On October 7, 1998, the U.S. Department of Justice filed an antitrust suit naming MasterCard International, Inc.; Visa USA, Inc.; and Visa International Corp. as defendants. The government alleged that the defendants engaged in an ongoing combination and conspiracy to restrain trade in violation of Section 1 of the Sherman Antitrust Act. The trial took place in the summer of 2000 in the U.S. District Court for the Southern District of New York. It lasted 34 days with testimony given by more than three-dozen witnesses, including many expert witnesses.

The government challenged:

• The current industry structure—dual governance—where members of the MasterCard and Visa network have the right to issue MasterCard cards while participating in the governance of Visa, and vice versa; and,
• The MasterCard policy and Visa rule prohibiting the issuance by our respective member institutions of competing cards of proprietary businesses, like American Express and Discover.

On October 9, 2001, Federal Judge Barbara S. Jones ruled in favor of MasterCard and Visa, affirming the dual structure of the payment card industry. She entered her final judgment on December 3, 2001. Judge Jones found that the DOJ failed to demonstrate that MasterCard's and Visa's governance structures adversely affected competition or consumer welfare. The Judge's ruling recognized the pro-competitive benefits the industry structure fostered, including "rapid innovations in systems, product offerings and services," as well as the fact that "prices to consumers have decreased 20 percent from 1984 to 1999."

Judge Jones ruled against MasterCard and Visa on the second count brought by the DOJ targeting MasterCard's Competitive Programs Policy and Visa's rule 2.10e. The policy and rule prohibit proprietary card rivals American Express and Discover from gaining access to the network of banks the associations' each spent the last 30 years building.

Following a post-ruling request by MasterCard and Visa, on February 6, 2002, Judge Jones decided to stay her decision on the second count pending appellate review. Judge Jones' decision will keep in place MasterCard's member business agreements with its key members and its Competitive Programs Policy until a decision is reached on an appeal.

A Case for Appeal

MasterCard and Visa plan to appeal the Judge's ruling to repeal the Competitive Programs Policy, maintaining that it will seriously disadvantage American consumers. MasterCard believes it has a strong legal basis to challenge Judge Jones' decision on this count.

The Facts

The payments card industry is healthy and competitive, providing ongoing benefits to consumers. Under the present industry structure, the democratization of credit has made payment cards available to just about every American. Today, more than 7,000 card issuers offer more than 27,000 different types of payment card programs. Consumers are offered cards with low fees, no fees, fixed or variable rates, cash rebates, airline miles or credit towards buying gasoline or even purchasing a car. Duality has benefited consumers, merchants and member institutions by increasing the number of products to choose from, enhancing product development and innovation and enabling thousands of issuers to compete among themselves as well as with American Express and Discover.

• MasterCard's rivals are in no way restricted from competing for consumers' business; they have equal access to offer their card to every current or potential cardholder in the United States.
• Competitors are free to recruit any one of the approximately 10,000 financial institutions that do not issue MasterCard or Visa cards.

Open Association vs. Closed System

MasterCard and Visa do not issue payment cards. They are open associations comprised of thousands of individual financial institutions that compete vigorously, with each other and with companies like American Express, to issue cards to consumers and contract with merchants for card acceptance. Each institution decides on the fees it will charge, the interest rate on credit, value-added features, customer service and a range of additional benefits. As part of the management of its global payments brands, MasterCard develops new programs and services; creates umbrella marketing, advertising and promotional initiatives; and, maintains a state-of-the-art transaction-processing network. MasterCard also sets and enforces policies and rules surrounding the use of its brands.

American Express is different. It is a closed system and an issuer. In fact, by dollar volume, American Express was the largest issuer of credit cards in the United States in 2001. Under American Express' closed system, it is the sole owner of the entire transaction process, controlling all competitive aspects of the card. And like any other issuer, it has equal access to offer its card to every current or potential cardholder in the United States.