Factual and Procedural Background
The Defendants, collectively referred to as MasterCard, set multilateral interchange fees ("MIFs") for credit and debit card transactions used by consumers in the UK, Ireland, and cross-border EEA transactions. The MIFs are paid indirectly by merchants to card issuers, typically banks, but MasterCard itself does not receive these fees. The Claimants are major high street retailers alleging that MasterCard's MIFs since approximately 2006 are tortiously anti-competitive under UK, Irish, and EU competition law. The litigation involves twelve separate actions, two of which have settled. The trial before the court ("Phase 1 trial") determined liability and some quantum issues, with remaining quantum issues reserved for a subsequent hearing ("Phase 2 trial").
The MasterCard scheme is a "four-party" payment card system involving cardholders, issuers, acquirers, and merchants, governed by detailed Scheme Rules set by MasterCard. MasterCard sets default MIFs which act as a compulsory floor on merchant fees. The Claimants contend these default MIFs unlawfully restrict competition by preventing acquirers from competing below the MIF floor, resulting in higher costs to merchants. The MIFs vary by card type, transaction type, territory, and merchant category.
The legal framework involves EU competition law (Article 101 TFEU), the UK Competition Act 1998, and the Irish Competition Act 2002. The court is bound by the MasterCard Commission Decision and related General Court and CJEU judgments on the EEA MIFs for certain periods but is not bound by the Commission's findings for other periods or territories. The court has had regard to the Competition Appeal Tribunal's ("CAT") judgment in related proceedings but is not bound by it.
The court heard evidence from multiple factual witnesses for both parties, as well as expert economists, and reviewed extensive documentary and economic evidence concerning the MasterCard scheme, its MIFs, market shares, and regulatory history. The key issues concern whether MasterCard's MIFs infringe competition law under Article 101(1), and if so, whether they are exempt under Article 101(3).
Legal Issues Presented
- Whether MasterCard breached EU, UK, and Irish competition law by setting/imposing the EEA/UK/Irish MIFs.
- Whether MasterCard was an association of undertakings and whether there was an agreement or concerted practice concerning the MIFs.
- Whether the EEA MIFs breached Article 101(1) TFEU and whether the Commission Decision can be relied upon by way of read-across for UK and Irish MIFs.
- Whether MasterCard can argue that the EEA MIFs met the exemption criteria under Article 101(3), and similarly for UK and Irish MIFs.
- What is the appropriate counterfactual to assess restriction of competition and ancillary restraint doctrines.
- Whether the MIFs restricted competition on the acquiring market.
- Whether the death spiral argument (that without the MIFs the MasterCard scheme would collapse) applies.
- What level of MIF, if any, would meet the exemption criteria under Article 101(3).
- Whether the Claimants are entitled to declarations of infringement and damages.
Arguments of the Parties
Claimants' Arguments
- The appropriate counterfactual is a scheme with no MIF or a zero MIF combined with a prohibition on ex post pricing, preventing issuers from deducting fees unilaterally after transactions.
- Compared to such counterfactual(s), MasterCard's MIFs restrict competition by setting a floor below which acquirers cannot compete for merchant business.
- The MIFs are not objectively necessary for the MasterCard scheme's operation and thus do not qualify under the ancillary restraint doctrine.
- The CAT Bilaterals counterfactual, involving voluntary bilateral agreements with positive MIFs, is unrealistic.
- The death spiral argument fails because competition from Visa and Amex must be ignored, Visa would have charged lawful MIFs at the same level as MasterCard, and MasterCard has not shown its scheme would have collapsed.
- The MIFs are unlawful and below any exemptible level under Article 101(3).
- Merchants receive no fair share of the benefits generated by the MIFs.
MasterCard's Arguments
- The only realistic counterfactuals are a zero MIF/no MIF or a putatively lawful positive MIF; other counterfactuals including the CAT Bilaterals are unrealistic.
- The MIFs do not restrict competition compared with these realistic counterfactuals.
- The UK and Irish MIFs are objectively necessary ancillary restraints for the MasterCard scheme’s operation; without them the scheme would collapse due to issuer switching to Visa and Amex ("death spiral").
