SUPREME COURT OF THE UNITED STATES
_________________
No. 16–1454
_________________
OHIO, et al., PETITIONERS
v.
AMERICAN EXPRESS COMPANY, et al.
on writ of certiorari to the united states
court of appeals for the second circuit
[June 25, 2018]
Justice Breyer, with whom Justice Ginsburg,
Justice Sotomayor, and Justice Kagan join, dissenting.
For more than 120 years, the American economy
has prospered by charting a middle path between pure
lassez-faire and state capitalism, governed by an antitrust
law “dedicated to the principle that
markets, not individual
firms and certainly not political power, produce the optimal
mixture of goods and services.” 1 P. Areeda & H. Hovenkamp,
Antitrust Law ¶100b, p. 4 (4th ed. 2013) (Areeda &
Hovenkamp). By means of a strong antitrust law, the United States
has sought to avoid the danger of monopoly capitalism. Long gone,
we hope, are the days when the great trusts presided unfettered by
competition over the American economy.
This lawsuit is emblematic of the American
approach. Many governments around the world have responded to
concerns about the high fees that credit-card companies often
charge merchants by regulating such fees directly. See GAO, Credit
and Debit Cards: Federal Entities Are Taking Actions to Limit Their
Interchange Fees, but Additional Revenue Collection Cost Savings
May Exist 31–35 (GAO–08–558, 2008). The United States has not
followed that approach. The Government instead filed this lawsuit,
which seeks to restore market competition over credit-card merchant
fees by eliminating a contract-ual barrier with anticompetitive
effects. The majority rejects that effort. But because the
challenged contractual term clearly has serious anticompetitive
effects, I dissent.
I
I agree with the majority and the parties that
this case is properly evaluated under the three-step “rule of
reason” that governs many antitrust lawsuits.
Ante, at 9–10.
Under that approach, a court looks first at the agreement or
restraint at issue to assess whether it has had, or is likely to
have, anticompetitive effects.
FTC v.
Indiana Federation
of Dentists, 476 U. S. 447, 459 (1986). In doing so, the
court normally asks whether the restraint may tend to impede
competition and, if so, whether those who have entered into that
restraint have sufficient economic or commercial power for the
agreement to make a negative difference. See
id., at
459–461
. Sometimes, but not always, a court will try to
determine the appropriate market (the market that the agreement
affects) and determine whether those entering into that agreement
have the power to raise prices above the competitive level in that
market. See
ibid.
It is important here to understand that in cases
under §1 of the Sherman Act (unlike in cases challenging a merger
under §7 of the Clayton Act, 15 U. S. C. §18), it may
well be unnecessary to undertake a sometimes complex, market power
inquiry:
“Since the purpose [in a Sherman Act §1
case] of the inquiries into . . . market power is
[simply] to determine whether an arrangement has the potential for
genuine adverse effects on competition, ‘proof of actual
detrimental effects, such as a reduction in output,’ can obviate
the need for an inquiry into market power, which is but a
‘surrogate for detrimental effects.’ ”
Indiana Federation
of Dentists,
supra, at 460–461 (quoting 7 P. Areeda,
Antitrust Law ¶1511, p. 429 (3d ed. 1986)).
Second (as treatise writers summarize the case
law), if an antitrust plaintiff meets the initial burden of showing
that an agreement will likely have anticompetitive effects,
normally the “burden shifts to the defendant to show that the
restraint in fact serves a legitimate objective.” 7 Areeda &
Hovenkamp ¶1504b, at 415; see
California Dental Assn. v.
FTC, 526 U. S. 756, 771 (1999);
id., at 788
(Breyer, J., dissenting).
Third, if the defendant successfully bears this
burden, the antitrust plaintiff may still carry the day by showing
that it is possible to meet the legitimate objective in less
restrictive ways, or, perhaps by showing that the legitimate
objective does not outweigh the harm that competition will suffer,
i.e., that the agreement “on balance” remains unreasonable.
7 Areeda & Hovenkamp ¶1507a, at 442.
Like the Court of Appeals and the parties, the
majority addresses only the first step of that three-step
framework.
Ante, at 10.
II
A
This case concerns the credit-card business.
As the majority explains,
ante, at 2, that business involves
the selling of two different but related card services. First, when
a shopper uses a credit card to buy something from a participating
merchant, the credit-card company pays the merchant the amount of
money that the merchant’s customer has charged to his card and
charges the merchant a fee, say 5%, for that speedy-payment
service. I shall refer to that kind of transaction as a
merchant-related card service. Second, the credit-card company then
sends a bill to the merchant’s customer, the shopper who holds the
card; and the shopper pays the card company the sum that merchant
charged the shopper for the goods or services he or she bought. The
cardholder also often pays the card company a fee, such as an
annual fee for the card or an interest charge for delayed payment.
I shall call that kind of transaction a shopper-related card
service. The credit-card company can earn revenue from the sale
(directly or indirectly) of each of these services: (1) speedy
payment for merchants, and (2) credit for shoppers. (I say
“indirectly” to reflect the fact that card companies often create
or use networks of banks as part of the process—but I have found
nothing here suggesting that that fact makes a significant
difference to my analysis.)
