Why the Competition Tribunal threw out the Visa-MasterCard case

Share

The question marks that hung over the Competition Tribunal's decision to toss out the high-profile case against Visa Inc. and Mastercard Inc. have finally been answered.

Nearly two months since the ruling, the Tribunal, which hears cases brought forward by the Competition Bureau, has released the detailed reasons as to why it dismissed the case.

The root cause had always been clear. The Bureau argued that Visa and Mastercard violated Section 76 of the Comeptition Act, which deals with "resale price maintenance." (A detailed explanation of this section can be found here .) But after public hearings, the Tribunal believed that the current relationship between credit cards companies and merchants does not involve a resale of services.

The Tribunal elaborated on this point Monday, noting that the arguments made by Jeff van Duynhoven, president of merchant services at Toronto-Dominion Bank, were the most compelling. Mr. van Duynhoven argued that TD, which acts as the middle man between the credit card companies and the merchants, does not simply resell Visa's and MasterCard's services. "The Tribunal found Mr. van Duynhoven, who worked in the Canadian payments industry for approximately 20 years, to be a knowledgeable witness and his evidence was cogent," the ruling said.

Contrarily, Mike McCormack, who rebutted for the Bureau, "made various errors" in his arguments, the ruling said. Mr. McCormack is a managing director of a Florida-based consultancy that specializes in payments, but wasn't as compelling because he "had not listed any Canadian experience on his curriculum vitae and was not as familiar with the Canadian payments industry," the Tribunal said.

But as the Tribunal originally noted, to truly put the case to rest they went on to study it assuming it had merit under the Act. Doing that, they still found once again that it didn't.

The detailed ruling explains why. The allegations made by Melanie Aitken, then the Commissioner of Competition, do not "take sufficient account of the negative competition impacts or the effects on customers," and they do not "address the negative experiences of other countries." (Australia, for instance, allowed surcharging ten years ago, and is now re-writing legislation to rein it in. The average fee that the country's merchants must pay is just 0.81 per cent per transaction, yet Australian taxis now impose a surcharge of 10 per cent on credit card payments.)

The Tribunal also said that it is reluctant to step in because "the law of unintended consequences is likely to be a significant force. It is uncertain that the supposed 'cure' will not be worse than the 'disease.'"

For that reason, the issue was punted to the federal government, even though the Tribunal is normally wary of regulation.

"Given the evidence adduced, it is clear that the proper solution to the legitimate concerns raised by the Commissioner of Competition is going to require a regulatory framework. We are typically reluctant to decline to exercise our discretion in favour of regulation as we agree that generally speaking even very imperfect competition is preferable to regulation," the Tribunal noted. "However, this is an exceptional case and we are convinced that it makes more sense tobegin with a regulatory approach rather than to back into it."

Although the ruling was a stinging defeat for the Bureau, the Tribunal offered some kind words for the effort.

"The Commissioner [Melanie Aitken] advanced a case which should be brought; even if she was not entirely successful. Competition law in Canada will not advance if a Commissioner is afraid to lose cases which ought to be brought. The courage to advance these cases is in the public interest. Gaps in our laws and policy will not be identified or remedied. Canadian competition law will develop more opaquely behind the scenes."

For that reason, no legal costs were awarded to the defendants.