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    Steven Semeraro
United States Department of Justice, Antitrust Division
325 Seventh Street, NW, Suite 300, Washington, DC 20004
Attorney for the Plaintiff United States of America

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK



)  
UNITED STATES OF AMERICA, )  
)  
Plaintiff, )
)Civil Action No. 98-civ.7076
v.)
) COMPLAINT FOR EQUITABLE
VISA U.S.A. INC., )RELIEF FOR VIOLATIONS
VISA INTERNATIONAL CORP., AND )OF 15 U.S.C. § 1
MASTERCARD INTERNATIONAL)  
INCORPORATED,
) (SHERMAN ANTITRUST ACT)
Defendants. )
)  
)  


Joel I. Klein (JK3481)
Assistant Attorney General

John M. Nannes (JN4148)
Deputy Assistant Attorney General

Rebecca P. Dick (RD5481)
Director, Civil Non-Merger Enforcement      

M. J. Moltenbrey (MM4814)
Chief, Civil Task Force

Susan L. Edelheit (SE8020)
Assistant Chief, Civil Task Force

Melvin A. Schwarz (MS8604)
Special Counsel for Civil Enforcement
Steven Semeraro (SS8817)
Kurt Shaffert (KS4333)
Scott A. Scheele (SS0496)
Jeffrey I. Steger (JS7416)
Sean T. Fox (SF8664)
Ahmed Taha (AT8157)


Attorneys, Civil Task Force
United States
Department of Justice
Antitrust Division
Suite 300
325 Seventh Street, N.W.
Washington, D.C. 20004
202/514-8374
202/514-7308 (fax)




Page i      

                      Table of Contents

I.  Jurisdiction and Venue.........................................................................................................3

II.  Defendants and Co-Conspirators.........................................................................................3

III.   Trade and Commerce...........................................................................................................4

IV.  Relevant Market...................................................................................................................5

   A. Product Market...............................................................................................................6

   B. Geographic Market.........................................................................................................8

VA.  Visa and MasterCard Have Market Power in the Network Market.....................................9
   A. Visa and MasterCard Dominate the Market...................................................................9

   B. Competition Among Card Issuers is Not a Substitute for Network Competition........10

   C. There Are Significant Barriers to Network Entry........................................................11

VI.  The Same Banks Have Taken Control of Both Visa and MasterCard...............................12

   A. Visa and MasterCard Began As Entirely Separate Systems........................................13

   B. The Visa and MasterCard Governing Banks Adopted Duality....................................14

VII.  Visa and MasterCard Restrain Competition......................................................................15

   A. Duality Restrains Competition Between Visa and MasterCard....................................16

      1.  Duality Lessens the Associations' Incentives to Compete Against
        One Another......................................................................................................16

      2.  Visa and MasterCard Top Executives Admit that Duality Restrains Competition...17

      3.  Proposals to Roll Back Duality Were Rejected......................................................19

      4.  Duality Has Anticompetitive Effects on Brand Development................................20


Page ii      

      5.  Duality Has Anticompetitive Effects on Product Development.............................22

        a. Smart Cards........................................................................................................23

        b. Commercial Cards..............................................................................................24

        c. Secure Transactions Over the Internet................................................................25

   B. Visa and MasterCard Restrain Competition From Other Networks
      and Prohibit Certain Forms of Competition Among Their Member Banks................26

      1. Visa and MasterCard Impede the Ability of Other Networks to Convince
        Merchants to Accept Their Cards............................................................................27

      2. Visa and MasterCard Impede the Ability of Other Networks to Provide Cash
        Advances.............................................................................................................. ...29

      3. Visa and MasterCard Impede the Ability of Other Networks to Contract with
        Issuers................................................................................................................... ...30

        a. Visa Adopts Bylaw 2.10(e).................................................................................31

        b. MasterCard Adopts Competitive Programs Policy............................................32

        c. The Exclusionary Rules Restrain Competition In the United States..................33

        d. Competition Has Increased Outside the U.S.
          Where the Exclusionary Rules Do Not Apply... ....................................35

      4. Visa and MasterCard Impede Other Networks' Ability to Provide New General
        Purpose Card Products............................................................................................37

VIII.  First Offense: Duality — Combinations and Conspiracies in Restraint of Trade..............38

IX.  Second Offense: Exclusionary Rules — Combinations and Conspiracies in
   Restraint of Trade .............................................................................................................40

X.  Prayer For Relief.........................................................................................................................41


      

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK



)  
UNITED STATES OF AMERICA, )  
)  
Plaintiff, )
)Action No. 98-civ.7076
v. )
) COMPLAINT FOR EQUITABLE
VISA U.S.A. INC., )RELIEF FOR VIOLATIONS
VISA INTERNATIONAL CORP., AND)OF 15 U.S.C. § 1
MASTERCARD INTERNATIONAL)
INCORPORATED,)(SHERMA N ANTITRUST ACT)
)
Defendants. )  
)  

   The United States of America, by its attorneys, acting under the direction of the Attorney
General of the United States, brings this civil action to prevent and enjoin Visa U.S.A. Inc. and
Visa International Corp. (collectively "Visa") and MasterCard International Incorporated
("MasterCard") from violating the antitrust laws by restraining competition in the market for
general purpose card network products and services. General purpose cards — which include
credit cards and charge cards — are payment devices that enable consumers to make purchases
from unrelated merchants without immediately accessing or reserving funds. Visa and
MasterCard are the two largest general purpose card networks. Together, they account for over
75% of all purchases made with general purpose cards in the United States.
   Visa and MasterCard are joint ventures — or, as they call themselves, "associations" —
created, owned, governed, and operated by and in the interests of their member banks. These


Page 2.      

banks use the associations' products and services either to issue cards to consumers, provide card
acceptance services to merchants, or both.
   The same large banks control both associations by simultaneously serving on the board of
directors of one and on important committees of the other. In addition, each of these banks
issues significant numbers of both Visa and MasterCard cards. The control of the two
associations by banks that have significant interests in both — known in the industry as "duality"
— has substantially lessened competition between Visa and MasterCard because these banks
have been, and continue to be, significantly less willing to fund and implement competitive
initiatives that would cause consumers to switch their business from one association to the other.
   In addition, both Visa and MasterCard — on behalf of and in collaboration with the banks
that govern them — have adopted rules and policies that restrict the ability of all member banks
to do business with American Express, Discover/Novus, or any other network that the controlling
banks deem to be "competitive." Importantly, Visa and MasterCard do not apply these rules to
one another. Banks can therefore do business with the two largest general purpose card
networks, but not with smaller competitor networks. These exclusionary rules and policies
eliminate certain forms of competition among the Visa and MasterCard member banks, and have
effectively precluded American Express and Discover/Novus from competing to enlist banks in
the U.S. to issue their cards.
  Through their common control of both Visa and MasterCard, the largest banks have stifled
competition between these two networks and have thwarted competition from smaller competitor
networks. This reduction in competition among general purpose card networks has hindered and
delayed the development and implementation of improved network products and services, and


Page 3.      

has lessened consumer choice. If allowed to continue, the anticompetitive structure and practices
of the associations will threaten competition in the development and marketing of new general
purpose card products, such as products that integrate credit, debit, and stored value functions.
Accordingly, the United States brings this action and complains and alleges as follows:

                           I.
                    Jurisdiction And Venue


  1. The United States files this Complaint under § 4 of the Sherman Act, 15 U.S.C. § 4, as
amended, to prevent and restrain Visa and MasterCard from violating § 1 of the Sherman Act,
15 U.S.C. §1, as amended.
  2. Visa and MasterCard maintain offices, transact business, and are found within the
Southern District of New York, within the meaning of 15 U.S.C. § 22. This Court has personal
jurisdiction over each defendant, and venue is proper under 15 U.S.C. § 22 and
28 U.S.C. § 1391(b).

