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December 9, 1980

INTERBANK CARD ASSOCIATION, a Delaware Membership Corporation, and Bank of Montreal, Defendants

The opinion of the court was delivered by: SAND


THE COURT: This controversy initially came before the Court when plaintiff, National Bank of Canada ("National Bank"), a chartered Canadian bank, sought a temporary restraining order and preliminary injunction restraining defendants Interbank Card Association ("Interbank"), a not-for-profit Delaware membership corporation, and Bank of Montreal ("BOM"), a chartered Canadian Bank, "from terminating or otherwise interfering with the present course of plaintiff's "Master Charge' bank credit business." Order to Show Cause, P 1, November 17, 1980.

On November 19, 1980, the parties agreed pursuant to FRCP 65(a)(2) to a consolidation of the hearing on the application for a preliminary injunction with the trial of the action on the merits. This action was taken after it became apparent that it was not possible to maintain the status quo without significantly advantaging or prejudicing one of the two competing bank parties. It further appeared that the action sought to be enjoined would have affected some 440,000 of plaintiff's Master Charge cardholders and the accounts of some 28,000 merchants. See Affidavit of Walter L. Stratton in support of plaintiff's application, para. 2. *fn1"

 Expedited discovery was conducted and trial to the Court commenced on December 4, 1980.

 Plaintiff has completed its proof and defendants have moved pursuant to Fed.R.Civ.P. 41(b) for dismissal of the action on the merits on the ground that plaintiff has shown no right to relief. For the reasons set forth herein, the motion to dismiss is granted and this opinion shall constitute the Court's findings pursuant to Fed.R.Civ.P. 52(a).

 The Facts

 As noted, this controversy arises among two Canadian chartered banks and Interbank, the Delaware membership corporation which owns and, in conjunction with its members, operates the Master Charge bank credit card system. To understand the nature of the controversy and the contentions of the parties, it is necessary to trace the history of Master Charge in Canada beginning in 1972. What will be readily apparent from even the briefest description of the situation which then obtained in Canada with respect to the size, number and operations of Canadian banks and the absence in Canada of duality (a term which we define infra at page 1118) is that it presents a picture far different from that presented in the United States. For example, in all of Canada there are not more than eleven chartered banks as contrasted to the multitude of American banking institutions.

 In 1972 the "VISA/Chargex" bank credit card (then known as "Bank Americard" but for convenience referred to as "VISA" throughout this opinion) was the only bank credit card in Canada, *fn2" having been inaugurated in 1968 by four of the six largest banks in Canada (Royal Bank of Canada, Canadian Imperial Bank of Commerce, Toronto Dominion Bank, Banque Canadienne Nationale). The Bank of Nova Scotia, the fifth largest bank, was scheduled to become a VISA bank in 1972.

 At this time BOM was the only bank with nationwide operations not in the VISA system. Another bank not in VISA was the Provincial Bank of Canada ("Provincial Bank"). Plaintiff National Bank has resulted from the amalgamation of the two banks formerly known as Provincial Bank of Canada and Banque Canadienne Nationale ("BCN").

 Both Provincial and BOM considered the bank credit card market. The alternatives open to them were either to join the existing and established VISA system or a new credit card system. Upon inquiry, both banks were advised that substantial fees would be required to join the VISA system, (Cdn.) $ 12,000,000 for BOM and (Cdn.) $ 5,000,000 for Provincial. They elected instead to explore the development of a Master Charge system in Canada.

 In November, 1972, BOM and Provincial formed a "Joint Charge Card Steering Committee" to coordinate their negotiations with Interbank. This Committee met before the negotiations with Interbank began and there was agreement that BOM and Provincial should seek exclusivity for a sufficient period of time to allow development of the market, achievement of operational stability, and recovery of initial and ongoing investment before other entities were permitted to freely enter the system without sharing in the startup costs. Exclusivity was an important factor in the negotiations and after bargaining, the identical license agreements signed by BOM and Provincial Bank on February 20, 1973, contained a modified eight-year exclusivity provision. This period coincided with projections that the (Cdn.) $ 8,000,000 startup costs would be recovered in eight years. In the first exclusivity period the consent of both BOM and Provincial Bank was required for the grant of a license to any Canadian entity. In the next period an exception to the consent requirement allowed entry into the system of Canadian entities owned or controlled by United States entities without such consent. In the final period a proviso was added that BOM and Provincial may not withhold their consent to the grant of licenses to Canadian entities, *fn3" seeking admission to the system on reasonable and non-discriminatory terms, subject to a right to payment of a reasonable share of startup costs. The exclusivity provisions are set out in full in Appendix A.

