United States v. American Express Co.

Defendants-Appellants American Express Company and American Express Travel Related Services Company, Inc. (collectively, “American Express” or “Amex”) appeal from a decision of the United States District Court for the Eastern District of New York (Garaufís, J.) dated February 19, 2015, finding that Amex unreasonably restrained trade in violation of § 1 of the Sherman Act, 15 U.S.C. § 1, by entering into- agreements containing nondiscriminatory provisions (“NDPs”) barring merchants from (1) offering customers any discounts or nonmon-etary incentives to use credit cards less costly for merchants to accept, (2) expressing preferences for any card, or (3) disclosing information about the costs of different cards to merchants who accept them. See United States v. Am. Express Co., 88 F.Supp.3d 143 (E.D.N.Y. 2015). In addition to holding Amex liable for violating § 1, the District Court permanently enjoined Amex from enforcing its NDPs, See Order Entering Permanent Injunction as to the American Express Defs., United States v. Am. Express Co., No, 10-cv-4496 (NGGXRER), 2015 WL 1966362 (E.D.N.Y. Apr. 30, 2015), ECF No. 683.

For the reasons that follow, we REVERSE and REMAND with instructions to'enter judgment in favor of Amex.

I. BACKGROUND

A, Credit-Card Industry—A General Overview

Since its inception in the 1950s, the credit-card industry has generated untold efficiencies to travel, retail sales, and the purchase of goods and services by millions of United States consumers.1 Every card transaction necessarily involves a multitude of economic ácts and actors. The end users—the cardholder and a merchant— rely on those acts and actors to provide essential, interdependent services. Take, for example, a cardholder who pulls into a gas station to refuel her car. The cardholder takes out her credit card—for which she pays an annual fee while also receiving frequent flyer miles on her favorite airline for every dollar spent—inserts the card into the credit-card slot on the gas pump, and fills her tank with gas. Her credit card is immediately charged for the transaction, and the station owner receives payment quickly—minus a fee.

The simple transaction of gassing up a car by use of a credit card is enabled by a complex industry involving various commercial structures performing various essential functions. Responsibility for issuing cards and paying retailers for sales using them, extending credit to the cardholders, and collecting amounts due from them can be vested in one firm or in a multiplicity of firms engaged in a division of specified functions and connected in a network by contractual arrangements.

Retailers will not accept credit-card purchases without a guarantee of quick reimbursement. Returning to the customer at the gas pump, it would limit credit-card use if the gas station had to have a reimbursement contract with the particular entity that issued the card to the car owner. The establishment of an umbrella network of individual firms—usually banks—that both issue cards and contract with merchants allows the gas buyer to have a card *185issued by Bank A, while the gas station has a reimbursement contract with Bank B. Bank A and Bank B in turns have an arrangement in which Bank A reimburses Bank B for the purchase of gas and bills the consumer..In the lingo of the industry, Bank A is the issuer and Bank B is the acquirer.2 Typically, banks in the network both issue and acquire, and consumers need only find a retailer that accepts a card owned by the consumer and not worry about whether the retailer deals with the card issuer.

From the cardholders’ perspective, many cardholders may find convenience in carrying and using more than one card. Cards come with varying fees and offer benefits with different values to different consumers.. Some cards offer airline miles, others points towards hotel stays or cash back rewards while’ others offer both rewards benefits and enhanced security.

The benefits of a particular card to a consumer are also largely affected by its acceptability among those who sell goods or services to consumers. Widespread acceptance of a card among sellers in turn depends heavily upon widespread acceptance among the consumers targeted by each seller. Retail sellers get the benefits not-only of increased trade because of consumer convenience, but also of not having to choose between limited .cash-only sales and extending credit to consumers. Extensions of credit are administratively costly and commercially risky. However, sellers must cover some of the costs of a credit card’s attracting customers, including efforts to build the prestige attached to certain cards, carrying out all the tasks of extending credit, and bearing responsibility for the ■ risks of extending credit to individual consumers.

