Appendix — MountainWest Financial Corp. v. Visa U. S. A. Inc.

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UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Docket No. 93-4105

Decided Sept. 23, 1994

SCFC ILC, INC., doing business as MountainWest Financial, Inc.,

Plaintiff-Counter-Defendant-Appellee,

¥.

VISA USA, INC.,

Defendant-Counter-Claimant-Appellant,

¥.

SEARS, ROEBUCK AND COMPANY, an Illinois corporation;

SEARS Consumer Financial Corporation an Illinois corporation,

Counterclaim-Defendants-Appellees.

American Bankers Association; Independent Bankers Association of

America; Colorado Bankers Association, Community Bankers

Association of Kansas; Community Bankers Association of

Oklahoma; Independent Bankers of Colorado; Independent

Community Bankers of New Mexico; New Mexico Bankers

Association; Kansas Bankers Association; Utah Bankers Association:

Wyoming Bankers Association; American Automobile Manufacturer

Association, Boulder Technology Incubator; Chevron Corporation;

Corning Incorporated; Pacific Telesis Group; Plasticom Industries,

Inc.; Rmes Communications, Inc.; American Financial Services

Association; Bankcard Holders of America,

Amici Curiae.

Appeal from the

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF UTAH

D.C. No. 91-C-47-B

M. Laurence Popofsky (Stephen V. Bomse, Marie L. Fiala, Renata

M. Sos, Robert G. Merritt, Heller, Ehrman, White & McAuliffe, San

Francisco, California; Dale A. Kimball, Clark Waddoups, Heidi E.C.

Leithead, Kimball, Parr, Waddoups, Brown & Gee, Salt Lake City,

Utah, with him on the briefs), Heller, Ehrman, White & McAuliffe,

San Francisco, California, for appellant Visa USA.

William H. Pratt (Francis M. Holozubiec, Jason Klein, Kirkland &

Ellis, New York City; James D. Sonda, Jeffrey S. Cashdan, Kirkland

& Ellis, Chicago, IL; Kenneth W. Starr, Paul T. Cappuccio, Kirkland

& Ellis, Washington, D.C.; Gary F. Bendinger, Giauque, Crockett &

Bendinger, Salt Lake City, UT, with him on the briefs), Kirkland &

Ellis, New York City, for appellee MountainWest.

Robert H. Bork, Washington, D.C., on the brief for amicus curiae

American Financial Services Ass’n.

A. Douglas Melamed, Randolph D. Moss, Wilmer, Cutler &

Pickering, Washington, D.C.; and Leonard J. Rubin, Bracewell &

Patterson, Washington, D.C., on the brief for amici curiae American

Bankers Ass'n, etc.

E. Thomas Sullivan, Tucson, AZ, on the brief for amicus curiae

Bankcard Holders of America.

Phillip Areeda, on the brief for amici curiae American Automobile

Mfrs. Ass’n., efc.

Before MOORE and SETH, Circuit Judges, and DAUGHERTY,

District Judge. *

* Honorable Frederick A. Daugherty, Senior District Judge for the

United States District Court for the Western District of Oklahoma,

sitting by designation.

JOHN P. MOORE, Circuit Judge.

Visa USA provides payment services to its 6,000 members

which individually issue credit cards to consumers. Sears, Roebuck

and Company, a competitor offering its own credit card, the Discover

Card, wanted to become a Visa USA member and also issue Visa

cards. The question presented by this case is whether Visa USA’s

refusal to admit Sears to its joint venture restrains trade in violation

of section 1 of the Sherman Act, 15 U.S.C. § 1. Rejecting Visa

USA’s legal and factual challenges to the jury’s adverse verdict, the

district court found the evidence of exclusion constituted antitrust

injury and harm to competition. SCFC ILC, Inc. v. Visa U.S.A., Inc.,

819 F. Supp. 956, 990 (D. Utah 1993). We conclude, however, the

exclusion does not trigger section | liability and reverse.

I. Background

As set forth more extensively in the district court’s order, the

factual background of this dispute encompasses the history of the

general purpose credit card industry. What is known today

“everywhere you want to be” as Visa has evolved over the last forty

years from direct extensions of credit for a single purpose; for

example, oil company or department store credit cards, to a “charge

card which could be used for general purposes at a wide variety of

retail establishments.” Jd. at 963 n.2. The resulting card was offered

without geographic restrictions under the neutral trademark, Visa.

Now, to its approximately 6,000 associates, Visa USA,’ the

umbrella organization, provides technology to process credit card

transactions and regulates and coordinates the individual programs

through rules and bylaws proposed by management and adopted by

a board of directors (the Board).? The bylaws cover a range of issues:

In this opinion, Visa USA designates the joint venture named as

the defendant. We refer to its credit cards simply as Visa.

2 The Visa USA Board draws its members from twelve designated

regions, each electing a representative, generally a bank’s chief executive

officer or chief operating officer. Based on a formula, larger regions may

have a second board seat. Seven directors are elected nationally, and a

separate seat is reserved for a director who represents small banks. Citicorp

accra a i

members’ liability, termination, and confidentiality, to name a few.

However, since its inception, each Visa USA member independently

decides the terms and conditions of credit extensions, the number of

cards issued, and the interest rates charged. That is, individual banks

establish, operate, and promote their own credit card programs under

the Visa aegis, while Visa USA serves as a clearinghouse for the

ultimate transaction between issuer, consumer, and merchant. The

fees members pay to Visa USA for its services vary according to a

formula established by the association.

Any financial institution which is eligible for federal deposit

insurance may become a Visa USA member. Among its current

membership are Citicorp, Ford Motor Company, General Electric,

and ITT. Althqugh the membership was originally restricted to

exclusively issuing Visa cards, a challenge to the bylaw prohibiting

members from issuing MasterCard forced Visa USA to withdraw the

rule. See Worthen Bank & Trust Co. v. National BankAmericard,

Inc., 345 F. Supp. 1309 (E.D. Ark. 1972), rev'd, 485 F.2d 119 (8th

Cir. 1973), cert. denied, 415 U.S. 918, 94 S.Ct. 1417, 39 L.Ed. 2d 473

(1974). Consequently, Visa USA members now generally offer both

Visa and MasterCard, a practice referred to in the industry as duality.

Prior to its entry into the general credit card arena, Sears’

mustered a bankcard steering committee to investigate the

alternatives of developing its own general purpose charge card or

joing the Visa USA/MasterCard association. In 1985, Sears

introduced the Discover Card, its own proprietary card, one “owned

and distributed solely by a single business entity,” 819 F. Supp. at

963 n.3., to be marketed and issued nationally. This entry was

has its own seat on the board based on the rule of automatic appointment to

any member with more than ten percent of the total volume of outstanding

cards. MasterCard board members are not permitted to sit on the Visa USA

board.

. Sears, Roebuck and Company is the parent corporation of Sears

Consumer Financial Corporation and Dean Witter Financial Services Group,

its wholly owned subsidiaries. Sears’ counsel informed the court during oral

argument that Dean Witter then owned plaintiff MountainWest. However,

the designation Sears in this opinion collectivizes plaintiff bank and the

Sears entities involved in the litigation.

i ee ae oN ae

i llth ha, eT ln past

er ee)

intended to compete with Visa, MasterCard, American Express, and

Citibank’s Diners’ Club/Carte Blanche, the only other national

proprietary cards. Despite Visa USA’s aggressive efforts to thwart

its new rival, id. at 963, Discover succeeded with such innovations as

preapproved, no fee cards offering cash back bonuses to cardholders

and deeper discounts to merchants. In fact, at the time of this

litigation, Sears was the largest individual issuer of credit cards in

terms of the number of cards distributed and the second largest,

following Citicorp, in credit card receivables volume.* To compete

with the Visa Gold Card and American Express Optima Card, Sears

also introduced an upscale Discover Card called Prime Issue.

Another Sears’ entity, Sears Payment Services (SPS), assists other

companies in operating their credit card programs.

In 1988, Greenwood Trust Company, a Sears-owned Delaware

bank which issues Discover Card, applied for membership in Visa

USA, prompting the Board to adopt the bylaw which is the genesis

of this antitrust litigation. The amendment to the Board rule, Bylaw

2.06, stated:

Notwithstanding (a) above, if permitted by applicabie law,

the corporation shall not accept for membership any applicant

which is issuing, directly or indirectly, Discover cards or

American Express cards, or any other cards deemed competitive

by the Board of Directors; an applicant shall be deemed to be

issuing such cards if its parent, subsidiary or affiliate issues such

cards.

Subsequently, the Board denied Greenwood Trust’s application to

Visa USA.

In 1990, the Resolution Trust Corporation sold Sears the assets,

including the Visa USA membership, of Mountair.West Savings and

Loan Association, a bankrupt savings and loan in Sandy, Utah. Sears

then created a new entity, SCFC ILC, Inc., doing business as

MountainWest Financial, by merging the Sandy bank with Basin

Loans, a Utah Industrial Loan Company.

