This appeal concerned whether certain rules of the Visa and Mastercard payment card schemes have the effect of restricting competition, in breach of article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”) and equivalent national legislation. The appellants, Visa and Mastercard, operated an open four-party payment card schemes. Under these schemes, issuers (generally banks) issue debit and/or credit cards to cardholder customers and acquirers (also generally banks) provide payment services to merchants (such as the respondents).
The scheme operator, Visa or Mastercard, set the rules of the scheme and allowed institutions to join as issuers and/or acquirers. The schemes operated as follows. A cardholder contracts with an issuer, which agrees to provide the cardholder with a Visa or Mastercard debit or credit card. It agrees to terms on which they may use the card to buy goods or services from merchants, which may include a fee paid by the cardholder, an interest rate for credit, and incentives or rewards paid by the issuer to the cardholder for using the card (such as airmiles or cashback). Merchants contract with an acquirer, which agrees to provide services to the merchant enabling acceptance of the cards for a fee. This is known as the merchant service charge (“MSC”). To settle a transaction made between a cardholder and a merchant, the issuer pays the acquirer, who passes the payment on to the merchant, less the MSC. The rules of both schemes provide for the payment of a default interchange fee, known as the multilateral interchange fee (“MIF”), on each transaction, which is payable by the acquirer to the issuer. Though under the rules acquirers and issuers are not required to contract based on the MIF, in practice they invariably do so. Visa and Mastercard do not receive any part of the MIF or the MSC. Their remuneration comes from scheme fees paid by issuers and acquirers. For most of the claim period, the MIF typically accounted for some 90% of the MSC. Acquirers passed on all of the MIF to the merchants through the MSC, with negotiation between acquirers and merchants in respect of the MSC being limited to the level of the acquirer’s margin.
Article 101(1) TFEU ( Treaty on the Functioning of the European Union ) prohibits agreements between companies that may affect trade between member states, and which have as their object or effect the restriction of competition. Article 101(3) provides for an exemption where the agreement improves the production or distribution of goods or promotes technical or economic progress while allowing consumers a fair share of the resulting benefit. These provisions are reflected in sections 2 and 9 of the Competition Act 1998 (“the 1998 Act”), respectively.
The appeals in three sets of proceedings were heard together by the Court of Appeal, which overturned all prior judgments . It held that there was restriction of competition and made various rulings as to the legal effect of article 101(3). The Court of Appeal remitted the article 101(3) exemption issue in all proceedings to the CAT for reconsideration . Visa and Mastercard therefore sought to appeal the Court of Appeal’s decision on four grounds.
Visa and Mastercard appeal on four grounds. First, whether the Court of Appeal was wrong to find that there was a restriction of competition in the acquiring market contrary to article 101(1) TFEU and equivalent national legislation (“the restriction issue”). Second, whether the Court of Appeal found, and if so was it wrong in finding, that Visa and Mastercard were required to satisfy a more onerous evidential standard than that normally applicable in civil litigation, in order to establish that their MIFs were exempt under article 101(3) (“the standard of proof issue”). Third, whether the Court of Appeal was wrong to find that in order to show that consumers receive a fair share of the benefits generated by the MIFs, to satisfy the test under article 101(3), Visa was required to prove that the benefits provided to merchants alone as a result of the MIFs outweighed the costs arising from the MIFs, without taking any account of the benefits received by cardholders as a result of the MIFs (“the fair share issue”). Fourth, whether the Court of Appeal found and, if so, was it wrong in finding, that a defendant has to prove the exact amount of loss mitigated in order to reduce damages (“the broad axe issue”). Finally, AAM seek to cross-appeal on the issue of whether the Court of Appeal was wrong to remit the AAM proceedings for reconsideration in relation to exemption under article 101(3) (“the remission issue”)
The Supreme Court however upheld the judgement of the Court of Appeal that the MIFs infringed article 101(1) and its legal rulings on article 101(3), dismissing the appeal on all grounds except the broad axe issue .
See the judgement