Monday, January 5, 2015
Google's lawsuit against MasterCard Worldwide and Visa Inc. filed Dec. 23, 2014, in an East Texas court is the most recent addition to ongoing disputes between retailers and payment card brands. Recent hostilities can be traced to a class action suit filed in 2005 by a group of large and small merchants seeking restitution from card brands for what they deemed to be exorbitant interchange processing fees.
The case dragged on for years leading up to a 2012 ruling by U.S. District Judge John Gleeson that awarded $7.2 billion to the plaintiffs for excessive processing fees incurred from January 2004 through Nov. 28, 2012. The final settlement was approved in December 2013, at which time the estimated cash payout was reduced by 25 percent due to approximately 8,000 merchants who had opted out of the settlement.
Google is now among the thousands of businesses that rejected the settlement because they were dissatisfied with its terms. Chief among dissenters' complaints were insufficient payout, ambiguous language and lack of protection against future card fee increases.
National Retail Federation President Matthew Shay described the settlement as "deeply flawed," and doing nothing to "curb the anti-competitive behavior of Visa and MasterCard."
Retail Industry Leadership Association Executive Vice President and General Counsel Mallory Duncan claimed that the settlement "undermines merchants' legal rights and fails to restrain Visa and MasterCard's ability to increase swipe fees with impunity, but it also has broad implications on the rights of others in future meritorious class action cases."
Target Corp., Macy's, and Wal-Mart Stores Inc. were among dissenting retailers that filed more than 30 new complaints against the card brands. The Wal-Mart suit alone seeks 5 billion in damages.
Visa and MasterCard have tried unsuccessfully to throw many of these cases out of court due to their substantial similarities to the original class action lawsuit. Judge Gleeson stated that he is legally bound to hear "well-pleaded factual allegations" during the early stages of litigation.
While Google's lawsuit was expected, many payments industry analysts were surprised by the brevity of the document and the Texarkana, Texas, location where it was filed. Google's explanation for filing the lawsuit in East Texas is that "defendants reside in, are found in, have agents in, and/or transact business in this District."
The two-page summary filed by Google Inc. and Google Payment Corp. refers to the original class action suit, stating, "During the January 1, 2004 to November 28, 2012 time period, Plaintiffs were merchants and accepted both Visa and MasterCard credit and debit cards for payment. Accordingly, Google Inc. and Google Payment Corporation have had to pay and have paid Defendants' interchange fees, and have abided by the related restraints imposed on merchants that accept Visa and MasterCard credit and debit cards."
In a show of solidarity with other plaintiffs that opted out from the settlement class, Google went on to allege that Visa and MasterCard had charged "supra-competitive" interchange fees in violation of Section 1 of the Sherman [anti-trust] Act.
The plaintiffs closed their complaint with the following prayer for relief: "WHEREFORE, Plaintiffs pray that this Court enter judgment in favor of Plaintiffs and against each Defendant, and award Plaintiffs their actual damages as well as all other relief which the Court deems just, equitable, and proper."
Many business owners view interchange fees as a commodity, failing to see the value that card brands bring to retailers in the form of security, emerging technologies, and enhanced methods of commerce.
Visa connects thousands of financial institutions to millions of merchants and cardholders every day. The company stated it is committed to improving lives and economies around the world, stating that "from advancing financial inclusion to helping in times of crisis, we're using our products, know-how and philanthropy to bring about positive change."
MasterCard said its ongoing commitment to technology advancement over the last four decades is reflected in many of the company's initiatives to make "the global economy safer, more efficient, more inclusive and more transparent for all."
George Sarantopoulus, Director of Marketing at Brooklyn-based Access One ATM Inc., said he sees some ironies in Google's pre-emptive move against Visa and MasterCard; he expects to see more pre-emptive strikes from retailers seeking alternatives to traditional bankcard pricing models.
"It's pretty ironic when Google, a virtual monopoly, decides to sue MasterCard and Visa, a monopoly in the [credit card] world," Sarantopoulus said. "Google clearly [agrees with] Wal-Mart and other major players that 7.25 billion dollar settlement is inadequate. And they're going to pursue their own legal remedy. Being Google, they will have a clear advantage in the PR and information battle."
Payments industry attorney Marianne Tawa sees more than money as the motivating force behind Google's latest move.
"So many marquis plaintiffs – from Target to Starbucks – have opted out of the class settlement that this suit may seem almost tediously familiar," Tawa said. "But there is something qualitatively different here, something more than just adding yet another name to the growing list of plaintiffs for the simple reason that Google is not just another retailer: it's a company that tried to make a big play in the payments world. So this lawsuit strikes me as being less about seeking compensatory damages than gaining a strategic advantage."
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