National Bancard Corp.(NaBanco) v. VISA USA

Decision Date20 September 1984
Docket NumberNo. 79-6355-CIV-WMH.,79-6355-CIV-WMH.
Citation596 F. Supp. 1231
PartiesNATIONAL BANCARD CORPORATION (NaBANCO), a Florida corporation, Plaintiff, v. VISA U.S.A., INC., Defendant.
CourtU.S. District Court — Southern District of Florida

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Carlton, Fields, Ward, Emanuel, Smith & Cutler, James M. Landis, Christopher L. Griffin, Chris S. Coutroulis, Robert L. Ciotti and Sylvia H. Talbot, Tampa, Fla., for plaintiff.

Heller, Ehrman, White & McAuliffe, San Francisco, Cal., M. Laurence Popofsky, Stephen V. Bomse, Robin E. Neuman, Michael J. Shepard, Charles F. Robinson, Fleming & Huck, P.A., Paul C. Huck, Miami, Fla., for defendant.

MEMORANDUM OPINION AND FINDINGS OF FACT AND CONCLUSIONS OF LAW

HOEVELER, District Judge.

INTRODUCTION

This case involves a claim by plaintiff, NaBanco that defendant, VISA has violated the Sherman Antitrust Act, causing plaintiff damages. Defendant issues the VISA card, used by many as a method of payment for goods and services, in connection with the transfer of transaction paper from a merchant through its bank to the card issuing bank. VISA regulations call for payment of an interchange fee ("IRF") if its exchange system is used. The interchange fee is set by the VISA Board of Directors. Plaintiff, among other things, asserts that the methods of setting and determining the interchange fee involves price fixing and are anti-competitive. Defendant asserts that the setting of the fee is reasonable, not only in method but in amount, and further that the VISA regulations encourage competition and are not in violation of the Act. The Court has determined that the plaintiff, NaBanco has failed to prove its case and that judgment shall be entered in favor of the defendant, VISA.

The last 150 years have witnessed the evolution of several distinct methods of payment for goods and services. Just as we once moved from an economy which relied heavily on barter as a primary means of exchange to an economy based on cash, so we now find ourselves increasingly becoming a "cashless" society. Today it is not unusual to find major sectors of the buying public foresaking cash in favor of credit cards1 and, even more recently, debit cards.2 Unlike consumer currency purchases, however, these newer payment forms leave a residue of paper credits and debits which must somehow be cleared in order to complete a particular consumer transaction.

Like any major economic transition, the movement from cash to cashless payment systems is not without growing pains. This case is itself evidence of the fact that social or economic change often leaves in its wake those who feel aggrieved by the process. National BanCard Corporation ("NaBanco") brought this action against VISA U.S.A., Inc.3 and the members of the VISA Board of Directors (hereinafter referred to collectively as "VISA") for alleged violations of Section 1 of the Sherman Act, 15 U.S.C. § 1. In its complaint NaBanco alleged a continuing combination and conspiracy by VISA to fix and maintain the price paid for bank credit card "interchange" transactions. For this claimed offense NaBanco sought damages in excess of three million dollars, trebling of damages, injunctive relief, attorneys' fees, and costs. Jurisdiction of this court was invoked pursuant to Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, and pursuant to 28 U.S.C. § 1337.

The case was tried by the court without a jury. It began May 10, 1982 and, to accommodate the pressing criminal docket of the Southern District of Florida, continued in segments of one or more weeks until its conclusion in January of 1984. The total trial time was in excess of nine weeks during which the court reviewed thousands of pages of exhibits and heard in person or by deposition dozens of witnesses, experts and otherwise. Based upon this record, and for the reasons enunciated below, the court finds that plaintiff NaBanco has failed to prove any of the alleged antitrust violations with which it has charged VISA.

THE BANK CREDIT CARD INDUSTRY

The issues raised in this case can best be defined and understood in the context of the bank credit card industry and its history.

