Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 1 of 84 PageID #: 1
`
`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF NEW YORK
`
`Civil Action No.
`
`COMPLAINT
`
`JURY TRIAL DEMANDED
`
`(Document Electronically Filed)
`
`
`
`IN RE PAYMENT CARD INTERCHANGE FEE
`AND MERCHANT DISCOUNT ANTITRUST
`LITIGATION
`
`VERIZON SOURCING LLC; CELLCO
`PARTNERSHIP D/B/A VERIZON WIRELESS;
`VERIZON SERVICES CORP.; AND VERIZON
`CORPORATE SERVICES GROUP, INC.,
`Plaintiffs,
`
`-v-
`VISA, INC.; VISA U.S.A. INC.; VISA
`INTERNATIONAL SERVICE ASSOCIATION;
`MASTERCARD INCORPORATED; AND
`MASTERCARD INTERNATIONAL
`INCORPORATED,
`
`Defendants.
`
`
`I.
`
`PREAMBLE
`
`1.
`
`For decades, America’s largest banks have fixed the fees imposed on Verizon (as
`
`defined below) for transactions processed over the dominant Visa and Mastercard networks and
`
`have collectively imposed restrictions on Verizon that prevents it from protecting itself against
`
`those fees. These practices continued despite the networks’ and the banks’ more recent attempts
`
`to avoid antitrust liability by restructuring the Visa and Mastercard corporate entities. Even after
`
`litigation, legislation, and regulation forced needed reforms on Visa and Mastercard and
`
`technology threatened to disrupt Visa and Mastercard’s dominant position in the marketplace, they
`
`used their market power to continue to restrain competition, thereby harming Verizon, other
`
`Merchants, cardholders, and consumers in general, all in violation of the antitrust laws. This
`
`anticompetitive conduct has caused a Verizon to pay, and continue to pay, significant overcharges
`
`on Visa and Mastercard branded Credit and Debit Card transactions.
`
`23510/48
`10/17/2019 205235785.1
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 2 of 84 PageID #: 2
`
`2.
`
`Plaintiffs Verizon Sourcing LLC, Cellco Partnership d/b/a Verizon Wireless,
`
`Verizon Services Corp. and Verizon Corporate Services Group Inc. (collectively referred to as
`
`“Verizon”) bring this action for damages under the antitrust laws of the United States against Visa
`
`Inc., Visa U.S.A. Inc., Visa International Service Association, Mastercard Incorporated, and
`
`Mastercard International Incorporated (collectively referred to as “Defendants”) and alleges as
`
`follows:
`
`II.
`
`INTRODUCTION
`
`3.
`
`Verizon operates throughout the United States and accepts Visa and Mastercard
`
`Credit Cards, Signature Debit Cards, and PIN-Debit Cards as forms of payment.
`
`4.
`
`Verizon challenges the Defendants’ collusive and anticompetitive practices under
`
`the antitrust laws of the United States from January 1, 2004 to the present (the “Relevant Time
`
`Period”). Defendants’ anticompetitive conduct harms competition and imposes upon Verizon
`
`supracompetitive, exorbitant, and collectively-fixed prices.
`
`5.
`
`The anticompetitive conduct alleged herein is illegal under Sections 1 and 2 of the
`
`Sherman Act.
`
`III.
`
`JURISDICTION AND VENUE
`
`6.
`
`This Complaint is filed under Section 16 of the Clayton Act, 15 U.S.C. Section 26,
`
`to prevent and restrain violations of Section 1 of the Sherman Act, 15 U.S.C. § 1, and for damages
`
`under § 4 of the Clayton Act, 15 U.S.C. § 15. This Court has jurisdiction over Verizon’s federal
`
`antitrust claims under 28 U.S.C. §§ 1331, 1337, 2201, and 2202.
`
`7.
