In researching the 2012 Lawdragon 500 guide, it was hard to overlook the $7.25B settlement reached by merchants (about seven million of them) with Visa, Mastercard and several major banks over contested interchange fees. The settlement, which also included reforms of the credit card industry, has been cited as the largest-ever settlement of a private case under the Sherman Act. Craig Wildfang, who represented the class of plaintiff merchants, is a veteran antitrust partner at Robins, Kaplan, Miller & Ciresi in Minneapolis.
Wildfang has a long track record of success in private practice and also served in the Justice Department, from 1993-1996, as Special Counsel to the Assistant Attorney General for Antitrust. He is a 1977 graduate of the University of Minnesota Law School; he also did his undergraduate work at the University of Minnesota.
Lawdragon: Can you explain the current status of the settlement since some of the retailer plaintiffs objected after the preliminary approval was given in November?
Craig Wildfang: The current status of the settlement is it has received preliminary approval in the District Court, and pursuant to that preliminary approval, notices are in the process of being sent to all merchants in the class. The attempt by some persons who objected to preliminary approval to try to seek appellate review of the district court's order, or to otherwise delay proceedings, has failed. The 2nd U.S. Circuit Court of Appeals has ruled against them on each of their appeals and motions. The District Court has set the date of September 12, 2013, as the date for a hearing on the final approval motion.
LD: Can you give some context for how this case arose in 2005? Had not some prior litigation against Visa and MasterCard challenged these types of practices, or was regulatory action a possibility at the time?
CW: Prior to our initiating the litigation that became In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, MDL 1720, various practices and rules of Visa and MasterCard had been the subject of antitrust litigation for over 20 years. However, none of those prior cases was an attack on the very structure of Visa and MasterCard as bank-owned joint ventures, which is what MDL1720 was. In 2005, regulatory action by Congress on the Federal Reserve Board was considered by all industry participants as highly unlikely. I had previous experience with antitrust issues in the payment card industry, both at the Department of Justice and representing private plaintiffs against Visa and MasterCard. I had become convinced that only a broad, frontal attack on the Visa and MasterCard joint venture structure would solve the competitive problems in the industry.
LD: Can you explain the breakdown of the cash portion of the settlement?
CW: The cash portion of the settlement, $7.25 billion, consists of two components. First there is the outright cash payment of $6.05 billion, which is payment for past damages. That amount has been paid by defendants to the class and is being held in an escrow account awaiting final approval to distribute it to the class. Second, there is a component equal to the value to merchants of a 10 basis point reduction in Visa and MasterCard credit card interchange fees for a period of eight months. Originally the parties had agreed that Visa and MasterCard would reduce their credit card interchange fees by 10 basis points for that period of time, but the mechanics of doing so became extraordinarily difficult, so the parties agreed to simply convert that to a cash payment. That amount, estimated to be approximately $1.2 billion, will be collected by Visa and MasterCard by withholding 10 basis points on every transaction that otherwise would have been paid to the banks, and it will also be paid to the class after final approval.
LD: Can you describe how the reforms outlined in the settlement will benefit merchants?
CW: The reforms that have been gained by this litigation have completely transformed the payment card industry. If one looks back to 2005, before this case was commenced, the nation's largest banks had maintained Visa and MasterCard virtually unscathed through two decades of litigation. The joint venture structure of both Visa and MasterCard remained, and because of that the banks were able to collude on everything from the fees they charge merchants, to the rules that severely limited merchant options to try to exert competitive pressures on Visa and MasterCard. After we commenced this litigation, but before the final settlement, the class had already achieved a significant reform when both Visa and MasterCard decided to reorganize their businesses to try to avoid further antitrust liability. The banks divested their ownership of Visa and MasterCard, and got out of the business of running those payment card networks. The banks thought, erroneously as it turned out, that this reorganization would save them in our case.
Now Visa and MasterCard are owned by public shareholders who have significantly different economic incentives than do the banks that issue those cards. In addition, by virtue of the settlement, the remaining anticompetitive rules of Visa and MasterCard will have been eliminated, such that merchants can use transparent pricing at the point-of-sale to try to incentivize their customers to use less costly forms of payment. Based on the experiences we have seen in other countries, we expect that these reforms will lead to lower costs to merchants for acceptance of payment cards.
LD: Can you respond to the objections of the retailer groups opposing the deal, including that the practical effects of the deal may be limited and that it would give Visa and MasterCard too much freedom from future lawsuits? [A New York Times article in August discussed some of the criticisms of the deal.]
CW: The objections of some of the retailer groups to preliminary approval of the settlement fall generally into two areas. First, some argue that the release of claims is overbroad, and that this would permit Visa and MasterCard to engage in new anticompetitive conduct in the future free of the threat of litigation. This is simply not true, and the fact that these objectors have failed to interest the District Court or the Court of Appeals in this issue suggests that it is not a real issue. In fact, as was made clear in the form of the notice approved by the District Court for mailing to class members, nothing in the release would permit Visa and MasterCard to engage in new anticompetitive conduct in the future. The release that has been given in this case is standard in large complex antitrust class-action settlements. The class will make a further demonstration as to the proper scope of the release in our submissions in connection with the motion for final approval. It is important to note, however, that even if a claim that a merchant might want to bring is covered by the release in this case, that does not mean that public law-enforcement agencies, consumers, or competitors of Visa and MasterCard could not bring those claims as well. None of those persons or entities are covered by the release.
