## Facts

- American Express operated a credit-card network serving both cardholders and merchants and funded cardholder rewards partly through higher merchant “discount” fees.
- Merchants sometimes sought to steer customers to lower-fee cards at the point of sale.
- American Express imposed “nondiscriminatory provisions” (antisteering rules) in merchant contracts that barred merchants from offering incentives to use less costly cards, expressing card preferences, or disclosing relative card acceptance costs.
- The United States and multiple states alleged the antisteering rules insulated American Express from merchant-fee competition, enabling fee increases (including through a “value-recapture” strategy in segments with high “cardholder insistence”).
- After a bench trial, the district court found the provisions violated Sherman Act § 1 under the rule of reason and permanently enjoined their enforcement.
- American Express appealed; Visa and MasterCard were not parties on appeal due to settlements.

## Issues

1. Whether the relevant antitrust market should be defined as a two-sided credit-card transaction platform (cardholders and merchants together) rather than a merchant-only market for network services.
2. Under Sherman Act § 1’s rule of reason, whether plaintiffs had to prove net anticompetitive effects on the platform as a whole, considering both sides of the market.
3. Whether evidence of higher merchant fees and restricted steering, without proof of reduced transaction output or quality, established anticompetitive effects in a two-sided transaction market.

## Decision

- The Second Circuit reversed the district court’s judgment and vacated the injunction.
- The court held the relevant market was the integrated two-sided credit-card transaction market because cardholder demand and merchant acceptance are interdependent in each transaction.
- The court held plaintiffs failed to meet their initial rule-of-reason burden because they did not prove the antisteering provisions caused net anticompetitive effects in the two-sided market.
- The court emphasized the absence of proof that the provisions reduced the quality or quantity of credit-card transactions and noted record evidence that industry output and quality were increasing.
- The case was remanded with instructions to enter judgment for American Express.

## Legal Principles

- For two-sided transaction platforms with strong interdependence between user groups, market definition and competitive-effects analysis generally must consider both sides together rather than isolating one side’s prices or terms.
- Under the rule of reason, plaintiffs bear the initial burden to show substantial anticompetitive effects in the relevant market; in a two-sided transaction market, this requires showing net harm to consumers as a whole (merchants and cardholders).
- Price increases or adverse terms on one side of a two-sided platform do not alone establish anticompetitive effects if benefits on the other side may offset them; proof commonly requires evidence of reduced output or reduced quality in transactions.
- When plaintiffs fail to establish anticompetitive effects at step one of the rule-of-reason framework, the court need not proceed to weigh asserted procompetitive justifications.

## Conclusion

The Second Circuit held that because credit-card networks function as two-sided transaction platforms, Sherman Act § 1 plaintiffs challenging American Express’s antisteering provisions had to show net anticompetitive effects in the integrated platform market, and the failure to prove reduced transaction output or quality required judgment for American Express.


United States v. Am. Express Co., 838 F.3d 179 (2d Cir. 2016)