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UNITED STATES DISTRICT COURT FOR PUBLICATION

EASTERN DISTRICT OF NEW YORK

MEMORANDUMAND ORDER05-MD-1720 (JG) (JO)

IN RE PAYMENT CARD INTERCHANGEFEE AND MERCHANT DISCOUNTANTITRUST LITIGATION

A P P E A R A N C E S

ROBBINS GELLER RUDMAN & DOWD LLP655 West Broadway, Suite 1900San Diego, CA 92101

ROBINS, KAPLAN, MILLER & CIRESI L.L.P2800 LaSalle Plaza800 LaSalle Avenue SouthMinneapolis, MN 55402

BERGER & MONTAGUE, P.C.1622 Locust StreetPhiladelphia, PA 19103

Co-Lead Counsel for Class Plaintiffs

KENNY NACHWALTER, P.A.201 South Biscayne Boulevard, Suite 1100Miami, FL 33131

SPERLING & SLATER55 West Monroe Street, Suite 3200Chicago, IL 60603

HANGLEY ARONCHICK SEGALPUDLIN & SCHILLER30 North Third StreetHarrisburg, PA 17101

Counsel for the Individual Plaintiffs

ARNOLD & PORTER LLP399 Park Avenue

New York, NY 10022

HOLWELL SHUSTER & GOLDBERG LLP125 Broad Street, 39th Floor

New York, NY 10004

Attorneys for Defendant Visa U.S.A. Inc.

WILLKIE FARR & GALLAGHER LLP787 Seventh Avenue

New York, NY 10019

PAUL, WEISS, RIFKIND, WHARTON &GARRISON LLP2001 K Street, NWWashington, DC 20006

Attorneys for Defendant MasterCard

International Incorporated

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MORRISON & FOERSTER LLP

1290 Avenue of the Americas New York, NY 10104

Attorneys for Defendant Bank of America

SHEARMAN & STERLING LLP

599 Lexington Avenue New York, NY 10022

Attorneys for Defendant Barclays Bank

O’MELVENY & MYERS LLPTimes Square Tower7 Times Square

New York, NY 10036

Attorneys for Defendant Capital One Bank

(USA)

SKADDEN, ARPS, SLATE, MEAGHER &FLOM LLP4 Times Square

New York, NY 10036

Attorneys for Defendant JPMorgan Chase &

Co.

SIDLEY AUSTIN LLP1 South Dearborn StreetChicago, IL 60603

Attorneys for Defendant Citibank, N.A.

KEATING MUETHING & KLEKAMP PLL1 East Fourth Street, Suite 1400Cincinnati, OH 45202

Attorneys for Defendant Fifth Third Bancorp

KUTAK ROCK LLP1650 Farnam StreetOmaha, NE 68102

Attorneys for Defendant First National Bank

of Omaha

WILMERHALE7 World Trade Center, 250 Greenwich Street

New York, NY 10007

Attorneys for Defendant HSBC Finance

Corporation

JONES DAY51 Louisiana Avenue, NWWashington, DC 20001

Attorneys for Defendant National City

Corporation

PULLMAN & COMLEY, LLC850 Main StreetBridgeport, CT 06601

Attorneys for Defendant Texas Independent

Bancshares, Inc.

ALSTON & BIRD LLP1201 West Peachtree StreetAtlanta, GA 30309

Attorneys for Defendant SunTrust Banks,

Inc.

PATTERSON BELKNAP WEBB &TYLER LLP1133 Avenue of the Americas

New York, NY 10036

Attorneys for Defendant Wachovia Bank,

NA.

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FRIEDMAN LAW GROUP LLP

270 Lafayette StreetSuite 1410

New York, NY 10012

Attorneys for Plaintiffs in No. 05-cv-5074

FREEDMAN BOYD DANIELS

HOLLANDER GOLDBERG & CLINE,P.A.P.O. Box 25326, 20 First Plaza, Suite 700Albuquerque, NM 87102

Attorneys for Plaintiffs in No. 05-cv-5075

CONSTANTINE CANNON LLP335 Madison Avenue, 9th Floor

New York, NY 10017

Attorneys for Plaintiff NATSO, Inc.

QUINN EMANUEL51 Madison Avenue, 22nd Floor

New York, NY 10010

Attorneys for Objector Home Depot U.S.A.,

Inc.

VORYS, SATER, SEYMOUR AND PEASELLP52 East Gay StreetColumbus, OH 43215

Attorneys for Objector Target Corporation

EMERY, CELLI, BRINCKERHOFF &ABADY LLP75 Rockefeller Plaza, 20th Floor

New York, NY 10019

Attorneys for Objector National Retail

Federation

SCHLAM, STONE & DOLAN, LLP26 Broadway, 19th Floor

New York, NY 10004

Attorneys for Amicus Curiae U.S. Public

Research Interest Group

PERKINS COIE LLPFour Embarcadero Center, Suite 2400San Francisco, CA 94111

Attorneys for Objector First Data

Corporation

BOIES, SCHILLER & FLEXNER LLP575 Lexington Avenue, Seventh Floor

New York, NY 10022

Attorneys for Objector American Express Co.

KIRKLAND & ELLIS153 East 53rd Street

New York, NY 10022

Attorneys for Objector Discover Financial

Services

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MILLER & CHEVALIER CHARTERED

655 Fifteenth Street, NW, Suite 900Washington, DC 20005

Attorneys for Objector Blue Cross Blue Shield

Entities

THE LAW OFFICES OF JOHN J. PENTZ

19 Widow Rites LaneSudbury, MA 01776

Attorneys for Defendant Daviss Donuts and

Deli

LAW OFFICES OF EDWARD F. SIEGEL705 South Alton Way #1CDenver, CO 80247

Attorneys for Objector Vicente Consulting LLC

THRASH LAW FIRM, P.A.1101 Garland StreetLittle Rock, AR 72201

Attorneys for R&M Objectors

JOSHUA R. FURMAN LAW CORP.15260 Ventura Boulevard, Suite 2250Sherman Oaks, CA 91403

Attorneys for Objector Jon M. Zimmerman

OHIO ATTORNEY GENERAL MIKE DeWINE150 East Gay Street, 23rd FloorColumbus, OH 43215

Attorney for Objector State of Ohio

STATE OF CALIFORNIA DEPARTMENTOF JUSTICEOFFICE OF THE ATTORNEY GENERAL455 Golden Gate Avenue, Suite 11000San Francisco, CA 94102-7004

Attorney for Objector State of California

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CONTENTS

A. Preliminary Statement ......................................................................................................... 2

1. Structure of a Credit Card Transaction; Interchange Fees .................................. 2

2. The Default Interchange Rule; Honor-all-Cards Rules; Anti-Steering Rules .... 3

3. The Course of the Litigation; Industry Changes Occurring During the

Litigation; and the Proposed Settlement ............................................................. 4

4. Overview of Reasons for Approval .................................................................... 8

B. The Claims in the Case ..................................................................................................... 13

C. The Standard for Approving a Proposed Settlement ........................................................ 14

1. Procedural Fairness ........................................................................................... 15

2. Substantive Fairness.......................................................................................... 17

a. The Complexity, Expense, and Likely Duration of the Litigation ............... 17

b. The Reaction of the Class to the Settlement ................................................. 18

c. The Stage of the Proceedings and the Amount of Discovery Completed..... 20

d. The Risks of Establishing Liability and Damages, and of Maintaining the

Class Action through the Trial ...................................................................... 20

e. The Ability of Defendants to Withstand a Greater Judgment....................... 29

f. The Range of Reasonableness of the Settlement Fund in Light of the Possible

Recovery and Attendant Risks of Litigation ................................................. 29

D. The Objections .................................................................................................................. 31

1. Rule Reforms .................................................................................................... 31

a. The Elimination of the Networks’ No-Surcharge Rules ............................... 31

b. The Buying Group Provision ........................................................................ 38

2. The Releases ..................................................................................................... 39

3. The Health Insurers’ Objections ....................................................................... 42

4. Claims by States Acting in their Sovereign Capacity ....................................... 43

5. Discover’s Objection ........................................................................................ 45

6. The Notice to Class ........................................................................................... 45

7. Cohesiveness of the Rule 23(b)(2) Class; Adequacy of Class Plaintiffs .......... 46

E. The Plan of Allocation ...................................................................................................... 48

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JOHN GLEESON, United States District Judge:

In this antitrust action, a putative class of approximately 12 million merchants

alleges that, among other things, defendants Visa U.S.A. Inc. (“Visa”) and MasterCard

International Incorporated (“MasterCard”), as well as issuing and acquiring banks (collectively

the “defendants”), conspired to fix interchange fees in violation of Section 1 of the Sherman Act.

Before me now is a motion by Class Plaintiffs,1 certain other plaintiffs who are

not members of the class (referred to throughout the case and in this opinion as the “Individual

Plaintiffs”2), and the defendants for final approval of a proposed settlement. In essence, the

settlement calls for (1) a cash recovery slightly in excess of $7 billion (before reductions for opt-

outs) by members of a Rule 23(b)(3) class; and (2) certain reforms of the defendants’ rules and

practices to benefit the members of a Rule 23(b)(2) class. SA ¶¶ 33, 68.3 They also seek

1 “Class Plaintiffs” refers to proposed class representative merchants Photos Etc. Corp.; Traditions,Ltd.; Capital Audio Electronics, Inc.; CHS Inc.; Crystal Rock LLC; Discount Optics, Inc.; Leon’s TransmissionService, Inc.; Parkway Corp.; and Payless ShoeSource, Inc.

2 The Individual Plaintiffs are: Ahold U.S.A., Inc.; Albertsons LLC; Albertson’s, Inc.; BI -LO, LLC;Delhaize America, Inc.; Eckerd Corporation; The Great Atlantic & Pacific Tea Company; H.E. Butt GroceryCompany; Hy-Vee, Inc.; The Kroger Co.; Maxi Drug, Inc. (and doing business as Brooks Pharmacy); Meijer, Inc.;

Meijer Stores Limited Partnership; Pathmark Stores, Inc.; QVC, Inc.; Raley’s; Rite Aid Corporation; Safeway Inc.;SuperValu Inc.; and Walgreen Co.

3 Citations in the form “SA ¶ __” refer to the paragraphs of the proposed settlement agreement,which is titled “Definitive Class Settlement Agreement.” It is located at docket entry 1656-1 and referred to here asthe “Settlement Agreement.” The Rule 23(b)(3) class is defined at SA ¶ 2(a) as follows:

A “Rule 23(b)(3) Settlement Class” under Federal Rules of Civil Procedure23(a) and (b)(3), from which exclusions shall be permitted, consisting of all

persons, businesses, and other entities that have accepted Visa-Branded Cardsand/or MasterCard-Branded Cards in the United States at any time from January1, 2004 to the Settlement Preliminary Approval Date, except that this Class doesnot include the named Defendants, their directors, officers, or members of theirfamilies, financial institutions that have issued Visa- or MasterCard-BrandedCards or acquired Visa- or MasterCard-Branded Card transactions at any timefrom January 1, 2004 to the Settlement Preliminary Approval Date, or theUnited States government.

The Rule 23(b)(2) class is defined at SA ¶ 2(b)as follows:

A “Rule 23(b)(2) Settlement Class” under Federal Rules of Civil Procedure23(a) and (b)(2), from which exclusions shall not be permitted, consisting of all

persons, businesses, and other entities that as of the Settlement Preliminary

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approval of the proposed plan of allocation of the settlement fund, and Class Counsel4 seeks

attorneys’ fees and costs.

I held a fairness hearing on September 12, 2013, at which there was extensive oral

argument in support of and in opposition to the proposed settlement.

For the reasons discussed below, I approve the proposed settlement and the plan

of allocation. The motion for fees and costs will be decided separately.

A. Preliminary Statement

1. Structure of a Credit Card Transaction; Interchange Fees

A Visa or MasterCard credit card transaction involves five parties: (1) the

customer ; (2) the merchant; (3) the “acquiring bank”; (4) the “issuing bank”; and (5) the network

itself, that is, Visa or MasterCard. The acquiring bank is the link between the network and the

merchant that accepts the card for payment. The issuing bank is the bank that issued the credit

card to the customer. When the cardholding customer presents a credit card to pay for goods or

services, the accepting merchant relays the transaction information to the acquiring bank. The

acquiring bank processes the information and transmits it to the network. The network relays the

information to the issuing bank, which approves the transaction if doing so is consistent with the

cardholder ’s account status and credit limit. The approval is conveyed to the acquiring bank,

which in turn relays it to the merchant.

The issuing bank then transmits to the acquiring bank the amount of the purchase

price minus the “interchange fee.”5 The acquiring bank withholds an additional fee – called the

Approval Date or in the future accept any Visa-Branded Cards and/orMasterCard-Branded Cards in the United States, except that this Class shall notinclude the named Defendants, their directors, officers, or members of theirfamilies, financial institutions that have issued Visa- or MasterCard-BrandedCards or acquired Visa- or MasterCard-Branded Card transactions at any timesince January 1, 2004, or do so in the future, or the United States government.

4 “Class Counsel” refers to the three firms appointed co-lead counsel for Class Plaintiffs: Robbins

Geller Rudman & Dowd LLP; Robins, Kaplan, Miller & Ciresi L.L.P; and Berger & Montague, P.C.

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“merchant discount fee” – for its processing services. Thus, the total amount the merchant

receives for the transaction is the purchase price minus the sum of the interchange fee and the

merchant discount fee.

Interchange fees vary based on factors that include the type of card used and the

type of merchant. Many Visa and MasterCard credit cards provide rewards to the cardholders.

Those rewards cost money, and thus these cards, referred to in the industry and here as “premium

cards,” are associated with higher interchange fees.

2. The Default Interchange Rule; Honor-all-Cards Rules; Anti-Steering Rules

The competitive problem that gave rise to this case, according to the plaintiffs, is

the result of a combination of network rules. The Honor-all-Cards rules require merchants who

accept any Visa- or MasterCard-branded credit cards to accept all cards of that brand, no matter

what bank may have issued them and no matter the interchange fee. The Honor-all-Cards rules

created what the merchants term the “hold-up problem.” Unlike checks, which are redeemed by

the drawee banks “at par,” that is, without the drawee bank charging a fee for acceptance, the

issuing bank of a Visa or MasterCard credit card is free to demand whatever interchange fee it

chooses (“hold-up”) in order to accept the transaction from the merchant who is required to

accept the card.

As the merchants describe them, the default interchange rules are the networks’

“solution” to the hold-up problem. Those rules establish mandatory interchange fees that apply

to every transaction on the network unless the merchant and the issuing bank have entered into a

bilateral interchange agreement. However, the merchants complain that the combination of the

Honor-all-Cards rules and the anti-steering rules, which are discussed further below, strips the

5 The interchange fee can be a flat fee, a percentage of the transaction price, or a combination of the

two.

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issuing banks of any incentive to accept interchange fees lower than the default interchange fees.

And obviously merchants have no incentive to negotiate a higher interchange fee. Thus “default

interchange,” the merchants assert, becomes a fixed rate that applies to every credit card

transaction (with the narrow exception of transactions by very large merchants who have

sufficient volume that they can negotiate their own private interchange fees).

A linchpin to the problem, as far as the merchants are concerned, is the package

of anti-steering restraints that prohibit merchants from using price signals at the point of sale to

steer customers to less costly forms of payment. The no-surcharge rules prohibit merchants from

adding a surcharge to a transaction involving either of the networks’ credit cards. Thus, a

merchant who must pay a 2% interchange fee upon accepting a Visa or MasterCard credit card is

prohibited from adding a 2% surcharge (or any surcharge at all) to either discourage the use of

that card or to recoup the cost of acceptance. Similarly, until recently (as discussed further

below), no-discount rules prohibited merchants from offering price discounts at the point of sale.

There are other components to the networks’ anti-steering regimes, some of which are mentioned

below. In the aggregate, these essentially identical regimes prohibit merchants from informing

customers about higher-cost payment cards, incentivizing customers to use lower-cost cards or

other forms of payment, or recouping the acceptance costs of the cards the merchants are

required to honor.

3. The Course of the Litigation; Industry Changes Occurring During the Litigation;

and the Proposed Settlement

This case has been extensively litigated for more than eight years. Discovery,

which began in 2005, included more than 400 depositions, the production and review of more

than 80 million pages of documents, the exchange of 17 expert reports, and a full 32 days of

expert deposition testimony.

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While the case has been pending, there have been significant developments in the

industry, some of which are attributable in whole or in part to the case itself. The very structures

of Visa and MasterCard themselves changed; in 2008 and 2006, respectively, initial public

offerings (“IPOs”) converted each from a consortium of competitor banks into single-entity,

publicly traded companies with no bank governance.

In addition, federal legislation – the so-called “Durbin Amendment” – in 2010

removed the networks’ restrictions on discounting credit and debit cards at the network level.

Thus, Visa, MasterCard, American Express and Discover can no longer prohibit merchants from

discounting their cards.6 The Durbin Amendment did not change the networks’ rules prohibiting

surcharging.

In 2010, after an investigation assisted by the information developed by the

plaintiffs here, the Department of Justice (“DOJ”) filed lawsuits against Visa, MasterCard and

American Express. In consent decrees filed in 2011, Visa and MasterCard agreed to remove

their rules prohibiting merchants from product-level discounting of credit and debit cards.

Again, the resolution of that case against these defendants did not affect the surcharging

prohibitions.

By 2011, several significant motions had been briefed and were ripe for decision,

including a motion to certify classes,7 a motion to dismiss supplemental complaints arising out of

the IPOs, and cross-motions for summary judgment.

6 The Durbin Amendment was part of the Dodd-Frank Wall Street Reform and ConsumerProtection Act of 2010, Pub. L. 111-203, 124 Stat. 1376; it is codified at 15 U.S.C. § 1693o-2(b)(3)(A)(i). TheAmendment did not allow for product-level discounting, by which a merchant could choose to discount a particularcard type.

7 The motion sought to certify an injunctive relief class (the “(b)(2)” class), and a damages class

(the “(b)(3)” class). See Fed. R. Civ. P. 23(b)(2) & (3).

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Even as they litigated the case full-throttle, beginning in 2008 the parties engaged

in efforts to settle their disputes. They participated in mediation sessions with the Honorable

Edward A. Infante (Ret.) and, beginning in 2009, with Professor Eric D. Green as well. The

parties had dozens of meetings and conference calls with the mediators over the next several

years.

On November 2, 2011, I held oral argument on, inter alia, the parties’ cross-

motions for summary judgment. See DE 1560.8 Even before that argument, however, the parties

requested through the mediators that any decision on those motions and on the motion for class

certification be withheld pending settlement discussions with the Court itself.9

On Friday and Saturday, December 2 and 3, 2011, at the express request of all

parties, Judge Orenstein and I engaged in lengthy settlement discussions with the parties and the

mediators. The ground rules were made clear and were agreed to on the record at the outset. In

an effort to foster as much candor and engagement as possible, all parties consented to ex parte,

off-the-record discussions about all of the various issues that required resolution before the case

could be settled. It was a process that had proven useful in a successful effort to settle a previous

antitrust class action against Visa and MasterCard. See In re Visa Check/Mastermoney Antitrust

Litig., 297 F. Supp. 2d 503 (E.D.N.Y. 2003), aff ’ d sub nom. Wal-Mart Stores, Inc. v. Visa U.S.A.,

Inc., 396 F.3d 96 (2d Cir. 2005). Indeed, several of the participants in the settlement discussions

in this case had been involved in those other settlement talks ten years earlier.

The settlement discussions on December 2 and 3, 2011 were productive. They

illuminated the parties’ positions and concerns regarding the merits of the plaintiffs’ claims, the

8 Citations in the form “DE __” refer to docket entr ies in this case.

9 In the context of settlement discussions, my use of the term “Court” in this opinion refers to bothme and Magistrate Judge James Orenstein, who has worked tirelessly and effectively throughout this litigation andwas my partner in attempting to help the parties reach a consensual resolution of the case.

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defendants’ defenses, the purposes and effects of the challenged rules, and the various ways in

which the rules might be changed by agreement to inject competition into the setting of

interchange fees for Visa and MasterCard credit cards.

After a third meeting with Judge Orenstein and me on December 15, 2011, the

parties resumed discussions with the mediators. On February 21, 2012, those discussions

resulted in an acceptance by all of the defendants and all of the named plaintiffs of the terms of a

mediators’ proposal. When the efforts to reduce the agreed-upon terms of that proposal to a

settlement agreement stalled, the parties once again sought and obtained the assistance of the

Court. On June 20 and 21, 2012, additional settlement discussions occurred in chambers

pursuant to the same terms and consent that had governed the discussions six months earlier. At

the conclusion of those two days of discussions, the parties informed the Court that they had

reached agreement on all of the issues necessary to settle the case.

On July 13, 2012, the parties filed a Memorandum of Understanding attaching a

document setting forth the terms of the settlement. See DE 1588. In October 2012, after

completing the drafting of related documents, including escrow agreements and a Plan of

Administration and Distribution, the parties executed the Settlement Agreement. See DE 1656.

On October 19, 2012, Class Counsel moved for preliminary approval of the proposed settlement,

which I granted on November 27, 2012. The order granting preliminary approval provisionally

certified classes under Rule 23(b)(2) and (b)(3). The Class Administrator notified class members

of the terms of the proposed settlement through a mailed notice and publication campaign that

included more than 20 million mailings and publication in more than 400 publications. The

notice plan was carried out between January 29, 2013 and February 22, 2013. Class members

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had until May 28, 2013 to opt out of the damages class, object to the proposed settlement, or

both.

The proposed Settlement Agreement provides for, among other things:

The creation of two cash funds totaling up to an estimated $7.25 billion (beforereductions for opt-outs). SA ¶¶ 9-10, 11-13.

Visa and MasterCard rule modifications to permit merchants to surcharge on Visa- orMasterCard-branded credit card transactions at both the brand and product levels.SA ¶¶ 42, 55.

An obligation on the part of Visa and MasterCard to negotiate interchange fees in goodfaith with merchant buying groups. SA ¶¶ 43, 56.

Authorization for merchants that operate multiple businesses under different “tradenames” or “banners” to accept Visa and/or MasterCard at fewer than all of its businesses.SA ¶¶ 41, 54.

The locking-in of the reforms in the Durbin Amendment and the DOJ consent decreewith Visa and MasterCard, even if those reforms are repealed or otherwise undone. SA

¶¶ 40, 44, 53, 57, Appendix J.

4. Overview of Reasons for Approval

As class action settlement proceedings go, this one has been anything but typical.

Some of the merchant plaintiffs who directly participated in the lengthy settlement discussions

and initially agreed to the terms of the settlement broke away and objected, as they were entitled

to do. Numerous other members of the merchant class have objected as well, on a variety of

grounds.

The behavior of a small number of objectors has threatened to undermine the

efforts of the others. Specifically, in their zeal to drum up objections and opt-outs by merchants

around the country, certain merchant groups established websites that spread false and

misleading information about the settlement and the merchants’ options. In April of this year I

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had to order injunctive relief to remedy that situation; in May I came close to holding certain

entities in contempt of that injunction.

The oral presentations of the objectors at the fairness hearing were afflicted by

needless hyperbole. One of the merchant association principals who participated in the

settlement discussions and initially agreed to its terms argued that the members of his association

would be worse off if I approved the proposed settlement than they would be if they proceeded

all the way through trial and lost. Another likened the prospect of approval to the deprivation of

civil liberties in the aftermath of a terrorist attack, warning that only a “slippery slope” would

separate an order binding a large retailer to the proposed settlement and the government stripping

us of our houses and civil rights. A third cast Visa and MasterCard as modern-day Nazis, and

warned me not to assume the role of Neville Chamberlain.

If only the issues here were that simple. But in reality the vitriol and poor

behavior and feigned hysteria mask complex and difficult issues on which reasonable merchants

can and do disagree. Some of those issues stem from the fact that a lawsuit is an imperfect

vehicle for addressing the wrongs the plaintiffs allege in their complaint. For example, there are

forms of relief many objectors seek, such as the regulation of interchange fees, that this Court

could not order even if the plaintiffs obtained a complete victory on the merits. In addition, there

are features of the industry landscape, such as other credit card issuers with whom the defendants

compete, and laws in some states that prohibit merchants from surcharging the use of credit

cards, that are beyond the reach of this case but will undermine (at least in the near term) the

efficacy of the agreed-upon relief.

The proponents of the settlement disagree strongly with the objectors over the

economic value of the proposed settlement to the class members, and specifically over the

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benefits of the proposed rules changes to the merchant class. As a result, I availed myself of the

provisions in Rule 706 of the Federal Rules of Evidence allowing for court-appointed expert

witnesses. On April 8, 2013, I appointed Dr. Alan O. Sykes of New York University School of

Law “to advise the Court with respect to any economic issues that may arise in connection with

the forthcoming motion for final approval of the proposed settlement.”10 Dr. Sykes filed a

memorandum with the Court on August 28, 2013.11 It has proved quite helpful, and he has the

gratitude of the Court.

Fortunately, well-established law provides a rubric for deciding the motion, and I

engage below in the prescribed multifactor inquiry. By way of overview, however, I conclude

that the proposed settlement secures both a significant damage award and meaningful injunctive

relief for a class of merchants that would face a substantial likelihood of securing no relief at all

if this case were to proceed.

Specifically, although the settlement either obtains or locks in place an array of

rules changes, at its heart is an important step forward: a rules change that will permit merchants

to surcharge credit cards at both the brand level (i.e., Visa or MasterCard) and at the product

level (i.e., different kinds of cards, such as consumer cards, commercial cards, premium cards,

etc.), subject to acceptance cost and limits imposed by other networks’ cards. For the first time,

merchants will be empowered to expose hidden bank fees to their customers, educate them about

those fees, and use that information to influence their customers’ choices of payment methods.

In short, the settlement gives merchants an opportunity at the point of sale to stimulate the sort of

network price competition that can exert the downward pressure on interchange fees they seek.

10 DE 2807. After consulting with the parties, see DE 5863, I issued a subsequent order establishing

procedures for the parties to provide information to Dr. Sykes and to respond to his advice to the Court. See DE5873.

11 DE 5965.

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Relief directed at the default interchange fees (even if such relief were available

from a court as opposed to a legislature) would not share that characteristic. Both Visa and

MasterCard have other elements to their fee structures. Relief aimed solely at the interchange

fees would leave them free to recoup any associated lost revenues by tinkering with those other

fees, and the merchant restraints would, in effect, place the merchants back where they started.

By focusing on those restraints, the proposed settlement seeks to empower merchants to steer

cardholders to lower-cost payment alternatives. The goal is to incentivize the networks to

compete for the merchants’ credit card volume through lower fees of all kinds, including

interchange fees, and to allow merchants to recoup their costs when their efforts to steer

customers to lower-cost means of payment do not succeed.

The objections to the proposed settlement are numerous, but in the main, they fail

for one of two reasons. First, the objectors complain about the failure of the proposed settlement

to eliminate other Visa and MasterCard rules, such as the default interchange and Honor-all-

Cards rules. But those rules undeniably have significant procompetitive effects, and they lay at

the heart of Visa’s and MasterCard’s efforts to build the successful networks they now have.

Class Counsel have good reason to believe that even if the default interchange and the Honor-all-

Cards rules are characterized as horizontal restraints (despite the IPOs), they will still receive

only Rule-of-Reason antitrust scrutiny, which they could quite easily withstand. Perhaps most

telling of all is that the Department of Justice, which recently conducted a thorough investigation

of these networks’ operating rules, declined even to challenge either rule. In short, it is hard to

persuasively challenge a compromise on the ground that it fails to eliminate rules that even a

complete success on the merits might not eliminate.

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Second, the objectors complain about factors that they say will limit the

usefulness of their newfound ability to surcharge credit cards that carry costly interchange fees.

Those factors, which include the merchant restraints imposed by American Express and the laws

prohibiting surcharging in approximately ten states, are real, and they in fact undermine to an

extent the immediate utility of the rules reforms in the proposed settlement. A merchant’s ability

to surcharge a particularly expensive Visa card is less valuable if the merchant remains unable

because of American Express’s merchant restraints to steer customers away from even higher-

priced American Express cards. Similarly, the option to surcharge that the proposed settlement

affords merchants obviously cannot be exercised in states that now have anti-consumer no-

surcharge laws.

But the virulent objections – based on those and other practical limitations on the

relief the proposed settlement affords – fail to take sufficient account of the fact that, in the end

and despite its outsized proportions, this is just an antitrust lawsuit. Even if the plaintiffs spent

several years pursuing this unwieldy case to a successful conclusion (despite substantial odds

against such a result), this Court would be in no position to grant the sweeping relief the

objectors seek. It cannot regulate interchange fees or enjoin nonparties or preempt state laws or

reform network rules that do not violate the antitrust laws. The Sherman Act affords relief only

from certain proven anticompetitive business practices. And the agreed-upon relief here, which

has the potential to unleash a new competitive force on interchange fees, falls squarely in the

wheelhouse of what this lawsuit is all about.

The first Visa/MasterCard multi-district litigation broke the tie between credit and

debit cards. The Durbin Amendment removed discounting restrictions at the network level. The

consent decree in the government’s case removed product-level discount restrictions. The IPOs

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wrested control of Visa and MasterCard from the banks. This proposed settlement adds another

crucial reform – the lifting of restrictions on network- and product-level surcharging. Even if the

objectors are right in contending that additional dominoes must fall before the alleged

anticompetitive behavior of Visa and MasterCard is eradicated, those dominoes will have to fall

in other forums. That does not alter the significance of the relief provided by the proposed

settlement.

B. The Claims in the Case

Beginning in June 2005, more than 40 class action complaints were filed by

merchants against the defendants. The class actions were consolidated in 2005, together with 19

individual actions. The Court appointed Class Counsel as co-lead counsel and a consolidated

amended complaint was filed on April 24, 2006. DE 317.12

As mentioned above, the plaintiffs allege that Visa and MasterCard adopted and

enforced rules and practices relating to payment cards that had the combined effect of

unreasonably restraining trade and injuring merchants. Those rules and practices include:

Rules regarding the setting of default interchange fees. See Second Cons. Am. ClassAction Compl.

A number of “anti-steering” rules – including “no surcharge” rules, “no discounting” or“non-discrimination” rules, and “no minimum purchase” rules – that restrict merchantsfrom steering customers to lower-cost credit cards and/or forms of payment other thanVisa or MasterCard payment cards.

A number of “exclusionary” rules – including “all outlets” rules, “no bypass” rules, and“no multi-issuer” rules – that restrict merchants in accepting and processing paymentsmade with Visa and MasterCard cards.

12 Also in 2005, the Individual Plaintiffs, a group of large retailer merchants, filed lawsuits againstVisa and MasterCard, making allegations narrower than those set forth in the class action complaints here. TheIndividual Plaintiffs alleged that merchant restraints in the networks’ operating rules protected Visa and MasterCardfrom interbrand competition on the merchant side (as opposed to the bank side) of the market. Both sets of lawsuits

– the class actions and the Individual Plaintiffs’ complaints – were consolidated before me in this multidistrictlitigation.

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“Honor -all-Cards” rules, which required merchants to accept all the network ’s credit

cards or all the network ’s debit cards when proffered for payment, regardless of which bank issued the card.

Class Plaintiffs allege that these rules insulate the Visa and MasterCard networks

from competition with each other, from other brands and from other forms of payment, allowing

Visa and MasterCard and the issuing banks to set supracompetitive default interchange fees.

Class Plaintiffs allege that these rules were adopted pursuant to unlawful

agreements among the banks and Visa, and among the banks and MasterCard. Specifically, they

allege that the defendant banks were members of Visa or MasterCard and were represented on

their boards, and thus determined the networks’ rules and practices. Class Plaintiffs allege that

the banks owned and effectively operated Visa and MasterCard, such that Visa and MasterCard

were unlawful “structural conspiracies” or “walking conspiracies” with respect to their network

rules and practices. Class Plaintiffs further allege that after the Visa and MasterCard IPOs, the

unlawful agreements among the banks and Visa, and among the banks and MasterCard,

continued.

Based on these allegations, Class Plaintiffs seek damages to compensate

merchants for supracompetitive default interchange fees in the past. They also seek injunctive

relief to restructure the networks’ rules and practices in the future.

C. The Standard for Approving a Proposed Settlement

Pursuant to Federal Rule of Civil Procedure 23(e), any settlement of a class action

requires court approval. A court may approve such a settlement if it is “fair, adequate, and

reasonable, and not a product of collusion.” Joel A. v. Giuliani, 218 F.3d 132, 138 (2d Cir.

2000). In so doing, the court must “eschew any rubber stamp approval” yet simultaneously “stop

short of the detailed and thorough investigation that it would undertake if it were actually trying

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the case.” Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir. 1974), abrogated on other

grounds by Goldberger v. Integrated Resources, Inc., 209 F.3d 43 (2d Cir. 2000). Judicial

discretion is informed by the general policy favoring settlement. See Weinberger v. Kendrick ,

698 F.2d 61, 73 (2d Cir. 1982); see also Denney v. Jenkins & Gilchrist , 230 F.R.D. 317, 328

(S.D.N.Y. 2005) (“There is a strong judicial policy in favor of settlements, particularly in the

class action context. The compromise of complex litigation is encouraged by the courts and

favored by public policy.”) (footnotes, citations and internal quotation marks omitted), aff ’ d in

part and vacated in part , 443 F.3d 253 (2d Cir. 2006).

To evaluate whether a class settlement is fair, a district court examines (1) the

negotiations that led up to the settlement, and (2) the substantive terms of the settlement. See In

re Holocaust Victims Assets Litigation, 105 F. Supp. 2d 139, 145 (E.D.N.Y. 2000). In evaluating

procedural fairness, “[t]he [negotiation] process must be examined ‘in light of the experience of

counsel, the vigor with which the case was prosecuted, and the coercion or collusion that may

have marred the negotiations themselves.’” Id . at 145-46 (quoting Malchman v. Davis, 706 F.2d

426, 433 (2d Cir. 1983)). Factors relevant to the substantive fairness of a proposed settlement

include: (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the

class to the settlement; (3) the stage of the proceedings and the amount of discovery completed;

(4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of

maintaining the class action through trial; (7) the ability of the defendant to withstand a greater

judgment; (8) the range of reasonableness of the settlement fund in light of the best possible

recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in

light of all the attendant risks of litigation. See Grinnell, 495 F.2d at 463.

1. Procedural Fairness

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The proposed settlement is the product of arm’s-length negotiations between

experienced and able counsel on all sides. The lawyers for the parties spent a great deal of time

in face-to-face, telephonic and written negotiations. Those negotiations were assisted by two

eminent mediators, Judge Infante and Professor Green, who have informed the Court that the

settlement negotiations were fair and conducted at arm’s length. My own participation in the

efforts to settle the case (along with Magistrate Judge Orenstein) confirmed those descriptions of

the negotiations, and nothing in the record suggests otherwise.

The objecting plaintiffs argue from the fact that a number of class members and

class representatives now oppose the settlement that the negotiations were not fair. I do not find

this argument persuasive. A number of objectors were deeply involved in the settlement

negotiations and mediation, and indeed accepted the mediators’ proposal that outlined the key

components of what became the Settlement Agreement. Wildfang Supp. Decl., ¶ 29, DE 5939-1.

Their current dissatisfaction with the terms of that agreement raises genuine issues of substantive

fairness, but it does nothing to undermine a record that demonstrates beyond any reasonable

doubt that the negotiations were adversarial and conducted at arm’s length by extremely capable

counsel.

Furthermore, there is no indication that the Settlement Agreement is the product

of collusion or that it confers upon the class representatives or any other subset of the class

“improper[] . . . preferential treatment.” In re NASDAQ Market-Makers Antitrust Litigation, 176

F.R.D. 99, 102 (S.D.N.Y. 1997). The objecting plaintiffs argue that because Visa and

MasterCard were able to negotiate jointly with Class Plaintiffs this may indicate collusion –

specifically in regard to the revisions to the no-surcharging rules. Again, I am not persuaded.

Mediators and the Court were involved in the settlement negotiations. The Second Circuit has

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recognized that the involvement of a mediator in pre-certification settlement negotiations helps

to ensure that the proceedings are free of collusion and undue pressure. D’ Amato v. Deutsche

Bank , 236 F.3d 78, 85 (2d Cir. 2001). In addition, as discussed more fully below, I conclude that

the injunctive relief at the heart of the settlement inures equally to the benefit of every single

member of the merchant class. Accordingly, I conclude that the negotiation process fairly

protected the interests of the settlement class.

2. Substantive Fairness

a. The Complexity, Expense, and Likely Duration of the Litigation

The potential for this litigation to consume considerable additional time and

resources is great. The complexity of federal antitrust law is well known. See, e.g., Virgin Atl.

Airways Ltd. v. British Airways PLC , 257 F.3d 256, 263 (2d Cir. 2001) (noting the “factual

complexities of antitrust cases”); Weseley v. Spear, Leeds & Kellogg, 711 F.Supp. 713, 719

(E.D.N.Y. 1989) (antitrust class actions “are notoriously complex, protracted, and bitterly

fought”). Numerous motions remain pending before the Court, including motions to dismiss,

summary judgment motions, Daubert motions, and a motion to certify both a damages class

under Rule 23(b)(3) and an injunctive-relief class under Rule 23(b)(2). As to the class

certification motion, the losing party would likely seek interlocutory review by the Second

Circuit under Federal Rule of Civil Procedure 23(f) (review this Court would welcome and

encourage), delaying the case substantially.13 Class Counsel represent that a trial would take

several months, and I have no doubt they are correct. The losing parties would likely appeal any

adverse jury verdicts, thereby extending the duration of litigation. By contrast, the proposed

13 In the Wal-Mart case, twenty months elapsed between the order certifying the class and theSecond Circuit’s divided opinion affirming that decision. See In re Visa Check/Mastermoney Antitrust Litig. , 192F.R.D. 68 (E.D.N.Y. 2000), aff’d, In re Visa Check/MasterMoney Antitrust Litig. , 280 F.3d 124, 129 (2d Cir. 2001).

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settlement allows class members to take advantage of rules changes now – those changes are

already in place – and further provides for significant monetary compensation in the near future.

b. The Reaction of the Class to the Settlement

Class Counsel report that almost 21 million long-form notices were mailed.

Taking into account duplicate mailings, and in light of various other factors that make the precise

size of the class impossible to determine, Class Counsel estimate that approximately 12 million

merchants comprise the class. Only .05% of them have objected to the settlement, and 90% of

the objections are on boilerplate forms downloaded from websites that disseminated false and

misleading information for the precise purpose of drumming up objections and opt-outs. It is

thus difficult to ascribe significant weight to the bulk of the objections.

On the other hand, because the roster of objectors includes some of the nation’s

largest retailers, the objectors in the aggregate represent 19% of the total transaction volume.

Many of the named plaintiffs in the case are objectors. Indeed, the motion for final approval has

caused a rift among large United States retailers, all of whom agree that the current interchange

fees are too high due to anticompetitive practices.

The divisions among the major merchants run deep, but they are also nuanced.

For example, of the top 60 merchants (measured by transaction volume) to opt out of the (b)(3)

damages class, about half (27) have not objected to the settlement. Thus, those merchants, which

include almost all the major airlines, will seek to obtain a greater damage award from Visa and

MasterCard, but they apparently see value in the (b)(2) relief. And the conduct of the airlines is

significant; in other markets that allow the surcharging permitted by the proposed settlement,

airlines were among the first to adopt the practice, which has had the effect of moving

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transactions to cheaper payment alternatives. Thus, not all of the opt-outs evidence

dissatisfaction with the rules changes in the proposed (b)(2) settlement.

Similarly, although some merchants have argued that the ability to surcharge is

useless to smaller retailers, such as grocery stores and convenience stores, Class Counsel report

that 15 of the top 25 convenience stores have not objected to the settlement, and 5 of those

neither objected nor opted out.

In short, the reaction of the class to the proposed settlement is a mixed bag. To

paraphrase the argument by counsel for the Individual Plaintiffs at the fairness hearing,

intelligent and thoughtful merchants with a common complaint, a common goal, and many other

things in common part company on the degree to which the proposed settlement obtains for the

merchant class what can reasonably be expected to be obtained in this case.

Given the transaction volume represented by the objectors, it would be facile to

conclude that the reaction of the class strongly favors approval of the settlement simply because

substantially less than one-tenth of one percent of the merchants have objected. But see Alba

Conte & Herbert Newberg, Newberg on Class Actions § 11.41, at 108 (4th ed. 2002) (“[A]

certain number of objections are to be expected in a class action with an extensive notice

campaign and a potentially large number of class members. If only a small number of objections

are received, that fact can be viewed as indicative of the adequacy of the settlement.”); see also

D’ Amato v. Deutsche Bank , 236 F.3d 78, 86-87 (2d Cir. 2001) (holding that “[t]he District Court

properly concluded that this small number of objections [18 out of 27,883 notices] weighed in

favor of settlement”).

I also reject, however, the objectors’ argument that the transaction volume they

represent means that their objections must weigh heavily against approval. Rather, the reasons

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advanced by the objectors require careful consideration in the ultimate determination of whether

the benefits offered by the settlement create a more attractive alternative to the merchant class

than incurring the risks of continued litigation. For reasons discussed throughout this

memorandum, I conclude that the objectors have failed adequately to acknowledge not only the

substantial impediments to succeeding on the merits in this case, but also the limitations on the

relief that would be available even if success were achieved. They have also underestimated the

significance of the Rule 23(b)(2) relief afforded by the settlement.

Accordingly, I conclude on balance that the reaction of the class favors approval

of the proposed settlement.

c.

The Stage of the Proceedings and the Amount of Discovery Completed

This factor relates to whether Class Plaintiffs had sufficient information on the

merits of the case to enter into a settlement agreement, Cinelli v. MCS Claim Services, Inc., 236

F.R.D. 118, 121 (E.D.N.Y. 2006), and whether the Court has sufficient information to evaluate

such a settlement, Wal-Mart , 396 F.3d 96, 118.

Before the parties executed the Settlement Agreement, fact discovery had been

completed, the parties had exchanged expert reports and deposed the experts, and all dispositive

motions had been briefed and argued. Class Counsel thus had a more than adequate basis for

assessing the claims. See Wal-Mart , 396 F.3d at 118 (where several years of discovery,

summary judgment and mediation occurred prior to settlement, plaintiffs had a “thorough

understanding of their case”). This factor weighs in favor of approval.

d. The Risks of Establishing Liability and Damages, and of Maintaining the

Class Action through the Trial

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“In assessing the Settlement, the Court should balance the benefits afforded the

Class, including the immediacy and certainty of a recovery, against the continuing risks of

litigation.” In re Top Tankers, Inc. Sec. Litig., 06 CIV. 13761 (CM), 2008 WL 2944620, at *4

(S.D.N.Y. July 31, 2008) (emphasis in original). In this case, the risks of establishing liability

and damages at trial, and of maintaining the class throughout the trial (the fourth, fifth, and sixth

factors bearing on substantive fairness, respectively) all militate in favor of approval. Indeed,

perhaps the most significant defect in the objectors’ collective presentation to the Court is the

abject failure to acknowledge the perils of not settling the case. Instead, the objectors appear to

proceed on the assumption that a complete victory on the merits is a foregone conclusion.

A wide range of outstanding issues affects Class Plaintiffs’ ultimate likelihood of

establishing liability, including the legal characterization of the challenged practices of Visa and

MasterCard, and whether those practices on balance would be deemed anticompetitive under the

Rule of Reason.14 Class Plaintiffs allege that a number of core network practices, including the

setting of default interchange fees, the Honor-all-Cards rule, and various network rules that

discourage merchants from encouraging or requiring consumers to use less expensive payment

mechanisms, have resulted in excessively high interchange fees. But proving that those rules

14 The Rule of Reason is the “accepted standard for testing whether a practice restrains trade” inviolation of Section 1 of the Sherman Act. Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 885(2007). As described by the Supreme Court,

Under this rule, the factfinder weighs all of the circumstances of a case indeciding whether a restrictive practice should be prohibited as imposing anunreasonable restraint on competition. Appropriate factors to take into accountinclude specific information about the relevant business and the restraint'shistory, nature, and effect. Whether the businesses involved have market poweris a further, significant consideration. In its design and function the ruledistinguishes between restraints with anticompetitive effect that are harmful tothe consumer and restraints stimulating competition that are in the consumer's

best interest.

Id . at 885-86 (internal quotation marks and citations omitted).

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violate the antitrust laws is no mean feat. And even if that feat were accomplished, proving

damages is just as difficult.

i. Illinois Brick

First, there is a threshold problem of standing. Defendants rely on Illinois Brick

Co. v. Illinois, 431 U.S. 720, 736 (1977), in which the Supreme Court held that “indirect

purchasers” may not recover antitrust damages. The Court reasoned that permitting suits by

these third parties would essentially transform treble-damages antitrust actions into efforts to

apportion the recovery among all potential plaintiffs that might have absorbed part of the illegal

overcharge, from direct purchasers to middlemen to ultimate consumers. However appealing an

effort to allocate the overcharge might seem in theory, it would add a dimension of complexity to

actions for antitrust damages that would seriously undermine their effectiveness. Id. at 737.

Illinois Brick was an action brought by the State of Illinois and local government

entities alleging that concrete block manufacturers had engaged in a price-fixing conspiracy. Id .

at 726-27. The government entities had contracted with general contractors, who in turn hired

masonry subcontractors who bought the concrete blocks for installation in government projects.

Id . at 735. The Supreme Court held that only a direct purchaser of the concrete blocks (i.e., a

masonry subcontractor) was a party “injured in his business or property” by the alleged antitrust

violation and thus entitled to sue under Section 1 of the Sherman Act. Id . at 729, 735-37.

The defendants here contend that the merchants lack standing because they are

indirect purchasers – the acquiring banks being the direct purchasers – with respect to the

interchange fees they allege were fixed. The objectors argue that the fees are effectively paid by

the merchants directly. The concern about costly and inefficient apportionment proceedings that

fueled Illinois Brick dissipates where contractual arrangements permit ready determinations of

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how an anticompetitive overcharge is allocated along the distribution chain. Illinois Brick itself

acknowledged a narrow exception to its rule for cases in which the overcharge is passed along

via a pre-existing cost-plus contract. 431 U.S. at 736. The plaintiffs here might successfully

appeal to such policy considerations; the issuing banks’ interchange fees are identifiable and

separate from the total package of fees (including other network fees and the acquiring banks’

merchant discount fees) that are passed along to the merchants.

On the other hand, the indirect purchaser doctrine is strictly applied, and the

exceptions are narrow.15 In the current posture of the case I need not resolve the issue, but I

think it clear that the indirect purchaser doctrine would be a source of significant uncertainty for

the plaintiffs if they sought to litigate their claims to a decision on the merits.

ii.

The Effect of the IPOs

As stated above, part of the “core conduct” the plaintiffs sought to address was

that “Visa and MasterCard member banks [. . .] effectively control the decisions of both

Networks” by setting rules and interchange fees for the networks to serve their collective

interest. First Consol. Am. Cl. Action Compl., ¶¶ 131-34, DE 317. However, after the filing of

that complaint, both Visa and MasterCard came out from under the control of their member

banks. The IPOs that accomplished that result strengthened the defendants’ argument that they

were no longer structural or “walking” conspiracies, and thus that the setting of interchange fees

cannot constitute horizontal price-fixing.

iii. Default Interchange Rules

15 A recent Ninth Circuit opinion, In re ATM Fee Antitrust Litigation, 686 F.3d 741 (9th Cir. 2012), presents a risk to the plaintiffs’ claims. In ATM Fee, the court granted summary judgment for the defendant on Illinois Brick grounds and rejected three exceptions to the Illinois Brick rule that plaintiffs here have relied on inopposition to the defendants’ motions for summary judgment: the co-conspirator exception; the ownership-and-control exception; and the exception for cases in which there is “no realistic possibility that direct purchasers willsue.” Id. at 750-58. Though plaintiffs made arguments at summary judgment to distinguish the ATM Fee case, theyface a risk that this Court or a higher one would not be persuaded.

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The vast majority of the objectors oppose final approval of the Settlement

Agreement because it does not require Visa and MasterCard to eliminate their default

interchange rules. But even assuming default interchange fees operate to increase the acceptance

costs of Visa and MasterCard credit cards, that does not mean they violate the antitrust laws.

The objectors assume that default interchange is inherently illegal, but in reality it is a very

complicated issue.

Defendants contend that without default interchange, the costs of Visa and

MasterCard credit card transactions would have been higher because of the costs associated with

the negotiation of individual interchange agreements. They further argue that their networks’

default interchange rules are procompetitive because they enable issuers to improve card features

and rewards and reduce card finance charges and other costs. And default interchange benefits

merchants, the networks argue, by providing consumers greater purchasing incentives, thus

increasing consumer demand, which in turn increases merchant sales. Default interchange also

allows the banks that issue credit cards, rather than the merchants that accept them, to assume the

costs of fraud and non-payment.

The plaintiffs’ experts don’t dispute these assertions as much as they argue that

they have become obsolete because the Visa and MasterCard networks have “matured” over

time.16 However, given that these practices are at the core of the defendants’ successful business

model, it would be difficult for plaintiffs to show that these practices have become antitrust

violations by virtue of industry maturation.

16 See, e.g., Report of Dr. Alan S. Frankel at ¶ 216; Report of Dr. Christopher A. Vellturo at ¶ 39;

Report of Dr. Joseph Stiglitz at ¶¶ 9-10; see also Obj. Pls.’ Br. at 56 (“Visa and MasterCard have evolved intomature and dominant payment system, and the suggestion that issuing banks need interchange to issue credit cardson which most Americans have become dependent has been untenable for years, if not decades.”)

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No American court has ever held that Visa or MasterCard’s default interchange

rules violate the antitrust laws. In National Bancard Corporation, a district court concluded,

after a full trial on the mer its, that the default interchange rule was “of vital import” to the

payment-card system because it relieved issuing and acquiring banks of the need to negotiate

potentially thousands of bilateral agreements, and it also assured universal acceptance. Nat ’ l

Bancard Corp. v. Visa U.S.A., Inc., 596 F. Supp. 1231, 1259-61 (S.D. Fla. 1984). The Eleventh

Circuit then upheld Visa’s default interchange rule. Nat ’ l Bancard Corp. v. Visa U.S.A., Inc.,

779 F.2d 592, 605 (11th Cir. 1986) (“ NaBanco”). While it is true that the factual underpinning

of NaBanco – that issuing banks need interchange fees to have adequate incentives to participate

in networks – has eroded, a 2008 decision of the Ninth Circuit affirmed the dismissal of

challenges aimed at Visa and MasterCard’s default interchange rules. In Kendall v. Visa U.S.A.,

Inc., the court dismissed the “allegation that the Banks conspired to fix the interchange fee” on

the ground that “merely charging, adopting or following the fees set by a Consortium is

insufficient as a matter of law to constitute a violation of Section 1 of the Sherman Act.” 518

F.3d 1042, 1048 (9th Cir. 2008).

In short, the default interchange rules played an essential role in the construction

of the networks at issue here, and those networks provide substantial benefit to both merchants

and consumers. While the plaintiffs contend that the rules have outlived their procompetitive

effects now that the networks have matured, the setting of default interchange fees would almost

certainly be evaluated under the Rule of Reason, and the prospect that its anticompetitive effects

remain outweighed by its procompetitive ones is real. DOJ’s recent decision not to challenge the

default interchange rules despite the entreaties by Class Counsel that it do so further suggests

that the plaintiffs’ antitrust challenge to the rules could easily fail.

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Professor Sykes has advised “that the expected returns to continued litigation are

highly uncertain, and that plaintiffs[] face a substantial probability of securing little or no relief at

the conclusion of trial.” Sykes Report at 3. Specifically, he states that “the plaintiffs face

considerable difficulty in establishing . . . that the core practices at issue in the case and left in

place by the proposed settlement – such as default interchange and [H]onor[-]all[-C]ards rules –

cause anticompetitive harm that outweighs their pro-competitive benefits . . . .” Id.

iv. The Honor-all-Cards Rules

A number of objectors argue that the settlement should not be approved because it

does not eliminate the networks’ Honor-all-Cards rules. As discussed earlier, the Honor-all-

Cards rules require merchants that accept Visa and/or MasterCard credit cards to accept all credit

cards issued on the same network, regardless of the issuer or the interchange fees associated with

the issuer ’s card.

The Honor-all-Cards rules are closely interrelated in both their history and

rationale with the default interchange rules. The assurances that a network ’s cards will be

accepted wherever the network ’s logo is displayed is critical to customers’ desire to carry such

cards and to merchants’ willingness to accept them.

A number of courts and economists have found the Honor-all-Cards rule and

similar rules to be procompetitive under the Rule of Reason. The Second Circuit upheld a

“blanket license” – a system analogous to the Honor-all-Cards rule – in Buffalo Broadcasting

Co. v. ASCAP, 744 F.2d 917 (2d Cir. 1984). See also Benjamin Klein et al., Competition in Two-

Sided Markets: The Antitrust Economics of Payment Card Interchange Fees, 73 A NTITRUST L.J.

571, 592-93 (2006) (“An honor -all-cards rule is the essence of a payment card system because it

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assures each cardholder that his card will be accepted at all merchants that display the mark of

the card payment system.”). As one antitrust practitioner put it:

[The Honor-all-Cards rule] is a classic example of a restraint thatwas actually necessary for the functioning of the joint venture.When Visa and MasterCard were formed – think about this: Youhave thousands of banks across the country issuing these cards,thousands of banks acquiring merchants, millions of merchantsaccepting these cards – you need to have a seamless acceptanceexperience. We all take it for granted, but you needed to have arule that ensured to you, as a consumer, that when you proffer theVisa card, the merchant is going to take it. It’s not going to say,“I’ll take a Chase Visa card, but I don’t like Citibank, so I’m goingto turn that one down.”

Panel Discussion II: Consumer Issues at 5-6 (Statement of Jeffrey Shinder) (Fordham Univ. Sch.

of Law 2008), Marth Decl., Ex. C.

In light of the procompetitive features of the Honor-all-Cards rules, it is no sure

thing, to put it mildly, that Class Plaintiffs will be able to prove they have anticompetitive effects

to such an extent that they violate the antitrust laws. The proposed settlement preserves the

integrity of the rules that made (and continue to make) the networks successful. At the same

time, by further relaxing merchant restraints regarding pricing, it provides for transparency and

competition at the point of sale. Merchants who choose to use the power the proposed rules

changes give them will be able to exercise control over (and perhaps reduce) their costs from

accepting Visa and MasterCard credit cards.

v. Damages

Even if liability is established, Class Plaintiffs would still face the problems and

complexities inherent in proving damages to the jury. The plaintiffs’ theory of damages would

be hotly contested at trial. See, e.g., In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D.

465, 476 (S.D.N.Y. 1998) (“[T]he history of antitrust litigation is replete with cases in which

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Finally, Class Plaintiffs face the risk that the classes would not be certified or that

certification would be modified as the litigation continued. Class Plaintiffs’ motion to certify

Rule 23(b)(2) and (b)(3) classes is pending. A number of objecting class members voice the

hurdles that Class Plaintiffs would have to overcome to maintain class certification. Though

Class Plaintiffs have strong arguments that the classes should be certified, I note that the

certification of a similar class in the Wal-Mart case was affirmed only over a vigorous dissent,

see Wal-Mart , 280 F.3d at 147 (Jacobs, J., dissenting), and the legal landscape in which class

certification is litigated has deteriorated for plaintiffs in the intervening period. See, e.g.,

In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 40 (2d Cir. 2006) (overruling the more

lenient “some showing” standard of Caridad v. Metro – North Commuter Railroad , 191 F.3d 283,

293 (2d Cir. 1999)); see also Comcast Corp. v. Behrend , 133 S. Ct. 1426 (2013) (reversing class

certification in antitrust case based on an inadequate damages model). The risks associated with

the certification of classes weigh in favor of settlement.

e.

The Ability of Defendants to Withstand a Greater Judgment

Class Plaintiffs did not address this Grinnell factor, stating that the fact that the

defendants would be able to pay a substantial judgment does not counsel against approval of an

otherwise fair settlement. The objectors note that there is no risk that Visa and MasterCard and

the bank defendants would become insolvent. I agree that these defendants could withstand a

greater judgment, and thus this factor does not weigh in favor of approval.

f. The Range of Reasonableness of the Settlement Fund in Light of the Possible

Recovery and Attendant Risks of Litigation

The objectors argue that Class Plaintiffs should have insisted on a cash payment

closer to their expert’s damages projection. But the argument ignores the many factors that make

a jury award consistent with that projection – nearly a trillion dollars after trebling –

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proposed settlement is grossly inadequate and should be

disapproved. In fact there is no reason, at least in theory, why asatisfactory settlement could not amount to a hundredth or even athousandth part of a single percent of the potential recovery.

495 F.2d at 455 & n.2.

I conclude that the Settlement Agreement is both procedurally and substantively

fair.

D. The Objections

As noted, there are numerous objections to the settlement. I discuss the principal

ones below.

1. Rule Reforms

a. The Elimination of the Networks’ No-Surcharge Rules

One of the principal accomplishments of the injunctive relief obtained by the

proposed settlement is the elimination, both at the network and product levels, of the rule

prohibiting surcharging by merchants. The proponents of the settlement tout this change as a

significant achievement; the objectors claim it is essentially worthless. The various facets of the

objectors’ position are addressed in detail below, but I find their position to be largely

unpersuasive. It is true that the value of surcharging to merchants is diminished by certain

factors, some of which are beyond the reach of this lawsuit. It is also true that many merchants,

for reasons sufficient to them, may choose not to avail themselves of the right to surcharge.

Nevertheless, I find that this rule change, which the Class Plaintiffs and the Individual Plaintiffs

fought very hard to obtain, is an indisputably procompetitive development that has the potential

to alter the very core of the problem this lawsuit was brought to challenge. At most, the

objectors’ arguments establish that the entire solution to that problem constitutes a mosaic, of

which the right to surcharge (like the other forms of relief in the proposed settlement) is but one

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piece. But it is a central piece – a critical accomplishment – and the fact of the matter is that an

entire solution to the problem would be unattainable in this action even if it were litigated to its

final conclusion and (against considerable odds) plaintiffs prevailed on all of their claims.

The Class Plaintiffs, the Individual Plaintiffs, and the objectors agree that the

combined effect of the various rules challenged in this lawsuit is supracompetititve interchange

fees on Visa and MasterCard credit cards. The rules work together to prevent inter-brand

competition between each network ’s cards at the point of sale. If a customer presents a Visa card

for payment, the Honor-all-Cards rule requires the merchant to accept it (unless the merchant

chooses not to accept any Visa credit cards, an unlikely option given their ubiquity). The no-

surcharge rule further prohibits the merchant from steering the customer to a competing

MasterCard credit card with a lower interchange rate by surcharging the higher-priced Visa card.

The allegedly supracompetitive interchange rate on the Visa card is hidden by the combined

effects of the rules and the merchant is forced to pay it.

The same is true with respect to different kinds of cards within each network.

Premium cards carry higher interchange fees. Merchants who want to steer customers away

from a higher-interchange MasterCard credit card to a different MasterCard card with a lower

rate by imposing a surcharge on the former are prohibited from doing so.

The proposed elimination of the no-surcharge rules finally would allow merchants

to make transparent and avoidable what has been opaque and inevitable. Customers can be told

what it costs the merchant to accept a particular card. Merchants can use their ability to disfavor

one network at the point of sale by surcharging. That power will incentivize both networks to

moderate or lower their interchange fees to avoid being disfavored. The customer can then

choose between using the premium card that is subject to a surcharge (she may value the rewards

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of the high-cost card more than a lower purchase price) or being steered to a lower-cost card and

paying less for the transaction.

The ability to surcharge allows merchants to recoup the higher acceptance costs of

the expensive cards. It allows them to steer customers to less costly cards or to other payment

mechanisms, decreasing their card-acceptance costs. It allows market forces to operate on the

previously invisible (to customers) array of interchange fees, and will exert downward pressure

on those fees by injecting a form of competition the current rules have prohibited.

The objectors make a number of arguments in support of their overall claim that

the proposed rules changes that will allow surcharging is essentially worthless. Some are more

persuasive than others, but they do not in my view alter the fact that the rule change would be a

significant achievement for the class.

First, objectors contend that surcharging is prohibited by law in ten states. Thus,

merchants who do business only in those states17 contend that this aspect of the settlement will

be useless to them. I disagree for several reasons. One is that interchange fees are set on a

nationwide basis. Thus, surcharging (or the threat of surcharging) by merchants in the states

where it is permitted may well inure to the benefit of merchants in those ten states. Also, there is

reason to believe that at least some state laws are enforced in a manner that prohibits surcharging

only when the merchant fails to sufficiently disclose the increased prices for credit card use.

17 Certain national or multistate merchant objectors argue that they will not be able to surchargeanywhere if they have even one store located in a state that prohibits surcharging. There is no support for thiscontention. The Settlement Agreement does not contain any such prohibition and the Class Notice, whichdefendants consented to, states the opposite:

. . . the fact that a merchant’s ability to surcharge may be restricted under thelaws of one or more states is not intended to limit the merchant ’s ability underthe settlement to surcharge Visa or MasterCard credit cards where permitted bystate law.

Notice at 8.

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More importantly, things change, and there is reason to believe that these state-

law impediments to a full deployment of the proposed relief will eventually be among them. No-

surcharge laws are not only anti-consumer, they are arguably irrational, and indeed one of them –

New York ’s – has bitten the dust in the brief interval since the fairness hearing. Expressions

Hair Design v. Schneiderman, 13 CIV. 3775 JSR, --- F.Supp.2d ---, 2013 WL 5477607

(S.D.N.Y. Oct. 3, 2013).

The plaintiffs in Expressions Hair Design were five New York retailers and their

principals. They challenged New York General Business Law § 518, which prohibits a merchant

from imposing a surcharge when a consumer elects to pay with a credit card.18 As Judge Rakoff

observed, the proposed settlement’s elimination of the no-surcharge rule, which has already

become effective, gave the “previously redundant” state no-surcharge law “r enewed

importance.” Id. at *4. The retailer plaintiffs wanted to surcharge credit card transactions

because of the two-to-three percent cost per transaction. “They [did] not want to frame this price

difference as a cash discount” because it wasn’t, and calling it a discount would make the

advertised prices seem higher than they really were “without making it transparent that the

higher price would be due solely to credit card transaction costs -- precisely the information

[they] wish to convey to [their] consumers.” Id. at *5 (internal quotation marks omitted; some

alterations in original). Inspired by the rules change already in effect because of the proposed

settlement, the plaintiff merchants wanted to post a sign telling customers of a 3% surcharge due

18 The section reads in full as follows:

No seller in any sales transaction may impose a surcharge on a holder who electsto use a credit card in lieu of payment by cash, check, or similar means.

Any seller who violates the provisions of this section shall be guilty of amisdemeanor punishable by a fine not to exceed five hundred dollars or a termof imprisonment up to one year, or both.

N.Y. Gen. Bus. Law § 518.

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to high interchange fees. However, fearful of prosecution under § 518, they sought a preliminary

injunction precluding enforcement of § 518 against them on First Amendment and vagueness

grounds.

In granting that relief, Judge Rakoff observed that “ Alice in Wonderland has

nothing on” New York’s no-surcharging law. In rejecting the state’s attempt to defend the statute

as pro-consumer, he wrote that

the statute actually perpetuates consumer confusion by preventingsellers from using the most effective means at their disposal toeducate consumers about the true costs of credit-card usage. It

would be perverse to conclude that a statute that keeps consumersin the dark about avoidable additional costs somehow “directlyadvances” the goal of preventing consumer deception.”

Expressions Hair Design, 2013 WL 5477607 at *11.

Citing the “undeniable” public interest in full access to the information about the

costs of credit card acceptance, the “critical” nature of that information to the millions of

payment decisions made each day, and the fact that no-surcharge rules have the effect of

artificially subsidizing credit at the expense of other payment methods, Judge Rakoff

preliminarily enjoined “a surcharge ban indistinguishable from the bans that Visa and

MasterCard recently dropped from their retailer contracts as part of [the instant proposed]

antitrust settlement.” Id . at *15, *14.

Nine other such state laws remain. The validity of those laws is not before me,

but I have no reason to doubt Judge Rakoff ’s assessment that they “were enacted in the name of

consumer protection at the behest of the credit-card industry over the objection of consumer

advocates.” Id . at *14. Will those laws diminish, at least in the near term, the efficacy of the

proposed relief here? Of course. But Class Counsel and counsel for the Individual Plaintiffs

have good reason to believe that further efforts, whether they take place in courts or legislatures,

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will successfully address that problem. Those state laws, properly understood, hurt the very

consumers they were ostensibly enacted to protect by propping up high credit card acceptance

costs. They aid and abet a regime in which the poorest consumers subsidize the awards

conferred upon premium cardholders because merchants are prohibited from disfavoring those

premium cards through surcharging.

The objectors also contend that the elimination of the no-surcharge rule is

rendered useless by what all parties have termed the “level-playing-field” provision, which

conditions a merchant’s ability to surcharge a Visa or MasterCard credit card on a requirement

that it also surcharge other payment products of equal or greater cost of acceptance.19 Since

many merchants accept American Express, which carries an even higher cost acceptance, and the

American Express rules prohibit surcharging, most merchants will, as a practical matter, be

precluded from surcharging Visa and MasterCard products.

I note preliminarily that the mere fact that merchants may choose not to avail

themselves of the proposed relief (i.e., by continuing to accept American Express) does not

compel the conclusion that the indisputably procompetitive rules changes are not a valuable

achievement. But putting that aside, this objection, like many of the objectors’ claims, places in

19 Visa’s “level-playing-field” provisions reads as follows:

If a merchant’s ability to surcharge any Competitive Credit Card Brand that themerchant accepts in a channel of commerce (either face-to-face or not face-to-face) is limited in any manner by that Competitive Credit Card Brand, other than

by prohibiting a surcharge greater than the Competitive Credit Card Brand’sCost of Acceptance, then the merchant may surcharge Visa Credit CardTransactions, consistent with the other terms of this Paragraph 42(a), only oneither the same conditions on which the merchant would be allowed to surchargetransactions of that Competitive Credit Card Brand in the same channel ofcommerce, or on the terms on which the merchant actually does surchargetransactions of that Competitive Credit Card Brand in the same channel ofcommerce, after accounting for any discounts or rebates offered at the point ofsale;

SA ¶ 42(a)(iv). MasterCard’s, id . ¶ 55(a)(iv), is substantially identical.

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sharp relief the limited extent to which the problems merchants complain about in this industry

can be addressed in a single lawsuit. Just as anti-consumer state laws may, at least in the short

term, undermine the relief proposed here, so may the merchant restraints imposed by American

Express. The mere fact that American Express, through rules similar to those challenged here,

may continue to engage in what the objectors would describe as anticompetitive conduct is

hardly an indictment of the proposed settlement before me. The merchants who support the

proposed settlement are fully justified in the view that “the American Express problem” is not

only a problem that must be (and in fact is being) addressed elsewhere, but that isolating

American Express as the only remaining major network insulated from price competition will

assist in the effort to “fix” it. In any event, the problem posed by American Express’s merchant

restraints does not alter the fact that the essence of the injunctive relief obtained by the proposed

settlement will permit procompetitive actions by merchants at the point of sale, and that those

actions have the potential to ameliorate the precise anticompetitive effect – supracompetitive

interchange fees – that these lawsuits were brought to challenge. Tellingly, the objectors, for all

their reliance on the “American Express problem” in opposing the proposed settlement, have no

solution for that problem. That is no doubt because there could not be one in this case.

The objecting merchants’ complaints regarding the proposed settlement’s

requirement that merchants disclose surcharges at the point of entry, at the point of sale, and on

the sales or transaction receipt are without merit. Such disclosure requirements promote pricing

transparency by informing consumers of the charges they will face if they use a particular form

of payment. It will no longer be a hidden tax imposed on consumers. Merchants can now

educate them about of the costs of their different payment products.

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Lastly, the objectors’ concerns regarding merchants’ ability to understand and

implement surcharging are misplaced. Essentially, the new surcharge system has four elements:

Merchants may surcharge the full average discount fee incurred (as determined by the prior month or last 12 months);

Merchants may surcharge brand-wide (e.g., all Visa or MasterCard credit cards), or theyemploy a more nuanced strategy and impose surcharges on one or more product groups(e.g., Visa Signature cards or MasterCard World Elite cards, which carry higher fees formany merchants);

Merchants must disclose to consumers that the surcharge does not exceed the merchant’scost of acceptance, and disclose the amount of the surcharge both before it is incurred andon a receipt; and

If another more expensive network brand that the merchant accepts continues to restrictsurcharging, the merchant may not surcharge Visa and MasterCard without alsosurcharging transactions on that competitor network. This is the “level-playing-field”

provision.

It is true that many merchants are unsophisticated, but I am confident that, with the assistance of

Class Counsel, they will be able to understand their newfound right to surcharge. Pls.’ Reply

Mem. in Supp. Mot. Final Approval 34, DE 5939.

b.

The Buying Group Provision

The objectors argue that the group-buying and all-outlets provisions will not

provide them a benefit because they will not take advantage of them, or that the relief is illusory

because Visa and MasterCard rules did not previously prohibit merchants from engaging in joint

negotiations. Though there were no rules that prohibited buying groups, it was the practice of

both Visa and MasterCard to refuse to negotiate over interchange fees with merchant buying

groups or other groups of merchants. Allowing groups of merchants to join together to negotiate

with Visa and MasterCard empowers merchants in their dealings with the networks by allowing

them to bargain collectively.

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In sum, there is no history of negotiations between Visa and buying groups, or

between MasterCard and buying groups. Now there is an affirmative obligation on the part of

each network to negotiate in “good faith” with such groups. This feature of the proposed

settlement constitutes a meaningful reform that is favorable to merchants.

2. The Releases

The Settlement Agreement includes a release for each of the two classes. Set

forth in paragraphs 33 and 68 of the Settlement Agreement, respectively, the so-called (b)(3) and

(b)(2) releases have drawn numerous objections. The objectors assert that, among other

problems, the releases cover a “virtually limitless range of claims,” providing Visa and

MasterCard with “immunity” from all future merchant claims, including antitrust claims, and

therefore should be deemed void as against public policy. Obj. Plaintiff ’s Br. at 3-4, DE 1678.

Others have grounded similar objections in fundamental notions of due process. However,

because the releases cover only the claims that may properly be extinguished by the settlement of

a class action, I reject these objections.

Both releases cover claims that are or could have been alleged in this case. Such

releases are permissible, see Wal-Mart , 396 F.3d at 106-13, and indeed the ability to include

them in class action settlements is essential to providing defendants the litigation peace they

legitimately expect in return for the settlement of claims. The full array of future claims

embraced by such a release necessarily involves a measure of uncertainty, but the Second Circuit

has clearly established the rule of decision: “The law is well established in this Circuit and

others that class action releases may include claims not presented and even those which could

not have been presented as long as the released conduct arises out of the ‘identical factual

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predicate as the settled conduct.’” Id. at 107 (quoting TBK Partners, Ltd. v. W. Union Corp., 675

F.2d 456, 460 (2d Cir. 1982)).

The most vehement of the objections to the release share two related flaws. First,

they assume the unlawfulness of both the default interchange and Honor-all-Cards rules, and

object to the release of future challenges to those rules. However, as discussed above, the

anticompetitive character of these rules is far from clear, and the Class Plaintiffs would have a

difficult time proving it here. Armed with both the Class Plaintiffs’ evidence and legal theories,

the Department of Justice chose not to challenge either rule when it investigated and proceeded

against Visa and MasterCard. In any event, because the illegality of those rules is at a minimum

an unsettled question, future challenges to them could properly be released even in the absence

of the alterations to the networks’ practices discussed in the following paragraph. See, e.g.,

Robertson v. Nat ’ l Basketball Ass’ n, 556 F.2d 682, 686 (2d Cir. 1977).

Second, the objections fail to take sufficient account of the alterations

accomplished directly by the proposed settlement and indirectly during the course of this

litigation. As discussed above, in a post-settlement world, (1) merchants will be allowed to

surcharge (subject to the limitations discussed above) Visa and MasterCard credit cards at both

the brand and product levels; (2) merchants will be able to discount credit and debit transactions;

(3) the reforms achieved by the Durbin Amendment and of the Department of Justice lawsuit

will be preserved by agreement; and (4) Visa and MasterCard will be obligated to negotiate

interchange fees in good faith with merchant groups. Even if the objectors are correct that

default interchange and the Honor-all-Cards rule produce anticompetitive effects, the rules

reforms achieved by the settlement have the potential to meaningfully blunt those effects. In

exchange for a new, going-forward rules structure, the defendants are entitled to bargain for and

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receive releases of claims that are or could have been alleged based on the identical factual

predicate of the claims in this case.

That is all these releases accomplish. They do not release the defendants from

liability for claims based on new rules or new conduct or a reversion to the pre-settlement rules.

They appropriately limit future damages claims based on the pre-settlement conduct of the

networks.

There is no due process right to opt out of the (b)(2) class, as some objectors

argue. Rule 23 contemplates binding settlements with no opt-out rights where the injunctive

relief achieved by the settlement is appropriate for the class as a whole. The (b)(2) settlement

here is limited to going-forward injunctive relief that changes the structure of the networks’

practices. If merchants could opt out of the (b)(2) class, they would reap the benefits of that

relief anyway, as the injunctive relief is generally applicable to all merchants. To allow them to

opt out and pursue their own rules-based injunctive relief would eliminate the incentive to settle

that Rule 23(b)(2) was designed in part to create. “The key to the (b)(2) class is ‘the indivisible

nature of the injunctive or declaratory remedy warranted – the notion that the conduct is such

that it can be enjoined or declared unlawful only as to all of the class members or as to none of

them.’” Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2557 (2011) (quoting Richard

Nagareda, Class Certification in the Age of Aggregate Proof , 84 N.Y.U. L.R EV. 97, at 132

(2009)). That is precisely the case with respect to the claims in this case that seek injunctive

relief from the bundle of network rules that result in – according to the plaintiffs’ allegations –

supracompetitive interchange fees in violation of the antitrust laws. Accordingly, the aspect of

the settlement that resolves those claims by neutralizing that bundle of rules is the proper subject

of a (b)(2) class from which no opt-outs are permitted.

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That the release extends to future challenges to the reformulated rules or

“substantially similar” ones does not create the giant loophole multiple objectors fear. If the

networks make non-substantive changes to the post-release rules and related conduct, there will

be no reason for the release not to operate. Other changes are not subject to the release. Is there

room for litigation over whether future rules are “substantially similar?” Of course, but that is no

reason to prohibit the networks from making any rules changes, no matter how unrelated they

may be to the claims and conduct at issue here, on pain of losing the protection of an otherwise

lawful release.

I need not and cannot catalog here all the claims that fall within or without the

release. It suffices to say that the releases do not cover new, future anticompetitive conduct and

rules.

One of the many indicia of how ubiquitous the Visa and MasterCard credit

products have become is the fact that American Express, Discover and First Data Corporation

(which provides services, including equipment, to merchants), and Cardtronics (an ATM

operator) are also members of the merchant class. They object to the release of claims they may

have against Visa and MasterCard, which are among their competitors. These objectors seek to

make something of nothing; it is sufficiently clear from both the text and context of the releases

that these class members are releasing only claims that merchants have alleged or could have

alleged in this case in their capacity as merchants. The release does not bar claims that a class

member may have in its capacity as a payment-card competitor, an ATM operator, or any other

capacity other than as a merchant that accepts Visa and MasterCard credit cards.

3.

The Health Insurers’ Objections

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Two health insurance objectors, The Wellpoint, Inc. and the Blue Cross Blue

Shield Entities object to the settlement on the basis that certain provisions of the Patient

Protection and Affordable Care Act of 2010 (“Affordable Care Act”) could cause the settlement

to affect them differently than other merchants. See Wellpoint Obj. ¶¶ 2-11, DE 2493-2; Blue

Cross Obj. 9-14, DE 2643. The provision that causes the health insurance objectors concern is

the medical loss ratio regulation. Specifically, they argue that a provision of the Affordable Care

Act that limits the amounts insurers can spend on non-health related activities could result in an

increased risk of having to pay certain rebates to customers. See Wellpoint Obj. ¶3; Blue Cross

Obj. 9-14. The regulation “provides that for policies purchased by individuals as opposed to by

employers or groups, at least 80 percent of premium revenues have to be spent on either clinical

services or healthcare quality improvement activities.” Tr. 160:6-10. If health insurers do not

meet this 80 percent payment, they are subject to a penalty (i.e., rebate payments). Payment card

fees, such as interchange fees, are neither clinical care nor healthcare quality improvement

activities. Therefore, the argument goes, paying those fees will count against health insurers as

they strive to comply with the 80 percent threshold requirement.

I agree with these objectors that no one thought of their unique concern in

formulating the settlement, but that is no reason not to approve it. The notion that interchange

fees may cause health insurers to cross to the wrong side of that 80% threshold is entirely

speculative.

4. Claims by States Acting in their Sovereign Capacity

State Attorneys General object that because state governmental entities may

accept Visa or MasterCard cards for payment, the releases might bar “claims that are uniquely

and exclusively claims belonging to the States as sovereigns,” specifically “state law

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44

enforcement or parens patriae claims,” including parens patriae claims for fines, civil, or other

penalties. State Obj. at 2, DE 2623.

As discussed above, the releases extend only to claims that are alleged or which

could have been alleged in this case. Thus, the settlement resolves claims made by persons,

businesses, and other entities that “arise from or relate to their capacity as merchants that accept

Visa-Branded Cards and/or MasterCard-Branded Cards in the United States . . . .” Revised Class

Notice at F2-12, DE 1740-2. Therefore, claims brought by States to vindicate interests in their

sovereign capacity are not barred by the release. Pls.’ Reply Mem. in Supp. Mot. Final Approval

84; Defs.’ Br. at 34.

Defendants have noted that while the releases do not extend to parens patriae

claims that States assert in their sovereign capacity, the releases bar claims that States may assert

in a representative capacity on behalf of state resident that are members of the Rule 23(b)(2) or

(b)(3) settlement class. States may assert parens patriae claims in a representative capacity for

injuries to the interests of state residents when specifically authorized by a federal or state

statute. See e.g., 15 U.S.C. § 15c; Cal. Bus. Prof. Code § 16760; 740 Ill. Comp. Stat. 10/7. In

such an action, the State’s claim is derivative of the state resident’s claim, and may be barred

where the resident’s claim is barred.

