On July 23, 2013, a year after the hearing was completed, the Competition Tribunal dismissed (without costs) the Commissioner’s price maintenance case against Visa and MasterCard. At this point, the Tribunal has released only a one page summary of the decision - a public version of the full decision will be made available after “a determination as to what information must remain confidential has been made.” The summary raises a number of questions that we hope will be addressed by the full reasons.
The primary basis for the Tribunal’s decision was legal – the Tribunal rejected the Commissioner’s proposed construction of the slightly revised price maintenance provisions as being unsupported by legislative history or jurisprudence.1 The Tribunal apparently adopted a more traditional view of price maintenance, one that requires the maintenance to occur as part of a sale/resale of a single product.
It is difficult to understand the legal reasoning adopted by the Tribunal by reading the summary alone. In particular, it is difficult to see how the business of a credit card company (which section 76(3) of the Competition Act specifically identifies as being subject to an order under section 76) could ever carry out a sale/resale as the Tribunal requires.
In an apparent effort to appeal-proof the decision, the Tribunal found that it would not have made an order prohibiting the impugned practices even if it had accepted the Commissioner’s view of the law. In arriving at this decision, the Tribunal concluded the following:
- that Visa and MasterCard’s surcharge prohibitions (but apparently not their “honor all cards” rules) led to an “adverse effect on competition” (“AEC”), thereby satisfying the remaining element of the price maintenance provision; and
- that the proper solution to the concerns raised by the Commissioner is a government regulation rather than a Tribunal order. The summary states:
“In that regard, [the Tribunal] noted that the experience in other jurisdictions showed that concerns would be raised by consumers regarding surcharging and that rather sooner than later, intervention would have to take place by way of regulation.”
Each of these conclusions raise questions that hopefully will be addressed by the reasons.
- It is not clear how the Tribunal determined that the surcharge prohibition led to an AEC in general, or with respect to MasterCard in particular.2 As we understand it, the international experience in jurisdictions where surcharging is permitted, raises a real question as to whether the elimination of a surcharge prohibition has any effect on competition. It will be interesting to see what evidence convinced the Tribunal to accept the Commissioner’s position in this case. In addition, the test for whether a practice caused an AEC is whether the practice created, maintained or enhanced market power in the firm engaging in the practice. This begs the question of how the Tribunal defined the relevant market. The Commissioner alleged that the Respondents had market power in the market for “the supply of Credit Card Network Services” which were defined as services that enable merchants to obtain authorization, clearance and settlement of transactions through the Respondents’ respective networks and infrastructure. However, the Notice of Application went on to quantify the market shares of the Respondents on the basis of number of transactions (it is not apparent why transaction volume is a proper measure of market share/market power when dealing with network services). Based on number of transactions, the Commissioner alleged that MasterCard has approximately a 30% share of the relevant market. A 30% market share would typically not be large enough to support a conclusion of market power. It will be interesting to see how the Tribunal deals with these apparent difficulties.
- It is not clear that the legal bases exists in which the Tribunal could exercise its discretion to not make an order based on a conclusion that direct government regulation would lead to a superior result than a Tribunal order.
We anticipate that the Tribunal’s full reasons will expand on the issues raised in this note. Expect a further note on the Visa and MasterCard case once the full decision is released.