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From Antitrust Law Daily, December 23, 2013

Independent ATM operators’ price-fixing conspiracy claims against Visa and MasterCard dismissed

By Linda O’Brien, J.D., LL.M.

The federal district court in Washington, D.C. has denied with prejudice motions by operators of automatic teller machines (ATMs) for leave to amend their antitrust claims against Visa, Inc. and MasterCard, Inc. over an alleged conspiracy to restrict independent ATM operators from charging varying prices to customers using alternate networks (National ATM Council, Inc. v. Visa, Inc., December 19, 2013, Jackson, A.).

Background. The National ATM Council is a trade organization that represents independent operators of ATMs. Consumers use personal identification number (PIN) cards issued by their banks to access ATMs at locations other than a bank branch. When a consumer uses an ATM, the transaction request is transmitted electronically from the ATM to the bank acquiring the transaction which then sends the request to the issuing bank which issued the ATM card to the consumer. If the issuing bank confirms that the consumer has sufficient funds for the withdrawal, an authorization is sent to the ATM operator and the ATM dispenses the cash to the consumer. In order to transmit a transaction through an ATM network, the ATM operator must have a contract with that network. Non-bank independent operators obtain access to networks by affiliating with a sponsoring financial institution. When a consumer uses an ATM that is not owned by his or her bank (called a “foreign transaction”), the transaction may be subject to two fees: (1) a foreign ATM fee charged by their bank for using another entity’s ATM and (2) surcharge or access fees paid to the operator for using its ATM. Visa and MasterCard require ATM operators to agree that they will not charge consumers higher access fees for transactions processed over Visa and MasterCard networks than for transactions processed over other networks.

Independent ATM operators earn revenue on an ATM transaction from (1) consumer-paid access fees and (2) through interchange fees paid to the networks by banks and then shared with ATM operators. Since Visa and MasterCard charge the highest network service fees of all the networks, the overall revenue that ATM operators receive for transactions processed on Visa and MasterCard networks is less than what they receive for transactions processed on alternative networks. As a result, it is more profitable for ATM operators to use the alternative networks.

The Council asserted that consumers were harmed by the rules because ATM operators were prevented from passing to consumers the savings obtained through the use of lower-cost, alternate networks. The Council also asserted that operators could not steer consumers to use lower cost networks that would generate higher revenue for operators. The defendants’ motion to dismiss to the claims was granted and the plaintiffs moved to amend their complaints.

Injury in fact. The court found that the Council and ATM operators failed to allege facts showing an injury that was “concrete and particularized and actual or imminent” or that was redressable by the courts. In rejecting the plaintiffs’ argument that they must set one ATM access fee for all ATM transactions, the court noted that operators already route transactions to whatever network pays them the highest net interchange fee. Even if consumers lacked a choice in the transaction, the operators had a means to maximize their profits. The operators’ inability under the rules to raise access fees charged to Visa and MasterCard customers did not indicate the existence of an antitrust conspiracy. The rules, however, did not prevent operators from increasing access fees for all transactions to cover any revenue shortfall associated with the use of the Visa and MasterCard networks.

In rejecting the Council’s contention that operators were harmed because they preferred networks that pay a higher net interchange and gave them the best prices for their ATM services, the court noted that consumers could not be steered since they did not have any opportunity to choose which network will be used to process their transactions. The plaintiffs’ allegations were based on an attenuated, speculative chain of events that relied on numerous independent actions by parties not before the court, including PIN card issuing banks, according to the court. Given that the relief requested by the plaintiffs depended upon the actions of independent parties, their claims were not redressable by the court.

Agreement and restraint of trade. The Council and ATM operators also failed to sufficiently allege the existence of an agreement between the member banks of Visa and MasterCard to do any conduct or to use the networks to carry out the alleged conspiracy. The court observed that the banks’ membership in an association was insufficient to establish an agreement or conspiracy. Additionally, an unlawful agreement could not be inferred merely from the fact that Visa and MasterCard processed the majority of ATM transactions and it was in the interest of the member banks to join these networks.

The case is No. 1: 11-cv-01803-ABJ.

Attorneys: Daniel A. Small (Cohen Milstein Sellers & Toll PLLC) for National ATM Council, Inc., ATMS of the South, Inc., Business Resource Group, Inc., Cabe & Cato, Inc. and Wash Water Solutions, Inc. Mark R. Merley (Arnold & Porter LLP) for Visa Inc. and Plus System, Inc. Kenneth Anthony Gallo (Paul Weiss Rifkind Wharton & Garrison LLP) for MasterCard Inc.

Companies: National ATM Council, Inc.; ATMS of the South, Inc.; Business Resource Group, Inc.; Cabe & Cato, Inc.; Wash Water Solutions, Inc.; Visa Inc.; Plus System, Inc.; MasterCard Inc.

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