“(i) Issuers and acquirers join the Visa and/or Mastercard schemes, and agree to abide by the rules of the schemes. (ii) A cardholder contracts with an issuer, which agrees to provide the cardholder with a Visa or Mastercard debit or credit card, and agrees the terms on which they may use the card to buy goods or services from merchants. (iii) Those terms may include a fee payable by the cardholder to the issuer for the use of the card, the interest rate applicable to the provision of credit, and incentives or rewards payable by the issuer to the cardholder for holding or using the card (such as airmiles, cashback on transactions, or travel insurance). (iv) Merchants who wish to accept payment cards under the scheme contract with an acquirer, which agrees to provide services to the merchant enabling the acceptance of the cards, in consideration of a fee, known as the merchant service charge (‘the MSC’). The acquirer receives payment from the issuer to settle a transaction entered into between cardholder and merchant, and passes the payment on to the merchant, less the MSC. (v) The MSC is negotiated between the acquirer and the merchant. Typically, it is set at a level that reflects the size and bargaining power of the merchant, the level of the acquirer’s costs (including scheme fees payable to Visa and Mastercard, and any interchange fees payable by the acquirer to issuers), and the acquirer’s margin. (vi) The scheme rules require that, whenever a cardholder uses a payment card to make a purchase from a merchant, the cardholder’s issuer must make a payment to the merchant’s acquirer to settle the transaction. (vii) The Visa and Mastercard scheme rules make provision for the terms on which issuers and acquirers (who are members of the scheme) are to deal with each other, in the absence of any different bilateral agreement made between them. These terms include issuers and acquirers settling transactions at the face value of the transaction (‘settlement at par’ or, as it is sometimes referred to, ‘prohibition on ex post pricing’) and also provide for the payment of an interchange fee on each transaction. (viii) Under both the Visa and Mastercard schemes, the default interchange fee (ie the MIF) which is payable by the acquirer to the issuer on each transaction is expressed either as a percentage of the value of the transaction, or as a flat figure in pence for each transaction. Different MIFs apply to different types of transaction (such as contactless payments, or payments made where the card is not present, including internet payments). Different MIFs also apply to transactions depending on whether the issuer and acquirer are based in the same state/region or different states/regions. (ix) Under the Visa and Mastercard schemes, issuers and acquirers are not required to contract on the basis of the MIF. Under the rules, they are free to enter into bilateral agreements with different terms. In practice, however, issuers and acquirers do contract on the basis of the MIF ….”
“One of the scheme rules that both the Visa and Mastercard schemes also operate is an ‘Honour All Cards Rule’ …. This requires a merchant, having agreed with an acquirer to accept Visa or Mastercard branded payment cards, to accept all such cards, regardless of which issuer issued the cards. Merchants can choose to accept only certain categories of card (for example, only debit cards), in which case they would be obliged to accept all Visa or Mastercard branded cards in that category.”
“1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void. 3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of: — any agreement or category of agreements between undertakings, — any decision or category of decisions by associations of undertakings, — any concerted practice or category of concerted practices, which contributes 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, and which does not: (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.” (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. — any agreement or category of agreements between undertakings, — any decision or category of decisions by associations of undertakings, — any concerted practice or category of concerted practices, (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”
“(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which— (a) may affect trade within the United Kingdom, and (b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom, are prohibited unless they are exempt in accordance with the provisions of this Part. (2) Subsection (1) applies, in particular, to agreements, decisions or practices which— (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts ….” (a) may affect trade within the United Kingdom, and (b) have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom, (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts ….”
“89. It is apparent from the case law of the Court of Justice that if a given operation or activity is not covered by the prohibition rule laid down in art.81(1) EC, owing to its neutrality or positive effect in terms of competition, a restriction of the commercial autonomy of one or more of the participants in that operation or activity is not covered by that prohibition rule either if that restriction is objectively necessary to the implementation of that operation or that activity and proportionate to the objectives of one or the other …. 90. Where it is not possible to dissociate such a restriction from the main operation or activity without jeopardising its existence and aims, it is necessary to examine the compatibility of that restriction with art.81 EC in conjunction with the compatibility of the main operation or activity to which it is ancillary, even though, taken in isolation, such a restriction may appear on the face of it to be covered by the prohibition rule in art.81(1) EC. 91. Where it is a matter of determining whether an anti-competitive restriction can escape the prohibition laid down in art.81(1) EC because it is ancillary to a main operation that is not anti-competitive in nature, it is necessary to inquire whether that operation would be impossible to carry out in the absence of the restriction in question. Contrary to what the appellants claim, the fact that that operation is simply more difficult to implement or even less profitable without the restriction concerned cannot be deemed to give that restriction the ‘objective necessity’ required in order for it to be classified as ancillary. Such an interpretation would effectively extend that concept to restrictions which are not strictly indispensable to the implementation of the main operation. Such an outcome would undermine the effectiveness of the prohibition laid down in art.81(1) EC.”
