Brussels Antitrust Seminar Demonstrates Shifting European Landscape For Competition Enforcement In Wake Of ECJ MasterCard Judgment

A View from Constantine Cannon’s London Office

By Irene Fraile and Richard Pike

The recent judgment by the European Court of Justice (“ECJ”) in the MasterCard case is sparking a lively debate about how antitrust enforcement of payment system regimes should evolve in the European Union, as evidenced by an antitrust seminar co-sponsored by Constantine Cannon in Brussels on Monday.

The ECJ’s MasterCard judgment was rendered on September 11, 2014, when it dismissed MasterCard’s final appeal against an antitrust infringement decision adopted by the European Commission in 2007 regarding MasterCard’s Multilateral Interchange Fees (“MIFs”) for cross-border payment card transactions. MIFs are the fees paid by merchants’ banks to card-issuing banks to cover the cost of processing card payments. The ECJ held that the level of those fees had “restrictive effects on competition.”

The panel, chaired by James Ashe-Taylor of Constantine Cannon’s London office, included:

•  Rita Wezenbeek, Head of Payment Systems Unit of the Directorate-General for Competition of the European Commission;

•  Hans Zenger, an economist at Charles River Associates;

•  Bernard Amory, a partner of Jones Day, who has represented MasterCard in the Commission’s credit card investigation; and

•  Jeffrey I. Shinder, Managing Partner of Constantine Cannon’s New York office, who has extensive experience in antitrust counselling and litigation relating to payment systems.

The panel discussed a number of issues addressed in the ECJ judgment, as well as broader issues on the merits of MIFs and how they should be regulated, if at all.

MIFs: a regulatory or an antitrust enforcement issue?

The panel started by discussing whether MIFs should be dealt with through antitrust enforcement or through ex ante regulation.

Ms. Wezenbeek, who has led the Commission’s payments team in both the MasterCard and Visa antitrust cases, and in making the current legislative proposals, was clear about her position: European regulation is the appropriate tool to deal with the clear market failure of anticompetitive behaviour that occurs all over Europe. She noted that domestic MIFs remain up to 10 times higher than the cross-border MIFs to which MasterCard and Visa have already agreed in undertakings given to the Commission.

Mr. Amory suggested that the new legislation had been introduced more as a hedge, in case the Commission lost the appeal before the ECJ. He criticised it as an intrusive interference in the free market economy.

A new concept of “association of undertakings”?

Mr. Amory took issue with the ECJ’s approach to the question of whether MasterCard remained an association of undertakings after its initial public offering. He suggested that the judgment established a new test based on three elements: (1) a commonality of interest; (2) decision making powers even on matters unrelated to the subject matter of the decision; and (3) an element of continuity. He felt this was an overly broad interpretation that could have significant adverse and unintended consequences in future unrelated cases.

Ms. Wezenbeek disagreed, noting that the assessment by the Court was very fact-specific, and therefore difficult to extrapolate to other cases.

MIFs: are they objectively necessary?

Mr. Shinder noted that there has been a shift in the arguments to justify MIFs. First they were said to be necessary to motivate banks to issue credit cards and preserve universal acceptance. Then MIFs were extended to debit cards, even though the many examples of at par debit regimes indicate that interchange fees are not necessary for debit cards. Finally, the justification shifted to the so-called “hold-up problem” faced by acquirers, which, given the Honour-All-Cards Rule (“HACR”) and absent a default MIF, could be forced to accept any fee imposed by issuers. In other words, MasterCard now argues that one restriction – the HACR – justifies another restriction – the MIFs. Mr. Shinder expressed the view that these arguments are fundamentally flawed, and that the ECJ was right to say that MIFs are not objectively necessary for the operation of the MasterCard system.

An ex-post pricing prohibition rule: was it the appropriate counterfactual?

Mr. Zenger found the judgment superficial in its assessment of the appropriate counterfactual.

Mr Shinder pointed out that appellate courts often do not engage in very detailed analyses of the facts and economics. However, Mr. Shinder considered it plausible that something like the rule proposed by the Commission would be adopted by MasterCard if its only other option was to shut down the system altogether (very much the line taken by the ECJ).

What about payment systems going forward? Now it is all about efficiencies.

Ms. Wezenbeek suggested that given the judgment’s determination that MIFs are indeed restrictive, the practical result of the judgment will be to shift the debate to the question of at what level the MIFs produce sufficient efficiencies to compensate for the restrictions.

In this respect, Mr. Amory expressed concerns about legal certainty for payment systems given that, since 1992, the regulatory position regarding the sufficiency of the efficiencies created by the MIFs has shifted. For example, he contended that the Commission itself found in 1999 that the MIF fulfilled all the relevant requirements to be exempted under efficiency arguments. In addition, Mr. Zenger pointed out that the burden of proof is now on the payment schemes to prove efficiencies, which he considered to be extremely difficult, especially in a two-sided market, where interrelated restrictions and efficiencies could arise in both, or different, sides of the market.

Final notes

All speakers emphasised that they were expressing their personal views, and were not speaking on behalf of their respective organisations and clients.

The Brussels seminar was the second of two seminars on the ECJ MasterCard judgment co-sponsored by Constantine Cannon. A recording of the first seminar, held in London on October 9, 2014, is available online​.

– Edited by Gary J. Malone