`
`Venue in the Eastern District of New York is proper under 28 U.S.C. §§ 1391, 1407
`
`and 15 U.S.C. §§ 15, 22, and 26. Verizon operates multiple retail outlets in the Eastern District of
`
`New York and accepts payment by Visa and Mastercard Payment Cards through, for example, e-
`
`-2-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 3 of 84 PageID #: 3
`
`commerce or telephone orders from cardholders located in this District. Defendants transact
`
`business and are found in the Eastern District of New York. A substantial part of the interstate
`
`trade and commerce involved in and affected by Defendants’ violations of the antitrust laws was
`
`and is carried on in part within the Eastern District of New York. The acts complained of have
`
`had, and unless enjoined will continue to have, substantial anticompetitive effects in the Eastern
`
`District of New York.
`
`IV. DEFINITIONS
`
`8.
`
`As used in this Complaint, the following terms are defined as:
`
`a.
`
`“Access Device” means any device, including but not limited to a
`
`Payment Card or microchip, which may be used by a consumer to initiate
`
`a General Purpose Card or Debit Card transaction.
`
`b. “Acquiring Bank” or “Acquirer” means a member of Visa and/or
`
`Mastercard that acquires payment transactions from Merchants and acts
`
`as a liaison between the Merchant, the Issuing Bank, and the Payment-
`
`Card network to assist in processing the payment transaction. Visa and
`
`Mastercard rules require that an Acquiring Bank be a party to every
`
`Merchant contract. In a typical payment transaction, when a customer
`
`presents a Visa or Mastercard card for payment, the Merchant relays the
`
`transaction information to the Acquiring Bank. The Acquiring Bank then
`
`contacts the Issuing Bank via the network for authorization based on
`
`available credit or funds. Acquiring Banks compete with each other for
`
`the right to acquire payment transactions from Merchants but do not
`
`-3-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 4 of 84 PageID #: 4
`
`compete on the basis of the interchange fee, which is one of the subjects
`
`of this Complaint.
`
`c.
`
`“All-Outlets Rule” is a rule of the Visa and Mastercard networks that
`
`requires a Merchant with multiple outlets to accept Visa or Mastercard,
`
`respectively, in all of its outlets, even if those outlets are owned by a
`
`separate corporate entity, operated under a different brand name, or
`
`employ a different business model in order for the Merchant to receive
`
`the interchange rates for which the Merchant would ordinarily qualify.
`
`d. “Anti-Steering Restraints” are the rules of the Visa and Mastercard
`
`networks that forbid Merchants from incenting consumers to use less
`
`expensive payment forms, including: the No-Surcharge Rule; the No-
`
`Minimum-Purchase Rule; and Visa and Mastercard’s “discrimination
`
`rules,” which require Merchants to discriminate against other forms of
`
`payment by failing to treat them more favorably than Defendants’ cards
`
`despite those competing forms’ better pricing. The Defendants’ standard-
`
`form Merchant agreements implement these Anti-Steering Restraints.
`
`e.
`
`“Assessment” refers to an amount computed and charged by Visa and
`
`Mastercard on each transaction amount to the Acquiring and Issuing
`
`Banks.
`
`f.
`
`“Authorization” is the process by which a Merchant determines whether
`
`a cardholder is authorized by his or her Issuing Bank to make a particular
`
`transaction. The Merchant sends the cardholder’s information to its
`
`Acquiring Bank or a Third-Party Processor, which sends it to Visa or
`
`-4-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 5 of 84 PageID #: 5
`
`Mastercard, which then sends it to the issuer or the issuer’s processor, to
`
`obtain authorization. If authorization is given, the process is repeated in
`
`reverse.
`
`g. “Charge Card” or “Travel & Entertainment Card” (T&E) is an access
`
`device, usually a Payment Card, enabling the holder to purchase goods
`
`and services on credit to be paid on behalf of the holder by the issuer of
`
`such device. Typically, the contractual terms of such cards require that
`
`payment from the holder to the issuer be made in full each month, for all
`
`payments made on behalf of the cardholder by the issuer during the
`
`preceding month. The issuer does not extend credit to the holder beyond
`
`the date of the monthly statement, nor does it impose interest charges on
`
`the balance due except as a penalty for late payment. Examples of Charge
`
`Cards are the American Express Green, Gold, Platinum, and Centurion
`
`cards as well as the Diners Club and Carte Blanche cards issued by
`
`Citibank.