‘ In 1991, approximately 24 million Discover cards had been

issued, while Citicorp had approximately 21 million cards in the market.

ia iii iti

Through this vehicle, Sears was poised to inaugurate a national

Visa program it dubbed the Prime Option card, a charge card

featuring a two-tiered interest rate, 9.9% for the first two months and

15.9% thereafter. To this end, Sears moved Discover’s top

executives to Prime Option and ordered an initial printing of 1.5

million Prime Option Visa cards. However, upon inadvertently

discovering the plan, Visa USA cancelled the printing and invoked

Bylaw 2.06 to exclude Sears from the association. Sears then

instituted this antitrust litigation.

II. Fed. R. Civ. P. 50(b) Review

In this appeal, Visa USA contends Sears has failed to carry its

burden of showing Visa USA’s conduct was harmful to competition

in violation of section 1. Indeed, Visa USA underscores, the district

court conceded had it tried the facts, it “would have concluded that

the harm to competition from letting Sears into the Visa system is

greater than any harm from keeping Sears out.” 819 F. Supp. at 983.

Sears, however, urges this fact-intensive case persuaded the jury that

preventing consumers acccss to the Prime Option card and destroying

nvals’ incentives to develop new proprietary cards harmed

competition.

Nonetheless, we focus only on those relevant antitrust facts,

which, when viewed most favorably to Sears, underpin our plenary

review under Fed. R. Civ. P. 50(b). In the context of this case, if

there is evidence upon which a jury could properly find Visa USA

restrained trade, we must affirm. 5A J. Moore & J. Lucas, Moore's

Federal Practice © 50.07[2], at 50-76 (2d ed. 1994). Naturally, we

do not weigh the credibility of the evidence when reviewing the

record. However, if the evidence is insufficient “under the

controlling law,” Fed. R. Civ. P. 50(a), we must enter judgment as a

matter of law for the moving party.

Having stated its contrary view, but reluctant to substitute its

judgment for that of the jury, the district court articulated those facts

which it opined could become the basis for judgment:

1. Testimony of Sears’ expert, Professor James Kearl, on the

appropriateness of calculating Visa USA’s market power

by aggregating the individual market shares of Visa USA

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and MasterCard; and his conclusion that Visa USA

exercised market power through its collective power to

make rules; and testimony about the “presence of high

profits.”

2. Dean Witter’s president, Phillip Purcell’s testimony had

Sears known that developing the Discover Card would

disqualify it from Visa USA entry, it would not have

placed a new proprietary card in the market.

3. Testimony that no new proprietary cards had been

introduced in the relevant market since Bylaw 2.06 was

enacted although memberships in Visa USA and

MasterCard increased.

4. Testimony that Prime Option “would be a low-cost card

which would be supported by powerful marketing and

advertising strategies on a national level.” 819 F. Supp. at

986-87.

5. Testimony by Sears’ executives that Discover Card, in the

face of Prime Option’s entry, would remain an aggressive

competitor.

6. Testimony that intersystem competition will not be harmed

“because Prime Option Visa was designed to reach that

part of the market that Discover does not reach.” Jd. at

987.

7. Testimony that “Sears would benefit significantly from

issuing Prime Option Visa as opposed to Prime Option

Discover or another separate proprietary card.” Jd.

This evidence, which the district court found sufficient to

impose section | liability, however, must be placed in the specialized

province of antitrust law and section 1. We do so fully recognizing

both the evolving legal precedent and the objectives of antitrust

regulation: “to improve people’s lives . . . [through] economic

efficiency . . . more efficient production methods . . . [and] through

increased innovation.” Stephen Breyer, The Cutting Edge of

Antitrust: Lessons from Deregulation, 57 Antitrust L.J. 771 (1989).

That antitrust objectives often collide with these goals simply

reminds us “[a]ntitrust is an imperfect tool for the regulation of

competition.” Frank H. Easterbrook, The Limits of Antitrust, 63 Tex.

L. Rev. 1, 39 (1984).

YI. Joint Ventures and Section I

Section 1 forbids agreements in restraint of trade.° Read

costively, Section 1 might prohibit “every conceivable contract or

combination . . . anywhere in the whole field of human activity.”

Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 60, 31 S.Ct.

502, 516, 55 L. Ed. 619 (1911). However, “the ‘rule of reason’ limits

the Act’s literal words by forbidding only those arrangements the

anticompetitive consequences of which outweigh their legitimate

business justifications.” Clamp-All Corp. v. Cast Iron Soil Pipe Inst.,

851 F.2d 478, 486 (Ist Cir. 1988) (citing 7 P. Areeda & D. Turner

Antitrust Law 4 1500, at 362-63 (1978)), cert. denied, 488 U.S. 1007

(1989). Hence, when we ask if a particular practice is “reasonable”

or “unreasonable,” or if the practice is “anticompetitive,” we use

these terms with special antitrust meaning reflecting the “Act’s basic

objectives, the protection of a competitive process that brings to

consumers the benefits of lower prices, better products, and more

efficient production methods.” /d. at 486. In this lexicon, a practice

ultimately judged anticompetitive is one which harms competition,

not a particular competitor. Brunswick Corp. v. Pueblo Bowl-0-Mat,

Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 697, 50 L.Ed.2d 701, cert.

denied, 429 U.S. 1090, 97 S.Ct. 1099, 51 L.Ed.2d 535 (1977); Brown

Shoe Co. v. United States, 370 U.S. 294, 319-20, 82 S.Ct. 1502,

1521-21, 8 L.Ed.2d 510 (1962).

Of course, reasonability is of no consequence when certain

practices, for example, price fixing, are entirely void of redeeming

competitive rationales. These we deem per se illegal under section !,

no offsetting economic or efficiency justifications salvaging them.

“This per se approach permits categorical judgments with respect to

certain business practices that have proved to be predominantly

anticompetitive.” Northwest Wholesale Stationers, Inc. v. Pacific

In part, section | states, “Every contract, combination in the form

of trust or otherwise, or conspiracy, in restraint of trade or commerce among

the several States, or with foreign nations, is declared to be illegal.”

——

PO RI aS Mitt Yorker se, a tae He,

Stationery & Printing Co., 472 U.S. 284, 289, 105 S.Ct. 2613, 2617,

86 L.Ed.2d 202 (1985).

The sharp line between per se and rule of reason analysis,

however, especially blurs under section 1 when the actors change. In

the case of a joint venture, present here in the Visa USA association,

competitive incentives between independent firms are intentionally

restrained and their functions and operations integrated to achieve

efficiencies and increase output. See Joseph F. Brodley, Joint

Ventures and Antitrust Policy, 95 Harv. L. Rev. 1523, 1524 (1982).

Although virtually any collaborative activity among business firms

may be called a joint venture, joint ventures differ from mergers and

cartels

by the extent to which they integrate the resources of their

partners. A cartel constitutes a naked agreement among

competitors unaccompanied by any integration of

resources. In a joint venture, partners contribute assets,

such as, capital, technology, or production facilities to a

common endeavor. This integration of resources creates

economic efficiencies that cannot be achieved by naked

agreements among competitors. Indeed, the efficiencies

created by joint ventures are similar to those resulting from

mergers—trisk-sharing, economies of scale, access to

complementary resources and the elimination of

duplication and waste. Joint ventures, however, differ from

mergers in a critical way: because they are less integrated

than mergers, they allow their partners to continue to

compete with each other in the relevant market.

Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason or Merger

Analysis: A New Antitrust Standard for Joint Ventures, 76 Minn.

L.Rev. 1, 7 (1991) (italics added). The whole becomes greater than

the sum of its parts. However, at its center remains an agreement

among competitors to eliminate competition in some way.

The Supreme Court has recognized this tension in its evolving

treatment of allegedly anticompetitive agreements by joint ventures.

In Broadcast Music, Inc. v. Columbia Broadcasting, Inc., 441 U.S.

1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) (BMJ), the Court refused to

condemn under a per se analysis blanket licenses which amounted to

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price fixing among the participants. The joint venture, the American

Society of Composers, Authors and Publishers (ASCAP), was created

as a clearinghouse through which individual music copyright owners

licensed their compositions, and ASCAP then monitored the use of

their work. Virtually all participants in the copyright music market

participated in ASCAP. However, eschewing per se treatment, the

Court acknowledged, “Joint ventures and other cooperative

arrangements are also not usually unlawful, at least not as price-

—~ fixing schemes, where the agreement on price is necessary to market

the preduct at all.” /d. at 23,99 S. Ct. at 1564. Viewed in this light,

the efficiency justification of increasing the aggregate output in the

market rendered the agreement procompetitive.

Similarly, in NCAA v. Board of Regents of Univ. of Okla., 468

U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984), the Court held

inappropriate the application of per se treatment to the NCAA’s

horizontal price fixing and output limitation of the number of games

college football teams could negotiate to televise. Again the Court

recognized the horizontal restraint on competition was essential to

make the product available at all. /d at 101, 104 S.Ct. at 2960.

Under a rule of reason analysis, however, the rule decreased output

and had the effect of increasing prices. While cooperation may be

necessary and justified, the Court suggested it fit a different mold,

such as, “rules defining the condition of the contest, the eligibility of

participants, or the manner in which members of a joint enterprise

shall share the responsibilities and the benefits of the total venture.”

