[Federal Register Volume 69, Number 94 (Friday, May 14, 2004)]
[Notices]
[Pages 26885-26892]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10917]


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DEPARTMENT OF JUSTICE

Antitrust Division


Public Comments and Response on Proposed Final Judgment in United 
States v. First Data Corporation and Concord EFS, Inc.

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(b)-(h), the United States hereby publishes below the comments 
received on the proposed Final Judgment in United States v. First Data 
Corporation and Concord EFS, Inc., Civil Action No. 1:03CV02169, filed 
in the United States District Court for the District of Columbia, 
together with the United States' response to the comments.
    Copies of the comments and response are available for inspection at 
Room 200 of the Department of Justice, Antitrust Division, 325 Seventh 
Street, NW., Washington, DC 20530, telephone (202) 514-2481, and at the 
Office of the Clerk of the United States District Court for the 
District of Columbia, E. Barrett Prettyman United States Courthouse, 
333 Constitution Avenue, NW., Washington, DC 20001. Copies of any of 
these materials may be obtained upon request and payment of a copying 
fee.

J. Robert Kramer, II,
Director of Operations, Antitrust Division.

In the United States District Court for the District of Columbia

United States of America, et al., Plaintiffs, v. First Data Corporation 
and Concord EFS, Inc., Defendants

    Case Number: 1:03CV02169.
    Judge: Hon. Rosemary M. Collyer.
    Filed: May 7, 2004.

Response to Public Comments

    Pursuant to the requirements of the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h) (``Tunney Act''), the United States 
files the comments of the public concerning the proposed Final Judgment 
in this case and the United States' responses to those comments. After 
careful consideration of the comments, the United States continues to 
believe that the proposed Final Judgment will provide an effective and 
appropriate remedy for the antitrust violation alleged in the 
Complaint. The United States will move the Court to enter the proposed 
Final Judgment after the public comments and this Response have been 
published in the Federal Register, pursuant to 15 U.S.C. 16(d).

I. Background

    On October 23, 2003, plaintiffs the United States and the states of 
Connecticut, Illinois, Louisiana, Massachusetts, New York, Ohio, 
Pennsylvania, and Texas, and the District of Columbia (collectively 
``Plaintiff States'') filed a Complaint alleging that the proposed 
acquisition of Concord EFS, Inc. (``Concord'') by First Data 
Corporation (``First Data'') would violate section 7 of the Clayton 
Act, as amended, 15 U.S.C. 18. The Complaint alleged that First Data's 
acquisition of Concord would substantially reduce competition in the 
market for PIN debit network services by combining the STAR and NYCE 
point-of-sale PIN debit networks.\1\ Concord's STAR network is the 
largest PIN debit network in the United States, currently switching 
approximately half of all U.S. PIN debit transactions. NYCE is the 
third-largest PIN debit network. First Data owns a 64 percent 
controlling interest in NYCE. The transaction would have eliminated the 
competition between STAR and NYCE, leading to higher prices for PIN 
debit network services to merchant customers. Merchants would have 
passed on at least some of the higher costs of PIN debit transactions 
by raising the prices of their goods and services, to the detriment of 
tens of millions of consumers throughout the United States.
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    \1\ PIN debit networks are the telecommunications and payment 
infrastructure that connects merchants to consumers' demand deposit 
accounts at banks. These networks enable consumers to purchase goods 
and services from merchants through PIN debit transactions by 
swiping their bank card at a merchant's terminal and entering a 
Personal Identification Number, or PIN. Within seconds, the purchase 
amount is debited from the customer's bank account and transferred 
to the retailer's bank.
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    On December 15, 2003, the United States, the Plaintiff States and 
the Defendants filed a proposed Final Judgment and Hold Separate 
Stipulation and Order. On January 9, 2004, the parties, by consent, 
filed an Amended Hold Separate Stipulation and Order. The proposed 
Final Judgment requires First Data, within 150 calendar days after the 
Court's signing of the original Hold Separate Stipulation and Order, or 
five days after notice of the entry of the Final Judgment by the Court, 
whichever is later, to divest all of its governance rights in NYCE and 
its entire 64 percent ownership interest in NYCE (collectively ``NYCE 
Holdings''). In addition, the Amended Hold Separate Stipulation and 
Order requires First Data to take certain steps to ensure that NYCE is 
operated as a competitively independent, economically viable and 
ongoing business concern that will remain independent and uninfluenced 
by the consummation of the acquisition, and that competition is 
maintained during the pendency of the ordered divestiture.
    The United States, the Plaintiff States and the Defendants have 
stipulated that the proposed Final Judgment may be entered after 
compliance with the Tunney Act. Entry of the proposed Final Judgment 
would terminate this action, except that the Court would retain 
jurisdiction to construe, modify or enforce the provisions of the 
proposed Final Judgment and to punish violations thereof.
    Pursuant to the requirements of the Tunney Act, the United States 
filed a Competitive Impact Statement (``CIS'') on January 23, 2004, and 
published the proposed Final Judgment and the CIS in the Federal 
Register on February 10, 2004. A summary of the terms of the proposed 
Final Judgment and CIS, with directions for the submission of written 
comments relating to the proposed Final Judgment, were published in the 
Washington Post for seven days on February 6, through February 12, 
2004. The sixty-day period for public comments, during which the two 
comments described below were received, expired on April 12, 2004.

