[Federal Register Volume 75, Number 197 (Wednesday, October 13, 2010)]
[Notices]
[Pages 62858-62874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-25655]
-----------------------------------------------------------------------
DEPARTMENT OF JUSTICE
Antitrust Division
United States, et al. v. American Express Company, et al.;
Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation, and Competitive Impact Statement have been filed with the
United States District Court for the Eastern District of New York in
United States of America, et al. v. American Express Company, et al.,
Civil Action No. CV-10-4496. On October 4, 2010, the United States and
seven States filed a Complaint alleging that certain rules, policies,
and practices of Defendants American Express Company, American Express
Travel Related Services Company, Inc., MasterCard International
Incorporated, and Visa Inc. violate Section 1 of the Sherman Act, 15
U.S.C. 1. Those rules, policies, and practices obstruct merchants from
offering discounts, other benefits, and information to customers who
use the merchants' preferred form of payment. The proposed Final
Judgment, filed on the same day as the Complaint, resolves the case
with respect to Defendants MasterCard and Visa by prohibiting them from
maintaining the rules, policies, and practices challenged in the
Complaint.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection at the Department of
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth
Street, NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-
2481), on the Department of Justice's Web site at http://www.usdoj.gov/atr, and at the Office of the Clerk of the United States District Court
for the Eastern District of New York. Copies of these materials may be
obtained from the Antitrust Division upon request and payment of the
copying fee set by Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such
[[Page 62859]]
comments, and responses thereto, will be filed with the Court and may
be published in the Federal Register, in accordance with the Antitrust
Procedures and Penalties Act. Comments should be directed to John Read,
Chief, Litigation III, Antitrust Division, Department of Justice,
Washington, DC 20530, (telephone: 202-307-0468).
Robert Kramer,
Director of Operations.
In The United States District Court for the Eastern District of New
York
United States of America, State of Connecticut, State of Iowa,
State of Maryland, State of Michigan, State of Missouri, State of Ohio,
and State of Texas Plaintiffs, v. American Express Company, American
Express Travel Related Services Company, Inc., Mastercard International
Incorporated, and Visa Inc. Defendants.
Civil Action No. CV-10-4496
(Garaufis, J.)
(Pollak, M.J.)
Complaint for Equitable Relief for Violation of Section 1 of the
Sherman Act, 15 U.S.C. 1
The United States of America, by its attorneys acting under the
direction of the Attorney General; the State of Connecticut, by its
Attorney General Richard Blumenthal; the State of Iowa, by its Attorney
General Thomas J. Miller; the State of Maryland, by its Attorney
General Douglas F. Gansler; the State of Michigan, by its Attorney
General Michael A. Cox; the State of Missouri, by its Attorney General
Chris Koster; the State of Ohio, by its Attorney General Richard
Cordray; and the State of Texas, by its Attorney General Greg Abbott
(collectively, ``Plaintiffs''), bring this civil antitrust action
against Defendants American Express Company and American Express Travel
Related Services Company, Inc. (collectively, ``American Express''),
MasterCard International Incorporated (``MasterCard''), and Visa Inc.
(``Visa'') (collectively, ``Defendants'') to obtain equitable relief to
prevent and remedy violations of Section 1 of the Sherman Act, 15
U.S.C. 1.
Plaintiffs allege:
I. Introduction
1. Defendants operate the three largest credit and charge card
transaction networks in the United States. In 2009, a substantial
amount of interstate commerce--over $1.6 trillion in transaction
volume--flowed through Defendants' networks. Every time a consumer uses
one of Defendants' credit or charge cards to pay for a purchase from a
merchant, the merchant must pay a fee, often called a ``card acceptance
fee,'' ``merchant discount fee,'' or ``swipe fee.'' In 2009 alone,
Defendants and their affiliated banks collected more than $35 billion
in such fees from U.S. merchants. Defendants' fees are a significant
cost for merchants that accept Defendants' cards, and merchants pass
these costs on to all consumers through higher retail prices.
2. Plaintiffs bring this action to prevent Defendants from imposing
on merchants certain rules, policies, and practices (``Merchant
Restraints'') that insulate Defendants from competition. The Merchant
Restraints impede merchants from promoting or encouraging the use of a
competing credit or charge card with lower card acceptance fees. Each
Defendant's vertical Merchant Restraints are directly aimed at
restraining horizontal interbrand competition.
3. Each Defendant has suppressed competition with rival networks at
the ``point of sale,'' where merchants interact directly with
customers, by disrupting the ordinary give and take of the marketplace.
Most consumers who use credit or charge cards carry more than one.
Defendants' Merchant Restraints, however, prevent merchants from
offering their customers a discount or benefit for using a network
credit card that is less costly to the merchant. Merchants cannot
reward their customers based on the customer's card choice. Merchants
cannot even suggest that their customers use a less costly alternative
card by posting a sign stating ``we prefer'' another card or by
disclosing a card's acceptance fee. In short, Defendants' Merchant
Restraints prohibit merchants from fostering competition among credit
card networks at the point of sale.
4. By incorporating and enforcing its Merchant Restraints in
agreements with merchants, each Defendant has violated and continues to
violate Section 1 of the Sherman Act, 15 U.S.C. 1.
II. Defendants
5. Defendant American Express Company is a New York corporation
with its principal place of business in New York, New York. Defendant
American Express Travel Related Services Company, Inc., a wholly owned
subsidiary of American Express Company, is a Delaware corporation, with
its principal place of business in New York, New York. It is the
principal operating subsidiary of American Express Company. In 2009,
cardholders used American Express credit and charge cards for purchases
totaling $419.8 billion.
6. Defendant MasterCard is a Delaware corporation with its
principal place of business in Purchase, New York. In 2009, cardholders
used MasterCard credit and charge cards for purchases totaling $476.9
billion.
7. Defendant Visa is a Delaware corporation with its principal
place of business in San Francisco, California. Visa has offices,
transacts business, and is found in New York. In 2009, cardholders used
Visa credit and charge cards for purchases totaling $764.2 billion.
III. Jurisdiction and Venue
8. Plaintiff United States of America brings this action pursuant
to Section 4 of the Sherman Act, as amended, 15 U.S.C. 4, to obtain
equitable and other relief to prevent and restrain violations of
Section 1 of the Sherman Act, 15 U.S.C. 1. Plaintiffs Connecticut,
Iowa, Maryland, Michigan, Missouri, Ohio, and Texas, by and through
their respective Attorneys General, bring this action in their
respective sovereign capacities and as parens patriae on behalf of the
citizens, general welfare, and economy of their respective States under
their statutory, equitable and/or common law powers, and pursuant to
Section 16 of the Clayton Act, 15 U.S.C. 26, to prevent Defendants from
violating Section 1 of the Sherman Act.
9. This Court has subject-matter jurisdiction over this action
under Section 4 of the Sherman Act, 15 U.S.C. 4.
10. This Court has personal jurisdiction over each Defendant and
venue is proper in this District under 15 U.S.C. 22 because each
Defendant transacts business and/or is found within this District.
Defendants' credit and charge cards are and have been used for billions
of dollars of purchases in this District.
IV. Trade and Commerce
11. Defendants operate credit and charge card networks in the
United States, and sell products and services in the flow of interstate
commerce. Defendants' products and services involve a substantial
amount of interstate commerce. In 2009, credit and charge card
transaction volume on Defendants' networks in the United States
exceeded $1.6 trillion.
V. Industry Background
12. General purpose credit and charge cards (``General Purpose
Cards'') are payment devices that a consumer can use to make purchases
from a wide variety of merchants without accessing
[[Page 62860]]
or reserving the consumer's funds at the time of the purchase. There
are two principal types of General Purpose Cards:
a. Credit cards, which usually permit the cardholder to pay either
(i) all charges within a set period after a monthly bill is rendered,
or (ii) only a portion of the charges within that time and pay the
remainder in monthly installments, including interest; and
b. charge cards, which require the cardholder to pay all charges
within a set period after a monthly bill is rendered.
13. General Purpose Cards include cards for personal use (issued to
individuals for their personal use), cards for small business (issued
to individuals for use with a small business), and commercial and
corporate cards (issued to individuals, organizations, and businesses
for business use).
14. General Purpose Cards do not include cards that can be used at
only one merchant (such as department store cards) or cards that access
funds on deposit in a checking or savings account or on the card itself
(such as signature debit cards, PIN debit cards, prepaid cards, or gift
cards).
15. In Visa and MasterCard transactions, the ``card acceptance
fee'' or ``merchant discount fee'' that a merchant pays has three
principal components: the interchange fee, the assessment fee, and the
acquiring fee. To comply with the Visa and MasterCard rules, the
merchant's bank (called the ``acquiring bank''), which manages the
merchant's relationship with Visa and MasterCard, must withhold the
full card acceptance fee from the amount it pays the merchant for each
transaction, meaning the merchant receives less than the retail price
it charges to the consumer.
16. The largest component of the card acceptance fee is the
interchange fee, which is received by the Visa or MasterCard ``issuing
bank'' (or ``issuer'') that issues the card used by the customer. The
interchange fee typically is set as a percentage of the underlying
transaction price. Visa and MasterCard set interchange fees and have
raised them significantly over time.
17. Visa and MasterCard themselves keep a part of the fee paid by
merchants (the ``assessment fee'').
18. Finally, the acquiring bank keeps one component of the card
acceptance fee, the acquiring fee, for its services.
19. American Express issues most of its General Purpose Cards to
cardholders directly, combining issuer and network functions with
respect to those General Purpose Cards. American Express generally
provides network services directly to merchants as well. Some American
Express cards are issued through agreements with issuing banks, in
which case American Express operates only as a network. For all
purposes relevant to this Complaint, such bank-issued cards function
substantially the same as those issued by American Express directly,
and American Express imposes the same Merchant Restraints for
acceptance of its bank-issued cards.
20. Like the Visa and MasterCard networks, American Express'
network imposes a fee on the merchant for each transaction. Like Visa
and MasterCard, American Express' card acceptance fee typically is set
as a percentage of the transaction price. For example, American Express
imposes a card acceptance fee of 3% for some transactions. In such
transactions, merchants would receive $97 on a $100 retail transaction.
American Express would extract the remaining $3 from the transaction.
The cost borne by merchants for customers' use of American Express
General Purpose Cards is often substantially higher than the cost of
customers' use of competing networks' General Purpose Cards. Any other
General Purpose Card selected by the customer from the options in his
or her wallet--such as a Discover, MasterCard, or Visa General Purpose
Card--generally would be less costly to the merchant.
21. Merchants charge higher retail prices to customers to cover the
cost of paying these fees to Defendants.
VI. Restraints on Competition
22. Each Defendant has instituted its own set of Merchant
Restraints prohibiting or restricting a merchant that accepts that
Defendant's General Purpose Card from encouraging its customers to use
any other network's card at the point of sale. Defendants' Merchant
Restraints impose a competitive straightjacket on merchants,
restricting decisions by them to offer discounts, benefits, and choices
to customers that many merchants would otherwise be free to offer.
23. Each Defendant applies its Merchant Restraints through
agreements with merchants or with merchants' acquiring banks. Each
Defendant's set of vertically imposed restrictions independently
restrains competition among networks. Each Defendant's Merchant
Restraints violate Section 1 of the Sherman Act apart from the
existence of the other two Defendants' Merchant Restraints.