Id. at 117, 104 S.Ct. at 2969.

Finally, in Northwest Wholesale Stationers, 472 U.S. at 284, 105

S.Ct. at 2613, the Court looked at the economic efficiency

justifications of a joint purchasing cooperative to determine the

anticompetitive effect of its expelling a member who did not comply

with one of the cooperative’s rules. Rejecting per se condemnation,

the Court suggested the disclosure rule which excluded plaintiff from

membership might be necessary to monitor the creditworthiness of

the cooperative’s members. “Wholesale purchasing cooperatives

must establish and enforce reasonable rules in order to function

effectively. .. . Unless the cooperative possesses market power or

exclusive access to an element essential to effective competition, the

conclusion that expulsion is virtually always likely to have an

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anticompetitive effect is not warranted.” Jd. at 296, 105 S.Ct. at

2620-21 (citations omitted).

In rejecting automatic per se treatment in these joint venture

cases,° the Court directs us instead to look at the challenged

agreement to judge whether it represents the essential reason for the

competitors’ cooperation or reflects a matter merely ancillary to the

venture’s operation; whether it has the effect of decreasing output;

and whether it affects price. Underlying these cases is an effort to

appreciate the economic reality of the particular business behavior to

assure that the procompetitive goals, in fact, are neither undervalued

nor mask a reduction in competition. Key to the analysis of “the

competitive significance of the restraint,” NCAA, 468 U.S. at 103,

104 S.Ct. at 2961 (quoting National Soc'y of Professional Eng'r v.

United States, 435 U.S. 679, 692, 98 S.Ct. 1355, 1365, 55 L.Ed.2d

637 (1978)), is the Court’s appreciation that the horizontal restraint

may be essential to create the product in the first instance. That

understanding properly values the proprietary nghts and incentives

for innovation embodied by the joint venture as well as concerns

about free-riding, “the diversion of value from a business rival’s

efforts without payment.” Chicago Professional Sports Ltd

Partnership v. NBA, 961 F.2d 667, 675 (7th Cir.), cert denied,

_US.__,113S. Ct. 409, 121 L.Ed.2d 334 (1992).

We do not read the Court’s precedent involving joint ventures

to imply any special treatment or differing antitrust analysis.’ Indeed,

aside from clarifying the inappropriateness of automatically invoking

per se scrutiny of a joint venture’s alleged antitrust violation, the

Court has not articulated a different rule of reason approach. Thus,

under the Court’s precedent, cooperative business activity in one

setting may permit its participants to achieve market efficiencies or

6 BMI, NCAA, and Northwest Wholesale Stationers are emblematic

and not intended to be all inclusive or exhaustive of the extant Supreme

Court precedent on joint ventures under section |

We would note, however, some of the commentary on the

antitrust treatment of joint ventures suggests a different approach. See, e.g.,

Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason Or Analysis: A New

Antitrust Standard for Joint Ventures, 76 Minn. L. Rev. 1 (1992); Joseph F.

Brodley, Joint Ventures and Antitrust Policy, 95 Harv. L: Rev. 1523 (1982).

12a

economies of scale, while in another, a similar activity might run

afoul under rule of reason review.

Again, in the context of section 1, the focus of the

procompetitive justifications for the business practice remains the

ultimate consumer. To be judged anticompetitive, the agreement

must actually or potentially harm consumers. Stamatakis Indus., Inc.

v. King, 965 F.2d 469 (7th Cir. 1992). That concept cannot be

overemphasized and is especially essential when a successful

competitor alleges antitrust injury at the hands of a rival. Indeed,

“{w]henever producers invoke the antitrust laws and consumers are

silent, this inquiry becomes especially pressing.” Chicago

Professional Sports, 961 F.2d at 670.

IV. Market Power

Rule of reason analysis first asks whether the offending

competitor, here Visa USA, possesses market power in the relevant

market where the alleged anticompetitive activity occurs. The

answer to that question may end the suit or permit an abbreviated rule

of reason inquiry.

Broadly, market power is the ability to raise price by restricting

output.* “[I}]n economic terms [it] is the ability to raise price without

a total loss of sales.” 2 P. Areeda & D. Turner, Antitrust Law § 501,

at 322 (1978). Without market power, consumers shop around to

find a rival offering a better deal. Indeed,

if we accept the notion that the point of antitrust is

promoting consumer welfare, then it is clear why the

concept of market power plays such a prominent role in

antitrust analysis. If the structure of the market is such that

there is little potential for consumers to be harmed, we

need not be especially concerned with how firms behave

because the presence of effective competition will provide

a powerful antidote to any effort to exploit consumers.

The 1984 Department of Justice Merger Guidelines define market

power as “[t]he ability of one or more firms profitably to maintain prices

above a competitive level for a significant period of time.” U.S. Dept. of

Justice Merger Guidelines (1984), reprinted in 4 Trade Reg. Rep. (CCH) 4

13,103 at 20,556.

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George A. Hay, Market Power in Antitrust, 60 Antitrust L.J. 807, 808

(1992) [hereinafter Market Power}.

Consequently, whether a firm possesses market power may

facilitate the determination that the practice harms competition and

not simply a single competitor. Proof of market power, then, for

many courts is a critical first step, or “screen,” or “filter,”? which is

often dispositive of the case. Valley Liquors, Inc. v. Renfield

Importers, Ltd., 822 F.2d 656, 666-67 (7th Cir.), cert. denied, 484

U.S. 977, 108 S.Ct. 488, 98 L.Ed.2d 486 (1987). If market power is

found, the court may then proceed under rule of reason analysis to

assess the procompetitive justifications of the alleged anticompetitive

conduct. National Bancard Corp. (NaBanco) v. Visa, U.S.A., 779

F.2d 592, 603 (11th Cir.), cert. denied, 479 U.S. 923, 107 S.Ct. 329,

93 L.Ed.2d 301 (1986).

While this approach is “the norm under Section 2 of the

Sherman Act, where a firm cannot be found liable unless it has

achieved monopoly power or there is a dangerous probability of its

doing so,” Market Power, at 808, this two-step analysis has becorne

equally helpful under section 1.'° See, e.g., Rothery Storage & Van

Co. v. Atlas Van Lines, Inc., 792 F.2d 210 (D.C. Cir. 1986), cert.

denied, 479 U.S. 1033, 107 S.Ct. 880, 93 L.Ed.2d 834 (1987); Ball

% These screens or filters are presumptions in antitrust analysis.

They “help to screen out cases in which the risk of loss to consumers and the

economy is sufficiently small that there is no need of extended inquiry and

significant risk that inquiry would lead to wrongful condemnation or to the

deterrence of competitive activity as firms try to steer clear of the danger

zone.” Frank H. Easterbrook, The Limits of Antitrust, 63 Tex. L. Rev. 1, 17

(1984). These “simple rules { ] will filter the category of probably-

beneficial practices out of the legal system, leaving to assessment under the

Rule of Reason only those with significant nsks of competitive injury.” /d.

10 Again, we recognize the overlaps in analysis between section |

and section 2 cases as did the district court. Nevertheless, the differences

must be underscored, the former involving conduct that doesn’t alter market

structure; the latter, “a pernicious market structure in which the

concentration of power saps the salubrious influence of competition.”

Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 272 (2d Cir. 1979),

cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980).

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Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325 (7th

Cir. 1986).

The market power query begins with the determination of the

relevant market, “that is, a market relevant to the legal issue before

the court.” P. Areeda & H. Hovenkamp, Antitrust Law § 518.1c, at

535 (Supp. 1993) [hereinafter 1993 Supplement]. “The ‘market’

which one must study to determine when a producer has monopoly

power will vary with the part of commerce under consideration. The

tests are constant. That market is composed of products that have

reasonable interchangeability for the purposes for which they are

produced—price, use and qualities considered.” United States v. E.1.

du Pont de Nemours & Co., 351 U.S. 377, 404, 76 S.Ct. 994, 1012,

100 L.Ed. 1264 (1956). We also look to the geographic reach of the

group of sales or sellers to determine the relevant market. Brown

Shoe Co. v. United States, 370 U.S. 294, 324, 82 S.Ct. 1502, 1523,

8 L.Ed.2d 510 (1962). Further, “[b]ecause the ability of consumers

to turn to other suppliers restrains a firm from raising prices above

the competitive level, the definition of the ‘relevant market’ rests on

a determination of available substitutes.” Rothery Storage, 792 F.2d

at 218.

To define a market in product and geographic terms is to

say that if prices were appreciably raised or volume

appreciably curtailed for the product within a given area,

while demand held constant, supply from other sources

could not be expected to enter promptly enough and in

large enough amounts to restore the old price and volume.

Id. (quoting L. Sullivan, Antitrust § 12, at 41 (1977)).