[[Page 26886]]

II. Response to Public Comments

A. Legal Standard Governing the Court's Public Interest Determination

    Upon publishing the public comments and this Response, the United 
States will have fully complied with the Tunney Act. After receiving 
the motion of the United States for entry of the proposed Final 
Judgment, the Tunney Act directs the Court to determine whether entry 
of the proposed Final Judgment ``is in the public interest.'' 15 U.S.C 
16(e). In making that determination, ``the court's function is not to 
determine whether the resulting array of rights and liabilities is one 
that will best serve society, but only to confirm that the resulting 
settlement is within the reaches of the public interest.''United States 
v.  W. Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir. 1993) (citations and 
emphasis omitted). The Court should evaluate the relief set forth in 
the proposed Final Judgment and should enter the Judgment if it falls 
within the government's ``rather broad discretion to settle with the 
defendant within the reaches of the public interest.'' United States v. 
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); accord United 
States v. Associated Milk Producers, Inc., 534 F.2d 113, 117-18 (8th 
Cir. 1976). The Court should review the proposed Final Judgment ``in 
light of the violations charged in the complaint and * * * withhold 
approval only [(a)] if any of the terms appear ambiguous, [(b)] if the 
enforcement mechanism is inadequate, [(c)] if third parties will be 
positively injured, or [(d)] if the decree otherwise makes a `mockery 
of judicial power.' '' Mass. Sch. of Law at Andover, Inc. v. United 
States, 118 F.3d 776, 783 (D.C. Cir. 1997) (quoting Microsoft, 56 F.3d 
at 1462).
    Because ``[t]he court's authority to review the decree depends 
entirely on the government's exercising its prosecutorial discretion by 
bringing a case in the first place'' it follows that ``the court is 
only authorized to review the decree itself,'' and not to ``effectively 
redraft the complaint'' to inquire into other matters the United States 
might have, but did not, pursue. Microsoft, 56 F.3d at 1459-60. The 
Tunney Act does not empower the Court to reject the remedies in the 
proposed Final Judgment based on the belief that ``other remedies were 
preferable,'' Id. at 1460, nor does it give the Court authority to 
impose different terms on the parties. See, e.g., United States v. Am. 
Tel. & Tel. Co., 552 F. Supp. 131, 153 n.95 (D.D.C. 1982); accord H.R. 
Rep. No. 93-1463 (1974). Further, the United States is entitled to 
``due respect'' concerning its ``prediction as to the effect of 
proposed remedies, its perception of the market structure, and its view 
of the nature of the case.'' United States v. Archer-Daniels-Midland 
Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (citing Microsoft, 56 F.3d at 
1461).

