In a significant competition law judgment, the Court of Appeal has held that MasterCard and Visa’s default multilateral interchange fees (“MIFs”) were a restriction of competition prohibited under Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”). Without these fees effectively creating a pricing floor, retailers would have been in a stronger position to negotiate the overall merchant service charge (“MSC”) payable to their banks, which would in turn have increased competition for the benefit of the ultimate consumer. Although the scheme might have been more difficult or less profitable to operate in such circumstances, it would not have been impossible, and therefore the fees were not objectively necessary as an “ancillary restraint”.

The questions of (1) whether or not MasterCard and Visa were entitled to an exemption under Article 101(3) TFEU and (2) if not, what damages are payable to the retailers, were referred back to the Competition Appeal Tribunal (“CAT”) for consideration in light of the principles set out by the Court of Appeal. As the Court of Appeal dealt with three linked appeals of inconsistent judgments, its judgment provides welcome clarity on the law in this difficult area.


The essence of both payment schemes is that when a cardholder buys goods or services using a payment card, the card issuer pays the transaction price to an acquiring bank, which in turn settles the transaction with the retailer. In most countries, including the UK, the issuer deducts a fee from the transaction price before passing it on to the acquirer. This fee is known as a “multilateral interchange fee” because the fee is a standard one applied across a national market between all issuers and all acquirers participating in the schemes. The acquirer then deducts a further fee (the merchant service charge) before passing the balance on to the retailer. Issuers compete with each other for the business of cardholders, while acquirers compete for the business of retailers. Retailers are said to benefit from the arrangement because the costs of card transactions are lower than those of cash transactions once time, staff and banking costs are taken into account.

The issues

The Court of Appeal’s judgment, reported at [2018] EWCA Civ 1536, deals with three linked cases involving supermarkets that brought claims against MasterCard and Visa, arguing that the practice of setting MIFs was a restriction of competition. Two of the cases had been heard at first instance in the Commercial Court and one in the CAT.

MasterCard and Visa made two main arguments in response to the claims:

  1. Since Visa set a MIF, MasterCard could only remain competitive by doing likewise, and vice versa. Therefore, the MIFs were objectively necessary to the issuers’ operations, which meant that under the established doctrine of ancillary restraint, there was no infringement. This became known as the “ancillary restraint death spiral issue”;
  2. If MIFs did breach Article 101(1), MasterCard and Visa were entitled to exemptions under Art.101(3) on the grounds that:
    1. The practice contributed to the production or distribution of goods or to promoting technical or economic progress (the “benefits requirement”);
    2. Consumers received a fair share of the resulting benefits (the “fair share requirement”); and
    3. The restriction of competition was indispensable to attaining those objectives (the “indispensability requirement”).

As regards the amount of any damages, there were issues as to whether or not the retailers were required to prove what level of MIF (if any) could have been charged without affecting competition, and whether or not damages should be reduced to reflect the extent to which the retailers were able to pass on the cost of the MIFs to their customers.

The decision

Restriction of competition

The decision of the Court of Justice of the EU (“CJEU”) in Cartes Bancaires v Commission [2016] EU:T:2016:379 established that the effect of a particular measure on competition must be determined by considering “whether, in the absence of the measures in question… the restrictions on competition would or would not have occurred on this market”. It was common ground between the parties that the standard of proof was whether or not there was a “likelihood” that the restrictions would have occurred.

On this question, the Court of Appeal followed the decision of the CJEU in Mastercard v Commission of the European Union [2014] 5 CMLR 23, holding that the appropriate comparator was a situation in which there were no MIFs and settlements between issuers and acquirers took place at par, allowing retailers to exert more pressure on acquirers as to the amount of the acquirers’ MSC and thereby increasing competition between acquirers. It followed that there was a prima facie infringement of Article 101(1), subject only to the ancillary death spiral issue.

The ancillary death spiral issue

The Court of Appeal reviewed the line of authorities on ancillary restraint, beginning with Metropole Television and others v Commission of the European Union [2001] 5 CMLR 33 and derived the following principles:

  • A restriction was only objectively necessary if the main operation would be impossible to carry out in the absence of the restriction. It is not enough simply to show that it would be more difficult or less profitable.
  • In considering whether or not the main operation can be carried out without the restriction, the court must not have regard to whether the restriction is needed in order to be able to compete. That question could only be considered in the context of exemption under Art.101(3). Otherwise, Art.101(1) would reward failing or inefficient businesses, which would be contrary to EU competition policy.
  • The issue of objective necessity was not to be conflated with the indispensability requirement under Art. 101(3), as the provisions have different objectives.

Applying these principles to the facts, the MIFs were not necessary to the operation of a card payment scheme, as demonstrated by the existence of a number of schemes in other countries which did not impose MIFs. The ancillary death spiral argument therefore failed.

The entitlement to exemption

The court held that the following principles applied to the question of exemption:

  • As regards the benefits requirement:
    • the benefits must be causally linked to the restriction, in this case the MIF, not merely to the wider scheme;
    • the benefits must be capable of being demonstrated on the balance of probabilities by empirical data, not merely by theoretical analysis;
    • an indirect causal link will not normally be sufficient;
    • the court must conduct a balancing exercise in which the restriction must have appreciable objective advantages sufficient to compensate for its effect on competition; and
    • where a restriction affects more than one market, its effect on all markets must be considered.
  • As regards the fair share requirement, where a restriction affects more than one market, consumers in each market must be better off overall as a result of the restriction – a benefit in one market cannot compensate for a disadvantage in another;
  • It does not follow from the fact that the benefits requirement and the fair share requirement are met that the indispensability requirement is also met; and
  • Although the European Commission’s published guidelines on the application of the exemption are not binding, it is desirable that they be followed in order to achieve consistency across the EU.

In the present case, it was common ground that the causal link between restriction and benefits had to be established by showing that the MIFs incentivised the issuers to take steps they would not otherwise have taken, and that those steps either increased card usage, or increased the efficiency of card transactions. On this question, the Court of Appeal found that MasterCard had not produced any empirical evidence at first instance, but had relied upon economic theory alone. Visa had produced some empirical evidence, but it appeared to have been overlooked by the judge, perhaps due to the length of time between trial and judgment. There was also insufficient evidence on which to base the required balancing exercise between the advantages and disadvantages of the restriction. In addition, one of the first-instance decisions had assessed the exemption issue by reference to an inappropriate comparator.

In the circumstances, the court concluded that the appropriate course of action was to refer all three cases to the CAT for consideration of the exemption issues, with a recommendation that the chair should be a High Court Judge. The CAT would be able to use its specialist expertise to deal with the exemption issues in all three cases together, avoiding the risk of further inconsistent decisions.


The court indicated that if the issuers wished to argue that there was a level of MIF that would have been lawful, they should have the burden of proving what that level was. The burden was sufficiently heavy that to place it upon the retailers would be incompatible with the policy of allowing competition legislation to be enforced through private claims in national courts.

As to any reduction in respect of costs passed on to customers, the court stated that this was a question of fact that would be more appropriately decided at first instance. It was not for the Court of Appeal to decide what types of evidence a trial judge might find to be satisfactory in that regard. The question of damages would therefore also be referred to the CAT.


The previous inconsistent decisions on the lawfulness of MIFs had left the law in an unsatisfactory state, and the efforts of the Court of Appeal to restore clarity are welcome. The outcome on the Article 101(3) issue will be clarified once the CAT considers the joined cases, although the principles set out by the court appear to point towards an exemption being unlikely.