Sales of the two basic card services are
related. A shopper can pay for a purchase with a particular credit
card only if the merchant has signed up for merchant-related card
services with the company that issued the credit card that the
shopper wishes to use. A firm in the credit-card business is
therefore unlikely to make money unless quite a few merchants agree
to accept that firm’s card and quite a few shoppers agree to carry
and use it. In general, the more merchants that sign up with a
particular card company, the more useful that card is likely to
prove to shoppers and so the more shoppers will sign up; so too,
the more shoppers that carry a particular card, the more useful
that card is likely to prove to merchants (as it obviously helps
them obtain the shoppers’ business) and so the more merchants will
sign up. Moreover, as a rough rule of thumb (and assuming constant
charges), the larger the networks of paying merchants and paying
shoppers that a card firm maintains, the larger the revenues that
the firm will likely receive, since more payments will be processed
using its cards. Thus, it is not surprising that a card company may
offer shoppers incentives (say, points redeemable for merchandise
or travel) for using its card or that a firm might want merchants
to accept its card exclusively.
B
This case focuses upon a practice called
“steering.” American Express has historically charged higher
merchant fees than its competitors. App. to Pet. for Cert.
173a–176a. Hence, fewer merchants accept American Express’ cards
than its competitors’.
Id., at 184a–187a. But, perhaps
because American Express cardholders are, on average, wealthier,
higher-spending, or more loyal to American Express than other
cardholders, vast numbers of merchants still accept American
Express cards. See
id., at 156a, 176a–177a, 184a–187a. Those
who do, however, would (in order to avoid the higher American
Express fee) often prefer that their customers use a different card
to charge a purchase. Thus, the merchant has a monetary incentive
to “steer” the customer towards the use of a different card. A
merchant might tell the customer, for example, “American Express
costs us more,” or “please use Visa if you can,” or “free shipping
if you use Discover.” See
id., at 100a–102a.
Steering makes a difference, because without it,
the shopper does not care whether the merchant pays more to
American Express than it would pay to a different card company—the
shopper pays the same price either way. But if steering works, then
American Express will find it more difficult to charge more than
its competitors for merchant-related services, because merchants
will respond by steering their customers, encouraging them to use
other cards. Thus, American Express dislikes steering; the
merchants like it; and the shoppers may benefit from it, whether
because merchants will offer them incentives to use less expensive
cards or in the form of lower retail prices overall. See
id., at 92a, 97a–104a.
In response to its competitors’ efforts to
convince merchants to steer shoppers to use less expensive cards,
American Express tried to stop, or at least to limit, steering by
placing antisteering provisions in most of its contracts with
merchants. It called those provisions “nondiscrimination
provisions.” They prohibited steering of the forms I have described
above (and others as well). See
id., at 95a–96a, 100a–101a.
After placing them in its agreements, American Express found it
could maintain, or even raise, its higher merchant prices without
losing too many transactions to other firms.
Id., at
195a–198a. These agreements—the “nondiscrimination provisions”—led
to this lawsuit.
C
In 2010 the United States and 17 States
brought this antitrust case against American Express. They claimed
that the “nondiscrimination provisions” in its contracts with
merchants created an unreasonable restraint of trade. (Initially
Visa and MasterCard were also defendants, but they entered into
consent judgments, dropping similar provisions from their contracts
with merchants). After a 7-week bench trial, the District Court
entered judgment for the Government, setting forth its findings of
fact and conclusions of law in a 97-page opinion.
88 F. Supp. 3d 143 (EDNY 2015).
Because the majority devotes little attention to
the District Court’s detailed factual findings, I will summarize
some of the more significant ones here. Among other things, the
District Court found that beginning in 2005 and during the next
five years, American Express raised the prices it charged merchants
on 20 separate occasions. See
id., at 195–196. In doing so,
American Express did not take account of the possibility that large
merchants would respond to the price increases by encouraging
shoppers to use a different credit card because the
nondiscrimination provisions prohibited any such steering.
Id., at 215. The District Court pointed to merchants’
testimony stating that, had it not been for those provisions, the
large merchants would have responded to the price increases by
encouraging customers to use other, less-expensive cards.
Ibid.
The District Court also found that even though
American Express raised its merchant prices 20 times in this 5-year
period, it did not lose the business of any large merchant.
Id., at 197. Nor did American Express increase benefits (or
cut credit-card prices) to American Express cardholders in tandem
with the merchant price increases.
Id., at 196. Even had
there been no direct evidence of injury to competition, American
Express’ ability to raise merchant prices without losing any
meaningful market share, in the District Court’s view, showed that
American Express possessed power in the relevant market. See
id., at 195.
The District Court also found that, in the
absence of the provisions, prices to merchants would likely have
been lower.
Ibid. It wrote that in the late 1990’s,
Discover, one of American Express’ competitors, had tried to
develop a business model that involved charging lower prices to
merchants than the other companies charged.
Id., at 213.
Discover then invited each “merchant to save money by shifting
volume to Discover,” while simultaneously offering merchants
additional discounts “if they would steer customers to Discover.”
Ibid. The court determined that these efforts failed because
of American Express’ (and the other card companies’)
“nondiscrimination provisions.” These provisions, the court found,
“denied merchants the ability to express a preference for Discover
or to employ any other tool by which they might steer share to
Discover’s lower-priced network.”
Id., at 214. Because the
provisions eliminated any advantage that lower prices might
produce, Discover “abandoned its low-price business model” and
raised its merchant fees to match those of its competitors.
Ibid. This series of events, the court concluded was
“emblematic of the harm done to the competitive process” by the
“nondiscrimination provisions.”
Ibid.
