United States, et al., 62858-62874 [2010-25655]

Agencies

• Antitrust Division
• Department of Justice

[Federal Register Volume 75, Number 197 (Wednesday, October 13, 2010)]
[Notices]
[Pages 62858-62874]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25655]


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DEPARTMENT OF JUSTICE

Antitrust Division


United States, et al. v. American Express Company, et al.; 
Proposed Final Judgment and Competitive Impact Statement

    Notice is hereby given pursuant to the Antitrust Procedures and 
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment, 
Stipulation, and Competitive Impact Statement have been filed with the 
United States District Court for the Eastern District of New York in 
United States of America, et al. v. American Express Company, et al., 
Civil Action No. CV-10-4496. On October 4, 2010, the United States and 
seven States filed a Complaint alleging that certain rules, policies, 
and practices of Defendants American Express Company, American Express 
Travel Related Services Company, Inc., MasterCard International 
Incorporated, and Visa Inc. violate Section 1 of the Sherman Act, 15 
U.S.C. 1. Those rules, policies, and practices obstruct merchants from 
offering discounts, other benefits, and information to customers who 
use the merchants' preferred form of payment. The proposed Final 
Judgment, filed on the same day as the Complaint, resolves the case 
with respect to Defendants MasterCard and Visa by prohibiting them from 
maintaining the rules, policies, and practices challenged in the 
Complaint.
    Copies of the Complaint, proposed Final Judgment, and Competitive 
Impact Statement are available for inspection at the Department of 
Justice, Antitrust Division, Antitrust Documents Group, 450 Fifth 
Street, NW., Suite 1010, Washington, DC 20530 (telephone: 202-514-
2481), on the Department of Justice's Web site at https://www.usdoj.gov/atr, and at the Office of the Clerk of the United States District Court 
for the Eastern District of New York. Copies of these materials may be 
obtained from the Antitrust Division upon request and payment of the 
copying fee set by Department of Justice regulations.
    Public comment is invited within 60 days of the date of this 
notice. Such

[[Page 62859]]

comments, and responses thereto, will be filed with the Court and may 
be published in the Federal Register, in accordance with the Antitrust 
Procedures and Penalties Act. Comments should be directed to John Read, 
Chief, Litigation III, Antitrust Division, Department of Justice, 
Washington, DC 20530, (telephone: 202-307-0468).

Robert Kramer,
Director of Operations.

In The United States District Court for the Eastern District of New 
York

    United States of America, State of Connecticut, State of Iowa, 
State of Maryland, State of Michigan, State of Missouri, State of Ohio, 
and State of Texas Plaintiffs, v. American Express Company, American 
Express Travel Related Services Company, Inc., Mastercard International 
Incorporated, and Visa Inc. Defendants.

Civil Action No. CV-10-4496

(Garaufis, J.)
(Pollak, M.J.)

Complaint for Equitable Relief for Violation of Section 1 of the 
Sherman Act, 15 U.S.C. 1

    The United States of America, by its attorneys acting under the 
direction of the Attorney General; the State of Connecticut, by its 
Attorney General Richard Blumenthal; the State of Iowa, by its Attorney 
General Thomas J. Miller; the State of Maryland, by its Attorney 
General Douglas F. Gansler; the State of Michigan, by its Attorney 
General Michael A. Cox; the State of Missouri, by its Attorney General 
Chris Koster; the State of Ohio, by its Attorney General Richard 
Cordray; and the State of Texas, by its Attorney General Greg Abbott 
(collectively, ``Plaintiffs''), bring this civil antitrust action 
against Defendants American Express Company and American Express Travel 
Related Services Company, Inc. (collectively, ``American Express''), 
MasterCard International Incorporated (``MasterCard''), and Visa Inc. 
(``Visa'') (collectively, ``Defendants'') to obtain equitable relief to 
prevent and remedy violations of Section 1 of the Sherman Act, 15 
U.S.C. 1.
    Plaintiffs allege:

I. Introduction

    1. Defendants operate the three largest credit and charge card 
transaction networks in the United States. In 2009, a substantial 
amount of interstate commerce--over $1.6 trillion in transaction 
volume--flowed through Defendants' networks. Every time a consumer uses 
one of Defendants' credit or charge cards to pay for a purchase from a 
merchant, the merchant must pay a fee, often called a ``card acceptance 
fee,'' ``merchant discount fee,'' or ``swipe fee.'' In 2009 alone, 
Defendants and their affiliated banks collected more than $35 billion 
in such fees from U.S. merchants. Defendants' fees are a significant 
cost for merchants that accept Defendants' cards, and merchants pass 
these costs on to all consumers through higher retail prices.
    2. Plaintiffs bring this action to prevent Defendants from imposing 
on merchants certain rules, policies, and practices (``Merchant 
Restraints'') that insulate Defendants from competition. The Merchant 
Restraints impede merchants from promoting or encouraging the use of a 
competing credit or charge card with lower card acceptance fees. Each 
Defendant's vertical Merchant Restraints are directly aimed at 
restraining horizontal interbrand competition.
    3. Each Defendant has suppressed competition with rival networks at 
the ``point of sale,'' where merchants interact directly with 
customers, by disrupting the ordinary give and take of the marketplace. 
Most consumers who use credit or charge cards carry more than one. 
Defendants' Merchant Restraints, however, prevent merchants from 
offering their customers a discount or benefit for using a network 
credit card that is less costly to the merchant. Merchants cannot 
reward their customers based on the customer's card choice. Merchants 
cannot even suggest that their customers use a less costly alternative 
card by posting a sign stating ``we prefer'' another card or by 
disclosing a card's acceptance fee. In short, Defendants' Merchant 
Restraints prohibit merchants from fostering competition among credit 
card networks at the point of sale.
    4. By incorporating and enforcing its Merchant Restraints in 
agreements with merchants, each Defendant has violated and continues to 
violate Section 1 of the Sherman Act, 15 U.S.C. 1.

II. Defendants

    5. Defendant American Express Company is a New York corporation 
with its principal place of business in New York, New York. Defendant 
American Express Travel Related Services Company, Inc., a wholly owned 
subsidiary of American Express Company, is a Delaware corporation, with 
its principal place of business in New York, New York. It is the 
principal operating subsidiary of American Express Company. In 2009, 
cardholders used American Express credit and charge cards for purchases 
totaling $419.8 billion.
    6. Defendant MasterCard is a Delaware corporation with its 
principal place of business in Purchase, New York. In 2009, cardholders 
used MasterCard credit and charge cards for purchases totaling $476.9 
billion.
    7. Defendant Visa is a Delaware corporation with its principal 
place of business in San Francisco, California. Visa has offices, 
transacts business, and is found in New York. In 2009, cardholders used 
Visa credit and charge cards for purchases totaling $764.2 billion.