“[92] Whether Mastercard CJ is binding depends upon whether the findings upon which that decision is based are materially distinguishable from those made or accepted in the present appeals …. [93] In our judgment, the essential factual basis upon which the Court of Justice held that there was a restriction on competition is mirrored in these appeals. Those facts include that: (i) the MIF is determined by a collective agreement between undertakings; (ii) it has the effect of setting a minimum price floor for the MSC; (iii) the non-negotiable MIF element of the MSC is set by collective agreement rather than by competition; (iv) the counterfactual is no default MIF with settlement at par (that is, a prohibition on ex post pricing); (v) in the counterfactual there would ultimately be no bilaterally agreed interchange fees; and (vi) in the counterfactual the whole of the MSC would be determined by competition and the MSC would be lower. [94] For all these reasons we conclude that Mastercard CJ is binding and that the Court of Appeal was correct so to hold.”
“[95] In the light of our conclusion that this Court is bound by Mastercard CJ this further issue does not arise. Given the importance of the issues raised and the detailed arguments presented, we shall nevertheless briefly address it. [96] Under art 101(1) an agreement between undertakings which has the ‘effect’ of ‘directly or indirectly’ fixing ‘purchase or selling prices’ is a restriction of competition under art 101(1)(a). [97] It is well established that the prohibition of price fixing under art 101(1) also extends to the fixing of part of the price – Krupp Thyssen Stainless GmbH v European Commission (Joined cases T-45/98 and T-47/98) EU:T:2001:288,[2001] ECR II-3757 ,[2002] 4 CMLR 521 (paras 156–157). [98] The relevant selling price in the present appeals is the MSC. [99] On the facts as found, the effect of the collective agreement to set the MIF is to fix a minimum price floor for the MSC. In the words of Mr Dryden, AAM’s expert economist, it sets a ‘reservation price’. [100] That minimum price is non-negotiable. It is immunised from competitive bargaining. Acquirers have no incentive to compete over that part of the price. It is a known common cost which acquirers know they can pass on in full and do so. Merchants have no ability to negotiate it down. [101] Whilst it is correct that higher prices resulting from a MIF do not in themselves mean there is a restriction on competition, it is different where such higher prices result from a collective agreement and are non-negotiable. [102] Whilst it is also correct that settlement at par sets a floor, it is a floor which reflects the value of the transaction. Unlike the MIF, it involves no charge resulting from a collective agreement, still less a positive financial charge. [103] There is a clear contrast in terms of competition between the real world in which the MIF sets a minimum or reservation price for the MSC and the counterfactual world in which there is no MIF but settlement at par. In the former a significant portion of the MSC is immunised from competitive bargaining between acquirers and merchants owing to the collective agreement made. In the latter the whole of the MSC is open to competitive bargaining. In other words, instead of the MSC being to a large extent determined by a collective agreement it is fully determined by competition and is significantly lower. [104] For all these reasons, which are essentially the same as those given by the Commission, the General Court, the Court of Justice, Popplewell J and the Court of Appeal, even if we were not bound by Mastercard CJ, we would follow it and conclude that there was in the present cases a restriction on competition.”
“In this case, the analysis of the competitive situation in the absence of the measures in question aims to determine whether the measures restrict the competition that would have existed in their absence. This concerns, in particular, determining whether, in the absence of the measures in question, the competitive situation would have been different on the relevant market, that is to say whether the restrictions on competition would or would not have occurred on this market.”
“167. In the present case, however, the General Court did not in any way address the likelihood, or even plausibility, of the prohibition of ex post pricing if there were no MIF, in the context of its analysis of the restrictive effects of those fees. In particular, it did not … address the issue as to how — taking into account in particular the obligations to which merchants and acquiring banks are subject under the Honour All Cards Rule, which is not the subject of the decision at issue — the issuing banks could be encouraged, in the absence of MIF, to refrain from demanding fees for the settlement of bank card transactions. … 169. In those circumstances, it is correctly submitted in the present case that, in relying on the single criterion of economic viability … to justify taking into consideration the prohibition of ex post pricing in the context of its analysis of the effects of the MIF on competition, and by failing therefore to explain in the context of that analysis whether it was likely that such a prohibition would occur in the absence of MIF otherwise than by means of a regulatory intervention, the General Court made an error of law.”
