Discover Financial Services is seeking $6 billion in damages from an antitrust lawsuit the company filed against Visa Inc. and MasterCard Worldwide in October 2004. The suit followed a United States Supreme Court ruling that the top two card brands violated antitrust laws in limiting the ability of smaller organizations to expand during a period of enormous growth in the payments industry.
The damages, which could be tripled, were included in confidential filings unsealed June 9, 2008, in the U.S. District Court, Southern District of New York (Manhattan).
Discover's allegations go back more than a decade to when the U.S. Justice Department sued Visa and MasterCard on antitrust grounds for preventing their member banks from issuing credit and debit cards on rival networks.
In 2001, the Southern District Court of New York ruled in favor of the Justice Department and ordered both companies to eliminate said rules, allowing Discover and American Express Co. to solicit banks to issue cards on their respective networks. Subsequently, Discover and AmEx sued Visa and MasterCard in federal court, contending that the restrictive rules caused lost revenue and business opportunities.
The government findings indicate Visa and MasterCard "violated antitrust laws, so this case is about damages," said an industry analyst. In doing this, the analyst believes, Visa and MasterCard had market power that harmed competition, and as a result, Discover is after damages from profits that it was never able to realize.
To offset declining share prices since it was spun off in December 2006 by Morgan Stanley, Discover entered the debit card market, while AmEx is processing transactions on cards issued by financial institutions such as Citigroup Inc. and Bank of America Corp.
Unlike the top two card brands, which don't issue cards, Discover and American Express both issue cards and generate income for each transaction processed on their proprietary networks.
In October 2007, Visa agreed to settle with AmEx for $2.25 billion. Experts predict Discover's settlement will likely be for an amount smaller than what the company is asking.
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