# Opposition Brief — Ohio v. Am. Express Co., 138 S. Ct. 355 (2017) (No. 16-1454) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0754%3A03 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 2017 ## Text RECoR, AND | BRIEFS | No. 16-1454 me IN THE Supreme Court of the Anited States OHIO, ET AL., Petitioners, Vv. AMERICAN EXPRESS COMPANY, ET AL., Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT BRIEF FOR AMERICAN EXPRESS IN OPPOSITION BENJAMIN J. HORWICH EVAN R. CHESLER JUSTIN P. RAPHAEL Counsel of Record MUNGER, TOLLES & OLSON LLP PETER T. BARBUR 560 Mission Street KEVIN J. ORSINI San Francisco, CA 94105 Rory A. LERARIS (415) 512-4000 CRAVATH, SWAINE & MOORE LLP 825 Eighth Avenue New York, NY 10019 (212) 474-1000 echesler@cravath.com Counsel for Respondents American Express Company and American Express Travel Related Services Company, Inc. August 21, 2017 QUESTION PRESENTED Payment card networks such as respondent American Express (“Amex”) compete for a single unit of output—a credit card transaction processed at a merchant. For each such transaction, there must be one customer willing to use the network’s card, and one merchant willing to accept it. Thus, a network must appeal to both cardholders and merchants to compete effectively for transactions. To do so, Amex provides incentives to Amex cardholders (cash or re- ward points), which are paid for by merchants in the form of merchant fees. Nearly a third of all credit card accepting merchants choose not to accept Amex, but merchants that do also agree to nondiscriminato- ry provisions (“NDPs”) by which they commit not to discriminate against Amex cards by steering card- holders to another card at the point of sale. At trial, the United States, joined by Petitioners (and other States that have abandoned their claims) contended that these NDPs violated Section 1 of the Sherman Act by allowing Amex to charge higher merchant fees. Also at trial, the Government’s economic expert admitted that merchant fees and cardholder benefits are linked and that a reduction in merchant fees “can harm consumers” by reducing cardholder benefits. The question presented is whether—given the undisputed relationship between merchant fees and cardholder benefits—the Government failed to carry its burden under the rule of reason when it focused only on the effect of the NDPs on merchant fees, without accounting for their effect on cardholders, or on the volume of transactions. il CORPORATE DISCLOSURE STATEMENT American Express Company is the parent com- pany of American Express Travel Related Services Company, Inc., and American Express Company is a publicly held company. Berkshire Hathaway, Inc., a publicly held corporation, owns more than 10 percent of the outstanding shares of American Express Com- pany. nl TABLE OF CONTENTS Page RS BI EE cccccccrssccsesnctsosvecsconseeteeesesers i TABLE OF AUTHORITIEG.......... te biaiiniairscieiaipabaaeciniei Vv TT iscernictercccecheicnabianimgueheehiinghinmennmnateny 1 BITTE itetisuicduansatadasesseeiesinnisicemnttienteaapeiulicneaias 2 I i a 2 1. Two-Sided Payment Platforms............. 2 2. Competition in the Credit Card RECTAL RE er CEE 3 B. The Government's Case ..............ccccssseesesees 7 C. The District Court Decision....................0.0+ 8 D. The Court of Appeals’ Decision.................. 10 REASONS FOR DENYING THE PETITION.......... 13 I. The Decision Below Is Correct and Consistent with Precedent. ................:ccccceseeeees 14 Bes) Fe I iitciiccttcinscticesneccssvniieinniis 14 iy > IID iccictiintelnciiisiinisdensitichintanqnanncdiiitin’ 20 C. Anticompetitive Effects...............cccccceceeee 22 Il. Petitioners’ Other Arguments Are IN, criciceniseniesintsiasanicineusinssibanintiadinetiniaecneaiia 26 iv A. Petitioners’ Call for “Guidance” Does BGes GUNTER TRBUEIU, .cccccccceccccsccnesscesessescseses 26 B. Petitioners’ Arguments About Allocative Efficiency Do Not Warrant Review............ 28 C. The Role of the Credit Card Industry in the Economy Does Not Justify Review...... 29 Ill. Review Would Be Premature Because No Relevant Body of Law—Let Alone a Conflict—Exists in the Courts of Appeals. ....... 30 IV. Recognized Defects in the Government's Proof Make this Case a Poor Vehicle. ............... 34 ITE dilicicannscnsiesihiaiitnonincerdiciamaiseseasininidinsacnabe 37 TABLE OF AUTHORITIES Page(s) Cases Arizona v. Maricopa Cty. Med. Soc’y, gt” ETS RS Sa 28, 29, 33 Ball Mem Hosp., Inc. v. Mut. Hosp. Ins., Inc., 784 F.2d 1325 (7th Cir. Si iiacdacsheenreliadiathaciadeibianiandcumdiddumisbbnapbbandiiendiiacenibingis 21 Berlyn Inc. v. Gazette Newspapers, Inc., 73 F. App’x 576 (4th Cir. 20038) ...............0.cceee eee 18 Broad. Music, Inc. v. Columbia Broad. 8 ee 27 Brooke Grp. Ltd. v. Brown & Williamson Tobacco Co., 509 U.S. REESE SRS Snes KC I See ON 23, 25 Bus. Elecs. Corp. v. Sharp Elecs. Corp., a ER 11, 27 Cal. Dental Ass’n v. FTC, 526 U.S. 756 SU clcisiiadeaishtingdsadeiddeididensancaniailetaiatensenepiiinis 21, 27, 29 Clorox Co. v. Sterling Winthrop, Inc., eee f | | le ennerenren 20 Conti T.V., Inc. v. GTE Sylvania, Inc., a cseneeinimanii 23 Eastman Kodak Co. v. Image Tech. Serus., Inc., 504 U.S. 451 (1992)........ 14, 17, 20, 22 vl Page(s) FTC v. Actavis, Inc., 133 8. Ct. 2223 a a i mena 27 FTC v. Ind. Fed’n of Dentists, 476 U.S. isk icicckscarshsedcndnathitiadldieetambhbemdeednenesenomnbiiil 28 Geneva Pharm. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485 (2d Cir. I ila cece elec iliac neat 15, 36 Gordon v. Lewistown Hosp., 423 ¥.3d 184 (3d Cir. 2005), cert. denied, 547 ey UIT ncicsinnitnninbisnsadnbeesendndacorseecesenupenionll 22 Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792 (1st Cir. Ts Beet aad A nen he Bs RENE Lee eee 20 K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123 (2d Cir. RS EEE ERR RABY eee ES ee Ce Ee ye 22 Lackey v. Texas, 514 U.S. 1045 (19985)................ 32, 34 Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007)........ 25, 27, 28, 29 Lorain Journal Co. v. United States, I a ispnciieiieaiin 18 Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) ....................068: 31 Page(s) Menasha Corp. v. News Am. Mktg. In- Store, Inc., 354 F.3d 661 (7th Cir. I it Uiledtdsnecdudsadinconianiaiciaiadicattniesk ents ctduicnnaseibioaitie 36 Mylan Pharm. Inc. v. Warner Chilcott Pub. Ltd. Co., 838 F.3d 421 (3d Cir. aia tihpdititachs Wea telat eas leasing caidas aict aaihcic pe daeetiaces 35 NCAA uv. Bd. of Regents of the Univ. of ig MU IG Ss sccsctevenasnntainns 19 Photos Etc. Corp. v. Home Depot, if Fy "ei 2 Be Be |g. | yy eure 29 State Oil Co. v. Khan, 522 U.S. 3 (1997) ..........000..08 27 Texaco Inc. v. Dagher, 547 U.S. 1 (2006).................. 27 Times-Picayune Publ’g Co. v. United States, 345 U.S. 594 (1953)...................... 17, 18,19 Town Sound & Custom Tops, Inc. v. Chrysler Motors Corp., No. 90-1547, 1991 WL 149249 (3d Cir. Aug. 9, 1991), aff'd en banc, 959 F.2d 468, cert. denied, 506 U.S. 868 (1992) ...............0ccccceees 21 United States ex rel. Purcell v. MWI a, eee eis re SN ci ciicesentsdcmisoxccosesisacce 14 United States v. Charlotte-Mecklenburg Hosp. Auth., No. 3:16-CV-00311- RJC-DCK, 2017 WL 1206015 oe 8 ce eee ole vill United States v. Grinnell Corp., 384 Be Ila iaivaniniuianitincasandsshadnes United States v. Topco Assocs., 405 U.S. Rs a aT United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003), cert. denied, + Gk RR opener Verizon Commce'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 Pe stesninsincsivcdnnccahsitiainiividdnienineessdenes Virgin Atl. Airways Ltd. v. British Airways PLC, 257 F.3d 256 (2d Cir. TE histnsecianitensiduncetpiieanbdsiins siijeniasionnnives Wisniewski v. United States, 353 U.S. I a leiuawenbienanie Statutes & Rules Other Authorities Antitrust Modernization Comm’n, Report and Recommendations (2007) Frank H. Easterbrook, Vertical Arrangements and the Rule of Reason, 53 Antitrust L.J. 135 (1984) INTRODUCTION This is a case about credit card networks, which enable a cardholder to pay a merchant for goods and services. Every payment transaction requires a cardholder that wants to buy and a merchant that wants to sell. The payment network (such as Amex) sits in the middle of these two sides and brings them together to complete a transaction using that net- work’s card. Merchants and cardholders are espe- cially interdependent because cardholders find