24. Visa and MasterCard include their Merchant Restraints in
contracts with acquiring banks. Through these contracts, Visa and
MasterCard require acquiring banks to obtain agreement from merchants
to abide by Visa's and MasterCard's rules, including the Merchant
Restraints. Visa and MasterCard require their acquiring banks to
penalize merchants that do not adhere to the Merchant Restraints.
American Express includes its Merchant Restraints in its contracts with
merchants that accept its cards. In circumstances where American
Express contracts with the merchant's acquiring bank, American Express
requires the acquiring bank to ensure the merchant complies with the
Merchant Restraints.
25. Merchants must accept the Merchant Restraints in order to
accept Defendants' cards. Merchants clearly understand and expressly
agree that they must comply with the Merchant Restraints. Defendants
actively monitor and vigorously enforce the Merchant Restraints.
26. Visa's Merchant Restraints prohibit a merchant from offering a
discount at the point of sale to a consumer who chooses to use an
American Express, Discover, or MasterCard General Purpose Card instead
of a Visa General Purpose Card. Visa's rules do not allow discounts for
other payment cards that generally require a signature at the point of
sale, unless such discounts are equally available for Visa
transactions. Visa International Operating Regulations at 445 (April 1,
2010) (Discount Offer--U.S. Region 5.2.D.2).
27. Similarly, MasterCard's Merchant Restraints prohibit a merchant
from ``engag[ing] in any acceptance practice that discriminates against
or discourages the use of a [MasterCard] Card in favor of any other
acceptance brand.'' MasterCard Rule 5.11.1 (May 12, 2010). This means
that merchants cannot offer a discount, or any other benefit, to
persuade consumers to use an American Express, Discover, or Visa
General Purpose Card instead of a MasterCard General Purpose Card. Id.
MasterCard does not allow merchants to favor competing card brands. Id.
28. American Express' point-of-sale rules on merchants restrict
competition more than the rules of its rival networks. American
Express' Merchant Restraints are described in its ``Merchant Reference
Guide-US'' (April 2010), Section 3.2. The language in Section 3.2 is
inserted in identical or substantially similar form in most of American
Express' contracts with merchants. In many agreements, the Guide is
expressly incorporated by reference. The Merchant Restraints described
in Section 3.2 impose the following restrictions on merchants that
accept American Express:
[[Page 62861]]
Merchants must not:
--indicate or imply that they prefer, directly or indirectly, any Other
Payment Products over [American Express'] Card,
--try to dissuade Cardmembers from using the Card,
--criticize * * * the Card or any of [American Express'] services or
programs,
--try to persuade or prompt Cardmembers to use any Other Payment
Products or any other method of payment (e.g., payment by check),
--impose any restrictions, conditions, [or] disadvantages * * * when
the Card is accepted that are not imposed equally on all Other Payment
Products, except for ACH funds transfer, cash, and checks, * * * or
--promote any Other Payment Products (except the Merchant's own private
label card that they issue for use solely at their Establishments) more
actively than the Merchant promotes [American Express'] Card.
Merchants may offer discounts from their regular prices for
payments in cash or by ACH funds transfer or check, provided that they
clearly disclose the terms of the offer (including the regular and
discounted prices) to customers and that any discount offered applies
equally to Cardmembers and holders of Other Payment Products.
Whenever payment methods are communicated to customers, or when
customers ask what payments are accepted, the Merchant must indicate
their acceptance of the Card and display [American Express'] Marks
according to [American Express'] guidelines and as prominently and in
the same manner as any Other Payment Products.
29. The American Express Merchant Reference Guide-US defines the
term ``Other Payment Products'' used in Section 3.2 as ``[a]ny charge,
credit, debit, stored value or smart cards, account access devices, or
other payment cards, services, or products other than the [American
Express] Card.''
30. Defendants' rules and practices described in paragraphs 26-29
constitute the Merchant Restraints challenged in this action because
and to the extent that they deter or obstruct merchants from freely
promoting interbrand competition by offering customers discounts, other
benefits, or information to encourage the customer to use a General
Purpose Card or payment method other than that Defendant's General
Purpose Card.
31. Defendants' Merchant Restraints thus forbid, among other
things, the following types of actions a merchant could otherwise use
at the point of sale to foster competition on price and terms among
sellers of network services:
--promoting a less expensive General Purpose Card brand more actively
than any other General Purpose Card brand;
--offering customers a discount or benefit for use of a General Purpose
Card brand that costs less to the merchant;
--asking customers at the point of sale if they would consider using
another General Purpose Card brand in their wallets;
--posting a sign encouraging use of, or expressing preference for, a
General Purpose Card brand that is less expensive for the merchant;
--posting the signs or logos of General Purpose Card brands that cost
less to the merchant more prominently than signs or logos of more
costly General Purpose Card brands; or
--posting truthful information comparing the relative costs of
different General Purpose Card brands.
32. Federal law mandates that networks permit merchants to offer
discounts for cash transactions. Additionally, the new Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010, by adding section
920 to the Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., now
forbids networks from prohibiting merchants from offering a discount
for an entire payment method category, such as a discount for use of
any debit card. All General Purpose Card networks operate under these
laws. This Complaint does not seek relief relating to these two types
of discounting.
VII. Relevant Markets
A. Product Markets
33. Defendants participate in two distinct product markets in the
United States relevant to this Complaint: the General Purpose Card
network services market, and the General Purpose Card network services
market for merchants in travel and entertainment (``T&E'') businesses.
1. General Purpose Card Network Services
34. General Purpose Card network services involve the processing of
General Purpose Card transactions across a network. General Purpose
Card networks provide infrastructure and mechanisms enabling merchants
to obtain authorization for, settle, and clear transactions for their
customers who pay with General Purpose Cards. Merchant acceptance of
General Purpose Cards is defined and controlled at the network level,
and prices to merchants are established directly or indirectly by the
networks. A relevant product market for this case is the provision of
General Purpose Card network services to merchants.
35. American Express, Discover, MasterCard, and Visa compete as
sellers of these network services to merchants in the United States.
36. Visa and MasterCard provide network services indirectly to
merchants through the merchants' acquiring banks. American Express
generally sells its network services directly to merchants.
37. Merchants accept General Purpose Cards because many consumers
strongly prefer to use General Purpose Cards over other means of
payment. Millions of consumers prefer General Purpose Cards because
they provide a combination of convenience, widespread acceptance,
security, and deferred payment options that are not effectively
replicated by other payment methods.
38. Each Defendant provides network services only for the use of
its own General Purpose Cards, not for any other network's General
Purpose Cards. Merchants that accept General Purpose Cards must
purchase network services. Merchants cannot reasonably replace General
Purpose Card network services with other services or reduce usage of
these network services, even if such network services are substantially
more expensive for merchants relative to services that enable other
payment methods. Even a large increase in network fees would not
provide a meaningful financial incentive for merchants to abandon
acceptance of General Purpose Cards. Although other services that
enable payment exist outside this relevant market, none of these
services is a reasonable substitute for General Purpose Card network
services from the perspective of merchants.
39. Competition from other payment methods in the geographic market
identified below would not be sufficient to prevent a hypothetical
monopolist of General Purpose Card network services from profitably
maintaining supracompetitive prices and terms for network services
provided to merchants over a sustained period of time. Nor would
competition from other payment methods prevent a hypothetical
monopolist in the General Purpose Card network services market from
imposing anticompetitive conditions on merchants in that market.
[[Page 62862]]
40. In addition to selling General Purpose Card network services to
merchants, Defendants provide separate network services to a different
group of customers: issuers, which provide General Purpose Cards to
cardholders. Questions of market power and harm are distinct for the
two separate customer groups. Sellers of General Purpose Card network
services to merchants could exercise market power over merchants even
in circumstances in which they could not exercise market power over
issuers. Any benefits received by issuers are not necessarily shared
with merchants, and would not offset anticompetitive harm imposed by
networks on merchants.
2. Travel and Entertainment Market
41. Within the relevant market of General Purpose Card network
services, there is another relevant market--a price discrimination
market--consisting of General Purpose Card network services provided to
merchants in travel and entertainment businesses. Specifically,
merchants selling goods and services to customers primarily for travel
and entertainment (for example, air travel, lodging, and rental cars)
are exposed to price discrimination.
42. Price discrimination occurs when a seller charges different
customers (or groups of customers) different prices for the same
services, when those different prices are not based on different costs
of serving those customers. General Purpose Card networks set fees for
network services to some merchants separately from fees to other
merchants. Setting a lower fee for one group has little to no effect on
a network's ability to set a higher fee for other groups.
43. Competition from other payment methods in the geographic market
identified below would not be sufficient to prevent a hypothetical
monopolist in the market for General Purpose Card network services for
T&E merchants from either profitably maintaining supracompetitive
prices and terms for network services to T&E merchants over a sustained
period of time or imposing anticompetitive conditions on T&E merchants
in that market. A hypothetical monopolist could price discriminate
profitably against T&E merchants even if other merchants were paying
lower prices for network services.
44. Each Defendant can identify whether a merchant participates in
the T&E sector, and establishes merchant pricing by segment or
category. Each Defendant, for example, has one set of prices for
airline merchants and a different set of prices for supermarket
merchants. American Express has separate price schedules for Airlines,
Lodging, Car Rentals, and Travel Agents. American Express has an
agreement with each merchant customer, and each agreement contains the
price American Express charges that merchant. Visa and MasterCard can
and do identify T&E merchants through their relationships with the
merchants' acquiring banks.
45. Defendants charge merchants in the T&E sector higher fees than
they charge most other merchants. Moreover, American Express charges
T&E merchants higher fees than competing networks charge T&E merchants.
The high fees to T&E merchants are not based on Defendants' higher
costs of serving their T&E merchants. Each Defendant can charge T&E
merchants high fees because those merchants are even less able to
substitute away to other networks than other merchants. For example,
American Express imposed a substantial fee increase on major airline
merchants in 2008 without losing any major airline merchant customers,
even though its fees already were higher than those of other General
Purpose Card networks. A substantial differential in card acceptance
fees exists between General Purpose Card network services for merchants
in T&E businesses and merchants in other businesses.
46. Each Defendant's price discrimination against T&E merchants is
persistent and systematic. American Express, for example, has
successfully maintained higher profit margins for T&E customers than
for other merchant categories.
47. Arbitrage, or indirect purchasing by T&E merchants of
Defendants' network services from other merchants to avoid price
discrimination, is impossible. For example, merchants can buy network
services for transactions using American Express General Purpose Cards
only from American Express, and one merchant cannot resell American
Express network services to another merchant. T&E merchants have no
realistic ability to avoid Defendants' high fees.
48. T&E merchants constitute a distinct customer group that cannot
easily substitute away from the card network their customers want to
use for travel and entertainment purchases. T&E merchants (such as
airline, hotel, and rental car merchants) depend on business travelers
as a significant source of revenues. Business travelers often are
required or encouraged by their employers to use corporate cards of a
particular network to qualify for reimbursement from their employers.