The District Court added that it found no
offsetting pro-competitive benefit to shoppers.
Id., at
225–238. Indeed, it found no offsetting benefit of any kind. See
ibid.
American Express appealed, and the U. S.
Court of Appeals for the Second Circuit held in its favor. 838
F. 3d 179 (2016). The Court of Appeals did not reject any fact
found by the District Court as “clearly erroneous.” See Fed. Rule
Civ. Proc. 52(a)(6). Rather, it concluded that the District Court
had erred in step 1 of its rule-of-reason analysis by failing to
account for what the Second Circuit called the credit-card
business’s “two-sided market” (or “two-sided platform”). 838
F. 3d, at 185–186, 196–200.
III
The majority, like the Court of Appeals,
reaches only step 1 in its “rule of reason” analysis.
Ante,
at 10. To repeat, that step consists of determining whether the
challenged “nondiscrimination provisions” have had, or are likely
to have, anticompetitive effects. See
Indiana Federation of
Dentists, 476 U. S., at 459. Do those provisions tend to
impede competition? And if so, does American Express, which imposed
that restraint as a condition of doing business with its merchant
customers, have sufficient economic or commercial power for the
provision to make a negative difference? See
id., at
460–461.
A
Here the District Court found that the
challenged provisions have had significant anticompetitive effects.
In particular, it found that the provisions have limited or
prevented price competition among credit-card firms for the
business of merchants. 88 F. Supp. 3d, at 209. That
conclusion makes sense: In the provisions, American Express
required the merchants to agree not to encourage customers to use
American Express’ competitors’ credit cards, even cards from those
competitors, such as Discover, that intended to charge the
merchants lower prices. See
id., at 214. By doing so,
American Express has “disrupt[ed] the normal price-setting
mechanism” in the market.
Id., at 209. As a result of the
provisions, the District Court found, American Express was able to
raise merchant prices repeatedly without any significant loss of
business, because merchants were unable to respond to such price
increases by encouraging shoppers to pay with other cards.
Id., at 215. The provisions also meant that competitors like
Discover had little incentive to lower their merchant prices,
because doing so did not lead to any additional market share.
Id., at 214. The provisions thereby “suppress[ed] [American
Express’] . . . competitors’ incentives to offer lower
prices . . . resulting in higher profit-maximizing prices
across the network services market.”
Id., at 209
.
Consumers throughout the economy paid higher retail prices as a
result, and they were denied the opportunity to accept incentives
that merchants might otherwise have offered to use less-expensive
cards.
Id., at 216, 220. I should think that, considering
step 1 alone, there is little more that need be said.
The majority, like the Court of Appeals, says
that the District Court should have looked not only at the market
for the card companies’ merchant-related services but also at the
market for the card companies’ shopper-related services, and that
it should have combined them, treating them as a single market.
Ante, at 14–15; 838 F. 3d, at 197. But I am not aware
of any support for that view in antitrust law. Indeed, this Court
has held to the contrary.
In
Times-Picayune Publishing Co. v.
United States, 345 U. S. 594, 610 (1953), the Court
held that an antitrust court should begin its definition of a
relevant market by focusing narrowly on the good or service
directly affected by a challenged restraint. The Government in that
case claimed that a newspaper’s advertising policy violated the
Sherman Act’s “rule of reason.” See
ibid. In support of that
argument, the Government pointed out, and the District Court had
held, that the newspaper dominated the market for the sales of
newspapers to readers in New Orleans, where it was the sole morning
daily newspaper.
Ibid. But this Court reversed. We explained
that “every newspaper is a dual trader in separate though
interdependent markets; it sells the paper’s news and advertising
content to its readers; in effect that readership is in turn sold
to the buyers of advertising space.”
Ibid. We then
added:
“This case concerns solely one of those
markets. The Publishing Company stands accused not of tying sales
to its readers but only to buyers of general and classified space
in its papers. For this reason, dominance in the advertising
market, not in readership, must be decisive in gauging the legality
of the Company’s unit plan.”
Ibid.
Here, American Express stands accused not of
limiting or harming competition for shopper-related card services,
but only of merchant-related card services, because the challenged
contract provisions appear only in American Express’ contracts with
merchants. That is why the District Court was correct in
considering, at step 1, simply whether the agreement had diminished
competition in merchant-related services.
B
The District Court did refer to market
definition, and the majority does the same.
Ante, at 11–15.
And I recognize that properly defining a market is often a complex
business. Once a court has identified the good or service directly
restrained, as
Times-Picayune Publishing Co. requires, it
will sometimes add to the relevant market what economists call
“substitutes”: other goods or services that are reasonably
substitutable for that good or service. See,
e.g.,
United States v
. E. I. du Pont de Nemours &
Co., 351 U. S. 377, 395–396 (1956) (explaining that
cellophane market includes other, substitutable flexible wrapping
materials as well). The reason that substitutes are included in the
relevant market is that they restrain a firm’s ability to
profitably raise prices, because customers will switch to the
substitutes rather than pay the higher prices. See 2B Areeda &
Hovenkamp ¶561, at 378.
But while the market includes substitutes, it
does not include what economists call complements: goods or
services that are used together with the restrained product, but
that cannot be substituted for that product. See
id., ¶565a,
at 429;
Eastman Kodak Co. v.