B. Summary of Public Comments and the United States' Responses

    The United States received comments from the Citizens for Voluntary 
Trade (``CVT'') (Exhibit 1) and Ryco, Ltd. (Exhibit 2) in response to 
its publication of the Final Judgment in the Federal Register.
1. CVT
    CVT's comment states that the United States incorrectly alleged in 
the Complaint that there is a relevant product market for PIN debit 
network services. The comment maintains that PIN debit network services 
are part of a broader product market that includes all demand forms of 
payment, including signature debit network services, cash, checks, 
money orders, and traveler's checks. CVT concludes that because NYCE 
and STAR compete in a broader market, combining the two networks does 
not threaten competition and, therefore, entering the Final Judgment 
does not serve the public interest.
    CVT's comment is directed at whether the United States should have 
filed this case, not to whether the relief in the proposed Final 
Judgment is adequate to address the harm alleged in the Complaint. 
Comments challenging the validity of the United States' case, or 
alleging that it should not have been brought, are challenges to the 
initial exercise of the United States' prosecutorial discretion and are 
outside the scope of the Tunney Act proceeding. The purpose of this 
proceeding is not to evaluate the merits of the United States' case. A 
Tunney Act proceeding is not an opportunity for a ``de novo 
determination of facts and issues,'' but rather ``to determine whether 
the Department of Justice's explanations were reasonable under the 
circumstances'' because ``[t]he balancing of competing social and 
political interests affected by a proposed antitrust decree must be 
left, in the first instance, to the discretion of the Attorney 
General.'' United States v. W. Elec. Co., 993 F.2d at 1577 (citations 
omitted). Consequently, the courts consistently have refused to 
consider ``contentions going to the merits of the underlying claims and 
defenses.'' United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 
1981); accord United States v. Thomson Corp., 949 F. Supp. 907, 913 
(D.D.C. 1996) (``[T]he court is to compare the complaint filed by the 
government with the proposed consent decree and determine whether the 
remedies negotiated between the parties and proposed by the Justice 
Department clearly and effectively address the anticompetitive harms 
initially identified.''). Thus, CVT's challenge to the merits of the 
United States' underlying case are beyond the purview of appropriate 
Tunney Act inquiry.
    Nevertheless, in response to CVT's comment, the United States 
observes that it conducted an extensive and thorough investigation into 
the provision of PIN debit network services, including to what extent 
these services potentially competed with other products or services. 
The facts found by the investigation demonstrated that PIN debit 
network services are a relevant product market under the antitrust 
laws. Many merchants strongly prefer PIN debit network services because 
PIN debit network services offer substantial advantages that set them 
apart from other forms of demand payment, most notably from the closest 
potential substitute, signature debit network services.\2\ First, PIN 
debit networks generally charge merchants considerably lower prices 
than those offered by signature debit networks. Second, PIN debit 
networks provide a more secure method of payment than signature debit 
networks because it is easier to forge a person's signature than to 
obtain an individual's PIN. Consequently, fraud rates, and the expenses 
imposed by such fraud, are generally lower for PIN debit network 
services than for signature debit. The greater security provided by PIN 
debit networks also typically eliminates the need for costly charge-
back procedures that allow consumers to challenge signature debit 
transactions. Third, PIN debit transactions also generally settle 
instantaneously, guaranteeing the merchant ready access to its 
receipts, while signature debit transactions often take one or two days 
to settle. Finally, PIN debit networks usually enable shorter times at 
the check-out counter than signature debit networks, further reducing 
merchants' costs.
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    \2\ Signature debit networks are telecommunications and payment 
infrastructure that enable consumers to purchase goods and services 
by swiping a debit card and then signing for the transaction as the 
means of authentication.
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    Merchant preference for PIN debit network services over other forms 
of demand payment, including signature debit transactions, cash, money 
orders, and travelers checks, is further strengthened by the strong 
demand of many consumers to use PIN debit network services, 
particularly at

[[Page 26887]]

