More often than not, government antitrust suits end in settlement, with companies not wishing for prolonged litigation and taking a potentially lessened punishment. Every so often, though, a company will attempt to fight the government’s lawsuit.
American Express is one of those that fought The Law, but this time, The Law won.
On February 19, U.S. District Judge Nicholas Garaufis ruled in favor of the Department of Justice, saying that American Express’s rules on allowing merchants to promote other cards were anticompetitive. In the 150 page ruling, Judge Garaufis says that merchants who accept American Express cards are in fact allowed to promote other, potentially cheaper, cards if they wish.
“By recognizing that American Express’s rules harm competition, the court vindicates the promise of robust marketplaces that is enshrined in our antitrust laws,” U.S. Attorney General Eric Holder said in a statement after the court’s ruling.
The ruling does not mean that American Express needs to drop its anticompetitive rules immediately. Instead, the judge asked both parties to submit a proposed remedy to the situation. The U.S. is not seeking monetary damages.
American Express will appeal, with spokesman Andrew Johnson saying in a statement, “The court’s ruling will not provide any benefit to consumers and will, in fact, harm competition by further entrenching the two dominant networks. We continue to believe that the Department of Justice’s arguments are flawed and believe we should prevail on appeal.”
Historically, American Express has charged merchants higher fees, which the company says it uses to fund rewards programs for its users. The company said in financial filings that a court ruling against it would cause the company to suffer a material adverse effect on its business.
The decision also continues a streak of unwanted business outcomes for the company. As noted by The Wall Street Journal, American Express cards are only accepted in about 7 million locations nationwide, while Visa/Mastercard and Discover are each accepted in more than 9 million locations. Furthermore, American Express recently announced that it would be ending its 16-year partnership with Costco Wholesale Corp. in 2016.