Although these concepts provide a shorthand for rule of reason

analysis, we would be amiss to imply their application is necessarily

facile. Each may be problematic:

There is no subject in antitrust law more confusing

than market definition. One reason is that the concept, even

in the pristine formulation of economists, is deliberately an

attempt to oversimplify—for working purposes—the very

complex economic interactions between a number of

differently situated buyers and sellers, each of whom in

lSa

reality has different costs, needs, and substitutes. Further,

when lawyers and judges take hold of the concept, they

impose on it nuances and formulas that reflect

administrative and antitrust policy goals. This adaption is

legitimate (economists have no patent on the concept), but

it means that normative and descriptive ideas become

intertwined in the process of market definition.

United States Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589,

598 (1st Cir. 1993). By defining the relevant market, however, we

identify the firms that compete with each other. Plugged into the

market power inquiry, we may then determine whether the alleged

anticompetitive activity restrained trade, that is, raised price or

reduced output.

V. Issuer Market

This case illustrates both the utility and difficulties of the market

power tool. In this lawsuit, Sears and Visa USA stipulated “the

relevant market is the general purpose charge card market in the

United States.” 819 F. Supp. at 966. Presently, the only participants

in this market are Visa USA, MasterCard, American Express,

Citibank (Diners Ciub and Carte Blanche), and Sears (Discover

Card). Competition among these five firms to place their individual

credit cards into a consumer’s pocket is called intersystem.

“Interbrand competition is the competition among the manufacturers

of the same generic product .. . and is the primary concern of

antitrust law.” Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S.

36, 52 n.19, 97 §.Ct. 2549, 2558 n.19, 53 L.Ed.2d 568 (1977).

In its complaint, Sears alleged the amendment to Bylaw 2.06

represented a concerted refusal to deal which unreasonably restrained

trade in the general purpose charge card market. The parties agreed,

and the testimony clearly established that in this relevant market

competition occurs only at the issuer level. That is, to the extent that

Visa USA is in the market, it operates in the systems market, not the

issuer market. Its members issue cards, competing with each other

to offer better terms or more attractive features for their individual

credit card programs. This is intrasystem competition.

16a

The issuer market, thus, remains atomistic, each issuer financial

institution, bank, or other entity being independent from another."'

Although Sears does not dispute this characterization of the market,

it contends it attempted to iaunch its Prime Option program under the

Visa aegis to “compete more effectively” at the issuer level. By

offering multiple credit cards, Discover and Prime Option Visa, Sears

contended it would then “strengthen competition.”

If the general credit card issuer market is the relevant market,

however, the evidence the district court relied upon to deny the Rule

50(b) motion belies Sears’ contention and calls into question the

definition of relevant market the court apparently adopted. First, the

district court recounted the market shares of each intersystem

competitor: “Visa was estimated to possess 45.6% of the nationwide

general purpose charge card market; MasterCard, 26.4%, American

Express, 20.5%; Discover Card, 5.5%; and Diners Club, 2.0%.” 819

F. Supp. at 966 (footnote omitted). Within Visa USA’s intersystem

share, aggregated to :nclude MasterCard issuers as well, the district

court noted the evidence showed “in 1991 the ten largest issuers of

Visa and MasterCard accounted for approximately 48% of the total

Visa/MasterCard charge volume. The top-ten issuers were Citicorp,

First Chicago, AT&T, Chase Manhattan, MBNA America, Bank of

America, Nationsbank, Chemical Bank, Banc One, and Wells Fargo

Bank. The largest issuer, Citicorp, accounted for approximately

$42.5 billion in charge volume in 1991-representing approximately

15.8% of the Visa/MasterCard market and 11.4% of the entire

general purpose charge card market.” /d. at 966 n.8.

While these raw figures may suggest Visa USA possesses

market power in the intersystem market, the parties have established

a different paradigm. By their agreement, the context of this case

was intended to focus on the issuance of credit cards as the relevant

market. Indeed, that is the market the district court defined for the

Although approximately 6,000 financial institutions separately are

issuers in the association, setting fees, interest rates, and other conditions,

approximately 19,000 “participating members” offer cards under their own

names and utilize the services of their issuing bank. Robert E. Litan,

Consumers, Competition, and Choice, The Impact of Price Controls on the

Credit Card Industry, March 1992.

17a

jury. To determine, therefore, whether Visa USA possesses market

power, we must compare issuers, the point where both Sears and Visa

USA agreed they compete. At that level, testimony from both Sears

and Visa experts established Discover Card is the second largest

issuer preceded only by Citicorp in terms of charge volume, that is,

what consumers owe on their credit cards.

Based on the district court’s figures, Citicorp’s charge volume

represented about 15.8% of the Visa/MasterCard market share,

aggregated at 72% of the general purpose credit card market. If we

compare issuers’ charge volume, our calculations demonstrate

Citicorp’s is 21.9% in the relevant market, while that of Sears

Discover Card is 5%. Neither figure reflects at the issuer level that

Visa USA through its members possesses market power.

Nevertheless, Sears’ expert, Dr. James Kearl, upon whom the

district court relied to conclude the evidence was sufficient to

establish Visa USA’s market power, explained he looked at the

collective, aggregated shares of Visa and MasterCard, because “we

have a collective rule, bylaw 2.06 . . . 1 found that the collective share

was very large, and as a consequence my conclusion was that the

collective rule was an exercise of market power.” (italics added). Dr.

Kearl opined the association members

have both incentive and the ability to exercise that market

power. They have the incentive because this market share

was large and they want to protect that market share. And

they also had the incentive because since this is large, if

they can keep prices up or from falling they can make a lot

of money.

(italics added).

Second, despite the stipulation on the relevant market, “the

market relevant to the legal issue before the court,” /993 Supplement,

at 535, the testimony reflects that Sears, in fact, sought to expand its

competition not specifically in the general purpose credit card market

but in a segment of that market represented by financial institutions

or banks. For example, Sears’ executive, William O’Hara, stated,

“We were trying to compete in that segment of the general purpose

credit card market called the bank association segment.” (emphasis

18a

added.) Visa USA’s witness, Richard Rosenberg, explained he voted

for Bylaw 2.06, believing that because a non-bank like Dean Witter

did not have to comply with certain requirements imposed on banks

like the Community Reinvestment Act, Sears would have a

competitive advantage over its bank rivals.

Indeed, albeit the stipulation, as the trial progressed, the

“relevant market” devolved into Visa USA's share of the defined

market. Thus, the legal issue was transformed, equating exclusion

from Visa USA to exclusion from the market.'* The evidence,

however, does not support this mutation. The district court

recognized five active rivals presently compete at the intersystem

level. Of that market, for example, Citicorp represents 21.9%,

American Express 20.5%, and Sears 5%. At the issuer level, where

intrasystem competition occurs, the court found, and the parties’

experts agreed, the market is remarkably unconcentrated.'’ Given the

wide range of interest rates and terms offered by various issuers and

Sears’ recognized intersystem strength, we are at a loss to find the

evidence to support the district court’s contrary conclusion.

From this standpoint, even if Visa USA possesses market power,

Dr. Kearl’s testimony that Visa USA exercised that market power in

its ability to make collective rules misses the point in the context of

joint ventures. “A joint venture made more efficient by ancillary

restraints, is a fusion of the productive capacities of the members of

'2 This revision of the market distinguishes this case from Reazin v.

Blue Cross Blue Shield of Kan., 899 F.2d 951 (10 Cir.), cert. denied, 497

U.S. 1005, 110 S.Ct. 3241, 111 L.Ed.2d 752 (1990), upon which Sears

relies.

'3 Ironically, the district court rejected Visa USA’s argument that

the present market is highly concentrated, such that admitting Sears would

constitute a violation of section 7 of the Clayton Act. After discussing the

Herfindahl-Hirschman Index (HHI), which is used to determine market

concentration, the district court rejected Visa USA’s aggregation of market

shares, stating “the court agrees with Visa’s expert Professor Schmalensee

that each individual issuer of Visa and MasterCard cards should be included

in the HHI analysis, resulting in a system HHI of below 500.” SCFC /LC,

Inc. v. Visa U.SA., Inc., 819 F. Supp. 956, 994 (D. Utah 1993). This figure

represents an unconcentrated market.

19a

the venture.” Rothery Storage, 792 F.2d at 230. The very existence

of a joint venture in the first instance is premised on a pooling of

resources to affect competition in some manner and is made

functional through some form of cooperative behavior or rule-

making. However, the Court has made clear, as previously discussed,

cooperative conduct alone is not prohibited.

Hence, it is not the rule-making per se that should be the focus

of the market power analysis, but the effect of those rules—whether

they increase price, decrease output, or otherwise capitalize on

barriers to entry that potential rivals cannot overcome. Although Dr.

Kearl testified “if they can keep prices up or from falling they can

make a lot of money” to support his conclusion Visa USA possesses

market power, there was no evidence that price had been increased,

output had decreased, or other indicia of anticompetitive activity had

occurred.