                           II.
              Defendants and Co-Conspirators

  3. Visa U.S.A. Inc. ("Visa U.S.A.") and Visa International Corp. ("Visa International")
are associations of independent banks structured as membership corporations. Both corporations
are organized under the laws of the State of Delaware, with their principal place of business in
San Francisco, California. Visa International, Visa U.S.A., and all of their predecessors and
subsidiaries are referred to herein collectively as Visa.


Page 4.      

   4. Visa International has ultimate authority over Visa U.S.A. Visa International has
delegated some authority to its regional boards, but Visa U.S.A.'s authority to regulate even
matters solely within the United States is subject to Visa International's policies.
  5. MasterCard International Incorporated ("MasterCard International") is also an
association of independent banks structured as a membership corporation. It is organized under
the laws of the State of Delaware, with its principal place of business in Purchase, New York.
MasterCard International has created a separate Board of Directors and hired separate
management to run its business in the United States. Unlike Visa, MasterCard International has
not created a separate corporate subsidiary for its United States operations. MasterCard
International and all of its predecessors and subsidiaries are referred to herein collectively as
MasterCard.
  6. Certain financial institutions not made defendants in this Complaint participated as co-
conspirators in the violations alleged and have performed acts and made statements in
furtherance thereof.

                           III.
                    Trade And Commerce

  7. Throughout the period covered by this Complaint, Visa and MasterCard have operated
general purpose card networks throughout the United States. They provide card network
products and services in, and those products and services affect, a substantial amount of interstate
commerce. In 1997, transaction volume on the Visa and MasterCard networks exceeded $600
billion.




Page 5.      

                           IV.
                     Relevant Market


  8. General purpose cards are payment devices that a consumer can use to make purchases
(a) from unrelated merchants and (b) without accessing or reserving the consumer's funds at the
time of the purchase. There are two principal types of general purpose cards:
      credit cards — such as Visa and MasterCard Classic and Gold cards, the
        American Express Optima card, and the Discover card — that usually permit the
        cardholder to either (i) pay all charges within a set period after a monthly bill is
        rendered, or (ii) pay only a portion of the charges within that time and pay the
        remainder in monthly installments, including interest; and
      charge cards — such as the American Express Green Card — that require the
        cardholder to pay all charges within a set period after a monthly bill is rendered.
General purpose cards do not include cards that can be used at only one merchant (e.g.,
department store cards) or cards that immediately access funds on deposit in a checking or
savings account (e.g., debit cards).
  9. General purpose cards provide a consumer with a combination of convenience,
widespread acceptance, security, and deferred payment options that is not effectively replicated
by any other form of payment. For a significant number of consumers and types of transactions,
other forms of payment are not a close substitute for general purpose cards.
  10. Competition to provide general purpose cards occurs at two levels. First, Visa and
MasterCard compete with American Express, Discover/Novus, Diners Club, and Japan Credit
Bureau ("JCB") in an upstream market, hereinafter referred to as the general purpose card


Page 6.      

network market. Second, individual Visa and MasterCard member banks compete with each
other and with American Express, Discover/Novus, Diners Club, and JCB in two downstream
markets:
    the market for issuing general purpose cards to consumers ("the card-issuing market");
    the market for providing the services that enable merchants to accept general purpose
    cards for the purchase of goods or services ("the card-acceptance market").
  11. The Visa and MasterCard associations compete only in the upstream network market.
Their member banks — with the exception of Citibank, which owns Diners Club — compete
only in the two downstream markets. American Express, Discover/Novus, Diners Club, and JCB
are integrated entities that compete in all three markets.

                           A.
                     Product Market


  12. Certain functions essential to the acceptance and use of general purpose cards are most
efficiently performed by general purpose card networks, often because the functions require
broad coordination across the network.
  13. For example, among these functions, all general purpose card networks:

      invent, develop, and implement systems and technologies, including systems to
        authorize and settle card transactions and reduce fraud;

      develop, market, advertise, and promote their brand names among consumers and
        merchants;

      invent, develop, implement, standardize, market, and advertise types of card
        products;

      develop and implement rules and standards to govern their networks;


Page 7.      

      set fees and assessments for use of the network's products and services, including
        the interchange fee that accounts for the largest part of the price that merchants
        pay for the right to accept general purpose cards; and

      extend card acceptance to merchant segments that have not accepted cards in the
        past.

  14. The products and services provided by general purpose card networks form a relevant
product market ("the network market"). Banks and other entities that issue cards and provide
card acceptance services to merchants rely on general purpose card networks to provide a core set
of these products and services for which there is no cost-effective alternative. Card issuers and
banks that provide card acceptance services to merchants thus cannot substitute other products
and services for the products and services provided by general purpose card networks in an
amount sufficient to deter the exercise of market power in the network market.
  15. In addition, consumers do not substitute other forms of payment, and merchants do not
stop accepting general purpose cards, in amounts sufficient to deter the exercise of market power
in the network market.
  16. The products and services provided by general purpose card networks are critical
inputs to the entities that issue cards to consumers and provide card acceptance services to
merchants.
  17. Card issuers compete for cardholders with respect to interest rates, annual cardholder
fees, payment terms and conditions, card enhancements, and customer service. Entities that
provide card acceptance services to merchants compete with respect to their fees and the quality
of service they provide. This competition among Visa and MasterCard member banks in the
card-issuing market and the card-acceptance market is not a substitute for, and does not replace,


Page 8.      

competition at the network level. Competition at the downstream levels thus cannot protect
consumers from the anticompetitive effects of the exercise of market power by general purpose
card networks. Competition among card issuers does, however, ensure that if network
competition is vigorous, the benefits of that competition will be passed on to consumers.

                           B.
                      Geographic Market


  18. The United States is the relevant geographic market for each relevant product market.
  19. Almost all of the general purpose cards issued by banks based in the United States are
issued to domestic cardholders, and these consumers use their cards predominantly at merchants
located in the United States.
  20. Most general purpose card transactions with merchants located in the United States are
made using cards issued in the United States, and most merchants would not consider networks
operating outside the United States to be a substitute for networks operating in the United States.
  21. The defendants consider the United States to be a separate geographic market, as
demonstrated in part by their establishing separate Boards of Directors for — and separate rules
governing the operation of — their card networks in the United States. For example, the Visa
and MasterCard rules permitting the member banks to issue Visa and MasterCard, but no other
network's cards, apply only in the United States.




Page 9.      

                           V.
        Visa and MasterCard Have Market Power in the Network Market


  22. The anticompetitive effects alleged in this Complaint occur primarily in the network
market.
  23. Visa and MasterCard together have and exercise market power in the network market.
  24. Visa and MasterCard are the two largest general purpose card networks in the United
States. Their only significant competitors are the American Express and Discover/Novus
networks, and entry into the network market is extremely difficult.

                           A.
              Visa and MasterCard Dominate the Market


  25. In 1997, Visa accounted for approximately 50% of the dollar volume of transactions
on all general purpose cards in the United States and approximately 53% of the number of
general purpose cards issued.
  26. In 1997, MasterCard accounted for approximately 25% of the dollar volume of
transactions on all general purpose cards in the United States and approximately 33% of the
number of general purpose cards issued.
  27. Together, Visa and MasterCard account for approximately 75% of general purpose
card dollar volume and approximately 86% of the number of general purpose cards issued.
  28. In the United States, approximately 3.4 million merchant outlets accept both Visa and
MasterCard. Practically every merchant that accepts Visa also accepts MasterCard and vice
versa. This common merchant base is significantly larger than the base of any other network
competitor.


