Tuesday, August 26, 2008

Keeping up with the Jones' (& the Discover vs. MasterCard/Visa Lawsuit)

Finds No Conspiracy Between Visa and MasterCard

Purchase, NY. - MasterCard Worldwide said  it is pleased that Judge Barbara S. Jones narrowed the scope of Discover’s antitrust case against MasterCard by granting certain aspects of MasterCard’s summary judgment motion.

In particular, Jones found that despite Discover’s assertions, there is no evidence of a conspiracy between MasterCard and Visa. She also dismissed Discover’s debit-related claims against MasterCard.

In dismissing Discover’s claims of an inter-association conspiracy between MasterCard and Visa, the court’s decision recognizes the intense competition between MasterCard and Visa, which benefits consumers in the form of innovative products and programs.

Further, Judge Jones limited the scope of the trial by dismissing Discover’s debit-related claims against MasterCard. In granting MasterCard’s motion, the Court recognized that Discover failed to establish that MasterCard’s Competitive Programs Policy (CPP) somehow excluded Discover from offering debit cards. This is not surprising since, the CPP only applied to credit and charge cards, not debit cards.

MasterCard said it is disappointed that the Court granted aspects of Discover’s summary judgment motion seeking to apply collateral estoppel in its claims against MasterCard, but pleased it rejected Discover’s attempt to obtain broader findings. Collateral estoppel is the application of certain findings in one lawsuit to a subsequent one. 

However, in no way does Judge Jones’ ruling change the fact that Discover will have to establish that MasterCard and Visa, rather than its own business decisions, caused the damages it alleges. The jury will be able to fully evaluate all evidence concerning Discover’s damages claims, and MasterCard looks forward to demonstrating the weaknesses of those claims in court.

For example, public results of Discover’s business performance after the CPP was withdrawn show that Discover has not seen any increase in its overall percentage of the credit card volume share from third-party issuance. This real world evidence highlights the weakness of Discover’s claim that the CPP damaged Discover by preventing Discover from entering into third-party issuing relationships. Indeed, the most recent results show that Discover’s overall credit card volume share—including both Discover-issued and bank-issued Discover cards—actually declined from 5.46% in 2006 to 5.33% in 2007.

A further demonstration of the weakness of Discover’s damages claim is the testimony of Discover’s own executives, who had testified before and during the DOJ case that the repeal of the CPP would hurt their company, and create a situation where Discover would not be able to build volume by attracting third-party issuers.

Visa responded to Judge Jones ruling as well with the following release:
"Visa is pleased that the court resolved several disputes in this case at this stage. Among other things, the court:
  • Dismissed Discover's claims of debit monopolization against Visa; and
  • Rejected Discover's allegations of an inter-association antitrust conspiracy between Visa and MasterCard.

"As a consequence of these summary judgment rulings, Discover cannot challenge the legality of the agreements Visa has signed with its debit issuance partners. As such, it is unlikely the Discover litigation will have a significant impact on Visa's ongoing business operations.

"In addition, the court granted collateral estoppel on a limited number of issues that were determined in an earlier, related lawsuit. This ruling, however, does not establish all the elements of Discover's claims. Discover must still prove the remaining elements of its case and any damages at the upcoming jury trial.

"Visa believes it will be clear to a jury that it is Discover's own business model and decisions - not the actions of competitors - that have limited its options in the marketplace. Discover has been free to engage in bank issuing partnerships since 2004, but has yet to demonstrate that it can do so in a meaningful way.

"Although we expect Discover will be unable to prove the level of damages that it seeks in this case, Visa remains committed to resolving legal challenges in a manner that allows us to remain focused on our business activities. To that end, as part of the Visa Inc. restructuring process, the company developed a retrospective responsibility plan that addresses potential liability in certain U.S. litigation ("covered litigation"), including the Discover case. Additional information regarding the company's retrospective responsibility plan is available in the company's Final Prospectus, dated March 18, 2008, at http://www.sec.gov/."

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