In re Atm Fee Antitrust Litigation

• Citation: 554 F.Supp.2d 1003
• Decision Date: 24 March 2008
• Docket Number: No. C 04-02676 CRB.,C 04-02676 CRB.
• Parties: In re ATM FEE ANTITRUST LITIGATION.
• Court: U.S. District Court — Northern District of California

554 F.Supp.2d 1003

In re ATM FEE ANTITRUST LITIGATION.

No. C 04-02676 CRB.

United States District Court, N.D. California.

March 24, 2008.

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Daniel O. Myers, Richardson, Patrick, Westbrook And Brickman, LLC, Mt. Pleasant, SC, Joseph R. Saveri, Jahan C. Sagafi, Lieff Cabraser Heiman & Bernstein, LLP, Joshua P. Davis, University of San Francisco School of Law, San Francisco, CA, Andrew W. Hutton, Channel P. Townsley, Deborah Brown McIlhenny, Hutton & HuttoN, LLC, Mark G. Ayesh, Ayesh Law Offices, Wichita, KS, Anthony J. Bolognese, Bolognese & Associates, LLC, Bart D. Cohen, Merrill G. Davidoff, Berger & Montague, P.C., Daniel B. Allanoff, Joel Cary Meredith, Meredith Cohen Greenfogel & Skirnick, P.C., David Felderman, Eugene A. Spector, Jeffrey J. Corrigan, William G. Caldes, Spector, Roseman & Kodroff, P.C., Joseph C. Kohn, William E. Hoese, Kohn Swift & Graf, P.C., Philadelphia, PA, Daniel E. Gustafson, Karla M. Gluek, Gustafson Gluek PLLC, Minneapolis, MN, George A. Shohet, Attorney at Law, Venice, CA, Gretchen M. Nelson, Law Offices Of Gretchen M. Nelson, Los Angeles, CA, Kim Keevers, Michael J. Brickman, Richardson Patrick Westbrook & Brickman, Charleston, SC, Marc Howard Edelson, Esq., Edelson & Associates, LLC, Doylestown, PA, Marc S. Moller Kreindler & Kreindler LLP, New York, NY, Jayne A. Goldstein, Mager & Goldstein LLP, Coral Springs, FL, for Plaintiffs.

Benjamin K. Riley, Howrey LLP, Tara M. Steeley, Covington & Burling, Sonya D. Winner, Kathryn Ann Vaclavik, Diane E. Pritchard, Jesse William Markham, Jr., Morrison & Foerster LLP, San Francisco, CA, Brian Wallach, Peter Edward Moll Howrey Simon Arnold & White, LLP, Carrie M. Anderson, James Christopher Egan, Jr., Peter D. Isakoff, Steven A. Newborn, Weil, Gotshal & Manges LLP, Donald I. Baker, Baker & Miller PLLC, Washington, DC, Buckmaster Dewolf, Howrey Simon Arnold & White, LLP, Menlo Park, CA, Benjamin Jonathan Fox, Morrison & Foerster LLP, Los Angeles, CA, Sarkis Ohannes Beudjekian, Weil Gotshal & Manges LLP Silicon Valley Office, Redwood Shores, CA, Jack R. Nelson, Reed Smith LLP, Oakland, CA, Kirsten Joy Daru, Michele D. Floyd, Reed Smith LLP, Daniel M. Wall, Erica T. Grossman, Joshua N. Holian, Mark Jeremy Seifert, Latham & Watkins LLP, San Francisco, CA, for Defendants.

ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT

CHARLES R. BREYER, District Judge.

The dispute before the Court in this case, an antitrust action aimed at eliminating the fixing of interchange fees in the Star ATM network, is relatively straightforward: should the setting of a fixed price by members of an ATM network be judged under the per se rule or under the so-called "rule of reason." Nevertheless, Defendants' motion for partial summary judgment requires the Court to delve into "one of the darkest corners of antitrust law"—the application of the per se doctrine to joint ventures—an area that is unsettled, unclear, unwieldy, and unequivocally complex. Joseph F. Brodley, The Legal Status of Joint Ventures Under the Antitrust Laws: A Summary Assessment, 21 Antitrust Bull. 453, 453 (1976). After substantial rumination on the legal issues presented, the Court concludes that because the price-fixing challenged by Plaintiffs is not the kind of "naked" horizontal restraint that "lack[s] ... any redeeming virtue," Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 289, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985) (internal quotation marks omitted), application of the per se rule would be inappropriate. Accordingly, Defendants motion for partial summary judgment is GRANTED.