`
`h. “Credit Card” is any card, plate, or other payment code, device,
`
`credential, account, or service, even where no physical card is issued and
`
`the code, device, credential, account, or service is used for only one
`
`transaction or multiple transactions — including, without limitation, a
`
`plastic card, a mobile telephone or other mobile communications device,
`
`a fob, a home assistant or other internet-connected device, or any other
`
`current or future code, device, credential, account, or service by which a
`
`person, business, or other entity can pay for goods or services — that is
`
`-5-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 6 of 84 PageID #: 6
`
`issued or approved for use through a payment network and that may be
`
`used to access a line of credit or otherwise defer payment of debt or incur
`
`debt and defer its payment, including cards commonly known as credit
`
`cards, charge cards, commercial credit cards, corporate credit cards, fleet
`
`cards, or purchasing cards.
`
`i.
`
`“Debit Card” is any card, plate, or other payment code, device,
`
`credential, account, or service, even where no physical card is issued and
`
`the code, device, credential, account, or service is used for only one
`
`transaction or multiple transactions — including, without limitation, a
`
`plastic card, a mobile telephone or other mobile communications device,
`
`a fob, a home assistant or other internet-connected device, or any other
`
`current or future code, device, credential, account, or service by which a
`
`person, business, or other entity can pay for goods or services — that is
`
`issued or approved for use through a payment network to debit an asset
`
`or deposit account, or that otherwise is not a Credit Card, regardless of
`
`whether authentication is based on signature, personal identification
`
`number (or PIN), or other means (or no means at all), and regardless of
`
`whether or not the issuer holds the account (such as decoupled debit),
`
`including cards commonly known as signature or offline debit cards, PIN
`
`or online debit cards, gift cards, or other prepaid cards.
`
`j.
`
`“General Purpose Cards” collectively refers to Credit Cards and
`
`Charge Cards.
`
`-6-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 7 of 84 PageID #: 7
`
`k. The “Honor All Cards” Rules are rules of the Visa and Mastercard
`
`networks that require any Merchant that accepts Visa or Mastercard
`
`Credit Cards to accept all Credit Cards that are issued on that network,
`
`and the rules of the Visa and Mastercard networks that require any
`
`Merchant that accepts Visa or Mastercard Debit Cards to accept all Debit
`
`Cards that are issued on that network.
`
`l.
`
`“Interchange Fee” in the United States General Purpose Card Network
`
`Services and Debit Card Network Services markets means a fee that
`
`Merchants pay to the Issuing Bank through the network and the
`
`Acquiring Bank for each transaction in which the Issuer’s card is used as
`
`a payment device. The following example illustrates how the Visa and
`
`Mastercard Interchange Fees work. A customer presents a Visa or
`
`Mastercard card to Verizon as a payment method. Verizon contacts the
`
`Acquiring Bank, itself or through a Third-Party Processor, to authorize
`
`the transaction. The Acquiring Bank submits the transaction to the
`
`network. The network relays the transaction information to the Issuing
`
`Bank or the Issuing Bank’s Third-Party Processor, which approves the
`
`transaction if the customer has a sufficient line of credit or available
`
`funds. If the transaction is authorized through the network, the Issuing
`
`Bank pays the Acquiring Bank the payment amount minus the
`
`“Interchange Fee,” which is fixed by the Member Banks of Visa and
`
`Mastercard. The Acquiring Bank then pays Verizon the payment amount
`
`minus the Interchange Fee and other charges for processing the
`
`-7-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 8 of 84 PageID #: 8
`
`transaction. The total fee charged Merchants, like Verizon, is often
`
`referred to as the “Merchant-Discount Fee.” The Interchange Fee is the
`
`largest component of the Merchant-Discount Fee.