Thus, without any eye on effect, the very exercise of rule-

making became the factual basis for rule of reason condemnation of

Bylaw 2.06. Consequently, rule-making was not only divorced from

its functional analysis but also from the facts of the case. “When an

expert opinion is not supported by sufficient facts to validate it in the

eyes of the law, or when indisputable record facts contradict or

otherwise render the opinion unreasonable, it cannot support a jury’s

verdict.” Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp.,

_US_, __,113S. Ct. 2578, 2598, 125 L.Ed.2d 168 (1993). In this

complex area, the Court cautioned, “Expert testimony is useful as a

guide to interpreting market facts, but it is not a substitute for them.”

Id.

We believe the evidence cited by the district court to conclude

Visa USA possessed market power is insufficient as a matter of law.

Although the district court did not end its rule of reason inquiry upon

that finding, the conclusion set the path for its uncharted journey

upon a landscape of speculation, conjecture, and theoretical harm.

The consequence is the finding of liability based on tendentious and

conclusory statements, none of which amounts to evidence of

restraint of trade.'*

In particular, Sears, disincentive argument provides the widest

array of speculation and raises concerns about its standing to represent the

20a

VI. Efficiency Justifications

We therefore return to the two-step analysis previously

discussed to assess the procompetitive justifications of Bylaw 2.06 to

counteract Sears’ allegation the restraint is unreasonable. Visa USA

maintained it instituted Bylaw 2.06 to protect its property from

intersystem competitors who otherwise would enjoy a free ride at this

time of entry. Its general counsel, Bennett Katz, described

technological advancements Visa USA achieved and incentives for

innovation to system-wide competition generated. In a letter

informing Sears of the Board’s action, he stated, “As I indicated to

you by phone, we believe that intersystem competition should be

preserved and enhanced; membership by Greenwood Trust Co.

would have the opposite effect.” Describing the industry as small,

“we only have three basic competitors .. . Visa and MasterCard . . .

American Express and Discover,” Katz expressed concern about

government regulation if the existing competition diminished or Visa

USA became too large.'* In addition, there was testimony that after

duality was permitted, MasterCard and Visa competed less

aggressively, consumers regarding the two cards often as

interchangeable. Other witnesses expressed concern, for example,

about Sears’ threat to their own profits; the effect a big player like

Sears would have on the many small banks that compete in the Visa

USA association; and Sears’ likely ability to become a Board

member and privy to confidential information.

Against these justifications, Sears offered testimony about a

two-stage strategy in which it had always planned to enter the market

first with its Discover Card and then with a low-cost Visa card; that

marketing the Prime Option card as a Discover Card program would

not meet the objectives of “Sears’ branding strategy,” and that

consumers would be harmed by being denied the opportunity to

select a Prime Option Visa card from the possible choices in the

general charge card market. Broadly, Sears promised a low-cost,

supposed injury of others hoping to start up proprietary charge cards.

Nevertheless, the parties each shared in charting the court’s terrain.

In tesumony, Katz explained, not only was Justice Department

scrutiny a concern, but also “attorneys general around the country who had

been looking at Visa and deciding whether it is too large.”

2la

competitive alternative to the existing market’s cards and elicited,

through expert testimony, the prospect of other similarly situated

potential intersystem competitors being excluded and discouraged

from offering new rival cards because of Bylaw 2.06.

Most of this evidence relied upon by the district court is

irrelevant to the central antitrust question posed, however. First,

intent to harm a rival, protect and maximize profits, or “do all the

business if they can,” Ball Memorial Hosp., 784 F.2d at 13285, is

neither actionable nor sanctioned by the antitrust laws.

“Competition, which is always deliberate, has never been a tort,

intentional or otherwise.” Olympia Equip. Leasing Co. v. Western

Union Tel. Co., 797 F.2d 370, 379 (7th Cir. 1986), cert. denied, 480

US. 934, 107 S.Ct. 1574, 94 L.Ed.2d 765 (1987). “Most

businessmen don’t like their competitors or for that matter

competition. They want to make as much money as possible and

getting a monopoly is one way of making a lot of money.” Jd. Thus,

evidence that a Board member voted for Bylaw 2.06 te discourage

price competition within Visa USA may reveal a mental state but is

not an objective basis upon which section | liability may be found.

If Bylaw 2.06 is not “objectively anticompetitive the fact that it was

motivated by hostility to competitors . . . is irrelevant.” Jd. (citation

omitted).

What we ask under section | is whether the alleged restraint is

reasonably related to Visa USA’s operation and no broader than

necessary to effectuate the association’s business. NaBanco, 779

F.2d at 592, 601. That is, is Bylaw 2.06 ancillary, “subordinate and

collateral . . . [making] the main transaction more effective in

accomplishing its purpose,” which is to provide credit card services

to its members? Rothery Storage, 792 F.2d at 224. If it is not

ancillary, does it restrain trade in a manner which alters the structure

of the general purpose credit card market and, thus, harms

consumers?

We think the analysis in Rothery Storage helps us resolve this

question. There, Atlas Van Lines adopted a new policy to prohibit

any affiliated company from handling interstate hauling both under

its own name as well as under the Atlas name. The policy was

intended to prevent its affiliates from using Atlas equipment,

22a

facilities, and services for interstate hauling while independently

negotiating contracts for their own accounts.'® Atlas announced the

rule was necessary to prevent its agents from benefiting from a free

ride, increasing Atlas’ liability for interstate shipments while using

Atlas’ resources without any attendant return of revenue.

Atlas has required that any moving company doing

business as its agent must not conduct independent

interstate carner operations. Thus, a carrier agent, in order

to continue as an Atlas agent, must either abandon its

independent interstate authority and operate only under

Atlas’ authority or create a new corporation (a ‘carrier

affiliate’) to conduct interstate carriage separate from its

operation as an Atlas agent. Atlas’ agents may deal only

with Atlas or other Atlas agents.

Id. at 217.’ Several Atlas carrier agents claimed the policy

constituted a group boycott and filed a complaint under section 1.

After a thorough and well-reasoned analysis, the D.C. Circuit

rejected plaintiffs’ claim, based not simply on the evidence Atlas did

not possess market power in the market for the interstate carriage of

used household goods, but also on the conclusion the new rule was

ancillary to Atlas’ main enterprise, enhancing consumer welfare by

creating efficiency. Jd. at 223. What improved the company’s

efficiency, the court found, was the elimination of the free ride:

The restraints preserve the efficiencies of the

| nationwide van line by eliminating the problein of the free

ride. There is, on the other hand, no possibility that the

restraints can suppress market competition and so decrease

output.

'6 — The new policy responded as well to deregulation of the moving

| industry. Although regulatory constraints figured in the analysis, the

| resolution of the central issue was not dependent on that context.

'7 That is, its interstate rivals can no longer compete in interstate

hauling both as Atlas agents and as independent agents. The policy, then,

is analogous to the rule at issue here.

ee ae

23a

Id. at 229. This conclusion was built on the foundation of BMI,

NCAA, and Northwest Wholesale Stationers.

Similarly, Visa USA urges its concern about protecting the

property it has created over the years and preventing Sears and

American Express,'* successful rivals, from profiting by a free ride

does not represent a refusal to deal or group boycott but is reasonably

necessary to ensure the effective operation of its credit card services.

It urges Bylaw 2.06 avoids “free-riding, an unlevel playing field, and

the added costs that Sears would impose on VISA members by taking

advantage of a brand and operating systems that it not only had done

nothing to create but had chosen to compete against.” Visa USA

contends Sears does not need Visa USA to compete in the relevant

market and cannot demonstrate it can only issue a low-cost card with

Visa USA’s help.

Sears urges the justification is pretext. “In this case, the issue is

whether the selective exclusion imposed by Visa’s Bylaw 2.06 is

ancillary to Visa’s legitimate purposes as an open industry

association.” Sears contends Visa USA is a network joint venture,

one whose integrative efficiencies actually grow as its membership

increases. To accept Visa USA’s analogy to a research venture, one

expending individual talent and resources in a small laboratory only

to be forced to include rival researchers, Sears argues, is naive. It

protests everyone gets into Visa USA except Sears itself. In support,

Sears relies on the bulwarks of exclusionary conduct cases.

We do not believe cither precedent or policy compels Sears’

position, however. For example, United States v. Terminal R.R.

Ass'n of St. Louis, 224 U.S. 383, 32 S.Ct. 507, 56 L.Ed. 810 (1912)

(joint venture railroad companies that acquired Terminal Company,

which controlled bridge across Mississippi River, approaches, and

terminal at St. Louis, must admit rivals to permit use of facilities on

) nondiscriminatory terms), involved a “most extraordinary” situation

| in St. Louis, “and we base our conclusion in this case, in a large

} measure, upon that fact.” Id. at 405, 32 S.Ct. at 513-14. In that

setting, mandating the combined railroad companies admit their

competitors merely permitted joint ownership of common facilities.

18 We note that American Express has never participated in this

lewsuit.

24a

“The defendants had not built or created anything except a

combination to take over existing facilities.” /993 Supplement ©

736.1, at 841.

Similarly, Associated Press v. United States, 326 US. 1, 65 S.Ct.

