MasterCard miffed as CJEU dismisses appeal

Yesterday’s CJEU judgment in the MasterCard case is a major defeat for a company which faces a huge number of private damages actions from retailers. The judgment also examines some interesting legal points, including in particular relating to the use of “counterfactuals” in competition cases.

The background is the Commission’s decision of 19 December 2007 holding that the multi-lateral interchange fees (“MIFs”) set by MasterCard unlawfully infringed Article 101 TFEU. MIFs are fees charged in relation to cross-border bank card payments. Specifically, banks which issue cards to their customers (issuing banks) charge MIFs to banks which provide merchants with services enabling them to accept card payments (acquiring banks). MasterCard, formerly owned by banks participating in the MasterCard payment system, is responsible for setting the MIFs.

The Commission found that the MIFs were passed on in full by the acquiring banks to their merchants. By setting a MIF, MasterCard had essentially set a minimum charge which acquiring banks would charge merchants. The MIFs therefore distorted competition in the market in which acquiring banks compete for merchants’ business.

MasterCard’s application to annul the Commission’s decision was dismissed by the General Court in its judgment of 24 May 2012. Its appeal to the CJEU, and the cross-appeals of several intervening banks, raised four central points.

First, MasterCard argued that it had not been an association of undertakings since 2006, when it became a publicly listed company and underwent changes to its governance and structure. The CJEU rejected this argument. The General Court had rightly considered that there continued to exist a commonality of interest between MasterCard and the participating banks. MasterCard’s further argument that it could not be regarded as an association of undertakings where it was required to pursue the interests of shareholders and not solely the interests of participating banks was also dismissed. Only a body with regulatory powers which had to have regard to public interest criteria in making decisions could, according to established case-law, fall outside Article 101 TFEU in this way.

Secondly, MasterCard argued that the General Court wrongly determined that the MIF was not objectively necessary to the operation of the card payment scheme. MasterCard claimed (among other things) that the General Court had applied the wrong test: the correct test was that a restriction was objectively necessary if it was impossible or difficult to achieve the end in question without it. The CJEU dismissed that argument, confirming that a restriction is only objectively necessary if the beneficial goal it serves is impossible to achieve without it.

The third central point relates to the use of counterfactuals – in other words, hypothetical scenarios showing what would or could have happened if it were not for the anti-competitive conduct. The CJEU confirms that, when deciding whether a restriction is objectively necessary, a counterfactual simply has to be “realistic” and “economically viable” (paragraph 111).

However, when deciding whether there is a restriction of competition, different considerations arise. The CJEU emphasises that it is important, when addressing that issue, to look at the “actual context” in which competition would apply in the absence of the alleged restriction (paragraph 164). It is not entirely clear what degree of plausibility should be required of a counterfactual for the purposes of assessing whether there is a restriction of competition, but it is clear that it is a higher threshold than that which applies in the context of objective necessity.

Fourthly, Lloyds Banking Group argued in its cross-appeal that the General Court had erred in determining that no exemption under Article 101(3) applied. In particular, it considered only benefits to merchants, and not the benefits of the MasterCard payment system in general. The CJEU again rejected this argument. It was the advantages of the MIF itself which had to be weighed, not those resulting from the MasterCard payment scheme in general. Moreover, the General Court had considered benefits accruing to cardholders and correctly concluded that they were not of such a character as to outweigh the competitive disadvantages in the separate market for acquiring banks.

The determination of the appeal will now allow private actions against MasterCard to proceed in earnest. Time began to run yesterday for follow-on claims in the CAT, and many retailers are already pursuing MasterCard in the High Court. The High Court claims tend to take the Commission’s decision as a starting point, and then apply its reasoning by analogy to cover not only the kinds of cross-border payments in issue in the decision, but also all domestic payments. The only real crumb of comfort for MasterCard may be the thought that, unusually in this type of case, retailers are also seeking to rely on the reasoning in the decision to sue its main competitor, Visa.

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