`
`m. “Issuing Bank” or “Issuer” means a member of Visa and/or Mastercard
`
`that issues Visa and/or Mastercard branded Payment Cards to consumers
`
`for their use as payment systems and access devices. Issuing Banks
`
`compete with each other to issue Visa and Mastercard cards to
`
`consumers. Visa and Mastercard rules require that all Member Banks
`
`issue, respectively, Visa and Mastercard Payment Cards.
`
`n. “Merchant” means an individual, business, or other entity that accepts
`
`payments in exchange for goods or services rendered, as donations, or
`
`for any other reason. Verizon is a Merchant.
`
`o. “Merchant-Discount Fee” is the total sum that is deducted from the
`
`amount of money a Merchant receives in the settlement of Visa and/or
`
`Mastercard transactions. The largest component of the Merchant-
`
`Discount Fee is the Interchange Fee.
`
`p. “Miscellaneous Exclusionary Restraints” refer collectively to the All-
`
`Outlets Rule, the No-Bypass Rule, and the No-Multi-Issuer Rule.
`
`q. “Network Services” means the services and infrastructure that Visa and
`
`Mastercard and their members provide to Merchants through which
`
`payment transactions are conducted, including authorization, clearance,
`
`and settlement of transactions, and those similar services offered by
`
`American Express and Discover. As they currently are offered by Visa
`
`-8-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 9 of 84 PageID #: 9
`
`and Mastercard and their Member Banks, Network Services include
`
`Network- Processing Services and the Visa and Mastercard Payment-
`
`Card Systems that facilitate acceptance of Visa and Mastercard Payment
`
`Cards by Merchants. “Network Services” are sometimes referred to as
`
`“Card Acceptance Services” as they relate to Merchants.
`
`r.
`
`“Network-Processing Services” are the services that are or may be used
`
`for authorizing, clearing, and settling Visa and Mastercard Credit and
`
`Debit Card transactions.
`
`s.
`
`“No-Minimum-Purchase Rule” is a rule of the Visa and Mastercard
`
`networks that prohibits Merchants from imposing minimum-purchase
`
`amounts for Visa and Mastercard Credit-Card purchases.
`
`t.
`
`“No-Bypass Rule” is a rule of the Visa and Mastercard networks that
`
`prohibits Merchants and Member Banks from bypassing the Visa or
`
`Mastercard system (thereby avoiding the supracompetitive Interchange
`
`Fees) in order to clear, authorize, or settle Credit Card transactions even
`
`if the Issuing and Acquiring Banks are the same, or even if a Third-Party
`
`Processor has agreements with both the Issuing and Acquiring Banks on
`
`any given transaction.
`
`u. “No-Multi-Issuer Rule” is a rule of the Visa and Mastercard networks
`
`respectively, that prohibits Visa and Mastercard transactions from also
`
`being able to be processed over other networks.
`
`v. “No-Surcharge Rule” is a rule of the Visa and Mastercard networks that
`
`forbids Merchants from charging cardholders a surcharge on their
`
`-9-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 10 of 84 PageID #: 10
`
`Payment-Card transactions to reflect cost differences among various
`
`payment methods. For example, Merchants are prohibited from
`
`surcharging cardholders who use a Visa Credit Card rather than a
`
`Discover-branded Credit Card, or use a Premium Credit Card rather than
`
`a standard Credit Card, or use a Credit Card rather than another form of
`
`payment.
`
`w. “Signature Debit Card” or “Offline Debit Card” is a Debit Card with
`
`which the cardholder authorizes a withdrawal from his or her bank
`
`account usually by presenting the card at the POS and signing a receipt.
`
`Signature Debit Card transactions are processed through signature
`
`networks, like Credit Card transactions. Examples of Signature Debit
`
`Cards include Visa’s “Visa Check” product and Mastercard’s “Debit
`
`Mastercard” product.
`
`x. “Online PIN-Debit Card” or “PIN-Debit Card” is a Debit Card with
`
`which the cardholder authorizes a withdrawal from his or her bank
`
`account by swiping her card at the POS and entering a Personal
`
`Identification Number (“PIN”). PIN-Debit Card networks grew out of
`
`regional ATM networks and therefore process transactions differently
`
`than Offline transactions. Examples of Online PIN-Debit Card networks
`
`include Interlink, Maestro, NYCE, and Pulse.
