Ohio et al. v. American Express Co. et al.

Certiorari To The United States Court Of Appeals For The Second Circuit

No. 16-1454. Argued February 26, 2018--Decided June 25, 2018

Respondent credit-card companies American Express Company and American Express Travel Related Services Company (collectively, Amex) operate what economists call a “two-sided platform,” providing services to two different groups (cardholders and merchants) who depend on the platform to intermediate between them. Because the interaction between the two groups is a transaction, credit-card networks are a special type of two-sided platform known as a “transaction” platform. The key feature of transaction platforms is that they cannot make a sale to one side of the platform without simultaneously making a sale to the other. Unlike traditional markets, two-sided platforms exhibit “indirect network effects,” which exist where the value of the platform to one group depends on how many members of another group participate. Two-sided platforms must take these effects into account before making a change in price on either side, or they risk creating a feedback loop of declining demand. Thus, striking the optimal balance of the prices charged on each side of the platform is essential for two-sided platforms to maximize the value of their services and to compete with their rivals.

Visa and MasterCard—two of the major players in the credit-card market—have significant structural advantages over Amex. Amex competes with them by using a different business model, which focuses on cardholder spending rather than cardholder lending. To encourage cardholder spending, Amex provides better rewards than the other credit-card companies. Amex must continually invest in its cardholder rewards program to maintain its cardholders’ loyalty. But to fund those investments, it must charge merchants higher fees than its rivals. Although this business model has stimulated competitive innovations in the credit-card market, it sometimes causes friction with merchants. To avoid higher fees, merchants sometimes attempt to dissuade cardholders from using Amex cards at the point of sale—a practice known as “steering.” Amex places antisteering provisions in its contracts with merchants to combat this.

In this case, the United States and several States (collectively, plaintiffs) sued Amex, claiming that its antisteering provisions violate 1 of the Sherman Antitrust Act. The District Court agreed, finding that the credit-card market should be treated as two separate markets—one for merchants and one for cardholders—and that Amex’s antisteering provisions are anticompetitive because they result in higher merchant fees. The Second Circuit reversed. It determined that the credit-card market is one market, not two. And it concluded that Amex’s antisteering provisions did not violate 1.

Held: Amex’s antisteering provisions do not violate federal antitrust law. Pp. 8–20.

(a) Section 1 of the Sherman Act prohibits “unreasonable restraints” of trade. State Oil Co. v. Khan, 522 U. S. 3, 10. Restraints may be unreasonable in one of two ways—unreasonable per se or unreasonable as judged under the “rule of reason.” Business Electronics Corp. v. Sharp Electronics Corp., 485 U. S. 717, 723. The parties agree that Amex’s antisteering provisions should be judged under the rule of reason using a three-step burden-shifting framework. They ask this Court to decide whether the plaintiffs have satisfied the first step in that framework—i.e., whether they have proved that Amex’s antisteering provisions have a substantial anticompetitive effect that harms consumers in the relevant market. Pp. 8–10.

(b) Applying the rule of reason generally requires an accurate definition of the relevant market. In this case, both sides of the two-sided credit-card market—cardholders and merchants—must be considered. Only a company with both cardholders and merchants willing to use its network could sell transactions and compete in the credit-card market. And because credit-card networks cannot make a sale unless both sides of the platform simultaneously agree to use their services, they exhibit more pronounced indirect network effects and interconnected pricing and demand. Indeed, credit-card networks are best understood as supplying only one product—the transaction—that is jointly consumed by a cardholder and a merchant. Accordingly, the two-sided market for credit-card transactions should be analyzed as a whole. Pp. 10–15.

(c) The plaintiffs have not carried their burden to show anticompetitive effects. Their argument—that Amex’s antisteering provisions increase merchant fees—wrongly focuses on just one side of the market. Evidence of a price increase on one side of a two-sided transaction platform cannot, by itself, demonstrate an anticompetitive exercise of market power. Instead, plaintiffs must prove that Amex’s antisteering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or otherwise stifled competition in the two-sided credit-card market. They failed to do so. Pp. 15–20.