1416, 89 L.Ed 2013 (1945) (joint venture news gathering agency must

provide reasonable access to excluded firms), never stated a joint

venture cannot exclude amyone. The Court’s prohibition of the

membership restriction was focused particularly on the operation of the

rule itself, where an individual Associated Press member could singly

veto a rival’s access to its local market. More importantly, the joint

venture, “the largest news agency,” was factually unique: its news

gathering and dissemination capacity could not be duplicated and

represented in and of: itself a limitation on nonmembers. /d. at 13, 65

S.Ct. at 1421.”

We would also distinguish the much-quoted language in Aspen

Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S.Ct.

2847, 86 L.Ed.2d 467 (1985) (ski company’s decision not to participate

in an all-mountain lift ticket violated section 2). In that case, defendant

ski company justified its refusal to continue offering an all-mountain lift

ticket by asserting it had no duty to engage in joint marketing with a

competitor. The Court responded by observing:

The absence of a duty to transact business with another

firm is, in some respects, merely the counterpart of the

independent businessman’s cherished right to select his

customers and his associates. The high value that we have

placed on the right to refuse to deal with other firms does

not mean that the right is unqualified.

Id. at 601, 105 S.Ct. at 2856 (footnote omitted). In qualifying that

right, the Court noted in the context of section 2 the refusal to deal

had the effect of making “an important change in a pattern of

distribution that had originated in a competitive market and had

persisted for several years .. Ski Co.’s decision to terminate the all-

Terminal Railroad and Associated Press are the roots of the

essential facility analysis in antitrust. See Phillip E. Areeda, Essential

Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L.J. 841

(1990).

25a

Aspen ticket was thus a decision by a monopolist to make an

important change in the character of the market.” Jd. at 603-04, 105

S.Ct. at 2858.

None of these conditions is present in this case. Bylaw 2.06 did

not alter the character of the general purpose credit card market or

change any present pattern of distribution. Jd. Nor did it bar Sears

from access to this market. There was no evidence Sears could only

introduce a Prime Option card with Visa USA’s help or that Visa

USA’s exclusion from its joint venture disabled Sears from

developing its new card under the Discover mantle. More

importantly, there was no evidence the bylaw harms consumers, the

focus of the alleged violation. Indeed, the evidence established the

current market in general purpose credit cards is structurally

competitive, issuers targeting different consumer groups and

consumer needs. In this market, Sears already competes vigorously.

Surely, if its goal is to compete more effectively in that market, we do

not believe this objective constitutes the proverbial sparrow the

Sherman Act protects. “[A] producer’s loss is no concern of the

antitrust laws, which protect consumers from suppliers rather than

suppliers from each other.” Stamatakis Indus., 965 F.2d at 471.”

20 Indeed, when the question becomes whether the restraint is

reasonably necessary to achieve the joint venture’s goals, “[e]xclusivity of

venture membership will not generally be regarded as suspect.” 1993

Supplement § 1506, at 1115. The Department of Justice has stated:

[S]electivity in the membership of a joint venture often

enhances a joint venture’s procompetitive potential. Forcing

joint ventures to open membership to all competitors (or to

license the product of an R&D joint venture to all who seek

licenses) would decrease the incentives to form joint ventures . . .

For example, the inability to exclude those who would bring little

or nothing to the joint venture, or those who would fail to share

fully in the risks, would decrease the efficiency of the joint

venture and reduce the expected reward from successfully

accomplishing the joint venture’s mission. An enforcement

policy that denied a joint venture the ability to select its members

might also encourage firms to forego risky endeavors in the hope

of being able to gain access through antitrust litigation to the

fruits of the successful endeavors of others. Thus, the

26a

Given Visa USA’s justification the bylaw is necessary to prevent

free-riding in a market in which there was no evidence price was

raised or output decreased or Sears needed Visa USA to develop the

new card, we are left with a vast sea of commercial policy into which

Sears would have us wade. To impose liability on Visa USA for

refusing to admit Sears or revise the bylaw to open its membership

to intersystem rivals, we think, sucks the judiciary into an economic

riptide of contrived market forces. Whatever currents Sears imagines

Visa USA has wrongly created, we believe can be better corrected by

the marketplace itself. The Sherman Act ultimately must protect

competition, not a competitor, and were we tempted to collapse the

distinction, we would distort its continuing viability to safeguard

consumer welfare.

VII. Conclusion

Reversal of the district court’s order denying Visa USA’s Rule

50(b) motion further dissipates the preemptive strike Visa USA

attempted by requesting injunctive relief under section 7 of the

Clayton Act. The reasoning which underpins our reversal of the

district court’s order and leaves the present entities in the market

unchanged obviates scrutiny under section 7 of the Clayton Act. The

district court properly denied relief.

We therefore REVERSE the district court’s order holding Visa

USA liable under section | of the Sherman Act. However, we

AFFIRM its denial of an injunction to Visa USA under section 7 of

the Clayton Act for reasons consistent with this opinion.

Department [of Justice] generally will be concerned about a joint

venture’s policy of excluding others only if (i) an excluded firm

cannot compete in a related market or markets . . . in which the

joint venture members are currently exercising market power

without having access to the joint venture and (ii) there is no

reasonable basis related to the efficient operation of the joint

venture for excluding other firms.

Justice Department, International Operations Antitrust Enforcement Policy

42 (Nov. 10, 1988) (CCH Supp.) (quoted in 1/993 Supplement § 1506, at

1115).

27a

UNITED STATES DISTRICT COURT

DISTRICT OF UTAH — CENTRAL DIVISION

Docket No. 91-C-47B

Decided April 1, 1993

SCFC ILC, INC., d/b/a MountainWest Financial,

Plaintiff,

VISA U.S.A. INC.,

Defendant.

VISA U.S.A. INC. and Visa International

Service Association, Delaware corporations,

Counterclaimants,

SEARS, ROEBUCK AND CO., a New York corporation,

Sears Consumer Financial Corporation; and

SCFC ILC, Inc., d/b/a MountainWest Financial,

Counterdefendants.

William H. Pratt, Chicago, IL, Gary F. Bendinger, Salt Lake

City, UT, Randall A. Hack, Leonard A. Gail, James D. Sonda, James

H. Gale, Chicago, IL, Carol Clawson, Richard W. Giauque, Salt Lake

City, UT, for plaintiff.

M. Laurence Popofsky, Stephen V. Bomse, San Francisco, CA,

Clark Waddoups, Dale A. Kimball, Heidi E. Leithead, Salt Lake City,

UT, Renata M. Sos, San Francisco, CA, Scott R. Ryther, Salt Lake

City, UT, for defendant.

28a

William H. Pratt, Chicago, IL, Gary F. Bendinger, Salt Lake

City, UT, Randall A. Hack, Leonard A. Gail, James D. Sonda, James

H. Gale, Chicago, IL, Richard W. Giauque, Salt Lake City, UT,

Charles A. Tausche, Reuben L. Hedlund, Chicago, IL, for

counterdefendant Sears Roebuck & Co.

William H. Pratt, Chicago, IL, Gary F. Bendinger, Salt Lake

City, UT, James H. Gale, Randall A. Hack, James D. Sonda,

Chicago, IL, Richard W. Giauque, Salt Lake City, UT, for

counterdefendant Sears Consumer Financial Corp.

Stephen V. Bomse, Marie L. Fiala, San Francisco, CA, Clark

Waddoups, Dale A. Kimball, Heidi E. Leithead, Salt Lake City, UT,

Judith Z. Gold, Susan Rice, Robert G. Merritt, San Francisco, CA,

Scott R. Ryther, Salt Lake City, UT, Renata M. Sos, San Francisco,

CA, for counterclaimant Visa USA Inc.

OPINION AND ORDER

BENSON, District Judge.

Following a jury verdict in favor of the Plaintiff, a post-trial

hearing was held Tuesday, December 22, 1992. The court heard

argument on several motions, including: (1) Visa’s Motion for

Judgment as a Matter of Law under Rule 50(b) of the Federal Rules

of Civil Procedure; (2) Visa’s Motion for Entry of Judgment on its

Clayton Act Counterclaim; and (3) Visa’s alternative Motion for New

Trial or Conditional New Trial. Sears, as Plaintiff and Counter-

defendant, was represented by William H. Pratt and Gary F.

Bendinger. Visa, as Defendant and Counterclaimant, was represented

by M. Laurence Popofsky, Stephen V. Bomse, Marie L. Fiala, Dale

A. Kimball, and Clark Waddoups. Having considered the

memoranda, submissions of the parties, and oral argument, the court

enters this Opinion and Order.

BACKGROUND

The Plaintiff in this lawsuit is MountainWest Financial, a

wholly-owned subsidiary of Sears Consumer Financial Corporation

and Dean Witter Financial Services Group, which are themselves

29a

wholly-owned subsidiaries of Sears, Roebuck and Co.’ The

Defendant is Visa U.S.A., Inc. (“Visa”), a non-stock corporation

owned by approximately 6000 banks and other financial institutions

located throughout the United States.

Visa’s history dates back to the late 1950s when Bank of

America began issuing the BankAmericard to consumers through an

organization of approximately 70 bank franchises. The

BankAmericard was the predecessor to the current Visa charge card.