In the end, both the credit-card industry and those who sell goods and services target the same group of consumers, albeit in the guise, respectively, of cardholders and purchasers of goods and services.

B. The “Two-Sided Market”

The functions provided by the credit-card industry are highly interdependent and, - at the cardholder/merchant-acceptance level, result in what has been called a “two-sided market.”3 The cardholder and the merchant both depend upon widespread acceptance of a card.4 That is, cardholders benefit from holding a card only if that card is accepted by a wide range of merchants, and merchants benefit from ac*186cepting a card only if a sufficient number of cardholders use it.5

The interdependency that causes price changes on one side can result in demand changes on the other side.6 If a merchant finds that a network’s fees to accept a particular card exceed the benefit that the merchant gains by accepting that card, then the merchant likely will choose not to accept the card. On the other side, if a cardholder finds that too few merchants accept a particular card, then the cardholder likely will not want to use that card in the first place. Accordingly, in order to succeed, a credit-card network must “find an effective method for balancing the prices on the two sides of the market.”7 This can be a difficult task since cardholders’ and merchants’ respective interests are often in tension: merchants prefer lower network fees, but cardholders desire better services, benefits, and rewards that are ultimately funded by those fees.

To balance the two sides of its platform, a two-sided market typically charges different prices that reflect the unique demands of the consumers on each side.8 Within the credit-card industry, cardholders are generally less willing to pay to use a certain card than merchants are to accept that same card, and thus a network may charge its cardholders a lower fee than it charges merchants.9 Because merchants care about card usage while cardholders care about card acceptance, it may even make sense for a network to charge only merchants for usage while charging cardholders only for access to the card in the first place.10

C. Historical Development of the Credit-Card Industry

The modern payment-card industry began in 1949 with the “Diner’s Club,” a joint venture between' two individuals who used a small sum of start-up capital to register fourteen New York restaurants for participation.11 Diner’s Club initially charged participating restaurants seven percent of *187the total tab and gave cards away to diners for free. This model was so successful that by its first anniversary, Diner’s Club boasted a membership of over 330 U.S. restaurants, hotels, and nightclubs. At that point, though it had begun charging a membership fee to its 42,000 cardholders, Diner’s Club was earning over three quarters of its revenue from the merchant side of its platform.

Amex, which had long been a major player in the travel and entertainment (“T & E”) business, entered the payment-card industry in the early 1950s already having acquired consumers on both sides of the platform.12 Thanks to this established position, Amex was initially able to set its cardholder fee higher than the Diner’s Club cardholder fee and thereby cultivate a prestigious, upscale image of “exclu-siv[ity].”13 Amex then attracted merchants by setting its merchant fee slightly lower than the contemporary Diner’s Club merchant fees.14

Despite Amex’s initial success in getting both sides on board its platform, it had no previous experience extending credit and thus struggled for some time to become profitable.15 In the early 1960s, Amex was able to alleviate this problem by increasing cardholder fees and pressuring cardholders to make timely payments.16 Amex first turned a profit in 1962 and by 1966 was the volume leader in the payment-card industry.17

In the meantime, Visa and MasterCard entered the market, opting to pursue slightly different pricing strategies than any of the payment-card companies that came before. The predecessors of Visa, MasterCard, and other similar networks entered the market in the mid-1960s as banking cooperatives that collaborated on a card brand to pool the merchants that individual member banks of the cooperative had signed up on their respective cards.18 Following several years of nationwide experimentation with various types of cooperative card systems, the enactment of federal usury laws, and numerous antitrust lawsuits against the new payment-card associations, Visa and MasterCard emerged as the two national associations that “[j]ust about every bank in the card field” became *188“convinced” they must join.19

D. Credit Cards Today20

Credit-card transaction volume in the United States is shared primarily by four networks: Visa (45%), American Express (26.4%), MasterCard (23.3%), and Discover (5.3%).21 Visa and MasterCard operate cooperative or “open-loop” systems that involve as many as five distinct actors, including the network, cardholder, merchant, issuer, and acquirer.22 On one side of the platform, the issuer acts as an intermediary between the network and the cardholder. On the other side of the platform, the acquirer typically acts as an intermediary between the network and the merchant. The issuer and acquirer are typically banks.

