Discover Financial Services Files Federal Lawsuit Against Visa And Mastercard For Damages Stemming From Antitrust Violations
October 4, 2004
RIVERWOODS, Illinois – October 4, 2004 – Discover
Financial Services, a business unit of Morgan
Stanley (NYSE:MWD), today filed a lawsuit in federal
court in New York seeking damages from Visa and
MasterCard as compensation for harm caused by
anticompetitive business practices of the two
associations. The lawsuit was filed shortly after
the U.S. Supreme Court denied the appeal by the
associations of a lower court ruling that had
revoked the exclusionary policies of Visa and
MasterCard.
“The rejection by the Supreme
Court of Visa's and MasterCard's appeal means
that they have lost every attempt to salvage their
illegal barriers that have stifled competition
for more than a decade. Visa and MasterCard lost
in the trial court, lost in the court of appeals,
and now they have lost their appeal to the Supreme
Court,” said David W. Nelms, Chairman and Chief
Executive Officer of Discover Financial Services.
“The courts have ruled that Visa and
MasterCard abused their market power to the detriment
of consumers and competition, and that their exclusionary
rules limited Discover's share of the general
purpose credit card market and also barred Discover
from entering the debit card market,” Nelms added.
“Now that Visa and MasterCard's anticompetitive
bylaws have finally been struck down as unlawful,
we are moving forward with our business plans
and are seeking triple damages for the harm that
those violations have caused us.”
In
her 2001 ruling in the Department of Justice's
antitrust case against Visa and MasterCard, U.S.
District Judge Barbara S. Jones found that the
exclusionary rules of Visa and MasterCard restrain
competition in the network market because they
prevent Discover from offering network services
to the members of the Visa and MasterCard associations.
She held that the “exclusionary rules have deterred
United States issuers from entering into issuing
agreements with Discover Card and forced Discover
to operate as a single-issuer network, stunting
its competitive vitality.”
The Second
Circuit Court of Appeals upheld the decision against
Visa and MasterCard, saying: “Without doubt the
exclusionary rules in question harm competitors.”
The appellate court also found that because of
Visa's and MasterCard's market power “No United
States bank has been willing to give up its membership
in the Visa U.S.A. and MasterCard networks in
order to issue Discover Cards.”
“Without
these restrictive and illegal rules by Visa and
MasterCard, financial institutions in the U.S.
would have issued credit and debit cards through
the Discover Network, leading to greater consumer
use and increased merchant acceptance of Discover
Cards,” Nelms said.
Nelms praised the
Supreme Court's decision to deny the appeal by
Visa and MasterCard of the antitrust ruling against
the two associations.
“This is a victory
for consumers, merchants and financial institutions,”
Nelms said. “Today's decision frees financial
institutions to partner with Discover Financial
Services, which will provide more choice and value
to consumers and merchants. Discover Financial
Services has been in advanced discussions with
potential partners regarding issuance of cards
on the Discover Network, and we are eager to move
forward with these new partnerships.”
A
more competitive marketplace that includes the
Discover Network is good for financial institutions,
which for the first time will enjoy the benefits
of network competition, Nelms said. The ruling
is also good for merchants because more competition
will mean more volume on Discover's low cost network,
with the ultimate winners being consumers who
will enjoy the benefits of greater choice in a
more competitive market, he added. Nelms said
the Discover Network, comprised of more than 4
million merchant and cash access locations, is
uniquely qualified to deliver these benefits because
it is the most efficient and flexible network.
“Today is the day that Visa and MasterCard
hoped would never come,” Nelms said. “Their time
of protecting marketplace monopolies through illegal
restrictions is over.”
About Discover
Financial Services
Discover Financial Services,
a business unit of Morgan Stanley (NYSE:MWD),
operates the Discover Card and the Discover Network
for its more than 50 million Cardmembers. The
Discover Network is the largest proprietary credit
card network in the United States with more than
4 million merchant and cash access locations.
For more information visit www.discovercard.com
or www.discovernetwork.com.