Amicus Curiae Brief — Ohio v. Am. Express Co., 138 S. Ct. 355 (2017) (No. 16-1454)

No. 16-1454

IN THE

Supreme Court of the Anited States

STATES OF OHIO, CONNECTICUT, IDAHO, ILLINOIS, IOWA,

MARYLAND, MICHIGAN, MONTANA, RHODE ISLAND, UTAH,

AND VERMONT,

Petitioners,

v.

AMERICAN EXPRESS COMPANY, AND AMERICAN EXPRESS

TRAVEL RELATED SERVICES COMPANY, INC.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Second Circuit

BRIEF OF 20 MERCHANTS AS AMICI CURIAE

IN SUPPORT OF PETITIONERS

DANIEL A. SASSE GEORGE D. RUTTINGER

DEBORAH E. ARBABI Counsel of Record

CROWELL & MORING LLP ANDREW I. GAVIL

3 Park Plaza, 20th Floor CHARLES D. AUSTIN

Irvine, CA 92614 CROWELL & MORING LLP

(949) 263-8400 1001 Pennsylvania Ave., N.W.

Washington, DC 20004

JORDAN L. LUDWIG (202) 624-2500

CROWELL & MORING LLP gruttinger@crowell.com

515 S. Flower St., 40th Floor

Los Angeles, CA 90071

(213) 622-4750

Counsel for Amici Curiae

i

LIST OF AMICI

AutoNation, Inc., Bally Total Fitness Corporation,

Big Sur Waterbeds, Inc., BJ’s Restaurants, Inc.,

Bridgestone Americas, Inc., Caleres, Inc., Crestline

Hotels & Resorts, LLC, Denver Mattress Co., LLC,

Festival Fun Parks, LLC (d/b/a _ Palace

Entertainment), Ingram Micro Inc., Innovative

Dining Group, LLC, Jack in the Box Inc., Luxottica

Retail North America Inc., Office Depot, Inc.,

OfficeMax Incorporated, Public Storage, Sofa Mart,

LLC, Staples, Inc., TKC Holdings, Inc. (f/k/a Centric

Group, LLC), United Airlines, Inc.

il

TABLE OF CONTENTS

( ——ůů ů ů

TABLE OF AUTHORNTIES . . .

INTEREST OF AMICI CURIAE...................

SUMMARY OF ARGUMENT...

I. THE SECOND CIRCUIT

MISCONSTRUED THE

GOVERNMENT’S THEORY OF

ANTICOMPETITIVE EFFECTS AND

ERRONEOUSLY FAILED TO CREDIT

SUBSTANTIAL EVIDENCE OF

J BP daknccoscvesccscsscccennssoseses

A. The district court’s findings that the

government established

anticompetitive effects were fully

supported by the record evidence and

are consistent with the real-world

experience of amiciiʒʒʒ

B. The Second Circuit failed to

appreciate the horizontal, interbrand

character of the anticompetitive

effects of the restraint.....................

C. Restricting the ability of merchants to

steer by sharing truthful information

about costs disrupts the competitive

process and renders the market

. — 8

— 19

unresponsive to consumer demand. ......... 23

iil

TABLE OF CONTENTS

(continued)

Page

II. THE SECOND CIRCUIT'S

UNPRECEDENTED TREATMENT OF

THE RELEVANT MARKET

ANALYSIS FORSAKES CORE

ANTITRUST PUNCIPLES. . . 26

III. IMPAIRING THE COMPETITIVE

PROCESS TO AID AN OTHERWISE

UNCOMPETITIVE FIRM IS NOT A

COGNIZABLE PROCOMPETITIVE

— ( ——— 32

c 37

iv

TABLE OF AUTHORITIES

Page(s)

Cases

Brown Shoe Co. v. United States,

re 27, 28

Brunswick Corp. v. Pueblo Bowl-O-Mat,

Inc.,

I ... 22

Bus. Elecs. Corp. b. Sharp Elecs. Corp.,

ee. 19

Christy Sports, LLC u. Deer Valley

Resort Co., Ltd.,

555 F.3d 1188 (10th Cir. 2009 ))9)))9)9)9: 9

Eastman Kodak Co. v. Image Tech.

Servs., Inc.,

ee 28

Expressions Hair Design v.

Schneiderman,

cog Ge ET.) nee 24

FTC v. Ind. Fed’n of Dentists,

Pr hil FY, eee passim

Geneva Pharm. Tech. Corp. v. Barr

Labs. Inc.,

386 F.3d 485 (2d Cir. 200 4)))⸗·· cece ee eees 32

K.M.B. Warehouse Distribs., Inc. v.

Walker Mfg. Co.,

61 F.3d 123 (2d Cir. 1995) 21, 22

V

TABLE OF AUTHORITIES

(continued)

Leegin Creative Leather Prods., Inc. v.

PSKS, Inc.,

Fe,, a ccs sietesatenénmnennepaiiii 19, 20

McWane, Inc. v. FTC,

783 F.3d 814 (11th Cir. 2015), cert.

denied, 136 S. Ct. 1452 (20 16) . 33

N.C. State Bd. of Dental Exam’rs v.

FTC,

D . ciicdnadaeesenen 2, 3

Nat'l Collegiate Athletic Ass n v. Bd. of

Regents of Univ. of Okla.,

, 4, 5, 25, 34

Nat'l Soc’y of Prof Eng’rs v. United

States,

e 2 passim

PepsiCo., Inc. v. Coca-Cola Co.,

ee RerrenTEe 30

Re/Max Int l, Inc. u. Realty One, Inc.,

173 F. zd 995 (8th Cir. 1999). 9

Realcomp II, Lid. v. FTC,

e 24

State Oil Co. v. Khan,

NIGER IPS Rae Soe oe TO 20

vi

TABLE OF AUTHORITIES

(continued)

Sullivan u. Nat'l Football League,

34 F.3d 1091 (Ist Cir. 1994)...

Times-Picayune Pub. Co. v. United

States,

345 U.S. 594 (1963). . . -

Todd v. Exxon Corp.,

275 F.3d 191 (2d Cir. 200 1) .. ..

United States v. Am. Express Co.,

838 F.3d 179 (2d Cir. 2016) .....

United States v. Am. Express Co.,

88 F. Supp. 3d 143 (E. D. N. V. 2015).........

United States v. Apple Inc.,

791 F.3d 290 (2d Cir. 2015), cert.

denied, 136 S. Ct. 1376 (2016).................

United States v. Apple Inc.,

952 F. Supp. 2d 638 (S.D.N.Y. 2013),

aff'd 791 F.3d 290 (2d Cir. 2015),

cert. denied, 136 S. Ct. 1376 (2016).........

United States v. Cont’l Can Co.,

378 U.S. 441 (1984). .

United States v. E. I. du Pont de

Nemours & Co.,

$51 U.S. 377 (1958). .. ...... ..... . ..-

vii

TABLE OF AUTHORITIES

(continued)

United States v. Microsoft Corp.,

253 F.3d 34 (D.C. Cir. 2001) 9, 30

United States v. Phila. Nat. Bank,

Rr A 34

United States v. Visa L. S.A.,

344 F.3d 229 (2d Cir. 2003)............... 16, 19, 20, 21

Rules

FD Es RR RT 10, 31

Other Authorities

7 Phillip Areeda, Antitrust Law 4 1511

David S. Evans & Michael Noel,

Defining Antitrust Markets When

Firms Operate Two-Sided Platforms,

2005 Colum. Bus. L. Rev. 667 (2005) 27

Jonathan B. Baker, Vertical Restraints

with Horizontal Consequences:

Competitive Effects of Most-Favored-

Customer Clauses, 64 Antitrust L..

t —— v—AAr 21

Phillip Areeda & Herbert Hovenkamp,

Antitrust Law J 562(e) (Supp. 2017) 23

viii

TABLE OF AUTHORITIES

(continued)

U.S. Dep’t of Justice & Fed. Trade

Comm'n, Horizontal Merger

. a

1

INTEREST OF AMICI CURIAE!

