What CEOs and Association Members Should Know

In Visa Inc. v. Osborn (Osborn), the Supreme Court recently agreed to hear a consolidated appeal from the D.C. Circuit’s decision that plaintiffs in three related antitrust actions against Visa, Mastercard, and several of their member banks had sufficiently alleged a conspiracy to fix ATM fees charged on their own and other ATM networks.[1] The purported issue in the case and the question certified is one that would send shivers down the spine of any corporate or trade association CEO:

Whether allegations that members of a business association agreed to adhere to the association’s rules and possess governance rights in the association, without more, are sufficient to plead the element of conspiracy in violation of Section 1 of the Sherman Act. . . as the Court of Appeals held below, or are insufficient, as the Third, Fourth, and Ninth Circuits have held.[2]

At issue, it would seem from the questioned certified, is an appellate panel’s rogue decision that threatens to impose debilitating antitrust liability on competitor-governed trade-associations (and on their members) that set rules of conduct—no matter how innocuous—and to which those members adhere. Indeed, the American Society of Association Executives, as amicus curiae, has asserted that the “decision promises an unstable and harmful state of affairs” that would “deter and chill socially beneficial conduct by associations given the risk that quasi-strict liability will extend throughout the entire membership chain.”[3]

But a closer look reveals that the question certified in Osborn is untethered to the facts alleged in the complaint, which was the basis for the D.C. Circuit’s decision, and would not resolve any conflict among the courts of appeal. This is bcause a critical basis for the D.C. Circuit’s decision is omitted from the certified question: that the “association rules” at issue were alleged by the plaintiffs to be both binding on its members and intended to eliminate price competition. With those facts added, the D.C. Circuit’s opinion travels well-trod legal ground: binding, anticompetitive rules imposed by member-governed associations of competitors, and adhered to by their members, are actionable as horizontal anticompetitive agreements among those members and their associations.

The Osborn Litigation

In Osborn, plaintiffs alleged that Visa and Mastercard—at the time when they were owned and governed by member banks— conspired to fix ATM fees by adopting “Access Fee Rules,” which prohibit any ATM operator (including the member banks themselves) from charging consumers access fees for ATM transactions on rival networks that are lower than the fees charged for transactions over the Visa and Mastercard networks. The non-bank independent ATM operators alleged that the rules prevent them from charging consumers lower access fees for transactions over lower-cost competing networks, permitting defendants to set supracompetitive ATM access fees market wide, free from competition. The consumer plaintiffs alleged that the rules inflate access fees they pay. All plaintiffs alleged that the Access Fee Rules were created, adopted, and maintained by Visa and Mastercard when the defendant banks controlled them and employees served on their boards of directors. Plaintiffs also alleged that the anticompetitive rules remained in place unchanged after the banks spun off ownership of Visa and Mastercard, and the defendants knew that the ventures’ members would continue to agree to comply with them after the spinoff.

The district court dismissed the complaints, concluding that the plaintiffs had not plausibly alleged a conspiracy because they had not alleged that the banks “agreed among themselves” to the rules, and instead had merely alleged membership in an association with no additional facts providing “direct evidence of agreements that would support a claim of a current horizontal conspiracy among the member banks.”[4]

On appeal, the D.C. Circuit disagreed, ruling that the plaintiffs had not alleged mere membership in the ventures, but also that the banks had developed the rules when defendants controlled both Visa and Mastercard, and that the banks “used the bankcard associations to adopt and enforce a supracompetitive pricing regime for ATM access fees.”[5] Allegations of price fixing among the bank competitors through the rules of the Visa and Mastercard joint ventures, it concluded, were precisely the type of concerted action to which Section 1 of the Sherman Act applies.[6]

The Claimed Ciruit Conflict

In their certiorari petitions, the defendants assert that D.C. Circuit’s decision diverges from the Ninth Circuit’s decision in Kendall v. Visa U.S.A., Inc.,[7] the Third Circuit’s decision in In re Insurance Brokerage Antitrust Litigation,[8] and the Fourth Circuit’s decision in SD3, LLC v. Black & Decker (U.S.) Inc.[9] But neither Kendall, Insurance Brokerage, nor SD3 involved an association adoption of binding, anticompetitive rules.

In Kendall, the interchange fees set by the Visa and Mastercard at issue were non-binding on the member-banks; the banks could opt-out of them and negotiate alternative interchange fees among themselves.[10] And, as to the merchant fees at issue in that case, plaintiffs had not alleged that Visa or Mastercard had any control over those fees charged by the banks.[11] Not surprisingly then, the Ninth Circuit held in Kendall that plaintiffs had not sufficiently alleged an agreement, but instead only parallel conduct, i.e., that the defendant banks had all charged, adopted, or followed the optional default fee and imposed the same merchant fee.[12]

Like Kendall, plaintiffs in Insurance Brokerage did not allege that the defendant members of the insurance association adopted and imposed binding rules on its members; instead, they each had used the content of an advisory “position statement” adopted by the association in their customer disclosures at issue in that case. As in Kendall, at most, plaintiffs had alleged parallel conduct—the common adoption among competitors of the same disclosures. The Third Circuit noted, unremarkably, that defendants’ mere membership in that association, and their similar disclosure statements, were not plus factors that rendered the alleged conspiracy plausible.[13]

SD3 is even less compelling as a source of conflict. There, the plaintiff alleged that the defendant table-saw manufacturers engaged in two conspiracies: one to boycott the plaintiffs’ safety technology, and one to influence a standards-setting organization’s rejection of plaintiff’s technology as an industry-wide mandatory standard.[14] The Fourth Circuit ruled that the horizontal boycott had been sufficiently alleged; allegations of “mere membership” were not even at issue.