it at- tractive to use cards accepted by more merchants, and vice-versa. The NDPs concern merchant conduct at the moment a transaction takes place at the checkout counter, when the cardholder decides to use a card that the merchant accepts. A unanimous panel of the Second Circuit therefore held that an antitrust challenge to the NDPs required proof that accounted for both cardholders and merchants. Even the United States—the lead plaintiff be- low—acknowledges that the Second Circuit articu- lated the correct principles of antitrust law. None- theless, Petitioners—a handful of the states that joined the United States’ challenge, but had no mate- rial role in the litigation—ask this Court to reex- amine the application of those settled principles to the particular facts of the credit card industry found by the district court. This case is an especially poor candidate for re- view. No member of the panel dissented. No judge expressed support for rehearing. No other appellate court has had occasion to apply the relevant anti- trust principles to transactions in the credit card in- dustry, or to any industry with similar two-sided characteristics—let alone reached a result in conflict with the one below. As the United States urges, the petition should be denied because “additional perco- lation in the lower courts may assist the Court in its application of general antitrust principles to two- sided platforms and to agreements of the sort at is- sue here.” U.S. Opp. 21. STATEMENT A. Background 1. Two-Sided Payment Platforms Credit card networks exist to “facilitat[e] trans- actions between merchants and their cardholding consumers’, operating as what economists call “two- sided platforms”. Pet. App. 77a. A two-sided plat- form brings together “two separate yet interrelated groups of customers who ... rely on the platform to intermediate some type of interaction between them.” Jd. “[U)nlike many two-sided platforms”, such as “[njewspapers and other advertising-based forms of media”, card networks provide transaction services “simultaneously” to merchants and card- holders, who make a “joint decision” to transact. Pet. App. 77a-78a, 8la. Thus, as the district court ex- plained, “card networks are also referred to as two- sided ‘transaction markets’—the two sides of the platform are brought together to consummate a sin- gle, simultaneous transaction, and the products pro- vided by the platform are consumed in fixed propor- tions by the consumer and merchant.” Pet. App. 78a. To compete effectively for transactions, a credit card network must account for both merchant and cardholder demand. Pet. App. 69a. Importantly, the market is characterized by “network effects”, mean- ing that “cardholders benefit from holding a card on- ly if that card is accepted by a wide range of mer- chants, and merchants benefit from accepting a card only if a sufficient number of cardholders use it.” Pet. App. 8a, 79a. Thus, a network must “balance the two sides of its platform” by allocating the costs of the transaction between the merchant on the one side and the cardholder on the other. Pet. App. 9a. Amex strikes this balance by charging a mer- chant that chooses to accept Amex a “merchant dis- count fee”, typically calculated as a percentage of the purchase amount. Pet. App. 83a, 86a. Amex uses the vast majority of merchant discount fee revenue to pay valuable benefits to cardholders to incentivize them to obtain and use an Amex card at that mer- chant rather than cards issued on other networks. Pet. App. 9a-10a, 14a-15a. These benefits, funded by the merchant discount fee, operate as a “negative” price on the cardholder side. Pet. App. 182a n.36. The sum of the cardholder benefits and the merchant fees is referred to as the “two-sided net price”, be- cause it is the total price paid by the two sides to compensate the network for completing a single transaction. Pet. App. 49a. 2. Competition in the Credit Card In- dustry The credit card industry today is marked by vig- orous interbrand competition, with the networks of- fering cardholder benefits to compete for transac- tions. It was not always so. The industry has long been dominated by Visa and MasterCard, which historically were owned by consortia of member banks that issued branded cards to retail banking customers. Pet. App. 12a. Although no longer owned by their member banks, Visa and MasterCard continue to operate as “open- loop” systems involving “issuer” banks that issue Vi- sa and MasterCard cards to consumers, and “acquir- er” banks that are responsible for signing up mer- chants to accept Visa and MasterCard. Pet. App. 13a. By contrast, Amex operates a “closed-loop” net- work, meaning that it runs the network and typically has direct relationships with Amex cardholders and Amex-accepting merchants. Pet. App. 14a-15a. Visa and MasterCard command a combined share of 68.3% of credit card transactions. Pet. App. 13a. Amex has a 26.4% share, while Discover has a 5.3% share. Jd. Visa and MasterCard are also accepted by virtually every card-accepting merchant, but “{a]pproximately three million of the total nine million U.S. merchant locations that accept credit cards—that is, roughly one out of every three—do not accept Amex cards.” Pet. App. 17a. As of 2013, there were 432.4 million Visa and MasterCard cards in circulation in the United States, as compared to only 53.1 million Amex cards, E.D.N.Y. Dkt. 447-1 418. The vast majority of Amex cardholders also carry a Visa or MasterCard, while a relatively small number of Visa and MasterCard cardholders also carry an Amex card. Tr. 3686:6-20. Thus, “[Amex] may be fairly characterized as a discretionary card for consumers when compared to the ubiquity en- joyed by Visa and MasterCard”. Pet. App. 159a. In its early years, Amex operated as a niche platform used primarily at “travel and entertain- ment” merchants. Pet. App. lla. With a limited network, Amex had difficulty competing against Vi- sa, MasterCard and their issuing banks for transac- tions. See Pet. App. 12a. Thus, Amex set out to ex- pand its network by investing billions of dollars into cardholder benefits to incentivize cardholders to use Amex cards over other networks’ cards. See Pet. App. 16a, 18a. Because higher cardholder demand drives higher spending at merchants, the value Amex delivered to its cardholders, funded by mer- chant fees, in turn has made Amex’s platform more attractive for merchants. See Pet. App. 39a-40a. Recognizing the advantages of Amex’s differen- tiated model, Visa and MasterCard initially respond- ed in two ways. First, they enacted “exclusionary rules” prohibiting member banks from issuing Amex cards. Pet. App. 18a-19a. These rules were invali- dated as anticompetitive horizontal agreements among the member banks in United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003), cert. denied, 543 U.S. 811 (2004). Second, rather than compete with Amex on the basis of premium rewards, Visa and MasterCard attacked Amex’s model with cam- paigns designed to sow doubts in the minds of card- holders about whether merchants would process Amex transactions. Pet. App. 19a. The express pur- pose of the campaigns, as described in a contempora- neous presentation to the Visa board of directors, was to “keep Amex as a niche product” by “break[ing]” the premium “success cycle”, i.e., Amex’s strategy of using the revenue from merchant fees to deliver value to cardholders in the form of cardholder benefits, thereby enhancing the value of Amex’s net- work to both sides. PX0132 at ‘930. Although the Amex model delivered a superior value proposition, the campaigns targeting Amex were “remarkably effective”. Pet. App. 19a. By in- creasing cardholder uncertainty about whether Amex cards would “be accepted and on what terms”, fewer cardholders used Amex, which reduced the value to merchants of accepting Amex. Pet. App. 19a-21a. Amex responded in part by enhancing and en- forcing its NDPs, which had existed in Amex’s mer- chant agreements in some form since the 1950s. Pet. App. 19a. The purpose of the NDPs is to encourage welcome acces*+ance, which means that merchants that choose to accept Amex—-and thus enjoy the pat- ronage of Amex cardholders incentivized to spend by the benefits Amex provides—commit to not under- mine Amex at the point of sale. Pet. App. 21a. The NDPs govern the precise moment in time at which the two