Customers typically make larger purchases from T&E merchants than from
merchants in many other industries. They also often purchase from T&E
merchants through the Internet. T&E merchants thus rely more on General
Purpose Cards than many other merchants and are even less willing and
able than other merchants to substitute from General Purpose Cards to
alternative payment methods in response to high network prices. In
short, T&E merchants have particularly high inelasticity of demand for
General Purpose Card network services.
49. Network industry participants recognize T&E merchants as a
distinct market for network services. For many years, for example,
American Express has had a T&E Industries Business Unit. Indeed, the
principal operating subsidiary of American Express Company is the
American Express Travel Related Services Company, Inc.
50. Accordingly, a distinct, additional relevant market exists for
General Purpose Card network services to T&E merchants.
B. Geographic Market
51. The United States is the relevant geographic market for both
the sale of General Purpose Card network services to all merchants and
the sale of such services to T&E merchants.
52. Each Defendant treats the United States as a separate
geographic market, as demonstrated in part by each Defendant's separate
rules governing merchant acceptance in the United States and its
separate pricing of network services to merchants in the United States.
Defendants can easily identify the location of a merchant outlet.
Arbitrage, or indirect purchasing by U.S. merchants of Defendants'
network services from merchants located outside of the United States,
is impossible.
53. The vast majority of General Purpose Card transactions with
merchants located in the United States are made using General Purpose
Cards issued in the United States. Almost all General Purpose Cards
issued in the United States are issued under the American Express,
Discover, MasterCard, and Visa networks. Other networks have limited
competitive significance for U.S. merchants, as reflected in their
negligible share of sales to U.S. merchants.
54. A hypothetical monopolist of General Purpose Card network
services or General Purpose Card network services to T&E merchants
could profitably maintain supracompetitive prices for network services
provided to merchants in the United States over a sustained period of
time and could
[[Page 62863]]
impose anticompetitive conditions on merchants in the United States
even if merchants located outside the United States paid competitive
prices for network services.
VIII. Market Power
55. Visa, MasterCard, and American Express each possess market
power in the General Purpose Card network services market. The Second
Circuit previously held that MasterCard and Visa each has market power
in a General Purpose Card network services market. U.S. v. Visa U.S.A.,
Inc., 344 F.3d 229, 238-39 (2d Cir. 2003). American Express also
possesses market power in the General Purpose Card network services
market.
56. Merchant acceptance of Defendants' General Purpose Cards is
widespread. Merchants accounting for a substantial amount of General
Purpose Card purchase volume in the United States accept all three
Defendants' General Purpose Cards.
57. Merchants choose payment networks to accommodate the preferred
payment brands of their customers. Some customers strongly prefer a
particular brand and in some cases carry only one General Purpose Card
brand. For example, in August 2009, 16% of American Express cardholders
used only American Express and no other major General Purpose Cards.
Such high cardholder insistence on using American Express gives
American Express market power over merchants.
58. Merchants also consider whether their competitors accept a
network's General Purpose Card and, if so, feel additional pressure to
accept that network's card. Indeed, many merchants must accept all
Defendants' General Purpose Cards to remain competitive with other
merchants.
59. Despite technological advances that have decreased costs
associated with General Purpose Card transactions over recent decades,
Visa and MasterCard have increased the fees they charge merchants
without losing sufficient merchants to make the price increases
unprofitable.
60. American Express has for many years maintained the highest card
acceptance fees among networks, including Visa and MasterCard. In
recent years, American Express has increasingly been able to resist
merchant pressure to reduce its card acceptance fees. American Express
CEO Ken Chenault explained in 2009:
At a time when many companies have had to cut or discount their
prices and fees, we've been able to hold our own * * *. We're not
lowering prices to get or keep customers or merchants. We continue
to sign new merchants at existing discount rate levels * * *. This
is significantly different from the position we were in during the
downturn of the early 1990's. At that time our card and merchant
pricing was under enormous pressure, and we did have to reduce fees.
American Express has increased the fees it charges many merchants
without losing sufficient merchants to make the price increases
unprofitable.
61. Notwithstanding these high fees, merchants continue to accept
Defendants' General Purpose Cards because they would face serious
economic consequences if they ceased to accept any one of the three
Defendants' General Purpose Cards. Unlike customers in most markets for
goods and services, merchants cannot buy fewer services from one
Defendant's network and buy more services from a competing network at
the point of sale, even in the face of higher fees imposed by that
network or lower fees offered by competing networks. A merchant's
efforts to reduce its purchases of one network's services by
encouraging its customers to choose another network's General Purpose
Card would violate Defendants' Merchant Restraints. Thus, a merchant
may resist a Defendant's high card acceptance fees only by no longer
accepting that Defendant's cards. This all-or-nothing choice severely
constrains merchants, because dropping any one of the Defendants'
General Purpose Cards could alienate customers and lead to significant
lost sales. The Merchant Restraints leave merchants less able to avoid
Defendants' supracompetitive prices than they otherwise would be.
62. Defendants' ability to discriminate in the prices they charge
different types of merchants, unexplained by cost differences, also
reflects their market power. For example, American Express targets
specific merchant segments for differential pricing based on those
merchants' ability to pay and their inability to refuse to accept
American Express, a practice American Express calls ``value
recapture.'' American Express generally charges higher fees to
merchants that rely more on General Purpose Cards for their business,
such as T&E merchants, than it charges merchants that traditionally
rely less on American Express.
63. This direct evidence of Defendants' market power is consistent
with their market share of General Purpose Card transaction volume.
American Express, MasterCard, and Visa each has significant market
shares in the highly concentrated General Purpose Card network services
market. In 2009, the three Defendants together had approximately 94% of
the dollar volume of U.S. issued General Purpose Cards. According to
Nilson data, Visa's share was approximately 43%, while MasterCard had a
27% share, and American Express had a 24% share. Each of these market
shares is consistent with market power in a market with high
concentration and other particular characteristics of the General
Purpose Cards network services market. For example, the Second Circuit
held that MasterCard had market power with a market share of 26%. U.S.
v. Visa U.S.A., Inc., 344 F.3d at 239-40. In subsequent litigation,
American Express itself alleged that MasterCard ``exercised market
power in the network services market'' when MasterCard's ``share was
approximately 26%,'' quite similar to American Express' share in the
market for General Purpose Card network services to merchants today.
64. Defendants' acceptance among merchants is widespread. Visa and
MasterCard are accepted at over 8.2 million merchant locations in the
U.S. In 2009, American Express was accepted at 4.9 million merchant
locations in the U.S., or about 60% as many as accept Visa and
MasterCard. In recent years, American Express has expanded its
acceptance at many ``everyday spend'' merchants, adding, for example,
McDonalds (2004), Safeway (2004), Food Lion (2007) and Dollar Tree
(2010). Today, many of the merchants that do not accept American
Express are small and do not account for significant transaction
volume. Indeed, American Express has stated that ``as of the end of
2009, our merchant network in the United States accommodated more than
90% of our Cardmembers' general-purpose charge and credit card
spending.''
65. Among large U.S. retailers that account for a substantial
amount of U.S. transaction volume, acceptance of all three Defendants'
General Purpose Cards is widespread. For example, 95 of the largest 100
U.S. retailers accept all Defendants' General Purpose Cards. And in
many major merchant segments, Defendants' acceptance is nearly
universal. All major airlines, for instance, accept all three
Defendants' General Purpose Cards.
66. Significant barriers to entry and expansion protect Defendants'
market power, and have contributed to Defendants' ability to maintain
high prices for years without threat of price competition by new entry
or expansion in the market. These barriers to entry and expansion
include the prohibitive cost of establishing a physical network over
which General Purpose Card transactions can run, developing a widely
recognized brand, and
[[Page 62864]]
establishing a base of merchants and a base of cardholders. Defendants,
who achieved these necessities early in the history of the industry,
obtained substantial early mover advantages over prospective subsequent
entrants. Successful subsequent entry would be difficult and expensive.
In the presence of these barriers, the only successful market entrant
since the 1960s has been Discover. Even so, Discover's market share
historically has been, and remains, very small. In 2009, Discover's
market share based on dollar volume of purchases placed on General
Purpose Cards was approximately 6%.
67. Defendants' Merchant Restraints heighten these barriers to
competitors' expansion and entry. Merchants' inability to encourage
their customers to use less costly General Purpose Card networks makes
it even harder for existing or potential competitors to threaten
Defendants' market power.
68. Each Defendant also has market power in the T&E market for
General Purpose Card network services. Among Defendants, American
Express' market power in the T&E market is the most substantial.
American Express' share of transaction volume in this market is
approximately 37%, while Visa's share is approximately 36% and
MasterCard's share is approximately 24%. American Express is the market
leader among networks in airline, lodging, and rental car merchant
segments, capturing nearly $100 billion in transaction volume. American
Express' average card acceptance fee for these three merchant segments
was 12% higher than its average fee for all other merchant segments in
2009. American Express' costs in those segments are not proportionally
higher than costs in most other segments; in many instances, they are
lower. T&E merchant acceptance of American Express is extensive.
American Express is the designated card for more business travelers
than any other network's card. In fact, American Express accounts for
70% of all expenditures made with corporate cards, which consist
largely of T&E merchant purchases. Most merchants in the T&E market
have not declined to accept American Express' cards or its Merchant
Restraints even when American Express has imposed card acceptance fees
that are substantially higher than those set by other General Purpose
Card brands, despite these merchants' strong desire not to accept those
prices and restraints. Visa and MasterCard also price discriminate
successfully against T&E merchants. For all of these reasons, each
Defendant has market power in the T&E market.
IX. Harm to Competition
69. Each Defendants' vertical Merchant Restraints are directly
aimed at restraining horizontal interbrand competition. Each
Defendant's Merchant Restraints harm competition by:
(1) Harming the competitive process and disrupting the proper
functioning of the price-setting mechanism of a free market;
(2) restraining merchants from encouraging or pressing each
Defendant to compete over card acceptance fees;
(3) insulating each Defendant from competition from rival networks
that would otherwise encourage merchants to favor use of those
networks' cards;
(4) inhibiting other networks from competing on price at merchants
that accept each Defendant's General Purpose Cards;
(5) restraining merchants from promoting payment methods other than
each Defendant's General Purpose Cards;
(6) restraining merchants from competing for customers with
discounts, promotions, or other forms of lower prices and other
benefits enabled by customers' use of a lower cost General Purpose Card
or other payment method;
(7) causing increased prices in the form of higher merchant card
acceptance fees;
(8) causing increased retail prices for goods and services paid
generally by customers;
(9) reducing output of lower-cost payment methods;
(10) stifling innovation in network services and card offerings
that would emerge if competitors were forced to compete for merchant
business at the point of sale; and
(11) denying consumers information about the relative costs of each
Defendant's General Purpose Card usage compared to other card usage
that would cause more consumers to choose lower-cost payment methods.
70. Defendants' Merchant Restraints substantially reduce price and
non-price competition for merchant use of network services and
interfere with price setting at the merchant point of sale. Without the
Merchant Restraints, and faced with Defendants' high card acceptance
fees, many merchants would encourage customers to use cards offered by
the lowest-cost network. Without the Merchant Restraints, each
Defendant would compete more vigorously. By imposing the Merchant
Restraints, Defendants have insulated themselves from competition with
each other and with any other network competitor at the merchant point
of sale. The Merchant Restraints reduce incentives for Defendants to
offer merchants lower-priced network services that would benefit
consumers, because merchants cannot encourage customers to use the less
expensive options without violating Defendants' Merchant Restraints.