As to the standards-rejection claim, the Fourth Circuit held that the plaintiff had not sufficiently alleged an unlawful conspiracy to influence the private standards-setting organization, Underwriters Laboratories, to reject its proposed safety standard.[15] But courts’ treatment of antitrust claims founded on exclusionary conduct by standards-setting organizations is unique. Despite the inherent exclusionary impact of adopting a single technical standard, such conduct generally is procompetitive as well,[16] and ordinarily has in place procedural protections ensuring that the results are “non-partisan.” The applicable legal standard requires allegations that the defendants distorted or thwarted the standards-setting processes, or used unfair tactics to secure rejection or adoption of a standard.[17] The plaintiff in SD3, by contrast, alleged only that defendants’ employees (or aligned consultants) served on the standard-setting committee that rejected plaintiff’s proposed technical standard and that was not enough.[18] But Osborn does not involve competitor standard-setting conduct, the adoption of technical standards with pro-competitive effects much less any procedural protections that courts require to reject antitrust allegations directed at such standards making bodies.[19] Osborn is, thus, in no way inconsistent with the Fourth Circuit’s SD3 decision.

Significantly, Osborn is consistent with the Fourth Circuit’s decision in Robertson v. Sea Pines Real Estate Companies, Inc. (relied upon by the D.C. Circuit), which concluded that plaintiffs had sufficiently pleaded an unlawful agreement among competitor real-estate brokers to exclude competitors from the multiple listing service (MLS) by alleging that defendants served on the MLS’s board, and that they “agreed . . . to develop, implement, enact, and facilitate the enforcement” of the rules, and described the rules’ content and competitive effect.[20] As in Osborn, “[t]he content of the rules . . . constitute[d] the factual matter establishing a plausible claim of conspiracy.”[21] More was unnecessary because, like the plaintiffs in Osborn, the claim “[did] not rest solely on evidence of parallel business conduct, but on allegations that the MLS board members conspired in the form of the MLS rules, the very passage of which established that the defendants convened and came to an agreement.”[22]

Thus, none of the cases in other Circuits conflict with the D.C. Circuit’s decision in Osborn. In fact, citing the Third Circuit Kendall decision, the D.C. Circuit in Osborn acknowledged the uncontroversial rule that membership in an association is insufficient alone to establish an unlawful agreement with other members. It ruled, however, that the plaintiffs had alleged far more: that the mandatory rules prohibited differential access fee pricing, insulating Visa and Mastercard from competition with lower cost networks and with each other, and that Visa and Mastercard adopted those rules when the defendant banks controlled them and had representatives on their respective boards that set the rules.[23] Allegations of Visa and Mastercard’s anticompetitive mandatory rules, together with the banks’ membership in and control of the association at the time the rules were adopted, sufficiently alleged an agreement “to adopt and enforce a supracompetitive pricing regime for ATM access fees.”[24]

The Actual Precedents

The D.C. Crcuit’s Osborn decision is both unsurprising and unoriginal. It is consistent with the Supreme Court’s decision in American Needle, Inc. v. National Football League, [25] as well os other Supreme Court decisions to the effect that Section 1 applies to alleged conspiracies among associations and their competitor members, when the association takes anticompetitive action with the assent of its members. The plaintiff in American Needle alleged that the NFL and its member-teams violated Section I when the teams’ joint licensing entity entered into an exclusive licensing agreement for each team’s intellectual property, shutting out competitors.[26] The Supreme Court held that because the teams were separately owned and controlled competitors in the market for their intellectual property, the decision to grant the exclusive license was sufficient to allege concerted activity among the association and the members that controlled it.[27]

Additionally, in Associated Press v. United States, decided 70 years ago, the government charged that the AP’s anticompetitive bylaws governing the conduct of its members (that excluded competitors), constituted a Section 1 agreement. The Supreme Court agreed, concluding that “each of the [members] in the combination has . . . surrendered himself completely to the control of the association,” and such “arrangements or combinations designed to stifle competition cannot be immunized by adopting a membership device accomplishing that purpose.”[28]

Thus, the supposed debilitating threat to associations that defendants and amici assert that Osborn poses has, in reality, been the rule of law for decades; associations of competitors have never enjoyed protection from the antitrust laws that the Osborn defendants and amici assert is at risk. What they seek, in fact, is a new rule that would blow a gaping hole in the antitrust laws, permitting what the Supreme Court sought to guard against in American Needle: “competitors [would] simply get around antitrust liability by acting through a third-party intermediary or joint venture.”[29]