sides of the market interact to jointly con- sume Amex’s services. Amex is not present at that critical moment, and the commitment to welcome ac- ceptance by Amex-accepting merchants is a corner- stone of Amex’s differentiated model. Jd. It mini- mizes interference with the incentives created by the value Amex delivers to cardholders, builds cardhold- er confidence in Amex’s network, and in turn makes the network more valuable for both merchants and cardholders. Id. Today, with Amex’s NDPs in place, the industry is highly competitive and dynamic. Amex’s ability to deliver valuable benefits to Amex cardholders has led its rivals to enhance their own cardholder offer- ings. Pet. App. 52a. The result has been robust competition for transaction volume, and a substan- tial increase in output. Jd. Indeed, “[o]ne of the iro- nies of this case,” as the Second Circuit pointed out, “is that the government, which usually worries about oligopolists engaging in indirect collusion leading to pricing similarities, seeks relief in this case that might drive the three cards to greater similarities”, which “could even increase market concentration by reducing Amex’s share to Visa’s and MasterCard’s benefit.” Pet. App. 48a-49a n.51. B. The Government’s Case On October 4, 2010, the United States, eventual- ly joined by seventeen Plaintiff States (collectively, the “Government”’), sued Amex, Visa and Master- Card, alleging that the anti-steering provisions in each network’s merchant agreements unreasonably restrained trade in violation of Section 1 of the Sherman Act, 15 U.S.C. §1. Visa and MasterCard entered into consent judgments in 2011 and rescind- ed their anti-steering provisions, while Amex pro- ceeded to trial. The crux of the Government’s case is that, but- for the NDPs, card networks would lower merchant fees to induce merchants to steer cardholders toward whatever network is least expensive for the mer- chant. The Government contended that proof of such effects on merchant fees would be sufficient to show that the NDPs harm competition, even if, as a result, card networks were forced to decrease cardholder benefits. See Pet. App. 49a. Indeed, because mer- chant fees fund cardholder benefits (Pet. Arn. 9a), and the Government had no proof that Amex’s mar- gins (and therefore prices) were supracompetitive (Pet. App. 53a), a significant reduction in merchant fees necessarily would reduce cardholder benefits, and, by extension, the competition for cardholders that those benefits drive. The Government’s expert conceded this dynamic (Tr. 4177:9-13), but the Gov- ernment’s merchant-centric case ignored it. C. The District Court Decision Following a bench trial, the district court held that the NDPs violate Section 1. The court recog- nized that the NDPs are vertical non-price re- straints, to which the rule of reason applied. Pet. App. 105a-06a. And the court acknowledged the fundamental two-sided attributes of the industry, the joint and simultaneous demand of merchants and cardholders for transactions, and the “inextricably linked” and “intertwined” nature of both sides. Pet. App. 118a, 185a. These findings were compelled by the trial testimony of the Government’s economic ex- pert, Professor Katz, who described these attributes at length, and admitted that, because merchant fees fund cardholder benefits, a reduction in merchant fees “can harm consumers” by reducing cardholder benefits. Tr. 4177:9-13. Professor Katz also ex- plained that “an[y] assessment of market definition, market power and competitive effects should account for the two-sided nature of the market”, and that “ijt is critical not to draw unwarranted and misleading conclusions by focusing solely on one side of a two- sided market.” Tr. 4018:13-19, 4037:15-20. 9 Nonetheless, in holding for the Government, the district court focused on the impact of the NDPs on merchants alone. First, the district court defined a relevant mar- ket comprising “network services”, to the exclusion of cardholders, because including cardholders would go “too far” and “frustrate” the analysis. Pet. App. 116a-18a, 122a. Second, reversing course on the relevance of cardholders, the district court found that Amex has market power as a result of “cardholder insistence’”— meaning some portion of Amex cardholders would not shop, or would spend less, at a merchant that chose not to accept Amex. According to the court, cardholder insistence allowed Amex to increase mer- chant fees without fear of merchants dropping ac- ceptance of Amex. Pet. App. 7la. The court acknowledged that insistence would disappear the moment Amex stopped paying cardholders benefits, but ruled that this fragility of cardholder demand was irrelevant to assessing market power over mer- chants. Pet. App. 164a-65a. Third, the district court held that the Govern- ment had demonstrated anticompetitive effects based solely on one-sided proof. The court conceded there was no “empirical evidence that the NDPs have resulted in a higher two-sided price—i.e., that the price charged across Amex’s entire platform, ac- counting for both discount revenue and the expense of providing cardholder rewards, increased as a re- sult of the network’s anti-steering rules.” Pet. App. 209a. The court nonetheless held that “[p]roof of anticompetitive harm to merchants, the primary 10 consumers of American Express’s network services, is sufficient to discharge [the Government’s] burden”. Pet. App. 192a. The court also found no reliable evi- dence of Amex’s profit margins, but concluded that Amex’s merchant fees were “supracompetitive”. Pet. App. 172a-73a, 207a-12a. Moreover, while recogniz- ing that “charge volume is the most direct measure of output in this particular market” (Pet. App. 151a- 52a), the court placed no weight on the fact that transaction output has surged, fueled by “ever more robust suites of rewards and other ancillary [card- holder] benefits” (Pet. App. 238a). D. The Court of Appeals’ Decision In a unanimous panel decision, the Second Cir- cuit reversed. The court of appeals accepted the dis- trict court’s factual findings, including that the mar- ket is two-sided, that cardholder and merchant de- mand is joint, simultaneous and interdependent, and that the Government failed to prove harm to competition among credit card networks when con- sidering the two-sided nature of the service they pro- vide.! It agreed with the district court that the NDPs are vertical non-price restraints, and thus sub- ' An amicus brief filed by supermarket and drugstore chains (which are suing Amex based on the NDPs) charges that the court of appeals replaced the district court’s findings with “extra-record materials”. Merchants Br. 4-9. In fact, the court of appeals expressly accepted and relied on the district court’s findings and the undisputed evidence at trial, which support the purported “extra-record” facts to which amici point. Com- pare Merchants Br. 6-8, with, e.g., Pet. App. 50a, 68a, 80a-81a, 125a, 128a, 157a, 160a-61a. 11 ject to full rule of reason review.? But it held that the district court erred in applying the rule of reason to the facts of the case. First, the court of appeals held that the district court erred by excluding cardholders from the rele- vant market because doing so failed to take into ac- count “commercial realities”, including the joint, simultaneous and interdependent nature of card- holder and merchant demand, and feedback effects. Pet. App. 31la-40a. Second, the court of appeals held that cardhold- er insistence is not a cognizable source of market power because, as the district court’s findings made clear, this cardholder loyalty is not durable and Amex must constantly compete for it with cardholder benefits that other networks can and do attempt to replicate. Pet. App. 40a-48a. Third, the court of appeals held that the district court “erroneously elevated the interests of mer- chants above those of cardholders” by allowing the Government to carry its burden without proving the impact of the NDPs on the “the two-sided net price 2 The court of appeals noted that “[bjoth the [Government] and the District Court flagged alleged distinctions between the NDPs and other vertical restraints ... in apparent attempts to recast the vertical restraints as horizontal”, but explained that it had “never drawn this type of distinction between any varie- ties of vertical restraints”. Pet. App. 30a n.42. Petitioners do not challenge tht correct determination. Pet. i; see Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 730-31 n.4 (1988) (“[A] restraint is horizontal not because it has horizontal effects, but because it is the product of a horizontal agreement.”). 