Each Defendant thus can maintain high prices for its network services
with confidence that no competitor will take away significant
transaction volume through competition in the form of merchant
discounts or benefits to consumers to use lower cost payment options.
Each Defendant's price for network services to merchants is higher than
it would be without the Merchant Restraints.
LXXI. Although other payment methods are not in the product markets
relevant to this action, there is some, more attenuated competition
between General Purpose Cards and other payment methods. Defendants'
Merchant Restraints also restrict the competition that exists and
otherwise would emerge from these other payment methods.
LXXII. Because Defendants' Merchant Restraints obstruct merchants
from encouraging customers to use less costly payment methods,
merchants bear higher costs and their customers face higher retail
prices. If a merchant cannot reduce its costs by encouraging cheaper
payment methods or by encouraging competition among networks, the
merchant will charge higher prices generally to its customers. A
customer who pays with lower-cost methods of payment pays more than he
or she would if Defendants did not prevent merchants from encouraging
network competition at the point of sale. For example, because American
Express General Purpose Cards typically are held by more affluent
buyers, less affluent purchasers using non-premium General Purpose
Cards, debit cards, cash, and checks effectively subsidize part of the
cost of expensive American Express card benefits and rewards.
LXXIII. The fees Defendants impose on General Purpose Card
transactions are largely not visible to consumers. The Merchant
Restraints forbid merchants even from telling consumers simple factual
information about what merchants have to pay when consumers use General
Purpose Cards. This information could help merchants to encourage
customers to choose more cost-effective payment methods. For example,
those customers who prefer American Express services and value them at
a competitive price could continue to choose them, but others
[[Page 62865]]
would not be forced to subsidize this choice by paying higher prices.
LXXIV. Authorities in other countries have taken actions to reduce
or eliminate similar Merchant Restraints. In foreign jurisdictions
where Defendants' Merchant Restraints have been relaxed, merchants have
taken advantage of their ability to encourage customers to use less
expensive General Purpose Cards or other payment methods.
LXXV. In short, Defendants' Merchant Restraints remove tools that
merchants in a competitive marketplace would use to negotiate lower
card acceptance fees, to reduce their costs of doing business, to
empower their customers with information to make choices about payment
methods, to encourage customers to choose a low-cost payment method,
and to keep retail prices lower for their customers. As a result,
merchants, consumers, and competition itself are harmed.
X. Violation Alleged
LXXVI. Each Defendant's Merchant Restraints constitute agreements
that unreasonably restrain competition in the market for General
Purpose Card network services to merchants, and in the market for
General Purpose Card network services to T&E merchants, in the United
States in violation of Section 1 of the Sherman Act, 15 U.S.C. 1.
LXXVII. These agreements have had and will continue to have
anticompetitive effects by protecting Defendants from competition over
the cost of card acceptance to merchants, and restraining merchants
from encouraging customers to use lower-cost payment methods.
Defendants' restraints unlawfully insulate Defendants' card acceptance
fees from competition, increase costs of payment acceptance to
merchants, increase prices, reduce output, harm the competitive
process, raise barriers to entry and expansion, and retard innovation.
LXXVIII. These agreements are not reasonably necessary to
accomplish any of Defendants' allegedly procompetitive goals. Any
procompetitive benefits are outweighed by anticompetitive harm, and
there are less restrictive alternatives by which Defendants would be
able reasonably to achieve any procompetitive goals.
XI. Request for Relief
Wherefore, Plaintiffs pray that final judgment be entered against
each Defendant declaring, ordering, and adjudging that:
a. The aforesaid agreements unreasonably restrain trade and are
illegal under Section 1 of the Sherman Act, 15 U.S.C. 1;
b. Each Defendant be permanently enjoined from engaging in,
enforcing, carrying out, renewing, or attempting to engage in, enforce,
carry out, or renew the agreements in which it is alleged to have
engaged, or any other agreement having a similar purpose or effect in
violation of Section 1 of the Sherman Act, 15 U.S.C. 1;
c. Each Defendant eliminate and cease enforcing all Merchant
Restraints and be prohibited from otherwise acting to restrain trade
unreasonably;
d. Each Defendant fund and undertake programs to inform merchants
of merchants' rights to encourage customers to use any payment method
they choose; and
e. The United States be awarded its costs of this action and such
other relief as may be appropriate and as the Court may deem just and
proper, and the States be awarded their costs in this action,
reasonable attorneys' fees, and such other relief as may be appropriate
and as the Court may deem proper.
Dated: 10/4/2010.
FOR PLAINTIFF
THE UNITED STATES OF AMERICA
--------/s/----------------
CHRISTINE A. VARNEY
Assistant Attorney General
--------/s/----------------
MOLLY S. BOAST
Deputy Assistant Attorney General
--------/s/----------------
J. ROBERT KRAMER II
Director of Operations
--------/s/----------------
JOHN READ
Chief, Litigation III Section
DAVID KULLY
Assistant Chief, Litigation III Section
--------/s/----------------
CRAIG W. CONRATH
MICHAEL G. DASHEFSKY
JUSTIN M. DEMPSEY
MARK H. HAMER
GREGG I. MALAWER
BENNETT MATELSON
ANNE NEWTON MCFADDEN
RACHEL L. ZWOLINSKI
Attorneys for the United States of America
U.S. Department of Justice
Antitrust Division, Litigation III Section
450 Fifth Street, N.W., Suite 4000
Washington, DC 20530
Telephone: (202) 307-0468
DOUGLAS F. GANGSLER
MARYLAND ATTORNEY GENERAL
--------/s/----------------
Ellen S. Cooper
Assistant Attorney General
Chief, Antitrust Division
--------/s/----------------
Gary Honick
Assistant Attorney General
Office of the Attorney General
Antitrust Division
200 St. Paul Place, 19th Floor
Baltimore, Maryland 21202
Tel. (410)576-6470
Fax (410)576-7830
PLAINTIFF
STATE OF CONNECTICUT
RICHARD BLUMENTHAL
Attorney General
--------/s/----------------
Michael E. Cole
Chief, Antitrust Department
Rachel O. Davis
Assistant Attorneys General
Antitrust Department
55 Elm Street, P.O. Box 120
Hartford, CT 06141-0120
Tel: (860) 808-5040
Fax: (860) 808-5033
STATE OF IOWA
Thomas J. Miller
Attorney General of Iowa
--------/s/----------------
Layne M. Lindebak
Assistant Attorney General
Special Litigation Division
Iowa Department of Justice
Hoover Office Building-Second Floor
1305 East Walnut Street
Des Moines, Iowa 50319
Phone: 515 281-7054
Fax: 515 281-4902
Email: [email protected]
STATE OF MICHIGAN
MICHAEL A. COX
Attorney General
--------/s/----------------
D. J. Pascoe
Assistant Attorney General
Michigan Department of Attorney General
Corporate Oversight Division
Securities, Antitrust, and Business Section
G. Mennen Williams Building, 6th Floor
525 W. Ottawa Street
Lansing, Michigan 48933
Telephone: (517) 373-1160
Fax: (517) 335-6755
[email protected]
FOR THE STATE OF MISSOURI
--------/s/----------------
CHRIS KOSTER
Attorney General
ANNE E. SCHNEIDER
Assistant Attorney General/Antitrust Counsel
ANDREW M. HARTNETT
Assistant Attorney General
P. O. Box 899
[[Page 62866]]
Jefferson City, MO 65102
Tel: (573) 751-7445
Tel: (573) 751-2041 (facsimile)
E-mail: [email protected]
ATTORNEY GENERAL OF THE STATE OF OHIO
Richard Cordray
Attorney General of Ohio
Jennifer L. Pratt
Section Chief, Antitrust Section
--------/s/----------------
Mitchell L. Gentile
Principal Attorney, Antitrust Section
Patrick E. O'Shaughnessy
Senior Assistant Attorney General, Antitrust Section
Office of the Ohio Attorney General
150 E. Gay Street, 23rd Floor
Columbus, Ohio 43215
(614) 466-4328
(614) 955-0266 (fax)
GREG ABBOTT
Attorney General of Texas
DANIEL T. HODGE
First Assistant Attorney General
BILL COBB
Deputy Attorney General for Civil Litigation
JOHN T. PRUD'HOMME
Assistant Attorney General
Chief, Antitrust Division
--------/s/----------------
KIM VAN WINKLE
Assistant Attorney General
State Bar No. 24003104
BRET FULKERSON
State Bar No. 24032209
Office of the Attorney General of Texas
P. O. Box 12548
Austin, Texas 78711-2548
512/463-1266 (Telephone)
512/320-0975 (Facsimile)
In The United States District Court For The Eastern District of New
York
United States of America, State of Connecticut, State of Iowa,
State of Maryland, State of Michigan, State of Missouri, State of Ohio,
and State of Texas, Plaintiffs, v. American Express Company, American
Express Travel Related Services Company, Inc., Mastercard International
Incorporated, and Visa Inc. Defendants.
Civil Action No. CV-10-4496
(Garaufis, J.)
(Pollak, M.J.)
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant to
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. 16(b)-(h), files this Competitive Impact
Statement relating to the proposed Final Judgment submitted for entry
in this civil antitrust proceeding.
I. Nature and Purpose of The Proceeding
The United States and the States of Connecticut, Iowa, Maryland,
Michigan, Missouri, Ohio, and Texas (``Plaintiff States'') brought this
lawsuit against Defendants American Express Company, American Express
Travel Related Services Company, Inc. (collectively, ``American
Express''), Visa Inc. (``Visa''), and MasterCard International
Incorporated (``MasterCard'') on October 4, 2010, challenging certain
of Defendants' rules, policies, and practices that impede merchants
from providing discounts or benefits to promote the use of a competing
credit card that costs the merchant less to accept (``Merchant
Restraints''). These Merchant Restraints have the effect of suppressing
interbrand price and non-price competition in violation of Section 1 of
the Sherman Act, 15 U.S.C. 1.
Shortly after the filing of the Complaint, the United States filed
a proposed Final Judgment with respect to Defendants Visa and
MasterCard. The proposed Final Judgment is described in more detail in
Section III below. The United States, Plaintiff States, Visa, and
MasterCard have stipulated that the proposed Final Judgment may be
entered after compliance with the APPA, unless the United States
withdraws its consent. Entry of the proposed Final Judgment would
terminate this action as to Visa and MasterCard, except that this Court
would retain jurisdiction to construe, modify, and enforce the proposed
Final Judgment and to punish violations thereof. The case against
American Express will continue.
II. Description of The Events Giving Rise to The Alleged Violation
A. Industry Background
Defendants provide network services for general purpose credit and
charge cards (``General Purpose Cards''). Visa is the largest provider
of network services in the United States and MasterCard is the second-
largest, closely followed by American Express.
General Purpose Cards are forms of payment that allow cardholders
to make purchases without accessing or reserving the cardholder's funds
at the time of sale. General Purpose Cards include credit and charge
cards issued to consumers and businesses, but do not include cards that
can be used at only one merchant (e.g., department store cards), cards
that access funds on deposit (debit cards), or pre-paid cards (e.g.,
gift cards). Acceptance of General Purpose Cards is widespread among
merchants because many of their customers prefer to pay with such
Cards, due to convenience, security, the ability to defer payment, and
other factors.
