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American Express loses antitrust suit over merchant rules

American Express Co. rules barring businesses from asking customers to use lower-cost credit cards violate U.S. antitrust law, a federal judge said in the first definitive decision on practices that allow card firms to collect about $50 billion a year in merchant fees.

The U.S. Justice Department’s victory on Thursday in its lawsuit against the credit card company might give merchants more leverage in their effort to cut such costs, which are largely hidden from consumers. The ruling is the latest blow to the New York-based firm after partnerships with Costco Wholesale Corp. and JetBlue Airways Corp. ended. Shares fell as much as 2.8 percent in New York trading.

American Express failed to show that its so-called non-discrimination provisions, imposed on merchants who agree to accept its card, don’t harm competition, U.S. District Judge Nicholas Garaufis in Brooklyn said in his ruling. He said he would decide remedies later, which could include lifting or changing rules used to require merchants to pay higher processing fees. The U.S. isn’t seeking money damages.

The company has “the power to repeatedly and profitably raise” its merchant prices “without worrying about significant merchant attrition,” Garaufis said. “The result is an absence of price competition among American Express and its rival networks.”

The rules have also “foreclosed the possibility of a current network or new entrant” differentiating itself by imposing lower fees, he said.

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