STRATEGIC PARTNERS
April 1, 2003
NEW YORK -- A New York judge on April 1 denied a motion by Visa and MasterCard seeking to throw out the antitrust lawsuit brought by Wal-Mart Stores Inc. (NYSE:WMT - News) and other retailers over the credit card companies' debit dominance.
According to a Reutersreport, U.S. District Judge John Gleeson granted part of a motion by retailers -- but also denied part of it, leaving several matters to be resolved at a trial slated for late April.
Retailers argued in their 1996 suit that the card giants used their dominant position to squeeze out smaller rivals in the debit card market, pushing signature-based transactions over cheaper PIN-based transactions.
The suit, to be tried in the U.S. District Court for the Eastern District of New York in Brooklyn, said that because of the two companies' anti-competitive acts, retailers paid higher interchange fees that were passed onto consumers.
Visa and MasterCard require all retailers who accept their credit cards to also accept their debit cards under a policy called the Honor All Cards rule. Judge Gleeson agreed with retailers that this represents a "tying" arrangement for antitrust purposes because credit and debit are distinct products.
Visa and MasterCard had argued that they were not distinct products but part of the larger payment cards category.
Judge Gleeson granted retailers' claims that Visa possesses market power, but denied judgment on whether MasterCard has market power or whether the two associations conspire together.
He also denied MasterCard's motion seeking a separate trial, disagreeing with MasterCard's assertion that it would confuse the jury.
Lloyd Constantine, a New York-based lawyer representing the merchants, said that about 70 percent of the trial had been decided in summary judgment. "That leaves 30 percent of the case and the relief to be decided," he said.
The outcome was better than he hoped, Constantine told Reuters.
"While MasterCard is, of course, disappointed by U.S. District Court Judge John Gleeson's ruling denying our motion for summary judgment, we are pleased that he has denied plaintiffs' claims that MasterCard's Honor All Cards rule is per se illegal," MasterCard general counsel Noah Hanft said in a statement.
Daniel Tarman, a Visa vice president, said in a statement: "We are confident that we will prevail at trial by clearly showing that competition in the debit marketplace is thriving and robust, benefiting merchants and guaranteeing choice to consumers."
The judge ruled in favor of the merchants' theory of damages which was based on a premise that Visa and MasterCard's Honor All Cards requirement did not exist.
But Judge Gleeson said that it is inconclusive as to whether retailers could have limited their damages by directing customers toward cheaper, PIN-based transactions.
The retailers' original estimate was for $13 billion in damages. However, damages triple in anti-trust cases, which would bring the claim to $39 billion. Constantine has since filed an updated damage figure that is under seal, but he told Reuters it is a larger figure.
The jury selection process is expected to begin on April 21, with opening statements as early as April 29.
