This term the U.S. Supreme Court will hear arguments in the consolidated cases of Visa Inc. v. Osborn and Visa Inc. v. Stoumbous and will consider whether automated teller machine (ATM) fee rules adopted by joint ventures amount to a price-fixing conspiracy by Visa and MasterCard, and certain affiliated banks. This matter provides the Court with the chance to further explain the standard plaintiffs must overcome to allege a conspiracy under Section 1 of the Sherman Act. The Supreme Court last addressed the subject in Bell Atlantic Corp. v. Twombly, 550 U.S. 554 (2007), where the Court held that in order for a plaintiff to plead an antitrust conspiracy sufficient to survive a motion to dismiss, she must put forth factual allegations that plausibly allege the existence of an anticompetitive agreement that rise above the level of parallel conduct.

The Twombly decision has made it more difficult for antitrust plaintiffs to prevail at the motion to dismiss stage. If the Court uses this opportunity to whittle Twombly back, companies can expect to see an increase in antitrust lawsuits. This may have a significant impact in the class action arena because private plaintiffs frequently bring claims alleging price-fixing conspiracies as class actions. Class actions brought under Section 1 of the Sherman Act can be particularly harmful to companies where successful private claimants are entitled to an award of triple damages, attorneys' fees and costs. The following is a factual and procedural summary of the action.

Factual Background of the Consolidated Action

Users and operators of independent (nonbank) ATMs brought related class actions against Visa and MasterCard, and certain affiliated banks, alleging rules prohibiting ATM operators from charging lower fees to users for transactions amounted to an illegal conspiracy to fix prices. In the mid-1990s, states began to abolish various laws that had prohibited ATM operators from charging access fees directly to cardholders.[1] As a result, nonbanks had a financial incentive to enter the ATM market.[2]

These independent ATMs connect to a cardholder's bank through an ATM network, and the most popular networks are operated by Visa and MasterCard.[3] A cardholder can use any independent ATM to access his bank account, as long as his bank card and the ATM are linked by one common network.[4] Independent ATM operators rely on two streams of revenue.[5] The first is the "net interchange" fee, which is the gross interchange fee paid by the cardholder's bank to the ATM operator, less any network services fee charged by the ATM network.[6] MasterCard and Visa generally charge high network services fees, which means that ATM operators receive low net interchange fees.[7] The second source of revenue is generated from the ATM access fees paid by the cardholder.[8]

Visa and MasterCard impose, as a condition for ATM operators to access their networks, a most favored customer clause called the "Access Fee Rules."[9] These rules provide that no ATM operator may charge cardholders, whose transactions are processed on Visa or MasterCard networks, a larger access fee than that charged to any customer whose transaction is processed on an alternative ATM network.[10] Both Visa and MasterCard were owned and operated as joint ventures by a large group of retail banks at the time that the Access Fee Rules were adopted.[11] In 2008 and 2006, respectively, the member banks relinquished direct control over Visa and MasterCard through initial public offerings (IPOs).[12] The IPOs did not alter the application of the Access Fee Rules, which currently remain in effect.[13] Plaintiffs argued that these rules illegally restrain the efficient pricing of ATM services because they prevent independent ATM operators from incentivizing cardholders to use cards that are less costly than either Visa or MasterCard.[14]

Procedural History

In 2013, the D.C. District Court concluded that the plaintiffs' respective complaints failed to allege facts sufficient to establish Article III standing because their allegations showed neither injury nor redressability.[15] Alternatively, the D.C. District Court held the plaintiffs' respective complaints lacked adequate facts to establish concerted activity under Section 1 of the Sherman Act.[16]

Concerning the issue of standing, the D.C. Circuit found that two distinct theories of injury were relevant on appeal.[17] First, the ATM operators alleged that MasterCard and Visa, working in concert with the member banks, maximized their own returns on each transaction, thereby minimizing the independent ATM operators' profit.[18] Second, the consumers alleged that they paid inflated access fees when they visited ATMs.[19] The consumers believed that the Access Fee Rules inhibited competition in both the network services market and the market for ATM access fees.[20]

The D.C. Circuit criticized the District Court's decision that the plaintiffs theories of injury were too attenuated and speculative because the District Court relied on cases that had been decided on summary judgment.[21] The D.C. Circuit noted, "on a motion for summary judgment by a defendant, the question is not whether the plaintiff has asserted a plausible theory of harm, but rather whether the plaintiff has offered sufficient evidence for a reasonable jury to conclude that its theory is correct."[22] A motion for lack of subject-matter jurisdiction, by contrast, "is not the occasion for evaluating the empirical accuracy of an economic theory."[23] The D.C. Circuit held the facts alleged by the plaintiffs were specific, plausible, and susceptible to proof at trial and, therefore, sufficient for standing purposes at this stage.[24]