Defendants, as providers of General Purpose Card network services,
operate the infrastructure necessary to authorize, settle, and clear
payments made with their General Purpose Cards. Millions of merchants
around the United States that accept General Purpose Cards are
consumers of network services.
The typical transaction involving a Visa or MasterCard General
Purpose Card involves several steps. When a cardholder presents a card
to a merchant, the bank that issued the card (the ``issuing bank'' or
``issuer'') authorizes the transaction using the card's network. Then
the merchant's bank (the ``acquiring bank'') pays the merchant the
amount of the purchase, minus a fee (the ``merchant discount fee'' or
``card acceptance fee'') that is shared among the acquiring bank, the
network, and the issuing bank. The acquiring bank and the network
collect relatively small portions of the merchant discount; the bulk of
the merchant discount is collected by the issuing bank in the form of
an ``interchange fee.'' Interchange fees are set by the network and
vary based on many factors such as the merchant's industry, the
merchant's annual charge levels, and the type of card used in the
transaction (e.g., rewards card vs. non-rewards card).
American Express issues most of its General Purpose Cards directly
to cardholders and generally provides network services directly to
merchants. For each transaction, American Express imposes a merchant
discount fee, which is typically a percentage of the transaction price.
American Express has for many years maintained the highest merchant
fees of any network, and American Express card acceptance often costs
merchants substantially more than acceptance of other General Purpose
Cards.
When merchants agree to accept a particular brand of General
Purpose Card, they must use the network services provided by that
brand. Merchants cannot reasonably replace General Purpose Card network
services with other services or reduce usage of these network services,
even if such network services are substantially more expensive for
merchants relative to services that enable other payment methods. The
challenged Merchant
[[Page 62867]]
Restraints obstruct the ability of a merchant to vary the amount of
network services it buys in response to changes in the merchant's cost
of acceptance by encouraging customers at the point of sale to use
less-costly General Purpose Cards or other methods of payment.
B. The Challenged Merchant Restraints
When merchants agree to accept Visa or MasterCard General Purpose
Cards, they sign a contract agreeing to abide by the rules promulgated
by the network, including the Merchant Restraints at issue in this
case. Merchants face penalties, including termination of their
contracts, if they violate these rules.
The Visa Merchant Restraints challenged in the Complaint prohibit a
merchant from offering a discount at the point of sale to a customer
that chooses to use an American Express, Discover, or MasterCard
General Purpose Card instead of a Visa General Purpose Card. Visa's
rules do not allow discounts for other General Purpose Cards, unless
such discounts are equally available for Visa transactions. See
Complaint ] 26 (citing Visa International Operating Regulations at 445
(April 1, 2010) (Discount Offer--U.S. Region 5.2.D.2)).
The MasterCard Merchant Restraints challenged in the Complaint
prohibit a merchant from ``engag[ing] in any acceptance practice that
discriminates against or discourages the use of a [MasterCard] Card in
favor of any other acceptance brand.'' See Complaint ] 27 (quoting
MasterCard Rule 5.11.1). This means that merchants cannot offer
discounts or other benefits to persuade customers to use an American
Express, Discover, or Visa General Purpose Card instead of a MasterCard
General Purpose Card. Id. MasterCard does not allow merchants to favor
competing card brands. Id.
The challenged Merchant Restraints imposed by Defendants deter or
obstruct merchants from freely promoting interbrand competition among
networks by offering customers discounts, other benefits, or
information to encourage them to use a less-expensive General Purpose
Card brand or other payment method. The Merchant Restraints block
merchants from taking steps to influence customers and foster
competition among networks at the point of sale, such as: promoting a
less-expensive General Purpose Card brand more actively than any other
brand; offering customers a discount or other benefit for using a
particular General Purpose Card that costs the merchant less; posting a
sign expressing a preference for another General Purpose Card brand;
prompting customers at the point of sale to use another General Purpose
Card brand in their wallets; posting the signs or logos of General
Purpose Card brands that cost less to the merchant more prominently
than signs or logos of more costly brands; or posting truthful
information comparing the relative costs of different General Purpose
Card brands.\1\
---------------------------------------------------------------------------
\1\ Federal law mandates that networks permit merchants to offer
discounts for cash transactions. Additionally, the new Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010, by adding
section 920 to the Electronic Fund Transfer Act, 15 U.S.C. 1693 et
seq., now forbids networks from prohibiting merchants from offering
a discount for an entire payment method category, such as a discount
for use of any debit card. All General Purpose Card networks operate
under these laws. The Complaint does not seek relief relating to
these two types of discounting.
---------------------------------------------------------------------------
C. The Relevant Markets
The Complaint alleges two distinct relevant product markets: the
market for General Purpose Card network services to merchants, and the
market for General Purpose Card network services to travel and
entertainment merchants (``T&E market''). In each case, the relevant
geographic market is the United States.
1. The General Purpose Card Network Services Market
A relevant product market for this case is the provision of General
Purpose Card network services to merchants. For such merchants, there
are no reasonable substitutes for network services. Competition from
other payment methods would not be sufficient to prevent a hypothetical
monopolist of General Purpose Card network services from profitably
maintaining supracompetitive prices and terms for network services
provided to merchants over a sustained period of time or from imposing
anticompetitive conditions on merchants.
Defendants possess market power in the network services market. In
2003, the United States Court of Appeals for the Second Circuit
affirmed that Visa and MasterCard hold market power in a General
Purpose Card network services market. United States v. Visa U.S.A.,
Inc., 344 F.3d 229, 238-39 (2d Cir. 2003). American Express' share of
General Purpose Card transaction volume today is close to MasterCard's,
and similar to MasterCard's share at the time of the Second Circuit's
decision.
Because of the Merchant Restraints, a merchant is obstructed in its
ability to reduce its purchases of one network's services by
encouraging its customers to choose a competing network's General
Purpose Card. A merchant may resist a Defendant's high card acceptance
fees only by no longer accepting that Defendant's General Purpose
Cards. This all-or-nothing choice does not effectively constrain
Defendants' market power because merchants cannot refuse to accept
these General Purpose Cards without alienating customers and losing
significant sales. The Merchant Restraints leave merchants less able to
avoid Defendants' supracompetitive prices than they otherwise would be.
Defendants' ability to discriminate in the prices they charge
different types of merchants, unexplained by cost differences, also
reflects their market power. Defendants target specific merchant
segments for differential pricing based on those merchants' ability to
pay and their inability to refuse to accept Defendants' General Purpose
Cards.
Significant barriers to entry and expansion protect Defendants'
market power, and have contributed to Defendants' ability to maintain
high prices for years without threat of price competition by new entry
or expansion in the market. Barriers to entry and expansion include the
prohibitive cost of establishing a physical network over which General
Purpose Card transactions can run, developing a widely recognized
brand, and establishing a base of merchants and a base of cardholders.
Defendants, which achieved these necessities early in the history of
the industry, hold substantial early-mover advantages over prospective
subsequent entrants. Successful entry today would be difficult, time
consuming, and expensive.
2. The T&E Market
Another relevant market consists of General Purpose Card network
services provided to merchants in travel and entertainment businesses
(e.g., merchants offering air travel, lodging, or rental cars). The T&E
market is what is sometimes termed a ``price discrimination market.''
Merchants in this market share distinct characteristics in their usage
of General Purpose Card network services, can be readily identified by
Defendants, and are subject to price discrimination by Defendants.
Price discrimination occurs when a seller charges different customers
(or groups of customers) different prices for the same services, when
those different prices are not based on different costs of serving
those customers.
Here, Defendants charge merchants in the T&E sector higher fees
than they charge most other merchants. The high fees to T&E merchants
are not based on Defendants' higher costs of serving their T&E
merchants. Each Defendant can
[[Page 62868]]
charge T&E merchants high fees because those merchants are even less
able to substitute away to other networks than other merchants.
Competition from other payment methods would not be sufficient to
prevent a hypothetical monopolist in the T&E market from either
profitably maintaining supracompetitive prices and terms for network
services to T&E merchants over a sustained period of time or imposing
anticompetitive conditions on T&E merchants in that market. A
hypothetical monopolist could price discriminate profitably against T&E
merchants even if other merchants were paying lower prices for network
services.
Each Defendant holds market power in the T&E market. As with the
market for General Purpose Card network services, discussed above,
significant barriers to entry and expansion protect the market for
network services to T&E merchants.
D. The Competitive Effects of the Alleged Violation
The Complaint alleges that Defendants' Merchant Restraints suppress
price and non-price competition by prohibiting a merchant from offering
discounts or other benefits to customers for the use of a particular
General Purpose Card. These prohibitions allow Defendants to maintain
high prices for network services with confidence that no competitor
will take away significant transaction volume through competition in
the form of merchant discounts or benefits to customers to use lower
cost payment options. Defendants' prices for network services to
merchants are therefore higher than they would be without the Merchant
Restraints.
Absent the Merchant Restraints, merchants would be free to use
various methods, such as discounts or non-price benefits, to encourage
customers to use the brands of General Purpose Cards that impose lower
costs on the merchants. In order to retain merchant business, the
networks would need to respond to merchant preferences by competing
more vigorously on price and service to merchants. The increased
competition among networks would lead to lower merchant fees and better
service terms.
Because the Merchant Restraints result in higher merchant costs,
and merchants pass these costs on to consumers, retail prices are
higher generally for consumers. Moreover, a customer who pays with
lower-cost methods of payment pays more than he or she would if
Defendants did not prevent merchants from encouraging network
competition at the point of sale. For example, because certain types of
premium General Purpose Cards tend to be held by more affluent buyers,
less affluent purchasers using non-premium General Purpose Cards, debit
cards, cash, and checks effectively subsidize part of the cost of
expensive premium card benefits and rewards enjoyed by those
cardholders.
The Complaint also alleges that the Merchant Restraints have had a
number of other anticompetitive effects, including reducing output of
lower-cost payment methods, stifling innovation in network services and
card offerings, and denying information to customers about the relative
costs of General Purpose Cards that would cause more customers to
choose lower-cost payment methods. Defendants' Merchant Restraints also
have heightened the already high barriers to entry and expansion in the
network services market. Merchants' inability to encourage their
customers to use less-costly General Purpose Card networks makes it
more difficult for existing or potential competitors to threaten
Defendants' market power.
Finally, the Complaint alleges that these anticompetitive effects
are not outweighed by any allegedly procompetitive goals of the
Merchant Restraints, and there are less restrictive alternatives by
which Defendants would be able reasonably to achieve any procompetitive
goals.
III. Explanation of The Proposed Final Judgment
The prohibitions and required conduct in the proposed Final
Judgment achieve all the relief sought from Visa and MasterCard in the
Complaint, and thus fully resolve the competitive concerns raised by
those Defendants' Merchant Restraints challenged in this lawsuit.
