U.S. v. Visa U.S.A. Inc.
| Decision Date | 29 November 2001 |
| Docket Number | No. 98 Civ. 7076(BSJ).,98 Civ. 7076(BSJ). |
| Citation | 183 F.Supp.2d 613 |
| Parties | UNITED STATES v. VISA U.S.A. INC., Visa International Corp., and MasterCard International Inc. |
| Court | U.S. District Court — Southern District of New York |
John M. Nannes, Melvin A. Schwarz, Joel I. Klein, Rebecca P. Dick, Susan L. Edelheit, Steven Semerano, Kurt Shaffert, Scott A. Scheele, Jeffrey I. Steger, Sean T. Fox, Ahmed Taha, M. J. Moltenbrey, United States Department of Justice, Washington, DC, for plaintiff.
Richard A. Martin, Heller, Ehrman, White McAuliffe, L.L.P., New York City, Eugene F. Bannigan, Morgan, Lewis & Bockius, New York City, Martin L. Seidel, Rogers & Wells, New York City, for defendants.
This civil action was brought by the Antitrust Division of the Department of Justice, Washington, D.C., against the defendants, VISA U.S.A. INC., ("Visa U.S.A."), VISA INTERNATIONAL CORP., ("Visa International") (collectively "Visa") and MASTERCARD INTERNATIONAL INCORPORATED, ("MasterCard"). The Government alleged, in two counts, that each of the Defendants was acting in violation of Section 1 of the Sherman Antitrust Act, which provides that "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States . . . is declared to be illegal." 15 U.S.C. § 1. Count One centered around the governance rules of Visa and MasterCard, which permit members of each association to sit on the Board of Directors of either Visa or MasterCard, although they may not sit on both. Count Two targeted the associations' exclusionary rules, under which members of each association are able to issue credit or charge cards of the other association, but may not offer American Express or Discover cards. For each Count, the Government bore the burden of demonstrating that the restraint has substantial adverse effects on competition.
In a Decision dated October 9, 2001, this court found (1) that the Government failed to prove that the governance structures of the Visa and MasterCard associations have resulted in a significant adverse effect on competition or consumer welfare; but (2) the Government successfully demonstrated that the exclusionary rules and practices of the defendants have resulted in such adverse effect and should be abolished. The Decision contained a Proposed Final Judgment and the parties were invited to submit to the court their comments and objections regarding this proposal.
Each of the parties to this action, as well as several non-parties, submitted proposed modifications to and additional comments regarding this court's Proposed Final Judgment. After full consideration of these submissions, this court makes the following findings and modifications:
Anti-Discrimination Provisions
The Government, as well as Discover, urge this court to adopt "anti-discrimination provisions" that would prevent Visa or MasterCard from enacting or maintaining a rule or practice that treats a member bank's equity ownership in the other three general purpose card networks disparately. Under the Government's proposal, a Defendant would not be prevented from prohibiting or restricting its members from owning equity in any general purpose card network, so long as the defendant's rules did not discriminate among the networks. Although the court continues to believe that if and when a Defendant were to enact such a discriminatory rule or practice it would likely be anti-competitive, it may be challenged under Section III.C. of the Final Judgment. Since this Section broadly prohibits exclusionary issuing rules, more specific provisions are unnecessary.
Visa proposes that the final order be modified to permit Visa and MasterCard to prohibit dual issuance of debit cards in the United States so long as they do not discriminate between the different card networks. Visa currently has such a rule, pursuant to which banks issue either Visa off-line debit cards or MasterCard off-line debit cards but not both. Accordingly, as it now stands, Visa and MasterCard compete against each other for the entire debit card portfolio of each bank.1 Visa seeks to preserve this form of off-line debit competition. Nothing in the court's Final Judgment, however, prevents that. Visa may continue to bargain for the exclusive debit business of a bank, just as it now bargains for exclusive issuance of its general purpose card products. The Final Judgment does not prohibit debit exclusivity by banks if that is what they choose. It simply prevents Visa from prohibiting its member banks from issuing another network's debit product under penalty of losing its rights to issue Visa debit products. The rationale behind this portion of the Final Judgment is simple: Since debit functionality is important to the growth of the proprietary networks and will likely be a key component of future general purpose credit card products, allowing exclusionary rules for debit cards would thwart the Court's remedy and, as such, cannot be permitted.
Visa also claims that this portion of the court's Final Judgment would "contravene the purport of the Entree litigation," which was settled by consent decree in May of 1990. In fact, that litigation focused on and ultimately prohibited a proposed joint Visa/MasterCard on-line debit product that the plaintiff States were concerned would blunt network competition between Visa and MasterCard. Visa is correct that as a part of the Entree decree, which expired in 1997, Visa and MasterCard were required to provide advance notice to the States if either one of them wished to create an on-line debit card program "in which duality is not expressly prohibited." Visa is also correct that in 1994, the States expressed concern that issuing duality would bring to an end the aggressive inter-system competition between Visa and MasterCard that had grown up in the wake of the settlement and the establishment of two independent point of sale debit card programs. See Letter from Joseph Opper to Carl J. Munson, Jr., dated October 27, 1994, reproduced in 159 American Banker No. 238, December 13, 1994. At the same time, however, the States recognized that "the debit card market is evolving and that the relevant facts may change so that the position we have reached may have to be reexamined." Id. Indeed, market conditions have changed since 1994. Today, the associations have largely separated through their negotiation of Partnership and Membership agreements, and competition between Visa and MasterCard has increased dramatically. Under these circumstances, rules and practices that prohibit dual issuance in debit are unnecessary and, as explained above, would be anti-competitive.
The court also rejects Visa's request, joined by MasterCard, to exclude corporate cards and small business cards from the remedy. According to Visa, because American Express enjoys a "dominant position" in those products, Defendants should be permitted to prohibit their members from issuing American Express brand corporate or small business cards. This court disagrees. Regardless of how dominant American Express' position is with respect to these particular products, Defendants have failed to demonstrate that barriers to entry exist which prevent banks from issuing corporate or small business cards. Indeed, Visa U.S.A.'s own expert suggests that barriers to entry for these products are low, and that U.S. Bank's entry into the corporate card business using Visa's network demonstrates that not only the networks but also any number of large Visa and MasterCard issuers could easily enter this product segment. See Tr. 6078:24-6080:06 (Schmalensee). The absence of such barriers to entry precludes the possibility that American Express could exercise anything approximating market power, however large its share of the corporate and small business segments may be. Permitting Visa and MasterCard to prohibit its issuers from using the American Express network for these products simply shelters them from competition in those particular product segments. Finally, this court rejects Visa's suggestion that both corporate and small business cards are separate product markets for the purposes of this litigation. The general purpose card market is the relevant market for antitrust analysis in this case; small business and corporate cards are products that fall within that larger market. Visa's suggestion that corporate and small business cards should form their own separate markets is also completely at...
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