To resolve the concerns raised by state attorneys general, taking into

consideration the distinction between a state acting in its sovereign or quasi-sovereign capacity

and a state acting in its representative capacity, defendants have proposed the following

provision be added:

The Definitive Class Settlement Agreement and this ClassSettlement Order and Final Judgment do not bar an investigation oraction, whether denominated as parens patriae, law enforcement,or regulatory, by a state, quasi-state, or local governmental entity

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45

to vindicate sovereign or quasi-sovereign interests. The Definitive

Class Settlement Agreement and this Class Settlement Order andFinal Judgment bar a claim brought by a state, quasi-state, or localgovernmental entity’s proprietary interest (a) as a member of theRule 23(b)(2) Settlement Class, or (b) as a member of the Rule23(b)(3) Settlement Class that has received or is entitled to receivea financial recovery in this action. The Definitive Class SettlementAgreement and this Class Settlement Order and Final Judgmentalso bar a claim, whether denominated as seeking damages,restitution unjust enrichment, or other monetary relief, brought bya state, quasi-state, or local governmental entity for monetary harmsustained by natural persons, businesses, or other non-state, non-quasi-state, and non-local governmental entities or private partieswho themselves (a) are members of the Rule 23(b)(2) SettlementClass or (b) are members of the Rule 23(b)(3) Settlement Class.

Sept. 9, 2013 Letter from Defs. at 2 (August 21 Proviso), DE 5995.

To clarify the releases as they bear on states acting in their sovereign capacities, I

adopt that language, which shall be incorporated into the final settlement order and judgment.

5. Discover’ s Objection

Discover argues that the level-playing-field provision that cabins merchants’

ability to surcharge affects its network in unfair and competitively harmful ways. Specifically,

Discover requests that the Court reject the settlement because its “Equal Treatment Rule” will be

harmed by that provision. However, to the extent that Discover cards are lower-priced than Visa

and MasterCard products, Discover will not be affected by the level-playing-field provision. Its

claim that in “some situations” its Equal Treatment Rule may preclude surcharges against Visa

and MasterCard is not a reason to reject the Settlement Agreement.

6. The Notice to Class

Certain objectors argue that the notice sent to the class contains “false statements’

that render it inadequate. These false statements include: (1) attributing certain rule changes,

“namely the no-discounting and $10-minimum rules for credit transactions,” to the proposed

settlement, when the changes predated the settlement; (2) the notice stated that the release covers

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46

“other fees” and “other rules,” when it covers every merchant fee and all of Visa’s and

MasterCard’s rules and unwritten rules and practices; and (3) the notice fails to inform class

members that “the surcharging relief will be unavailable to the majority of merchants and

transactions . . . .” Obj. Pls.’ Br at 63.

The notice here meets the requirements of due process and notice standards. It

described the litigation, summarized the settlement’s terms, quoted the releases verbatim,

described the request for attorneys’ fees, expenses, and incentive awards for Class Plaintiffs, and

explained the deadline and procedure for filing objections to the settlement as well as opting out

of the case settlement class. The objectors’ complaints provide no reason to conclude that the

purposes and requirements of a notice to a class were not met here.

There is no showing that the notice did not meet this standard.

7.

Cohesiveness of the Rule 23(b)(2) Class; Adequacy of Class Plaintiffs

Some of the objectors contend that the Rule (b)(2) class is not cohesive. I

disagree.

A Rule 23(b)(2) class is warranted when “the party opposing the class has acted

or refused to act on grounds that apply generally to the class, so that final injunctive relief . . . is

appropriate respecting the class as a whole.” Fed. R. Civ. P. 23(b)(2). The network rules

regimes that gave rise to this case applied generally to every merchant accepting Visa or

MasterCard credit cards, and the injunctive relief in the proposed settlement does as well.

Specifically, all merchants have the same interest in being able to inform cardholders at the point

of sale of the acceptance costs of their credit cards and to either steer them to lower-cost

alternatives or recoup the cost of acceptance.

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47

In fact, by focusing the settlement efforts on the merchant restraints, as opposed

to, for example, default interchange (which many objectors assert should have been the focus),

Class Plaintiffs have enhanced the cohesion of the class. Even if judicial regulation of default

interchange fees were within the reach of the plaintiffs in this action, any such regulation would

affect the class unequally. As mentioned above, default interchange operates only in the absence

of bilateral agreement, and some of the very large merchants have sufficient transaction volume

that they can actually negotiate for their own, lower interchange structures. By ending a specific

merchant restraint that prohibits point-of-sale, competition-enhancing actions, every single

merchant that elects to avail itself of the new rules changes will have received the same benefit.

And because that benefit redesigns the relationship between the each merchant and the networks

in precisely the same manner, the structural relief is generally applicable to the class in the

manner required by Rule 23(b)(2). The fact that some merchants may elect not to avail

themselves of the rule, or are prohibited by factors beyond the scope of this lawsuit from

surcharging, does not undermine my conclusion that the class is sufficiently cohesive to warrant

Rule 23(b)(2) relief in this case.

In addition, the Class Plaintiffs adequately represent both the (b)(2) and the (b)(3)

settlement classes. As discussed above, the interests of the Class Plaintiffs and the rest of the

(b)(2) class are not antagonistic. In addition, the Class Plaintiffs have been involved in this

action from the outset and have fulfilled all of the obligations associated with being class

representatives. They have participated in discovery, in mediation, in court sessions, in the

evaluation of the mediators’ proposals, and in the formulation of the Settlement Agreement.20

20 The other requirements for certification of settlement classes under Rule 23 have not been the

principal focus of objection, and they are easily met here. Both the (b)(2) and (b)(3) classes contain several millionmerchants, satisfying numerosity. Commonality is satisfied because, for both classes, key questions of law and fact

– the application of the antitrust laws to uniform Visa and MasterCard policies – are common. Common answers to

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48

E.

The Plan of Allocation

“As a general rule, the adequacy of an allocation plan turns on . . . whether the

proposed apportionment is fair and reasonable” under the particular circumstances of the case.

In re PaineWebber Ltd. Partnerships Litig., 171 F.R.D. 104, 133 (S.D.N.Y. 1997), aff ’ d , 117

F.3d 721 (2d Cir. 1997). “An allocation formula need only have a reasonable, rational basis,

particularly if recommended by experienced and competent class counsel.” In re Am. Bank Note

Holographics, Inc., 127 F. Supp. 2d 418, 429-30 (S.D.N.Y. 2001) (internal quotation marks

omitted). Whether the allocation plan is equitable is “squarely within the discretion of the

those questions are inevitable, see Dukes, 131 S.Ct. at 2551, since the questions focus on the application of law tothe defendants’ conduct (which was essentially the same toward all class members), not on the individual conduct ofmany different plaintiffs. For similar reasons, typicality is satisfied, since “the named Plaintiffs’ claims are for thesame type of injury under the same legal theory as the rest of the class.” Reid v. SuperShuttle, International, Inc.,2012 WL 3288816, at *4 (E.D.N.Y. Aug. 10, 2012). Adequacy, as discussed above, is also met here.

Each class also satisfies its respective subsection of Rule 23(b).Because all the members of the injunctive relief class were subject to the same rules, and because the relief

afforded by that class is a change to those rules, the class satisfies the requirement that defendants have “acted orrefused to act on grounds that apply generally to the class, so that final injunctive relief . . . is appropriate respectingthe class as a whole.” Fed. R. Civ. P. 23(b)(2). As discussed above, the rules refor ms created by the settlement – in

particular, the ability for merchants to surcharge – affect all (b)(2) class members equally.The damages class satisfies Rule 23(b)(3)’s predominance and superiority requirements. As discussed

under Rule 23(a), the key issues for the damages class relate to defendants’ conduct, and those issues vastlyoutweigh – that is, predominate over – any relevant legal or factual determinations that vary among the plaintiffs. Itis true that individual differences exist in the class – for example, the ability of a few large merchants to negotiate

their own interchange fees. But in the main, differences among the (b)(3) class members go to the conceivablemonetary recovery, not liability, and two aspects of the settlement mitigate concerns about individual damagesissues. First, those (b)(3) class members who believe they may do better on their own are permitted to opt out, andmany have done so. As discussed above, many of the opt-outs are very large, sophisticated businesses, and they arecompetent to protect their own interests. The monetary settlement here does not harm them (and, to the extent itestablishes a precedent, probably helps them in their individual suits or negotiations). Second, for those classmembers who have not opted out, the fact of the settlement is “relevant,” see Amchem Products, Inc. v. Windsor ,521 U.S. 591, 619 (1997), since it creates a single method and procedure for recovering monetary claims that mightotherwise be complex and individualized. And of course, it is well-established that “[c]ommon issues may

predominate when liability can be determined on a class-wide basis, even when there are some individualizeddamage issues.” In re Visa Check/MasterMoney Antitrust Litig. , 280 F.3d at 139.

The settlement’s relevance is obvious for the superiority determination as well. This settlement is not perfect; as I noted above, one lawsuit cannot possibly address every party’s concerns about interchange fees and thenetworks’ rules. But for the purpose of remedying the plaintiffs’ damages claims flowing from the defendants’alleged antitrust violations, it’s hard to imagine a better alternative than a single, uniform claims procedure. Absentcertification, there would be no settlement, which would likely mean many fragmented lawsuits; that would riskinconsistent results and place a huge litigation burden on the defendants. It is also likely that, for the many smallermerchants that constitute the overwhelming majority of the class, the realistic alternative to certification is no caseat all, given the costs, risks, and range of recovery available in litigation. Cf. Carnegie v. Household Int’l, Inc., 376F.3d 656, 661 (7th Cir. 2004). In sum, common issues predominate and class treatment is superior because (b)(3)class is “sufficiently cohesive to warrant adjudication by representation.” Amchem, 521 U.S. at 623.

Thus, both classes meet the requirements of Rule 23, and certification is proper.

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49

district court.” In re PaineWebber, 171 F.R.D. at 132. I find that the plan is both fair and

reasonable, and thus I approve it.

The plan works as follows. The Class Administrator will distribute the $6.05

billion Cash Fund to Authorized Cash Claimants, on a pro rata basis, depending on the amount of

actual or estimated interchange fees they paid during the class period. (Plan of Administration

and Distribution at SA Appendix I.) Payments to Authorized Interchange Claimants from the

estimated $1.2 billion Default Interchange Payments Fund will be made pro rata, and will be

based on one-tenth of one percent of the claimant’s Visa and MasterCard transactions during the

eight-month period as compared to total of all claim values for that fund. The amount of

interchange fees paid by each authorized cash claimant will be determined or estimated from

data obtained by Class Counsel from Visa, MasterCard, the bank defendants, non-defendant

acquiring banks and independent service organizations subpoenaed by Class Counsel, and from

the Authorized Cash Claimants themselves. ( Id. at I-2).

There have been no substantive objections to the allocation plan except for a

speculative objection from Ace Hardware that I find to be without merit.

I conclude that this plan of allocation, which is recommended by experienced and

competent counsel, is fair, reasonable, and adequate. This conclusion is buttressed by the

relatively small number of opt-outs and absence of objections from class members. Accordingly,

I approve as final the allocation plan.

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50

CONCLUSION

For the reasons stated above, the proposed settlement is approved with the minor

modification set forth above. A status conference regarding the next steps in the case shall be

held on January 10, 2014 at 3:00 P.M.

So ordered.

John Gleeson, U.S.D.J.

Dated: December 13, 2013Brooklyn, New York

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IN THE

United States Court of AppealsFOR THE SECOND CIRCUIT

I N R E PAYMENT CARD I NTER CHANG E

FEE AND MERCHANT DISCOUNT

A NTIT RUST LITIGATION

JOINT PAGE-PROOF BRIEF FOROBJECTORS-APPELLANTS AND PLAINTIFFS-APPELLANTS

(MERCHANT APPELLANTS’ JOINT BRIEF)

Thomas C. Goldstein*†‡

Eric F. Citron

GOLDSTEIN & R USSELL P.C.5225 Wisconsin Avenue, N.W., Suite 404

Washington, D.C. 20015

202-362-0636

Michael J. Canter‡

Robert N. Webner

Kenneth J. Rubin

VORYS, S ATER , S EYMOUR AND PEASE LLP

52 East Gay Street

Columbus, Ohio 43215

614-464-6327

Gregory A. Clarick‡

CLARICK GUERON R EISBAUM LLP220 Fifth Avenue, 14th Floor

New York, New York 10001

212-633-4310

Stephen R. Neuwirth*

Sanford I. Weisburst

Steig D. OlsonCleland B. Welton II

QUINN EMANUEL URQUHART

& SULLIVAN, LLP

51 Madison Avenue, 22nd Floor


212-849-7000

Jeffrey I. Shinder†

Gary J. Malone

A. Owen Glist

CONSTANTINE CANNON LLP

335 Madison Avenue, 9th Floor


212-350-2700

On Appeal from the United States District Court

for the Eastern District of New York

12-4671-CV (L)

(Parties listed on inside cover)

12-4708-cv (CON), 12-4765-cv (CON), 13-4719-cv (CON), 13-4750-cv (CON), 13-4751-cv (CON),13-4752-cv (CON), 14-32-cv (CON), 14-117-cv (CON), 14-119-cv (CON), 14-133-cv (CON), 14-157-cv (CON),14-159-cv (CON), 14-192-cv (CON), 14-197-cv (CON), 14-219-cv (CON), 14-225-cv (CON), 14-241-cv (CON),14-250-cv (CON), 14-266-cv (CON), 14-303-cv (CON), 14-331-cv (CON), 14-349-cv (CON), 14-404-cv(CON),14-422-cv (CON), 14-443-cv(CON),14-480-cv (CON), 14-497-cv (CON), 14-530-cv (CON), 14-567-cv (CON),

14-584-cv (CON), 14-606-cv (CON), 14-663-cv(CON), 14-837-cv (CON)

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*Attorneys for Objector-Appellant

Home Depot U.S.A., Inc.

† Attorneys for Plaintif fs-Appellants

Coborn’s Incorporated; D’Agostino Supermarkets, Inc.; Jetro Holdings, LLC;

Affi liated Foods Midwest Cooperative, Inc.; National Association of Convenience

Stores (NACS); National Community Pharmacists Association (NCPA);

National Cooperative Grocers Association (NCGA); National Grocers

Association (NGA); National Restaurant Association (NRA); and NATSO Inc.;

And Objectors -Appellants

7-Eleven, Inc.; Academy, Ltd. d/b/a Academy Sports Outdoors;Aldo US Inc. d/b/a Aldo

and Call It Spring; Alon USA, LP (Alon Brands); Amazon.com, Inc.; American Eagle

Outfitters, Inc.; Barnes & Noble, Inc.; Barnes & Noble College Booksellers, LLC;

Best Buy Stores, L.P.; BJ’s Wholesale Club, Inc.; The William Carter Company (Carter’s);

Costco Wholesale Corporation; Crate & Barrel Holdings, Inc.; Darden Restaurants, Inc.; David’s Bridal, Inc., DBD Inc. and David’s Bridal Canada Inc.; Dick’s Sporting Goods, Inc.;

Dillard’s, Inc.; Family Dollar Stores, Inc.; Drury Hotels Company, LLC; Foot Locker, Inc.;

Gap Inc.; GNC Holdings, Inc. (General Nutrition Corporation); Genesco Inc.;

The Gymboree Corporation; HMSHost Corporation; IKEA North America Services, LLC;

J. Crew Group, Inc.; Kwik Trip, Inc.; Lowe’s Companies, Inc.; Marathon Petroleum LP;

Martin’s Super Markets, Inc.; Michaels Stores, Inc.; National Railroad Passenger

Corporation d/b/a Amtrak; Nike, Inc.; Panda Restaurant Group, Inc.;

Panera Bread Company; P.C. Richard & Son, Inc.; PETCO Animal Supplies, Inc.;

PetSmart, Inc.; RaceTrac Petroleum, Inc.; Recreational Equipment, Inc. (REI);

Roundy’s Supermarkets, Inc. d/b/a Pick ‘N Save, Rainbow, Copps, Metro Market and

Mariano’s; Sears Holdings Corporation; Speedway LLC; Starbucks Corporation;

Stein Mart, Inc.; Thermo Fisher Scientific Inc.; The Wendy’s Company; The Wet Seal, Inc.;

Whole Foods Market, Inc.; Zappos.com, Inc.; Fleet Wholesale Supply Co., Inc.;

Mills Motor, Inc.; Mills Auto Enterprises, Inc.; Willmar Motors, LLC; Mills Auto Center, Inc.;

Fleet and Farm of Alexandria, Inc.; Fleet Wholesale Supply of Fergus Falls, Inc.; Fleet and

Farm of Green Bay, Inc.; Fleet and Farm of Menomonie, Inc.; Mills Fleet Farm, Inc.;

Fleet and Farm of Manitowoc, Inc.; Fleet and Farm of Plymouth, Inc.; Fleet and Farm

Supply Company of West Bend, Inc.; Fleet and Farm of Waupaca, Inc.; Mills E-Commerce

Enterprises, Inc.; Brainerd Lively Auto, LLC; Ashley Furniture Industries Inc.; Beall’s, Inc.;

Boscov’s, Inc.; The Buckle, Inc.; Buc-ee’s Ltd.; The Children’s Place Retail Stores, Inc.;

Cracker Barrel Old Country Store, Inc.; Cumberland Farms, Inc.; Express, LLC;

Family Express Corporation; New York & Company, Inc.; Republic Services, Inc.;

Swarovski U.S. Holding Limited; The Talbots, Inc.

‡ Attorneys for Objectors-Appellants

Target Corporation; Macy’s, Inc.; Kohl’s Corporation; The TJX Companies, Inc.;

Staples, Inc.; J.C. Penney Corporation, Inc.; Office Depot, Inc.; L Brands, Inc.;

Big Lots Stores, Inc.; PNS Stores, Inc.; C.S. Ross Company; Closeout Distribut ion, Inc.; Ascena Retail Group, Inc.; Abercrombie & Fitch Co.; OfficeMax Incorporated;

Saks Incorporated; The Bon-Ton Stores, Inc.; Chico’s FAS, Inc.;

Luxot tica U.S. Holdings Corp. and American Signature, Inc.

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i

CORPORATE DISCLOSURE STATEMENT

The parties to this brief have submitted contemporaneously herewith a

Compendium of Corporate Disclosure Statements Pursuant to Rule 26.1 of the

Federal Rules of Appellate Procedure.

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ii

TABLE OF CONTENTS

Page

CORPORATE DISCLOSURE STATEMENT .......................................................... i

TABLE OF AUTHORITIES ..................................................................................... v

PRELIMINARY STATEMENT ............................................................................... 1

JURISDICTION ......................................................................................................... 6

ISSUES PRESENTED ............................................................................................... 6

STATEMENT OF THE CASE .................................................................................. 7

I.

The Underlying Anticompetitive Conduct ...................................................... 7

II. The Settlement Negotiations And Agreement ............................................... 10

III.

Reactions To The Settlement ......................................................................... 18

IV.

The Objections And Their Rejection By The District Court......................... 21

A.

Objections To The Release Of Monetary Claims ............................... 21

B. Cohesion Objections ........................................................................... 22

C.

Objections To Adequacy Of Representation....................................... 25

D. Objections To The Scope Of The Release .......................................... 26

STANDARD OF REVIEW ..................................................................................... 28

SUMMARY OF ARGUMENT ............................................................................... 28

ARGUMENT ........................................................................................................... 32

I.

The District Court’s Judgment Impermissibly Extinguishes ClassMembers’ Individualized Claims For Money Damages WithoutProviding Opt-Out Rights. ............................................................................. 32

A.

Both the Due Process Clause and Rule 23 mandate that classmembers have the right to opt out and pursue theirindividualized legal claims. ................................................................. 32

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iii

B. The certification of the (b)(2) settlement class must be vacated

because it extinguishes merchants’ individualized legal claimswithout providing an opt-out right. ..................................................... 38

1. The settlement, on its face, releases individualizedmonetary claims. ....................................................................... 38

2.

The settlement has the effect of releasing a host ofindividualized legal claims. ...................................................... 39

C. There is no legitimate justification for denying merchants opt-out rights. ............................................................................................. 44

1.

There is no merit to the district court’s theory that a non-

opt-out class was permissible because the settlement provides its members no monetary relief. ................................. 44

2.

Rule 23(b)(2) does not allow the certification ofmonetary claims that arise in the future for the purpose ofcreating “litigation peace.” ........................................................ 47

II. The Mandatory Class Lacked The Required Cohesion Of Interests. ............ 48

A.

The greatest degree of cohesion is required for mandatorysettlement classes. ............................................................................... 48

B. The merchants bound to the (b)(2) class in this case were toodiverse for a single, indivisible injunction, and the settlementdoes not treat those class members equally......................................... 52

1. Class members had varying interests in the broad set ofclaims that the settlement purported to release. ........................ 53

2.

Class members had varying interests in the one claim onwhich limited relief was actually provided. .............................. 56

3. The relief on the Complaint’s surcharging claim does notconstitute an indivisible injunction. .......................................... 61

C.

The district court’s cohesion analysis ignored these flaws. ................ 63

III.

The Settlement Violates The Requirement Of Rule 23(a)(4) That TheClass Members Receive Adequate Representation. ...................................... 66

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iv

A. Adequate representation requires separate representatives and

counsel for subgroups with divergent interests. .................................. 66

B.

The (b)(2) and (b)(3) classes had antagonistic interests andcould not be adequately represented by common representativesand counsel. ......................................................................................... 68

C.

There is no substitute for independent and adequaterepresentation. ..................................................................................... 74

1. Overlap ...................................................................................... 75

2.

Results ....................................................................................... 78

IV.

By Releasing All Future Antitrust Claims, Including Claims That FarExceed The Scope Of The Complaint, The Settlement ViolatesControlling Precedent And Exceeds The Power Of A Federal Court. .......... 80

A. The settlement unlawfully releases future antitrust claims. ................ 80

B.

The settlement unlawfully releases claims beyond the scope ofthe present litigation. ........................................................................... 82

1. The settlement improperly releases unripe future claims. ........ 84

2. The settlement improperly releases present claims beyond the scope of the case. .................................................... 87

CONCLUSION ........................................................................................................ 91

CERTIFICATE OF COMPLIANCE ....................................................................... 94

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v

TABLE OF AUTHORITIES

Page

Cases

Am. Express Co. v. Italian Colors Rest.,133 S. Ct. 2304 (2013) ............................................................................ 31, 81

In re Am. Int’l Grp. Sec. Litig.,689 F.3d 229 (2d Cir. 2012) ..........................................................................57

Am. Safety Equip. Corp. v. J. P. Maguire & Co.,391 F.2d 821 (2d Cir. 1968) ..........................................................................81

Amchem Prods., Inc. v. Windsor ,521 U.S. 591 (1997)................................. 4, 35, 42, 45, 48, 49, 51, 52, 53, 57,

59, 64, 67, 68, 71, 73, 75, 77, 78

Authors Guild v. Google Inc.,770 F. Supp. 2d 666 (S.D.N.Y. 2011) .............................................. 32, 87, 90

Barnes v. Am. Tobacco Co.,161 F.3d 127 (3d Cir. 1998) ..........................................................................49

Casa Orlando Apartments, Ltd. v. Fed. Nat’l Mortgage Ass’n, 624 F.3d 185 (5th Cir. 2010) .........................................................................50

Charron v. Wiener ,731 F.3d 241 (2d Cir. 2013) ................................................................... 28, 37

E & L Consulting, Ltd. v. Doman Indus. Ltd.,472 F.3d 23 (2d Cir. 2006) ............................................................................ 85

Eubank v. Pella Corp.,2014 WL 2444388 (7th Cir. June 2, 2014) ....................................................75

Fox Midwest Theatres, Inc. v. Means,221 F.2d 173 (8th Cir. 1955) .........................................................................82

Gaines v. Carrollton Tobacco Bd. of Trade, Inc.,386 F.2d 757 (6th Cir. 1967) .........................................................................82

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vi

Gerber v. MTC Elec. Techs. Co.,

329 F.3d 297 (2d Cir. 2003) ..........................................................................28

Hecht v. United Collection Bureau, Inc.,691 F.3d 218 (2d Cir. 2012) ..........................................................................36

Jefferson v. Ingersoll Int’l Inc.,195 F.3d 894 (7th Cir. 1999) .........................................................................36

Joel A. v. Giuliani,218 F.3d 132 (2d Cir. 2000) ..........................................................................37

In re Joint E. and S. Dist. Asbestos Litig., 982 F.2d 721 (2d Cir. 1992) ..........................................................................75

Kartman v. State Farm Mut. Auto. Ins. Co.,634 F.3d 883 (7th Cir. 2011) .........................................................................50

Lawlor v. Nat’l Screen Serv. Corp.,349 U.S. 322 (1955).................................................................... 31, 81, 82, 84

Lemon v. Int’l Union of Operating Eng’rs,216 F.3d 577 (7th Cir. 2000) .........................................................................49

In re Literary Works in Elec. Databases Copyright Litig.,654 F.3d 242 (2d Cir. 2011) .................... 2, 28, 37, 46, 52, 65, 68, 73, 74, 77,

78, 83, 85, 86

Logan v. Zimmerman Brush Co.,455 U.S. 422 (1982).......................................................................................32

In re Masters Mates & Pilots Pension Plan & IRAP Litig.,957 F.2d 1020 (2d Cir. 1992) ........................................................................28

M.D. ex rel. Stukenberg v. Perry,675 F.3d 832 (5th Cir. 2012) .........................................................................50

Minn. Mining & Mfg. Co. v. Graham-Field, Inc.,1997 WL 166497 (S.D.N.Y. Apr. 9, 1997) ...................................................82

Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.,473 U.S. 614 (1985)................................................................................ 81, 82

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vii

Nat’l Super Spuds, Inc. v. N.Y. Mercantile Exch.,

660 F.2d 9 (2d Cir. 1981) ....................................................................... 83, 86

Ortiz v. Fibreboard Corp.,527 U.S. 815 (1999)................................. 5, 31, 33, 36, 42, 43, 48, 51, 64, 65,

67, 71, 72, 73, 77

Phillips Petroleum Co. v. Shutts,472 U.S. 797 (1985)................................ 12, 21, 29, 32, 33, 36, 37, 42, 43, 49

Prime Mgmt. Co., Inc. v. Steinegger ,904 F.2d 811 (2d Cir. 1990) ..........................................................................84

Robertson v. NBA,

556 F.2d 682 (2d Cir. 1977) ..........................................................................86

Robinson v. Metro-North Commuter R.R. Co.,267 F.3d 147 (2d Cir. 2001) .................................................................... 48-49

In re St. Jude Med., Inc.,425 F.3d 1116 (8th Cir. 2005) .......................................................................49

Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc.,40 F.3d 247 (7th Cir. 1994) ...........................................................................82

Stephenson v. Dow Chem. Co.,273 F.3d 249 (2d Cir. 2001),vacated in part on other grounds,539 U.S. 111 (2003).................................................................... 36, 42, 43, 77

TBK Partners, Ltd. v. Western Union Corp.,675 F.2d 456 (2d Cir. 1982) ................................................................... 37, 83

Three Rivers Motor Co. v. Ford Motor Co.,522 F.2d 885 (3d Cir. 1975) ..........................................................................82

United States v. Visa U.S.A., Inc.,344 F.3d 229 (2d Cir. 2003) ..................................................................... 7, 40

In re Visa Check/MasterMoney Antitrust Litig.,280 F.3d 124 (2d Cir. 2001) ......................................................... 2, 36, 52, 89

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viii

Wal-Mart Stores, Inc. v. Dukes,

131 S. Ct. 2541 (2011) ............................. 4, 12, 21, 29, 30, 33, 34, 35, 38, 39,43, 45, 46, 49, 50, 55, 61, 63

Wal-Mart Stores, Inc. v. Visa U.S.A. Inc.,396 F.3d 96 (2d Cir. 2005) ................................................................. 7, 46, 86

Weinberger v. Kendrick ,698 F.2d 61 (2d Cir. 1982) ............................................................................ 86

Constitution, Statutes, and Rules

U.S. Const. amend. V ............................ 1, 2, 6, 21, 29, 32, 42, 43, 44, 49, 52, 64, 77

28 U.S.C. § 1291 ........................................................................................................6

28 U.S.C. § 1331 ........................................................................................................6

28 U.S.C. § 1332 ........................................................................................................6

28 U.S.C. § 1337 ........................................................................................................6

28 U.S.C. § 2201 ........................................................................................................6

28 U.S.C. § 2202 ........................................................................................................6

Fed. R. Civ. P. 23 ............................................................................................. passim

Fed. R. Civ. P. 23(a)(4) ............................................................. 66, 67, 71, 74, 75, 78

Fed. R. Civ. P. 23(b)(1) ..................................................................................... 45, 47

Fed. R. Civ. P. 23(b)(2) .................................................................................... passim

Fed. R. Civ. P. 23(b)(3) .................................................................................... passim

Fed. R. Civ. P. 23(c)(2)(B) ......................................................................................34

Fed. R. Civ. P. 23(c)(4)(B) ......................................................................................71

Other Authorities

James Grimmelmann, Future Conduct and the Limits of Class-Action

Settlements, 91 N.C. L. Rev. 387 (2013) ................................................. 84, 85

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ix

Benjamin Kaplan, Continuing Work of the Civil Committee: 1966

Amendments of the Federal Rules of Civil Procedure, 81 Harv. L.Rev. 356 (1967) .............................................................................................45

Moore’s Federal Practice § 23.25[5][e] ...................................................................67

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1

PRELIMINARY STATEMENT

Unless reversed, the district court’s class-certification ruling in this case will

inaugurate a new and dangerous model for settlement class actions. The settlement

approved below forces a diverse collection of tens of millions of class members to

release a wide array of individualized monetary claims against the defendants.

Supreme Court precedent unambiguously bars that result; class members have the

right under both the Due Process Clause and Federal Rule of Civil Procedure 23 to

opt out of any settlement resolving monetary claims so that they may pursue those

claims individually. But the purpose and effect of this settlement is to evade that

established rule: It creates contrived opt-out and non-opt-out classes, represented

by the same lawyers and class representatives, in order to require all the members

of the larger, non-opt-out class to release all of their claims.

In approving the settlement, the district court allowed the defendants to pay

money to the opt-out class in exchange for a compulsory release from the non-opt-

out class of claims against the defendants’ ongoing and future conduct—money

damages claims included. That trade violates the right of objecting class

members—like the more than 200 objectors joining this “Merchant Appellants’

Joint Brief”—to litigate their own individualized claims and so to preserve their

only chance to stop conduct they believe is unlawful. The district court’s judgment

approving this design should be reversed.

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2

Here, in sum, are the facts: The plaintiffs are merchants that accept Visa and

MasterCard. They brought suit under the Sherman Act against Visa, MasterCard,

and certain of their member banks. The Complaint targeted specific

anticompetitive practices that defendants use to inflate the “interchange” fees

merchants pay for accepting their cards. The plaintiffs sought to proceed on behalf

of a massive collection of diverse merchants that take such cards—from the largest

chain stores to the smallest food trucks.

The plaintiffs’ lawyers then negotiated a settlement with the defendants.

Consistent with the Due Process Clause and Rule 23, the settlement could have

resolved the plaintiffs’ claims on an opt-out basis. See, e.g., In re Visa

Check/MasterMoney Antitrust Litig. (“Visa Check ”), 280 F.3d 124, 147 (2d Cir.

2001) (Sotomayor, J.); In re Literary Works in Elec. Databases Copyright Litig.

(“ Literary Works”), 654 F.3d, 242, 246 (2d Cir. 2011). But these defendants

conditioned a multi-billion dollar payment—and commensurate fee award to class

counsel—on a non-opt-out agreement that immunized the defendants from any

future challenge by any merchant to their ongoing conduct. The appellants joining

this brief are among the large proportion of merchants that objected to such a

settlement as not only substantively inadequate, but also a wrongful deprivation of

their fundamental right to protect their interests individually.

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3

One set of counsel and representative plaintiffs negotiated the settlement for

both classes; the non-opt-out class, despite its divergent interests, was not afforded

independent representation. The unprecedented settlement they reached involves

two key elements.

First, the settlement defines a conventional opt-out class of merchants that

accepted Visa or MasterCard in the past. The settlement grants these merchants

cash as compensation for past damages, if they do not opt out.

Second, and critically, the settlement defines a non-opt-out class consisting

of all merchants that accept Visa or MasterCard at any time after November 28,

2012 (the date the district court granted the settlement preliminary approval). This

class includes all the members of the opt-out class who remain in business—even

those who have actually opted out—plus all the millions of merchants that will

ever be founded and accept credit cards at any point in the future. In substance, the

settlement grants these merchants limited prospective relief with respect to only

one challenged practice, while immunizing the defendants from suit regarding the

other practices challenged by the Complaint. Indeed, the immunity is substantially

broader than even that: From the date of preliminary approval, the settlement

forces all the non-opt-out class members to forever release their claims against the

defendants with respect to all the conduct challenged in the Complaint, all of

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4

defendants’ other existing policies and practices, and any substantially similar

practices they ever adopt in the future.

This settlement scheme is unlawful. The Supreme Court recently and

unanimously reiterated that class-action judgments may not resolve individualized

monetary claims without an opt-out right. See Wal-Mart Stores, Inc. v. Dukes, 131

S. Ct. 2541, 2558-59 (2011). Yet this settlement does just that, granting

defendants sweeping prospective immunity from suit—including suits for money

damages. Defendants retain that immunity forever, even if economic

circumstances change in a manner that exacerbates the anticompetitive effects of

their practices or creates new harms.

This settlement thus forces a group of motivated and well-equipped

commercial entities—standing ready and willing to litigate the unlawfulness of

defendants’ conduct—to surrender their high-value monetary claims forever. That

result inverts the “core” utility of class actions, which is “to overcome the problem

that small recoveries do not provide the incentive for any individual to bring a solo

action prosecuting his or her rights.” Amchem Prods., Inc. v. Windsor , 521 U.S.

591, 617 (1997) (citation and quotation omitted).

The settlement is plainly unlawful in other respects as well. It binds together

an astonishingly disparate class with tens of millions of members—essentially,

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5

every imaginable merchant—each with radically different interests in the many

claims it releases.

Further, one set of class counsel and representatives bargained on behalf of

two classes with conflicting interests. The substantially larger non-opt-out class—

including new, growing, and yet-to-be-created merchants—naturally favored

forward-looking relief that would protect against future harms. The smaller, opt-

out class necessarily had a relatively greater interest in retrospective relief— i.e.,

money damages. The class representatives and counsel thus had an incentive to

sacrifice the future-looking interests of the former for the money immediately

available to the latter. The Supreme Court has held that just such a design is

“obvious[ly]” unlawful. Ortiz v. Fibreboard Corp., 527 U.S. 815, 856 (1999).

This settlement structure is surely a boon to defendants, who can secure

permanent immunity for their ongoing practices. But Rule 23 does not exist to

strip objecting class members of the right to pursue their own legal claims. Those

claims vindicate not only private rights, but also the substantial public interest in

enforcement of the antitrust laws. If this settlement stands, class members will not

get their day in court, and practices that raise prices for everyone will be

immunized from any future challenge. Nothing—and certainly not defendants’

desire for “litigation peace,” SPA44—can justify that result.

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7

modest injunctive relief is required to grant the defendants a sweeping release from

future liability?

4. Does this settlement unlawfully release future antitrust claims, unripe

claims against future conduct, and claims that exceed the scope of the Complaint?

STATEMENT OF THE CASE

This is an appeal from a judgment of the U.S. District Court for the Eastern

District of New York (Gleeson, J.), certifying settlement-only classes and

approving a final class-action settlement. The opinion is not yet reported but is

available at 2013 WL 6510737 (E.D.N.Y. Dec. 13, 2013).

I. The Underlying Anticompetitive Conduct

Merchants are charged an “interchange fee” every time they accept a Visa or

MasterCard credit or debit card.1 These fees are lucrative: U.S. merchants alone

pay more than $40 billion per year. See JA[__]{DE-1533 (Plaintiffs’ Summ. J.

Opp. 20-21; Rebuttal Report of Alan S. Frankel, Ph.D. ¶216; Report of Robert H.

Topel at 22 n.52)}. The high price reflects the fact that interchange fees are set on

1 For further industry background, see Wal-Mart Stores, Inc. v. Visa U.S.A.

Inc., 396 F.3d 96, 101-02 (2d Cir. 2005), and United States v. Visa U.S.A., Inc.,344 F.3d 229, 234-37 (2d Cir. 2003). Further detail is also provided in the

Merchant Trade Groups’ Brief, which focuses on the unfairness of the settlement.These appellants join those arguments and incorporate them by reference, alongwith the arguments advanced in the briefs of the Retailers and MerchantsObjectors, and U.S. PIRG and Consumer Reports.

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8

a non-competitive, industry-wide basis through the Visa and MasterCard networks

that nominally exist to facilitate payments among merchants and banks.

This case arises from a consolidated class-action Complaint asserting

antitrust claims against Visa and MasterCard, as well as their member banks,

relating to these interchange fees. Visa and MasterCard have some 5,000 pages of

rules, spread over sixteen rulebooks, governing acceptance of Visa and MasterCard

transactions. See JA[__] (public rulebooks); JA[__]{Corrected 9/12/13 Tr. 100;

DE2605 (Amazon.com Obj. ¶14)}. But the Complaint challenged only a tiny

fraction of those rules and practices as restraining competition among banks over

interchange fees.2

The plaintiffs’ core allegation is that the defendants fix interchange fees by

adhering to published schedules of so-called “default” rates. See JA[__]

(Complaint ¶¶1, 443-68). These schedules provide a rate in the absence of a

bilateral agreement between a given bank and a particular merchant. In practice,

however, the default rate is the actual rate. Although banks and merchants can

theoretically negotiate individual agreements, that does not happen in reality. The

default rates—together with other practices—eliminate any incentive for the banks

2

There were ultimately three complaints in the case, two of which wereaddressed to the Visa and MasterCard IPOs. The operative complaint for present purposes is the Second Consolidated Amended Class Action Complaint, and isreferred to as “the Complaint.” See JA[__].

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9

to compete with each other and to negotiate with merchants over rates or terms of

acceptance. So Visa and MasterCard set the default fees at supra-competitive

levels, and the banks in turn apply those rates without risk that their competitors

will offer merchants a lower price.

The most important additional restraint supporting this anticompetitive

regime is the collection of rules known as “Honor-All-Cards,” which requires any

merchant that accepts any credit (or debit) card on the Visa or MasterCard network

to accept all credit (or debit) cards on that network. It makes no difference which

bank issued the card or—critically—what interchange fee applies to the card. So,

for example, if a merchant wants to take Visa credit cards, it must accept not only

basic Bank of America Visa cards but also Chase’s premium Sapphire Preferred

Visa cards, even if the merchant must pay a substantially higher interchange fee for

the latter. JA[__] (Complaint ¶¶8(m), 240, 244, 436). As a consequence, no bank

has an incentive to offer a merchant a lower interchange rate to accept any of its

cards: A merchant cannot reject any issuing bank’s Visa or MasterCard credit card

without dropping the entire network, including the less expensive cards of every

other bank.

Visa and MasterCard have other “anti-steering” rules that reinforce the

barriers to interchange competition among the banks. JA[__] (Complaint, ¶8(d)).

Although the settlement in this case does not provide any relief with respect to

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10

default interchange or Honor-All-Cards, it does address one such restraint: the “no-

surcharging” rule. Before the settlement, Visa and MasterCard barred merchants

from charging a customer any additional fee for using any kind of payment card.

If merchants could impose such “surcharges,” they could theoretically encourage

consumers to use lower-cost options. See, e.g., JA[__] (Complaint ¶¶8(d), 94, 97,

189-99). But many states prohibit surcharging by statute, making the networks’

no-surcharging rules irrelevant in those parts of the country. See infra, at 22-23,

56-60.

II. The Settlement Negotiations And Agreement

Class counsel and the defendants sought to negotiate a comprehensive

settlement that would bind every kind of merchant that accepts payment cards.

Their putative class has tens of millions of members and is breathtaking in scope.

It includes Amazon’s nationwide delivery service and the local pizza delivery

shop; big-box retailers and mobile food trucks; tech-savvy online sellers and local

corner stores; high-fashion retailers where almost everyone uses credit cards and

low-margin food marts where consumers routinely use debit, cash, or personal

checks. Indeed, the pervasive presence of payment cards stretches the class far

beyond recognizable retail merchants to include health insurers, state governments,

public utilities, and all other entities that accept Visa or MasterCard.

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11

Class counsel’s stated goal in the litigation was to secure not only

compensation for the merchants’ past damages, but also lasting reform for the

future. As lead counsel explained: “While th[e] … action contained a damage

claim, and we certainly expected damages to be enormous, the primary goals were

to reform the market by eliminating the horizontal agreements among the banks to

fix the levels of interchange fees and enforce the rules that we were challenging.”

JA[__]{DE2113-6 (Wildfang Decl. ¶24)}.

For their part, the defendants also had an overriding goal in settlement

negotiations: complete and permanent litigation peace extending well beyond the

limited structural changes they were willing to make to their practices going

forward. Because banks receive $40 billion annually in interchange fees, they

could easily afford to make a nominally large cash payment to the class, as well as

minor rules changes. But in return, they required assurances that they would never

face additional private suits by merchants relating to any of their policies or

practices. Throughout the negotiations, the two objectives were bound together.

As lead counsel further explained: “The negotiations before the mediators were

always—one issue was monetary, the other issue was equitable relief. One was not

going to be reached without reaching the other.” JA[__]{DE1732 (11/9/12 Tr. 9)}.

The interests of the negotiating parties culminated in the sweeping

settlement at issue in this appeal. It seeks to grant the defendants an expansive,

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12

permanent immunity from suit by any merchant, including from legal claims for

money damages. But the settling parties faced the obstacle that Supreme Court

precedent unambiguously prohibits a mandatory class-action judgment that

resolves class members’ individualized monetary claims. See, e.g., Dukes, 131

S. Ct. at 2558-59; Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 811-12 (1985).

The settlement attempts to avoid that rule by defining two classes: (1) an opt-out

class that would receive money damages, and (2) a non-opt-out class that would

release all its claims prospectively as of the settlement’s preliminary approval.

First, the settlement creates an opt-out class certified under Rule 23(b)(3).

This class encompasses all merchants with damages claims arising before the date

of preliminary approval (November 28, 2012). SPA118 (Settlement ¶2(a)). Class

counsel estimated that this class contains more than 12 million members. SPA23.

Members of the (b)(3) class that did not opt out would receive payments from “two

cash funds totaling up to an estimated $7.25 billion.” SPA13.3 The participating

members of this class must release all existing and future claims against defendants

3 The cash payment was set at $6.05 billion, subject to reductions of up to

25% for opt-outs. SPA77-78 (Judgment ¶9(a)); SPA120-21, 125-26 (Settlement ¶¶9-11, 18-20). Because opt-outs exceeded 25% of the transaction volume atissue, the $6.05 billion was reduced to about $4.5 billion. SPA77-78 (Judgment

¶¶8, 9(a)); JA[__]{DE5940 (Class Plaintiffs’ Fee Reply at 7)}. Those remaining in

the (b)(3) class will also receive an estimated ten-basis-point interchange feereduction for eight months. SPA54; SPA78 (Judgment ¶9(b)); SPA121-24(Settlement ¶¶11-15). Together, this consideration is actually worth about $5.7

billion (or about $5.2 billion after deduction of counsels’ fees).

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13

with respect to any of their current rules or practices, as well as any future rules or

practices that are substantially similar. SPA131-39 (Settlement ¶¶31-38). The

release granted by this class is non-mandatory, however, because merchants may

opt out.

The settlement also creates a second, non-opt-out class certified under Rule

23(b)(2). This class encompasses all merchants that have accepted Visa or

MasterCard since the date of preliminary approval or will accept either of them in

the future. SPA118 (Settlement ¶2(b)).4 The members of this class are defined by

their possession of claims arising any time after preliminary approval—including

individualized claims for money damages that accrue at any point in the future.

This class includes all the members of the opt-out class that remained in business

after preliminary approval (even if they opted out), plus tens of millions of

additional merchants that will subsequently open their doors and accept Visa or

MasterCard. In sum, because this class is mandatory, every merchant in the

country that now or in the future accepts Visa or MasterCard is bound by its terms

and barred from opting out.

4

Because acceptance of those brands is ubiquitous, and the settlement is onlyrelevant to merchants that do accept Visa or MasterCard, we use “all merchants” asshorthand for “all merchants to the extent they ever accept a Visa or MasterCardtransaction.”

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14

The settlement with the non-opt-out (b)(2) class leaves in place—and indeed

immunizes from any later suit—the default interchange schedules and Honor-All-

Cards rules that were the focus of the plaintiffs’ antitrust claims. Instead, Visa and

MasterCard agreed to three limited forms of prospective relief. See SPA85-87

(Judgment ¶13(c)-(f), (i)-(j)). These limited changes remain in place only until

July 20, 2021. SPA87 (Judgment ¶13(m)); SPA151, 164 (Settlement ¶¶45, 58).

First, the settlement permits merchants to accept Visa or MasterCard at some

outlets, but not others, if those outlets operate under separate trade names or

banners. SPA85 (Judgment ¶13(c)-(d)); SPA140-41, 153-54 (Settlement ¶¶41,

54). Visa and MasterCard never explicitly prohibited this practice, however. See

JA[__]{DE2448 (Costco Obj. ¶20); DE2644 (Wal-Mart Obj. ¶41)}. Further, this

relief is irrelevant to the vast majority of U.S. merchants, who operate exclusively

under one trade name.

Second, the settlement provides that Visa and MasterCard will negotiate in

good faith with merchant-organized buying groups. SPA86-87 (Judgment ¶13(i)-

(j)); SPA149-50, 163-64 (Settlement ¶¶43, 56). But here too, Visa and MasterCard

never expressly prohibited this practice before. SPA43. Further, the obligation is

only to negotiate; there is no enforceable duty to reach agreement. Finally, this

relief is of limited practical value for the many merchants who are unlikely to join

with competitors because of their size or business model.

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15

Third—and embodying the only form of relief the district court thought had

any material significance—the settlement provides that merchants may engage in

certain forms of surcharging. The settlement permits surcharging at the “Brand

Level” (i.e., all Visa and/or MasterCard transactions) or the “Product Level” (i.e.,

transactions on cards of the same type, such as all Visa Traditional Rewards cards

but not Visa Classic cards). SPA85-86 (Judgment ¶13(e)-(f)); SPA141-49, 154-63

(Settlement ¶¶42, 55). But while the settlement addresses defendants’ surcharging

bans, many class members will remain foreclosed from surcharging by substantial

legal, contractual, and practical barriers, including state law prohibitions and pre-

existing contracts. See infra, at 22-23, 56-60.

Whatever the value of these three forms of relief to individual class

members, the settlement mandates that, in exchange, the entire (b)(2) class grant

defendants a sweeping immunity from suit—including suits for money damages.

All of the millions of existing and future (b)(2) class members are forced to release

their claims regarding defendants’ post-November 28, 2012 conduct. That release

covers all of Visa’s and MasterCard’s existing rules, all their unwritten practices,

and any future rules or practices that “may in the future exist in the same or

substantially similar ” form. SPA169-72, 173-74 (Settlement ¶¶68, 71) (emphasis

added).

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16

Unlike the changes described above, this broad release continues in

perpetuity. And it extends to new merchants that do not yet even exist. Merchants

that start accepting Visa and MasterCard transactions only after July 20, 2021

release their claims even though they will not receive any of the settlement relief at

all.

The (b)(2) release explicitly extends not only to claims in the Complaint on

which the class receives no relief, but also to claims that were not—indeed, could

not have been—asserted in the Complaint. The settlement requires the (b)(2) class

to grant the defendants immunity from suit with respect to “any other actual or

alleged Rule,” SPA170 (Settlement ¶68(c)), defined to mean “any rule, by-law,

policy, standard, guideline, operating regulation, practice, procedure, activity or

course of conduct relating to any Visa-Branded Card or any MasterCard-Branded

Card,” SPA113 (Settlement ¶1(mm)) (emphasis added). It thus reaches the entirety

of defendants’ detailed rulebooks, as well as all of their unwritten rules, policies,

and practices.

The release applies to all manner of claims, including money damages

claims, even if they did not exist at the time the Complaint was filed. It also

encompasses claims that could only arise in the future—for example, because

circumstances change to make a current policy unlawfully anticompetitive. The

release extinguishes “any and all manner of claims” including:

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17

any form of declaratory, injunctive, or equitable relief, or any

damages or other monetary relief relating to the period after the dateof the Court’s entry of Class Settlement Preliminary Approval … thatany Rule 23(b)(2) Settlement Class Releasing Party now has, or

hereafter can, shall, or may in the future have….

SPA169 (Settlement ¶68) (emphasis added); see also SPA173-74 (Settlement ¶71).

These are claims that may not ripen for years, or decades, because the release

extends to the “future effect” of present rules or conduct, or substantially similar

rules or conduct, whether or not those practices have any current anticompetitive

effects. SPA171 (Settlement ¶68(g)-(h)).

For example, the settlement provides no relief from the default interchange

or Honor-All-Cards rules. But the mandatory (b)(2) release expressly bars all

claims “arising out of or relating in any way” to those specific practices. SPA169-

72 (Settlement ¶68). The release also specifically provides that it does not in any

way limit the ability of any “Visa Defendant” or “MasterCard Defendant” to set

interchange rates. SPA152, 166 (Settlement ¶¶51, 64).

The release also expressly includes damages claims against Visa’s Fixed

Acquirer Network Fee (“FANF”). SPA174 (Settlement ¶72(d)). But the plaintiffs

could not have asserted such a claim in the Complaint because Visa did not even

implement the FANF until after the close of summary judgment briefing.

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18

III. Reactions To The Settlement

When announced, the settlement was met with widespread opposition.

There were originally nineteen named plaintiffs in the case, including six major

trade associations. Ten—the majority, including all the trade associations acting in

the interest of their many members—objected to the mandatory (b)(2) settlement.

See JA[___]{DE2447 (Coborn’s Obj. ¶¶7-12); DE2449 (D’Agostino Obj. ¶¶8-11);

DE2459 (Jetro Obj. ¶6); DE2563 (Affiliated Foods Obj. ¶7); DE2561 (NACS Obj.

¶¶11-22); DE2619 (NCPA Obj. ¶¶13-18); DE2546 (NCGA Obj. ¶7); DE2475

(NGA Obj. ¶¶7-12); DE2464 (NRA Obj. ¶¶7-8); DE2461 (NATSO Obj. ¶¶6-11);

DE6006-1 (NACS Supp. Decl. ¶¶5-16); DE6006-2 (NCGA Supp. Decl. ¶¶5-18);

DE6006-3 (NCPA Supp. Decl. ¶¶6-13); DE6006-4 (NGA Supp. Decl. ¶¶5-17)}.

Lead class counsel reacted by dropping them as class representatives and excluding

them from all further negotiations, even though they would remain bound, as

members of the mandatory (b)(2) class, to the representation of class counsel and

the settlement’s broad release of claims.

In total, several thousand merchants—large and small—objected to the

mandatory (b)(2) class. “[T]he roster of objectors include[d] some of the nation’s

largest retailers,” representing almost 20% of all Visa and MasterCard U.S.

transaction volume. SPA23.

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20

5746(JG)(JO), 14-md-1720(JG)(JO) (E.D.N.Y.), ECF No. 38; DE2495-2 (Target

Complaint)}.

The (b)(3) settlement similarly generated widespread opt-outs from

merchants, representing over 25% of transaction volume. JA[__]{DE5940 (Class

Plaintiffs’ Fee Reply at 7)}. These merchants elected to pursue their claims

individually, despite the fact that the value of those claims was substantially

limited by the mandatory release from the non-opt-out class binding every

merchant that remained in business. Indeed, the volume of opt-outs was so great

that it gave defendants the option to jettison the settlement entirely. SPA124-26,

190 (Settlement ¶¶17-20, 97). They declined to do so, however, preserving their

mandatory perpetual release.

The district court recognized that “the motion for final approval … caused a

rift among large United States retailers,” and showed that “divisions among the

major merchants run deep.” SPA23. It noted that ten of the top twenty-five

convenience stores objected, and that many merchants regarded the (b)(2) relief as

essentially valueless to them. See, e.g., SPA24, 36, 38-43. Other merchants, such

as major airlines, opted out, believing they could obtain a larger cash recovery on

their own, but did not object because “they apparently see value in the (b)(2)

relief.” SPA23.

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21

IV. The Objections And Their Rejection By The District Court

Merchants and their representatives submitted four relevant categories of

objections to the district court, which rejected each of them.

A. Objections To The Release Of Monetary Claims

Many merchants objected that the mandatory release imposed on the (b)(2)

class violated the Due Process Clause and Rule 23, both of which prohibit a class-

action judgment from resolving claims for individualized relief, including claims

for money damages, without providing an opt-out right. See, e.g., JA[__]{DE2591

(Home Depot Obj. 15-30); DE2613 (1001 Property Solutions Obj. 5-10); DE2670

(Objecting Plaintiffs’ Obj. 21-24); DE2495-1 (Target Obj. 7-17); see also DE2427

(First Data Obj. 9-17)}. The objectors stressed that the unanimous portion of the

Supreme Court’s recent decision in Dukes, 131 S. Ct. at 2558, as well as the

Court’s prior opinion in Shutts, 472 U.S. at 797, held that individualized monetary

claims could not be resolved through a mandatory (b)(2) class.

The district court addressed these central objections in only one brief

paragraph, holding that “[t]here is no due process right to opt out of the (b)(2)

class” because “[t]he (b)(2) settlement here is limited to going-forward injunctive

relief that changes the structure of the network practices.” SPA46. Limiting its

analysis to the relief members of the non-opt-out class obtained , the court did not

address the far broader collection of individualized, monetary claims extinguished

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22

by the (b)(2) release. See supra, at 15-17. The court also suggested, without

citation, that the mandatory (b)(2) class was lawful because it helped to ensure

“litigation peace.” SPA44.

B. Cohesion Objections

Numerous appellants objected that the far-flung mandatory (b)(2) class

lacked sufficient cohesion. They explained that merchants did not share a common

interest in the Complaint’s allegations, as demonstrated by their unequal ability to

make use of the limited surcharging relief granted to the (b)(2) class. Further, they

had significantly varying interests in the many claims the class was required to

release. See, e.g., JA[__]{DE2591 (Home Depot Obj. 3-4, 19-27); DE2670

(Objecting Plaintiffs’ Obj. 24-27)}. For example, merchants that did not yet exist

were bound by the settlement and therefore required to release their claims against

defendants. But they received none of the cash settlement because they were

excluded from the (b)(3) class (since they were not in business before November

28, 2012). See, e.g., JA[__]{DE2591 (Home Depot Obj. 21); DE2670 (Objecting

Plaintiffs’ Obj. 38-39); see also DE2670-8 (Ex. 68, 16-17)}.

Objectors also explained that the class lacked cohesion because merchants

have significantly varying interests in obtaining relief against the no-surcharging

rule. For example, merchants located in ten states and Puerto Rico are prohibited

as a matter of law from engaging in surcharging. See SPA215-32 (state laws

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23

barring surcharging). Also, because the settlement’s surcharging provisions

contain a most-favored-nation clause, merchants that accept American Express

(which effectively prohibits surcharging) cannot surcharge Visa and MasterCard

under the settlement. SPA41, 141-44, 154-57 (Settlement ¶¶42(a), 55(a));

JA[__]{DE5965 at 41-42}(court-appointed expert concluding that approximately

ninety percent of the (b)(2) class by volume would be unable to surcharge for this

reason). The district court itself acknowledged that, for these reasons, “most

merchants will, as a practical matter, be precluded from surcharging Visa and

MasterCard products.” SPA41.

For those merchants not subject to the foregoing blanket prohibitions, the

settlement still limits how they may surcharge. If a merchant wants to surcharge

Visa or MasterCard transactions, for example, the merchant must add the same

surcharge to all such transactions “regardless of the card’s issuer or product type.”

SPA141, 154 (Settlement ¶¶42(a)(i), 55(a)(i)). This maintains the restraint on

inter-bank competition that was the principal target of this suit. And other

conditions further limit merchants’ ability to surcharge or explain to consumers the

defendants’ role in the higher prices they pay. See SPA148, 161-62 (Settlement

¶¶42(c)(iii)-(iv), 55(c)(iii)-(iv)).

Ajaypal Banga, MasterCard’s CEO, revealed that MasterCard insisted on

these restrictions to minimize any impact from surcharging:

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24

We believe the best thing to do was looking at our experience of

surcharging in other markets where, frankly, it didn’t really lead to agreat deal of actual surcharges being placed other than in a couple ofkinds of areas where cash isn’t quite able to compete. So for example,online airline bookings and the like…. So when I think about thathere, in this agreement, we have also managed to get in some of those

protections,… the declaration to the consumer with clarity, both onthe receipt and in the store, the level playing field concept that wethink we’ve got in there. All these were attempted as a way to sort of

try and box the issue while moving forward.... That’s kind of how Iapproached it …. And so it is friction. I don’t like the friction but I’m

trying to minimize it with as much lubricant as I can put in the system.

JA[__]{DE2670-8 (Ex. 94 (p. 370))}(emphasis added).

Many objectors also voiced unique concerns that had not been addressed in

any way by the settlement. For example, certain health insurers objected, noting

that the Affordable Care Act raised special regulatory concerns with interchange

fees and surcharging. JA[__]{DE2493-1; DE2643 (WellPoint and Blue Cross

Objections)}. A host of objectors noted that their individual circumstances made

surcharging relief valueless to them, or otherwise affected their perspective on the

mix of relief the case should have pursued. See, e.g., JA[__]{DE2411 (Boscov’s

Obj. ¶¶3-4); DE2434 (David’s Bridal Obj. ¶¶9-23); DE2446 (Carter’s Obj. ¶¶7-

18); DE2540 (Wawa Obj. ¶¶2-4); DE2458 (IKEA Obj. ¶¶16-33); DE2437 (Lowe’s

Obj. ¶¶14-29); DE2450 (Alon Obj. ¶¶15-33); DE2561 (NACS Obj. ¶¶23-37);

DE2644 (Wal-Mart Obj. ¶¶12-39); DE4640 (SIGMA Obj. ¶¶12-24)}.

Conceding that some of these concerns had not even been considered in the

negotiations, see, e.g., SPA48, the district court nonetheless addressed them only

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25

briefly, concluding that the (b)(2) class was sufficiently cohesive because “[t]he

network rules regimes that gave rise to this case applied generally to every

merchant accepting Visa or MasterCard credit cards, and the injunctive relief in the

proposed settlement does as well.” SPA51. Although the court did address

arguments that surcharging relief was valueless to all , it did not address whether

the relief on that claim had different value to different class members. Nor did it

focus on class members’ different valuations of the claims the settlement released.

C.

Objections To Adequacy Of Representation

Objectors also raised the settlement’s failure to provide adequate

representation to the entire class. Numerous objectors explained that binding

future merchants that could not participate in the litigation and had no separate

representation could not be reconciled with Supreme Court precedent. See, e.g.,

JA[__]{DE2670 (Objecting Plaintiffs’ Obj. 28-36, 38-39); DE2592 (Dell Obj. 15);

DE2281 (Retailers and Merchants Obj. 11-20); DE3074 (Bridgestone Obj. 5-6);

DE4237 (Williams-Sonoma Obj. 5)}.

The district court did not analyze these objections with any particularity,

concluding merely that “the interests of the Class Plaintiffs and the rest of the

(b)(2) class are not antagonistic.” SPA52. The court did not address conflicts

created by the settlement’s release of claims by generations of future merchants—

including merchants that will start operating after the structural changes in the

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26

settlement sunset in 2021. Like the settling parties, the district court never

explained how it was permissible to create two separate classes without providing

each with separate representatives and separate counsel.

D. Objections To The Scope Of The Release

Class members also objected to the scope of the release because, among

other things, it immunizes Visa and MasterCard from merchant lawsuits with

respect to all existing rules and policies and future versions thereof that are

“substantially similar.” Objectors emphasized that releasing ongoing and future

claims against default interchange and Honor-All-Cards would cement defendants’

substantial market power. See JA[__]{DE2605 (Amazon.com Obj. ¶12); DE2444

(Amtrak Obj. ¶¶7-8, 24); DE2439 (Roundy’s Supermarkets Obj. ¶20); DE2451

(Barnes & Noble Obj. ¶23); DE2670 (Objecting Plaintiffs’ Obj. 28-36)}. They

also argued that it would protect defendants against competition from new payment

methods, such as payments from mobile devices. See, e.g., JA[__]{DE2279 (City

of Oakland Obj. ¶17); DE2598 (Consumers Union Obj. 8); DE2361 (U.S. PIRG

Obj. 5); DE2364 (Jo-Ann Stores Obj. ¶2); DE2435 (Dillard’s Obj. ¶27); DE2670

(Objecting Plaintiffs’ Obj. 33)}. Professor Sykes, the court-appointed expert,

echoed these concerns, stating that “a release covering the future effects of all

existing or ‘substantially similar’ conduct or rules raises a danger of adverse,

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27

unintended consequences in a technologically dynamic industry, consequences that

are inevitably somewhat speculative at this time.” JA[__]{DE5965 at 50}.

Visa and MasterCard confirmed these fears at the final fairness hearing.

Even though the Complaint did not concern mobile payments or emerging

technologies, they asserted that the settlement required merchants to release any

claim concerning the application of Visa’s or MasterCard’s Honor-All-Cards rules

to such technology. JA[__]{Corrected 9/12/13 Tr. 39}(“A mobile phone

transaction, in my judgment, is clearly released.”). The district court itself

expressed concern about this issue at the hearing.5 But its decision approving the

settlement was silent on the issue. The district court deemed it sufficient that the

settlement does not “release the defendants from liability for claims based on new

rules or new conduct,” and is therefore limited to claims that “are or could have

been alleged on the identical factual predicate of the claims in this case.” SPA46.

The court also held that immunizing defendants against future antitrust challenges

based on all present and “substantially similar” future conduct was permissible

because such conduct is not clearly illegal. SPA45-47.

5

See JA[__]{Corrected 9/12/13 Tr. 32}(“I have … a well-grounded concernhere that this release places the line of scrimmage in that future dispute as anantitrust claim that’s based on the application of those rules to a new technology,

places that line of scrimmage in the wrong spot.”).

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28

STANDARD OF REVIEW

Class certification and the approval of class-action settlements are generally

reviewed for abuse of discretion. Literary Works, 654 F.3d at 249; Charron v.

Wiener , 731 F.3d 241, 247 (2d Cir. 2013). However, this Court reviews the

decision de novo when, as here, “the validity of the settlement … rests on the

determination of novel issues of … law.” In re Masters Mates & Pilots Pension

Plan & IRAP Litig., 957 F.2d 1020, 1026 (2d Cir. 1992); see also Gerber v. MTC

Elec. Techs. Co., 329 F.3d 297, 302 (2d Cir. 2003). Moreover, where certification

“rests on an error of law,” the district court necessarily abuses its discretion.

Charron, 731 F.3d at 247.

SUMMARY OF ARGUMENT

The central feature of this settlement is the certification of a mandatory Rule

23(b)(2) class that is forced to release all claims against defendants’ ongoing and

future conduct. This structure was designed to permit a single set of class

representatives and counsel to provide defendants with a global, prospective

immunity from suit—including suits for money damages—in exchange for a

substantial cash payment. Class members could opt out of receiving the money

(which went to the (b)(3) class), but could not save their claims from the all-

encompassing, forward-looking release (which came from the mandatory (b)(2)

class). This feature violates four separate doctrines designed to protect absent and

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29

objecting class members from being bound against their will to a settlement that

benefits others at their expense.

First , this settlement expressly terminates the individualized monetary

claims of all the (b)(2) class members with no opt-out right. See SPA169

(Settlement ¶68). Indeed, the settlement pays billions of dollars to the (b)(3) class

on the exact same monetary claims—claims that are distinguished only by the date

on which the damages accrue. Shutts held that such claims belong to individual

class members under the Due Process Clause and must be protected by the right to

opt out. Dukes unanimously held that Rule 23 channels all such claims to opt-out

classes certified under Rule 23(b)(3).

The district court nonetheless approved the settlement on the theory that the

relief the (b)(2) class obtained did not include money damages. But what matters

are the claims that are resolved by the settlement—in particular, the claims that the

class has been forced to relinquish. It does not matter that the (b)(2) class received

no money, or that the defendants insisted on “litigation peace.” SPA44. The

court’s certification of a mandatory (b)(2) class extinguishing individualized

monetary claims violated the Due Process Clause and Rule 23.

Second , the (b)(2) class was not cohesive, particularly under the heightened

standard that applies to mandatory classes. The (b)(2) class is massive, consisting

of millions of existing merchants of every possible variety and many millions more

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30

that do not even exist yet. More than that, the (b)(2) class settlement resolves not

just one claim, nor just the claims in the Complaint, but essentially every possible

merchant claim against defendants’ existing rules and practices (and those that are

substantially similar) now and indefinitely into the future. Such a sprawling class,

resolving such a broad swath of claims, cannot be expected to bargain together for

a single, indivisible injunction benefitting all the members at once, as Rule

23(b)(2) requires. See Dukes, 131 S. Ct. at 2558. The best possible proof of that is

the deal that emerged: In exchange for releasing every other claim—including the

claims that mattered most to many of the class members—the (b)(2) class got relief

only on surcharging, even though class members in ten states are forbidden from

surcharging by law.

Third , the (b)(2) class was inadequately represented. The (b)(2) class was

limited to prospective relief and included millions of members (including recently

founded merchants, future businesses, and (b)(3) opt-outs) that had no interest in

the (b)(3) monetary relief at all. But the (b)(2) class had no lawyer and no class

representative whose role was solely to represent its predominantly future-looking

interests. Instead, both classes were represented by the same counsel and

representatives, who could not get their pecuniary reward through the (b)(3)

settlement without providing defendants with the global release they wanted from

the (b)(2) class.

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31

This representation was structurally inadequate. As an initial matter, classes

with divergent interests need their own counsel and representatives. That is

especially so where, as here, parties cannot opt out and obtain their own

representation, even when they know that their putative representatives are not

protecting their interests. And it is triply true here, where there is a well-

understood conflict of interest between the predominantly future-looking (b)(2)

class and the predominantly backwards-looking (b)(3) class. Class representatives

who can obtain immediate monetary relief have a recognized incentive to trade

away future-looking interests in return for more money now. The settling parties’

decision to structure their deal to create past- and future-looking classes, while

providing those classes with no independent representation, thus embodies an

“egregious” and “obvious” violation of settled class-action precedents. See, e.g.,

Ortiz , 527 U.S. at 853, 856.

Finally, the (b)(2) release in this case—extinguishing essentially every

present and future challenge to defendants’ existing, and substantially similar,

practices—exceeds the permissible scope of class-action litigation. It

prospectively releases future conduct from antitrust attack, a result the Supreme

Court has condemned. See, e.g., Am. Express Co. v. Italian Colors Rest., 133 S.

Ct. 2304, 2310 (2013); Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322, 328-29

(1955). It also extinguishes claims well beyond the scope of the Complaint,

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32

including future claims that are not yet ripe and present claims that are utterly

unrelated to the facts at issue. Ultimately, the settlement represents an effort to use

class-action litigation to structure a regulatory solution for an entire industry, much

like the settlement Judge Chin rejected in Authors Guild v. Google Inc., 770 F.

Supp. 2d 666, 669 (S.D.N.Y. 2011) (“Google Books”). This is not the proper role

of federal litigation; Congress provided these appellants with a cause of action

under the Sherman Act, and they should be allowed to vindicate it as they see fit.

ARGUMENT

I. The District Court’s Judgment Impermissibly Extinguishes Class

Members’ Individualized Claims For Money Damages Without

Providing Opt-Out Rights.

A. Both the Due Process Clause and Rule 23 mandate that class

members have the right to opt out and pursue their individualized

legal claims.

The Fifth Amendment prohibits the federal government from depriving

persons of their property “without due process of law.” U.S. Const. amend. V.

SPA207. That prohibition governs the entry of a judgment resolving a claim in

litigation. Because the claim—a “chose in action”—is a “species of property

protected by the … Due Process Clause,” Logan v. Zimmerman Brush Co., 455

U.S. 422, 428 (1982), the individual’s right to pursue the claim is “a

constitutionally recognized property interest,” Shutts, 472 U.S. at 807.

On that basis, the Supreme Court held in Shutts that if a court “wishes to

bind an absent plaintiff concerning a claim for money damages or similar relief at

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33

law, it must provide minimal procedural due process protection,” including not

only the “best-practicable” notice but also—critically—“an opportunity to remove

himself from the class.” Id. at 811-12 (emphasis added). The right to object to the

settlement is not enough: Class members must have the right to remove

themselves from the judgment and pursue their claims on their own.

In the thirty years since Shutts, the Supreme Court has not once approved a

class-action judgment that purported to resolve individualized legal claims without

affording class members the right to opt out and pursue their personal claims as

they saw fit. Rather, the Court has reaffirmed that “mandatory class actions

aggregating damages claims implicate the due process principle … deep-rooted [in

our] historic tradition that everyone should have his own day in court.” Ortiz , 527

U.S. at 846.

Federal Rule of Civil Procedure 23(b) embodies the same principles,

authorizing a non-opt-out, (b)(2) class only in unique circumstances where no

“claims for individualized relief,” such as “individualized award[s] of monetary

damages,” are at issue. Dukes, 131 S. Ct. at 2557. Instead, “individualized

monetary claims belong in Rule 23(b)(3),” the separate provision of the Rule that

guarantees absent class members the right to opt out. Id. at 2558. Under Rule 23,

class members’ individualized claims cannot be “ precluded by litigation they had

no power to hold themselves apart from.” Id. at 2559. Instead, “plaintiffs with

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34

individual monetary claims [must] decide for themselves whether to tie their fates

to the class representatives’ or go it alone—a choice Rule 23(b)(2) does not ensure

that they have.” Id.

Indeed, as the Supreme Court explained, permitting a judgment to bind

members of a (b)(2) class with respect to their individualized monetary claims

would be “inconsistent with the structure of Rule 23(b).” Id. at 2558. Subsection

(b)(3) is designed for individualized legal claims in which class members may

have distinct interests. Accordingly, Rule 23(b)(3) permits class litigation

controlled by a representative only if common questions “predominate over any

questions affecting only individual members” and the class action is “superior” to

individual adjudication. Because those standards do permit the aggregation of

some individualized claims, Rule 23(b)(3) guarantees class members notice and the

opportunity to opt out. See Fed. R. Civ. P. 23(c)(2)(B).

By contrast, subsection (b)(2) contemplates a judgment binding the entire

class without notice and opt-out rights, and without regard to whether common

questions predominate, because it applies only when the case consists exclusively

of common claims in which the class has a single, indivisible interest. This

provision is never appropriate with respect to a “class member’s individualized

claim for money.” Dukes, 131 S. Ct. at 2558-59. In the Supreme Court’s words,

“[t]he key to the (b)(2) class is the indivisible nature of the injunctive or

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35

declaratory remedy warranted—the notion that the conduct is such that it can be

enjoined or declared unlawful only as to all of the class members or as to none of

them.” Id. at 2257.

The “prime examples” of such situations are “[c]ivil rights cases against

parties charged with unlawful, class-based discrimination.” Amchem, 521 U.S. at

614. But Rule 23(b)(2) treatment is not even available for every claim seeking

only injunctive relief: “Rule 23(b)(2) applies only when a single injunction or

declaratory judgment would provide relief to each member of the class,” and is

limited to cases where “the relief sought must perforce affect the entire class at

once.” Dukes, 131 S. Ct. at 2557-58.

If counsel drafts a class complaint to include a truly common injunctive

claim alongside individualized legal claims, that of course does not strip class

members of their right to pursue the latter individually. The right to opt out cannot

be nullified “whenever a plaintiff class, at its option, combines its monetary claims

with a request—even a ‘predominating request’—for an injunction.” Id. at 2559.

If that were permissible, “individual class members’ compensatory-damages

claims would be precluded by litigation they had no power to hold themselves

apart from.” Id .6

6 In this regard, Dukes “abrogated” this Court’s cases allowing monetary

claims to be certified in mandatory (b)(2) classes as long as injunctive claims

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36

Applying these principles, this Court has consistently disapproved class-

action judgments that purport to resolve individualized claims of class members

who did not get a chance to opt out. This Court has done so where the damages

claim already existed at the time the court entered the class-action judgment (as in

Shutts), if individual class members received inadequate notice of their opt-out

right. See Hecht , 691 F.3d at 222-23. It has also done so where the opt-out right

was ineffective because the precluded claim arose only after the court entered the

class-action judgment (as in Ortiz ). See Stephenson v. Dow Chem. Co., 273 F.3d

249 (2d Cir. 2001), vacated in part on other grounds, 539 U.S. 111 (2003).

The district court identified no case approving the release of past, present, or

future individualized claims—especially compensatory damages claims—without

allowing class members to opt out. The precedents cited by the settling parties

below to justify using Rule 23(b)(2) to deprive merchants of their opt-out rights

only highlight that this settlement is unprecedented.

The most analogous decision, Visa Check , approved the certification of a

class of merchants under only Rule 23(b)(3), precisely to avoid “the primary

concern … about Rule 23(b)(2),” i.e., “the absence of mandatory notice and opt-

out rights.” Visa Check , 280 F.3d at 147 (Sotomayor, J.) (citing Jefferson v.

“predominated.” See Hecht v. United Collection Bureau, Inc., 691 F.3d 218, 222-23 (2d Cir. 2012).

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37

Ingersoll Int’l Inc., 195 F.3d 894, 897 (7th Cir. 1999)). The recent settlement in

Literary Works released the defendants from future litigation over subsequent use

of the copyrighted works at issue. But, critically, it permitted class members to (1)

opt out of the settlement entirely or (2) “opt out of the release for future use” in

particular. 654 F.3d at 246-47. Even in the civil-rights cases at the core of Rule

23(b)(2), settlements in this Circuit have been carefully scrutinized to preserve

class members’ rights to pursue any individualized claims that might arise from the

defendants’ ongoing conduct. See, e.g., Joel A. v. Giuliani, 218 F.3d 132, 142 (2d

Cir. 2000) (settlement preserved “the right of an individual plaintiff to sue for

damages or equitable relief tailored solely to the specific circumstances of that

individual plaintiff”) (internal citation and quotations omitted); Charron, 731 F.3d

at 252 (noting that while (b)(2) settlement provided no relief on certain monetary

claims, it also “d[id] not extinguish them”).7

7

The only possible exception, TBK Partners, Ltd. v. Western Union Corp.,675 F.2d 456 (2d Cir. 1982), predates the opt-out right announced in Shutts, andthe parties in that case did not dispute whether the class had been “improperlycertified as a non-opt-out class.” Id. at 460 n.4.

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38

B. The certification of the (b)(2) settlement class must be vacated

because it extinguishes merchants’ individualized legal claimswithout providing an opt-out right.

1.

The settlement, on its face, releases individualized monetary

claims.

The judgment in this case presents precisely the scenario anticipated—and

unanimously forbidden—by the Supreme Court in Dukes. It disposes of every

class member’s claims “whether individual … or otherwise in nature, for any form

of … damages or other monetary relief relating to the period after [November 28,

2012], regardless of when such claims accrue…, in law or in equity.” SPA169

(Settlement ¶68) (emphasis added); SPA90 (Judgment ¶16(c)). Indeed, it does so

in the most extreme way possible: It releases such claims entirely and for all time,

with no changes to the ongoing conduct that precipitated this case aside from

limited surcharging relief.

The settlement and release terminate the (b)(2) class members’ rights to

recover damages by artificially splitting the damages claims pertaining to

defendants’ ongoing conduct, permitting class members to pursue individually

only the subset of damages that accrued before November 28, 2012 (if they opted

out of the (b)(3) class), and forever extinguishing any right to recover the damages

they subsequently suffer from the same conduct. That release applies indefinitely

into the future, no matter how great the damages merchants incur; indeed, it applies

even if circumstances change and seriously exacerbate the anticompetitive effects

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39

of the released rules and practices or their impact on individual class members.

SPA171 (Settlement ¶68(g)-(h)).

No one can foresee how the payment card industry will evolve, how

defendants’ present or future conduct might harm future competition, or how

heavily the economic harms might fall on particular class members given their

particular market circumstances. But under this settlement, it does not matter: In

direct contravention of Dukes, the settlement releases all those legal claims without

regard to individual merchants’ desires to preserve them for themselves. See 131

S. Ct. at 2557 (“[A]t a minimum, claims for individualized relief … do not satisfy”

Rule 23(b)(2).).

2.

The settlement has the effect of releasing a host of

individualized legal claims.

It is easy to illustrate that the release extinguishes individualized legal

claims, not injunctive claims common to the class as a whole. This case looks

nothing like the civil-rights suits classically resolved under Rule 23(b)(2). The

released claims are individualized and monetary—whether the damages associated

with the challenged practices accrued in the past, are accruing today, or will accrue

in the future—because the entire dispute is over whether defendants’ practices

restrain competition and thereby raise prices or otherwise take dollars out of

merchants’ pockets. As the district court found, “supracompetitive interchange

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40

fees” are “the precise anticompetitive effect” the claims here “were brought to

challenge.” SPA42.

In fact, the character of the (b)(2) class’s claims is evident from the relief

provided to the separate (b)(3) class. While the relief the settlement provides to the

(b)(3) and (b)(2) classes is different (several billion dollars to the former; minor

rule changes to the latter), the claims that are settled on behalf of those classes are

identical—distinguished only by the date on which the damages accrue.

The released claims themselves also illustrate the point. Take the Honor-

All-Cards rules. See supra, at 9. Under this Court’s holding in United States v.

Visa, 344 F.3d at 229, merchants allege that those rules are unlawful horizontal

restraints preventing competition among banks for merchant acceptance of their

cards. The harm that merchants suffer from those rules is the inflated fees they

pay, giving rise to a classic money damages claim under the Sherman and Clayton

Acts. JA[__] (Complaint ¶¶292-312, 371-84, 409-15, 443-56). The same is true of

default interchange rates, which plaintiffs have attacked as price fixing. Id. Yet,

going forward, the settlement expressly extinguishes all such claims. SPA169-72

(Settlement ¶68).

Also illustrative is the settlement’s release of claims regarding the Fixed

Acquirer Network Fee, which Visa charges merchants for attaching to its network.

The FANF notably was under investigation by the Justice Department at the time

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41

of the settlement. See JA[__]{DE2670 (Objecting Plaintiffs’ Obj. 34 n.43);

DE2670-8 (Ex. 82 (p. 300))}. Although the settlement allows individuals to seek

future injunctive relief against the FANF, it extinguishes every merchant’s

individualized monetary claim for post-November 28, 2012 damages caused by

this practice, even if the merchant later prevails in proving that the fee is unlawful

and caused significant monetary harm. SPA93 (Judgment ¶16(g)(iv)); SPA174

(Settlement ¶72(d)). This is exactly the opposite of what Rule 23(b)(2) allows.

