United States v. Am. Express Co.
| Decision Date | 07 May 2014 |
| Docket Number | No. 10–CV–4496 NGG RER.,10–CV–4496 NGG RER. |
| Citation | 21 F.Supp.3d 187 |
| Parties | UNITED STATES of America, et al., Plaintiffs, v. AMERICAN EXPRESS CO., et al., Defendants. |
| Court | U.S. District Court — Eastern District of New York |
Andrew J. Ewalt, Washington, DC, Bennett Matelson, Craig W. Conrath, Ethan C. Glass, J. Robert Kramer, John Read, Mark Hamer, U.S. Department of Justice, Gregg I. Malawer, Joseph P. Vardner, Washington, DC, Michael E. Cole, Rachel O. Davis, Office of the Attorney General, State of Connecticut, Hartford, CT, Layne M. Lindebak, Iowa Department of Justice, Des Moines, IA, Ellen S. Cooper, Gary Honick, Office of the Attorney General, Baltimore, MD, D.J. Pascoe, Michigan Department of Attorney General, Lansing, MI, Mitchell L. Gentile, Office of the Ohio Attorney General, Columbus, OH, Kim Mae Van Winkle, Bret Fulkerson, David Ashton, Texas Attorney General's Office, Jeffrey Cullinane, Office of the Attorney General, Austin, TX, Chadwick O. Brooker, Robert W. Pratt, Illinois Attorney General, Chicago, IL, Victor J. Domen, Tennesse Attorney General Office, Nashville, TN, Chuck Munson, Montana Department of Justice, Helena, MT, Gregory Walklin, Nebraska Department of Justice, Lincoln, NE, Brett T. Delange, Office of the Idaho Attorney General, Oscar S. Klaas, Stephanie Nicole Guyon, Idaho Attorney General, Boise, ID, Ryan Kriger, Vermont Attorney General, Montpelier, VT, David N. Sonnenreich, Ronald J. Ockey, Office of the Attorney General of Utah, Salt Lake City, UT, Nancy M. Bonnell, Office of the Attorney General, Phoenix, AZ, David Anthony Rienzo, New Hampshire Department of Justice, Concord, NH, for Plaintiffs.
Evan R. Chesler, Kevin J. Orsini, Cravath, Swaine & Moore, Donald L. Flexner, Philip C. Korologos, Boies, Schiller & Flexner LLP, Eric Brenner, Boies, Schiller & Flexner LLP, Thomas E.L. Dewey, Dewey Pegno & Kramarsky LLP, Keila D. Ravelo, Matthew Stephen Freimuth, Willkie Farr & Gallagher LLP, New York, NY, Matthew S. Tripolitsiotis, Boies Schiller & Flexner LLP, Armonk, NY, Robert M. Cooper, Boies, Schiller & Flexner LLP, Kenneth A. Gallo, Paul, Weiss, Rifkind, Wharton & Garrison, LLP, Washington, DC, William T. Thomas, Boies Schiller & Flexner, Fort Lauderdale, FL, for Defendants.
The United States of America and the attorneys general of seventeen states have sued Defendants American Express Company and American Express Travel Related Services Company, Inc. (collectively “Amex”), alleging anti-competitive behavior in violation of Section 1 of the Sherman Antitrust Act. In particular, Plaintiffs allege that Defendants' so-called “anti-steering” provisions violate Section 1 because they prevent merchants who accept Amex payment cards from steering customers to alternative card brands, such as Visa, MasterCard, or Discover. (Id. ) This, they argue, reduces competition for payment card services at the merchant level and enables Amex to charge merchants higher prices for these services than it could in a competitive market. (Id. ) On September 26, 2013, Defendants moved for summary judgment on Plaintiffs' claim. (Not. of Defs. Mot. for Summ. J. (Dkt. 281).) The court DENIES Defendants' motion for summary judgment because genuine issues of material fact remain in dispute.1
There are four major issuers of credit and charge cards2 in the United States: Visa, MasterCard, Amex, and Discover. (Pls. Rule 56.1 Counter–Stmt. of Material Facts in Opp'n to Defs. Mot. in Favor of Summ. J. (“Pls. 56.1”) (Dkt. 296–1) ¶ 287.) Amex first entered the payment card industry in 1958, with a charge card for use at travel and entertainment providers. ( Mem. in Supp. of Defs. Mot. for Summ J. (“Defs. Mem.”) (Dkt. 282–1) at 5.) Its main competitors at the time were Diners Club and Carte Blanche, which both specialized in the same market. (Id. )
Meanwhile, banks began to offer payment cards that not only allowed customers to charge items to be paid at the end of the month, but also provided revolving lines of credit. Their efforts eventually created two non-profit joint ventures run by consortiums of banks, Visa and MasterCard. (Defs. Stmt. of Material Undisputed Facts in Supp. of their Mot. for Summ. J. (“Defs. 56.1”) (Dkt. 282–2) ¶ 13.) They were managed by boards of directors elected by the member banks. (Id. ¶ 14.) They also had exclusivity agreements that mandated that banks not issue competitors' cards, including Amex cards. (Id. ¶¶ 14–15.)
