The lawsuit over interchange that a group of major grocery and drugstore chains filed against Visa U.S.A. last week is notable more for what it does not say than for what it does.
Specifically, Visa's rival MasterCard International was not named as a defendant. Nor were any Visa member institutions. And the suit does not seek class-action status - meaning that any resulting reduction of interchange would be enjoyed only by the plaintiffs. Other things being equal, interchange would then rise for other merchants, observers said.
Several lawyers not involved in the case interpreted MasterCard's absence as a sign that it was negotiating with the plaintiffs - or as an implied threat that it should do so. (MasterCard would not discuss the suit, which Visa said it would fight.)
MasterCard's absence from the suit is not unprecedented. In the 2003 Wal-Mart settlement the two co-defendant associations ended up settling separately. More recently, MasterCard was alone in its public disclosure of the CardSystems Solutions Inc. breach that exposed 40 million accounts, in a way that put it at odds with Visa.
William J. Blechman, a partner with the Washington firm Kenny Nachwalter PA. and one of the lead attorneys for the plaintiffs, would not rule out adding MasterCard.
Bringing the case against Visa "doesn't foreclose the possibility of eventually bringing a case against MasterCard, but the lawsuit is a good first step in moving the case forward and addressing the problem plaguing the retail industry," Mr. Blechman said.
When asked why the plaintiffs left out the banks, he said, "we sued the companies that are necessary for our case."
The suit was filed Thursday in the U.S. Court for the Southern District of New York. The plaintiffs are Kroger Co., Albertson's Inc., Safeway Inc., Ahold U.S.A. Inc., Walgreen Co., Maxi Drug Inc., and Eckerd Corp.
The charges were familiar to observers of the payments industry: that Visa illegally fixes interchange prices by preventing the merchants from negotiating lower fees through a series of rules and by unlawfully tying credit card products and network services.
Lloyd Constantine, who led the 2003 merchant class action against the card brands over debit fees, called the grocers' case "the first credit card interchange suit with significant retailers and significant lawyers." The first such suit had neither; the second had the latter but not the former.
The grocers "are either in the process of doing a deal with MasterCard, or it may be an implicit threat to MasterCard," Mr. Constantine said.
Duncan MacDonald, the former general counsel of Citigroup Inc.'s credit card business, agreed with that interpretation. The grocers "may be trying to get MasterCard to make a concession to them and use that against Visa," he said.
Mr. Constantine said the resolution of the suit would probably result in a better interchange price for the plaintiffs but would not lead to widespread reform, leaving smaller merchants that are not involved in the suit at a disadvantage.
Avivah Litan, an analyst with Gartner Inc., said the grocers "want to get favored deals." They are saying to Visa, " 'Just lower our prices and we'll go away.' "
Ms. Litan said her guess was that Wal-Mart did not participate in the grocers' suit "because of deals Visa cut." Such deals, in turn, "could have something to do with why retailers are suing Visa. There may be some resentment they didn't get the same deal."
Tracy Mullin, the president and chief executive of the National Retail Federation, agreed that the case could result in higher fees for merchants who are not involved.
"If this suit is settled in a way that gives advantages to parties in the suit, it creates a much greater burden for those who are not parties to the suit," she said. But "that assumes there won't be additional lawsuits or a class-action suit down the road," and her organization, a vocal critic of interchange, endorsed the grocers' suit.
It did so despite the courtesy call John Philip Coghlan made on his first day as Visa's new CEO last week. (See Washington People column on page 3.)
Mr. MacDonald, who is not involved in the case, said the choice of venue "is a threat to the defendant. This is the circuit that said Visa and MasterCard have market power and have used it in violation of antitrust law" in the Wal-Mart case.
Mr. Constantine, the chairman of the New York firm Constantine Cannon, is also not involved in the grocers' suit and emphasized that he was guessing at their reasons for leaving out MasterCard.
He noted that last August, MasterCard announced it would have staff members, rather than board members (who are mostly banking executives), set interchange.
"The other possibility is that … this [suit] may be a response to that," Mr. Constantine said. "The people who brought this suit may perceive that it puts MasterCard in a different category."
The suit seeks unspecified damages for interchange fees paid since Jan. 1, 2004, as well as injunctive relief.
Mr. Blechman said the reason the grocers filed their own suit, and not a potential class action, was that "because of the importance of this issue to these clients, they prefer to manage this issue through a separate lawsuit that gives them more control of the case."
