Law360 – By Richard Crump, London (July 7, 2018, 2:26 AM BST) — A landmark London appeals court decision finding that Visa’s and MasterCard’s so-called swipe fees are too high could mean the two credit card companies are about to face a wave of costly claims in Britain, but the ruling has left some questions lingering.
In a blow for Visa Inc. and MasterCard Inc., three senior Court of Appeal judges ruled that the firms set the swipe fees, also known as interchange fees — the bank-to-bank charges levied on each credit card purchase — at an unlawful level that restricted competition, in breach of European Union antitrust rules.
The decision means four of the U.K.’s biggest retailers — J Sainsbury PLC, Wm Morrison Supermarkets, Wal-Mart Inc. subsidiary Asda Stores Ltd. and Argos Ltd. — have won the latest round in their five-year legal battle with the two credit card companies over charges the retailers say are anti-competitive and artificially inflated.
The High Court of Justice and the Competition Appeal Tribunal had previously delivered wildly different judgments in the ongoing dispute, with the High Court ruling in 2017 that the transactions were lawful after the competition tribunal in 2016 had awarded Sainsbury’s damages of around £69 million.
Lawyers say the Court of Appeal’s decision could revive a wave of similar proceedings against the card operators, who have been fighting hundreds of merchants in the U.S. and the U.K. courts over the fees.
“I could see the merit if a company has a claim waiting in the wings why they would launch it now,” said Claire Stockford, a commercial disputes attorney at Shepherd and Wedderburn LLP, adding that she expects the firms to fight everything tooth and nail because there is so much at stake.
Last month, British Telecommunications PLC and other telecom firms stayed their claims against MasterCard and its international and European arms to await the outcome of the appeal hearing, which resolved major differences in approach and findings by judges in the lower courts.
According to David Scott, a competition lawyer at Scott & Scott LLP, which represents a large number of retailers, the appeals court’s judgment could breathe life into similar proceedings brought by retailers against the credit card giants that had also been stayed until the Court of Appeal handed down its ruling.
“Some of the larger retailers are no longer on the table because they got out early,” Scott says. “But a tremendous amount of claims could come out from smaller retailers.”
He said the credit card companies should create a mechanism to deal with the potential wave of small claims.
“There needs to be some type of claims process whereby the firms agree to pay [a] certain amount to retailers based on the degree of commerce,” he said.
Both Visa and MasterCard have faced dozens of claims in the London courts as retailers and other merchants pursue compensation in the wake of European Commission antitrust probes into the companies’ interchange fees.
So far, cases have had mixed success, with some being dismissed — a £14 billion consumer class action was quashed last year and the plaintiff who brought it has so far been unable to revive that case — some being settled and others leading to multimillion-pound judgments.
Last month, MasterCard managed to resolve one of the myriad antitrust cases against it when the Competition Appeal Tribunal tossed a case from British Airways after the two sides came to an undisclosed settlement.
But while more claims are likely forthcoming, the Court of Appeal’s ruling has not quite delivered a knockout blow to the two credit card companies, as it left some questions unaddressed.
According to Scott, the lingering uncertainty could create an environment where the credit card firms decide to settle as retailers with claims will be feeling emboldened.
“What these open issues do is they create sufficient uncertainty, which in my experience is the time you can settle cases,” Scott said. “How big the damage is [depends on] whether Visa and MasterCard have a serious appetite to resolve these claims.”
The issue of whether the infringements are capable of being exempted is still very much up for grabs, according to an attorney who asked to remain anonymous because of their connection to the case.
While the Competition Appeal Tribunal will not retry the case, the appeals court has sent that issue back to the tribunal for review.
Swipe fees deemed unlawful under article 101(1) of the EU’s antitrust law can be exempted under article 101(3) of the rules if they contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit.
In addition to the exemption issue, the competition tribunal will also consider what a fair level of fees should be and whether any awarded damages should be reduced because the retailers passed all or part of the fees on to their customers in the form of higher prices.
“This isn’t the end of the road,” the attorney told Law360. “The Competition Appeal Tribunal will have to decide is there a lawful level of interchange fees that can be exempted.”
Stockford warned against the firms settling out of court until the matter is fully resolved.
“There is a real danger of settling these claims that are not finite,” she said. “You risk setting yourself up to be an ATM.”
MasterCard said in reaction to the judgment that it is considering its next steps. Visa declined to comment.
Asda and Argos are represented by Jon Turner QC and Meredith Pickford QC of Monckton Chambers, Max Schaefer of Brick Court Chambers and Christopher Brown of Matrix Chambers, instructed by Stewarts Law LLP.
Sainsbury’s is represented by Mark Brealey QC of Monckton Chambers, Sarah Love of Brick Court Chambers and Derek Spitz of One Essex Court, instructed by Morgan, Lewis & Bockius LLP.
Visa is represented by Daniel Jowell QC and Daniel Piccinin of Brick Court Chambers, Brian Kennelly QC, Dinah Rose QC and Jason Pobjoy of Blackstone Chambers, and Clare Reffin of One Essex Court, instructed by Linklaters LLP and Milbank, Tweed, Hadley & McCloy LLP.
MasterCard is represented by Mark Hoskins QC and Hugo Leith of Brick Court Chambers and Matthew Cook of One Essex Court, instructed by Jones Day.
The cases are Sainsbury’s Supermarkets Ltdv. Visa Europe Services LLC & Others, case number A3/2017/3493; Asda Stores Ltd. v. MasterCard Inc. & Others, case number A3/2017/0892;WM Morrison Supermarkets PLC v. MasterCard Inc. & Others, case number A3/2017/0890; Argos Ltd. & Others v. MasterCard Inc. & Others, case number A3/2017/0889; and Sainsbury’s Supermarkets Ltd. v. MasterCard Inc. & Others, case number C3/2016/4520, in the Court of Appeal of England and Wales.
–Editing by Rebecca Flanagan and Alanna Weissman.