`
`y. A “Premium Card” is a General Purpose Card that carries a higher
`
`Interchange Fee than a Standard Card and is required by a network to
`
`carry a certain level of rewards or incentives to the cardholder. Visa’s
`
`-10-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 11 of 84 PageID #: 11
`
`“Visa Signature,” “Visa Rewards,” and “Visa Infinite” card products and
`
`Mastercard’s “World” and “World Elite” card product are examples of
`
`Premium Cards.
`
`z.
`
`“On-Us Transactions” are transactions in which the Acquiring Bank and
`
`the Issuing Bank are the same. Even when the Issuing and Acquiring
`
`Banks are identical, Visa and Mastercard require that the Issuing Bank
`
`charge an Interchange Fee to the Merchant.
`
`aa. “Payment Card” refers to a plastic card that enables consumers to make
`
`purchases from Merchants that accept the consumer’s Payment Card.
`
`The term “Payment Card” refers to several different types of cards,
`
`including General-Purpose Cards, Debit Cards, Travel & Entertainment
`
`Cards, stored-value cards, and Merchant-proprietary cards. Although
`
`“Payment Cards” are a subset of “Access Devices,” the two terms are
`
`used interchangeably herein, because despite evolving technology,
`
`Payment Cards continue to constitute the vast majority of Access
`
`Devices.
`
`cc. “Settlement” is the process by which the Merchant is reimbursed for a
`
`Payment Card transaction. While Visa and Mastercard rules require that
`
`an Acquiring Bank be a party to all Merchant card-acceptance
`
`agreements, Merchants often use Third-Party Processors to process these
`
`transactions. The Acquiring Bank or its processor credits the Merchant’s
`
`bank account with the amount paid by the cardholder less the Merchant-
`
`Discount fee, the largest component of which is the Interchange Fee, and
`
`-11-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 12 of 84 PageID #: 12
`
`then transmits the transaction data to Visa or Mastercard, which sends it
`
`to the Issuing Bank or its Third-Party Processor. The Issuing Bank then
`
`sends payment to the Acquiring Bank through Visa or Mastercard (and
`
`possibly the Acquirer’s processor). In a Credit Card or Signature Debit
`
`Card transaction, settlement occurs two to four days after authorization
`
`and clearing. In a PIN-Debit transaction, all three processes occur in the
`
`same electronic transaction virtually instantaneously.
`
`dd. “Third-Party Processor” is a firm, other than Visa, Mastercard, a Member
`
`Bank, or an entity affiliated with a Member Bank, that performs the
`
`authorization, clearing, and settlement functions of a Visa or Mastercard
`
`Payment-Card transaction on behalf of a Merchant or a Member Bank.
`
`V.
`
`THE PARTIES
`
`9.
`
`Plaintiff Verizon Sourcing LLC is a limited liability company incorporated under
`
`the laws of Delaware. Verizon Sourcing’s principal place of business is One Verizon Way,
`
`Basking Ridge, NJ 07920. Plaintiff Cellco Partnership d/b/a Verizon Wireless is a General
`
`Partnership incorporated under the laws of Delaware. Cellco Partnership d/b/a Verizon Wireless’s
`
`principal place of business is One Verizon Way, Basking Ridge, NJ 07920. Plaintiff Verizon
`
`Services Corp. is a corporation incorporated under the laws of Delaware. Verizon Services Corp.’s
`
`principal place of business is 22001 Loudon County Parkway; Ashburn, VA 20147. Plaintiff
`
`Verizon Corporate Services Group Inc. is a corporation incorporated under the laws of Delaware.
