Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel (21 page)

I then projected a document memorializing a Visa/MasterCard “rules alignment” meeting that showed that the first rules on the agenda for alignment were Visa and MasterCard’s “Honor All Cards” tying arrangement rules. These rules were the focal point of the
Merchants
’ case. We also projected two documents, one from Visa and one from MasterCard, both dated August 15, 1997. The Visa document showed Visa reducing the budget for promoting PIN debit to zero. The MasterCard document showed MasterCard removing all financial support for PIN debit in the United States. Both companies had eliminated funding for the faster, safer and cheaper product on the same day.

In a thematic grouping, designed to highlight Visa/MasterCard conspiracy, I explained what had happened when MasterCard had tried to adopt a debit strategy different from Visa’s. We showed Visa’s harsh criticism of MasterCard’s strategy. We showed that this criticism was sent to banks on Visa’s board of directors, reminding them that they were among the biggest issuers of MasterCard credit cards and explaining why MasterCard’s reckless strategy would hurt the banks. We spotlighted the fact that this
Visa
analysis was marked “highly confidential” but had been produced to us from
MasterCard’s
files. We demonstrated how, after this episode, MasterCard did a 180-degree about face, falling into lockstep with Visa’s debit strategy.

Some of these thematic groupings were used to demonstrate that the defendants actually agreed with our analysis of why and how their conduct damaged the merchants. The “Berlin Series” featured documents from Visa meetings in Germany in the early 1990s, where Andersen had predicted that unless the regional debit networks were “contained” and forced to abandon their low pricing to merchants, Visa/MasterCard and their banks would lose $813 million in credit card revenues annually.

We used some of these thematic groupings to show how successful the defendants had been in reducing the ability of stores to distinguish debit cards from credit cards. This evidence rebutted the defense that stores could identify signature debit cards and steer shoppers away from using them. One grouping included Visa and MasterCard executives Bruce McElhinney, Arman Khachadourian, Irene Katen, Linda Gage and Des Docherty testifying that they didn’t know of any way for a merchant to visually distinguish their debit cards from their credit cards.

In another attack on the defendants’ steering defense, I projected the first page of an article about rising credit card rates in the
Wall Street Journal,
which included a picture of a MasterCard signature debit card. I pointed out that the
Wall Street Journal
was following the case very closely and had published three front-page articles about the case in the previous year. The
Journal
had made the motion that unsealed the court file. However, even the
Journal
couldn’t tell the difference between MasterCard’s credit cards and debit cards. This line of argument caused laughter in the courtroom.

Three months later, when Judge Gleeson granted most of our summary judgment request, he denied our request to strike the steering defense. Was all that effort directed at the defendants’ steering defense a waste of time? I don’t believe so. The points were scored, and Visa/MasterCard’s credibility was diminished in Judge Gleeson’s and the public’s eyes. The steering defense was in tatters as we went to trial. The defensive line coaches at Williams College told us to knock down every opposing player who crossed our paths, and never to run around blocks trying to get to the ballcarrier. They taught us that if everyone just hit anyone with the opposing color jersey, the ballcarrier would get knocked down. “If you do everything, you will win.”

At one point in the argument, I told Judge Gleeson that certain defense arguments were fabricated and an affront to the court. To back
up this statement, we played the video of former MasterCard CEO Pete Hart testifying that MasterCard had a no steering rule when Hart was CEO, but after a break, the video showed Hart recanting and saying that he changed his testimony because Noah Hanft, MasterCard’s U.S. counsel, had told Hart that he was “confused.” This was the same video that had gotten Magistrate Judge Mann so annoyed during the December 1999 settlement conference.

As a bookend to the Hart testimony, we showed testimony from Robert Miller, the former head of Visa’s rules department. At his deposition, Miller was asked why a clear “change” in Visa’s anti-steering rules was being called a “clarification” by Visa. Uncomfortably, the head of rules said over and over again that Paul Allen, Visa’s general counsel, was the only person at Visa who could explain why the obvious alteration in the Visa rules was being positioned as merely a “clarification.” After this deposition, Visa changed Miller’s job title.

