DOJ Asks Second Circuit to Reject Visa’s Appeal of Enforcement Order in Antitrust Case

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reports.

The Department of Justice has asked the U.S. Court of Appeals in New York City to reject an effort by Visa U.S.A., Inc. to overturn a district court’s order enforcing a final judgment in an antitrust action against Visa on the ground that the district court lacked the authority to enter the order.

Visa appealed the order of the federal district court in New York City (2007-2 Trade Cases ¶75,930), which required, among other things, that Visa repeal a by-law found to violate the final judgment (2001-2 Trade Cases 73,501). The by-law provided that if one of Visa’s 100 largest issuers moved its debit portfolio from Visa to MasterCard, that issuer had to pay Visa a settlement service fee (SSF).

In June, the district court held that the by-law effectively prevented Visa banks from switching to the MasterCard network. The SSF represented an issuer's proportionate share of Visa's remaining settlement obligation arising from a multi-billion-dollar settlement in an antitrust class action brought by retailers.

In addition to requiring repeal of the offending by-law, the district court granted “narrowly-tailored, conditional termination rights” to debit issuers that entered into certain agreements with Visa after the SSF took effect.

The decision was a victory for MasterCard International Inc. MasterCard—also a party to the final judgment—had moved to enforce the order against Visa back in 2005.

On appeal, Visa asserted that—despite the express terms of the final judgment—the district court's authority to ensure compliance with the final judgment was narrowly circumscribed, extending only to contempt proceedings.

According to the Justice Department, the district court was not required to undertake a contempt proceeding. The government contended in its November 2 appellate brief that “the character and purpose of neither MasterCard's claim nor the district court's remedy sounded in contempt.”

The government took no position on whether Visa's by-law actually had the effect of prohibiting issuers from issuing offline debit cards on MasterCard's network in violation of the final judgment. However, it urged the appellate court to “reject Visa's arguments that the district court is severely limited in its authority to interpret and enforce its Final Judgment, or remedy any violation, as necessary to fulfill its purpose of protecting the public interest in competition.”

The Justice Department’s November 2 appellate brief appears at the Department's web site.

Visa/American Express Settlement

In other news, Visa and five of its member banks have agreed to pay up to $2.25 billion to American Express to settle a lawsuit alleging that MasterCard, Visa, and their member-banks illegally blocked American Express from the bank-issued card business in the United States.

American Express filed the lawsuit in federal district court in New York City in November 2004, after the federal government successfully prosecuted its antitrust case against the payment card networks. MasterCard remains the sole defendant in the American Express case, since individual banks named in the lawsuit—J.P. Morgan Chase, Capital One, U.S. Bancorp, Wells Fargom and Providian—would also be dropped as defendants in light of the settlement. The deal is contingent upon Visa USA member approval. American Express and Visa announced the settlement in November 7 statements.