By Robin Sidel
A U.S. judge ruled on Thursday that American Express Co.'s rules
for merchants violate antitrust law, dealing a major setback to the
card company that has been hit by a series of blows.
The case, which was heard by a judge last year, stems from a
2010 lawsuit in which the Justice Department contended that AmEx's
rules for merchants inhibit competition and result in higher fees
for consumers.
The rules at issue bar AmEx merchants from telling customers
they prefer to accept one card over another.
U.S. Judge Nicolas Garaufis said in a 150-page verdict that
AmEx's rules "constitute an unlawful restraint on trade."
AmEx has repeatedly defended its rules and said in financial
filings that it could suffer a "material adverse effect on our
business" if it loses the case.
On Thursday, AmEx said in a statement that it was disappointed
by the decision and will appeal "because we believe the decision
was wrong."
American Express shares dropped more than 2% in midmorning
trading.
Among other things, AmEx prohibits merchants who accept its
cards from steering customers toward other forms of electronics
payment, such as credit cards that are processed by rivals Visa.
Inc. or MasterCard Inc. or debit cards.
"The court's ruling will not provide any benefit to consumers
and will, in fact, harm competition by further entrenching the two
dominant networks," AmEx said in its statement.
The verdict was the latest blow for AmEx, which has been falling
short of its revenue targets. The company last week announced that
its 16-year-old partnership with Costco Wholesale Corp. would
dissolve next year after the two sides were unable to reach
agreement on terms for a new co-branded card.
AmEx Chief Executive Officer Kenneth Chenault testified in the
antitrust trial, saying that the company's reputation is hurt when
merchants steer customers away from using AmEx cards.
"The most damaging thing that can happen to the American Express
brand is when our card members are discriminated against at the
point of sale, " he said.
Write to Robin Sidel at robin.sidel@wsj.com
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