Free Priceless: The Case That Brought Down the Visa/MasterCard Bank Cartel by Lloyd Constantine Page B

the debit card market, and how these rules also marginalized the Discover and American Express credit card businesses. Echoing Bob Norton’s statement to the Antitrust Division, these exclusionary rules blatantly proclaimed that Visa and MasterCard were not competitors. They shouted this by exempting each other from rules designed to block the expansion of competing payment card businesses.
    In May 1991, for example, Visa had adopted By-law 2.10(e), a rule that barred its banks, meaning virtually every bank in the United States, from issuing an American Express or Discover brand credit or debit card or the cards of any other network that Visa considered to be a competitor. Visa said that its banks could issue MasterCard credit cards, meaning that Visa didn’t consider MasterCard a competitor. Visa didn’t allow banks that issued Visa branded debit cards to also issue MasterCard branded debit cards because of the injunction terminating my earlier case involving the Entree debit card network. Visa’s enactment of By-law 2.10(e) finally got the Antitrust Division off the dime, ninetten years after the division had acted as the midwife for “duality.” In 1994, the division began an investigation focused on Visa’s exclusionary and inflammatory by-law.
    MasterCard could have enjoyed this moment. Visa, not MasterCard, was under government scrutiny. MasterCard got the full benefit of the Visa rule without lifting a finger. Because virtually every Visa bank was also a MasterCard member, the Visa rule effectively prohibited MasterCard’s banks from issuing an American Express, Discover, or any other competitive card. However, MasterCard emulated Visa and stuck its neck out with nothing to gain and everything to lose. MasterCard passed a rule virtually identical to Visa’s, which MasterCard called the “Competitive Programs Policy,” or CPP. The CPP, like Visa’s rule, targeted competitors, but as Visa had exempted MasterCard, Visa was also exempt from MasterCard’s policy. Both companies were brazenly screaming, “We don’t consider each other competitors.”
    On March 27, 1997, I had lunch with Joel Klein, who was by then the head of the Antitrust Division. Klein was meeting with progressive antitrust experts to solicit ideas for his newly won stewardship of the division. We discussed the recently filed Merchants’ case and the investigation of the Visa/MasterCard exclusionary rules that he had inherited from his predecessor, Anne Bingaman. I pointed out the irrationality of MasterCard’s passage of the CPP. I explained that this was an example of MasterCard showing the banks that it would throw itself on the railroad tracks next to Visa in a public demonstration of anticompetitive solidarity. I said it was also a show of confidence that his Antitrust Division would do nothing about it. Boys are boys. Despite the fact that Klein and I were pushing fifty, we were both kids from Queens, each tough in our own way, and I was throwing down a dare.
    Klein said he was convinced, and soon after our lunch, an investigation widely viewed as going nowhere started to pick up steam. M. J. Moltenbrey, the attorney supervising the Antitrust Division’sinvestigation of Visa and MasterCard, invited me down to Washington, D.C., to pick my brain. This was the first in a series of such meetings where C&P tried to educate the division’s lawyers to think about Visa/MasterCard in the way we did and to overcome the agency’s two-decade inertia borne of its 1975 duality mistake
    Nineteen months after my lunch with Joel Klein, and two years after we filed our complaint, the United States sued Visa and MasterCard over their system of duality and also over their exclusionary rules that targeted American Express and Discover. The focus of the United States’ case was the credit card market. The Merchants’ case had focused on the debit card market and showed how Visa/MasterCard not only blocked Discover and American Express from that