Our previous blog piece (20 September 2016) described how, in 2007, the EU found that MasterCard’s Multilateral Interchange Fees (“MIFs“) were unfairly high. This decision was applicable to cross-border transactions using MasterCard and Maestro cards in the European Economic Area (“EEA“). The finding was that Mastercard’s MIF breached Article 101 of the Treaty on the Functioning of the European Union (“TFEU“) because they restricted competition between retailers’ banks and inflated the cost of card acceptance by retailers.
On 14 July 2016, Sainsbury’s was awarded £68.5 million plus interest by the Competition Appeal Tribunal in a decision which stated that Mastercard had restricted competition by setting fees on card transactions in the UK.
2017 decision by Mr Justice Popplewell
Interestingly, it was reported back in March that MasterCard had won a High Court legal battle brought by a group of twelve retailers which included Asda, New Look and Morrisons, in respect of MIFs. The retailers were relying on the European Commission decision from 2007 (outlined above) which was upheld in 2014.
The retailers’ case against MasterCard was based upon MIFs in three relevant territories: (i) transactions in the UK (UK cardholders at UK retailers) (ii) transactions in Ireland (Irish cardholders at Irish retailers) and (iii) cross border transactions (in the UK and Ireland by EEA cardholders). The retailers argued that, over the last ten years, they had spent approximately £437 million on MIFs. The Court was being asked to consider whether the MIFs set by MasterCard for debit and credit transactions in the relevant period, in respect of the three relevant territories outlined above, were anti-competitive in breach of UK, Irish and EU competition law.
In line with the European Commission ruling, Mr Justice Popplewell sitting in the High Court did consider that MIFs, in isolation, were anti-competitive. However, Mr Justice Popplewell went on look at the wider position – specifically, to consider the commercial impact on MasterCard if they set their MIF at zero. In this scenario, would MasterCard have survived in the face of competition from the Visa regime? Mr Justice Popplewell thought it likely that if MasterCard had a zero MIF and Visa’s MIFs were set at their actual levels, card issuing banks would have taken their business to Visa (and clearly, a Visa monopoly would be no better for consumers and no less anti-competitive).
In light of the above, Mr Justice Popplewell considered the MasterCard’s MIFS were necessary for the functioning of its payment system, describing them as “objectively necessary as an ancillary restraint“. Paragraph 44 of Mr Justice Popplewell’s judgment discusses the ancillary restraint doctrine, which can essentially operate to take a practice outside of the Article 101 TFEU prohibition in a situation which is predominantly “pro-competitive” but “has as one of its constituent parts what would be a restraint on the autonomy of the parties if considered in isolation“.
In addition, Mr Justice Popplewell did not consider there was any restriction of competition because, had MasterCard had a zero MIF, it would not have survived in the market. It was not appropriate to think that in the scenario of MasterCard operating a zero MIF, Visa would only have been able to operate at lower rates also.
The decision of Mr Justice Popplewell is certainly likely to impact upon the ongoing class action brought by Walter Merricks CBE on behalf of some 46 million consumers, as discussed in further detail in our last blog piece. It seems far less likely that the consumer class action will be successful in the UK in light of the latest decision in the MasterCard litigation.
However, MasterCard’s request to appeal the judgment in the Sainsbury’s case was refused on 22 November 2016, therefore despite Mr Justice Popplewell’s recent ruling; the decision in the matter of MasterCard and Sainsburys (which cost MasterCard some £68.5 million) is unlikely to be reversed.