When a cardholder uses his or her card to make a purchase, the transaction information is sent immediately to the acquirer, who discharges the cardholder’s obligations by paying the merchant the funds owed on the transaction. As the price for handling this transaction, the acquirer charges the merchant a merchant-discount fee. The amount of the merchant-discount fee is determined in large part by the interchange fee, which is paid by the acquirer to the issuer as the price for handling its transactions with the cardholder.23 The optimal interchange fee depends on several factors, including “the split of total costs between issuer and acquirer, the demand elasticities for both types of users, and the intensity of competition in both the issuing and acquiring markets.”24

The merchant discount is typically a percentage discount rate multiplied by the purchase price. The bulk of the merchant discount is the interchange fee, the rate of which varies according to (1) the merchant’s industry, and (2) the cardholder’s chosen card product. Because Visa and MasterCard use interchange fees to fund cardholder rewards, such as cash back or airline miles, high rewards cards are generally subject to higher interchange rates and thus cost more for merchants to accept. Visa and MasterCard do not directly set the interchange fee, but “they influence these prices by implementing interchange fees that flow from the acquiring bank (where the merchant’s account is credited) to the card-issuing bank (where the consumer’s account is debited).”25

In contrast to Visa and MasterCard, Amex is a proprietary network that operates a “closed-loop” system. Within this closed loop, Amex acts not only as the middleman network but also as both the issuer and acquirer for the vast majority of transactions involving its cards.26 There*189fore, in most cases,27 Amex maintains direct relationships with both its cardholders and merchants by “provid[ing] issuing services to cardholders, acquiring- and processing services to merchants, and network services to both sides of the platform in order to facilitate the use and acceptance of its payment cards.”28 Special App. 16. The Amex system is sometimes referred to as a “three-party system because the network (ie., Amex itself) serves as the only intermediary between the cardholder and merchant.

Within its closed-loop system, Amex directly sets the interchange fee so as to maximize profit.29 Setting the interchange fee also allows Amex to set the accompanying merchant-discount fee and cardholder benefits directly.30 Amex charges a single discount rate for all Amex card products, meaning that, regardless of whether a cardholder uses Amex’s highest rewards card or its lowest, the merchant still must pay the same fee in order to accept the Amex card.

Unlike Visa and MasterCard, which run “lend-eentric” models deriving more than half their revenues from interest charged to cardholders for unpaid balances on the cardholder’s charges for a given billing .period, Amex runs a “spend-centric” model whose revenues are primarily dependent on merchant-discount fees. This model is critical to Amex’s merchant value proposition, which is that merchants who accept Amex gain access to “marquqe” cardholders who tend to spend more on both, an annual and per-transaction basis than customers using alternative payment methods.31 Amex’s model is also critical to its cardholder value proposition, which features a robust rewards program and numerous other benefits, including customer service, fraud protection, and purchase and return protection.

Both merchants and cardholders engage in “multihoming,” meaning that both cardholders and merchants may choose to use or accept several different cards,32 Multi-homing tends to lower prices by functioning essentially as an availability of substitutes.33 This downward pricing pressure “is not entirely a free lunch” for all consumers, however, because increased multihom-ing on one side of the platform allows the card network to charge more to consumers on the other side, for whom fewer substitutes might be available.34 A cardholder often has more choices of payment method than a merchant has the ability to accept, and thus the cardholder may simply opt *190not to own cards that charge membership fees or offer relatively few cardholder benefits. Largely due to ■ multihoming, not all merchants or all cardholders use all payment-card networks. Approximately three million of the total nine million U.S. merchant locations that accept credit cards— that is, roughly one out of every three—do not accept Amex cards.