The structure of this settlement, if approved by this Court, would thus

eviscerate the opt-out right that Rule 23 protects. As Rule 23 has been consistently

construed, an individual considering whether to opt out from a (b)(3) class will

expect that, if she prevails in her individual suit, she will secure monetary relief

extending to the date of the judgment, as well as an injunction protecting her from

future injury. But under the model of this settlement, as of the date on which the

(b)(2) class is defined, opt-out claimants cannot recover for their ongoing damages

or obtain an injunction to prevent future harm.

The implications of approving such a mandatory class release are sweeping,

and startling. If this settlement is affirmed, virtually any class action implicating

ongoing conduct may be split into a backwards-looking (b)(3) class and a

mandatory, forward-looking (b)(2) class. Lead class-action plaintiffs will always

have an incentive to take this step because it provides them an enormous benefit to

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42

offer the defendants—categorical immunity from civil liability to every class

member (including class members that do not even exist yet) for harmful conduct

the defendants want to continue. Other parties are already adopting this model as a

template for their settlement-only class actions. See, e.g., JA[__] (AmEx

Settlement). Unless this Court reverses the judgment below, this innovation will

almost certainly become the next “stock device” in the world of class-action

litigation and settlement. Cf. Amchem, 521 U.S. at 618.

Not surprisingly, precedents regarding claims for money damages that will

arise in the future have treated them as claims for legal relief to which the

procedural protections of Rule 23 and the Due Process Clause fully apply. In

particular, Ortiz regards the termination of monetary claims as a serious due-

process problem even though a large segment of the disputed claims were by

“future claimants” who had no claim for damages at the time of the settlement.

Ortiz , 527 U.S. at 846.

In Stephenson, this Court likewise recognized that the Due Process Clause

does not permit a class-action judgment to release future damages claims without

“adequate representation … and an opportunity to opt out.” 273 F.3d at 260 (citing

Shutts, 472 U.S. at 811-12). Stephenson thus refused to preclude a later-arising

damages claim for particular plaintiffs based on their absentee class-membership in

an earlier “global settlement” because, among other things, the plaintiffs “likely

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43

received inadequate notice” of the class action and thus inadequate opportunity to

opt out. Id. at 261 n.8 (citing Shutts, 472 U.S. at 812). And that was true despite

the fact that the court that initially approved the Stephenson settlement was

virtually certain that these contingent monetary claims would not arise. Id. at 261.

These holdings confirm the commonsense point that claims accurately

described as “claims for money damages that arise in the future” are, of course,

claims for money damages and thus a species of individualized legal claim for

purposes of the Due Process Clause and the unanimous holding in Dukes. Indeed,

the fact that the settlement releases future damages creates an unavoidable

constitutional dilemma. As the Supreme Court has recognized, such releases

impermissibly negate the one process the Constitution has expressly provided for

the resolution of individualized legal claims: the jury trial. See Ortiz , 527 U.S. at

846 (“ By its nature, … a mandatory settlement-only class action with legal issues

and future claimants compromises their Seventh Amendment rights without their

consent.”) (emphasis added). The same is true, of course, for present objectors that

are actively withholding their consent and trying to preserve their jury trial rights.

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44

C. There is no legitimate justification for denying merchants opt-out

rights.

1.

There is no merit to the district court’s theory that a non-opt-

out class was permissible because the settlement provides its

members no monetary relief.

Although appellants argued at length below that the Due Process Clause and

Rule 23 guaranteed them the right to opt out of this settlement, the district court

dealt with those arguments in only one paragraph. The court held as a matter of

law that “there is no due process right to opt out of the (b)(2) class” because the

“(b)(2) settlement here is limited to going-forward injunctive relief that changes

the structure of the networks’ practices.” SPA46. In other words, the court

determined no opt-out right was necessary because the relief provided to the non-

opt-out class was “injunctive,” rather than monetary. That reasoning fails for two

reasons.

First, whatever the character of the settlement’s relief to the (b)(2) class, it

still extinguishes individualized claims—including claims for money damages—

with no opt-out right. Even the district court effectively acknowledged that the

released claims are inherently individualized. See, e.g., SPA52 (noting judicial

relief on interchange fee claims “would affect the class unequally”). The Due

Process Clause and Rule 23 guarantee the right to opt out with respect to the

resolution of those individualized claims, even if the class gets no relief. Indeed,

that right is especially important if the class has agreed to take nothing in exchange

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45

for forever forfeiting its monetary claims. In such a case, a (b)(2) class has been

impermissibly certified with respect to the class members’ monetary claims, and

those claims have been “ precluded by litigation they had no power to hold

themselves apart from”—the exact thing Dukes forbids. See 131 S. Ct. at 2559.

The district court’s analysis ignores altogether the monetary claims subject

to the mandatory release. The court noted that “[t]o allow [merchants] to opt out

and pursue their own rules-based injunctive relief would eliminate the incentive to

settle that Rule 23(b)(2) was designed in part to create.” SPA46 (emphasis added).

But the release extends well beyond claims for “rules-based injunctive relief”: It

also bars class members from pursuing compensation for any monetary injuries

those practices—or any others in the voluminous rulebooks—have caused or will

cause at any point after November 28, 2012. The settlement thus expressly

releases “all manner of claims … whether individual … or otherwise in nature, for

any … damages or other monetary relief.” SPA169 (Settlement ¶68); SPA90

(Judgment ¶16(c)).

Second, this (b)(2) class was an unnecessary and artificial contrivance that

inverted the design of Rule 23. Echoing Rule 23’s drafters, the Supreme Court has

made clear that subsections (b)(1) and (b)(2) were intended to reflect existing,

“standard” practices in collective litigation, and that “adventuresome” innovations

were confined to Rule 23(b)(3). See, e.g., Amchem, 521 U.S. at 615; Benjamin

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46

Kaplan, Continuing Work of the Civil Committee: 1966 Amendments of the

Federal Rules of Civil Procedure, 81 Harv. L. Rev. 356, 394 (1967). This

settlement, which splits a unitary claim in order to create a future-looking,

“injunctive” component—amenable to a global release for all time by a non-opt-

out class—is anything but “standard.” It thus belongs in Rule 23(b)(3). Indeed,

because the relief provided to (b)(3) classes frequently includes injunctions, there

is no need for the “adventuresome” innovation in claim-splitting this case seeks to

inaugurate. See, e.g., Wal-Mart , 396 F.3d at 112-13 (approving substantial

forward-looking relief in class action certified under Rule 23(b)(3)); Literary

Works, 654 F.3d at 249 (same).

In fact, the approval of this settlement would give Rule 23(b)(2) an entirely

new and dangerous function. The only possible purpose of including damages

claims against ongoing and future conduct in a (b)(2) settlement is to extinguish

them; attempting to dole out individualized damages to a (b)(2) class would be an

even more obvious violation of Dukes. Prohibiting the inclusion of such claims in

mandatory class settlements thus provides the only check against a very dubious

practice: allowing the settling plaintiffs to confer on defendants the right to injure

other class members in the future through conduct those other class members

would attack as unlawful if only they had the right to opt out and litigate on their

own. And that, in fact, is the central feature of this settlement: It enables Visa and

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47

MasterCard to pay a fee—the payment to the members of the (b)(3) class—in

exchange for the unfettered right to continue practices that the appellants argue are

against the law, without any threat of future suit from any merchant.

2.

Rule 23(b)(2) does not allow the certification of monetary

claims that arise in the future for the purpose of creating

“litigation peace.”

Ultimately, the district court recognized that extinguishing all possible future

claims against defendants’ ongoing conduct was the sine qua non of the settlement.

It nonetheless believed that the ongoing and future damages claims of absent and

objecting merchants could be mandatorily sacrificed because it was “essential to

providing defendants the litigation peace they legitimately expect[ed] in return for

the settlement of claims.” SPA44. But global peace is not a prize that can be

bought over the objection of class members who prefer to preserve their

individualized legal claims for themselves.

Indeed, the Supreme Court has made perfectly clear that—contrary to the

district court’s suggestion—the mandatory sections of Rule 23 do not exist to

vindicate class-action defendants’ interest in achieving forward-looking global

peace. The only interest in global settlement the Supreme Court has even

suggested might justify the mandatory release of monetary claims arises in “limited

fund” cases under Rule 23(b)(1), where the resolved legal claims would be

terminated anyway because the available monies to pay them would be exhausted

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48

(as in a bankruptcy). See, e.g., Ortiz , 527 U.S. at 839.8 In such cases, terminating

monetary claims is arguably justified because class-wide resolution would give

“the class as a whole the best deal” but would “not give a defendant a better deal

than seriatim litigation would have produced.” Id. But these considerations have

no application here. The only global interest the mandatory release accomplishes

here is to give defendants a better deal than seriatim litigation would produce—

exactly the opposite of the type of necessity that could justify forcing plaintiffs like

appellants to give up the claims that belong to them by constitutional right.

II. The Mandatory Class Lacked The Required Cohesion Of Interests.

The settlement is also invalid for the independent reason that it improperly

bound together, in a mandatory (b)(2) class, millions of diverse merchants with

conflicting interests in both the one claim on which they were granted relief and

the vastly broader collection of claims that the settlement resolved.

A. The greatest degree of cohesion is required for mandatory

settlement classes.

“Cohesion” denotes the overarching requirement that any class defined

under any provision of Rule 23 contain a set of plaintiffs with sufficiently similar

interests to permit representative litigation. See, e.g., Amchem, 521 U.S. at 622-23;

Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 165 (2d Cir. 2001).

8 Notwithstanding the judicial crisis of asbestos claims, Amchem and Ortiz

insisted that the procedural and due process protections of Rule 23 not yield toclaims of exigency. See Ortiz , 527 U.S. at 864; Amchem, 521 U.S. at 605.

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49

The requirement arises primarily from the constitutional interests that are directly

implicated when class-wide representation displaces the right of individuals to

pursue their own interests. See Amchem, 521 U.S. at 621 (“Subdivisions (a) and

(b) focus court attention on whether a proposed class has sufficient unity so that

absent members can fairly be bound by decisions of class representatives.”);

Shutts, 472 U.S. at 812 (“[T]he Due Process Clause of course requires that the

named plaintiff at all times adequately represent the interests of the absent class

members.”).

A court’s inquiry into whether the class is cohesive is accordingly at its most

rigorous where class members are to be bound under Rule 23(b)(2) with no right to

opt out. See, e.g., In re St. Jude Med., Inc., 425 F.3d 1116, 1121 (8th Cir. 2005)

(“Because ‘unnamed members are bound by the action without the opportunity to

opt out’ of a Rule 23(b)(2) class, even greater cohesiveness generally is required

than in a Rule 23(b)(3) class.”).9 Indeed, Rule 23(b)(2) does not provide for notice

or opt-out rights—and the Due Process Clause permits such a regime—only

because, in a properly certified (b)(2) class, the interests of all class members are

so aligned that there is essentially no reason for them to litigate on their own. See

Dukes, 131 S. Ct. at 2559.

9 See also Robinson, 267 F.3d at 165 (similar); Lemon v. Int’l Union of

Operating Eng’rs, 216 F.3d 577, 580 (7th Cir. 2000) (similar); Barnes v. Am.

Tobacco Co., 161 F.3d 127, 142-43 (3d Cir. 1998) (similar).

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As Dukes explained, Rule 23(b)(2) “applies only when a single injunction …

would provide relief to each member of the class”; it “does not authorize class

certification when each individual class member would be entitled to a different

injunction or declaratory judgment against the defendant.” 131 S. Ct. at 2557.

Thus, both before and after Dukes, courts have rejected class certification under

Rule 23(b)(2) where the class would not derive an indivisible, common benefit

from the injunctive relief being pursued. See, e.g., M.D. ex rel. Stukenberg v.

Perry, 675 F.3d 832, 846 (5th Cir. 2012) (vacating (b)(2) certification order

because district court erred in finding “it irrelevant that some of the class’s

requested relief would not apply to every class member”); Kartman v. State Farm

Mut. Auto. Ins. Co., 634 F.3d 883, 893 (7th Cir. 2011) (“Where a class is not

cohesive such that a uniform remedy will not redress the injuries of all plaintiffs,

class certification is typically not appropriate.”); Casa Orlando Apartments, Ltd. v.

Fed. Nat’l Mortgage Ass’n, 624 F.3d 185, 200 (5th Cir. 2010) (“[F]orty percent of

the class benefiting from an injunction is not sufficient to certify under (b)(2).”).

The fact that defendants’ practices affect all class members is accordingly

insufficient to render the class cohesive, even if class members have certain

complaints in common about those practices. If individual class members would

want to litigate and redress their claims in different ways—particularly because the

case will resolve multiple claims, and the class members’ differing interests in

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51

those claims might be traded off against each other—then those claims are not

suitable for (b)(2) treatment. Instead, they are, at best, the kind of “common

questions” that may be certified only under Rule 23(b)(3). See, e.g., Ortiz , 521

U.S. at 854-58 (noting cohesion problem in mandatory class-action settlement

aggregating different kinds of claims).

Among (b)(2) classes, settlement-only classes present the very greatest

cohesion concerns. Divisions in the interests of class members may become

apparent during the course of litigation. By contrast, when the district court is

presented with proposed class definitions only as a part of an already completed

negotiation that will resolve the entire case—and decisions about which claims to

pursue and how some might be sacrificed to secure relief on others have not been

subject to the scrutiny of individual class members during the litigation—those

divisions are more likely to be obscured. As Amchem emphasized, “heightened”

scrutiny is required because “a court asked to certify a settlement class will lack

the opportunity, present when a case is litigated, to adjust the class, informed by

the proceedings as they unfold.” 521 U.S. at 620.

Settlements also create a special risk of trading off class members’ claims

against each other. Consider the classic example of a Rule 23(b)(2) class of

plaintiffs in a civil-rights suit. A hypothetical challenge to a males-only

admissions policy at a single military college could be pursued by a non-opt-out

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52

class of female applicants. But imagine a broader challenge to all the gender-

specific practices in every branch of the military. Even if such a claim could be

litigated on a class-wide basis, it is highly doubtful such a suit could be settled

through a mandatory (b)(2) class action, given that any effort to resolve the case

would inevitably require trading off some of the plaintiffs’ claims for others. A

lack of cohesion would arise from the competing interests of some class members

who sought, for example, greater gender integration in the Coast Guard and Air

Force, which might be traded for a release of all claims regarding the Army or

Marines, or bargained for different outcomes with respect to medical and combat

personnel. Binding class members on a mandatory basis to such a settlement

violates both Rule 23(b)(2) and the Due Process Clause because it puts the

common class representatives in the position of trading away the interests of one

subset of the class in return for relief for a different group.10

B. The merchants bound to the (b)(2) class in this case were too

diverse for a single, indivisible injunction, and the settlement does

not treat those class members equally.

In Amchem, the Supreme Court described the lack of cohesion of the

asbestos-victim class by saying: “No settlement class called to our attention is as

10 The failure of the proposed class to survive this “heightened attention” doesnot mean that no class action is possible. The most common solutions to cohesion

problems are to form subclasses with separate representation (e.g., Literary Works,654 F.3d at 256), to provide class members with opt-out rights (e.g., Visa Check ,280 F.3d at 147), and/or to narrow the claims involved (or the release granted) soas to bring the interests of the class closer together.

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53

sprawling as this one.” 521 U.S. at 624. This case proves that statement outdated.

The two defining features of this (b)(2) settlement are the breadth of the claims

involved and the breadth of the class assembled. Each alone is unprecedented;

together, they make for a manifestly non-cohesive class.

1.

Class members had varying interests in the broad set of claims

that the settlement purported to release.

This appears to be the broadest commercial class ever assembled. While

“the precise size of the class [is] impossible to determine, Class Counsel estimate

that approximately 12 million merchants comprise the class.” SPA23. But those

are only the merchants that existed as of the date of preliminary approval. It does

not count the tens of millions of future merchants that will come into existence

later. All those millions of merchants are likewise bound to the settlement, and

they include every imaginable type of merchant: anyone in the country who sells

any kind of thing in any kind of way or ever might sell anything you can think of

in any way you can conceive—so long as they accept credit cards, as almost every

merchant will. Indeed, since the release lasts forever, the range of merchants

captured by this class is endless.

Accordingly, even the district court acknowledged that members of the

(b)(2) class had different interests in one of the core issues in the case—the setting

of default interchange rates. As the court found, the claims asserted on behalf of

the mandatory class “seek injunctive relief from the bundle of network rules that

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54

result in—according to the plaintiffs’ allegations—supracompetitive interchange

fees in violation of the antitrust laws.” SPA46. And yet, as the court expressly

recognized, any “judicial regulation of default interchange fees … would affect the

class unequally.” SPA52 (emphasis added). The court explained that members of

the class had unequal interests in obtaining such relief because “default interchange

operates only in the absence of bilateral agreement, and some of the very large

merchants have sufficient transaction volume that they can actually negotiate for

their own, lower interchange structures.” Id . Thus, even under the district court’s

formulation, different members of the class would have differing interests in a

central claim in the case, depending on their size and business models.

Further, this case—at least as settled—concerned not just one of the

defendants’ practices, nor even several of their rules that relate to interchange fees

identified in the Complaint, but all of the express policies in defendants’ massive

rulebooks, their unwritten policies and practices, and any future rules, policies, or

practices that are “substantially similar.” As counsel for defendants stated at the

fairness hearing, the releases are designed to encompass all of the “rules and

policies and conduct of the defendants to the extent they adversely affect

merchants that accept MasterCard and Visa.” JA[__]{Corrected 9/12/13 Tr. 37-

38}; see also JA[__]{DE2670-8 (Ex. 66 (p. 43))}(Visa General Counsel stating to

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55

investors that the release covers “all of Visa and MasterCard’s rules in existence as

of the time of approval.”).

This expands exponentially the lack of cohesion in this settlement-only

class: An already maximally diverse group of merchants will have even more

conflicting interests in determining which rules and practices harm them the most

and should be the subject of any negotiated relief. For that reason, these class

members would certainly not seek an “indivisible” bargain with respect to all those

claims “at once.” Dukes, 131 S. Ct. at 2558. The best evidence of that is the

bargain they got: The class representatives primarily secured relief on one claim

(surcharging) while forever abandoning every other claim of every class member

(such as the core challenges to Honor-All-Cards and default interchange).

Merchants’ diverse interests in the indescribably broad collection of other

claims released by the settlement (some of which have little or nothing to do with

interchange) are likewise illustrative. For example, the FANF rate varies with the

number of merchant locations, so large merchants would be more concerned about

that issue than small ones. JA[__]{DE2670-8 (Ex. 84 (pp. 318-21))}. Some

merchants operate in industries that are so competitive that surcharging is highly

unlikely. Some merchants may be well-suited to rolling out mobile-payment

technology, and would be much more concerned with releasing such claims than

their competitors. In a settlement that concerns every written and unwritten

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56

network practice and a class of every conceivable type of merchant, this list goes

on and on and on.

In sum, the cohesion analysis must take account not only of the variations

among the members with respect to the relief they obtained, but also of every claim

they have given up, and the balance struck by the settlement of the case as a whole.

From that vantage, it is hard to imagine a class less cohesive than this one.

2. Class members had varying interests in the one claim on which

limited relief was actually provided.

The variance among the interests of the (b)(2) class members is best

illustrated by the sole claim on which they obtained any material relief—

surcharging. See supra, at 14-15, 22-23. There is no dispute that the class

members have conflicting interests in surcharging: The district court itself

acknowledged it.

The district court recognized that many merchants that do want to surcharge

cannot—this settlement notwithstanding. The court found that laws ban merchants

from surcharging in at least ten states. SPA40.11

The only “injunctive” relief that

is even arguably material thus does not apply to the merchants in those states at

all—it is as if the settlement had an explicit clause excluding them. The district

11

The district court cited nine, including some of the nation’s largest— California, Florida, and Texas. New York’s surcharging ban has been struckdown, but that decision is currently on appeal to this Court. JA[__]{appellatedocket}. Utah has subsequently enacted a surcharging ban. SPA231.

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57

court accordingly recognized, with significant understatement, that those laws

would “diminish, at least in the near term, the efficacy of the proposed relief” for

some of the class. Id .

The clearest possible example of a class lacking common interest in a claim

is where—as here—relief on that claim will not apply to certain members as a

matter of law. As this Court has held, when “variations in state law might cause

class members’ interests to diverge,” a “district court should pay particular

attention to … Rule 23’s requirements ‘designed to protect absentees by blocking

unwarranted or overbroad class definitions.’” In re Am. Int’l Grp. Sec. Litig., 689

F.3d 229, 243 (2d Cir. 2012); see also Amchem, 521 U.S. at 624 (noting that

“[d]ifferences in state law” undermine class cohesion).

The class’s lack of cohesion is equally demonstrated by the settlement’s

most-favored-nation provision. Some merchants accept only Visa and MasterCard

credit cards. But nearly 70% of merchants accept American Express, which

separately prohibits surcharging, and those merchants comprise over 90% of

credit-card transaction volume nationwide. JA__{DE2111-1 at 48-49}; JA__

{DE2670-5, ¶65}. As the district court and its appointed expert recognized, all

those merchants would be prohibited from surcharging Visa and MasterCard under

the terms of the settlement and their contracts with American Express. See SPA42

(finding that, “merchant restraints imposed by American Express” would, like

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58

“state laws,” also “undermine the [surcharging] relief”); SPA41 (because of

existing agreements, “most merchants will, as a practical matter, be precluded from

surcharging Visa and MasterCard products.”). Those merchants obviously have

much less interest in how the surcharging claim is resolved than the subset of

members that accept only Visa and MasterCard.

The value of the surcharging relief also varies among merchants with

different business models. The court explained that “many merchants, for reasons

sufficient to them, may choose not to avail themselves of the right to surcharge.”

SPA36. By contrast, “the major airlines” seemed to be more sanguine about the

value of surcharging than other classes of merchants, including “smaller retailers,

such as grocery stores and convenience stores,” which were more likely to have

objected or opted out. SPA23-24. The district court took this as evidence that the

surcharging relief had some value for purposes of assessing the fairness of the

settlement and the reaction of the class. Id. But it failed to recognize the point that

matters under Rule 23(b)(2): The different class members’ divergent valuations

demonstrated the class’s lack of cohesion. Even if surcharging did have some

value to certain members of the class, forcing airlines and grocery stores to accept

the same bargain, negotiated by a single set of representatives, far exceeded what

Rule 23(b)(2) allows.

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Despite recognizing the barriers to surcharging that many class members

faced, the district court held that “the fact that some merchants may elect not to

avail themselves of the rule, or are prohibited by factors beyond the scope of this

lawsuit from surcharging, does not undermine my conclusion that the class is

sufficiently cohesive.” SPA 52. This reasoning is manifestly incorrect.

Discounting preexisting “factors” affecting the interests of class members as

“beyond the scope of this lawsuit” simply erases all content from the cohesion

analysis. In applying the “heightened attention” required for settlement-only class

certification, a court must of course consider factors such as “[d]ifferences in state

law” and class members’ different, pre-existing circumstances that might

“undermin[e] class cohesion.” Amchem, 521 U.S. at 620, 624. In fact, the only

way to determine cohesion is to ask whether such factors create different interests

among the class with respect to the relief that the lawsuit does control. If the

cohesion inquiry merely asked whether the class members received the same relief,

without regard to preexisting factors affecting its value, then virtually every

settlement class would be “cohesive,” no matter how disparately that relief might

apply. And the district court’s analysis simply ignores that class members with

different interests in surcharging would not bargain for the same surcharging relief,

and so cannot be forced into a single class with respect to this Complaint.

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Surcharging also illustrates that class counsel were not even aware of the

divergent interests of their sprawling collection of millions of clients. Once the

settlement was disclosed, pharmacies objected that they had no “realistic ability” to

surcharge because of restrictive Medicare regulations and prohibitions on

surcharging in their contracts with health insurers and pharmacy benefit managers.

JA[__]{DE 2619 (NCPA Obj. ¶22)}. Similarly, health insurers objected because

the Affordable Care Act requires them to spend a certain portion of premium

revenues on medical services and thus leaves them differently situated from other

(b)(2) class members with respect to surcharging. While the district court

“agree[d] with these objectors that no one thought of their unique concern in

formulating the settlement,” it viewed that as “no reason not to approve it,”

because the insurers’ objections were speculative. SPA48. But this misses the

point: In this representative litigation, “no one thought of their unique concern,”

and therefore no one protected their interests—and because they had no opt-out

rights, they were powerless to protect themselves. A settlement class that is so

sprawling that it does not even recognize the interests it affects obviously fails the

“heightened” cohesion requirement for certification under Rule 23(b)(2).

For all these reasons, the members of the (b)(2) class were differently

situated and would have ascribed very different value to the Complaint’s

underlying surcharging allegations for purposes of negotiating a global settlement

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of claims. This settlement plainly violated Dukes’ holding that “Rule 23(b)(2)

applies only when a single injunction … would provide relief to each member of

the class.” 131 S. Ct. at 2257. The district court’s conclusion that the class is

nonetheless cohesive for purposes of Rule 23(b)(2) is wrong as a matter of law.12

3.

The relief on the Complaint’s surcharging claim does not

constitute an indivisible injunction.

The relief on the surcharging claim is furthermore forbidden by Rule

23(b)(2) because it is not an “indivisible injunction benefitting all [class] members

at once.” Dukes, 131 S. Ct. at 2558. Indeed, the relief provided on this claim is

divisible on its face. The settlement expressly provides that “[n]othing in this

Class Settlement Agreement shall prevent the … Defendants from contracting with

merchants not to surcharge.” SPA149, 162-63 (Settlement ¶¶42(f), 55(f)). In other

words, defendants remain free to balkanize the class after the fact, and exploit

bargaining leverage (which will surely be greater as to some merchants than

12 Another minor “rules change” in the settlement further demonstrates the

district court’s inattention to the class’s lack of cohesion. The settlementauthorizes merchants that operate multiple businesses under different “tradenames” to accept Visa and MasterCard on a trade-name basis. SPA13; SPA140-41, 153-54 (Settlement ¶¶41, 54). This relief is useless to small businesses thatoperate under one name and so represents another unsurprising divergence in aclass that includes everything from YUM! Brands (KFC, Taco Bell, Pizza Hut) tothe local pizza shop. But it also creates tensions even among large-volume

merchants: Gap Inc. operates six brands with very different business models; TheHome Depot conducts the vast majority of its business under one banner. Thecourt did not even address whether this relief will benefit each member of theclass, and it obviously will not.

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others) to create a system in which the allegedly common practice that underlies

(b)(2) certification becomes uncommon once again.

This provision of the settlement leaves defendants free to bargain

individually with strategic merchants whose national prominence might actually

allow their surcharging practices to pose a threat to defendants’ inflated rates.

Those merchants can be offered a private, individualized deal to avoid the class-

wide benefit that the district court repeatedly invoked. See, e.g., SPA38

(speculating that surcharging might reduce interchange rates on a nationwide

basis). For example, if a large merchant who is an industry leader in a segment

(say, McDonald’s) decides to pursue surcharging, defendants can offer that

merchant a break on its interchange rates in exchange for its agreement not to

surcharge. For competitive reasons, smaller merchants that vie with McDonald’s

for customers would then be discouraged from surcharging. This may bring down

the rate for McDonald’s, but certainly not for the whole industry, let alone the

whole class of millions of merchants. Whatever benefits surcharging may produce,

it is the isolated merchants that may be able to surcharge who “will realize the

greatest savings.” See, e.g., JA[__]{DE2111-5 (Frankel Decl. ¶68)}. This result is

not an indivisible injunction providing a common benefit to the class as a whole.

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C. The district court’s cohesion analysis ignored these flaws.

The district court’s opinion addressed the cohesiveness of the (b)(2) class in

only a single page. The court concluded that the class was cohesive because “[t]he

network rules regimes that gave rise to this case applied generally to every

merchant accepting Visa and MasterCard credit cards.” SPA51. But that is true

only in a superficial way—in the same irrelevant sense in which, for example, the

set of all Wal-Mart employee policies and practices could be said to “apply

generally” to “every” Wal-Mart employee. See Dukes, 131 S. Ct. at 2551-57. The

network rules consist of thousands of pages of different policies, and countless

more unwritten practices, with greatly varying impacts on the different merchants

based on, for example, business models, market conditions, and state and federal

laws. In such a wide-ranging settlement, there are inevitably innumerable issues—

including contractual and regulatory obligations—that affect particular class

members’ abilities to derive value from relief on particular claims, and yet will

escape the attention of class counsel and representatives.

The district court also thought that, “by focusing the settlement efforts on the

merchant restraints [i.e., surcharging], as opposed to, for example, default

interchange, … Class Plaintiffs have enhanced the cohesion of the class” because

regulation of default interchange “would affect the class unequally.” SPA52. The

problem with that reasoning is that the settlement efforts were focused on default

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interchange—the district court approved a class settlement that released all claims

forever regarding default interchange, along with everything else in the Visa and

MasterCard rulebooks. The requirements of the Due Process Clause and Rule 23

exist to protect those claims from being resolved without adequate representation

and effective consent, whether or not the class obtains any relief. Indeed, those

protections are especially relevant if the class will not receive any relief on the

claim being resolved. Accordingly, the settlement efforts were no more “focused”

on the merchant restraints than they were on default interchange; the only

difference was who got relief and who gave up (or, more accurately, was forced to

give up) the respective kinds of claims.

The district court’s error in this regard is similar to one the Supreme Court

identified in Ortiz . There, the plaintiffs attempted to establish cohesion by

demonstrating a shared interest in the common fund created by the settlement. But

the Supreme Court held that “the determination whether ‘proposed classes are

sufficiently cohesive to warrant adjudication’ must focus on ‘questions that

preexist any settlement.’” Ortiz , 527 U.S. at 858 (quoting Amchem, 521 U.S. at

622-23). The same is true here: The cohesiveness of the class must be determined

by reference to the entire set of claims that the class could have pursued, not just

the particular relief that the settlement provided in the end.

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Similarly, the Court in Ortiz found that conflicting interests of present and

future claimants were not resolved by giving them equal rights to a settlement fund

because their different interests required different treatment—some claims were

more valuable than others. As the Court held: “The very decision to treat them all

the same is itself an allocation decision with results almost certainly different from

the results that those with immediate injuries or claims of indemnified liability

would have chosen.” 527 U.S. at 857; see also Literary Works, 654 F.3d at 253

(similar). Here, too, the decision to grant all merchants a limited right to surcharge

is a “result[] almost certainly different from the results that” merchants that are

precluded from surcharging “would have chosen”—especially in light of the

different value many different members in this class of millions would ascribe to

the claims being given up in exchange.

In short, this case does not involve a class with a claim that calls for a single,

class-wide remedy necessarily benefitting each member of the class at once.

Instead, whatever possible benefits injunctive relief might have here would fall

(and do fall) unequally on class members, while the settlement simultaneously

releases a host of claims with different values to those same members. For this

reason, many different members of the class would have pursued a radically

different settlement. In such a case, while it might be possible to certify a class

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under Rule 23(b)(3), there is no permissible way to force the settlement on

objecting class members under Rule 23(b)(2).

III.

The Settlement Violates The Requirement Of Rule 23(a)(4) That The

Class Members Receive Adequate Representation.

This Court should also hold that the settlement is unlawful because the

structure of the settlement negotiations deprived the class members of adequate

representation. Most obviously, the (b)(2) class that received so little in exchange

for its sweeping release was represented by those who stood to reap colossal

financial benefits by negotiating a larger recovery for the (b)(3) class. Class

members bound to the (b)(2) settlement were not represented by a separate class

representative or lawyer with their interests solely in mind. In reality, the (b)(2)

class was merely the means to an end—obtaining the mandatory release defendants

demanded from all the merchants that might ever sue them as the price of a large

cash payment for the (b)(3) class.

A. Adequate representation requires separate representatives and

counsel for subgroups with divergent interests.

Multiple classes in a single case that have different interests in the outcome

must have separate class representatives and counsel to avoid structural conflicts.

Rule 23(a)(4) allows certification only if “the representative parties will fairly and

adequately protect the interests of the class.” This requirement is related to—but

distinct from—the cohesion requirement discussed in Part II, because an adequate

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representative must in fact protect the interests of every class member. Thus, as

with cohesion, an even higher degree of scrutiny is required where individual class

members have no opportunity to opt out and protect those interests for themselves.

See supra, at 49-51.

The principal role of the adequacy requirement is to prevent parties from

determining the rights of absent class members through “a global compromise with

no structural assurance of fair and adequate representation for the diverse groups

and individuals affected.” Amchem, 521 U.S. at 627 (emphasis added).

Accordingly, “[t]he adequacy inquiry under Rule 23(a)(4) serves to uncover

conflicts of interest between named parties and the class they seek to represent.”

Id. at 625.

While the Rule’s text focuses on the named plaintiffs, the Supreme Court

has “recognized that the adequacy of representation enquiry is also concerned with

the ‘competency and conflicts of class counsel.’” Ortiz , 527 U.S. at 856-57 & n.31

(quoting Amchem, 521 U.S. at 626 n.20). For that reason, “an attorney who

represents another class against the same defendant may not serve as class

counsel.” Id. at 856 (citing Moore’s Federal Practice § 23.25[5][e]). Indeed,

following Ortiz and Amchem, the clear rule is that, in any case involving subgroups

with diverse or antagonistic interests, “[o]nly the creation of subclasses, and the

advocacy of an attorney representing each subclass, can ensure that the interests of

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that particular subgroup are in fact adequately represented.” Literary Works, 654

F.3d at 252.

B.

The (b)(2) and (b)(3) classes had antagonistic interests and could

not be adequately represented by common representatives and

counsel.

The merchants whose claims are bound to this settlement have substantially

different interests in the nature of the relief they might receive. Some merchants

have very little interest in prospective rules changes: They may have already

ceased operating, or be shrinking in volume, so that they place far greater emphasis

on obtaining money for past claims now. The opposite is true for merchants that

do not yet exist or growing companies, which are much more concerned with

achieving lasting changes to the networks’ practices as opposed to getting more

money for past injuries. Cf. Amchem, 521 U.S. at 626 (“[F]or the currently injured,

the critical goal is generous immediate payments. That goal tugs against the

interest of exposure-only plaintiffs in ensuring ample [relief] for the future.”).

The negotiation of this settlement brought those conflicting interests into

stark relief. Both the district court and the settling parties recognized that the

defendants would provide a large cash payment for retrospective damages only if

they prospectively received overarching “litigation peace”—that, in particular, any

deal would be contingent on a forward-looking release from the mandatory (b)(2)

class that would extinguish all possible future claims. As Duncan MacDonald,

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independent consultant and former General Counsel for Citigroup’s North

American and European card businesses, candidly explained: “The ‘release’ is a

breathtaking success for the bankcard industry. It is about as comprehensive as

any I’ve ever seen. It should end the industry’s antitrust wars for years to come.”

JA[__]{DE2670-8 (Ex. 67 (p. 52))}(emphasis added).

In other words, defendants would agree to pay money now in exchange for

freedom from future threats of interference with their rules and practices. More

money for the (b)(3) class would buy more peace for defendants. As lead counsel

for the Class Plaintiffs acknowledged at the preliminary approval hearing: “The

negotiations before the mediators were always—one issue was monetary, the other

issue was equitable relief. One was not going to be reached without reaching the

other .” JA[__]{DE1732 (11/9/12 Tr. at 9)}(emphasis added).

But, although the settlement in this case created two classes—one with

greater retrospective interests and another that could only receive prospective

relief—both had the same class representatives and counsel. This was entirely a

problem of the settlement proponents’ own creation. Rather than addressing

tensions among class members in ways required by precedent—providing

members the right to opt out; creating independently represented subclasses for

merchants with different interests; or narrowing the claims the case would

resolve—the representatives created two classes defined by kinds of relief. That

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was their strategy to avoid the bar to resolving individualized monetary claims

without an opt-out right. But this strategically crafted structure only gave rise to

another fatal flaw. It created two classes with opposing interests: one seeking a

large monetary award and willing to cede claims arising in the future; and the other

seeking injunctive relief only. Having manufactured this structure, the proponents

of the settlement at the very least were required to ensure that each class received

its own champion and place at the bargaining table.

But there was no named plaintiff with solely the interests of the (b)(2) class

in mind. Instead, the class representatives consisted exclusively of established

merchants with claims on the (b)(3) class settlement, and they represented both

classes in common. Worse still, when a majority of the original named plaintiffs,

including the six trade associations (which themselves had de minimis damages

claims) objected to the balance that settlement negotiations had struck, they were

dropped as representatives with respect to both classes. In other words, in their

role representing the (b)(2) class, class counsel fired their clients and restructured

the representation so that all that remained were class representatives committed to

a deal that gave the (b)(3) class money in exchange for a broad release from the

(b)(2) class. Every single representative that expressed a desire to prioritize the

mandatory (b)(2) settlement over the money was removed from the process.

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The representatives that remained naturally prioritized their interest in

monetary relief. In fact, all were ineligible for the surcharging relief that

supposedly justifies the (b)(2) settlement because they operate in states that

prohibit surcharging or accept American Express. JA[__]{DE2670 at 39-40}.

That such merchants approved the settlement, while the trade associations with de

minimis damages and predominating interests in future relief objected, is powerful

evidence of a conflict between past and future claims requiring separate

representation.

Indeed, this structure created the all-too-predictable possibility that the

representatives would trade away the future-looking interests of the mandatory

(b)(2) class in return for more money today—a very nearly zero-sum affair. That

is the exact kind of conflict that Rule 23(a)(4) prohibits. As Ortiz put it: “[I]t is

obvious after Amchem that a class divided between holders of present and future

claims (some of the latter … attributable to claimants not yet born) requires

division into homogeneous subclasses under Rule 23(c)(4)(B), with separate

representation to eliminate conflicting interests of counsel .” 527 U.S. at 856

(emphasis added).

The dilemma was structural. Representatives with present interests simply

cannot fight for the best possible relief for future-looking claims. Even if they did,

they would then fail in their obligation to class members interested in greater

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monetary relief. There is no representative that can adequately represent two client

groups with such directly conflicting interests, especially when the members of one

cannot protect themselves by opting out.

The potential for conflict was, if anything, worse for class counsel, whose

stake in the (b)(3) class’s multi-billion dollar recovery had no parallel when it

came to fighting for the (b)(2) class. Indeed, the settlement left in place one of the

best-understood conflicts for counsel in class-action law: letting lawyers with

everything to gain from a monetary settlement on behalf of present claimants

bargain on behalf of future claimants as well. In a closely related context, Ortiz

discussed this problem at length and condemned it as “egregious”:

In this case, … at least some of the same lawyers representing plaintiffs and the class had also negotiated the separate settlement of45,000 pending claims, the full payment of which was contingent on asuccessful Global Settlement Agreement…. Class counsel thus hadgreat incentive to reach any agreement in the global settlementnegotiations that they thought might survive a Rule 23(e) fairnesshearing, rather than the best possible arrangement for the substantiallyunidentified global settlement class. The resulting incentive to favorthe known plaintiffs … was, indeed, an egregious example of theconflict noted in Amchem resulting from divergent interests of the

presently injured and future claimants.

Id. at 852-53 (internal citations and quotations omitted). This case is

indistinguishable: With a fee request representing the largest share of a multi-

billion dollar fund—and with that fund dependent on reaching an agreement that

provided a mandatory release from the (b)(2) class—class counsel faced the natural

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incentive to be sure that the deal got done. No class counsel could be expected to

scuttle a multi-billion dollar settlement based on the conviction that the (b)(2) class

was releasing too much in exchange for too little injunctive relief. As Ortiz makes

clear, the law cannot indulge assumptions so contrary to human nature, at least “in

any class action settlement with the potential for gigantic fees.” Id. at 852.

As precedent demonstrates, the absence of separate and adequate

representation for the unique interests of the future-looking (b)(2) class is fatal. In

Amchem and Ortiz , the Supreme Court considered efforts to create global

settlements regarding asbestos-related injuries. A key problem identified in both

cases was the tension between present claimants who had already developed

symptoms from asbestos exposure, and “exposure-only” plaintiffs who were in

jeopardy, but as yet had no injury. The former (like the (b)(3) class here) wanted

the greatest possible relief for existing claims; the latter (like the (b)(2) class here)

wanted the greatest possible protection for future claimants. In both cases, the

Supreme Court insisted on sub-classes with separate representation “to eliminate

conflicting interests of counsel,” and condemned the settlements because “[n]o

such procedure was employed [t]here.” Ortiz , 527 U.S. at 856; see also Amchem,

521 F.3d at 620. “No such procedure was employed here” either.

Perhaps the closest case on point is this Court’s recent rejection of the

settlement in Literary Works on grounds of inadequate representation. There,

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digital database owners wanted a global settlement with copyright holders about

the works in the database. The settlement recognized that three different kinds of

copyright claims with different values were at issue, and so it provided different

relief for the three subgroups. It did not, however, provide them separate

representatives in bargaining for that outcome.

Noting that “[o]nly the creation of subclasses, and the advocacy of an

attorney representing each subclass, can ensure that the interests of that particular

subgroup are in fact adequately represented,” this Court rejected the settlement.

Literary Works, 654 F.3d at 252 (emphasis added). Even if class representatives

themselves belonged to each group, and so had some incentive to look out for each

group of claims, “[t]he selling out of one category of claim for another [wa]s not

improbable.” Id . To avoid that risk, each subgroup needed its own representative

and its own separate counsel, so there was always someone who “advanced the

strongest arguments in favor of [each category’s] recovery.” Id. at 253. And yet

that feature is as absent here as it was in Literary Works.

C. There is no substitute for independent and adequate

representation.

The settlement proponents and the district court offered two responses to the

failure to provide independent representation to the (b)(2) class here. Both are

unpersuasive and confirm that this settlement fails to satisfy Rule 23(a)(4).

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1.

Overlap

The district court evidently believed that the class representatives could

represent both classes because they were members of both classes. See SPA52

(“The Class Plaintiffs adequately represent both the (b)(2) and the (b)(3) settlement

classes.”). This Court has already rejected that interpretation of Rule 23(a)(4) in a

discussion the Supreme Court adopted wholesale in Amchem:

[W]here differences among members of a class are such that

subclasses must be established, we know of no authority that permits acourt to approve a settlement without creating subclasses on the basisof consents by members of a unitary class, some of whom happen to

be members of the distinct subgroups. The class representatives maywell have thought that the Settlement serves the aggregate interests ofthe entire class. But the adversity among subgroups requires that themembers of each subgroup cannot be bound to a settlement except by

consents given by those who understand that their role is to represent

solely the members of their respective subgroups.

521 U.S. at 627 (quoting In re Joint E. and S. Dist. Asbestos Litig., 982 F.2d 721,

743 (2d Cir. 1992)) (emphasis added); see also Eubank v. Pella Corp., 2014 WL

2444388, *3 (7th Cir. June 2, 2014) (calling a single set of representatives agreeing

to nationwide settlement on behalf of two subclasses a “red flag[]”). It is thus

dispositive that in the negotiation of this settlement, there has never been any class

counsel or class representative who has bargained solely for the benefit of the

(b)(2) class.

Moreover, the “overlap” between the (b)(2) and (b)(3) classes should not be

misunderstood or overstated. As an initial matter, the membership is not the same:

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There are tens of thousands of now-defunct merchants belonging only to the (b)(3)

class; and there are millions of other merchants that have been newly created, will

be created in the future, or opted out, and thus belong only to the (b)(2) class.13

The problem is exemplified by future merchants that start their businesses

after 2021, when the settlement relief expires. Such merchants will have no right

to complain about any Visa or MasterCard practice that is “substantially similar” to

any aspect of today’s rulebook or current unwritten practices. Those unlucky

future merchants do not even exist yet, but this settlement has already deprived

them of all the claims they might ever have against Visa and MasterCard. What

will they have received in exchange? Literally nothing. Meanwhile, existing

merchants founded after November 2012 may be able to surcharge—for a few

years, if they operate in the right state, and they don’t take American Express—but

unlike the class representatives who purported to act on their behalf, they have no

claim whatsoever on defendants’ settlement fund.

Failing to provide separate representation to this enormous class of future

merchants is an egregious version, on an even-shorter time frame, of the

13 It is easy to miss the size of the future merchant class whose interests the

settlement completely ignored. The number of new firms founded in the UnitedStates each year is in the hundreds of thousands. Accordingly, the class of future

merchants launching after the settlement date—merchants who would have nointerest in a monetary settlement—will likely include many millions of members.That class alone would be among the most sprawling commercial classes evercertified.

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representation problem identified in Stephenson. There, Agent Orange claimants

who did not discover their injuries until after 1994 were left uncovered by a 1984

settlement. See 273 F.3d at 260-61. This Court found that, because they lacked

effective representation in the 1984 settlement, the Due Process Clause prohibited

applying the judgment to them. That a similar class of millions here received no

independent consideration or voice in the settlement makes absolutely clear that

the representation afforded to the (b)(2) class did not measure up to the necessary

standard according to the four-square holdings of precedents like Stephenson,

Literary Works, Amchem, and Ortiz . Representatives focused exclusively on the

(b)(2) class’s interests would not have left such future interests out in the cold.

Those who opted out of the (b)(3) class here likewise deserve special

attention because they demonstrate the deep structural anomaly of this case. In a

typical (b)(3) case, there is little concern regarding class counsel’s representation

of those plaintiffs who have opted out, at least once they have left the case: Their

claims are no longer subject to adjudication by representation, and they can hire

their own lawyers to protect their own interests in opt-out litigation. But here,

those that opted out of the (b)(3) class remained bound as members of the (b)(2)

class to the very attorneys and class representatives who negotiated the settlement

the opt-outs were rejecting as members of the (b)(3) class. In fact, those

representatives were exclusively parties and lawyers who, unlike the (b)(3) opt-

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outs, remained interested in the money that could be obtained by trading away the

rights of the (b)(2) class for a global settlement. Accordingly, as members of the

(b)(3) class opted out but remained bound to the (b)(2) class, the misalignment of

their interests with those of their representatives only became worse.

2.

Results

Although both class counsel and the district court touted the magnitude of

the monetary settlement, the results of the negotiations in no way suggest that the

(b)(2) class received adequate representation. Positive results, even if “fair” to all

members, are no substitute for adequate representation. See, e.g., Literary Works,

654 F.3d at 253 (“The rationale is simple: how can the value of any subgroup of

claims be properly assessed without independent counsel pressing its most

compelling case?”). In any event, the results here are unfair, which furnishes

additional evidence of the (b)(2) class’s inadequate representation. See id. at 252-

54 (noting that Amchem permits courts to find Rule 23(a)(4) violations based on

settlement results).

Other briefs discuss the fairness of the settlement as such, but it suffices for

these purposes to focus on just one comparison. As detailed above, supra, at 15-

17, 22-23, the (b)(2) class obtained (at best) some relatively inconsequential rule

changes in exchange for a dramatic release of claims. The (b)(3) class, meanwhile,

got billions of dollars.

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79

This comparison reflects poorly on the representation of the (b)(2) class, and

eviscerates the district court’s rationale for concluding that the settlement was fair

with respect to those class members. For example, the district court repeatedly

emphasized its belief that the class claims faced hurdles to success on the merits.

But that reasoning cannot explain the stark contrast between the size of the cash

settlement for the (b)(3) class and the narrowness of the relief for the (b)(2) class.

Each class’s claims would have similar merit, as they are distinguished only by the

date on which the damages accrue.

Ultimately, it is clear that the (b)(2) class was a means to the broader end of

global resolution, not an end in itself with rights that received independent and

adequate representation. The settlement fund in this case is large14

and as the

outcome fully attests, there was simply no structural assurance that class

representatives and counsel with a claim against that sum had a sufficient incentive

to prevent the (b)(2) class’s interests from being sacrificed in its pursuit. If

anything, that sum’s size simply shows the value to defendants created by the

mismatch between the (b)(2) class’s broad and mandatory release of future claims

and the meager future-looking relief that the (b)(2) class secured.

14 To the banks, of course, the amount is relatively inconsequential—less than

two months’ worth of interchange fees.

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80

IV. By Releasing All Future Antitrust Claims, Including Claims That Far

Exceed The Scope Of The Complaint, The Settlement ViolatesControlling Precedent And Exceeds The Power Of A Federal Court.

The settlement separately fails because the (b)(2) release exceeds the

permissible scope of a class-action settlement. The effect of that release is to

immunize Visa and MasterCard from future antitrust challenges, as well as an

array of other claims that could not have been resolved by the Complaint. That

release extends broadly in both time and subject matter—sweeping aside

essentially all present and future claims that merchants may have, but granting only

limited relief—whether or not the extinguished claims are ripe or have anything to

do with the core complaints in the case. Putting to the side that this is bad antitrust

policy, it is not the proper business of settling parties and federal courts.

A. The settlement unlawfully releases future antitrust claims.

This Court has long recognized that antitrust claims are uniquely laden with

public concerns. In American Safety, for example, this Court explained that “[a]

claim under the antitrust laws is not merely a private matter. The Sherman Act is

designed to promote the national interest in a competitive economy; thus, the

plaintiff asserting his rights under the Act has been likened to a private attorney-

general who protects the public’s interest.” Am. Safety Equip. Corp. v. J. P.

Maguire & Co., 391 F.2d 821, 826 (2d Cir. 1968). That is so because “[a]ntitrust

violations can affect hundreds of thousands—perhaps millions—of people and

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81

inflict staggering economic damage.” Id. The Supreme Court has thus affirmed

that private agreements cannot waive future antitrust claims without violating

public policy. See, e.g., Italian Colors, 133 S. Ct. at 2310; Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, Inc., 473 U.S. 614, 637 n.19 (1985) (If a private

agreement “operated … as a prospective waiver of a party’s right to pursue

statutory remedies for antitrust violations, we would have little hesitation in

condemning the agreement as against public policy.”).

This doctrine is fully applicable to settlement agreements that purport to

resolve future antitrust claims under the auspices of a federal court. In Lawlor , 349

U.S. at 328-29, the Supreme Court stated that “extinguishing claims which did not

even then exist and which could not possibly have been sued upon in the previous

case … would in effect confer on [defendants] a partial immunity from civil

liability for future violations.” The Court then held that, given “the public interest

in vigilant enforcement of the antitrust laws through the instrumentality of the

private treble-damage action,” conferring such “a partial immunity from civil

liability for future violations … is consistent with neither the antitrust laws nor the

doctrine of res judicata.” Id . at 329. Accordingly, even though the suit in Lawlor

was brought by the very same plaintiffs who had earlier settled a case brought on

the same antitrust theory, the Court reversed a decision giving that settlement

preclusive effect as to the same conduct undertaken after the settlement date. Id.

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82

Federal courts since Lawlor have consistently disapproved settlements that

purported to absolve parties from liability for future violations of the antitrust laws.

See, e.g., Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247, 250

(7th Cir. 1994); Three Rivers Motor Co. v. Ford Motor Co., 522 F.2d 885, 896

n.27 (3d Cir. 1975); Gaines v. Carrollton Tobacco Bd. of Trade, Inc., 386 F.2d

757, 759 (6th Cir. 1967); Fox Midwest Theatres, Inc. v. Means, 221 F.2d 173, 180

(8th Cir. 1955); Minn. Mining & Mfg. Co. v. Graham-Field, Inc., 1997 WL

166497, *3 (S.D.N.Y. Apr. 9, 1997).

The (b)(2) release in this case violates Lawlor and Soler by waiving antitrust

claims with respect to future conduct. As discussed, it applies to all of defendants’

present rules and unwritten practices, as well as any new rules or conduct that are

“substantially similar.” SPA171 (Settlement ¶68(g)-(h)). The release also

expressly bars claims concerning the “future effect” of that conduct, even if

competitive conditions change dramatically. Id.; SPA173-74 (Settlement ¶71);

supra, at 16-17. From defendants’ perspective, this was the whole point. Supra, at

69.

B.

The settlement unlawfully releases claims beyond the scope of the

present litigation.

Because the settlement is a private agreement conferring antitrust immunity,

the Court could simply stop there and invalidate it under Lawlor and Soler . But

that would severely understate the scope of the problem. This is not merely a

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83

private agreement by one party not to sue another in the future for a violation

affected with the public interest; instead, it is a mandatory settlement that prevents

merchants—the parties most susceptible to defendants’ market power—from

challenging anticompetitive conduct forever . That converts the settlement from a

private agreement that violates the antitrust policy of the United States into one

that actively tries to make industrial policy for the whole United States credit-card

market. The implications for consumers in the form of higher credit card fees and

higher prices for goods are obvious. Settled principles of class-action law prevent

such a broad, future-looking release of claims.

This Court has held that any release in a class-action settlement is limited to

the claims that could be precluded by a judgment against the class following a trial.

See Nat’l Super Spuds, Inc. v. N.Y. Mercantile Exch., 660 F.2d 9, 16-18 (2d Cir.

1981) (Friendly, J.) (“If a judgment after trial cannot extinguish claims not asserted

in the class action complaint, a judgment approving a settlement in such an action

ordinarily should not be able to do so either.”); Literary Works, 654 F.3d at 247

(class release may not extend beyond “claims that were or could have been pled”).

This limitation is referred to as the “identical factual predicate” doctrine, and it

limits class-action releases to only those claims that were pled or could have been

pled on the precise facts before the court. See, e.g., TBK , 675 F.2d at 460.

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84

This doctrine imposes two kinds of limitations. First are limits in time: A

settlement cannot release future claims based on later arising facts not yet before

the court. Second are limits in scope: A settlement cannot release kinds of claims

beyond those properly at issue in the case. The settlement in this case contravenes

both limitations.

1.

The settlement improperly releases unripe future claims.

Claims related to future conduct are unripe—the conduct has not happened

yet—and so fall outside the jurisdiction of the court and the factual predicates of

the class-action case before it. See, e.g., Prime Mgmt. Co., Inc. v. Steinegger , 904

F.2d 811, 816 (2d Cir. 1990) (“While a previous judgment may preclude litigation

of claims that arose ‘prior to its entry, it cannot be given the effect of extinguishing

claims which did not even then exist and which could not possibly have been sued

upon in the previous case.’”) (quoting Lawlor , 349 U.S. at 328). Indeed, releasing

future conduct that occurs in an unknown factual context poses severe dangers to

class members—especially where, as here, they have no opportunity to protect

themselves by opting out. See generally James Grimmelmann, Future Conduct

and the Limits of Class-Action Settlements, 91 N.C. L. Rev. 387 (2013) (explaining

dangers associated with allowing class-action settlement agreements to release

future conduct).

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85

In Literary Works, this Court suggested that an opt-out class-action

settlement could release future copyright-infringement claims because a trial in

that case would have resolved whether the defendants could legally “continue to

sell and license the works” at issue. See 654 F.3d at 248. But that doctrine cannot

be extended to this case’s damages release for three reasons.

First, unlike the injunctive claim regarding future use in Literary Works,

which by definition was forward-looking, the varied antitrust damages claims

released here depend on market conditions and competitive impacts that can only

be assessed based on existing or past factual circumstances—circumstances that

will likely change in the future and could not possibly have been litigated in this

case. Restraints of trade evaluated under the rule of reason do not ripen into

antitrust violations until anticompetitive effects are shown. See, e.g., E & L

Consulting, Ltd. v. Doman Indus. Ltd., 472 F.3d 23, 29 (2d Cir. 2006).

Second, the claims that were released in Literary Works are always released

in a future-looking way. Copyright claims are amenable to licensing ; indeed, the

settlement was conceived of as a “continuing license.” See 654 F.3d at 247.

Unlike antitrust law, the very essence of copyright is the power to release future

infringement claims in exchange for present consideration. See, e.g.,

Grimmelmann, 91 N.C. L. Rev. at 409-10.

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86

Finally, Literary Works —like other cases applying the “identical factual

predicate” doctrine, even outside the context of future claims—was not a

mandatory settlement.15

Not only did it allow class members to opt out, but it

specifically allowed them to withhold a future-looking license and preserve their

statutory right to bar future use of their copyrighted works. 654 F.3d at 247.

Citing Robertson v. NBA, 556 F.2d 682, 686 (2d Cir. 1977), the district court

held that future claims could be released because the legality of defendants’ rules

was an “unsettled question.” SPA45. But Robertson is inapposite. It addresses a

different doctrine that would condemn even a settlement confined to the matters

properly before the court if it allowed the perpetuation of clearly illegal behavior.

See Robertson, 556 F.2d at 686. Robertson, which predates Super Spuds, in no

way suggests that a class-action settlement can release claims regarding future

conduct not before the court so long as the conduct is arguably kosher. As Judge

Friendly recognized in Super Spuds, the issue is not just the legality of the conduct

released, but the extent to which that conduct is subject to the power of the court

15 See, e.g., Wal-Mart , 396 F.3d at 112 (agreeing with analysis in prior case

that release “was not problematic” because, inter alia, it provided class members“the opportunity to opt out”); Weinberger v. Kendrick , 698 F.2d 61, 77 (2d Cir.

1982) (distinguishing Super Spuds on grounds that released claims were added before class certification, and settlement “afforded an opportunity to opt out”);Super Spuds, 660 F.2d at 19 (distinguishing prior case with broad release becauseclass members could opt out).

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87

and the class representatives, which are both limited to resolving the particular case

or controversy implicated by the facts and claims at bar.

To be sure, courts will frequently have the instinct—even the correct view—

that approving a prospective regime agreed to in a global settlement will achieve

more for the parties or public than disapproving it. But especially in a commercial

case with no opt-out rights, a settlement that attempts to “implement a forward-

looking business arrangement” for an entire industry, “without permission of the

[class members],” simply goes “too far.” Google Books, 770 F. Supp. 2d at 669.

Enforcing the established bars on releasing future antitrust claims not properly

before the court respects the limited role of federal litigation and ensures that class

actions remain a respected tool in the service of proper goals. Conversely,

allowing class actions to release claims against future conduct by all prospective

plaintiffs—as this one does—is an invitation for private parties to engage in

industry-wide regulation that is more likely than not to prioritize parochial goals

over the public good.

2.

The settlement improperly releases present claims beyond the

scope of the case.

Even the present claims that the settlement releases extend well beyond the

“identical factual predicate” of the claims that were actually brought. The district

court recognized the case’s proper scope: it concerned four categories of allegedly

anticompetitive network rules—default interchange rules, certain “anti-steering”

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88

rules, certain “exclusionary” rules, and “Honor-All-Cards” rules—which have

“allow[ed] Visa and MasterCard and the issuing banks to set supracompetitive

default interchange fees.” SPA18-19. At a minimum, the “identical factual

predicate” doctrine would limit a class-action release to such claims alone.

But the releases are in fact much broader. They unambiguously bar claims

based on any of defendants’ current rules and practices—as well as substantially

similar future conduct—not just claims based on the four categories of allegedly

anticompetitive rules and the resultant default interchange fees. Supra, at 15-17.

The releases even purport to bar damages claims concerning the FANF, which

appears nowhere in the Complaint because it was implemented in April 2012, three

years after merits discovery had closed .

The over-breadth of the Rule 23(b)(2) release is exacerbated by the

settlement’s definition of “Rule 23(b)(2) Settlement Class Releasing Parties” as

including “subsidiaries” of any class member, without geographic limitation.

SPA166 (Settlement ¶66); SPA88 (Judgment ¶16(a)). This definition facially

encompasses British supermarket chain ASDA—a subsidiary of appellant Wal-

Mart Stores, Inc.—which is now litigating claims in European Union courts

seeking substantial monetary relief for anticompetitive conduct abroad. See

JA[__]{DE2644 (Wal-Mart Obj. ¶¶56-58)}. Thus, ASDA, which cannot be a

member of either class and receives nothing from the settlement, could face the

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89

argument that its extra-territorial claims, which are well outside this case’s factual

predicate, are subject to the (b)(2) release as well.

The problem goes even deeper. The settlement proponents and the district

court incorrectly portrayed the scope of the release as limited to the factual

predicates of the case because it covers only existing rules and those that are

“substantially similar.” SPA44-47. This fails to recognize that a “rule” could have

very different effects in different factual contexts.

The history of the Honor-All-Cards rules, and defendants’ exploitation of

them to suppress competition, illustrates the point. Honor-All-Cards rules that

were introduced in the 1960s and applied solely to credit cards were utilized by

Visa and MasterCard in the 1990s to extend their market power into the emerging

market for debit transactions—tying practices that resulted in the Visa Check

settlement, which this Court approved. JA[__]{DE455-4 ¶4; DE455-5

¶4}(settlement provisions requiring revisions to Honor-All-Cards to untie debit

from credit).

Here, counsel for defendants made clear that Visa and MasterCard have

every intention to use their Honor-All-Cards rules again as a tying device—this

time by linking mobile payments to payments made with traditional payment

cards. See supra, at 26-27. To the extent they do so, such claims would depend on

future facts, including the extent to which the application of the Honor-All-Cards

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90

rules to mobile payments suppresses competition in those technologies. And this is

only one of innumerable future factual scenarios in which the application of an

“existing” or “substantially similar” rule would result in future conduct with

radically different, anticompetitive effects.

The effect of a mandatory release of claims of such breadth for eternity is to

replace the statutory rights and remedies that Congress has provided with a

privately negotiated, quasi-regulatory regime for the credit-card industry going

forward. As Judge Chin recently recognized, this is not properly the business of

settling parties and federal courts. In Google Books, the court recognized that a

large part of the settlement was directed to “future and ongoing arrangements …

[that] would release Google (and others) from liability for certain future acts.” 770

F. Supp. 2d at 676-77. The court rightly concluded that “this second part of the

[settlement] contemplates an arrangement that exceeds what the Court may permit

under Rule 23,” because it is “an attempt to use the class action mechanism to

implement forward-looking business arrangements that go far beyond the dispute

before the Court in this litigation.” Id. at 677. Such matters, the court noted, are

for Congress, and not the federal courts. The same is true here. Indeed, the result

here looks even more like legislation, because objectors to the Google Books

regime for the future of that industry at least had the right to opt out.

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91

CONCLUSION

The judgment should be reversed.

Dated: New York, New YorkJune 16, 2014

Respectfully submitted,

/s/ Thomas C. Goldstein

Stephen R. Neuwirth*

Sanford I. WeisburstSteig D. Olson

Cleland B. Welton IIQUINN EMANUEL URQUHART &

SULLIVAN, LLP51 Madison Avenue22nd Floor

New York, NY 10010

Jeffrey I. Shinder †

Gary J. MaloneA. Owen GlistCONSTANTINE CANNON LLP335 Madison Avenue

9th Floor New York, NY 10017

Thomas C. Goldstein*†‡

Eric F. CitronGOLDSTEIN & R USSELL, P.C.

5225 Wisconsin Avenue, N.W.Suite 404Washington, DC 20015

Michael J. Canter ‡

Robert N. WebnerKenneth J. RubinVORYS, SATER , SEYMOUR

AND PEASE LLP52 East Gay StreetColumbus, OH 43215

Gregory A. Clarick ‡

CLARICK GUERON R EISBAUM LLP40 West 25th Street12th Floor

New York, NY 10010

(Parties listed on following pages.)

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92

* Attorneys for Objector-Appellant Home Depot U.S.A., Inc.

† Attorneys for Plaintiffs-Appellants

Coborn’s Incorporated; D’Agostino Supermarkets, Inc.; Jetro Holdings, LLC;

Affiliated Foods Midwest Cooperative, Inc.; National Association of Convenience

Stores; National Community Pharmacists Association; National Cooperative

Grocers Association (NCGA); National Grocers Association; National

Restaurant Association; and NATSO Inc.;

And for Objectors-Appellants

7-Eleven, Inc.; Academy, Ltd. d/b/a Academy Sports Outdoors; Aldo US Inc.

d/b/a Aldo and Call It Spring; Alon USA, LP (Alon Brands); Amazon.com, Inc.;

American Eagle Outfitters, Inc.; Barnes & Noble, Inc.; Barnes & Noble College

Booksellers, LLC; Best Buy Stores, L.P.; BJ’s Wholesale Club, Inc.; The William

Carter Company (Carter’s); Costco Wholesale Corporation; Crate & Barrel Holdings, Inc.; Darden Restaurants, Inc.; David’s Bridal, Inc., DBD Inc. and

David’s Bridal Canada Inc.; Dick’s Sporting Goods, Inc.; Dillard’s, Inc.; Family

Dollar Stores, Inc.; Drury Hotels Company, LLC; Foot Locker, Inc.; Gap Inc.;

GNC Holdings, Inc. (General Nutrition Corporation); Genesco Inc.; The

Gymboree Corporation; HMSHost Corporation; IKEA North America Services,

LLC; J. Crew Group, Inc.; Kwik Trip, Inc.; Lowe’s Companies, Inc.; Marathon

Petroleum LP; Martin’s Super Markets, Inc.; Michaels Stores, Inc.; National

Railroad Passenger Corporation d/b/a Amtrak; Nike, Inc.; Panda Restaurant

Group, Inc.; Panera Bread Company; P.C. Richard & Son, Inc.; PETCO Animal

Supplies, Inc.; PetSmart, Inc.; RaceTrac Petroleum, Inc.; Recreational

Equipment, Inc. (REI); Roundy’s Supermarkets, Inc. d/b/a Pick ‘N Save,

Rainbow, Copps, Metro Market and Mariano’s; Sears Holdings Corporation;Speedway LLC; Starbucks Corporation; Stein Mart, Inc.; Thermo Fisher

Scientific Inc.; The Wendy’s Company; The Wet Seal, Inc.; Whole Foods Market,

Inc.; Zappos.com, Inc.; Fleet Wholesale Supply Co., Inc.; Mills Motor, Inc.;

Mills Auto Enterprises, Inc.; Willmar Motors, LLC; Mills Auto Center, Inc.;

Fleet and Farm of Alexandria, Inc.; Fleet Wholesale Supply of Fergus Falls,

Inc.; Fleet and Farm of Green Bay, Inc.; Fleet and Farm of Menomonie, Inc.;

Mills Fleet Farm, Inc.; Fleet and Farm of Manitowoc, Inc.; Fleet and Farm of

Plymouth, Inc.; Fleet and Farm Supply Company of West Bend, Inc.; Fleet and

Farm of Waupaca, Inc.; Mills E-Commerce Enterprises, Inc.; Brainerd Lively

Auto, LLC; Ashley Furniture Industries Inc.; Beall’s, Inc.; Boscov’s, Inc.; The

Buckle, Inc.; Buc-ee’s Ltd.; The Children’s Place Retail Stores, Inc.; Cracker

Barrel Old Country Store, Inc.; Cumberland Farms, Inc.; Express, LLC; Family

Express Corporation; New York & Company, Inc.; Republic Services, Inc.;

Swarovski U.S. Holding Limited; and The Talbots, Inc.

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93

‡ Attorneys for Objectors-Appellants

Target Corporation; Macy’s, Inc.; Kohl’s Corporation; The TJX Companies, Inc.; Staples, Inc.; J.C. Penney Corporation, Inc.; Office Depot, Inc.; L Brands,

Inc.; Big Lots Stores, Inc.; PNS Stores, Inc.; C.S. Ross Company; Closeout

Distribution, Inc.; Ascena Retail Group, Inc.; Abercrombie & Fitch Co.;

OfficeMax Incorporated; Saks Incorporated; The Bon-Ton Stores, Inc.; Chico’s

FAS, Inc.; Luxottica U.S. Holdings Corp. and American Signature, Inc.

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94

CERTIFICATE OF COMPLIANCE

This brief complies with this Court’s order dated May 27, 2014 (ECF No.

936), granting leave to file an oversized brief, because it contains 20,992 words,

excluding the parts of the brief exempted by FRAP 32(a)(7)(B)(iii).

This brief complies with the typeface requirements of FRAP 32(a)(5) and

the type-style requirements of FRAP 32(a)(6) because it has been prepared in a

proportionately spaced typeface using Microsoft Word 2007 in 14-point Times

New Roman font.

/s/ Thomas C. Goldstein

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!"#$%&!'()!"#$&+,'-./)0 !"#$&%1'-./)0 !2#$&!3'-./)0 !2#$&1+'-./)0 !2#$&1!'-./)0 !2#$&1"'-./)0

!$#2"'-./)0 !$#!!&'-./)0 !$#!!3'-./)0 !$#!22'-./)0 !$#!1&'-./)0 !$#!13'-./)0 !$#!3"'-./)0!$#!3&'-./)0 !$#"!3'-./)0 !$#""1'-./)0 !$#"$!'-./)0 !$#"1+'-./)0 !$#"%%'-./)0 !$#2+2'-./)0!$#22!'-./)0 !$#2$3'-./)0 !$#$+$'-./)0 !$#$""'-./)0 !$#$$2'-./)0!$#$,+'-./)0 !$#$3&'-./)0

!$#12+'-./)0 !$#1%&'-./)0 !$#1,$'-./)0 !$#%+%'-./)0 !$#%%2'-./)0 !$#,2&'-./)

#$%&#' ()&*#+),)&-#./01)#23#455&,6-#

7/1#$%&#+&8/ *#.(180() ________________

I N R E PAYMENT CARD I NTERCHANGE FEE AND MERCHANT DISCOUNT

A NTITRUST LITIGATION ________________

On Appeal from the United States District Court for the Eastern District of New York

________________

PAGE-PROOF BRIEF FOR PLAINTIFFS-APPELLEES ________________

K. CRAIG WILDFANG THOMAS J. U NDLIN R YAN W. MARTH BERNARD PERSKY ROBINS, KAPLAN, MILLER &

CIRESI L.L.P. 800 LaSalle Avenue Minneapolis, MN 55402

PAUL D. CLEMENT Counsel of Record

JEFFREY M. HARRIS CANDICE C. WONG BANCROFT PLLC 1919 M Street NW Suite 470Washington, DC 20036 (202) 234-0090 [email protected]

Counsel for Plaintiffs-Appellees

(Additional Counsel Listed on Inside Cover)

October 15, 2014

!"#$% '()*+,' -./01$23% ''(* 4"5$% ' '67'87(6'* '9*89,, '6'



H. LADDIE MONTAGUE

MERRILL G. DAVIDOFF MICHAEL J. K ANE BERGER & MONTAGUE, P.C. 1622 Locust Street Philadelphia, PA 19103

BONNY E. SWEENEY JOSEPH DAVID DALEY ALEXANDRA SENYA BERNAY ROBBINS GELLER RUDMAN &

DOWD LLP 655 West Broadway

Suite 1900 San Diego, CA 92101

JOSEPH GOLDBERG

FREEDMAN BOYD GOLDBERGURIAS & WARD, P.A. 20 First Plaza Suite 700 Albuquerque, NM 87102


!"#$% '()*+,' -./01$23% ''(* 4"5$% ( '67'87(6'* '9*89,, '6'




The parties to this brief complied with Rule 26.1 of the Federal Rules of

Appellate Procedure by submitting a Compendium of Corporate Disclosure

Statements on June 16, 2014. See D.E. 988.

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ii

TABLE OF CONTENTS


TABLE OF AUTHORITIES ....................................................................................iv

INTRODUCTION ....................................................................................................1

STATEMENT OF THE ISSUES .............................................................................. 3

STATEMENT OF THE CASE ..................................................................................4

A. The Payment Card Industry ..................................................................4

B. Eight Years of Hard-Fought Litigation .................................................6

C.

Industry Reforms During, and Due to, the Litigation .......................... 8

D.

Mediation and Settlement ....................................................................11

E. Settlement Review and Approval .......................................................16

SUMMARY OF ARGUMENT ...............................................................................21

STANDARD OF REVIEW ....................................................................................25

ARGUMENT ..........................................................................................................26

I.

The Structure Of The Settlement Classes Conforms Precisely ToBedrock Certification Requirements Under Rule 23. .................................. 26

A. The Rule 23(b)(2) Class Unquestionably Brought Claims For“Indivisible” Relief............................................................................. 27

B. The Rule 23(b)(2) Class Required No Opt-Out Rights; AllClaims for Individualized Monetary Relief Were Separatelyand Properly Certified Under Rule 23(b)(3). ..................................... 36

C. There Is Nothing Improper About Having a Rule 23(b)(2)Class Settlement Foreclose Possible Future Claims SeekingDamages. ............................................................................................40

D.

Both the Rule 23(b)(2) Class and Rule 23(b)(3) Class WereAdequately Represented. ....................................................................47

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iii

II.

The District Court Acted Well Within Its Broad Discretion In

Finding The Overall Settlement Fair, Reasonable, and AdequateUnder Rule 23(e). .........................................................................................56

A.

The Relief Obtained by the Class is Outstanding. ............................. 57

1. The $7.25 Billion Damages Fund is the Largest-EverCash Relief in an Antitrust Class Action Settlement. .............. 57

2. The Removal of Restraints on Surcharging OffersValuable Relief. ........................................................................60

3.

The Other Injunctive Reforms Offer Valuable Relief. ............. 67

4.

The Settlement Is Not Unreasonable Merely Because ItDoes Not Include All of the Relief Sought byObjectors. .................................................................................70

B. The Standard Release Conforms With All Applicable Law. .............. 72

III.

The District Court Acted Well Within Its Broad Discretion InFinding The Fee Award Reasonable. ............................................................78

IV. The District Court Acted Well Within Its Broad Discretion InFinding The Settlement Notice Reasonable. ................................................ 82

CONCLUSION .......................................................................................................85


CERTIFICATE OF SERVICE

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iv


Cases

Amchem Prods. v. Windsor ,521 U.S. 591 (1997) .................................................................................... passim

Armstrong v. Bd. of Sch. Dirs.,616 F.2d 305 (7th Cir. 1980) ...............................................................................77

Ass’n For Disabled Ams. v. Amoco,211 F.R.D. 457 (S.D. Fla. 2002) .........................................................................42

Barnes v. Am. Tobacco,

161 F.3d 127 (3d Cir. 1998) ................................................................................33

Bendix v. Midwesco,486 U.S. 888 (1988) ............................................................................................55

Bristol v. Louisiana-Pacific,916 F. Supp. 2d 357 (W.D.N.Y. 2013) ................................................................38

Charron v. Pinnacle Grp.,874 F. Supp. 2d 179 (S.D.N.Y. 2012) .................................................................59

Charron v. Wiener ,731 F.3d 241 (2d Cir. 2013) ...................................................................25, 47, 55

D’Amato v. Deutsche Bank ,236 F.3d 78 (2d Cir. 2001) .......................................................................2, 25, 48

Denney v. Deutsche Bank ,443 F.3d 253 (2d Cir. 2006) ................................................................................47

Detroit v. Grinnell Corp.,495 F.2d 462 (2d Cir. 1974) .............................................................17, 23, 56, 70

Dewey v. Volkswagen,681 F.3d 170 (3d Cir. 2012) .........................................................................54, 55

Easterling v. Dep’t of Corr.,278 F.R.D. 41 (D. Conn. 2011) ...........................................................................38

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v

Eubank v. Pella,

753 F.3d 718 (7th Cir. 2014) ...............................................................................52

Expressions Hair Design v. Schneiderman,975 F. Supp. 2d 430 (S.D.N.Y. 2013) .................................................................66

Goldberger v. Integrated Resources,209 F.3d 43 (2d Cir. 2000) .......................................................................... passim

Gooch v. Life Investors Ins.,672 F.3d 402 (6th Cir. 2012) ........................................................................38, 55

Handschu v. Special Servs. Div.,605 F. Supp. 1384 (S.D.N.Y. 1985) ............................................................. 63, 70

Handschu v. Special Servs. Div.,787 F.2d 828 (2d Cir. 1986) ...................................................................31, 57, 83

Hecht v. United Collection Bureau,691 F.3d 218 (2d Cir. 2012) ................................................................................43

Huyer v. Wells Fargo,295 F.R.D. 332 (S.D. Iowa 2013) .......................................................................38

In re AIG Sec. Litig .,689 F.3d 229 (2d Cir. 2012) ................................................................................34

!" $% &"$'" (%)*+ ,%$-./0-.% 1 &2!(3 4-0-5*!#$% &' ()**' +, -.+ /('0' 123' +44$5 .................................................................81

In re IKO Roofing Prods. Litig .,757 F.3d 599 (7th Cir. 2014) ...............................................................................30

In re IPO Sec. Litig.,471 F.3d 24 (2d Cir. 2006) ..................................................................................26

In re Johns-Manville,759 F.3d 206 (2d Cir. 2014) .........................................................................77, 78

In re Literary Works Copyright Litig.,654 F.3d 242 (2d Cir. 2011) ........................................................................ passim

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vi

In re Managed Care Litig .,

2010 WL 6532985 (S.D. Fla. 2010) ...................................................................76

In re Motor Fuel Sales Practices Litig .,271 F.R.D. 263 (D. Kan. 2010) ...........................................................................65

In re NASDAQ Antitrust Litig.,169 F.R.D. 493 (S.D.N.Y. 1996) .........................................................................38

In re Payment Card Interchange Fee Antitrust Litig .,986 F. Supp. 2d 207 (E.D.N.Y. 2013) .................................................................16

In re Payment Card Interchange Fee Antitrust Litig .,991 F. Supp. 2d 437 (E.D.N.Y. 2014) .................................................................20

In re Salomon Analyst Metromedia Litig .,544 F.3d 474 (2d Cir. 2008) ................................................................................26

In re St. Jude Medical ,425 F.3d 1116 (8th Cir. 2005) .............................................................................32

In re Visa Check/MasterMoney Antitrust Litig .,280 F.3d 124 (2d Cir. 2001) ................................................................................43

In re Visa Check/MasterMoney Antitrust Litig.,297 F. Supp. 2d 503 (E.D.N.Y. 2003) ....................................................58, 73, 82

In re Vitamin C Antitrust Litig ., +46+ 78 #+$9#6: /;'0'<'=' +46+5 ...................................................................82

In re Vitamin C Antitrust Litig .,279 F.R.D. 90 (E.D.N.Y. 2012) ...........................................................................38

!" $% 6'$789': (%)* 4-0-5 '!.$$ &' ()**' +, .69 /('0'<'=' +44#5 .................................................................81

Jefferson v. Ingersoll ,195 F.3d 894 (7th Cir. 1999) ...............................................................................36

Jermyn v. Best Buy,276 F.R.D. 167 (S.D.N.Y. 2011) .........................................................................38

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vii

Joel A. v. Giuliani,

218 F.3d 132 (2d Cir. 2000) ...................................................................26, 51, 57

Kartman v. State Farm,634 F.3d 883 (7th Cir. 2011) ...............................................................................39

LaGarde v. Support.com,2013 WL 1283325 (N.D. Cal. 2013) ........................................................... 63, 68

Lawlor v. National Screen Service,349 U.S. 322 (1955) ............................................................................................76

Masters v. Wilhelmina Model Agency,473 F.3d 423 (2d Cir. 2007) ................................................................................26

Maywalt v. Parker & Parsley Petrol.,67 F.3d 1072 (2d Cir. 1995) ................................................................................58

McBean v. New York ,233 F.R.D. 377 (S.D.N.Y. 2006) .........................................................................58

McReynolds v. Richards-Cantave,588 F.3d 790 (2d Cir. 2009) ............................................................................2, 45

Nat’l Super Spuds v. N.Y. Mercantile Exch. , 660 F.2d 9 (2d Cir. 1981) ....................................................................................74

New England Carpenters Fund v. First DataBank ,602 F. Supp. 2d 277 (D. Mass. 2009) .................................................................59

Nottingham Partners v. Trans-Lux,925 F.2d 29 (1st Cir. 1991) .................................................................................42

Ortiz v. Fibreboard ,527 U.S. 815 (1999) .....................................................................................46, 52

Parsons v. Ryan,754 F.3d 657 (9th Cir. 2014) ...............................................................................28

Petrovic v. Amoco,200 F.3d 1140 (8th Cir. 1999) .............................................................................56

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viii

Phillips Petroleum v. Shutts,

472 U.S. 797 (1985) ............................................................................................42

Rich v. Martin Marietta,522 F.2d 333 (10th Cir. 1975) .............................................................................28

Robertson v. NBA,556 F.2d 682 (2d Cir. 1977) ................................................................................77

Robinson v. Metro-North,267 F.3d 147 (2d Cir. 2001) ...................................................................31, 39, 44

San Diego Police Officers’ Ass’n v. San Diego City Emps.’ Ret. Sys. ,568 F.3d 725 (9th Cir. 2009) ...............................................................................42

Scarver v. Litscher ,371 F. Supp. 2d 986 (W.D. Wis. 2005) ...............................................................42

Schwarz v. Dall. Cowboys,2001 WL 1689714 (E.D. Pa. 2001) ....................................................................76

Shady Grove Orthopedic v. Allstate,559 U.S. 393 (2010) ............................................................................................46

Soberal-Perez v. Heckler ,717 F.2d 36 (2d Cir. 1983) ...........................................................................25, 82

Stephenson v. Dow Chemical ,273 F.3d 249 (2d Cir. 2001) .........................................................................42, 54

Stinson v. City of N.Y.,282 F.R.D. 360 (S.D.N.Y. 2012) .........................................................................38

Suffolk Cnty. v. Long Island Lighting ,907 F.2d 1295 (2d Cir. 1990) ..............................................................................48

Thompson v. Metro. Life,216 F.R.D. 55 (S.D.N.Y. 2003) ....................................................................58, 85

United States v. E. I. du Pont de Nemours & Co.,366 U.S. 316 (1961) ..............................................................................................9

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ix

United States v. Local 359, United Seafood Workers,

55 F.3d 64 (2d Cir. 1995) ....................................................................................75

Velez v. Novartis,244 F.R.D. 243 (S.D.N.Y. 2007) .........................................................................38

VKK Corp. v. NFL,244 F.3d 114 (2d Cir. 2001) ................................................................................76

W. Alton Jones Found. v. Chevron,97 F.3d 29 (2d Cir. 1996) ....................................................................................74

Wal-Mart v. Dukes,131 S. Ct. 2541 (2011) ................................................................................ passim

Wal-Mart v. Visa,396 F.3d 96 (2d Cir. 2005) .......................................................................... passim

Weinberger v. Kendrick ,698 F.2d 61 (2d Cir. 1982) ..................................................................................82

Williams v. G.E. Capital ,159 F.3d 266 (7th Cir. 1998) ...............................................................................76

Statutes

2010 Dodd-Frank Wall Street Reform and Consumer Protection Act,

Pub. L. No. 111-203, 124 Stat. 1376 (2010) .......................................................10

15 U.S.C. § 1693o-2.................................................................................................10

28 U.S.C. § 2072(b) ................................................................................................45

Rules

Fed. R. Civ. P. 23(a) .................................................................................................47

Fed. R. Civ. P. 23(b) ......................................................................................... passim

Fed. R. Civ. P. 23(e) ......................................................................................... passim

Fed. R. Civ. P. 23(h) ................................................................................................78

Fed. R. Civ. P. 23 advisory committee notes (1966) .........................................28, 76

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x

Fed. R. Civ. P. 23 advisory committee notes (1996) ................................................30

Fed. R. Civ. P. 23 advisory committee notes (2003) ...................................37, 49, 50

Other Authorities

Credit Card Interchange Fees: Antitrust Concerns? Hearing Before S.