- The death spiral argument applies equally to the restriction of competition and ancillary restraint issues.
- The MIFs as set meet the exemption criteria under Article 101(3) or at least are below the exemptible level.
- Competition from Visa and Amex is relevant to the analysis.
- The burden of proof lies on MasterCard to prove exemption but on Claimants to prove the exemptible MIF level for damages.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Beef Industry Development Society (C-209/07) [2008] ECR I-8637 |
Distinction between infringements by object and by effect under Article 101(1) |
Confirmed that the Claimants did not allege restriction by object but by effect under Article 101(1) |
| Passmore v Morland [1998] 4 All ER 468 |
Voidness under Article 101(2) is transient and depends on market conditions |
Referenced to explain voidness of agreements under Article 101(2) |
| Racecourse Association v Office of Fair Trading [2005] CAT 29 |
Burden of proof on infringement and ancillary restraint doctrine |
Confirmed evidential burden on MasterCard to prove ancillary restraint |
| Groupement des Cartes Bancaires (CB) v Commission (T-491/07 RENV) [2016] EUECJ T-491/07 |
Definition of relevant market for assessing anti-competitive effects |
Bound the court to hold the relevant market was the acquiring market only |
| Crehan v Inntrepreneur Pub Co (CPC) [2007] 1 AC 333 |
National courts must give weight to Commission decisions but are not bound to accept their factual basis |
Applied to explain the court’s approach to the Commission Decision |
| Metropole Television (M6) v EC Commission (T-112/99) [2001] 5 CMLR 33 |
Ancillary restraint doctrine - objective necessity assessed abstractly without weighing pro and anti-competitive effects |
Considered but ultimately rejected by the court as inconsistent with later CJEU jurisprudence |
| Remia BV & others v The Commission (C-42/84) [1985] EUECJ C-42/84 |
Ancillary restraint doctrine - competition relevant to objective necessity |
Held competition is relevant to whether ancillary restraint is objectively necessary |
| Gottrup-Klim Grovvareforeni v Dansk Landbrugs Grovvareselskab AmbA (C-250/92) [1994] EUECJ C-250/92 |
Ancillary restraint doctrine - economic conditions on the market relevant to objective necessity |
Confirmed competitive conditions are relevant to ancillary restraint analysis |
| Pronuptia de Paris v Schillgalis (C-161/84) [1986] ECR 353 |
Restrictions objectively necessary for franchisor’s business fall outside Article 101(1) |
Considered but distinguished by the court as not addressing survival of main operation in ancillary restraint context |
| Société Technique Minière (Case 56/65) [1966] EUECJ R-56/65 |
Restriction of competition must be assessed in the actual economic context |
Applied to hold competition from Visa is relevant to assessing restriction on acquiring market |
| Van Den Bergh Foods v Commission (T-65/98) [2004] 4 CMLR 1 |
Only objective benefits are relevant under Article 101(3) |
Referenced to exclude issuer profits as benefits in exemption analysis |
| Consten and Grundig v Commission (Cases 56/64 and 58/64) [1966] CMLR 418 |
Only objective benefits relevant under Article 101(3) |
Referenced similarly to Van Den Bergh Foods |
| Langnese-Iglo v Commission (T-7/93) [1995] 5 CMLR 602 |
Only objective benefits relevant under Article 101(3) |
Referenced similarly to Van Den Bergh Foods |
| Mulder and others v Council and Commission (Joined Cases C-104/89 and C-37/90) [2000] ECR I-203 |
Quantification of loss involves evaluation of complex economic data and broad judicial discretion |
Referenced to support pragmatic assessment of damages |
| SPE International Ltd v Professional Preparation Contractors (UK) Ltd [2002] EWHC 881 (Ch) |
Damages assessment should err on side of under-compensation when evidence is uncertain |
Applied to guide approach to damages quantification |
| Blayney (t/a Aardvrk Jewelry) v Clogau St David's Gold Mines Ltd [2002] EWCA Civ 1007 |
Approved SPE International approach to damages assessment |
Confirmed under-compensation approach for uncertain damages |
Court's Reasoning and Analysis
The court conducted a detailed and rigorous analysis of the legal and factual issues concerning MasterCard's MIFs. It began by identifying the relevant market as the acquiring market only, following binding authority. The court considered various potential counterfactuals to assess whether the MIFs restricted competition, concluding that the only realistic counterfactuals were either a zero MIF (or no MIF with a prohibition on ex post pricing) or a putatively lawful positive MIF below the level set by MasterCard. Other counterfactuals, including the CAT Bilaterals counterfactual involving voluntary bilateral agreements, were found to be unrealistic due to practical, economic, and behavioural considerations, such as the large number of bilateral agreements required and free-rider problems among merchants.