Amici are merchants of varying size who sell

goods or services in diverse industries in all areas of

the country. The thread that binds amici here is a

strong one: each has first-hand knowledge of the

anticompetitive effects of American Express’s “Non-

Discrimination Provisions,” which prohibit

merchants from informing their customers of the

high cost of American Express’s credit cards and of

the availability of less-expensive alternatives. These

provisions are therefore more fairly characterized as

“anti-steering rules” because they substantially

impede point-of-sale competition between American

Express and its rivals.

As customers of American Express’s network

services for general purpose credit and charge cards

(“GPCC”), amici are uniquely situated to assist this

Court in understanding the anticompetitive effects of

American Express’s conduct and the pernicious

impact the anti-steering rules have had on the

business community and consumers. Those effects

were fully supported by the district court's

comprehensive factual findings and are further

borne out by amici’s day-to-day experience in the

marketplace. Amici's interest is in seeing American

Express’s anticompetitive conduct permanently

' Pursuant to this Court's Rule 37.6, amici state that no counsel

representing a party authored this brief in whole or in part,

and no person or entity other than amici or their counsel made

a monetary contribution intended to fund the preparation or

submission of this brief. Pursuant to this Court's Rule 37.3(a),

amici state that counsel of record for Petitioners and

Respondents have consented to the filing of this brief.

2

enjoined, so that the competitive process of the

marketplace—the unencumbered and informed

interaction of merchants, consumers, and other

providers of network services for GPCCs—can be the

arbiter of the price of network services and the value

of rival card networks, not American Express.

SUMMARY OF ARGUMENT

“The antitrust laws,” this Court recently wrote,

“declare a considered and decisive prohibition by the

Federal Government of cartels, price fixing, and

other combinations or practices that undermine the

free market.” N.C. State Bd. of Dental Exam’rs v.

FTC, 135 S. Ct. 1101, 1109 (2015). The anti-steering

rules (““ASRs”) that American Express has imposed

upon its merchants, including amici, have not only

undermined the free market—they have “broken” it.

United States v. Am. Express Co., 88 F. Supp. 3d 143,

210 (E.D.N.Y. 2015) (American Express J). Following

a seven-week bench trial, the district court reached

precisely this conclusion. Based on amici’s

experience as market participants, and the settled

antitrust jurisprudence that the district court

faithfully applied, this conclusion was unassailable:

at the hands of American Express’s ASRs,

competition for GPCC network services has been

virtually abolished.

But the Second Circuit reversed. Drawing

principally on selective economic literature not

previously relied upon by any court, the Second

Circuit determined that the district court erred by

failing to sufficiently account for the fact that

American Express operates its business on a “two-

sided platform.” In reaching this decision, the

Second Circuit strayed from fundamental antitrust

3

principles, ignored binding precedent from this

Court, and failed to appropriately credit the factual

findings of the district court. Amici respectfully

request that this Court effectuate the Sherman Act’s

purpose—to “promote robust competition,” N.C.

State Board of Dental Examiners, 135 S. Ct. at

1109—and reverse this erroneous decision for at

least the following reasons.

Most fundamentally, the Second Circuit

misconstrued the government's’ theory of

anticompetitive effects and disregarded the district

court’s findings concerning those effects. The district

court concluded that the government had proven

multiple actual anticompetitive effects flowing from

the ASRs, including reducing interbrand competition

among network service providers, increasing prices

for both merchants and consumers, and deterring

lower-cost entrants and innovation. The district

court consequently found that merchants and

consumers would be better off without the ASRs

because an unrestrained competitive process would

yield the best results for the marketplace.

The Second Circuit mostly ignored these factual

findings of anticompetitive effects (while never

concluding that they were clearly erroneous).

Instead, the court proposed novel principles for

applying the antitrust laws to business models

involving two-sided platforms. In doing so, it

redirected the focus of its antitrust inquiry away

from the direct and substantial evidence of actual

competitive harm to the relevant market, concluding

that the district court erred by failing to include both

sides of the platform in that market. This approach

was legally unsupported and economically unsound.

4

With undisputed actual anticompetitive effects

already established, the primacy the Second Circuit

afforded the relevant market question was

misguided. The foundation goal of the rule-of-reason

inquiry under Section 1 of the Sherman Act is to

ascertain the impact of a challenged practice on

competition. See Natl Soc’y of Prof Eng’rs v. United

States, 435 U.S. 679, 691 (1978). Anticompetitive

effects can be demonstrated through direct or

circumstantial evidence, and sometimes both. But

as this Court has held, market definition is a

“surrogate” for anticompetitive effects that relies on

potential and prediction, and is not required when

direct evidence of actual effects is present. FTC v.

Ind. Fed’n of Dentists, 476 U.S. 447, 460-61 (1986);

Nat! Collegiate Athletic Ass’n b. Bd. of Regents of

Univ. of Ohkla., 468 U.S. 85, 108-10 (1984)

{hereinafter “NCAA”]. As this Court stated in

Indiana Federation of Dentists, “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.”

476 U.S. at 460. The Second Circuit did not—and

could not—dispute the adverse effects on

competition for GPCC network services caused by

the ASRs. Its shift of focus to market definition,

therefore, was alone reversible error.

The Second Circuit further held that the

government plaintiffs bore the burden of

establishing a net harm to all Amex consumers on

both sides of the platform.” United States v. Am.

Express Co., 838 F.3d 179, 205 (2d Cir. 2016)

(American Express Il). Even if the market was

broadly defined to include both “sides” of the

American Express platform—an unprecedented

5

approach to relevant market definition that amici

oppose—the district court’s findings of

anticompetitive effects still support its conclusion

that the ASRs unreasonably restrained competition.

In other words, the direct evidence and

circumstantial evidence were consistent and aligned,

and both pointed in the direction of substantial harm

to competition. This was true even if the correct

measure was “net” harm to competition because of

the district court’s specific finding that all consumers

were harmed in addition to all merchants, and that

the harm to the merchants and their consumers was

far in excess of any benefits realized by American

Express’s cardholders. The Second Circuit’s intense

focus on the American Express platform—as opposed

to all merchants, all consumers, and the competitive

process more generally—fails to appreciate the

government's argument and the court’s finding that

the focal point of the harm here was to horizontal,

interbrand competition. As this Court has

repeatedly held, the protection of such competition is

the paramount aim of the antitrust laws. The

Second Circuit’s decision, which would countenance

the elimination of interbrand competition for

network services, is inimical to that objective.

Just as troubling, the ASRs’ restriction on the

dissemination of truthful information further

disrupts the competitive process by rendering it

unresponsive to consumer preference. The Sherman

Act—a consumer welfare prescription“ - cannot

have contemplated such a result. NCAA, 468 U.S. at

107 (citation omitted).

