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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2017

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0754%3A37. Public record. Not legal advice.