E. Competition Within The Credit-Card Industry

The credit-card industry continues to be characterized by formidable barriers to entry. These barriers arise because of the nature of the industry and the requirements a network must fulfill before entering it. A network in the credit-card industry must be prepared to issue huge amounts of credit, and thus the network itself must have access to huge amounts of money. The network’s credit must of course be rock solid because merchants will not deal with an issuer without absolute certainty that the issuer will meet its obligations. As the District Court recognized, potential new entrants also face a “chicken and egg problem” wherein “a firm attempting entry into the [payment-card] network market would struggle to convince merchants to join a network without a significant population of cardholders and, in turn, would also struggle to convince cardholders to carry a card associated with a network that is accepted at few merchants.” Am. Express Co., 88 F.Supp.3d at 190.

Throughout the 1960s and 1970s, Visa, MasterCard, and Amex competed fiercely with one another for consumers on both sides of their platforms.35 Amex sought to keep up with Visa and MasterCard by expanding outward from the T & E market to include “everyday-spend” merchants such as gas stations, supermarkets, and pharmacies. It also sought to increase both its merchant and cardholder value propositions by introducing its membership-rewards program for cardholders and developing new technologies to better leverage the advantages of its closed-loop system for merchants.36

In the 1980s, this competition led Visa and MasterCard to adopt exclusionary rules preventing member institutions from issuing card products on the Amex or Discover networks.37 Visa and MasterCard also ran campaigns highlighting Amex’s smaller merchant-acceptance network, consumers’ resulting perceptions of the utility and value of Amex’s card products, and Amex’s higher- merchant-discount rates. These campaigns, which included the “It’s Everywhere You Want To Be” and “We Prefer Visa” initiatives, were remarkably effective, leading Amex’s overall share of payment-card charge volume to dip from about 25% in 1990 to 20% in 1995.

Amex responded to Visa’s and MasterCard’s exclusionary rules and campaigns by strengthening contractual restraints designed to control how merchants treat Amex cardholders at the point of sale. *191These restraints, known as non-discriminatory provisions (“NDPs”), had existed in Amex’s card-acceptance agreements in some form or another since the 1950s, but Amex tightened them considerably in the late 1980s and early 1990s to ensure that merchants could not state a preference for any payment-card network other than Amex.

Amex’s standard NDPs are contained in section 3.2 of Amex’s Merchant Regulations. The NDPs provide that a merchant who accepts Amex cards may not engage in the following behaviors:

• indicate or imply that [it] prefer[s], directly or indirectly, any Other Payment Products over [Amex’s] Card,

• try to dissuade Cardmembers from using the Card,

• criticize or mischaracterize the Card or any of [Amex’s] services or programs,

• try to persuade or prompt Cardmem-bers to use any Other Payment Products or any other method of payment (e.g., payment by check),

• impose any restrictions, conditions, disadvantages or fees when the Card is accepted that are not imposed equally on all Other Payment Products, except for electronic funds transfer, or cash and check,38

• engage, in activities that harm [Amex’s] business or the American Express Brand (or both), or

• promote any Other Payment- Products (except [the ■ merchant’s] own private label card that' [it] issue[s] for use solely at [the merchant’s] Establishments) more actively than [it] pro-motets] [Amex’s] -Card.

App. 923. Annex actively monitors for noncompliance with its NDPs via oversight of the merchant’s client manager at Amex and the merchant’s charge volume, random on-site visits, and cardholder complaints and reports.39

Amex designs its NDPs to curb merchant steering and thus preserve what it refers to as “welcome acceptance,” a term describing cardholders’ enjoyment of “a frictionless and consistent point-of-sale experience when using their American Express cards.” Am. Express Co., 88 F.Supp.3d at 225 (internal quotation marks omitted). Although merchants across various industries regularly try to “steer” their customers toward certain purchasing decisions via strategic product placement, discounts, and other deals, steering within the credit-card industry can be harmful insofar as it interferes with a network’s ability to balance its two-sided net price. Accordingly, Amex’s NDPs (and other networks’ similar restraints) aim to increase cardholders’ certainty as to whether its *192cards will be accepted and on what terms. Certainty that Amex cards will be accepted makes the network more attractive to cardholders—and, in turn, cardholders’ use of the Amex network makes its cards more attractive for merchants to accept.

