344 F.3d 229 (2nd Cir. 2003), 02-6074, U.S. v. VISA U.S.A., Inc.

Docket Nº:02-6074
Citation:344 F.3d 229
Party Name:U.S. v. VISA U.S.A., Inc.
Case Date:September 17, 2003
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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344 F.3d 229 (2nd Cir. 2003)

UNITED STATES of America, Plaintiff-Appellee,


VISA U.S.A., INC., Visa International Corp., and Mastercard International, Incorporated, Defendants-Appellants.

Nos. 02-6074, 02-6076, 02-6078.

United States Court of Appeals, Second Circuit

September 17, 2003.

Argued: May 8, 2003.

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Adam D. Hirsh, U.S. Department of Justice, Antitrust Division, for R. Hewitt Pate, Deputy Assistant Attorney General (Catherine G. O'Sullivan, Andrea Limmer, James R. Wade, Susan L. Edelheit, David C. Kully, Scott A. Scheele, William H. Stallings, on the brief), Washington, D.C., for Appellee.

Stephen V. Bomse, Heller Ehrman White & McAuliffe LLP (M. Laurence Popofsky, Dale A. Rice, Scott A. Westrich, Richard A. Martin, on the briefs), San Francisco, Cal. for Appellant Visa U.S.A., Inc.

Eugene F. Bannigan, Morgan, Lewis & Bockius LLP (John H. Shenefield, Michele A. Coffey, John D. Gordan, III, Brian A. Herman, on the briefs), New York, N.Y., for Appellant Visa International Service Association.

Kenneth A. Gallo, Clifford Chance Rogers & Wells LLP (James C. Egan, Jr., Aimee H. Goldstein, Gary R. Carney, Clifford Chance Rogers & Wells LLP; Noah J. Hanft, General Counsel and Corporate Secretary, Eileen S. Simon, Vice President and Senior Litigation Counsel, MasterCard International Incorporated, on the briefs), New York, N.Y., for Appellant Mastercard International, Inc.

Ian Ayres, Yale Law School (Robert Fellmeth, Center for Public Interest Law, on the brief), New Haven, Conn., for amici

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curiae Gray Panthers, The American Antitrust Institute, Inc., American Association of Business Persons with Disabilities, The Consumer Alliance, Consumers First, Inc., Self-Help for the Elderly, Consumer Alliance of the Southeast, California Small Business Association, The Consumer Research Institute, The Democratic Process Center, Inc., The Center for Public Interest Law, Consumer Fraud Watch, Americans for Competitive Telecommunications, Wireless Consumers Alliance, Inc., Electric Consumers' Alliance, Congress of California Seniors, Consumer Action, Arizona Consumers Council, Utility Consumers' Action Network, California Small Business Roundtable, Consumer Coalition of California, Jefferson County Committee for Economic Opportunity, The California Alliance for Consumer Protection, Florida Action Coalition Team, Consumers for Affordable and Reliable Services, Children's Advocacy Institute in support of affirmance.

Jonathan M. Jacobson, Akin, Gump, Strauss, Hauer & Feld, L.L.P. (Abid Qureshi, Akin, Gump, Strauss, Hauer & Feld, L.L.P.; Louise M. Parent, Anne L. Segal, Stuart Alderoty, Marcy E. Wilkov, American Express Company; Janet L. McDavid, Hogan & Hartson, LLP, on the brief), New York, N.Y., for amicus curiae American Express Company in support of affirmance.

Eric F. Leon, Kirkland & Ellis (William H. Pratt, Kirkland & Ellis; Donald G. Kempf, Jr., Kelly McNamara Corley, Morgan Stanley), New York, N.Y., for amicus curiae Discover Financial Services, Inc. in support of affirmance.

Steven M. Rutstein, Assistant Attorney General, for Richard Blumenthal, Attorney General of Connecticut (Rachel O. Davis; Betty D. Montgomery, Attorney General of Ohio, Mitchell L. Gentile; Bruce M. Botelho, Attorney General of Alaska, Clyde Sniffen, Jr.; Janet Napolitano, Attorney General of Arizona, Timothy A. Nelson, David D. Weinzweig; Bill Lockyer, Attorney General of California, Peter Siggins, Richard Frank, Kathleen Foote, Barbara Motz; Robert R. Rigsby, Corporation Counsel for the District of Columbia, Charles L. Reischel, Don Resnikoff; Robert A. Butterworth, Attorney General of Florida, Patricia A. Conners, Thomas Gary; Alan G. Lance, Attorney General of Idaho; Thomas J. Miller, Attorney General of Iowa; Carla J. Stovall, Attorney General of Kansas, Rex G. Beasley; Richard P. Leyoub, Attorney General of Louisiana, Jane Bishop Johnson; G. Steven Rowe, Attorney General of Maine, Francis Ackerman; J. Joseph Curran, Jr., Attorney General of Maryland, Ellen Cooper; Thomas F. Reilly, Attorney General of Massachusetts, Betsy W. Whittey, Jennifer M. Granholm, Attorney General of Michigan, Thomas L. Casey, Paul R. Novak; Mike Hatch, Attorney General of Minnesota, Kristen M. Olsen; Frankie Sue Del Papa, Attorney General of Nevada, Timothy Hay; Wayne Stenehjem, Attorney General of North Dakota; W.A. Drew Edmondson, Attorney General of Oklahoma; D. Michael Fisher, Attorney General of Pennsylvania; Mark Barnett, Attorney General of South Dakota, Jeffrey P. Hallem; John Cornyn, Attorney General of Texas, Howard G. Baldwin, Jr., Jeffrey S. Boyd, Paul D. Carmona, Mark Tobey, Kim Van Winkle; Mark L. Shurtleff, Attorney General of Utah; William H. Sorrell, Attorney General of Vermont, Julie Brill, David Borsykowsky; Christine O. Gregoire, Attorney General of Washington, Tina E. Kondo, Marta Lowy; Darrell V. McGraw, Jr., Attorney General of West Virginia, Jill L. Miles, Douglas L. Davis; James E. Doyle, Attorney General of Wisconsin, Kevin O'Connor, on the brief), Hartford, Conn., for amici curiae States of Connecticut, Ohio, Alaska, Arizona, California,

