Whilst the Court of Appeal’s judgment in MasterCard / Visa, and the SCOTUS Opinion in AmEx may seem a little outside our usual area of focus, they are nevertheless decisions that relate to the operation of two-sided markets. With multi-sided platforms in innovative technological markets, such as Google, Facebook and Uber, increasingly drawing antitrust attention, (see here, and here) there may be some helpful guidance to be drawn from long established industries such as banking and finance.

This post comes in two parts, with today focusing on the MasterCard / Visa judgment, and tomorrow focusing on the AmEx litigation.

The Court of Appeal judgment

Both MasterCard and Visa operate four-party payment schemes:

  • Cardholders contract with an Issuer for a card to buy goods from Merchants;
  • Merchants contract with Acquirers to obtain payment from the Cardholders;
  • Issuers (mostly banks) contract with Acquirers (also mostly banks) to settle transactions.

The Issuers compete for the business of the Cardholders, and the Acquirers compete for the business of the Merchants; but each side is dependent on the other. The MasterCard / Visa schemes operate as open loop networks, and those participating are subject to various rules – including a requirement to pay fees, including multi-lateral interchange fees (‘MIF’s), that are charged by the Issuer to the Acquirer, and ultimately paid by Merchants in each card transaction. The MIFs could have been negotiated individually between the Issuer and the Acquirer, but in practice default MIFs set by MasterCard / Visa were used.

This raised an interesting Article 101(1) question: do the schemes’ default MIFs amount to a restriction of competition by effect? The European Commission thought so in issuing a 2007 decision against MasterCard in respect of cross-border card transactions, a decision which spawned a multitude of follow-on and standalone actions for damages against both MasterCard and (by analogy given the similarities between their systems) and VISA. The CAT initially found for the Claimant in one damages action, but the High Court subsequently found for the Defendants in separate actions (MasterCard and Visa). The Court of Appeal was tasked with addressing these inconsistent outcomes.

The systems themselves operate across three separate markets (an inter-systems market, an issuing market, and an acquiring market), and it was common ground that the relevant market was the acquiring market. However, arguments raised by the parties (particularly the ‘death spiral’ argument, where MasterCard claimed that if it lowered its MIFs, Issuers would have switched to Visa and the MasterCard scheme would have collapsed) concerned effects on the inter-system market, and the issuing market. The CoA held that the first question is whether the MIFs restricted competition in the acquiring market. The second question is then whether the MIFs were objectively justified, and at that point, it is legitimate to consider both sides of the two-sided market and the inter-system market.

The CoA ultimately found that the fees were unlawful, and all three cases are to be remitted to the CAT for an assessment of damages, and a determination as to whether any objective justification applies. Tomorrow, we’ll set out how the US Supreme Court came to the conclusion that provisions which affected Merchants’ transaction costs were not anti-competitive, with analysis turning on a definition of the market that has implications for all platforms.