VISA and MasterCard Interchange Claims

Merchants Can Still Recover Damages Against Global Card Schemes, Visa and Mastercard

VISA and MasterCard interchange claims. Hundreds of merchants from across Europe have, and continue to, file claims against the card schemes after early adopters such as Sainsbury’s and Tesco paved the away. Mastercard recently stated that it has already resolved £2bn of EU claims through judgment or settlement. The claims allege that multi-lateral interchange fees (“MIFs”) restrict competition in the acquiring market and therefore raise prices for both merchants and consumers.

If you are not one of those who have already claimed, the big question is: should you submit a claim?

In simple terms, the answer is probably yes, but let’s take a closer look at the background of the claims and what the position is today.

In 2007, the European Commission (“EC”) issued an infringement decision finding that Mastercard’s cross-border EEA MIFs were unlawful, dating back to May 1992. This decision withstood appeals to the General Court of the EU in 2012 and the European Court of Justice in 2014. This decision prompted many large EU merchants to issue claims arguing that the principle of the EC’s finding could be read-across as applying to domestic MIFs too. There are now claims pending from merchants based in nearly 20 EU countries.

The reason Visa was not subject to a similar infringement decision is that they offered commitments to reduce their EEA MIFs in 2010, however, merchants argue that the same infringement exists for Visa, even if there is no EC decision to refer to.

In a strange turn of events, what is essentially the same claims have been taken to trial three times with very different outcomes:

1. Sainsbury’s vs Mastercard
   The Competition Appeal Tribunal (“CAT”) found that, in a counterfactual world (i.e., one in which MIFs did not exist in their current form), bi-lateral agreements would have been formed between acquirers and issuers which would have set MIFs at materially lower levels, and Sainsbury’s was awarded £68m in damages. However, neither side had submitted any evidence on the suitability of bilateral agreements, and this became a key focal point of Mastercard’s appeal.

2. Asda & Others v Mastercard
   The High Court found that (i) the MIFs were not an infringement of Article 101(1); and (ii) the MIFs as set would in any event have been exempt under Article 101(3) because they infer greater benefits to merchants than their cost. The court was persuaded by Mastercard’s “death spiral” argument, meaning that MIFs were objectively necessary for the card scheme to operate. In the absence of any evidence regarding Visa being materially identical, the court held that, should Mastercard have had to lower its MIF, Visa would not, and issuers would have migrated to Visa for higher MIF revenue, leading to a “death spiral” for Mastercard.

3. Sainsbury’s & Others v Visa
   The Commercial Court found that MIFs did not infringe Article 101(1), meaning that they did not restrict competition, but that, had the MIFs constituted an infringement, they would not have been exempt at any level based on Article 101(3).

So, three judgments on essentially the same issue, but three different trials and three very different findings. It is clear then that the right evidence and arguments must be presented, and lessons must be learned from these earlier trials, perhaps giving new claimants the upper hand.

The cases were then heard in the Court of Appeal, which, in July 2018, landed firmly in favour of the merchants. It determined that MIFs fundamentally have the effect of restricting competition, and the two counterfactuals identified in earlier trials – bilateral MIFs and the “death spiral” argument- were overturned. A consideration as to whether there could be a lawful level of MIF exemptible under Article 101(3) was passed back down to the CAT, and it gave a number of guiding principles that will put downward pressure on any finding of a lawful level of MIF.

Furthermore, it found that the burden of proof for the exemption is on the card schemes and not the merchants, and that there needs to be a direct causal link established for reducing the level of damages due to “pass-on” – a key line of defence for the card schemes based on the argument that some or all of the MIFs were passed onto consumers in the form of higher prices and therefore the consumers, not the merchants, suffered damages.

The current position is that card schemes successfully petitioned the Supreme Court for a further appeal, and we expect an outcome sometime next year after a January hearing.