To give further definition to the negative image I was sketching, I showed Judge Gleeson a 1987 document where MasterCard vitriolically criticized the same steering argument that MasterCard and Visa had just spent most of their ninety minutes pitching to him. In the 1987 document, MasterCard had berated the proponent of this steering argument, Booz Allen Hamilton, a consultant that had been retained by Visa and MasterCard. In the document, MasterCard lashed out at Booz Allen, saying:

We don’t accept that and we don’t believe an arbitrator or a jurist would either. In fact, while you make that statement to us in person, it is highly unlikely that such a claim would be made by MasterCard in its own defense in a court.

After letting that sink in, I looked Judge Gleeson right in the eyes and said, “I don’t know how to put this, Your Honor, but they think
you are that credulous jurist who would accept this inane argument, which they rejected as being a fallacious argument fifteen years ago.” Gleeson, who is skilled at controlling his emotions and facial gestures, looked back at me with a colorless stare.

The last images shown to Judge Gleeson were meant to leave him with a simpler but more sinister picture of the defendants, the one I had formed. Visa and MasterCard were companies that clearly saw what was good and bad for common people and chose to do them harm when that served the interests of the bank cartel. I believed that this picture of the defendants would offend John Gleeson more than merely proving that Visa and MasterCard thought that he would accept a specious defense or that they had intentionally violated the antitrust laws. It offended me more.

To show the defendants’ contempt for common people, we showed another analysis prepared by Andersen for Visa. It broke down the debit card market into various pricing options, strategies and trends. It rated each of these as “positive,” “neutral,” or “negative” for the various stakeholders, including MasterCard, Visa, the regional debit networks, consumers, and stores. Over and over again, the analysis said that what was bad for consumers, stores, and competition was good for Visa and MasterCard and vice versa.

The summary judgment hearing was widely covered in the legal and trade press during the following weeks, including a review of the cyber techniques that we had used in the courtroom. Months later, the London-based
Economist
reported on the settlement saying, “At a rather theatrical hearing in January, Mr. Constantine persuaded the presiding judge, John Gleeson, that Wal-Mart’s case was mostly already won.” As the argument ended on January 10, 2003, that also was my feeling. Judge Gleeson ended the hearing by praising all the lawyers. He said that the “briefs are excellent, the oral arguments even better all around . . . the lawyering is fantastic.” Those words were the
most generous I had heard from the bench during more than thirty years of practice.

That was Judge Gleeson’s public statement, reported the next week in the
New York Law Journal.
However, what he said to us privately a few minutes later was much more important. Judge Gleeson’s law clerk, Carter Burwell, quietly came over to the lawyers at the end of the hearing and told us the judge wanted to speak with us in chambers. Once we reassembled, Judge Gleeson praised us again, this time even more effusively. He told us how much he was looking forward to a trial with such great lawyers in such a great and historic case. Gleeson then delivered a threat. He said, “Nevertheless, I strongly, strongly recommend that you settle this case not just before trial, but before I issue my summary judgment decision.”

Both sides understood that this was a threat. I, full of myself and in the afterglow of what virtually everyone who had witnessed the argument viewed as a public humiliation of Visa/MasterCard, was sure that Judge Gleeson was threatening the defendants. However, the Visa and MasterCard lawyers believed that Judge Gleeson was threatening us. In the following week, both sides told Eric Green that Gleeson had threatened the other side. Green was the mediator whom the parties had jointly hired to facilitate some necessary, though likely futile, settlement discussions. The Green mediation sessions had begun in the late fall of 2002.