The court found that MasterCard's MIFs imposed a floor on merchant service charges, restricting acquirers' ability to compete on price, which is a restriction of competition under Article 101(1). However, the court accepted the "death spiral" argument that if MasterCard had set a zero MIF while Visa maintained its MIFs at actual levels, the MasterCard scheme would have collapsed due to issuer switching, rendering the MIFs objectively necessary ancillary restraints and not restrictions of competition when compared to that counterfactual. The court held that competition from Visa and Amex is relevant to this analysis and that the assumption that Visa’s MIFs would be lawful and set at the same levels as MasterCard’s was not established due to insufficient evidence of material identity between the schemes.
Regarding the Article 101(3) exemption, the court carefully examined the cumulative conditions of conferring relevant benefits, allowing consumers a fair share of those benefits, and indispensability of the MIF to achieving those benefits. It held that only benefits directly caused by the MIF, and not general benefits of the scheme, are relevant. The court identified relevant benefits to merchants as including avoided costs of other payment methods, competitive advantage over merchants not accepting cards, facilitation of online sales, guaranteed payment against fraud/default, avoided credit provision costs, and increased or earlier spending due to credit availability.
The court rejected the Claimants’ argument that only the avoided cost of cash should be considered, emphasizing that other merchant benefits, including "business stealing," are valid and relevant. It also rejected the notion that benefits to parties to the restrictive agreement, such as issuer profits, count as objective benefits under Article 101(3).
For quantification, the court preferred the Merchant Indifference Test ("MIT") methodology based on the 2015 Commission Survey, adjusted to reflect merchant size, other merchant benefits, online sales, front office costs, and an appropriate acquirer margin. The court accepted expert evidence that issuer pass through of MIF to cardholders is substantial but less for debit cards than credit cards, and that issuer profits were within reasonable commercial margins not breaching fair share or indispensability requirements.
The court concluded that the MIFs as set by MasterCard were below the exemptible levels under Article 101(3), except for the EEA debit MIF for the earliest part of the claim period. It also emphasized that the burden of proof lies on MasterCard to establish exemption but on the Claimants to establish the exemptible MIF level for damages quantification. The court rejected the argument that the Claimants’ loss should be measured by the full amount of the MIFs paid without regard to any lawful lower level.
Holding and Implications
The court's final determination is that the MasterCard MIFs as set during the relevant periods and territories:
- Restrict competition on the acquiring market by imposing a floor on merchant service charges, preventing acquirers from competing below that floor.
- However, the MIFs qualify as objectively necessary ancillary restraints under Article 101(1) when compared to a zero MIF counterfactual with Visa’s actual MIFs, because the MasterCard scheme would not have survived otherwise.
- The MIFs as set are below the exempt and exemptible levels under Article 101(3), except for the EEA debit MIF before June 2008.
- The court is bound by the Commission Decision and related case law for certain periods but otherwise makes independent findings based on the evidence before it.
- The Claimants have not established material identity between the MasterCard and Visa schemes sufficient to undermine the death spiral argument.
- The court rejects the CAT Bilaterals counterfactual as unrealistic.
- The burden of proof on exemption lies with MasterCard; the burden on identifying an exemptible MIF level for damages lies with the Claimants.
These findings mean that the MasterCard MIFs were lawful and exempt for the majority of the claim period and territories, limiting the Claimants' damages claims accordingly. No new precedent is set beyond the application of existing EU and domestic competition law principles to the facts of this case.