Page 10.      

  29. In 1997, American Express accounted for approximately 18% of dollar volume and
5% of general purpose cards issued in the United States. Cards on the American Express
network were accepted at approximately 2.5 million merchant outlets in the United States.
  30. In 1997, Discover/Novus accounted for approximately 6% of dollar volume and 8.5%
of general purpose cards issued in the United States. Cards on the Novus network were accepted
at approximately 3.1 million merchant outlets in the United States.
  31. There are two other general purpose card networks that compete in the United States:
      Diners Club/Carte Blanche ("Diners"), which is owned by Citicorp — the bank that
    has issued the largest number of Visa and MasterCard cards — and
      JCB, a network based in Japan that issues cards in the United States primarily to
    Japanese expatriates.
Both networks have competitively insignificant market shares and limited merchant acceptance
in the United States.

                           B.
  Competition Among Card Issuers is Not a Substitute for Network Competition


  32. Card issuers may compete on interest rates, fees, enhancements, and customer service.
This competition, however, cannot cure the harm to consumers arising from a lack of
competition among card networks, nor does it prevent the Visa and MasterCard member banks
from collectively exercising power in the network market to the detriment of consumers.



Page 11.      

                           C.
             There Are Significant Barriers to Network Entry

  33. The prospect of entry by new card networks does not prevent Visa and MasterCard
from exercising market power in the network market.
  34. Entry is extremely difficult because establishing a new general purpose card network
requires large investments to develop both cardholder and merchant bases. Coordinated
development of both cardholder and merchant bases is critical because the utility of a particular
card product to cardholders and merchants depends not only on the cost and features of the card,
but also on the ubiquity of its acceptance and use.
  35. Since Visa and MasterCard were formed in the mid-1960s, only one network has
successfully entered the relevant market. In 1985, Sears created that new network, then called
Discover and now known as Novus, by building on the infrastructure and the cardholder and
merchant bases of the Sears single-retailer card system. At the time, Sears was one of the largest
retailers and card issuers in the United States.
  36. In the early 1980s, Citicorp — the largest issuer of Visa and MasterCard cards and, at
the time, a large provider of card acceptance services to merchants — unsuccessfully attempted
to enter the network market.
  37. Other companies that considered entering the network market concluded that the high
cost of building a merchant and cardholder base made entry too difficult. For example, in the
late 1980s, AT&T considered forming a new general purpose card network. After analyzing the
Discover and Citicorp experiences, however, it decided not to enter the network market. AT&T
instead entered only at the card-issuing level by becoming a member of Visa and MasterCard.


Page 12.      

  38. Visa and MasterCard have adopted and maintained anticompetitive rules and policies
described in paragraphs 101 to 154 that further increase an entrant's cost of developing
cardholder and merchant bases.
  39. By virtue of their dominant market shares and the difficulty of entry into the highly-
concentrated network market, Visa and MasterCard together have the power to injure
competition in that market. As described below, they have exercised that power to the detriment
of consumers by reducing competitive investments in the innovation, development, and
marketing of improved network products and services, and by restraining the competitiveness of
smaller networks.

                           VI.
       The Same Banks Have Taken Control of Both Visa and MasterCard


  40. Both Visa and MasterCard are organized as membership corporations that ostensibly
operate on a not-for-profit basis. Their activities are financed through fees and assessments
levied on their members. Both card networks permit a variety of financial institutions to become
members, including commercial banks, thrifts, credit unions, and entities that are engaged
primarily in the card business, commonly known as "non-bank banks" or "monoline banks."
Throughout this Complaint, all types of financial institutions that are eligible to become members
of Visa and MasterCard are referred to collectively as "banks," and all financial institutions that
are members of Visa and/or MasterCard are referred to collectively as "member banks."
  41. Under Visa's and MasterCard's corporate structures, a member bank in either
association has the right to issue cards bearing the association's trademark and to offer card
acceptance services for the association's cards. Most member banks — including all of the


Page 13.      

largest ones — also become owners of the association and receive a bundle of rights similar to
those of a shareholder in a corporation. These rights include the opportunity to vote for a board
of directors, participate in the governance of the association, and share in the association's assets
upon dissolution. Voting and dissolution rights are apportioned according to the dollar volume
of transactions that the bank has transmitted through the network. Member banks also agree to
abide by the associations' bylaws, rules, regulations, and policies.

                           A.
        Visa and MasterCard Began As Entirely Separate Systems


  42. Prior to 1970, Visa and MasterCard were controlled by different groups of banks.
  43. In 1970, one of Visa's member banks, Worthen Bank of Arkansas, sought to become a
card-issuing member of both networks. MasterCard did not object, but Visa responded by
adopting Bylaw 2.16, a bylaw that prohibited member banks from issuing any other network's
cards.
  44. Worthen then sued Visa, alleging that Bylaw 2.16 violated § 1 of the Sherman Act.
The district court determined that the bylaw was a per se violation and granted summary
judgment for Worthen. The Eighth Circuit, however, reversed and remanded for trial under the
rule of reason.
  45. While the case was awaiting trial, Visa asked the Department of Justice to express its
views — pursuant to a Department procedure called a "Business Review" — on the legality of a
more restrictive bylaw that would have prohibited Visa members from both issuing cards and
providing card acceptance services for "any other [card] program presently existing or which may
develop."


Page 14.      

  46. The Department responded that it would not object to a bylaw that restricted Visa
members to issuing Visa cards exclusively "to the extent it is necessary to insure continued
intersystem competition." But the Department expressed concern that Visa's proposed
prohibition on banks providing card acceptance services to merchants for both networks "might
well handicap efforts to create new bank credit card systems and may also diminish competition
among the banks in various markets."

                           B.
         The Visa and MasterCard Governing Banks Adopted Duality


  47. Notwithstanding the Business Review Letter, the member banks on Visa's Board of
Directors, over the objections of Visa's General Counsel, voted to permit Visa member banks to
own and participate in the governance of MasterCard, and to permit MasterCard members to own
and participate in the governance of Visa. MasterCard's Board of Directors also permitted
MasterCard member banks to become owners and governors of Visa, and Visa members to
become owners and governors of MasterCard.
  48. This overlapping ownership and governance structure has become known in the
industry as duality.
  49. Since 1975, virtually all significant card-issuing banks have become owners of both
Visa and MasterCard. Almost all of the largest card-issuing banks have representatives on one of
the associations' boards of directors as well as have representatives on the important committees
that influence policy for each network. For example, MasterCard's Business Committee and
Visa's Marketing Advisors Committee advise their respective network's professional staff and
management on key strategic and competitive issues. In 1996, twelve of the twenty-one banks


Page 15.      

represented on Visa's Board of Directors were also represented on MasterCard's Business
Committee. Seventeen of the twenty-seven banks on MasterCard's Business Committee had
representatives on Visa's Marketing Advisors Committee. Seven of the twenty-two banks
represented on MasterCard's Board of Directors also were represented on Visa's Marketing
Advisors Committee.
  50. In total, as of year-end 1996, approximately nineteen banks — including Chase
Manhattan, Citibank, First Chicago, Bank of America, and NationsBank — had a representative
on the board of directors of one association and on at least one important committee of the other
association.
  51. Despite this overlap in ownership and governance, neither Visa nor MasterCard
enforces the safeguards necessary to prevent one association from obtaining confidential
competitive information about the other.
  52. In 1992, MasterCard International's Executive Vice President and General Counsel
wrote in a letter to the Department of Justice that "when one board acts with respect to a matter,
the results of those actions are disseminated to the members which are members in both
organizations. As a result, each of the associations is a fishbowl and officers and board members
are aware of what the other is doing, much more so than in the normal corporate environment."