Comm. on the Judiciary, 109th Cong. (2006) ....................................................61

McLaughlin on Class Actions (10th ed.)..................................................... 32, 41, 85

Newberg on Class Actions (4th ed. 2002) .........................................................34, 83

Wright & Miller, Federal Practice and Procedure (3d ed. 1998) .............. 27, 28, 29

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INTRODUCTION

This settlement was the culmination of eight years of arms-length, hard-fought

litigation before a highly experienced judge, including four years of adversarial

mediation before two distinguished independent mediators. The settlement secures

up to $7.25 billion in damages, as well as unprecedented, immediately effective

structural reforms of the payment card networks that “may very likely exceed the

value of the monetary relief in the long run.” SPA67. The district court, with its

extensive experience with the relevant issues and knowledge of the litigation,

correctly deemed that settlement a “significant success.” SPA61.

A small group of objectors—many of whom supported a near-identical

version of the settlement submitted to the district court three months before its

execution—claims to be dissatisfied with the scope of structural reforms achieved

as a result of this litigation. Objectors have channeled those frustrations into various

attacks on the settlement classes, suggesting that certification of an injunctive-relief

class alongside a damages class in this action gave rise to “cohesion,” “due process,”

and “adequacy” problems. But many of objectors’ complaints call into question

common and unobjectionable practices, such as litigating Rule 23(b)(2) and 23(b)(3)

classes simultaneously and foreclosing future challenges to agreed-upon, going-

forward conduct. There is absolutely nothing improper about those prototypical uses

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2

of Rule 23, and the district court considered and properly rejected each of objectors’

arguments.

Objectors’ stated concerns about the structure of the classes ultimately

devolve into complaints about the overall fairness of the settlement. But the district

court, after exhaustive evaluation, approved the settlement as both procedurally and

substantively fair. That fact-intensive determination is well-supported by the robust

structural assurances of fair and adequate representation of all interests in the

proceedings overseen by the two mediators who wholeheartedly endorsed the

settlement. It accords with the settlement’s “massive” and “meaningful” relief,

particularly when measured against the likely complexity, expense, delay, and risk

of proceeding to trial. SPA15, 61. And the district court’s holding is bolstered by

the “‘strong judicial policy in favor of settlements, particularly in the class action

context.’” McReynolds v. Richards-Cantave, 588 F.3d 790, 803 (2d Cir. 2009).

Objectors’ criticisms of the scope of the settlement relief and release do not

come close to a “clear showing that the District Court has abused its discretion.”

D’Amato v. Deutsche Bank , 236 F.3d 78, 85 (2d Cir. 2001). Objectors dramatically

understate the importance of the rule reforms obtained. Those reforms permit

merchants, for the first time ever, to engage in surcharging—a tool by which

merchants can inform customers about the costs of credit card acceptance, direct

customers toward less costly payment methods, and recoup acceptance costs.

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3

Conversely, objectors dramatically overstate the scope of the settlement’s release of

future claims. That release employs standard language that courts have repeatedly

approved, and the Due Process Clause provides the ultimate assurance that claims

will not—indeed, cannot—be impermissibly released. Objectors’ further challenges

to the reasonableness of the attorneys’ fee award and the settlement notice are

equally meritless.

In short, the settlement reflects a remarkable accomplishment, providing

monetary and injunctive relief of unprecedented value and scope. The district court’s

determinations that the settlement, fee award, and notice were appropriate lie well

within its broad discretion and should be affirmed.

STATEMENT OF THE ISSUES

1. Whether the district court acted within its broad discretion in

concluding that the Rule 23(b)(2) injunctive-relief and Rule 23(b)(3) damages

classes conform with their respective class certification requirements.

2. Whether the district court acted within its broad discretion in approving

the settlement—which included $7.25 billion in money damages and unprecedented

injunctive relief—as “fair, reasonable, and adequate” under Rule 23(e).

3. Whether the district court acted within its broad discretion in

calculating and approving the attorneys’ fee award as reasonable.

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4

4. Whether the district court acted within its broad discretion in approving

the settlement notice as reasonable.


A.

The Payment Card Industry

Visa and MasterCard were created as bank-owned joint ventures a half-

century ago, and were subsequently owned and controlled by the largest banks in the

United States. The banks were members of Visa and MasterCard, owned stock in

Visa and MasterCard, placed representatives on the Visa and MasterCard boards of

directors and committees, and issued Visa and MasterCard payment cards. Through

those influential positions, the member banks predictably established and enforced

network rules that produced ever-increasing “interchange fees”—the fees that a

merchant must pay to a card-issuing bank in order to accept Visa or MasterCard-

branded cards. See D.E. 1153 (Second Consolidated Amended Class Action

Complaint) ¶¶94-100.

Visa and MasterCard have grown exponentially over the last four decades. In

1970, only 16% of U.S. families had a credit card, and less than one million U.S.

merchants—approximately 20%—accepted payment cards. By 2006, 77% of U.S.

adults had at least one credit card, and merchant acceptance was ubiquitous. In 2007

alone, transaction volume on bank-issued credit cards topped two trillion dollars,

and Visa and MasterCard transactions accounted for roughly 75% of that volume.

D.E. 1153 ¶¶126, 274-276.

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5

As their market power grew, the interchange fees Visa and MasterCard levied

on merchants rose as well. Merchants faced a schedule of “default interchange fees”

for every transaction on the network. In practice, because private agreements to

deviate from the “default” rates were exceptionally rare, these were not just default

fees, but actual fees. Along with payroll and rent, interchange fees became one of

the largest operating costs for many businesses. By the mid-2000s, card-issuing

banks were reaping more than $30 billion annually in interchange fees. D.E. 2113-

6 (Wildfang Decl.) ¶17.

Interchange fees were not the only anticompetitive restraint adopted by the

networks and the banks that controlled them. They also adopted various “anti-

steering restraints” as network rules that every card-accepting merchant was required

to follow. Coupled with merchants’ obligations to pay default interchange fees and

to “Honor-all-Cards” bearing the Visa or MasterCard brand regardless of the issuing

bank or the amount of the interchange fee, these anti-steering restraints enabled

banks to demand exorbitant sums at the expense of merchants that had no alternative

but to continue paying the fees.

The “foremost example” of an anti-steering restraint was the anti-surcharging

rule, which prohibited merchants from adding a surcharge at the point of sale to alert

customers to the costs of payment options and recoup the costs associated with credit

card usage. D.E. 1165 (Pls.’ Mot. for Class Cert.) at 3. This rule prevented

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6

merchants— who were unable, as a practical matter, to stop accepting Visa and

MasterCard—from using surcharges to “steer” customers towards less-expensive

payment methods that did not carry the same fees. Customers, in turn, were left in

the dark about those costs that they were indirectly bearing in the form of higher

prices. This disabled both merchants and customers from exerting downward

competitive pressures on interchange fees. D.E. 1153 ¶¶189-199.

Similarly, Visa’s and MasterCard’s anti-minimum purchase rules prevented

merchants from requiring a minimum cost before they would accept Visa and

MasterCard cards. In addition, their anti-discounting rules (or anti-“discrimination”

rules) prohibited merchants from offering discounts and other benefits for purchases

made with non-Visa and non-MasterCard products. See D.E. 1153 ¶8 (defining

“Anti-Steering Restraints” as “the No-Surcharge Rule; the No-Minimum Purchase

Rule; and the Networks’ so-called ‘anti-discrimination rules’”).

B. Eight Years of Hard-Fought Litigation

In June 2005, merchants filed the first of over 40 class-action complaints

alleging that Visa and MasterCard and their member banks conspired, inter alia, to

impose and fix the price of interchange fees in violation of the Sherman Act. The

class actions were consolidated later that year along with 19 individual cases before

Judge John Gleeson in the Eastern District of New York.

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7

From the outset, plaintiffs requested certification of both a damages class

under Rule 23(b)(3) and an injunctive-relief class under Rule 23(b)(2). See D.E.

317 (First Consolidated Amended Class Action Complaint) ¶97; D.E. 1153 ¶108.

Plaintiffs sought both “monetary damages to compensate them for the overcharges

caused by th[e] illegal conspiracy” and “equitable relief to protect themselves

against continuing and future harm.” D.E. 317 at 1. Both types of relief were

premised on identical facts and evidence about the defendants’ uniform course of

anticompetitive conduct. And both types of relief were equally “important” in

ensuring an effective remedy. D.E. 1165 at 39.

The settlement that ultimately emerged was the result of eight years of hard-

fought litigation that consumed enormous resources and was closely monitored by

the district court. The parties went toe-to-toe over discovery, which commenced in

2005 and took more than five years. That process entailed “more than 400

depositions, the production and review of more than 80 million pages of documents,

the exchange of 17 expert reports, and a full 32 days of expert deposition testimony.”

SPA9. The parties’ expert reports covered nearly 5,000 pages.

The parties also vigorously disputed class certification. Plaintiffs moved for

certification of the Rule 23(b)(2) and 23(b)(3) classes in 2008. Defendants opposed

certification and challenged the opinions of plaintiffs’ class certification expert. The

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8

district court received briefing over nearly fourteen months and held oral argument

on class certification in November 2009.

The parties additionally engaged in multiple rounds of briefing on motions to

dismiss. After one round of briefing and argument on plaintiffs’ First Supplemental

Class Action Complaint (post-IPO period), the district court partially dismissed with

leave to re-plead. Defendants then launched a second round, moving to dismiss the

First Amended Supplemental Class Action Complaint, Second Consolidated

Amended Class Action Complaint, and Second Supplemental Class Action

Complaint. The district court heard oral argument on these motions in November

2009.

The parties also exchanged cross-motions for summary judgment. In 2011,

plaintiffs sought partial summary judgment and defendants sought judgment as to

the entirety of the case. The district court received briefing over five months and

held oral argument on the cross-motions in November 2011. The parties also filed

eight Daubert motions in conjunction with the summary judgment briefing.

C. Industry Reforms During, and Due to, the Litigation

Plaintiffs’ litigation efforts brought public (and Department of Justice)

attention to the networks’ anticompetitive practices and spurred major industry

developments. Indeed, several reforms sought by plaintiffs were achieved outside

the courtroom, often as a direct result of this litigation. While those reforms marked

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9

a great accomplishment for merchants, they also injected delay and uncertainty into

the litigation process.

Corporate Restructurings. Shortly after the first class action was filed, and in

part to avoid “ruinous” antitrust liability, the networks abandoned their longstanding

joint venture structures. D.E. 1152 (First Amended Supplemental Class Action

Complaint) ¶149(d). MasterCard—a joint venture for over four decades—

restructured in 2006. Visa—a joint venture since 1970—followed in early 2008.

Both became publicly owned and operated, with the banks divesting their ownership

and relinquishing their board memberships and voting control over network rules.

This formal separation of the networks and banks, whereby the banks no longer

control the business decisions of Visa and MasterCard, marked a tectonic industry

shift. Cf. United States v. E. I. du Pont de Nemours & Co., 366 U.S. 316, 326 (1961)

(divestiture is the “most drastic … of antitrust remedies”).

Durbin Amendment . Beginning in 2009, class counsel also became

significantly involved in developing and drafting legislative reforms of the networks’

practices. Class counsel recommended to leading merchant groups that, instead of

seeking public-utility-like regulation of interchange fees, they focus on limiting fees

on debit card transactions to give merchants a low-cost alternative to which

merchants could eventually steer customers. The new strategy worked, and

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10

culminated in the Durbin Amendment to the 2010 Dodd-Frank Wall Street Reform

and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).

The Durbin Amendment limited the networks’ anti-discounting rules,

restricting their ability to “inhibit the ability of any person to provide a discount or

in-kind incentive” to steer consumers at the point of sale toward less-expensive

forms of payment. 15 U.S.C. § 1693o-2(b)(2)(A). It also limited the networks’ anti-

minimum purchase rules, preventing them from “>?@>A>BC>?DE B@2 FA>G>BH … IJ F?H

*2KLI? BI L2B F M>?>M)M ,IGGFK NFG)2 JIK B@2 FOO2*BF?O2 AH B@FB *2KLI? IJ OK2,>B

OFK,L.” Id . § 1693o-2(b)(3)(A). P?,! critically, the Durbin Amendment authorized

the Federal Reserve Board to cap interchange fees on Visa and MasterCard debit

card transactions to ensure that they are “reasonable and proportional to the cost

incurred by the issuer.” Id. § 1693o-2(a)(3)(A). By limiting debit interchange fees,

Congress rendered debit cards a substantially lower-priced form of payment other

than cash to which merchants could steer consumers.

Department of Justice Consent Judgment. As early as 2006, DOJ and several

state attorneys general contacted class counsel and expressed interest in the

litigation. In 2008, at the urging of class counsel, DOJ opened an antitrust

investigation into Visa’s and MasterCard’s anti-steering restraints. After it issued a

Civil Investigative Demand on plaintiffs seeking “all products of discovery relating

to the Anti-Steering Rules,” class counsel granted extraordinary access to their

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11

document and deposition databases, work product, and advice over the next three

years. D.E. 2113-6 ¶119. That assistance directly resulted in DOJ filing its own suit

against Visa and MasterCard.

As the district court later observed, “the plaintiffs did not piggyback on

previous government action—indeed, the government piggybacked on their efforts.”

SPA59. In 2011, DOJ entered a Consent Judgment against Visa and MasterCard that

secured critical modifications to the anti-discounting rules, enabling merchants to

offer discounts at both the brand level (e.g., discounts on cards other than Visa credit

cards) and product level (e.g ., discounts on cards other than higher-cost Visa

Signature cards or MasterCard World Elite cards). In the Consent Judgment, Visa

and MasterCard also committed to providing free services to help merchants

determine the costs of accepting particular cards.

D. Mediation and Settlement

1. In the wake of these significant industry reforms, the completion of

discovery, and briefing and argument on class certification, dismissal, and summary

judgment, the parties agreed at an advanced stage of the litigation to settle their

claims. The settlement was the culmination of a painstakingly thorough and

inclusive four-year mediation process spearheaded by two of the most experienced

mediators in the country, Retired Chief Magistrate Judge Edward Infante and

Professor Eric Green.

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12

The parties jointly selected Judge Infante and Professor Green after months-

long negotiations. D.E. 2113-6 ¶177. Between April 2008 and December 2011, the

parties met, either jointly or separately, with one or both of the mediators

approximately 45 times, and exchanged hundreds of calls and e-mails in an attempt

to make progress toward settlement. D.E. 2113-6 ¶¶175, 181. The district court

(with assistance from the mediators) also held several multi-day settlement

conferences. Proposed class representatives—including many current-objectors—

were repeatedly invited to participate. They did participate, and were heard at length

by the mediators and the court. D.E. 1111-2 (Infante Decl.) ¶7; D.E. 1111-3 (Green

Decl.) ¶¶22-28.

The mediators presented a settlement proposal in December 2011. After

weeks of discussions, the parties—including many current-objectors—accepted that

proposal. By then, all parties were intimately familiar with the strengths and

weaknesses of their claims. Class counsel concluded that accepting the mediators’

proposal was “preferable to the only alternative, which was many more years of

litigation while merchants continued to be hamstrung by the no surcharge rules of

Visa and MasterCard and remaining anti-steering rules.” D.E. 2113-6 ¶185. In class

counsel’s view, settlement was particularly attractive “when compared … to what

was reasonably likely to be obtained by injunction in a trial before Judge Gleeson.”

Id. Class counsel recognized that even after many more years of delay and further

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litigation, victory was by no means assured; plaintiffs faced a number of potential

risks in their efforts to establish liability and damages and maintain a class action.

By February 2012, the parties—again, including many current-objectors—

agreed to negotiate toward a final settlement through the process laid out by the

mediators and the court. D.E. 1111-2 ¶8; D.E. 1111-3 ¶29. The mediators guided

months of careful debate over nearly every settlement term, with all parties

recognizing the far-reaching impact the settlement would have on the costs and

mechanics of payment card acceptance.

In July 2012, the parties—still including many current-objectors—reached a

final settlement and agreed to “set[] out the parties’ binding obligation to enter into”

the terms outlined in a Memorandum of Understanding. D.E. 1588. The district

court then tabled “all pending motions for relief (including motions concerning

discovery, class certification, dismissal, summary judgment, and the preclusion of

expert opinion testimony).” 7/17/2012 Order.

After the Memorandum of Understanding was filed, however, in the midst of

an aggressive objection campaign, several then-class representatives (now-

objectors) reversed course. Class counsel emphatically did not “fire[] their clients,”

Merchant Appellants’ Br. (“MA-Br.”) 70, as objectors contend. To the contrary, class

counsel moved to withdraw as their counsel only after those objectors withdrew their

“binding” support for the settlement and often only after new counsel appeared on

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their behalf. The final settlement, virtually identical to the July 2012 agreement, was

executed in October 2012.

2. The settlement secures substantial relief for plaintiffs. It achieves the

largest-ever cash relief in an antitrust case—two funds totaling an estimated $7.25

billion1 (before opt-out reductions)—to compensate “all persons, businesses, and

other entities that have accepted” Visa or MasterCard cards in the United States from

January 1, 2004 to the preliminary settlement approval date (November 27, 2012).

SPA118 (Settlement ¶2(a)). It also achieves an unprecedented bundle of network

rule reforms for all merchants that “accept” Visa and MasterCard cards in the United

States “as of” November 27, 2012 or after. SPA118 (Settlement ¶2(b)).

Chief among the rule reforms is the lifting of the networks’ prohibition on

surcharging, SPA141-49 (Settlement ¶42), which had been the most potent anti-

steering restraint. See D.E. 317 ¶238 (“The Anti-Steering Restraints (and

particularly the No-Surcharge Rule) are anticompetitive vertical restraints.”)

(emphasis added). In class counsel’s view, “[w]inning the surcharging tool is the

most consequential and empowering development yet in the long battle U.S.

merchants have waged to counter the anticompetitive practices and legacies in the

1

The $7.25 billion is composed of two funds: a $6.05 billion cash settlement andan estimated $1.2 billion fund based on a holdback of ten basis points in interchangefee payments by class members during an eight-month period after the opt-out

period. SPA121-23 (Settlement ¶¶10-13).

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credit-card industry.” D.E. 2113-6 ¶195. For the first time, the networks cannot

prevent merchants from imposing surcharges on Visa and MasterCard transactions

at the brand or product level to “steer” customers towards lower-cost payment

methods. Because the amount of any surcharge is disclosed before it is incurred (and

on the receipt after purchase), customers are also educated about the costs of credit

card acceptance and may in turn opt for cheaper payment methods. Indeed, even the

threat of surcharging helps incentivize networks to moderate or lower their fees to

stay competitive.

Additional rule reforms further enhance the surcharging tool. The networks

are now required to negotiate in good faith for better rates with bona fide merchant

buying groups; permit merchants to use different acceptance strategies at different

outlets; and lock in the discounting, minimum price, and other reforms of the Durbin

Amendment and DOJ Consent Judgment until July 2021. SPA140-50, 153-64

(Settlement ¶¶41, 42(g), 43, 54, 55(g), 56).

Both mediators attested that settlement negotiations were “fair, adversarial,

and always conducted at arms-length.” D.E. 1111-2 ¶12; accord D.E. 1111-3 ¶33.

Both lauded counsel for “zealously represent[ing] the interests of their clients,” D.E.

1111-2 ¶12, and giving their “best professional effort,” D.E. 1111-3 ¶33. And both

declared that the settlement terms were fair, reasonable, and adequate, “taking into

account the risks, strengths and weaknesses of [the parties’] respective positions on

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16

the substantive issues of the case and the risks and costs of continued litigation.”

D.E. 1111-3 ¶33; accord D.E. 1111-2 ¶13.

E. Settlement Review and Approval

The district court approved the settlement after an exhaustive review of both

the settlement process and the substantive terms. The court held a preliminary

approval hearing at which it heard from objectors and reviewed supporting evidence.

After granting preliminary approval and provisionally certifying the (b)(2) and (b)(3)

settlement classes, the court invited objectors to file written submissions and “appear

at the final approval hearing.” D.E. 1745 ¶21. The court also appointed Dr. Alan

Sykes of New York University School of Law to offer independent analysis of the

economic issues raised by the settlement. And, at the final approval hearing, the

court heard again from objectors.

The district court issued a 55-page decision granting final approval of the

settlement. See In re Payment Card Interchange Fee Antitrust Litig ., 986 F. Supp.

2d 207 (E.D.N.Y. 2013). The court first deemed the settlement procedurally fair,

concluding that the “record … demonstrates beyond any reasonable doubt that the

negotiations were adversarial and conducted at arm’s length by extremely capable

counsel.” SPA21 (emphasis added). It emphasized that “there is no indication that

the Settlement Agreement is the product of collusion,” and that “the negotiation

process fairly protected the interests of the settlement class.” SPA21-22. Even many

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objectors “were deeply involved in the settlement negotiations and mediation, and

indeed accepted the mediators’ proposal that outlined the key components of what

became the Settlement.” SPA21.

The district court then found that the settlement fell well “within the range of

reasonableness” under the multi-factor standard of Detroit v. Grinnell Corp., 495

F.2d 462, 463 (2d Cir. 1974). The court noted that the advanced stage of litigation

gave all involved “a more than adequate basis for assessing the claims” after “more

than eight years” of “full-throttle” litigation. SPA9, 11, 25. It emphasized that

further litigation would entail lengthy delays. “Numerous motions remain[ed]

pending,” the class certification motion would inevitably entail “interlocutory

review by the Second Circuit,” “a trial would take several months,” and the “losing

parties would likely appeal any adverse jury verdicts.” SPA22. And, even after

many more years of litigation, the class would still face “the prospect of uncertain

relief.” SPA35. By contrast, the settlement affords a certain and largely immediate

recovery, enabling class members to “take advantage of rules changes now” and

receive “significant monetary compensation in the near future.” SPA23.

The district court thoroughly considered and rejected the concerns of

objectors, who comprised 0.05%, or one-twentieth of 1%, of the estimated class.

The court lamented that “[t]he behavior of a small number of objectors has

threatened to undermine the efforts of the others” with “needless hyperbole,”

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“vitriol,” and the improper use of “websites that disseminated false and misleading

information.” SPA13-14, 23.2 The objectors, moreover, appeared to “assum[e] that

a complete victory on the merits is a foregone conclusion.” SPA26. In fact, a “wide

range of outstanding issues” created substantial risks and uncertainties if litigation

were to proceed. SPA25-26. For instance, “objectors assume that default

interchange is inherently illegal, but in reality it is a very complicated issue.” SPA29.

Objectors similarly assumed the illegality of the Honor-all-Cards rule, even though

there was record evidence and analogous caselaw suggesting that this rule would be

found “ procompetitive under the Rule of Reason.” SPA31. And plaintiffs faced

additional “complexities … in proving damages to the jury” and risks associated

with class certification. SPA32-34.

Objectors also “underestimated the significance of the Rule 23(b)(2) relief.”

SPA25. The district court declared surcharging “an indisputably procompetitive

development that has the potential to alter the very core of the problem this lawsuit

was brought to challenge.” SPA35-36. For merchants, the surcharging relief

removes “a central piece” of the problem. SPA37. Merchants can now provide

2 The district court observed that “90% of the objections [were generated] on boilerplate forms” downloaded from the websites, which were established “for the

precise purpose of drumming up objections and opt-outs” and misled merchantsabout their options. SPA13, 23. The court had previously been forced to issueinjunctive relief to address this misinformation campaign and “came close to holdingcertain entities in contempt.” SPA14.

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customers with clear signals of “what it costs the merchant to accept a particular

card,” giving them valuable leverage to encourage the use of cheaper payment

methods and brands. SPA37. Customers, meanwhile, have a choice between

surcharged payment methods and lower-cost payment methods. And networks will

face incentives to “moderate or lower their interchange fees to avoid being

disfavored.” SPA37. As the court explained, “[e]ven if the objectors are right in

contending that additional dominoes must fall before the alleged anticompetitive

behavior of Visa and MasterCard is eradicated”—whether independent constraints

on surcharging posed by state laws or third parties—“those dominoes will have to

fall in other forums.” SPA18.

The district court similarly dismissed criticisms of the release. Consistent

with precedent, the settlement releases only “claims that are or could have been

alleged based on the identical factual predicate of the claims in this case.” SPA46.

Though the release “appropriately limit[s] future damages claims based on the pre-

settlement conduct of the networks,” it does not release claims “based on new rules

or new conduct or a reversion to the pre-settlement rules.” SPA46. And, again,

objectors underestimated the significance of the (b)(2) relief by painting the release

as giving away valuable claims for nothing. SPA45.

The district court squarely rejected objectors’ contention that the (b)(2) class

should have afforded members a “due process right to opt out.” SPA46. The (b)(2)

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claims sought “injunctive relief from [a] bundle of network rules” that are

“precisely” the “proper subject of a (b)(2) class from which no opt outs are

permitted.” SPA46. The court also rejected criticisms of the settlement notice.

Separately, the district court issued a 17-page decision approving a $544.8

million attorneys’ fee—9.56% of the damages fund, after opt-out reductions—as “a

reasonable overall fee” in light of the “unique … size, duration, complexity, and …

relief” of this case. SPA69-70. See In re Payment Card Interchange Fee Antitrust

Litig ., 991 F. Supp. 2d 437 (E.D.N.Y. 2014). Applying the multi-factor standard of

Goldberger v. Integrated Resources, 209 F.3d 43, 47–48 (2d Cir. 2000), the court

again emphasized that the substantial injunctive relief “may very likely exceed the

value of the monetary relief in the long run.” SPA67. This far-reaching relief

confirmed the court’s judgment that class counsel “litigated the case with skill and

tenacity” and that the settlement “would not exist” but for counsel’s assumption of

risk and extraordinary efforts. SPA59, 61.

To calculate the fee, the court used a sliding scale that awarded counsel

diminishing percentages of the settlement fund as the fund increased. SPA69. It

further confirmed that the lodestar multiplier was “comparable to multipliers in other

large, complex cases.” SPA70.

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SUMMARY OF ARGUMENT

I. The structure of the settlement classes, including the uncontroversial

coexistence of Rule 23(b)(2) and (b)(3) classes in a single case, fully satisfied

Rule 23. The (b)(2) class was a paradigmatic (b)(2) class seeking exclusively

injunctive, indivisible relief—namely, the elimination or modification of nationwide

network rules that apply generally to all card-accepting merchants. Precisely

because that class sought indivisible relief, no opt-outs from the class were feasible,

let alone necessary. The (b)(3) class, in contrast, sought and obtained substantial

monetary relief, and fully comported with the (b)(3) opt-out and notice requirements.

Although objectors seek to characterize the inclusion of a non-opt-out (b)(2)

class and opt-out (b)(3) class in one action as anomalous, such arrangements are

common in situations—like this one—where both injunctive relief and damages are

needed to provide an adequate remedy. Far from evading any legal requirements of

(b)(2) and (b)(3), the class structure hewed carefully to each subsection and fully

heeded the dictates of Wal-Mart v. Dukes, 131 S. Ct. 2541 (2011). Class certification

was therefore proper under a straightforward application of Rule 23.

Objectors’ efforts to conjure up a “due process” problem from that class

structure are wholly without merit. Objectors concede that the (b)(2) claims for relief

are exclusively injunctive, but argue that opt-out rights must be provided because

the settlement bars certain future damages claims by (b)(2) class members against

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defendants. But that is neither unusual nor legally problematic. The propriety of

(b)(2) certification turns only on the claims for relief , which are exclusively

injunctive and fully compliant with (b)(2). That a settlement releases future

challenges to the agreed-upon, going-forward conduct—including hypothetical and

uncertain future damages claims—is not surprising. Such releases are common

inducements for defendants to settle, and appropriate injunctive relief should limit

future damages claims based on the new regime, since it is designed to address the

challenged conduct prospectively. And, of course, the propriety of both the

injunctive relief and any associated releases will be properly considered as part of

the analysis of the settlement’s fairness under Rule 23(e).

There is absolutely no basis for a novel bright-line rule that classes certified

under (b)(2) can never, in a settlement release, foreclose a hypothetical future claim

seeking damages. Such a rule would prove unworkable and run afoul of the Rules

Enabling Act. Unsurprisingly, objectors cite no caselaw whatsoever for the

proposition that a (b)(2) class is no longer a (b)(2) class solely because potential

future challenges to the agreed-upon conduct are foreclosed as part of a

comprehensive settlement.

Objectors’ efforts to manufacture an adequacy-of-representation problem fare

no better. As the district court correctly concluded, class representatives and counsel

were adequate representatives of both the (b)(2) and (b)(3) classes. The structural

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assurances of fair and adequate representation in the settlement negotiations were at

their apex given the involvement of Judge Gleeson, Magistrate Judge Orenstein, and

the two highly-regarded mediators. There is, moreover, no conflict of interest, much

less a fundamental conflict going to the heart of the litigation, between the (b)(2) and

(b)(3) classes. To the contrary, the class memberships overlap almost entirely; they

exist as two classes by virtue of Rule 23, and not by virtue of different claims,

different facts, or antagonistic interests. The substantial (b)(2) relief and massive

(b)(3) damages fund confirm only that neither class interest was left out in the cold,

and both classes reaped significant benefits from class counsel’s zealous advocacy.

II. The district court’s determination that the settlement as a whole fell

within a “range of reasonableness,” Grinnell , 495 F.2d at 463, was an appropriate

exercise of its broad discretion. The notion that the largest-ever cash relief in an

antitrust class action settlement was “reasonable” hardly requires extended

comment. And, as the district court recognized, the injunctive reforms of the

networks’ longstanding merchant restraints may prove even more valuable in the

long run.

Chief among these reforms is the removal of anti-surcharging restraints,

which for decades prevented merchants from imposing surcharges on Visa and

MasterCard transactions to steer customers to less-costly methods of payment and

incentivize the networks to lower their interchange fees. Other reforms, such as the

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buying group provision and all-outlets provision, will only enhance merchants’ new

surcharging opportunities and exert further downward pressures on interchange fees.

The release in exchange for that injunctive relief, moreover, is a standard-

form release that courts have repeatedly approved. Objectors insinuate that the

settlement releases certain future challenges in violation of due process or public

policy. But as the district court found and as the parties agreed below, the releases

merely foreclose challenges to the going-forward regime agreed upon in the

settlement and, in any event, must be interpreted to reflect, not violate, due process

limits. Objectors seek no less than an improper advisory opinion to predetermine

issues that the release does not even raise.

III. The district court’s determination that an attorneys’ fee of 9.56% of the

damages fund was “‘reasonable’ under the circumstances,” Goldberger , 209 F.3d at

47, was likewise an appropriate exercise of its broad discretion. The district court

grounded its analysis in the “unique … size, duration, complexity, and … relief” of

this case, and appropriately lauded class counsel and the nearly 60 additional law

firms that worked on this case over eight years for their “skill and tenacity” in

achieving the “significant success” of the settlement. SPA56, 61. Objectors dispute

the district court’s assessment of counsel’s performance and the settlement relief,

and quibble with the specific percentages used in its sliding-scale percentage

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calculation of the fee amount. But those arguments merely rehash their meritless

criticisms of the settlement as substantively unreasonable.

IV. Finally, the district court’s determination that the settlement notice was

“reasonable[],” Soberal-Perez v. Heckler , 717 F.2d 36, 43 (2d Cir. 1983), was also

an appropriate exercise of its broad discretion. The notice need only fairly apprise

prospective class members of the terms of the settlement and of options available to

them moving forward. The notice here — which described the litigation and

settlement terms, quoted the releases, described the request for attorneys’ fees, and

explained the procedures for filing objections and opting out — readily met that

standard. Objectors posit various misstatements and omissions in the notice, but the

district court considered and rejected those arguments several times. The district

court’s judgment should be affirmed in all respects.

STANDARD OF REVIEW

This Court will “disturb a judicially-approved settlement only when an

objector has made a ‘clear showing that the district court has abused its discretion.’”

D’Amato, 236 F.3d at 85 (emphasis added). A court abuses its discretion only “when

its decision rests on an error of law or a clearly erroneous factual finding, or when

its decision cannot be located within the range of permissible decisions.” Charron

v. Wiener , 731 F.3d 241, 247 (2d Cir. 2013). This “considerable deference” is rooted

in a recognition that the district court is uniquely “‘exposed to the litigants, and their

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strategies, positions and proofs.’” Joel A. v. Giuliani, 218 F.3d 132, 139 (2d Cir.

2000).

Similarly, this Court will disturb a district court’s determination on class

certification, as well as its rulings that individual Rule 23 requirements have been

met, only upon an abuse of discretion. In re IPO Sec. Litig., 471 F.3d 24, 31–32 (2d

Cir. 2006). Where the district court has granted class certification, this Court accords

“noticeably more deference than when we review a denial.” In re Salomon Analyst

Metromedia Litig ., 544 F.3d 474, 480 (2d Cir. 2008).

This Court likewise reviews attorneys’ fee awards, and the form and content

of notice to class members, for an abuse of discretion. See Goldberger , 209 F.3d at

47-48; Masters v. Wilhelmina Model Agency, 473 F.3d 423, 438 (2d Cir. 2007).

ARGUMENT

I. The Structure Of The Settlement Classes Conforms Precisely To Bedrock

Certification Requirements Under Rule 23.

From the inception of this litigation—with the support of all class

representatives, including many current-objectors—plaintiffs consistently sought

certification of two classes: a class seeking prospective injunctive relief under Rule

23(b)(2), and a class seeking retrospective monetary relief under Rule 23(b)(3).

Those classes readily satisfied their respective subsections of Rule 23. The (b)(2)

class sought exclusively indivisible, generally applicable injunctive relief and fully

complied with all requirements for a (b)(2) class. The (b)(3) class, in turn, sought

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monetary relief, and fully complied with all requirements of Rule 23(b)(3), including

notice to the class and an opportunity to opt-out. The district court thus correctly

concluded that certification of these classes was proper.

Objectors attempt to channel their substantive objections to the settlement—

issues that are properly addressed in a review of the settlement’s fairness under Rule

23(e), see infra Part II—into various attacks on the “structure” of the classes. But

as Rule 23(a) and (b) arguments, the objections are simply misplaced. The district

court considered and rejected all of objectors’ arguments and correctly concluded

that this case involves a textbook case for certification under Rule 23.

A.

The Rule 23(b)(2) Class Unquestionably Brought Claims For

“Indivisible” Relief.

1. Rule 23(b)(2) allows class treatment when the alleged wrongdoer “has

acted or refused to act on grounds that apply generally to the class, so that final

injunctive relief or corresponding declaratory relief is appropriate respecting the

class as a whole.” Fed. R. Civ. P. 23(b)(2); see also 7AA Wright & Miller, Federal

Practice and Procedure § 1775 (3d ed. 1998) (“[T]wo basic factors … must be

present … (1) the opposing party’s conduct or refusal to act must be ‘generally

applicable’ to the class and (2) final injunctive or corresponding declaratory relief

must be requested for the class”). It is well-settled that the “key to the (b)(2) class

is ‘the indivisible nature of the injunctive or declaratory remedy warranted—the

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notion that the conduct is such that it can be enjoined or declared unlawful only as

to all of the class members or as to none of them.’” Dukes, 131 S. Ct. at 2557.

That characteristic does not require class members to be in “an identical

situation,” Rich v. Martin Marietta, 522 F.2d 333, 340 (10th Cir. 1975), or have

“suffered identical injuries,” Parsons v. Ryan, 754 F.3d 657, 688 (9th Cir. 2014), or

indeed even “be aggrieved by or desire to challenge defendant’s conduct.” Wright

& Miller § 1775; see also Fed. R. Civ. P. 23 advisory committee notes (1966)

(“Action or inaction is directed to a class within the meaning of this subdivision even

if it has taken effect or is threatened only as to one or a few members of the class”).

Instead, all that is required to proceed as a (b)(2) class is that “the relief sought must

perforce affect the entire class.” Dukes, 131 S. Ct. at 2558.

As the Supreme Court has underscored, “[t]he procedural protections

attending the (b)(3) class—predominance, superiority, mandatory notice, and the

right to opt out—are … unnecessary to a (b)(2) class” precisely because “[w]hen a

class seeks an indivisible injunction benefitting all its members at once, there is no

reason to undertake a case-specific inquiry into whether class issues predominate or

whether class action is a superior method of adjudicating the dispute.” Id. at 2558.

Those characteristics are simply self-evident. Indeed, even an individual suit

enjoining defendants’ nationwide operations would affect all members of the class;

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restraints necessarily “redesigns the relationship between … each merchant and the

networks in precisely the same manner.” SPA52.

Because this case involves challenges to nationwide, generally applicable

network rules, it is far afield from a scenario in which “each individual class member

would be entitled to a different injunction … against the defendant.” Dukes, 131 S.

Ct. at 2557; see also In re IKO Roofing Prods. Litig ., 757 F.3d 599, 602 (7th Cir.

2014) (unlike in Dukes, “[i]n a suit alleging a defect common to all instances of a

consumer product … the conduct does not differ”). Because Visa and MasterCard

are nationwide networks each with uniform rules, it would have been impossible to

have a patchwork of injunctions that enjoined the challenged network rules only with

respect to certain merchants. The district court thus had little difficulty concluding

that this is “precisely” the kind of case for which Rule 23(b)(2) was intended.

SPA46; see also Fed. R. Civ. P. 23 advisory committee notes (1996) (citing example

of a (b)(2) “class of purchasers, say retailers of a given description, against a seller

alleged to have undertaken to sell to that class at [discriminatory] prices”).

Making the application of (b)(2) even more straightforward, the (b)(2) claims

here consist exclusively of claims for injunctive relief. In Dukes, the Supreme Court

made clear that claims for monetary relief cannot be litigated in a (b)(2) class

alongside bona fide claims for injunctive or declaratory relief, “at least where … the

monetary relief is not incidental to the injunctive or declaratory relief.” 131 S. Ct.

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at 2557. Because the Supreme Court expressly left open the possibility that some

truly incidental monetary relief might still be allowed in a (b)(2) action, objectors

overstate matters by asserting, based on Dukes, that Rule 23(b)(2) “applies only

when the case consists exclusively of common claims.” MA-Br. 34. But in all

events, the (b)(2) class at issue here seeks only indivisible injunctive relief, which

Dukes confirmed unquestionably belongs in Rule 23(b)(2).

2. Objectors’ assertion that the (b)(2) class is not “cohesive” is badly

misplaced. MA-Br. 44-66. As an initial matter, class “cohesion” is not expressly

required by the text of Rule 23(b)(2) or any Supreme Court precedent interpreting

that rule. But even if “cohesion” is required, it is shorthand for the need for generally

applicable, class-wide injunctive relief, which is amply satisfied here. This Court

has observed, in the few instances where it used the term in passing, that “a Rule

23(b)(2) class seeking declaratory and injunctive relief is cohesive by nature .”

Handschu v. Special Servs. Div., 787 F.2d 828, 833 (2d Cir. 1986). That is, “[w]here

class-wide injunctive or declaratory relief is sought in a (b)(2) class action for an

alleged group harm, there is a presumption of cohesion and unity between absent

class members and the class representatives.” Robinson v. Metro-North, 267 F.3d

147, 165 (2d Cir. 2001).

Objectors do not come close to overcoming this “presumption” of cohesion.

To the contrary, this effort to reform the practices employed in a nationwide network

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32

is the very paradigm of a (b)(2) case. Objectors’ core argument is that the (b)(2)

class was not cohesive because it was very large, and included merchants that had

“varying interests” in the relief ultimately obtained. MA-Br. 53-61. But that is

wrong for a number of reasons. Whatever differences there may be among class

members in terms of their “size[s]” and “business models,” MA-Br. 53-54, they are

all subject to the defendants’ generally applicable network rules and practices, which

will be impacted on a nationwide basis by the going-forward relief. That is all the

cohesion Rule 23(b)(2) would demand.

Objectors cite a smattering of decisions from other jurisdictions rejecting

(b)(2) classes as non-cohesive, but the facts of those cases only underscore the lack

of any cohesion issue here. Most of those decisions arose in the mass tort context,

where courts “employ[] Rule 23(b)(2) sparingly” because “factual differences

among individual class members may affect critical elements of plaintiffs’ claims ,

such as proximate causation, reliance and defendant’s affirmative defenses.”

1 McLaughlin on Class Actions § 5:15 (10th ed.) (emphasis added). For example,

the Eighth Circuit decertified a (b)(2) class of artificial heart valve patients seeking

a medical-monitoring injunction because “each plaintiff’s need (or lack of need) for

medical monitoring is highly individualized,” based on the patient’s “medical

history” and “risk factors,” the “different elements triggering culpability,” and other

considerations. In re St. Jude Medical , 425 F.3d 1116, 1122 (8th Cir. 2005); see also

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Barnes v. Am. Tobacco, 161 F.3d 127, 146 (3d Cir. 1998) (denying certification of

medical-monitoring class in suit against cigarette manufacturers).

Here, in contrast, the injunctive reforms sought are generally applicable, and

the same rules and rule modifications apply to all merchants. And objectors identify

no way in which the purported differences among class members would affect the

elements of a claim for that injunctive relief under the Sherman Act and Clayton Act.

The identity of the particular merchant-plaintiff would have no bearing whatsoever

on whether the challenged network rules were the product of unlawful restraints of

trade.

Objectors also claim that the (b)(2) class was not cohesive because some states

would prohibit merchants from surcharging credit card transactions even if

surcharging were permitted by the terms of the settlement. In support of that

argument, objectors cite Amchem Prods. v. Windsor, 521 U.S. 591 (1997), for the

proposition that “variations in state law” can undermine (b)(2) cohesion. But

Amchem involved a class seeking monetary relief under Rule 23(b)(3), and the

differing state laws went to the very availability of plaintiffs’ causes of action (and

thus whether common issues “predominated” among the class). As the Court

explained, state law “varied widely on such critical issues as ‘viability of [exposure-

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34

only] claims [and] availability of causes of action for medical monitoring.’” Id. at

609-10.3

There is no comparable concern in this case or in (b)(2) classes more broadly.

State anti-surcharging laws hardly immunize defendants’ conduct under the federal

antitrust laws, and at most limit the extent to which some class members will benefit

from the relief obtained. But that does not change the reality that defendants’ rules

and conduct will change on a nationwide basis in a manner applicable to all class

members. The fact that some class members may not be able to take full advantage

of the change because of independent state-law obstacles to changing the class

members’ conduct does not create a Rule 23(b)(2) problem. See 2 Newberg on Class

Actions § 6:15 (4th ed. 2002) (“That not all members of the class may seek or desire

the same relief, or may otherwise have disparate interests, will not … bar the

certifying of a class action seeking injunctive and declaratory relief”).4

3 Objectors also cite In re AIG Sec. Litig ., 689 F.3d 229, 243 (2d Cir. 2012), butthat case merely cited Amchem and noted that the district court should address in thefirst instance whether “variations in state law might cause class members’ intereststo diverge.” Here, Judge Gleeson fully considered such issues and concluded thatany state-by-state variation in surcharging rules was insufficient to defeat classcertification. SPA38-41.

4 Related speculation that health insurers might be actually or effectively

prevented from surcharging by federal and state regulations—including whollyhypothetical effects of the Affordable Care Act’s Medical Loss Ratio rules—likewisehas no bearing on Rule 23(b)(2) cohesion in the relevant sense. See Blue Cross Br.18-21.

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Objectors, moreover, confuse an expectation of some minimal cohesion with

a standard of equal benefit or after-the-fact satisfaction from the relief obtained.

MA-Br. 58-66; cf. Amchem, 521 U.S. at 623 (noting that (b)(3) predominance inquiry

“trains on the legal or factual questions that … preexist any settlement ”) (emphasis

added). There is absolutely no support for such an impossible-to-satisfy standard.

A (b)(2) class does not unravel merely because certain class members are “more

sanguine” about, or realize “‘greate[r] savings’” from, the relief obtained. MA-Br.

58, 62. At bottom, objectors’ so-called “cohesion” arguments are just challenges to

the substantive fairness of the settlement rather than the propriety of class

certification. Any concerns about whether certain class members received enough

relief from the ultimate settlement, see MA-Br. 58-61, are certainly relevant to

whether the settlement was “fair, reasonable, and adequate” under Rule 23(e). But

those concerns do not change the fact that Visa and MasterCard applied the

challenged network rules to all merchants, and that any modifications to the network

rules effectuated by this litigation would apply to each and every merchant that

accepts Visa and MasterCard.

* * *

In short, this class falls in the heartland of Rule 23(b)(2). “[A]ll the members

of the injunctive relief class were subject to the same rules, … the relief afforded by

that class is a change to those rules,” and all members of the (b)(2) class sought

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injunctive relief and injunctive relief alone. SPA53 n.20. The district court did not

abuse its discretion in finding the criteria for Rule 23(b)(2) certification satisfied.

B. The Rule 23(b)(2) Class Required No Opt-Out Rights; All Claims

for Individualized Monetary Relief Were Separately and Properly

Certified Under Rule 23(b)(3).

1. Precisely because the hallmark of a (b)(2) class is a claim for indivisible

injunctive or declaratory relief, (b)(2) classes provide “no opportunity for ... class

members to opt out, and do[] not even oblige the district court to afford them notice

of the action.” Dukes, 131 S. Ct. at 2558. Since the relief obtained through a (b)(2)

class action is—by definition—generally applicable to all class members, an

individual cannot request exclusion and pursue relief individually. As the district

court explained, “[i]f merchants could opt out of the (b)(2) class, they would reap

the benefits of that relief anyway.” SPA46; see also Jefferson v. Ingersoll , 195 F.3d

894, 897 (7th Cir. 1999) (“individual suits would confound the interest of other

plaintiffs … when an injunction affects everyone alike”).

Indeed, “[t]he procedural protections attending the (b)(3) class” are

inapplicable precisely because “[w]hen a class seeks an indivisible injunction

benefitting all its members at once, there is no reason to undertake a case-specific

inquiry into whether class issues predominate or whether class action is a superior

method of adjudicating the dispute.” Dukes, 131 S. Ct. at 2558. As the Rule 23

Advisory Committee explained, given the “characteristics of the [(b)(2)] class,”

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there is “no right to request exclusion.” Fed. R. Civ. P. 23 advisory committee notes

(2003). Requiring notice would not only be pointless but counterproductive,

creating “the risk that notice costs may deter the pursuit of class relief” and thereby

“crippl[ing] actions that do not seek damages.” Id. Whereas the opt-out right in

(b)(3) classes follows directly from the ability to pursue individual claims for

damages, asserting an opt-out right in a (b)(2) class is a non sequitur.

2. The district court fully understood these basic principles and certified

both a valid (b)(2) mandatory class and an equally valid (b)(3) opt-out class.5 As the

court easily concluded, “[e]ach class … satisfies its respective subsection of Rule

23(b)” and “certification is proper.” SPA53 n.20.

Including two valid classes in a single action is neither remarkable nor

problematic. See Fed. R. Civ. P. 23 advisory committee notes (2003) (noting notice

requirements for the (b)(3) class only where “a Rule 23(b)(3) class is certified in

conjunction with a (b)(2) class”). Two rights do not somehow make a wrong.

“‘[W]here injunctive relief and damages are both important components of the relief

requested, court[s] have regularly certified an injunctive class under Rule 23(b)(2)

and a damages class under Rule 23(b)(3) in the same action.’” In re NASDAQ

5 A number of merchants chose to exercise their right to opt-out of the (b)(3) class.Those plaintiffs’ individual claims for money damages remain pending before thedistrict court.

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Antitrust Litig., 169 F.R.D. 493, 515 (S.D.N.Y. 1996); see also Gooch v. Life

Investors Ins., 672 F.3d 402, 428-29 (6th Cir. 2012) (appropriate to certify distinct

(b)(2) and (b)(3) classes, where (b)(2) relief “is a separable and distinct type of

relief”).6

Here, from the outset of the litigation, plaintiffs requested certification of both

a (b)(3) class for “monetary damages to compensate them for … overcharges” and

a (b)(2) class for “equitable relief to protect themselves against continuing and future

harm.” D.E. 317 at 1. The damages provided relief for excessive interchange fees

already paid, while the injunctive relief addressed defendants’ anticompetitive

practices going forward. Plaintiffs consistently maintained—long before settlement

even entered the picture—that the injunctive relief was “as important as the

damages.” D.E. 1165 (Pls.’ Mot. for Class Cert.) at 39; see also Velez v. Novartis,

244 F.R.D. 243, 271 (S.D.N.Y. 2007) (“If Plaintiffs prevail on the merits … it would

serve little purpose to award money damages for discrimination without addressing

the institutional structure that perpetuates it.”).

6 E.g., Huyer v. Wells Fargo, 295 F.R.D. 332, 345 (S.D. Iowa 2013); Bristol v.

Louisiana-Pacific, 916 F. Supp. 2d 357, 370 (W.D.N.Y. 2013); Stinson v. City of N.Y.,282 F.R.D. 360, 381 (S.D.N.Y. 2012); In re Vitamin C Antitrust Litig ., 279 F.R.D. 90(E.D.N.Y. 2012); Easterling v. Dep’t of Corr., 278 F.R.D. 41 (D. Conn. 2011);

Jermyn v. Best Buy, 276 F.R.D. 167 (S.D.N.Y. 2011).

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The district court agreed, suggesting that a damages-only award would permit

the networks’ “merchant restraints [to], in effect, place the merchants back where

they started,” thus allowing the networks to simply “recoup[] any associated lost

revenues by tinkering with … other fees.” SPA16. Injunctive relief targeted at those

merchant restraints was therefore “crucial” because it would avert such

circumvention and permit merchants themselves to exert competitive pressures on

interchange fees. SPA18.

Objectors are thus flatly wrong to characterize the structure of the classes as

an “artificial contrivance that inverted the design of Rule 23.” MA-Br. 45. There is

nothing at all anomalous or unusual about pairing a non-opt-out (b)(2) class and an

opt-out (b)(3) class in the same case. The existence of both classes was a necessary

byproduct of the distinct subsections of Rule 23(b) and plaintiffs’ position that

defendants had violated the antitrust laws (thus, the (b)(3) class) and would continue

to do so absent injunctive relief (thus, the (b)(2) class).

3. Given the need for both backward-looking monetary relief and

forward-looking injunctive relief, the (b)(2) class was not in any way a “sham

request[] for injunctive relief [to] provide cover for (b)(2) certification of claims that

are brought essentially for monetary recovery.” Robinson, 267 F.3d at 164; cf.

Kartman v. State Farm, 634 F.3d 883, 889 (7th Cir. 2011) (noting “technique of

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recasting a straightforward claim for damages as a claim for damages and injunctive

relief” to “make [a] case more amenable to class certification”).

For that reason, objectors’ efforts to shoehorn this case into a Dukes scenario

are unavailing. In Dukes, the plaintiffs sought injunctive relief, declaratory relief,

and backpay, all in a single (b)(2) class. The Supreme Court rejected that maneuver,

holding that because the individualized backpay claims were more than “incidental

to the injunctive or declaratory relief,” they instead “belong[ed] in Rule 23(b)(3).”

131 S. Ct. at 2557-58.

The (b)(2) and (b)(3) classes in this case are consistent with both the letter and

spirit of Dukes. This is not an attempt to smuggle damages claims into a (b)(2) class,

as the existence of the parallel (b)(3) class attests. There was no such parallel (b)(3)

class in Dukes, which suffices to distinguish it. That the (b)(2) settlement foreclosed

future efforts to obtain damages based on the agreed-upon, going-forward conduct

is an entirely distinct issue and entirely unobjectionable, as explained next.

C. There Is Nothing Improper About Having a Rule 23(b)(2) Class

Settlement Foreclose Possible Future Claims Seeking Damages.

1. The (b)(2) class here sought injunctive relief and injunctive relief alone.

Thus, objectors’ claim to an opt-out right depends not on the claims for relief of the

(b)(2) class, which are wholly unobjectionable, but entirely on the fact that the

settlement featured a release that foreclosed future challenges to the networks’

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agreed-upon, going-forward conduct, including unknown future claims seeking

damages based upon that conduct.

That argument mixes apples and oranges. It wholly rewrites the established

certification criteria, under which “[t]he dispositive factor that must be assessed in

determining whether a class may be certified under Rule 23(b)(2) is the type of relief

the plaintiffs actually seek”—not the type of future claims released by the settlement.

1 McLaughlin on Class Actions § 5:15. As the Supreme Court explained in Dukes,

(b)(2) certification turns on the “relief sought,” “requests for … relief,” “claims for

… relief,” “remedy warranted,” and relief “entitled to.” 131 S. Ct. at 2557. The

“relief” sought by the (b)(2) class here—changes to defendants’ network rules—was

classic injunctive relief that unquestionably belonged in (b)(2).

Objectors’ so-called “due process” complaint about the release of hypothetical

and uncertain future damages claims as part of the settlement of a non-opt-out class

is untethered to the specifics of this case. They are essentially advancing a bright-

line rule under which (b)(2) classes can never release a future damages claim in

settlement. Tellingly, however, objectors fail to identify even a single case, and to

our knowledge there is none, that has ever based the propriety of (b)(2) class

certification on the nature of future claims foreclosed by a settlement release, as

opposed to the existing claims for which relief is sought.

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To the contrary, numerous (b)(2) settlement classes have released future

claims seeking relief for going-forward conduct. See, e.g., San Diego Police

Officers’ Ass’n v. San Diego City Emps.’ Ret. Sys., 568 F.3d 725, 734-36 & n.7 (9th

Cir. 2009); Nottingham Partners v. Trans-Lux, 925 F.2d 29, 32-34 (1st Cir. 1991);

TBK Partners v. W. Union, 675 F.2d 456, 459-60 (2d Cir. 1982); Scarver v. Litscher ,

371 F. Supp. 2d 986, 997 (W.D. Wis. 2005); Ass’n For Disabled Ams. v. Amoco, 211

F.R.D. 457, 472 (S.D. Fla. 2002). More often, (b)(2) certification cases simply do

not address the released claims, which go more to the settlement’s fairness under

Rule 23(e) than the Rule 23(b)(2) criteria.

Each of the cases cited by objectors in support of their purported opt-out

rights, see MA-Br. 32-43, is readily distinguishable. Objectors primarily rely on

cases involving classes certified under (b)(3). For instance, they cite the Supreme

Court’s statement in Phillips Petroleum v. Shutts that if a court “wishes to bind an

absent plaintiff concerning a claim for money damages or similar relief at law, it

must provide minimal procedural due process protection,” including “an opportunity

to remove himself from the class.” 472 U.S. 797, 811-12 (1985) (emphasis added).

But Shutts involved claims for money damages certified under the state-law

equivalent of a (b)(3) class.

Objectors also note this Court’s quotation of Shutts in Stephenson v. Dow

Chemical , 273 F.3d 249, 258 (2d Cir. 2001), but Stephenson likewise involved a

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(b)(3) class with retrospective damages claims. And objectors mistakenly rely on In

re Visa Check/MasterMoney Antitrust Litig ., 280 F.3d 124 (2d Cir. 2001), claiming

that this Court affirmed the certification of a (b)(3) class to avoid “‘the primary

concern … about Rule 23(b)(2),’ i.e., ‘the absence of mandatory notice and opt-out

rights.’” MA-Br. 36. In fact, the Court stated in Visa Check that “the primary

concern about certifying a class with significant damages under Rule 23(b)(2) is the

absence of mandatory notice and opt-out rights.” 280 F.3d at 147 (emphasis added).

This Court’s precise concern was with certifying “significant damages” claims in a

non-opt-out class, and it did not reach the propriety of (b)(2) certification.

The other cases objectors cite involved individualized monetary claims that,

although improperly certified under a different subsection, manifestly belonged in

(b)(3). For instance, Dukes noted the importance of opt-out rights, but in the context

of already-accrued claims for individualized monetary backpay, which the Court

held should have been certified under (b)(3). Hecht v. United Collection Bureau,

691 F.3d 218 (2d Cir. 2012), similarly underscored the importance of opt-out rights,

but in an even-more-extreme circumstance: the class, though somehow certified

under (b)(2), had only sought damages claims in its complaint.

It is no coincidence that objectors’ opt-out authorities all involve either (b)(3)

actions or cases that should have been (b)(3) actions. Courts are justifiably

concerned about efforts to evade the protections of (b)(3) by shoehorning damages

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claims into a (b)(2) class. But that is manifestly not the problem in a case like this,

where the damages claims are placed into a separate (b)(3) class with full opt-out

rights. Cf. Robinson, 267 F.3d at 165 (“Where class-wide injunctive or declaratory

relief is sought in a (b)(2) class action … adequate representation will generally

safeguard absent class members’ interests and thereby satisfy the strictures of due

process.”).

Moreover, in a (b)(2) settlement, a release of hypothetical and uncertain future

damages claims based on the injunction-modified, going-forward conduct is an

unobjectionable feature. Particularly in a (b)(2) class that includes substantial

prospective injunctive relief designed to address future violations, the future claims

“released” may well not exist if the injunction works as intended and helps restore

competitive conditions. Thus, objectors’ concerns amount to no less than a sweeping

contention that Rule 23(b)(2)—which does contemplate such settlements but does

not provide an opt-out right—is unconstitutional on its face. There is simply no

basis for arguing that due process, Rule 23, or anything else supports a per se rule

against foreclosing hypothetical future damages claims in a (b)(2)-certified class.

2. Objectors’ proposed bright-line rule—that a hypothetical future claim

seeking damages can never be foreclosed in the resolution of a (b)(2) class action—

is not only wholly unsupported, but unworkable. It would mean that (b)(2) classes

could be unproblematically certified for litigation, but become impossible to settle.

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a similar settlement of the same underlying substantive claim unlawful if it were

negotiated by a class of merchants. Using the limited procedural device of Rule 23

to put class action plaintiffs on an inferior footing to individual plaintiffs in this

manner would squarely “abridge” substantive rights. Cf. Ortiz v. Fibreboard , 527

U.S. 815, 845 (1999) (noting potential Rules Enabling Act problem based on

“tension between the limited fund class action’s pro rata distribution in equity and

the rights of individual tort victims at law”). As the Supreme Court has stated, “[a]

class action … merely enables a federal court to adjudicate claims of multiple parties

at once, instead of in separate suits,” and “leaves the parties’ legal rights and duties

intact and the rules of decision unchanged.” Shady Grove Orthopedic v. Allstate,

559 U.S. 393, 406-08 (2010) (plurality opinion).

In the end, objectors fail to avoid the commonsense conclusion that this (b)(2)

class seeking only injunctive relief is a proper (b)(2) class. Though objectors have

concerns about the breadth of the relief and release, those arguments ultimately have

little to do with class certification and everything to do with the fairness of the

settlement. E.g., MA-Br. 38 (settlement “releases such claims entirely [for] no

changes … aside from limited surcharging relief”). Such concerns certainly do not

support a bright-line rule that class certification under Rule 23(b)(2) categorically

prohibits foreclosing future damages claims. None of this is to say that the release

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of future claims should escape judicial scrutiny altogether, but it is to say that the

proper place for that analysis is in Rule 23(e).

D. Both the Rule 23(b)(2) Class and Rule 23(b)(3) Class Were

Adequately Represented.

1. Litigating (b)(2) and (b)(3) classes in tandem avoids problems by

protecting the opt-out rights of the members of the (b)(3) class; it does not remotely

introduce an adequacy-of-representation problem under Rule 23(a)(4). Adequacy

requires that the “representative parties will fairly and adequately protect the

interests of the class.” Fed. R. Civ. P. 23(a)(4). “[D]istrict courts must make sure

that the members of the class possess the same interests, and that no fundamental

conflicts exist among the members.” Charron, 731 F.3d at 249. As is well-settled

in this Court, “[a] conflict or potential conflict alone will not … necessarily defeat

class certification — the conflict must be ‘fundamental,’” Denney v. Deutsche Bank ,

443 F.3d 253, 268 (2d Cir. 2006), and go “‘to the very heart of the litigation.’”

Charron, 731 F.3d at 250.

Based on its deep familiarity with the litigation and parties, the district court

did not abuse its discretion in concluding that class representatives and counsel

“adequately represente[d] both the (b)(2) and the (b)(3) settlement classes.” SPA52.

Over an eight-year period, “experienced and able” class counsel “litigated the case

with skill and tenacity,” expending 500,000 hours of work on the case. SPA21, 61.

They “reviewed more than 50 million pages of documents in discovery and deposed

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48

more than 400 witnesses.” SA103. And both the district court and the mediators

concluded that the intensive settlement negotiations were “fair,” “adversarial,” and

“conducted at arm’s length.” SPA21.

Indeed, this Court has said repeatedly that the inclusion of independent

mediators “helps to ensure that [settlement] proceedings were free of collusion and

undue pressure.” D’Amato, 236 F.3d at 85; Suffolk Cnty. v. Long Island Lighting,

907 F.2d 1295, 1323 (2d Cir. 1990). Here, counsel for the parties met jointly or

separately with one or both mediators — mediators the parties jointly selected — on

approximately 45 occasions. D.E. 2113-6 ¶¶175, 181. And those “structural

assurance[s] of fair and adequate representation” were further enhanced by the

participation of Judges Gleeson and Orenstein, pursuant to the request of all parties,

near the end of the process. Amchem, 521 U.S. at 627. Class representatives,

meanwhile, “participated in discovery, in mediation, in court sessions, in the

evaluation of the mediators’ proposals, and in the formulation of the Settlement

Agreement,” readily “fulfill[ing] all of the obligations associated with being class

representatives.” SPA52.

Beyond that, the settlement as a whole provides no “evidence of prejudice to

the interests of a subset of plaintiffs.” In re Literary Works Copyright Litig., 654

F.3d 242, 252 (2d Cir. 2011). This was not a “ pre-packaged” settlement that was

indicative of collusion between the lead plaintiffs and the defendants. Class counsel

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49

recommended settlement to the court only after years of hard-fought litigation.

Discovery was complete, motions for dismissal, summary judgment, and class

certification had been fully briefed and argued, and the parties had engaged in an

arduous four-year mediation process. Nor was this a settlement conceived of by

class counsel in collusion with the defendants; it was “the mediators’ proposal that

outlined the key components of what became the Settlement” (notably, a proposal

accepted by many current-objectors). SPA21. The mediators were not somehow

complicit in an effort to disadvantage an underrepresented subset of the class.

Nor was this a lowball settlement; it secures the largest-ever cash recovery in

an antitrust class action settlement and historic reforms of decades-old network rules.

The class representatives properly discharged their obligation to represent “the best

interests of the class as a whole,” “rather than … any individual members of it,” Fed.

R. Civ. P. 23 advisory committee notes (2003), achieving results that were not merely

adequate, but outstanding. See infra Part II.

2. Objectors nonetheless insist that there was a fundamental conflict of

interest between the (b)(2) and (b)(3) classes that rendered class representatives and

counsel incapable of adequately representing (b)(2) class members.7 Objectors

7 Objectors’ assertion that “class counsel fired their clients … so that all that

remained were class representatives committed to a deal that gave the (b)(3) classmoney in exchange for a broad release from the (b)(2) class” misstates the record.MA-Br. 70. The objectors that were formerly class representatives all agreed to themediators’ settlement proposal and participated in settlement conferences. Of those

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50

primarily attempt to analogize this case to Amchem, Ortiz, and other cases “involving

subgroups with … antagonistic interests.” MA-Br. 67. In those cases, objectors

contend, the Supreme Court emphasized the importance of creating subclasses and

appointing separate counsel for such “antagonistic” subgroups. But objectors

overread Amchem and Ortiz and, in search of a real conflict, imagine tradeoffs here

between retrospective damages and prospective injunctive relief.

Amchem and Ortiz do not remotely impose a per se requirement of separately

represented subclasses whenever there is tension among class members. Instead, the

Supreme Court required that intra-class conflicts be addressed by “structural

assurance[s] of fair and adequate representation,” of which subclasses are but one

example. See Amchem, 521 U.S. at 627 (“structure of the negotiations” matters as

well). Here, Judge Infante, Professor Green, Judge Gleeson, and Magistrate Judge

Orenstein all confirmed “a record that demonstrates beyond any reasonable doubt

that the negotiations were adver sarial and conducted at arm’s length.” SPA21

(emphasis added).

former class representatives, all but one agreed to the July 2012 Memorandum ofUnderstanding committing to the final settlement. Only after those then-classrepresentatives changed their minds, and often only after new counsel of record

appeared on their behalf, did class counsel move to withdraw as their counsel. SeeFed. R. Civ. P. 23 advisory committee notes (2003) (“class representatives do nothave an unfettered right to ‘fire’ class counsel” and “cannot command class counselto accept or reject a settlement proposal”).

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Moreover, Amchem and Ortiz involved “parties mov[ing] jointly for

conditional class certification and approval of a settlement agreement” where “[t]he

district court granted the motion without any litigation.” Joel A., 218 F.3d at 139

(distinguishing Amchem on this ground). Here, by contrast, the adequacy of

representation was demonstrated through years of contested litigation. Imposing a

separate representation requirement at the tail end would be wholly impractical, and

contrary to the interests of both classes by making simultaneous settlements of

damages and injunctive relief claims virtually impossible.

More fundamentally, the (b)(2) and (b)(3) classes here are not “subgroups

with … antagonistic interests.” Indeed, they are not subgroups at all — they are

largely one and the same group. Any merchant that was in business before

November 27, 2012 and continues to operate going forward will receive monetary

relief through the (b)(3) class (subject to an opt-out) and will benefit from the rule

changes obtained through the (b)(2) class.

Objectors note that the overlap between the two classes is not total . MA-Br.

75-76. But objectors cite no cases applying that stringent of a standard in evaluating

adequacy. Indeed, objectors primarily rely on Amchem, which involved a conflict

between two mutually exclusive groups—plaintiffs that were “currently injured” by

asbestos, and “exposure-only plaintiffs” that faced only potential future injuries. 521

U.S. at 595. There was thus a far more serious risk that counsel would be unable to

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simultaneously represent the interests of both groups. Id.; see also Ortiz , 527 U.S.

at 857 (“presently injured” versus “future claimants”; “Pre-1959 claimants” versus

“post-1959 claimants”); Eubank v. Pella, 753 F.3d 718, 721 (7th Cir. 2014)

(“customers who had already replaced or repaired their defective windows” versus

“those who hadn’t”).

Nor does this case remotely resemble In re Literary Works, 654 F.3d 242, in

which three categories of claims (A, B, and C) vied for an allocation of funds from

a fixed sum. Any increase in C’s allocation required a corresponding decrease in A

and B’s allocation. And if the claims exceeded the fixed sum, Category C claims

exclusively bore the brunt of any necessary reductions. In that context, this Court

reasonably found that Category C-only plaintiffs—the “largest contingent” of class

members—had diverging interests “as to the distribution of that recovery” from

plaintiffs with Category A and B claims. Id. at 252, 254. Here, those distribution

and tradeoff concerns have no bearing at all. The vast majority of plaintiffs had both

(b)(2) and (b)(3) claims, and both categories of plaintiffs sought distinct types of

relief that were not capped.

The near-total overlap between the (b)(2) and (b)(3) classes, moreover,

reinforces their complementary, not “antagonistic,” relationship. Objectors posit a

“structural dilemma” in (b)(2) and (b)(3) relief, whereby class representatives are

inherently driven to trade future-looking (b)(2) interests for present (b)(3) benefits.

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See MA-Br. 71 (“Representatives with present interests simply cannot fight for the

best possible relief for future-looking claims.”). But (b)(2) and (b)(3) have

peacefully co-existed for decades, and litigants routinely combine them when

seeking both prospective and retrospective relief. See supra n.6. There is simply no

support for objectors’ suggestion that these two standard forms of class actions

somehow become volatile when combined either in this case or more generally.

Here, the district court correctly recognized that the two types of relief worked

as essential and complementary components of one fair, reasonable, and adequate

remedy. And, precisely because (b)(2) and (b)(3) interests are typically aligned and

rooted in common claims, objectors fail to cite a single case citing a conflict of

interest between a (b)(2) and (b)(3) class that rendered class counsel unable to

represent both groups simultaneously. They exist as two “classes” not because of

factual “‘differences among members of a class … such that subclasses must be

established,’” Amchem, 521 U.S. at 627, but by virtue of Rule 23(b).8

8 Certain objectors contend that, although they are members of the merchantclass, they were not adequately represented because they do additional business ina non-merchant capacity. See American Express Br. 15-24; First Data Br. 25-34. Asthe district court correctly held, “[t]hese objectors seek to make something of

nothing.” SPA47. The settlement unambiguously “does not bar claims that a classmember may have in its capacity as a payment-card competitor, an ATM operator,or any other capacity other than as a merchant that accepts Visa and MasterCardcredit cards” in the United States. SPA47 (emphasis added).

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Nor is there any conflict of interest between present and future merchants

within the (b)(2) class. Objectors note that in Stephenson, certain “future” claimants

were deemed inadequately represented by class representatives who previously

negotiated a (b)(3) class settlement. But those “future” claimants had retrospective

damages claims for Agent Orange-related injuries sustained in the 1960s and 1970s

in Vietnam. This Court simply held that the veterans who became aware of their

Agent Orange-related injuries after 1994—when the (b)(3) settlement damages fund

was “deplet[ed],” leaving no more relief —were inadequately represented in

negotiations for that relief. 273 F.3d at 258.

Here, by contrast, the (b)(2) relief is prospective and will indivisibly benefit

all present and future merchants. Far from there being some radical asymmetry

between present merchants and those objectors who purport to be “predominantly

concerned with future injuries,” Blue Cross Br. 23, all merchants similarly benefit

from the rule reforms. Indeed, the vast majority of the class is composed of ongoing

merchants with as much of a concern with future injuries as any future merchants

that do not yet exist. See, e.g., Dewey v. Volkswagen, 681 F.3d 170, 185-86 (3d Cir.

2012) (“a ‘past’ claimant[] can continue to suffer leakage into the future to the same

extent as a future claimant”).

3. In the end, objectors cannot seriously dispute that class representatives

and counsel shared their interest in (b)(2) relief. Objectors instead lament that class

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representatives had less interest and put “greater emphasis” on (b)(3) relief. MA-

Br. 68 (emphasis added). And so the alleged fundamental conflict ultimately boils

down to a difference in the degree of “emphasis” between two types of relief that

virtually all class members were jointly pursuing. That does not come close to an

adequacy defect necessitating separate counsel. “All class settlements … strike

compromises,” and if “compromises automatically created subclasses that required

separate representation, the class action procedure would become even more

cumbersome.” Charron, 731 F.3d at 253-54; see also Dewey, 681 F.3d at 186-87

(“To hold that … differing valuations [of class-wide relief] by themselves render the

representative plaintiff inadequate would all but eviscerate the class action device.”);

Gooch, 672 F.3d at 429.

In all events, there was no difference in emphasis between the two types of

relief . To be sure, comparing monetary to injunctive success is an imperfect

exercise, cf. Bendix v. Midwesco, 486 U.S. 888, 897 (1988) (Scalia, J., concurring)

(“like judging whether a particular line is longer than a particular rock is heavy”),

and would mean, perversely, that the greater the representatives’ monetary

achievement, the less adequate their representation. But as the district court properly

found, the value of the injunctive relief here “may very likely exceed the value of the

monetary relief in the long run.” SPA67 (emphasis added).

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Of course, objectors disagree with that assessment and think that the class

representatives and counsel should have held out longer for a better deal. But again,

that merely underscores that objectors’ driving concerns (which are meritless, see

infra Part II) relate to the reasonableness of the settlement relief and release. Again,

those issues do not escape judicial scrutiny altogether. But any such concerns should

be directed to Rule 23(e) and its analysis of the settlement’s overall fairness rather

than repackaged as an “adequacy” defect under Rule 23(a)(4). See, e.g., Petrovic v.

Amoco, 200 F.3d 1140, 1146 (8th Cir. 1999) (objectors’ “challenge [to] the propriety

of the award of compensation” was “more properly directed to the objectors’

contention that the settlement was not fair, adequate, and reasonable” than

adequacy).

II.

The District Court Acted Well Within Its Broad Discretion In Finding

The Overall Settlement Fair, Reasonable, and Adequate Under Rule

23(e).

Objectors’ various attacks on class certification in the guise of cohesion, due

process, and adequacy issues are really just flawed efforts to repackage unpersuasive

challenges to the overall fairness of the settlement. Those arguments fare no better

under the Rule 23(e) rubric where they belong. Rule 23(e)(2) does not demand that

the settlement be perfect; it need only fall within a “range of reasonableness.”

Grinnell , 495 F.2d at 463.

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The district court’s judgment that this settlement fell within that range of

reasonableness—rooted in the court’s unique “expos[ure] to the litigants, and their

strategies, positions and proofs”—warrants “considerable deference.” Joel A., 218

F.3d at 139. Indeed, the district court is owed “heightened” deference where, as

here, “experience has imparted to the judge a particularly high degree of

knowledge.” Id. The court’s discretionary judgment, moreover, was shared by the

two independent mediators who steered the negotiations and proposed the

parameters of the eventual agreement. D.E. 1111-2 ¶12; D.E. 1111-3 ¶33; see also

Wal-Mart , 396 F.3d at 116 (applying “presumption of fairness” to class settlement

“reached in arm’s-length negotiations between experienced, capable counsel after

meaningful discovery”). Those “in the best position to evaluate whether the

settlement constitutes a reasonable compromise,” Handschu, 787 F.2d at 833,

pronounced this settlement a more than reasonable resolution.

A. The Relief Obtained by the Class is Outstanding.

1. The $7.25 Billion Damages Fund is the Largest-Ever Cash Relief in

an Antitrust Class Action Settlement.

Against “the prospect of uncertain relief” years down the line, the settlement

secures “significant monetary compensation in the near future” in the form of an

estimated $7.25 billion damages fund. SPA23. That historic sum represents the

largest-ever cash relief in an antitrust class action settlement, and is more than double

the recovery in any previous private antitrust action. It is also the third-largest class

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action settlement in history. The notion that this massive monetary recovery could

somehow be inadequate beggars belief. Cf. Wal-Mart , 396 F.3d at 119 (describing

$3 billion settlement paid over ten years as “staggering”); In re Visa

Check/MasterMoney Antitrust Litig., 297 F. Supp. 2d 503, 512 (E.D.N.Y. 2003)

(approving $3 billion settlement paid over ten years).

