Lydian Journal

Lydian Journal ARTICLES U.S. v. American Express, et The Lydian Journal 2.0: A Note from the Editor al.— Failing To Make Something AND R LAW (Outside-In)Novation: The Changing Paradigm for Out Of Nothing Driving Payments Platform by Tom Brown Growth O’Melveny & Myers LLP Adjunct Professor, U.C. Berkeley Law School^ The Utility of Retail Payments October 2010 in Addressing the Financial Inclusion Gap in Developing Countries Introduction E GULATION Some Unpleasant Credit Card The Department of Justice has been responsible for enforcing the nation’s antitrust laws Arithmetic for more than a century. A group of lawyers dedicated to antitrust enforcement, the Antitrust Division, has existed within the Department of Justice for more than 90 years. [1] U.S. v. American Express, The list of companies that have faced antitrust cases brought by the Department of Justice, et al.— Failing To Make Something Out Of Nothing both before and after the creation of the Antitrust Division, reads like a who’s who of U.S. commerce: Standard Oil, U.S. Steel, Alcoa, General Motors, American Tobacco, and An Overview of Social the Chicago Board of Trade. Although the significance of the antitrust laws did not ebb Commerce and What’s as U.S. industry shifted from manufacturing to information services, the Antitrust Division Fueling its Growth has used cases against AT&T, IBM, Microsoft, MasterCard, and Visa to write the rules of commercial engagement for the information economy. Of course, the Antitrust Division Making Sense of Ever-Changing Payment Technologies has launched some duds over the years, as federal courts and commentators have not hesitated to point out. [2] Even some of the Division’s successes seem, with the benefit of Payments Wiki – China hindsight, to have been poorly conceived. Yet the Division’s cases generally have been serious affairs. Comment on the Articles on PYMNTS.com I. U.S. v. American Express, et al. – A Claim That Nothing Is Something AUTHORS Viewed against this backdrop, the Antitrust Division’s recent case against American Tim Attinger Express, MasterCard, and Visa is puzzling. At first blush, the Division’s case seems to be about nothing. Indeed, the allegations at the heart of the complaint read like the set-up Tom Brown for a joke that one-time American Express pitchman, Jerry Seinfeld, might have used to David S. Evans end his TV show: Patrick Gauthier “Jerry: So have you ever can tell because his eyes some license with the Ignacio Mas been out shopping and bulge a little – but he allegations. But its core seen what happens when can’t say anything. So comes straight from the Scott Schuh someone takes out an long as the card is out, he complaint. The complaint American Express card? stands there speechless. alleges that each of the Karen Webster [Pause] One moment [Pause] Wouldn’t it be major credit and charge card Jing Yang the clerk is going on nice if the American networks – American Express, about this and that. Express card worked on MasterCard, and Visa – has Then the card appears, people other than sales maintained rules that prevent and the clerk is literally clerks?” merchants from promoting dumbfounded. He wants other general purpose cards to say something – you To be sure, the joke takes at the point of sale. It claims Table of Contents PYMNTS.com/journal Lydian Journal ARTICLES that MasterCard and Visa the marketplace and use power aside, to make an The Lydian Journal 2.0: A Note prevent merchants from those terms to suppress antitrust case out of the from the Editor offering discounts or taking opportunities that would restraints challenged by the LAW AND R LAW other steps to promote otherwise be available Antitrust Division. That is, (Outside-In)Novation: The general purpose charge to potential rivals, the whether American Express Changing Paradigm for Driving Payments Platform and credit cards at the point antitrust laws are generally has violated the Sherman Growth of sale. According to the unconcerned about the Act by telling agents that complaint, American Express terms on which a firm does are distributing its services, The Utility of Retail Payments goes further, even barring business with its customers. as well as the services of in Addressing the Financial merchants from “asking In a short statement released its competitors, that once Inclusion Gap in Developing Countries customers at the point of sale in response to the filing of the customer has expressed E if they would consider using the complaint, American a clear preference to use GULATION Some Unpleasant Credit Card another [general purpose Express has made clear its service rather than a Arithmetic credit or charge card].” [3] that it intends to take aim competing offering, the at the Antitrust Division’s agent must accept the U.S. v. American Express, The only thing missing is the assertion that it has market consumer’s preference. The et al.