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Florida, Idaho, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nevada, North Dakota, Oklahoma, Pennsylvania, South Dakota, Texas, Utah, Vermont, Washington, West Virginia, and Wisconsin, and the District of Columbia in support of affirmance.

Before: OAKES, LEVAL, and CABRANES, Circuit Judges.

LEVAL, Circuit Judge.

The defendants, MasterCard International, Inc. ("MasterCard"), Visa U.S.A., Inc. ("Visa U.S.A."), and Visa International, Inc. ("Visa International"), appeal from the judgment of the United States District Court for the Southern District of New York (Barbara S. Jones, J.), entered after a non-jury trial, finding that the defendants violated Section 1 of the Sherman Antitrust Act and imposing an injunction. The U.S. Department of Justice ("DOJ") brought this civil enforcement action challenging the organizational structure of two of the nation's four major payment card systems. The complaint charged that MasterCard and Visa U.S.A., which are organized as joint ventures owned by their member banking institutions, conspired to restrain trade in two ways: (1) By enacting rules permitting a member-owner of one to function as a director of the other (an arrangement the government described as "dual governance") (Count I); and (2) by enacting and enforcing "exclusionary rules," which prohibit their member banks from issuing American Express ("Amex") or Discover cards (Count II).

After a 34-day trial, the court, in a commendably comprehensive and careful opinion, ruled in the defendants' favor as to dual governance (Count I). 1 As to Count II, however, the court held that Visa U.S.A. and MasterCard violated the Act by enforcing their respective versions of the exclusionary rule, barring their member banks from issuing Amex or Discover cards. The court further held that Visa International, which owns the Visa brand, licenses it to Visa U.S.A., and exercises certain governance powers over Visa U.S.A., was liable for participating in Visa U.S.A.'s violation. The court ordered the exclusionary rules revoked and permanently enjoined all three defendants from promulgating similar rules in the future. See generally United States v. Visa U.S.A., Inc., 163 F.Supp.2d 322 (S.D.N.Y.2001) (opinion and Proposed Final Judgment); United States v. Visa U.S.A., Inc., 183 F.Supp.2d 613 (S.D.N.Y.2001) (modifications to Proposed Final Judgment).

The defendants brought this appeal. Visa U.S.A. and MasterCard argue that the district court erred in its conclusion that their respective exclusionary rules violate the Sherman Act. Visa International contends there was no adequate basis to hold it liable for Visa U.S.A.'s violation.

For the reasons set forth below, we affirm the judgment.


I Description of the General Purpose Payment Card Industry

A The Structure of the Visa and MasterCard Networks

Visa U.S.A. and MasterCard are two of the United States's four major network systems in the payment card industry, the other two being Amex and Discover. 2

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Visa U.S.A. and MasterCard are organized as open joint ventures, owned by the numerous banking institutions that are members of the networks. (Because the vast majority of the members are banks, and because for purposes of this appeal nothing turns on whether members are banks or other types of financial institutions, we refer to the member institutions as "banks.") MasterCard is owned by its approximately 20,000 member banks; Visa U.S.A. is owned by its approximately 14,000 member banks. Because MasterCard allows its member banks to issue Visa cards, and Visa U.S.A. likewise allows its members to issue MasterCard cards, many of Visa U.S.A.'s 14,000 members are also members of the MasterCard network. The networks' operations are conducted primarily by their member banks. While the member banks engage in the card business for profit, MasterCard and Visa U.S.A. themselves operate as non-profit organizations and are largely funded through service and transaction fees paid by their members. Both make a "profit" on these fees, but their business model is not one that strives to maximize earnings at the "network" level. Rather, the two organizations' capital surpluses are held basically as security accounts, to pay merchants in the event a member bank defaults on a payment obligation.

The member banks of the MasterCard and Visa U.S.A. card networks may function either as "issuers" or "acquirers" or both. A member bank serving as an "issuer" issues cards to cardholders; it serves as the liaison between the network and the individual cardholder. A member bank serving as an "acquirer" acquires the card-paid transactions of a merchant; a particular...

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