`
`Plaintiff Verizon Corporate Services Group Inc.’s principal place of business is One Verizon Way;
`
`Basking Ridge, NJ 07920. Plaintiffs Verizon Sourcing LLC, Cellco Partnership d/b/a Verizon
`
`Wireless, Verizon Services Corp. and Verizon Corporate Services Group Inc. are collectively
`
`-12-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 13 of 84 PageID #: 13
`
`referred to herein as “Verizon.” Verizon accepts payment by Visa and Mastercard Credit and
`
`Debit Cards. Defendants impose supracompetitive Interchange and Merchant-Discount Fees
`
`associated with these Visa and Mastercard transactions on Verizon and force Verizon to abide by
`
`the Anti-Steering Restraints and other restraints that facilitate Defendants’ anticompetitive
`
`practices. Verizon has been and continues to be injured in its business or property as a result of the
`
`unlawful conduct alleged herein.
`
`10.
`
`Defendant Visa Inc. operates the Visa electronic payments network around the
`
`world. It is a publicly-traded Delaware Corporation with its principal place of business in Foster
`
`City, California. Until the Visa corporate restructuring described below, Defendant Visa
`
`International (f/k/a Visa International Service Association) was a non-stock, non-assessable
`
`Delaware membership corporation with its principal place of business in San Francisco, California.
`
`Before the restructuring, Defendant Visa U.S.A. Inc. was a group-member of Visa International
`
`Service Association and was also a non-stock, non-assessable Delaware membership corporation
`
`with its principal place of business in San Francisco, California. Visa Inc. is the successor in
`
`interest to Visa U.S.A. Inc. and Visa International (f/k/a/ Visa International Service Association).
`
`Defendants Visa U.S.A. Inc., Visa International Service Association (a/k/a Visa International), and
`
`Visa Inc. are collectively referred to herein as “Visa.”
`
`11.
`
`Defendant Mastercard Incorporated is a publicly-traded Delaware corporation with
`
`its principal place of business in Purchase, NY. Mastercard Incorporated is the successor in interest
`
`to a private, SEC-registered share company, also called Mastercard Incorporated, organized under
`
`the laws of Delaware with its principal place of business in Purchase, New York. Defendant
`
`Mastercard International Incorporated is a Delaware membership corporation that is the principal
`
`-13-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 14 of 84 PageID #: 14
`
`operating subsidiary of Mastercard Incorporated. Mastercard Incorporated and Mastercard
`
`International Incorporated are collectively referred to herein as “Mastercard.”
`
`12.
`
` Acquiring Banks enter into acceptance contracts with Verizon agreeing either
`
`implicitly or explicitly that Visa and Mastercard’s uniform schedule of Interchange Fees will apply
`
`to all Verizon transactions that are initiated by Visa or Mastercard Payment Cards. These
`
`Acquiring Banks understand that the same uniform schedule of Interchange Fees will be applied
`
`to Verizon transactions conducted by all other Acquiring Banks. Issuing Banks enter into issuing
`
`contracts with Visa and Mastercard, agreeing and understanding that they will receive Interchange
`
`Fees from Verizon based on the Visa and Mastercard’s uniform schedule of Interchange Fees.
`
`VI. CO-CONSPIRATORS
`
`13.
`
`The Court of Appeals for the Second Circuit held that Visa and Mastercard “are not
`
`single entities; they are consortiums of competitors.” United States v. Visa U.S.A. Inc., 344 F.3d
`
`229, 242 (2d Cir. 2003). Before the corporate restructuring described below, they were “owned
`
`and effectively operated by over 22,000 banks, which compete with one another in the issuance of
`
`Payment Cards and the acquiring of Merchants’ transactions.” Id. Because of this judgment,
`
`among other things, the networks and their Member Banks recognized that the networks were
`
`“structural conspiracies” and “walking conspiracies.”
`
`14.