Image Technical Services,
Inc., 504 U. S. 451, 463 (1992). An example of complements
is gasoline and tires. A driver needs both gasoline and tires to
drive, but they are not substitutes for each other, and so the sale
price of tires does not check the ability of a gasoline firm (say a
gasoline monopolist) to raise the price of gasoline above
competitive levels. As a treatise on the subject states: “Grouping
complementary goods into the same market” is “economic nonsense,”
and would “undermin[e] the rationale for the policy against
monopolization or collusion in the first place.” 2B Areeda &
Hovenkamp ¶565a, at 431
.
Here, the relationship between merchant-related
card services and shopper-related card services is primarily that
of complements, not substitutes. Like gasoline and tires, both must
be purchased for either to have value. Merchants upset about a
price increase for merchant-related services cannot avoid that
price increase by becoming cardholders, in the way that, say, a
buyer of newspaper advertising can switch to television advertising
or direct mail in response to a newspaper’s advertising price
increase. The two categories of services serve fundamentally
different purposes. And so, also like gasoline and tires, it is
difficult to see any way in which the price of shopper-related
services could act as a check on the card firm’s sale price of
merchant-related services. If anything, a lower price of
shopper-related card services is likely to cause more shoppers to
use the card, and increased shopper popularity should make it
easier for a card firm to raise prices to merchants, not
harder, as would be the case if the services were
substitutes
. Thus, unless there is something unusual about
this case—a possibility I discuss below, see
infra, at
13–20—there is no justification for treating shopper-related
services and merchant-related services as if they were part of a
single market, at least not at step 1 of the “rule of reason.”
C
Regardless, a discussion of market definition
was legally unnecessary at step 1. That is because the District
Court found strong
direct evidence of anticompetitive
effects flowing from the challenged restraint. 88
F. Supp. 3d, at 207–224. As I said,
supra, at
7
, this evidence included Discover’s efforts to break into
the credit-card business by charging lower prices for
merchant-related services, only to find that the “nondiscrimination
provisions,” by preventing merchants from encouraging shoppers to
use Discover cards, meant that lower merchant prices did not result
in any additional transactions using Discover credit cards. 88
F. Supp. 3d
, at 213–214. The direct evidence also
included the fact that American Express raised its merchant prices
20 times in five years without losing any appreciable market share.
Id., at 195–198, 208–212. It also included the testimony of
numerous merchants that they would have steered shoppers away from
American Express cards in response to merchant price increases
(thereby checking the ability of American Express to raise prices)
had it not been for the nondiscrimination provisions. See
id., at 221–222. It included the factual finding that
American Express “did not even account for the possibility that
[large] merchants would respond to its price increases by
attempting to shift share to a competitor’s network” because the
nondiscrimination provisions prohibited steering.
Id., at
215. It included the District Court’s ultimate finding of fact, not
overturned by the Court of Appeals, that the challenged provisions
“were integral to” American Express’ “[price] increases and thereby
caused merchants to pay higher prices.”
Ibid.
As I explained above, this Court has stated that
“[s]ince the purpose of the inquiries into market definition and
market power is to determine whether an arrangement has the
potential for genuine adverse effects on competition, proof of
actual detrimental effects . . . can obviate the
need for” those inquiries.
Indiana Federation of Dentists,
476 U. S., at 460–461 (internal quotation marks omitted). That
statement is fully applicable here. Doubts about the District
Court’s market-definition analysis are beside the point in the face
of the District Court’s findings of actual anticompetitive
harm.
The majority disagrees that market definition is
irrelevant. See
ante, at 11–12, and n. 7. The majority
explains that market definition is necessary because the
nondiscrimination provisions are “vertical restraints” and
“[v]ertical restraints often pose no risk to competition unless the
entity imposing them has market power, which cannot be evaluated
unless the Court first determines the relevant market.”
Ante, at 11, n. 7. The majority thus, in a footnote,
seems categorically to exempt vertical restraints from the ordinary
“rule of reason” analysis that has applied to them since the
Sherman Act’s enactment in 1890. The majority’s only support for
this novel exemption is
Leegin Creative Leather Products,
Inc. v.
PSKS, Inc., 551 U. S. 877 (2007). But
Leegin held that the “rule of reason”
applied to the
vertical restraint at issue in that case. See
id., at
898–899. It said nothing to suggest that vertical restraints are
not subject to the usual “rule of reason” analysis. See also
infra, at 24.
One critical point that the majority’s argument
ignores is that proof of actual adverse effects on competition
is,
a fortiori, proof of market power. Without
such power, the restraints could not have brought about the
anticompetitive effects that the plaintiff proved. See
Indiana
Federation of Dentists,
supra, at 460 (“[T]he purpose of
the inquiries into market definition and market power is to
determine
whether an arrangement has the potential for
genuine adverse effects on competition” (emphasis added)). The
District Court’s findings of actual anticompetitive harm from the
nondiscrimination provisions thus showed that, whatever the
relevant market might be, American Express had enough power in that
market to cause that harm. There is no reason to require a separate
showing of market definition and market power under such
circumstances. And so the majority’s extensive discussion of market
definition is legally unnecessary.
D
The majority’s discussion of market definition
is also wrong. Without raising any objection in general with the
longstanding approach I describe above,
supra, at 10–11, the
majority agrees with the Court of Appeals that the market for
American Express’ card services is special because it is a
“two-sided transaction platform.”
Ante, at 2–5, 12–15. The
majority explains that credit-card firms connect two distinct
groups of customers: First, merchants who accept credit cards, and
second, shoppers who use the cards.