(1) The plaintiffs offered no evidence that the price of credit-card transactions was higher than the price one would expect to find in a competitive market. Amex’s increased merchant fees reflect increases in the value of its services and the cost of its transactions, not an ability to charge above a competitive price. It uses higher merchant fees to offer its cardholders a more robust rewards program, which is necessary to maintain cardholder loyalty and encourage the level of spending that makes it valuable to merchants. In addition, the evidence that does exist cuts against the plaintiffs’ view that Amex’s antisteering provisions are the cause of any increases in merchant fees: Visa and MasterCard’s merchant fees have continued to increase, even at merchant locations where Amex is not accepted. Pp. 16–17.

(2) The plaintiffs’ evidence that Amex’s merchant-fee increases between 2005 and 2010 were not entirely spent on cardholder rewards does not prove that Amex’s antisteering provisions gave it the power to charge anticompetitive prices. This Court will “not infer competitive injury from price and output data absent some evidence that tends to prove that output was restricted or prices were above a competitive level.” Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U. S. 209, 237. There is no such evidence here. Output of credit-card transactions increased during the relevant period, and the plaintiffs did not show that Amex charged more than its competitors. P. 17.

(3) The plaintiffs also failed to prove that Amex’s antisteering provisions have stifled competition among credit-card companies. To the contrary, while they have been in place, the market experienced expanding output and improved quality. Nor have Amex’s antisteering provisions ended competition between credit-card networks with respect to merchant fees. Amex’s competitors have exploited its higher merchant fees to their advantage. Lastly, there is nothing inherently anticompetitive about the provisions. They actually stem negative externalities in the credit-card market and promote interbrand competition. And they do not prevent competing credit-card networks from offering lower merchant fees or promoting their broader merchant acceptance. Pp. 18–20.

838 F. 3d 179, affirmed.

Thomas, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Alito, and Gorsuch, JJ., joined. Breyer, J., filed a dissenting opinion, in which Ginsburg, Sotomayor, and Kagan, JJ., joined.


Abbott, Governor of Texas, et al. v. Perez et al.

Appeal From The United States District Court For The Western District Of Texas

No. 17-586. Argued April 24, 2018--Decided June 25, 2018 1

In 2011, the Texas Legislature adopted a new congressional districting plan and new districting maps for the two houses of the State Legislature to account for population growth revealed in the 2010 census. To do so, Texas had to comply with a complicated legal regime. The Equal Protection Clause of the Fourteenth Amendment forbids “racial gerrymandering,” that is, intentionally assigning citizens to a district on the basis of race without sufficient justification. Shaw v. Reno, 509 U. S. 630, 641. But other legal requirements tend to require that state legislatures consider race in drawing districts. Like all States, Texas is subject to 2 of the Voting Rights Act of 1965 (VRA), which is violated when a state districting plan provides “less opportunity” for racial minorities “to elect representatives of their choice,” League of United Latin American Citizens v. Perry, 548 U. S. 399, 425. And at the time, Texas was also subject to 5, which barred it from making any districting changes unless it could prove that they did not result in retrogression with respect to the ability of racial minorities to elect the candidates of their choice, Alabama Legislative Black Caucus v. Alabama, 575 U. S. ___, ___. In an effort to harmonize these conflicting demands, the Court has assumed that compliance with the VRA is a compelling State interest for Fourteenth Amendment purposes, see, e.g., Bethune-Hill v. Virginia State Bd. of Elections, 580 U. S. ___, ___; and a State’s consideration of race in making a districting decision is narrowly tailored if the State has “good reasons” for believing that its decision is necessary in order to comply with the VRA, Cooper v. Harris, 581 U. S. ___, ___.

