American Express Co. (AXP) - Get Report shares jumped after the U.S. Supreme Court ruled in the credit-card company's favor in an eight-year-old antitrust case initially brought by the federal government and 18 states.
The Supreme Court, in a 5-4 decision, ruled Monday that American Express contractual provisions preventing merchants from steering customers to other credit cards didn't violate antitrust laws. Had the decision gone the other way, retailers might have been allowed to give customers incentives to use cards with lower fees.
American Express shares rose 1.8% in New York trading, even as the broad Standard & Poor's 500 Index I:GSPC of large U.S. stocks fell 1.5%.
"The verdict appears a big win for Amex," Charles Gabriel, an analyst at CapAlpha, wrote in a report. If the company had lost the case, it could have been forced to reduce fees or face dwindling card usage, according to Gabriel.
The case was originally brought in 2010 by the U.S. Justice Department and attorneys general from Ohio and 17 other states, which sought an order forcing American Express to stop using the "anti-steering" provisions in its contracts with retailers, according to the New York-based credit-card company.
A trial court in the U.S. District Court for the Eastern District of New York found that the provisions were anticompetitive, but the decision was reversed by the Court of Appeals for the Second Circuit, and a judgment was entered in American Express's favor last year. Eleven states asked for a review of the appeals court's decision by the Supreme Court; oral arguments were held in February.
In a press release, company CEO Stephen Squeri described the decision as a "major victory for consumers and for American Express."
"This was a long battle but well worth the fight," Squeri said. "Since this case started eight years ago, we have significantly expanded the network of merchants who willingly accept American Express and have seen merchant satisfaction steadily increase."
Matt Shulz, senior industry analyst at BankRate.com, wrote in an e-mailed statement that the ruling "has ramifications for the whole industry," because of the way that swipe fees are used to help pay for credit-card rewards.
"If those fees had taken a hit, which was a real possibility if the ruling had gone against Amex, it would've been great news for merchants' bottom line but would almost certainly have marked the end of the golden era of credit-card rewards," Shulz wrote.