The proposed Final Judgment prohibits Visa and MasterCard from
adopting, maintaining, or enforcing any rule, or entering into or
enforcing any agreement, that prevents any merchant from: (1) Offering
the customer a price discount, rebate, free or discounted product or
service, or other benefit if the customer uses a particular brand or
type of General Purpose Card or particular form of payment; (2)
expressing a preference for the use of a particular brand or type of
General Purpose Card or particular form of payment; (3) promoting a
particular brand or type of General Purpose Card or particular form of
payment through posted information; through the size, prominence, or
sequencing of payment choices; or through other communications to the
customer; or (4) communicating to customers the reasonably estimated or
actual costs incurred by the merchant when a customer pays with a
particular brand or type of General Purpose Card. Proposed Final
Judgment Sec. IV.A.
For purposes of the Final Judgment, the ``brand'' of a General
Purpose Card refers to its network (e.g., American Express, Discover,
MasterCard, or Visa). Id. Sec. II.3. The ``type'' of a General Purpose
Card refers to the network's card categories, such as premium cards
(e.g., a ``Visa Signature Card'' or a ``World MasterCard''), rewards
cards, or traditional cards. Id. Sec. II.16. The term ``form of
payment'' is defined as any means by which customers pay for goods and
services, including cash, a check, a debit card, a prepaid card, or
other means. Id. Sec. II.7. The definition includes particular brands
or types of debit cards.
The purpose of Section IV.A is to free merchants to influence the
method of payment used by their customers by providing them
information, discounts, benefits, and choices at the point of sale. For
example, merchants will be able to encourage customers, using the
methods described in Section IV.A, to use one General Purpose Card
instead of another, to use one type of General Purpose Card instead of
another (such as by offering a discount for the use of a cheaper non-
rewards Visa card instead of a premium-level Visa rewards card), or to
use a different General Purpose Card or form of payment than the
General Purpose Card the customer initially presents to the merchant.
Merchants will also be able to encourage the use of any other payment
form, such as cash, check, or debit cards, by using the methods
described in Section IV.A.
To clarify the scope of the conduct prohibited by the proposed
Final Judgment, Section IV.B provides that Visa and MasterCard would
not violate the Final Judgment if they established agreements with
merchants, pursuant to which: (1) The merchant agrees to accept only
one brand of General Purpose Card; (2) the merchant encourages
customers to use co-branded or affinity General Purpose Cards with the
merchant's own brand on the card, and not other General Purpose Cards;
or (3) the merchant encourages customers to use only one brand of
General Purpose Card.\2\ The General Purpose Card networks likely will
compete with
[[Page 62869]]
each other to enter these types of agreements, to the benefit of
merchants and consumers.
---------------------------------------------------------------------------
\2\ Visa and MasterCard may enter into the latter type of
agreement subject to certain conditions: (a) The agreement is
individually negotiated with the merchant and is not part of a
standard merchant contract; and (b) the merchant's acceptance of the
Defendant's General Purpose Card is unrelated to, and not
conditioned on, the merchant's entry into the agreement. Id. Sec.
IV.B.3.
---------------------------------------------------------------------------
Section IV.B also allows Visa and MasterCard to have a network rule
that prohibits a merchant from encouraging customers to use the General
Purpose Cards of one issuing bank instead of those of another issuing
bank.
Section IV.C allows Visa and MasterCard to have a network rule that
prohibits a merchant from disparaging the network's brand, as long as
that rule does not restrict a merchant's ability to encourage customers
to use other General Purpose Cards or forms of payment.
To facilitate merchants' ability to encourage customers to use
particular General Purpose Cards, Section IV.D prevents Visa and
MasterCard from denying merchants access to information from their
acquiring banks about the cost of each type of General Purpose Card.
Section V of the proposed Final Judgment requires Visa and
MasterCard, within five days of entry of the Judgment, to ``delete,
discontinue, and cease to enforce'' any rule that would be prohibited
by Section IV of the Final Judgment. Id. Sec. V.A. Sections V.B and
V.C require Visa and MasterCard to make specific changes to their rules
and regulations governing merchant conduct to implement the
requirements of Section IV. Section V also directs Visa and MasterCard,
through their acquiring banks, to notify merchants of the rules changes
mandated by the Final Judgment, and of the fact that merchants are now
permitted to encourage customers to use a particular General Purpose
Card or form of payment. Acquiring banks must also provide merchants
with a copy of the Final Judgment. Finally, Section V requires Visa and
MasterCard to adopt rules that prohibit their acquiring banks from
adopting, maintaining, or enforcing any rule that would be inconsistent
with the prohibitions of Section IV of the Final Judgment.
To aid in enforcement, the proposed Final Judgment requires Visa
and MasterCard to notify the Department of Justice of any future rule
change that limits or restrains ``how Merchants accept, process,
promote, or encourage use of Forms of Payment other than General
Purpose Cards or of General Purpose Cards bearing the Brand of another
General Purpose Card Network.'' Id. Sec. V.F.
The proposed Final Judgment expressly states that there is no
limitation on the United States' (or the Plaintiff States') ability to
investigate and bring an antitrust enforcement action in the future
concerning any rule of either Visa or MasterCard, including any rule
either of them may adopt in the future. Id. Sec. VIII. Merchants that
currently accept only Visa or MasterCard, or both, will benefit
immediately from the Final Judgment by having the freedom to encourage
their customers to choose the merchants' preferred method of payment.
Merchants will have several new options available to accomplish this,
such as offering customers a price discount, a rebate, a free product
or service, rewards program points, or other benefits; placing signs
that encourage customers to use particular payment methods; prompting
customers to use particular General Purpose Cards or other forms of
payment; or communicating to customers the costs of particular forms of
payment.
Merchants that accept American Express cards, including the vast
majority of the major retailers in the United States, will be unable to
influence customers' payment methods because the anticompetitive
American Express Merchant Restraints will continue to constrain those
merchants pending the outcome of this litigation. American Express
stands as the last obstacle to achieving the full benefits of
competition now suppressed by the challenged Merchant Restraints. The
United States will continue this case against American Express to
obtain complete relief for the affected merchants, and for the benefit
of their customers.
IV. Remedies Available To Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
private lawsuit that may be brought against Defendants.
V. Procedures Available For Modification of The Proposed Final Judgment
The United States, Plaintiff States, Visa, and MasterCard have
stipulated that the proposed Final Judgment may be entered by the Court
after compliance with the provisions of the APPA, provided that the
United States has not withdrawn its consent. The APPA conditions entry
upon the Court's determination that the proposed Final Judgment is in
the public interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register, or the last date of
publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the United States Department of Justice, which
remains free to withdraw its consent to the proposed Final Judgment at
any time prior to the Court's entry of judgment. The comments and the
response of the United States will be filed with the Court and
published in the Federal Register.
Written comments should be submitted to: John R. Read, Chief,
Litigation III Section, Antitrust Division, United States Department of
Justice, 450 Fifth Street, NW., Suite 4000, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives To The Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, proceeding to a full trial on the merits against Visa
and MasterCard. The United States is satisfied, however, that the
prohibitions and requirements contained in the proposed Final Judgment
will fully address the competitive concerns set forth in the Complaint
against Visa and MasterCard. The proposed Final Judgment achieves all
or substantially all of the relief the United States would have
obtained through litigation against Visa and MasterCard, and will avoid
the delay, risks, and costs of a trial on the merits of the
Complaint.\3\
---------------------------------------------------------------------------
\3\ The Antitrust Division has investigated a number of
Defendants' other merchant rules, including the prohibition on
surcharging, that are not challenged in this Complaint. Tunney Act
review is limited to the scope of the complaint and the court 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.'' United States v. Microsoft, 56 F.3d 1448, 1459-60 (DC Cir.
1995); see also infra Sec. VII, at 20. The proposed Final Judgment
contains a clause preserving the rights of the United States and
providing that ``[n]othing in this Final Judgment shall limit the
right of the United States or of the Plaintiff States to investigate
and bring actions to prevent or restrain violations of the antitrust
laws concerning any Rule of MasterCard or Visa, including any
current Rule and any Rule adopted in the future.'' Proposed Final
Judgment Sec. VIII. At this time, the United States takes no
position on whether any Visa or MasterCard rule not challenged in
the Complaint is in violation of the antitrust laws.
---------------------------------------------------------------------------
[[Page 62870]]
VII. Standard of Review Under The APPA For The Proposed Final Judgment
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
subject to a sixty-day comment period, after which the court shall
determine whether entry of the proposed Final Judgment ``is in the
public interest.'' 15 U.S.C. 16(e)(1). In making that determination,
the court, in accordance with the statute as amended in 2004, is
required to consider:
(A) The competitive impact of such judgment, including termination
of alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) & (B). In considering these statutory
factors, the court's inquiry is necessarily a limited one as the United
States is entitled to ``broad discretion to settle with the defendant
within the reaches of the public interest.'' United States v. Microsoft
Corp., 56 F.3d 1448, 1461 (DC Cir. 1995); see also United States v.
Alex Brown & Sons, Inc., 963 F. Supp. 235, 238 (S.D.N.Y. 1997) (noting
that the court's role in the public interest determination is
``limited'' to ``ensur[ing] that the resulting settlement is `within
the reaches of the public interest' '') (quoting Microsoft, 56 F.3d at
1460), aff'd sub nom. United States v. Bleznak, 153 F.3d 16 (2d Cir.
1998); United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D. DC
2007) (assessing public interest standard under the Tunney Act); United
States v. InBev N.V./S.A., 2009-2 Trade Cas. (CCH) ]76,736, 2009 U.S.
Dist. LEXIS 84787, No. 08-1965 (JR), at *3, (D. DC Aug. 11, 2009)
(noting that the court's review of a consent judgment is limited and
only inquires ``into whether the government's determination that the
proposed remedies will cure the antitrust violations alleged in the
complaint was reasonable, and whether the mechanism to enforce the
final judgment are clear and manageable.'').\4\
---------------------------------------------------------------------------
\4\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for the court to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
---------------------------------------------------------------------------
As the United States Court of Appeals for the District of Columbia
Circuit has held, a court considers under the APPA, among other things,
the relationship between the remedy secured and the specific
allegations set forth in the United States' complaint, whether the
decree is sufficiently clear, whether enforcement mechanisms are
sufficient, and whether the decree may positively harm third parties.
See Microsoft, 56 F.3d at 1458-62. With respect to the adequacy of the
relief secured by the decree, a court may not ``engage in an
unrestricted evaluation of what relief would best serve the public.''
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) (citing
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see
also Microsoft, 56 F.3d at 1460-62; Alex Brown, 963 F. Supp. at 238;
United States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D. DC 2001);
InBev, 2009 U.S. Dist. LEXIS 84787, at *3. Courts have held that:
[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to the
decree. The court is required to determine not whether a particular
decree is the one that will best serve society, but whether the
settlement is ``within the reaches of the public interest.'' More
elaborate requirements might undermine the effectiveness of antitrust
enforcement by consent decree. Bechtel, 648 F.2d at 666 (emphasis
added) (citations omitted).\5\ In determining whether a proposed
settlement is in the public interest, a district court ``must accord
deference to the government's predictions about the efficacy of its
remedies, and may not require that the remedies perfectly match the
alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d at 17; see also
Microsoft, 56 F.3d at 1461 (noting the need for courts to be
``deferential to the government's predictions as to the effect of the
proposed remedies''); Alex Brown, 963 F. Supp. at 239 (stating that the
court should give ``due deference to the Government's evaluation of the
case and the remedies available to it''); United States v. Archer-
Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D. DC 2003) (noting that the
court should grant due respect to the United States' ``prediction as to
the effect of proposed remedies, its perception of the market
structure, and its views of the nature of the case'').