Ante, at 2; accord, 838
F. 3d, at 186. The majority adds that “no credit-card
transaction can occur unless both the merchant and the cardholder
simultaneously agree to use to the same credit-card network.”
Ante, at 3. And it explains that the credit-card market
involves “indirect network effects,” by which it means that
shoppers want a card that many merchants will accept and merchants
want to accept those cards that many customers have and use.
Ibid. From this, the majority concludes that “courts must
include both sides of the platform—merchants and cardholders—when
defining the credit-card market.”
Ante, at 12; accord, 838
F. 3d, at 197.
1
Missing from the majority’s analysis is any
explanation as to
why, given the purposes that market
definition serves in antitrust law, the fact that a credit-card
firm can be said to operate a “two-sided transaction platform”
means that its merchant-related and shopper-related services should
be combined into a single market. The phrase “two-sided transaction
platform” is not one of antitrust art—I can find no case from this
Court using those words. The majority defines the phrase as
covering a business that “offers different products or services to
two different groups who both depend on the platform to
intermediate between them,” where the business “cannot make a sale
to one side of the platform without simultaneously making a sale to
the other” side of the platform.
Ante, at 2. I take from
that definition that there are four relevant features of such
businesses on the majority’s account: they (1) offer different
products or services, (2) to different groups of customers, (3)
whom the “platform” connects, (4) in simultaneous transactions. See
ibid.
What is it about businesses with those four
features that the majority thinks justifies a special
market-definition approach for them? It cannot be the first two
features—that the company sells different products to different
groups of customers. Companies that sell multiple products to
multiple types of customers are commonplace. A firm might mine for
gold, which it refines and sells both to dentists in the form of
fillings and to investors in the form of ingots. Or, a firm might
drill for both oil and natural gas. Or a firm might make both
ignition switches inserted into auto bodies and tires used for
cars. I have already explained that, ordinarily, antitrust law will
not group the two nonsubstitutable products together for step 1
purposes.
Supra, at 10–11.
Neither should it normally matter whether a
company sells related, or complementary, products,
i.e.,
products which must both be purchased to have any function, such as
ignition switches and tires, or cameras and film. It is well
established that an antitrust court in such cases looks at the
product where the attacked restraint has an anticompetitive effect.
Supra, at 9; see
Eastman Kodak, 504 U. S., at
463. The court does not combine the customers for the separate,
nonsubstitutable goods and see if “overall” the restraint has a
negative effect. See
ibid.; 2B Areeda & Hovenkamp ¶565a.
That is because, as I have explained, the complementary
relationship between the products is irrelevant to the purposes of
market-definition. See s
upra, at 10–11.
The majority disputes my characterization of
merchant-related and shopper-related services as “complements.” See
ante, at 14, n. 8. The majority relies on an academic
article which devotes one sentence to the question, saying that “a
two-sided market [is] different from markets for complementary
products [
e.g., tires and gas], in which both products are
bought by the same buyers, who, in their buying decisions, can
therefore be expected to take into account both prices.”
Filistrucchi, Geradin, Van Damme, & Affeldt, Market Definition
in Two-Sided Markets: Theory and Practice, 10 J. Competition L.
& Econ. 293, 297 (2014) (Filistrucchi). I agree that two-sided
platforms—at least as some academics define them, but see
infra, at 19–20—may be distinct from some types of
complements in the respect the majority mentions (even though the
services resemble complements because they must be used together
for either to have value). But the distinction the majority
mentions has nothing to do with the relevant question. The relevant
question is whether merchant-related and shopper-related services
are
substitutes, one for the other, so that customers can
respond to a price increase for one service by switching to the
other service. As I have explained, the two types of services are
not substitutes in this way.
Supra, at 11–12. And so the
question remains, just as before: What is it about the economic
relationship between merchant-related and shopper-related services
that would justify the majority’s novel approach to market
definition?
What about the last two features—that the
company connects the two groups of customers to each other, in
simultaneous transactions? That, too, is commonplace. Consider a
farmers’ market. It brings local farmers and local shoppers
together, and transactions will occur only if a farmer and a
shopper simultaneously agree to engage in one. Should courts
abandon their ordinary step 1 inquiry if several competing farmers’
markets in a city agree that only certain kinds of farmers can
participate, or if a farmers’ market charges a higher fee than its
competitors do and prohibits participating farmers from raising
their prices to cover it? Why? If farmers’ markets are special,
what about travel agents that connect airlines and passengers? What
about internet retailers, who, in addition to selling their own
goods, allow (for a fee) other goods-producers to sell over their
networks? Each of those businesses seems to meet the majority’s
four-prong definition.
Apparently as its justification for applying a
special market-definition rule to “two-sided transaction
platforms,” the majority explains that such platforms “often
exhibit” what it calls “indirect network effects.”
Ante, at
3. By this, the majority means that sales of merchant-related card
services and (different) shopper-related card services are
interconnected, in that increased merchant-buyers mean increased
shopper-buyers (the more stores in the card’s network, the more
customers likely to use the card), and vice versa. See
ibid.
But this, too, is commonplace. Consider, again, a farmers’ market.
The more farmers that participate (within physical and esthetic
limits), the more customers the market will likely attract, and
vice versa. So too with travel agents: the more airlines whose
tickets a travel agent sells, the more potential passengers will
likely use that travel agent, and the more potential passengers
that use the travel agent, the easier it will likely be to convince
airlines to sell through the travel agent. And so forth. Nothing in
antitrust law, to my knowledge, suggests that a court, when
presented with an agreement that restricts competition in any one
of the markets my examples suggest, should abandon traditional
market-definition approaches and include in the relevant market
services that are complements, not substitutes, of the restrained
good. See
supra, at 10–11.