The Second Circuit’s approach to redefining the

relevant market was equally flawed. Ignoring the

intensely factual nature of the relevant market

6

inquiry and the settled legal principles that guide

this factual determination, the Second Circuit

concluded that the relevant market in this case must

include both sides of the American Express platform.

A relevant product market includes reasonably

interchangeable products in terms of price, use, and

quality. Amici—merchants—are consumers of

American Express and its competitors’ network

services. Amici cannot substitute cardholder

products and services for network services, and

therefore, cardholder products and services cannot

serve as a competitive constraint on network

services—even if the two are complementary and

interdependent. These products are therefore not in

the same relevant market. The Second Circuit's

decision to the contrary ignores these commercial

realities and the district court’s factual findings in

favor of an abstract economic theory that is

inconsistent with well-established principles of

market definition that are used under Sections I and

2 of the Sherman Act, as well as Section 7 of the

Clayton Act.

In its effects analysis flowing from the

improperly redefined relevant market, the Second

Circuit also recognized a defense long precluded by

this Court’s precedent. In arguing that the ASRs are

needed to promote competition, American Expr

has effectively admitted both that it exercis

market power on the merchant side of the platform

and that its credit and charge cards cannot compete

without the ASRs. The Second Circuit also

recognizes as much, stating, “[t]he relief sought by

the government in this case [enjoining the ASRs|

could even increase market concentration by

reducing Amex’s share to Visa’s and MasterCard’s

7

benefit. American Express II. 838 F.3d at 204 n.51.

But the antitrust laws are not intended to protect

competitors or shield noncompetitive products from

free-market competitio.., they are intended to protect

that competition and accept its results. And in

exonerating the ASRs, the Second Circuit placed the

interests of a single firm and its preferred (and

admittedly noncompetitive) business model above

the competitive process. The district court correctly

rejected this invitation; the Second Circuit did not.

The decision of the Second Circuit should be

reversed.

ARGUMENT

I. THE SECOND CIRCUIT MISCONSTRUED

THE GOVERNMENT’S THEORY OF

ANTICOMPETITIVE EFFECTS AND

ERRONEOUSLY FAILED TO CREDIT

SUBSTANTIAL EVIDENCE OF THOSE

EFFECTS.

While the Second Circuit’s analysis centered

largely on relevant market definition, amici wish to

highlight the primacy of competitive effect. As this

Court has observed in the context of Section 1,

market analysis is secondary to the ultimate focus of

any Sherman Act inquiry: whether there are

adverse effects on competition. In the trial court, the

government proved that the ASRs had actual

anticompetitive effects: by preventing merchants

from informing consumers of the true cost of using

an American Express card, the ASRs extinguished

any incentive on the part of network service

providers to compete on price; diminished

competition; discouraged entry and innovation; and

facilitated horize tal anticompetitive effects. This

8

showing was sufficient to satisfy the government's

burden. In redirecting the inquiry to the market

analysis, the Second Circuit failed to adhere to this

legal principle, misconstrued the government's

posited theory of harm, and failed to properly credit

the well-supported findings of the district court. As

consumers of the network services affected by

American Express’s ASRs, amici are well-positioned

to discuss the actual competitive harms established

by the government.

A. The district court’s findings that the

government established actual

anticompetitive effects were fully

supported by the record evidence and

are consistent with the real-world

experience of amici.

Anticompetitive effects may be shown directly or

indirectly. As the district court correctly observed,

to prove anticompetitive effects directly, the plaintiff

must show “actual, sustained adverse effects on

competition.” American Express I, 88 F. Supp. 3d at

208 (quoting Ind. Fed n of Dentists, 476 U.S. at 460-

61). Alternatively, the plaintiff may prove harm to

competition indirectly through circumstantial

evidence showing market power in a relevant

market and the anticompetitive nature of the

restraint. See id. As this Court has previously

observed, “[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, such as a reduction in

output,’ can obviate the need for an inquiry into

market power, which is but a_ surrogate for

detrimental effects.” Ind. Fed’n of Dentists, 476 U.S.

9

at 460-61 (quoting 7 Phillip Areeda, Antitrust Law “

1511 at 429 (1986)). Following this Court's

instruction, several circuit courts are in accord. E. g.,

Todd v. Exxon Corp., 275 F.3d 191, 206-07 (2d Cir.

2001) (Sotomayor, J.) (explaining that a plaintiff

may avoid a “detailed market analysis” by offering

proof of actual detrimental effects (citation omitted));

Christy Sports, LLC v. Deer Valley Resort Co., Ltd.,

555 F.3d 1188, 1198 (10th Cir. 2009) (noting in the

Section 1 context that “allegation of actual

anticompetitive effects obviates any need to allege a

relevant market”). The principle has also been

applied in the context of monopolization claims

asserted under Section 2. See, e.g., Re/Max Inti,

Inc. v. Realty One, Inc., 173 F.3d 995, 1016 (6th Cir.

1999) (“We find that although the plaintiffs failed to

define the relevant market with precision and

therefore failed to establish the defendants’

monopoly power through circumstantial evidence,

there does exist a genuine issue of material fact as to

whether the plaintiffs’ evidence shows direct

evidence of monopoly, that is, actual control over

prices or actual exclusion of competitors.”); United

States v. Microsoft Corp., 253 F.3d 34, 51 (D.C. Cir.

2001) (“More precisely, a firm is a monopolist if it

can profitably raise prices substantially above the

competitive level. Where evidence indicates that a

firm has in fact profitably done so, the existence of

monopoly power is clear.” (citations omitted)).

The upshot of these decisions is that the primary

function of the relevant market inquiry is to serve as

a step in the chain of indirectly demonstrating

injurious effects to competition. It is less important

where, as here, the plaintiff produces direct evidence

of actual anticompetitive harm. And it surely should

10

not take precedence to the point of substituting for

evidence of actual competitive harm.

In its detailed factual findings, the district court

found that the government proved actual

detrimental effects on competition among the four

credit and charge card networks—American

Express, Visa, MasterCard, and Discover. See

American Express I, 88 F. Supp. 3d at 207-24. Many

of these key factual findings were largely

uncontested by the Second Circuit, and in the

Second Circuit’s decision, not a single factual finding

was deemed “clearly erroneous.” Fed. R. Civ. P.

52(a)(6). The unchallenged anticompetitive effects

proven by the go. ernment include the following:

1. The Second Circuit never questioned the

district courts finding that the challenged

restraints impede a critical form of horizontal,

interbrand competition.” American Express I, 88 F.

Supp. 3d at 212. The district court found that by

restricting merchants’ ability to steer customers to

lower-priced networks, the ASRs disrupted the

normal price-setting mechanisms in the

marketplace. Id. at 209. Because steering is a

lynchpin to inter- network competition on the basis of

price,” the ASRs prevent American Express's

competitors from “increas{ing] sales or gainſing!

market share by offering merchants a more

attractive price than [their] competitors.” Id. 210.

Trial testimony established that “[o]nce you have

acceptance at th{e] merchant, lowering your price

does not drive incremental sales.” Id. In other

words, “Amex’s [ASRs] deny its competitors the

ability to recognize a ‘competitive reward’ for

offering merchants lower swipe fees, and thereby

11

suppress an important avenue of horizontal

interbrand competition.” Id.

