A New York federal court recently approved a settlement and final judgment which terminates the antitrust claims brought by the Department of Justice (“DOJ”) and numerous state attorneys general against Visa and MasterCard for their implementation and enforcement of alleged anticompetitive merchant agreements in violation of Section 1 of the Sherman Act. United States v. Am. Express Co., No. 10-4496 (E.D.N.Y. 2011). After reviewing the public comments concerning the proposed settlement, Judge Nicholas Garaufis of the Eastern District of New York found that the final judgment was in the public interest and approved the parties’ agreement. The settlement requires Visa and MasterCard to alter their current agreements and rules to allow merchants to provide customers with discounts, incentives or information that would encourage customers to use methods of payment that are less costly to the merchants, and ultimately, the customers themselves. The settlement, however, does not require Visa or MasterCard to pay any fines, confess to any wrongdoing, or admit to any of the complaint’s allegations. American Express, the remaining defendant in the action, elected not to join the settlement and litigation in the matter is ongoing as against it.


American Express, Visa and MasterCard (the “defendants”) are operators of the three largest credit and charge card transaction networks in the U.S. and, according to the DOJ, individually possess market power in the general purpose credit or charge cards (“General Purpose Cards”) network services market. In 2009, the defendants allegedly had a combined market share of 94% of the over $1.6 trillion in transaction volume of General Purpose Cards issued in the U.S. During that period, Visa and MasterCard General Purpose Cards were accepted by over 8.2 million U.S. merchants. While American Express General Purpose Cards were only accepted by 4.9 million U.S. merchants, many of the merchants who opted not to accept American Express were smaller merchants and did not account for a significant volume of transactions.

Merchants who accept any of the defendants’ General Purpose Cards are required to pay a fee for each transaction. The transaction fees are a set percentage of the transaction price and vary by defendant. For example, American Express generally charges higher transaction fees than its competitors. Pursuant to the defendants’ agreements with the merchants or the merchants’ banks, the transaction fees are withheld either by the merchants’ banks or by the credit card company directly. To cover the costs of these fees, merchants allegedly charge higher retail prices to their customers.

The defendants’ agreements with the merchants or the merchants’ banks further require that the merchants abide by various restraints as a condition of acceptance of any General Purpose Cards (the “Merchant Restraints”). Visa’s Merchant Restraints prohibit merchants from offering discounts to consumers who choose to use a competitor’s General Purpose Card. MasterCard’s Merchant Restraints similarly prohibit merchants from offering discounts or other benefits to consumers who use competing General Purpose Cards, and also bar merchants from favoring its credit card competitors. American Express’s more restrictive Merchant Restraints prohibit merchants from, among other things, (1) indicating or implying preference for another General Purpose Card, (2) attempting to dissuade American Express cardholders from using the card, (3) criticizing American Express’s General Purpose Card or other services, (4) attempting to persuade cardholders from using any other method of payment, (5) imposing any restrictions on American Express acceptance not imposed on other General Purpose Cards, or (6) promoting other payment methods more actively than American Express. The defendants’ allegedly actively monitored and enforce their Merchant Restraints.

On October 4, 2010, the DOJ and seven state attorneys general filed a civil antitrust action against the defendants alleging that their Merchant Restraints restrained trade and limited competition in violation of Section 1 of the Sherman Act, and sought a permanent injunction to remedy and further prevent the defendants’ practice of imposing and enforcing the Merchant Restraints. The plaintiffs later filed an amended complaint to add an additional 10 state attorneys general as plaintiffs.

The plaintiffs asserted that the Merchant Restraints harm competition, in part, by (1) disrupting the competitive process and the free-market’s price-setting mechanisms; (2) preventing merchants from directly forcing the defendants to compete with each other over fees; (3) preventing competition among the defendants by barring merchants from encouraging payment with a specific General Purpose Card at the point of sale; (4) restraining merchants from promoting payment methods other than the defendants’ General Purpose Cards, such as cash; (5) restraining merchants from competing for customers with each other by offering discounts, promotions, or other benefits to customers who use of a lower cost General Purpose Card or other payment method; (6) causing increased retail prices for goods and services paid by customers regardless of payment method; (7) stifling innovation in network services and card offerings at the point of sale; and (8) denying cost and fee information about General Purpose Card to consumers that would allow them to choose lower cost payment methods.

The plaintiffs argued that Merchant Restraints are not reasonably necessary to accomplish any of the defendants’ precompetitive goals, that any allegedly precompetitive benefits of the Merchant Restraints are outweighed by their anticompetitive harm, and that less anticompetitive and restrictive methods are available to the defendants to reasonably achieve their purported precompetitive goals. The plaintiffs further noted that in foreign jurisdictions where similar merchant restraints had been reduced or eliminated, merchants encouraged customers to use less expensive General Purpose Cards or other forms of payment.

The Settlement and Final Judgment

On October 4, 2010, the plaintiffs also filed a proposed settlement and final judgment with Visa and MasterCard, and published it in several newspapers with a notice soliciting public comments for sixty days. The final judgment prohibits Visa and MasterCard from keeping or adopting any rules that further restrains merchants from offering (1) discounts or rebates; (2) free or discounted products or services, or (3) incentives, encouragement, or other benefits when a customer uses a particular method of payment. The final judgment further prohibits Visa and MasterCard from restraining merchants from promoting or expressing a preference for any particular method of payment, or informing customers about the costs incurred by the merchant when the customers use a General Purpose Cards or other method of payment.

The final judgment, however, does not prevent Visa or MasterCard from enforcing or entering into agreements with merchants to (1) accept only Visa or MasterCard General Purpose cards; (2) promote a merchant’s co-branded or an affinity partner’s General Purpose Cards over other methods of payment; or (3) to prohibit merchants from encouraging customers from using a General Purpose Card issued by certain banks over others. It further does not require Visa or MasterCard to pay any fines or admit to any of the complaint’s allegations.

The plaintiffs received comments from six groups during the comment solicitation period, including a plaintiff class, individual merchant plaintiffs, a public service consumer education website, and a trade association of retailers.

The Court’s Public Interest Assessment

After a review of the public comments, on July 20, 2011 the court approved the proposed final judgment, finding that it serves the public interest pursuant to the Tunney Act, 15 U.S.C. § 16(e). The court emphasized that most of the public comments were “overwhelmingly positive if not enthusiastic,” and that none of the comments specifically contested the proposed final judgment. Although several commenters expressed “lukewarm” support due to their concerns about the future impact and effectiveness of the proposed relief, the court held that those concerns would be applicable to any proposed settlement. The court reasoned that because the requested relief would resolve the specific anticompetitive violations alleged in the complaint, the public interest would be best served by the agreement’s approval.

The final judgment as approved requires that Visa and MasterCard to implement changes to their respective Merchant Agreements within five days of approval. However, because American Express’s merchant agreements ― and accordingly, its Merchant Restraints ― are still in effect and binding on merchants and the merchants’ banks, the final judgment against Visa and MasterCard may not result in any immediate reduction in retail prices or in merchant behavior.