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

affiliate of Discover.
    That was that, and it proved to be exceedingly lucky for me. In my unhappy month of representing Visa, I never examined a confidential Visa document, nor did much more than make one trip to Salt Lake City to watch a court argument and one trip to D.C. to talk to the staff at the Antitrust Division and try to defend myself. Had I not been forced out so quickly and stayed long enough to delve into confidential Visa documents, I might not have been able to later represent the merchants in their case against Visa and MasterCard. I became convinced that payment systems antitrust no longer had a place for me. American Express and Discover now hated me. Visa was annoyed that my firm had yanked me almost immediately after my agreeing to represent them. MasterCard? Not after the Rusty Staub’s incident. No way for either side—never!
    Later in 1991, a few months after the Visa/Discover fiasco, I got a call from Ralph Spurgin, the head of a private-label credit card business owned by The Limited, Leslie Wexner’s specialty retail empire. Spurgin, an athletically built owner of Harleys and 12-cylinder cars, had heard me speak about the antitrust implications of various payment industry practices and wanted to discuss one of them. He flew to New York from Columbus, Ohio, and met with me and my law partner Larry Fox.
    Spurgin, a tough guy, was angry about the tying arrangements that forced The Limited to accept Visa and MasterCard debit card transactions because they accepted Visa and MasterCard credit cards. He complained that the price of the debit transactions was the same as for credit cards, with no justification. He also complained that the debit cards were designed to look like credit cards. Spurgin had conducted a test with help from a bank in Minneapolis. The Limited found out that many of the Visa and MasterCard transactions that The Limited assumed were credit, were in fact debit card transactions. The test also showed that this small problem wassteadily getting bigger. Spurgin complained that these signature debit transactions, which cost The Limited roughly $1.50 for a $100 purchase, were displacing cash and check transactions that cost The Limited only a dime or less. The Limited couldn’t say no to these transactions, nor could they even figure out when they were getting these disguised debit cards, except by getting their bank to do an “after the fact” test.
    Spurgin hired me to do an analysis of a potential lawsuit against MasterCard. He and I believed that MasterCard was the weaker of the two associations. It had a much smaller signature debit program and was actively promoting a PIN debit program, and for these reasons, MasterCard was more likely to fold if sued. Larry Fox and I did the analysis and concluded that The Limited had viable antitrust claims against MasterCard.
    After reviewing our analysis, Spurgin wanted to file suit. The Limited’s chief financial officer, Ken Gilman, sent threatening letters to both MasterCard and Visa. He demanded that the associations stop forcing The Limited and its sister stores—Victoria’s Secret, Abercrombie & Fitch, Lane Bryant, Lerner, Bath and Body Works, and Bendels—to accept signature debit transactions and demanded some mechanism for his stores to be able to distinguish the debit cards from the credit cards so they could be rejected.
    Visa and MasterCard both responded that they could and would continue to force these stores to take their debit card transactions. Because Visa and MasterCard credit cards were the primary credit line of most U.S. shoppers, The Limited really had no choice. Spurgin and Gilman wanted to sue. But Leslie Wexner, The Limited’s CEO and principal owner, had reservations. He knew that a lawsuit against Visa and MasterCard was effectively a suit against virtually every U.S. bank. He had a strong relationship with Banc One of Ohio, one of the biggest Visa/MasterCard banks at the time.
    Furthermore, Wexner didn’t