Rather than attack the adequacy of this massive recovery, objectors ignore it

altogether. Objectors focus singularly on the (b)(2) injunctive relief, which they

denigrate as “[l]iterally nothing.” MA-Br. 76. But it is well-settled that the

reasonableness of a settlement must be “taken as a whole.” Maywalt v. Parker &

Parsley Petrol., 67 F.3d 1072, 1079 (2d Cir. 1995). “[I]t is not the Court’s

prerogative to pick and choose terms of the settlement, [or] redact portions of the

agreement.” McBean v. New York , 233 F.R.D. 377, 382 (S.D.N.Y. 2006). Thus,

courts look to the non-exhaustive “Grinnell factors” with a recognition that not every

factor must weigh in favor of settlement; “rather the court should consider the totality

of these factors in light of the particular circumstances.” Thompson v. Metro. Life,

216 F.R.D. 55, 61 (S.D.N.Y. 2003).

Objectors even go so far as to fault the district court for not conducting a

stand-alone Grinnell analysis “exclusively” for the (b)(2) relief. Merchant Trade

Groups’ Br. (“MTG-Br.”) 33-36. Objectors are mistaken about the value of the

(b)(2) relief, see infra Part II.A-2-4, and ignore that the district court specifically

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addressed and affirmed that the (b)(2) relief was reasonable and reasonably justified

the release. SPA36-47. Their formalistic insistence on two separate multi-factor

Grinnell analyses—when the (b)(2) and (b)(3) analyses overlapped almost

entirely—is meritless and directly at odds with the holistic Rule 23(e) inquiry.

Unsurprisingly, courts addressing global settlements involving (b)(2) and (b)(3)

classes have not applied the Grinnell factors to each class in isolation. See, e.g.,

Charron v. Pinnacle Grp., 874 F. Supp. 2d 179, 196 (S.D.N.Y. 2012) (“the

Settlement … offers them redress for past injuries, while affording significant

systemic benefits (protocols, monitoring, lease audit, injunction)”); New England

Carpenters Fund v. First DataBank , 602 F. Supp. 2d 277, 281 (D. Mass. 2009) (“$2.7

million cash payment combined with the AWP rollback provisions constitutes a

reasonable settlement”). Indeed, objectors fail to cite a single example of what they

demand: a stand-alone “(b)(2) Grinnell analysis … focus[ed] exclusively on the

value of the rules changes, the impact of the mandatory release, and the risks of

litigating the injunctive claims.” MTG-Br. 34.

In any event, there is simply no brushing aside the “massive damages fund”

that promises millions of merchants long-awaited compensation for long-

accumulated overcharges. SPA61. When considered together with the valuable

injunctive reforms, the relief achieved was far more than “fair, reasonable, and

adequate.”

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2. The Removal of Restraints on Surcharging Offers Valuable Relief.

The damages fund standing alone, while massive, would risk allowing

“merchant restraints [to], in effect, place the merchants back where they started,”

permitting the networks to simply “recoup any associated lost revenues by tinkering

with … other fees.” SPA16. Thus, the settlement also secures groundbreaking

injunctive reforms of several long-entrenched merchant restraints that had allowed

the networks and banks to charge excessive interchange fees—reforms that the

district court found “may very likely exceed the value of the monetary relief in the

long run.” SPA67 (emphasis added). These immediately effective rule reforms,

which “class members [could] take advantage of … now,” further counseled against

the alternative of pursuing “many more years of litigation while merchants continued

to be hamstrung by the no surcharge rules of Visa and MasterCard and remaining

anti-steering rules.” D.E. 2113-6 ¶185.

The “heart” of injunctive relief was the lifting of the networks’ bans on

surcharging. SPA22. Plaintiffs pushed “very hard to obtain” this change, and

defendants steadfastly resisted it. SPA36. From the inception of the litigation, the

anti-surcharging rules were viewed as a “linchpin to the problem, as far as the

merchants [were] concerned.” SPA9; see also D.E. 1165 at 3 (“foremost example”

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of an anti-steering restraint). Even numerous objectors publicly touted the value of

surcharging relief.9

“For the first time” since the networks were created a half-century ago,

merchants can impose a surcharge on Visa and MasterCard credit card transactions

at the point of sale to recover the full costs of acceptance of such transactions and

steer customers to less costly payment methods and brands. SPA15. This marks a

sea change in the payment industry. Merchants gain valuable leverage from being

able to educate customers about the costs of accepting credit cards. In the district

court’s words, surcharges can finally “make transparent and avoidable what has been

opaque and inevitable.” SPA37. Levying a surcharge on credit card payments

enables merchants to steer customers towards using lower-cost and non-surcharged

payment methods or brands. D.E. 2111-5 (Frankel Decl.) ¶¶68-69.

A surcharge is even more effective than a discount in this regard because

customers react more strongly to losses from “perceived penalties (such as a

surcharge) than … perceived rewards.” Id . ¶48. Cash, check, and debit card

customers will no longer be forced to subsidize the additional costs of serving credit

9 See Credit Card Interchange Fees: Antitrust Concerns? Hearing Before S.

Comm. on the Judiciary, 109th Cong. 41 (2006) (NACS witness) (anti-surcharging

rule “is part of the reason why this is a broken market” and “should not exist”); id.at 28 (Merchants Payments Coalition) (anti-surcharging rule is “part of theiranticompetitive scheme to fix interchange fees” that “reinforces … price fixingefforts”).

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card customers. Id . ¶35. As customers opt for cheaper payment methods and brands,

meanwhile, merchants may benefit from decreased card-acceptance costs and

increased revenues from the surcharges. Id . ¶¶68-69. In the long run, merchants

may lower their posted retail prices (further benefitting customers) and boost their

total sales.

Even the threat of surcharging benefits all merchants regardless of whether

they surcharge. The networks will face an incentive to lower or moderate their

interchange fees because they will lose more transactions if they maintain high

interchange fees with surcharging than without. The district court specifically noted

expert estimates that, in all, surcharging may save merchants “$26.4 to $62.8 billion

in acceptance costs over the next decade.” SPA35-36. It represents “an indisputably

procompetitive development that has the potential to alter the very core of the

problem this lawsuit was brought to challenge.” SPA35.

Objectors’ briefs are replete with references to the “illusory” and “limited

surcharging relief.” MA-Br. 38; MTG-Br. 54. But objectors do not deny, nor could

they, the pro-competitive effects of surcharging. Instead, drawing on various facts

external to the litigation and the settlement, they complain that lifting prohibitions

on surcharging does not guarantee that every merchant will begin affirmatively

surcharging. The district court considered and rejected each of those arguments as

“unpersuasive.” SPA36.

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First, objectors suggest various reasons why some merchants might choose

not to surcharge. For example, they note that some merchants operate in industries

that “are so competitive that surcharging is highly unlikely.” MA-Br. 55. As the

district court reasoned, “the mere fact that merchants may choose not to avail

themselves of the proposed relief … does not compel the conclusion that the

indisputably procompetitive rules changes are not a valuable achievement.” SPA41;

see also LaGarde v. Support.com, 2013 WL 1283325, at *6 (N.D. Cal. 2013) (while

“it is unknown as to how many class members will actually take advantage” of relief,

“these deficiencies do not weigh against a finding of fairness and adequacy”);

Handschu v. Special Servs. Div., 605 F. Supp. 1384, 1417 (S.D.N.Y. 1985), aff’d ,

787 F.2d 828 (2d Cir. 1986) (“The settlement does not achieve everything they wish

for. Few settlements do. But insisting on everything disregards the limitations …

arising out of present law….”).

Objectors also argue that American Express’s separate anti-surcharging rule

diminishes the value of surcharging relief. They contend that, because American

Express generally carries higher acceptance costs than Visa and MasterCard,

merchants will not surcharge Visa or MasterCard cards if it drives customers to

American Express. Thus, objectors reason, merchants who choose to maintain their

relationships with American Express would not be able to take advantage of

surcharging opportunities immediately.

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But, again, neither the court nor class counsel can control a merchant’s choice

to continue accepting cards issued by American Express or any other entity not a

party to this lawsuit. As the district court noted, objectors have “no solution for that

[American Express] problem … because there could not be one in this case,”

SPA42—even if plaintiffs had proceeded to trial and prevailed. But that does not

mean that the “American Express problem” is intractable, just that it is the subject

of a different lawsuit. In fact, American Express subsequently agreed, as part of a

settlement in a different class action, to allow merchant surcharging in certain

circumstances. See In re Am. Express Anti-Steering Rules Antitrust Litig. (II), No.

11-md-2221, D.E. 306-2 ¶8(e) (E.D.N.Y. Jan. 7, 2014). Thus, the settlement of this

case provided substantial relief vis-à-vis the defendants here, which is all that can

realistically be expected of this lawsuit, and the value of that relief became magnified

by external events.

Next, objectors point to laws on the books in approximately ten states that

would impede merchants from surcharging in those jurisdictions. Merchants in

those states previously faced two independent obstacles to surcharging—

prohibitions from the networks and from the states—and now face only one.

Objectors complain that the remaining state-law obstacle limits the value of the relief

for merchants in those states. But removing state-law obstacles again goes well

“beyond the scope of th[e] lawsuit.” SPA52. As the district court concluded, “[e]ven

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if the objectors are right in contending that additional dominoes must fall before the

alleged anticompetitive behavior of Visa and MasterCard is eradicated, those

dominoes will have to fall in other forums.” SPA18.

In all events, objectors overstate the extent of the state-law obstacles and

understate the extent to which the relief obtained here will itself cause other

dominoes to fall. The district court noted that even in the ten states that limit

surcharging, “at least some state laws are enforced in a manner that prohibits

surcharging only when the merchant fails to sufficiently disclose the increased prices

for credit card use.” SPA38. Even if merchants in those states forgo surcharging

altogether, the court added, the fact that “interchange fees are set on a nationwide

basis” means that surcharging in other states—or even the threat of surcharging—

will exert downward competitive pressures on interchange fees to the benefit of all

merchants nation-wide. SPA38; see also In re Motor Fuel Sales Practices Litig .,

271 F.R.D. 263, 289 & n.36 (D. Kan. 2010) (all class members benefit; class

members from “non-conversion” states have “a right to purchase ATC fuel from

Costco in conversion states”).

Indeed, the relief imposed here puts undeniable pressure on those state laws.

It is one thing for state law to reinforce the uniform practice of Visa, MasterCard,

and American Express. It is quite another thing for state laws to remain as the only

obstacle to more-transparent pricing after contractual surcharging prohibitions have

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been eliminated as part of antitrust settlements. In fact, just as the American Express

issue was addressed in separate litigation, these state laws are also under attack in

separate litigation. As the district court recognized, a recent decision barring

enforcement of one such law on constitutional grounds, see Expressions Hair Design

v. Schneiderman, 975 F. Supp. 2d 430 (S.D.N.Y. 2013) (appeal pending), indicates

that the dominoes may already be falling, and that independent events will only

magnify the already-substantial value of the surcharging relief.

Finally, objectors point to the potential for networks to enter bilateral

agreements with merchants and speculate that they could “offer[] [a] merchant a

break on its interchange rates in exchange for its agreement not to surcharge.” MA-

Br. 62. But far from “swallow[ing] the Settlement’s surcharging relief,” MTG-Br.

55, this underscores the broader benefits of that relief. As a direct result of the threat

to surcharge, networks may be pressured to moderate and make concessions on

interchange fees. See D.E. 2113-6 ¶196 (after Australia rescinded anti-surcharging

rules in 2003, merchants used threat of surcharging to negotiate significantly lower

American Express fees).

In the end, all merchants have an interest in lifting the anti-surcharging

restraints because “all merchants have the same interest in being able to inform

cardholders at the point of sale of the acceptance costs of their credit cards and to

either steer them to lower-cost alternatives or recoup the cost of acceptance.”

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large merchants.” D.E. 2111-5 ¶56. Objectors do not deny that the reform is pro-

competitive; they merely question the extent to which it will be utilized. But again,

that “unknown … do[es] not weigh against a finding of fairness and adequacy.”

LaGarde, 2013 WL 1283325, at *6. As plaintiffs’ expert attested, even modest

competitive pressures on interchange fees produced by buying group efforts may

produce substantial savings. D.E. 2111-5 ¶¶55-57, 66.

Meanwhile, merchants were previously compelled in practice to accept Visa

or MasterCard cards at all their outlets and banners (brands) because the networks

made volume discounts on interchange fees contingent on that across-the-board

acceptance. The settlement’s all-outlets provision eliminates that practice.

Merchants may now accept Visa or MasterCard cards at some, but not all, of their

businesses without being penalized with the volume discounts. SPA140-41, 153-54

(Settlement ¶¶41, 54). Thus, for instance, a merchant can now decline to accept the

network’s cards at its discount store banner to keep costs and prices as low as

possible, yet continue to accept the cards in its other stores. Because the higher the

fees, the more likely the merchant is to refuse acceptance of a card brand, this rule

change will further “increase the elasticity of demand with respect to merchant fees,

and thus intensify the competitive constraints facing the Networks over the level of

their merchant fees.” D.E. 2111-5 ¶54.

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Finally, plaintiffs challenged Visa’s and MasterCard’s anti-discounting and

anti-minimum-price rules, which prevented merchants from offering discounts and

banned minimum purchase amounts for credit card usage. The Durbin Amendment

and DOJ Consent Judgment—developments that “piggybacked on [plaintiffs’]

efforts,” SPA59—took superseding steps toward dismantling those rules. They

enabled merchants to offer discounts, rebates, and other in-kind incentives and set

minimum purchase amounts, and required Visa and MasterCard to provide, at no

cost, services to help merchants determine the acceptance costs of Visa and

MasterCard credit cards.

The discounting, minimum-purchase, and cost information provisions of the

settlement now lock in, until 2021, the dismantling of those anti-steering restraints.

SPA139-40, 150-51, 153, 164 (Settlement ¶¶40, 44, 53, 57). The Durbin

Amendment and DOJ Consent Judgment, while achieving crucial tools, were also

subject to the vagaries of modification and repeal. The settlement firmly shields

those gains from erosion by the whims of public opinion or Rule 60(b) assertions of

changed circumstances, ensuring that they remain valuable enhancements to

merchants’ newfound ability to surcharge. Merchants are now assured of their

ability to offer discounts and minimum purchase rules in addition to, or in lieu of,

surcharges — an empowering toolbox with which they can steer customers toward

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more cost-effective payment methods, brands, and products, and incentivize

networks to keep interchange fees in check.

4. The Settlement Is Not Unreasonable Merely Because It Does Not

Include All of the Relief Sought by Objectors.

Based on its extensive knowledge of the litigation, the district court concluded

that rule reforms achieved would “meaningfully blunt” any lingering

anticompetitive effects of the Honor-all-Cards and default-interchange rules.

SPA45, 61. Objectors, however, lament the fact that this settlement does not obtain

the wholesale rescission of the Honor-all-Cards and default-interchange rules as

well. MA-Br. 14, 17. That objectors (like any plaintiff) would have preferred even

more relief is understandable. But as this Court has said time and again: “Each side

gives up a number of things. This is the way settlements usually work.” Wal-Mart ,

396 F.3d at 113. “The fact that a proposed settlement may only amount to a fraction

of the potential recovery does not, in and of itself, mean that the proposed settlement

is grossly inadequate and should be disapproved.” Grinnell, 495 F.2d at 455 & n.2;

see also Handschu, 605 F. Supp. at 1385 (“It is beside the point for objectors to …

criticize the settlement because it falls short of a state of law they devoutly desire

but have not yet achieved”).

As they did below, o bjectors fail to grapple with the “limitations on the relief

that would be available even if success were achieved” and “assum[e] that a

complete victory on the merits is a foregone conclusion.” SPA25-26. But continuing

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71

with litigation was not without serious risks. See Defendants-Appellees Br. Part I.A-

2. In fact, the district court noted that plaintiffs faced an uphill battle on their

challenges to the default interchange and Honor-all-Cards rules. The district court

pointedly criticized objectors for “assum[ing] that default interchange is inherently

illegal, [when] in reality it is a very complicated issue.” SPA29. It noted that no

court had “ever held that Visa or MasterCard’s default interchange rules violate the

antitrust laws,” and that the practices had procompetitive effects for consumers that

may have outweighed any anticompetitive harm. SPA30.

The district court further questioned whether a court could even permissibly

engage in “the regulation of interchange fees … if the plaintiffs obtained a complete

victory on the merits.” SPA14, 16. Likewise, the court noted that plaintiffs would

have to confront adverse caselaw implicating the Honor-all-Cards rule that made it

“no sure thing … that Class Plaintiffs will be able to prove they have anticompetitive

effects to such an extent that they violate the antitrust laws.” SPA32. The district

court also discussed risks that plaintiffs may have faced in establishing damages and

maintaining class status.

In light of the substantial delays and uncertainties that extending the litigation

for many more years would entail, it was eminently reasonable to conclude that the

settlement relief — most of which was immediately effective — was the best possible

outcome for plaintiffs. Under the totality of the circumstances, the settlement easily

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72

falls within a “range of reasonableness.” That the settlement does not obtain all of

the relief that some objectors would have preferred does not in any way take it

outside that realm of reasonableness.

B. The Standard Release Conforms With All Applicable Law.

In exchange for the substantial damages and restructured network practices,

the settlement releases all claims “that are alleged or which could have been alleged”

by plaintiffs in this litigation.10 SPA169 (Settlement ¶68). That is a standard form

of release that courts have repeatedly approved in class settlements. It is a form of

release, moreover, that this Court has recognized is “often” pivotal to “achieve

comprehensive settlement of class actions.” In re Literary Works, 654 F.3d at 247-

48; see also Wal-Mart , 396 F.3d at 106 (“‘[c]lass action settlements simply will not

occur if the parties cannot set definitive limits on defendants’ liability’”).

Objectors complain about the release of hypothetical and uncertain future

claims seeking damages, but that is really just a reprise of their mistaken criticisms

of the settlement reforms as “[l]iterally nothing.” MA-Br. 76. The structural reforms

are, as the district court found, designed to provide substantial and “meaningful”

10 See SPA169-70 (Settlement ¶68) (releasing claims “arising out of or relating inany way to any conduct, acts, transactions, events, occurrences, statements,

omissions, or failures to act of any Rule 23(b)(2) Settlement Class Released Partythat are alleged or which could have been alleged from the beginning of time untilthe date of the Court’s entry of the Class Settlement Preliminary Approval Order”)(emphasis added).

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relief. SPA15. There is nothing unusual about foreclosing hypothetical future claims

based on conduct addressed prospectively by a valid injunction. The injunction’s

immediately-effective, meaningful reforms—coupled with other industry reforms

triggered by this litigation, such as the separation of the payment networks from the

banks, the DOJ Consent Judgment, and the Durbin Amendment—dramatically

change the landscape going forward, such that the value of any foreclosed future

claims will likely be de minimis.

Moreover, as the district court correctly concluded, the release covers “only

the claims that may properly be extinguished by the settlement of a class action.”

SPA44. It is of no moment that the release covers rules and practices that were not

expressly challenged in this action. The four corners of a complaint have never

delineated the outer bounds of a release. To the contrary, it is well-settled that “class

action releases may include claims not presented and even those which could not

have been presented as long as the released conduct arises out of the ‘identical

factual predicate’ as the settled conduct.” Wal-Mart , 396 F.3d at 107. Time and

again, this Court has approved nearly identical releases as consistent with the

“identical factual predicate” test. Cf. Visa Check , 297 F. Supp. 2d at 512 (“‘claims

which have been asserted or could have been asserted’”); In re Literary Works, 654

F.3d at 247 (“claims that were or could have been pled”).

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74

That is all that this straightforward release does. As the district court

determined, the settlement simply “releases … claims that are or could have been

alleged based on the identical factual predicate of the claims in this case.” SPA46.

At the final approval hearing, defendants agreed unequivocally—as they reiterate

here, Defendants-Appellees’ Br. Part II—that “the release is limited by the Identical

Factual Predicate Doctrine which is the law of the Second Circuit.” D.E. 6094 at

36 (emphasis added); see also id. (Defs: “Nobody is proposing that the release be

construed beyond the Identical Factual Predicate Doctrine.”).

Claims about the rules and conduct that enabled the networks to maintain

supra-competitive default interchange fees, their IPOs, or their status as structural

conspiracies by virtue of their rules, are thus released. Claims about any new rules

and conduct are not released.11 Claims about any reversion to the pre-settlement

rules are likewise not released. See id . at 228-29 (defendants agreeing with

plaintiffs’ list of conduct not covered by the release). The district “court’s findings

regarding the parties’ intentions will be respected on appeal unless they are clearly

erroneous.” W. Alton Jones Found. v. Chevron, 97 F.3d 29, 33 (2d Cir. 1996).

11 This release is thus far afield from the release rejected in Nat’l Super Spuds v.

N.Y. Mercantile Exch. , 660 F.2d 9 (2d Cir. 1981). There, the release of claims based

on “unliquidated” contracts was deemed improper when the claims, the complaint,the class certification opinion, and the settlement notice all exclusively concerned“liquidated” contracts. Id. at 16-17. Even “class action plaintiffs did not purport torepresent” anyone with “claims based on unliquidated contracts.” Id. at 17.

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Indeed, “‘[f]ew persons are in a better position to understand the meaning of a

[settlement] than the district judge who oversaw and approved it.’” United States v.

Local 359, United Seafood Workers, 55 F.3d 64, 68 (2d Cir. 1995).

For clarity’s sake, the settlement notes that the released claims include future

claims based on the networks’ “continued … adherence” to (1) rules or conduct left

unmodified by the settlement that are challenged or could have been challenged, (2)

rules or conduct modified by the settlement, and (3) rules or conduct “substantially

similar” to (1) or (2). SPA171 (Settlement ¶68(g)-(h)). That unremarkable provision

merely bars collateral attacks on continued adherence to the practices agreed upon

in the settlement. See In re Literary Works, 654 F.3d at 248 (“release of claims

regarding future infringements is not improper”).12

As the district court noted, there may well be “room for litigation over whether

future rules are ‘substantially similar,’” but the limitation ensures that only non-

substantive changes to the agreed-upon, going-forward rules and conduct are

released. SPA47. As the court reasonably explained, that limitation appropriately

cabins the release, and there is no need for an advisory opinion that would “catalog

here all the claims that fall within or without the release.” SPA47. That accords

with the settled principle “that the court conducting the action cannot predetermine

12 Contrary to objectors’ insinuations, see MA-Br. 76, the release would not applyif defendants were, after 2021, to revert to their previous rules.

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76

the res judicata effect of the judgment; this can be tested only in a subsequent

action.” Fed. R. Civ. P. 23 advisory committee notes (1966).

The “substantially similar” limitation likewise readily distinguishes the

various cases, cited by objectors, in which courts have found releases of future

claims to violate public policy. In Lawlor v. National Screen Service, 349 U.S. 322

(1955), for instance, the Supreme Court suggested that “a partial immunity from

civil liability for future violations” would be “consistent with neither the antitrust

laws nor the doctrine of res judicata.” Id. at 329. The released claims, however,

involved conduct that was “all subsequent to the … judgment,” “did not even then

exist [at the time of settlement] and … could not possibly have been sued upon in

the previous case.” Id. at 328. This release, by contrast, bars only claims “that are

alleged or which could have been alleged” in this case, including future claims

arising out of the practices sanctioned in the structural reforms embraced by the

district court.13

13 See also Williams v. G.E. Capital , 159 F.3d 266, 274 (7th Cir. 1998) (enforcingrelease of claims that “even if … not ripe” were “closely enough related to the[released] disclosure claims that everything could be resolved in the settlement”); Inre Managed Care Litig ., 2010 WL 6532985, at *12 (S.D. Fla. 2010) (enforcingrelease barring lawsuit based on continuation of pre-release conduct); Schwarz v.

Dall. Cowboys, 2001 WL 1689714, at *1 (E.D. Pa. 2001) (approving release of “a

continuation of such policies, practices, contracts, conduct or provisions”); see alsoVKK Corp. v. NFL, 244 F.3d 114, 126 (2d Cir. 2001) (“It is not uncommon … for arelease to prevent the releasor from bringing suit against the releasee for engagingin a conspiracy that is later alleged to have continued after the release’s execution.”).

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77

Nor can this release be said to grant antitrust “immunity,” when the challenged

conduct has not been held by the courts to be “clearly illegal” under the antitrust

laws. Robertson v. NBA, 556 F.2d 682, 686 (2d Cir. 1977). It is well-settled that a

court should not reject a settlement on grounds that it authorizes illegality if “‘the

alleged illegality … is not a legal certainty’”; that would “in effect try the case by

deciding unsettled legal questions.” Id.; see also Armstrong v. Bd. of Sch. Dirs., 616

F.2d 305, 321 (7th Cir. 1980) (“before a settlement may be rejected because it

initiates or authorizes a clearly illegal or unconstitutional practice, prior judicial

decisions must have found that practice to be illegal or unconstitutional as a general

rule”).

More generally, there is no basis to adopt objectors’ maximalist interpretation

of the release to conjure up a due process or public policy problem. Under bedrock

canons of contract construction and constitutional avoidance, this Court need only

read the release consistent with its standard terms, rather than impute an intent to

invite objectors’ parade of horribles. See In re Johns-Manville, 759 F.3d 206, 216

(2d Cir. 2014) (“common canons of contract construction call upon us to reject …

an interpretation” that assumes order “bound entities without constitutionally

sufficient notice”). Indeed, the Due Process Clause is the ultimate backstop.

Precisely because a release cannot release claims in a manner that deprives future

litigants of their due process rights, releases are interpreted to reflect, not violate,

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78

those limits. See id. (interpreting order to “bar claims only by those parties that

received constitutionally sufficient notice”). Any future concerns that those limits

are being crossed can be addressed if and when such issues actually arise.

In short, the (b)(2) release here is a standard provision, fully consistent with

due process, that reflects the importance of the structural relief and the practical

necessity of giving defendants legal peace in exchange for the substantial relief

obtained. The district court’s considered judgment that the release is a proper

component of a fair, reasonable, and adequate settlement warrants deference and

should be affirmed.

III.

The District Court Acted Well Within Its Broad Discretion In Finding

The Fee Award Reasonable.

“In a certified class action, the court may award reasonable attorney’s fees.”

Fed. R. Civ. P. 23(h). The key consideration is what is “‘reasonable’ under the

circumstances.” Goldberger , 209 F.3d at 47. The circumstances here include nearly

a decade of hard-fought litigation, the largest antitrust class action settlement award

in history, and injunctive relief that likely will prove more valuable still. The district

court approved a $544.8 million attorneys’ fee—approximately 9.56% of the net

cash fund, after opt-out reductions—as a reasonable award )?,2K these “)?>Q)2 JFOBL

and circumstances of the settlement.” (RP%9' 1@FB determination, laid out in a

dedicated fees opinion with painstaking transparency and detail, falls comfortably

within the district court’s ample discretion and should be affirmed.

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79

The district court here grounded its analysis in the “unique … size, duration,

complexity, and … relief” of this case. SPA56. Class counsel and the nearly 60

additional law firms that worked on the case went toe-to-toe with a group of the

nation’s largest financial institutions and their talented counsel over an eight-year

period. They devoted, by conservative estimates, 500,000 hours of time to the case

without assurance of any compensation. The litigation was of “singular size and

complexity,” raising a plethora of difficult issues that went to the heart of how the

payment card industry has operated since its inception. SPA62. Each class

member’s share of that award was well below that which any class member would

have paid to prosecute this action and below what private plaintiffs typically pay.

See D.E. 2113-5 (Silver Decl.) at 25-34.

A handful of objectors take issue with the court’s assessment of individual

factors under the traditional six-factor framework of Goldberger , 209 F.3d at 50

(factors include “‘/65 B@2 B>M2 F?, GFAIK 23*2?,2, AH OI)?L2GS /+5 B@2 MFD?>B),2 F?,

OIM*G23>B>2L IJ B@2 G>B>DFB>I?S /.5 B@2 K>LT IJ B@2 G>B>DFB>I? … S /:5 B@2 Q)FG>BH IJ

K2*K2L2?BFB>I?S /#5 B@2 K2Q)2LB2, J22 >? K2GFB>I? BI B@2 L2BBG2M2?BS F?, /%5 *)AG>O

*IG>OH OI?L>,2KFB>I?L’”). U)B ?I?2 BFT2 >LL)2 with the “most important Goldberger

factor”—the risk of the litigation— which indisputably weighed in favor of a sizeable

fee. SPA59. As the district court explained, “[i]f not for the attorneys’ willingness

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80

to endure for many years the risk that their extraordinary efforts would go

uncompensated, the settlement would not exist.” SPA59.

Objectors instead appear to quibble with the district court’s assessment of the

“quality of representation” and “the requested fee in relation to the settlement,”

rehashing their objections to the settlement itself. E.g., Unlimited Vacations Br. 9

(this “is a negative value settlement” where “[c]lass members would be better off

with no settlement at all”). Those hyperbolic criticisms are as unavailing in the fee

context as in the settlement context. As the district court found, the settlement

secured not only a “massive damages” award, but crucial programmatic reforms of

“great value” that together constitute a “significant success.” SPA60-61. Nothing

objectors say warrants disturbing that determination, much less overturning the

court’s weighing of the Goldberger factors as a whole.

Objectors’ criticisms of the district court’s graduated fee schedule similarly

rest on those mistaken premises. To calculate the fee, the district court adopted a

sliding scale that fixed the percentage of the fund to which counsel was entitled

through a declining schedule, thus addressing the worry that “‘it is not ten times as

difficult to prepare, and try or settle a 10 million dollar case as it is to try a 1 million

dollar case.’” Goldberger , 209 F.3d at 52. Thus, the court awarded counsel 33% (a

common contingency fee arrangement in less complex class actions) of the first $10

million of the fund, 30% of the next $40 million, 25% of the next $50 million, and

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81

so forth, with percentages declining as the fund increased. The schedule was based

on “empirical studies” of “federal class action settlements in recent years” and “the

unique facts and circumstances of the settlement.” SPA64, 67, 69.

Objectors would like the scale to slide more steeply, rehashing their

complaints about the underlying settlement. Unlimited Vacations Br. 17; see id. at

19 (urging “percentages of 4%, 3% and 2%, instead of Judge Gleeson’s 10%, 8%

and 6%”). As explained, however, class counsel more than adequately represented

both the (b)(2) and (b)(3) classes. And in all events, the district court hardly exited

the realm of reasonableness in using one set of numbers rather than objectors’

preferred figures.

Finally, some objectors appear to view any increase above the lodestar amount

as an undeserved windfall. In fact, courts regularly approve fees that reflect a

multiplier from the lodestar, and the multiplier here—3.41—is squarely in the range

of previously approved multipliers. As the district court explained, 3.41 is

“OIM*FKFAG2 BI />?,22,! ?2FKGH >,2?B>OFG BI5 B@2 I?2 V FWFK,2, >? B@2 6/7 – ;/$0 OFL2

B2? H2FKL FDI! F?, >B >L FGLI OIM*FKFAG2 BI M)GB>*G>2KL >? IB@2K GFKD2! OIM*G23 OFL2L'”

(RP-4S )<* !" $% 6'$789': (%)* 4-0-5 '! .$$ &' ()**' +, .69! .#: – #9 /('0'<'='

+44#5 /F**KIN>?D M)GB>*G>2K IJ :'4 >? X.'# A>GG>I? OIM*G23 L2O)K>B>2L OFL25S !" $%

&"$'" (%)*+ ,%$-./0-.% 1 &2!(3 4-0-5*! #$% &' ()**' +, -.+! $4. /('0' 123' +44$5

(“[A] multiplier of 5.2 is warranted, given the unmatched size of the … K2OIN2KH!

!"#$% '()*+,' -./01$23% ''(* 4"5$% ;9 '67'87(6'* '9*89,, '6'

82

B@2 IALBFOG2L F?, K>LTL JFO2, AH COI)?L2GE JKIM B@2 A2D>??>?D! F?, B@2 LT>GG F?,

commitment exhibited by counsel.”)S In re Vitamin C Antitrust Litig ., +46+ 78

#+$9#6:! FB Y64 /;'0'<'=' +46+5 (“‘GI,2LBFK M)GB>*G2L IJ A2BW22? . F?, :'# @F,

‘become common’”)' P?, >B K2JG2OBL F LMFGG2K M)GB>*G>2K B@F? B@FB F**KIN2, >? =->/

9?%)@ ! +9- &' ()**' +, FB #+:! W@>O@ B@>L LFM2 ,>LBK>OB OI)KB *K2L>,2, IN2K F?,

K2DFK,2, FL L)ALBF?B>FGGH G2LL “challenging.” SPA63.

At bottom, there is no basis to disturb the district court’s fee award as an abuse

of discretion.

IV. The District Court Acted Well Within Its Broad Discretion In Finding

The Settlement Notice Reasonable.

The standard for an adequate settlement notice, whether analyzed under the

Due Process Clause or Rule 23, is one of reasonableness. See Soberal–Perez , 717

F.2d at 43; Fed. R. Civ. P. 23(e)(1). “There are no rigid rules to determine whether

a settlement notice to the class satisfies constitutional or Rule 23(e) requirements.”

Wal-Mart , 396 F.3d at 114. This Court has said that a notice need only “‘fairly

apprise the prospective members of the class of the terms of the proposed settlement

and of the options that are open to them in connection with [the] proceedings.’”

Weinberger v. Kendrick , 698 F.2d 61, 70 (2d Cir. 1982). Accordingly, “[n]umerous

decisions, no doubt recognizing that notices to class members can practicably

contain only a limited amount of information, have approved ‘very general

description[s] of the proposed settlement.’” Id.

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83

The district court found that the notice supplied here easily met that standard:

“It described the litigation, summarized the settlement’s terms, quoted the releases

verbatim, described the request for attorneys’ fees, expenses, and incentive awards

for Class Plaintiffs, and explained the deadline and procedure for filing objections

to the settlement as well as opting out of the case settlement class.” SPA51. The

notice also notified class members of how they could obtain more information from

class counsel or the Class Administrator though a toll-free number, a website, and

traditional channels including mail and telephone. To ensure accessibility to “the

average class member,” 4 Newberg on Class Actions § 11:53, class counsel even

consulted a plain language expert in the drafting, and made the notice and website

available in eight languages. D.E. 2111-7 (Azari Decl. ¶9); D.E. 2111-6 (Hamann

Decl. ¶31).

To maximize notice circulation, class counsel worked closely with the Class

Administrator to identify class members and compile a database of 19,874,922

unique mailing addresses, later supplemented by an additional 969,970. See D.E.

2111-6 ¶¶12, 18-19. In all, the “notice and publication campaign … included more

than 20 million mailings and publication in more than 400 publications.” SPA12.

Moreover, the notice “prompt[ed] widespread reaction from class members,” further

demonstrating that it had “served its due process purpose.” Handschu, 787 F.2d at

833; see D.E. 2111-6 ¶26 (over 93,000 calls to toll-free number from December 2012

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84

through April 2013); id . ¶¶29, 32 (over 3.743 million website visitors in two

months).

The district court considered and rejected certain objectors’ claims that the

notice contained false statements. Objectors raised these arguments repeatedly, at

preliminary approval, at final approval, and at proceedings regarding the misleading

websites some objectors had created (where the district court nearly held several

objectors in contempt, SPA14). Each time, the district court rejected the challenges

to the settlement notice as meritless. Nonetheless, objectors reiterate their thrice-

rejected claim that the notice was misleading because any changes to the anti-

discounting network rules stem from the DOJ Consent Judgment, not from the

settlement. As the district court correctly held, the notice was fully accurate. It

appropriately refers to anti-discounting rule changes because the settlement creates

an affirmative network obligation to permit discounting, independent of the Consent

Judgment. Indeed, the settlement locks in the discounting reforms of the Consent

Judgment until 2021, ensuring that the changes will be unaffected even if the

Consent Judgment is vacated.

Objectors further contend that the notice contains no disclosure of the size of

the class, the aggregate damages suffered, the average loss per class member

quantified as a percentage of the class members’ sales to customers using Visa and

MasterCard, and the percentage of the aggregate damages that comprise the

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85

settlement benefit. Optical Etc. Br. 3. But those arguments fare no better. “Neither

Rule 23 nor due process … requires that the notice report the estimated value of

damages.” Thompson, 216 F.R.D. at 67; see also id. (rejecting criticism that the

notice failed to detail class member’s individual benefits).

In the end, there is absolutely no basis to disturb the district court’s

determination that the settlement notice was “‘the best practicable, reasonably

calculated, under all the circumstances, to apprise interested parties of the pendency

of the action and afford them an opportunity to present their objections.’” Hecht ,

691 F.3d at 224. By conveying “enough information about the settlement and its

implications for participants to enable class members to make an informed decision

about whether to be heard concerning the settlement or, if allowed, to opt-out,” 2

McLaughlin on Class Actions § 6:17, the notice plainly suffices.

CONCLUSION

This class action resulted in one of the largest class recoveries ever realized.

It also resulted in wide-ranging changes to the way the payment card industry

operates, both directly through the injunctive relief realized, and indirectly through

the federal legislation and enforcement actions that this litigation prompted. The

monetary recovery and injunctive relief provided by the settlement grant significant

benefits to all class members, including compensation for past harm and protection

against future injury. In the judgment of the district court, and the highly

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86

experienced mediators who assisted the court in facilitating the resolution of these

complex and challenging claims, the settlement was not only appropriate, but

compelling.

On this record, the district court did not abuse its considerable discretion in

approving the settlement, awarding fees to class counsel, and in approving notice of

the settlement to class members. The decision of the district court should be affirmed

in all respects.

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87

Respectfully submitted,

K. CRAIG WILDFANG THOMAS J. U NDLIN R YAN W. MARTH BERNARD PERSKY ROBINS, KAPLAN, MILLER &

CIRESI L.L.P. 800 LaSalle Avenue Minneapolis, MN 55402

H. LADDIE MONTAGUE MERRILL G. DAVIDOFF MICHAEL J. K ANE BERGER & MONTAGUE, P.C. 1622 Locust Street Philadelphia, PA 19103

BONNY E. SWEENEY JOSEPH DAVID DALEY ALEXANDRA SENYA BERNAY ROBBINS GELLER RUDMAN &

DOWD LLP 655 West Broadway Suite 1900 San Diego, CA 92101

s/Paul D. Clement PAUL D. CLEMENT Counsel of Record

JEFFREY M. HARRIS CANDICE C. WONG BANCROFT PLLC 1919 M Street NW Suite 470Washington, DC 20036 (202) 234-0090

[email protected]

JOSEPH GOLDBERG FREEDMAN BOYD GOLDBERGURIAS & WARD, P.A. 20 First Plaza Suite 700 Albuquerque, NM 87102


October 15, 2014

!"#$% '()*+,' -./01$23% ''(* 4"5$% ;; '67'87(6'* '9*89,, '6'




WITH TYPE-VOLUME LIMITATION

I hereby certify that:

1. This brief complies with the type-volume limitation of Fed. R. App. P.

32(a)(7)(B) and the order issued on October 2, 2014 granting Plaintiffs-Appellees’

motion for leave to file a brief of up to 20,000 words because it contains 19,976

words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

2. This Brief complies with the typeface requirements of Fed. R. App. P.

32(a)(5) and the typestyle requirements of Fed. R. App. P. 32(a)(6) because it has

been prepared in a proportionally spaced typeface using Microsoft Word 2013 in 14-

point font.

October 15, 2014

s/Candice C. Wong Candice C. Wong

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I hereby certify that, on October 15, 2014, an electronic copy of this Brief for

Plaintiffs-Appellees was filed with the Clerk of Court using the ECF system, thereby

serving all counsel of record.

s/Paul D. Clement Paul D. Clement

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12-4671-cv(L)

!"#$%& ($)$%* +,-.$ ,/ 011%)2*/,. $3%

(%4,"& +#.4-#$

IN RE PAYMENT CARD INTERCHANGE FEE ANDMERCHANT DISCOUNT ANTITRUST LITIGATION

___________________________

On Appeal from the United States District Court for the Eastern District of New York (Gleeson, J.)

JOINT PAGE PROOF BRIEF OFDEFENDANTS-APPELLEES

BENJAMIN R. NAGIN

EAMON P. JOYCE

MARK D. TATICCHI

SIDLEY AUSTIN LLP787 Seventh Avenue

New York, NY 10019

CARTER G. PHILLIPS

SIDLEY AUSTIN LLP1501 K Street, NWWashington, DC 20005(202) [email protected]

DAVID F. GRAHAM

R OBERT N. HOCHMAN

SIDLEY AUSTIN LLPOne South Dearborn StreetChicago, IL 60603

Attorneys for Defendants-Appellees Citigroup Inc., Citibank, N.A., and Citicorp(See Inside Cover for Additional Counsel and Parties)

12-4708-cv(CON), 12-4765-cv(CON), 13-4719-cv(CON), 13-4750-cv(CON), 13-4751-cv(CON),13-4752-cv(CON), 14-0032-cv(CON), 14-0117-cv(CON), 14-0119-cv(CON), 14-0133-cv(CON),14-0157-cv(CON), 14-0159-cv(CON), 14-0192-cv(CON), 14-0197-cv(CON), 14-0219-cv(CON),14-0225-cv(CON), 14-0241-cv(CON), 14-0250-cv(CON), 14-0266-cv(CON), 14-0303-cv(CON),

14-0331-cv(CON), 14-0349-cv(CON), 14-0379-cv(CON), 14-0404-cv(CON), 14-0422-cv(CON),14-0443-cv(CON), 14-0480-cv(CON), 14-0497-cv(CON), 14-0530-cv(CON), 14-0567-cv(CON),

14-0584-cv(CON), 14-0606-cv(CON), 14-0663-cv(CON), 14-0837-cv(CON)

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R OBERT C. MASON

ARNOLD & PORTER LLP399 Park Avenue

New York, NY 10022(212) [email protected]

R OBERT J. VIZAS

ARNOLD & PORTER LLPThree Embarcadero Center, 10th Floor San Francisco, CA 94111

MARK R. MERLEY

MATTHEW A. EISENSTEIN

ARNOLD & PORTER LLP555 12th Street, NWWashington, DC 20004

R ICHARD J. HOLWELL

MICHAEL S. SHUSTER

DEMIAN A. ORDWAY

HOLWELL SHUSTER & GOLDBERG LLP125 Broad Street, 39th Floor


Attorneys for Defendants-AppelleesVisa Inc., Visa U.S.A. Inc., and

Visa International Service Association*

K EILA D. R AVELO

WESLEY R. POWELL

WILLKIE FARR & GALLAGHER LLP787 Seventh Avenue

New York, NY 10019

K ENNETH A. GALLO

PAUL, WEISS, R IFKIND, WHARTON

& GARRISON LLP2001 K Street, NWWashington, DC 20006(202) [email protected]

GARY R. CARNEY

PAUL, WEISS, R IFKIND, WHARTON

& GARRISON LLP1285 Avenue of the Americas

New York, NY 10019

Attorneys for Defendants-Appellees

MasterCard Incorporated and

MasterCard International Incorporated

(See Next Page for Additional Counsel and Parties)

* Arnold & Porter LLP is counsel to the Visa Defendants-Appellees except as to Objectors-AppellantsBarnes & Noble, Inc., Barnes & Noble College Booksellers LLC, J.C. Penney Corporation, and The TJXCompanies, Inc. and related entities.

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MARK P. LADNER

MICHAEL B. MILLER

MORRISON & FOERSTER LLP250 West 55th Street


Attorneys for Defendants-Appellees Bankof America, N.A., BA Merchant Services

LLC (f/k/a National Processing, Inc.),

Bank of America Corporation, and FIA

Card Services, N.A. (f/k/a MBNA

America Bank, N.A. and Bank of

America, N.A. (USA))

A NDREW J. FRACKMAN

ABBY F. R UDZIN

O’MELVENY & MYERS LLPTimes Square Tower 7 Times Square


Attorneys for Defendants-Appellees Capital

One Bank (USA), N.A., Capital One

F.S.B., and Capital One Financial

Corporation

JAMES P. TALLON

SHEARMAN & STERLING LLP599 Lexington Avenue

New York, NY 10022(212) 848-4000

[email protected]


Barclays Bank plc (in its individualcapacity and as successor in interest to

Barclays Financial Corp.) and Barclays

Bank Delaware

R ICHARD L. CREIGHTON

DREW M. HICKS

K EATING MUETHING & K LEKAMP PLLOne East Fourth Street, Suite 1400Cincinnati, OH 45202(513) [email protected]

Attorneys for Defendant-Appellee

Fifth Third Bancorp

(See Next Page for Additional Counsel and Parties)

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JOHN P. PASSARELLI

JAMES M. SULENTIC

K UTAK R OCK LLPThe Omaha Building1650 Farnam StreetOmaha, NE 68102(402) [email protected]

Attorneys for Defendant-Appellee First National Bank of Omaha

PETER E. GREENE

BORIS BERSHTEYN

PETER S. JULIANSKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLPFour Times Square

New York, NY 10036(212) 735-3000

[email protected]

JONATHAN S. MASSEY

LEONARD A. GAIL

MASSEY & GAIL, LLP1325 G STREET NWSuite 500Washington, DC 20005(202) 652-4511

[email protected]

Attorneys for Defendants-Appellees JPMorgan Chase & Co., JPMorganChase Bank, N.A., Chase Bank USA,

N.A., Chase Manhattan Bank USA, N.A.,Chase Paymentech Solutions, LLC, BankOne Corporation, Bank One Delaware,

N.A., and JPMorgan Chase Bank, N.A.,as acquirer of certain assets andliabilities of Washington Mutual Bank

†

ALI M. STOEPPELWERTH

WILMER CUTLER PICKERING HALE

AND DORR LLP1875 Pennsylvania Avenue, NWWashington, DC 20006(202) [email protected]

Attorneys for Defendants-Appellees HSBC Finance Corporation and HSBC North America Holdings Inc.

JOHN M. MAJORAS

JOSEPH W. CLARK

JONES DAY51 Louisiana Avenue, NWWashington, DC 20001(202) 879-3939

[email protected]

Attorneys for Defendants-Appellees National City Corporation and National City Bank of Kentucky

(See Last Page of Cover for Additional Counsel and Parties)

† Skadden, Arps, Slate, Meagher & Flom LLP is counsel to the Chase Defendants-Appellees except as toObjectors-Appellants American Express Co., American Express Travel Related Services Company, Inc.,American Express Publishing Corp., Serve Virtual Enterprises, Inc., ANCA 7 LLC d/b/a Vente Privee,USA, AMEX Assurance Company, Accertify, Inc., Wal-Mart, Inc., Alon USA, LP, Amazon.com,Zappos.com, Foot Locker, Inc., and J.C. Penney Corporation, Inc. and related entities.

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TERESA T. BONDER

VALARIE C. WILLIAMS

K ARA F. K ENNEDY

ALSTON & BIRD LLP

One Atlantic Center 1201 W. Peachtree Street, NWAtlanta, GA 30309(404) [email protected]


SunTrust Banks, Inc. and SunTrust Bank

R OBERT P. LOBUE

WILLIAM F. CAVANAUGH

PATTERSON BELKNAP WEBB

& TYLER LLP1133 Avenue of the Americas



Wachovia Bank, N.A., Wachovia

Corporation, and Wells Fargo

& Company

JONATHAN B. ORLEANS

ADAM S. MOCCIOLO

PULLMAN & COMLEY, LLC850 Main Street

Bridgeport, CT 06601(203) 330-2000 [email protected]

Attorneys for Defendant-Appellee

Texas Independent Bancshares, Inc.

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i


Consistent with this Court’s Order of May 27, 2014, see ECF Docket Entry

935 in No. 12-4671(L), the parties to this brief complied with Rule 26.1 of the

Federal Rules of Appellate Procedure by submitting a Compendium of Corporate

Disclosure Statements on June 16, 2014, see Docket Entry 988.

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ii

TABLE OF CONTENTS


TABLE OF AUTHORITIES .................................................................................... iv

COUNTERSTATEMENT OF THE ISSUES ............................................................ 1

STATEMENT OF THE CASE .................................................................................. 1

A.

Factual Background .................................................................... 3

B. Commencement And Litigation of Plaintiffs’ Claims ................ 8

C. Settlement .................................................................................. 13

1.

The Settlement’s Terms .................................................. 14

2.

Bases for Approval ......................................................... 17

SUMMARY OF ARGUMENT ............................................................................... 20

ARGUMENT ........................................................................................................... 24

I. JUDGE GLEESON PROPERLY APPROVED THE CLASSSETTLEMENT. .................................................................................. 26

A. The District Court Did Not Abuse Its DiscretionIn Approving The Settlement.................................................... 26

1.

The Settlement Was Procedurally Fair. .......................... 27

2.

The Settlement Was Substantively Fair In Light OfThe Substantial Legal Defenses Plaintiffs Faced. .......... 28

a.

Plaintiffs Faced Substantial Hurdles InProving A Conspiracy And AnticompetitiveRestraints. ............................................................. 31

b. Even If Plaintiffs Could Establish Liability,It Was Doubtful That They Would ObtainTheir Desired Remedies. ...................................... 39

3. The Settlement Was Substantively Fair In Light Of

The Relief Provided To The Class. ................................ 46

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iii

B. The District Court Did Not Abuse Its Discretion In

Certifying The (b)(2) And (b)(3) Settlement Classes InThis Case, Based On The Specific Facts In This Record. ........ 50

1.

The Non-Opt-Out (b)(2) Class Settlement ProperlyResolved Existing Claims For Injunctive Relief,

Not Those For Existing Monetary Damages. ................. 51

2.

The (b)(2) Class Was Not Improperly Certified ForSettlement Because It Released Claims For FutureLiability Stemming From The Post-SettlementRules. .............................................................................. 56

a.

Dukes Does Not Preclude Certification Of

The 23(b)(2) Settlement Class. ............................ 60

b. Shutts Also Does Not Support TheArgument That The Release RenderedThe (b)(2) Class Improper. ................................... 63

c.

This Court’s Cases Also Do Not Lead ToA Different Outcome. ........................................... 63

II. THE SCOPE OF THE RELEASES PROVIDED BY THE23(b)(2) CLASS IS LAWFUL. ........................................................... 66

A.

The “Identical Factual Predicate” Doctrine PermitsA Broad Release Of Claims. ..................................................... 67

B.

The Releases Here Are Tailored To The “IdenticalFactual Predicate” Doctrine. ..................................................... 68

III. THE COMPETITORS’ OBJECTIONS ARE EQUALLYMERITLESS. ...................................................................................... 72

A.

The Competitors’ Claims, As Competitors, Are NotReleased. ................................................................................... 73

B. Discover’s Group-Boycott Claim Lacks Merit. ........................ 75

CONCLUSION ........................................................................................................ 78

CERTIFICATE OF COMPLIANCE WITH FEDERAL RULE OFAPPELLATE PROCEDURE 32(a) .............................................................. 83

CERTIFICATE OF SERVICE ................................................................................ 84

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iv


Page

CASES

In re Am. Express Merchants’ Litig.,634 F.3d 187 (2d Cir. 2011) ...............................................................................70

In re Am. Int’l Grp., Inc. Sec. Litig.,689 F.3d 229 (2d Cir. 2012) ...................................................................26, 50, 52

Amchem Prods., Inc. v. Windsor ,521 U.S. 591 (1997)......................................................................................49, 65

Armstrong v. Bd. of Sch. Dirs.,616 F.2d 305 (7th Cir. 1980), overruled on other grounds by

Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998) ...............................................72

In re ATM Fee Antitrust Litig.,

554 F. Supp. 2d 1003 (N.D. Cal. 2008)..............................................................34

In re ATM Fee Antitrust Litig ,686 F.3d 741 (9th Cir. 2012), cert. denied sub nom.

Brennan v. Concord, EFS, Inc., 134 S. Ct. 257 (2013) ......................................41

Baby Neal ex rel. Kanter v. Casey,43 F.3d 48 (3d Cir. 1994) ...................................................................................49

Barnes v. Am. Tobacco Co.,161 F.3d 127 (3d Cir. 1998) ...............................................................................53

Bd. of Trade v. United States,246 U.S. 231 (1918)............................................................................................31

Bishop v. Gainer ,272 F.3d 1009 (7th Cir. 2001) ............................................................................55

Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic,65 F.3d 1406 (7th Cir. 1995) ..............................................................................77

Bristol Vill., Inc. v. La.-Pac. Corp.,916 F. Supp. 2d 357 (W.D.N.Y. 2013)...............................................................62

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v

Buffalo Broad. Co. v. ASCAP ,

744 F.2d 917 (2d Cir. 1984) ...............................................................................38

Charron v. Wiener ,731 F.3d 241 (2d Cir. 2013), cert. denied sub nom.

Suarez v. Charron, 134 S. Ct. 1941 (2014) ........................................................64

City of Detroit v. Grinnell Corp.,495 F.2d 448 (2d Cir. 1974), abrogated on other grounds by

Goldberger v. Integrated Res., Inc., 209 F.3d 43 (2d Cir. 2000) .................28, 31

Cnty. of Suffolk v. Long Island Lighting Co.,907 F.2d 1295 (2d Cir. 1990) .............................................................................25

Cooper v. Fed. Reserve Bank of Richmond ,467 U.S. 867 (1984)...................................................................................... 48-49

D’Amato v. Deutsche Bank ,236 F.3d 78 (2d Cir. 2001) .................................................................................27

Gooch v. Life Investors Ins. Co. of Am.,672 F.3d 402 (6th Cir. 2012) ..............................................................................62

Hansberry v. Lee,311 U.S. 32 (1940)..............................................................................................49

Hecht v. United Collection Bureau, Inc.,691 F.3d 218 (2d Cir. 2012) ...............................................................................64

Huyer v. Wells Fargo & Co.,295 F.R.D. 332 (S.D. Iowa 2013).......................................................................62

Ill. Brick Co. v. Illinois,431 U.S. 720 (1977)..................................................................................... passim

Image Technical Servs., Inc. v. Eastman Kodak Co.,125 F.3d 1195 (9th Cir. 1997) ............................................................................45

Joel A. v. Giuliani,

218 F.3d 132 (2d Cir. 2000) ...................................................................24–25, 75

Johnson v. Meriter Health Servs. Emp. Ret. Plan,702 F.3d 364 (7th Cir. 2012) ..............................................................................62

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vi

Kansas v. UtiliCorp United, Inc.,

497 U.S. 199 (1990)......................................................................................40–41

Kartell v. Blue Shield of Mass., Inc.,749 F.2d 922 (1st Cir. 1984)...............................................................................33

Kendall v. Visa U.S.A., Inc.,518 F.3d 1042 (9th Cir. 2008) ............................................................................37

La. High Sch. Athletic Ass’n v. St. Augustine High Sch.,396 F.2d 224 (5th Cir. 1968) ..............................................................................55

Lawlor v. Nat’l Screen Serv. Corp.,349 U.S. 322 (1955)......................................................................................70–71

In re Literary Works in Elec. Databases Copyright Litig.,654 F.3d 242 (2d Cir. 2011) ........................................................................ passim

Marisol A. v. Giuliani,126 F.3d 372 (2d Cir. 1997) .........................................................................53, 54

Marcera v. Chinlund ,595 F.2d 1231 (2d Cir.), vacated on other grounds sub nom.

Lombard v. Marcera, 442 U.S. 915 (1979) ........................................................49

Matsushita Elec. Indus. Co. v. Epstein,516 U.S. 367 (1996)............................................................................................48

In re Nassau Cnty. Strip Search Cases,461 F.3d 219 (2d Cir. 2006) ...............................................................................54

Nat’l Bancard, Inc. (NaBanco) v. VISA U.S.A., Inc.,596 F. Supp. 1231 (S.D. Fla. 1984), aff’d ,779 F.2d 592 (11th Cir. 1986) ..................................................................... passim

Nat’l Bancard, Inc. (NaBanco) v. VISA U.S.A., Inc.,779 F.2d 592 (11th Cir. 1986) .................................................................... passim

Norton v. Sam’s Club,

145 F.3d 114 (2d Cir. 1998) ...............................................................................69

Nottingham Partners v. Trans-Lux Corp.,925 F.2d 29 (1st Cir. 1991)...........................................................................57–58

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vii

N.Y. Cent. R.R. v. White,

243 U.S. 188 (1917)............................................................................................63

Ocean State Physicians Health Plan, Inc. v. Blue Cross &

Blue Shield of R.I., 883 F.2d 1101 (1st Cir. 1989) .............................................77

Ortiz v. Fibreboard Corp.,527 U.S. 815 (1999)............................................................................................65

Parsons v. Ryan,754 F.3d 657 (9th Cir. 2014) ..............................................................................55

Paycom Billing Servs., Inc. v. MasterCard Int’l, Inc.,467 F.3d 283 (2d Cir. 2006) ...............................................................................41

In re Payment Card Interchange Fee & Merchant Disc.

Antitrust Litig., 398 F. Supp. 2d 1356 (J.P.M.L. 2005)........................................9

In re Payment Card Interchange Fee & Merchant Disc.

Antitrust Litig.—Opt Out Cases, No. 1:14-md-1720-JG (E.D.N.Y. July 18, 2014) ...............................................32

Phillips Petroleum Co. v. Shutts,472 U.S. 797 (1985)............................................................................................63

Reyn’s Pasta Bella, LLC v. Visa USA, Inc.,442 F.3d 741 (9th Cir. 2006) ..................................................................13, 71–72

Robertson v. NBA,556 F.2d 682 (2d Cir. 1977) .........................................................................72, 76

Robertson v. NBA,622 F.2d 34 (2d Cir. 1980) ...........................................................................67, 72

Robinson v. Metro-N. Commuter R.R.,267 F.3d 147 (2d Cir. 2001 ), abrogated on other grounds by

Hecht v. United Collection Bureau, Inc.,691 F.3d 218 (2d Cir. 2012) ...................................................................49, 53, 54

San Diego Police Officers’ Ass’n v. San Diego City Emps.’ Ret. Sys.,568 F.3d 725 (9th Cir. 2009) ..............................................................................57

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viii

SEC v. First Jersey Sec., Inc.,

101 F.3d 1450 (2d Cir. 1996) .............................................................................48

Stephenson v. Dow Chem. Co.,273 F.3d 249 (2d Cir. 2001),aff’d in part by an equally divided Court and vacated in part on other

grounds, 539 U.S. 111 (2003) ............................................................................64

Sullivan v. DB Invs., Inc.,667 F.3d 273 (3d Cir. 2011) (en banc) ...............................................................60

Sykes v. Mel Harris & Assocs., LLC ,285 F.R.D. 279(S.D.N.Y. 2012) .........................................................................62

TBK Partners, Ltd. v. W. Union Corp.,675 F.2d 456 (2d Cir. 1982) .........................................................................59, 69

Tennessean Truckstop, Inc. v. NTS, Inc.,875 F.2d 86 (6th Cir. 1989) ................................................................................33

United States v. Am. Express Co., No. 10-cv-4496-NGG (E.D.N.Y. filed Oct. 4, 2010).........................................11

In re Visa/MasterCard Antitrust Litig.,295 F. Supp. 2d 1379 (J.P.M.L. 2003) .................................................................9

Wal-Mart Stores, Inc. v. Dukes,131 S. Ct. 2541 (2011)................................................................................ passim

Wal-Mart Stores, Inc. v. Visa U.S.A. Inc. (In re Visa Check/Mastermoney

Antitrust Litig.), 280 F.3d 124 (2d Cir. 2001),overruled on other grounds, Miles v. Merrill Lynch & Co. (In re

Initial Pub. Offerings Sec. Litig.), 471 F.3d 24 (2d Cir. 2006) ........13, 24, 63–64

Wal-Mart Stores, Inc. v. Visa U.S.A. Inc.,396 F.3d 96 (2d Cir. 2005) .......................................................................... passim

Weinberger v. Kendrick ,698 F.2d 61 (2d Cir. 1982) .....................................................................26, 29–30

West Virginia v. Chas. Pfizer & Co.,440 F.2d 1079 (2d Cir. 1971) .............................................................................30

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ix

Williams v. Gen. Elec. Capital Auto Lease, Inc.,

159 F.3d 266 (7th Cir. 1998) ..............................................................................66

STATUTE

15 U.S.C. § 1693o-2.................................................................................................10

R ULE

Fed. R. Civ. P. 23 .............................................................................................. passim

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1

COUNTERSTATEMENT OF THE ISSUES

Did the District Court abuse its discretion in certifying separate settlement

classes under Rules 23(b)(2) and 23(b)(3) of the Federal Rules of Civil Procedure

and approving as fair, adequate, and reasonable the settlement entered into by

those classes?


Nine years ago, various merchants brought federal antitrust claims against

Visa, MasterCard and various member banks (collectively, Defendants)

challenging as anti-competitive the core structures undergirding the Visa and

MasterCard networks. Those networks permit widespread issuance and acceptance

of bank-issued payment cards, which enhances consumer purchasing power and

increases overall demand for merchant goods and services, while practically

eliminating the risk of non-payment for the millions of merchants who accept Visa

and/or MasterCard.

Facing dispositive motions presenting substantial defenses to their claims,

and facing additional uncertainty regarding their ability to obtain the remedies they

sought even if they prevailed on liability, the Class Plaintiffs settled with

Defendants. The settlement resulted from four years of negotiations, in which

Judge Gleeson, Magistrate Judge Orenstein, and two distinguished mediators

played significant hands-on roles.

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2

The court-approved settlement provides substantial monetary relief—up to

an estimated $7.25 billion (subject to reduction for opt-outs)—to a Rule 23(b)(3)

class that had sought damages for alleged antitrust violations, and going-forward

relief to a Rule 23(b)(2) class. Only the going-forward relief is challenged here.

That relief makes a number of changes to the rules governing the Visa and

MasterCard networks that were sought by plaintiffs. Having agreed to make and

retain these changes to the networks, Defendants asked for, and the Class Plaintiffs

agreed to, “releases cover[ing] claims that are or could have been alleged in this

case,” SPA44, releases that protect Defendants against endless litigation about the

lawfulness of the networks’ rules to which plaintiffs had agreed. The court

explained that “[i]n exchange for a new, going-forward rules structure, the

defendants are entitled to bargain for and receive releases of claims that are or

could have been alleged based on the identical factual predicate of the claims in

this case,” and stated “[t]hat is all these releases accomplish.” SPA45–SPA46.

Given the strength of Defendants’ legal and evidentiary hand, the possibility

that the court would uphold the lawfulness of the networks as they existed at the

time of the settlement was far more than theoretical—a point underscored by the

court-appointed expert. After balancing the substantial monetary and injunctive

relief provided in the settlement against plaintiffs’ likelihood of success in the

litigation, the District Court properly concluded that the settlement was just, fair,

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3

and reasonable, and approved it. The result of that ruling is peace from further

challenges to the existing rules of the Visa and MasterCard networks, which were

the subject of the litigation, as modified pursuant to settlement. As explained

below, Objectors show no error in the District Court’s approval of the settlement,

much less an abuse of discretion. The judgment should be affirmed.

A. Factual Background

Consumers take for granted that a merchant in the Visa and MasterCard

networks will accept all versions of those cards as payment for the merchant’s

goods or services. It does not matter which bank issues the consumer’s Visa- or

MasterCard-branded card, and it does not matter which particular card issued by

that bank (e.g., cards earning miles, or cards offered to individuals just starting to

build their credit history) the consumer uses. This is so because the Visa and

MasterCard networks have been structured to ensure widespread acceptance,

which benefits consumers and merchants.

Visa’s and MasterCard’s networks are built to complete a complex multi-

party transaction with no friction. As illustrated below, a typical transaction on the

Visa or MasterCard network involves five participants: cardholder, merchant, card

issuer (usually a bank), acquirer (which, again, is usually a bank, and which

contracts with the merchant and pays it promptly following a transaction), and the

payment card network itself. See SPA7

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4

McCormack Rep. ¶ 17, fig.4 (lodged with D.E. 2088).

When a consumer swipes a card or enters card information for online

purchases, the merchant collects the payment-card information and sends the

details of the transaction to the merchant’s bank (the “acquiring bank”), which then

forwards that information to the appropriate network. SPA7. The network, in turn,

relays the transaction data to the bank that issued the customer’s card (the “issuing

bank”), which confirms, among other things, that the customer has sufficient credit

(or sufficient funds in the debit card context) to cover the purchase. Id. If all is in

order, the issuing bank so advises the acquiring bank, which transmits that

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5

confirmation to the merchant and the sale of the merchant’s goods or services is

completed. Id. The entire approval process takes a few seconds.

That instantaneity has made the card system enormously successful with

consumers and merchants alike. Consumers benefit from quick payment times and

the ease of making purchases freed from the limitations of available cash-on-hand.

See, e.g., K. Murphy Rep. ¶¶ 254, 113 (lodged with D.E.2088). Merchants benefit

from a consuming public with ready access to funds, promoting larger purchasing

volume—volume which might shrink if customers had to endure a substantial wait

for transactions to clear. See, e.g., id. ¶¶ 80–86, 113 & n.126, 255, 273–293;

D.E.1550 ¶¶ 186–187. The card system also enables on-line purchases, where use

of cash or checks is not possible. K. Murphy Rep. ¶ 254.

Merchants not only reap enhanced sales volume through the payment card

networks, they also receive payment without having to wait for cardholders to pay

their bills to banks, and without incurring risk of payment default if cardholders

fail to do so. That is because after each consumer transaction, the merchant’s

acquiring bank promptly pays the merchant, pursuant to an agreement between the

merchant and the acquiring bank.1

Typically, the acquirer deducts a fee, known as

the “merchant discount fee,” from the face amount of the transactions as payment

for its services and expenses. SPA7–SPA8.

1The acquiring market is highly competitive and contractual agreements between

merchants and acquirers vary widely.

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6

In connection with the acquiring bank’s payment to the merchant, the

acquiring bank also receives a payment from the issuing bank (via the Visa or

MasterCard network) with respect to the transaction. SPA7; D.E.1478-4 ¶ 11.

That leaves the issuing bank with the right to demand payment from the consumer.

T. Murphy Decl. ¶ 11 (lodged with D.E.2088). That right comes with a delay in

receiving any payment and a risk of default by the consumer. D.E.1550 ¶ 168.

Generally, the issuing bank cannot return to the acquiring bank and demand

compensation if the cardholder fails to pay, nor may the acquiring bank turn to the

merchant. Indeed, the issuing bank must pledge to pay for charges incurred on its

cards as a condition of joining the Visa or MasterCard network. D.E.1478-4 ¶ 12.

Just as the acquiring bank deducts a fee from its payment to the merchant,

each issuing bank deducts a fee from its payment to the acquiring bank (i.e., the

issuer pays the acquiring bank less than the full price the merchant charged the

consumer). That fee is known as the interchange fee, SPA7, and addresses, among

other things, the cost of services an issuer performs and risks it assumes. See

D.E.1478-4 ¶ 12; D.E.1550 ¶ 157. Any particular acquiring bank and particular

issuing bank are free to reach separately negotiated agreements governing

compensation, whether generally or with respect to a particular merchant client of

the acquiring bank. See SPA7–SPA10; SPA16; D.E.1550 ¶¶ 181–187. To

promote efficiency, however, each network sets a schedule establishing the

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7

“default” interchange fees that will govern transactions processed over the network

in the absence of a separately negotiated agreement between the acquiring and

issuing banks. SPA7–SPA10; SPA16; D.E.1550 ¶¶ 181–187.

Default interchange rules enable the networks to operate seamlessly by

eliminating the need for each of thousands of issuers and acquirers to negotiate

appropriate interchange fees for every possible combination of merchant,

transaction value, and specific card product (e.g., Chase Freedom, Chase Sapphire

Preferred, Chase Slate, and so on). D.E.1550 ¶ 181; SPA29–SPA30. Such

individualized negotiations would entail substantial transaction costs and would

likely inhibit merchants’ ability to accept all versions of the Visa- and MasterCard-

branded cards. Moreover, by providing a default interchange fee, a network

prevents the possibility of negotiation impasse or “hold-up”— e.g., a particular

issuer that declines to accept transactions forwarded by an acquiring bank from a

particular merchant absent receipt of a much higher fee.

Other network rules also ensure the widespread acceptance of cards. For

example, the “Honor-all-Cards” rule “require[s] merchants to accept all the

network’s credit cards . . . when proffered for payment, regardless of which bank

issued the card.” SPA19. This rule ensures that the Visa network, for instance,

functions as a Visa network. Customers can purchase secure in the knowledge that

their particular Visa card will be accepted wherever any Visa card is welcome.

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SPA31–SPA32. The rule also assures issuers that all cards carrying a particular

network’s mark will be accepted on an equal basis. Honor-all-Cards thus parallels

the rule requiring issuing banks to accept payment obligations passed to them from

merchants through the acquiring bank. Just as an issuing bank must honor all

payment obligations for cardholder purchases made over a network, so, too, must a

merchant honor all network-branded cards presented to it. D.E.1478-4 ¶ 12; see

D.E.5965 at 14–15 (report of court-appointed expert Dr. Sykes). As the District

Court found, the Honor-all-Cards and default interchange rules are “closely

interrelated,” “lay at the heart of Visa’s and MasterCard’s efforts to build the

successful networks they now have,” and “undeniably have significant

procompetitive effects.” SPA16; SPA31.

Finally, as yet another means of assuring uniform acceptance and a reliable

customer experience, Visa and MasterCard each have maintained a “no-surcharge”

rule. See SPA9; SPA18; D.E.1478-4 ¶¶ 26–27, 30–31. Absent restrictions on

surcharging, for example, an “Honor-all-Cards” rule could be undermined, as a

given merchant could impose an exorbitant surcharge on a given card, rather than

refusing it outright. K. Murphy Rep. ¶ 134; see id. ¶¶ 130–134.

B. Commencement And Litigation of Plaintiffs’ Claims

No American court has ever found these practices anticompetitive. SPA30.

In fact, a previous challenge to interchange was tried before a federal district judge

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9

and rejected, and the Eleventh Circuit affirmed the judgment. See Nat’l Bancard,

Corp. (NaBanco) v. VISA U.S.A., Inc., 596 F. Supp. 1231 (S.D. Fla. 1984), aff’d ,

779 F.2d 592 (11th Cir. 1986). Nevertheless, merchants and affiliated trade

organizations sued to challenge Visa’s and MasterCard’s interchange-related rules

and structures. The actions relevant to this appeal were filed beginning in June

2005 and later amended after consolidation before Judge Gleeson. SPA18.2

From

the outset, plaintiffs sought to present their antitrust claims via two discrete classes:

a Rule 23(b)(3) class “seek[ing] damages only,” and a Rule 23(b)(2) class

“seek[ing] declaratory and injunctive relief only.” D.E.317 ¶ 97(a)–(b)

(complaint). Both putative classes asserted that Defendants conspired to fix

interchange fees. SPA6. Plaintiffs’ allegations focused on the three sets of

network rules discussed above: (i) default interchange, (ii) Honor-all-Cards, and

(iii) no-surcharge and other alleged “anti-steering” rules. See SPA8–SPA9;

SPA18–SPA19. The putative (b)(3) class sought damages to compensate

2The Judicial Panel on Multidistrict Litigation assigned these actions to Judge

Gleeson. In re Payment Card Interchange Fee & Merchant Discount Antitrust

Litig., 398 F. Supp. 2d 1356, 1358 (J.P.M.L. 2005) (MDL-1720). They followedyears of class and opt-out litigation before Judge Gleeson by retailers concerningthe networks’ “Honor-all-Cards” rules, particularly as applied to acceptance ofdebit cards, and default interchange rules. See id. (discussing Judge Gleeson’s“familiar[ity] with the operation of the credit card networks”); In re

Visa/MasterCard Antitrust Litig., 295 F. Supp. 2d 1379, 1380–81 (J.P.M.L. 2003)(assigning MDL-1575 to Judge Gleeson who “has become thoroughly familiarwith the allegations . . . as a result of his seven year involvement with the NewYork class action litigation”).

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merchants for allegedly inflated default interchange rates in the past, and the

putative (b)(2) class sought injunctive relief to revise the Visa and MasterCard

networks going forward.

During the pendency of these actions, there were significant changes to

Visa’s and MasterCard’s corporate structures and businesses. See SPA10; SPA17–

SPA19. First, MasterCard and Visa completed IPOs in 2006 and 2008,

respectively, which fundamentally changed their organizational structures. At the

time of the initial complaints, Visa and MasterCard were bankcard associations

comprised of member banks, which plaintiffs claimed were therefore “structural

conspiracies.” SPA19; D.E.317 ¶¶ 131–135. Through its IPO, each network

became a standalone “publicly traded compan[y] with no bank governance.”

SPA10. Unable to rely on their former “structural conspiracy” allegations,

Plaintiffs filed amended complaints in January 2009 insisting that the networks still

functioned as conspiracies among the banks and Visa or MasterCard.3

Second, the Durbin Amendment in the Dodd-Frank legislation, see 15

U.S.C. § 1693o-2(b)(3)(A)(i), modified the networks’ “no minimum purchase”

rules and discounting rules to allow merchants greater ability to steer consumers

away from using credit cards. SPA10 & n.6; SPA17.

3See D.E.1170-4 ¶¶ 10, 147–162; D.E.1170-2 ¶¶ 8, 135–150; D.E.1170-3 ¶¶ 261–

270, 429–442, 444.

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Third, through consent decrees entered in 2011 to resolve targeted antitrust

suits brought by the U.S. Department of Justice (DOJ), Visa and MasterCard

agreed to modify various rules. See SPA 10, SPA17.4

Visa’s and MasterCard’s

modifications of their “no discounting” and “non-discrimination” rules broadened

merchants’ discretion to offer discounts and other incentives for a range of

alternative types of payment, including for using other credit card brands or debit

cards, and to encourage customers to use other forms of payment. See SPA10.

Alongside these developments, the parties vigorously litigated this case.

They disputed, inter alia, whether the default interchange, Honor-all-Cards, and

no-surcharge rules were necessary to produce the procompetitive efficiencies that

each network indisputably generated. Eventually, Dr. Alan O. Sykes of the New

York University School of Law—whom Judge Gleeson appointed pursuant to

Federal Rule of Evidence 706 to advise the court on economic issues—concluded

that “plaintiffs face a substantial probability of failure in efforts to establish that the

core practices that would remain in place after the proposed settlement violate the

antitrust laws.” D.E.5965 at 22–23. The parties further disputed whether there

was no antitrust conspiracy as a matter of law post-IPOs.

4The government also brought suit against American Express. See United States

v. Am. Express Co., 10-cv-4496-NGG (E.D.N.Y. filed Oct. 4, 2010). Closingarguments in a bench trial were held on October 9, 2014.

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The parties also engaged in wide-ranging expert discovery, and the experts

sparred over what the “but-for” world would have looked like without the

challenged practices, including absent any default interchange fee. As Dr. Sykes

later observed: “To the best of my knowledge, no general purpose (non-debit) card

network of any consequence has ever operated without significant interchange fees

(or substantial merchant fees in a three-party network).” D.E.5965 at 19.

Plaintiffs’ experts argued that the MasterCard and Visa networks could “survive”

with zero interchange and hypothesized a “but-for” world designed to produce

such a result. In that imagined (and improbable) world, issuers would be required ,

by the networks’ rules, to accept all merchant transactions from acquirers and

required to pay acquirers the full amount of the merchant transaction without

receiving any compensation from acquiring banks or their merchants, not even for

the very real risk of non-payment by the consumer. But, as Professor Sykes later

advised the District Court, “survival” is not an antitrust standard, and plaintiffs’

experts failed to show that a “zero interchange” competitive equilibrium would

ever realistically emerge, even with hypothesized changes in the networks’ rules.

See id. at 18, 21–24.

By 2011, many issues were fully briefed and awaiting rulings, including

cross-motions for summary judgment, Defendants’ motions challenging the

admissibility of plaintiffs’ experts’ opinions, and Defendants’ opposition to

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13

plaintiffs’ motion for class certification. See, e.g., SPA10. Judge Gleeson held

these motions in abeyance pending the outcome of the parties’ settlement

discussions. SPA11 & n.9.

C. Settlement

Even as they were aggressively litigating, starting in 2008 the parties made

efforts—assisted by mediators, Magistrate Judge Orenstein and Judge Gleeson—to

settle their disputes. See SPA11–SPA12. Settlement efforts intensified in late

2011. Id. The parties sought a final resolution of their ongoing disputes regarding

the legitimacy of the networks’ respective interchange fee rules and other

challenged rules. After all, Visa and MasterCard had earlier settled the class action

in In re Visa Check/MasterMoney Antitrust Litigation, which had likewise

challenged, inter alia, “Honor-all-Cards” and default interchange, only to find

themselves embroiled in a new class action making the same claims almost

immediately thereafter.5

Defendants had no desire to continue litigating these

same issues about rules that Visa and MasterCard each perceived as central to their

5See, e.g., Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96 (2d Cir. 2005)

(“Wal-Mart II ”) (class settlement); Wal-Mart Stores v. Visa U.S.A. Inc. (In re Visa

Check/Mastermoney Antitrust Litig.), 280 F.3d 124 (2d Cir. 2001) (“Wal-Mart I ”)

(class certification), overruled on other grounds, Miles v. Merrill Lynch & Co. (Inre Initial Pub. Offerings Sec. Litig.), 471 F.3d 24 (2d Cir. 2006); Reyn’s Pasta

Bella, LLC v. Visa USA, Inc., 442 F.3d 741 (9th Cir. 2006) (effect of Wal-Mart II

settlement and release).

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14

operations. And plaintiffs viewed settlement as an opportunity to obtain otherwise

uncertain relief and change the complexion of network rules. See SPA11.

Despite the difficult and contentious issues involved and the evolving

litigation landscape, the parties reached a settlement in summer 2012. SPA12.

Judge Gleeson granted preliminary approval in November 2012 and provisionally

certified separate settlement classes for each of the two putative classes asserted by

Plaintiffs: one under Rule 23(b)(2) (asserting claims for injunctive relief) and one

under Rule 23(b)(3) (asserting claims for damages). After exhaustive approval-

related proceedings, Judge Gleeson granted final approval to the settlement in

December 2013.

1. The Settlement’s Terms

In the settlement with the (b)(3) class, Defendants agreed to make monetary

payments to class members valued at up to approximately $7.25 billion (before

reductions for opt-outs), primarily for releasing their claims for monetary damages

that had accrued up to the date of preliminary approval. SPA13. This fund

represents “the largest-ever cash settlement in an antitrust class action.” SPA35.

The (b)(3) class permits opt-outs because it sought only damages for past conduct.