III. Jurisdiction and Venue

    8. Plaintiff United States of America brings this action pursuant 
to Section 4 of the Sherman Act, as amended, 15 U.S.C. 4, to obtain 
equitable and other relief to prevent and restrain violations of 
Section 1 of the Sherman Act, 15 U.S.C. 1. Plaintiffs Connecticut, 
Iowa, Maryland, Michigan, Missouri, Ohio, and Texas, by and through 
their respective Attorneys General, bring this action in their 
respective sovereign capacities and as parens patriae on behalf of the 
citizens, general welfare, and economy of their respective States under 
their statutory, equitable and/or common law powers, and pursuant to 
Section 16 of the Clayton Act, 15 U.S.C. 26, to prevent Defendants from 
violating Section 1 of the Sherman Act.
    9. This Court has subject-matter jurisdiction over this action 
under Section 4 of the Sherman Act, 15 U.S.C. 4.
    10. This Court has personal jurisdiction over each Defendant and 
venue is proper in this District under 15 U.S.C. 22 because each 
Defendant transacts business and/or is found within this District. 
Defendants' credit and charge cards are and have been used for billions 
of dollars of purchases in this District.

IV. Trade and Commerce

    11. Defendants operate credit and charge card networks in the 
United States, and sell products and services in the flow of interstate 
commerce. Defendants' products and services involve a substantial 
amount of interstate commerce. In 2009, credit and charge card 
transaction volume on Defendants' networks in the United States 
exceeded $1.6 trillion.

V. Industry Background

    12. General purpose credit and charge cards (``General Purpose 
Cards'') are payment devices that a consumer can use to make purchases 
from a wide variety of merchants without accessing

[[Page 62860]]

or reserving the consumer's funds at the time of the purchase. There 
are two principal types of General Purpose Cards:
    a. Credit cards, which usually permit the cardholder to pay either 
(i) all charges within a set period after a monthly bill is rendered, 
or (ii) only a portion of the charges within that time and pay the 
remainder in monthly installments, including interest; and
    b. charge cards, which require the cardholder to pay all charges 
within a set period after a monthly bill is rendered.
    13. General Purpose Cards include cards for personal use (issued to 
individuals for their personal use), cards for small business (issued 
to individuals for use with a small business), and commercial and 
corporate cards (issued to individuals, organizations, and businesses 
for business use).
    14. General Purpose Cards do not include cards that can be used at 
only one merchant (such as department store cards) or cards that access 
funds on deposit in a checking or savings account or on the card itself 
(such as signature debit cards, PIN debit cards, prepaid cards, or gift 
cards).
    15. In Visa and MasterCard transactions, the ``card acceptance 
fee'' or ``merchant discount fee'' that a merchant pays has three 
principal components: the interchange fee, the assessment fee, and the 
acquiring fee. To comply with the Visa and MasterCard rules, the 
merchant's bank (called the ``acquiring bank''), which manages the 
merchant's relationship with Visa and MasterCard, must withhold the 
full card acceptance fee from the amount it pays the merchant for each 
transaction, meaning the merchant receives less than the retail price 
it charges to the consumer.
    16. The largest component of the card acceptance fee is the 
interchange fee, which is received by the Visa or MasterCard ``issuing 
bank'' (or ``issuer'') that issues the card used by the customer. The 
interchange fee typically is set as a percentage of the underlying 
transaction price. Visa and MasterCard set interchange fees and have 
raised them significantly over time.
    17. Visa and MasterCard themselves keep a part of the fee paid by 
merchants (the ``assessment fee'').
    18. Finally, the acquiring bank keeps one component of the card 
acceptance fee, the acquiring fee, for its services.
    19. American Express issues most of its General Purpose Cards to 
cardholders directly, combining issuer and network functions with 
respect to those General Purpose Cards. American Express generally 
provides network services directly to merchants as well. Some American 
Express cards are issued through agreements with issuing banks, in 
which case American Express operates only as a network. For all 
purposes relevant to this Complaint, such bank-issued cards function 
substantially the same as those issued by American Express directly, 
and American Express imposes the same Merchant Restraints for 
acceptance of its bank-issued cards.
    20. Like the Visa and MasterCard networks, American Express' 
network imposes a fee on the merchant for each transaction. Like Visa 
and MasterCard, American Express' card acceptance fee typically is set 
as a percentage of the transaction price. For example, American Express 
imposes a card acceptance fee of 3% for some transactions. In such 
transactions, merchants would receive $97 on a $100 retail transaction. 
American Express would extract the remaining $3 from the transaction. 
The cost borne by merchants for customers' use of American Express 
General Purpose Cards is often substantially higher than the cost of 
customers' use of competing networks' General Purpose Cards. Any other 
General Purpose Card selected by the customer from the options in his 
or her wallet--such as a Discover, MasterCard, or Visa General Purpose 
Card--generally would be less costly to the merchant.
    21. Merchants charge higher retail prices to customers to cover the 
cost of paying these fees to Defendants.

VI. Restraints on Competition

    22. Each Defendant has instituted its own set of Merchant 
Restraints prohibiting or restricting a merchant that accepts that 
Defendant's General Purpose Card from encouraging its customers to use 
any other network's card at the point of sale. Defendants' Merchant 
Restraints impose a competitive straightjacket on merchants, 
restricting decisions by them to offer discounts, benefits, and choices 
to customers that many merchants would otherwise be free to offer.
    23. Each Defendant applies its Merchant Restraints through 
agreements with merchants or with merchants' acquiring banks. Each 
Defendant's set of vertically imposed restrictions independently 
restrains competition among networks. Each Defendant's Merchant 
Restraints violate Section 1 of the Sherman Act apart from the 
existence of the other two Defendants' Merchant Restraints.
    24. Visa and MasterCard include their Merchant Restraints in 
contracts with acquiring banks. Through these contracts, Visa and 
MasterCard require acquiring banks to obtain agreement from merchants 
to abide by Visa's and MasterCard's rules, including the Merchant 
Restraints. Visa and MasterCard require their acquiring banks to 
penalize merchants that do not adhere to the Merchant Restraints. 
American Express includes its Merchant Restraints in its contracts with 
merchants that accept its cards. In circumstances where American 
Express contracts with the merchant's acquiring bank, American Express 
requires the acquiring bank to ensure the merchant complies with the 
Merchant Restraints.
    25. Merchants must accept the Merchant Restraints in order to 
accept Defendants' cards. Merchants clearly understand and expressly 
agree that they must comply with the Merchant Restraints. Defendants 
actively monitor and vigorously enforce the Merchant Restraints.
    26. Visa's Merchant Restraints prohibit a merchant from offering a 
discount at the point of sale to a consumer who chooses to use an 
American Express, Discover, or MasterCard General Purpose Card instead 
of a Visa General Purpose Card. Visa's rules do not allow discounts for 
other payment cards that generally require a signature at the point of 
sale, unless such discounts are equally available for Visa 
transactions. Visa International Operating Regulations at 445 (April 1, 
2010) (Discount Offer--U.S. Region 5.2.D.2).
    27. Similarly, MasterCard's Merchant Restraints prohibit a merchant 
from ``engag[ing] in any acceptance practice that discriminates against 
or discourages the use of a [MasterCard] Card in favor of any other 
acceptance brand.'' MasterCard Rule 5.11.1 (May 12, 2010). This means 
that merchants cannot offer a discount, or any other benefit, to 
persuade consumers to use an American Express, Discover, or Visa 
General Purpose Card instead of a MasterCard General Purpose Card. Id. 
MasterCard does not allow merchants to favor competing card brands. Id.
    28. American Express' point-of-sale rules on merchants restrict 
competition more than the rules of its rival networks. American 
Express' Merchant Restraints are described in its ``Merchant Reference 
Guide-US'' (April 2010), Section 3.2. The language in Section 3.2 is 
inserted in identical or substantially similar form in most of American 
Express' contracts with merchants. In many agreements, the Guide is 
expressly incorporated by reference. The Merchant Restraints described 
in Section 3.2 impose the following restrictions on merchants that 
accept American Express:

[[Page 62861]]

    Merchants must not:

--indicate or imply that they prefer, directly or indirectly, any Other 
Payment Products over [American Express'] Card,
--try to dissuade Cardmembers from using the Card,
--criticize * * * the Card or any of [American Express'] services or 
programs,
--try to persuade or prompt Cardmembers to use any Other Payment 
Products or any other method of payment (e.g., payment by check),
--impose any restrictions, conditions, [or] disadvantages * * * when 
the Card is accepted that are not imposed equally on all Other Payment 
Products, except for ACH funds transfer, cash, and checks, * * * or
--promote any Other Payment Products (except the Merchant's own private 
label card that they issue for use solely at their Establishments) more 
actively than the Merchant promotes [American Express'] Card.

    Merchants may offer discounts from their regular prices for 
payments in cash or by ACH funds transfer or check, provided that they 
clearly disclose the terms of the offer (including the regular and 
discounted prices) to customers and that any discount offered applies 
equally to Cardmembers and holders of Other Payment Products.
    Whenever payment methods are communicated to customers, or when 
customers ask what payments are accepted, the Merchant must indicate 
their acceptance of the Card and display [American Express'] Marks 
according to [American Express'] guidelines and as prominently and in 
the same manner as any Other Payment Products.
    29. The American Express Merchant Reference Guide-US defines the 
term ``Other Payment Products'' used in Section 3.2 as ``[a]ny charge, 
credit, debit, stored value or smart cards, account access devices, or 
other payment cards, services, or products other than the [American 
Express] Card.''
    30. Defendants' rules and practices described in paragraphs 26-29 
constitute the Merchant Restraints challenged in this action because 
and to the extent that they deter or obstruct merchants from freely 
promoting interbrand competition by offering customers discounts, other 
benefits, or information to encourage the customer to use a General 
Purpose Card or payment method other than that Defendant's General 
Purpose Card.
    31. Defendants' Merchant Restraints thus forbid, among other 
things, the following types of actions a merchant could otherwise use 
at the point of sale to foster competition on price and terms among 
sellers of network services:

--promoting a less expensive General Purpose Card brand more actively 
than any other General Purpose Card brand;
--offering customers a discount or benefit for use of a General Purpose 
Card brand that costs less to the merchant;
--asking customers at the point of sale if they would consider using 
another General Purpose Card brand in their wallets;
--posting a sign encouraging use of, or expressing preference for, a 
General Purpose Card brand that is less expensive for the merchant;
--posting the signs or logos of General Purpose Card brands that cost 
less to the merchant more prominently than signs or logos of more 
costly General Purpose Card brands; or
--posting truthful information comparing the relative costs of 
different General Purpose Card brands.

    32. Federal law mandates that networks permit merchants to offer 
discounts for cash transactions. Additionally, the new Dodd-Frank Wall 
Street Reform and Consumer Protection Act of 2010, by adding section 
920 to the Electronic Fund Transfer Act, 15 U.S.C. 1693 et seq., now 
forbids networks from prohibiting merchants from offering a discount 
for an entire payment method category, such as a discount for use of 
any debit card. All General Purpose Card networks operate under these 
laws. This Complaint does not seek relief relating to these two types 
of discounting.

VII. Relevant Markets

A. Product Markets

    33. Defendants participate in two distinct product markets in the 
United States relevant to this Complaint: the General Purpose Card 
network services market, and the General Purpose Card network services 
market for merchants in travel and entertainment (``T&E'') businesses.
1. General Purpose Card Network Services
    34. General Purpose Card network services involve the processing of 
General Purpose Card transactions across a network. General Purpose 
Card networks provide infrastructure and mechanisms enabling merchants 
to obtain authorization for, settle, and clear transactions for their 
customers who pay with General Purpose Cards. Merchant acceptance of 
General Purpose Cards is defined and controlled at the network level, 
and prices to merchants are established directly or indirectly by the 
networks. A relevant product market for this case is the provision of 
General Purpose Card network services to merchants.
    35. American Express, Discover, MasterCard, and Visa compete as 
sellers of these network services to merchants in the United States.
    36. Visa and MasterCard provide network services indirectly to 
merchants through the merchants' acquiring banks. American Express 
generally sells its network services directly to merchants.
    37. Merchants accept General Purpose Cards because many consumers 
strongly prefer to use General Purpose Cards over other means of 
payment. Millions of consumers prefer General Purpose Cards because 
they provide a combination of convenience, widespread acceptance, 
security, and deferred payment options that are not effectively 
replicated by other payment methods.
    38. Each Defendant provides network services only for the use of 
its own General Purpose Cards, not for any other network's General 
Purpose Cards. Merchants that accept General Purpose Cards must 
purchase network services. Merchants cannot reasonably replace General 
Purpose Card network services with other services or reduce usage of 
these network services, even if such network services are substantially 
more expensive for merchants relative to services that enable other 
payment methods. Even a large increase in network fees would not 
provide a meaningful financial incentive for merchants to abandon 
acceptance of General Purpose Cards. Although other services that 
enable payment exist outside this relevant market, none of these 
services is a reasonable substitute for General Purpose Card network 
services from the perspective of merchants.
    39. Competition from other payment methods in the geographic market 
identified below would not be sufficient to prevent a hypothetical 
monopolist of General Purpose Card network services from profitably 
maintaining supracompetitive prices and terms for network services 
provided to merchants over a sustained period of time. Nor would 
competition from other payment methods prevent a hypothetical 
monopolist in the General Purpose Card network services market from 
imposing anticompetitive conditions on merchants in that market.