The district court further noted that American

Express’s pricing strategy confirmed the harm to

interbrand competition. At trial, American Express

acknowledged the absence of price competition for

merchant pricing in the network services market,

and in setting prices American Express does not

account for any downward pressure from the swipe

fees its competitors charge. Id. Instead,

Amex uses Visa’s and MasterCard’s

rates as a floor when evaluating its own

discount rate in various industries

[and] similarly felt no pressure to lower

their own prices or otherwise respond to

Discover's efforts in the late 1990s to

build its share in the network services

market by offering merchants prices

well below those charged by its

competitors.

Id. American Express officials testified that it was

not “anybody's business strategy II to be cheaper

than the next guy,” and that “[wje should not

compete on costs with” Visa and MasterCard. Id.

This evidence demonstrated that “American Express

itself recognizes the absence of competition on the

basis of merchant pricing in the network services

market.” Id.

Nowhere does the Second Circuit identify error

in the district court’s findings regarding American

Express’s pricing strategy and its stated view that

competition on pricing of network services to

merchants was non-existent. Nor did the Second

Circuit find any error in the description of the

12

horizontal, interbrand harm in the network services

market that was attributable to the ASRs.

2. The Second Circuit similarly did not question

the evidence supporting the government's theory

that the ASRs allowed all four networks to more

easily (and profitably) raise their merchant discount

fees, resulting in industry-wide higher prices to

merchants. Id. at 215-16. This was because the

ASRs prevented merchants from steering customers

to lower-cost networks and transactions—something

merchants would have done absent the restrictive

provisions.” Id. at 215. The district court found that

without affording merchants the ability to steer,

American Express and its competitors’ incentives to

price compete on merchant fees was dampened. Id.

at 224. Prices rose accordingly and continually over

time. For instance, American Express was able to

raise merchant discount rates repeatedly and

profitably pursuant to its “Value Recapture” strategy

while never losing a large merchant and losing only

a few small merchants. Id. at 195, 215. Visa and

MasterCard were also able to increase merchant fees

by more than 20% from 1997 to 2009. And after the

ASRs rendered its low-price strategy futile, Discover

was able to “radically” increase its prices over a

relatively short period of time to “match the rates set

by its competitors.” Id. at 216. These price

increases were accomplished “with virtual impunity,

relying on the restraining effect of the anti-steering

rules.“ Id. These findings—none of which were

2 For example, trial testimony revealed that four major

commercial airlines sought to modify or eliminate the ASRs to

no avail. Id. at 219-21.

13

found to be clearly erroneous—established the

undisputed price-raising and price-stabilizing effects

of the ASRs.

The district court also found that consumers

bore the brunt of these price increases. Obligated to

pay higher per-transaction costs, merchants began

increasing the prices of goods, thereby sharing the

ASRs’ economically-detrimental effects with

consumers. Id. (Merchants facing increased credit

card acceptance costs will pass most, if not all, of

their additional costs along to their customers in the

form of higher retail prices.“). The effect on

consumers is especially profound for non-American

Express cardholders, who could not have benefited

from any alleged benefits“ created by American

Express's cardholder reward programs:

Even if American Express passed

through every cent of its premium or

the incremental revenue realized from

its Value Recapture price increases to

cardholders—which it does not—

customers who do not carry or qualify

for an Amex card are nonetheless

subject to higher retail prices at the

merchant, but do not receive any of the

premium rewards or other benefits

conferred by American Express on the

cardholder side of its platform.

Id. American Express cardholders also paid these

higher prices, as the American Express rewards

programs did not mitigate the costs imposed on

merchants and passed on through price increases.

See id. (citing testimony establishing “that American

14

Express spends less than half of the discount fees it

collects from merchants on cardholder rewards’).

The Second Circuit mostly ignored the finding

that merchants and consumers paid higher prices,

asserting in a footnote (with no analysis or record

support) that the district court erred by failing to

account for offsetting rewards benefits. American

Express II, 838 F.3d at 204 n.52. But as the passage

above demonstrates, the district court did account

for offsetting rewards—indeed, it even assumed that

American Express cardholders received greater

benefits than they in fact did. Nonetheless, the

district court still found that the harm far exceeded

any offsetting benefits to American Express

cardholders. The Second Circuit ignored the plain

import of the district court’s finding—that is, any

realized transfer of the higher merchant fees to

American Express’s rewards customers never could

have fully eliminated the anticompetitive effects.

This is because all consumers suffered from these

effects in the form of higher prices, and only

American Express’s rewards customers had even the

possibility of sharing in American Express’s excess

profits. The Second Circuit’s rejection of this finding

was therefore unsupportable.

3. Nor did the Second Circuit find error with the

district court's finding that the ASRs blocked

innovative, low-cost business models. Informed by

the experience of Discover—the most recent entrant

of the four major GPCC network providers—the

district court found that the ASRs undermined low-

cost business models that were used by Discover

(and could be used by other new market entrants).

Entering the network services market in 1985,

“Discover saw an opportunity to leverage its position

15

as the lowest-priced network to gain share.“

American Express I, 88 F. Supp. 3d at 213. The

company engaged in a “very aggressive[]” pricing

strategy, with “all-in discount rates significantly

below those of its competitors.” Id.

But industry ASRs_ proved to be an

insurmountable hurdle to capturing market share.

The district court found that because of the ASRs,

Discover's efforts failed to produce [jany

significant movement” in market share. Id. at 213-

14. The ASRs “denied merchants the ability to

express a preference for Discover [to their

customers] or to employ any other tool by which they

might steer share to Discovers lower priced

network.” Jd. at 214.

Unable to compete on price, Discover eventually

raised its prices for network services—nearly 24%—

to levels similar to those charged by American

Express, Visa, and MasterCard. Id. The district

court described this increase as the result of

Discover “[rjecognizing that its lower prices would

not drive incremental volume to its network in a

market subject to limitations on merchant steering.”

Id. As one Discover witness testified, because of the

ASRs, lower price did not drive incremental sales, so

“offering a lower price . was leaving money on the

table,” and providing merchants a “discount without

getting anything in return didn’t make any business

sense.” Jd. With interbrand price competition for

network services eliminated, Discover's incentive to

offer lower prices was squelched, and it was forced to

abandon its low-cost model and instead adopt “prices

... Similar to those offered by Visa and MasterCard”

as well as “the more complicated ‘unbundled’ pricing

model used by those networks.” Id. These findings

16

again underscore the soundness of the government’s

theory as to how the ASRs resulted in horizontal

price stabilization, a theory that was entirely

supported by the record.

The district court concluded that Discover's

change in business strategy—along with all

developments leading it—was “emblematic of the

harm done to the competitive process by Amex’s

rules against merchant steering.” Jd. The Second

Circuit neither identified any error in these findings

nor disputed the reality of how ASRs prevented

Discover from implementing its lower-price strategy.

In fact, the Second Circuit was silent on most of

these facts. The Second Circuit’s sole comment on

these findings was related to its departure from its

earlier decision in United States v. Visa U.S.A., 344

F.3d 229 (2d Cir. 2003), and its insistence that the

two-sided platform required consideration of more

than just the effect on the merchants. But the

Second Circuit never disputed the detrimental effect

on merchants and their consumers in the form of

higher prices, and on both entry and innovation.