In the settlement with the (b)(2) class, Defendants agreed to a package of

relief that modified the networks’ respective rules prospectively from the date of

preliminary approval and ensured the continuity of certain changes that occurred

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15

during this litigation. The (b)(2) class settlement makes material rules

modifications sought by plaintiffs, including significant changes to the alleged

“anti-steering” rules. This going-forward relief was provided in connection with a

non-opt out (b)(2) class because it involves uniform, across-the-board prescriptions

for each network’s operation; the network rules themselves have always been and

must be consistent with respect to all merchants. For that reason as well, the (b)(2)

class was defined to include both existing and future merchants. SPA118 ¶ 2(b).

First , Visa and MasterCard agreed to allow merchants to surcharge on Visa-

or MasterCard-branded credit card transactions at the brand level (i.e., all Visa or

all MasterCard transactions) and product level (e.g., all “Visa Signature”

transactions). SPA13. Merchants thus won the ability to pass their card

acceptance costs on directly to their customers.

Second , the settlement “lock[s]-in” the Durbin Amendment’s minimum-

purchase and discounting provisions and those in the consent decree with the DOJ.

Id. Defendants agreed to continue to abide by those requirements, regardless of

legislative, judicial, or other developments that would otherwise dissolve them.

See id.

Third , the settlement makes clear that merchants who operate different

businesses under different “banners” or “trade names” can accept Visa- and

MasterCard-branded cards at some of those businesses but not others. Id.

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16

Fourth, the settlement obligates Visa and MasterCard to negotiate in good

faith with groups of merchants that wish to negotiate with the networks

collectively rather than one-on-one. Id.

The District Court concluded that the settlement

preserves the integrity of the rules that made (and continue tomake) the networks successful. At the same time, by furtherrelaxing merchant restraints regarding pricing, it provides fortransparency and competition at the point of sale. Merchantswho choose to use the power the proposed rules changes give

them will be able to exercise control over (and perhaps reduce)their costs from accepting Visa and MasterCard credit cards.

SPA32.

In exchange for the agreement to modify or eliminate these existing

practices, the (b)(2) class agreed to permit on a going-forward basis certain other

conduct that had been the subject of the claims for injunctive relief. SPA118

¶ 2(b). Additionally, the (b)(3) and (b)(2) classes agreed to release “claims that are

or could have been alleged in this case.” SPA44; see SPA134–SPA136 ¶ 33

((b)(3) class release); SPA169–172 ¶ 68 ((b)(2) release). As the District Court

explained, “[i]n exchange for a new, going-forward rules structure,” Defendants

“bargain[ed] for and receive[d] releases of claims that are or could have been

alleged based on the [‘]identical factual predicate[’] of the claims in this case.”

SPA45–SPA46. The provisions “do not release the defendants from liability for

claims based on new rules or new conduct or a reversion to the pre-settlement

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rules.” SPA46. Similarly, while Defendants must adhere to the agreed-upon rules

modifications until 2021, see, e.g., SPA84 & SPA87 ¶ 13(a)–(b) & (k)–(m);

SPA151 ¶ 45; SPA164 ¶ 58, if they enact rules that are not “substantially similar”

to those agreed-upon provisions, the releases would not apply to those provisions,

see SPA82 ¶ 12(c)(vii), SPA88 ¶ 16(b)(vii).6

2. Bases for Approval

“Only .05%” of the “approximately 12 million merchants compri[sing] the

class” objected to the settlement. SPA23. As the District Court observed, 90% of

the objections were submitted on boilerplate forms downloaded from websites that

“disseminated false and misleading information for the precise purpose of

drumming up objections and opt-outs.” Id. A number of legitimate objectors,

however, argued that the settlement was procedurally and substantively

unreasonable. SPA13-SPA14; see SPA34–SPA47 (discussing objections).

After extensive approval-related proceedings, see SPA14, SPA7, Judge

Gleeson issued a lengthy opinion approving the settlement. SPA1–SPA55. The

court found that the settlement “secures both a significant damage award and

meaningful injunctive relief for a class of merchants that would face a substantial

likelihood of securing no relief at all if this case were to proceed.” SPA15; accord

6Compare Merchant Appellants’ (hereinafter “Merchants”) Br. 8 (alleging that the

settlement “prevents merchants . . . from challenging anticompetitive conduct forever ”).

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D.E.5965 at 3 (Sykes). The court highlighted three significant sources of risk with

respect to liability and to the relief plaintiffs requested. SPA15–SPA16; SPA25–

SPA32.

First , Judge Gleeson concluded that the networks’ IPOs would undermine

plaintiffs’ ability to prove “part of the ‘core conduct’ [they] sought to address,”

namely that “‘Visa and MasterCard member banks [. . .] effectively control the

decisions of both Networks’ by setting rules and interchange fees for the networks

to serve their collective interest.” SPA28 (quoting complaint) (second alteration in

original). The networks’ restructurings, the court explained, brought them “out

from under the control of their member banks,” which “strengthened the

defendants’ argument” that the setting of interchange fees was a unilateral network

activity, not the result of some structural or “walking” conspiracy. Id.

Second , the court was skeptical that plaintiffs could prove the unlawfulness

of the networks’ rules and practices—particularly default interchange and the

Honor-all-Cards rule. SPA16; SPA28–SPA32. Default interchange, Judge

Gleeson concluded, “played an essential role in the construction of the networks at

issue here, and those networks provide substantial benefit to both merchants and

consumers.” SPA30. Without default interchange, network participants would

need to execute countless bilateral agreements regarding unique interchange rates,

which would inflate costs and impair the now seamless system. See SPA29–

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SPA30; D.E.1550 ¶ 181. As the District Court noted, courts, economists and

practitioners have agreed that “the Honor-all-Cards rule and similar rules [are]

procompetitive under the Rule of Reason.” SPA31. Quoting the public remarks of

Objectors’ lead counsel below, the District Court explained that such rules

represent:

“a classic example of a restraint that was actuallynecessary for the functioning of the joint venture. . . .We all take it for granted, but you needed to have a rule

that ensured to you, as a consumer, that when you profferthe Visa card, the merchant is going to take it. It’s notgoing to say, ‘I’ll take a Chase Visa card, but I don’t likeCitibank, so I’m going to turn that one down.’”

SPA32 (quoting Panel Discussion II: Consumer Issues at 5–6 (Statement of Jeffrey

Shinder) (Fordham Univ. Sch. of Law 2008) (reproduced at D.E.5939-3)).

Those procompetitive effects, together with “DOJ’s recent decision not to

challenge the default interchange rules despite the entreaties by Class Counsel that

it do so . . . further sugges[t] that the plaintiffs’ antitrust challenge to the rules

could easily fail.” SPA30.

Third , even if plaintiffs were able to establish an unlawful agreement with

predominantly anticompetitive effects, the court concluded that plaintiffs faced

significant risks as to the relief they sought. For instance, the District Court

recognized that there was a compelling argument that Illinois Brick Co. v. Illinois,

431 U.S. 720 (1977), barred the (b)(3) class’s ability to recover damages and

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20

would foreclose any future claims for monetary relief related to the interchange

system. See SPA27–SPA28 & n.15.

Additionally, even if Illinois Brick did not extinguish damages entirely, the

court doubted that plaintiffs could fully overcome the “problems and complexities

inherent in proving damages to the jury,” SPA32, particularly because—as the

court-appointed expert concluded—plaintiffs lacked a model demonstrating what

the payment card market would look like in the absence of the challenged rules.

SPA33.

Furthermore, the court recognized that plaintiffs faced additional hurdles as

to the injunctive relief they pursued. It explained that many of plaintiffs’

requests—such as judicial regulation of interchange fees—were simply outside the

power of the federal judiciary. SPA14; SPA17.

After weighing all of the foregoing, the District Court approved the

settlement on December 13, 2013, and Objectors timely appealed.

SUMMARY OF ARGUMENT

The District Court acted well within its discretion in certifying two

settlement classes, one pursuant to Rule 23(b)(2) and one pursuant to Rule

23(b)(3), and in approving the settlement. Appellants challenge the judgment on

essentially two fronts. They assert that the (b)(2) class obtained relief that was

inadequate in light of the purported strength of the Class’s claims, and that Judge

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21

Gleeson violated Rule 23 and absent class members’ due process rights by

approving both the non-opt-out (b)(2) settlement class and the release provided by

that class settlement. In addition, several of the networks’ competitors raise a

series of narrow objections. None of these arguments has merit or demonstrates an

abuse of discretion.

I. A class-action settlement must be fair, adequate, reasonable, and not the

product of collusion between the parties. Here, an irreproachable settlement

process yielded a settlement that was fair, adequate, and reasonable, in all respects.

Both settlement classes received substantial relief. The Rule 23(b)(3) class

obtained monetary relief valued at more than $7 billion (before reductions for opt-

outs), the sufficiency of which Objectors do not challenge here. The modifications

to the networks’ rules secured by the (b)(2) class were likewise more than

adequate, especially in light of the serious litigation risks confronting plaintiffs.

Those risks were daunting. Any hope of the (b)(2) class to obtain going-

forward relief was clouded by the IPOs, which eliminated the argument that the

networks were structural conspiracies, left the banks with no control over the

networks’ policies at issue, and undercut plaintiffs’ ability to demonstrate the

threshold antitrust requirement of an “agreement.” Moreover, as the District Court

recognized, the challenged network rules have significant procompetitive features,

and thus the class faced substantial obstacles in showing that they were unlawful.

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Default interchange streamlines card acceptance and eliminates the need for

separate, bilateral negotiations over the interchange fee schedule. Honor-all-Cards

is an indispensable element of the seamless payment experience that has driven the

expansion of cardholding, card usage, and merchant sales. Plaintiffs had not

shown that a credit-card system could survive, much less flourish, without the

challenged network rules. Yet, such a showing was essential to establishing that

the challenged rules were unlawful restraints.

Plus, if plaintiffs somehow prevailed on liability, they faced an equally

onerous task at the remedies phase. Because merchants do not directly pay

interchange fees—acquiring banks do—plaintiffs faced the significant risk that

Illinois Brick bars any past or future damages claims. And, if damages were not

entirely precluded, plaintiffs still faced a grave risk, as the District Court and the

court-appointed expert observed, that they would not recover substantial sums,

because plaintiffs’ damages model rested on an implausible “but-for” world. As to

injunctive relief, the District Court explained that plaintiffs’ demand for a

wholesale reshaping of the payment card networks was more than a federal court

could provide, especially given changes to the networks that occurred during the

litigation. Given the many weaknesses in plaintiffs’ case, the relief afforded was

more than fair.

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The District Court also did not abuse its discretion in certifying a mandatory,

non-opt-out (b)(2) settlement class here. Contrary to Objectors’ contentions, the

proper focus of the certification inquiry is on the claims presented and pursued by

the class, not on the relief ultimately obtained or the issues compromised by the

class in exchange for that relief. Here, a putative (b)(2) class had been, since the

filing of the first class complaint, challenging the lawfulness of core network rules.

Those rules applied to the class on the whole.

As a consequence, it was entirely proper under both Rule 23 and the Due

Process Clause that the (b)(2) settlement class agreed to release its ability to

challenge—whether in a damages action or one for injunctive relief—the

lawfulness of the post-settlement network rules. Such concessions must be within

the power of a (b)(2) settlement class, otherwise defendants could not enter

meaningful Rule 23(b)(2) settlements. Without such a release, whatever remedies

Defendants agreed to, and whatever changes they agreed to adopt, would be

subject to a new round of legal challenges by the same group of plaintiffs the

moment the settlement was approved. “Settlements” would settle nothing. There

is no reason to treat cases involving a non-opt-out settlement class as immune from

a negotiated conclusion.

II. The releases here were proper because they simply reflect the boundaries

of the “identical factual predicate” doctrine. The releases do nothing more than

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24

release the claims that were, or could have been, asserted on the factual predicate

underlying this action. That is what the settlement agreement says, what counsel

represented to the District Court, and the basis of the court’s approval decision. Of

course, as Judge Gleeson recognized, there may be cases in which it is not

immediately clear whether particular claims fall within or without the scope of

these releases. But future courts can examine the actual claims raised and facts

alleged in such future cases to determine whether the release bars them.

III. Finally, the claims raised by competitors American Express, First Data,

and Discover are unavailing. Their principal concern—that the settlement releases

claims they may hold in their capacities as competitors to Visa and MasterCard —

is belied by the text and context of the agreement. Discover also asserts that the

settlement enshrines an unlawful group boycott against it as a competing network,

but that novel claim cannot meet the standard for showing that a settlement violates

the antitrust laws.

ARGUMENT

This Court reviews the approval of a class settlement—including the

decision to certify the settlement classes—for abuse of discretion. Wal-Mart I , 280

F.3d at 132; Joel A. v. Giuliani, 218 F.3d 132, 139 (2d Cir. 2000). “The trial

judge’s views are accorded ‘great weight . . . because he is exposed to the litigants,

and their strategies, positions and proofs. . . . Simply stated, he is on the firing line

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25

and can evaluate the action accordingly.’” Joel A., 218 F.3d at 139 (alterations in

original) (quoting City of Detroit v. Grinnell Corp., 495 F.2d 448, 454 (2d Cir.

1974)); accord Wal-Mart II , 396 F.3d at 117; Cnty. of Suffolk v. Long Island

Lighting Co., 907 F.2d 1295, 1323 (2d Cir. 1990). Moreover, “[this] considerable

deference . . . is heightened where the trial judge’s experience has imparted to the

judge a particularly high degree of knowledge.” Joel A., 218 F.3d at 139.

This case is the archetype for applying “heightened” deference. Judge

Gleeson has spent 16 years on the interchange “firing line”—eight during this

litigation and another eight courtesy of earlier actions between various merchant-

plaintiffs and the network defendants. See supra at 9 n.2, 13–14 & n.5.

Regardless of the degree of deference, however, the result here would be the

same. A painstaking, arms-length settlement process negotiated while the parties

vigorously litigated the fundamental issues raised by plaintiffs’ claims produced a

deal that provides meaningful backward- and forward-looking relief for plaintiffs

and is a fair compromise in all respects. Despite Objectors’ mountain of briefing,

they fail to raise any serious question regarding Judge Gleeson’s evaluation of the

propriety of the settlement classes or the procedural or substantive fairness of the

settlement. The judgment should be affirmed.

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26

I. JUDGE GLEESON PROPERLY APPROVED THE CLASS

SETTLEMENT.

Before a court may approve any class settlement, it must determine (1) that

the settlement is fair, adequate, reasonable, and not a product of collusion, per Rule

23(e); and (2) that the requirements of Rule 23(a) and (b) have been met. In re Am.

Int’l Grp., Inc. Sec. Litig., 689 F.3d 229, 239 & n.8 (2d Cir. 2012) (“ AIG”). These

requirements were satisfied here.

A. The District Court Did Not Abuse Its Discretion In ApprovingThe Settlement.

“The central question raised by the proposed settlement of a class action is

whether the compromise is fair, reasonable and adequate.” Weinberger v.

Kendrick , 698 F.2d 61, 73 (2d Cir. 1982). That inquiry requires evaluating “both

the settlement’s terms and the negotiating process leading to settlement.” Wal-

Mart II , 396 F.3d at 116. “A ‘presumption of fairness, adequacy, and

reasonableness may attach to a class settlement reached in arm’s-length

negotiations between experienced, capable counsel after meaningful discovery.’”

Id.

The settlement process here was unimpeachable. As such, the agreement is

presumptively valid. But even absent that deference, the record confirms that the

settlement was more than appropriate in every respect, and the judgment should

therefore be affirmed.

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27

1. The Settlement Was Procedurally Fair.

The parties were represented by a host of “experienced and able” class-

action counsel, SPA21, who “litigated the case full-throttle” even during the

pendency of settlement talks, SPA11. Discovery was not merely “‘meaningful,’”

Wal-Mart II , 396 F.3d at 116, but exhaustive and completed before settlement.

The parties produced tens of millions of documents and took hundreds of fact and

expert depositions. Summary judgment motions were awaiting decision and all

litigants were well-positioned to appreciate the strengths and weaknesses of their

(and their opponents’) positions. SPA10–SPA11; SPA16. The District Court

found that the parties’ talks were “fair and conducted at arm’s length” and rejected

Objectors’ suggestion that there was an “indicat[ion of] collusion.” SPA21.

Moreover, four third-party neutrals facilitated negotiations—two highly respected

outside mediators (former U.S. Magistrate Judge Edward Infante and Professor

Eric Green) and, in the later stages, Magistrate Judge Orenstein and Judge Gleeson.

See id.; SPA11 & n.9; see also D’Amato v. Deutsche Bank , 236 F.3d 78, 85 (2d

Cir. 2001) (“[A] court-appointed mediator’s involvement in pre-certification

settlement negotiations helps to ensure that the proceedings were free of collusion

and undue pressure.”).

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28

Because the process was fair and collusion-free, the resulting agreement is

presumed to be fair, adequate, and reasonable. Wal-Mart II , 396 F.3d at 116.

Nothing in the record or the briefing on appeal upsets that presumption.

2. The Settlement Was Substantively Fair In Light Of The

Substantial Legal Defenses Plaintiffs Faced.

While Defendants agree with and therefore join the Class Plaintiffs’

substantive-fairness arguments, see Class Br. § II, we write to underscore the

reasonableness of the settlement’s terms in light of the significant litigation risks

the Classes would have faced if (as Objectors wish) they had spurned settlement.

See Grinnell , 495 F.2d at 463 (requiring court to consider litigation risk, among

other factors, in evaluating the fairness of a settlement); SPA20.

Everyone but Objectors recognizes that the Class Plaintiffs’ position at the

moment of settlement was precarious. The viability of their core challenges to

default interchange and Honor-all-Cards—already highly doubtful under the Rule

of Reason, even for the period that the networks remained nonpublic bankcard

associations—had further weakened after the Visa and MasterCard IPOs. And

even assuming, arguendo, some antitrust violation could be shown, the merchants

had little chance of securing the relief they sought. Between Illinois Brick , a

serious Daubert challenge to their principal expert on antitrust injury, the lack of a

plausible vision for a functional payment-card market without the challenged rules,

and difficulties in persuading a jury to award billions in damages here, plaintiffs

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29

stood little chance of securing a substantial award. Plaintiffs also were unlikely to

obtain the “sweeping” injunctive relief they had demanded—including, among

other things, invalidation of Honor-all-Cards and the resetting of default

interchange to some indeterminate level between zero and its current levels—due

to the inherent limitations on the federal courts’ power to regulate the marketplace.

See SPA14; SPA17.

Plaintiffs faced serious odds of complete failure, and counsel who actively

litigate are in the best position to understand the risks. On appeal, however,

Objectors ignore those risks. The lead brief—the Merchants’ Brief—barely

addresses litigation risk. It first mentions the case’s merits on page 78, but fails to

address the procompetitive effects of the challenged rules, the IPOs, or plaintiffs’

risks at the remedies phase. Compare SPA20–SPA36. The Merchant Trade

Groups pay marginally more attention to the merits, see Br. § II, but never

reconcile their optimism about the likelihood of success with Judge Gleeson’s

findings or the record. See id. at 50 (asserting, without analysis, that the plaintiffs’

“‘best possible recovery’” was total elimination of Honor-all-Cards, default

interchange, and the no-surcharge rules) (quoting Grinnell , 495 F.2d 463). To the

extent Objectors are suggesting that a court reviewing a settlement should ignore

the substantial weaknesses in plaintiffs’ claims—that a settlement should be

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30

viewed as if plaintiffs were highly likely to prevail in full—they are wrong as a

matter of law. See Weinberger , 698 F.2d at 73–74.

Objectors also erroneously suggest that the District Court had to fully

adjudicate plaintiffs’ claims, faulting Judge Gleeson for (among other things) not

resolving whether the networks possess market power. See, e.g., Merchant Trade

Groups’ Br. 38 (charging that the District Court “skipp[ed] the first two parts in the

antitrust analysis”); id. at 39–41, 46. In fact, “[t]he district court [need] not

determine the validity of the [plaintiffs’] claim . . . . The very purpose of a

compromise is to avoid the determination of sharply contested and dubious issues

. . . . ” West Virginia v. Chas. Pfizer & Co., 440 F.2d 1079, 1086 (2d Cir. 1971)

(citing In re Prudence Co., 98 F.2d 559, 560 (2d Cir. 1938)); id. at 1085. As a

consequence, it is unremarkable that the District Court devoted its risk assessment

to the points discussed below and did not dwell on market power (though, it made

clear that it was aware of the issue, SPA26 n.14).

The District Court conducted the requisite realistic assessment of the

prospects of further litigation. See SPA14–SPA19; SPA25–SPA36. Having done

so, it fully understood the obstacles facing plaintiffs, including plaintiffs’ inability

to: (a) prove an unlawful agreement causing anticompetitive harms, and (b) obtain

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31

the damages or injunctive relief they sought, even if they prevailed on the merits.7

In light of those risks, the settlement was more than fair.

a. Plaintiffs Faced Substantial Hurdles In Proving A

Conspiracy And Anticompetitive Restraints.

To establish a right to any relief—monetary or injunctive—plaintiffs would

have to prove (among other things) that the networks’ challenged rules (1) were

agreements in restraint of trade; and (2) were unlawful —that is, anticompetitive—

restraints. See, e.g., Bd. of Trade v. United States, 246 U.S. 231, 238–39 (1918).

As Judge Gleeson found, plaintiffs “face[d] a substantial likelihood of securing no

relief at all.” SPA15.

First , as to the agreement, plaintiffs initially asserted that Visa and

MasterCard were “‘structural conspiracies’ or ‘walking conspiracies’” by virtue of

their organization as bankcard associations of member banks. SPA19; see SPA28.

That contention, even if arguable when this case was filed, crumbled when the

networks completed their IPOs. Post-IPO, member banks no longer retained their

ownership of Visa or MasterCard, lacked voting control over the networks’

7These were not the only hurdles plaintiffs had to surmount. They faced strong

opposition on their class-certification motion and would have confronted “practical problem[s]” in convincing a jury to award them damages. See, e.g., SPA33– SPA34. And, even if plaintiffs had managed to eke out any sort of victory, an

appeal to this Court, potentially followed by further proceedings in the SupremeCourt or on remand to the District Court, would have increased their chances ofnon-recovery, not to mention prolonged the already lengthy period that they couldexpect to wait before obtaining any relief. See Grinnell , 495 F.2d at 457.

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32

respective Boards of Directors, and had no power to adopt, maintain, or modify

any of the networks’ payment-card rules or policies. See D.E.1477-7 ¶¶ 181–191.

As the District Court recognized, the IPOs brought the networks “out from under

the control of their member banks” and thereby “strengthened the . . . argument

that . . . the setting of interchange fees cannot constitute horizontal price-fixing.”

SPA28.

The Merchant Trade Groups argue that, post-IPOs, both Visa and

MasterCard maintained default interchange (like other rules plaintiffs challenged),

and that this somehow indicates a conspiracy among the Defendants to retain the

pre-existing anticompetitive rules. Br. 15–16 & n.8, 47–49. But the persistence of

the challenged rules simply shows that the rules are a procompetitive feature of a

well-functioning system. Plaintiffs faced serious obstacles to proving that, post-

IPOs, Visa and MasterCard failed to make independent decisions regarding the

challenged rules.8

Second , the District Court’s lengthy discussion of the network rules that

plaintiffs challenged highlights plaintiffs’ likely inability to prove an unlawful

8On July 18, 2014, Judge Gleeson denied Defendants’ motions to dismiss opt-out

complaints brought by certain merchants. In re Payment Card Interchange Fee &

Merchant Disc. Antitrust Litig.—Opt Out Cases, No. 1:14-md-1720-JG (E.D.N.Y.

July 18, 2014) (minute order and transcript (D.E.104 & 105). The court did so onthe pleadings without passing on the underlying merits of the opt-out claims orrevisiting its earlier statements in the judgment on appeal about the litigation risksto plaintiffs.

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restraint of trade. SPA16; SPA28–SPA32. The District Court determined that the

default interchange and Honor-all-Cards “rules undeniably have significant

procompetitive effects,” SPA16, and the Eleventh Circuit has held default

interchange lawful, NaBanco, 779 F.2d at 602. Furthermore, other courts have

found lawful no-surcharge rules similar to those challenged by plaintiffs.9

Here, the District Court observed that default interchange lay “at the core of

the defendants’ successful business model,” SPA29, and underscored that it

“played an essential role in the construction of the networks at issue here,” SPA30.

The Merchants Trade Groups nakedly assert that what has been true historically is

not necessarily true today given the alleged “matur[ity]” of the networks. E.g., Br.

38. But they ignore that the underlying rationales which courts have previously

found compelling remain just as vital today. Likewise, they ignore the abundant

evidence on this subject before the District Court, including expert analyses

provided not only by Defendants but also by the court’s independent expert. See,

e.g., K. Murphy Rep. ¶¶ 32–34, 98, 202, 209, 219–224; D.E.5965 at 8, 13–22.

9See, e.g., Tennessean Truckstop, Inc. v. NTS, Inc., 875 F.2d 86 (6th Cir. 1989);

Kartell v. Blue Shield of Mass., Inc., 749 F.2d 922 (1st Cir. 1984) (Breyer, J.).Defendants showed that without restrictions on surcharging, merchants couldattempt to nullify “Honor-all-Cards” by imposing an exorbitant surcharge on a

given card, D.E.1477-7 ¶ 163, and harm consumers by offering low prices inadvertisements but effectively raising the price through surcharging at the point ofsale, id. ¶ 160, or opportunistically surcharging consumers lacking paymentalternatives, id. ¶ 161.

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Default interchange fees serve functions that have not changed with the

passage of time. SPA29. Default interchange still obviates the need for thousands

of issuers and acquirers to negotiate separately. See SPA29–SPA30. Default

interchange thus eliminates a massive transaction cost on a system that has grown

tremendously in the last few decades, thanks in large part to the rule’s

minimization of such costs. D.E.1550 ¶ 181; see SPA29; T. Murphy Decl. ¶¶ 24–

28; Sheedy Decl. ¶¶ 24–27 (lodged with D.E.2088). Courts have highlighted this

procompetitive efficiency, concluding that default interchange rules are “of vital

import to the day-to-day functioning of the system” because they eliminate “the

costly uncertainty and prohibitive time and expense of ‘price negotiations at the

time of the exchange’ between the thousands of [network] members.” NaBanco,

596 F. Supp. at 1259–60; see In re ATM Fee Antitrust Litig., 554 F. Supp. 2d 1003,

1007 (N.D. Cal. 2008).

Moreover, as the Eleventh Circuit concluded in NaBanco, “[f]or a payment

system like VISA to function, rules must govern the interchange of the

cardholder’s receivable,” because, “absent prearranged interchange rules,”

“universality of acceptance—the key element to a national payment system—could

not be guaranteed.” 779 F.2d at 602. Absent a system of mandatory acceptance of

all network-branded cards, a customer walking into a store that purports to accept

Visa would have no assurance that the Visa-branded card issued by his or her

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35

particular bank would function at that store. Acceptance would depend on whether

compensation arrangements had been reached with that particular customer’s

issuing bank covering transactions from this particular merchant. The fundamental

importance of universal acceptance— i.e., that any card bearing a network brand

will work at any merchant that purports to accept the brand—to network

functioning and image has not changed with time. Instead, universal acceptance

remains central to the Visa and MasterCard brands. See, e.g., Elzinga Rep. at 16,

71–74 (lodged with D.E.2088); K. Murphy Rep. ¶¶ 111, 206–224; T. Murphy

Decl. ¶¶ 25–27; Sheedy Decl. ¶¶ 24–28.10

Thus, the District Court observed that “those networks provide substantial

benefit to both merchants and consumers.” SPA30. The court noted that

Defendants’ showings about procompetitive effects were essentially undisputed,

and rejected Objectors’ suggestion that these beneficial “practices have become

antitrust violations by virtue of industry maturation.” SPA29; see SPA30 (similar).

Instead, without making any merits determination, Judge Gleeson endorsed the

court-appointed economic expert’s finding that “‘plaintiffs face considerable

difficulty in establishing [that] default interchange . . . cause[s] anticompetitive

10The record showed many other procompetitive features, including enhancing

cardholder rewards programs, which increase card use and, unsurprisingly,

merchant sales, D.E.1550 ¶ 186; Sheedy Decl. ¶ 31; guaranteeing payment toacquirers and merchants, even in cases of fraud or nonpayment, D.E.1550 ¶ 187; T.Murphy Decl. ¶ 29; and funding innovations and enhancements to the networks,D.E.1550 ¶¶ 182–183; see Sheedy Decl. ¶ 18; SPA29.

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36

harm that outweighs [its] pro-competitive benefits.’” SPA31 (emphasis added)

(crediting Professor Sykes’ view that “‘plaintiffs face a substantial probability of

securing little or no relief at the conclusion of trial’” (alteration omitted)); accord

SPA15. Similarly, the court recognized that “the prospect that [the default

interchange rule’s] anticompetitive effects remain outweighed by its

procompetitive ones is real.” SPA30. These observations are consistent with

NaBanco, decided when Visa was a bankcard association, in which the Eleventh

Circuit affirmed that the interchange fee “is more procompetitive than

anticompetitive.” 779 F.2d at 605. Moreover, Judge Gleeson’s findings

demonstrate the incorrectness of the Merchant Trade Groups’ assertion that the

District Court failed to recognize the need to weigh procompetitive effects against

any anticompetitive ones. Br. 46.

Likewise, the Merchants Trade Groups are wrong that the allegedly

anticompetitive effects of default interchange were “largely undisputed.” Br. 40–

41. To the contrary, Defendants produced evidence that network output increased ,

which is the opposite of what one would expect from an anticompetitive system.

D.E.5965 at 10–11. In any event, the Trade Groups’ argument misses the point.

The key question facing the District Court was whether there was a real risk that

plaintiffs would fail to carry their burden of proving that any anticompetitive

effects outweigh the rules’ procompetitive benefits. The many and substantial

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37

procompetitive features created a serious risk that plaintiffs would fail to make that

showing, and thus there was no reason for Judge Gleeson to focus on the relative

difficulty of proving whether default interchange had any anticompetitive effects.

Finally, the District Court recognized that “[n]o American court has ever

held that Visa or MasterCard’s default interchange rules violate the antitrust laws.”

SPA30. In addition to endorsing the NaBanco court’s findings, id., Judge Gleeson

recognized (id.) that the Ninth Circuit more recently affirmed the dismissal of

claims that “Banks conspired to fix the interchange fee,” holding that “merely

charging, adopting or following the fees set by a Consortium is insufficient as a

matter of law to constitute a violation of Section 1 of the Sherman Act.” Kendall

v. Visa U.S.A., Inc., 518 F.3d 1042, 1048 (9th Cir. 2008). Given the evidence here,

plaintiffs faced a serious risk that the court would follow these decisions and find

default interchange lawful. SPA30–SPA31.

The District Court concluded that plaintiffs’ Honor-all-Cards challenge was

similarly tenuous, given the reality that “assurances that a network’s cards will be

accepted wherever the network’s logo is displayed [are] critical to customers’

desire to carry such cards and to merchants’ willingness to accept them.” SPA31.

If merchants could choose which Visa- or MasterCard-branded cards to accept, the

concept of a network and a network brand would lose all meaning. The court

recognized that courts, economists and practitioners have therefore found Honor-

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38

all-Cards or similar rules “to be procompetitive.” Id. (emphasis in original)

(analogizing Honor-all-Cards to the system upheld in Buffalo Broadcasting Co. v.

ASCAP , 744 F.2d 917 (2d Cir. 1984)); SPA32 (reiterating that “procompetitive

features” cast doubt on plaintiff’s ability to succeed); Sheedy Decl. ¶¶ 33–35;

T. Murphy Decl. ¶¶ 37–40. As detailed, supra at 19, the District Court observed

that Objectors’ lead counsel had described the rule as a “‘classic example of a

restraint that was actually necessary.’” SPA32.

In addition, as Professor Sykes noted, “a showing that default interchange

and related network rules . . . are anticompetitive requires . . . a convincing

description of a counterfactual world in which the purportedly anticompetitive

practices of each network are eliminated, and in which the resulting market

equilibrium is demonstrably superior from an economic standpoint.” D.E.5965 at

19–20. Absent a plausible explanation of how a payment card market could be

viably maintained in the absence of the challenged rules, plaintiffs stood little

chance of proving that those rules violate the Sherman Act. SPA31 (endorsing

Professor Sykes’ conclusion that it would be difficult to establish that the alleged

anticompetitive harm of Honor-all-Cards outweighs its procompetitive effects).

Yet, as Defendants’ Daubert filings and own expert reports showed, Objectors

never presented a reliable expert or other analysis of what a realistic counterfactual

world would look like. See D.E.5965 at 23–25 (Sykes’ criticisms of plaintiffs’

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39

theory). Objectors fail to come to grips with the substantial risk faced by the Class

Plaintiffs on the merits.

If that were not enough, legal developments beyond this litigation further

eroded plaintiffs’ claims by removing some of the practices they challenged as

unlawful. See SPA10 & n.6; supra at 10–11 (discussing rules changes triggered by

the Durbin Amendment and the DOJ consent decree). This increased the chances

that the going-forward interchange system would not, on balance, be deemed an

unlawful restraint of trade.

b. Even If Plaintiffs Could Establish Liability, It Was

Doubtful That They Would Obtain Their Desired

Remedies.

Plaintiffs also faced long odds as to the relief they sought. See SPA32–

SPA33.

i. The District Court rightly recognized that Illinois Brick raised serious

doubts that merchants could ever recover any damages. SPA27–SPA28 & n.15.

Illinois Brick not only would foreclose the accrued damages that the (b)(3) class

sought, but also would extinguish plaintiffs’ ability to recover any future monetary

damages allegedly resulting from the interchange system that remained in place

following the (b)(2) settlement. Objectors’ contention that surrendering future

claims for damages was a substantial sacrifice is off-base, in large part because

they never confront Illinois Brick ’s potential impact on those hypothetical claims.

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In Illinois Brick , the Supreme Court held that the Clayton Act permits only

direct purchasers of a product to sue over alleged price-fixing. 431 U.S. at 735–

37; see id. at 726–29. Here, merchants allege that Defendants fixed the price of

interchange fees. SPA22. But the acquiring banks, not merchants, pay those fees

directly to the issuers. The challenged network interchange fee rules address only

the acquiring-bank-to-issuing-bank payment obligation. Merchants typically pay

their acquirers a merchant discount fee, which the evidence showed is not required

by anything in the network rules, not “fixed” by horizontal agreement among

acquirers, and not homogeneous in practice. See, e.g., D.E.1478-4 ¶¶ 43–44, 51–

57; D.E.1550 ¶¶ 131, 152; see SPA7–SPA8. Plaintiffs contend that the discount

fee simply passes on the cost of the interchange fee jot-for-jot, but the Supreme

Court rejected that as a reason to depart from the direct-purchaser-only rule. Ill.

Brick , 431 U.S. at 743–44 (“Respondents here argue . . . that pass-on theories

should be permitted for middlemen that resell goods without altering them and for

contractors that add a fixed percentage markup to the cost of their materials in

submitting bids. . . . We reject these attempts to carve out exceptions . . . for

particular types of markets.” (footnote omitted)); accord Kansas v. UtiliCorp

United, Inc., 497 U.S. 199, 216 (1990) (“ample justification exists for [the Court’s]

decision not to ‘carve out exceptions to the [direct purchaser] rule for particular

types of markets.’”) (second alteration in original).

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This Court and the Ninth Circuit have ruled Illinois Brick bars damages

sought by downstream payors of payment-card fees and charges that—like

interchange fees—an intermediate party pays in the first instance. See Paycom

Billing Servs., Inc. v. MasterCard Int’l, Inc., 467 F.3d 283, 291–92 (2d Cir. 2006);

In re ATM Fee Antitrust Litig., 686 F.3d 741, 744–45, 749–50 (9th Cir. 2012), cert.

denied sub nom. Brennan v. Concord, EFS, Inc., 134 S. Ct. 257 (2013). Indeed, as

Judge Gleeson recognized, the Ninth Circuit’s ruling, which addressed another

system of interchange payments, rejected the same “exceptions to the Illinois Brick

rule that plaintiffs here have relied on.” SPA28 n.15 (citing ATM Fee, 686 F.3d at

750–58). Thus, the District Court correctly concluded, “the indirect purchaser

doctrine would be a source of significant uncertainty for the plaintiffs.” SPA28.

Although Objectors fail to address Illinois Brick ’s application to plaintiffs’

claims here,11

the Merchant Trade Groups dismiss Judge Gleeson’s discussion of

the case, contending that the court committed a “legal error” in using Illinois Brick

to “justif[y] the (b)(2) Settlement” because Illinois Brick applies only to damages,

not injunctive relief. Br. 35. The argument is meritless.

To start, that is not what the District Court did. It acknowledged that Illinois

Brick holds only “that ‘indirect purchasers’ may not recover antitrust damages,”

11The Merchants, American Express, Blue Cross Blue Shield, Discover, First

Data, and the Retailers and Merchants Objectors do not cite it. U.S. PIRG appearsto recognize the potential merit of the Illinois Brick argument. Br. 26 n.6.

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42

SPA27, and repeatedly discussed the doctrine in that context, see, e.g., id. (“treble-

damages antitrust actions”); id. (“actions for antitrust damages”); SPA28 (similar).

The court discussed Illinois Brick —like all of the litigation risks here, see

SPA25—not as a risk to the (b)(2) class, but to plaintiffs generally. Moreover, the

Merchant Trade Groups claim that “the (b)(2) settlement” “unjustifiably releases

merchants’ claims for future damages.” Br. 51 (emphasis added, capitalization

omitted). As discussed below, there is nothing improper in the release. But to the

extent the Merchant Trade Groups are suggesting that plaintiffs gave up something

of value when releasing claims for future damages, the viability and value of those

claims—including the impact of Illinois Brick —is highly relevant.

ii. Even if Illinois Brick was not an absolute bar, “the history of antitrust

litigation is replete with cases in which antitrust plaintiffs succeeded at trial on

liability, but recovered no damages, or only negligible damages.” Wal-Mart II ,

396 F.3d at 118 (internal quotation marks omitted). Any past or future damages

claim here faced that risk. Given plaintiffs’ claim that the default interchange

system overcharges them, it was essential for plaintiffs to construct a rigorous

model for ascertaining what interchange rates would prevail in a payment card

market that lacked default interchange and Honor-all-Cards.

No such model exists. Although plaintiffs suggested a number of

possibilities, including an interchange fee of 0.0% and an interchange fee that was

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43

equivalent to the rate charged for debit transactions, D.E.5965 at 22 (Sykes Rep.),

those scenarios are unrealistic. Judge Gleeson found that “[i]t is not likely that

credit card interchange fees would . . . become zero.” SPA33. As Professor Sykes

explained, zero interchange is implausible because, at least “to [his] knowledge[,]

no general purpose credit or charge card network of any consequence has ever

evolved with zero interchange.” D.E.5965 at 23–24. And debit-rate interchange

was unlikely given that credit cards are more costly to issue than debit cards due to

their many advantages to consumers (e.g., credit itself, float, purchase protection,

and reward programs). See SPA33; D.E.5965 at 16, 24.

iii. Finally, the Class Plaintiffs faced major obstacles as to the injunctive

relief sought, most notably the inherent limits on a federal court’s remedial

authority and the many changes to the legal landscape since the case began.

Over the course of the litigation, there were numerous changes that

effectively eliminated many of the network structures that plaintiffs had

complained of: The IPOs terminated the banks’ control of Visa and MasterCard;

Dodd-Frank expanded merchants’ discounting authority; and the settlement with

DOJ enlarged the merchants’ discounting power still further. Additionally, the

settlement here, of course, permits surcharging on a going forward basis.12

All of

12Objectors decry the surcharging relief because some states’ laws prohibit

surcharging, which means that some merchants will not be able to surcharge Visaand MasterCard transactions even in a post-settlement world. See, e.g., Merchants’

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44

these developments both weakened plaintiffs’ claim that the going-forward system

was anticompetitive, see supra § I.A.2.a, and narrowed the range of remedies

available to the District Court (beyond that achieved in the settlement) in the event

it concluded that interchange fees were in fact set at supracompetitive levels.

Put simply, by the time the District Court was evaluating the prospects of

further litigation in light of the settlement, the only other injunctive remedies that

remained possible concerned default interchange and Honor-all-Cards. But, as

discussed in detail above, those two features of the core network rules had been

repeatedly recognized by courts as, on balance, procompetitive, the record in this

case confirmed the continuing importance of those rules to the universal

acceptance that is central to the Visa and MasterCard brands, and both the court-

appointed expert and Judge Gleeson expressed serious doubts that plaintiffs could

mount a successful challenge on the merits to those rules. Supra § I.A.2. Any

request to enjoin default interchange and Honor-all-Cards out of existence entirely

would have required precisely the evidence plaintiffs had failed to bring forth: an

explanation of how a supposed-restraint-free world would have produced networks

without such rules at all.

Br. 15, 22–23. The Class’s brief discusses the going-forward importance of thesurcharging relief, Class Br. § II.A.2, and we touch on the importance the class

placed on such relief throughout this litigation below, infra § I.A.3.

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45

Plaintiffs might have asked the court to impose a different default

interchange rate than that imposed by the networks. But judicial regulation was

improbable, because courts enforcing the antitrust laws cannot set prices. See, e.g.,

Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1225 (9th Cir.

1997). But cf. Merchants’ Br. 14 (complaining that the settlement immunizes from

suit “the default interchange schedules”). Any effort to urge judicial regulation

also was compromised by the lack of a convincing counterfactual model showing

that a payment-card system could flourish—or, for that matter, even function—

with modified or judicially regulated interchange fees and card-acceptance

policies. As Judge Gleeson summarized the weaknesses in plaintiffs’ case for

injunctive relief:

Even if the plaintiffs spent several years pursuing this unwieldycase to a successful conclusion (despite substantial odds againstsuch a result), this Court would be in no position to grant the

sweeping relief the objectors seek . It cannot regulateinterchange fees or enjoin nonparties or preempt state laws orreform network rules that do not violate the antitrust laws. The

Sherman Act affords relief only from certain proven

anticompetitive business practices.

SPA17 (emphases added); see SPA14.

In sum, plaintiffs had little hope of obtaining any of the relief they sought.

The rules changes and billions of dollars they secured through this settlement

would have been in substantial doubt if this case went forward.

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47

imposition of a no-surcharge rule and/or the establishment of the interchange fee

causes the merchant discount fee to be set at supracompetitive levels.” 398 F.

Supp. 2d at 1358 (emphasis added).

The Class Plaintiffs maintained that focus at summary judgment, long before

the settlement, describing surcharging as “the most effective tool for merchants to

influence consumers’ payment choices.” Mem. Supp. Summ. J. (D.E.1538) at 8

(citing expert reports); see, e.g., id. at 36, 54. As Judge Gleeson summarized, it

was a rule change that the Class and individual plaintiffs “fought very hard to

obtain.” SPA36. Accordingly, Objectors’ new antipathy toward that relief is

suspect.

Objectors also challenge the (b)(2) settlement’s value by claiming that the

settlement “creates a worse result than if the Plaintiffs tried and lost the case.”

Merchant Trade Groups’ Br. 52. This line of argument is doubly flawed. First, it

is principally a challenge to the scope of the releases, yet—as discussed in depth

infra § II—both the language and effect of the releases are standard, and “[t]he law

is well-established in this Circuit and others that class action releases may include

claims not presented and even those which could have not been presented.” Wal-

Mart II , 396 F.3d at 107; accord Matsushita Elec. Indus. Co. v. Epstein, 516 U.S.

367, 376–77 (1996). Second, Objectors rest their argument on the indefensible

notion that, if a certified (b)(2) class had lost at trial , the exact same plaintiffs

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48

could have filed an identical suit the following day because—in Objectors’ view—

each card swipe made under the networks’ rules would be a wholly new antitrust

violation so different from those alleged in the earlier action that it would

somehow evade traditional rules of preclusion. Merchant Trade Groups’ Br. 52.

Objectors are off the mark. “‘A final judgment on the merits of an action

precludes the parties or their privies from relitigating issues that were or could

have been raised in that action.’” SEC v. First Jersey Sec., Inc., 101 F.3d 1450,

1463 (2d Cir. 1996) (emphases added, alteration omitted) (quoting Federated

Dep’t Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981)). Res judicata represents

“finality as to the claim or demand in controversy, concluding parties and those in

privity with them, not only as to every matter which was offered and received to

sustain or defeat the claim or demand, but as to any other admissible matter which

might have been offered for that purpose.” Id. (quoting Nevada v. United States,

463 U.S. 110, 129–30 (1983)).

In other words, if a (b)(2) litigation class had been certified and had

judgment entered against it, absent class members could not simply have re-

litigated the lawfulness of default interchange, Honor-all-Cards, no-surcharge, and

the other rules at issue here. See id. “[U]nder elementary principles of prior

adjudication a judgment in a properly entertained class action is binding on class

members in any subsequent litigation.” Cooper v. Fed. Reserve Bank of

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49

Richmond , 467 U.S. 867, 874 (1984). “A judgment in favor of the defendant

extinguishes the claim, barring a subsequent action on that claim.” Id.14

Indeed, if

preclusion were not the result, trials of Rule 23(b)(2) claims would be little more

than an endless moot court for plaintiffs’ counsel, who could continue to press the

same claims over and over while hoping for a different result.

Thus, when plaintiffs settled, they did not put themselves in a position worse

than unsuccessful litigation would have produced. Instead, in exchange for

receiving going-forward settlement relief with respect to some of the rules, they

agreed to foreclose continued challenges to other rules. That type of compromise

is what settling parties always do, and the District Court properly found that

compromise fair and reasonable given the litigation risks.

14Rule 23(e) itself, see Amchem Prods., Inc. v. Windsor , 521 U.S. 591, 623 (1997),

as well as the adequacy of representation doctrine under Rule 23(a)(4) (requiringthe representatives “adequately protect the interests of the class”), provide the

bulwark against unfairly binding an absent class member to a non-opt-out class judgment. See, e.g., Hansberry v. Lee, 311 U.S. 32, 42–43 (1940); Robinson v.

Metro-N. Commuter R.R., 267 F.3d 147, 165 (2d Cir. 2001), abrogated on other

grounds by Hecht v. United Collection Bureau, Inc., 691 F.3d 218 (2d Cir. 2012); Marcera v. Chinlund , 595 F.2d 1231, 1240 n.13 (2d Cir.) (“[D]ue process permits binding absentees to a judgment with respect to common questions of law if theyhave been adequately represented in the suit.”), vacated on other grounds sub nom.

Lombard v. Marcera, 442 U.S. 915 (1979); see also Baby Neal ex rel. Kanter v.

Casey, 43 F.3d 48, 59 (3d Cir. 1994) (analysis of (b)(2) class certificationrecognizes that absent plaintiffs will “be[] bound by such judgment in the

subsequent application of principles of res judicata.’”). Defendants already haveshown why Rule 23(e) is satisfied here, supra § I.A, and embrace the Class’sdiscussion of why its representation was adequate (and the Class’s explication ofwhy the other Rule 23(a) factors are satisfied here). See Class Br. § I.

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B. The District Court Did Not Abuse Its Discretion In Certifying The

(b)(2) And (b)(3) Settlement Classes In This Case, Based On TheSpecific Facts In This Record.

A district court that is presented with a proposed class settlement must,

separate and apart from the Rule 23(e) analysis, “determine whether the

requirements for class certification in Rule 23(a) and (b) have been satisfied.”

AIG, 689 F.3d at 238. Judge Gleeson did so here. SPA51–SPA53 & n.20; see also

SPA36–SPA43. As the Class Plaintiffs’ brief shows, Judge Gleeson did not abuse

his discretion in finding those prerequisites met in this case. Several points bear

additional mention.

Objectors assert that a (b)(2) class was improperly certified for settlement

because the case involved claims for money damages and injunctive relief, and the

settlement extinguishes claims for money damages. See Merchants’ Br. at 32–66.

Objectors’ arguments blend a certification objection with an objection to the

release of speculative “damages” claims that might arise in the future, and assert

that reversal is proper because they were not permitted to opt out of the (b)(2)

class. See, e.g., id. at 32–36, 41–46, 52, 60. Objectors are mistaken about the facts

and the law.

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1. The Non-Opt-Out (b)(2) Class Settlement Properly

Resolved Existing Claims For Injunctive Relief, Not ThoseFor Existing Monetary Damages.

Objectors’ challenge rests on the oft-repeated premise that the (b)(2) class

sought to resolve “individualized claims for money damages.” Merchants’ Br. 32

(capitalization omitted).15

The premise is false. From the outset of this case, the

putative (b)(2) class sought injunctive relief only. See D.E.317 ¶ 97(b). The (b)(2)

class did not pursue any present, already-accrued claim for damages, and did not

receive any monetary payments through the settlement agreement. SPA84–SPA87

¶ 13; SPA139 ¶ 39 (“[m]embers of the Rule 23(b)(2) Settlement Class shall receive

no money payments but shall receive” only the rules modifications detailed in the

agreement). The (b)(2) release also does not require plaintiffs to forgo any

already-accrued claim for money damages. See SPA90 ¶ 16.c; SPA92 ¶ 16.c.ix

(releasing, inter alia, claims for “damages or other monetary relief relating to the

period after the date of the Court’s entry of the Class Settlement Preliminary

Approval Order”). Any plaintiff who wishes to continue to litigate a claim for

money damages brought in this case may opt out of the (b)(3) class and face the

going-forward litigation risks, as various Objectors have done. The (b)(2) class

15See also, e.g., Merchants’ Br. 32 (same); id. at 33 (“individualized legal claims,”

“individualized awards of monetary damages,” “individualized monetary claims”);

id. at 33–34 (“individual monetary claims”); id. at 34 (“individualized monetaryclaims,” “individualized legal claims,” “individualized claim for money”); id. at 35(similar). (Some of these quotations have omitted alterations or internal quotationmarks for ease of reference.)

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52

compromises the originally asserted forward-looking claims for injunctive relief,

one of the most traditional remedies sought and received by (b)(2) classes, and any

liability that allegedly would flow from the post-settlement network rules. See,

e.g., SPA46; SPA18; SPA139–SPA140 ¶ 40; SPA153 ¶ 53.

Objectors urge this Court to treat the non-opt out (b)(2) class as a class about

damages claims because the release covers possible future damages claims against

the going-forward network system, and therefore urge that they were entitled to opt

out under Rule 23 and as a matter of due process. But the propriety of (b)(2)

certification does not turn on the nature of the claims released; rather it rests on the

relief demanded in the present litigation.

Objectors primarily rely on Wal-Mart Stores, Inc. v. Dukes in support of

their theory, see, e.g., Merchants’ Br. 33–35, 38–39, but that case makes clear that

the appropriate certification focus is on the claims asserted . See 131 S. Ct. 2541,

2551 (2011) (“claims must depend upon a common contention”); id. at 2552

(“class determination generally involves considerations that are enmeshed in the

factual and legal issues comprising the plaintiff’s cause of action”) (internal

quotation marks omitted). This Court has made the point with respect to a Rule

23(b)(3) settlement class, explaining that certification is examined based “on

‘questions that preexist any settlement,’ and not on whether all class members have

‘a common interest in a fair compromise’ of their claims.” AIG, 689 F.3d at 240

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53

(quoting Amchem, 521 U.S. at 623). In the (b)(2) setting, although some courts

have suggested the common bond should be stronger because of the mandatory

nature of the class and possible prejudice to individual claims, see, e.g., Barnes v.

Am. Tobacco Co., 161 F.3d 127, 142–43 (3d Cir. 1998), the basic focus remains

the same: a common interest in questions that preexist any settlement. See, e.g.,

Dukes, 131 S. Ct. at 2557.

Dukes further instructs that Rule 23(b)(2) applies “when a single injunction

or declaratory judgment would provide relief to each member of the class.” Id.

This Court has similarly held that a Rule 23(b)(2) class action is a proper way for

seeking systematic changes and resolving outstanding questions about the

lawfulness of defendants’ practices. Robinson, 267 F.3d at 165; Marisol A. v.

Giuliani, 126 F.3d 372, 378 (2d Cir. 1997) (suit for injunctive relief to address

“central and systemic failures” of child welfare system satisfied Rule 23(b)(2));

contra Merchants’ Br. 34–43.

These principles apply here, where—years before the parties commenced

settlement negotiations, D.E.317 ¶ 97(b)—the (b)(2) class challenged the

networks’ core rules governing all merchants, and sought injunctive relief that

would displace and re-write those rules. The Class sought relief based on

Defendants’ “act[ions] or refus[als] to act on grounds that apply generally to the

class, so that final injunctive relief or corresponding declaratory relief is

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54

appropriate respecting the class as a whole,” Fed. R. Civ. P. 23(b)(2), and that

injunctive relief was sought for “an alleged group harm,” Robinson, 267 F.3d at

165. As Appellants admit, “defendants’ practices affect all class members.”

Merchants Br. 50. All class members participated in networks governed by the

same allegedly unlawful core rules (no-surcharge, no-discounting, default

interchange, Honor-all-Cards, etc.), and challenged those rules. See SPA52;

Marisol A., 126 F.3d at 378; cf. In re Nassau Cnty. Strip Search Cases, 461 F.3d

219, 227–28 (2d Cir. 2006) (finding cohesion where a (b)(3) class sought to

impose liability based on defendants’ implementation of a “blanket . . . policy”).

And, regardless of how this case were to end—dismissal on the merits, summary

judgment, jury verdict, or settlement— all class members would continue to

participate in a network governed by whatever network rules emerged from that

judgment. In short, because plaintiffs’ claims concern the legality of the networks’

governing rules and practices, the challenged conduct may “be enjoined or

declared unlawful only as to all of the class members or as to none of them.”

Dukes, 131 S. Ct. at 2557; see, e.g., Robinson, 267 F.3d at 165; SPA52 (“the

structural relief is generally applicable to the class in the manner required by Rule

23(b)(2)”); SPA46 (similar).

That is why the (b)(2) class was appropriately a mandatory, non-opt-out

class. Going forward, all Visa- and MasterCard-accepting merchants will

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55

necessarily operate within and be bound by the same post-settlement regime, just

as in the past, all Visa- and MasterCard-accepting merchants operated within and

were bound by the pre-settlement regime. The legal challenge plaintiffs raised is

not divisible as to individual merchants, and “the relief sought [would] perforce

affect the entire class at once.” Dukes, 131 S. Ct. at 2558.

Objectors urge that a non-opt-out class is improper because not all members

of the class will derive the same benefit from the relief provided by the settlement.

Merchants’ Br. 50–52. But the law does not require all members of a (b)(2)

settlement class to benefit equally from the relief obtained in the settlement.

Indeed, if Objectors’ view were correct, not even “the civil-rights cases at the core

of Rule 23(b)(2),” Merchants’ Br. 37, would warrant certification of a (b)(2)

settlement class. After all, not every pupil would benefit equally from a school’s

desegregation of its athletics program, see La. High Sch. Athletic Ass’n v. St.

Augustine High Sch. 396 F.2d 224 (5th Cir. 1968), nor will every employee derive

the same benefit from its employer’s adoption of more race- or gender-neutral

advancement policies, see Bishop v. Gainer , 272 F.3d 1009 (7th Cir. 2001), nor

every inmate from a change in prison medical treatment protocols, Parsons v.

Ryan, 754 F.3d 657 (9th Cir. 2014). But just as those classes are proper non-opt-

out classes, so too is the (b)(2) settlement class here, because the different weight

that class members might place on various forms of relief does not alter the fact

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56

that the asserted injuries arise from a uniformly applied course of conduct, and that

their injuries can be remediated via a single, unitary injunction.

In sum, either default interchange, a surcharging ban, Honor-all-Cards, or

the networks’ other rules are unlawful restraints of trade that generate

supracompetitive interchange fees—or they are not. If they are unlawful, they

impose anticompetitive restraints on all merchants within that network (including

any future merchants who participate in the network), and those restraints can be

enjoined only as to all merchants. Even as the networks allow for individualized

negotiation where the parties find it advantageous, there is no way, as a matter of

law, logic, or real-world commercial dealing, to offer a fully individualized

payment-card system for each of the millions of merchants populating the Visa and

MasterCard networks. The whole point of the networks, and an essential

contributor to their success, is that network rules are established without the need

for negotiation or fresh rule-making each time a new card is placed on the market

or a new merchant opens its doors (or comes on-line).

2. The (b)(2) Class Was Not Improperly Certified For

Settlement Because It Released Claims For Future Liability

Stemming From The Post-Settlement Rules.

Although the Objectors are wrong that the (b)(2) class sought to resolve

individualized monetary damages claims, the (b)(2) class settlement does release

future claims for liability (whether seeking damages or injunctive relief) that

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57

purport to challenge the network rules deliberately left in place by the settlement.

That, however, does not demonstrate that the certification of the (b)(2) settlement

class was improper. Contra, e.g., Merchants’ Br. 38–40.16

It simply illustrates one

potential consequence of a proper (b)(2) class settlement, namely, the arrangement

implemented as a result of settlement can be insulated from the parties’ (and their

privies’) future legal challenges. See In re Literary Works in Elec. Databases

Copyright Litig., 654 F.3d 242, 248 (2d Cir. 2011) (holding that “the Settlement’s

release of claims regarding future infringements is not improper” where the

complaint sought “injunctive relief for future uses, and therefore contemplate[d]

these alleged future injuries”). It is no more remarkable that agreements providing

that assurance would preclude plaintiffs from bringing any species of legal

challenge to the lawfulness of the post-settlement status quo, including claims for

money damages. See San Diego Police Officers’ Ass’n v. San Diego City Emps’

Ret. Sys., 568 F.3d 725, 734–36 & n.7 (9th Cir. 2009) (enforcing release in (b)(2)

class settlement to hold that monetary damages claims “alleg[ing] the same injury”

and “the same wrong” as in the released action were “barred by the doctrine of

claim preclusion”); Nottingham Partners v. Trans-Lux Corp., 925 F.2d 29, 32–34

16As a technical matter, Objectors’ arguments are little more than challenges to

release’s scope. Nonetheless, because Objectors raise the release of unasserted

claims for future damages under their challenge to (b)(2) certification, we discusshere briefly both why the release is lawful, and the lack of authority for Objectors’argument. For the fuller discussion of the lawful scope of the release, see § II

below.

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(1st Cir. 1991) (enforcing release of claims in state court Rule 23(b)(2) action to

preclude damages claims by plaintiffs who fell within class definition, reasoning

“[t]he two suits, notwithstanding any differences in remedies sought or theories of

recovery pleaded, shared a common gravamen. In sum, the instant case bore a

sufficiently close relation to the Dana complaint to come within the plain language

of the general release formulated as part of the Dana settlement.”).

Objectors refuse to accept that plaintiffs settling claims challenging

generally applicable, uniform conduct (like the network rules here) must be able to

promise not to sue the defendants for following the settlement’s terms. This is

nothing less than a refusal to acknowledge that litigation has consequences, and

judgments have going-forward impacts. For example, in a litigated case, if a (b)(2)

plaintiff class loses on the merits of an injunctive claim because a challenged

practice is found to be lawful, there are consequences that go beyond the denial of

the injunctive relief requested. Since any future damages claim challenging the

same conduct depends on the ability to demonstrate liability —that is, some legal

violation by the defendant—the future damages claim will be doomed because any

effort to establish liability would be precluded by the prior judgment. See supra at

47–49 (discussing res judicata). The legal system does not tolerate, much less

demand, endless litigation over the lawfulness of the same behavior. The release at

issue here has a similar effect.

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59

Were it otherwise, no (b)(2) settlement (or litigation on the merits) could

ever conclusively resolve the legality of a particular network, practice, or system of

rules. This Court has acknowledged that such resolutions are possible. E.g., TBK

Partners, Ltd. v. W. Union Corp., 675 F.2d 456, 460 (2d Cir. 1982) (recognizing

the essentiality of “achiev[ing] a comprehensive settlement that would prevent

relitigation of settled questions at the core of a class action”); see infra § II

(discussing lawful scope of releases).

As Objectors would have it—particularly by framing their arguments in

terms of a purported due process right, see Merchants’ Br. 6, 32–48; First Data Br.

9–24—any plaintiff dissatisfied with the settlement must have an opt-out right to

preserve its ability to later claim that the settlement left an unlawful state of affairs

in place. Such plaintiffs, even if opting out, would get to enjoy the benefits of the

injunctive relief provided by the settlement even as they endlessly sue to force

further changes to the system at issue or recover going-forward damages based on

that system. That repeated cycle would destroy the stability on which networks

(and similar entities) rely for their efficient operation, if not their survival.

Objectors’ position means that each class member could hold a veto over the (b)(2)

settlement, which would make settlements that much harder to achieve in the first

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place.17

This position is neither tenable, for the many reasons just discussed, nor

supported by the cases upon which Appellants rely.

a. Dukes Does Not Preclude Certification Of The

23(b)(2) Settlement Class.

The Merchants’ brief invokes Dukes in support of its release-based

challenge to the certification of the (b)(2) settlement class. That effort fails.

To begin, Dukes is a case about certification of litigation classes, not about

the scope of a release. As noted above, supra § I.B.1, Dukes strongly supports the

propriety of the Rule 23(b)(2) settlement class here based on the claims asserted by

plaintiffs.

Moreover, Dukes addressed only a single (b)(2) class that attempted to

include within its scope individual monetary claims for backpay based on alleged

previous discrimination. The Court said as much, concluding that “the

combination of individualized and classwide relief in a (b)(2) class” cannot be

squared with the history and structure of the rule. 131 S. Ct. at 2557–58 (emphasis

17 Particularly where, as here, defendants have already contested these issues acrossmultiple litigations and entered settlements that failed to bring repose, see, e.g.,Wal-Mart II , 396 F.3d at 101–03, 118 (settlement and releases concerning Honor-all-Cards), a settlement would be impractical, if not impossible to reach, because arelease often is the primary benefit a defendant receives. See Literary Works, 654F.3d at 247–48; Wal-Mart II , 396 F.3d at 106; Sullivan v. DB Invs., Inc., 667 F.3d273, 311 (3d Cir. 2011) (en banc) (“[A]chieving global peace is a valid, and

valuable, incentive to class action settlements. . . . No defendants would considersettling under [a] framework [where the release covered only certain qualifyingclass members], for they could never be assured that they have extinguished everyclaim from every potential plaintiff.”).

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added). Therefore, the Court construed the rule to proscribe such combinations

where the monetary component of the relief sought was more than merely

“incidental” to the class’s demand for injunctive or declaratory relief. Id. at 2557–

60; see also id. at 2548–49 & n.2.

This case is completely different. Here, the (b)(2) class claims for injunctive

relief and the (b)(3) class claims for monetary damages arising from past conduct

have been separated, with different procedures adopted as to each settlement class

in light of their differing natures (including with respect to opt-out rights). The

(b)(2) class in Dukes sought to do precisely what the (b)(2) class here does not do:

bind class members to the resolution of non-incidental, individualized damages

claims actually asserted by the (b)(2) class.

Consequently, the quotations that Objectors lift from Dukes do not address

releases of future claims of liability, let alone claims of liability founded on

defendants’ adherence to the very regime achieved through the (b)(2) settlement.

See, e.g., Merchants’ Br. 34–35, 45.18

Rather, those quotations speak to the

compromise of already-accrued, presently available claims. See Dukes, 131 S. Ct.

at 2557 (concluding that “claims for monetary relief may [not normally] be

certified under that provision”) (emphasis added); id. at 2559 (observing that

18

In fact, the Dukes Court did not say a word about the relevance to (b)(2)certification of either claims for future damages or claims released in class-actionsettlements, let alone the relevance of a class settlement’s release of claims forfuture damages.

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plaintiffs’ proposed “test . . . creates perverse incentives for class representatives to

place at risk potentially valid claims for monetary relief,” such as the plaintiff-

employees’ claims for compensatory damages in Dukes itself, which the class

abandoned, instead pursuing only their more modest backpay claims). As the text

of the (b)(2) release makes plain, no such compromise took place here. SPA169

¶ 68.

And, far from being condemned by Dukes, the two-class approach has

flourished in its wake. See Gooch v. Life Investors Ins., 672 F.3d 402, 427–28 (6th

Cir. 2012) (approving use of separate (b)(2) and (b)(3) classes in combination);

Johnson v. Meriter Health Servs. Emp. Ret. Plan, 702 F.3d 364, 371 (7th Cir.

2012) (suggesting that “divided certification” of a (b)(2) declaratory class and a

subsequent (b)(3) damages class would be consistent with Dukes); Huyer v. Wells

Fargo & Co., 295 F.R.D. 332, 344–45 (S.D. Iowa 2013); Bristol Vill., Inc. v. La.-

Pac. Corp., 916 F. Supp. 2d 357, 369–70 (W.D.N.Y. 2013); Sykes v. Mel Harris &

Assocs., LLC , 285 F.R.D. 279, 293 (S.D.N.Y. 2012) (Chin, J.) (“[t]hat plaintiffs

are seeking substantial monetary damages is of no concern given the Court’s

certification of separate Rule 23(b)(2) and Rule 23(b)(3) classes addressing

equitable relief and damages, respectively”).

The simple truth is that Dukes does not discuss releases, compromises of

future claims, or even class settlements generally. Objectors’ repeated invocation

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of that decision does not demonstrate that the District Court abused its discretion

either in certifying the settlement classes or in approving the settlement.

b. Shutts Also Does Not Support The Argument That

The Release Rendered The (b)(2) Class Improper.

Just as the (b)(2) settlement is proper under the Federal Rules, it does not

offend due process under Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 805

(1985), as the Merchants (at 32–33) erroneously contend. Shutts involved already-

existing claims—specifically, interest allegedly owed on already-paid natural gas

royalties. 472 U.S. at 800. Nothing in Shutts, however, suggested that a plaintiff

has a due process-protected property interest in an inchoate, unaccrued future

claim. See id. at 808. To the contrary, it is well-established that “[n]o person has a

vested interest in any rule of law entitling him to insist that it shall remain

unchanged for his benefit.” N.Y. Cent. R.R. v. White, 243 U.S. 188, 198 (1917)

(collecting cases).

c. This Court’s Cases Also Do Not Lead To A Different

Outcome.

This Court’s cases cited by the Merchants (at 36–37) do not show that the

releases here precluded certification of the (b)(2) settlement class.

By Objectors’ own admission, this Court in Wal-Mart I (a/k/a Visa Check ),

280 F.3d 124, reserved decision on (b)(2) certification in that case, analyzing the

propriety of certification only under Rule 23(b)(3), see Merchants’ Br. 36–37, and

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Hecht v. United Collection Bureau, Inc., 691 F.3d 218 (2d Cir. 2012), dealt with

the (here-irrelevant) issue of the adequacy of the notice of opt-out rights in a suit

adjudicating a backward-looking damages claim, see id. at 222–23; Merchants’ Br.

36.

In Stephenson v. Dow Chemical Co., a group of Vietnam Veterans sued for

damages based on harms that had already been inflicted on them but whose Agent

Orange injuries did not manifest until after expiration of the settlement fund

established in an earlier lawsuit. 273 F.3d 249, 257–58 (2d Cir. 2001), aff’d in

part by an equally divided Court and vacated in part on other grounds, 539 U.S.

111 (2003). Those claims were classic backward-looking damages claims, rather

than the claims Objectors are concerned with here—future claims challenging the

legality of actions taken pursuant to a court-approved settlement.19

Finally, the Merchants (at 37) are mistaken in attempting to dismiss Literary

Works, 654 F.3d 242, in which the parties’ settlement released the defendants from

future litigation over subsequent use of certain copyrighted works. The Merchants

contend that the Literary Works release is distinguishable from the one here

because “it permitted class members to (1) opt out of the settlement entirely or (2)

19Charron v. Wiener , 731 F.3d 241 (2d Cir. 2013), cert. denied sub nom. Suarez v.

Charron, 134 S. Ct. 1941 (2014), is similar. Although the court noted that thesettlement did not extinguish claims excluded from its scope, the claims at issuewere already-accrued, backward-looking claims. Id. at 244, 253. It says nothingabout the sort of going forward-based claims implicated here.

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‘opt out of the release for future use’ in particular.” Merchants’ Br. 37 (quoting

654 F.3d at 246–47). But the cited portion of the decision comes from this Court’s

statement of the case, not its analysis. This Court never suggested that there was a

requirement that the settlement permit class members to opt out of the release for

future use in order for (b)(2) certification to be appropriate. Instead, consistent

with Defendants’ showings supra and infra, the court noted the breadth of typical

settlement releases, underscoring that “‘[p]laintiffs in a class action may release

claims that were or could have been pled in exchange for settlement relief,’” and

that “[p]arties often reach broad settlement agreements encompassing claims not

presented in the complaint in order to achieve comprehensive settlement of class

actions, particularly when a defendant’s ability to limit his future liability is an

important factor in his willingness to settle.” 654 F.3d at 247–48 (quoting Wal-

Mart II , 396 F.3d at 106).20

In sum, none of the authorities cited by the Objectors supports their

argument that certification of the (b)(2) settlement class was improper simply

because the class released claims challenging the rules that exist post-settlement.

20In addition to the cases discussed above, Objectors also contend that the

settlement classes certified in this case run afoul of the Supreme Court’s decisions

in Amchem, 521 U.S. 591, and Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999).Merchants’ Br. 52–66 (cohesion); id. at 66–79 (adequacy). The Class Plaintiffsaptly show why those opinions have no bearing here, see Class Br. § I.D.2, and sowe incorporate that discussion here.

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II. THE SCOPE OF THE RELEASES PROVIDED BY THE 23(b)(2)

CLASS IS LAWFUL.

In addition to Objectors’ argument that the release here was improperly

implemented through a mandatory 23(b)(2) settlement class, Objectors suggest

that, in all events, the releases were unlawful because they release claims beyond

those presented in this litigation. See, e.g., Merchants’ Br. 31–32, 80–90.

Objectors’ view is wrong. It contravenes decades of settled precedent,

erodes the courts’ longstanding policy of favoring the settlement of disputes—

particularly class disputes—and threatens to overwhelm defendants and courts with

a never-ending stream of litigation.

Contrary to Objectors’ rhetoric, “[i]t is not at all uncommon for settlements

to include a global release of all claims past, present, and future, that the parties

might have brought against each other.” Williams v. Gen. Elec. Capital Auto

Lease, Inc., 159 F.3d 266, 274 (7th Cir. 1998). That is because, “[p]ractically

speaking, ‘[c]lass action settlements simply will not occur if the parties cannot set

definitive limits on defendants’ liability.’” Wal-Mart II , 396 F.3d at 106 (second

alteration in original). Absent the ability to set such limits, defendants “would . . .

face nearly limitless liability from related lawsuits in jurisdictions throughout the

country.” Id.

Judge Gleeson did not abuse his discretion in approving the releases here.

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A. The “Identical Factual Predicate” Doctrine Permits A Broad

Release Of Claims.

The releases are unremarkable and amply supported by this Court’s

decisions. “The law is well established in this Circuit and others that class action

releases may include claims not presented and even those which could not have

been presented as long as the released conduct arises out of the ‘identical factual

predicate’ as the settled conduct.” Wal-Mart II , 396 F.3d at 107 (quoting TBK

Partners, 675 F.2d at 460). Notwithstanding its name, the “identical factual

predicate” doctrine permits a class to release claims “not presented in the

complaint” and those involving events that have not yet occurred. Literary Works,

654 F.3d at 247–48; see, e.g., Wal-Mart II , 396 F.3d at 107, 114 (claims “not

presented and [that] might not have been presentable” can nonetheless be released

(emphasis omitted)); TBK , 675 F.2d at 460–61; Robertson v. NBA, 622 F.2d 34, 35

(2d Cir. 1980) (“ Robertson IV ”).

In Robertson IV , for example, this Court concluded that Wilt Chamberlain’s

suit against the NBA, which challenged the same rule that was the subject of a

prior class action and which had been modified in a prior class settlement, was

precluded by the release in that settlement. 622 F.2d at 35. The mere fact that the

later action challenged the rule’s application at a subsequent time was not

sufficient to remove the release’s binding force under the “identical factual

predicate” doctrine.

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68

And in Wal-Mart II , this Court found the doctrine satisfied where in the

settled case (containing the release) the plaintiffs had pleaded a tying claim,

alleging “that the exclusionary rules solidified Visa and MasterCard’s power in the

credit card market, enabling [them] to force plaintiffs to accept their debit cards.”

396 F.3d at 107. The plaintiffs raising the arguably released claims, on the other

hand, had brought a Section 1 claim alleging an increase in credit-card transaction

costs. Id. Proving those disparate claims would have required proof of at least

some different facts (relating to the identity and contours of the relevant markets,

the existence and extent of damages, etc.), but the Court held that the doctrine was

satisfied because both cases involved the same central rules. See id. at 108.

Furthermore, the Court held that the doctrine permitted the release of claims

against non-parties to the action. See id. at 108–09.

B. The Releases Here Are Tailored To The “Identical Factual

Predicate” Doctrine.

Judge Gleeson properly recognized that the Releases here are lawful under

the “identical factual predicate” doctrine, because “[t]hey do not release the

defendants from liability for claims based on new rules or new conduct or a

reversion to the pre-settlement rules. They appropriately limit future damages

claims based on the pre-settlement conduct of the networks.” SPA45–SPA46. As

the text of the Releases makes clear, they merely compromise claims:

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arising out of or relating in any way to any conduct, acts,

transactions, events, occurrences, statements, omissions, orfailures to act of any Rule 23(b)(2) Settlement Class ReleasedParty that are alleged or which could have been alleged fromthe beginning of time to the date of the Court’s entry of theClass Settlement Preliminary Approval Order in any of theOperative Class Complaints or Class Action complaints, or inany amendments to the Operative Class Complaints or ClassAction complaints . . . .

SPA169-SPA170 ¶ 68 (emphasis added). Included are claims related to the

lawfulness of default interchange, SPA170-SPA171 ¶ 68(a), (g), and Honor-all-

Cards, id. ¶ 68(c), (g). See supra § I.A.2.a (discussing those claims and the factors

making it unlikely that plaintiffs would prevail on them).21

What the releases do not affect—contrary to Objectors’ dark predictions—

are claims based on “new” conduct. SPA46. If someday there are harmful rules,

practices, or actions that are not “substantially similar to,” SPA171 ¶ 68(g), those

that were or could have been challenged in this case, the releases facially would

not apply. So, if—hypothetically—Visa or MasterCard were to impose an entirely

21The Merchants cite the Fixed Acquirer Network Fee (“FANF”) as an example of

a “clai[m] beyond the scope of the case” that was released by the (b)(2) settlement.Merchants’ Br. 87–88. But cf. SPA174 ¶ 72(d) (release does not extend to FANF-

based claims for injunctive relief). First, that contention is “waived” because, ashere, “an argument made only in . . . footnote[s] [i]s inadequately raised forappellate review.” Norton v. Sam’s Club, 145 F.3d 114, 117–18 (2d Cir. 1998);

see Home Depot Objection (D.E.2591) 8 n.8; Joint Objection (D.E.2670) 34 n.43.Second, in any event, the point is meritless. Objectors concede that FANF was in

place prior to settlement. Merchants’ Br. 17, 40–41. It thus could have beenlitigated here and—as such—is part of the factual predicate of this case,notwithstanding that (as Objectors note) it was not specifically cited in thecomplaint. See, e.g., Wal-Mart II , 396 F.3d at 107; TBK Partners, 675 F.2d at 460.

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new rule preventing merchants from steering customers away from paying with

credit cards, or to adopt entirely new, as opposed to “substantially similar,” rules

governing the use of mobile technologies (as Objectors claim to fear), the

lawfulness of those new rules would be fair game for a future antitrust suit.

For the same reason, the Releases do not, as the Merchants contend (Br. 80–

82), effect an improper “waiver of future liability under the federal antitrust

statutes.” In re Am. Express Merchants’ Litig., 634 F.3d 187, 197 (2d Cir. 2011);

see Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322, 329 (1955). The Merchants

assert: “In Lawlor , 349 U.S. at 328–29, the Supreme Court stated that

‘extinguishing claims which did not even then exist and which could not possibly

have been sued upon in the previous case . . . would in effect confer on

[defendants] a partial immunity from civil liability for future violations.’” Br. 81

(alterations in original) (emphasis added). The Merchants’ quotation of Lawlor is

disingenuous. The “immunity” which Lawlor prevents the parties from agreeing to

is immunity from antitrust liability for new allegedly anticompetitive conduct that

could not have been the subject of the previous suit. Lawlor , 349 U.S. at 328

(discussing post-settlement slow deliveries and allegedly illegal tie-ins). Here, the

release does not bar a future suit challenging any new, post-settlement allegedly

anticompetitive conduct that could not have been the subject of this suit. The

settlement here has precisely the effect that the Supreme Court gave to the

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71

settlement in Lawlor . The Court there held that the earlier “judgment precludes

recovery on claims arising prior to its entry, [but] it cannot be given the effect of

extinguishing claims which did not even then exist and which could not possibly

have been sued upon in the previous case.” Id. at 328. That is textbook res

judicata doctrine and says nothing about issue preclusion and does not undermine

the permissible scope of the class-settlement release at issue here.

Even Objectors’ skewed reading of Lawlor , however, does not help them

given the facts here. The releases were limited to claims based on facts that “are

alleged or which could have been alleged ” here. SPA169–SPA170 ¶ 68 (emphasis

added). Having acknowledged this point and the fact that the releases—much like

long-arm statutes designed to be coterminous with the reach of the Due Process

Clause—were drafted only to “releas[e] . . . claims that are or could have been

alleged based on the identical factual predicate of the claims in this case,” SPA45–

SPA46, Judge Gleeson properly recognized that the precise contours of the facially

valid releases is a subject for future cases. SPA47. For example, whether a

particular (presently hypothetical) claim—based on changed network rules, an

evolution in payment or processing technology, or other conduct—falls within this

case’s factual predicate is a determination to be made in that case, not this one. Id.

(“‘substantial similar[ity]’” of rules will be decided in future litigation); see Reyn’s

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72

Pasta Bella, 442 F.3d at 748–49 (barring suit based on conclusion that it was based

on identical factual predicate as Wal-Mart II ); Robertson IV , 622 F.2d at 35.

Finally, the release of antitrust claims in this settlement can be overturned

only if Objectors could show, to “‘a legal certainty,’” that the Releases (or some

other facet of the settlement) are unlawful. Robertson v. NBA, 556 F.2d 682, 686

(2d Cir. 1977) (“ Robertson II ”) (emphasis added); see id. (declaring that unless

“the challenged practices have . . . been held to be illegal per se in any previously

decided case,” the settlement may be approved); see also, e.g., Armstrong v. Bd. of

Sch. Dirs., 616 F.2d 305, 319–20 (7th Cir. 1980) (same), overruled on other

grounds by Felzen v. Andreas, 134 F.3d 873 (7th Cir. 1998). Here, Objectors

obviously cannot make that showing, for all of the reasons discussed in Section

I.A.2, supra.