Concerning the antitrust issue, on appeal the D.C. Circuit applied the Twombly standard to evaluate if the plaintiffs' claims were adequate to survive a motion to dismiss.[25] The D.C. Circuit noted that a legally single entity violates Section 1 of the Sherman Act when the entity is "controlled by a group of competitors and serve[s] in essence, as a vehicle for ongoing concerted activity."[26] The D.C. Circuit held the plaintiffs' allegations, that a group of retail banks fixed an element of access fee pricing through bankcard association rules, described the sort of concerted action necessary to make out a claim under Section 1 of the Sherman Act.[27]

The D.C. Circuit observed that membership in an association was not enough to establish participation in a conspiracy with other members of that association, but acknowledged that the plaintiffs had done much more than that.[28] The plaintiffs alleged that the member banks used the associations to adopt and enforce the Access Fee Rules and that the member banks possessed governance rights in those associations.[29] Accordingly in August 2015, the D.C. Circuit vacated the District Court's decision and sent the cases back for further proceedings.[30]

The D.C. Circuit subsequently declined to rehear the dispute, leading to two January petitions for Supreme Court review.[31] In one petition, Visa, MasterCard, and the affiliated banks argued that the D.C. Circuit's opinion conflicted with decisions from the Third, Fourth, and Ninth Circuits because the D.C. Circuit held that a plaintiff may sufficiently plead a conspiracy under Section 1 of the Sherman Act by claiming that the members of a business association agreed to adhere to the association's rules and possessed governance rights in the association.[32] Visa and MasterCard filed a similar petition seeking Supreme Court review of a set of related cases in which the banks were not defendants.[33] Neither petition challenged the D.C. Circuit's decision regarding the plaintiffs' Article III standing. In June 2016, the Supreme Court agreed to hear the two cases in concert.[34]

Brief for Petitioners

In the merits brief filed by Visa, MasterCard, and the affiliated banks in September 2016, the petitioners argued that the Access Fee Rules do not constitute a conspiracy under Section 1 of the Sherman Act because they were derived as a result of the banks' founding of Visa and MasterCard as joint ventures.[35] According to the petitioners, under Am. Needle, Inc., 560 U.S. at 195 and Cooperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769 (1984), a joint venture's conduct is concerted only where it flows from the members' pursuing separate economic interests as separate economic actors.[36] Petitioners argued that respondents' allegations that the banks adhered to each associations' rules and possessed governance rights in the associations were insufficient to plead concerted action under this standard.[37]

Briefs for Respondents

In their response the ATM operators argued that the Access Fee Rules were illegal regardless of whether the banks adopted the rules for a separate economic purpose.[38] The ATM operators encouraged the Court to evaluate whether the complaints properly pled an agreement under Twombly.[39] The ATM operators further asked the Court not to decide whether respondents' complaints pled that petitioners engaged in concerted action because that argument was not presented in the petitions.[40] The ATM operators noted that neither petition raised the issue or even cited Am. Needle, and answering the question would be a departure from the Court's settled practice of deciding only the question presented.[41] The ATM operators further stated that under petitioners' legal theory, it would be difficult to see how a joint venture could ever be held liable for any restraint, "all of which inevitably share the feature that petitioners argue is dispositive: that the challenged agreement benefitted Visa [or MasterCard] to some extent."[42]

The Supreme Court will hear a total of one hour of oral argument concerning this matter on December 7, 2016.


[1] Osborn v. Visa Inc., 797 F.3d 1057, 1060 (D.C. Cir. 2015).

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Id. at 1060-61.

[7] Id. at 1061.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id. at 1063.

[16] Id. at 1066.

[17] Id. at 1064.

[18] Id.

[19] Id.

[20] Id.

[21] Id. at 1063-65.

[22] Id. at 1065.

[23] Id. at 1065-66.

[24] Id. at1066.

[25] Id.

[26] Id. (quoting Am. Needle, Inc. v. NFL, 560 U.S. 183, 191 (2010)).

[27] Id. at 1066-67.

[28] Id. at 1067.

[29] Id.

[30] Id. at 1069.

[31] Osborn v. Visa Inc., 797 F.3d 1057 (D.C. Cir. 2015), reh'g denied, 2015 U.S. App. LEXIS 17109 (D.C. Cir. Sept. 28, 2015), reh'g denied en banc, 2015 U.S. App. LEXIS 17105 (D.C. Cir. Sept. 28, 2015).

[32] Petition for Writ of Certiorari, Visa Inc. v. Osborn, No.15-961 (U.S. Jan. 27, 2016).

[33] Petition for Writ of Certiorari, Visa Inc. v. Stoumbos, No.15-962 (U.S. Jan. 27, 2016).

[34] Writ of Certiorari Granted, Visa Inc. v. Osborn, No.15-961(U.S. June 28, 2016).

[35] Brief for Petitioner at 22, Visa Inc. v. Osborn, No.15-961 (U.S. Sept. 1, 2016).

[36] Id.

[37] Id. at 22-40.

[38] Brief for the Non-Consumer Respondents at 12-13, Visa Inc. v. Osborn, No.15-961 (U.S. Oct. 17, 2016).

[39] Id. at 13-15.

[40] Id. at 16-17.

[41] Id. at 17.

[42] Id.

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