12 accounting for the effects of the NDPs on both mer- chants and cardholders.” Pet. App. 49a. The court concluded that, applying the correct legal standard to the record, the Government’s proof failed as a matter of law to establish that the NDPs adversely affect competition among credit card networks— particularly given the lack of evidence of Amex’s two- sided price or profit margins, and the undisputed ev- idence of increasing output and higher-quality card- holder benefits. Pet. App. 49a-53a. Accordingly, the Second Circuit reversed. The Government sought rehearing and rehear- ing en banc, with the support of eight amicus briefs. The panel denied the request for rehearing. The Second Circuit denied the petition for rehearing en banc without requesting a response from Amex or noting any dissent.? Pet. App. 326a. 3 Many of the same amici filed similar briefs in support of the petition. Two briefs were submitted by individual mer- chants and a merchant trade group. The merchants also have challenged the NDPs in separate litigation and have said their claims are identical to the Government’s. Briefs also were submitted by Southwest Airlines and Discover, both of which claim a direct financial interest in the outcome here. Two briefs come from economists and law professors who submitted very similar briefs in support of rehearing by the panel or en banc. Another brief comes from an interest group. A final brief, from new amici calling themselves “former federal antitrust offi- cials”, was submitted by attorneys who predominantly repre- sent antitrust plaintiffs. They attribute the United States’ de- cision not to seek certiorari to government vacancies, but the United States’ opposition brief shows that the Acting Solicitor General’s decision is characteristically well-considered. As 13 REASONS FOR DENYING THE PETITION The Second Circuit’s unanimous decision is cor- rect, follows precedent and implicates no lower court conflict. And even if the merits of the Second Cir- cuit’s analysis were reasonably debatable among pro- fessors and lower-court litigants, this Court’s review would be extremely premature. As the United States emphasizes, the implications of the Second Circuit’s decision beyond the facts of this case are unclear, “percolation in the lower courts may be especially useful”, and not one appellate jurist (save those be- low) has “considered the application of the Sherman Act to two-sided platforms”. U.S. Opp. 19-20. For those reasons, the United States—the lead plaintiff below—properly concedes that its own case does not warrant further review. Petitioners, by con- trast, seek this Court’s intervention after being pas- sive participants from the moment they joined the case through the Second Circuit’s denial of the en banc petition.4 Amex knows of no instance in which the United States as a plaintiff abandoned its en- forcement action and this Court nonetheless granted review at the behest of another party. To the contra- demonstrated below, amici add nothing to cure the insufficiency of the petition. 4 Of the more than 100 depositions taken by the Govern- ment, Petitioners took the lead for none, and asked questions at only three. At trial, the United States handled every witness. Petitioners’ appearance at trial was limited to a three-minute summation. On appeal, the United States was lead counsel on all briefs (merits and rehearing petition), and delivered oral argument. 14 ry, the Court recently denied such a petition. See United States ex rel. Purcell v. MWI Corp., No. 16- 361, 137 S. Ct. 625 (2017) (denying certiorari petition filed by a False Claims Act relator when the United States, the lead party below, argued the lower court’s decision was erroneous but opposed review). The Court should deny the petition here. I. The Decision Below Is Correct and Con- sistent with Precedent. A. Market Definition The Second Circuit applied well-settled market definition principles in holding that the district court erred by “excluding the market for cardholders from its relevant market definition”. Pet. App. 32a. The Second Circuit correctly concluded that the district court improperly failed to “consider the feed- back effects inherent on the platform by accounting for the reduction in cardholders’ demand for cards (or card transactions) that would accompany any degree of merchant attrition” in response to a price increase. Pet. App. 39a. The court of appeals also followed settled prece- dent in holding that a relevant market must reflect the “commercial realities” facing consumers. See Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 482 (1992). Applying this rule, the court of appeals correctly held that the market here must “encompass the entire multi-sided platform”, includ- ing the cardholders whom the district court had ex- cluded. Pet. App. 39a. This holding was premised on the very nature of the service that Amex and its 15 competitors offer—as Petitioners themselves put it, “bring[ing] cardholder customers together with mer- chant customers for ordinary transactions”. Pet. i. The Government’s own expert economist similarly testified that “[i]t is critical not to draw unwarranted and misleading conclusions by focusing solely on one side of a two-sided market.” Tr. 4037:15-20. The district court’s decision to define the market in terms of merchants alone failed to account for the nature of the service that Amex competes to provide, and was therefore inconsistent with the purpose of market definition—‘“to identify the market partici- pants and competitive pressures that restrain an in- dividual firm’s ability to raise prices or restrict out- put”. Pet. App. 32a (quoting Geneva Pharm. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 496 (2d Cir. 2004)). And the argument that the NDPs have “thwarted” price competition fails for the same rea- son: it ignores the vigorous competition on the card- holder side of the market driven by cardholder bene- fits and services that are funded by merchant fee revenue. Given this uncontested interdependence between the two halves of the single product at issue, it is impossible to account for the nature of competi- tion by looking at only half of the equation. Contrary to Petitioners’ claims, the Second Cir- cuit’s conclusion that the defined market in this case must include both sides is fully consistent with this Court’s precedent. First, no conflict exists with this Court’s precept that a relevant market should comprise “reasonably interchangeable” products. Pet. 19 (quoting United States v. Grinnell Corp., 384 U.S. 563, 571 (1966)). As 16 the United States has recognized, “[t}he court of ap- peals articulated the correct legal standard”. U.S. Opp. 11. The governing antitrust principles are un- disputed, and Petitioners simply ask the Court to re- view the application of settled law to the unique facts of this case. The reasonable interchangeability test is used to determine whether two or more separate products compete with each other in the same relevant market. Here, however, the question is not whether the two sides of a card platform compete with each other (they clearly do not) but the threshold question of whether they are each part of the same product. A merchant and a cardholder cannot complete a trans- action unless they use the same card network. Only the combination of Amex’s services to merchants and cardholders together competes with Visa’s similar of- fering. Asking about a merchant’s consumption in isolation is like asking about the sound of one hand clapping. This is, moreover, the unavoidable impli- cation of the district court’s findings that transaction volume “is the most direct measure of output in this particular market”, and the proper benchmark for calculating market shares. Pet. App. 151a-52a. Thus, the fact that a merchant cannot substitute its role (card acceptance) for the cardholder’s (card usage) is of no moment. Matching left and right shoes are in a single r arket not because they are substitutes, but because it is appropriate “to combin[e] in a single market a number of different