The Texas Legislature’s 2011 plans were immediately tied up in litigation and never used. The case was assigned to a three-judge court (Texas court). Texas also submitted the plans for preclearance to the District Court for the District of Columbia (D. C. court). The Texas court drew up interim plans for the State’s rapidly approaching primaries, giving no deference to the Legislature’s plans. Texas challenged the court-ordered plans in this Court, which reversed and remanded with instructions for the Texas court to start with the Texas Legislature’s 2011 plans but to make adjustments as required by the Constitution and the VRA. The Texas court then adopted new interim plans. After the D. C. court denied preclearance of the 2011 plans, Texas used the Texas court’s interim plans for the 2012 elections. In 2013, the Legislature repealed the 2011 plans and enacted the Texas court’s plans (with minor modifications). After Shelby County v. Holder, 570 U. S. 529, was decided, Texas, no longer covered by 5, obtained a vacatur of the D. C. court’s preclearance order. But the Texas court did not dismiss the case against the 2011 plans as moot. Instead, it allowed the plaintiffs to amend their complaint to challenge the 2013 plans and held that their challenges to the 2011 plans were live. Texas conducted its 2014 and 2016 elections under the 2013 plans. In 2017, the Texas court found defects in several of the districts in the 2011 federal congressional and State House plans (the State Senate plan is not at issue here). Subsequently, it also invalidated multiple Congressional (CD) and House (HD) Districts in the 2013 plans, holding that the Legislature failed to cure the “taint” of discriminatory intent allegedly harbored by the 2011 Legislature. And the court relied on that finding to invalidate several challenged 2013 districts. The court also held that three districts—CD27, HD32, and HD34—were invalid under 2 of the VRA because they had the effect of depriving Latinos of the equal opportunity to elect their candidates of choice. And it found that HD90 was a racial gerrymander based on changes made by the 2013 Legislature. It gave the state attorney general three days to tell the court whether the Legislature would remedy the violations; and if the Legislature did not intend to adopt new plans, the court would hold remedial hearings.

Held:

1. This Court has jurisdiction to review the orders at issue. Pp. 11–21.

(a) The Texas court’s orders fall within 28 U. S. C. 1253, which gives the Court jurisdiction to hear an appeal from an order of a three-judge district court “granting or denying . . . an interlocutory or permanent injunction.” The Texas court did not call its orders “injunctions,” but where an order has the “practical effect” of granting or denying an injunction, it should be treated as such for purposes of appellate jurisdiction. Carson v. American Brands, Inc., 450 U. S. 79, 83. Pp. 11–16.

(b) The text of the orders and the context in which they were issued make clear that they qualify as interlocutory injunctions under 1253. The orders were unequivocal that the current legislative plans “violate 2 and the Fourteenth Amendment” and that these violations “must be remedied.” And the short time frame the attorney general was given to act is strong evidence that the court did not intend to allow the elections to go ahead under the plans it had just condemned. The unmistakable import of these actions is that the court intended to have new plans ready for use in this year’s elections. Texas also had reason to fear that if it tried to conduct elections under those plans, the court would infer an evil motive and perhaps subject the State to the strictures of preclearance under 3(c) of the VRA. These cases differ from Gunn v. University Comm. to End War in Viet Nam, 399 U. S. 383, where the order did not have the same practical effect as an injunction. Nor does it matter that the remedy is not yet known. The issue here is whether this year’s elections can be held under the plans enacted by the Legislature, not whether any particular remedies should ultimately be ordered if it is determined that the current plans are flawed. Section 1253 must be strictly, but sensibly construed, and here the District Court’s orders, for all intents and purposes, constituted injunctions. Thus, 1253 provides jurisdiction. Pp. 16–21.

2. The Texas court erred in requiring the State to show that the 2013 Legislature purged the “taint” that the court attributed to the defunct and never-used plans enacted by a prior legislature in 2011. Pp. 21–32.