“The CJEU held at paras 171–173 that the ‘ancillary restraint’ counterfactual that the General Court had justified at paras 94–96 of its decision was appropriate for the primary art 101(1) analysis. The General Court and the Commission had been entitled to conclude that the possibility of issuers ‘holding up’ acquirers who were bound by the Honour All Cards Rule could only, in effect, be solved by a scheme rule prohibiting ex post pricing. Such a rule was less restrictive of competition than MasterCard’s existing MIF solution. That led the CJEU to conclude at para 173 that the ex post pricing prohibition could be regarded as a counterfactual hypothesis that was ‘not only economically viable in the context of the MasterCard system but also plausible or indeed likely, given that there is nothing in the [General Court’s] judgment … to suggest, and it is common ground … that MasterCard would have preferred to let its system collapse rather than adopt’ that solution.”
“The ‘no MIF’ plus prohibition of ex post pricing counterfactual is not materially different from the no default MIF plus settlement at par counterfactual that the parties are agreed upon in this case. Both admit the possibility of bilateral interchange fees, but assume that in default there will be no imposed standard MIF and also settlement at par.”
“2.8 The hold-up problem arises as follows where there is no default MIF and no regulatory cap or other equivalent external mechanism limiting the pricing freedom of issuers. In such a situation, all transaction settlements between an acquirer and an issuer within the scheme would require a bilateral agreement between the two banks on their terms of dealing, including in relation to interchange. The problem with such bilateral negotiation in a four-party card scheme is that each acquirer has to accept transactions on cards issued by each issuer, with the result that an acquirer effectively has no choice but to settle the payment with the issuer in question, since the transaction was made by one of that issuer’s cardholders and the acquirer needs to process the payment to provide the funds to the merchant. This provides the issuer with all the bargaining power. In economic theory, this has been described in various contexts as the hold-up, ‘hold-out’ or ‘Cournot complements’ problem. 2.9 In the context of a four-party scheme, each issuer has an incentive to use this bargaining power to obtain higher interchange fees than its competitors, so it can offer its customers a better product and make higher profits. Issuers will also be negotiating with acquirers without visibility of the interchange fees being negotiated by competing issuers, potentially encouraging issuers to push for higher rates, so they are not left at a competitive disadvantage.”
“The IFR limits the negotiating power that issuers obtain from the hold-up problem because it caps the interchange fee that issuers can recover in any event: at 0.2% for debit card transactions and 0.3% for credit card transactions. There is, therefore, no risk of competition between issuers pushing up interchange fees to a level that would damage the viability of the scheme. The IFR caps also limit the uncertainty and risk for acquirers, since they know that the maximum interchange fee issuers can deduct is set at a comparatively low level (compared to historical rates). The IFR caps, therefore, remove the factors that have previously been identified as making a counterfactual of ‘No MIF with Pure Bilaterals’ unrealistic.”
“We think it is clear that the Bilaterals counterfactual would not involve any restriction of competition since under that scenario the interchange fee is not determined by a collective arrangement. Insofar as Ms Smith QC sought to argue on behalf of the Claimants that the UIFM counterfactual was a restriction of competition because it depended on a common scheme rule, we do not accept that submission. The restriction arising from the current rule is that it provides for a commonly determined default level of positive MIF that applies as between all issuers and acquirers. A rule that enables each issuer independently to determine the level of its interchange fee is not restrictive of competition.”
“a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition”
“[173] The criteria of co-ordination and co-operation laid down by the case law of the Court, which in no way require the working out of an actual plan, must be understood in the light of the concept inherent in the provisions of the Treaty relating to competition that each economic operator must determine independently the policy which he intends to adopt on the Common Market, including the choice of the persons and undertakings to which he makes offers or sells. [174] Although it is correct to say that this requirement of independence does not deprive economic operators of the right to adapt themselves intelligently to the existing and anticipated conduct of their competitors, it does however strictly preclude any direct or indirect contact between such operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market.”
“in our judgment, we are not bound by either the European or domestic appellate judgments to find that the inter-regional MIFs infringe Art 101(1), and on the evidence before us this is a matter for examination at trial and not capable of summary determination”
“Given that the inter-regional MIFs affect only a minority of transactions with any merchant, and differing proportions as between different merchants and different sectors of commerce, the question of the extent to which those MIFs affect the MSCs which acquirers agree with those merchants is not in our view self-evident. As Mr Cook emphasised, for an infringement of Art 101(1) ‘by effect’, the effect on competition must be appreciable. The position is manifestly different from domestic and EEA MIFs which apply to the large majority of transactions and therefore can fairly be regarded as appreciably affecting the MSC, even if it is below those MIFs.”
“The possibility that MIFs exceeded average MSCs is in stark contrast with the findings from the Commission’s analysis in the Mastercard case (that the relationship is the other way around in the majority of cases). Provided that this relationship is relevant to the applicability of the Supreme Court’s second fact, a more detailed analysis may therefore be required. In particular, the Tribunal may need to compare the relative level of inter-regional MIFs and MSCs and the impact of one on the other to determine whether inter-regional MIFs truly limit the ability of merchants to exert downward pressure on MSCs by reducing the possibility of prices dropping below a certain threshold.”
