By Andrew Keshner, From New York Law Journal

American Express cannot impede merchants from expressing preferences or offering incentives for consumers to use certain cards, a judge decided after already determining the company violated antitrust laws with its anti-steering rules.

Eastern District Judge Nicholas Garaufis issued a permanent injunction Thursday following his February ruling that American Express’ “non-discrimination provisions” were unlawful restraints on trade.

After a 150-page liability ruling in a case brought by the U.S. Department of Justice and 17 attorneys general, Garaufis asked the sides to offer a joint remedy. But the sides only found “limited common ground,” Garaufis wrote in a memorandum accompanying the injunction in United States v. American Express Company, 10-cv-4496.

“With some exceptions and with certain modifications, the court generally adopts proposals made by the government and rejects competing proposals made by defendants,” the judge wrote. “Although the court invited American Express to play an active role in the construction of the permanent injunction, American Express’ core proposals were, considering the record before the court, too narrow or unwieldy to effectuate the remedial objectives of a permanent injunction under the Sherman Act.”

Garaufis said the injunction had “detailed notice provisions” to make sure that merchants accepting American Express knew of the changes to the non-discrimination provisions “and of their nascent ability to steer customers towards particular credit card brands.”

The company has vowed to fight the ruling, saying the judge’s conclusions would only strengthen MasterCard and Visa’s market position (NYLJ, Feb. 20), and has requested a stay on the injunction.

“As we have previously stated, we plan to appeal the court’s ruling because we believe it will not provide any benefit to consumers and will in fact harm competition by further entrenching the two dominant networks,” said spokeswoman Marina Norville.

Acting Assistant Attorney General Leslie Overton, of the Justice Department’s Antitrust Division, said the outcome was a win for consumers.

“These rules have stifled competition among credit card networks by blocking merchants from encouraging their customers to use particular credit cards,” she said in a statement.

Overton said that merchants’ ability “to encourage the use of particular credit card networks will incentivize American Express and its competitors to compete to earn a greater share of a merchant’s business.”

Originally, the federal government and 18 states sued American Express, Visa and MasterCard over their anti-steering practices. Visa and MasterCard settled in 2011 and entered consent decrees.

New York did not participate in the case, and Hawaii agreed to dismiss its claims before American Express’ bench trial.

The case focused on the non-discrimination provisions, which said merchants accepting American Express could not “indicate or imply” that they preferred other payment products over American Express.

Merchants also could not discourage use of American Express or impose “restrictions, conditions, disadvantages or fees” that were not likewise imposed for the use of other payment products.

Leading up to the injunction, the government spotted language that had to be cut from contracts and offered language telling merchants about their right to engage in steering.

American Express said the government’s specific language changes were “unnecessary” and the company would have “every incentive to ensure it remains in compliance” with court orders. Besides, the company continued, its transaction counsel were best-suited to come up with specific language that both carried out court orders and cared for American Express’ legitimate business interests.

Garaufis said he agreed in part with both sides. As a result, the injunction identified current non-discrimination provision wording that was no longer enforceable.

“A remedy that does not identify specific contractual language that is no longer enforceable merely kicks the can down the proverbial road,” he said.

Still, Garaufis ruled out mandating specific language in merchant contracts, saying he did not “find it appropriate, for lack of better phrase, to put words into American Express’ mouth.”

He observed there were other injunction provisions to ensure merchants knew their rights and American Express did not try to undercut the remedy through “improper or overly restrictive language.”

The judge did acknowledge there was “one, limited context” where the injunction says specific wording may be included.

American Express also asked for an injunction provision saying the company was “entitled to exercise its right not to do or continue to do business with a merchant that chooses to steer card members away from its cards.”

The company said the U.S. Supreme Court in its 1910 case, United States v. Colgate & Co., 250 U.S. 300, held that the Sherman Act did not impair a business’ right to choose the parties with which it dealt.

Garaufis said the company’s argument was appealing “in the abstract.” Still, he said, it would be an “absurd” outcome if the Colgate doctrine “completely suppressed” the court’s power to “issue appropriate relief, and thereby authorized AmEx to continue, through its market power and non-contractual ‘refusal to deal,’ the very practice deemed unlawful in the court’s decision.”

The injunction is worded to expire in 10 years but allows one-year extensions.

The company complained that the government’s offered compliance measures were punitive and based on the “baseless” assumption that the company could not be trusted to abide by court orders.

Instead, American Express asked for compliance provisions that were “substantively identical” to what Visa and MasterCard had in their own consent decrees.

Garaufis said he agreed with the government that, considering factors like the company’s “aggressive enforcement” of the non-discrimination provisions, “robust compliance provisions” were needed.

Garaufis said it was not yet clear to him if American Express had a “positive compliance attitude, particularly in light of its unwillingness to agree to some of the government’s more modest proposals.”

For a company as big as American Express, Garaufis said, the measures were not too much of an expense or burden. He noted that he did not select an independent monitor, though he was authorized to do so.

Besides, if the company found certain measures “unworkable” or in need of adjustment, they could ask the court for modifications.

In the remedial order litigation, the Justice Department was represented by Craig Conrath, Mark Hamer and Joseph Vardner, in its antitrust division.

The plaintiff states were represented by Mitchell Gentile of the Ohio Attorney General’s Office.

American Express was represented by Evan Chesler, partner and chairman at Cravath, Swaine & Moore, and partners Peter Barbur and Kevin Orsini.

They were also represented by Donald Flexner, managing partner at Boies, Schiller & Flexner, and partners Philip Korologos and Eric Brenner.

For more on this story go to: http://www.newyorklawjournal.com/id=1202725474383/Injunction-Issued-Against-AmEx-AntiSteering-Rules#ixzz3ZHvK8ja0