[[Page 62862]]

    40. In addition to selling General Purpose Card network services to 
merchants, Defendants provide separate network services to a different 
group of customers: issuers, which provide General Purpose Cards to 
cardholders. Questions of market power and harm are distinct for the 
two separate customer groups. Sellers of General Purpose Card network 
services to merchants could exercise market power over merchants even 
in circumstances in which they could not exercise market power over 
issuers. Any benefits received by issuers are not necessarily shared 
with merchants, and would not offset anticompetitive harm imposed by 
networks on merchants.
2. Travel and Entertainment Market
    41. Within the relevant market of General Purpose Card network 
services, there is another relevant market--a price discrimination 
market--consisting of General Purpose Card network services provided to 
merchants in travel and entertainment businesses. Specifically, 
merchants selling goods and services to customers primarily for travel 
and entertainment (for example, air travel, lodging, and rental cars) 
are exposed to price discrimination.
    42. Price discrimination occurs when a seller charges different 
customers (or groups of customers) different prices for the same 
services, when those different prices are not based on different costs 
of serving those customers. General Purpose Card networks set fees for 
network services to some merchants separately from fees to other 
merchants. Setting a lower fee for one group has little to no effect on 
a network's ability to set a higher fee for other groups.
    43. Competition from other payment methods in the geographic market 
identified below would not be sufficient to prevent a hypothetical 
monopolist in the market for General Purpose Card network services for 
T&E merchants from either profitably maintaining supracompetitive 
prices and terms for network services to T&E merchants over a sustained 
period of time or imposing anticompetitive conditions on T&E merchants 
in that market. A hypothetical monopolist could price discriminate 
profitably against T&E merchants even if other merchants were paying 
lower prices for network services.
    44. Each Defendant can identify whether a merchant participates in 
the T&E sector, and establishes merchant pricing by segment or 
category. Each Defendant, for example, has one set of prices for 
airline merchants and a different set of prices for supermarket 
merchants. American Express has separate price schedules for Airlines, 
Lodging, Car Rentals, and Travel Agents. American Express has an 
agreement with each merchant customer, and each agreement contains the 
price American Express charges that merchant. Visa and MasterCard can 
and do identify T&E merchants through their relationships with the 
merchants' acquiring banks.
    45. Defendants charge merchants in the T&E sector higher fees than 
they charge most other merchants. Moreover, American Express charges 
T&E merchants higher fees than competing networks charge T&E merchants. 
The high fees to T&E merchants are not based on Defendants' higher 
costs of serving their T&E merchants. Each Defendant can charge T&E 
merchants high fees because those merchants are even less able to 
substitute away to other networks than other merchants. For example, 
American Express imposed a substantial fee increase on major airline 
merchants in 2008 without losing any major airline merchant customers, 
even though its fees already were higher than those of other General 
Purpose Card networks. A substantial differential in card acceptance 
fees exists between General Purpose Card network services for merchants 
in T&E businesses and merchants in other businesses.
    46. Each Defendant's price discrimination against T&E merchants is 
persistent and systematic. American Express, for example, has 
successfully maintained higher profit margins for T&E customers than 
for other merchant categories.
    47. Arbitrage, or indirect purchasing by T&E merchants of 
Defendants' network services from other merchants to avoid price 
discrimination, is impossible. For example, merchants can buy network 
services for transactions using American Express General Purpose Cards 
only from American Express, and one merchant cannot resell American 
Express network services to another merchant. T&E merchants have no 
realistic ability to avoid Defendants' high fees.
    48. T&E merchants constitute a distinct customer group that cannot 
easily substitute away from the card network their customers want to 
use for travel and entertainment purchases. T&E merchants (such as 
airline, hotel, and rental car merchants) depend on business travelers 
as a significant source of revenues. Business travelers often are 
required or encouraged by their employers to use corporate cards of a 
particular network to qualify for reimbursement from their employers. 
Customers typically make larger purchases from T&E merchants than from 
merchants in many other industries. They also often purchase from T&E 
merchants through the Internet. T&E merchants thus rely more on General 
Purpose Cards than many other merchants and are even less willing and 
able than other merchants to substitute from General Purpose Cards to 
alternative payment methods in response to high network prices. In 
short, T&E merchants have particularly high inelasticity of demand for 
General Purpose Card network services.
    49. Network industry participants recognize T&E merchants as a 
distinct market for network services. For many years, for example, 
American Express has had a T&E Industries Business Unit. Indeed, the 
principal operating subsidiary of American Express Company is the 
American Express Travel Related Services Company, Inc.
    50. Accordingly, a distinct, additional relevant market exists for 
General Purpose Card network services to T&E merchants.

B. Geographic Market

    51. The United States is the relevant geographic market for both 
the sale of General Purpose Card network services to all merchants and 
the sale of such services to T&E merchants.
    52. Each Defendant treats the United States as a separate 
geographic market, as demonstrated in part by each Defendant's separate 
rules governing merchant acceptance in the United States and its 
separate pricing of network services to merchants in the United States. 
Defendants can easily identify the location of a merchant outlet. 
Arbitrage, or indirect purchasing by U.S. merchants of Defendants' 
network services from merchants located outside of the United States, 
is impossible.
    53. The vast majority of General Purpose Card transactions with 
merchants located in the United States are made using General Purpose 
Cards issued in the United States. Almost all General Purpose Cards 
issued in the United States are issued under the American Express, 
Discover, MasterCard, and Visa networks. Other networks have limited 
competitive significance for U.S. merchants, as reflected in their 
negligible share of sales to U.S. merchants.
    54. A hypothetical monopolist of General Purpose Card network 
services or General Purpose Card network services to T&E merchants 
could profitably maintain supracompetitive prices for network services 
provided to merchants in the United States over a sustained period of 
time and could

[[Page 62863]]

impose anticompetitive conditions on merchants in the United States 
even if merchants located outside the United States paid competitive 
prices for network services.

VIII. Market Power

    55. Visa, MasterCard, and American Express each possess market 
power in the General Purpose Card network services market. The Second 
Circuit previously held that MasterCard and Visa each has market power 
in a General Purpose Card network services market. U.S. v. Visa U.S.A., 
Inc., 344 F.3d 229, 238-39 (2d Cir. 2003). American Express also 
possesses market power in the General Purpose Card network services 
market.
    56. Merchant acceptance of Defendants' General Purpose Cards is 
widespread. Merchants accounting for a substantial amount of General 
Purpose Card purchase volume in the United States accept all three 
Defendants' General Purpose Cards.
    57. Merchants choose payment networks to accommodate the preferred 
payment brands of their customers. Some customers strongly prefer a 
particular brand and in some cases carry only one General Purpose Card 
brand. For example, in August 2009, 16% of American Express cardholders 
used only American Express and no other major General Purpose Cards. 
Such high cardholder insistence on using American Express gives 
American Express market power over merchants.
    58. Merchants also consider whether their competitors accept a 
network's General Purpose Card and, if so, feel additional pressure to 
accept that network's card. Indeed, many merchants must accept all 
Defendants' General Purpose Cards to remain competitive with other 
merchants.
    59. Despite technological advances that have decreased costs 
associated with General Purpose Card transactions over recent decades, 
Visa and MasterCard have increased the fees they charge merchants 
without losing sufficient merchants to make the price increases 
unprofitable.
    60. American Express has for many years maintained the highest card 
acceptance fees among networks, including Visa and MasterCard. In 
recent years, American Express has increasingly been able to resist 
merchant pressure to reduce its card acceptance fees. American Express 
CEO Ken Chenault explained in 2009:

    At a time when many companies have had to cut or discount their 
prices and fees, we've been able to hold our own * * *. We're not 
lowering prices to get or keep customers or merchants. We continue 
to sign new merchants at existing discount rate levels * * *. This 
is significantly different from the position we were in during the 
downturn of the early 1990's. At that time our card and merchant 
pricing was under enormous pressure, and we did have to reduce fees.

