Bridal, Inc., DBD, Inc., Davids Bridal Canada Inc., Dillard's, Inc., Drury Hotels Company, LLC, Express LLC, Fleet and Farm of Green Bay, Fleet Wholesale Supply Co. Inc., Foot Locker, Inc., The Gap, Inc., HMSHost Corporation, IKEA North America Services, LLC, Kwik Trip, Inc., Lowe's Companies, Inc., Marathon Petroleum Company LP, Martin's Super Markets, Inc., Michaels Stores, Inc., Mills E–Commerce Enterprises, Inc., Mills Fleet Farm, Inc., Mills Motor, Inc., Mills Auto Enterprises, Inc., Willmar Motors, LLC, Mills Auto Enterprises, Inc., Mills Auto Center, Inc., Brainerd Lively Auto, LLC, Fleet and Farm of Menomonie, Inc., Fleet and Farm of Manitowoc, Inc., Fleet and Farm of Plymouth, Inc., Fleet and Farm Supply Co. of West Bend, Inc., Fleet and Farm of Waupaca, Inc., Fleet Wholesale Supply of Fergus Falls, Inc., Fleet and Farm of Alexandria, Inc., National Association of Convenience Stores, National Grocers Association, National Restaurant Association, Official Payments Corporation, Pacific Sunwear of California, Inc., P.C. Richard & Son, Inc., Panda Restaurant Group, Inc., PeTSmart, Inc., RaceTrac Petroleum, Inc., Recreational Equipment, Inc., Republic Services, Inc., Retail Industry Leaders Association, Sears Holdings Corporation, Speedway LLC, Stein Mart, Inc., Swarovski U.S. Holding Limited, Wal–Mart Stores Inc., Whole Foods Market Group, Inc., Whole Foods Market California, Inc., Mrs. Gooch's Natural Food Markets, Inc., Whole Food Company, Whole Foods Market Pacific Northwest, Inc., WFM–WO, Inc., WFM Northern Nevada, Inc., WFM Hawaii, Inc., WFM Southern Nevada, Inc., Whole Foods Market, Rocky Mountain/Southwest, L.P., The William Carter Company, Yum! Brands, Inc., Southwest Airlines Co. Movants.
• Court: U.S. Court of Appeals — Second Circuit

838 F.3d 179

United States of America, State of Maryland, State of Missouri, State of Vermont, State of Utah, State of Arizona, State of New Hampshire, State of Connecticut, State of Iowa, State of Michigan, State of Ohio, State of Texas, State of Illinois, State of Tennessee, State of Montana, State of Nebraska, State of Idaho, State of Rhode Island, Plaintiffs–Appellees,

State of Hawaii, Plaintiff,
v.
American Express Company, American Express Travel Related Services Company, Inc., Defendants–Appellants,

Mastercard International Incorporated, Visa Inc., Defendants,

CVS Health, Inc., Meijer, Inc., Publix Super Markets, Inc., Raley's, Supervalu, Inc., Ahold U.S.A., Inc., Albertsons LLC, The Great Atlantic & Pacific Tea Company, Inc., H.E. Butt Grocery Co., Hyvee, Inc., The Kroger Co., Safeway Inc., Walgreen Co., Rite–Aid Corp., Bi–Lo LLC, Home Depot USA, Inc., 7–Eleven, Inc., Academy, Ltd., dba Academy Sports + Outdoors, Alimentation Couche–Tard Inc., Amazon.com, Inc., American Eagle Outfitters, Inc., Ashley Furniture Industries Inc., Barnes & Noble, Inc., Barnes & Noble College Booksellers, LLC, Beall's, Inc., Best Buy Co., Inc., Boscovs, Inc., Brookshire Grocery Company, Buc-ee's Ltd, The Buckle, Inc., The Childrens Place Retail Stores, Inc., Coborns Incorporated, Cracker Barrel Old Country Store, Inc., D'Agostino Supermarkets, Inc., Davids Bridal, Inc., DBD, Inc., Davids Bridal Canada Inc., Dillard's, Inc., Drury Hotels Company, LLC, Express LLC, Fleet and Farm of Green Bay, Fleet Wholesale Supply Co. Inc., Foot Locker, Inc., The Gap, Inc., HMSHost Corporation, IKEA North America Services, LLC, Kwik Trip, Inc., Lowe's Companies, Inc., Marathon Petroleum Company LP, Martin's Super Markets, Inc., Michaels Stores, Inc., Mills E–Commerce Enterprises, Inc., Mills Fleet Farm, Inc., Mills Motor, Inc., Mills Auto Enterprises, Inc., Willmar Motors, LLC, Mills Auto Enterprises, Inc., Mills Auto Center, Inc., Brainerd Lively Auto, LLC, Fleet and Farm of Menomonie, Inc., Fleet and Farm of Manitowoc, Inc., Fleet and Farm of Plymouth, Inc., Fleet and Farm Supply Co. of West Bend, Inc., Fleet and Farm of Waupaca, Inc., Fleet Wholesale Supply of Fergus Falls, Inc., Fleet and Farm of Alexandria, Inc., National Association of Convenience Stores, National Grocers Association, National Restaurant Association, Official Payments Corporation, Pacific Sunwear of California, Inc., P.C. Richard & Son, Inc., Panda Restaurant Group, Inc., PeTSmart, Inc., RaceTrac Petroleum, Inc., Recreational Equipment, Inc., Republic Services, Inc., Retail Industry Leaders Association, Sears Holdings Corporation, Speedway LLC, Stein Mart, Inc., Swarovski U.S. Holding Limited, Wal–Mart Stores Inc., Whole Foods Market Group, Inc., Whole Foods Market California, Inc., Mrs. Gooch's Natural Food Markets, Inc., Whole Food Company, Whole Foods Market Pacific Northwest, Inc., WFM–WO, Inc., WFM Northern Nevada, Inc., WFM Hawaii, Inc., WFM Southern Nevada, Inc., Whole Foods Market, Rocky Mountain/Southwest, L.P., The William Carter Company, Yum! Brands, Inc., Southwest Airlines Co. Movants.