On April 1, 2003, the evening after Judge Gleeson issued his summary judgment decision, Eric Green reached me on my cell phone at a homeless shelter, where I was spending the night accompanied by my former McDermott Will &Emery partner Larry Fox. All Green said to me was, “I guess you were right about who Gleeson was threatening. I’ll talk to you tomorrow.” As the
American Banker
on April 7, 2003, reported, “[a] summary judgment decision handed down Wednesday may have seemed like a bad April Fool’s Day joke to
Visa and MasterCard, which lost all their motions while the retailers won most of theirs.” Judge Gleeson’s succinct sixteen-page decision resolved twenty-two pending motions, nineteen seeking summary judgment and three others attempting to shape the contours of the trial to begin twenty-seven days later, on April 28, 2003.

When a party moves for summary judgment, it is asking the judge to rule that an issue, which the jury would normally decide, has already been decided—arguing that “no rational juror could decide otherwise.” In his decision, Judge Gleeson denied Visa/MasterCard’s summary judgment motion, asserting that they had proven (and therefore that no rational juror could disagree) that credit cards and debit cards were the same thing, or, stated in antitrust parlance, that credit cards and debit cards were a “single product.”
0 for 1

Judge Gleeson denied defendants’ motion seeking judgment that they were not tying debit cards to credit cards, legally or illegally.
0 for 2

Judge Gleeson denied defendants’ motion seeking judgment that credit cards were part of a market that included all other forms of payment.
0 for 3

Judge Gleeson denied defendants’ motion seeking judgment that Visa/MasterCard lacked the market power necessary to force stores to accept their debit card transactions.
0 for 4

Judge Gleeson denied defendants’ motion seeking judgment that Visa and Master-Card could not have conspired to enforce their tying arrangements.
0 for 5

Judge Gleeson denied defendants’ motion for judgment that the merchants had no standing to sue them for attempting and conspiring to monopolize the debit card market.
0 for 6

Judge Gleeson denied MasterCard’s motion for judgment that it could not be charged with attempting to monopolize the debit card market because MasterCard was too puny.
0 for 7

Judge Gleeson denied defendants’ motion for judgment that they had not engaged in predatory or anticompetitive conduct.
0 for 8

Judge Gleeson denied defendants’ motion for judgment that Visa/MasterCard did not have “specific intent” to monopolize the debit card market.
0 for 9

Judge Gleeson denied defendants’ motion for judgment that Visa/MasterCard were not “dangerously close” to monopolizing the debit card market.
0 for 10

Judge Gleeson denied defendants’ motion for judgment that Visa/MasterCard had not conspired to monopolize the debit card market.
0 for 11

Judge Gleeson denied defendants’ motion for judgment that the merchants’ claim for money damages and the theory and methodology that the merchants offered to prove their damages was irrational.
0 for 12

In addition to completely denying these 12 Visa/MasterCard motions for summary judgment, Judge Gleeson also denied MasterCard’s motion for a “severance,” seeking a separate trial from Visa. He also denied the defendants’ motion requesting a so called
James Hearing,
where they would seek to exclude certain evidence against a particular defendant that they said would prejudice the jury against the other defendant.
0 for 13 and 14

Judge Gleeson granted the merchants’ summary judgment motion on the first and most crucial element of the tying claim. He held that no rational jury could fail to find that credit cards and debit cards were two distinct products.
1 for 1

Judge Gleeson granted our motion for judgment that the sale of these two distinct products had been tied together by Visa and MasterCard.
2 for 2

Judge Gleeson granted our motion for judgment that the tying arrangements affected a substantial amount of interstate business activity.
3 for 3

Judge Gleeson granted our motion for judgment that the sale of credit and charge card services to merchants was a relevant market.
4 for 4

Judge Gleeson granted our motion for judgment that Visa had market power in the credit and charge card market.
5 for 5

Judge Gleeson denied our motion for the same judgment with respect to MasterCard, leaving that determination initially for the jury.
5 for 6

Judge Gleeson granted our motion for judgment that there is a market for the sale of debit card services to merchants.
6 for 7

In addition to determining our summary judgment motions, Judge Gleeson also denied our motion to strike the defendants’ steering defense, leaving to the jury the issue of whether stores could identify defendants’ debit cards and steer shoppers away from using them, thereby reducing the amount of damage they suffered as a result of the defendants’ tying arrangements.
6 for 8