In the early 1800's, the two principal means of commercial transactions payment devices were bank notes issued by state banks and drafts.4 These payment forms satisfied the needs of commerce at a time in history when consumers and merchants would usually reside and do business in the same geographical area. Accordingly, payment media rarely had to be sent beyond the local area. Bank notes, issued by the local bank or banks, circulated through the immediate region and were used to a far greater degree than currency is used today. In the larger local transaction, and also in the relatively infrequent long-distance transaction, the draft was the typical medium used.5

However, rapid technological changes in both transportation and communication in the mid-1800's, heightened the need for a medium of exchange which was acceptable to diverse and unknown persons across the country and which could travel easily and cheaply. The check was increasingly employed to meet these needs.6

Despite the check's utility, other payment devices arose to meet more specific consumer needs. About a century after the check gained common acceptance, the bank credit card was introduced. The chief antecedents of this card were the retail merchant's "open book" account7 and the somewhat later-developed but more closely-analogous "travel and entertainment" cards.8 Unlike either of its two predecessors, however, the bank credit card has come to play a much more versatile role in the universe of payment systems. The bank credit card provides many of the same services as the personal check, but, in addition, provides retailers of goods and services an extra measure of protection from the risk of default. Incident to the system, and in most cases, the banks, not the retailers, are responsible for seeking payment from the retailers' customers.

As in the case of the check, the bank credit card system is principally a four-party payment arrangement. It involves: (1) cardholders who use bank credit cards to purchase goods and services; (2) merchants who accept bank credit cards in exchange for goods and services; (3) financial institutions (issuer banks) which issue cards to, and contract with, cardholders; and (4) financial institutions (merchant banks) which contract with merchants to accept the bank credit card and thereafter manage the bank credit card accounts of these merchant clients.

A typical transaction can be most simply described as follows: Once a potential consumer has opened a bank credit card account with a particular issuing bank, he or she may use that bank credit card in lieu of cash to purchase goods and services from any merchant participating in that particular bank credit card system. The merchant, after a sale, then transmits the consumer/cardholder's draft evidencing this transaction (referred to in the parlance of the industry as "paper") to its merchant bank, this sum being immediately credited to the merchant's account minus a small charge agreed upon earlier by contract (called the "merchant discount"). If the merchant bank happens to be the same bank which issued the card, the consumer/cardholder's account in the bank will be processed "in-house" in what has been described as an "on-us" transaction. When the issuer bank differs from the merchant bank, the process becomes more complicated. First, the merchant bank sends the transactional paper to the issuer bank. The issuer bank then will either send the merchant bank the requisite sums due and owing from its cardholder, or will directly credit the merchant bank's account at the issuer bank, if the merchant bank has such an account. In either case, the issuer bank is ultimately responsible for the sums due and owing from its cardholders, and thus, absent a breach of agreed procedure by the merchant or merchant bank, the issuing bank bears the risk of default by the cardholder.

The process by which transactional paper is moved from the merchant bank to the issuer bank involves certain costs. In the system at issue here, the issuer bank withholds a small amount (called the "interchange fee") from the monies due and owing the merchant bank to cover the costs of this processing. Even more simply stated, the merchant bank (if not the issuer of the card used in a sale) must process the paper generated by the sale to realize both the small profit hopefully provided in the merchant's discount charge to the retailer and reimbursement for the sale amount credited to the account of the retail merchant. The paper then goes to the issuer bank which reimburses the merchant bank but only after the deduction of the interchange fee. This interchange fee is the subject of the dispute in this case.

THE PARTIES
The VISA System: Its History and Its Product

One of the most successful three-party bank cards was the California-based Bank of America's ("BA's") local prototype credit card program, the BankAmericard. This program expanded in 1960 to a statewide system to take advantage of the ever-increasing pool of people amenable to credit card use within the state. This expansion increased the base over which the costs of the system could be spread. Still, the nationwide expansion of its principal competitors' operations (travel and entertainment cards) in conjunction with dramatic technological changes in data-processing and electronic communications soon led BA to develop its own national credit card program in 1966.

The BA network was achieved by means of a franchise program which permitted BA-licensed local banks across the country to issue credit cards bearing the BankAmericard name. The licensee banks actually owned the credit cards they issued, and created their own receivables by signing up local merchants who would...

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