The second claim that some of the objectors have made with respect to the settlement is that it does not go far enough in reforming the credit card markets. As class counsel has made clear both in filings with the court, and in other public statements, we have obtained via settlement virtually all of the relief that we could have obtained after a trial before the District Court on injunctive relief. All of Visa and MasterCard's anti-competitive anti-steering rules will be eliminated as a result of the settlement. In addition, small merchants will, for the first time, be able to form buying groups to aggregate their buying power and negotiate for better terms from Visa and MasterCard. It is very telling that none of the objectors have specified a "Plan B," that is a strategy by which they would pursue the litigation to a more successful outcome in any reasonable timeframe. In fact, there is no other strategy that would produce a superior outcome for the class members. This settlement, at this time, is the best the class will ever do in any kind of a settlement with the defendants – or even after a trial on injunctive relief before the District Court. We expect the District Court to so conclude when it grants our motion for final approval.
LD: What is the anticipated impact on consumers?
CW: We expect consumers to benefit significantly from the lower costs that we expect merchants will have to pay for accepting payment cards in the future. The retail industry in the United States is very highly competitive, and economists tell us that in such competitive industries prices to consumers are very close to the marginal costs of the sellers. Since the interchange fees that merchants are charged by the issuing banks are a significant portion of their marginal costs, we expect that consumers ultimately pay most of those costs through higher costs of goods and services they buy. If those payment card acceptance costs paid by merchants decline, we would expect that consumers will benefit. There have been recent studies that show that under the current environment the average household pays over $400 per year in interchange fees. We expect that number to decline.
LD: Was this the most difficult antitrust action you’ve handled, or do any of your past cases rival it?
CW: I have been privileged to handle a number of big, complex antitrust cases over the last 25 years, many involving cutting-edge legal issues, but I think this case was the most difficult. Everything about the case was large, complex, and difficult. And, of course, it has taken over seven years just to get to this point, and we are not yet completely done.
LD: What types of cases will keep you busy in the next few years? What is your firm’s role in the LIBOR cases?
CW: I have another multibillion-dollar case in which I just argued summary judgment motions in December. That case involves allegations that the major firms in the private equity industry colluded in over two-dozen deals to take companies private in what used to be called leveraged buyouts. In LIBOR, our firm is working with a number of victims of the collusion by the LIBOR banks in seeking recompense for their injuries. We have another case in which we represent the Federal Home Loan Bank of Pittsburgh against several major financial institutions and the bond-rating agencies over the fallout from the financial meltdown in 2008. And we have several other matters relating to the financial services industry that we are exploring at the present time. We also represent Best Buy as an opt-out plaintiff in the LCD Antitrust Litigation. Oh, and we are just getting started with cases related to interchange in Canada and in Europe. I have plenty to keep me and my team busy.
LD: What did your learn from your time as special counsel in the Antitrust Division? Was there a concrete benefit to your private practice later?
CW: My time serving as special counsel to the Assistant Attorney General in the Antitrust Division was extremely rewarding. It required me to become immersed in complex antitrust cases all day every day at the very highest level. It was rather like getting an advanced degree in antitrust by having the opportunity to work with some of the most experienced antitrust lawyers in the world. I cannot point to any one thing that I can say was a concrete benefit to my private practice, but I am confident that my experience there made me a better lawyer.
LD: Having been in both positions, what is your view of the level of cooperation between private and government antitrust efforts? Where can there be improvements?
CW: I think there is certainly room for improvement in the level of cooperation between government and private antitrust enforcement efforts. I think there is sometimes an attitude among government antitrust enforcers – who are outstanding lawyers who labor for many years at relatively low pay in the Department of Justice or the Federal Trade Commission – that private practitioners are only motivated by seeking the largest fees they can get. While economic gain is certainly a motivating factor for any lawyer, I find that for many, if not most, of the lawyers that I interact with on a daily basis who are plaintiff’s counsel in big antitrust cases, that we are equally concerned about seeing that justice is done and that the important policies behind antitrust laws are furthered. The government enforcers have extremely limited resources and Congress has recognized the important role of private antitrust enforcement by adopting the treble-damage remedy and the award of attorneys’ fees to prevailing plaintiffs in antitrust cases.
When I was at the Division one of the matters that I was responsible for was the government’s investigation into price-fixing on the NASDAQ stock exchange. There was a parallel private action which benefited greatly from the government’s uncovering of evidence, and I thought our cooperation with those private plaintiffs at the time was very much in the public interest. In that case the class recovered over $1 billion for injured shareholders, and within a matter of months the prices for transacting on the NASDAQ stock exchange fell dramatically as the price-fixing agreement collapsed. Another example of cooperation, only this time going the other way, was in MDL 1720. A few years ago after we had concluded most of our discovery, the Department of Justice served us with a CID (civil investigative demand) seeking the documents we had compiled in the case, the 400 depositions we took, and our work product. After we obtained an order from the court protecting us against an argument that we were waiving our work product privilege, we gladly turned over to the Department of Justice our entire document database and most of our work product, which the Division then used as the basis for their own action against Visa and MasterCard. The Division then obtained a consent judgment against Visa and MasterCard involving some of the same conduct we had challenged.
LD: What led you into antitrust law? Was this an area you had always wanted to practice in?
CW: Even as far back as law school I was very interested in antitrust law. In my first job out of law school I was in-house counsel for a trade association, and my principal exposure to antitrust issues there was writing memoranda to the board of directors reminding them of the things they could not talk about in their board meetings. After I left that job and established my own law firm, I was fortunate enough to find a really interesting case involving a cutting-edge antitrust issue on which I ultimately prevailed after eight hard years of litigation, including one trip to the Court of Appeals. After that case, I found increasing opportunities to direct my practice towards complex antitrust litigation such that in a matter of a few years that was really all I was doing. I consider myself extremely fortunate to have found an area of practice which I enjoy so much and which has enabled me to provide a comfortable living for my family.