                           VII.
              Visa and MasterCard Restrain Competition

  53. Visa and MasterCard — on behalf of and in collaboration with their governing banks
— make competitive decisions that (a) restrain competition between the two associations; and (b)
restrain competition from other networks and eliminate certain forms of competition among the


Page 16.      

member banks. As a result of this anticompetitive behavior, certain competitive initiatives that
would have benefited consumers have been abandoned, delayed, suppressed, and diluted;
consumer choices have been reduced; and competition among general purpose card networks has
been restrained substantially.

                           A.
         Duality Restrains Competition Between Visa and MasterCard

  54. The common control of both Visa and MasterCard by banks with significant financial
interests in both networks restrains competition between those two general purpose card
networks.

                           1.
  Duality Lessens the Associations' Incentives to Compete Against One Another


  55. The banks that govern Visa earn substantial profits from issuing MasterCard cards.
For example, as of year-end 1997, Visa U.S.A.'s Board of Directors included representatives of
First Union Corporation and Associates First Capital Corporation, both of which had issued
nearly 40% of their general purpose cards on the MasterCard network.
  56. The banks that govern MasterCard earn an even greater percentage of their profits
from issuing Visa cards. For example, as of year-end 1997, at least five banks that placed
directors on the MasterCard board for the United States Region issued more Visa cards than
MasterCard cards. The most pronounced examples among MasterCard's 1997 board members
were Providian Bancorp Inc. and Capital One Bank, which had issued more than 95% and more
than 66% of their cards on the Visa network, respectively.


Page 17.      

  57. Because of these significant overlapping financial interests, the banks that govern
each association have rejected investments in, and implementation of, competitive initiatives that
might lead consumers to switch from one association's brand of card to the other's. From the
banks' perspective, these innovations would merely shift their profits from cards issued on one of
their networks to cards issued on the other.
  58. Because the same banks control the associations, the overlapping interests of the
governing banks substantially restrain the ability of the separate managements of Visa and
MasterCard to compete.

                           2.
  Visa and MasterCard Top Executives Admit that Duality Restrains Competition


  59. Officials at the highest levels of Visa and MasterCard have acknowledged —
repeatedly, publicly, and under oath — that the common ownership and governance of Visa and
MasterCard significantly limit competition between the two associations.
  60. In 1992, Visa International's President and Chief Executive Officer testified:
    Q: So you believe consumers would be better off without duality?
    A: Yes.
He explained that "Visa was a better organization [before its owners acquired an interest in
MasterCard. I]t created more, it was more innovative, it was more vital and more
imaginative. . . . The real creativity, ingenuity, desire to develop, [and] support from members
that made Visa what it is today came before duality because there were groups of banks who
wanted to support Visa to go beat up on MasterCard, and there were groups of banks in
MasterCard who wanted to support MasterCard to go beat up on Visa. And they weren't sitting


      Page 18.

there as shareholders of both organizations not really caring who beat up on whom or if they
didn't beat up on anyone or not caring who won. If you've got one foot firmly placed on both
sides of the street, who cares. . . . [a]nd I think that not only would the banks have benefited had
they gone this way [without duality], but ultimately the consumer would, too . . . . "
  61. In 1992, Visa International's Executive Vice President and General Counsel testified
that "it is very difficult for us to take a step, an aggressive step that hurts MasterCard because the
same banks who sit there on the board, who are in Visa are also in MasterCard." In response to
the question whether "duality has led to a decrease in intersystem competition between Visa and
MasterCard," he replied, "Absolutely," and when asked whether duality harmed consumers, he
answered "I think in the long run they would be better off without duality . . . ."
  62. In 1992, MasterCard International's Executive Vice President and General Counsel
wrote in a letter to the Department of Justice that Visa's and MasterCard's "members, which
necessarily underwrite the [networks'] costs, view the associations as complementary and are
displeased when one attempts to enhance itself at the expense of the other. . . . MasterCard and
Visa simply do not ‘compete' in any conventional business sense."
  63. In January 1997, the President of MasterCard International's U.S. Region testified: "It
is clear that because of duality today you don't see MasterCard and Visa in the marketplace
attacking each other. . . . [T]he owners . . . don't want us attacking the other thing they
own . . . ."
  64. Also in January 1997, the President and Chief Executive Officer of Visa U.S.A.
testified that "you can't compete in certain areas if you're co-owned." He emphasized that Visa


Page 19.      

would seek to differentiate its network services from MasterCard's to a greater extent if Visa
were not owned by the same banks that own MasterCard.

                           3.
              Proposals to Roll Back Duality Were Rejected

  65. Recognizing that duality blunts competition between the associations, each network's
staff and management have sought at various times to increase their network's independence and
enhance network competition. The banks that control Visa and MasterCard have resisted these
efforts.
  66. In 1991, Visa International's President and Chief Executive Officer proposed
eliminating the overlap between the two networks. Under the proposal, each member bank
would issue prospectively only one general purpose card brand, Visa or MasterCard, and would
participate exclusively in the governance of the system on which it chose to issue cards.
  67. Also in 1991, Visa's U.S. Executive/Planning Committee considered the advantages
and disadvantages of phasing out duality. According to an internal Visa document, an
anticipated benefit of eliminating duality was to create "real competition with MasterCard."
  68. The Visa Board rejected these proposals, voting instead to continue to permit a bank to
govern Visa regardless of the extent of the bank's interest in MasterCard.
  69. Similarly, throughout the 1990s, MasterCard's professional staff repeatedly urged the
network's Chief Executive Officers to end the practice of providing member banks with equal
access to MasterCard network services regardless of the banks' interests in Visa.
  70. In 1992, a MasterCard staff memorandum reported that MasterCard's "innovative
ideas are totally neutralized in a dual world."


Page 20.      

  71. In 1994, a MasterCard management team advised MasterCard International's then-
new President and Chief Executive Officer about the "tyranny to issuer duality" and the "drive . .
. to homogenize" that resulted in "no meaningful difference" in the network products and
services offered by MasterCard and Visa.
  72. In 1996, a high-ranking MasterCard executive again emphasized that increasing the
revenues collected by card issuers, advertising more effectively, and increasing overall efficiency
are "matters that become marginalized in a dual world with a larger competitor."
  73. As one of these memoranda concluded, "[t]he cure is in a core of dedicated issuers;
dedicated not dual." Under these staff proposals, new MasterCard innovations would have been
made available only to member banks that agreed to favor MasterCard over Visa.
  74. Despite these proposals, MasterCard, like Visa, continued to permit banks to govern
MasterCard, regardless of their interest in Visa.

                           4.
        Duality Has Anticompetitive Effects on Brand Development


  75. Brand development is an essential aspect of establishing and developing a general
purpose card network. A network promotes and differentiates its brand in order to attract
consumers, merchants, and banks to use its brand rather than a competing network's brand.
Advertising campaigns, such as Visa's ubiquitous "they don't take American Express"
advertisements, are an important component of network competition because they educate
consumers and merchants about important attributes of the network. In recent years, advertising
has accounted for approximately a quarter of all expenses for both Visa U.S.A. and MasterCard's
U.S. region.


Page 21.      