— Failing To Make Something Out Of Nothing suggestion that American power, and that argument, if answer to this question is Express has market power – successful, would provide a no, and the explanation An Overview of Social the sine qua non of the type defense to the claim. as to why is rooted in the Commerce and What’s of claim that the Antitrust distinction between the goals Fueling its Growth Division has alleged. Unless The larger question raised that the Sherman Act seeks the defendant has the by the case is whether it is to promote and the actions Making Sense of Ever-Changing Payment Technologies power to dictate terms to possible, issues of market that it prohibits. Payments Wiki – China II. Section One of the Sherman Act – Finding Direction in Open- Comment on the Articles Ended Language on PYMNTS.com The language of Section One of the Sherman Act is famously opened-ended. It prohibits “contracts, combinations and… conspiracies… in restraint of trade.” [4] No one, AUTHORS however, believes that the language of Section One means what it says. Tim Attinger Justice Brandeis’ opinion in Chicago Board of Trade does and its effect, actual or Tom Brown Board of Trade of City of not provide much guidance probable. The history Chicago v. United States on how to distinguish a of the restraint, the evil David S. Evans explains why. The language reasonable restraint from an believed to exist, the of Section One of the unreasonable one. Indeed, reason for adopting the Patrick Gauthier Sherman Act would, if read the opinion substitutes one particular remedy, the Ignacio Mas literally, bring the wheels of open-ended inquiry for purpose or end sought commerce to a halt. Every another. It instructs courts to be attained, are all Scott Schuh contract, as his opinion facing antitrust cases to relevant facts. [6] Karen Webster observes, “restrains. To bind, to restrain, is of their very … consider the facts This articulation of the Jing Yang essence.”[5] Since Chicago peculiar to the business approach for identifying Board of Trade, the Sherman to which the restraint is unreasonable restraints of Act has been understood to applied; its condition trade has been described prohibit only “unreasonable before and after the as a “Brandeisian swamp,” restraints.” restraint was imposed; [7] in which “everything is the nature of the restraint relevant [and] nothing is Table of Contents PYMNTS.com/journal Lydian Journal ARTICLES dispositive.” [8] long run. [9] command firms to behave The Lydian Journal 2.0: A Note in a particular way towards from the Editor In the nine decades since Antitrust law is, thus, often their customers. LAW AND R LAW the Supreme Court handed described as a consumer (Outside-In)Novation: The down its decision in protection statute. It protects Firms are not obliged to Changing Paradigm for Driving Payments Platform Chicago Board of Trade, the benefits that consumers maximize the welfare of Growth courts and policy makers derive from have arrived at a consensus unrestrained The Utility of Retail Payments about what the Sherman competition in Addressing the Financial Act exists to accomplish and – lower Inclusion Gap in Developing Countries how antitrust enforcement prices, higher E achieves that end. This quantities, GULATION Some Unpleasant Credit Card consensus recognizes a better quality. Arithmetic critical distinction between the objectives of antitrust But antitrust U.S. v. American Express, enforcement and the law does et al.— Failing To Make Something Out Of Nothing objects on which antitrust not compel enforcement acts. market An Overview of Social outcomes. Antitrust law their customers or take steps Commerce and What’s The current chief of the permits firms to set their that facilitate the success of Fueling its Growth economic section of the prices too high, restrain their their rivals. Antitrust Division captured output, and fail to improve Making Sense of Ever-Changing Payment Technologies this distinction in a speech the quality of their products. The antitrust laws leave that he gave in 1996 firms free to engage in Payments Wiki – China when he last served in the Antitrust law simply prevents conduct such as a price role during the Clinton firms from putting in place discrimination that, when Comment on the Articles Administration: agreements that restrict viewed through the narrow on PYMNTS.com competition or taking steps prism of the model of [A]ntitrust policy… must that extinguish opportunities perfect competition, conflicts AUTHORS Tim Attinger Most companies are challenged to deploy Tom Brown capital most effectively against new business David S. Evans growth for a number of reasons. Patrick Gauthier Ignacio Mas pay careful attention for existing rivals or suppress with the interests of their Scott Schuh to firms’ business the development of new customers.

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