III. THE COMPETITORS’ OBJECTIONS ARE EQUALLY MERITLESS.

American Express, First Data, and Discover also appeal the settlement’s

approval. Their challenges fare no better than those of other Objectors, as the

District Court recognized. SPA47. In addition to the Class’s showings that the

Class Representatives adequately represent all absent class members, including

AmEx, First Data, and Discover in their limited capacity as merchant acceptors of

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73

Visa and MasterCard branded cards, see Class Br. § I.D,22

Defendants briefly set

forth additional infirmities in AmEx, First Data, and Discover’s arguments.

A. The Competitors’ Claims, As Competitors, Are Not Released.

AmEx and First Data principally claim that the settlement improperly and

unlawfully releases their claims as competitors of the network defendants. AmEx

Br. 25–32; First Data Br. 9–24.23

Those complaints are baseless. As Judge

Gleeson stated, they “seek to make something of nothing,” as the relevant release

language does not purport to release any claims that they may possess as

competitors. SPA47. Instead, as the District Court concluded, “it is sufficiently

clear from both the text and context of the releases that these class members are

releasing only claims that merchants have alleged or could have alleged in this case

in their capacity as merchants.” Id. More specifically, those releases provide that

claims “that are alleged or which could have been alleged” in this action (which

was brought by and on behalf of merchants that accept Visa and MasterCard), are

being released. SPA134 ¶ 33; SPA169–170 ¶ 68; see also D.E.1740-2 at F2–12

(“In general, the settlement will resolve and release all claims made by persons,

22Competitors’ specific requests—AmEx primarily seeks to unwind the settlement,

see Br. 35; Discover seeks specific modifications to exclude it from portions of theagreement, see Br. 6, 50; and First Data principally seeks an opt-out right, see, e.g.,Br. 2—do not materially change the response to their arguments.23

Discover advanced a similar argument below, see Tr. (D.E.6094) 144–45(admitting that it “objected to the release” and that its objections “overlapsubstantially” with First Data and AmEx’s), but shifts course here. See infra

§ III.B.

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businesses, and other entities that arise from or relate to their capacity as

merchants that accept Visa-Branded Cards and/or MasterCard-Branded Cards in

the United States . . . .”) (emphasis added).24

American Express similarly argues that its inclusion in the class

demonstrates the lack the cohesion required by Rule 23, essentially for two

reasons: First, its interest in competing with Visa and MasterCard requires it to

oppose “discriminatory treatment imposed by merchants (including discriminatory

surcharges)—a position antithetical to the claims being settled by the Rule 23(b)(2)

class.” AmEx Br. 17–18; see also First Data Br. 36–38 (similar). Second, many of

the merchants (and counsel) representing the Class are adverse to American

Express in a parallel antitrust suit, and the settlement here is contrary to AmEx’s

own litigation goals, interests, and strategies in that case. AmEx Br. 18–19.

But those arguments, which merely rehash the competitors’ release-based

contentions, largely miss the point. Although First Data and AmEx do not

24AmEx and First Data assert that the language of the settlement agreement calls

into question the breadth of the releases. See First Data Br. 13–15, 20–23; AmExBr. 25–26. But if there were any question about the agreement’s breadth, it shouldnot be resolved by concluding that the agreement is unambiguously broad, contra

First Data Br. 20–22, given that neither the parties to the agreement nor the DistrictCourt have read the agreement in the manner AmEx and First Data propose.Instead, the proper course would be to resort to parol evidence of the agreement’smeaning and to defer to the parties’ representations below—consistent with the

District Court’s conclusion, SPA47—that “the releases do not bar claims based oninjuries as payment network competitors.” Defs.’ Reply Supp. Final Approval 32(D.E.5937) (emphasis and capitalization omitted); accord Pls.’ Reply Supp. FinalApproval 59 (D.E.5939).

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75

primarily do business in their merchant capacities, they nonetheless accept Visa-

and MasterCard-branded cards as modes of payment for services they offer.

AmEx Br. viii; First Data Br. 24. That brings them within this class, and they offer

no basis for concluding that the District Court erred in concluding that the class

representatives and counsel adequately represented them in that capacity, see

Literary Works, 654 F.3d at 249; Class Br. § I.D—much less that it abused its

discretion, Joel A., 218 F.3d at 139.

B. Discover’s Group-Boycott Claim Lacks Merit.

Discover also attacks the settlements, claiming that the “Level Playing

Field” provisions are unlawful group boycotts and impose serious administrative

burdens on any merchant that wishes to accept both Discover and Visa and/or

MasterCard. Discover Br. 5–6, 22–27, 39–49. The challenged provisions ensure

that surcharging of Visa or MasterCard transactions will be permitted only under

the conditions pursuant to which the merchant is allowed to surcharge cards from

networks with more-restrictive surcharging rules. See SPA141 & SPA 148

¶ 42(a)(iv), (c); SPA154–SPA155 &SPA161–SPA162 ¶ 55(a)(iv), (c). Discover’s

arguments lack merit, and, in all events, are insufficient to disturb Judge Gleeson’s

approval decision.

Arguments, as here, that a class settlement enshrines an unlawful agreement

face a high bar at the settlement-approval phase, where the district court’s analysis

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76

of both the pre- and post-settlement status quo is—and must be—less rigorous than

it would be in the context of a full trial on the merits. Robertson II , 556 F.2d at

686 (upholding a settlement approval because challengers failed to demonstrate, to

“‘a legal certainty,’” that the settlement was unlawful); see supra at 30–31 (court

need not fully adjudicate plaintiffs’ claims). Unless “the challenged practices have

. . . been held to be illegal per se in a previously decided case,” there is no error in

approving an otherwise-adequate settlement accord. Robertson II , 556 F.2d at 686

(rejecting claim that “settlement agreement cannot be approved because it

perpetuates . . . ‘classic group boycotts’”).

Here, Discover’s group-boycott claim is doomed by its failure to identify

even a single case in which settlement provisos or contractual terms such as the

Level Playing Field provisions have been deemed a group boycott and held

unlawful per se.

Additionally, Discover’s attack on the “Level Playing Field” provisions as

unfair and unreasonably harmful to it as a third-party, see Discover Br. 39–42, is

unavailing, because those provisions are, at bottom, nothing more than “most

favored nations” clauses. Those clauses ensure merchants cannot use a surcharge

to make paying with a Visa- or MasterCard-branded card more expensive for

consumers than paying with a card from a higher-cost Competitive Card Brand.

Far from being unlawful per se, courts repeatedly have upheld “most favored

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77

nations” provisions given their legitimate, competitive features. See, e.g., Blue

Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th

Cir. 1995); Ocean State Physicians Health Plan, Inc. v. Blue Cross & Blue Shield

of R.I., 883 F.2d 1101, 1102, 1110 (1st Cir. 1989).

Finally, Discover’s protestations regarding the burdensome calculations

required by the “Level Playing Field” provisions ring hollow in light of the fact

that Discover itself maintains an “Equal Treatment Rule” that can operate to “limit

surcharges against Discover where Discover matches or beats the pricing of a rival

that is not surcharged .” Discover Br. 20 (emphasis added). In other words, it

appears that even Discover’s own rules can necessitate an inter-network cost

comparison, which illustrates the point that such comparative exercises are merely

a cost of doing business in the payment card industry. They are hardly a basis for

denying settlement approval, let alone for overturning an already-approved

settlement on abuse-of-discretion review.

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78

CONCLUSION

For the foregoing reasons and those set forth by the Class Plaintiffs, the

judgment should be affirmed.

Dated: October 15, 2014.

SIDLEY AUSTIN LLP

By: /s/ Carter G. PhillipsCarter G. Phillips

SIDLEY AUSTIN LLP1501 K Street, NWWashington, DC 20005(202) [email protected]

David F. GrahamRobert N. HochmanOne South Dearborn StreetChicago, IL 60603

Benjamin R. Nagin

Eamon P. JoyceMark D. Taticchi787 Seventh Avenue

New York, NY 10019


Citigroup Inc., Citibank, N.A., and

Citicorp

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80

MORRISON & FOERSTER LLP

By: /s/ Mark P. Ladner Mark P. Ladner Michael B. Miller 250 West 55th Street



Bank of America, N.A., BA Merchant

Services LLC (f/k/a Defendant National

Processing, Inc.), Bank of AmericaCorporation, and MBNA America Bank,

N.A.

SHEARMAN & STERLING LLP

By: /s/ James P. TallonJames P. Tallon599 Lexington Avenue

New York, NY 10022-6069(212) 848-4000

[email protected]


Barclays Bank plc (in its individual

capacity and as successor in interest to

Barclays Financial Corp.) and Barclays

Bank Delaware

O’MELVENY & MYERS LLP

By: /s/ Andrew J. FrackmanAndrew J. FrackmanAbby F. RudzinTimes Square Tower 7 Times Square



Capital One Bank(USA), N.A., Capital

One F.S.B., and Capital One Financial

Corp.

K EATING MUETHING & K LEKAMP PLL

By: /s/ Richard L. Creighton, Jr.Richard L. Creighton, Jr.Drew M. HicksOne East Fourth Street, Suite 1400Cincinnati, OH 45202(513) [email protected]

Attorneys for Defendant-Appellee Fifth

Third Bancorp

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81

K UTAK R OCK LLP

By: /s/ John P. PassarelliJohn P. PassarelliJames M. SulenticThe Omaha Building1650 Farnam StreetOmaha, NE 68102-2186(402) [email protected]

Attorneys for Defendant-Appellee First

National Bank of Omaha

WILMER CUTLER PICKERING HALE

AND DORR LLP

By: /s/ Ali M. StoeppelwerthAli M. Stoeppelwerth1875 Pennsylvania Avenue, NWWashington, DC 20006(202) [email protected]


HSBC Finance Corporation, HSBC

North America Holdings Inc., and HSBC Bank USA, N.A.

SKADDEN, ARPS, SLATE, MEAGHER

& FLOM LLP

By: /s/ Peter E. GreenePeter E. GreeneBoris BershteynPeter S. JulianFour Times Square

New York, NY 10036(212) 735-3000

[email protected]

MASSEY & GAIL, LLP

By: /s/ Jonathan S. MasseyJonathan S. MasseyLeonard A. Gail1325 G Street NWSuite 500Washington, DC 20005(202) 652-4511

[email protected]

Attorneys for Defendants-Appellees JPMorgan Chase & Co., JPMorgan Chase

Bank, N.A., Chase Bank USA, N.A., Chase Manhattan Bank USA, N.A., Chase

Paymentech Solutions, LLC, Bank One Corporation, Bank One, Delaware, N.A.,

and J.P. Morgan Chase Bank, N.A. as acquirer of certain assets and liabilities of

Washington Mutual Bank †

† Skadden, Arps, Slate, Meagher & Flom LLP is counsel to the Chase Defendants-Appellees

except as to Objectors-Appellants American Express Co., American Express Travel RelatedServices Company, Inc., American Express Publishing Corp., Serve Virtual Enterprises, Inc.,ANCA 7 LLC d/b/a Vente Privee, USA, AMEX Assurance Company, Accertify, Inc., Wal-Mart,Inc., Alon USA, LP, Amazon.com, Zappos.com, Foot Locker, Inc., and J.C. Penney Corporation,Inc. and related entities.

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82

JONES DAY

By: /s/ Joseph W. Clark John M. MajorasJoseph W. Clark 51 Louisiana Avenue, NWWashington, DC 20001(202) 879-3939

[email protected]


National City Corporation, National

City Bank of Kentucky

ALSTON & BIRD LLP

By: /s/ Teresa T. Bonder Teresa T. Bonder Valarie C. WilliamsKara F. KennedyOne Atlantic Center 1201 W. Peachtree Street, NWAtlanta, GA 30309(404) [email protected]


SunTrust Banks, Inc. and SunTrust Bank

PULLMAN & COMLEY, LLC

By: /s/ Jonathan B. OrleansJonathan B. OrleansAdam S. Mocciolo850 Main StreetBridgeport, CT 06601-7006(203) 330-2000

[email protected]

Attorneys for Defendant-Appellee Texas

Independent Bancshares, Inc.

PATTERSON BELKNAP WEBB & TYLER

LLP

By: /s/ Robert P. LoBueRobert P. LoBueWilliam F. Cavanaugh1133 Avenue of the Americas

New York, NY 10036(212) 336-2000

[email protected]


Wachovia Bank, NA., Wachovia

Corporation, and Wells Fargo

& Company

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83

CERTIFICATE OF COMPLIANCE WITH FEDERAL RULE OF

APPELLATE PROCEDURE 32(a)

This brief complies with the type-volume limitations of Fed. R. App. P.

32(a)(7)(B) and this Court’s October 12, 2014 order (Docket Entry 1119) granting

Defendants-Appellees’ motion for leave to file an oversized brief of up to 19,000

words because this brief contains 18,351 words (as determined by the Microsoft

Word 2007 word-processing program used to prepare this brief), excluding those

parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).

This brief complies with the typeface requirements of Fed. R. of App.

P. 32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because this

brief has been prepared in a proportionally spaced typeface using the Microsoft

Word 2007 word-processing program in 14-point Times New Roman font.

/s/ Carter G. Phillips

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84


I hereby certify that on this 15th day of October 2014, I electronically filed

and served the foregoing brief using the CM/ECF System.

/s/ Carter G. Phillips

Carter G. Phillips

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HIGHLY

CONFIDENTIAL

-SUBJECT TO

PROTECTIVE ORDER

uniform surcharges, will have beneficial effects for merchants and their customers. I agree that

more complete reforms of

the

card networks would be even more beneficial, but

that

is

not an

option currently available, and I am

not

able to opine on the likelihood

that

rejection

ofthis

Agreement would be followed by more complete, market-wide relief. Notwithstanding

Professor Hausman s criticisms of my analysis, he and I also agree on most

ofthe

fundamental

economic issues, including the substantial market power exercised by all of the major U.S.

credit card networks. Where I

differ from

both him and Professor Stiglitz

is

my conclusion

that

the

ability

to

apply

uniform

credit card surcharges

is

beneficial (even

though it

is

easy

to

imagine even more beneficial market arrangements) . Professors Stiglitz and Hausman, on the

other

hand, take

an

extreme position that

the

ability

to

surcharge all credit card transaction

has o value to U.S. merchants. I do

not

believe

that

position is supported by economic

analysis

or the

evidence. Moreover, Professor Hausman does

not

even

offer

a coherent

prescription for relief that American Express on its own

ould

provide that would significantly

reduce its market power.

July 4 2014

s

!"#$ &'&&()*(+,,,&(-..(/0/ 1234)$56 7&8 9:;$* +<=&>=&> ?"@$ 78 2A 78 ?"@$B1 C' ,>8EE



HOW THE PROPOSED P AYMENTS LEGISLATION WILL R ESTRAIN

COMPETITION AMONG P AYMENT C ARD SCHEMES AND H ARM

CONSUMERS IN THE EUROPEAN UNION

David S. Evans*

1 October 2014

The European Commission’s proposed payments card legislation and the common position reached by the

European Parliament in April 2014 will harm competition, innovation, and consumers if broadly endorsed by the

European Council in the coming months. The interchange fee price caps will soften competition between MasterCard

and Visa, the global four-party bankcard systems, and disadvantage domestic card systems. The limits on what, in effect,

merchants pay for cards will shift billions of euros of costs to European consumers. The infirmity of the legislation is

particularly apparent from its treatment of the three-party card schemes. These three-party schemes, which have small

shares of payment cards in European countries, provide an important source of competition. The proposed legislation

impairs the ability of these smaller three-party systems to compete by permitting merchants to surcharge cards from the

smaller three-party systems but not the larger four-party ones, and by potentially prohibiting three-party systems from

only entering into select partnerships. They may also face arbitrary price caps. These anti-competitive restrictions on

small rivals, advanced in the name of competition, demonstrate the lack of serious analysis behind the proposed

legislation. For European consumers the proposed payments legislation will lead to a hefty price tag, diminished choice,

and depressed innovation.

__________________________________________________________

* Chairman, Global Economics Group; Executive Director, Jevons Institute for Competition Law and Economics and Visiting Professor, Faculty of Laws, University College London; and Lecturer, University of Chicago Law School. I would like to thank Steven Joyce and Alexis Pirchio for excellent research help and American Express for financialsupport. The views in this paper are my own and do not necessarily reflect the view of any of the people or institutionsmentioned above.



2

I. INTRODUCTION AND SUMMARY

The European Parliament, in early April 2014, endorsed and further extended draft

legislation,1 originally proposed by the European Commission, which will impose sweeping

regulation on payment card businesses.2 The backers of the legislation claim that it will nurture

competition, innovation, and consumer choice in the European Union.3 In fact, if adopted in the

current form, it will reduce competition among payment systems in the EU, impede the entry of

new schemes, weaken innovation, and decrease consumer choice. European consumers will end up

paying billions of euros more in fees. The legislation will squelch virtually all challengers to

MasterCard and Visa.

One doesn’t have to speculate about these effects. There are already dead and wounded

victims in plain sight. The European Commission’s recent policies have eliminated the most serious

emerging pan-European challenger to the global card networks. A group of 24 banks drawn from

across major countries in Europe tried to start a competing pan-European card system a few years

ago. After being rebuffed by an intransigent Commission, set on shifting the cost of payments from

merchants to consumers, the Monnet Project folded in April 2012. Several other attempts are all but

shuttered. European consumers have already lost competition, choice, and innovation as a result.

The cornerstone of the draft legislation involves caps on the “multilateral interchange fees”

(MIF) that banks that service merchants pay to banks that service consumers when consumers use

their cards to pay at merchants. These caps apply to banks that are members of the four-party bank-

card networks.4 The fee caps will reduce the revenue that cardholders’ banks receive from

1 European Parliament, “Amendments adopted by the European Parliament on 3 April 2014 on the proposal for adirective of the European Parliament and of the Council on payment services in the internal market and amending2 The Commission’s initial proposals are currently being considered by the European Council, before Trialoguediscussions commence at the end of 2014, or beginning of 2015, with a view to finalizing the legislation for adoption bythe European Council and European Parliament.3 European Commission, “Proposal for a Regulation of the European Parliament and of the Council on InterchangeFees for Card-Based Payment Transactions”. COM(2013) 550 final. July 24, 2013. Available at:http://www.ipex.eu/IPEXL-WEB/dossier/document/COM20130550.do; European Commission, “Proposal for aDirective of the European Parliament and of the Council on Payment Services in the Internal Market and AmendingDirective 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC”. COM(2013) 547 final”.

July 24, 2013. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0547:FIN:EN:PDF4 The “three” in three-party systems refers to the cardholder, the card company, and the merchant. The “four” in four-party systems refers to the cardholder; the cardholder’s bank; the merchant’s bank, and the merchant. Of course, thatlist doesn’t include the network operator, which would make five, but since this is the normal nomenclature I will use it.

The network operator for the four-party system and the card company for the three-party system serve very differentroles. The card company for the three-party system has direct relationships with cardholders and merchants. The

network operator for the four-party system does not have direct relationships with cardholders and merchants.



3

merchants’ banks by as much as 84 percent for debit and 73 percent for credit in some European

countries. That is an experiment that several countries around the world have already performed

with widely reported disastrous results for cardholders. When the merchant-side pays less the

consumer-side pays more. Consumer fees go up, or services go down, and by far more than

consumers may ever see back in lower prices from merchants.

It is even worse than that. By making every four-party bank network, in every country in

Europe, have exactly the same MIF for every transaction regardless of the amount or type of

merchant or any other factor, the legislation limits the ability of these four-party networks to

compete through price and product differentiation. Perversely, given the claimed purpose of the

legislation, this approach will soften competition between MasterCard and Visa. That will exacerbate

the harm to European consumers through less choice, higher prices, and less innovation.

The defects of the legislation are most apparent in the treatment of the smaller card systemsthat operate primarily as standalone companies and do not involve large networks of banks. These

companies, which are called “three-party systems”, account for less than 5 percent of debit, credit

and charge card volume in the European Union. Their presence is known to be modest—less than

10 percent in virtually all EU Member States. Yet the legislation sweeps them into regulations that

were originally motivated by competition concerns about the large four-party bank networks.

According to the legislation, if one of these standalone card companies decides to

collaborate with even one bank to issue or acquire cards, the company may have to make its card

brand available for all banks, in every country in the EU, to issue and acquire as well.5 That

requirement may lead these three-party systems to withdraw from a number of the smaller European

markets where they have entered and extended their reach and coverage through perfectly legitimate

individually and confidentially negotiated vertical agreements with a bank or payment institution

partner. It may therefore perversely reverse the competitive entry that has taken place over the lasttwo decades—entry that was enabled by a competition law-based intervention brought by the

European Commission against Visa in the mid-1990s. It also deters three-party systems, such as

Cetelem in France, from considering a business model that involves partnerships and thereby

arbitrarily limits the ability of these domestic three-party systems from expanding beyond their

borders.

The legislation proposed by the European Parliament6 also prohibits merchants from

5 Article 29(1) of the proposed revised Payment Service Directive purports to extend the open access obligation for

four-systems to three-party systems, requiring them to establish criteria for participation in the system by unrelatedinstitutions which are objective, non-discriminatory and proportionate and do not inhibit access more than is necessaryto safeguard against specified risks. The Commission’s proposal on this issue has been endorsed by the EuropeanParliament.

6 See Article 55, paragraphs 3-4 European Commission, “Proposal for a Directive of the European Parliament and of



4

imposing added fees (“surcharges”) on consumers who use cards from the four-party bank networks

that account the preponderance of card use. It then, in a peculiar twist, specifically permits

merchants to impose added fees on consumers who use cards issued by the smaller companies that

compete with these large bank networks. This makes no sense at all. The ostensible rationale for the

legislation is to provide tools to merchants in circumstances where they have to accept the cards

issued by the “must have” four-party bank networks. That reasoning doesn’t extend to smaller

systems whose cards are not “must have” but, in fact, are “don’t have” at many merchants.

The legislation proposed by the European Commission and European Parliament provides

for extending price regulation to the smaller three-party systems. The price caps would appear to

apply whenever these standalone card companies enter into an individually-negotiated vertical

agreement with an arm’s length partner. In that case the proposals suggest that the three-party

systems should be treated “as if they are a four party scheme.” 7 It is unclear what these provisionsmean in practice since these systems do not have a MIF that could be subject to a cap.

The proposed regulations on smaller players are inconsistent with sound competition policy,

which imposes special obligations only on firms that are dominant in a market, and demands open

access only in the extreme case of essential facilities such as telecom monopolies. Indeed, one sees

how absurd the proposed legislation is from the effect of the combination of the proposed

regulations on the smaller card companies. Several of the regulations make it harder for these

companies to compete against the likes of MasterCard and Visa, and risk undermining the

competitive entry that the European Commission has previously sought to enable.8

The proposed payments legislation left behind by the outgoing European Commission and

European Parliament is anti-consumer and anti-competition. The European Council should not

the Council on Payment Services in the Internal Market and Amending Directive 2002/65/EC, 2013/36/EU and2009/110/EC and repealing Directive 2007/64/EC”. COM(2013) 547 final”. July 24, 2013. Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2013:0547:FIN:EN:PDF. See also Amendments 111 and 112,European Parliament, “Amendments adopted by the European Parliament on 3 April 2014 on the proposal for adirective of the European Parliament and of the Council on payment services in the internal market and amendingDirectives 2002/65/EC, 2013/36/EU and 2009/110/EC and repealing Directive 2007/64/EC (COM(2013)0547 – C7-0230/2013 – 2013/0264(COD))”. April 3, 2014. Available at:http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2014-0280+0+DOC+XML+V0//EN.7 See Article 1, paragraph 3 (c), Article 2 (15) and Articles 3-5, European Commission, “Proposal for a Regulation of theEuropean Parliament and of the Council on Interchange Fees for Card-Based Payment Transactions”. COM(2013) 550final. July 24, 2013. Available at: http://www.ipex.eu/IPEXL-WEB/dossier/document/COM20130550.do. See also

Amendment 21, Amendment 28, and Amendments 29-34, European Parliament, “Amendments adopted by theEuropean Parliament on 3 April 2014 on the proposal for a regulation of the European Parliament and of the Councilon interchange fees for card-based payment transactions (COM(2013)0550 – C7-0241/2013 – 2013/0265(COD))”.

April 3, 2014. Available at: http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2014-0279+0+DOC+XML+V0//EN.

8 See discussion below and footnote 29.



5

approve it in its current form.

II. THE COMPETITIVE LANDSCAPE FOR PAYMENT CARDS IN THE

EUROPEAN UNION

Networks of banks issue most debit, credit, and charge cards in the European Union. They

are part of “four-party” systems in which one bank handles card payments for merchants, another

bank handles card payments for cardholders, and the network company that operates the system has

no direct relationship with either the merchants or the cardholders, but takes care of authorizing and

clearing transactions between these banks, who are paid a common fee, the MIF, set by the network.In some countries such as the United Kingdom, most banks belong to networks operated by one of

the global card networks—MasterCard and Visa.9 In other countries, many banks belong to

independent domestic networks—such as ServiRed in Spain and Cartes Bancaires in France. The

domestic networks are often affiliated with MasterCard and Visa so their cardholders can use their

cards in other countries using the global networks. Four-party systems almost always have a MIF

that is adhered to by default and which the bank that issues the card receives from the bank that

services the merchant.

Three-party systems also issue debit, credit, and charge cards in the EU. They typically sign

up merchants directly and take care of reimbursing them for payments made on cards they issue;

they also sign up and service consumers directly. Because they are single integrated enterprises they

do not have interchange fees. In some countries the multinational three-party systems, American

Express and Diners Club, work with a local partner that issues cards and in some cases may also work with merchants. Nonetheless, even in such circumstances, they continue not to have

multilateral or bilateral interchange fees. As with any freely and bilaterally negotiated agreement, the

two parties agree on how to allocate the revenues from their joint activities.

To understand the competitive landscape for payment card systems I have examined

industry data for EU Member States that account for approximately 92 percent of EU GDP and 91

percent of EU population. The multi-national four-party networks account for more than 80 percent

of debit, credit and charge card spend in most these countries and their average share, weighted by

GDP, is almost 60 percent.10 By contrast the multi-national three-party systems, in total, account for

9 Visa International is a publicly traded global card system. Visa Europe is an association of European banks which areaffiliated with Visa International and have entered into a deal in which they have the option of selling Visa Europe inreturn for equity in Visa International.

10 The European Commission has claimed that credit, charge and debit cards are a separate relevant antitrust market and



6

less than 10 percent of card spend in virtually every country and their average share, weighted by

GDP, is about 3 percent. Visa and MasterCard dominate the payment card landscape in the EU.

As mentioned earlier, the multi-national three-party systems sometimes partner with banks

or payment institutions in particular countries. Table 1 shows the extent of these partnership

relationships for American Express for all EU countries. American Express operates directly in 11

EU Member States. It has partners in 17 Member States. It is apparent that American Express

typically operates on its own in the larger economies but chooses to partner with banks in the

smaller economies. The average GDP per capita of countries in which it operates on its own is !

37,359 while the average GDP per capita in countries for which it has a partner is, at ! 15,889, more

than 57 percent lower.

The main increase in competition occurred after 1996 when American Express began

entering into bank partnerships to issue cards for use in various countries. That happened followinga competition law-based intervention by the European Commission that challenged the introduction

of a Visa rule that prohibited its member banks from issuing cards for a competitor other than

MasterCard. These partnership relationships were mainly entered into over the course of the first

decade of the century and reflect entry into these countries over that time period.

III. THE FAILED QUEST FOR A NEW PAN-EUROPEAN CARD SYSTEM

The European Commission has encouraged the creation of a pan-European system that

could obtain a global presence. The Commission saw China’s UnionPay as an example. The Chinese

government established UnionPay as the card network for banks in China in March 2002.11 China

UnionPay cards accounted for over 9 billion card transactions in 2012.12 Although the UnionPay

that they do not compete with cash, checks, or other means of payments. EC. Mastercard. COMP/34.579. December19, 2007. Available at: http://ec.europa.eu/competition/antitrust/cases/dec_docs/34579/34579_1889_2.pdf. Thatdefinition is not consistent with the fact that payment card systems compete aggressively with these other forms ofpayments, such as cash, and that consumers and merchants can and do substitute readily between different forms ofpayment. Nevertheless, for the purpose of this paper I use the Commission’s view as a reference point, as this underliesthe proposed legislation, that credit, charge and debit cards are together the relevant “market”.11 China UnionPay, “Overview”. http://en.unionpay.com/comInstr/aboutUs/file_4912292.html.

12 The Nilson Report, #1043.



7

Table 1: American Express Entities and Partners in Europe

Country Entities

Austria American Express

Belgium Alpha Card (American Express / BNP Paribas Fortis JV)

Bulgaria Eurobank EFG Bulgaria

Croatia PBZ Card

Cyprus Bank of Cyprus

Czech Republic Global Payments Europe

Denmark TellerEstonia Swedbank

Finland American Express

France American Express, Credipar, Credit Mutuel

Germany American Express

Greece Alpha Bank

Hungary OTP Bank

Ireland Elavon Merchant Services

Italy American Express

Latvia Citadele Banka

Lithuania Citadele Bankas

Luxembourg Alpha Card (American Express / BNP Paribas Fortis JV)

Malta Bank of Valletta

Netherlands American Express

Poland Bank Millennium, First Data

Portugal Millennium bcp, Banco Espirito Santo

Romania Bancpost / EFG Retail Services

Slovakia VUB Bank

Slovenia Banka Koper

Spain American Express, Bansamex (American Express / Santander JV), La Caixa, Iberia Card, BancoPopular Espanol

Sweden American Express, Entercard

United Kingdom American Express, BarclayCard, Lloyds Banking Group, TSB Bank plc, MBNA (Bank of America Europe Card Services)



8

cards are primarily issued to Chinese nationals, the cards are accepted in 141 countries and regions

outside of China.13 Another way to look at the situation in Europe is to consider several other large

countries. The United States, China, Japan, and Russia all have large payment systems with roots in

those countries.14 These US, China and Japan systems have secured worldwide distributions for their

domestic card systems.

Several bank groups considered starting pan-European systems in the late 2000s. These

included the European Alliance of Payment Schemes (EAPS), the Monnet Project, and payFair. The

experience of the Monnet Project is instructive. The idea for starting a new pan-EU card system

came about around 2008. A number of banks met in Madrid in 2010 to discuss the initiative and

made plans for moving it forward. By 2011 the Monnet Project had developed detailed technical and

business plans for starting a pan-European system. By then it included 24 banks drawn from seven

countries including the EU-5 as well as Belgium and Portugal. 15 One of their key plans was todevelop a mobile payments system for Europe.

The proponents of the new system, however, did not believe they could develop a viable

business model that did not include economically meaningful interchange fees for the participating

banks.16 They took their concerns to the European Commission. The Commission, however,

apparently would not entertain any system, including a new entrant, having interchange fees in

excess of the low levels that the Commission was pursuing. Absent a clear revenue stream for

issuing banks, the Monnet Project believed it could not move forward. It disbanded in April 2012

“owing”, as the European Central Bank put it, “to the perceived absence of a viable business

model.”17

Meanwhile EAPS and payFair have not obtained much traction in Europe. EAPS is a

coalition of the domestic independent card systems in Europe. According to the European Central

Bank the number of participating systems has declined from six to three. 18 EAPS’ webpage lists

13 China UnionPay, “Overview”. http://en.unionpay.com/comInstr/aboutUs/file_4912292.html.14 Visa and Mastercard in the United States, UnionPay in China, JCB in Japan, and several domestic systems in Russia.BIS (2011) “Payment, Clearing and Settlement Systems in Russia”. CPSS – Red Book – 2011. Available at:http://www.bis.org/publ/cpss97_ru.pdf; BIS (2003) “Payment Systems in the United States”. CPSS – Red Book –2003. Available at: http://www.bis.org/cpss/paysys/UnitedStatesComp.pdf; BIS (2012) “Payment, Clearing andSettlement Systems in China”- CPSS – Red Book – 2012. Available at: http://www.bis.org/publ/cpss105_cn.pdf; Bankof Japan (2003) “Payment System in Japan”. CPSS – Red Book – 2003. Available at:https://www.boj.or.jp/en/paym/outline/pay_boj/pss0305a.pdf.15 “EU Banks Ready to Break Visa/MasterCard Duopoly”, FinExtra. June 15, 2011

http://www.finextra.com/news/fullstory.aspx?NewsItemID=22662. 16 “EU Banks Ready to Break Visa/MasterCard Duopoly”, FinExtra. June 15, 2011

http://www.finextra.com/news/fullstory.aspx?NewsItemID=22662. 17 “Thumbs Down for Monnet”, PaySys SEPA Newsletter, May 2012. http://www.paysys.de/download/SepaMay12.pdf . 18 European Central Bank, “Card Payments in Europe – A Renewed Focus on SEPA for Cards,” at p. 32. Available at

http://www.ecb.europa.eu/pub/pdf/other/cardpaymineu_renfoconsepaforcards201404en.pdf.



9

Consorzio BANCOMAT, EUFISERV, and the German Banking Industry Committee. However,

their webpage provides no information on commercial activity after 2012. The latest news section

on the site has only one item from April 2012. PayFair was started in 2007 by industry professionals

and has attempted to develop a pan-European payment system. It highlights on its web site that it

did its one-millionth transaction in 2013. Unfortunately, one million transactions, in total, over six

years, is not an impressive number.19 There were, for example, more than 1.2 billion transactions in

Belgium in just one year, 2013.

Faced with the obstacles set in place by the European Commission there is, at this point, no

significant effort underway, to my knowledge, to create a pan-European system. 20 Despite the

prospect of legislation that claims to “nurture” competition in Europe it does not appear that

anyone is waiting in the wings anxious to make another attempt to start a pan-European system.

These facts strongly suggest that the legislation is not the solution but rather the problem along withthe regulatory barriers to entry erected by the European Commission.

IV. OVERVIEW OF THE PAYMENTS LEGISLATION ENDORSED BY THE

EUROPEAN PARLIAMENT

The legislation endorsed by the European Parliament in April 2014 shifts most of the cost of

running domestic payment systems in Europe from merchants to consumers and favors MasterCard

and Visa at the expense of domestic systems and smaller multinational competitors.

19 The European Central Bank also mentions EUFISERV as one of the entities trying to establish a pan-Europeansystem. I note that their webpage has a 2012 date on it. Suffice it to say that it does not have much presence in Europe.http://www.eufiserv.com/home.aspx. Note that EUFISERV is also a member of PayFair.20 One possibility concerns the banks that belong to Visa Europe. Visa Europe is not owned by Visa. However, underthe terms of an agreement Visa Europe has an option to sell itself to Visa International. There have been somediscussions that Visa Europe would exercise that option after which the banks that belong to Visa Europe wouldestablish their own pan-European debit card system. “Visa Likely to Purchase Europe Payments System”, Banking ServicesPayments”, March 20, 2013. http://payments.banking-business-review.com/news/visa-likely-to-purchase-europe-

payments-system-200313.



10

A. THE PROPOSED INTERCHANGE FEE R EGULATIONS

The interchange fee is paid by the merchant’s bank to the cardholder’s bank in the four-party

model. Typically the merchant’s bank passes on most of the cost of the interchange fee payments to

the merchant and the cardholder’s bank passes on most of the benefit of the interchange fee

revenue to the consumer in the form of lower fees and product enhancements. As a result the MIF

balances how much one group of customers (merchants that accept cards) pays relative to another

group of customers (cardholders). Increasing the interchange fee usually lowers what consumers pay

for using cards and increases what merchants pay for using cards. In some cases, the two individual

banks, one an acquirer for merchants and the other an issuer to cardholders, negotiate a bilateral

interchange fee. Such bilateral negotiations are seldom practical for four-party bank networks with

many participants that have to deal with each other. As a result, four-party bank networks typically

set a default interchange fee that applies whenever there is no alternative bilaterally agreed fee.

Notably, European competition authorities have never questioned interchange fees that are

negotiated bilaterally between banks. Three-party systems, as noted earlier, do not have interchange

fees.

Four-party systems use the interchange fee to compete with each other and with the

companies that operate the so-called three-party system. A higher interchange fee helps attract banks

to the system. And since banks pass savings on to cardholders the higher interchange fee also

attracts cardholders, which in turn is critical to ensuring merchants are interested in accepting the

network’s cards. Card systems also have to consider the impact on merchant acceptance. Acquiring

banks may pass on some, or all, of the interchange fee to merchants, so a higher interchange fee

results in a higher merchant fee. The companies that operate three-party systems also chargemerchant fees, but do not have interchange fees. Four and three-party systems strike different

balances between the prices to merchants and consumers. That is consistent with normal

competition where businesses differentiate themselves based on price and many other features.

Four-party bank card systems also reach different judgments on the interchange fee, along

with other prices, across EU Member States. That’s not surprising. As much as Europeans might

aspire for more similarity across countries, the countries differ enormously from one another in so

many ways—from income levels, to the role of large merchants, to cultural preferences concerning

credit. In fact, given the obvious differences it would be astonishing if the rate structures for cards

were the same across Europe. Figure 1 shows the median interchange fees for credit and debit—

taken at the EMV rate when available—for most of the EU countries.21

21 See the appendix for details. To show interchange fees on a comparable basis we used the interchange fees for non-



11

Figure 1: Interchange Fees in EU Countries

Source: See Appendix.

There is even more variability than shown in the figure. Four-party bank card schemestypically set different interchange fees for different kinds of payment cards. There are other

differences as well. Rates for chip-and-pin cards used at the brick-and-mortar locations where the

consumer is present when they are paying with the card are, for example, lower than the rates for

online transactions. Rates can also vary by industry so in some cases rates for petrol are lower than

for retail. These variations in the interchange fees are another source of competitive differentiation

among the systems.

The Commission’s proposals, broadly endorsed by the European Parliament, impose caps

on the MIF adopted by four-party networks of 0.20 percent of the transaction amount for debit

cards and 0.30 percent of the transaction amount for credit cards. For a ! 50 payment the issuing

bank would receive 10 eurocents for debit and 15 eurocents for credit. The same interchange fee

premium consumer cards used in face-to-face transactions.

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

A u s t r i a

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d o m

Debit Interchange Fee

Credit Interchange Fee

Average Interchange Fee



12

caps would apply in every country, to every industry, for every merchant, online and offline, and for

every size and type of transaction. The Commission has not, to my knowledge, provided any serious

economic support for the level of these proposed caps, which are apparently wholly arbitrary. The

interchange fee is the only method available for four-party systems to balance their relative prices to

merchants and consumers since different banks serve these two sets of customers. Therefore the

interchange fee caps prevent the card systems from differentiating themselves based on their relative

prices to merchants and cardholders. Under the cap, none of the systems would be able to use

interchange fees to attract banks from other systems.

The interchange fee caps would lead to a dramatic reduction in the fees collected by issuing

banks in most EU countries. Table 2 shows the impact of the legislation by country. It shows the

percent reduction in interchange fee revenue received by issuing banks. The figures are based on the

average interchange fee for debit and credit cards for each country weighted by the volume oftransactions for debit and cards.22 The median reduction in fees is 66 percent. The reductions range

from a low of 0 percent in Hungary to a high of 82 percent in Romania. They exceed 65 percent in

15 of the 28 Member States. In a few pages I’ll show what these reductions mean for European

consumers.

B. THE PROPOSED R EGULATION OF THREE-P ARTY S YSTEMS

The European Parliament’s proposals prohibit merchants from imposing surcharges when

consumers present a card from a four-party card system. At the same time it specifically allows

merchants to impose surcharges when consumers present a card from a company that operates athree-party system. The law today, as set out in the Payment Services Directive, allows merchants to

surcharge but gives Member States the option of banning merchant surcharging. As of February

2013, 14 EU countries had done that.23 The new proposals do not allow EU Member States to opt

out. Therefore under the European Parliament’s proposals, merchants would be able to surcharge

three-party systems throughout the EU.

22 See Appendix.23 They are Austria, Bulgaria, Cyprus, Czech Republic, France, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg,Portugal, Romania, and Sweden. See: London Economics, iff, and PaySys (2013), “Study on the Impact of Directive2007/64/EC on Payment Services in the Internal Market and on the Application of Regulation (EC) No 924/2009 onCross-Border Payments in the Community” (Table 17, page 70). Available at

http://ec.europa.eu/internal_market/payments/docs/framework/130724_study-impact-psd_en.pdf.



13

Table 2: Reduction in Interchange Fees by Country

Country Reduction in Debit Card

Interchange

Reduction in Credit Card

Interchange

Reduction in Overall

Interchange

Austria 69% 70% 69%

Belgium 0% 56% 11%

Bulgaria 73% 63% 70%

Croatia 83% 76% 80%

Cyprus 78% 67% 73%

Czech Republic 80% 71% 79%

Denmark 33% 59% 36%Estonia 75% 63% 73%

Finland 0% 45% 7%

France 21% 0% 10%

Germany 67% 67% 67%

Greece 69% 71% 70%

Hungary 0% 0% 0%

Ireland 4% 56% 26%

Italy 56% 52% 55%

Latvia 48% 39% 45%

Lithuania 79% 68% 77%

Luxembourg 0% 56% 32%

Malta 0% 56% 26%

Netherlands 0% 56% 6%

Poland 84% 76% 82%

Portugal 65% 69% 66%Romania 84% 73% 82%

Slovakia 70% 57% 69%

Slovenia 78% 71% 76%

Spain 70% 62% 67%

Sweden 0% 56% 15%

United Kingdom 17% 62% 31%

Median 66% 62% 66%

Source: Based on our calculations; see appendix for details on the calculation of rates.



14

There is now extensive data and research on the results of surcharging.24 We know from the

experience of countries in Europe, and elsewhere, that most merchants do not surcharge when given

the opportunity to do so. Some, however, use the ability to surcharge to act opportunistically

towards consumers and exploit them. Depending on the interpretation, the proposed legislation also

allows merchants that have agreed to accept cards from a three-party system to selectively refuse to

take some of the system’s cards for payment.25 For example, a merchant could potentially choose to

accept an American Express corporate card but not take the classic green consumer card product.

When any merchant does that it creates uncertainty for consumers on whether other merchants will

do the same.

In the eyes of consumers the regulations make the cards of three-party systems less

desirable. Consumers may see signs at merchants alerting customers that they will surcharge certain

three-party system cards. And consumers that have these cards will occasionally face opportunisticsurcharging. The proposed legislation therefore seeks to incite the merchant community to

participate in what would become a massive advertising campaign against the three-party card

companies. Consumers will learn in no uncertain terms that if they want to be confident that they

can use their cards to pay and be safe from opportunistic merchant behavior they should stick to

MasterCard and Visa. The proposed legislation will taint the smaller three-party systems, which have

been the main source of new competition in many countries, with a badge of inferiority and will

create a two-tier structure of card products in which the three-party cards are inherently open to and

most likely to be subject to unfavorable treatment.

The legislation also appears to impose open-access regulation on these three-party systems.

To understand the implications of this requirement a short digression into the modern business

24 See, for example, European Commission (2001), “Commission Decision of 9 August 2001 Relating to a ProceedingUnder Article 81 of the EC Treaty and Article 53 of the EEA Agreement,” Case No. COMP/29.373 (VisaInternational), 2001 O.J. (L 293) 24. Available at http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32001D0782&from=EN. European Commission (2006), “Interim Report IPayment Cards: Sector Inquiry Under Article 17 Regulation 1/2003 on Retail Banking.” Available athttp://ec.europa.eu/competition/sectors/financial_services/inquiries/interim_report_1.pdf. London Economics, iff,and PaySys (2013), “Study on the Impact of Directive 2007/64/EC on Payment Services in the Internal Market and onthe Application of Regulation (EC) No 924/2009 on Cross-Border Payments in the Community.” Available athttp://ec.europa.eu/internal_market/payments/docs/framework/130724_study-impact-psd_en.pdf. Reserve Bank of

Australia (2007), “Reform of Australia’s Payments System: Issues for the 2007/08 Review.” Available athttp://www.rba.gov.au/payments-system/reforms/review-card-reforms/pdf/review-0708-issues.pdf. Reserve Bank of

Australia (2011), “Review of Card Surcharging: A Consultation Document.” Available athttp://www.rba.gov.au/publications/consultations/201106-review-card-surcharging/pdf/201106-review-card-surcharging.pdf. Reserve Bank of Australia (2012), “A Variation to the Surcharging Standards: Final Reforms andRegulation Impact Statement.” Available at http://www.rba.gov.au/payments-system/reforms/cards/201206-var-surcharging-stnds-fin-ref-ris/pdf/201206-var-surcharging-stnds-fin-ref-ris.pdf.

25 See Article 10, proposed MIF Regulation.



15

model of these three-party systems is helpful.

Some of the standalone card companies have decided to enter into selective partnerships

with banks to help expand their businesses.26 This strategy helps them secure scale economies and

network effects by issuing more cards and acquiring transactions in countries where they might

otherwise have no presence, and thereby makes them stronger competitors to the large four-party

systems in those countries and globally. Partnerships also enable three-party systems to enter

countries without making significant investments and thereby reduce barriers to entry into the

payments sector of these countries. American Express used this strategy starting in the late 1990s to

enter 17 EU countries, mainly less wealthy ones as mentioned above, through partnerships with

financial institutions. Diners Club also has bank partners in 8 countries that it has developed over

the last several decades.

The European Commission and European Parliament proposals apparently require three-party systems to enter into partnerships on the basis of objective, proportionate and non-

discriminatory criteria with ny nd l l banks or payment institutions that want to issue or acquire

cards for three-party systems if those systems make a deal with a single bank or payment institution

in the EU. That requirement increases entry barriers for three-party systems into domestic payment

markets because a decision to enter into a bank partnership triggers a requirement to provide access

to banks throughout the EU as a result. As a practical matter the proposed legislation appears to

subject the small three-party systems to “essential-facility” regulation that is commonly applied to

domestic monopolies in energy, ports, and telecom. Such an approach imposes entirely

disproportionate burdens and has no basis in competition or regulatory policy.

Finally, the proposed legislation appears to subject the three-party systems to price caps as

well. Whenever the three-party system enters into a licensing deal to issue a card, it appears the

system would be subject to the MIF price caps developed for and applied to four-party systems. It isunclear how the proposed legislation envisions this provision would apply in practice. The three-

party systems do not establish an interchange fee that flows from an acquiring bank to an issuing

bank. They do enter into a bilateral negotiation with a potential partner—which may have its own

valuable brand and other assets in a particular country—over the allocation of revenues resulting

from their joint activities. The viability of these confidential and bilateral negotiations appears under

threat.

Beyond the issue of practicality is the question of what the possible justification for the price

caps could be. The European Commission and other competition authorities that have challenged

interchange fees for four-party systems have claimed that these fees violate the competition laws

26 Visa used to prohibit its member banks from entering into these partnerships. Antitrust action taken by the European

Commission forced it to allow these partnerships.



16

because they are set collectively and have also pointed to the dominant position of these four-party

systems in a claimed market for debit, credit, and charge cards. To my knowledge, no competition

authority, regulatory authority, or court has complained about commercial terms that are agreed

bilaterally and it is hard to see under what basis these authorities could do so. Likewise, no

competition authority, regulatory authority, or court, at least to my knowledge, has found that the

merchant fees agreed between merchants and three-party systems are anticompetitive. Given the

small European wide share that three-party systems have, in total, of debit, credit and charge card

volume (the market identified by the European Commission) none of these systems is even remotely

dominant.27

The rationale for capping interchange fees does not apply to the financial terms that three-

party systems negotiate with a licensee that issues cards. Interchange fees are direct payments from

the merchant’s acquirer to the cardholder’s issuer and are typically passed on by the acquirer to themerchant. Competition and regulatory authorities have sought to reduce the impact of interchange

fees on merchants and have done so by capping those fees. There is no pass through, however,

between the fees that a three-party system negotiates individually with a licensee and the fees that

the three-party system, or an acquiring partner, negotiates with merchants.

These proposed regulations of smaller three-party payment card systems are unprecedented

outside the EU.28 What is remarkable is the length to which the proposed legislation has gone to

squelch competition by three-party card systems. The proposed legislation impairs the ability of

these smaller systems to compete by permitting merchants to surcharge the smaller three-party

systems but not the larger four-party ones and by making it costly for three-party systems to enter

into select partnerships. But, then, just in case (against the odds) the three-party systems are

successful, the proposed legislation empowers the European Commission to impose even more

restraints if they surpass some undefined threshold.

27 The proposed legislation involving MIFs exposes three-party systems to other risks. In the text proposed by theEuropean Parliament, the entire set of interchange fees regulations for four-party systems can be applied to three-partysystems that exceed a threshold set by the European Commission. In practice, it is difficult to envision what this means.See Amendment 21, European Parliament, “Amendments adopted by the European Parliament on 3 April 2014 on theproposal for a regulation of the European Parliament and of the Council on interchange fees for card-based paymenttransactions (COM(2013)0550 – C7-0241/2013 – 2013/0265(COD))”. April 3, 2014. Available at:http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2014-0279+0+DOC+XML+V0//EN. 28 Spain recently adopted the Commission’s proposals on this issue word-for-word, pending the adoption of final

legislation (at which point Spain indicated it would be prepared to reverse course).



17

V. IMPACT OF PROPOSED LEGISLATION ON COMPETITION IN THE

EUROPEAN UNION

The proposed payments legislation has an Alice-in-Wonderland “up is down, left is right”

flavor to it. In the name of “nurturing” competition the European Commission and European

Parliament have come up with an approach that places an oppressive thumb on the smallest

competitors, discourages the challengers, and weakens competition between the two giant systems

left standing. Despite a vision of creating a European born-and-bred system the legislation pushes

and shoves consumers to the dominant global brands. Then, in a final flourish, the legislation

threatens the smaller systems with even more regulation if they are nonetheless able to continue

providing a degree of increased competition. This is legislation that only Lewis Carroll could have

written.

A. R ESTRAINING THREE-P ARTY S YSTEMCOMPETITION

The proposed payments legislation restrains the ability of three-party systems to compete

with the four-party card schemes, which are based on networks of banks, in at least three ways.

First, it imposes rules that make cards from the dominant four-party bank card systems

“preferable”—in the sense of having fewer regulatory-imposed annoyances—for cardholders and

merchants than cards from the smaller three-party systems. Consumers will learn that the three-party

system cards are the ones that merchants can surcharge, possibly opportunistically, and rejectaltogether even though the merchant has a sign at their store claiming they accept the card.

Consumers may find this out directly, from the media, or from friends, family and colleagues. It is

easy to imagine the media reports advising consumers to stick with the major brands—MasterCard

and Visa—to avoid having merchants subject them to a surcharge.

Second, the legislation could result in the three-party systems simply withdrawing as

competitors in countries where they operate with a bank or payment institution partner. A single

partnership agreement, anywhere in the European Union, exposes a three-party system to the risk

that banks, including members of MasterCard and Visa, will insist on being able to issue or acquire

the three-party system’s cards as well. Under the legislation a three-party system that has entered a

partnership with a single bank or payment institution, anywhere in the EU, may be required to offer

the same terms to every other bank or payment institution that approaches the system. No longer

could a three-party system decide to partner selectively and to do so in countries of its own



19

prospect would likely deter Cetelem from ever considering partnerships and therefore limit its ability

to compete on a pan-European basis.

More importantly, the legislation makes the EU a very unwelcome area for entry by any new

three-party system. Suppose, for example, that a three-party global mobile payments system emerges

and that system needs to consider where to enter around the world. The EU will be the only place in

the world in which merchants are allowed to surcharge, and reject, the cards of three-party systems

but not of MasterCard or Visa. Suppose, as is common in mobile payments, the three-party system

wanted to partner with a bank to enter the EU or a Member State. It could not guarantee its partner

an exclusive deal and, if it entered into a relationship in any country, it would potentially have to

extend that deal to all banks and payment institutions in that country and the other EU countries as

well and be price capped when doing so.

B.

SOFTENING FOUR -P ARTY S YSTEMCOMPETITION

The European Parliament’s payment legislation weakens competition among the four-party

systems.

To begin with it softens competition between MasterCard and Visa. They won’t be able to

use the interchange fee to compete for issuers, consumers, or merchants. No longer would one of

these companies be able to lower their interchanges fees for a particular type of merchant to secure

acceptance, to increase their interchange fees to persuade banks to switch card volume to them, or

to increase their interchange fees to promote benefits that could attract more cardholders.

Four-party systems have used selective reductions in interchange fees to promote newtechnologies such as chip-and-pin cards and contactless cards. They would lose that ability under the

payments legislation: with such a substantial reduction in these fees it is unlikely they could persuade

banks to accept an even lower fee. If one of the systems came up with a technology for accepting

payment at the point of sale—for example related to mobile payments—it would lose one of its

main tools for persuading merchants to invest in the necessary changes. MasterCard and Visa will of

course continue to compete but will do so with one hand tied behind their backs.

The payments legislation weakens competition among the global four-party systems and the

independent domestic systems for these same reasons. None of these systems will be able to agree

to higher interchange fees to compete for banks and consumers. And, with the drastic reductions,

few if any could risk bank defections if they wanted to lower interchange fees further to promote

innovative technologies or business practices by the merchants.

The threat to domestic competition though is actually much worse. An independentdomestic system could not offer banks a somewhat higher interchange fee to induce them to switch



20

from the domestic MasterCard or Visa network. That eliminates an important competitive tool.

Once the payments legislation makes all systems exactly the same when it comes to interchange fees

the advantage of switching to a system that lacks the scale economies, brand recognition, and

marketing prowess of MasterCard and Visa is lessened. The proposed legislation places the survival

of the domestic systems at risk and it is conceivable that they will wither over time or simply become

appendages of the global four-party networks.

Lastly, the very low interchange fee caps proposed by the European Parliament largely gut

the business models of new four-party entrants. As I’ve noted this isn’t mere conjecture. We have

the dead body to prove it. A substantial viable pan-European entrant gave up when the European

Commission wouldn’t relent on its insistence that four-party systems have not only low interchange

fees but interchange fees that can’t be any higher for any country, industry, product, transaction

type, or anything else.

C. THE ANTICOMPETITIVE P AYMENTS LEGISLATION

The European Commission and the European Parliament have put forward legislation that

is anti-competitive. It fixes the interchange fee that MasterCard and Visa use to compete with each

other and independent domestic schemes. It places independent domestic schemes that would be

less able to differentiate themselves at a disadvantage. After the Commission helped destroy a major

pan-European entrant, the proposed legislation raises a barrier to further entry by any potential new

payment systems. As a finishing touch it hobbles all of MasterCard and Visa’s three-party system

rivals. Almost two decades ago, when Visa proposed rules to prohibit three-party systems from

pursuing arm’s length licensing agreements with banks that were members of Visa, the European

Commission claimed competitive harm and acted swiftly to prevent it. It seems perverse now that

the EU is at risk of delivering the same outcome for Visa and legitimizing the endeavor that it

previously claimed was anticompetitive.29

29 As per the following press release the Commission's Directorate General for Competition reached the view that Visa's proposed rule prohibiting its member banks from partnering with American Express would have infringed theEC competition rules because it would have restricted competition between international cards systems as well asbetween banks which issue cards riding on those systems. Moreover, at the time, the Commission confirmed itsdetermination to ensure that access to the payments card market by new competitors such as three-party schemes should

not be impeded. http://europa.eu/rapid/press-release_IP-96-585_en.htm.



22

Figure 2: Average Debit Interchange Fees versus Per Capita GDP in EU Countries

Source: European Central Bank.

The extent of the redistribution from merchants to consumers varies enormously across

countries. Consumers in high-interchange fee countries such as Romania will lose much more

relatively speaking than consumers in low-interchange fee countries such as Denmark. Figure 2

shows the relationship between the average debit card interchange fee in each country and GDP per

capita. The graph shows that the debit card interchange fee is higher in countries with lower per

capita GDP. The countries that will have the largest reductions in interchange fees, and therefore

the greatest harm to consumers, are the poorest countries; the countries that will have the lowest,

and in some cases no, reductions in interchange fees and therefore the least harm to consumers are

the richest countries. There are exceptions, of course, but that is the general rule. The interchange

fee caps take from the consumer and give to the merchant, and they take the most from the poorest

consumers. As I said, this is Alice-in-Wonderland public policy.

The EU payments legislation harms European consumers in other ways. Approximately ! 88

billion was spent in 2012 by Europeans using cards from three-party systems in the Member States

AustriaBelgium

Bulgaria

Croatia

Cyprus

Czech Republic

Denmark

Estonia

Finland

France

Germany

Greece

Hungary

Ireland

Italy

Latvia Lithuania

Luxembourg

Malta

Netherlands

Poland

Portugal

Romania

Slovakia

Slovenia

Spain

Sweden

United Kingdom

0 !

10 !

20 !

30 !

40 !

50 !

60 !

70 !

80 !

90 !

0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40%

G D P p e r C a p

i t a ( E u r o 0 0 0 s )

Debit Interchange Fee (%)



23

that account for more than 90 percent of GDP and population. Consumers will also face occasional

opportunistic surcharging by merchants on such purchases. A consumer also risks having merchants

that advertise that they accept a three-party system brand turn around and reject the particular card

the consumer presents. In the longer run consumers are also likely to find that they have less choice

than they have now as independent domestic card systems and three-party systems are forced to

withdraw from the payment card market in countries across the EU. Consumers are also likely to

have even less choice than they would get in the absence of the payments legislation. That’s because

the legislation will reduce entry into payments cards in the European Union.

VII. CONCLUSION

The European Commission’s proposal and the common position reached by the European

Parliament in April 2014 is ill-conceived and poorly thought through. This is no surprise, given how

woefully inadequate—and in some areas, completely lacking—the impact assessment undertaken by

the Commission is. The proposed legislation destines Europe to having a payment card industry

operated largely by banks and run by two global brands. The prospect of low caps on interchange

fees has already killed or chilled the prospects for the emergence of a new pan-European payment

system. Those caps will temper competition between MasterCard and Visa and may drive

independent domestic systems out of business altogether over time. The bizarre restraints on the

three-party systems in European countries, all of them much smaller than their four-party rivals

across Europe, will make these companies less vibrant competitors and may drive them out of many

countries in Europe. For European consumers the proposed payments legislation would lead to ahefty price tag, diminished choice, and depressed innovation.

The European Council would be wise to discard this legislation as currently drafted. Any

new legislation should completely abandon restraints on the three-party systems that are essentially

fringe competitors in Europe. There is simply no sensible rationale for these restraints and none has

been offered. New legislation should also drop the caps on interchange fees. These caps weaken

competition between MasterCard, Visa, and independent domestic card systems. They also shift the

costs of payment cards to consumers and will cost European consumers billions of euros in added

fees.



25

Table A: Interchange Fees for Large Domestic Card Systems

Country System Type Interchange Fee (Actual) Interchange Fee (%)

Denmark Dankort Debit 0.20%36 0.20%

France Cartes Bancaires Credit 0.28% + fraud adjustment

averaging no greater than 0.03%37

0.31%

Germany ZKE Debit 0.30%38 0.30%

Italy PagoBancomat Debit 0.1309% + !0.1039 0.34%

Portugal MB Debit 0.50%40 0.50%

Spain Servired Credit 0.76%41 0.76%

Spain Euro 6000 Credit 0.79%42 0.79%

Spain 4b Credit 0.75%43 0.75%

Spain Servired Debit !0.3344 0.69%

Spain Euro 6000 Debit !0.3245 0.66%

Spain 4b Debit !0.3046 0.62%

Cases with a flat interchange fee were converted to percentages of the transaction using the

same method used for Visa and MasterCard.

36 Denmark’s Dankort pays issuers a flat fee per transaction, where the level of the flat fee depends on the issuer’sannual number of transactions. In general, this fee is less than 0.20 percent, although it may be higher on small-valuetransactions. Ministry of Growth and Business Denmark, “Interchange Fee Regulation and Domestic Debit CardSchemes,” June 2, 2014. Available at http://www.eu-oplysningen.dk/upload/application/pdf/ca7ff3c0/201305502.pdf?download=1. The exact average interchange feeappears to be non-public.37 Cartes Bancaires, “Current CB Multilateral Interchange Fees and Tariffs.” Available at http://www.cartes-bancaires.com/IMG/pdf/CB_Interchange_Fees_and_Tariffs.pdf; PaySys, “French Anti-Trust Authority Decision on

MIF,” PaySys SEPA Newsletter, June-July 2011. Available at http://www.paysys.de/download/SepaJunJul11.pdf.38 Der Handel, “Bundeskartellamt kippt Girocard-Gebühr,” April 8, 2014. Available athttps://www.derhandel.de/news/finanzen/pages/Bundeskartellamt-kippt-Girocard-Gebuehr-10503.html.39 Conzorzio Bancomat, “Commissioni Interbancarie.” Available athttp://www.bancomat.it/it/consorzio/commissioni.html.40 David S. Evans and Rosa Abrantes-Metz (2013), “The Economics and Regulation or the Portugese Retail PaymentsSystem.” Available at http://www.sibs.pt/export/sites/sibs_fps/pt/documentos/The-Economics-and-Regulation-of-the-Portuguese-Retail-Payments-System_2013.pdf.41 Servired, “Tasas de Intercambio: Intra-Sistema.” Available at http://www.servired.es/tasas-de-intercambio/intra-sistema/.42 Euro 6000, “Tasas de intercambio: Intra-Sistema.” Available at http://www.euro6000.com/informacion-corporativa/tasas/intrasistema.43 4B, “Tasas de intercambio.” Available at http://www.4b.es/productos-y-servicios/comercios/tasas-de-intercambio.44 Servired, “Tasas de Intercambio: Intra-Sistema.” Available at http://www.servired.es/tasas-de-intercambio/intra-sistema/.45 Euro 6000, “Tasas de intercambio: Intra-Sistema.” Available at http://www.euro6000.com/informacion-corporativa/tasas/intrasistema.

464B, “Tasas de intercambio.” Available at http://www.4b.es/productos-y-servicios/comercios/tasas-de-intercambio.



26

Next, we calculated the median debit and credit interchange rate for each country, taking the

median across all systems. Then we calculated an overall average interchange rate as a weighted

average of the debit and credit interchange rates, using each product type’s share of all payment card

spending in the country as the weights. Data on the value of debit and credit card payments were

taken from 2012 data from the European Central Bank.47

47 European Central Bank, Statistical Data Warehouse. Available at

http://sdw.ecb.europa.eu/reports.do?node=1000001431.

Electronic copy available at: http://ssrn.com/abstract=1950474

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P

u b l i c A u t h or i t yI n v ol v e m e n t i nP a ym e n t C a

r d M ar k e t s : V ar i o u s C

o un t r i e s

A u g u s t 2 0 1 4 U p d a t e †

P r e p ar e d b yF umi k oH a y a s h i an d J e s s e L e i gh M ani f f

P a ym e n t s S y s t e mR e s e ar c h D e p

ar t m e n t

F e d e r al R e s e r v e B ank of K an s

a s Ci t y

† T h e or i gi n a l t a b l e s a p p e a r e d i nBr a d f or d ,T e r r i a n d F umi k oH a y a s h i .2 0 0 8 .“ D e v e l o pm e n t s i nI n t e r c h a n g e F e e s i n Uni t e d S t a t e s a n d A b r o a d ,” F e d e r a l R e s e r v e

B a nk of K a

n s a s C i t yP a ym e n t s S y s t e mR e s e a r c h B r i e f i n g ,A pr i l i s s u e . J e a nAl l i x a n d Al a nF r a n

k e l pr o vi d e d h e l pf ul c omm e n t s f or t h i s u p d a t e .



1 .I n t e r c h an g e an d M e r c h an t S e r vi c e F e e s

a .A c t i o n s t a k e n b y p u b l i c a u t h or i t i e s

C o un t r y

C r e d i t C a r d

D e b

i t C a r d

Ar g e n t i n a

1 9 9 9 : L a w2 5 . 0 6 5 f or C r e d i t C a

r d s i s e n a c t e d .T h e l a w e s t a b l i s h e s n or m s t h a t r e g ul a t e v a r i o u s a s p e c t s r e l a t e d

t o t h e c r e d i t , d e b i t ,

a n d r e t a i l c a r d s y s t e m s .Am on g

t h e s e n or m s i s t h e s e t t i n g of l i mi t s on t h e a b i l i t y t oi m pl e m e n t pr i c e d i s c r i mi n

a t i oni nm e r c h a n t

f e e s .

2 0 0 5 : L a w2 5 . 0 6 5 i s a m e n d e d w

i t h L a w2 6 . 0 1 0 , wh i c h r e q ui r e s m e r c h

a n t a c q ui r e r s t o c h a r g e t h e s a m e m e r c h

a n t d i s c o un t r a t e t o

b u s i n e s s e s wi t h i n t h e s a m e c a t e g or y .T h e m a xi m umm e r c h a n t d i s c o un t r a t e i s s e t a t 3 %f or c r e d i t c a r d s a n d 1

. 5 %f or d e b i t c a r d s .

A u s t r a l i a

2 0 0 3 : T h e R e s e r v e B a nk of A u s

t r a l i a ( RBA ) m a n d a t e s

B a nk c a r d ,M a s t e r C a r d , a n d Vi s a t o s e t i n t e r c h a n g e f e e s on a

c o s t - b a s e d b e n c h m a r k .

2 0 0 9 : RBA c on t i n u e s i n t e r c h a n g e r e g ul a t i on .

2 0 0 6 : RBAi n t r o d u c e s i n t e r c h a n g e s t a n d a r d s f or t h e E F T P O S

a n d

Vi s a D e b i t s y s t e m s .

2 0 0 9 : RBAr e vi s e s E F T P O S i n t e r c h a n g e f e e s t a n d a r d f or

m ul t i l a t e r a l i n t e r c h a n g e f e e s .

2 0 1 3 : RBAi m pl e m e n t s t h e n e wE F T P O S i n t e r c h a n g e f e e

s t a n d a r d s .

A u s t r i a

( E ur o p e a n

U n i o n ( E U

)

m e m b er s i n c e

1 9 9 5 )

2 0 0 3 : T h e A u s t r i a n C a r t e l C o ur t f i n e s E ur o p a yA u s t r i a , wh or un s M a e s t r o d e b i t c a r d p a ym e n t s y s t e m .T h e C o ur t d e c l a r e s t h a t

E ur o p a yf or m e d a ni l l e g a l c a r t e l wi t h a l m o s t a l l A u s t r i a n b a nk s wi t h r e s p e c t t o a pr o vi s i oni n t h e p a ym e n t c a r d c on t r a c t a n d h e l d

i n t e r c h a n g e f e e s e x c e s s i v e l yh i g

h , wh i c h t h e C o ur t vi e w s a s a n a b u s e o

f E ur o p a y’ s d omi n a n t p o s i t i on .

2 0 0 6 : F ol l o wi n g t h e E ur o p e a n C

ommi s s i on’ s i n t e r i mr e p or t s on t h e r e t a i l b a nk i n gi n d u s t r y ,A u s t r i a n b a nk s a gr e e t or e vi e w

a r r a n g e m e n t s f or s e t t i n gi n t e r c h a n g e f e e s a n d a nn o un c e t h a t a r e d u c t i on c a n b e e x p e c t e d .T h e y wi l l a l s o t a k e

s t e p s t of o s t e r

g e n ui n e c om p e t i t i oni n a c q ui r i n g b e t w e e nE ur o p a yA u s t r i a a n d Vi s a A

u s t r i a .

2 0 0 7 : E ur o p a y a p p e a l s t o t h e A u s t r i a n S u pr e m e C o ur t .T h e S u pr e m e C

o ur t c onf i r m s t h e C a r t e l C o ur t ’ s j u d gm

e n t a n d i n c r e a s e s

t h e f i n e f r om ! 5 mi l l i on t o ! 7 m

i l l i on ,n o t i n g“ un d u e e nr i c h m e n t ” a c c r

u e d t oE ur o p a yA u s t r i a d ur i n g t h e t i m e of t h e

a n t i c om p e t i t i v e b e h a vi or .

B e l gi um

( E U1 9 5 2 )

2 0 0 6 : T h e B e l gi a n C om p e t i t i on

C o un c i l a c c e p t s c ommi t m e n t s of f e r e d

b yB a nk s y s t oh a v e t h e i n v e s t i g a t i on ( wh i c h b e g a ni n

2 0 0 0 ) of i t s a l l e g e d l y a b u s i v e c o

n d u c t i n e l e c t r oni c p a ym e n t s e r vi c e s a

n d d e b i t c a r d t e r mi n a l s m a r k e t s c l o s e d

.T h e c ommi t m e n t s

i n c l u d e s e p a r a t e c on t r a c t s f or a c

q ui r i n g s e r vi c e s a n d t e r mi n a l s ,r e l a x a t i on of e xi t t e r m s f or t e r mi n a l r e n t a l a gr

e e m e n t s , a n d a

n um b e r of pr i c e r e d u c t i on s .

Br a zi l

2 0 0 6 : I nM a y ,B a n c o C e n t r a l d o

Br a s i l ( t h e C e n t r a l B a nk of Br a zi l ) i s s

u e s Di r e c t i v e 1 / 2 0 0 6 , wh i c h f o c u s e s t h

e p a ym e n t c a r d s

i n d u s t r y .T h e Di r e c t i v e d o e s n o t e s t a b l i s h e i t h e r o b l i g a t i on s or pr oh i b i t i on s a n d d o e s n o t m a n d a t e a n y s a n c t i o

n s .I n J un e ,B a n c o

C e n t r a l d oBr a s i l ’ s E c on omi c L a w Of f i c e a n d t h e S e c r e t a r i a t f or E c on omi c M oni t or i n g a gr e e t o c o o p e r a t e i n

or d e r t o c ol l e c t

p a ym e n t c a r d i n d u s t r y d a t a a n d

t o c o or d i n a t e p u b l i c p ol i c y a c t i on s .I n S e p t e m b e r , p a ym e n t c a r d i n d u s t r y d a t a

c ol l e c t i on b e gi n s .

2 0 0 9 : T h e Br a zi l i a n c om p e t i t i on

a u t h or i t yi n v e s t i g a t e s t h e a n t i - c om p e t i t i v e b e h a vi or of R e d e c a r d a n d Vi s a - C

i e l o a s a m e a n s of

r e d u c i n gm e r c h a n t d i s c o un t f e e s .

2 0 1 0 : B a n c o C e n t r a l d oBr a s i l p

u b l i s h e s R e p or t on t h e Br a zi l i a nP a ym

e n t C a r d I n d u s t r y .T h e S e c r e t a r i a t of E

c on omi c L a w

c on t i n u e s t oi n v e s t i g a t e t h e p o s s i b i l i t y of a vi ol a t i on of t h e e c on omi c o

r d e r d u e t o t h e a n t i - c om p e t i t i v e b e h a vi or of a c q ui r e r s .An

2



a gr e e m e n t i s s i gn e d i n wh i c h a c

q ui r e r s m a d e a c ommi t m e n t t o e n d e x c

l u s i vi t yi n t h e i r c r e d i t a n d d e b i t c a r d s c h e m e s .

2 0 1 1 : B a n c o C e n t r a l d oBr a s i l p

u b l i s h e s S t a t i s t i c a l U p d a t e on t h e Br a z

i l i a nP a ym e n t C a r d I n d u s t r y , wh i c h c o

n c l u d e s t h a t d e s pi t e

t h e e n d of e x c l u s i vi t y , t h e r e w a s n o s i gni f i c a n t c h a n g e i n t h e m a r k e t s h

a r e of t h e t w ol a r g e s t a c q ui r e r s ( Vi s a - C i e l o a n d R e d e c a r d ) .

C a n a d a

2 0 0 9 : I nM a r c h , t h e S e n a t e C om

mi t t e e onB a nk i n g ,T r a d e a n d

C omm e r c e a nn o un c e s t h a t i t wi l l m o v e f or w a r d wi t h a n

i n v e s t i g a t i on of C a n a d a ’ s c r e d i t

a n d d e b i t c a r d s y s t e m .I n J un e ,

t h e i n v e s t i g a t i onr e s ul t s a r e p u b l i s h e d a s a r e p or t .

2 0 1 4 : T h e F e d e r a l B u d g e t i n c l u d e s pr o vi s i on s t oh e l pl o w e r

c r e d i t c a r d a c c e p t a n c e c o s t s f or

m e r c h a n t s .

Mi d

1 9 9 0 ’ s : A c on s e n t or d e r f r om t h e C om

p e t i t i onB ur e a u of

C a n a d a a l l o w s I n t e r a c t o s e t i t s o wni n t e r c h a n g e f e e , b u t s i n c e

i t s e

s t a b l i s h m e n t ,I n t e r a c h a s s e t i t s i n t e r c h

a n g e f e e a t z e r o .

C h i l e

2 0 0 5 : T h e C h i l e a nAn t i t r u s t C o ur t a d mi t s a c om pl a i n t f i l e d b y t h e N a t i on a l E c on omi c P r o s e c u t or a l l e gi n g a b u s e of a d omi n a n t

p o s i t i on b yT r a n s b a nk , t h e a c q u

i r e r of a l l c r e d i t a n d d e b i t c a r d s i s s u e d

i n t h e c o un t r y .T h e C o ur t i m p o s e s a f i n e of a p pr oxi m a t e l y

$ 5 6 , 0 0 0 .T h e N a t i on a l E c on omi c P r o s e c u t or r e q u e s t s , a m on g o t h e r t h i n g s , t h e m o d i f i c a t i on of T r a n s b a nk ’ s pr i c e s t r u c t ur e i n s u c h

a w a y t h a t i t w o ul d b e p u b l i c , o b j e c t i v e , a n d b a s e d on c o s t s .A p a r t i a l un d e r s t a n d i n g b e t w e e n t h e p a r t i e s ,r e q u

i r i n gT r a n s b a nk t o

r e d u c e m e r c h a n t f e e c e i l i n g s a n d pr e s e n t a s e l f -r e g ul a t i n g pl a nf or s e t t i n g pr i c e s ,f i n a l l y s e t t l e s t h e i s s u e .

C h i n a

2 0 0 2 : T h e P e o pl e ’ s B a nk of C h i n a s e t s t h e m a xi m umm e r c h a n t f e e r a t e s a n d t h e d i vi s i on of t h e m e r c h a n t f e e

wh i c h c on s i s t s of

t h e i n t e r c h a n g e f e e , s wi t c h f e e , a n d m e r c h a n t a c q ui r e r f e e s ( s o c a l l e d t h e 8 : 1 : 1 r ul e ) .

2 0 1 1 : T h e C h i n e s e Mi ni s t r y of C omm e r c e pr o p o s e s a c a p oni n t e r c h a n

g e f e e s – 0 . 3 % of t h e s a l e u p t o1 0 0 y u

a n ( U S $ 1 5 or 1 2

e ur o ) .T h e pr o p o s a l a l s oi n c l u d e

s a c a pf or s wi t c h f e e s : C h i n a Uni onP a

y ( t h e c o un t r y’ s onl y c a r d n e t w or k ) c a

nn o t c h a r g e

m e r c h a n t s m or e t h a n 0 . 0 5 % on c r e d i t c a r d s a l e s wi t h a m a xi m um of 5 y u a n p e r t r a n s a c t i on .

2 0 1 2 : T h e S t a t e C o un c i l a p pr o v e s a c h a n g e t o t h e d e c a d e - ol d s t a n d a r d s onm e r c h a n t f e e s wh i c h wi l l r e d u c e m

o s t m e r c h a n t f e e s

b y on e -f o ur t h or m or e e f f e c t i v e

F e b r u a r y2 5 ,2 0 1 3 .

C ol om b i a

2 0 0 4 : T h e S u p e r i n t e n d e n t of I n d u s t r y a n d C omm e r c e , C ol om b i a ’ s c om

p e t i t i on a u t h or i t y , p a s s e s t h e n e wI n t e r - b a nk E x c h a n g e

T a r i f f , a l l o wi n gm e r c h a n t s t on e

g o t i a t e f e e r a t e s wi t h m e r c h a n t a c q ui r e

r s .

2 0 0 6 : C r e d i b a n c o ( a Vi s a i s s u e r

) i s r e q ui r e d t o e x c l u d e c e r t a i n c o s t s i n

c l u d e d i ni t s f e e c om p u t a t i on t h a t w e r e

j u d g e d n o t t o

c or r e s p on d e x c l u s i v e l y t o p a ym e n t c a r d s e r vi c e s of f e r e d t om e r c h a n t s .

D e nm a r k

( E U1 9 7 3 )

1 9 9 0 : T h e A c t of C e r t a i nP a ym e n t I n s t r um e n t s s e t s a c a p on

m e r c h a n t s e r vi c e c h a r g e s ( M S C

) oni n t e r n a t i on a l l y- b r a n d e d

c r e d i t / d e b i t c a r d s i s s u e d b yD a n

i s h b a nk s f or d om e s t i c

t r a n s a c t i on s a t 0 . 7 5 % of t r a n s a c t i on v a l u e or 1 .2 5 % of

t r a n s a c t i on v a l u e wi t h a mi ni m u

m of DKK1 . 9 5 on t h e I n t e r n e t .

1 9 9 0 : T h e A c t of C e r t a i nP a ym e n t I n s t r um

e n t s s e t s D a nk or t

M S C t o b e z e r o .

2 0 0 3 : An a m e n d m e n t t o t h e A c t i n t r o d u c e s a p o s i t i v e M S C t o

D a n

k or t t r a n s a c t i on s a n d r e d u c e s t h e f e e s onM a e s t r o a n d Vi s a

E l e c

t r onf r om 0 . 7 5 % t o 0 .4 % , wi t h a m a xi m um of DKK4 .

2 0 0 5 : An a nn u a l f e e p e r r e t a i l e r r e pl a c e s D

a nk or t M S C .

E ur o p e a n

Uni on

2 0 0 2 : T h e E ur o p e a n C ommi s s i o

n ( E C ) r e a c h e s a n a gr e e m e n t wi t h Vi s a t or e d u c e i t s c r o s s - b or d e r i n t e r c h a n g e f e e s b yD e c e m b e r

2 0 0 7 .T h e b e n c h m a r k f or i t s i n t e r c h a n g e f e e s i s t o b e s e t a t t h e l e v e l of t h e c o s t of s u p pl yi n g Vi s a p a ym e n t s e

r vi c e s a n d c a nn o t

e x c e e d t h e c o s t of t h e s e r vi c e s w

h i c h i s s ui n g b a nk s pr o vi d e , wh ol l y or

p a r t l y , t o t h e b e n e f i t of m e r c h a n t s .

