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Card fee damages claims: Supreme Court confirms that Mastercard and Visa interchange fees unlawfully restrict competition

  • United Kingdom
  • Commercial litigation
  • Competition, EU and Trade
  • Litigation and dispute management

22-06-2020

Summary

On 17 June 2020, the Supreme Court handed down its judgment on appeals by Mastercard and Visa against a Court of Appeal (“CoA”) decision[1] which found that setting default multilateral interchange fees (“MIFs”) within the Mastercard and Visa payment card systems amounted to an unlawful restriction on competition pursuant to Article 101 of the Treaty on the Functioning of the European Union (“TFEU”).

The Supreme Court considered four main grounds of appeal raised by Mastercard and Visa, dismissing three and upholding one. It held that the CoA had been correct in finding that:

  • the setting of MIFs by Mastercard and Visa breached Article 101 TFEU;
  • the defendants must provide cogent empirical evidence to show that the MIFs should be exempted from the Article 101(1) prohibition on anti-competitive agreements pursuant to Article 101(3) TFEU; and
  • for the purposes of the Article 101(3) exemption, the defendants have to show that the benefits provided to merchants alone as a result of the MIFs outweigh the costs arising from the MIFs, without taking any account of the benefits received by cardholders as a result of the MIFs.

However, the Supreme Court also held that insofar as the CoA had required a greater degree of precision in the quantification of pass-on[2] from Visa and Mastercard than from the claimant retailers, it was wrong to do so.

Lastly, the Supreme Court allowed a cross-appeal in Asda Stores Limited and others v Mastercard, against the Court of Appeal's decision to remit that case, along with Sainsbury's v Visa and Sainsbury's v Mastercard, to the Competition Appeal Tribunal (“CAT”) for consideration of issues relating to the application of Article 101(3) of the TFEU. As a consequence, Asda’s action against Mastercard will, if not settled, proceed to trial on the issue of quantum of damages.

The Supreme Court judgment is the culmination of a number of European Commission decisions, and EU and domestic judgments. It provides much needed clarity on matters specific to the Mastercard and Visa proceedings, such as the particular nature of the Article 101 TFEU infringement caused by the defendants’ MIFs, as well as on matters of general principle and wider application, such as the nature of the evidence required to establish  the Article 101(3) TFEU exemption and the approach to the quantification of pass-on.

Background

In December 2007, the European Commission adopted a decision finding that MasterCard's MIFs breached Article 101(1) TFEU. That decision was appealed by Mastercard before the General Court of the European Union, which dismissed the appeal in 2012. A further appeal by Mastercard to the European Court of Justice (“ECJ”) was dismissed in 2014.

A large number of proceedings have since been brought against Mastercard and / or Visa by retailers claiming damages resulting from the anti-competitive nature of MIFs imposed on them. Among these were:

  • the Mastercard Sainsbury’s proceedings, in which the CAT ruled that the Mastercard UK MIFs restricted competition by effect and were not exempt under Article 101(3) TFEU, and awarded damages of around £68.5 million to Sainsbury’s;
  • the Asda, Argos and Morrisons Mastercard proceedings, in which the High Court ruled against the claimants, finding that Mastercard’s UK and Irish MIFs restricted competition in the acquiring market contrary to Article 101(1), but that they were an objectively necessary ancillary restraint which in any event was exempted under Article 101(3) TFEU; and
  • the Visa Sainsbury’s proceedings, in which the High Court initially held that  the Visa UK MIFs did not restrict competition in the acquiring market and dismissed the claim. In this case, the High Court subsequently gave a further obiter judgment concluding that if the Visa UK MIFs did restrict competition, they were not exempt under Article 101(3) TFEU because Visa had not established to the requisite standard that its MIFs brought any benefits to consumers.

All of the above proceedings were appealed, the appeals being heard together by the CoA which delivered its judgment on 4 July 2018. The CoA overturned each of the four judgments described above, finding that the rules of both the Mastercard and the Visa schemes setting default MIFs restrict competition, under Article 101(1) TFEU, in the acquiring market. It decided to remit all three cases for reconsideration of the Article 101(3) exemption issue and for the assessment of the quantum of the claims to the CAT.

Visa and Mastercard were given permission to appeal to the Supreme Court against the CoA decision on all grounds. Asda, Argos and Morrisons were also given permission to cross-appeal against the order for remittal made by the Court of Appeal.

