Ohio v. American Express Co., Docket 16-1454

Antitrust: Rule of reason: Vertical restraint:

Reduced output, Increased prices, Decreased quality:

Market power:

Horizontal restraints and market power:

To determine whether a restraint violates the rule of reason, the parties agree that a three-step, burden-shifting framework applies. Under this framework, the plaintiff has the initial burden to prove that the chal­lenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market. See J. Kalinowski, Antitrust Laws and Trade Regulation§12.02[1] (2d ed. 2017) (Kalinowski); P. Areeda & H.Hovenkamp, Fundamentals of Antitrust Law §15.02[B] (4th ed. 2017) (Areeda & Hovenkamp); Capital Imaging Assoc., P. C. v. Mohawk Valley Medical Associates, Inc., 996 F. 2d 537, 543 (CA2 1993). If the plaintiff carries its burden, then the burden shifts to the defendant to show a procompetitive rationale for the restraint. See Kalinow­ski §12.02[1]; Areeda & Hovenkamp §15.02[B]; Capital Imaging Assoc., supra, at 543. If the defendant makes this showing, then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means. See Kalinowski §12.02[1]; Capital Imaging Assoc., supra, at 543.

Here, the parties ask us to decide whether the plaintiffs have carried their initial burden of proving that Amex’s antisteering provisions have an anticompetitive effect. The plaintiffs can make this showing directly or indirectly. Direct evidence of anticompetitive effects would be “‘proof of actual detrimental effects [on competition],’” FTC v. Indiana Federation of Dentists, 476 U. S. 447, 460 (1986), such as reduced output, increased prices, or decreased quality in the relevant market, see Kalinowski §12.02[2]; Craftsman Limousine, Inc. v. Ford Motor Co., 491 F. 3d 381, 390 (CA8 2007); Virginia Atlantic Airways Ltd. v. British Airways PLC, 257 F. 3d 256, 264 (CA2 2001). Indirect evidence would be proof of market power plus some evidence that the challenged restraint harms compe­tition. See Kalinowski §12.02[2]; Tops Markets, Inc. v. Quality Markets, Inc., 142 F. 3d 90, 97 (CA2 1998); Span­ish Broadcasting System of Fla. v. Clear Channel Commu­nications, Inc., 376 F. 3d 1065, 1073 (CA11 2004).

Because “legal presumptions that rest on formalistic distinctions rather than actual market realities are gener­ally disfavored in antitrust law,” Eastman Kodak Co. v. Image Technical Services, Inc., 504 U. S. 451, 466–467 (1992), courts usually cannot properly apply the rule of reason without an accurate definition of the relevant market. “Without a definition of the market there is no way to measure the defendant’s ability to lessen or de­stroy competition.” Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U. S. 172, 177 (1965); accord, Kalinowski §24.01[4][a]. Thus, the rele­vant market is defined as “the area of effective competi­tion.” Ibid. Typically this is the “arena within which significant substitution in consumption or production occurs.” Areeda & Hovenkamp §5.02; accord, Kalinow­ski §24.02[1]; United States v. Grinnell Corp., 384 U. S. 563, 571 (1966). But courts should “combine” different products or services into “a single market” when “that combination reflects commercial realities.” Id., at 572; see also Brown Shoe Co. v. United States, 370 U. S. 294, 336– 337 (1962) (pointing out that “the definition of the relevant market” must “‘correspond to the commercial realities’ of the industry”).

(…) Given that horizontal restraints involve agree­ments between competitors not to compete in some way, this Court concluded that it did not need to precisely define the relevant market to conclude that these agreements were anticompetitive (…) But vertical restraints are different (…) Vertical re­straints often pose no risk to competition unless the entity imposing them has market power, which cannot be evaluated unless the Court first defines the relevant market. (fn. 7 p. 11).

As an initial matter, the plaintiffs’ argument about merchant fees wrongly focuses on only one side of the two-sided credit-card market. As explained, the credit-card market must be defined to include both merchants and cardholders. Focusing on merchant fees alone misses the mark because the product that credit-card companies sell is transactions, not services to merchants, and the compet­itive effects of a restraint on transactions cannot be judged by looking at merchants alone. Evidence of a price in­crease on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power. To demonstrate anticompetitive effects on the two-sided credit-card market as a whole, the plaintiffs must prove that Amex’s antisteering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or otherwise stifled competition in the credit-card market.

(…) That Amex allocates prices between merchants and cardholders differently from Visa and MasterCard is simply not evidence that it wields market power to achieve anticompetitive ends.

