Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Visa Seeks Declaratory Judgment on Wal-Mart’s Interchange Fee and Merchant Rules Antitrust Claims, (Jun 14, 2013)

By Tobias J. Gillett, J.D., LL.M.

Visa has filed a complaint in the federal district court in New York, seeking declaratory judgments that its interchange fees, merchant rules, and initial public offering (IPO) did not violate the antitrust laws and that it was not liable to Wal-Mart Stores on theories related to those fees and rules (Visa U.S.A. Inc. v. Wal-Mart Stores Inc., June 12, 2013).

According to the complaint, Visa settled class action antitrust litigation against it filed by Wal-Mart and others in 1996 (In re Visa Check/MasterMoney Antitrust Litig., 297 F. Supp. 2d 503 (E.D.N.Y. 2003), but in 2012 a new set of lawsuits was filed against it (In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 05-md-1720 (E.D.N.Y. Nov. 27. 2012), which Visa also settled. However, Wal-Mart opted out of the settlement, and intends to bring another lawsuit against Visa. Therefore, Visa is seeking declaratory judgments to resolve the claims.

The claims principally concern Visa’s interchange fees and rules for merchants accepting Visa payment cards. Visa facilitates the transfer of data and funds between issuing banks, those that issue payment cards to cardholders, and acquiring banks, those that acquire and process payment card transactions from merchants. Visa has established rules that merchants and banks must obey when using the Visa payment network. Visa also requires issuing banks to transfer funds to acquiring banks “in exchange for a payment established either by bilateral agreement between the issuer and the acquirer, or absent such an agreement, by default through the network,” known as an “interchange fee.” The complaint asserts that Visa’s rules have remained largely unchanged since the Visa Check settlement.

Visa’s complaint contends that its interchange fees “were necessary, efficient, and pro-competitive,” and have permitted it to offer “better, more reliable, and higher value services.” The complaint cites National Bancard Corp. (NaBanco) v. Visa U.S.A., Inc., 596 F. Supp. 1231 (S.D. Fla. 1984), aff’d, 779 F.2d 592 (11th Cir. 1986), which found its default interchange rules “to be pro-competitive and lawful,” according to Visa. The complaint notes that merchants contract with acquiring banks or third-party processors, not with Visa directly, and pay a “merchant discount fee” to the acquirer, which Visa does not play a part in pricing.

Visa’s merchant rules were also “pro-competitive” and “necessary” in order “to facilitate the efficient functioning of its network,” according to the complaint. These rules included the “no-surcharge rule,” under which merchants cannot impose surcharges on cardholders for using Visa payment cards; the “honor-all-cards” rules for credit and debit cards, under which merchants must accept all Visa-branded debit or credit cards if they accept any of that type of Visa-branded card; and the “non-discrimination rules,” under which merchants could not offer discounts for using competing credit or signature debit cards, but could offer discounts for using other forms of payment.

The “no surcharge” rule “did not unreasonably restrain trade” and “reduced prices for consumers,” the complaint said. Similarly, the “honor-all-cards” rules “did not unreasonably restrain trade” and permitted the creation of products that issuing banks could not create individually. The rules “avoid[ed] the need for thousands of issuing banks to arrange individually for acceptance at millions of merchants,” and “assur[ed consumers] that their Visa cards would be accepted at merchants that display the Visa logo, regardless of which bank issued the card or what type of card it [was].” Finally, Visa’s “non-discrimination” rules have prevented disparate treatment of Visa’s card, thus “encourag[ing] a level playing field, ensur[ing] a consistent experience for Visa credit cardholders, and expand[ing] electronic payment output.” The complaint notes that, despite being permitted to do so under the rules, merchants typically have not offered discounts for other forms of payment.

The complaint also observes that Wal-Mart’s payment card transactions “were not subject to default interchange rate,” but instead “were subject to low negotiated rates that reflect Wal-Mart’s negotiating leverage.” Moreover, Wal-Mart did not pay interchange fees; rather, Wal-Mart’s acquiring banks paid interchange fees, and Wal-Mart paid merchant discount fees to the acquiring banks. Acquiring banks compete for merchant accounts, and typically enter into contracts under which the merchants pay “an amount equal to the applicable default interchange rates plus the merchant acquirers’ fees.”

Furthermore, Visa’s interchange rules are merely default rules, and issuing and acquiring banks may set their own terms for interchange of Visa transactions. Customer banks of Visa’s network may also issue payment cards from other networks, and may invest in electronic payment systems such as PayPal.

Visa’s rules were not the result of a conspiracy between banks, because the banks did not control or establish the rules, the complaint contends. Prior to its IPO, “[t]he fact that senior executives of certain banks sat on Visa’s board and/or that banks entered into license agreements by which they agreed to adhere to Visa’s rules did not constitute an agreement among those banks, and agreement between those banks and Visa, or an agreement with MasterCard or any other person concerning the setting of default interchange rates.” Following its IPO, Visa’s customer financial institutions could not hold voting stock, and “[o]nly holders of class A common stock may elect directors to the Visa board.” Visa’s board presently consists “solely of 10 non-bank directors.” “Banks could not have conspired to fix interchange fees when they had no power, either acting individually or collectively, to set interchange fees,” the complaint observes.

The complaint also contends that Visa has not monopolized any relevant markets. The complaint notes that Visa competes with other payment card networks such as MasterCard, American Express, Discover, and China UnionPay, as well as other forms of payment. Moreover, the output of Visa’s network and of other payment networks has been increasing, while Visa’s share of credit and charge card purchases declined slightly between 2004 and 2008, from 42.7 percent to 42.4 percent.

Finally, the complaint asserts that “[m]any of the allegations and argument made by Wal-Mart and the merchant class in the Visa Check Litigation are identical to the allegations and arguments made by the plaintiffs in the Interchange Fee Litigation.” The settlement in Visa Check contained a clause releasing claims against Visa.

The complaint seeks declaratory judgments that:

1. Visa’s default interchange rules and the manner in which default interchange was established by Visa did not violate Section 1 of the Sherman Act;

2. Visa Merchant Rules, each standing alone or viewed together with other such rules and/or default interchange rules, did not violate Section 1 of the Sherman Act;

3. There was no concerted action among (i) any Visa member banks and Visa, or (ii) Visa and MasterCard regarding Visa Merchant Rules and/or interchange rules or rates that could support a claim under Section 1 of the Sherman Act;

4. Visa’s IPO did not violate any federal or state antitrust law or cause any antitrust injury;

5. Visa did not violate Section 2 of the Sherman Act;

6. Wal-Mart was an indirect purchaser who cannot recover damages under the federal antitrust laws pursuant to Illinois Brick;

7. The Visa Check release bars any claims Wal-Mart might assert; and

8. Visa is not liable to Wal-Mart under the laws of the several States or the District of Columbia based upon Visa’s default interchange rules or rates, Merchant Rules, or the Visa IPO.

Visa also seeks any further relief to which it may be entitled, and costs of suit.

The case is No. 05-MD-1720 (JG) (JO).

Attorneys: Richard J. Holwell (Holwell Shuster & Goldberg LLP) for Visa Inc.

Companies: Visa U.S.A. Inc.; Visa Inc.; Visa International Service Association; Wal-Mart Stores Inc.

News: Antitrust NewYorkNews