---------------------------------------------------------------------------
\5\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''); see generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
---------------------------------------------------------------------------
Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be approved
even if it falls short of the remedy the court would impose on its own,
as long as it falls within the range of acceptability or is `within the
reaches of public interest.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D. DC 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also
United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky.
1985) (approving the consent decree even though the court would have
imposed a greater remedy). To meet this standard, the United States
``need only provide a factual basis for concluding that the settlements
are reasonably adequate remedies for the alleged harms.'' SBC Commc'ns,
489 F. Supp. 2d at 17.
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also InBev, 2009
U.S.
[[Page 62871]]
Dist. LEXIS 84787, at *20 (``the `public interest' is not to be
measured by comparing the violations alleged in the complaint against
those the court believes could have, or even should have, been
alleged''). Because the ``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
that the United States did not pursue. Microsoft, 56 F.3d at 1459-60.
As the United States District Court for the District of Columbia
recently confirmed in SBC Communications, courts ``cannot look beyond
the complaint in making the public interest determination unless the
complaint is drafted so narrowly as to make a mockery of judicial
power.'' SBC Commc'ns, 489 F. Supp. 2d at 15.
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of utilizing consent decrees in antitrust
enforcement, adding the unambiguous instruction that ``[n]othing in
this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. 16(e)(2). This language effectuates what
Congress intended when it enacted the Tunney Act in 1974. As Senator
Tunney explained: ``[t]he court is nowhere compelled to go to trial or
to engage in extended proceedings which might have the effect of
vitiating the benefits of prompt and less costly settlement through the
consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of
Senator Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp. 2d at 11.\6\
---------------------------------------------------------------------------
\6\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.
DC 2000) (noting that the ``Tunney Act expressly allows the court to
make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977) (``Absent a showing of corrupt
failure of the government to discharge its duty, the Court, in
making its public interest finding, should * * * carefully consider
the explanations of the government in the competitive impact
statement and its responses to comments in order to determine
whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, 93d Cong., 1st Sess., at 6
(1973) (``Where the public interest can be meaningfully evaluated
simply on the basis of briefs and oral arguments, that is the
approach that should be utilized.'').
---------------------------------------------------------------------------
VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment. Respectfully submitted, Craig
W. Conrath, Michael G. Dashefsky, Justin M. Dempsey, Mark H. Hamer,
Gregg I. Malawer, Bennett J. Matelson, Anne Newton McFadden, Rachel L.
Zwolinski.
Attorneys for the United States, United States Department of
Justice, Antitrust Division, Litigation III, 450 Fifth Street, NW.,
Suite 4000, Washington, DC 20530.
Dated: October 4, 2010
In The United States District Court For The Eastern District of New
York
United States of America, State of Connecticut, State of Iowa,
State Of Maryland, State of Michigan, State of Missouri, State of Ohio,
and State of Texas, Plaintiffs, v. American Express Company, American
Express Travel Related Services Company, Inc., Mastercard International
Incorporated, and Visa Inc. Defendants.
Civil Action No. CV-10-4496
(Garaufis, J.)
(Pollak, M.J.)
[Proposed] Final Judgment as to Defendants Mastercard International
Incorporated and Visa Inc.
Whereas, Plaintiffs, the United States of America and the States of
Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio, and Texas filed
their Complaint on October 4, 2010, alleging that Defendants each
adopted rules that restrain Merchants from encouraging consumers to use
preferred payment forms, harming competition and consumers in violation
of Section 1 of the Sherman Act, 15 U.S.C. 1, and Plaintiffs and
Defendants MasterCard International Incorporated and Visa Inc., by
their respective attorneys, have consented to the entry of this Final
Judgment without trial or adjudication of any issue of fact or law;
Whereas, Defendants MasterCard and Visa have not admitted and do
not admit either the allegations set forth in the Complaint or any
liability or wrongdoing;
And whereas, Defendants MasterCard and Visa agree to be bound by
the provisions of this Final Judgment pending its approval by the
Court;
Now therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, without this Final Judgment
constituting any evidence against or admission by Defendants MasterCard
or Visa regarding any issue of fact or law, and upon consent of
MasterCard and Visa, it is ordered, adjudged and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of this action
and over MasterCard and Visa. The Complaint states a claim upon which
relief may be granted against MasterCard and Visa under Section 1 of
the Sherman Act, as amended, 15 U.S.C. 1.
II. Definitions
As used in this Final Judgment:
1. ``Acquiring Bank'' means a Person authorized by MasterCard or
Visa to enter into agreements with Merchants to accept MasterCard's or
Visa's General Purpose Cards as payment for goods or services.
2. ``American Express'' means American Express Company, a New York
corporation with its principal place of business in New York, New York,
and American Express Travel Related Services Company, Inc., a Delaware
corporation with its principal place of business in New York, New York,
their successors and assigns, and their subsidiaries (whether partially
or wholly owned), divisions, groups, affiliates, partnerships, and
joint ventures, and their directors, officers, managers, agents, and
employees.
3. ``Brand'' means the brand or mark of a General Purpose Card
Network.
4. ``Customer'' means a Person that pays for goods or services.
5. ``Department of Justice'' means the United States Department of
Justice, Antitrust Division.
6. ``Discover'' means Discover Financial Services, a Delaware
corporation with its principal place of business in Riverwoods,
Illinois, its successors and assigns, and its subsidiaries (whether
partially or wholly owned), divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
7. ``Form of Payment'' means cash, a check, a debit card, a prepaid
card, or any other means by which Customers pay for goods or services,
and includes particular brands (e.g., Star, NYCE) or types (e.g., PIN
debit) of debit cards or other means of payment.
8. ``General Purpose Card'' means a credit or charge card issued
pursuant to Rules of a General Purpose Card Network that enables
consumers to make purchases from unrelated Merchants without accessing
or reserving funds, regardless of any other functions the card may
have.
9. ``General Purpose Card Network'' means any Person that directly
or
[[Page 62872]]
indirectly assembles a group of unrelated Merchants to accept and a
group of unrelated consumers to make purchases with General Purpose
Cards bearing the Person's Brand, and includes General Purpose Card
Networks such as Visa, MasterCard, American Express, and Discover.
10. ``Issuing Bank'' means a Person authorized by MasterCard or
Visa to enter into agreements with cardholders for the use of that
Defendant's General Purpose Cards for payment at a Merchant.
11. ``MasterCard'' means MasterCard International Incorporated, a
Delaware corporation with its principal place of business in Purchase,
New York, its successors and assigns, and its subsidiaries (whether
partially or wholly owned), divisions, groups, affiliates,
partnerships, and joint ventures, and their directors, officers,
managers, agents, and employees.
12. ``Merchant'' means a Person that accepts MasterCard's or Visa's
General Purpose Cards as payment for goods or services.
13. ``Person'' means any natural person, corporation, company,
partnership, joint venture, firm, association, proprietorship, agency,
board, authority, commission, office, or other business or legal
entity, whether private or governmental.
14. ``Plaintiff States'' means the States of Connecticut, Iowa,
Maryland, Michigan, Missouri, Ohio, and Texas.
15. ``Rule'' means any rule, bylaw, policy, standard, guideline, or
practice applicable to Merchants in the United States.
16. ``Type'' means a category of General Purpose Cards, including
but not limited to traditional cards, rewards cards, or premium cards
(e.g., a ``Visa Signature Card'' or a ``World MasterCard'').
17. ``Visa'' means Visa Inc., a Delaware corporation with its
principal place of business in San Francisco, California, its
successors and assigns, and its subsidiaries (whether partially or
wholly owned), divisions, groups, affiliates, partnerships, and joint
ventures, and their directors, officers, managers, agents, and
employees, but shall not include Visa Europe Limited and its wholly
owned affiliates.
18. The terms ``and'' and ``or'' have both conjunctive and
disjunctive meanings.
III. Applicability
This Final Judgment applies to MasterCard and Visa and all other
Persons in active concert or participation with any of them who receive
actual notice of this Final Judgment by personal service or otherwise.
IV. Prohibited Conduct
A. The purpose of this Section IV is to allow Merchants to attempt
to influence the General Purpose Card or Form of Payment Customers
select by providing choices and information in a competitive market.
This Final Judgment should be interpreted to promote such efforts and
not limit them. Accordingly, neither MasterCard nor Visa shall adopt,
maintain, or enforce any Rule, or enter into or enforce any agreement
that directly or indirectly prohibits, prevents, or restrains any
Merchant in the United States from
1. Offering the Customer a discount or rebate, including an
immediate discount or rebate at the point of sale, if the Customer uses
a particular Brand or Type of General Purpose Card, a particular Form
of Payment, or a Brand or Type of General Purpose Card or a Form of
Payment other than the General Purpose Card the Customer initially
presents;
2. offering a free or discounted product if the Customer uses a
particular Brand or Type of General Purpose Card, a particular Form of
Payment, or a Brand or Type of General Purpose Card or a Form of
Payment other than the General Purpose Card the Customer initially
presents;
3. offering a free or discounted or enhanced service if the
Customer uses a particular Brand or Type of General Purpose Card, a
particular Form of Payment, or a Brand or Type of General Purpose Card
or a Form of Payment other than the General Purpose Card the Customer
initially presents;
4. offering the Customer an incentive, encouragement, or benefit
for using a particular Brand or Type of General Purpose Card, a
particular Form of Payment, or a Brand or Type of General Purpose Card
or a Form of Payment other than the General Purpose Card the Customer
initially presents;
5. expressing a preference for the use of a particular Brand or
Type of General Purpose Card or a particular Form of Payment;
6. promoting a particular Brand or Type of General Purpose Card or
a particular Form or Forms of Payment through posted information,
through the size, prominence, or sequencing of payment choices, or
through other communications to a Customer;
7. communicating to a Customer the reasonably estimated or actual
costs incurred by the Merchant when a Customer uses a particular Brand
or Type of General Purpose Card or a particular Form of Payment or the
relative costs of using different Brands or Types of General Purpose
Cards or different Forms of Payment; or
8. engaging in any other practices substantially equivalent to the
practices described in Sections IV.A.1 through IV.A.7 of this Final
Judgment.
B. Subject to compliance with the antitrust laws, the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010, and any other
applicable state or federal law, nothing in this Final Judgment shall
prohibit MasterCard or Visa from
1. Enforcing existing agreements or entering into agreements
pursuant to which a Merchant selects General Purpose Cards bearing the
Defendant's Brand as the only General Purpose Cards the Merchant will
accept as payment for goods and services;
2. enforcing existing agreements or entering into agreements
pursuant to which a Merchant agrees that it will encourage Customers to
use co-branded or affinity General Purpose Cards bearing both the
Defendant's Brand and the co-brand or affinity partner's name, logo, or
brand as payment for goods and services and will not encourage
Customers to use General Purpose Cards bearing the Brand of any other
General Purpose Card Network;
3. enforcing existing agreements or entering into agreements
pursuant to which a Merchant agrees (i) that it will encourage
Customers, through practices enumerated in Sections IV.A.1 through
IV.A.8 of this Final Judgment, to use General Purpose Cards bearing the
Defendant's Brand as payment for goods and services, and (ii) that it
will not use one or more practices enumerated in Sections IV.A.1
thorough IV.A.8 of this Final Judgment to encourage Customers to use
General Purpose Cards bearing any other Person's Brand as payment for
goods and services; provided that (a) any such agreement is
individually negotiated with the Merchant and is not a standard
agreement or part of a standard agreement generally offered by the
Defendant to multiple Merchants, and (b) the Merchant's acceptance of
the Defendant's General Purpose Cards as payment for goods and services
is unrelated to and not conditioned upon the Merchant's entry into any
such agreement;
4. adopting, maintaining, and enforcing Rules that prohibit
Merchants from encouraging Customers to pay for goods or services using
one of its General Purpose Cards issued by one particular Issuing Bank
rather than by another of its General Purpose Cards issued by any other
Issuing Bank.