American Express has increased the fees it charges many merchants 
without losing sufficient merchants to make the price increases 
unprofitable.
    61. Notwithstanding these high fees, merchants continue to accept 
Defendants' General Purpose Cards because they would face serious 
economic consequences if they ceased to accept any one of the three 
Defendants' General Purpose Cards. Unlike customers in most markets for 
goods and services, merchants cannot buy fewer services from one 
Defendant's network and buy more services from a competing network at 
the point of sale, even in the face of higher fees imposed by that 
network or lower fees offered by competing networks. A merchant's 
efforts to reduce its purchases of one network's services by 
encouraging its customers to choose another network's General Purpose 
Card would violate Defendants' Merchant Restraints. Thus, a merchant 
may resist a Defendant's high card acceptance fees only by no longer 
accepting that Defendant's cards. This all-or-nothing choice severely 
constrains merchants, because dropping any one of the Defendants' 
General Purpose Cards could alienate customers and lead to significant 
lost sales. The Merchant Restraints leave merchants less able to avoid 
Defendants' supracompetitive prices than they otherwise would be.
    62. Defendants' ability to discriminate in the prices they charge 
different types of merchants, unexplained by cost differences, also 
reflects their market power. For example, American Express targets 
specific merchant segments for differential pricing based on those 
merchants' ability to pay and their inability to refuse to accept 
American Express, a practice American Express calls ``value 
recapture.'' American Express generally charges higher fees to 
merchants that rely more on General Purpose Cards for their business, 
such as T&E merchants, than it charges merchants that traditionally 
rely less on American Express.
    63. This direct evidence of Defendants' market power is consistent 
with their market share of General Purpose Card transaction volume. 
American Express, MasterCard, and Visa each has significant market 
shares in the highly concentrated General Purpose Card network services 
market. In 2009, the three Defendants together had approximately 94% of 
the dollar volume of U.S. issued General Purpose Cards. According to 
Nilson data, Visa's share was approximately 43%, while MasterCard had a 
27% share, and American Express had a 24% share. Each of these market 
shares is consistent with market power in a market with high 
concentration and other particular characteristics of the General 
Purpose Cards network services market. For example, the Second Circuit 
held that MasterCard had market power with a market share of 26%. U.S. 
v. Visa U.S.A., Inc., 344 F.3d at 239-40. In subsequent litigation, 
American Express itself alleged that MasterCard ``exercised market 
power in the network services market'' when MasterCard's ``share was 
approximately 26%,'' quite similar to American Express' share in the 
market for General Purpose Card network services to merchants today.
    64. Defendants' acceptance among merchants is widespread. Visa and 
MasterCard are accepted at over 8.2 million merchant locations in the 
U.S. In 2009, American Express was accepted at 4.9 million merchant 
locations in the U.S., or about 60% as many as accept Visa and 
MasterCard. In recent years, American Express has expanded its 
acceptance at many ``everyday spend'' merchants, adding, for example, 
McDonalds (2004), Safeway (2004), Food Lion (2007) and Dollar Tree 
(2010). Today, many of the merchants that do not accept American 
Express are small and do not account for significant transaction 
volume. Indeed, American Express has stated that ``as of the end of 
2009, our merchant network in the United States accommodated more than 
90% of our Cardmembers' general-purpose charge and credit card 
spending.''
    65. Among large U.S. retailers that account for a substantial 
amount of U.S. transaction volume, acceptance of all three Defendants' 
General Purpose Cards is widespread. For example, 95 of the largest 100 
U.S. retailers accept all Defendants' General Purpose Cards. And in 
many major merchant segments, Defendants' acceptance is nearly 
universal. All major airlines, for instance, accept all three 
Defendants' General Purpose Cards.
    66. Significant barriers to entry and expansion protect Defendants' 
market power, and have contributed to Defendants' ability to maintain 
high prices for years without threat of price competition by new entry 
or expansion in the market. These barriers to entry and expansion 
include the prohibitive cost of establishing a physical network over 
which General Purpose Card transactions can run, developing a widely 
recognized brand, and

[[Page 62864]]

establishing a base of merchants and a base of cardholders. Defendants, 
who achieved these necessities early in the history of the industry, 
obtained substantial early mover advantages over prospective subsequent 
entrants. Successful subsequent entry would be difficult and expensive. 
In the presence of these barriers, the only successful market entrant 
since the 1960s has been Discover. Even so, Discover's market share 
historically has been, and remains, very small. In 2009, Discover's 
market share based on dollar volume of purchases placed on General 
Purpose Cards was approximately 6%.
    67. Defendants' Merchant Restraints heighten these barriers to 
competitors' expansion and entry. Merchants' inability to encourage 
their customers to use less costly General Purpose Card networks makes 
it even harder for existing or potential competitors to threaten 
Defendants' market power.
    68. Each Defendant also has market power in the T&E market for 
General Purpose Card network services. Among Defendants, American 
Express' market power in the T&E market is the most substantial. 
American Express' share of transaction volume in this market is 
approximately 37%, while Visa's share is approximately 36% and 
MasterCard's share is approximately 24%. American Express is the market 
leader among networks in airline, lodging, and rental car merchant 
segments, capturing nearly $100 billion in transaction volume. American 
Express' average card acceptance fee for these three merchant segments 
was 12% higher than its average fee for all other merchant segments in 
2009. American Express' costs in those segments are not proportionally 
higher than costs in most other segments; in many instances, they are 
lower. T&E merchant acceptance of American Express is extensive. 
American Express is the designated card for more business travelers 
than any other network's card. In fact, American Express accounts for 
70% of all expenditures made with corporate cards, which consist 
largely of T&E merchant purchases. Most merchants in the T&E market 
have not declined to accept American Express' cards or its Merchant 
Restraints even when American Express has imposed card acceptance fees 
that are substantially higher than those set by other General Purpose 
Card brands, despite these merchants' strong desire not to accept those 
prices and restraints. Visa and MasterCard also price discriminate 
successfully against T&E merchants. For all of these reasons, each 
Defendant has market power in the T&E market.