Amex first began offering credit cards in the late 1980s, seeking to challenge the two joint ventures in the general purpose credit and charge card market. (Defs. Mem. at 6.) It was joined in this effort by Discover, which in 1985 was the last entrant into the general purpose credit and charge card market. (Pls. 56.1 ¶ 418.) While Amex positioned itself as a premium brand, Discover sought to grow its network by offering lower fees to merchants. (Id. ¶¶ 418–419.)
Although the exclusivity rules that once governed the banks have now been lifted as the result of a lawsuit, most still issue either Visa or MasterCard credit cards. (Defs. 56.1 ¶¶ 71, 80–81.)
Although they disagree over its implications, the parties agree that the market for general purpose credit and charge cards is two-sided. Defendants sell their services to both merchants and cardmembers in order to allow these two groups of customers to interact with each other. (Defs. 56.1 ¶¶ 3–9; Pls. 56.1 ¶¶ 3–9.) This case concerns one side of that market: card acceptance by merchants.
For the majority of their cards, Defendants market and issue credit and charge cards directly to cardmembers. These customers include individuals and businesses. (Expert Report of Ann Schmitt, Ex. 24 to Hamer Decl. (“Schmitt Rep.”) (Dkt. 295–1) ¶ 66–68.) Amex bears the risk of fraud or default, collects payments from customers for the transactions it facilitates, and also collects various fees, such as interest on an unpaid balance and an annual fee. (Schmitt Rep. 162.)
Defendants state that they offer rewards to keep current customers and attract new ones. (Id. ) The rewards are redeemable for a wide variety of goods and services, for which Amex then pays. (Defs. 56.1 ¶¶ 170, 175, 188.) They assert that rewards can be significant enough that cardmembers may in fact pay a “negative price” for purchases made with Amex cards. (Id. ¶ 176.) Amex states that it maintains a reserve with which to pay for redemption of these rewards, which typically do not expire. (Id. ¶ 191.) Amex keeps a database of all rewards liabilities and asserts that the database demonstrates that its liabilities increased significantly between 2002 and 2010. (Id. ¶ 202.) Defendants explain that corporate cardmembers can also receive rebates for their Amex card spending. (Id. ¶ 209–10.)
Defendants also contract with merchants to enable them to accept payment with Amex cards. These contracts dictate all facets of the Amex-merchant relationship, including the manner in which a merchant may display the Amex logo, treatment of Amex cards in relation to other cards of the same or different brand and to other payment methods, and the price of accepting Amex cards. (Schmitt Rep. ¶ 63.)
To provide these services to cardmembers and merchants, Defendants operate a platform for processing card transactions. Plaintiff's expert explains that processing has three steps: authorization, clearing, and settlement. (Id. ¶ 64.) Authorization happens when a merchant sells a good or service to a customer. In most cases this step takes place electronically—the merchant's terminal (where customers swipe their cards) sends information about the transaction to Defendants. Defendants then check this information against their customer database and send a response indicating whether they will reimburse the merchant. (Id. ) If the payment is approved, the cardmember and merchant complete their transaction, and the merchant uses the terminal to inform Defendants that it has done so. (Id. ) Defendants then “clear” their records regarding the transaction and “settle” it by transferring funds to the merchant's bank account. (Id. ) Third-party payment processors provide the hardware that connects Amex and other card providers to merchants. (Id. ¶ 65.)
This model differs from the one used by Visa and MasterCard, which do not issue their own cards. Their cards are instead issued by individual banks, which then become responsible for authorizing transactions, managing billing and credit, and taking on the risk of fraud or default. (Id. ¶ 78.) Defendants also allow banks to issue Amex-branded cards to cardmembers, but this is far less common. (Id. at ¶ 65.)
Defendants charge merchants various fees in exchange for providing payment processing services. These fees include fixed monthly fees, and per-transaction fees that may be composed of a fixed “transaction” fee and a “merchant discount fee.” (Defs. 56.1 ¶¶ 137–38.) Amex's “merchant discount fee” is equal to the dollar value of the transaction multiplied by a percentage discount rate. (Id. ¶ 134.) Merchants typically pay the same per-transaction price for bank-issued Amex cards as they would for Amex-issued cards. (Id. ¶ 79.) Amex has compared their merchant discount fee to those charged by Visa and MasterCard, adjusting for charge volume and type of card product. (Id. ¶ 153.) With these adjustments, Amex's average merchant discount fee is 3% greater than MasterCard's and 8% greater than Visa's. (Id. ¶ 155.) Plaintiffs agree that Amex is more expensive for merchants to accept—that is a principle element of their suit. (Pls. 56.1 ¶ 155.)
Defendants aver that Amex negotiates directly with merchants, offering incentive payments or fee reductions; Visa and MasterCard do not negotiate these matters. (Defs. 56.1 ¶¶ 145, 147.) Amex offers various concessions to merchants including lower discount fees and exceptions to...
To continue reading
Request your trial