F. Procedural History of This Case

On October 4, 2010, the United States Government and seventeen Plaintiff States (collectively, “Plaintiffs”) sued Amex, Visa, and MasterCard for unreasonably restraining trade in violation of § l.40 Plaintiffs. alleged in their complaint that absent the anti-steering provisions contained in each networks’ respective merchant agreements—including Amex’s NDPs—mer-chants would be able to use steering “at the point of sale to foster competition on price and terms among sellers of network services” by encouraging customers to use less expensive or otherwise preferred cards. App. 136. The complaint alleged further that Amex, Visa, and MasterCard used anti-steering provisions to .suppress interbrand competition by blocking competition from rival networks and. removing incentives for networks to reduce card fees. See App. 128,148-49.

In 2011, Visa and MasterCard entered into consent judgments and voluntarily rescinded their anti-steering provisions. Amex, however, proceeded to a seven-week bench trial in the United States District Court for the Eastern District of New York in the summer of 2014. After trial, the District Court concluded that Plaintiffs had “shown by the preponderance of the evidence that Amex’s NDPs violate the U.S. antitrust laws” and that “[Amex’s] NDPs create an environment in which there is nothing to offset credit-card networks’ incentives—including American Express’s incentive—to charge merchants inflated prices for their services.” Am. Express Co., 88 F.Supp.3d at 150. In reaching this conclusion, the District Court made the following findings:

1) Relevant Market: A payment-card network sits at the center of a two-sided platform that “comprises at least two separate, yet deeply interrelated, markets: a -market for card issuance, in which Amex and Discover compete with thousands of Visa- and MasterCard-issuing banks; and a network services market, in which Visa, Mastercard, Amex, and Discover compete to sell acceptance services.” Id. at 151, Despite the two-sided nature of the platform, however, the relevant market for antitrust analysis in this case is only the market for “network services.” Id. (citing United States v. Visa USA, Inc., 344 F.3d 229 (2d Cir. 2003)).

2) Market Power: “American Express possesses sufficient market power in the network services market to harm competition, as evidenced by its significant market share, the market’s highly concentrated nature and high barriers to entry, and the insistence of Defendants’ cardholder base on using their American Express cards— insistence that prevents most merchants from dropping acceptance of American Express when faced with price increases or similar conduct.” Id. '

3) Anticompetitive Effects: “Plaintiffs have proven that American Express’s NDPs have caused actual anticompet-itive effects on interbrand competi*193tion. By preventing merchants from steering additional charge volume to their least expensive network, for example, the NDPs short-circuit the ordinary price-setting mechanism in the network services market by removing the competitive ‘reward’ for networks offering merchants a lower price for acceptance services. The result is an absence of price competition among American Express and its rival-networks.” Id.

In conjunction with its liability determination, the District Court permanently enjoined Amex from enforcing its NDPs for a period of ten years.

Amex timely appealed.

II. DISCUSSION

On appeal from a bench trial, this Court reviews a district court’s findings of fact for clear error and its conclusions of law de novo. Beck Chevrolet Co. v. Gen. Motors LLC, 787 F.3d 663, 672 (2d Cir. 2015). “The application of law to undisputed facts is also subject to de novo review.” Id. (citing Deegan v. City of Ithaca, 444 F.3d 135, 141 (2d Cir. 2006)). A finding of fact is clearly erroneous when, “although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (internal quotation marks omitted).

