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April 1, 2003


The opinion of the court was delivered by: John Gleeson, United States District Judge


In this class action brought by various retailers ("the merchants") against Visa and MasterCard ("the defendants"), the merchants claim that the defendants are violating the antitrust laws by forcing them to accept the defendants' debit cards and by attempting (and conspiring) to monopolize the debit card services market. In In re Visa Check/MasterMoney Antitrust Litigation, 192 F.R.D. 68 (E.D.N.Y. 2000), aff'd, 280 F.3d 124 (2d Cir. 2001), cert. denied, 122 S.Ct. 2382 (2002), familiarity with which is assumed, I certified a class of roughly four million merchants.

The parties have moved for summary judgment, and MasterCard has moved for a severance. For the reasons stated briefly below, I grant the merchants' motion for summary judgment in part and deny it in part, and I deny both of the defendants' motions for summary judgment in their entirety. MasterCard's motion for a severance is denied as well.


A. The Standard for Summary Judgment

The Second Circuit has counseled district courts that "summary judgment serves a vital function in the area of antitrust law" "[b]y avoiding wasteful trials and preventing lengthy litigation that may have a chilling effect on pro-competitive market forces." Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 95 (2d Cir. 1998) (citations omitted). Yet plaintiffs are not required to overcome any "special burden" when "opposing summary judgment in an antitrust case" and "can defeat the motion by coming forward with specific facts to show a genuine issue exists requiring a trial." Virgin Atl. Airways Ltd. v. British Airways PLC, 257 F.3d 256, 262 (2d Cir. 2001) (internal quotations and citations omitted). "Summary judgment is appropriate only where, examining the evidence in the light most favorable to the nonmoving party, the record shows that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Pepsico, Inc. v. Coca-Cola Co., 315 F.3d 101, 104 (2d Cir. 2002) (per curiam) (internal quotations and citations omitted). The moving party may discharge its burden by showing that there is an absence of evidence to support the non-moving party's case. Id. at 105. Faced with such evidence, the nonmoving party must then come forward with sufficient evidence to show that there is a genuine issue of material fact requiring trial. Id.

B. The Merchants' Antitrust Claims

The merchants bring a total of seven claims against the defendants under the Sherman Act. 15 U.S.C. § 1 & 2. They first claim that, in violation of § 1 of the Sherman Act, Visa and MasterCard each use their respective power in the credit card services market to force the merchants to accept their debit cards. They also claim that the defendants act in concert to violate § 1 of the Sherman Act in this way. The merchants further claim that, in violation of § 2 of the Sherman Act, Visa independently and together with MasterCard is attempting to monopolize, and conspiring to monopolize, the debit card services market.

1. The Section One Claims

The merchants claim that Visa and MasterCard, acting independently and jointly in a conspiracy, employ illegal tying arrangements that leverage their power in the credit card services market to force the merchants to accept their debit cards. "A tying arrangement is `an agreement by a party to sell one product but only on the condition that the buyer also purchase a different (or tied) product.'" Yentsch v. Texaco, Inc., 630 F.2d 46, 56 (2d Cir. 1980) (quoting N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958)). The merchants can establish the defendants' liability for such an arrangement by showing that it is illegal under either a per se or rule of reason analysis.

To show that such an arrangement is illegal under the per se test, the merchants must establish four elements: "(1) that the tying arrangement affects a substantial amount of interstate commerce; (2) the two products are distinct; (3) the defendant actually tied the sale of the two products; and (4) the seller has appreciable market power in the tying market." In re Visa Check, 280 F.3d at 133 n. 5 (citing United States v. IBM Corp., 163 F.3d 737, 741 (2d Cir. 1998)).

The merchants can also show that a tying arrangement is illegal under the rule of reason test by proving that "the challenged action had an adverse effect on competition as a whole in the relevant market and, if the defendant shows a pro-competitive redeeming virtue of the action, that the same pro-competitive effect could be achieved through an alternative means that is less restrictive of competition." In re Visa Check, 280 F.3d at 133 n. 5 (citing Clorox Co. v. Sterling Winthorp, Inc., 117 F.3d 50, 56 (2d. Cir. 1997)).

There is no real dispute with respect to the first and third elements of the per se test. In 1999 alone, merchants processed over one hundred and fifty billion dollars in sales through the defendants' off-line debit cards. This figure is "not insubstantial." Fortner Enters., Inc. v. United States Steel Corp., 394 U.S. 495, 501 (1969). To the extent that the defendants contend that this element incorporates the need for a showing of "foreclosure" or "anticompetitive effect" in the tied product market, I disagree. As for the tie, Visa and MasterCard's Honor All Cards rules require merchants who accept Visa and MasterCard credit cards to also accept their off-line debit cards. Defendants do not claim otherwise. Thus, defendants indisputably tie the sale of their debit card services to the sale of their credit card services.

I conclude that the second element of the per se test is satisfied as well. Whether two products are distinct for the purposes of a tying claim "turns not on the functional relation between them, but rather on the character of the demand for the two items." Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 19 (1984); see also Eastern Kodak Co. v. Image Tech. Serv. Inc., 504 U.S. 451, 462-63 (1992). Overwhelming evidence establishes that merchant demand for credit card services is distinct from merchant demand for debit card services: those services are sold separately; many merchants would refuse to use off-line debit services if given the choice to do so; and the defendants themselves have repeatedly acknowledged in their business strategy and marketing activities the distinctive attributes of their off-line debit services compared to their credit card services.

Although they assert that factual questions exist on this issue, the defendants' main argument addresses the legal standard. Specifically, they assert that two products are not distinct unless the demand for them is such that it is efficient for a firm to provide them separately. Since plaintiffs cannot show that it would have been efficient for Visa and MasterCard to create a separate brand and a separate acceptance network for their off-line debit cards, defendants argue, summary judgment on this issue ought to be in their favor, not the merchants'. I disagree. The proper question is not whether it was more efficient for the defendants to offer debit card services and credit card services together, but whether the nature of the demand is such that those services could be offered separately. In this case, applying that principle, no rational juror could fail to conclude that the products are distinct. See United States v. Visa U.S.A., Inc., 163 F. Supp.2d 322, 335-38 (S.D.N.Y. 2002) (rejecting after trial defendants' claim that general purpose credit card market includes all ...

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