Docket No. 15–1672
August Term, 2015

United States Court of Appeals, Second Circuit.

Argued: December 17, 2015
Decided: September 26, 2016
Rehearing and Rehearing En Banc Denied January 5, 2017

Evan R. Chesler, Cravath, Swaine & Moore LLP, New York, NY (Peter T. Barbur, Kevin J. Orsini, Cravath, Swaine & Moore LLP; Donald L. Flexner, Philip C. Korologos, Eric J. Brenner, Boies, Schiller & Flexner LLP, on the brief ), for Defendants–Appellants American Express Company and American Express Travel Related Services Company, Inc.

Nickolai G. Levin, Attorney, U.S. Department of Justice, Antitrust Division, Washington, D.C. (Sonia K. Pffaffenroth, Deputy Assistant Attorney General, Craig W. Conrath, Mark H. Hamer, Andrew J. Ewalt, Kristen C. Limarzi, Robert B. Nicholson, James J. Fredricks, Daniel E. Haar, Attorneys, U.S. Department of Justice, Antitrust Division; Mike DeWine, Ohio Attorney General, Mitchell L. Gentile, Assistant Ohio Attorney General, on the brief ), for Plaintiffs–Appellees the United States, et al.

Before: Winter, Wesley, and Droney, Circuit Judges.

838 F.3d 184

Wesley, Circuit Judge:

Defendants–Appellants American Express Company and American Express Travel Related Services Company, Inc. (collectively, "American Express" or "Amex") appeal from a decision of the United States District Court for the Eastern District of New York (Garaufis, J. ) dated February 19, 2015, finding that Amex unreasonably restrained trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, by entering into agreements containing nondiscriminatory provisions ("NDPs") barring merchants from (1) offering customers any discounts or nonmonetary incentives to use credit cards less costly for merchants to accept, (2) expressing preferences for any card, or (3) disclosing information about the costs of different cards to merchants who accept them. See United States v. Am. Express Co. , 88 F.Supp.3d 143 (E.D.N.Y. 2015). In addition to holding Amex liable for violating § 1, the District Court permanently enjoined Amex from enforcing its NDPs. See Order Entering Permanent Injunction as to the American Express Defs., United States v. Am. Express Co. , No. 10–cv–4496 (NGG)(RER), 2015 WL 1966362 (E.D.N.Y. Apr. 30, 2015), ECF No. 683.

For the reasons that follow, we REVERSE and REMAND with instructions to enter judgment in favor of Amex.

I. BACKGROUND

A. Credit-Card Industry—A General Overview

Since its inception in the 1950s, the credit-card industry has generated untold efficiencies to travel, retail sales, and the purchase of goods and services by millions of United States consumers.¹ Every card transaction necessarily involves a multitude of economic acts and actors. The end users—the cardholder and a merchant—rely on those acts and actors to provide essential, interdependent services. Take, for example, a cardholder who pulls into a gas station to refuel her car. The cardholder takes out her credit card—for which she pays an annual fee while also receiving frequent flyer miles on her favorite airline for every dollar spent—inserts the card into the credit-card slot on the gas pump, and fills her tank with gas. Her credit card is immediately charged for the transaction, and the station owner receives payment quickly—minus a fee.

The simple transaction of gassing up a car by use of a credit card is enabled by a complex industry involving various commercial structures performing various essential functions. Responsibility for issuing cards and paying retailers for sales using them, extending credit to the cardholders, and collecting amounts due from them can be vested in one firm or in a multiplicity of firms engaged in a division of specified functions and connected in a network by contractual arrangements.

Retailers will not accept credit-card purchases without a guarantee of quick reimbursement. Returning to the customer at the gas pump, it would limit credit-card use if the gas station had to have a reimbursement contract with the particular entity that issued the card to the car owner. The establishment of an umbrella network of individual firms—usually banks—that both issue cards and contract with merchants allows the gas buyer to have a card

838 F.3d 185

issued by Bank A, while the gas station has a reimbursement contract with Bank B. Bank A and Bank B in turn have an arrangement in which Bank A reimburses Bank B for the purchase of gas and bills the consumer. In the lingo of the industry, Bank A is the issuer and Bank B is the acquirer.² Typically, banks in the network both issue and acquire, and consumers need only find a retailer that accepts a card owned by the consumer and not worry about whether the retailer deals with the card issuer.

From the cardholders' perspective, many cardholders may find convenience in carrying and using more than one card. Cards come with varying fees and offer benefits with different values to different consumers. Some cards offer airline miles, others points towards hotel stays or cash back rewards while others offer both rewards benefits and enhanced security.

The benefits of a particular card to a consumer are also largely affected by its acceptability among those who sell goods or services to consumers. Widespread acceptance of a card among sellers in turn depends heavily upon widespread acceptance among the consumers targeted by each seller. Retail sellers get the benefits not only of increased trade because of consumer convenience, but also of not having to choose between limited cash-only sales and extending credit to consumers. Extensions of credit are administratively costly and commercially risky. However, sellers must cover some of the costs of a credit card's attracting customers, including efforts to build the prestige attached to certain cards, carrying out all the tasks of extending credit, and bearing responsibility for the risks of extending credit to individual consumers.

In the end, both the credit-card industry and those who sell goods and services target the same group of consumers, albeit in the guise, respectively, of cardholders and purchasers of goods and services.

B. The "Two–Sided Market"

The functions provided by the credit-card industry are highly...