Whether its final outcome has already been sealed or must await a Supreme Court ruling, the appeals court decision in Visa v. Sears (Sears, Roebuck and Co. owned Dean Witter when the suit was filed) will stand as one of the landmarks of credit card law.

Like the legal machinations that led to card-issuing "duality" in the 1970s, the 1978 " Marquette" Supreme Court decision that allowed issuing banks to "export" interest rates from high-rate states, and the 1984 "Nabanco" appellate decision that upheld Visa's right to set interchange fees, the Sears/Dean Witter case helps define the bounds of credit card competition.

Prompting the appeal completed last Friday was a federal jury verdict in Utah in 1992, It found that Visa by law 2.06, which prohibited banks owned by Sears/Dean Witter and American Express Co. from joining the bank card association, was a restraint of trade in violation of section 1 of the Sherman Antitrust Act.

Visa claimed it was a victim of flaws in the jury process that failed to account for the intricacies and subtleties of antitrust policy. Key to Visas argument were statements by the jury trials judge, Dee V Benson, acknowledging the potential harm of forcing a bank card association to admit a competitor.

The three judges of the 10th circuit appellate panel in Denver, led by Circuit Judge John P Moore, produced a 34-page opinion supporting reversal of the district court verdict. More than half the document covered the historical and technical ground that was crucial to Visas case, such as "per se" versus "rule of reason" analysis, and definitions of "relevant market" and "market power."

Though favoring Visa, the judges also upheld the district court in denying an injunction Visa had sought, which is essentially moot, against Dean Witter under section 7 of the Clayton Antitrust Act.

Judge Moore cited a litany of landmark antitrust cases, including those involving the Associated Press, Broadcast Music Inc., and the NCAA; and the writings of Stephen Breyer, the newest Supreme Court justice; Frank Easterbrook, a renowned appellate judge and economic theorist; and Phillip Areeda, author of a respected antitrust textbook, who supported Visa in a friend-of-the-court brief.

Below are edited excerpts from the decision.

This case illustrates both the utilities and difficulties [of defining market power]. Sears and Visa U.S.A. stipulated "the relevant market is the general purpose charge card market in the United States." Presently, the only participants in this market are Visa U.S.A, Master Card, American Express, Citibank (Diners Club and Carte Blanche), and Sears (Discover card). Competition among these five firms to place their individual credit cards into a consumer's pocket is called intersystem....

In its complaint, Sears alleged the amendment to bylaw 2.06 represented a concerted refusal to deal, which unreasonably restrained trade in the general purpose charged card market. The parties agreed and the testimony clearly established that in this relevant market, competition occurs only at the issuer level. That is, to the extent that Visa U.S.A. is in the market, it operates in the systems market, not the issuer market. Its members issue cards, competing with each other to offer better terms or more attractive features for their individual credit card programs. This is intrasystem competition.

The issuer market thus remains atomistic, each issuer financial institution, bank, or other entity being independent from another. Although Sears does not dispute this characterization of the market, it contends it attempted to launch its Prime Option program under the Visa aegis to "compete more effectively" at the issuer level. By offering multiple credit cards. Discover and Prime Option Visa, Sears contended it would "strengthen competition."

If the general credit card issuer market is the relevant market, however, the evidence the district court relied upon belies Sears' contention and calls into question the definition of relevant market the court apparently adopted....

While [raw statistics] suggest Visa U.S.A. possesses market power in the intersystem market [with a 45.6% share], the parties have established a different paradigm. By their agreement, the context of this case was intended to focus on the issuance of credit cards as the relevant market. Indeed, that is the market the district court defined for the jury. To determine, therefore, whether Visa possesses market power, we must compare issuers, the point where both Sears and Visa agreed they compete. At that level, testimony from both Sears and Visa experts established Discover is the second-largest issuer, preceded only by Citicorp in terms of charge volume, that is, what consumers owe on their credit cards [sic].

[Despite the two sides' stipulation to focus on the issuer market,] as the trial progressed the "relevant market" devolved into Visa U.S.A.'s share of the defined market. The legal issue was transformed, equating exclusion from Visa to exclusion from the market. The evidence, however, does not support this mutation.

The district court recognized five active rivals presently compete at the intersystem level. Of that market, for example, Citicorp represents 21.9%, American Express 20.5%, and Sears 5%. At the issuer level, where intrasystem competition occurs, the court found, and the parties' experts agreed, the market is remarkably unconcentrated. Given the wide range of interest rates and terms offered by various issuers, and Sears' recognized intersystem strength, we are at a loss to find the evidence to support the district court's contrary conclusion.

[Testimony by a Sears experts, James Kearl], that Visa exercised market power in its ability to make collective rules misses the point in the context of joint ventures.... It is not the rulemaking per se that should be the focus of the market power analysis, but the effect of those rules - whether they increase price, decrease output, or otherwise capitalize on barriers to entry that potential rivals cannot overcome .... There was no evidence [to support Mr. Kearl] that price had been increased, output had decreased, or other indicia of anticompetitive activity had occurred.

We believe the evidence cited by the district court to conclude Visa U.S.A. possessed market power is insufficient as a matter of law. Although the district court did not end its rule of reason inquiry upon that finding, the conclusion set the path for its uncharted journey upon a landscape of speculation, conjecture, and theoretical harm. The consequence is the finding of liability based on tendentious and conclusory statements, none of which amounts to evidence of restraint of trade.

Bylaw 2.06 did not alter the character of the general purpose credit card market or change any present pattern of distribution. Nor did it bar Sears from access to this market. There was no evidence Sears cold only introduce a Prime Option card with Visa's help or that Visa's exclusion from its joint venture disabled Sears from developing its new card under the Discover mantle.

More importantly, there was no evidence the bylaw harms consumers, the focus of the alleged violation. Indeed, the evidence established the current market in general purpose credit cards is structurally competitive, issuers targeting different consumer groups and consumer needs.

In this market, Sears already competes vigorously. Surely, if its goal is to compete more effectively in that market, we do not believe this objective constitutes the proverbial sparrow the Sherman Act protects.

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