A. Governing Law

Section 1 of the Sherman Act prohibits “[ejvery contract ... in restraint of trade or commerce among the several States.” 15 U.S.C. § 1. “To prove a § 1 violation, a plaintiff must demonstrate: (1) a combination or. some form of concerted action between at least two legally distinct economic entities that (2) unreasonably restrains trade.” Geneva Pharms. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 506 (2d Cir. 2004). Though the Sherman Act could be read literally to strike down virtually every contract that exists, the Supreme Court has recognized repeatedly that “the Sherman Act was intended to prohibit only unreasonable restraints of trade.” Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of Univ. of Okla., 468 U.S. 85, 98, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984) (emphasis added).

The Sherman Act aims to “protect[ ] competition as a whole in the .relevant market, not the individual competitors within that market.” Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 96 (2d Cir. 1998). Disputes between business competitors thus are not the proper subjects of antitrust actions. .¿tee Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 543 (2d Cir. 1993). This limitation, in addition to supporting judicial economy, is based on the antitrust principle that “[pjrocompetitive or efficiency-enhancing aspects of practices that nominally violate the antitrust laws may cause serious harm to individuals, but this kind of harm is the essence of competition and should play no role in the definition of antitrust damages.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990) (internal quotation marks omitted).

To determine whether a practice unreasonably restrains trade in violation of the Sherman Act, courts apply one of two rules designed to provide guidance in forming judgments about the competitive significance of challenged restraints. See Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885-87, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007). Under the per se rule, certain practices, e.g., horizon*194tal price-fixing or market division with no purpose other than to limit competition, are entitled to a conclusive presumption of unreasonableness and thus considered per se illegal. See Bogan v. Hodgkins, 166 F.3d 509, 514 (2d Cir. 1999) (citing Arizona v. Maricopa Cty. Med. Soc’y, 457 U.S. 382, 344, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982)). All other practices are analyzed under the rule of reason. See id.; see also Leegin, 551 U.S. at 885, 127 S.Ct. 2705 (“The rule of reason is the accepted standard for testing whether a practice restrains trade in violation of § 1.”).

“Agreements within the scope of § 1 may be either ‘horizontal,’ i.e., ‘agreements] between competitors at the same level of the market structure,’ or ‘vertical,’ i.e., ‘combinations of persons at different levels of the market structure, e.g., manufacturers and distributors.’ ” Anderson News, L.L.C. v. Am. Media, Inc., 680 F.3d 162, 182 (2d Cir. 2012) (quoting United States v. Topco Assocs., Inc., 405 U.S. 596, 608, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972)). “Restraints imposed by agreement between competitors have traditionally been denominated as horizontal restraints, and those imposed by agreement between firms at different levels of distribution as vertical restraints.” Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 730, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988). Vertical restraints “are generally judged under the rule of reason.”41 Anderson News, at 183, (internal quotation marks omitted); see also Leegin, 551 U.S. at 907, 127 S.Ct. 2705 (“Vertical price restraints are to be judged according to the rule of reason.”); Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 59, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977) (“When anticompetitive effects are shown to result from particular vertical restrictions they can be adequately policed under the rule of reason, the standard traditionally applied for the majority of anticompetitive practices challenged under [§ ] 1 of the Act.”).

Courts apply the rule of reason using a three-step burden-shifting framework. First, a plaintiff bears the initial burden of demonstrating that a defendant’s challenged behavior “had an actual adverse effect on competition as a whole in the relevant market.” Capital Imaging, 996 F.2d at 543. Examples of actual anti-competitive effects include reduced output, decreased quality, and supracompetitive pricing. See Tops Mkts., 142 F.3d at 96; Capital Imaging, 996 F.2d at 546-47.