“3.7 The small volumes of inter-regional transactions call into question whether Inter-regional MIFs would constitute a price floor. It is likely that in many situations (particularly in sectors with few inter-regional transactions, and in the absence of ‘MIF plus plus’ contracts between the acquirer and a given claimant) acquirers will not have set separate MSCs for inter-regional transactions, and the MSCs would be set with reference primarily to domestic [MIFs] and the acquirer’s own costs and margins. In such a circumstance there would be no price floor effect from the Inter-regional MIFs. 3.8 Even to the extent that acquirers had some regard for Inter-regional MIFs in determining their MSCs in the absence of ‘MIF plus plus’ contracts, the Inter-regional MIFs are unlikely to represent a price floor in the same sense as domestic MIFs. Domestic MIFs create a level below which MSCs (both overall, and those for domestic transactions) do not fall. By contrast, MSCs for any given acquirer are likely to be lower, on average, than Inter-regional MIFs in respect of transactions overall. As a result, for Claimants who do not have a ‘MIF plus plus’ contractual agreement with their acquirer, the MSC paid for inter-regional transactions may also be lower than the Inter-regional MIFs. Although this would mean that acquirers incurred a small loss on each inter-regional transaction, inter-regional transactions may be a peripheral consideration when evaluating customer level profitability. 3.9 Further information would be needed to ascertain whether a price floor applies to the inter-regional transactions relevant to the Claimants in this case ….”
“Where competitors all enter into a common arrangement whereby, for their transactions with each other, they charge a common fee (i.e. here positive MIFs) set by a third party, there is manifestly an agreement or concerted practice that may have an anticompetitive effect.”
“This is certainly ‘acquiescence’ in the MasterCard Scheme Rules: indeed, we would go further – there is, in our view, positive agreement on the part of all parties (MasterCard and the licensees) that MasterCard would set the default UK MIF which, absent bilateral agreement, the Acquiring Bank licensees would be obliged to pay and the Issuing Bank licensees entitled to receive.”
“The MIF is set as a default MIF in the Scheme Rules, which comprise part of the contractual terms between MasterCard and each issuer and acquirer. The payment of the MIF is made pursuant to the terms of the agreements between MasterCard and its licensees. Moreover the payment of the MIF at the levels set by MasterCard was a concerted practice. This was not in issue in anything other than a formal sense: the Claimants were also alleging that MasterCard constituted an association of undertakings; in the course of the trial it was agreed between the parties that the Claimants would not pursue such an allegation in return for MasterCard’s undertaking that it would advance no argument against the proposition that there was a relevant agreement or concerted practice. This was not a formal concession, but MasterCard’s position was plainly realistic: the setting of the MIF was pursuant to an agreement between undertakings and was a concerted practice.”
“the airport analogy misses the point: there is no transaction as between the various airlines and they do not charge each other anything. Any credit card purchase leads to a transaction as between the acquirer and the issuer, and the MIF is the fee that the issuer charges the acquirer. Under the Visa scheme, on each issuer or acquirer becoming a licensee it is committed, respectively, to charge acquirers or pay issuers (in default of a bilateral agreement) the MIF set by Visa. Moreover, it is fundamental that ‘agreement’ for the purpose of Art 101(1) does not require a legally binding agreement: a mutual understanding that inhibits a freedom to determine conduct independently will suffice. ‘Concerted practice’ … is a still looser concept but reflects the same approach. And it was that agreement or concerted practice which gave rise to the common MIF, which then restricted competition on the acquiring market in the way that the Supreme Court judgment explains.”
“It is true that Visa Europe is not responsible for requiring overseas issuers to charge the inter-regional MIF, nor does it set that MIF. But that, in our view, does not materially alter the analysis of the arrangements as giving rise to an agreement or concerted practice for the purpose of Art 101(1). As Mr Lomas observed in the course of argument, what matters is not who sets the level of the MIF but whether you have agreed to abide by it. The European acquirers have all agreed with Visa Europe that they will pay overseas issuers the inter-regional MIF set by Visa Inc.. Not only does this therefore in effect lead to common agreements between European acquirers and overseas issuers (to adopt the CAT’s analysis in the Sainsbury’s Mastercard judgment), but it amounts to a concerted practice between those acquirers and Visa Europe (to adopt Popplewell J’s analysis in the AAM judgment). No European acquirer could effectively negotiate independently for a lower interchange fee with an overseas issuer, since the issuer knows that in default of agreement the acquirer is obliged to accept the inter-regional MIF.”