IX. Harm to Competition

    69. Each Defendants' vertical Merchant Restraints are directly 
aimed at restraining horizontal interbrand competition. Each 
Defendant's Merchant Restraints harm competition by:
    (1) Harming the competitive process and disrupting the proper 
functioning of the price-setting mechanism of a free market;
    (2) restraining merchants from encouraging or pressing each 
Defendant to compete over card acceptance fees;
    (3) insulating each Defendant from competition from rival networks 
that would otherwise encourage merchants to favor use of those 
networks' cards;
    (4) inhibiting other networks from competing on price at merchants 
that accept each Defendant's General Purpose Cards;
    (5) restraining merchants from promoting payment methods other than 
each Defendant's General Purpose Cards;
    (6) restraining merchants from competing for customers with 
discounts, promotions, or other forms of lower prices and other 
benefits enabled by customers' use of a lower cost General Purpose Card 
or other payment method;
    (7) causing increased prices in the form of higher merchant card 
acceptance fees;
    (8) causing increased retail prices for goods and services paid 
generally by customers;
    (9) reducing output of lower-cost payment methods;
    (10) stifling innovation in network services and card offerings 
that would emerge if competitors were forced to compete for merchant 
business at the point of sale; and
    (11) denying consumers information about the relative costs of each 
Defendant's General Purpose Card usage compared to other card usage 
that would cause more consumers to choose lower-cost payment methods.
    70. Defendants' Merchant Restraints substantially reduce price and 
non-price competition for merchant use of network services and 
interfere with price setting at the merchant point of sale. Without the 
Merchant Restraints, and faced with Defendants' high card acceptance 
fees, many merchants would encourage customers to use cards offered by 
the lowest-cost network. Without the Merchant Restraints, each 
Defendant would compete more vigorously. By imposing the Merchant 
Restraints, Defendants have insulated themselves from competition with 
each other and with any other network competitor at the merchant point 
of sale. The Merchant Restraints reduce incentives for Defendants to 
offer merchants lower-priced network services that would benefit 
consumers, because merchants cannot encourage customers to use the less 
expensive options without violating Defendants' Merchant Restraints. 
Each Defendant thus can maintain high prices for its network services 
with confidence that no competitor will take away significant 
transaction volume through competition in the form of merchant 
discounts or benefits to consumers to use lower cost payment options. 
Each Defendant's price for network services to merchants is higher than 
it would be without the Merchant Restraints.
    LXXI. Although other payment methods are not in the product markets 
relevant to this action, there is some, more attenuated competition 
between General Purpose Cards and other payment methods. Defendants' 
Merchant Restraints also restrict the competition that exists and 
otherwise would emerge from these other payment methods.
    LXXII. Because Defendants' Merchant Restraints obstruct merchants 
from encouraging customers to use less costly payment methods, 
merchants bear higher costs and their customers face higher retail 
prices. If a merchant cannot reduce its costs by encouraging cheaper 
payment methods or by encouraging competition among networks, the 
merchant will charge higher prices generally to its customers. A 
customer who pays with lower-cost methods of payment pays more than he 
or she would if Defendants did not prevent merchants from encouraging 
network competition at the point of sale. For example, because American 
Express General Purpose Cards typically are held by more affluent 
buyers, less affluent purchasers using non-premium General Purpose 
Cards, debit cards, cash, and checks effectively subsidize part of the 
cost of expensive American Express card benefits and rewards.
    LXXIII. The fees Defendants impose on General Purpose Card 
transactions are largely not visible to consumers. The Merchant 
Restraints forbid merchants even from telling consumers simple factual 
information about what merchants have to pay when consumers use General 
Purpose Cards. This information could help merchants to encourage 
customers to choose more cost-effective payment methods. For example, 
those customers who prefer American Express services and value them at 
a competitive price could continue to choose them, but others

[[Page 62865]]

would not be forced to subsidize this choice by paying higher prices.
    LXXIV. Authorities in other countries have taken actions to reduce 
or eliminate similar Merchant Restraints. In foreign jurisdictions 
where Defendants' Merchant Restraints have been relaxed, merchants have 
taken advantage of their ability to encourage customers to use less 
expensive General Purpose Cards or other payment methods.
    LXXV. In short, Defendants' Merchant Restraints remove tools that 
merchants in a competitive marketplace would use to negotiate lower 
card acceptance fees, to reduce their costs of doing business, to 
empower their customers with information to make choices about payment 
methods, to encourage customers to choose a low-cost payment method, 
and to keep retail prices lower for their customers. As a result, 
merchants, consumers, and competition itself are harmed.

X. Violation Alleged

    LXXVI. Each Defendant's Merchant Restraints constitute agreements 
that unreasonably restrain competition in the market for General 
Purpose Card network services to merchants, and in the market for 
General Purpose Card network services to T&E merchants, in the United 
States in violation of Section 1 of the Sherman Act, 15 U.S.C. 1.
    LXXVII. These agreements have had and will continue to have 
anticompetitive effects by protecting Defendants from competition over 
the cost of card acceptance to merchants, and restraining merchants 
from encouraging customers to use lower-cost payment methods. 
Defendants' restraints unlawfully insulate Defendants' card acceptance 
fees from competition, increase costs of payment acceptance to 
merchants, increase prices, reduce output, harm the competitive 
process, raise barriers to entry and expansion, and retard innovation.
    LXXVIII. These agreements are not reasonably necessary to 
accomplish any of Defendants' allegedly procompetitive goals. Any 
procompetitive benefits are outweighed by anticompetitive harm, and 
there are less restrictive alternatives by which Defendants would be 
able reasonably to achieve any procompetitive goals.

XI. Request for Relief

    Wherefore, Plaintiffs pray that final judgment be entered against 
each Defendant declaring, ordering, and adjudging that:
    a. The aforesaid agreements unreasonably restrain trade and are 
illegal under Section 1 of the Sherman Act, 15 U.S.C. 1;
    b. Each Defendant be permanently enjoined from engaging in, 
enforcing, carrying out, renewing, or attempting to engage in, enforce, 
carry out, or renew the agreements in which it is alleged to have 
engaged, or any other agreement having a similar purpose or effect in 
violation of Section 1 of the Sherman Act, 15 U.S.C. 1;
    c. Each Defendant eliminate and cease enforcing all Merchant 
Restraints and be prohibited from otherwise acting to restrain trade 
unreasonably;
    d. Each Defendant fund and undertake programs to inform merchants 
of merchants' rights to encourage customers to use any payment method 
they choose; and
    e. The United States be awarded its costs of this action and such 
other relief as may be appropriate and as the Court may deem just and 
proper, and the States be awarded their costs in this action, 
reasonable attorneys' fees, and such other relief as may be appropriate 
and as the Court may deem proper.

Dated: 10/4/2010.