(a) Whenever a challenger claims that a state law was enacted with discriminatory intent, the burden of proof lies with the challenger, not the State. Reno v. Bossier Parish School Bd., 520 U. S. 471, 481. In redistricting cases, the “good faith of [the] state legislature must be presumed.” Miller v. Johnson, 515 U. S. 900, 915. The allocation of the burden of proof and the presumption of legislative good faith are not changed by a finding of past discrimination, which is but “one evidentiary source” relevant to the question of intent. Arlington Heights v. Metropolitan Housing Development Corp., 429 U. S. 252, 267. Here, the 2011 plans were repealed, and not reenacted, by the 2013 Legislature. Nor did it use criteria that arguably carried forward the effects of the 2011 Legislature’s discriminatory intent. Instead, it enacted, with only small changes, the Texas court plans developed pursuant to this Court’s instructions. The Texas court contravened these basic burden of proof principles, referring, e.g., to the need to “cure” the earlier Legislature’s “taint” and concluding that the Legislature had engaged in no deliberative process to do so. This fundamentally flawed approach must be reversed. Pp. 21–25.

(b) Both the 2011 Legislature’s intent and the court’s interim plans are relevant to the extent that they give rise to—or tend to refute—inferences about the 2013 Legislature’s intent, but they must be weighed together with other relevant direct and circumstantial evidence of the Legislature’s intent. But when this evidence is taken into account, the evidence in the record is plainly insufficient to prove that the 2013 Legislature acted in bad faith and engaged in intentional discrimination. Pp. 25–32.

3. Once the Texas court’s intent finding is reversed, there remain only four districts that were invalidated on alternative grounds. The Texas court’s holding as to the three districts in which it relied on 2’s “effects” test are reversed, but its holding that HD90 is a racial gerrymander is affirmed. Pp. 32–41.

(a) To make out a 2 “effects” claim, a plaintiff must establish the three “Gingles factors”: (1) a geographically compact minority population sufficient to constitute a majority in a single-member district, (2) political cohesion among the members of the minority group, and (3) bloc voting by the majority to defeat the minority’s preferred candidate. Thornburg v. Gingles, 478 U. S. 30, 48–51. A plaintiff who makes that showing must then prove that, under the totality of the circumstances, the district lines dilute the votes of the members of the minority group. Pp. 33–39.

(1) The Texas court held that CD27 violates 2 because it has the effect of diluting the votes of Nueces County Latino voters, who, the court concluded, should have been included in a Latino opportunity district rather than CD27, which is not such a district. Plaintiffs, however, could not show that an additional Latino opportunity district could be created in that part of Texas. Pp. 33–35.

(2) The Texas court similarly erred in holding that HD32 and HD34, which make up the entirety of Nueces County, violate 2. The 2013 plan created two districts that lie wholly within the county: HD34 is a Latino opportunity district, but HD32 is not. The court’s findings show that these two districts do not violate 2, and it is hard to see how the ultimate Gingles vote dilution standard could be met if the alternative plan would not enhance the ability of minority voters to elect the candidates of their choice. Pp. 35–38.

(b) HD90 is an impermissible racial gerrymander. HD90 was not copied from the Texas court’s interim plans. Instead, the 2013 legislature substantially modified that district. In 2011, the Legislature, responding to pressure from counsel to one of the plaintiff groups, increased the district’s Latino population in an effort to make it a Latino opportunity district. It also moved the city of Como, which is predominantly African-American, out of the district. When Como residents and their Texas House representative objected, the Legislature moved Como back. But that decreased the Latino population, so the Legislature moved more Latinos into the district. Texas argues that its use of race as the predominant factor in HD90’s design was permissible because it had “good reasons to believe” that this was necessary to satisfy 2, Bethune-Hill, 580 U. S., at ___. But it is the State’s burden to prove narrow tailoring, and Texas did not do so on the record here. Pp. 38–41.

No. 17–586, 274 F. Supp. 3d 624, reversed; No. 17–626, 267 F. Supp. 3d 750, reversed in part and affirmed in part; and cases remanded.

Alito, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Thomas, and Gorsuch, JJ., joined. Thomas, J., filed a concurring opinion, in which Gorsuch, J., joined. Sotomayor, J., filed a dissenting opinion, in which Ginsburg, Breyer, and Kagan, JJ., joined.

Notes
1 Together with No. 17–626, Abbott, Governor of Texas, et al. v. Perez et al., also on appeal from the same court.