  76. Because consumers value the ability to use their cards to make purchases whenever
and wherever they want, a card network must offer widespread merchant acceptance. In the
United States, virtually all merchants that accept any credit card accept both Visa and
MasterCard. Yet, studies have long shown that consumers wrongly perceive that Visa is
accepted by significantly more merchants than MasterCard.
  77. In 1992, MasterCard management was advised by its advertising consultant that
MasterCard "must name Visa" in its advertisements in order to combat this misperception. As a
result, MasterCard management proposed that MasterCard institute an advertising campaign
proclaiming: "No other card is more accepted. Not Visa. Not American Express."
  78. Bank representatives on the MasterCard Business Committee objected on the ground
that this advertisement would harm Visa. MasterCard's U.S. Region President responded to
these objections by assuring member banks that MasterCard's acceptance claim comparison to
Visa would be used only if it "did not negatively impact Visa."
  79. During the same time period, MasterCard faced a similar perceived acceptance gap
vis-a-vis Visa in Canada, where duality does not exist. There, MasterCard's Canadian Region
ran the advertising that was rejected in the United States. It used the tag line — "No card is
accepted in more places worldwide than MasterCard. Not Visa. Not American Express."
Within two years, MasterCard's Canadian Region concluded that "the use of this tag line . . . has
helped improve acceptance imagery as well as reduce the Visa brand awareness advantage." One
study showed a drop in the perceived acceptance gap in Canada from 15% to 4% during a one-
year period in which MasterCard named Visa in its advertisements.


Page 22.      

  80. Notwithstanding the success of this campaign, MasterCard has not named Visa in a
comparative acceptance advertisement in the United States. Surveys continue to show that
consumers in the United States wrongly perceive that Visa is significantly more widely accepted
than is MasterCard.
  81. Similarly, Visa does not name MasterCard in its U.S. advertising. But, in the non-dual
Canadian market, Visa has named MasterCard. For example, in one advertisement, Visa
highlighted a Canadian merchant that only accepted Visa. A Visa executive testified that Visa
management never proposed running the Canadian advertisement in the U.S. "because we knew
that they [the banks] wouldn't accept it." He further testified that when Visa's U.S. Marketing
Advisors Committee was shown the advertisement, "their reaction clearly was don't you show
that in the U.S., on U.S. television."

                           5.
         Duality Has Anticompetitive Effects on Product Development


  82. The overlap in control of Visa and MasterCard constrains each association's
professional staff and management from proposing competitive initiatives likely to lead
consumers to switch from one brand to the other. In 1991, a Visa executive testified that
member banks opposed Visa initiatives "against MasterCard because they had a vested interest
on that side too, and this was an ongoing problem in almost everything we did and continue to
do." He added that Visa's managers "often don't even propose them [competitive initiatives]
because we know they are unacceptable to members."
  83. The anticompetitive effects of duality exceed what can be readily observed because
many products, services, and innovations that would have emerged in a competitive environment


Page 23.      

were never even considered by the associations or their managements. Nevertheless, there are
several instances in which the controlling banks have restrained critical competitive initiatives
developed by the managements of Visa and MasterCard.
                           a.
                      Smart Cards


  84. In the 1980s, MasterCard developed and extensively tested smart cards. A smart card
differs from the cards in widespread use in the United States in that it can store information on an
integrated circuit instead of, or in addition to, a magnetic stripe. Integrated circuits are capable of
storing significantly more information than magnetic stripes. This additional data storage
capacity would enable a card network to enhance its products by, among other things, storing
cash and personal information such as airline and hotel preferences, identification numbers, and
medical data. Smart cards would also enable issuers to reduce their costs by providing superior
fraud and credit risk control.
  85. In 1987, MasterCard staff concluded that introducing this product would give
MasterCard a significant advantage over Visa, and sought board approval to introduce smart
cards. Bank representatives on the MasterCard Board's Executive Committee refused, however,
to approve the initiative without Visa's agreement. MasterCard then approached the Visa Board,
and the two networks hired a consultant to consider whether to introduce this new product
jointly.
  86. After several banks represented on Visa's Board of Directors expressed their
opposition to the introduction of the smart card, Visa notified MasterCard that it would not
introduce the product.


Page 24.      

  87. MasterCard's Board then refused to permit MasterCard to move forward, and the
planned development was shelved.
  88. After a decade of delay, Visa and MasterCard are now finally testing separate smart
card options, although with full knowledge of each other's strategic plans.
                           b.
                      Commercial Cards

  89. In 1993, Visa staff concluded that prohibiting Visa member banks from issuing both
Visa and MasterCard commercial cards — i.e., corporate cards and other cards issued to
businesses rather than consumers — would enable Visa to innovate and differentiate its
commercial products from MasterCard's more effectively than if duality were permitted.
  90. Based on Visa management's recommendation, its Board initially adopted a resolution
that would have required Visa member banks to decide by early 1996 whether to issue Visa or
MasterCard commercial cards exclusively. Visa then planned to promote its commercial cards
aggressively and allocated a substantial budget to the initiative.
  91. Widespread bank opposition led Visa to reverse its decision and allow banks to issue
both MasterCard and Visa commercial cards.
  92. Soon after the decision to permit banks to issue both associations' commercial cards,
Visa scaled back its investment in developing commercial card products.
  93. Visa's former Executive Vice President of Market Development testified that "the
amount of money that Visa spent [on the commercial card] was reduced because it became
apparent that it was going to be a dual world."




Page 25..      

                           c.
              Secure Transactions Over the Internet

  94. The member banks also delayed Visa's introduction of the first system to provide
secure general purpose card transactions over the Internet and thereby prevented Visa from
gaining a competitive advantage over MasterCard.
  95. In October 1995, Visa and Microsoft jointly announced the specifications for a system
to provide secure transactions over the Internet. Visa intended to use Microsoft encryption
software to implement the announced standard.
  96. In a message to member banks, MasterCard stated that it had "no choice but to
respond competitively" to the Visa-Microsoft alliance and it began to form alliances with other
software providers.
  97. The member banks pressured Visa to abandon its agreement with Microsoft in favor of
a cooperative effort with MasterCard to develop a standardized approach. Visa complied with
the banks' wishes.
  98. In a 1995 presentation to the Federal Trade Commission on joint ventures, Visa
International's Executive Vice President and General Counsel blamed duality for the delay in
introducing the Internet security system. He stated that if "we had our group [of banks] and
[MasterCard] had their group . . . this thing would be out there already."
  99. In 1997, Visa U.S.A.'s President and Chief Executive Officer testified that this was
yet another case in which Visa "had an opportunity to get out ahead [of MasterCard] and had to
come back, work again with MasterCard."


Page 26.      

  100. Also in 1997, Visa U.S.A.'s former Executive Vice President of Market
Development testified in regard to Internet security that the Visa staff and management
"deserve[d] the opportunity to either prove that we were right or to fail. Standardizing things too
quickly in new, emerging products and markets, from my experience as a marketing person, has
the . . . capability of stifling innovation."

                           B.
       Visa and MasterCard Restrain Competition From Other Networks
    and Prohibit Certain Forms of Competition Among Their Member Banks

  101. In addition to restraining network competition between themselves, Visa and
MasterCard — on behalf of and in collaboration with their governing banks — have adopted and
maintained rules and policies that prohibit all member banks from doing business with other
general purpose card networks such as American Express and Discover/Novus. These rules
restrain competition (a) between the bank-controlled Visa and MasterCard networks and the
general purpose card networks not so controlled, and (b) among the Visa and MasterCard
member banks.
  102. Prior to the mid-1980s, Visa and MasterCard did not compete directly with other
networks. At that time, other general purpose card networks, such as American Express, issued
charge cards intended primarily for use in the travel and entertainment sectors. In contrast, Visa
and MasterCard cards were targeted for use in the general retail sector.
  103. By the mid-1980s, Visa and MasterCard had expanded into travel and entertainment;
American Express had expanded into the retail sector; and Sears had entered the network market
with the Discover network, now called Novus. These changes brought the bank-controlled Visa
and MasterCard networks into direct competition with American Express and Discover/Novus.