FOR PLAINTIFF
THE UNITED STATES OF AMERICA

--------/s/----------------

CHRISTINE A. VARNEY
Assistant Attorney General

--------/s/----------------

MOLLY S. BOAST
Deputy Assistant Attorney General

--------/s/----------------

J. ROBERT KRAMER II
Director of Operations

--------/s/----------------

JOHN READ
Chief, Litigation III Section
DAVID KULLY
Assistant Chief, Litigation III Section

--------/s/----------------

CRAIG W. CONRATH
MICHAEL G. DASHEFSKY
JUSTIN M. DEMPSEY
MARK H. HAMER
GREGG I. MALAWER
BENNETT MATELSON
ANNE NEWTON MCFADDEN
RACHEL L. ZWOLINSKI

Attorneys for the United States of America
U.S. Department of Justice
Antitrust Division, Litigation III Section
450 Fifth Street, N.W., Suite 4000
Washington, DC 20530
Telephone: (202) 307-0468

DOUGLAS F. GANGSLER
MARYLAND ATTORNEY GENERAL

--------/s/----------------

Ellen S. Cooper
Assistant Attorney General
Chief, Antitrust Division

--------/s/----------------

Gary Honick
Assistant Attorney General
Office of the Attorney General
Antitrust Division
200 St. Paul Place, 19th Floor
Baltimore, Maryland 21202
Tel.  (410)576-6470
Fax  (410)576-7830

PLAINTIFF
STATE OF CONNECTICUT

RICHARD BLUMENTHAL
Attorney General

--------/s/----------------

Michael E. Cole
Chief, Antitrust Department
Rachel O. Davis
Assistant Attorneys General
Antitrust Department
55 Elm Street, P.O. Box 120
Hartford, CT 06141-0120
Tel: (860) 808-5040
Fax: (860) 808-5033

STATE OF IOWA
Thomas J. Miller
Attorney General of Iowa

--------/s/----------------

Layne M. Lindebak
Assistant Attorney General
Special Litigation Division
Iowa Department of Justice
Hoover Office Building-Second Floor
1305 East Walnut Street
Des Moines, Iowa 50319
Phone: 515 281-7054
Fax: 515 281-4902
Email: Layne.Lindebak@iowa.gov

STATE OF MICHIGAN
MICHAEL A. COX
Attorney General

--------/s/----------------

D. J. Pascoe
Assistant Attorney General
Michigan Department of Attorney General
Corporate Oversight Division
Securities, Antitrust, and Business Section
G. Mennen Williams Building, 6th Floor
525 W. Ottawa Street
Lansing, Michigan 48933
Telephone: (517) 373-1160
Fax: (517) 335-6755
pascoed1@michigan.gov

FOR THE STATE OF MISSOURI
--------/s/----------------

CHRIS KOSTER
Attorney General

ANNE E. SCHNEIDER
Assistant Attorney General/Antitrust Counsel
ANDREW M. HARTNETT
Assistant Attorney General
P. O. Box 899

[[Page 62866]]

Jefferson City, MO 65102
Tel: (573) 751-7445
Tel: (573) 751-2041 (facsimile)
E-mail: Anne.Schneider@ago.mo.gov

ATTORNEY GENERAL OF THE STATE OF OHIO

Richard Cordray
Attorney General of Ohio

Jennifer L. Pratt
Section Chief, Antitrust Section

--------/s/----------------

Mitchell L. Gentile
Principal Attorney, Antitrust Section
Patrick E. O'Shaughnessy
Senior Assistant Attorney General, Antitrust Section
Office of the Ohio Attorney General
150 E. Gay Street, 23rd Floor
Columbus, Ohio 43215
(614) 466-4328
(614) 955-0266 (fax)

GREG ABBOTT
Attorney General of Texas

DANIEL T. HODGE
First Assistant Attorney General

BILL COBB
Deputy Attorney General for Civil Litigation

JOHN T. PRUD'HOMME
Assistant Attorney General
Chief, Antitrust Division

--------/s/----------------

KIM VAN WINKLE
Assistant Attorney General
State Bar No. 24003104
BRET FULKERSON
State Bar No. 24032209

Office of the Attorney General of Texas
P. O. Box 12548
Austin, Texas 78711-2548
512/463-1266 (Telephone)
512/320-0975 (Facsimile)

In The United States District Court For The Eastern District of New 
York

    United States of America, State of Connecticut, State of Iowa, 
State of Maryland, State of Michigan, State of Missouri, State of Ohio, 
and State of Texas, Plaintiffs, v. American Express Company, American 
Express Travel Related Services Company, Inc., Mastercard International 
Incorporated, and Visa Inc. Defendants.

Civil Action No. CV-10-4496

(Garaufis, J.)
(Pollak, M.J.)

Competitive Impact Statement

    Plaintiff United States of America (``United States''), pursuant to 
Section 2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or 
``Tunney Act''), 15 U.S.C. 16(b)-(h), files this Competitive Impact 
Statement relating to the proposed Final Judgment submitted for entry 
in this civil antitrust proceeding.

I. Nature and Purpose of The Proceeding

    The United States and the States of Connecticut, Iowa, Maryland, 
Michigan, Missouri, Ohio, and Texas (``Plaintiff States'') brought this 
lawsuit against Defendants American Express Company, American Express 
Travel Related Services Company, Inc. (collectively, ``American 
Express''), Visa Inc. (``Visa''), and MasterCard International 
Incorporated (``MasterCard'') on October 4, 2010, challenging certain 
of Defendants' rules, policies, and practices that impede merchants 
from providing discounts or benefits to promote the use of a competing 
credit card that costs the merchant less to accept (``Merchant 
Restraints''). These Merchant Restraints have the effect of suppressing 
interbrand price and non-price competition in violation of Section 1 of 
the Sherman Act, 15 U.S.C. 1.
    Shortly after the filing of the Complaint, the United States filed 
a proposed Final Judgment with respect to Defendants Visa and 
MasterCard. The proposed Final Judgment is described in more detail in 
Section III below. The United States, Plaintiff States, Visa, and 
MasterCard have stipulated that the proposed Final Judgment may be 
entered after compliance with the APPA, unless the United States 
withdraws its consent. Entry of the proposed Final Judgment would 
terminate this action as to Visa and MasterCard, except that this Court 
would retain jurisdiction to construe, modify, and enforce the proposed 
Final Judgment and to punish violations thereof. The case against 
American Express will continue.