products or services where that combination reflects commercial realities”. Grinnell, 384 U.S. at 572. Be- cause, as Petitioners themselves explain, card net- works’ function is “uniting cardholders and mer- 17 chants” (Pet. 2), dividing cardholders from mer- chants for analyzing competition among card net- works makes no sense. Second, Petitioners misconstrue the Second Cir- cuit’s ruling to argue that it conflicts with Kodak, 504 U.S. 451. The unanimous court of appeals did not adopt a new rule requiring that separate mar- kets be consolidated whenever the price in one af- fects the price in the other. Pet. 20. Rather, the rul- ing correctly took account of the interdependency of merchant and cardholder demand, on the particular facts as found by the district court. Pet. App. 3la- 40a. Kodak did not concern two interdependent halves of a single product; it considered copier parts and service of those parts—two products that can be, and often are, sold separately and at different times. See 504 U.S. at 475-76 (“[I]t makes little sense to as- sume, in the absence of any evidentiary support, that equipment-purchasing decisions are based on an ac- curate assessment of the total cost of equipment, service, and parts over the lifetime of the machine.”). For the same reason, Petitioners’ analogy to vertical- ly related markets of components and final goods (Pet. 21) is inapposite. Third, no conflict exists with Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953). As the United States has recognized, this Court “has not squarely considered questions of market defini- tion or proof of anticompetitive effects in cases in- volving two-sided platforms”. U.S. Opp. 19. In Times-Picayune, this Court simply held that the de- fendant lacked market power over advertising. 345 U.S. at 610-13. The Court did not examine competi- tive effects at all, much less decide whether the 18 plaintiff had to prove adverse effects across interde- pendent markets. More fundamentally, Petitioners’ analogy to newspapers underscores their misconception about the nature of credit card networks and the chal- lenged restraints. A reader’s decision to purchase a newspaper is not necessarily dependent on any ad- vertiser buying advertising space because many readers buy newspapers to read the news. By con- trast, a merchant and cardholder simultaneously use a single network because they want to complete a transaction together. As a result, the “products pro- vided by the [credit card] platform are consumed in fixed proportions” by each side as part of one, simul- taneous transaction. Pet. App. 78a. Moreover, be- cause sales to readers in Times-Picayune were unre- strained, this Court understood the challenged re- straint to “concern[] solely one of these markets”’— the market for the sale of advertising to advertisers. 345 U.S. at 610. By contrast, the restraints here govern the precise moment of interaction between the two sides at the point of sale.5 Regardless, Times-Picayune at most stands for the proposition that a restraint excluding competi- tors from one side of a two-sided platform can be an- alyzed without considering the other side. The de- fendants there were accused of tying sales of adver- 5 Berlyn Inc. v. Gazette Newspapers, Inc., 73 F. App’x 576 (4th Cir. 2003), an unpublished decision, is distinguishable for the same reasons. Lorain Journal Co. v. United States, 342 U.S. 143 (1951), would be as well if it had discussed the rele- vant market, which it did not. 19 tising that “effectively excluded” other papers from doing business with advertisers. 345 U.S. at 605. The NDPs do not exclude competing networks from merchants’ registers or cardholders’ wallets; they af- fect only the joint decision of a merchant and a card- holder about which network they will use to complete a given transaction. Times-Picayune does not speak to the relevant market for analyzing competition for such joint transactions. Fourth, no conflict exists with NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984), which analyzed a rule limiting the number of football games colleges could license for television broadcast. NCAA is not on point—neither the NCAA, which imposed the rule, nor the product at issue (intercollegiate football games) is two-sided. Rather, the case involved conventional one-sided ver- tical distribution—the colleges (upstream) selling rights to broadcast football games to the television networks (downstream), which broadcast those games to viewers (the end-consumer). Jd. at 94-95. And contrary to Petitioners’ suggestion, the NCAA dissent did not advocate for a two-sided analysis; it merely disagreed about how output should be meas- ured (number of games televised versus number of viewers). Here, no one disputes that the proper measure of output is transaction volume, that a transaction cannot be completed without having one merchant interact with one cardholder both using the same network’s services, or that output has been surging in the years since Amex reinforced its NDPs in response to Visa’s and MasterCard’s attacks. Pet. App. 41a, 52a. 20 B. Market Power The Second Circuit correctly held that the Gov- ernment failed to prove that Amex has market pow- er. “Market power is the power to force a purchaser to do something that he would not do in a competi- tive market.” Kodak, 504 U.S. at 464 (internal quo- tation marks omitted). Amex’s lack of market power is unsurprising, given that Amex’s competitors have long advertised that millions of merchants do not ac- cept Amex. The Second Circuit properly held that cardhold- er “insistence” did not give Amex market power, based on the district court’s own finding that Amex must compete fiercely for cardholder loyalty, which would rapidly “dissipate” if Amex were to offer lower value to cardholders than did Amex’s rivals. Pet. App. 46a. As the unanimous panel explained, “evi- dence showing that Amex must compete on price in order to attract consumers does not show that Amex has the power to increase prices to supracompetitive levels.” Id. The courts of appeals are in accord on this prop- osition, and Petitioners do not contend otherwise. See, e.g., Clorox Co. v. Sterling Winthrop, Inc., 117 F.3d 50, 58 (2d Cir. 1997) (explaining that estab- lished buyer preferences are not a serious entry bar- rier); Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 797 (ist Cir. 1988) (Breyer, J.) (“(Vjirtually every seller of a branded product has some customers who especially prefer its product. But to permit that fact alone to show market power is to condemn [vertical restraints] that are bound to be harmless, including some that may serve some 21 useful social purpose.”); Town Sound & Custom Tops, Inc. v. Chrysler Motors Corp., No. 90-1547, 1991 WL 149249, at *6 (3d Cir. Aug. 9, 1991) (“Nor is intense brand loyalty sufficient to presume market power.”), affd en banc, 959 F.2d 468, cert. denied, 506 U.S. 868 (1992). Notably, Petitioners do not challenge the Second Circuit’s market power holding. U.S. Opp. 10 n.2. But market power is a necessary predicate to a firm’s ability to harm competition. See Cal. De..tal Ass’n v. FTC, 526 U.S. 756, 782 (1999) (Breyer, J., concurring in part and dissenting in part) (explaining that un- der the rule of reason a violation cannot exist unless “the parties have sufficient market power to make a difference”); Ball Mem’ Hosp., Inc. v. Mut. Hosp. Ins., Inc., 784 F.2d 1325, 1335 (7th Cir. 1986) (Easterbrook, J.) (“Firms without power bear no bur- den of justification.”). And there is no question tha’ the theory of harm espoused here turns upon the now legally unsupportable assertion that merchants have no choice but to accept the NDPs (see Pet. 33), and that Amex has “forced the entire credit-card in- dustry to channel competition away from merchant fees and into cardholder rewards” (U.S. Opp. 19). The absence of any challenge to the court of ap- peais’ market power holding causes Petitioners’ theo- ry of harm to fall apart. On the unchallenged record, if competition orbits around cardholder rewards, that is only because cardholders find those rewards at- tractive enough that some merchants, in turn, find it beneficial to accept Amex. Other merchants do not find it beneficial to accept Amex, and so they do not. Merchants are not “forced ... to do something that 22 [they] would not do in a competitive market.” Kodak, 