4. Given the conclusion that ASRs harm both

merchants and consumers in the manner described

above, it is hardly surprising the district court found

that removing the provisions would benefit both

merchants and consumers. See id. at 218-24.

Without the ASRs, network providers could

engage in a wide variety of price and non-price

competition at the merchant level. Merchants would

be able to “direct a greater share of their charge

volume to lower-cost credit or charge card networks,

whether by offering discounts to customers for using

such cards, posting the relative costs of different

17

modes of payment, or engaging in another form of

point-of-sale steering.” Id. at 219. Such competition

would help restore “downward competitive pressure

on merchant prices . result[ing] in lower swipe

fees charged to merchants.” /d.

The district court also found that removing the

ASRs would provide consumers with multiple

benefits. Lower merchant fees—as a result of

downward pressure—would, in turn, lower prices

paid by consumers for goods and services across the

board. Id. at 221 (“In the longer term, the court

expects that merchants will pass along some amount

of the savings associated with declining swipe fees to

their customers in the form of lower retail prices.”).

Consumers may also benefit from the immediate

impact of steering. For example, merchants could

offer point-of-sale discounts, free shipping for

transactions, or free lodging in return for using the

merchant's preferred credit card. Id. at 220. And

without the ASRs, cardholders could be more

informed about the costs of using one payment

network instead of another. Aware of the “true cost”

of their payment method, cardholders could then

weigh whether the issuer’s benefits to the cardholder

(e.g., American Express cardholder rewards) wlere

of greater value than the discount, in-kind perk, or

other benefit offered by the merchant.” Id. at 220.

The customer who values American Express's

rewards may choose to forgo a point-of-sale discount

of what the cardholder perceives as a lesser value.

Another cardholder may find the free shipping to be

a greater value than American Express’s rewards for

that particular transaction. This dynamic would, in

turn, jump start competition among card issuers—

they could increase the value of their cardholder

18

rewards or, to facilitate greater point-of-sale

discounts or perks, decrease merchant fees in an

effort to match or exceed the benefits that competing

issuers provide. See id. at 213 (“Discover

representatives also met with a number of larger

merchants to offer discounts from the network’s

already lower prices if they would steer customers to

Discover.”). Different structures may appeal to

different consumers. But the ASRs inhibit the

ability of merchants, card issuers, and networks to

compete on any terms other than those American

Express prefers.

The Second Circuit did not hold that any of the

above factual findings was clearly erroneous,

concluding instead as a legal matter that “[t}he

District Court’s erroneous market definition caused

its anticompetitive effects finding to come up short,

for it failed to consider the two-sided net price

accounting for the effects of the NDPs on both

merchants and cardholders.” American Express II.

838 F.3d at 204. But in the face of compelling

evidence of substantial anticompetitive effects, the

Second Circuit strayed from the ultimate purpose of

the analysis of any Sherman Act claim—determining

anticompetitive harm. By instead reverting to, and

placing such a heavy, outcome-determinative focus

on, market definition as opposed to the effects

analysis, the Second Circuit ignored the well-

established and long-standing precedents of this

Court and others, committing reversible error.

19

B. The Second Circuit failed to appreciate

the horizontal, interbrand character of

the anticompetitive effects of the

restraint.

In attempting to distinguish the Second Circuit's

prior—and correct—decision regarding the relevant

market in Visa, the Second Circuit demonstrated its

fundamental misunderstanding of the nature of the

competitive harm established in this case. More

specifically, the Second Circuit attempted to

distinguish the relevant market analysis in Visa on

the basis that the restraints there were horizontal,

while the restraints here are vertical. American

Express II, 838 F.3d at 197-98. In making this

distinction, the court failed to recognize the relation

between the vertical conduct at issue (the ASRs) and

the horizontal harm (elimination of competition

among the four networks for network services). The

Second Circuit wrote, ſulnlike the contested conduct

in this case, the contested conduct in Visa occurred

not among different sides of the same network

platform, but rather between the platforms

themselves” and that “the Visa panel conducted a

rule-of-reason analysis to determine whether

horizontal restraints were inhibiting competition on

one particular level of competition contained within

a two-sided platform.” Id. at 198.

But as this Court has noted, regardless of the

form the restraint may take, “all anticompetitive

effects are by definition horizontal effects.” Bus.

Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 730

n.4 (1988); see also Leegin Creative Leather Prods.,

Inc. v. PSKS, Inc., 551 U.S. 877, 892-94 (2007)

(noting that vertical restraints may be used to

facilitate a cartel or exclude rivals and new

20

entrants—both horizontal harms). And, as discussed

above, that is precisely what the district court found

here: that the ASRs “suppress [American Express’s]

network competitors’ incentive to offer lower prices .

vitiating an important source of downward

pressure on Defendants’ merchant pricing, and

resulting in higher profit-maximizing prices across

the network services market.” American Express I,

88 F. Supp. 3d at 209. In other words, the ASRs

thwarted horizontal competition among the

networks—just as in Visa—notwithstanding that the

ASRs can be characterized as “vertical” conduct.

Consequently, the particular nature of the restraint

in Visa is of no moment to the effects analysis here—

the horizontal, interbrand nature of the harm is the

same.

In disregarding the trial court’s findings, the

Second Circuit also did not sufficiently heed this

Court’s instruction that the primary purpose of the

antitrust laws is to protect and promote interbrand

competition. This Court has recently reaffirmed that

“It}]he promotion of interbrand competition is

important because ‘the primary purpose of the

antitrust laws is to protect [this type of]

competition.” Leegin, 551 U.S. at 890 (quoting State

Oil Co. v. Khan, 522 U.S. 3, 15 (1997)). The district

court plainly found that the ASRs_ harmed

interbrand competition, American Express I, 88 F.

Supp. 3d at 208-12, yet the Second Circuit wholly

failed to grapple with this critical finding, focusing

instead on the two sides of the American Express

platform alone. The Second Circuit wrote, “[b]ecause

the NDPs affect competition for cardholders as well

as merchants, the Plaintiffs’ initial burden was to

show that the NDPs made all Amex consumers on

21

both sides of the platform—i.e., both merchants and

cardholders—worse off overall.” American Express

II. 838 F.3d at 205 (second emphasis added). In so

holding, the Second Circuit misconstrued the true

harm of the ASRs: the reduction—or eradication—of

horizontal, interbrand competition among the

networks. And, as discussed, this reduction in

interbrand competition resulted in prices to

merchants being raised and stabilized industrywide,

a cartel-like result similar to that challenged in Visa.

See also United States v. Apple Inc., 791 F.3d 290,

320 (2d Cir. 2015), cert. denied, 136 S. Ct. 1376

(2016) (noting that vertical “most favored nation”

clauses, while proper in many contexts, can

“facilitate anticompetitive horizontal coordination”

(quoting Jonathan B. Baker, Vertical Restraints with

Horizontal Consequences: Competitive Effects of

Most-Favored-Customer Clauses, 64 Antitrust L..

517, 520-21 (1996))).

None of this is inconsistent with the line of cases

cited by the Second Circuit stating that a plaintiff

must establish an adverse effect on competition “as a

whole” in the relevant market, which the Second

Circuit misinterpreted as requiring evidence of

adverse effects on both sides of a two-sided platform.

