A unanimous U.S. Supreme Court ruling this week that the parties to joint ventures aren’t engaging in price fixing as long as the joint venture itself is competing in the open market is unlikely to derail the many class action lawsuits over interchange being fought in Federal court.
The case, TEXACO INC. v. DAGHER Et Al, (No. 04-805), deals with whether joint ventures that set prices for goods or services are in restraint of trade under the Sherman Antitrust Act. Since that issue underlies many of the interchange lawsuits being fought against MasterCard and Visa by various merchant groups, Monday’s Court decision that Texaco Inc. and Shell Oil Co. hadn’t fixed prices in restraint of trade under section 1 of the Sherman Antitrust Act would seem to have dealt a decisive blow to the merchants’ case.
And in fact, a defendant’s motion to dismiss, now before the Brooklyn, NY, federal district court of Judge John Gleeson, who is hearing many of the class action suits, will probably be amended to reflect the court’s ruling, says a plaintiff’s attorney who insisted on anonymity.
“I don’t know why anybody would think this decision would do anything but help MasterCard and Visa in these cases,” he says. But even he concedes the ruling won’t be fatal to the plaintiffs’ cases. “Did this ruling stick a dagger into the side of the merchants’ case? Maybe not. But it’ll make them bleed.”
Plaintiffs’ attorneys likewise seemed unmoved by the Court’s unanimous decision. “The card networks are going to spin it in a way they think will be helpful (to them), but I don’t think it can be properly spun that way,” says K. Craig Wildfang, a partner in Robins, Kaplan, Miller, & Ciresi LLP, one of the main plaintiff’s law firms. “To the extent it has any application at all, it’s to the narrow question of whether the per se rule applies, or the rule of reason.”
In the opinion of both attorneys, the highly legalistic question of which of two ways of looking at the law should be applied to the interchange suits before Judge Gleeson will decide how Monday’s decision will influence the cases. The rules, known as the per se rule and the rule of reason, are both narrow definitions of the interpretation of the law as laid out in Sherman, and make more sense in the hermetic realm of law, than in the daily world in which people live.
The Court’s decision, written by Justice Thomas, almost seems to have been lifted from Alice in Wonderland. The issue to be decided was whether Texaco and Shell had fixed prices, as understood under Sherman, when they formed a joint venture called Equilon Enterprises, from which all Texaco and Shell gas stations in the Western United States bought their gasoline. While the companies had certainly agreed on a set price at which their stations sold gas, wrote Thomas, they were not fixing prices per se, because Equilon and the gas stations were still competing for sales in the marketplace.
“When those who would otherwise be competitors pool their capital and share the risks of loss and opportunities for profit, they are regarded as a single firm competing with other firms in the market,” wrote Thomas. “As such, Equilon’s pricing policy may be price fixing in a literal sense, but it is not price fixing in the antitrust sense.”
The whole matter of the decision turns on what per se and rule of reason mean in court. Per se means “as such” and refers only to the narrow question of whether the law exactly applies to a Sherman matter before a court: The rule of reason as applied to restraint of trade, according to Black’s Law Dictionary, “is determined by weighing all the factors of the case such as the history of the restraint, the evil believed to exist, the reason for adopting the particular remedy and the purpose or end sought to be attained.”
Even Justice Thomas seemed to be saying that joint ventures that fix prices are in fact engaged in price fixing as commonly understood—just not price fixing per se. But since the Dagher attorneys insisted on arguing their case on the per se merits of their complaint, according to the defendant’s attorney, they lost their case, incidentally giving him and other attorneys for MasterCard and Visa a new weapon.
Especially by inference, he adds. “What the Supreme Court said was that it does not want to view pricing in the context of a joint venture as a per se offense: That takes me back to NaBANCO, where the court said exactly that. So it seems to me that without citing NaBANCO, the Court is saying NaBANCO is good law,” he says.
Wildfang, on the other hand, says his arguments have nothing to do with per se interpretations. “I’ve always argued that; some complaints (in the overall interchange matter) have advanced that claim, but I’ve always thought the courts are going to apply the rule of reason. We don’t see this, in the long run, as having a serious impact on the litigation.”
The NaBANCO case (National Bancard Corporation v. Visa U.S.A. Inc., 779 F.2d 592 11th Cir. 1986) ruled that a joint venture formed to operate a credit card network was not in restraint of trade when it set interchange rates: Defendants’ attorneys claim that subsequent case law has made NaBanCo irrelevant, but credit card lawyers have unsurprisingly never conceded that point.
All this being true, the interchange suits are likely to take on a life of their own and be decided sometime in the misty future, much like Jarndyce and Jarndyce in Dickins’ Bleak House.
And when they finally do flicker out, don’t expect to see the same familiar payments card landscape. Consumer behavior and alternative instruments are already chipping away at the dominant role of credit cards, and while nobody is predicting their demise, their place in the payment card pecking order will probably have shifted by the time the last merchant or card association lawyer snaps shut his briefcase and leaves Judge Gleeson’s courtroom.
To read TEXCAO INC. v. DAGHER et al, follow this link: http://a257.g.akamaitech.net/7/257/2422/28Feb20061050/www.supremecourtus.gov/opinions/05pdf/04-805.pdf (Contact: Robins, Kaplan, Miller, & Ciresi LLP, K. Craig Wildfang, 202-775.0725)