2
To justify special treatment for “two-sided
transaction platforms,” the majority relies on the Court’s decision
in
United States v.
Grinnell Corp., 384 U. S.
563, 571–572 (1966). In
Grinnell, the Court treated as a
single market several different “central station services,”
including burglar alarm services and fire alarm services.
Id., at 571. It did so even though, for
consumers,
“burglar alarm services are not interchangeable with fire alarm
services.”
Id., at 572. But that is because, for
producers, the services were indeed interchangeable: A
company that offered one could easily offer the other, because they
all involve “a single basic service—the protection of property
through use of a central service station.”
Ibid. Thus, the
“commercial realit[y]” that the
Grinnell Court relied on,
ibid., was that the services being grouped were what
economists call “producer substitutes.” See 2B Areeda &
Hovenkamp ¶561, at 378. And the law is clear that “two products
produced interchangeably from the same production facilities are
presumptively in the same market,” even if they are not “close
substitutes for each other on the demand side.”
Ibid. That
is because a firm that produces one such product can, in response
to a price increase in the other, easily shift its production and
thereby limit its compet- itor’s power to impose the higher price.
See
id., ¶561a, at 379.
Unlike the various types of central station
services at issue in
Grinnell Corp., however, the
shopper-related and merchant-related services that American Express
provides are not “producer substitutes” any more than they are
traditional substitutes. For producers as for consumers, the
services are instead complements. Credit card companies must sell
them together for them to be useful. As a result, the credit-card
companies cannot respond to, say, merchant-related price increases
by shifting production away from shopper-related services to
merchant-related services. The relevant “commercial realities” in
this case are thus completely different from those in
Grinnell
Corp. (The majority also cites
Brown Shoe Co. v.
United States, 370 U. S. 294, 336–337 (1962), for this
point, but the “commercial realities” considered in that case were
that “shoe stores in the outskirts of cities compete effectively
with stores in central downtown areas,” and thus are part of the
same market.
Id., at 338–339. Here, merchant-related
services do not, as I have said, compete with shopper-related
services, and so
Brown Shoe Co. does not support the
majority’s position.) Thus, our precedent provides no support for
the majority’s special approach to defining markets involving
“two-sided transaction platforms.”
3
What about the academic articles the majority
cites? The first thing to note is that the majority defines
“two-sided transaction platforms” much more broadly than the
economists do. As the economists who coined the term explain, if a
“two-sided market” meant simply that a firm connects two different
groups of customers via a platform, then “pretty much any market
would be two-sided, since buyers and sellers need to be brought
together for markets to exist and gains from trade to be realized.”
Rochet & Tirole, Two-Sided Markets: A Progress Report, 37 RAND
J. Econ. 645, 646 (2006). The defining feature of a “two-sided
market,” according to these economists, is that “the platform can
affect the volume of transactions by charging more to one side of
the market and reducing the price paid by the other side by an
equal amount.”
Id., at 664–665; accord, Filistrucchi 299.
That requirement appears nowhere in the majority’s definition. By
failing to limit its definition to platforms that economists would
recognize as “two sided” in the relevant respect, the majority
carves out a much broader exception to the ordinary antitrust rules
than the academic articles it relies on could possibly support.
Even as limited to the narrower definition that
economists use, however, the academic articles the majority cites
do not support the majority’s flat rule that firms operating
“two-sided transaction platforms” should always be treated as part
of a single market for all antitrust purposes.
Ante, at
13–15. Rather, the academics explain that for market-definition
purposes, “[i]n some cases, the fact that a business can be thought
of as two-sided may be irrelevant,” including because “nothing in
the analysis of the practices [at issue] really hinges on the
linkages between the demands of participating groups.” Evans &
Schmalensee, Markets With Two-Sided Platforms, 1 Issues in
Competition L. & Pol’y 667, 689 (2008). “In other cases, the
fact that a business is two-sided will prove important both by
identifying the real dimensions of competition and focusing on
sources of constraints.”
Ibid. That flexible approach,
however, is precisely the one the District Court followed in this
case, by considering the effects of “[t]he two-sided nature of the
. . . card industry” throughout its analysis. 88
F. Supp. 3d, at 155.
Neither the majority nor the academic articles
it cites offer any explanation for why the features of a “two-sided
transaction platform” justify always treating it as a single
antitrust market, rather than accounting for its economic features
in other ways, as the District Court did. The article that the
majority repeatedly quotes as saying that “ ‘[i]n two-sided
transaction markets, only one market should be defined,’ ”
ante, at 14–15 (quoting Filistrucchi 302), justifies that
conclusion only for purposes of assessing the effects of a merger.
In such a case, the article explains, “[e]veryone would probably
agree that a payment card company such as American Express is
either in the relevant market on both sides or on neither side
. . . . The analysis of a merger between two payment
card platforms should thus consider . . . both sides of
the market.”
Id., at 301. In a merger case this makes sense,
but is also meaningless, because, whether there is one market or
two, a reviewing court will consider both sides, because it must
examine the effects of the merger in each affected market and
submarket. See
Brown Shoe Co., 370 U. S., at 325. As
for a nonmerger case, the article offers only
United States
v.