II. Description of The Events Giving Rise to The Alleged Violation

A. Industry Background

    Defendants provide network services for general purpose credit and 
charge cards (``General Purpose Cards''). Visa is the largest provider 
of network services in the United States and MasterCard is the second-
largest, closely followed by American Express.
    General Purpose Cards are forms of payment that allow cardholders 
to make purchases without accessing or reserving the cardholder's funds 
at the time of sale. General Purpose Cards include credit and charge 
cards issued to consumers and businesses, but do not include cards that 
can be used at only one merchant (e.g., department store cards), cards 
that access funds on deposit (debit cards), or pre-paid cards (e.g., 
gift cards). Acceptance of General Purpose Cards is widespread among 
merchants because many of their customers prefer to pay with such 
Cards, due to convenience, security, the ability to defer payment, and 
other factors.
    Defendants, as providers of General Purpose Card network services, 
operate the infrastructure necessary to authorize, settle, and clear 
payments made with their General Purpose Cards. Millions of merchants 
around the United States that accept General Purpose Cards are 
consumers of network services.
    The typical transaction involving a Visa or MasterCard General 
Purpose Card involves several steps. When a cardholder presents a card 
to a merchant, the bank that issued the card (the ``issuing bank'' or 
``issuer'') authorizes the transaction using the card's network. Then 
the merchant's bank (the ``acquiring bank'') pays the merchant the 
amount of the purchase, minus a fee (the ``merchant discount fee'' or 
``card acceptance fee'') that is shared among the acquiring bank, the 
network, and the issuing bank. The acquiring bank and the network 
collect relatively small portions of the merchant discount; the bulk of 
the merchant discount is collected by the issuing bank in the form of 
an ``interchange fee.'' Interchange fees are set by the network and 
vary based on many factors such as the merchant's industry, the 
merchant's annual charge levels, and the type of card used in the 
transaction (e.g., rewards card vs. non-rewards card).
    American Express issues most of its General Purpose Cards directly 
to cardholders and generally provides network services directly to 
merchants. For each transaction, American Express imposes a merchant 
discount fee, which is typically a percentage of the transaction price. 
American Express has for many years maintained the highest merchant 
fees of any network, and American Express card acceptance often costs 
merchants substantially more than acceptance of other General Purpose 
Cards.
    When merchants agree to accept a particular brand of General 
Purpose Card, they must use the network services provided by that 
brand. Merchants cannot reasonably replace General Purpose Card network 
services with other services or reduce usage of these network services, 
even if such network services are substantially more expensive for 
merchants relative to services that enable other payment methods. The 
challenged Merchant

[[Page 62867]]

Restraints obstruct the ability of a merchant to vary the amount of 
network services it buys in response to changes in the merchant's cost 
of acceptance by encouraging customers at the point of sale to use 
less-costly General Purpose Cards or other methods of payment.

B. The Challenged Merchant Restraints

    When merchants agree to accept Visa or MasterCard General Purpose 
Cards, they sign a contract agreeing to abide by the rules promulgated 
by the network, including the Merchant Restraints at issue in this 
case. Merchants face penalties, including termination of their 
contracts, if they violate these rules.
    The Visa Merchant Restraints challenged in the Complaint prohibit a 
merchant from offering a discount at the point of sale to a customer 
that chooses to use an American Express, Discover, or MasterCard 
General Purpose Card instead of a Visa General Purpose Card. Visa's 
rules do not allow discounts for other General Purpose Cards, unless 
such discounts are equally available for Visa transactions. See 
Complaint ] 26 (citing Visa International Operating Regulations at 445 
(April 1, 2010) (Discount Offer--U.S. Region 5.2.D.2)).
    The MasterCard Merchant Restraints challenged in the Complaint 
prohibit a merchant from ``engag[ing] in any acceptance practice that 
discriminates against or discourages the use of a [MasterCard] Card in 
favor of any other acceptance brand.'' See Complaint ] 27 (quoting 
MasterCard Rule 5.11.1). This means that merchants cannot offer 
discounts or other benefits to persuade customers to use an American 
Express, Discover, or Visa General Purpose Card instead of a MasterCard 
General Purpose Card. Id. MasterCard does not allow merchants to favor 
competing card brands. Id.
    The challenged Merchant Restraints imposed by Defendants deter or 
obstruct merchants from freely promoting interbrand competition among 
networks by offering customers discounts, other benefits, or 
information to encourage them to use a less-expensive General Purpose 
Card brand or other payment method. The Merchant Restraints block 
merchants from taking steps to influence customers and foster 
competition among networks at the point of sale, such as: promoting a 
less-expensive General Purpose Card brand more actively than any other 
brand; offering customers a discount or other benefit for using a 
particular General Purpose Card that costs the merchant less; posting a 
sign expressing a preference for another General Purpose Card brand; 
prompting customers at the point of sale to use another General Purpose 
Card brand in their wallets; posting the signs or logos of General 
Purpose Card brands that cost less to the merchant more prominently 
than signs or logos of more costly brands; or posting truthful 
information comparing the relative costs of different General Purpose 
Card brands.\1\
---------------------------------------------------------------------------

    \1\ Federal law mandates that networks permit merchants to offer 
discounts for cash transactions. Additionally, the new Dodd-Frank 
Wall Street Reform and Consumer Protection Act of 2010, by adding 
section 920 to the Electronic Fund Transfer Act, 15 U.S.C. 1693 et 
seq., now forbids networks from prohibiting merchants from offering 
a discount for an entire payment method category, such as a discount 
for use of any debit card. All General Purpose Card networks operate 
under these laws. The Complaint does not seek relief relating to 
these two types of discounting.
---------------------------------------------------------------------------

C. The Relevant Markets

    The Complaint alleges two distinct relevant product markets: the 
market for General Purpose Card network services to merchants, and the 
market for General Purpose Card network services to travel and 
entertainment merchants (``T&E market''). In each case, the relevant 
geographic market is the United States.
1. The General Purpose Card Network Services Market
    A relevant product market for this case is the provision of General 
Purpose Card network services to merchants. For such merchants, there 
are no reasonable substitutes for network services. Competition from 
other payment methods would not be sufficient to prevent a hypothetical 
monopolist of General Purpose Card network services from profitably 
maintaining supracompetitive prices and terms for network services 
provided to merchants over a sustained period of time or from imposing 
anticompetitive conditions on merchants.
    Defendants possess market power in the network services market. In 
2003, the United States Court of Appeals for the Second Circuit 
affirmed that Visa and MasterCard hold market power in a General 
Purpose Card network services market. United States v. Visa U.S.A., 
Inc., 344 F.3d 229, 238-39 (2d Cir. 2003). American Express' share of 
General Purpose Card transaction volume today is close to MasterCard's, 
and similar to MasterCard's share at the time of the Second Circuit's 
decision.
    Because of the Merchant Restraints, a merchant is obstructed in its 
ability to reduce its purchases of one network's services by 
encouraging its customers to choose a competing network's General 
Purpose Card. A merchant may resist a Defendant's high card acceptance 
fees only by no longer accepting that Defendant's General Purpose 
Cards. This all-or-nothing choice does not effectively constrain 
Defendants' market power because merchants cannot refuse to accept 
these General Purpose Cards without alienating customers and losing 
significant sales. The Merchant Restraints leave merchants less able to 
avoid Defendants' supracompetitive prices than they otherwise would be.
    Defendants' ability to discriminate in the prices they charge 
different types of merchants, unexplained by cost differences, also 
reflects their market power. Defendants target specific merchant 
segments for differential pricing based on those merchants' ability to 
pay and their inability to refuse to accept Defendants' General Purpose 
Cards.
    Significant barriers to entry and expansion protect Defendants' 
market power, and have contributed to Defendants' ability to maintain 
high prices for years without threat of price competition by new entry 
or expansion in the market. Barriers to entry and expansion include the 
prohibitive cost of establishing a physical network over which General 
Purpose Card transactions can run, developing a widely recognized 
brand, and establishing a base of merchants and a base of cardholders. 
Defendants, which achieved these necessities early in the history of 
the industry, hold substantial early-mover advantages over prospecti