(…) “Market power is the ability to raise price profitably by restricting output.” Areeda & Hovenkamp §5.01; accord, Kodak, 504 U. S., at 464; Business Electronics, 485 U. S., at 723. This Court will “not infer competitive injury from price and output data absent some evidence that tends to prove that output was restricted or prices were above a competitive level.” Brooke Group Ltd., 509 U. S., at 237. There is no such evidence in this case. The output of credit-card transactions grew dramatically from 2008 to 2013, increasing 30%. See 838 F. 3d, at 206. “Where . . . output is expanding at the same time prices are increas­ing, rising prices are equally consistent with growing product demand.” Brooke Group Ltd., supra, at 237.

The plaintiffs also failed to prove that Amex’s antisteer­ing provisions have stifled competition among credit-card companies. To the contrary, while these agreements have been in place, the credit-card market experienced expand­ing output and improved quality. Amex’s business model spurred Visa and MasterCard to offer new premium card categories with higher rewards. And it has increased the availability of card services, including free banking and card-payment services for low-income customers who otherwise would not be served. Indeed, between 1970 and 2001, the percentage of households with credit cards more than quadrupled, and the proportion of households in the bottom-income quintile with credit cards grew from just 2% to over 38%.

Nor have Amex’s antisteering provisions ended competi­tion between credit-card networks with respect to mer­chant fees. Instead, fierce competition between networks has constrained Amex’s ability to raise these fees and has, at times, forced Amex to lower them. For instance, when Amex raised its merchant prices between 2005 and 2010, some merchants chose to leave its network. 88 F. Supp. 3d, at 197. And when its remaining merchants com­plained, Amex stopped raising its merchant prices. Id., at 198. In another instance in the late 1980s and early 1990s, competition forced Amex to offer lower merchant fees to “everyday spend” merchants—supermarkets, gas stations, pharmacies, and the like—to persuade them to accept Amex.

In addition, Amex’s competitors have exploited its higher merchant fees to their advantage. By charging lower merchant fees, Visa, MasterCard, and Discover have achieved broader merchant acceptance—approximately 3 million more locations than Amex.

And to compete even further with Amex, Visa and MasterCard charge different merchant fees for different types of cards to maintain their comparatively lower mer­chant fees and broader acceptance. Over the long run, this competition has created a trend of declining merchant fees in the credit-card market. In fact, since the first credit card was introduced in the 1950s, merchant fees— including Amex’s merchant fees—have decreased by more than half.

(…) Cf. Leegin, 551 U. S., at 890–891 (recog­nizing that vertical restraints can prevent retailers from free riding and thus increase the availability of “tangible or intangible services or promotional efforts” that enhance competition and consumer welfare).

Perhaps most im­portantly, antisteering provisions do not prevent Visa, MasterCard, or Discover from competing against Amex by offering lower merchant fees or promoting their broader merchant acceptance.

In sum, the plaintiffs have not satisfied the first step of the rule of reason. They have not carried their burden of proving that Amex’s antisteering provisions have anti­competitive effects. Amex’s business model has spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions. And it is “the promotion of interbrand competition,” after all, that “is . . . ‘the primary purpose of the antitrust laws.’”

Because Amex’s antisteering provisions do not unrea­sonably restrain trade, we affirm the judgment of the Court of Appeals.

(U.S.S.C., June 25, 2018, Ohio v. American Express Co., Docket 16-1454, J. Thomas)

Accords verticaux, application des trois étapes de la « Rule of reason » (seule la première des trois étapes est analysée en l’espèce, dans le contexte du marché des cartes de crédit). La preuve de la réalisation des conditions de la première étape incombe au demandeur : il doit démontrer que la conduite illicite porte de manière substantielle atteinte à la concurrence, et qu’elle occasionne un dommage aux consommateurs actifs au niveau du marché relevant. Si le demandeur y parvient, le fardeau de la preuve passe au défendeur, qui doit démontrer que sa conduite produit des effets favorables à la concurrence. Si le défendeur y parvient, le fardeau de la preuve passe à nouveau au demandeur, qui doit démontrer que ces effets favorables peuvent être obtenus par des moyens moins dommageables à la concurrence.

Au niveau de la première étape, l’atteinte à la concurrence peut consister en une diminution de l’offre, en une augmentation des prix, ou en une diminution de qualité (dans les limites du marché relevant) (preuves directes). Elle peut consister aussi en un pouvoir de marché, qu’il faut prouver, tout en apportant en plus des éléments de preuves démontrant que la conduite prétendument illicite porte atteinte à la concurrence. Le pouvoir de marché peut être défini comme la capacité d’augmenter les prix de manière profitable en réduisant l’offre.

Le marché relevant doit être concrètement défini. Il s’agit typiquement du marché qui permet une substitution significative.

La jurisprudence Leegin reconnaît que les accords verticaux peuvent prévenir le « free riding » des détaillants, entrainant ainsi une augmentation des services de promotion et de vente offerts par ces détaillants, cela au profit de la concurrence et des consommateurs.