2 0 0 7 : I nD e c e m b e r ,E C r ul e s t h a t M a s t e r C a r d ’ s i n t e r c h a n g e f e e s a r e i l l e g a l .

2 0 0 8 : I nM a r c h ,M a s t e r C a r d f i l e s a n a p p e a l of t h e E C d e c i s i on .

2 0 0 9 : I nA pr i l ,E C a n d M a s t e r C

a r d r e a c h a ni n t e r i m a gr e e m e n t , s e t t i n g

M a s t e r C a r d i n t e r c h a n g e r a t e s a t , on a v e r a g e , 0 . 3 %f or

3



c r e d i t c a r d s a n d 0 .2 %f or d e b i t c a r d s ( e f f e c t i v e J ul y1 ,2 0 0 9 ) .E C a l s o s e n d s a S t a t e m e n t of O b j e c t i on s t o Vi s a a s s e r t i n gi t s

pr e l i mi n a r y vi e w t h a t m ul t i l a t e r a l i n t e r c h a n g e f e e s ( MI F s ) d i r e c t l y s e t b y Vi s a vi ol a t e E ur o p e a nAn t i t r u s t r ul e s ( Ar t i c l e 8 1 E C

T r e a t y a n d Ar t i c l e 5 3 E E AT r e a

t y ) .

2 0 1 0 : I nA pr i l , Vi s a E ur o p e pr o p o s e s t o c a

p t h e w e i gh t e d

a v e r a g e MI F f or c on s um e r i mm e d i a t e d e b i t c a r d t r a n s a c t i on s a t

0 .2 %

.T h e c a pi s a p pl i c a b l e t o c r o s s - b or d e r t r a n s a c t i on s wi t h i n

E E A

a n d , s e p a r a t e l y , t o d om e s t i c t r a n s a c t i on s i n e a c h E E A

c o un t r y wh e r e MI F s a r e e i t h e r s e t d i r e c t l y

b y Vi s a E ur o p e

( Gr e e c e ,H un g a r y ,I c e l a n d ,I r e l a n d ,I t a l y ,L

ux e m b o ur g ,M a l t a ,

t h e N e t h e r l a n d s , a n d S w e d e n ) or t h e Vi s a E ur o p e c r o s s - b or d e r

r a t e s w o ul d a p pl y b y d e f a ul t .I nD e c e m b e r ,E C d r o p s i t s

i n v e

s t i g a t i oni n t oi n t e r c h a n g e f e e s f or i mm

e d i a t e d e b i t .

2 0 1 2 : I nM a y , t h e G e n e r a l C o ur

t of t h e E U c onf i r m s t h e E C ’ s 2 0 0 7 d e c i s i on pr oh i b i t i n gM a s t e r C a r d ’ s i n t e r c h a n g e f e e s .

M a s t e r C a r d h a s a p p e a l e d t h e r ul i n g t o t h e E ur o p e a n C o ur t of J u s t i c e a n d a d e c i s i oni s e x p e c t e d i n S e p t e m b e r

2 0 1 4 .I n J ul y , t h e

E ur o p e a n C ommi s s i on s u b mi t s a s u p pl e m e n t a r y s t a t e m e n t of o b j e c t i on

s t o Vi s a E ur o p e r e g a r d i n gi t s u s e of m

ul t i l a t e r a l

i n t e r c h a n g e f e e s i n t h e E E A .T h

e C ommi s s i on a l l e g e s t h a t t h e s e MI F s

r e s t r i c t c om p e t i t i on a n d p u t u p w a r d pr e s s ur e c on s um e r

pr i c e s .

2 0 1 3 : I nA pr i l , t h e E C o p e n s a f

or m a l i n v e s t i g a t i oni n t o wh e t h e r s e v e r a l of M a s t e r C a r d ’ s i n t e r - b a nk f e e s a n d

pr a c t i c e s vi ol a t e E U

a n t i t r u s t r ul e s .T h e pr o c e e d i n g s

i d e n t i f yM a s t e r C a r d ’ s i n t e r - b a nk f e e s on p a ym e n t s m a d e b y c a r d h ol d e r s f r om

n onE E A c o un t r i e s

a n d i t s c r o s s - b or d e r a c q ui r i n gr u

l e s a s i t e m s of p a r t i c ul a r c on c e r n .I n J ul y , t h e E C pr o p o s e s a r e g ul a t i on t o c a pi n t e r c h a n g e f e e s

f or f o ur - p a r t y s c h e m e c on s um e r

d e b i t a n d c r e d i t c a r d t r a n s a c t i on s a t 0 .2 % a n d 0 . 3 %r e s p e c t i v e l y .T h e s e c a p s

w o ul d i ni t i a l l y a p pl y

t o c r o s s - b or d e r t r a n s a c t i on s b u t

a f t e r t h e t r a n s i t i on p e r i o d , t h e y w o ul d a p pl y t o b o t h c r o s s - b or d e r a n d d om e s t i c t r a n s a c t i on s .

2 0 1 4 : I nF e b r u a r y , t h e E C r e n d e

r s l e g a l l y b i n d i n g t h e c ommi t m e n t s of f e r e d b y Vi s a E ur o p e t o c u t MI F ( t o 0 . 3 %f or c r e d i t a n d

0 .2 %f or d e b i t t r a n s a c t i on s ) a n d

r e f or mi t s r ul e s i n t h e 2 8 E U c o un t r i e s a n d I c e l a n d , N or w a y a n d L i e c h t e n s t e i n .A s of J a n u a r y1 ,

2 0 1 5 , Vi s a E ur o p e a l s o c ommi t s t o a l l o w c r o s s - b or d e r a c q ui r e r s t o of f e r e i t h e r t h e d om e s t i c d e b i t or c r e d i t M

I F a p pl i c a b l e a t t h e

m e r c h a n t ’ s l o c a t i on or a nMI F r a t e of 0 .2 %f or d e b i t c a r d t r a n s a c t i on s

a n d 0 . 3 %f or c r e d i t c a r d t r a n s a c t i on s ,

s u b j e c t t o c e r t a i n

c on d i t i on s .I nA pr i l , t h e E ur o p e a nP a r l i a m e n t a m e n d s t h e E C ’ s pr o p o s a l t o c a pi n t e r c h a n g e f e e s b y a p pl yi n g t h e r ul e s t o

c omm e r c i a l c a r d s ,r e m o vi n g t h e

d i s t i n c t i on b e t w e e n c r o s s - b or d e r a n d d om e s t i c p a ym e n t s s y s t e m s , a n d s e t t i n g a c a p of t h e l o w e r

of ! . 0 7 or 0 .2 %f or d e b i t c a r d p a ym e n t s .T h e a m e n d m e n t a l s o e x p a n d s

t h e s c o p e of t h e pr o p o s a l t oi n c l u d e t h

r e e - p a r t y s c h e m e s i f

t h e i r v ol um e e x c e e d s a t h r e s h ol d s e t b y t h e E ur o p e a n C ommi s s i on .

F r a n c e

( E U1 9 5 2 )

1 9 9 0 : T h e P a r i s Hi gh C o ur t r ul e

s t h a t m e t h o d s f or d e t e r mi ni n gi n t e r c h a n g e f e e s c o ul d b e a c c e p t e d i n a c c or d a

n c e wi t h t h e

C om p e t i t i on C o un c i l ’ s s t a t e m e n

t of o b j e c t i on s .

2 0 1 1 : I n J ul y , t h e F r e n c h C om p e t i t i onA u t h or i t y ( F C A ) c l o s e s i t s i n v e s t i g a t i on c on c e r ni n gi n t e r c h a n g e f e e s b

y a c c e p t i n g t h e

c ommi t m e n t s of f e r e d b y t h e Gr o u p e m e n t d e s C a r t e s B a n c a i r e s ( a s yn d

i c a t e of b a nk s i s s ui n g p a ym e n t c a r d s ) .

Am on g o t h e r

t h i n g s , t h e c ommi t m e n t i n c l u d e s a r e d u c t i oni n t h e i n t e r c h a n g e f e e s f r o

m 0 .4 7 % t o 0 . 3 % on a v e r a g e f or a l l c a

r d s .T h e p e r i o d of

t h e c ommi t m e n t s i s f o ur y e a r s b

e gi nni n g O c t o b e r 1 ,2 0 1 1 .D ur i n g t h i s

p e r i o d , a s t e e r i n g c ommi t t e e c h a r g e d b

y t h e F C A wi l l b e i n

c h a r g e of d e vi s i n g a m e t h o d ol o g y t or e vi s e f e e s a t t h e e x pi r a t i on of t h e

c ommi t m e n t s .T h e F C A t ur n s i t s a t t e n t i on t o t h e

4



f e e s f r om 0 . 8 7 5 % t o 0 . 7 % b y J u

l y2 0 1 4 .

I t a l y

( E U1 9 5 2 )

2 0 1 0 : T h e I t a l i a n C om p e t i t i onA

u t h or i t y ( I C A ) f i n e s M a s t e r C a r d a n d e i gh t b a nk s f or a l l e g e d l y u s i n gl i c e n s i n g a gr e e m e n t s t ok e e p

i n t e r c h a n g e f e e s h i gh a n d p a s s i n

g t h o s e c h a r g e s on t om e r c h a n t s .T h e or d e r r e q ui r e s M a s t e r C a r d t o pr o vi d e e c on omi c j u s t i f i c a t i on

f or i t s f e e s a n d b a nk s t or e vi s i t t

h e t e r m s of t h e i r c on t r a c t s wi t h m e r c h a n t s .M a s t e r C a r d a n d t h e b a nk s i n v ol v e

d a r e gi v e n 9 0 d a y s

t o s h o w t h a t t h e a l l e g e d l y a n t i - c

om p e t i t i v e a c t i vi t i e s h a v e c e a s e d .

2 0 1 0 : T h e I C A a c c e p t s c ommi t m e n t s of f e r

e d b y

P a g oBA N C OMAT ( t h e d omi n a n t I t a l i a nn e t w or k ) i nr e s p on s e

t o a ni n v e s t i g a t i on o p e n e d i n O c t o b e r 2 0 0 9

.T h e c ommi t m e n t s

a i m

t or e d u c e t h e l e v e l of m ul t i l a t e r a l i n t e r

c h a n g e f e e s ( MI F s )

f or n a t i on a l t r a n s a c t i on s u s i n gn a t i on a l P a g

oBA N C OMAT

b r a n

d e d d e b i t c a r d s a n d i n c l u d e : a 4 %r e d u

c t i on of MI F s , a

pl e d

g e t on o t i n c r e a s e MI F s i n t h e f u t ur e , a

n d a r e - d e f i ni t i on of

MI F

s i n a c c or d a n c e wi t h I C A .

2 0 1 4 : I nF e b r u a r y , t h e I C A c omm e n c e s a n

i n v e s t i g a t i oni n t o

wh e

t h e r C on s or t i umB a n c om a t ’ s d e c i s i on t o s e t i n t e r c h a n g e

f e e s

f or b i l l p a ym e n t t r a n s a c t i on s m a d e wi t h a P a g oB a n c om a t

d e b i t c a r d a t ! .1 0 p e r t r a n s a c t i oni s a vi ol a t i on of a n t i t r u s t l a w .

L a t vi a

( E U2 0 0 4 )

2 0 1 1 : T h e L a t vi a n C om p e t i t i on

C o un c i l d e c i d e s t h a t 2 2 c omm e r c i a l b a nk s h a v e i nf r i n g e d t h e C om p e t i t i onL a w b y p a r t i c i p a t i n gi n

m ul t i l a t e r a l i n t e r c h a n g e f e e a gr e

e m e n t s a n d i m p o s e s f i n e s on t h o s e b a nk s .

M e xi c o

2 0 0 6 : T h e B a nk of M e xi c o a n d t h e M e xi c a nB a nk e r s A s s o c i a t i on a gr e e t or e d u c e i n t e r c h a n g e f e e s .

N e t h e r l a n d s

( E U1 9 5 2 )

2 0 1 4 : M a s t e r C a r d pr omi s e s t h e

N e t h e r l a n d s A u t h or i t yf or

C on s um e r s a n d M a r k e t s ( A C M ) t or e d u c e i t s i n t e r c h a n g e f e e

r a t e f or d om e s t i c c r e d i t c a r d p a y

m e n t s f r om 0 . 9 % t o 0 . 7 %

( J un e 1 ,2 0 1 4 ) , 0 . 5 % ( J a n u a r y1 ,2 0 1 5 ) , a n d 0 . 3 % ( J a n u a r y1 ,

2 0 1 6 ) .

2 0 0 4 : T h e N e t h e r l a n d s C om p e t i t i onA u t h o

r i t y ( NM a ) f i n e s

I n t e r p a y , wh i c h o p e r a t e s t h e d e b i t c a r d s y s t e m , a n d m e m b e r

b a nk s f or c h a r gi n g e x c e s s i v e m e r c h a n t f e e s f or P I N d e b i t

t r a n s a c t i on s .

2 0 0 5 : NM a wi t h d r a w s t h e a c c u s a t i on a n d t h e f i n e i m p o s e d on

I n t e r p a y b u t u ph ol d s t h e f i n e on t h e b a nk s .

N e wZ e a l a n d

2 0 0 7 : P r o c e e d i n g s a r e i ni t i a t e d b y t h e N e wZ e a l a n d C omm e r c e

C ommi s s i on a g a i n s t Vi s a ,M a s t e r C a r d a n d m e m b e r i n s t i t u t i on s

of t h e t w o s c h e m e s , a l l e gi n g pr i c e -f i xi n gi n t h e s e t t i n g of

i n t e r c h a n g e f e e s .

2 0 0 9 : T h e C ommi s s i on a gr e e s w

i t h Vi s a ( onA u g u s t 1 2 ) a n d

M a s t e r C a r d ( onA u g u s t 2 4 ) t o s e t t l e c r e d i t c a r d i n t e r c h a n g e f e e

pr o c e e d i n g s .T h e a gr e e m e n t s r e q ui r e b o t h n e t w or k s t o a l t e r t h e

s c h e m e r ul e s i n N e wZ e a l a n d , a l l o wi n gm e r c h a n t s t o s ur c h a r g e ,

n on b a nk s t o b e c om e a c q ui r e r s , a n d c a r d i s s u e r s t oi n d i vi d u a l l y

s e t i n t e r c h a n g e f e e s ( t h e n e t w or k s s e t t h e m a xi m um

i n t e r c h a n g e f e e r a t e s ) .

6



N or w a y

T h e

g e n e r a l p o s i t i on of a u t h or i t i e s r e g a r d i n g t h e i n t r o d u c t i on of

n e w

p a ym e n t s y s t e m s i n N or w a yh a s b e e n

t h a t p a y e r s s h o ul d

c o v e r c o s t s .T h i s p o s i t i on c a n b e s e e n a s e a r l y a s t h e 1 9 7 4

r e p o

r t f r om t h e P a ym e n t S y s t e m s C ommi t t e e .

P a n a m a

2 0 0 3 -2 0 0 4 : Un d e r t h e 1 9 9 8 b a nk i n gl a w , t h e S u p e r i n t e n d e n t

of B a nk s i s s u e s r e g ul a t i on s f or b a nk s t h a t i s s u e a n d m a n a g e

c r e d i t c a r d s .T h e s e r e g ul a t i on s e

s t a b l i s h pr o c e d ur e s f or

a p pr o vi n g a c r e d i t c a r d a n d a u t h

or i z e t h e c h a r g e s f or

c ommi s s i on s a n d o t h e r r e l a t e d i t e m s .

P ol a n d

( E U2 0 0 4 )

2 0 0 7 : T h e P ol i s h Of f i c e of C om

p e t i t i on a n d C on s um e r P r o t e c t i on ( O C

C P ) or d e r s b a nk s t o d i s c on t i n u e t h e i r m

ul t i l a t e r a l

i n t e r c h a n g e f e e a gr e e m e n t s .

2 0 0 8 : I n N o v e m b e r , t h e C o ur t o

f C om p e t i t i on a n d C on s um e r P r o t e c t i o

n ( C C C P ) o v e r t ur n s t h e O C C P ’ s d e c i s i on oni n t e r c h a n g e

f e e s ,h ol d i n g t h a t t h e p a r t i c i p a t i on of 2 0 b a nk s i n a n a gr e e m e n t f i xi n g t h e f e e l e v e l s d o e s n o t c on s t i t u t e a ni nf r i n g e m e n t of t h e

C om p e t i t i onA c t i n t h e E ur o p e a n Uni on ( i . e . ,Ar t 8 1 .1 E C ) n or e q ui v a l e n t n a t i on a l pr o vi s i on .

2 0 1 0 : I nA pr i l , t h e C o ur t of A p p

e a l r e p e a l s t h e C C C P ’ s d e c i s i on a n d s u b mi t s i t b a c k t o C C C P f or r e vi e w .

2 0 1 2 : I nM a r c h , t h e N a t i on a l B a nk of P ol a n d ( NBP ) p u b l i s h e s P r o gr a m o f c ar d c h ar g e s r e d u c t i o n i nP o l a n d

wi t h t h e a i m of

l o w e r i n gi n t e r c h a n g e f e e s vi a a n on-r e g ul a t or y c om pr omi s e t o 0 . 7 0 %f

or d e b i t c a r d s a n d 0 . 8 4 %f or c r e d i t c a r d s b y2 0 1 7 .D u e t o

i n s uf f i c i e n t p a r t i c i p a t i on , t h e pr o p o s a l f a i l s b y J ul y , a n d t h e NBP t a k e s

s t e p s t ol o w e r r a t e s t h r o u gh t h e l e gi s l a t ur e i n s t e a d .

2 0 1 4 : I n J a n u a r y , a l a w g o e s i n t o e f f e c t t h a t a m e n d s t h e A c t onP a ym e n t S e r vi c e s t oi n c l u d e a m a xi m umi n t e r c h a n g e f e e of 0 . 5 %

on a l l P ol i s h p a ym e n t c a r d s .Af f e c t e d e n t i t i e s h a v e s i xm on t h s t o c om p

l y .

P or t u g a l

( E U1 9 8 6 )

2 0 0 6 : F ol l o wi n g t h e E ur o p e a n C

ommi s s i on’ s ( E C ) i n t e r i mr e p or t s on t h e r e t a i l b a nk i n gi n d u s t r y ,P or t u g u e s e

i s s u e r s a n d a c q ui r e r s

m e e t s om e of t h e E C ’ s c on c e r n s

b yr e d u c i n g d om e s t i c i n t e r c h a n g e f e e s a n d r e m o vi n g pr e f e r e n t i a l b i l a t e r a l d o

m e s t i c i n t e r c h a n g e

f e e s .

R om a ni a

( E U2 0 0 7 )

2 0 1 4 : T h e R om a ni a nMi ni s t r y of F i n a n c e pr o p o s e s c a p pi n g onm ul t i l a

t e r a l i n t e r c h a n g e f e e s a t 0 .2 %f or d e b i t c a r d s a n d a t 0 . 3 %

f or c r e d i t c a r d s .

S o u t h K or e a

2 0 0 5 : T h e K or e a nF a i r T r a d e C ommi s s i onr ul e s t h a t B C C a r d ’ s

( S o u t h K or e a ’ s f o ur - p a r t y s c h e m

e c r e d i t c a r d ) j oi n t pr i c i n g of

m e r c h a n t s e r vi c e c h a r g e s i s a c a

r t e l ,i m p o s e s a f i n e of 1 0 . 0 9 2

b i l l i onK or e a n w on , a n d i s s u e s c or r e c t i v e m e a s ur e s .

2 0 1 1 : T h e F i n a n c i a l S e r vi c e s C ommi s s i on ( F S C ) a nn o un c e s

c om pr e h e n s i v e m e a s ur e s t or e f o

r m t h e s t r u c t ur e of t h e c r e d i t

c a r d m a r k e t ,i n c l u d i n g t h e m e r c h a n t f e e s y s t e m . C a r d

c om p a ni e s a r e t o pr e p a r e a r e a s on a b l e s y s t e m b y t h e f i r s t h a l f

of 2 0 1 2 .

2 0 1 2 : T h e N a t i on a l A s s e m b l y a p pr o v e s T h e R e vi s i on of t h e

C r e d i t F i n a n c e L a w ( e f f e c t i v e i n J a n u a r y2 0 1 3 ) .Am on g o t h e r

t h i n g s , t h i s r e vi s i onr e q ui r e s c r e

d i t c a r d c om p a ni e s t o a p pl y

7



s p e c i a l m e r c h a n t f e e r a t e s d e t e r mi n e d b yF S C t om e r c h a n t s

wi t h a nn u a l r e v e n u e u n d er a c e r

t a i nl e v e l ( d e t e r mi n e d b y

pr e s i d e n t i a l d e c r e e ) a n d t o pr o vi d e r e l e v a n t i nf or m a t i on t o

a u t h or i t i e s .

S p a i n

( E U1 9 8 6 )

2 0 0 5 : T h e S p a ni s h C om p e t i t i on

T r i b un a l d e ni e s a u t h or i zi n g t h e i n t e r c h a n g e f e e a r r a n g e m e n t s of t h e S p a ni s h

c a r d s c h e m e s .I n

D e c e m b e r , S p a ni s h c a r d n e t w or k s a n d m e r c h a n t s r e a c h a n a gr e e m e n t c

o or d i n a t e d b y t h e S p a ni s h Mi ni s t r y of I n d u s t r y ,T o ur i s m

a n d T r a d e f or i n t e r c h a n g e f e e s t o b e r e d u c e d i mm e d i a t e l y a n d pr o gr e s s i v e l y ( e f f e c t i v e i n N o v e m b e r 2 0 0 6 ) .

2 0 0 9 : T h e m a xi m uml i mi t s f or c r e d i t a n d d e b i t c a r d i n t e r c h a n g e f e e s a r e e x t e n d e d f or t h e 2 0 0 9 / 2 0 1 0 p e r i o d .T h e C o un c i l of t h e

N a t i on a l C om p e t i t i on C ommi s s i on ( C N C ) c on c l u d e s t h a t a p pl yi n g t h e

m a xi m uml i mi t s d e r i v e d f r om t h e c o s t s t u d i e s t oi n t r a -

s y s t e mi n t e r c h a n g e f e e s w o ul d n o t b e a p pr o pr i a t e .

2 0 1 0 : I nD e c e m b e r , t h e C N C C o un c i l d e c l a r e s t h e m oni t or i n g of t h e a gr e e m e n t c l o s e d t o t h e e x t e n t t h a t i t e x pi r e d onD e c e m b e r

3 1 ,2 0 1 0 . S i n c e J a n u a r y2 0 1 1 , S

p a ni s h c a r d s c h e m e s h a v e b e e nf r e e t o

d e c i d e u p on t h e l e v e l of d e f a ul t i n t e r c h a n g e f e e s , wh i l e

s t i l l e n d ur i n gm a xi m um t r a n s p a r e n c y .

2 0 1 4 : I n J ul y , t h e G o v e r nm e n t a

p pr o v e s c a p s oni n t e r c h a n g e f e e s .F or

a ! 2 0 or l e s s t r a n s a c t i on , t h e c a pi s s e t

a t 0 .1 %f or d e b i t

c a r d s a n d 0 .2 %f or c r e d i t c a r d s .

F or a h i gh e r v a l u e t r a n s a c t i on ( h i gh e r

t h a n ! 2 0 ) , t h e c a pi s s e t a t 0 .2 % or ! 0 . 0 7 , wh i c h e v e r i s l e s s ,

f or d e b i t c a r d s a n d 0 . 3 %f or c r e d i t c a r d s .T h e s e c a p s a p pl y t of o ur - p a r t y s c h e m e s onl y .T h e c a p s b e c om e e f f e c t i v e on S e p t e m b e r

1 ,2 0 1 4 .

S o u t h Af r

i c a

2 0 1 4 : Af t e r t h e 2 0 0 8 i n q ui r yr e p

or t t h a t r e c omm e n d e d i n t e r c h a n g e f e e

r e g ul a t i on , t h e S o u t h Af r i c a nR e s e r v e

B a nk d e t e r mi n e s t h e

l e v e l s of d e b i t a n d c r e d i t c a r d i n

t e r c h a n g e f e e s b a s e d on wh e t h e r t h e i s

s u e r a n d t h e a c q ui r e r of a gi v e n t r a n s a c t i on a r e a c om pl i a n t

of E M V ( f or c a r d - pr e s e n t ) a n d 3

D s e c ur e ( f or c a r d -n o t - pr e s e n t ) .T h e s e

r a t e s b e c om e e f f e c t i v e on J a n u a r y1 ,2

0 1 5 .

S wi t z e r l a n d

2 0 0 5 : T h e S wi s s C om p e t i t i on C

ommi s s i on a n d c r e d i t c a r d

i s s u e r s a gr e e t or e d u c e i n t e r c h a n g e f e e s f r om1 . 6 5 -1 . 7 0 % t o

1 . 3 0 -1 . 3 5 % .

2 0 0 9 : T h e C ommi s s i on a g a i n o p e n s a ni n v e s t i g a t i oni n t o

i n t e r c h a n g e f e e s f or Vi s a a n d M

a s t e r C a r d c r e d i t c a r d s .

2 0 1 0 : T h e C ommi s s i on s e t s t h e

m a xi m umi n t e r c h a n g e f e e f or

2 0 1 0 a t 1 . 0 5 8 % .

2 0 1 1 : T h e C ommi s s i onr e d u c e s

t h e m a xi m umi n t e r c h a n g e f e e

t o 0 . 9 9 0 %f or 2 0 1 1 .

2 0 0 9 : T h e C ommi s s i on o p e n s a pr e l i mi n a r yi n v e s t i g a t i oni n t o

M a e

s t r o’ s i n t r o d u c t i on of a ni n t e r c h a n g e f e e .

2 0 1 0 : T h e C ommi s s i on o p e n s a pr e l i mi n a r yi n v e s t i g a t i oni n t o

“ D e b i t M a s t e r C a r d ’ s ” i n t r o d u c t i on of a d om e s t i c f a l l b a c k

i n t e r c h a n g e f e e .

2 0 1 1 : T h e S e c r e t a r i a t of t h e C om p e t i t i on C

ommi s s i on c l o s e s

pr e l i mi n a r yi n v e s t i g a t i on s .I t c on c l u d e s t h a t a ni n t e r c h a n g e f e e

f or M a e s t r o c a r d t r a n s a c t i on s c o ul d vi ol a t e

t h e A c t on C a r t e l s

wh i l e a ni n t e r c h a n g e f e e f or D e b i t M a s t e r C

a r d mi gh t b e

p o s s i b l e wi t h i n c e r t a i nl i mi t s , e . g . ,i t s m a r k

e t s h a r e r e m a i n s

b e l o

w1 5 % a n d t h e i n t e r c h a n g e f e e i s , on a

v e r a g e ,n om or e t h a n

0 .2 0

S wi s s f r a n c s p e r t r a n s a c t i on .

T ur k e y

2 0 0 5 : T h e T ur k i s h C om p e t i t i on

A u t h or i t y ( T C A ) m a k e s a d e c i s i on on

I n t e r b a nk C a r d C e n t r e ( BKM ) ’ s c l e a r i n g c ommi s s i onr a t e

b ym e m b e r b a nk s .T h e d e c i s i on

s t a t e s t h a t ,i n or d e r t o gr a n t e x e m p t i on

t o t h e c l e a r i n g c ommi s s i onf or m ul a pr o p o s e d b y t h e

c on s ul t a n c yf i r m on b e h a l f of BKM , t h e f or m ul a m u s t b e a d j u s t e d f or c e r t a i n c o s t i t e m s .

2 0 0 9 : BKMr e q u e s t s a ni n d e f i ni t e e x e m p t i onf or s e t t i n g j oi n t i n t e r c h a n

g e c ommi s s i onr a t e s f or c r e d i t c a r d b u

t t h e T C A d e c i d e s

t h a t a ni n d i vi d u a l e x e m p t i onmi gh t b e gr a n t e d t o t h e j oi n t r a t e s f or t h r e

e y e a r s i f c e r t a i n c on d i t i on s a r e m e t .

8



Uni t e d S t a t e s

2 0 1 1 : T h e F e d e r a l R e s e r v e B o a r d s e t s t h e d e b i t c a r d

i n t e r c h a n g e f e e s t a n d a r d s f or r e g ul a t e d b a n

k s wh o s e a s s e t s i z e

e x c e e d s $ 1 0 b i l l i on ( a t t h e b a nk h ol d i n g c o

m p a n yl e v e l ) .D e b i t

c a r d

s i s s u e d b y b a nk s wi t h l e s s t h a n $ 1 0 b i l l i oni n a s s e t s a n d

r e l o a d a b l e pr e p a i d c a r d s a r e e x e m p t e d f r om

t h e i n t e r c h a n g e f e e

s t a n d a r d s .

( T h i s r e g ul a t i oni s t h e s u b j e c t of c ur r e n t l i t

i g a t i on ) .

V e n e z u e l a

2 0 0 8 : I nD e c e m b e r ,R e s ol u c i ó n

Nº 0 8 -1 2 - 0 1 i s p a s s e d ( e f f e c t i v e J a n u a

r y2 0 0 9 ) wh i c h s t a t e s t h a t t h e B o a r d of t h e C e n t r a l B a nk of

V e n e z u e l a wi l l s e t l i mi t s onm e r c h a n t d i s c o un t r a t e s a n d t r a d e c ommi s s i on s f or p a ym e n t s m a d e b y d e b i t a n d c r e d i t f or e a c h

m e r c h a n t c a t e g or y ; t h e s e r a t e s w

i l l b e r e vi e w e d a nn u a l l y .

b .I n v e s t i g a t i o n s i n i t i a t e d

C o un t r y

C r e d i t

D e b

i t

E s t oni a

( E U2 0 0 4 )

2 0 1 2 : T h e E s t oni a n C om p e t i t i onA u t h or i t y t e r mi n a t e s t h e pr o c e e d i n g s

of t h e i n t e r c h a n g e f e e s f or c a r d p a ym e

n t s a f t e r a n um b e r of

r e d u c t i on s i ni n t e r c h a n g e f e e s m

a d e b y b a nk s .

F i nl a n d

( E U1 9 9 5 )

Mi d 2 0 0 0 s : T h e F i nni s h C om p e t i t i onA u t h or i t yl a un c h e s a n

i n v e s t i g a t i oni n t oi n t e r c h a n g e f e

e s onE M V c a r d s ( 0 . 3 1 % ) .

T r a d i t i on a l m a gn e t i c s t r i p e c a r d

s c h a r g e m e r c h a n t s b e t w e e n

z e r o t o 0 . 0 5 e ur o p e r t r a n s a c t i on

.

G e r m a n y

( E U1 9 5 2 )

2 0 0 6 : T h e B un d e s k a r t e l l a m t ( t h e c om p e t i t i on a u t h or i t yi n

G e r m a n y ) r e c e i v e s a l e g a l c om p

l a i n t f r om t h e G e r m a nR e t a i l

A s s o c i a t i on , a l l e gi n g t h a t f e e s c h a r g e d t om e r c h a n t s f or

M a s t e r C a r d a n d Vi s a t r a n s a c t i on s , wh i c h a v e r a g e 1 5 0 b a s i s

p oi n t s , pr e v e n t wi d e s pr e a d c r e d i t c a r d a c c e p t a n c e i n G e r m a n y .

N or w a y

2 0 0 4 : On t h e i ni t i a t i v e of t h e Mi ni s t r y of F i n a n c e ,

Kr e d i t t i l s yn e t ( t h e f i n a n c i a l s u p e r vi s or y a u t h or i t y ) e s t a b l i s h e s a

pr o j e c t gr o u p t or e p or t on c om p e t i t i v e c on d i t i on s i n t h e

N or w e gi a nm a r k e t f or i n t e r n a t i o

n a l p a ym e n t s a n d c h a r g e c a r d s .

2 0 0 5 : N or g e s B a nk ( t h e c e n t r a l

b a nk of N or w a y ) s t a t e s i ni t s

2 0 0 5 Ann u a l R e p or t t h a t t h e r e g

ul a t i on of i n t e r c h a n g e f e e s i s

a l s o b e i n g c on s i d e r e d .

R om a ni a

( E U2 0 0 7 )

2 0 1 1 : T h e R om a ni a n C om p e t i t i on C o un c i l ( R C C ) o p e n s a s e c t or i n q ui r y , t a r g e t i n gf o ur m a i n a r e a s ,i n c l u d i n g

s e t t i n g t h e

i n t e r c h a n g e f e e s on p a ym e n t c a r d s .

2 0 1 3 : T h e R C C p u b l i s h e s t h e r e

p or t of t h e i n q ui r y a n d f i n d s t h e i n t e r c h a n g e f e e s of Vi s a a n d M a s t e r C a r d a r e

h i gh e r i nR om a ni a

9



t h a n t h o s e i n o t h e r E ur o p e a n c o un t r i e s .

S i n g a p or e

2 0 1 3 : T h e C om p e t i t i on C ommi s s i on of S i n g a p or e ( C C S ) c on c l u d e s t h a t Vi s a ’ s m ul t i l a t e r a l i n t e r c h a n g e f e e s c h e m e d o e s n o t

vi ol a t e S i n g a p or e ’ s C om p e t i t i on

A c t .

S o u t h Af r

i c a

2 0 0 4 : T h e T a s k Gr o u pf or t h e N

a t i on a l T r e a s ur y a n d t h e S o u t h Af r i c a nR e s e r v e B a nk r e c omm e n d s t h a t t h e C

om p e t i t i on

C ommi s s i oni n v e s t i g a t e t h e p o s s i b i l i t y of a c om pl e xm on o p ol yi n t h e g o v e r n a n c e a n d o p e r a t i on of t h e n a t i on a l p a ym e n t s y s t e m .

2 0 0 6 : F ol l o wi n g t h e f i n d i n g s i n

t h e r e p or t T h e N a t i o n a l P a y m e n t S y s t e m a n d C o m p e t i t i o n i n t h eB a n k i n g S e c t or , t h e C ommi s s i on

b e gi n s a p u b l i c i n q ui r yi n t o b a nk c h a r g e s a n d a c c e s s t o t h e p a ym e n t s y

s t e m .

2 0 0 8 : I nD e c e m b e r , t h e i n q ui r y

r e p or t i s p u b l i s h e d ,r e c omm e n d i n gr e g

ul a t i oni n t h e s e t t i n g of i n t e r c h a n g e f e e s .

Uni t e d

Ki n g d om

( E U1 9 7 3 )

2 0 0 5 : I n S e p t e m b e r , t h e Of f i c e of F a i r T r a d i n g ( OF T ) f i n d s t h a t

M a s t e r C a r d ’ s i n t e r c h a n g e f e e a r

r a n g e m e n t s a r e i l l e g a l .I n

O c t o b e r , t h e OF T i s s u e s a s t a t e m

e n t of o b j e c t i on s a g a i n s t Vi s a

r e g a r d i n gi t s a gr e e m e n t onm ul t i l a t e r a l i n t e r c h a n g e f e e s .

2 0 0 6 : I nF e b r u a r y , OF T l a un c h e

s a n e wi n v e s t i g a t i on a g a i n s t

M a s t e r C a r d .I n J un e , t h e OF T ’ s

f i n d i n g onM a s t e r C a r d i s

a p p e a l e d a n d OF T c on s e n t s t oi t s d e c i s i on b e i n g s e t a s i d e b y

t h e C om p e t i t i onA p p e a l T r i b un a l , d u e t o a c h a n g e m a d e b y

M a s t e r C a r d i n s e t t i n gi n t e r c h a n g e f e e s . OF T r e f o c u s e s on c r e d i t

c a r d i n t e r c h a n g e f e e s s e t b yM a s t e r C a r d a n d Vi s a .

2 0 0 7 : OF T e x p a n d s t h e s c o p e of i t s i n v e s t i g a t i oni n t o

i n t e r c h a n g e f e e s t oi n c l u d e i mm e d i a t e d e b i t c a r d s .

2 0 1 2 : T h e UK g o v e r nm e n t s u b m

i t s a r e s p on s e t o t h e C o ur t of J u s t i c e i n s u p p or t of t h e E ur o p e a n C ommi s s i on

’ s d e c i s i on a n d t h e

G e n e r a l C o ur t j u d gm e n t ( r e g a r d

i n gM a s t e r C a r d ) .

A n n e x .Z e

r o i n t e r c h a n g e f e e s c h e m e s

C ur r e n t Z e r oI n t e r c h a n g e F e e S c h e m e

C a n a d a

I n t e r a c ( d e b i t )

D e nm a r k

( E U1 9 7 3 )

D a nk or t ( d e b i t )

N e wZ e a l a n d

E F T P O S ( d e b i t )

N or w a y

B a nk -Ax e p t ( d e b i t )

P r e vi o u s Z e r oI n t e r c h a n g e F e e S c h e m e

B e l gi um

( E U1 9 5 2 )

2 0 0 7 : B a n c on t a c t / Mi s t e r C a s h

( d e b i t ) i n t r o d u c e s e x pl i c i t i n t e r c h a n g e

f e e s .

F i nl a n d

( E U1 9 9 5 )

2 0 1 1 : P a nk k i k or t t i ( d e b i t ) ph a s e s o u t a t t h e y e a r - e n d .

G e r m a n y

2 0 0 6 : P OZ ( d e b i t ) ph a s e s o u t .

1 0



( E U1 9 5 2 )

2 0 1 3 : E L V’ s ( d i r e c t d e b i t ) ph a s e o u t i nF e b r u a r y2 0 1 6 i s pl a nn e d .

L ux e m b o ur g

( E U1 9 5 2 )

2 0 1 1 : B a n c om a t ( d e b i t ) ph a s e s o u t a t t h e y e a r - e n d .


( E U1 9 5 2 )

2 0 0 6 : P I N ( d e b i t ) i n t r o d u c e s e

x pl i c i t i n t e r c h a n g e f e e s .

2 0 1 1 : P I N b r a n d i s d i s c on t i n u e d .

1 1



2 . S ur c h

ar g e s an d Di s c o un t s ( A c t i on s t ak e n

b y p u b l i c a u t h or i t i e s )

C o un t r y

C r e d i t

D e b i t

A u s t r a l i a

2 0 0 3 : P r oh i b i t i on on s ur c h a r gi n gi s l i f t e d .

2 0 1 2 : T h e R e s e r v e B a nk

of A u s t r a l i a c h a n g e s t h e

s ur c h a r gi n g S t a n d a r d s , w

h i c h a l l o w s c r e d i t a n d s c h e m e d e b i t

c a r d n e t w or k s t o c a p t h e

a m o un t of s ur c h a r g e s a t a m o un t s

r e a s on a b l yr e l a t e d t om e r c h a n t s ’ c o s t of c a r d a c c e p t a n c e

( e f f e c t i v e i nM a r c h 2 0 1 3

) .

2 0 0 6 : P r oh i b i t i on on s ur c h a r gi n gi s l i f t e d f or Vi s a a n d

M a s t e r C a r d s i gn a t ur e d e b i t c a r d t r a n s a c t i on s .

A u s t r i a

( E U1 9 9 5 )

A s of 2 0 1 1 , s ur c h a r gi n gi s pr oh i b i t e d b u t of f e r i n g d i s c o un t s i s a

l l o w e d .

B e l gi um

( E U1 9 5 2 )

A s of 2 0 1 1 , s ur c h a r gi n gi s a l l o w e d .

B ul g a r i a

( E U2 0 0 7 )

A s of 2 0 1 1 , s ur c h a r gi n gi s a l l o w e d , b u t t h e p a ym e n t i n s t r um e n t s f or wh i c h s ur c h a r g e s m a y b e r e q u e s t e d a r e s p e c i f i e d .

C a n a d a

1 9 9 6 : T h e b a n on s ur c h a r gi n gf or I n t e

r a c t r a n s a c t i on s i s

l i f t e d t h r o u gh a c on s e n t or d e r b y t h e C

om p e t i t i onB ur e a u

of C a n a d a .

2 0 1 0 : T h e Mi ni s t r y of F i n a n c e ’ s c o d e of c on d u c t f or c r e d i t a n d

d e b i t c a r d s r e q u e s t s t h a t p a ym e n t c a r d

n e t w or k r ul e s e n s ur e

t h a t m e r c h a n t s a r e a l l o w e d t o pr o vi d e d i s c o un t s f or d i f f e r e n t m e t h o d s of p a ym e n t .

2 0 1 3 : T h e C om p e t i t i onT

r i b un a l d i s mi s s e s t h e c a s e b r o u gh t i n2 0 1 0 b y t h e C ommi s s i on e r of C om p e t i t i on a g a i n s t

M a s t e r C a r d a n d Vi s a o v e r n o- s ur c h a r g e r ul e a n d n o t e s t h a t t h e pr o p e r s ol u t i on t o t h e i s s u e i s a r e g ul a t or yf r a m e w or k .

C y pr u s

( E U2 0 0 4 )


C z e c h R e p u b l i c

( E U2 0 0 4 )


D e nm a r k

( E U1 9 7 3 )

2 0 1 1 : I n O c t o b e r , t h e pr o

h i b i t i on on s ur c h a r gi n gf or

d om e s t i c c r e d i t c a r d s i s l

i f t e d .

E s t oni a

( E U2 0 0 4 )


E ur o p e a n

Uni on

2 0 0 7 : T h e P a ym e n t S e r vi c e s Di r e c t i v e ( P S D ) d o e s n o t a l l o w p a

ym e n t s e r vi c e pr o vi d e r s t o pr e v e n t t h e

p a y e e f r om

r e q u e s t i n gf r om t h e p a y e

r a c h a r g e or f r om of f e r i n gh i m a r e d u c t i onf or t h e u s e of a gi v e n p a ym e n t i n s t r um e n t .H o w e v e r ,

t h e P S D a l l o w s M e m b e r

S t a t e s t of or b i d or l i mi t t h e r i gh t t or e q

u e s t c h a r g e s , t a k i n gi n t o a c c o un t t h e n e e d t o e n c o ur a g e

c om p e t i t i on a n d pr om o t e

t h e u s e of e f f i c i e n t p a ym e n t i n s t r um e n t s .

2 0 0 9 -2 0 1 0 : T h e P S Di s i m pl e m e n t e d i n t on a t i on a l l a w .

2 0 1 3 : T h e E ur o p e a n C om

mi s s i on pr o p o s e s r e vi s i on s t o t h e P a ym e n t S e r vi c e s Di r e c t i v e ( P S D2 ) , wh i c h b a n s s ur c h a r g e s on

t h e i n t e r c h a n g e -f e e -r e g ul a t e d c a r d s b u t a l l o w s s ur c h a r g e s onn o

n-r e g ul a t e d c a r d s ( e . g . , c or p or a t e c a r d s a n d t h r e e - p a r t y

1 2



s c h e m e c a r d s ) .

F i j i

2 0 1 2 : Af t e r s e v e r a l m e r c

h a n t s w e r e f o un d t o b e a p pl yi n g s ur c h a r g e s t o c r e d i t c a r d u s e r s d e s pi t e t h e pr a c t i c e b e i n g

pr oh i b i t e d b yF i j i ’ s M e r c

h a n t S e r vi c e s A gr e e m e n t , t h e R e s e r v e

B a nk of F i j i i n t e r v e n e s b y u ph ol d i n g t h e “ N o S ur c h a r g e

R ul e ” f or b o t h c r e d i t a n d

d e b i t c a r d p a ym e n t s e f f e c t i v e N o v e m b e r 1 ,2 0 1 2 .

F i nl a n d

( E U1 9 9 5 )

A s of 2 0 1 1 , s ur c h a r gi n gi s a l l o w e d b u t t h e a m o un t s of s ur c h a r g

e s a r e r e q ui r e d t o b e r e a s on a b l e a n d n o

t t o e x c e e d t h e

p a y e e ’ s a c t u a l c o s t s .

F r a n c e

( E U1 9 5 2 )

A s of 2 0 1 1 , s ur c h a r gi n gi s pr oh i b i t e d , b u t of f e r i n g d i s c o un t s i s a l l o w e d .

G e r m a n y

( E U1 9 5 2 )


Gr e e c e

( E U1 9 8 1 )


H un g a r y

( E U2 0 0 4 )


I r e l a n d

( E U1 9 7 3 )


I s r a e l

1 9 9 3 : T h e b a n on s ur c h a r gi n gi s l i f t e d .

A s of 2 0 0 5 ,m o s t m e r c h a

n t s d on o t s ur c h a r g e ; s om e d e e p d i s c o un t r e t a i l e r s of f e r c a s h d i s c o un t s .

I t a l y

( E U1 9 5 2 )

A s of 2 0 1 1 , s ur c h a r gi n gi s pr oh i b i t e d , a n d of f e r i n g d i s c o un t s i s

l i mi t e d t o c e r t a i n p a ym e n t i n s t r um e n t s

.

L a t vi a

( E U2 0 0 4 )


L i t h u a ni a

( E U2 0 0 4 )


L ux e m b o ur g

( E U1 9 5 2 )


M a l t a

( E U2 0 0 4 )

A s of 2 0 1 1 , s ur c h a r gi n gi s n o t pr oh i b i t e d .

M e xi c o

1 9 9 3 : T h e M e xi c a n C om

p e t i t i on C ommi s s i onr e a c h e s a n a gr e e m e n t wi t h a n um b e r of b a nk s ,f or b i d d i n g t h e mf r om

pr oh i b i t i n gm e r c h a n t s f r om of f e r i n g d i s c o un t s f or c a s h p a ym e n t s i n t h e i r a c q ui r i n g c on t r a c t s .


( E U1 9 5 2 )


N e wZ e a l a n d

2 0 0 9 : A gr e e m e n t s b e t w e

e n t h e C omm e r c e C ommi s s i on a n d Vi s a / M a s t e r C a r d r e q ui r e Vi s a / M a s t e r C a r d t o a l l o wm e r c h a n t s

t o s ur c h a r g e .

P ol a n d

( E U2 0 0 4 )


P or t u g a l

A s of 2 0 1 1 , s ur c h a r gi n gi s a l l o w e d , b u t t h e a m o un t of s ur c h a r g e s i s d e t e r mi n e d e i t h e r b yl e gi s l a t i on or t h e p a y e e .

1 3



( E U1 9 8 6 )

R om a ni a

( E U2 0 0 7 )


S l o v a k i a

( E U2 0 0 4 )

A s of 2 0 1 1 , s ur c h a r gi n g a n d of f e r i n g d i s c o un t s a r e l i mi t e d t o c e

r t a i n p a ym e n t i n s t r um e n t s .

S l o v e ni a

( E U2 0 0 4 )


S p a i n

( E U1 9 8 6 )


S w e d e n

( E U1 9 9 5 )


A s of 2 0 1 1 , s ur c h a r gi n gi s g e n e r a l l y pr oh i b i t e d b u t of f e r i n g d i s c o un t s i s a l l o w e d .



Uni t e d Ki n g d om

( E U1 9 7 3 )


2 0 1 1 : I nD e c e m b e r ,HM

T r e a s ur y a nn o un c e s t h a t t h e g o v e r nm e

n t wi l l b a n e x c e s s i v e s ur c h a r g e s on a l l f or m s of p a ym e n t ,

a n d e x t e n d t h e b a n a c r o s s m o s t r e t a i l s e c t or s .T h e a nn o un c e m e n t a l s o s t a t e s t h a t t h e UK wi l l b e c om e t

h e f i r s t E ur o p e a n

c o un t r y t o a c t b yi m pl e m

e n t i n gf or t h c omi n gE ur o p e a nl e gi s l a t i on e a r l y t o b a n t h i s pr a c t i c e b e f or e t h e e n d of 2 0 1 2 .

2 0 1 2 : I nD e c e m b e r ,T h e

C on s um e r Ri gh t s ( P a ym e n t S ur c h a r g e s ) R e g ul a t i on s 2 0 1 2 b a nm e r c h a n t s f r om c h a r gi n g

c on s um e r s m or e t h a n t h e

c o s t b or n e t o t h e mf or a c c e p t i n g a gi v

e nm e a n s of p a ym e n t ( e f f e c t i v e i nA pr i l 2 0 1 3 ) .


2 0 1 0 : T h e J u s t i c e D e p a r t m e n t ( D O J ) f i l e s a l a w s ui t a g a i n s t Am

e r i c a nE x pr e s s , Vi s a , a n d M a s t e r c a r d a

l l e gi n g t h a t t h e i r

m e r c h a n t f e e s a n d r e s t r i c

t i on s i m p o s e d onm e r c h a n t pr a c t i c e s vi ol a t e a n t i t r u s t l a w .T h e D O J r e a c h e s a

s e t t l e m e n t wi t h Vi s a

a n d M a s t e r C a r d t o e l i mi n a t e r ul e s pr e v e n t i n gm e r c h a n t s f r om o

f f e r i n g c on s um e r s d i s c o un t s ,r e w a r d s ,

a n d i nf or m a t i on

a b o u t c a r d c o s t s .

2 0 1 1 : I n J ul y , t h e s e t t l e m

e n t i s a p pr o v e d b y a f e d e r a l j u d g e .

2 0 1 2 : A pr e l i mi n a r y s e t t l e m e n t b e t w e e nm e r c h a n t s a n d Vi s a ,M

a s t e r C a r d , a n d s e v e r a l l a r g e i s s u e r b a n

k s r e q ui r e s Vi s a a n d

M a s t e r C a r d t o a l l o wm e r c h a n t s t oi m p o s e s ur c h a r g e s on c r e d i t c a r d t r a n s a c t i on s , s u b j e c t t o a c a p a n d o t h e r c on s um e r

pr o t e c t i onm e a s ur e s .T h e

c h a n g e w o ul d t a k e e f f e c t i n e a r l y2 0 1 3 .

2 0 1 3 : I nD e c e m b e r , t h e s e t t l e m e n t b e t w e e nm e r c h a n t s a n d Vi s a

,M a s t e r C a r d , a n d s e v e r a l l a r g e i s s u e r b a nk s i s a p pr o v e d b y

a f e d e r a l j u d g e .

2 0 1 4 : M e r c h a n t s a n d t h e i r t r a d e a s s o c i a t i on s a p p e a l t h e Vi s a / M

a s t e r C a r d s e t t l e m e n t .I n J ul y , t h e t r i a l of t h e c a s e b r o u gh t

b yD O J a g a i n s t Am e r i c a nE x pr e s s b e gi n s i nf e d e r a l c o ur t .

1 4



S o ur c e s :

I n t e r c h an

g e an d M e r c h an t S e r vi c e F e e s

Ar g e n t i n a

h t t p : / / w w w . o e c d . or g / d a t a o e c d / 3 1 / 1 9 / 3 8 8 2 0 1 2 3 . p d f

h t t p : / / w w w . pr o t e c t or a . or g . a r / l e gi s l a c i on / l e y-2 5 0 6 5 - t a r j e t a s - d e - c r e d i t o / 4 3 / ( i n S p a ni s h )

h t t p : / / w w w .1 s t - a nn a p ol i s . c om / i n t e r c h a n g e - w or l d - d i f f e r e n c e

h t t p : / / i r . a m e r i c a n e x pr e s s . c om / ph o e ni x .zh t ml ? c = 6 4 4 6 7 & p=i r ol -r e p or t s Ann u a l Ar c h i v e

h t t p : / / w w w . b c r a . g o v . a r / p d f s / m a r c o / M a r c o %2 0 L

e g a l %2 0 c om pl e t o . p d f ( i n S p a ni s h )

A u s t r a l i a

h t t p : / / w w w .r b a . g o v . a u / p a ym e n t s - s y s t e m / r e f or m s / r e vi e w- c a r d -r e f or m s / p d f / r e vi e w- 0 7 0 8

-i s s u e s . p d f

h t t p : / / w w w .r b a . g o v . a u / p a ym e n t s - s y s t e m / r e f or m s / c c - s c h e m e s / c c -f e e s - b e n c h m a r k . p d f

h t t p : / / w w w .r b a . g o v . a u / m e d i a -r e l e a s e s / 2 0 0 6 / mr - 0 6 - 0 2 .h t ml

h t t p : / / w w w .r b a . g o v . a u / m e d i a -r e l e a s e s / 2 0 0 6 / mr - 0 6 - 0 8 .h t ml

h t t p : / / w w w .r b a . g o v . a u / p a ym e n t s - s y s t e m / l e g a l -f r

a m e w or k / s t a n d a r d s / i n t e r c h g- vi s a - d e b i t . p d f

h t t p : / / w w w .r b a . g o v . a u / m e d i a -r e l e a s e s / 2 0 0 9 / mr - 0 9 -1 8 .h t ml

h t t p : / / w w w .r b a . g o v . a u / p a ym e n t s - s y s t e m / r e f or m s / d e b i t - c a r d - s y s t e m s / 2 0 1 2 1 1 -r e g-f r m wr k - e f t p o s - s y s / p d f / f i n-r e f -r i s -1 1 2 0 1 2 . p d

f

A u s t r i a


h t t p : / / w w w . c on c ur r e n c e s . c om / a r t i c l e . ph p 3 ? i d _ a r t i c l e =2 3 9 3 5 &l a n g=f r

h t t p : / / w w w . c on c ur r e n c e s . c om / a r t i c l e . ph p 3 ? i d _ a r t i c l e =1 4 7 8 7

h t t p : / / e ur o

p a . e u / r a pi d / pr e s s R e l e a s e s A c t i on . d o ? r e f e r e n c e =ME M O / 0 7 / 4 0

B e l gi um

h t t p : / / w w w .f r e s h f i e l d s . c om / p u b l i c a t i on s / n e w s l e t t e r s / n e w s l e t t e r . a s p ? t y p e i d = 6 &n e w s l e t t e r i d = 3 1 & c on t e n t i d = 7 4

h t t p : / / w w w . c on c ur r e n c e s . c om / a r t i c l e . ph p 3 ? i d _ a r t i c l e =1 2 4 2 6 # n b 1

h t t p : / / w w w . p s e c on s ul t i n g . c om / p d f / a r t i c l e s / i n t e r c h a n g e / c on s e q u e n c e s _ of _mi f _m a r 0 5 . p d f

h t t p : / / e c . e

ur o p a . e u / i n t e r n a l _m a r k e t / f i n s e r vi c e s -r e t a i l / d o c s / f i nf o c u s / f i nf o c u s 3 / f i nf o c u s 3 _ e n . p d f

h t t p : / / e c . e

ur o p a . e u / c om p e t i t i on / s e c t or s / f i n a n c i a l _ s e r vi c e s / i nf or m a t i on _ p a p e r _ p a ym e n t s _ e n . p d f

Br a zi l


h t t p : / / s i t e r e s o ur c e s . w or l d b a nk . or g / I NT P AYME N

T RE MMI T T A N C E / R e s o ur c e s / J o s e M

a r c i a n o . p d f

h t t p : / / w w w .r e u t e r s . c om / a r t i c l e / i d U S N1 4 2 7 3 5 5 7 2 0 0 9 0 7 1 5

h t t p : / / w w w .r e u t e r s . c om / a r t i c l e / i d U S N1 9 1 8 9 5 2 5 2 0 1 0 0 4 1 9

1 5



C a n a d a

h t t p : / / w w w .k c .f r b . or g / p u b l i c a t / p s c p / 2 0 0 5 / W e i n e

r - Wr i gh t . p d f

h t t p : / / w w w .k c .f r b . or g / p u b l i c a t / p s c p / 2 0 0 5 / R e g ul a t or y _ p a n e l . p d f

h t t p : / / w w w . p a r l . g c . c a / 4 0 / 2 / p a r l b u s / c omm b u s / s e n a t e / c om- e / b a nk - e / r e p- e / r e p 0 4 J un 0 9 - e . p d f

h t t p : / / w w w .f i n . g c . c a / n1 0 / d a t a / 1 0 - 0 4 9 _1 - e n g . a s p

h t t p : / / w w w . b u d g e t . g c . c a / 2 0 1 4 / d o c s / pl a n / c h 3 -4 - e

n g .h t ml

C h i l e


h t t p : / / w w w . t d l c . c l / n o t i c i a s / d e t a l l e . ph p ? i d = 8 ( un a v a i l a b l e a s of F e b r u a r y ,2 0 1 2 )

C h i n a

h t t p : / / w w w .k pm g . c om / C N / e n / I s s u e s An d I n s i gh t s / Ar t i c l e s P u b l i c a t i on s / D o c um e n t s / c a r d - p a ym e n t s - a s p a c - 0 9 0 6 . p d f

h t t p : / / e b u s i n e s s .mi t . e d u / r e s e a r c h / p a p e r s / 2 1 2 _ j h a

u s m a n _ c h i n a e p a ym e n t . p d f

h t t p : / / w w w . p a ym e n t s s o ur c e . c om / n e w s / C h i n e s e -Mi ni s t r y-P r o p o s e s - C a p pi n g-M e r c h a n t - C a r d -A c c e p t a n c e -F e e s - 3 0 0 8 9 6 9 -1 .h t m

l

h t t p : / / w w w .l e x ol o g y . c om / l i b r a r y / d e t a i l . a s px ? g= e f 4 1 2 5 a e - b 9 3 a -4 f b 3 - 9 d 7 2 - 3 d 3 6 2 4 6 1 5 7

c e

C ol om b i a


h t t p : / / w w w . c on s umi d or e s i n t . c l / n o v e d a d e s / d e t a l l e n o v e d a d . a s p ? i d =1 1 4 8 0 0 1 8 0 0 ( un a v a i l a b l e a s of N o v e m b e r ,2 0 0 7 )

D e nm a r k



h t t p : / / w w w .f or b r u g . d k / f i l e a d mi n / F i l e r / F O _E n gl i s h / UK- b e t a l i n g s mi d d e l l o v . p d f ( un a v a i l a b l e a s of F e b r u a r y ,2 0 1 2 )

h t t p : / / e c . e


E ur o p e a n

P a ym e n t C a r d s Y e a r b o ok 2 0 0 5 - 6 .

E s t oni a

h t t p : / / w w w .k onk ur e n t s i a m e t . e e / ? i d =2 1 2 3 1

E ur o p e a n

Uni on

h t t p : / / w w w .k c .f r b . or g / p u b l i c a t / p s c p / 2 0 0 5 / F r i e s s . p d f


p a . e u / r a pi d / pr e s s R e l e a s e s A c t i on . d o ? r e f e r e n c e =ME M O / 0 6 / 2 6 0 & t y p e =HT ML & a g e d = 0 &l a n g u a g e =E N & g ui L a n g u a g e = e n


p a . e u / r a pi d / pr e s s R e l e a s e s A c t i on . d o ? r e f e r e n c e =I P / 1 0 / 4 6 2 &f or m a t =HT ML & a g e d = 0 &l a n g u a g e =E N & g ui L a n g u a g e =

e n


p a . e u / r a pi d / pr e s s R e l e a s e s A c t i on . d o ? r e f e r e n c e =ME M O / 1 0 / 2 2 4 &f or m a t =HT ML & a g e d = 0 &l a n g u a g e =E N & g ui L a n g u a g e = e n


p a . e u / r a pi d / pr e s s R e l e a s e s A c t i on . d o ? r e f e r e n c e =I P / 1 0 / 1 6 8 4

h t t p : / / c ur i a . e ur o p a . e u / j c m s / u pl o a d / d o c s / a p pl i c a t i on / p d f / 2 0 1 2 - 0 5 / c p1 2 0 0 6 9 e n . p d f

1 6




p a . e u / r a pi d / pr e s s R e l e a s e s A c t i on . d o ? r e f e r e n c e =I P / 1 2 / 8 7 1


p a . e u / r a pi d / pr e s s -r e l e a s e _I P -1 3 - 3 1 4 _ e

n .h t m ? l o c a l e = e n

h t t p : / / e c . e

ur o p a . e u / i n t e r n a l _m a r k e t / p a ym e n t s / d o

c s / f r a m e w or k / 1 3 0 7 2 4 _ pr o p o s a l -r e g ul a

t i on-mi f s _ e n . p d f


p a . e u / r a pi d / pr e s s -r e l e a s e _ME M O-1 3 - 7 1 9 _ e n .h t m ? l o c a l e = e n

h t t p : / / w w w . e ur o p a r l . e ur o p a . e u / s i d e s / g e t D o c . d o ?

p u b R e f =- %2 F %2 F E P %2 F %2 F T E XT %

2 BRE P ORT %2 BA 7 -2 0 1 4 -

0 1 6 7 %2 B

0 %2 BD O C %2 BXML %2 B V 0 %2 F %2 F E N &l a n g u a g e =E N


p a . e u / r a pi d / pr e s s -r e l e a s e _I P -1 4 -1 9 7 _ e

n .h t m

h t t p : / / e ur -

l e x . e ur o p a . e u / l e g a l - c on t e n t / E N / T XT / H

T ML / ? ur i = C E L E X : 5 2 0 1 4 X C 0 5 1 6 ( 0 1

) &f r om=E N

h t t p : / / c ur i a . e ur o p a . e u / j c m s / j c m s / J o1 _ 6 5 8 1 / ? d a t e

D e b u t =1 1 / 0 9 / 2 0 1 4 & d a t e F i n=1 1 / 0 9 / 2 0

1 4

F i nl a n d

C onr o y , V

i c t or i a .2 0 0 9 .“ F i nl a n d pl a y s i t s c a r d s

r i gh t ,” F e b r u a r y1 0 , C ar d s I n t er n a t i o n a l , V R L F i n a n c i a l N e w s . w w w . vr l -f i n a n c i a l -n e w s . c om


h t t p : / / e c . e


h t t p : / / w w w . p a ym e n t c a r d y e a r b o ok s . c om / c o un t r y- pr of i l e s / f i nl a n d . ph p

F r a n c e

E ur o p e a n


J u d gm e n t

( C a s e A 3 1 8 / 0 2 S E R VI RE DI n t e r c h a n

g e f e e s )

h t t p : / / w w w . a u t or i t e d e l a c on c ur r e n c e .f r / u s e r / s t a n d a r d . ph p ? i d _r u b = 3 8 9 &i d _ a r t i c l e =1 6 5 7

h t t p : / / w w w . c g s h . c om / f i l e s / P u b l i c a t i on / 7 5 e b e 2 9 a

-1 0 d 7 -4 8 0 7 - 9 9 7 2 - 5 3 7 3 4 0 4 1 8 c 5 0 / P r e s e n t a t i on / P u b l i c a t i onA t t a c h m e n t / 8 1 5 b f 1 7 5 -f 6 4 5 -4 4 9 e - a f 6 a -

5 a 6 b e a 2 d 5 f 4 f / N a t i on a l %2 0 C om p e t i t i on %2 0 R e p

or t %2 0 Q2 %2 0 2 0 1 1 . p d f

h t t p : / / w w w . a u t or i t e d e l a c on c ur r e n c e .f r / u s e r / s t a n d a r d . ph p ? i d _r u b =4 8 2 &i d _ a r t i c l e =2 2 5 1

( i nF r e n c h )

h t t p : / / w w w .r e u t e r s . c om / a r t i c l e / 2 0 1 3 / 0 9 / 2 3 / u s -m a s t e r c a r d - vi s a -i d U S BRE 9 8 M 0 L M2 0 1 3 0 9 2 3

G e r m a n y

E ur o p e a n


h t t p : / / e n gl i s h .z a h l un g s v e r k e h r s f r a g e n . c om / s u b s c

r i b e r s / p a ym e n t s _ a t _ t h e _ p o s .h t m

h t t p : / / w w w . b un d e s k a r t e l l a m t . d e / S h a r e d D o c s / M e l d un g / E N / M e l d un g e n N e w s K a r u s s e l l / 0 8 _4 _2 0 1 4 _E C - C a s h .h t ml

h t t p : / / w w w .l e x ol o g y . c om / l i b r a r y / d e t a i l . a s px ? g=f e d e a f a 3 - 9 0 f d -4 a 2 2 - 8 0 8 f -f f 9 0 6 3 d 1 0 0 4 9

h t t p s : / / w w

w . s e p a d e u t s c h l a n d . d e / a s s e t f i l e _ 5 1 e 7 a 6 f 8 4 e 9 f c 4 f 4 1 2 0 0 0 0 1 7 _ 0 f 0 . p d f

Gr e e c e

h t t p : / / w w w . e p a n t . gr / i m g / x2 / n e w s / n e w s 1 7 2 _1 _1 2 3 6 2 4 5 0 1 0 . p d f

H un g a r y

h t t p : / / w w w . g vh .h u / d om a i n2 / f i l e s / m o d ul e s / m o d u

l e 2 5 / p d f / b a nk k a r t y a h a s zn a l a t _2 0 0 6 . p d

f

h t t p : / / w w w . g vh .h u / g vh / a l ph a ? d o=2 & s t =2 & p g=1

3 3 &m 5 _ d o c = 6 0 7 1

1 7



h t t p : / / e c . e

ur o p a . e u / c om p e t i t i on / e c n / b r i e f / 0 1 _2 0 1

0 / p a ym e n t c a r d s _h u . p d f

h t t p : / / e n gl i s h .mn b .h u / R o o t / D ok um e n t um t a r / E NM NB / Ki a d v a n y ok / r e p or t - on- p a ym e n t -

s y s t e m s / J e l e n t e s _ a _f i z e t e s i _r e n d s z e r r ol _2 0 1 3 _E

N G _f i n a l . p d f

h t t p : / / w w w . p ol i t i c s .h u / 2 0 1 3 0 9 0 2 / b i l l - c a p pi n g- b a nk - c r e d i t - c a r d -i n t e r c h a n g e -f e e s - s u b mi t t e d /

I n d i a

h t t p : / / r b i . or g .i n / s c r i p t s / N o t i f i c a t i on U s e r . a s px ? I d = 7 3 0 4 &M o d e = 0

h t t p : / / r b i . or g .i n / s c r i p t s / B S _ C i r c ul a r I n d e xDi s pl a y . a s px ? I d = 7 4 2 2

I s r a e l



h t t p : / / w w w . o e c d . or g / of f i c i a l d o c um e n t s / p u b l i c d i s pl a y d o c um e n t p d f / ? c o t e =DAF / C OMP / AR ( 2 0 1 2 ) 5 & d o c L a n g u a g e =E n

I t a l y

h t t p : / / w w w .l a w 3 6 0 . c om / a r t i c l e s / 2 0 7 3 3 0 / i t a l y-f i n

e s -m a s t e r c a r d - b a nk s - o v e r -i n t e r c h a n g e

-f e e s

h t t p : / / e c . e


0 / i t _ b a n c om a t . p d f

h t t p : / / w w w .l e x ol o g y . c om / l i b r a r y / d e t a i l . a s px ? g= b 8 8 e e f c c -4 a 3 9 -4 c d 7 - 9 6 2 e - e a 7 4 8 7 a 8 3 d

c 7

h t t p : / / w w w . a g c m .i t / t r a s p- s t a t i s t i c h e / d o c _ d o wnl o

a d / 4 1 0 4 -i 7 7 3 pr o v v e d i m e n t o d i a v vi oi s t r u t t or i a .h t ml ( i nI t a l i a n )

L a t vi a

h t t p : / / w w w .k p . g o v .l v / ? o b j e c t _i d =1 0 8 4 &m o d ul e =n e w s

L ux e m b o ur g


h t t p : / / e c . e


h t t p : / / w w w . a b b l .l u / n o d e / 8 4 4 1

M e xi c o

N e gr í n , J o

s é L ui s .“ T h e r e g ul a t i on of p a ym e n t c a r d s : T h e M e xi c a n e x p e r i e n c e ,” R e v i e w

o f N e t w or k E c o n o m i c s ,4 : 2 4 3 -2 6 5 ,D e c e m b e r 2 0 0 5 .

h t t p : / / w w w .k c .f r b . or g / p u b l i c a t / p s c p / 2 0 0 5 / Or t i z . p d f





h t t p : / / e c . e


h t t p : / / w w w .nm a .nl / e n / c om p e t i t i on / f i n a n c i a l _ a n d

_ b u s i n e s s _ s e r vi c e s / b a nk s _ a n d _ b u s i n e s s _ s e r vi c e s _ c a s e s / d e f a ul t . a s px

h t t p s : / / w w

w . a c m .nl / e n / p u b l i c a t i on s / p u b l i c a t i on / 1 2 6 4 3 / A C M-M a s t e r C a r d -l o w e r s - t a r i f f s -f or - c r e d i t - c a r d - p a ym e n t s /

1 8



h t t p : / / w w w . b e t a a l v e r e ni gi n g .nl / e n / f i e l d s - of - a c t i vi t y / d e b i t - c a r d - t r a n s a c t i on s - a n d - p o s - t e r mi n a l s /

h t t p : / / w w w . o e c d . or g / r e gr e f or m / s e c t or s / 3 9 3 4 7 6 9 9 . p d f

N e wZ e a l a n d

h t t p : / / w w w . c om c om . g o v t .nz / m e d i a -r e l e a s e s / d e t a i l / 2 0 0 9 / c omm e r c e c ommi s s i on a n d vi s a r e a c h a gr e /

h t t p : / / w w w . c om c om . g o v t .nz / m e d i a -r e l e a s e s / d e t a i l / 2 0 0 9 / c omm e r c e c ommi s s i on a n d m a s t e r c a r d a gr /



N or w a y

h t t p : / / w w w .k r e d i t t i l s yn e t .n o / a r c h i v e / f - a v d _ w or d

/ 0 1 / 0 4 / R e g ul 0 1 1 . d o c

h t t p : / / e c . e


h t t p : / / w w w .n or g e s - b a nk .n o / U pl o a d / E n gl i s h / P u b l i c a t i on s / E c on omi c %2 0 B ul l e t i n / 2 0 0 6 - 0 4 / 0 1 -P a ym e n t s %2 0 h i s t or y . p d f

h t t p : / / w w w .n or g e s - b a nk .n o / U pl o a d / i m p or t / f r on t / r a p p or t / e n / b f / 2 0 0 5 / h e l e _h e f t e t . p d f

P a n a m a


h t t p : / / w w w .i i b . or g / a s s o c i a t i on s / 6 3 1 6 / f i l e s / g s 2 0 0

4 . p d f

P ol a n d

h t t p : / / w w w . u ok i k . g o v . pl / n e w s . ph p ? n e w s _i d =1 0 0 4



h t t p : / / w w w . u ok i k . g o v . pl / / n e w s . ph p ? n e w s _i d =2 0

4 5

h t t p : / / w w w .n b p . pl / h om e n . a s px ? f = / e n / s y s t e m _ pl a t ni c z y / c h a r g e s _r e d u c t i on .h t ml

h t t p : / / w w w . w a r s a w v oi c e . pl / W V p a g e / p a g e s / a r t i c

l e P r i n t . ph p / 2 1 5 7 0 / n e w s

h t t p : / / w w w .l e x ol o g y . c om / l i b r a r y / d e t a i l . a s px ? g=1 e 5 c 3 f d 6 -4 2 2 6 -4 2 a 1 - b 9 6 9 - e 5 0 f 5 f f 9 4 1 b 8

h t t p : / / or k a . s e j m . g o v . pl / pr o c 7 .n s f / u s t a w y / 9 6 6 _ u .h t m ( i nP ol i s h )

P or t u g a l


p a . e u / r a pi d / pr e s s R e l e a s e s A c t i on . d o ? r e f e r e n c e =ME M O / 0 7 / 4 0 &f or m a t =D O C

& a g e d =1 &l a n g u a g e =E N & g ui L a n g u a g

e =f r

R om a ni a

h t t p : / / w w w . c on s i l i ul c on c ur e n t e i .r o / u pl o a d s / d o c s

/ i t e m s / i d 8 3 3 4 / u t i l a _ c a r d ur i _2 0 1 3 _ e n gl i s h . p d f

h t t p : / / w w w . a ur s f .r o / w p- c on t e n t / u pl o a d s / 2 0 1 4 / 0 2

/ S p e e c h -Al i n . p d f

h t t p : / / w w w .r om a ni a -i n s i d e r . c om / r om a ni a s -n e w-r e g ul a t i on s - on- c a s h - p a ym e n t -l i mi t s - a n

d -i n t e r c h a n g e -f e e s - c e i l i n g-n e e d - p a r l i a m e n t -

a p pr o v a l / 1 1 4 9 6 5 /

1 9



S i n g a p or e

h t t p : / / w w w . c c s . g o v . s g / c on t e n t / c c s / e n / M e d i a - a n d

-P u b l i c a t i on s / M e d i a -R e l e a s e s / c c s -i s s u

e s - a - c l e a r a n c e - d e c i s i on- on- vi s a s -mi f - s

y s t e m .h t ml

S o u t h Af r

i c a

h t t p : / / w w w . c om p c om . c o .z a / a s s e t s / B a nk i n g / N on c onr e p or t / 9 -A p p e n d i c e s . p d f

h t t p : / / w w w . c om p c om . c o .z a / a s s e t s / U pl o a d s / A t t a c h e d F i l e s / M yD o c um e n t s / B a nk i n g-P r e s s - S t a t e m e n t . d o c

h t t p : / / w w w . c om p c om . c o .z a / t e c h ni c a l -r e p or t /

h t t p : / / w w w . c om p c om . c o .z a / a s s e t s / B a nk i n g / N on c onr e p or t / 8 - C on c l u s i on s . p d f

h t t p s : / / w w

w .r e s b a nk . c o .z a / P u b l i c a t i on s / D e t a i l -I t e m- Vi e w / P a g e s / P u b l i c a t i on s . a s px ? s a r b w e b = 3 b 6 a a 0 7 d - 9 2 a b -4 4 1 f - b 7 b f -

b b 7 d f b 1 b e d b 4 & s a r b l i s t =2 1 b 5 2 2 2 e - 7 1 2 5 -4 e 5 5 - b b 6 5 - 5 6 f d 3 3 3 3 3 7 1 e & s a r b i t e m= 6 1 5 5

S o u t h K or e a

A s i a Af r i c a I n t e l l i g e n c e Wi r e ." F T C s l a p s 1 0 .1 b

l n w onf i n e onB C C a r d f or c a r t e l a c t i vi t i e s ." J un e 3 0 2 0 0 5 .

h t t p : / / w w w . a c c e s s m yl i b r a r y . c om / a r t i c l e -1 G1 -1 3

4 4 7 5 0 9 0 / f t c - s l a p s -1 0 -1 .h t ml

h t t p : / / w w w . o e c d . or g / d a t a o e c d / 0 / 3 0 / 3 9 5 3 1 6 5 3 . p d f

h t t p : / / w w w . p a ym e n t s s o ur c e . c om / n e w s / k or e a n- c a r d -n e t w or k s - c u t -i n t e r c h a n g e -f e e s - 3 0 0

8 2 1 9 -1 .h t ml

S p a i n

h t t p : / / e c . e

ur o p a . e u / c om p e t i t i on / s e c t or s / f i n a n c i a l _ s e r vi c e s / i n q ui r i e s / s e c _2 0 0 7 _1 0 6 . p d f

h t t p : / / w w w .r b r l on d on . c om / n e w s l e t t e r s / b 2 2 1 e . p d

f



J u d gm e n t

( C a s e A 3 1 8 / 0 2 S E R VI RE DI n t e r c h a n

g e f e e s )

J u d gm e n t

oni n d i vi d u a l e x e m p t i on ( C a s e n o .A 3

1 4 / 2 0 0 2 S I S T E MA4 B )

P r o c e e d i n

g s i n t h e c a s e of a m e n d m e n t or r e v o c a t i on ( C a s e n o .A2 8 7 / 0 0 E ur o 6 0 0 0 )

h t t p : / / e c . e


1 / e s _ d e b i t . p d f

h t t p : / / w w w . c n c om p e t e n c i a . e s / I ni c i o / N o t i c i a s / t a b

i d / 1 0 5 / D e f a ul t . a s px ? C on t e n t i d =2 8 7 3 1

8 &P a g=1

h t t p : / / w w w . e c b .i n t / p u b / p d f / s c p o p s / e c b o c p1 3 1 . p d f

h t t p : / / w w w .l a m on c l o a . g o b . e s / l a n g / e n / g o b i e r n o / c

o un c i l mi ni s t e r s / P a gi n a s / 2 0 1 4 / 2 0 1 4 0 7 0 4 - c o un c i l -mi ni s t e r . a s px

h t t p s : / / w w

w . b o e . e s / d i a r i o _ b o e / t x t . ph p ? i d =B OE -

A-2 0 1 4 - 7 0 6 4


h t t p : / / w w w .n e w s . a d mi n . c h / N S B S u b s c r i b e r / m e s s a g e / a t t a c h m e n t s / 1 4 4 5 2 . p d f ( i n G e r m a n )



C om p e t i t i on C ommi s s i on .“ Ann u a l R e p or t 2 0 0 5

.”

C om p e t i t i on C ommi s s i on .“ T r a n s l a t i on of t h e D e c i s i on of t h e C om p e t i t i on C ommi s s i onf r om2 5 . J a n u a r y2 0 1 0 . C on c e r ni n gP

r e l i mi n a r y

I n j un c t i on

s i n t h e C a s e of t h e I n v e s t i g a t i on un d e r Ar t i c l e 2 7 of t h e F e d e r a l A c t on C a r t e l s a n d O t h e r R e s t r a i n t s of C om p e t i t i onR e l a t i n g t o2 2 -

0 3 8 9 : C r e

d i t C a r d s -DMI F I I .”

2 0



C om p e t i t i on C ommi s s i on .“ T o t h e F e d e r a l C o un

c i l : Ann u a l R e p or t 2 0 1 0 of t h e C om p e t i t i on C ommi s s i on”

h t t p : / / w w w . gl o b a l c om p e t i t i onr e vi e w . c om / r e vi e w

s / 3 7 / s e c t i on s / 1 3 2 / c h a p t e r s / 1 4 0 5 /

h t t p : / / w w w .m on d a q . c om / x / 8 6 5 8 4 / T r a d e + R e g ul a

t i on+ P r a c t i c e s / N a t i on a l + C om p e t i t i on+

L a w+ R e p or t + + Q 3 + 2 0 0 9

h t t p : / / w w w . o e c d . or g / c om p e t i t i on / P a ym e n t S y s t e m s 2 0 1 2 . p d f

T ur k e y

h t t p : / / w w w . o e c d . or g / d a t a o e c d / 0 / 3 0 / 3 9 5 3 1 6 5 3 . p d f

h t t p : / / w w w . o e c d . or g / c om p e t i t i on / P a ym e n t S y s t e m s 2 0 1 2 . p d f

Uni t e d Ki n g d om

h t t p : / / w w w . of t . g o v . uk / s h a r e d _ of t / c a 9 8 _ p u b l i c _r

e gi s t e r / d e c i s i on s / of t 8 1 1 . p d f

h t t p : / / w w w . of t . g o v . uk / n e w s / pr e s s / 2 0 0 6 / 9 7 - 0 6

h t t p : / / w w w . of t . g o v . uk / n e w s / pr e s s / 2 0 0 6 / 2 0 - 0 6

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