`
`Various persons, firms, corporations, organizations, and other business entities,
`
`some unknown and others known, have participated as co-conspirators in the violations alleged
`
`and have performed acts in furtherance of the conspiracies. Co-conspirators include, but are not
`
`limited to, the following: (a) Issuing Banks that have issued Visa and/or Mastercard Credit and
`
`Debit Cards and have agreed to charge uniform, collectively fixed Visa and Mastercard
`
`Interchange Fees for Verizon and other Merchants and transactions both before and after Visa and
`
`-14-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 15 of 84 PageID #: 15
`
`Mastercard’s restructurings; (b) Acquiring Banks that acquire Visa and Mastercard transactions,
`
`as described herein, and that have participated in the conspiracy to collectively fix Interchange
`
`Fees both before and after the Visa and Mastercard’s restructurings; and (c) certain banks that are
`
`or were members of the Boards of Directors of Visa or Mastercard and adopted and agreed to fix
`
`Interchange Fees for Verizon and other Merchants and transactions, to impose the anticompetitive
`
`Anti-Steering Restraints and Miscellaneous Exclusionary Restraints alleged herein, and also
`
`designed and authorized the restructurings that themselves violate the antitrust laws.
`
`VII. TRADE AND INTERSTATE COMMERCE
`
`15.
`
`The trade and interstate commerce relevant to this action consists of the Relevant
`
`Markets described herein.
`
`16.
`
`During all or part of the Relevant Time Period, each of the Defendants, directly or
`
`through their affiliates or subsidiaries, participated in the Relevant Markets described herein in a
`
`continuous and uninterrupted flow of interstate commerce.
`
`17.
`
`The activities of Defendants and their co-conspirators, as described herein, were
`
`within the flow of and had a substantial effect on interstate commerce.
`
`VIII. FACTUAL ALLEGATIONS
`
`A.
`18.
`
`Evolution of the Visa and Mastercard Networks.
`
`Visa and Mastercard (collectively the “Networks”) are international bank-card
`
`networks whose members include banks, regional-banking associations, and other financial
`
`institutions. They were established by their members to develop, promote, and operate national
`
`Credit Card networks for the purpose of, among other things, enabling Issuing Banks to extract
`
`fees from Merchants with whom they have no business relationships.
`
`19.
`
`Visa and Mastercard evolved from regional and local Credit Card systems formed
`
`during the 1960s.
`
`-15-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 16 of 84 PageID #: 16
`
`20.
`
`During the early years of Visa and Mastercard, Merchants that accepted Credit
`
`Cards used paper forms called “drafts” to conduct transactions.
`
`21.
`
`In the mid-1980s, technology evolved such that many transactions were processed
`
`electronically and paper drafts were not needed for most Payment Card transactions. Since that
`
`time, the costs to Visa and Mastercard of the various components of Credit Card transaction
`
`processing (for example, computer hardware, telephone service, network service, and data-
`
`processing services) have decreased significantly. These changes led to significant reductions in
`
`the costs for Visa and Mastercard of processing Payment Card transactions.
`
`22.
`
`As Visa and Mastercard began operating on a national scale, use of their cards has
`
`increased dramatically.
`
`23.
`
`Since 1970, the number of Visa Member Banks has increased from approximately
`
`1,400 to nearly 14,000 in the United States and over 22,000 worldwide. U.S. consumers now carry
`
`more than 802 million Visa-branded Credit, Debit, commercial, and prepaid cards.
`
`24. Mastercard has experienced similar growth and now includes more than 23,000
`
`Member Banks worldwide. As of today, there are more than 360 million Mastercard-branded cards
`
`in circulation in the United States.
`
`25.
`
`Visa and Mastercard have also experienced substantial consolidation among their
`
`Member Banks.
`
`26.
`
`The evolution of Visa and Mastercard through horizontal agreements stands in
`
`contrast to the development of American Express, Discover, and other “three-party” networks,
`
`which built Merchant- and cardholder bases independently of a cooperating partner on the other
`
`“side” of the platform. In a three-party network such as American Express or Discover, the network
`
`-16-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 17 of 84 PageID #: 17
`
`operator acts both as the Issuer and Acquirer for the vast majority of transactions involving its
`
`cards and is the only intermediary between the Merchant and the cardholder.
