NEW YORK, Nov 2 (Reuters) - Nearly eight years after Visa
Inc and MasterCard Inc agreed to pay more than $3 billion to
resolve allegations that they conspired to raise stores' fees
for processing their payment cards, merchants returned to court
on Wednesday to argue that the card companies still maintain a
costly stranglehold on interchange networks.
U.S. District Judge John Gleeson heard oral arguments in
Brooklyn federal court from a slate of lawyers representing the
credit card companies, their issuing banks and the merchants
over whether to proceed to trial on the latest round of
antitrust allegations against the card companies' and banks'
interchange networks, which process customers' credit- and
debit-card payments to stores.
The case raises similar claims to another consolidated set of cases in Brooklyn federal court, first filed by retailers
including Wal-Mart and Sears in 1996. Visa and MasterCard
settled those cases with a $3.05 billion payout to merchants.
But that settlement only covered conduct before Jan. 1, 2004;
according to the plaintiffs in the latest round, the companies'
anti-competitive conduct has continued virtually unchanged
This time around, the plaintiffs -- who include D'Agostino
Supermarkets Inc and Payless ShoeSource -- contend that the
card companies' liability could be much higher. According to
their estimates, monetary damages could run into the tens of
billions of dollars -- a figure the companies deny.
Craig Wildfang, an attorney representing a proposed class
of stores that accept Visa and MasterCard cards across the
country, said that rules preventing stores from offering
customers discounts for paying in cash or steering them toward
less costly forms of payment, such as cash or competitors'
cards, are costing merchants an estimated $50 billion each
'OBSTRUCTS AND ELIMINATES' COMPETITION
The credit card companies and issuing banks such as
JPMorgan Chase & Co and Citibank NA -- both among those named
as defendants in the lawsuits -- are "acting in concert" to
keep merchants from finding ways to offset or mitigate
credit-card costs, Wildfang said, and preventing alternative
payment forms from making headway in the narrow
Paul Slater, an attorney representing plaintiffs including
QVC Inc and Supervalu Inc in individual lawsuits against the
companies, told Gleeson that the effect of the card rules has
been to "stop merchants from using price signals at the point
of sale to direct the customer" to other payment forms.
"The inability of the merchants to price the use of Visa
and MasterCard cards eliminates horizontal competition and
obstructs and eliminates interbrand competition," Slater said.
The card companies and banks maintained that the
interchange rules are legal and "reasonably necessary" to
provide customers with certainty about how their card payments
will be processed, according to Peter Greene, a lawyer for
"The level of interchange is not the result of any
anti-competitive conduct," Greene said, comparing the
companies' actions "to a sports league setting up the rules of
the game," rather than conspirators acting to fix the game.
INCREASED OUTPUT 'EVIDENCE OF COMPETITIVE' PRODUCT
Robert Vizas, an attorney for Visa, argued that despite the
plaintiffs' allegations that card companies' behavior has
stifled payment markets, the growing use of debit and credit
cards at stores around the country demonstrates that the
opposite is true.
"If you can increase your output, that is at least equally
evidence of a competitive as opposed to an anti-competitive
product," Vizas said.
Gleeson reserved his ruling on the summary judgment motions
following the arguments. Discovery has already been completed
in the case, resulting in the production of about 82 million
pages of documents and nearly 500 witness depositions,
according to court filings.
Visa and MasterCard reached a settlement last year with the
U.S. Department of Justice over their interchange-fee
practices. The companies agreed to allow merchants to offer
incentives to customers who use a particular payment method and
to let customers know the costs incurred by using a particular
method, such as a Visa card.
The case is In re: Payment Card Interchange Fee and
Merchant Discount Antitrust Litigation, in the U.S. District
Court for the Eastern District of New York, no. 05-1720.
(Reporting by Jessica Dye)
Follow us on Twitter: @ReutersLegal