Grinnell as a justification, see Filistrucchi 303, and as
I have already explained,
supra, at 16–18,
Grinnell
does not support this proposition.
E
Put all of those substantial problems with the
majority’s reasoning aside, though. Even if the majority were right
to say that market definition was relevant, and even if the
majority were right to further say that the District Court should
have defined the market in this case to include shopper-related
services as well as merchant-related services, that
still
would not justify the majority in affirming the Court of Appeals.
That is because, as the majority is forced to admit, the plaintiffs
made the factual showing that the majority thinks is
required. See
ante, at 17.
Recall why it is that the majority says that
market definition matters: because if the relevant market includes
both merchant-related services and card-related services, then the
plaintiffs had the burden to show that as a result of the
nondiscrimination provisions, “the price of credit-card
transactions”—considering both fees charged to merchants and
rewards paid to cardholders—“was higher than the price one would
expect to find in a competitive market.”
Ante, at 16. This
mirrors the Court of Appeals’ holding that the Government had to
show that the “nondiscrimination provisions” had “made
all
[American Express] customers on both sides of the
platform—
i.e., both merchants and cardholders—worse off
overall.” 838 F. 3d, at 205.
The problem with this reasoning, aside from it
being wrong, is that the majority admits that the plaintiffs
did show this: they “offer[ed] evidence” that American
Express “increased the percentage of the purchase price that it
charges merchants . . . and that this increase was not
entirely spent on cardholder rewards.”
Ante, 17 (citing 88
F. Supp. 3d, at 195–197, 215). Indeed, the plaintiffs did
not merely “offer evidence” of this—they persuaded the District
Court, which made an unchallenged factual finding that the merchant
price increases that resulted from the nondiscrimination provisions
“were not wholly offset by additional rewards expenditures or
otherwise passed through to cardholders, and
resulted in a
higher net price.”
Id., at 215 (emphasis added).
In the face of this problem, the majority
retreats to saying that even net price increases do not matter
after all, absent a showing of lower output, because if output is
increasing, “ ‘rising prices are equally consistent with
growing product demand.’ ”
Ante, at 18 (quoting
Brooke Group Ltd. v.
Brown & Williamson Tobacco
Corp., 509 U. S. 209, 237 (1993)). This argument, unlike
the price argument, has nothing to do with the credit-card market
being a “two-sided transaction platform,” so if this is the basis
for the majority’s holding, then nearly all of the opinion is
dicta. The argument is also wrong. It is true as an economic matter
that a firm exercises market power by restricting output in order
to raise prices. But the relevant restriction of output is as
compared with a hypothetical world in which the restraint was not
present and prices were lower. The fact that credit-card use in
general has grown over the last decade, as the majority says, see
ante, at 17–18, says nothing about whether such use would
have grown more or less without the nondiscrimination provisions.
And because the relevant question is a comparison between reality
and a hypothetical state of affairs, to require actual proof of
reduced output is often to require the impossible—tantamount to
saying that the Sherman Act does not apply at all.
In any event, there are features of the
credit-card market that may tend to limit the usual relationship
between price and output. In particular, merchants generally spread
the costs of credit-card acceptance across all their customers
(whatever payment method they may use), while the benefits of card
use go only to the cardholders. See,
e.g., 88
F. Supp. 3d, at 216; Brief for John M. Connor et al.
as
Amici Curiae 34–35. Thus, higher credit-card merchant
fees may have only a limited effect on credit-card transaction
volume, even as they disrupt the marketplace by extracting
anticompetitive profits.
IV
A
For the reasons I have stated, the Second
Circuit was wrong to lump together the two different services sold,
at step 1. But I recognize that the Court of Appeals has not
yet considered whether the relationship between the two services
might make a difference at steps 2 and 3. That is to say, American
Express might wish to argue that the nondiscrimination provisions,
while anticompetitive in respect to merchant-related services,
nonetheless have an adequate offsetting procompetitive benefit in
respect to its shopper-related services. I believe that American
Express should have an opportunity to ask the Court of Appeals to
consider that matter.
American Express might face an uphill battle. A
Sherman Act §1 defendant can rarely, if ever, show that a
pro-competitive benefit in the market for one product offsets an
anticompetitive harm in the market for another. In
United
States v.
Topco Associates, Inc., 405 U. S. 596,
611 (1972), this Court wrote:
“If a decision is to be made to sacrifice
competition in one portion of the economy for greater competition
in another portion, this . . . is a decision that must be
made by Congress and not by private forces or by the courts.
Private forces are too keenly aware of their own interests in
making such decisions and courts are ill-equipped and ill-situated
for such decisionmaking.”
American Express, pointing to vertical
price-fixing cases like our decision in
Leegin, argues that
comparing competition-related pros and cons is more common than I
have just suggested. See 551 U. S., at 889–892. But
Leegin held only that vertical price fixing is subject to
the “rule of reason” instead of being
per se unlawful;
the “rule of reason” still applies to vertical agreements just as
it applies to horizontal agreements. See
id., at
898–899.
Moreover, the procompetitive justifications for
vertical price-fixing agreements are not apparently applicable to
the distinct types of restraints at issue in this case. A
vertically imposed price-fixing agreement typically involves a
manufacturer controlling the terms of sale for its own product. A
television-set manufacturer, for example, will insist that its
dealers not cut prices for the manufacturer’s own televisions below
a particular level. Why might a manufacturer want its dealers to
refrain from price competition in the manufacturer’s own products?
