With the UK Supreme Court handing down another judgment in December 2020 in connection with the default interchange fee charged by Mastercard, it’s a timely opportunity to recap where, after 14 years, the story has got to.

Anti-Competitive Behaviour

In June 2020  the Supreme Court handed down a judgment in the cases of Sainsbury’s Supermarkets Ltd (Respondent) v Visa Europe Services LLC and others (Appellants) and Sainsbury’s Supermarkets Ltd and others (Respondents) v Mastercard Incorporated and others (Appellants) [2020] UKSC 24. The judgment following a European Commission decision in December 2007, and it concerned whether certain rules of the Visa and Mastercard payment card schemes had the effect of restricting competition, in breach of article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”) and equivalent national legislation.

The schemes were operated by Visa or Mastercard, who set the rules of the schemes and allowed institutions to join as issuers and/or acquirers. Under the schemes an issuer would provide a cardholder with a Visa or Mastercard debit or credit card and would agree terms on which the cardholder could use the card to buy goods or services from merchants. On the flip side merchants would contract with an acquirer, which would provide services to the merchant enabling acceptance of the cards for a fee (the merchant service charge (“MSC”)). To settle a transaction made between a cardholder and a merchant, the issuer paid the acquirer, who passed the payment on to the merchant, less the MSC.

Under both the Visa and Mastercard schemes a default interchange fee, known as the multilateral interchange fee (“MIF”), was payable by the acquirer to the issuer. Acquirers passed on all of the MIF to the merchants through the MSC, with negotiation between acquirers and merchants in respect of the MSC being limited to the level of the acquirer’s margin. Visa and Mastercard’s remuneration did not come from the MIF or MSC but from scheme fees paid by issuers and acquirers. The MIF typically accounted for some 90% of the MSC and the proceedings concerned the effect of MIFs on competition in the market where acquirers competed for the business of merchants to whom they sought to offer acquiring services.

The Supreme Court concluded that there was a restriction on competition as the collective agreement by Visa and Mastercard to set the MIF had the effect of fixing a non-negotiable minimum price floor for the MSC. Acquirers had no incentive to compete over it not least because they could and did pass it on in full (merchants having no ability to negotiate it down). So, the majority of MSC was determined by collective agreement, not by competition and was not open to competitive bargaining. For this, and a number of other reasons, the Supreme Court unanimously upheld the conclusion of the Court of Appeal that the MIFs infringed article 101(1) and its legal rulings on article 101(3) of the TFEU.

The Collective Proceedings Order

This brings us to December 2020 when the Supreme Court issued its judgment in Mastercard  Incorporated and others v Walter Hugh Merricks CBE. The case concerned an application for a Collective Proceeding Order (“CPO”) to enable the continuation of proceedings brought by Mr Merricks as a proposed class representative for 46.2 million people who between 22 May 1992 and 21 June 2008 purchased goods and/or services from businesses in the UK that accepted Mastercard cards.

Mr Merricks argues that the difference between the MIF issuers would have paid but for Mastercard’s breach of competition law, and the MIF that they did in fact pay, is an ‘overcharge’ which merchants paid to their issuers and crucially, which merchants then passed onto the consumer. Consequently, he alleges consumers paid higher prices for goods and services than they would otherwise. Mr Merricks seeks to bring the collective proceedings as the class representative on behalf of all UK resident adult consumers of goods and services purchased in the UK during the infringement period from retailers accepting Mastercard, unless the consumer opts out (the class). He also seeks an aggregate award of damages for the whole class.

To proceed with his collective proceedings claim, Mr Merricks needed the Competition Appeal Tribunal (the “CAT”) to certify the claim by making a CPO under section 47B of Competition Act 1998 as amended. The CAT refused the CPO, a decision which was overturned by the Court of Appeal who allowed Mr Merricks’ appeal. Mastercard subsequently appealed to the Supreme Court, which dismissed the appeal. The Supreme Court agreed with the Court of Appeal that the CAT’s decision was undermined by error of law and sent Mr Merricks’ application for a CPO back to the CAT.

What’s Next?

Mr Merricks’ application for a CPO having been remitted to the CAT for redetermination, the hearing will take place in 2021. If permitted by the CAT, this could see a substantive litigation (and no doubt appeals) on the substance of Mr Merrick’s claims, which if successful could lead to an award in the sum of around £14 billion made against Mastercard. With stakes this high, we can expect an extremely protracted and contested litigation. It is something that will make for interesting jurisprudence and which will directly impact merchants and consumers alike- watch this space!

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