`
`27. When a three-party network sets Merchant and cardholder fees, it does so to
`
`maximize its own profit, rather than to increase the profits of the actors on one side (i.e., the Issuing
`
`Banks) of the platform, as is the case in five-party networks.
`
`B.
`
`28.
`
`Interchange Fees in the Context of a Payment-Card Transaction.
`
`Visa and Mastercard operate as standard-setting organizations with respect to
`
`General Purpose Card Network services, Signature Debit Card Network Services and PIN-Debit
`
`Card Network Services that facilitate the exchange of transaction data and funds among
`
`Merchants, Acquiring Banks, Issuing Banks, and consumers.
`
`29. When a consumer makes a payment with a Credit or Signature Debit Card, the
`
`Merchant sends an electronic transmission to its Acquiring Bank or Third-Party Processor. The
`
`Acquiring Bank or processor then sends an electronic transmission to the Visa or Mastercard
`
`networks. The networks relay the transaction to the cardholder’s Issuing Bank or its Third-Party
`
`Processor, which makes a payment to the Acquiring Bank, through the networks for the purchase
`
`amount minus the Interchange Fee. The Acquiring Bank then credits the Merchant’s account for
`
`the transaction amount minus the Merchant-Discount Fee, the largest component of which is the
`
`Interchange Fee. Finally, the Issuing Bank charges the cardholder’s credit account for the full
`
`amount of the purchase. Under this system, the Issuing Bank earns revenue from annual fees and
`
`interest charged to cardholders, as well as the amount of the Interchange Fee, while the Acquiring
`
`Bank earns revenue from the difference between the Merchant-Discount Fee and the Interchange
`
`Fee.
`
`-17-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 18 of 84 PageID #: 18
`
`30.
`
`Visa Product and Service Rule 9.1.1.3 provides that “Interchange Reimbursement
`
`Fees are determined by Visa and provided on Visa’s published fee schedule.” These Interchange
`
`Fees apply on every transaction, except for where they have been “customized where Member
`
`[Banks] have set their own financial terms for the Interchange of a Visa Transaction or Visa has
`
`entered into business agreements to promote acceptance and Card usage.”
`
`31.
`
`Similarly, Mastercard Rule 8.3 provides that “[a] transaction settled between
`
`[Member Banks] gives rise to the payment of the appropriate interchange fee or service fee, as
`
`applicable. [Mastercard] has the right to establish default interchange fees and default service fees
`
`. . . ., it being understood that all such fees set by [Mastercard] apply only if there is no applicable
`
`bilateral interchange fee agreement between two [Member Banks] is in place, any intraregional or
`
`interregional fees established by [Mastercard] are binding on all [Member Banks].”
`
`32.
`
`Despite
`
`the
`
`theoretical deviations from “default” Interchange Fees
`
`that
`
`Mastercard’s rules permit, the Merchant Restraints ensure that the “default” rates set the prices
`
`that all Issuing Banks charge Merchants that accept their cards. Because of the Restraints, bilateral
`
`negotiations between a Merchant, or group of Merchants, and an Issuer simply do not occur.
`
`33.
`
`The Default Interchange Rules were adopted when Visa and Mastercard were
`
`owned and controlled by Defendants and other Member Banks and continually reaffirmed by votes
`
`of Visa and Mastercard’s Boards of Directors that consisted of Member Banks. Defendants
`
`adopted those rules with the purpose and effect of inflating Merchants’ costs of accepting Payment
`
`Cards and using the ill-gotten profits from those Interchange Fees to line the pockets of the
`
`Member Banks.
`
`34.
`
`Visa and Mastercard each have established complex “default” Interchange Fee
`
`schedules. Default Interchange includes the fee levels, the structure of the fees, such as the
`
`-18-
`
`

`

`Case 1:19-cv-05882 Document 1 Filed 10/17/19 Page 19 of 84 PageID #: 19
`
`Interchange-Fee categories that are tiered by Merchant type, card type, and the Merchant’s
`
`transaction volume, among other things. Interchange fees account for the largest portion of
`
`Merchant costs for accepting such cards, and Veri