Page 27.      

  104. Visa and MasterCard — on behalf of and in collaboration with their governing banks
— responded to this competitive threat by adopting rules that lessened the ability of those
networks to compete effectively (a) with Visa and MasterCard in the network market and (b)
with the associations' member banks in the downstream card-issuing and card-acceptance
markets.
  105. Visa and MasterCard both exempt each other and the Citicorp-owned Diners Club
network from these exclusionary rules, enforcing them only against American Express and
Discover/Novus.
  106. By adopting and maintaining these discriminatory exclusionary rules, Visa and
MasterCard preserve and extend their jointly held market power. As MasterCard explained to its
members in a 1991 document discussing competition among Visa, MasterCard, American
Express, and Discover: "[Visa and MasterCard form] a segment of the credit card market[,] . . . a
market where MasterCard and Visa together are fighting to maintain their dominance . . . and
minimize incursion of non-bank or competitive quasi-bank products." (Emphasis in the
original).

                           1.
              Visa and MasterCard Impede the Ability of
        Other Networks to Convince Merchants to Accept Their Cards

  107. One difficulty that a network faces in convincing merchants to accept its cards is that
merchants strongly prefer to use a single card acceptance terminal to process transactions for all
brands of general purpose cards. Processing transactions involves transmitting transaction data
from a merchant's terminal to a central computer that directs the information to the appropriate


Page 28.      

card network for authorization and settlement. Visa and MasterCard permit banks to process
transactions for both networks through a single merchant terminal, enhancing the ability of both
networks to convince merchants to accept their cards.
  108. In the mid-1980s, Visa, MasterCard, and their member banks used their control of
merchant terminals to hinder American Express's and Discover/Novus's efforts to build
merchant bases.
  109. In response to these practices, American Express and Discover/Novus developed
their own card acceptance terminals capable of handling all card transactions. American Express
and Discover/Novus then entered into agreements with a few Visa and MasterCard member
banks that were willing to permit American Express and Discover/Novus to process those banks'
Visa and MasterCard transactions through terminals that accepted all card brands.
  110. Other banks complained to Visa and MasterCard about these agreements, and the
associations then adopted new regulations that prohibited any member bank from permitting
American Express or Discover/Novus to process Visa and MasterCard transactions. These
regulations — which were an exception to the existing rules that permitted the banks to contract
with third-party processors — substantially hindered American Express's and Discover/Novus's
ability to persuade merchants to accept their cards.
  111. Eventually, because of strong merchant demand for a single terminal, Visa and
MasterCard agreed to modify their regulations to permit banks to link their processing services to
American Express and Discover/Novus. Under the modified regulations, any network could
place a terminal with a merchant as long as all transactions on the terminal that involved another
network's cards were diverted to that other network for processing.


Page 29.      

  112. American Express then began to divert transactions in accordance with the modified
Visa and MasterCard regulations and, by offering card acceptance services at low prices,
American Express placed terminals with a number of merchants.
  113. This prompted several Visa and MasterCard member banks to again complain about
American Express's pricing practices to Visa and MasterCard.
  114. In response, Visa and MasterCard adopted additional rules effectively requiring
merchants to pay a higher fee for Visa and MasterCard transactions if they used a card
acceptance terminal placed by American Express. According to Visa's Executive Vice President
and General Counsel, these discriminatory fees were adopted to "make it more difficult for Amex
to price our [member bank] acquirers out of the marketplace" and remained in effect until at least
1991.

                           2.
 Visa and MasterCard Impede the Ability of Other Networks to Provide Cash Advances

  115. A valuable feature of any general purpose card network is the ability to provide
cardholders with convenient access to cash advances, most importantly through automated teller
machines ("ATMs").
  116. Visa and MasterCard each own one of the two worldwide ATM networks, Plus and
Cirrus respectively.
  117. Visa's rules permit member banks that issue MasterCard cards to use the Plus system
to provide cash advances on MasterCard cards.
  118. Similarly, MasterCard's rules permit member banks that issue Visa cards to use the
Cirrus system to provide cash advances on Visa cards.


Page 30.      

  119. As a result, any member bank can enable its cardholders to use general purpose cards
to obtain cash advances worldwide at over 200,000 locations.
  120. To obtain access to these ATMs, a bank merely needs to agree to pay a fee to the
ATM operator whenever one of its cardholders obtains a cash advance, and to agree to accept
cards issued by Cirrus or Plus member banks at its own ATMs.
  121. Visa stated in its 1988 Corporate Strategic Plan that "[t]he successful consolidation
of regional ATM switches into a unified, bank-owned and operated national network will deprive
Discover and American Express of the opportunity to chip away at a major strategic advantage
by the banking industry through the progressive creation of a national network of their own."
  122. Visa and MasterCard will not permit American Express and Discover/Novus to use
Cirrus or Plus to provide cash access to their cardholders.
  123. As a direct result of Visa's and MasterCard's exclusionary practices, American
Express and Discover/Novus have had to negotiate individually with scores of regional ATM
networks and banks to secure ATM access for their cardholders, often at access prices higher
than those paid by member banks.
  124. The cash access networks that American Express and Discover have assembled
through these individual negotiations are smaller, more geographically uneven, and more costly
to maintain than those that Visa and MasterCard make available to each other's member banks.

                           3.
  Visa and MasterCard Impede the Ability of Other Networks to Contract with Issuers


  125. In the last few years, American Express and Discover/Novus have attempted to
expand their networks by convincing other entities, including banks, to issue cards on their


Page 31.      

networks. In the United States, those efforts have been stymied by Visa and MasterCard rules
that prohibit all member banks from issuing cards on the American Express and Discover/Novus
networks.

                           a.
                    Visa Adopts Bylaw 2.10(e)


  126. In 1991, Visa U.S.A's Board of Directors adopted Bylaw 2.10(e), which states that
"the membership of any member shall automatically terminate in the event it, or its parent,
subsidiary or affiliate, issues, directly or indirectly, Discover Cards or American Express Cards,
or any other card deemed competitive by the Board of Directors."
  127. Visa has asserted that it adopted Bylaw 2.10(e) to prevent Discover/Novus and
American Express from becoming card-issuing members of Visa by acquiring member banks, as
Discover attempted to do in 1990. As written, however, the bylaw also prohibits all
independently owned Visa member banks from issuing cards on the American Express or
Discover/Novus networks.
  128. Bylaw 2.10(e) prohibits Visa's member banks from issuing cards on any network
that is "deemed competitive" by Visa's Board. But Visa's Board has not deemed MasterCard to
be a competitor, and Visa's member banks may thus issue cards without restriction on the
MasterCard network. The bylaw applies only to American Express and Discover/Novus, the
networks not controlled by the member banks.
  129. By 1994, American Express and Discover/Novus had begun to pursue a number of
competitive initiatives to strengthen their networks, including arrangements with certain banks in


Page 32.      

the United States to issue cards on the American Express or Discover/Novus networks in
addition to the Visa and MasterCard networks.
  130. Visa U.S.A.'s Bylaw 2.10(e) has effectively precluded member banks in this country
from issuing American Express or Discover cards.