504 U.S. at 464 (citation omitted). C. Anticompetitive Effects The Second Circuit also applied well-settled rules for analyzing anticompetitive effects, holding that the Government “bore the initial burden to show that Amex’s NDPs have ‘an actual adverse effect on competition as a whole in the relevant market.” Pet. App. 49a-50a (quoting K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 127 (2d Cir. 1995)). The court of appeals explained that the Gov- ernment could have met its initial burden under the rule of reason by showing “that cardholders engaged in fewer credit-card transactions (i.e., reduced out- put), that card services were worse than they might otherwise have been (i.e., decreased quality), or that Amex’s pricing was set above competitive levels with- in the credit-card industry (i.e., supracompetitive pricing).” Pet. App. 52a. Petitioners cited this same menu—reduced output, reduced quality and su- pracompetitive pricing—long offered by the courts of appeals. See, e.g., Virgin Atl. Airways Lid. v. British Airways PLC, 257 F.3d 256, 264 (2d Cir. 2001) (“[W]hether an actual adverse effect has occurred is determined by examining factors like reduced out- put, increased prices and decreased quality.”) (cited at Gov't C.A. Br. 65); Gordon v. Lewistown Hosp., 423 F.3d 184, 210 (3d Cir. 2005) (anticompetitive ef- fects include “reduced output, raised prices or re- duced quality”) (cited at Gov't C.A. Br. 65), cert. de- nied, 547 U.S. 1092 (2006). 23 Applying this standard to the undisputed record, the Second Circuit correctly held that the Govern- ment had not met its burden of proving adverse ef- fects. That record showed that “industry-wide trans- action volume”—the undisputed measure of output in this market—‘“has substantially increased and card services have significantly improved in quality” with the NDPs in place. Pet. App. 52a. On that rec- ord, the Second Circuit correctly concluded the Gov- ernment had not carried its burden. See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Co., 509 U.S. 209, 237 (1993) (“Where, as here, output is expand- ing at the same time prices are increasing ... a jury may not infer competitive injury from price and out- put data absent some evidence that tends to prove that output was restricted or prices were above a competitive level.”). Moreover, both courts below agreed that the rec- ord could not support a finding that Amex’s prices were supracompetitive, when accounting for both sides. See Pet. App. 209a (district court’s finding that the record did not provide “a reliable measure of [Amex’s] two-sided price that appropriately accounts for the value or cost of the rewards paid to cardhold- ers”, or of Amex’s margins); Pet. App. 53a (similar conclusion from court of appeals). Petitioners suggest that the court of appeals contradicted precedent by “shift{ing] to the Govern- ment the burden of disproving any procompetitive benefits”. Pet. 24. The supposed conflict is illusory. Under the rule of reason, a plaintiff always bears the burden to demonstrate competitive harm in “the product market as a whole”. Cont T.V., Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 45 (1977) (citation omit- 24 ted). The service that Amex competes to provide is completing payment transactions between a card- holder and a merchant—a service for which neither has any use unless the other does. Thus, Petitioners’ argument that a court need not account for cardhold- ers is an invitation to misdefine the competition at issue. Petitioners rely on United States v. Topco As- sociates, 405 U.S. 596 (1972), for the proposition that restraining competition in “one sector of the econo- my” cannot be justified by “promot[ing] greater com- petition in a more important sector”. Pet. 25 (quot- ing 405 U.S. at 610). But cardholders do not exist in a separate “sector” of the economy from merchants for purposes of transacting through card networks, whose purpose is to bring them together. Supra at 2- 3. Indeed, under this Court’s precedent, the inter- dependence of merchant and cardholder demand re- quires assigning burdens as the court of appeals did. As the Government’s expert testified: “[A]n assess- ment of market definition, market power and com- petitive effects should account for the two-sided na- ture of the market”. Tr. 4018:13-19. Evidence about the NDPs’ effect on merchant fees does not support a confident inference of harm to competition overall, 6 Despite marginalizing cardholding consumers, Petition- ers and amici suggest the district court found two-sided adverse effects by concluding that the NDPs result in higher retail pric- es to consumers who do not use credit cards. Pet. 18. A focus on retail prices is both inconsistent with Petitioners’ determina- tion to ignore cardholders, and “erroneous, as it fails to take inte account offsetting benefits to cardholders in the form of rewards and other services”. Pet. App. 49a n.62. 25 because such effects necessarily will effect cardhold- ers. Thus, the evidence on which Petitioners would stake their case is at least as consistent with healthy competition as anticompetitive effects. See Tr. 4037:15-20 (Government expert testifying: “It is crit- ical not to draw unwarranted and misleading conclu- sions by focusing solely on one side of a two-sided market.”); cf. Brooke Group, 509 U.S. at 237 (refusing to recognize anticompetitive effects where “rising prices are equally consistent with growing product demand”). Condemning a restraint on such an ambiguous showing creates an unacceptable risk of false posi- tives that “increase the total cost of the antitrust sys- tem by prohibiting procompetitive conduct the anti- trust laws should encourage”. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 894- 95 (2007); see also Verizon Commce'ns Inc. v. Law Of- fices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004) (“The cost of false positives counsels against an undue expansion of [antitrust] liability.”). The Second Circuit correctly refused the Government’s invitation.’ 7 This concern for avoiding erroneous condemnation of competition also answers Petitioners’ complaint (Pet. 16) that proving a case under the rule of reason is too hard. See, e.g., Leegin, 551 U.S. at 895 (“Per se rules may decrease administra- tive costs, but that is only part of the equation. Those rules can be counterproductive.”); Frank H. Easterbrook, Vertical Ar- rangements and the Rule of Reason, 53 Antitrust L.J. 135, 155 (1984) (cited at Pet. 17) (“[T]he rule of reason’s application to vertical arrangements should err on the side of tolerance” be- cause “[m]ost vertical arrangements are procompetitive.”). 26 If. Petitioners’ Other Arguments Are Unper- suasive. A. Petitioners’ Call for “Guidance” Does Not Justify Review. Petitioners suggest that this case is an oppor- tunity to inject “concrete guidance” into the rule of reason analysis for vertical restraints. That proposal is unsound. An answer to Petitioners’ fact-bound question presented is unlikely to provide definitive guidance beyond this case. Indeed, the only way the Court could reach a legal issue of broad significance would be to set a rule for highly dynamic two-sided plat- forms without the benefit of judicial experience. Jn- fra at 30-34 (explaining that, to the extent Petition- ers urge the adoption of principles that would apply to other dynamic industries, this Court’s decisional process would be greatly aided by percolation). Peti- tioners identify no case that would have been aided by a decision on the question presented, nor any spe- cific question of law on which they believe concrete guidance is lacking. Indeed, the petition elsewhere contends that the framework applicable to the Gov- ernment’s claims is well established. Pet. 18-25. Pe- titioners merely disagree with the Second Circuit’s application of that framework to the facts, which is no basis for review. See Sup. Ct. R. 10. In cases where, as here, this Court has deter- mined that a particular practice must be analyzed under the rule of reason, it has left the particulars of that case-specific analysis to the lower courts to ap- ply in the varying contexts presented to them. E.g., 27 FTC v. Actavis, Inc., 1383 S. Ct. 2223, 2238 (2013) (“We therefore leave to the lower courts the structur- ing of the present rule-of-reason antitrust litiga- tion.”). It has not tried to take on