American Express may have successfully persuaded the U.S. Department of Justice to bring a suit against the bankcard payment networks, but by filing a private lawsuit against MasterCard and Visa, American Express will face significantly higher hurdles than the government faced in its case.
American Express seeks to use part of Federal Judge Barbara S. Jones' ruling in the government's case to argue that due to MasterCard and Visa's membership loyalty rules or policies, American Express was economically harmed and is entitled to damages from the payment card networks, as well as a number of large banks, some with which they are now seeking to partner. Under U.S. antitrust laws, while the government had only to prove that without MasterCard’s Competitive Programs Policy (CPP) and Visa's 2.10(e) rule the marketplace would be more competitive, American Express has a significantly higher burden of proof. American Express must show its business was injured and suffered damages as a result of MasterCard’s policy and Visa's rule - claims that are not supported by the reality of the marketplace
Judge Jones' Decision
If American Express bases its arguments on Judge Jones' decision, it must also acknowledge that Judge Jones found in favor of MasterCard and Visa with regard to the first count in the government's complaint focused on the governance structure of the two associations. Specifically, Judge Jones affirmed that the payments industry is one of the most competitive in existence and "the associations [MasterCard and Visa] have also fostered rapid innovation systems, product offerings and services."
Moreover, American Express must acknowledge that Judge Jones affirmed that the associations' governance structure has led to many pro-consumer benefits including:
Despite such pro-consumer findings, Judge Jones ruled against MasterCard and Visa on the second count brought by the DOJ targeting MasterCard's CPP and Visa's rule 2.10(e). Judge Jones’ Final Judgment required that MasterCard repeal its CPP and allow its member banks to issue credit or charge cards on proprietary networks such as American Express.
Despite American Express’ pronouncements to the contrary, Judge Jones' ruling on the CPP and rule 2.10(e) does not establish American Express' case against MasterCard. As noted above, unlike the government, as a private plaintiff American Express has additional burdens with respect to both liability and damages.
American Express and the Payments Marketplace
With the ability to reach every consumer and market its proprietary cards, American Express has succeeded in the U.S. marketplace while MasterCard's membership loyalty requirements have been in place. Clearly, American Express is a company that has not suffered economic harm. In fact, according to the Nilson Report, American Express is the third most profitable card issuer with more than $2 billion in profits. For example, American Express' profits as a payment card issuer jumped 14 percent from 2002 to 2003.
Although American Express has been successful in marketing its proprietary cards to U.S. consumers, it's important to note that American Express has had considerable difficulty forming meaningful partnerships with banks in countries outside the United States where neither MasterCard's policy nor Visa's rule have been applied. Indeed, outside the U.S., few of American Express' network bank partnerships are sizeable and their growth has not been steady.
Both the inability of American Express, a key competitor to banks on the issuing side, to convince a large number of banks to partner with it, combined with the cannibalization impact of any such bank issuance on American Express' proprietary business, subverts American Express' damages claims. For example, issuers that have entered into partnerships with American Express abroad have found their bank-issued American Express cards in direct competition with American Express' traditional proprietary cards, and come to realize that doing business with American Express generally benefits American Express more than it benefits the financial institution or cardholders. Conversely, increasing the number of bank-issued American Express cards will cannibalize American Express' proprietary business, further weakening their damages argument.
In light of these and a myriad of other obstacles to American Express' case, it is understandable that it has attempted to simply point to the government litigation as a "stand-in" to establish its case. Unfortunately for American Express, it cannot do so, and instead must come forward with legally sufficient theories and rely on evidence to establish both liability and damages -- hurdles that will be difficult to clear.