                           b.
           MasterCard Adopts Competitive Programs Policy

  131. In May 1996, American Express, through its Chairman, publicly announced its
intention to contract with banks to issue American Express cards. Unlike Visa, MasterCard at
that time had no rule that prohibited its member banks from issuing cards on other networks.
American Express thus focused its efforts on banks that primarily issued MasterCard.
  132. Many banks expressed interest in American Express's proposal and, within a month,
discussions commenced between American Express and a number of banks. MasterCard learned
of some of these negotiations.
  133. At its June 1996 meeting, the MasterCard U.S. Board adopted a policy that mirrored
the Visa bylaw. MasterCard's policy on "competitive programs" provides that:
  With the exception of participation by members in Visa, which is essentially owned
  by the same member entities, and [Diners Club and JCB], members of MasterCard
  may not participate either as issuers or acquirers in competitive general purpose card
  programs.
At the meeting in which MasterCard adopted the policy, the board considered the American
Express proposal to partner with member banks and concluded that the newly adopted policy
would prohibit member banks from issuing American Express cards.


Page 33.      



                           c.
        The Exclusionary Rules Restrain Competition in the United States


  134. Following adoption of the MasterCard policy, those banks that had been negotiating
with American Express terminated the discussions. The banks were not interested in issuing
American Express cards if doing so would require them to forfeit their right to issue both Visa
and MasterCard, the two dominant general purpose card brands.
  135. In addition, Visa's Bylaw 2.10(e) and MasterCard's competitive programs policy
would prohibit a bank that issued American Express or Discover cards from accessing the wide
array of other Visa or MasterCard products and services, including the Plus and Cirrus ATM
systems and the associations' point-of-sale debit cards that can be used to make purchases from
merchants with funds deducted directly from the cardholder's bank account.
  136. In these ways, the rules raise the cost to a member bank of issuing American Express
or Discover/Novus credit cards to prohibitively high levels and make it practically impossible for
American Express and Discover/Novus to convince banks — the most experienced and skilled
card issuers and the only entities that hold the demand deposit accounts of most consumers — to
issue cards on their networks.
  137. The current presidents of both Visa U.S.A. and MasterCard's U.S. Region have said
that, were it not for the exclusionary rules, some of their member banks in the United States
would issue American Express cards.


Page 34.      

  138. In addition, in 1997, the former Chairman of MasterCard International and then Chief
Executive Officer of a bank that was among the top ten general purpose card issuers, testified
that eliminating Visa's and MasterCard's exclusionary rules in the United States "would force
MasterCard and Visa to compete more intensely for the affection of the members."
  139. This increased competition between the networks for banks' card-issuing resources
— as well as competition among the banks to offer additional card brands — would spur the
development and implementation of higher quality and lower priced network products and
services.
  140. In addition, consumer choice would be enhanced by eliminating the exclusionary
rules. Consumers would have access to new general purpose cards that would combine the
network attributes of American Express or Discover/Novus with the card-issuing attributes of
individual banks. For example, a consumer would have the option of obtaining American
Express and Discover/Novus network cards from an institution that also offers other banking
products such as a demand deposit checking account or a Visa or MasterCard card.
  141. Finally, eliminating the exclusionary rules would benefit consumers by enhancing the
competitive effectiveness of Visa's and MasterCard's smaller network competitors, thereby
enabling those networks to compete more vigorously against Visa and MasterCard. For example,
Visa U.S.A.'s former Executive Vice President of Market Development testified in 1997 that
issuing through banks would help a competitive network to obtain additional volume and thereby
realize lower costs and "better economies of scale."
  142. Without ubiquitous merchant acceptance of its cards, a card network cannot compete
fully and effectively with Visa and MasterCard. To ensure ubiquitous acceptance throughout the


Page 35.      

United States, a card network needs a substantial market share. Without issuance by some Visa
and MasterCard member banks, a network could not, as a practical matter, maintain the
necessary minimum market share.
  143. Visa's internal documents reveal that allowing competitive networks to issue cards
through Visa member banks would increase competition. For example, Visa documents state
that the member banks are a "huge and effective distribution network;" that "through partnerships
with Visa member banks" competitor networks would "threaten to rapidly erode [Visa's
merchant] acceptance advantage;" and banks issuing a competitor's cards "would strengthen [the
competitor's] other products - commercial cards, travelers's cheques, stored value cards."
  144. MasterCard's internal documents similarly acknowledge the importance of banks to
the effectiveness of competition from other networks. For example, MasterCard documents state
that member banks possess "powerful distribution channel capabilities for new products" and
that, by issuing through banks, competitor networks would "obviously build[ ] revenue . . . to
reinvest back into the business, probably continuing to open up new acceptance channels that
they do not perceive Visa or MasterCard to be dominating."

                           d.
                   Competition Has Increased
         Outside the U.S. Where the Exclusionary Rules Do Not Apply


  145. In 1996, both Visa and MasterCard responded to American Express's worldwide
effort to convince banks to issue cards on the American Express network. Both associations
considered whether to adopt a worldwide rule — mirroring Visa U.S.A.'s Bylaw 2.10(e) — that
would prohibit member banks from issuing cards on the American Express and Novus networks.


Page 36.      

Visa's management concluded that Visa could compete effectively without an exclusionary rule
and told Visa's International Board member banks that it was "not necessary" to prohibit banks
from issuing competitive cards. MasterCard's management reached a similar conclusion, and
both international boards then delegated authority to each region to decide for itself whether to
prohibit member banks from issuing cards on the American Express and Discover/Novus
networks.
  146. Aside from the United States — and Canada, where each bank may issue only one
card brand — no Visa or MasterCard regional board has adopted a rule prohibiting banks from
issuing other networks' cards. In several countries where the rule has been considered,
competition authorities have objected to the rule and expressed concern that such a rule would
have anticompetitive effects.
  147. In more than a dozen foreign countries, American Express has successfully
contracted with Visa and MasterCard member banks to also issue cards on the American Express
network. In many of these countries, Visa and MasterCard have responded by introducing new
products and services.
  148. For example, Visa International's European Region implemented an aggressive set of
competitive initiatives shortly after its regional board rejected an exclusionary rule analogous to
Bylaw 2.10(e). These initiatives included product enhancements, increased network support for
the Visa Gold card and co-branding deals, and improved merchant services.
  149. MasterCard responded in a similar fashion after Puerto Rico's largest bank, Banco
Popular, decided to issue American Express cards. Puerto Rico is part of MasterCard's Latin
American Region, which rejected a strict prohibition on banks issuing American Express cards.


Page 37.      

After Banco Popular informed MasterCard of the bank's deal with American Express, the
President of MasterCard's Latin America/Caribbean Region told a Banco Popular executive "that
MasterCard will strive (try even harder) to be competitive by improving the service and attention
provided to Banco Popular in order to assure that [the bank] continue[s] the expansion of [its]
MasterCard business."

                           4.
             Visa and MasterCard Impede Other Networks'
         Ability to Provide New General Purpose Card Products


  150. Visa Bylaw 2.10(e) and the MasterCard competitive programs policy also reduce
network competition in developing new general purpose card products.
  151. These products — which will retain the core characteristics of ubiquitous acceptance
and deferred payment options — will integrate additional functionalities such as debit and stored
value. A strategy document presented to the MasterCard Executive Committee explained that
"[b]y utilizing a multi-application operating system, our members also have the ability to use the
chip technology to create ‘relationship cards' allowing their customers to have credit, debit and
stored value resident on a single card with a choice of payment type at the point of sale." In a
1995 proceeding before the Federal Trade Commission, Visa International's Executive Vice
President and General Counsel agreed, stating that "[t]he payment engine I foresee is a chip card
which will have all your relationships on it."
  152. As a practical matter, only banks that hold consumers' demand deposit accounts can
provide this type of general purpose card. Such a card is likely to play a critical role in network
competition in the future.