If the plaintiff cannot establish anticompetitive effects directly by showing an actual adverse effect on competition as a whole within the relevant market, he or she nevertheless may establish anticom-petitive effects indirectly by showing that the defendant has “sufficient market power to cause an adverse effect on competition.” Tops Mkts., 142 F.3d at 96; see also K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 129 (2d Cir. 1995) (“ ‘[W]here the plaintiff is unable to demonstrate [an actual advei'se effect on competition,] ... it must at least establish that defendants possess the requisite market power’ and thus the capacity to inhibit competition market-wide.” (quoting Capital Imaging, 996 F.2d at 546)). Because “[m]arket power is but a ‘surrogate for detrimental effects,’ ” Tops Mkts., 142 F.3d *195at 96 (quoting FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 461, 106 S.Ct. 2009, 90 L.Ed.2d 446 (1986)), “[a] plaintiff seeking to use market power as a proxy for adverse effect must show market power, plus some other ground for believing that the challenged behavior could harm competition in the market, such as the inherent anticompetitive nature of the defendant’s behavior or the structure of the interbrand market,” id. at 97.

Once the plaintiff satisfies its initial burden to prove anticompetitive effects, the burden shifts to the defendant to offer evidence of any procompetitive effects of thé restraint at issue. See Geneva Pharms., 386 F.3d at 507. If the defendant can provide such proof, then “the burden shifts back to the plaintifft ] to prove that any legitimate competitive benefits offered by defendant ] could have been achieved through less restrictive means.” Id. (citing Capital Imaging, 996 F.2d at 543).

Courts must be careful to avoid confusing healthy competition with the anticompetitive exercise of market power. “Adverse” effects among different sellers “can actually enhance market-wide competition by fostering vertical efficiency and maintaining the desired quality of a product.” K.M.B., 61 F.3d at 127-28. Further, when output expands at the same time that prices increase, “rising prices are equally consistent with growing product demand” as with anticompetitive behavior. Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 237, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993). “Under these conditions, a [fact-finder] may not infer competitive injury from price and output data absent some evidence that tends to prove that output was restricted or prices were above a competitive level.” Id.

“Ultimately, it remains for the factfinder to weigh the harms and benefits of the challenged behavior.” Capital Imaging, 996 F,2d at 543. To prevail on a § 1 claim, a plaintiff must show more than just an adverse effect on competition among different sellers of the same product. See K.M.B., 61 F.3d at 127. “The overarching standard is whether defendants’ actions diminish overall competition, and hence consumer welfare.” Id.' (emphasis added) (internal quotation marks omitted).

B. Analysis

At the outset, all parties and the District Court agree that Amex’s NDPs are a vertical restraint, meaning that they result from agreements setting terms between buyers and sellers. See Appellant’s Br. at 2 (“The NDPs are non-price vertical restraints that prevent merchants—which also function as distributors of Amex’s product—from reaping the benefits of accepting Amex cards while simultaneously damaging Amex’s brand and Amex’s relationship with its cardholders.”); Appellee’s Br. at 50 (“Amex’s NDPs- are vertical restraints because Amex and the merchants are at ‘different levels of distribution,’ and because the imposition of Amex’s NDPs was not alleged to be the product of a ‘horizontal’ agreement with any of its [credit-card] network rivals.”); Am. Express Co., 88 F.Supp.3d at 167 (“As non-price vertical restraints between firms at different levels of production—namely, between the network and its merchant-consumers—American Express’s NDPs are properly analyzed under the rule of reason.”).42

*196We agree that the NDPs are a vertical restraint. The challenged agreements are between Amex and merchants, rather than laterally among competing networks. The Plaintiffs’ claim in this case is premised upon Amex’s use of NDPs as a condition of a merchant or provider accepting Amex cards from consumers purchasing the merchants’ goods dr services; some merchants wish to attract Amex cardholders but then déal only on Visa’s and MasterCard’s terms.

Many verti'cál restraints by a product-creator are imposed on market intermediaries to induce those dealing with the ultimate consumer to promote the particular product. Resale price maintenance, for example, induces retailers to advertise or otherwise promote a product without fear that a firm without promotion expenses will undercut the price of the goods. See Leegin, 551 U.S. at 892-93, 127 S.Ct. 2705. Exclusive dealerships achieve a similar result. It is primarily for this reason that legal and economic scholars often view vertical restraints as having procompetitive effects.43

1. Market Definit