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From Antitrust Law Daily, August 5, 2015

ATM operators, users get another shot at price fixing claims against Visa, MasterCard

By Jeffrey May, J.D.

Price fixing claims brought against Visa, MasterCard, and affiliated banks by automatic teller machine (ATM) operators, as well as consumers who purportedly paid excessive fees when using these machines, have been revived by the U.S. Court of Appeals in Washington, D.C. Dismissal of the plaintiffs' cases alleging anticompetitive schemes for pricing ATM access fees was vacated, and the matter was remanded for further proceedings (Osborn v. Visa, Inc., August 4, 2015, Wilkins, R.).

Standing. Three related actions were brought by (1) National ATM Council, Inc.—a trade association representing independent (non-bank) providers of ATMs—and several independent ATM operators; (2) four consumers of independent and bank-run ATM services; and (3) a debit cardholder who paid ATM access fees in connection with ATM transactions at various independent ATMs. At the pleading stage, these plaintiffs met their burden of alleging Article III standing to challenge the “access fee rules,” according to the appellate court. These non-discrimination rules or most-favored-customer clauses—imposed by Visa and MasterCard as a condition for ATM operators to access their networks—provided that no ATM operator may charge customers whose transactions are processed on Visa or MasterCard networks a greater access fee than that charged to any customer whose transaction is processed on an alternative ATM network.

Visa and MasterCard, which operated the most popular networks, charged ATM operators network access fees that were higher than those charged by rival networks. However, under the challenged rules, the ATM operators were not permitted to charge cardholders higher fees for Visa and MasterCard transactions than for transactions using lower-cost rivals, such as Star, NYCE, or Credit Union 24.

The complaining ATM operators alleged that the rules allowed MasterCard and Visa to charge supra-competitive network services fees that maximized the networks' returns on each ATM transaction, but minimized the independent ATM operators’ cut. The ATM operators contended that the rules prevented independent ATM operators from charging less, and potentially earning more, when an ATM transaction was processed through a lower-cost ATM network that was unaffiliated with Visa and MasterCard. These rules purportedly prevented ATM operators from incentivizing cardholders to choose and use cards “that are more efficient and less costly than either Visa or MasterCard’s.”

The consumers alleged that they paid inflated ATM access fees as a result of the rules. According to the consumer plaintiffs, but for the rules, some ATM operators would have offered discounted access fees for cards linked to lower-cost ATM networks, and this discounting would have created downward pressure on access fees generally.

Despite “certain economic assumptions about supply and demand,” the plaintiffs’ theories were susceptible to proof at trial, the appellate court ruled. The district court abused its discretion when it found that the plaintiffs offered a “protracted chain of causation,” requiring dismissal.

The rules allegedly insulated the Visa and MasterCard networks from price competition from other networks. This insulation yielded higher profits for Visa and MasterCard, potentially to the detriment of consumers and independent ATM operators, in the appellate court’s view. Moreover, there were factual details that supported the alleged causal link between the rules and the economic harm.

The appellate court also declined the defendants’ invitation to affirm dismissal with prejudice on the ground that the plaintiffs did not establish antitrust injury. It was noted that the plaintiffs alleged that the rules chilled competition among network service providers, leading to artificially high access fees for consumers and artificially low margins for the defendants.

Horizontal agreement. The plaintiffs also alleged a horizontal agreement to restrain trade that sufficed at the pleadings stage, according to the appellate court. Although the rules were adopted when both Visa and MasterCard were owned and operated as joint ventures by a large group of retail banks and these member banks later relinquished direct control over the bankcard associations, the rules remained intact. The appellate court rejected the defendants' contention that any conspiracy would have ceased when the banks relinquished direct control over the bankcard associations through public offerings. Even where a member of the conspiracy appears to sever ties with other co-conspirators, there is no withdrawal if that member continues to support or benefit from the agreement, the court explained. Moreover, whether there was an effective withdrawal from a conspiracy was typically a question of fact left for a jury.

In holding that the district court erred in concluding that the plaintiffs failed to plead adequate facts to establish standing or the existence of a horizontal conspiracy, the appellate court saw no reason for the district court on remand not to grant the plaintiffs' motion to file amended complaints. However, it left “this discretionary decision to the district judge . . . whose view of the case is more nuanced.”

The case is No. 14-7004.

Attorneys: Daniel A. Small (Cohen Milstein Sellers & Toll PLLC) for National ATM Council, Inc. Mark R. Merley (Arnold & Porter LLP) for Visa Inc. Kenneth Anthony Gallo (Paul Weiss Rifkind Wharton & Garrison LLP) for MasterCard Inc.

Companies: National ATM Council, Inc.; Visa Inc.; MasterCard Inc.

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