An appeals courts mixed ruling in the governments antitrust case against Microsoft Corp. could have implications for the civil lawsuit that merchants have filed against Visa U.S.A. and MasterCard International over debit card policies.
Visa and MasterCard said the Microsoft ruling Thursday by the U.S. Court of Appeals for the District of Columbia Circuit could bolster their position in the so-called Wal-Mart case, though other observers said the decision would help the merchants. The lead attorney for the merchants, Lloyd Constantine, said he did not think it would have any effect on his case.
All sides seemed to agree in finding parallels between the allegations in the Justice Departments case against Microsoft and those in the retailers lawsuit against the card associations, for which no trial date has been set. Like Microsoft, Visa and MasterCard are accused of trying to monopolize their market and are charged with tying one product in this case, debit cards to a second, credit cards, in which they have market power.
Both the plaintiffs in the Wal-Mart case and the prosecutors in the Microsoft case argue that the monopoly practices and tying arrangement violate the Sherman Act, a pillar of antitrust law. Some people involved in the Microsoft trial and others who are keeping a close eye on it say that the appeals courts analysis of the governments charges may influence the District Courts behavior when its considers Wal-Marts accusations.
The Wal-Mart case cannot go to trial before a decision is given by the U.S. Second Circuit Court of Appeals in New York, which is considering Visas and MasterCards appeal of the class-action status granted the case. If the appeals court reverses this certification, the case would go to trial more quickly because there would be fewer plaintiffs to notify, but if the court upholds the class-action status, lawyers would have to contact the four million merchants who qualify for the class.
David A. Balto, former policy director of the competition bureau of the Federal Trade Commission and now a partner in the antitrust group of White & Case LLP, said the Microsoft case is a wonderful analogy to the Wal-Mart case.
Mr. Balto said that, on the major issue, the Microsoft decision is favorable for the merchants. The good news for Wal-Mart is, the court found Microsoft was a monopolist.
He added, Thats a nice precedent on which the Wal-Mart claim can set sail in establishing that Visa has market power.
On the tying issue, the appeals court rejected Judge Thomas Penfield Jacksons analysis and remanded the case to District Court. Though the appeals judges agreed with Judge Jackson that Microsoft had tied its Web browser, Internet Explorer, to its platform, the Windows operating system, it ruled that the per se standard is not applicable to the software platform market. Instead, the trial judge must apply a rule of reason to decide whether valid business reasons exist for tying the two products together.
In the Wal-Mart case, the merchants say that unfair rules by Visa and MasterCard force them to accept the associations debit cards despite those products higher fees compared to other debit cards. The class seeks monetary compensation as well as association rule changes that would decouple acceptance of credit cards from debit cards.
Noah Hanft, general counsel for MasterCard, said in a telephone interview that the courts dismissal of the per se standard in the Microsoft case bolsters the associations position in the Wal-Mart suit.
In the Wal-Mart case, there was a lot of discussion from the plaintiffs counsel about the rigidity of the per se standard, which they claimed was related to our lawsuit, he said. Its helpful for us that the Microsoft decision reflected that the rule-of-reason standard should be applicable.
Mr. Hanft said that under this standard the court will have to consider the larger justifications for the associations honor all cards rule, which requires merchants that take one type of association-branded card to accept them all. The rule-of-reason standard, he said, calls for an analysis of all the efficiencies both to the consumer and to the merchant that integration brings to the table. He added, Our arguments are even stronger than Microsofts.
In a company statement, Kelly Presta, vice president of Visa U.S.A., said he was also encouraged by the Microsoft decision.
But the merchants attorney Mr. Constantine of Constantine & Partners in New York said the Microsoft ruling would probably have no influence on the outcome of the Wal-Mart case. On the issue of tying, in particular, he said, the appeals court clearly and repeatedly confined the applicability of its ruling to cases involving software-platform ties.
He cited a section of the opinion in which the court stated: Our judgment regarding the comparative merits of the per se rule and the rule of reason is confined to the tying arrangement before us . While our reasoning may at times appear to have broader force, we do not have the confidence to speak to facts outside the record.
Thats the most specific disclaimer that this would have anything to do with anything else, and its made four or five times in the decision, Mr. Constantine said.
The appeals court, he pointed out, adopted the rule-of-reason standard in the Microsoft case precisely because of the platform-software markets unique conditions, in which technological innovation is so volatile and the market is so new. Citing an earlier decision, the court wrote: We need to know more than we do about the actual impact of these arrangements on competition to decide whether they should be classified as per se violations of the Sherman Act.
As for the Wal-Mart case, Mr. Constantine said, no matter which standard is applied, we are going to put on a full-blown competitive-effects case because we have an equally strong attempt-to-monopolize claim. So everything that the government is now being asked to do in the Microsoft case, we are already going to do in our case.
Mr. Balto of White & Case said that, though a rule-of-reason analysis typically favors the defendant, the merchants in the Wal-Mart suit should be able to buttress their position under that standard. The hardest thing for the plaintiff in the Microsoft case to do is to prove anticompetitive effects, he said. The easiest thing for Lloyd Constantine to do is to prove anticompetitive effects.