Italian Colors Restaurant v American Express Company
Merchants Decry American Express Company's Use of Market Power to Muscle Into the Credit Card Market
A class action has been filed against American Express Company on behalf of merchants who accept the company's charge cards, alleging that American Express uses its market power unlawfully to force class members to accept its credit cards at excessive rates in violation of federal antitrust laws. The action seeks treble damages as allowed by the Sherman Antitrust Act.
Named plaintiff Italian Colors Restaurant, of Oakland, California, alleges American Express uses its market muscle to force merchants to accept all American Express-branded credit cards in addition to the company's premium charge cards. American Express allegedly charges merchants a fee of 3 percent of the total transaction, compared to 1.9 percent for MasterCard. Visa charges slightly lower rates and Discover charges one-third what Visa charges.
Allegedly, 70 percent of all Fortune 500 companies issue American Express charge cards to employees. The action alleges that AmEx has taken that advantage and used it to push its way into the conventional credit card market by telling merchants that they will be allowed to accept AmEx charge cards only if they also accept AmEx credit cards as well.
Unlike a charge card, which must be paid off each month, a credit card allows holders to revolve their balance over the next month. Allegedly, Visa and MasterCard account for more than 90 percent of all transaction volume on credit cards. AmEx, of course, would like a bigger slice of the profits that come from the credit card market.
The action alleges that American Express's credit card business has grown extraordinarily over the past five years: The point-of-sale dollar volume of American Express credit cards has increased at least 10 times more than any other credit card network. The action explains this phenomenal growth by pointing at American Express's contract agreements which allegedly tie AmEx credit card acceptance to acceptance of the company's charge cards.
The prospective class is made up of all merchants who have accepted American Express charge cards, including the corporate card, and have been forced to accept American Express credit and debit cards, presumably since August 1999, since the Sherman Act allows a four-year window for plaintiffs to recover damages.
Allegedly, merchants pay significantly more for the tied bundle of services than they would pay absent the coercive tie-in of the credit cards. Since merchants normally pass these types of costs along, prices will rise predictably, and consumers, forced to carry the additional cost of the card tie-in, are injured economically.
A similar action has been filed in another court, so the attorneys in this action have asked the court to consolidate that, and any other future actions into this one. The other action is Il Forno, Inc. v. American Express Company (U.S. District Court for the Central District of California, docket number 2:03cv05055).