Arguments and judgment of the Supreme Court

As noted above, the Supreme Court considered four grounds of appeal by Visa and Mastercard, as well as the remittal issue. In respect of these issues it found as follows:

Restriction on competition: the argument that the CoA had erred in law in finding that MIFs restricted competition in the acquiring market was dismissed. The Supreme Court held that: (a) the CoA was right to conclude that it was bound by the 2014 ECJ decision finding that setting MIFs constituted an infringement of Article 101; and (b) even had the ECJ decision not been binding the Supreme Court would follow it and conclude that there was in the present cases a restriction on competition.

Standard of proof: the Supreme Court also dismissed the argument that the CoA had erred in law in finding that Visa and Mastercard were required to satisfy a more onerous evidential standard than that normally applicable in civil litigation, to establish that their MIFs were exempt from the prohibition on restrictive agreements pursuant to Article 101(3) of the TFEU. The Supreme Court considered, as had the CoA, that the argument made by Visa and Mastercard did not relate to the standard of proof but to the nature of the evidence required to meet the standard of proof in the context of Article 101(3) TFEU. In that context, it held that the CoA had been right in finding that cogent empirical evidence is required to establish that the Article 101(3) exemption applies.

Fair share of benefit: dismissing the defendants’ third argument, the Supreme Court held that the CoA had also been correct to conclude that: (a) in order to satisfy the Article 101(3) exemption it was necessary to show that consumers, in this case the merchants, receive a fair share of the benefits generated by the MIFs; and (b) that the ‘fair share’ requirement had to be established by proving that the benefits provided to merchants alone as a result of the MIFs outweighed the costs arising from the MIFs, without taking any account of the benefits received by cardholders as a result of the MIFs.

Broad axe approach to quantum of damages: having dismissed the above arguments, the Supreme Court did however find that insofar as the CoA had required a greater degree of precision in the quantification of pass-on from Visa and Mastercard than from the claimant retailers, it was wrong to do so. The Supreme Court found that the law does not require unreasonable precision in the proof of the amount of the loss that the retailers have passed on to suppliers and customers.

Cross-appeal: the cross appeal by Asda, Argos and Morrisons against the CoA’s decision to remit their proceedings (as well as those of Sainsbury’s against Visa and Mastercard) to the CAT for reconsideration of the Article 101(3) TFEU issues and quantum was allowed by the Supreme Court. The Supreme Court considered that the CoA had been correct in concluding that Mastercard’s defence based on Article 101(3) should have been dismissed. Therefore, it was contrary to the principle of finality of litigation to allow Mastercard to re-open this issue, which it had lost after a full trial.

Comment

As noted above, the Supreme Court judgment brings welcome clarity to what has been a long and, at times, contradictory series of cases. The Supreme Court’s conclusion that Visa and Mastercard MIFs infringed Article 101 TFEU is a welcome confirmation for retailer claimants. However, it should be recognised that this was a case and fact specific judgment, and the Article 101(1) TFEU arguments explored in this judgment might not be expected to translate to other Article 101(1) proceedings.

The Supreme Court judgment does however provide welcome clarification on three matters of principle with, seemingly, wider application:

  • that cogent evidence is required to establish that an Article 101(3) TFEU exemption applies, and to the extent that objective efficiencies caused by an Article 101(1) TFEU restriction cannot be established empirically, they cannot be balanced with restrictive effects;
  • that in order to meet the Article 101(3) TFEU ‘fair share of benefit’ condition, in a “two-sided market” (where the restrictive effects of a measure, e.g. a MIF, are felt by consumers in only one of those markets, e.g. merchants, and where the consumers in both markets are not substantially the same), it has to be proved that: (i) the consumers affected are compensated in full for the adverse effects that they bear owing to the restriction of competition arising from the measure in question; (ii) without taking any account of the benefits received by the consumers in the other market (e.g. cardholders) as a result of the measure; and
  • that, in the context of pass-on, the law does not require either (i) unreasonable precision in the proof of the amount of the prima facie loss which merchants have passed on to suppliers and customers or (ii) a greater degree of precision in the quantification of pass-on from a defendant than from a claimant.

We would expect the Supreme Court’s clarification of the three principles listed above to assist parties in relation to both Article 101(3) TFEU self-assessments, as well as in relation to quantification of damages issues – particularly in pass-on cases.


[1] The Court of Appeal decision concerned three sets of proceedings in which retailers sought damages from Mastercard or Visa: Sainsbury's v Visa; Asda Stores Limited and others (AAM) v Mastercard and Sainsbury's v Mastercard.

[2] ‘Pass-on’ arguments arise where a defendant in a competition damages claim asserts that the claimant has mitigated its loss through the passing on of all or part of an overcharge to its customers.