A second charge card association, Interbank, was formed and

competed directly with BankAmericard. Interbank is now known as

MasterCard.

Visa is a form of a joint venture governed by a board of directors

which is comprised of bank executives selected from member banks.

Visa divides the United States into twelve regions. Member banks in

each region elect one director to the board. Large regions are

represented by more than one director. In addition, one director is

elected by the small banks to represent their interests. Furthermore,

any member with more than ten percent of the total volume of

outstanding Visa cards receives an automatic position on the Board.

The Visa association itself does not issue charge cards. It

provides services to its members, including general advertising and

computer services. Visa cards are issued by the individual members.

Each of the 6000 members is allowed to set its own terms, deciding

what prices to charge and the number of cards to issue.

When the Visa association was formed, its rules prevented

members from also belonging to MasterCard. In 1974, a bank in

Little Rock, Arkansas, sued for the right to issue both Visa cards and

MasterCard cards. See Worthen Bank & Trust Co. v. National

Bankamericard, Inc., 345 F. Supp. 1309 (E.D. Ark. 1972), rev'd, 485

F.2d 119 (8th Cir. 1973), cert. denied, 415 U.S. 918, 94 S.Ct. 1417,

39 L.Ed.2d 473 (1974). In response, Visa sought advice from the

United States Department of Justice to determine whether this

prohibition could be considered an antitrust violation. The Justice

Department responded by stating that, on the card-issuing level, such

' During trial and in previous decisions, the court has referred to

the plaintiff as “Sears.” In this Opinion, the court will continue that practice.

30a

a “prohibition of dual affiliation appears unobjectionable.” (Def.’s

Ex. 102, at 2). With respect to the enlistment of merchants willing to

accept the Visa card, however, the Justice Department’s opinion was

that the bar to dual membership could handicap efforts to create new

bank credit card systems and might diminish competition. In other

words, the Department of Justice found no problem with prohibiting

a bank from issuing both Visa and MasterCard cards, but prohibiting

dual affiliation by those banks responsible for signing merchants

could pose an antitrust problem. As a result, the Department of

Justice concluded that it could not promise that a civil action against

Visa would not be initiated if Visa continued to refuse its members

the right to issue MasterCard charge cards. In response, Visa

withdrew its rule, settled the lawsuit, and allowed its members to also

become members of the MasterCard association. Thereafter, most

banks and other financial institutions in the United States became

members of both Visa and MasterCard. Presently, most Visa

members also issue MasterCard cards, a practice known as “duality.”

Visa contended in this action that as a result of duality, competition

between Visa and MasterCard diminished significantly.

In 1982, Sears began investigating an entrance into the general

purpose charge card market.’ Sears had discussions with Visa about

the possibility of Sears’ issuing a nationwide Visa card. Sears

organized a steering committee to recommend a strategy. The

committee considered Sears’ becoming a member of Visa or

MasterCard. The committee also considered developing a new

general purpose charge card. In late 1984, Sears decided not to

pursue issuing a Visa card at that time, but instead decided to launch

2 The general purpose charge card market was defined at trial as

consisting of any charge card which could be used for general purposes at

a wide variety of retail establishments. Gasoline charge cards, department

store charge cards, and other charge cards accepted only at limited locations

were not considered to be general purpose charge cards. At the time Sears

began its imvestigation there were five general purpose charge cards

distributed nationwide: Visa, MasterCard, American Express, Diners Club,

and Carte Blanche.

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its own proprietary card’*-the Discover Card. The Discover Card was

introduced in Atlanta, Georgia, in late 1985, and was issued

nationally in 1986.

Visa perceived the Discover Card as a direct competitor and

made numerous attempts to limit the Discover Card’s success. For

example, Visa encouraged its member banks to deny the Discover

Card access to Visa’s merchant card terminals. This strategy forced

Sears to develop its own terminals and to offer them to merchants at

competitive prices. Thereafter, Visa refused to allow its merchants

to process Visa transactions on a Discover Card terminal.‘ Despite

Visa’s efforts, however, Discover continued to grow and prosper.°

In late 1988, Sears applied for membership in Visa through

Greenwood Trust Co., a Delaware bank owned by Sears. Sears

claims that its primary reason for applying for membership was in

response to the competitive actions Visa had undertaken with respect

to the Discover Card. In June, 1989, Visa’s Board of Directors held

a meeting in Cannes, France. At the meeting, the Board considered

and unanimously rejected Greenwood Trust’s application for

membership. The Board also passed an amendment to its bylaws

prohibiting Sears, or any other direct competitor, from becoming a

> Proprietary cards were defined at trial as charge cards owned and

distributed solely by a single business entity. At the time Sears entered the

general purpose charge card market with the Discover Card in 1985, the only

other issuers of proprietary general purpose charge cards were American

Express and Citibank (Diners Club/Carte Blanche).

Eventually Visa and Sears resolved their disputes regarding the

use of terminals, allowing merchants to use the same terminals for both

cards.

* The evidence at trial indicated that the Discover Card is one of the

most effective competitors in the general purpose charge card market. The

Discover Card has surpassed its business projections in every year of its

existence, earning $80 million in net income in 1989, $117 million in 1990,

and $170 million in 1991. (Def.’s Ex. 571). Discover Card has been referred

to as “one of the two or three most remarkable success stories in American

business in the late 1980s[.]” (Tr. at 256).

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Visa member. The following is an excerpt from the official minutes

of the meeting of the Board, dated June 5-6, 1989:

Greenwood Trust Company has made application for

Principal membership in the corporation. Greenwood

Trust Company is the issuer of Discover cards and has no

intention of converting that program; rather, they intend to

issue both Discover cards and Visa Cards. In order to

preserve and enhance interbrand competition, and upon

motion duly made, seconded and unanimously carried, it

was

RESOLVED, that Section 2.06 of the By-Laws be

and are hereby amended by adding the following sentence

at the end of that Section as follows:

“Notwithstanding (a) above, if permitted by

applicable law, the corporation shall not accept

for membership any applicant which is issuing,

directly or indirectly, Discover cards or

American Express cards, or any other cards

deemed competitive by the Board of Directors;

an applicant shall be deemed to be issuing such

cards if its parent, subsidiary or affiliate issues

such cards.”

(Pl.’s Ex. 715)

In a letter advising Sears of the Board’s action, Visa General

Counsel Bennett Katz stated: “[W]e believe that intersystem

competition should be preserved and enhanced; membership by

Greenwood Trust Co. would have the opposite effect.” (Pl.’s Ex.

715). Sears contested Visa’s rejection of its application. Sears’

officers met with Visa board members in an attempt to resolve the

Situation, but Visa refused to change its position. Sears threatened

antitrust litigation, but took no legal action at that time. -

On May 25, 1990, Sears purchased the assets of a small, defunct

Utah savings and loan association known as MountainWest Savings

& Loan (“MountainWest Savings”). The purchase was made through

the Resolution Trust Corporation (“RTC”), which had become the

receiver of MountainWest Savings after its failure. Sears merged the

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assets of MountainWest Savings into those of Basin Loans, a Utah

Industrial Loan Company, and renamed the new entity SCFC ILC,

Inc., doing business in Sandy, Utah, as “MountainWest Financial.”

One of the assets of MountainWest Savings that Sears acquired

from the RTC was MountainWest Savings’ membership in the Visa

association. MountainWest Savings had become a Visa member in

1982 and had issued approximately 5800 Visa charge cards to its

account holders. Notwithstanding Visa Bylaw 2.06, Sears attempted

to use MountainWest Financial’s Visa membership to launch a

special low-interest, Sears-owned Visa card called “Prime Option.”

Under the Prime Option program, Sears intended to issue millions of

Visa cards nationwide. Sears initially requested a printing of 1.5

million Prime Option Visa cards. Upon learning, rather belatedly, of

Sears’ involvement with MountainWest Financial, Visa refused to

grant permission for the initial printing of the Prime Option Visa

cards based on Bylaw 2.06’s prohibition of Sears’ membership in

Visa.

In response to Visa’s refusal to approve MountainWest

Financial’s request, Sears filed a five-count Complaint against Visa

in the Federal District Court for the District of Utah, on January 17,

1991. Counts I and II raise claims under Section | of the Sherman

Act, 15 U.S.C. § 1; Counts III and IV raise claims under the Utah

Antitrust Act, Utah Code Ann. §§ 76-10-911 to -926; and Count V

raises a claim under the Utah Unfair Practices Act, Utah Code Ann.

§§ 13-5-1 to -18. Included in Sears’ prayer for relief was a request

for a permanent injunction.

Shortly after the complaint was filed, Sears moved for a

preliminary injunction seeking to compel Visa to allow the launch of

the Prime Option Visa card program. Sears’ motion was granted by

the court. 763 F. Supp. 1094 (D. Utah 1991). The court found that

MountainWest Savings’ Visa membership had never been

6 Sears attempted to gain entry into Visa without clearly disclosing

to Visa its affiliation with MountainWest Financial. Aware of Bylaw 2.06,

Mountain West Financial failed to reveal to Visa its affiliation with Sears and

the Discover Card. Visa discovered that MountainWest Financial was

actually owned by Sears only after conducting its own investigation. Visa

has pending against Sears a counterclaim for fraud.