supermarkets, mass merchandisers and drug stores. Many consumers value 
the security and speed of PIN debit transactions, as well as the unique 
``cash back'' feature that allows them to receive cash at the register 
when making a purchase. Consumers cannot receive cash back when making 
a signature debit purchase. Today, consumers request cash back in 
approximately twenty percent of all PIN debit transactions. Because of 
their generally substantial lower costs and superior features, the 
United States determined that a small but significant increase in the 
price of PIN debit network services would not cause a sufficient number 
of merchants to stop accepting PIN debit transactions, or to discourage 
their customers from executing such transactions, to defeat the price 
increase. Based on this finding, the United States concluded, and 
properly alleged in its Complaint, that PIN debit network services is a 
relevant antitrust product market.
2. Ryco's Comment
    Ryco is an independent gas station and convenience store that does 
business under the trade name ``Hansen's Good to Go.'' Ryco's comment 
states that it objects to the merger of First Data and Concord because 
Concord currently engages in alleged anticompetitive behavior. The 
comment maintains that Concord provides Ryco and other merchant 
customers with poor customer service by double-charging them on some 
bills, routing some transactions to more expensive networks, and 
negotiating unfavorable terms in its contracts concerning the forums 
for litigating contractual disputes and the parties' responsibilities 
for ``fees'' and ``costs'' that result from such litigation. Ryco 
believes that the merger will increase the number of merchants to which 
Concord provides debit card transaction related services and, 
consequently, will increase Concord's leverage to provide poor customer 
service. Ryco advocates conditioning approval of the merger on (a) 
revisions to the choice of forum and attorneys' fees provisions in 
Concord's contracts, and (b) improvements in Concord's customer 
service.
    Ryco's concerns do not indicate that the proposed Final Judgment is 
not in the public interest. To the extent that Ryco's concerns are 
directed to the provision of PIN debit network services, the Final 
Judgment's requirement that First Data divest NYCE is a fully adequate 
remedy. Preventing the combination of STAR and NYCE maintains the 
competitive structure of the PIN debit network services market that 
existed at the time First Data and Concord decided to merge.
    Ryco also appears to be concerned about the merger's potential 
impact on at least two other types of services, merchant processing and 
acquiring services for credit and debit card transactions. These 
concerns are not a proper focus for the Tunney Act proceeding because 
they were not the subject of the Complaint. The Complaint alleged that 
First Data's acquisition of Concord would reduce competition only in 
the PIN debit network services market. As explained, Tunney Act review 
may not ``reach beyond the complaint to evaluate claims that the 
government did not make and to inquire as to why they were not made.'' 
Microsoft, 56 F.3d at 1459. See also Archer-Daniels-Midland Co., 272 F. 
Supp. 2d at 6-7, 9 (rejecting argument that court should consider 
effects in markets other than those raised in the complaint); United 
States v. Pearson PLC, 55 F. Supp. 2d 43, 45 (D.D.C. 1999) (a court 
should not ``base its public interest determination on antitrust 
concerns in markets other than those alleged in the government's 
complaint'') (citation omitted). Therefore, Ryco's apparent concerns 
about the merger's impact on merchant processing and acquiring services 
provides no basis for the Court to reject the proposed Final Judgment.

III. Conclusion

    The CIS and this Response of the United States to the public 
comments demonstrate that the proposed Final Judgment is in the public 
interest. Accordingly, pursuant to Section 16(d) of the Tunney Act, 
after these comments and this Response are published in the Federal 
Register, the United States will move this Court to enter the Proposed 
Final Judgment.

    Dated: May 7, 2004.

Respectfully submitted,

Joshua H. Soven,
Networks and Technology Section, Antitrust Division, United States 
Department of Justice, 600 E Street, NW., Suite 9500, Washington, DC 
20530.

Certificate of Service

    The undersigned certifies that a copy of the foregoing Response 
to Public Comments was served on the following counsel, by 
electronic mail in PDF format, on May 7, 2004:

Counsel for Defendant First Data Corp.

Counsel for Defendant Concord EFS, Inc.

Christopher Hockett, Esq., Bingham McCutchen LLP, Three Embarcadero 
Center, San Francisco, CA 94111, e-mail: [email protected]
Geraldine M. Alexis, Esq., Bingham McCutchen LLP, Three Embarcadero 
Center, San Francisco, CA 94111, e-mail: 
[email protected]
Lawrence R. Fullerton, Esq., Sidley Austin Brown & Wood LLP, 1501 K 
Street, NW., Washington, DC 20005, e-mail: [email protected]
Jeffrey T. Green, Sidley Austin Brown & Wood LLP, 1501 K Street, 
NW., Washington, DC 20005, e-mail: [email protected]
Stephen R. Patton, Esq., Kirkland & Ellis LLP, Aon Center, 200 East 
Randolph Drive, Chicago, IL 60601-6636, e-mail: [email protected]
James H. Mutchnik, Kirkland & Ellis LLP, Aon Center, 200 East 
Randolph Drive, Chicago, IL 60601, e-mail: [email protected]

Counsel for Plaintiff States

Rebecca Fisher, Esq., Assistant Attorney General, P.O. Box 12548, 
Austin, TX 78711-2548, e-mail: [email protected]

Joshua H. Soven,
Networks and Technology Section Antitrust Division, United States 
Department of Justice, 600 E Street, NW., Suite 9500, Washington, DC 
20530.
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[FR Doc. 04-10917 Filed 5-13-04; 8:45 am]
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