Page 38.      

  153. The associations' rules substantially diminish competing networks' ability to develop
general purpose card products, including products that incorporate debit or stored value
functionality. For example, a consultant for one bank that was considering whether to issue
American Express cards reported that American Express "is not positioned to tap into the
burgeoning debit card market" and it "faces an increasing challenge in the rapidly evolving
payment systems industry, factoring in the reach of thousands of Visa/MasterCard issuers." But
"[w]ith its platform of core deposit relationships," the report concluded, the bank "could assist
American Express in establishing successful debit card programs."
  154. For those reasons, the Visa and MasterCard rules substantially diminish competition
among networks in the development and issuance of the next generation of general purpose
cards.

                          VIII.
                      First Offense
        (Duality — Combinations and Conspiracies in Restraint of Trade)


  155. Each of the defendants, on behalf of and in collaboration with its governing banks,
has engaged in a continuing combination and conspiracy to organize and operate its general
purpose card network in a manner that restrains competition among general purpose card
networks in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, as amended.
  156. In furtherance of these combinations and conspiracies, each of the defendants and its
member banks have, inter alia:
  b. appointed and elected to its Board of Directors and influential committees
    representatives of banks that have substantial interests in both Visa and


Page 39.      

    MasterCard,
    and therefore have diminished incentives to support competition between the two
  c. allowed banks with substantial interests in competing networks to propose, recommend,
    and vote on competitive decisions, such as advertising, marketing campaigns, research,
    and development; and
  d. shared competitively sensitive information, including information about proposed or
    planned investments in new products and services, with banks that participate in the
    governance of competing networks.
  157. These combinations and conspiracies have anticompetitive effects, including:
  a. each defendant failed to engage in competitive advertising that would have informed
    consumers about the relative value of different brands of general purpose credit cards;
  b. each defendant reduced or delayed its investments in new general purpose card
    technologies, products, and services, including, among other things, Internet
    technology, smart cards, and commercial cards; and
  c. consumers have been deprived of the benefits of free and open competition among
    defendants in the promotion, development, and implementation of new general purpose
    card products and services.
Unless enjoined by this Court, these anticompetitive effects are likely to continue.
  158. These combinations and conspiracies are not reasonably necessary to accomplish any
procompetitive objective.




Page 40.      

                           IX.
                      Second Offense
  (Exclusionary Rules — Combinations and Conspiracies in Restraint of Trade)


  159. Each of the defendants, on behalf of and in collaboration with its governing banks,
has engaged in a continuing combination and conspiracy to organize and operate its general
purpose card networks in a manner that restrains competition among general purpose card
networks in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, as amended.
  160. In furtherance of this combination and conspiracy, each of the defendants and its
governing banks has adopted rules and policies that disadvantage or exclude rival general
purpose card networks, such as American Express and Discover/Novus, including rules or
policies prohibiting member banks from issuing cards on the American Express or
Discover/Novus networks.
  161. These combinations and conspiracies have had anticompetitive effects, including:
      a. consumers have had fewer choices in the characteristics and variety of card products
     that have been made available to them;
      b. Visa and MasterCard member banks have been prevented from competing with one
     another with respect to the variety of card brands that they may offer to consumers;
      c. card networks not owned by banks have been foreclosed from access to an important
     channel of distribution; and
      d. consumers have been denied the benefits of free and open competition among general
     purpose card networks in the promotion, development, and implementation of new
     general purpose card products and services.


Page 41.      

Unless enjoined by this Court, these anticompetitive effects are likely to continue.
  162. These combinations and conspiracies are not reasonably necessary to accomplish any
procompetitive objective.

                           X.
                    PRAYER FOR RELIEF


  WHEREFORE, the United States prays that final judgment be entered against each
Defendant declaring, ordering, and adjudging:
  1. that Defendants Visa International, Visa U.S.A., and MasterCard International have
violated Section 1 of the Sherman Act, 15 U.S.C. § 1;
  2. that Defendants Visa International, Visa U.S.A., and their subsidiaries and successors be
permanently enjoined from allowing any bank not dedicated to the Visa brand to exercise a direct
governance voice in Visa International or Visa U.S.A. including, but not limited to, by (a) having
a director on the Visa International Board of Directors or the Visa U.S.A. Board of Directors, or
(b) having a representative on any committee that has decision-making authority or that directly
advises Visa management, the Visa International Board of Directors, or the Visa U.S.A. Board of
Directors on matters of competitive significance;
  3. that Defendant MasterCard International and its subsidiaries and successors be
permanently enjoined from allowing any bank not dedicated to the MasterCard brand to exercise
a direct governance voice in MasterCard International or any MasterCard division or subsidiary
that operates in the United States, including, but not limited to, by (a) having a director on the
MasterCard International Board of Directors or the MasterCard U.S. Region Board of Directors,
or (b) having a representative on any committee that has decision-making authority or directly


Page 42.      

advises MasterCard management, the MasterCard International, Board of Directors, or the
MasterCard U.S. Region Board of Directors on matters of competitive significance;
  4. that Defendants Visa International, Visa U.S.A., and their subsidiaries and successors be
permanently enjoined from permitting access to confidential or competitively sensitive
information by any member bank that has a direct governance voice in another network;
  5. that Defendant MasterCard International and its subsidiaries and successors be
permanently enjoined from permitting access to confidential or competitively sensitive
information by any member bank that has a direct governance voice in another network;
  6. that Defendants Visa International and Visa U.S.A. and their subsidiaries and successors
be permanently enjoined from enforcing Visa U.S.A.'s Bylaw 2.10(e) or any similar bylaw, rule,
or policy;
  7. that Defendant MasterCard International and its subsidiaries and successors, be
permanently enjoined from enforcing MasterCard U.S. Region's competitive programs policy or
any similar bylaw, rule, or policy;
  8. that the Court grant such other relief as the United States may request that the Court
deems just and proper; and
  9. that the United States recover its costs in this action.


Page 43.      

Dated: October 7, 1998



_________/s/_________________        _____________/s/____________
JOEL I. KLEIN (JK3481)               STEVEN SEMERARO (SS8817)
Assistant Attorney General


________/s/_________________         ____________/s/_____________
JOHN M. NANNES (JN4148)           KURT SHAFFERT (KS4333)
Deputy Assistant Attorney General


__________/s/_______________         ___________/s/______________
REBECCA P. DICK (RD5481)          SCOTT A. SCHEELE (SS0496)
Director, Civil Non-Merger Enforcement


_________/s/________________         ____________/s/_____________
M. J. MOLTENBREY (MM4814)         JEFFREY I. STEGER (JS7416)
Chief, Civil Task Force


________/s/_________________         ___________/s/______________
SUSAN L. EDELHEIT (SE8020)         SEAN T. FOX (SF8664)
Ass't Chief, Civil Task Force



________/s/_________________         ____________/s/______________
MELVIN A. SCHWARZ (MS8604)         AHMED TAHA (AT8157)
Special Counsel for Civil Enforcement         Attorneys, Civil Task Force
                             United States
                             Department of Justice
                             Antitrust Division - Suite 300
                             325 Seventh Street, N.W.
                             Washington, D.C. 20004
                             202/616-5935
                             202/514-7308 (fax)




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