E.g., American Express II, 838 F.3d at 194, 204. The

Second Circuit misread these cases, which have

nothing to do with two-sided platforms and merely

state that antitrust plaintiffs must demonstrate

harm to competition as opposed to harm just to

competitors. E.g., K.M.B. Warehouse Distribs., Inc.

v. Walker Mfg. Co., 61 F.3d 123, 127 (2d Cir. 1995)

(“The district court in this case concluded that KMB

failed to meet its initial burden of showing ‘an actual

adverse effect on competition as a whole in the

22

relevant market.’ In order to fulfill this

requirement, the plaintiff must show more than just

that he was harmed by defendants’ conduct.”). This

is simply a restatement of this Court’s axiom that

“(t]he antitrust laws . were enacted for ‘the

protection of competition not competitors.”

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429

U.S. 477, 488 (1977). The district court's finding of

harm to interbrand competition, rather than to any

particular competitor, is in complete harmony with

these cases.

But in any event, the Second Circuit’s decision

misreads and misapplies the rule articulated in

K.M.B. because it focused exclusively on American

Express cardholders and merchants that accept

American Express, rather than the market “as a

whole”—that is, all merchants and all consumers.

The decision concludes, “Plaintiffs bore the burden in

this case to prove net harm to Amex consumers as a

whole. American Express II. 838 F.3d at 206

(emphasis added). Again, the Second Circuit

overlooked the higher prices to all merchants and al.

consumers resulting from lack of competition in the

network services market due to the ASRs. American

Express I, 88 F. Supp. 3d at 218 (“Plaintiffs have

proven . [that removing the NDPs] will inure to

the benefit of both merchants and customers alike.”).

In short, the district court found that competition “as

a whole,” as opposed to just American Express

customers, was injured.

23

C. Restricting the ability of merchants to

steer by sharing truthful information

about costs disrupts the competitive

process and renders the market

unresponsive to consumer demand.

One of the key findings of the district court was

that the ASRs harmed interbrand competition

through “disrupt[ing] the normal price-setting

mechanism by reinforcing an asymmetry of

information between the two sides of the payment

card platform.” Id. at 209. Other than summarizing

the ASRs in the very first paragraph of the decision,

American Express II. 838 F.3d at 184, the Second

Circuit fails to mention this fact again throughout its

decision. As Professor Hovenkamp correctly

remarks, American Express's interdiction on

allowing merchants to provide truthful information

to consumers prevents competition—as opposed to

American Express—frem “choos[ing] the optimal mix

of revenue between the two sides” of American

Express’s business. Phillip Areeda & Herbert

Hovenkamp, Antitrust Law © 562(e) (Supp. 2017).

As the precedent of this Court and others dictate,

this result is antithetical to the purposes of the

antitrust laws.

In Professional Engineers, this Court found

unlawful an agreement among competitors not to

discuss prices with potential customers until after

negotiations had resulted in the initial selection of

an engineer. 435 U.S. at 692. The basis for this

conclusion was that the restraint impeded “the

ordinary give and take of the marketplace,’ and

substartially depriv[ed] the customer of ‘the ability

to utilize and compare prices in selecting

engineering services.” Id. at 692-93 (citation

24

omitted). Likewise, in ZJndiana Federation of

Dentists, this Court wrote that an “effort to withhold

(or make more costly) information desired by

consumers for the purpose of determining whether a

particular purchase is cost justified is likely enough

to disrupt the proper functioning of the price-setting

mechanism of the market.” 476 U.S. at 461-62. So,

too, did the Sixth Circuit find unlawful a policy that

“prohibited information about exclusive agency and

other nontraditional listings from being

distributed to public real-estate advertising

websites.” Realcomp Il, Ltd. v. FTC, 635 F.3d 815,

819 (6th Cir. 2011). There, the court found that the

restrictions on the dissemination of truthful

information about lower-priced and innovative

competitive alternatives available to consumers

“hinder[ed] the competitive process.” Jd. at 829. In

all of these cases, the courts recognized that

depriving consumers of commercially valuable

information fractures the price-setting mechanism

that would prevail in a competitive marketplace. (C/

Expressions Hair Design v. Schneiderman, 137 S. Ct.

1144 (2017) (concluding that New York’s no-

surcharge law regulated commercial speech, and

remanding to the Second Circuit for consideration of

whether this violated the First Amendment). The

same is true here.

From an antitrust perspective, the problem of

interfering with price-setting mechanisms is clear

because such interference renders markets

unresponsive to consumer preferences. This Court

has concluded that where the “price structure... is

unresponsive to [consumer] demand and unrelated

to the prices that would prevail in a competitive

market,” the “anticompetitive consequences of [the]

25

arrangement are apparent.” NCAA, 468 U.S. at 106-

07. Indeed, the First Circuit has gone so far as to

say “that overall consumer preferences in setting

output and prices is more important than higher

prices and lower output, per se, in determining

whether there has been an injury to competition.”

Sullivan v. Natl Football League, 34 F.3d 1091, 1101

(Ist Cir. 1994).

The impact on consumer preferences here—on

both sides of the platform—is similarly apparent.

On the merchant side, merchants cannot “inject

price competition into the network services industry

by encouraging their customers to use their lowest

cost supplier, as they can in other aspects of their

businesses.” American Express I, 88 F. Supp. 3d at

210. On the consumer side, the interference may be

even more substantial because American Express

cardholders and all other consumers—cardholders

and cash payers alike—may not be provided with

any information about the true costs of their chosen

payment methods and are therefore unable to make

informed decisions. This is a direct intrusion on the

allocative efficiency that free-market competition is

intended to enable. Were the ASRs eliminated, all

consumers could knowledgeably weigh the benefits

of American Express’s cardholder rewards against

steering inducements offered by merchants to use

lower-cost methods of payment. See id. at 220. This

is the way the competitive process is supposed to

function, but because of the ASRs, that aim has been

thwarted.

Rather than allowing the competitive process to

play out, American Express and the Second Circuit

have substituted their views about the value of a

specific business model for that of unfettered

26

competition. And this business model relies on the

exercise of market power on the merchant side of the

platform to extract the resources needed to subsidize

what appears to be an otherwise noncompetitive

credit or charge card to consumers on the other side

of the platform—in dereliction of well-accepted

antitrust analysis. As discussed in more detail

below in Part III, this argument amounts to an

impermissible defense that American Express's

products could not withstand the process of

competition absent competitive restraint. See Prof!

Engineers, 435 U.S. at 696.

Il. THE SECOND CIRCUIT’S

UNPRECEDENTED TREATMENT OF

THE RELEVANT MARKET ANALYSIS

FORSAKES CORE ANTITRUST

PRINCIPLES.

While amici do not wish to repeat at length

arguments made by Petitioners, the United States,

and other amici who have addressed in detail the

Second Circuit's glaring error in addressing the issue

of relevant product market definition, amici do

strongly support the assertion that the Second

Circuit’s treatment of that question was erroneous.

The Second Circuit's entire opinion hinges on the

flawed premise that the two sides of the American

Express platform—that is, American Express's

chosen business model—must be collapsed into a

single relevant market. Specifically, the Second

Circuit concluded that the district court erred

because it “expressly declined ‘to define the relevant

product market to encompass the entire multi-sided

platform.” Ameri:2n Express II, 838 F.3d at 200

(quoting American «press I, 88 F. Supp. 3d at 174).

