Appeals Court Reverses DOJ's Antitrust Win In Favor Of Amex

A U.S. court of appeals this week ruled in favor of American Express and reversed an earlier U.S. district court decision that had sided with the U.S. Department of Justice to prohibit Amex's "non-discrimination provisions" on merchants.

At issue is whether merchants can steer customers to forms of payment that cost the merchant less than Amex transactions do. The new order allows Amex to continue prohibiting such steering. During the appeals process, Amex had continued its "anti-steering provisions," following a stay issued by the appeals court in December 2015.

In a prepared statement this week, Amex chairman and CEO Ken Chenault declared the latest order "a major victory." A Justice Department official declined to comment on whether it would appeal this week's decision.

The court of appeals determined that the district court did not prove that Amex's anti-steering restrictions unreasonably restrained trade for its merchants and cardholders. Instead the appeals court's 66-page order found the lower court ruling focused entirely on merchant interests while disregarding cardholder interests.

Banning Amex's NDPs, the court of appeals reasoned, could result in a domino effect: a decrease in Amex's revenue; the dwindling of cardholder benefits, which are supported by merchant fees; a decrease in Amex cardholders; an increase in MasterCard and Visa market share; and ultimately a reduction of "competition among payment card networks on the cardholder side of the market," which would be bad for cardholders. Amex had vehemently argued this point throughout the years.

On the contrary, the order noted, the DOJ's evidence demonstrated that the combined card transaction volume for the four major card networks, which also includes Discover, had "substantially increased" to $2.4 trillion in 2013, up 8 percent from 2012 and 33 percent from 2008.

"This evidence of increased output is not only indicative of a thriving market for credit card services, but is also consistent with evidence that Amex's differentiated closed-loop model, supported by its NDPs, has increased rather than decreased competition overall within the credit-card industry," according to the order. "We conclude that, so long as Amex's market share is derived from cardholder satisfaction, there is no reason to intervene and disturb the present functioning of the payment-card industry."

Additionally, the appeals court concluded that merchants are free to choose not to accept Amex cards should they find that "the fees outweigh the benefit it gains by accepting Amex cards," a choice "many merchants have already made and continue to make." A recent high-profile example was Costco's decision to end its co-branded relationship with Amex in June.

Dozens of merchants__including major retailers, grocers and pharmacies__supported DOJ as movants in the case. A couple travel merchants__Southwest Airlines and Drury Hotels__were among those that opposed Amex's NDPs.

At the initial trial, Southwest Airlines and Alaska Airlines both contested the anti-steering provisions. Southwest, for example, noted that if it could encourage customers to use cheaper forms of payment, it could negotiate lower merchant fees with Amex, court documents noted. Meanwhile, Amex prevented Alaska Airlines from steering corporate clients to use cheaper forms of payment in exchange for lower negotiated fares, court records show.