STRATEGIC PARTNERS
January 12, 2003
NEW YORK--Visa USA and MasterCard International on Jan. 10 asked a judge to throw out a lawsuit alleging the card companies conspired to monopolize the lucrative debit market.
"There's no evidence of a conspiracy," Kevin Arquit, an attorney for MasterCard, told U.S. District Judge John Gleeson at a three-hour hearing in Brooklyn federal court, according to an Associated Press report.
A group of merchants, led by Wal-Mart Stores Inc., is seeking billions of dollars in damages in a class-action suit brought in 1996. They claim a paper trail shows the defendants deliberately set out to crush independent EFT networks that charge merchants less for PIN-based debit transactions.
The policies have "harmed merchants and raised prices for all consumers," said the retailer's lawyer, Lloyd Constantine.
Constantine, of New York's Constantine & Partners, said that in addition to costing merchants more, the credit card companies' signature-based debit cards -- which are advertised as "look[ing] like a credit card, work[ing] like a check" -- are also more prone to fraud and less efficient than PIN-based debit cards.
"The merchants are seeking damages to compensate them for being forced to accept more than $1 trillion in slow, fraud-prone, inferior off-line signature debit transactions at anti-competitively high and fixed prices during the last decade," Constantine said in a statement following the hearing.
According to Law.com, Gleeson gave virtually no indication whether he intended to allow the case to go before a jury on April 28. He limited his remarks to a handful of minor questions and complimented both sides for their legal arguments, which he described as "fantastic."
Wal-Mart, Sears Roebuck and Co. and other retailers allege that Visa and MasterCard schemed to dominate the debit market by mandating an "honor all cards" policy, meaning any merchant who accepts their credit cards must accept their look-alike debit cards as well.
Attorneys for the merchants said that internal memos, meeting minutes, depositions and other documents show that Visa and MasterCard violated U.S. antitrust laws. In one memo, a Visa executive wrote that the company considered debit card competitors "a bigger threat than American Express," and wanted them to "disappear."
The retailers say that excessive transaction fees have cost them more than $15 billion in the past decade -- costs which were ultimately passed on to the consumer.
Visa and MasterCard used legal means to make their signature-based debit cards more widely accepted, and in doing so improved the market for all debit cards, their lawyers contended during their arguments.
Visa attorney Stephen Bomse asked, "What is there that is predatory? What is there that cannot be explained as fair competition?"
Bomse, of Heller Ehrman White & McAuliffe in San Francisco, said that contrary to the plaintiffs' contentions, PIN-based debit cards were thriving. "In grocery stores, discount stores, drug stores -- places where they are particularly well suited -- online debit cards are not only holding their own but are the dominant product," he said.
Kenneth Gallo, of Clifford Chance in Washington, D.C., asked the court to dismiss the claims against his client, MasterCard, arguing that most of the evidence being proffered by the plaintiffs is against Visa.
"The best evidence they can offer against MasterCard is that we weren't being as friendly to the online debit card companies as before," Gallo said.
The retailers argue that many of the key legal issues have already been decided in the U.S. Department of Justice's antitrust case against Visa and MasterCard.
U.S. District Judge Barbara S. Jones of the Southern District of New York ruled in October 2001 that the two companies engaged in unfair competition in the credit card and debit card markets. Under the doctrine of collateral estoppel, the rulings in the already-decided U.S. case will most likely be applied in the merchants' case, the retailers argue.
Lawyers for the defendants argue, however, that Judge Jones' decision, which is on appeal to the 2nd U.S. Circuit Court of Appeals, is largely irrelevant to the present case.