fine-grained and fact-bound questions about what information is rele- vant to the analysis of a particular market. See, e.g., Leegin, 551 U.S. at 898-99 (“As courts gain experi- ence considering the effects of these restraints by applying the rule of reason over the course of deci- sions, they can establish the litigation structure to ensure the rule operates to eliminate anticompetitive restraints from the market and to provide more guidance to businesses.”); Broad. Music, Inc. v. Co- lumbia Broad. Sys., Inc., 441 U.S. 1, 24 (1979) (con- cluding that challenged restraint “should be subject- ed to a more discriminating examination under the rule of reason. It may not ultimately survive that attack, but that is not the issue before us today.”). As Petitioners’ own authorities reveal, this Court has generally granted certiorari in antitrust cases to instruct courts on which mode of analysis to apply—1.e., per se, “quick look” or rule of reason—and not to superintend the particulars of the analysis as applied to specific facts. See, e.g., Actavis, 133 S. Ct. 2223 (addressing mode of analysis for pharmaceuti- cal reverse payment settlement agreements); Leegin, 551 U.S. 877 (same for resale price maintenance); Texaco Inc. v. Dagher, 547 U.S. 1 (2006) (same for joint ventures); Cal. Dental, 526 U.S. 756 (same for advertising restrictions by a professional organiza- tion); State Oil Co. v. Khan, 522 U.S. 3 (1997) (same for vertical maximum price restraints); Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717 (1988) (same for vertical non-price restraints). 28 The Court has long held that the rule of reason governs a challenge to a vertical non-price restraint, and further review is unnecessary. B. Petitioners’ Arguments About Alloca- tive Efficiency Do Not Warrant Review. In the guise of discussing “allocative efficiency”, Petitioners argue that a rule of reason plaintiff should be able to satisfy its burden by pointing to a structural effect on “the proper functioning of the price-setting mechanism of the market”. Pet. 34 (quoting FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 462 (1986)). But where a vertical restraint is con- cerned, such proof merely establishes that the re- straint restrains competition (as all vertical re- straints do), not that it harms competition. No reason exists for this Court to grant review to pioneer such an approach. The Court has permit- ted abbreviated proof only in cases involving horizon- tal restraints that portend the loss of “independent competing entrepreneurs”. Arizona v. Maricopa Cty. Med. Soc’y, 457 U.S. 332, 357 (1982). In fact, the on- ly authority cited by Petitioners (Pet. 34) and their amici (e.g., Professors Br. 10-12) for their proposed standard are cases applying quick look analysis to horizontal restraints. But “horizontal restraints are generally less defensible than vertical restraints”. Maricopa Cty., 457 U.S. at 348 n.18. Accordingly, this Court has “rejected the approach of reliance on rules governing horizontal restraints when defining rules applicable to vertical ones.” Leegin, 551 U.S. at 888. 29 Even putting aside “the appreciated differences in economic effect between vertical and horizontal agreements’, id., “quick look” presumptions are re- served for restraints for which “the experience of the market has been so clear, or necessarily will be, that a confident conclusion about the principal tendency of [the] restriction ... follow[s] from a quick (or at least quicker) look”. Cal. Dental, 526 U.S. at 781. Here, Petitioners point to no relevant judicial experi- ence—let alone enough to justify “a confident conclu- sion”. In fact, the United States analogizes the NDPs to most-favored-nation provisions as restraints that are vertical in nature but might have some im- pact on horizontal competition and appropriately notes that “there is no meaningful body of precedent addressing the antitrust status of agreements of that character’. U.S. Opp. 21. To avoid condemnation of healthy competition, proper application of the rule of reason depends on an evaluation of “all the circum- stances of the case”. Maricopa Cty., 457 U.S. at 343. C. The Role of the Credit Card Industry in the Economy Does Not Justify Re- view. Petitioners’ discussion of the role and scale of the credit card industry does not justify review. Pet. 26-30. Earlier this Term, the Court declined to re- view a case involving this industry—a settlement be- tween merchants, Visa and MasterCard, that the pe- titioners there claimed would “mark[] a sea-change in the payment industry” and “may save merchants between $26.4 and $62.8 billion in acceptance costs over the next decade”. Petition, Photos Etc. Corp. v. Home Depot, U.S.A., Inc., No. 16-710, 2016 WL 6994898, at *35-36, cert. denied, 137 S.Ct. 1374 30 (2017). Denial is appropriate here too. Many cases in which this Court’s review is sought involve indus- tries of economic significance. But the Court seeks to hear matters of recurring legal importance. Peti- tioners have not raised any question of widespread legal importance. III. Review Would Be Premature Because No Relevant Body of Law—Let Alone a Con- flict—Exists in the Courts of Appeals. As the United States highlights, the “decision does not directly conflict with any decision of this Court or another court of appeals”. U.S. Opp. 19. Indeed, the decision below is the only federal appel- late authority analyzing a vertical restraint in a two- sided market as such, and it is unanimous, Thus, not one appellate jurist has endorsed anything like the arguments Petitioners advance. Petitioners do not contend otherwise. Yet lower courts will undoubtedly have the op- portunity to address such restraints, and in a variety of contexts. Indeed, as amici concede, “[t]wo-sided platforms are increasingly common” as “modern technologies have led to rapid growth in the number, 8 Petitioners suggest a conflict with the Second Circuit’s decision in Visa, 344 F.3d 229. Pet. 17. Even if such an in- tracircuit conflict existed, it would not warrant review. Wisniewski v. United States, 353 U.S. 901, 902 (1957) (per curi- am). And the Second Circuit itself found no conflict when the Government made the same argument in its rehearing petition: Visa is inapposite because it involved “horizontal restraints” affecting “one particular level of competition contained within a two-sided platform”. Pet. App. 36a. 31 size and importance of such firms”. Professors Br. 22. Today, some of the most innovative firms and industries now consist of platforms that have some two-sided characteristics—including search engines, ride-sharing, e-commerce, rental exchanges and elec- tronic payments. At the same time, “[t]he economic literature analyzing two-sided platforms is new, complex, and evolving”, and has only recently “con- sidered the impact of restraints” in two-sided mar- kets. Economists Br. 7-8. Scholars, the government and the antitrust bar continue to study two-sided markets and their potential for competition concerns. Petitioners’ premature invitation to establish de- finitive antitrust principles for two-sided platforms now—if any such principles of broad application ex- ist--portends errors that could “chill the very con- duct the antitrust laws are designed to protect”. Ver- izon Commce’ns, 540 U.S. at 414 (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986)). Cf. Antitrust Modernization Comm’n, Report and Recommendations 39 (2007) (“It is im- portant that antitrust develops through mechanisms, such as case law development in the courts and agency guidelines, that allow ongoing reassessments of existing law and economic principles relevant to antitrust analysis.”). As the United States observes, “the Court ordi- narily awaits the development of a conflict among the lower courts before exercising its certiorari juris- diction.” U.S. Opp. 21. With no conflict here, the Court should deny review, allow further considera- tion and experimentation in the lower courts, and avoid putting itself in the position of prematurely and improvidently establishing rules for the Googles 32 and Ubers of today and tomorrow. See, e.g., Lack- ey uv. Texas, 514 U.S. 1045, 1047 (1995) (Stevens, J., respecting denial of certiorari) (“Petitioner's claim, with its legal complexity and its potential for far- reaching consequences, seems an ideal example of one which would benefit