BACKGROUND

This case challenges the right of a non-proprietary network to set network-wide "interchange" fees that govern the amount of money paid by an ATM card issuer— generally a bank—to a foreign ATM owner when the ATM is used by the issuer's customer. Customers at most commercial banks receive ATM cards that allow them to make withdrawals from their accounts electronically. Typically, these ATM cards permit withdrawals not only from ATM machines at the bank where they hold their accounts, but also from ATM machines elsewhere. Such "foreign ATM transactions" involve four parties: (1) the "cardholder," i.e. the customer who retrieves money from the ATM machine; (2) the "card-issuer bank," i.e. that bank at which the customer holds an account and from which the customer has received an ATM card; (3) the "ATM owner," i.e. the entity that owns the ATM machine from which the customer withdraws money on his account; and (4) the "ATM network," i.e. the entity that administers the agreements between various card-issuer banks and ATM owners and thereby ensures that customers can withdraw money from one network member's ATM as readily as from another's.

Foreign ATM transactions involves multiple fees. Generally, a customer must pay two fees—one to the ATM owner for the use of that entity's ATM machine (known as a "surcharge"), and one to the bank at which he has an account (known as a "foreign ATM fee"). But that is not all. Out of the money that a customer pays directly to his own bank, the bank then also pays two fees. The first of the bank's fees is known as a "switch fee" and is paid directly to the ATM network. The second of the bank's fees—and the one at issue in this lawsuit—is known as an "interchange fee" and is paid directly to the owner of the foreign ATM.¹

In this case, Plaintiffs contest the legality of only the interchange fee. They contend that the manner in which this fee is set and administered violates antitrust laws. In their Amended Complaint ("AC"), Plaintiffs initially alleged that certain members of the Star ATM network had "fixed the interchange fee." AC ¶¶ 1, 62. They alleged that these network members had implemented this illegal agreement by controlling the conduct of the Board of Directors of Star Systems, Inc. ("Star"), the corporation that sets the interchange fee. See id. ¶ 56. They alleged that, prior to February of 2002, many of the member banks enjoyed power to appoint a member to Star's Board of Directors and thereby controlled Star's decisions regarding the interchange fee. See, e.g., id. ¶ 62 ("Plaintiffs are informed and believe that the Star Board of Directors met in August 1999, at which time its members agreed to maintain ATM Interchange Fees at their long-standing levels. In March 2000, Star disclosed that its Board of Directors changed its Interchange Fees ...."). They further alleged that, as of February of 2001, these member banks had asserted control over Star through an "advisory board" that had veto power over Star's decision to raise or lower the interchange fee. Id. ¶ 63. Plaintiffs contend that the banks enforced their illegal agreement by requiring all Star members—both banks and non-banks that own ATMs in the network—to abide by the fixed interchange fee. Id. ¶ 62.

On a motion to dismiss, this Court ruled that the Plaintiffs' allegations, if true, would establish that the Defendants had engaged in illegal price-fixing. See Brennan v. Concord EFS, Inc., 369 F.Supp.2d 1127 (N.D.Cal.2005) (Walker, C.J.). In its ruling, the Court first noted that the Plaintiffs' objection is not to the existence of an interchange fee, but rather to its fixed nature. Id. at 1132. In other words, Plaintiffs do not contend that it would be impermissible for a card-issuing bank to compensate foreign ATM owners, but only that they may not decide collectively what compensation to render. Further, the court noted that the Complaint had described a "naked" attempt to fix prices, as opposed to an attempt to fix price that the Star network members determined was "ancillary" to a legitimate, procompetitive venture. Id. at 1133. In other words, Plaintiffs allege that Defendants fixed the interchange fee because they could, not because a fixed fee was necessary to sustain the ATM network. Because the Defendants could not defend against such allegations of "naked price fixing" without invoking evidence that was beyond the scope of the Complaint, the Court denied the motion to dismiss. Id. at 1138.

Shortly after the ruling on the motion to dismiss, Defendants filed a motion for partial summary judgment on the ground that, as of February 2001, the Star Network ceased to be owned by a group of banks but instead was operated by Concord as a proprietary network. The Court issued a Memorandum and Order on November 30, 2006, terminating Concord's motion and directing the parties to address the fundamental question of whether a per se analysis applies to this case.

Defendants moved for summary judgment on August 3, 2007, having adduced evidence bearing on the applicability of the per se rule. For their part, Defendants have submitted evidence that the interchange fee is designed to compensate the ATM owner for making its ATMs available to the issuer's customers, and to provide an incentive for the deployer of the ATM to incur the costs and risks of deployment. See Schmalensee Decl. ¶ 20; Lynn Decl. ¶ 6. According to Richard Schmalensee, an Economics Professor at MIT, the ability of an ATM network to set interchange fees is "central to the functioning of the network," because an ATM owner would be unwilling to dispense cash to a customer without an assurance of reimbursement. See Schmalensee Decl. ¶¶ 2, 22. According to Prof. Schmalensee, it is critical that Star impose a network fee because it would be too cumbersome for card issuers and ATM owners to bilaterally negotiate an appropriate interchange fee. See id. ¶ 25. Approximately 14.6 million separate bilateral agreements would be needed to ensure an agreement between all 5,400 of Star's members, and "such an approach would simply not work...." Id.; id. at ¶ 29. Additionally, the defendants have adduced evidence bearing on the procompetitive features of interchange fees, including that such fees create an incentive for the deployment of ATMs and enable...