 The license agreement also contained the following provision: "10. Non-assignment period. Licensee may not sublicense or assign its rights hereunder." This provision differs from the non-assignment provision contained in some of Interbank's other agreements in that it deletes an exception sometimes contained in such agreements for transfers to entities who succeed to the business and assets of the licensee. *fn4" The omission of such a provision would appear to be indicative of an intent of the parties that the licenses granted to BOM and Provincial Bank could not be transferred to a successor entity in this fashion. *fn5"

 Commencing in 1973, BOM and Provincial entered into a relationship embodying elements of both cooperation and competition. They developed and sponsored a general advertising program, a computer link between the two banks for processing transactions of each other's cardholders, a joint committee for developing the Master Charge program and a warning bulletin for lost or stolen cards, among other cooperative activities. On the other hand, after an initial three-month joint solicitation effort, they competed vigorously, and were intended to compete vigorously, for cardholders and merchant accounts in terms of convenience services, floor limits *fn6" and discount rates. Both BOM and Provincial exceeded the goals for cardholders and merchants which had been set in the license agreement with Interbank as a condition to the exclusivity provisions. Intense competition continues both between the VISA and Master Charge systems and between the members of each system.

 Additionally, BOM has signed or is in the process of signing four affiliate banks. The payments made to date by affiliates have been divided by agreement in the proportion of 76 percent to BOM and 24 percent to Provincial based approximately on the relative portion of startup costs borne by each of the banks.

 The Bank Credit Card

 The use of credit cards has become so prevalent in our society that detailed findings with respect to how they operate seem unnecessary. Some aspects peculiar to bank credit card systems and the interrelationships of the parties in the functioning of the system have significance for jurisdictional purposes and with respect to the merits of this controversy and we discuss them briefly herein.

 The bank credit card is a tripartite arrangement, the first element of which is the agreement between the bank that issues a credit card and the cardholder. The second agreement is the one between the bank and the merchant and the third is the sales agreement between the merchant and the cardholder in the purchase of a product or service.

 The issuer bank establishes an account on behalf of the person to whom the card is issued and enters into an agreement which governs that relationship and which, among other things, establishes a line of credit under which the cardholder may incur obligations to the bank by a cash advance or through a purchase of goods or services from a merchant honoring the card.

 The merchants also have an agreement with the so-called merchantbank requiring them to honor all valid Master Charge credit cards issued by all member banks and enabling them to deposit slips evidencing all sales to cardholders in an account at the bank in return for a discounted credit to the merchants' accounts at that bank. These deposit slips are then cleared and forwarded through an interchange system to the member bank which originally issued the card, which bank periodically bills the cardholder. The individual cardholder must then decide whether to make payment in full within the specified period free of finance charges (thus using the card solely as a convenience in the fashion of the travel and entertainment cards) or to defer payment and ultimately to be charged an additional percentage of the amount billed.

 The card issuing bank takes all of the credit risk and the cardholder selects the merchant with whom he will deal. Many merchants accept more than one bank credit card as well as the credit cards of the convenience credit card systems. In Canada, of those merchants that accept bank credit cards, between 75 and 80 percent accept more than one credit card.


 Interbank does not play any part in determining merchant discount rates or interest rates charged to cardholders. Interbank licenses its trade and service marks, and provides clearance mechanisms for the exchange of billing data for Master Charge transactions between its member banks and for credit authorizations and verifications for Master Charge transactions made by customers of Interbank's members.

 In order to perform these functions, Interbank has established two electronic clearing house systems: the Interbank Network for Electronic Transfers ("INET") and the Interbank National Authorization System ("INAS"). (VISA maintains an entirely independent clearing house system.)

 INET is a centralized telecommunication system operated by Interbank in St. Louis, Missouri for the exchange of some billing data between Interbank members when, not cleared directly, such as in Canada, or through local or regional clearing houses. Billing data acquired by a member from its merchants is transmitted to Interbank in St. Louis via the INET system. Upon receipt in St. Louis the data is checked for corrections, sorted and transmitted to the appropriate card issuing members for billing to their customers. As Mr. Harel, an executive of plaintiff bank, described this procedure: "The computers talk to each other."

 In addition, INET is used by international Interbank members to settle transactions and exchange paper with United States Interbank members through correspondent banks in the United States.

 INAS is likewise a centralized telecommunications system operated by Interbank in St. Louis for the processing of Master Charge authorization requests, when more than one bank is involved and where authorizations are not made directly by the bank involved or by local or other authorization centers. Merchants are in contact with their bank which uses the system to obtain authorizations for card transactions above certain limits by making a request to Interbank's central processing unit in St. Louis. This unit immediately routes the request to the appropriate card issuing member and the issuing member will then either authorize the transaction, reject it or indicate that voice contact is required to complete the transaction.

 Access to the INET and INAS systems is available to all Interbank members if they wish to use the systems, and indeed is essential to the operation. The purpose of the INET and INAS systems is to facilitate the operation of the Master Charge system and to protect Interbank members from unauthorized or improper credit card use.

 Other cooperative efforts among Interbank members include reporting lost or stolen credit cards which are listed in "warning bulletins" periodically sent to merchants. Each bank decides for itself which cards are to be listed in warning bulletins and which of its merchant accounts is to receive such bulletins. These bulletins, colloquially ...

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