from {other courts’] further study.”). The prudence of allowing percolation here is un- derscored by the variety of views among Petitioners and their amici on what questions this Court should address and how they should be resolved. To cite just a few examples: Whereas some amici contend that the court uf appeals’ ruling on market power “has grave antitrust implications” (RLC Br. 20), Peti- tioners do not address market power at all in the question presented (Pet. i). Whereas some amici contend that the evolving economic literature on two- sided platforms should be given little weight (Mer- chants Br. 16-25), others argue that courts should pay close heed to that literature (Economists Br. 7- 8).2 Whereas some amici argue that the ruling below “provide[s] no guidance for future cases involving two-sided platforms” such as newspapers “that may differ from ... credit card platforms” (Economists Br. 8 n.7), others contend the ruling would apply in any ®° In arguing against reliance by courts on economic litera- ture and amicus briefs, with more than some irony, the Mer- chant amici chide Professor Willig for not disclosing in his ami- cus brief below that. he previously has served as a paid expert for Amex. Those same amici neglect to mention that Joseph Stiglitz, their highly-paid expert in their damages case against Amex, filed an amicua brief below in which he failed to note his extensive current financial ties to parties whose interests are al stake in this case. 33 case of a two-sided platform (Professors Br. 22-23). Here, percolation would help clarify the issues that matter to the analysis, illuminate which economic principles are relevant to it and sharpen the points of disagreement for the Court to resolve. Finally, percolation is particularly appropriate given the fact-bound nature of the rule of reason and the wide range of industries that exhibit two-sided attributes. Amici speculate that the Second Circuit’s holding could affect theoretical challenges to unspeci- fied conduct in these industries. E.g., Professors Br. 22. But no other appellate court has yet analyzed the competitive attributes of two-sided platforms un- der the rule of reason. Indeed, as Petitioners con- cede, it is inherent in the rule of reason that “the re- sult of the process in any given case may provide lit- tle certainty or guidance about the legality of a prac- tice in another context.” Pet. 16 (quoting Maricopa Cty., 457 U.S. at 343). For example, the United States concedes the “idiosyncratic character” of the NDPs (U.S. Opp. 20), and it has successfully argued against the application of the decision below in other contexts. See United States v. Charlotte-Mecklenburg Hosp. Auth., No. 3:16-CV-00311-RJC-DCK, 2017 WL 1206015, at *9 (W.D.N.C. Mar. 30, 2017) (declining to grant defendants judgment based on the decision below because “the Second Circuit’s analysis is deep- ly rooted in the details and dynamics of the credit- card industry’). This Court should articulate antitrust principles with the benefit of concrete judicial experience. Dif- ferent courts assessing restraints in different two- sided markets should “serve as laboratories in which the issue receives further study” before this Court 34 settles the question. Lackey, 514 U.S. at 1047 (Ste- vens, J., respecting denial of certiorari) (citation omitted). IV. Recognized Defects in the Government’s Proof Make this Case a Poor Vehicle. In the long term, if the antitrust issues arising from two-sided markets prove controversial and re- curring, this Court will have future opportunities to review them. But in the short term, this case pre- sents a particularly poor vehicle because the Gov- ernment’s proof was insufficient to carry even the burden it proposed. First, the district court defined a relevant mar- ket limited to the provision of “network services”, i.e., the service of facilitating the transaction for the mer- chant over the network. But this is only one compo- nent of what Amex and other credit card platforms do. They also process transactions for cardholders, provide other services such as rewards, and acquire merchants for the network. The cost of these ser- vices is covered by the merchant discount fee. In- deed, the vast majority of Amex’s merchant discount fee is used to pay for cardholder services (mainly re- wards), while much smaller components cover ac- quiring and network services. On this score, the district court’s decision is at war with itself, and the record lacks evidence that could support Petitioners’ burden. In a market for processing transactions for merchants alone, the rel- evant “price” for purposes of analyzing competition is the fee for that service, i.e., the network services component of the merchant discount fee. But that is 35 not the price the district court used to analyze mar- ket power and competitive effects. As the court of appeals noted, the district court looked at “the full merchant-discount rate, not simply the fees associat- ed with ‘network services”. Pet. App. 37a-38a n.45. The court defined a market for one service, but used prices for a larger bundle of services. The court of appeals concluded that it “need not decide here whether this inconsistency constitutes error because, in any event, the District Court de- fined the relevant market incorrectly.” Jd. But it is irreparable error: The Government advocated a market for network services to merchants, and there is no record evidence of an Amex “network service price”. Amex does not charge merchants separately for network services. Nor is it possible to derive the network service component of Amex’s merchant fee from the record; that would, at a minimum, require subtracting the cost of rewards, of which the district court found there was no reliable evidence. Pet. App. 209. Thus, resolving the question presented regard- ing the relevant market in Petitioners’ favor would lead to the conclusion that Petitioners adduced no proof of harm to competition in that market. Second, even looking at the wrong price (the merchant fee), the record lacks another piece of evi- dence necessary to establish a price-based case of harm. A “claim that a defendant set supracompetitive prices [established] through direct evidence” requires “an analysis of the defendant’s costs,” including “that the defendant had an ‘abnormally high price-cost margin”. Mylan Pharm. Inc. v. Warner Chilcott Pub. 36 Ltd. Co., 838 F.3d 421, 434 (3d Cir. 2016) (quoting Geneva Pharm., 386 F.3d at 500); accord Menasha Corp. v. News Am. Mktg. In-Store, Inc., 354 F.3d 661, 666 (7th Cir. 2004) (Easterbrook, J.). The district court found there was no reliable ev- idence of Amex’s costs, and thus no “reliable measure of American Express’s per transaction margins across its industry groups”. Pet. App. 172a-73a.!° Accordingly, whatever price is used, it would be im- possible to conclude on this record that that price is supracompetitive and thus indicates that the NDPs harm competition. 10 The United States suggests that it proved Amex’s prices are supracompetitive because when Amex increased its fees for certain merchants as part of its “value recapture” program, those increases “were not wholly offset by additional rewards expenditures or otherwise passed through to cardholders”. U.S. Opp. 18 n.4; Pet. App. 209a. However, “the fact remains that ‘the evidentiary record does not include a reliable measure of the two-sided price charged by American Express that correctly or appropriately accounts for the network’s expenses on the cardholder side of the platform”, and “[a] finding that not every dime of merchant fees is passed along to cardholders says noth- ing about other expenses that Amex faces, let alone whether its profit margin is abnormally high.” Pet App. 51a. 37 CONCLUSION The petition for a writ of certiorari should be denied. August 21, 2017 Respectfully submitted, BENJAMIN J. HORWICH EVAN R. CHESLER JUSTIN P. RAPHAEL Counsel of Record MUNGER, TOLLES & PETER T. BARBUR OLSON LLP KEVIN J. ORSINI 560 Mission Street Rory A. LERARIS San Francisco, CA CRAVATH, SWAINE & 94105 Moore LLP (415) 512-4000 825 Eighth Avenue New York, NY 10019 (212) 474-1000 echesler@cravath.com Counsel for Respondents American Express Company and American Express Travel Related Services Company, Inc. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0754%3A03. Public record. Not legal advice.