The basis for this opinion is that “the price charged

27

to merchants necessarily affects cardholder demand,

which in turn has a feedback effect on merchant

demand (and thus influences the price charged to

merchants).” Id. This conclusion disregards the

district court’s careful factual findings without

determining them to be clearly erroneous and

departs from economically sound and settled legal

principles governing relevant market definition. It

also demonstrates the Second Circuit’s lack of

appreciation for the interdependence of evidence of

actual competitive harm and market definition. In

showing that merchants had no alternative but to

pay higher network service prices, the evidence of

harm supported the district courts market

definition.

To begin, the term “relevant market” is not an

economic term; rather, it is a term of art with a legal

definition. Even two of the economists upon whom

the Second Circuit heavily relied acknowledge this:

“We try to avoid the term ‘two-sided market’ because

the word ‘market’ is a term of art for competition

policy.” David S. Evans & Michael Noel, Defining

Antitrust Markets When Firms Operate Two-Sided

Platforms, 2005 Colum. Bus. L. Rev. 667, 672 (2005).

A relevant market contains both a product and a

geographic dimension, but only the former is at issue

here. “The outer boundaries of a product market are

determined by the reasonable interchangeability of

use or the cross-elasticity of demand between the

product itself and substitutes for it.” Brown Shoe

Co. v. United States, 370 U.S. 294, 325 (1962). For

purposes of antitrust law, product interchangeability

is confined to reasonable substitutes in terms of

price, use, and quality. United States v. E. I. du Pont

de Nemours & Co., 351 U.S. 377, 404 (1956).

28

“Interchangeability of use and cross-elasticity of

demand are not to be used to obscure competition

but to ‘recognize competition where, in fact,

competition exists.” United States v. Cont’l Can Co.,

378 U.S. 441, 452 (1964) (quoting Brown Shoe, 370

U.S. at 326).

The Second Circuit's approach also confirms its

lack of appreciation for the purpose of market

definition in antitrust analysis and its relationship

to proving anticompetitive effects. Defining a

relevant market and assessing market power can

provide a basis for inferring anticompetitive effects.

The inquiry thus focuses on the substitutes available

to consumers to determine whether they will have

alternatives in the event of a price increase. IIB

Areeda & Hovenkamp, supra, {565b n.8 (4th ed.

2013) Epe relevant question [for purposes of

defining a relevant market] is . . whether the

competition in one product effectively constrains

prices of the other product to the competitive level.”).

The court erred when it relied on literature intended

to describe the features of the two-sided platform as

a business model, and veered from these principles,

which guide antitrust market definition.

Defining the boundaries of a relevant market

often is an intensely factual inquiry, and has long

been held as such. Nearly 60 years ago, the Court

observed that “Congress prescribed a pragmatic,

factual approach to the definition of the relevant

market and not a formal, legalistic one.” Brown

Shoe, 370 U.S. at 336. More recently, the Court

again affirmed that “[t]he proper market definition

can be determined only after a factual inquiry

into the ‘commercial realities’ faced by consumers.”

Eastman Kodak Co. v. Image Tech. Servs., Inc, 504

29

U.S. 451, 482 (1992) (citation omitted); accord Todd,

275 F.3d at 199 (“[MJarket definition is a deeply fact-

intensive inquiry[.]”). The Second Circuit itself

recognized this. American Express II. 838 F.3d at

196-97. Yet, the Second Circuit nevertheless chose

to displace the factual finding of the district court

that GPCC network services constituted a relevant

market with its own conclusion that there is a single,

“two-sided” relevant market. Again, this conclusion

finds support in neither the factual record nor

antitrust law.

The district court carefully examined the proper

relevant market and concluded that the p duct

market was GPCC network services. American

Express I, 88 F. Supp. 3d at 170. Considering the

facts and guiding legal principles, the district court

rejected American Express’s argument that the

market should be defined as “transactions,” finding

that the government had “appropriately accounted

for the two-sided features and competitive realities

that affect the four major firms operating in the

GPCC card network services market and that a

practical and nuanced application of the standard

tools for defining product markets establishes that

Plaintiffs’ proposed definition is an appropriate

underpinning for the court’s analysis in this case.”

Id. at 171. Notably, American Express’s own

executive’s testimony established that American

Express views itself as competing in three separate

businesses: as an issuing bank, as a merchant

acquirer, and as a network. /d. at 173.

The services provided to cardholders by the card

issuers (American Express, Discover, and the other

card-issuing institutions) are not an interchangeable

product with the GPCC network services (provided

30

by American Express, Visa, MasterCard, and

Discover) of which amici are consumers. More

specifically, in the GPCC network services market,

Visa, MasterCard, American Express, and Discover

sell network services that facilitate and process

payment to merchants, who pay a fee to the network

services provider that in turn facilitates the

customer's purchase with a card. American Express

I, 88 F. Supp. 3d at 150. In the card issuance

market, on the other hand, American Express,

Discover, and thousands of Visa- and MasterCard-

issuing banks compete to acquire new cardholders by

offering co-branded deals, signing corporate card

clients, and offering rewards and other benefits that

are intended to get consumers to spend on a specific

card. Id. at 229.

“Products will be considered to be reasonably

interchangeable if consumers treat wem as

‘acceptable substitutes.” PepsiCo., / .c. v. Coca-Cola

Co., 315 F.3d 101, 105 (2d Cir. 2002); see also

Microsoft, 253 F.3d at 52 (“[T]he relevant market

must include all products ‘reasonably

interchangeable by consumers for the same

purposes.” (citation omitted)). Amici—a group of

diverse merchants—cannot substitute GPCCs issued

to cardholders for network services. And amici

cannot use cardholder services as bargaining

leverage or as a competitive constraint on the price

of network services Simply put, network services

and cardholder services are not substitutes in terms

of price, use, or quality; they are separate products,

with completely different purposes and consumers.

Cardholder services therefore do not represent a

constraint on the ability of network services

31

providers to raise price, as the record here amply

demonstrated.

These factual findings should have been

reviewed unde: the clearly erroneous standard. See

Fed. R. Civ. P. 52(a)(6). They were not. Yet, the

Second Circuit concluded as a legal matter that the

district court “erred in excluding the market for

cardholders from its relevant market definition.”

American Express II, 838 F.3d at 197. But the

Second Circuit’s conclusion that the “market for

cardholders” was improperly excluded from the

relevant product market was neither made with any

reference to the record evidence nor tethered to the

established test for defining a relevant product

market: product interchangeability based on price,

use, and quality. du Pont, 351 U.S. at 404.

Further, a special legal rule is not required for

American Express’s business model—a “two-sided

platform”—or any other business model that aims to

generate revenue from different sets of consumers.

As this Court has held, “[t]he ‘market’ which one

must study to determine when a producer has

monopoly power will vary with the part of commerce

under consideration. The tests are constant. That

market is composed of products that have reasonable

interchangeability for the purposes for which they

are produced—price, use, and qualities considered.”

du Pont, 351 U.S. at 404 (emphasis added). Indeed,

when confronted with a two-sided business model in

the past, this Court did not depart from ordinary

rules of relevant market definition. Times-Picayune

Pub. Co. v. United States, 345 U.S. 594, 610 (1953).

Yet, without citing or distinguishing Times-

Picayune, the Second Circuit completely abandoned

these considerations and adopted a new test for

32

firms that elect to conduct their business on a multi-

sided platform. This was error.