C. Subject to Section IV.A of this Final Judgment, nothing in this
Final
[[Page 62873]]
Judgment shall prohibit MasterCard or Visa from adopting, maintaining,
and enforcing Rules that prohibit Merchants from disparaging its Brand.
D. Neither MasterCard nor Visa shall adopt, maintain, or enforce
any Rule, or enter into or enforce any agreement, that prohibits,
prevents, restrains, deters, or inhibits an Acquiring Bank from
supplying a Merchant, on a transaction-by-transaction or other basis,
information regarding the costs or fees the Merchant would incur in
accepting a General Purpose Card, including a particular Type of
General Purpose Card, presented by the Customer as payment for that
Customer's transaction.
V. Required Conduct
A. Within five business days after entry of this Final Judgment,
MasterCard and Visa shall each delete, discontinue, and cease to
enforce in the United States any Rule that it would be prohibited from
adopting, maintaining, or enforcing pursuant to Section IV of this
Final Judgment.
B. Within five business days after entry of this Final Judgment,
Visa shall modify the following portion of its Visa International
Operating Regulations ``Discount Offer--U.S. Region 5.2.D.2'' as
follows:
Current language: Discount Offer--U.S. Region 5.2.D.2.
In the U.S. Region, any purchase price advertised or otherwise
disclosed by the Merchant must be the price associated with the use of
a Visa Card or Visa Electron Card.
A U.S. Merchant may offer a discount as an inducement for a
Cardholder to use a means of payment that the Merchant prefers,
provided that the discount is:
Clearly disclosed as a discount from the standard price
Non-discriminatory, as between a Cardholder who pays with
a Visa Card and a cardholder who pays with a ``comparable card''
A ``comparable card'' for purposes of this rule is any other
branded, general purpose payment card that uses the cardholder's
signature as the primary means of cardholder authorization (e.g.,
MasterCard, Discover, American Express). Any discount made available to
cardholders who pay with ``comparable cards'' must also be made
available to Cardholders who wish to pay with Visa Cards. Any discount
made available to a Cardholder who pays with a Visa Card is not
required to be offered to cardholders who pay with ``comparable
cards.''
Modified language: Discount Offer--U.S. Region 5.2.D.2
A U.S. Merchant may request or encourage a Cardholder to use a
means of payment other than a Visa Card or a Visa Card of a different
product type (e.g., Visa Classic Card, Visa Traditional Rewards Card,
Visa Signature Card) than the Visa Card the consumer initially
presents. Except where prohibited by law, the Merchant may do so by
methods that include, but are not limited to:
Offering the consumer an immediate discount from the
Merchant's list, stated, or standard price, a rebate, a free or
discounted product or service, or any other incentive or benefit if the
consumer uses a particular general purpose payment card with an
acceptance brand other than a Visa Card or other particular means of
payment
Offering the consumer an immediate discount from the
Merchant's list, stated, or standard price, a rebate, a free or
discounted product or service, or any other incentive or benefit if the
consumer, who initially presents a Visa Card, uses instead another
general purpose payment card or another means of payment
Expressing a preference for the use of a particular
general purpose payment card or means of payment
Promoting the use of a particular general purpose payment
card with an acceptance brand other than Visa or means of payment
through posted information, through the size, prominence, or sequencing
of payment choices, or through other communications to consumers
Communicating to consumers the reasonably estimated or
actual costs incurred by the Merchant when a consumer uses a particular
general purpose payment card or means of payment or the relative costs
of using different general purpose payment cards or means of payment.
C. Within five business days after entry of this Final Judgment,
MasterCard shall modify its MasterCard Rules, Rule 5.11.1
``Discrimination'' in the United States as follows:
Current language: A Merchant must not engage in any acceptance
practice that discriminates against or discourages the use of a Card in
favor of any other acceptance brand.
Modified language: A Merchant may request or encourage a customer
to use a payment card with an acceptance brand other than MasterCard or
other form of payment or a Card of a different product type (e.g.,
traditional cards, premium cards, rewards cards) than the Card the
consumer initially presents.
Except where prohibited by law, it may do so by methods that
include, but are not limited to: (a) Offering the customer an immediate
discount from the Merchant's list, stated, or standard price, a rebate,
a free or discounted product or service, or any other incentive or
benefit if the customer uses a particular payment card with an
acceptance brand other than MasterCard or other particular form of
payment; (b) offering the customer an immediate discount from the
Merchant's list, stated, or standard price, a rebate, a free or
discounted product or service, or any other incentive or benefit if the
customer, who initially presents a MasterCard, uses instead another
payment card or another form of payment; (c) expressing a preference
for the use of a particular payment card or form of payment; (d)
promoting the use of a particular general purpose payment card with an
acceptance brand other than MasterCard or the use of a particular form
or forms of payment through posted information, through the size,
prominence, or sequencing of payment choices, or through other
communications to customers (provided that merchants will abide by
MasterCard's trademark standards relating to the display of its marks);
or (e) communicating to customers the reasonably estimated or actual
costs incurred by the Merchant when a customer uses particular payment
cards or forms of payment or the relative costs of using different
general purpose payment cards or forms of payment.
D. Within ten business days after entry of this Final Judgment,
MasterCard and Visa shall each furnish to the Department of Justice and
the Plaintiff States an affidavit affirming that it has made the
specific changes to its Rules required by Sections V.B (for Visa) and
V.C (for MasterCard) of this Final Judgment and describing any
additional changes, if any, it made pursuant to Section V.A of this
Final Judgment.
E. MasterCard and Visa shall each take the following actions to
ensure that Merchants that accept its General Purpose Cards as payment
for goods or services (i) are notified of this Final Judgment and the
Rules changes MasterCard and Visa make pursuant to this Final Judgment;
and (ii) are not restricted, discouraged, or prevented from engaging in
any of the practices enumerated in Sections IV.A.1 through IV.A.8 of
this Final Judgment:
1. Within ten business days after entry of this Final Judgment,
MasterCard and Visa shall each furnish to the Department of Justice and
the Plaintiff States, for the approval of the
[[Page 62874]]
Department of Justice, a proposed form of written notification to be
provided to Acquiring Banks for distribution to Merchants:
a. describing the Rules changes each made pursuant to this Final
Judgment; and
b. informing Merchants that they are permitted to engage in any of
the practices enumerated in Sections IV.A.1 through IV.A.8 of this
Final Judgment.
Within five business days after receiving the approval of the
Department of Justice, the Defendant shall direct its Acquiring Banks
to furnish to each of the Merchants in the United States with which the
Acquiring Banks have entered an agreement to accept the Defendant's
General Purpose Cards as payment for goods or services (i) a paper or
electronic copy of the approved notification and (ii) a paper or
electronic copy of this Final Judgment (or an Internet link to this
Final Judgment). MasterCard and Visa shall direct the Acquiring Banks
to provide such information in their next billing statement or within
thirty days of their receipt of MasterCard's or Visa's direction,
whichever is shorter.
2. Within five business days after entry of this Final Judgment,
MasterCard and Visa shall each adopt a Rule forbidding its Acquiring
Banks from adopting, maintaining, or enforcing Rules with respect to
MasterCard or Visa General Purpose Cards that the Defendant would be
prohibited from adopting, maintaining, or enforcing pursuant to Section
IV of this Final Judgment.
F. MasterCard and Visa shall each notify the Department of Justice
and the Plaintiff States, within five business days of such adoption or
modification, if it adopts a new Rule that limits or restrains, or
modifies an existing Rule in a manner that limits or restrains how
Merchants accept, process, promote, or encourage use of Forms of
Payment other than General Purpose Cards or of General Purpose Cards
bearing the Brand of another General Purpose Card Network.
VI. Compliance Inspection
I. For purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time duly authorized representatives of the Department of
Justice, including consultants and other persons retained by the
Department of Justice, shall, upon written request of an authorized
representative of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to MasterCard or Visa, be
permitted:
A. access during the Defendant's office hours to inspect and copy,
or at the option of the United States, to require the Defendant to
provide to the United States and the Plaintiff States hard copy or
electronic copies of, all books, ledgers, accounts, records, data, and
documents in the possession, custody, or control of the Defendant,
relating to any matters contained in this Final Judgment; and
B. to interview, either informally or on the record, the
Defendant's officers, employees, or agents, who may have their
individual counsel present, regarding such matters. The interviews
shall be subject to the reasonable convenience of the interviewee and
without restraint or interference by the Defendant.
II. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
MasterCard and/or Visa shall submit written reports or respond to
written interrogatories, under oath if requested, relating to any of
the matters contained in this Final Judgment as may be requested.
Written reports authorized under this paragraph may, at the sole
discretion of the United States, require a Defendant to conduct, at its
cost, an independent audit or analysis relating to any of the matters
contained in this Final Judgment.
III. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of (i) the executive branch of the
United States or (ii) the Plaintiff States, except in the course of
legal proceedings to which the United States is a party (including
grand jury proceedings), or for the purpose of securing compliance with
this Final Judgment, or as otherwise required by law.
IV. If at the time information or documents are furnished by a
Defendant to the United States and the Plaintiff States, the Defendant
represents and identifies in writing the material in any such
information or documents to which a claim of protection may be asserted
under Rule 26(c)(1)(G) of the Federal Rules of Civil Procedure, and the
Defendant marks each pertinent page of such material, ``Subject to
claim of protection under Rule 26(c)(1)(G) of the Federal Rules of
Civil Procedure,'' then the United States and Plaintiff States shall
give the Defendant ten (10) calendar days notice prior to divulging
such material in any legal proceeding (other than a grand jury
proceeding).
VII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
VIII. No Limitation on Government Rights
Nothing in this Final Judgment shall limit the right of the United
States or of the Plaintiff States to investigate and bring actions to
prevent or restrain violations of the antitrust laws concerning any
Rule of MasterCard or Visa, including any current Rule and any Rule
adopted in the future.
IX. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten years from the date of its entry.
X. Public Interest Determination
Entry of this Final Judgment is in the public interest. The parties
have complied with the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16, including making copies available to the
public of this Final Judgment, the Competitive Impact Statement, and
any comments thereon and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and response to comments filed with
the Court, entry of this Final Judgment is in the public interest.
Court approval subject to procedures set forth in the Antitrust
Procedures and Penalties Act, 15 U.S.C. 16.
Date:------------------------------------------------------------------
-----------------------------------------------------------------------
United States District Judge
[FR Doc. 2010-25655 Filed 10-12-10; 8:45 am]
BILLING CODE 4410-11-P