As Trump's antitrust enforcers wave white flag on American Express, states raise their colors

13 June 2017 10:37am

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9 June 2017. By Richard Vanderford.

The US Justice Department's decision to unceremoniously drop a seven-year-old antitrust case against American Express has given new weight to concerns that President Donald Trump's enforcers might be more hands off than the previous president's team. States, though, have begun to step up their own efforts, and publicly proclaimed a willingness to go it alone if DOJ won't help.

The DOJ last Friday said it wouldn't petition the US Supreme Court to keep alive a long-running antitrust suit over American Express' so-called anti-steering rules. The rules bar merchants from pushing consumers to cheaper payment methods, unfairly so, the DOJ has said.

The Justice Department won against the credit card company after a costly two-month trial, convincing a judge to side with it even after American Express CEO Kenneth Chenault testified that a loss would be ruinous for the company. The US Court of Appeals for the Second Circuit reversed that win, saying essentially that it seemed the industry worked fine.

The decision not to fight to the Supreme Court is understood to be a blow to DOJ staff who worked hard on the case, which has significant implications for not just the credit card industry but also for how courts understand and police two-sided markets, a burgeoning area of the economy.

"No," a department spokeswoman said in a one-word e-mail to MLex when asked if the DOJ might explain the reasoning behind the decision.

But 11 states on the same day filed their own petition with the Supreme Court, urging it to let them appeal the case themselves. The choice by states to charge on as the DOJ retreats could be one played out throughout Trump's term.

In their brief, the states said that American Express' rules allowed it to charge relatively high fees without fears that merchants might drive business to other cards. Merchants have to raise prices across the board to preserve their margins, forcing Visa cardholders in effect to subsidize rewards for American Express cardholders, the states argued.

"It cannot be called an 'efficiency' justification for a Visa holder to pay higher prices at the gas station in order to subsidize an Amex holder's frequent flyer miles," they said.

A spokeswoman for the Ohio attorney general, who is leading the appeal, declined to comment on the states' decision to proceed without the DOJ.

Other state officials have been less taciturn about the need to be willing to proceed without federal help.

Speaking to an audience of antitrust lawyers at a conference this week in New York, state antitrust chief Beau Buffier said the state, which didn't participate in the American Express appeal, was considering mounting even merger challenges if it felt the administration was slacking.

"We are somewhat concerned that there may be a different approach to mergers under the new administration," Buffier said, pointing to "some of the activities and some of the statements" from the administration which have suggested merger review might become politicized.

New York is committed to keeping politics out of merger review, and has begun to consider working with other states, he said.

"We've been giving a lot of thought to how the states can more effectively engage in the merger review process and how we would do that on our own if we have to," he said. "That hasn't been something that the states have had to do recently, so we've been digging out the old playbook and we've been developing new strategies when it comes to streamlining multistate groups."

Buffier's boss, Attorney General Eric Schneiderman, has been among Trump's fiercest critics on many fronts, routinely sending out press releases just to let reporters know he disagrees with something the administration has done.

States that want to pursue their own antitrust actions are clearly disadvantaged in some ways. A questioner pointed out, for example, that they don't receive the mandatory notice given to federal agencies under the Hart-Scott-Rodino Act.

Buffier replied that state enforcers read the paper.

Newspaper reports obviously can't compete with regulatory filings, but states have had some success stepping in in the past.

New York itself, for example, recently won a solo enforcement action in federal court against Actavis, which had planned to pull an older, widely prescribed version of the Alzheimer's drug Namenda from the market just before its patent protection expired, kneecapping generic competition.

An appeals court upheld that decision in 2015.

New York and other states have also aggressively pursued allegedly anticompetitive activities in the generic drugs market, a push that Buffier said will continue. In late May, Connecticut Attorney General George Jepsen announced that 41 states had secured the cooperation of two top executives from Heritage Pharmaceuticals in their probe. The men in 2016 pleaded guilty to federal charges.

Less recently, states took action on their own in response to purportedly weak enforcement during the Reagan administration — President Ronald Reagan's economic team had called for a more "flexible" approach.

The Supreme Court in 1990 said that states were allowed to challenge mergers, a decision that stemmed from a challenge to the tie-up of California grocery chains Lucky and Alpha Beta. The federal government had given the merger an okay, prompting California to take action.

Alpha Beta parent American Stores settled with the state later that year.

After the US Justice Department settled a case against Microsoft brought under President Bill Clinton, several states chose not to participate, and take the company to trial. A federal judge in the District of Columbia ultimately declined to impose the sweeping remedy the states sought.

The Trump administration, regardless of how one views its ideological bent on competition matters, is undoubtedly off to a slow start. The DOJ's antitrust division remains without political leadership. The normally five-member Federal Trade Commission has a skeleton crew of two.

The United States as an antitrust litigant, then, may be a less fearsome opponent than it has been in recent years. But there are 50 states (and a district), many of which have tough lawyers and aggressive leadership willing to use them. If the Trump administration's antitrust policy continues to be to wave a white flag, states may raise their own flags more often.

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