The district court correctly concluded that

American Express’s decision to compete in multiple

businesses should not guide the analysis and that

the relevant market can be determined only after a

factual inquiry into the commercial realities faced by

consumers. As amici well know, that reality does

not include using cardholder services as a substitute

for network services.

III. IMPAIRING THE COMPETITIVE

PROCESS TO AID AN OTHERWISE

UNCOMPETITIVE FIRM IS NOT A

COGNIZABLE PROCOMPETITIVE

JUSTIFICATION.

The government convincingly established at trial

that the ASRs were anticompetitive. This fulfilled

the government's burden of establishing its claim

and shifted the burden to American Express to

justify its use of the ASRs. Geneva Pharm. Tech.

Corp. v. Barr Labs. Inc., 386 F.3d 485, 507 (2d Cir.

2004) (“If the plaintiffs satisfy their initial burden,

the burden shifts to the defendants to offer evidence

of the pro-competitive effects of their agreement.“)

see also Ind. Fed’n of Dentists, 476 U.S. at 459

(“Absent some countervailing procompetitive virtue

an agreement limiting consumer choice by

impeding the ‘ordinary give and take of the market

place’ . cannot be sustained under the Rule of

Reason.” (citations omitted)). American Express did

not do so, and the district court was correct in

rejecting the proffered justifications for the ASRs.

Similarly, although it was not framed as a

“procompetitive justification” in the decision, the

33

Second Circuit mistakenly endorsed a principle that

has been consistently rejected by the courts: a

benefit to one group of consumers (cardholders)

cannot justify harm to another (merchants and their

customers), simply because on some reckoning of the

aggregate effects there is no “net” harm between the

two groups of consumers. This view flouts long-

established precedent and should be rejected.

In an effort to justify its ASRs, American

Express argued that “were the network unable to

rely on the NDPs to control merchants’ conduct

toward its cardholders at the point of sale, the

companys ability to pursue its differentiated

business model would be invariably and irreparably

harmed.” American Express I, 88 F. Supp. 3d at 225.

American Express’s position essentially reduces to

the following: (1) absent the ASRs, American

Express’s preferred business model could not

survive; (2) with the ASRs, American Express is able

to eliminate price competition for network services

and raise merchant fees; and (3) American Express

can then use some of the additional profits it

extracts from merchants and their customers to

make its cards more competitive in the card issuance

market. See id. at 225-27. The district court

rejected this “defense.” And rightly so. American

Express’s argument essentially concedes both that

the purpose of the ASRs is anticompetitive—that is,

to eliminate competition in the network services

market—and that its cards are themselves

uncompetitive. From this, American Express

concludes that it can compete on the terms it prefers

(for cardholders) to best advance its business model.

This is not a cognizable defense. See McWane, Inc. v.

FTC, 783 F.3d 814, 841 (11th Cir. 2015), cert. denied,

34

136 S. Ct. 1452 (2016) (“[C]lognizable justifications

are typically those that reduce cost, increase output

or improve product quality, service, or innovation.”

(citation omitted)); cf. U.S. Dep’t of Justice & Fed.

Trade Comm’n, Horizontal Merger Guidelines § 10

(2010) (“Cognizable efficiencies . . do not arise from

anticompetitive reductions in output or service.”). It

is not based on anv efficiency, as would be true of a

reduction in cost, or on a legitimate effort to solve for

a market imperfection. To the contrary, it is

inimical to the purposes of the Sherman Act.

This Court has squarely held that “the Rule of

Reason does not support a defense based on the

assumption that competition itself is unreasonable.”

Profl Engineers, 435 U.S. at 696. In Professional

Engineers, this Court sternly rejected the proffered

justification that a restraint on competitive bidding

would promote competition by enhancing public

safety and the ethics of the profession. Id. at 695.

The Court again rejected such a defense in NCAA.

The NCAA argued that improving the quality of an

uncompetitive product could justify an

anticompetitive price or output restraint. But the

Court responded that “[b]y seeking to insulate live

ticket sales from the full spectrum of competition

because of its assumption that the product itself is

insufficiently attractive to consumers, petitioner

forwards a justification that is inconsistent with the

basic policy of the Sherman Act.” NCAA, 468 U.S. at

117; see also United States v. Phila. Nat. Bank, 374

U.S. 321, 370 (1963) (rejecting the notion that

“anticompetitive effects in one market could be

justified by procompetitive consequences in

another’).

35

These cases reflect sound antitrust policy. The

Second Circuit took the contrary view, holding that

unless the government established a “net” harm

across American Express's merchants and

cardholders, there could be no Sherman Act

violation. American Express II, 838 F.3d at 206. In

addition, the Second Circuit went so far as to assert

that the ASRs might actually benefit merchants,

writing, “[b]y attracting cardholders, Amex delivers

a significant benefit to merchants: Amex

cardholders,” namely, additional customers. Id. at

205. Amici disagree with this premise. If it were

true, American Express would not have needed the

ASRs, and the unrestrained competitive process

would have achieved the same end. Moreover,

American Express could not show that the ASRs

would increase market-wide output, as opposed to its

own. That American Express was unwilling to allow

that process to unfold demonstrates that it did not

trust the unfettered market achieve the result

that was best for itself and that it claims would have

been beneficial to merchants. Profl Engineers, 435

U.S. at 696 (“[T]he Rule of Reason does not support a

defense based on the assumption that competition

itself is unreasonable.”).

In any event, this Court has condemned in

strong terms proffered procompetitive justifications

that would obstruct access to information in the

name of competition: “The argument is, in essence,

that an unrestrained market in which consumers are

given access to the information they believe to be

relevant to their choices will lead them to make

unwise and even dangerous choices. Such an

argument amounts to ‘nothing less than a frontal

assault on the basic policy of the Sherman Act.”

36

Ind. Fed’n of Dentists, 476 U.S. at 463 (quoting Prof]

Engineers, 435 U.S. at 695)). It derives from a

distrust of the competitive process, and admits of a

purpose to circumvent it. American Express should

not be able to dictate the terms of competition by

imposing its preferences rather than allowing the

competitive process to determine the proper balance

between rewards and discount fees. Cf. United

States v. Apple Inc., 952 F. Supp. 2d 638, 701 n.64

(S. D. N. Y. 2013) (Instead, the evidence is that Apple

feared retail price competition with Amazon. Apple

preferred to compete with Amazon on the strength of

its device rather than through price wars.“), d 791

F.3d 290 (2d Cir. 2015), cert. denied, 136 S. Ct. 1376

(2016). Such a result is to the detriment of

consumers, amici, the broader merchant community,

and competition.

37

CONCLUSION

For these reasons, amici curiae respectfully

submit that the decision of the Second Circuit should

be reversed and the judgment entered by the district

court should be affirmed.

Respectfully submitted,

GEORGE D. RUTTINGER

Counsel of Record

ANDREW I. GAVIL

CHARLES D. AUSTIN

CROWELL & MORING LLP

1001 Pennsylvania Ave., N.W.

Washington, DC 20004

(202) 624-2500

gruttinger@crowell.com

DANIEL A. SASSE

DEBORAH E. ARBABI

CROWELL & MORING LLP

3 Park Plaza, 20th Floor

Irvine, CA 92614

(949) 263-8400

JORDAN L. LUDWIG

CROWELL & MORING LLP

515 S. Flower St., 40th Floor

Los Angeles, CA 90071

(213) 622-4750

Counsel for Amici Curiae