Perhaps because, for example, the manufacturer wants to encourage
the dealers to develop the market for the manufacturer’s brand,
thereby increasing
interbrand competition for the same
ultimate product, namely a television set. This type of reasoning
does not appear to apply to American Express’ nondiscrimination
provisions, which seek to control the terms on which merchants
accept
other brands’ cards, not merely American Express’
own.
Regardless, I would not now hold that an
agreement such as the one before us can never be justified by
procompetitive benefits of some kind. But the Court of Appeals
would properly consider procompetitive justifications not at step
1, but at steps 2 and 3 of the “rule of reason” inquiry. American
Express would need to show just how this particular anticompetitive
merchant-related agreement has procompetitive benefits in the
shopper-related market. In doing so, American Express would need to
overcome the District Court’s factual findings that the agreement
had no such effects. See 88 F. Supp. 3d, at 224–238.
B
The majority charts a different path.
Notwithstanding its purported acceptance of the three-step,
burden-shifting framework I have described,
ante, at 9–10,
the majority addresses American Express’ procompetitive
justifications now, at step 1 of the analysis, see
ante, at
18–20. And in doing so, the majority inexplicably ignores the
District Court’s factual findings on the subject.
The majority reasons that the challenged
nondiscrimination provisions “stem negative externalities in the
credit-card market and promote interbrand competition.”
Ante, at 19. The “negative externality” the majority has in
mind is this: If one merchant persuades a shopper not to use his
American Express card at that merchant’s store, that shopper
becomes less likely to use his American Express card at other
merchants’ stores.
Ibid. The majority worries that this
“endangers the viability of the entire [American Express] network,”
ibid., but if so that is simply a consequence of American
Express’ merchant fees being higher than a competitive market will
support. “The antitrust laws were enacted for ‘the protection of
competition, not
competitors.’ ”
Atlantic
Richfield Co. v.
USA Petroleum Co., 495 U. S. 328,
338 (1990). If American Express’ merchant fees are so high that
merchants successfully induce their customers to use other cards,
American Express can remedy that problem by lowering those fees or
by spending more on cardholder rewards so that cardholders decline
such requests. What it may not do is demand contractual protection
from price competition.
In any event, the majority ignores the fact that
the District Court, in addition to saying what I have just said,
also rejected this argument on independent factual grounds. It
explained that American Express “presented no expert testimony,
financial analysis, or other direct evidence establishing that
without its [nondiscrimination provisions] it will, in fact, be
unable to adapt its business to a more competitive market.” 88
F. Supp. 3d, at 231. It further explained that the
testimony that was provided on the topic “was notably
inconsistent,” with some of American Express’ witnesses saying only
that invalidation of the provisions “would require American Express
to adapt its current business model.”
Ibid. After an
extensive discussion of the record, the District Court found that
“American Express possesses the flexibility and expertise necessary
to adapt its business model to suit a market in which it is
required to compete on both the cardholder and merchant sides of
the [credit-card] platform.”
Id., at 231–232. The majority
evidently rejects these factual findings, even though no one has
challenged them as clearly erroneous.
Similarly, the majority refers to the
nondiscrimination provisions as preventing “free riding” on
American Express’ “investments in rewards” for cardholders.
Ante, at 19–20; see also
ante, at 7 (describing
steering in terms suggestive of free riding). But as the District
Court explained, “[p]lainly . . . investments tied to
card use (such as Membership Rewards points, purchase protection,
and the like) are not subject to free-riding, since the network
does not incur any cost if the cardholder is successfully steered
away from using his or her American Express card.” 88
F. Supp. 3d
, at 237. This, I should think, is an
unassailable conclusion: American Express pays rewards to
cardholders only for transactions in which cardholders use their
American Express cards, so if a steering effort succeeds, no
rewards are paid. As for concerns about free riding on American
Express’ fixed expenses, including its investments in its brand,
the District Court acknowledged that free-riding was in theory
possible, but explained that American Express “ma[de] no effort to
identify the fixed expenses to which its experts referred or to
explain how they are subject to free riding.”
Ibid.; see
also
id., at 238 (American Express’ own data showed “that
the network’s ability to confer a credentialing benefit trails that
of its competitors, casting doubt on whether there is in fact any
particular benefit associated with accepting [American Express]
that is subject to free riding”). The majority does not even
acknowledge, much less reject, these factual findings, despite
coming to the contrary conclusion.
Finally, the majority reasons that the
nondiscrimination provisions “do not prevent Visa, MasterCard, or
Discover from competing against [American Express] by offering
lower merchant fees or promoting their broader merchant
acceptance.”
Ante, at 20. But again, the District Court’s
factual findings were to the contrary. As I laid out above, the
District Court found that the nondiscrimination provisions
in
fact did prevent Discover from pursuing a
low-merchant-fee business model, by “den[ying] merchants the
ability to express a preference for Discover or to employ any other
tool by which they might steer share to Discover’s lower-priced
network.” 88 F. Supp. 3d, at 214; see
supra, at 7.
The majority’s statements that the nondiscrimination provisions are
procompetitive are directly contradicted by this and other factual
findings.
* * *
For the reasons I have explained, the
majority’s decision in this case is contrary to basic principles of
antitrust law, and it ignores and contradicts the District Court’s
detailed factual findings, which were based on an extensive trial
record. I respectfully dissent.