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terminated, and that Sears was “entitled to enjoy all of the rights and

privileges of membership, including the right to launch the ‘Prime

Option’ program.” Jd. at 1098-99. The court further found that

issuance of the preliminary injunction would not alter the status quo

and that the other requirements necessary for a preliminary injunction

had been met. /d. at 1100.

Visa appealed the district court’s ruling to the United States

Court of Appeals for the Tenth Circuit. On June 18, 1991, the Tenth

Circuit reversed the holding of the district court, finding that the

preliminary injunction would in fact alter the status quo and that

Sears, under such circumstances, had not met the heavy burden

required for a preliminary injunction. SCFC ILC, Inc. v. Visa USA.

Inc., 936 F.2d 1096, 1102 (10th Cir. 1991). The case was remanded

to the district court for further proceedings.

On March 25, 1991, Visa filed an Answer to the Complaint

which included a Counterclaim against Sears. Count I of the

Counterclaim raises a claim of Trademark Infringement under the

Lanham Act, 15 U.S.C. § 1114; Count II alleges a violation of

Section 7 of the Clayton Act, 15 U. S.C. § 18; Count II] alleges fraud;

Count IV raises a claim for unfair trade practices under California

law; and Count V raises, in the alternative, a claim for breach of

contract.

The parties then resumed discovery in preparation for trial.

Another twist was added to this litigation, however, when on

December 19, 1991, President Bush signed into law a statute dealing

with RTC-transferred institutions. The statute amended the Home

Owners’ Loan Act, 12 U.S.C. § 1441a, by adding a new subsection,

(q), as follows:

Continuation of obligation to provide services

No person obligated to provide services to an insured

depository institution at the time the Resolution Trust

Corporation is appointed conservator or receiver for the

institution shall fail to provide those services to any person

to whom the nght to receive those services was transferred

by the Resolution Trust Corporation after August 9, 1989,

unless the refusal is based on the transferee’s failure to

35a

comply with any material term or condition of the original

obligation. This subsection does not limit any authority of

the Resolution Trust Corporation as conservator or receiver

under section | 1(¢) of the Federal Deposit Insurance Act.

Federal Deposit Insurance Corporation Improvement Act of 1991

§ 471, Pub. L. No. 102-242, 105 Stat. 2385 (“Section 471”).

Pursuant to this section, persons under contract to provide services to

a federal deposit institution prior to its takeover by the RTC are

required to continue to provide those services after transfer by the

RTC to a new owner-so long as the new owner complies with all of

the terms and conditions of the original contract.

In response to the enactment of this statute, Sears amended its

Complaint, alleging that Visa’s refusal to issue the credit cards

sought by Sears constituted a violation of Section 471. Sears moved

for summary judgment on that basis. On February 18, 1992, the

court denied the motion, finding that Bylaw 2.06’s prohibition of

affiliation with Sears was a material condition of the original

agreement between Visa and MountainWest Savings. 784 F. Supp.

822, 834 (D. Utah 1992). Because MountainWest Savings was

bound by the bylaw, the restriction was also effective as to

MountainWest Financial, pursuant to the terms of Section 471. Jd

On July 30, 1992, the court heard oral argument on various

additional motions filed by the parties. These motions included:

1) Visa’s Motion for Summary Judgment on Sears’ Sherman Act

Claim; 2) Sears’ Motion for Summary Judgment on Visa’s Clayton

Act Counterclaim; 3) Sears’ Motion for Summary Judgment on

Visa’s Non-antitrust Counterclaims; and 4) Sears’ Motion to

Bifurcate the trials of the antitrust and non-antitrust claims. The

court denied all motions for summary judgment, finding genuine

issues of material fact which required a determination by the trier-of-

fact at trial. The court, however, granted Sears’ motion to bifurcate

the trial. 801 F. Supp. 517, 528-29 (D. Utah 1992). The initial trial

would concern only the liability aspects of the antitrust claims. The

damages portion of the antitrust claims, as well as all non-antitrust

claims, would be tried at a later date, if necessary. Jd.

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Trial began on October 13, 1992. Sears’ Sherman Act claim

was presented to an eleven-person jury,’ while, at the same time,

Visa’s Clayton Act claim was tried to the court. With respect to

Sears’ Sherman Act claim, the dispute focused on whether the

restraint of trade imposed by Bylaw 2.06 is “unreasonable.” Sears

asserted that the restraint is unreasonable because it substantially

harms competition in the relevant market.

For purposes of this lawsuit, it was agreed by both parties that

the relevant market is the general purpose charge card market in the

United States. At the time of trial, the issuers of general purpose

charge cards in the United States were the Visa and MasterCard

associations, American Express, Citibank (Diners Club and Carte

Blanche), and Sears’ (the Discover Card). Visa was estimated to

possess 45.6% of the nationwide general purpose charge card market;

MasterCard, 26.4%;® American Express, 20.5%; Discover Card,

5.5%; and Diners Club, 2.0%. Competition among these five brands

is known as interbrand or “intersystem” competition. Competition

among association members, such as Visa members, is known as

intrabrand or “intrasystem” competition.

Sears argued at trial that Bylaw 2.06 hinders competition by

excluding Sears’ planned Prime Option Visa card from being offered

in the market. Sears asserted that the Prime Option Visa card would

be a low-cost, highly competitive addition to the Visa system. Bylaw

2.06, it was argued, harms consumers because it prevents them from

A 12-person jury was initially selected. One of the jurors,

however, failed to appear on the first day of trial following jury selection and

before the presentation of opening statements. The court proceeded with | 1

jurors, with the agreement of counsel for both parties, and in accordance

with Ruie 48 of the Federal Rules of Civil Procedure.

* Evidence at trial showed that in 1991 the ten largest issuers of

Visa and MasterCard accounted for approximately 48% of the total

Visa/MasterCard charge volume. The top-ten issuers were Citicorp, First

Chicago, AT&T, Chase Manhattan, MBNA America, Bank of America,

Nationsbank, Chemical Bank, Banc One, and Wells Fargo Bank. The

largest issuer, Citicorp, accounted for approximately $42.5 billion in charge

volume in 1991—representing approximately 15.8% of the Visa/MasterCard

market and | 1.4% of the entire general purpose charge card market.

37a

gaining access to the card, thereby hindering intrasystem competition

within the Visa system. At the time of trial, this exclusion only

applicd to two entities-Sears and American Express. In the

estimation of Visa’s Board of Directors, no other entity was issuing

a “competitive” card in the relevant market.

Sears also asserted that Bylaw 2.06 harms competition by

discouraging the creation and development of other proprietary cards.

Bylaw 2.06, it was argued, punishes those who may seek to offer a

successful, competitive proprietary card, such as the Discover Card.

Because of the bylaw, non-Visa members who develop a successful

proprietary card would be prohibited from joining the Visa system

and current Visa members would be expelled from the system if they

developed such a card.

In response to Sears’ arguments, Visa asserted that Bylaw 2.06

is not unreasonable. Visa maintained that the bylaw is beneficial,

rather than harmful, to competition. It asserted that the exclusion of

Sears from the Visa association preserves intersystem competition

because Discover Card is one of the few successful intersystem

competitors with Visa in the relevant market. Allowing Sears to join

the Visa system would arguably weaken intersystem competition

between Visa and Discover. Thus, Visa submitted, Bylaw 2.06

actually enhances competition in the relevant market. Furthermore,

Visa argued that any harmful effects of Sears’ exclusion are

insubstantial. Because Visa does not set restrictions on the price or

output of Visa cards issued by its member banks, it was argued that

the present intrasystem competition is vigorous and the exclusion of

Sears cannot possibly have a substantial, negative impact on

competition in the relevant market.

Following a three and one-half week trial, and two days of

deliberation, the jury returned a verdict pursuant to special

interrogatories, as follows:

QUESTION NO. 1: Has Sears proved, by a

preponderance of the evidence, that Visa’s Bylaw 2.06 has

a substantially harmful effect on competition in the relevant

market? |

Yes _X. No

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QUESTION NO. 2: Has Sears proved, by a

preponderance of the evidence, that the harmful effect

substantially outweighs any beneficial effect on

competition in the relevant market?

Yes _X_. No __.

QUESTION NO. 3: Has Sears proved, by a

preponderance of the evidence, that it was injured by

Visa’s Bylaw 2.06?

Yes_X. No

Following trial, the parties filed the post-trial motions presently

pending before the-court. After hearing oral argument, the court took

the motions under advisement. The court now rules on Visa’s Rule

50(b) Motion for Judgment as a Matter of Law on Sears’ Sherman

Act claim, Visa’s Rule 50(b) Motion for Judgment as a Matter of

Law on its Clayton Act Counterclaim, and alternatively, Visa’s Rule

59 Motion for a New Tnial.

DISCUSSION

I. VISA’S RULE 50(b) MOTION-THE SHERMAN ACT

Visa argues that Sears’ Sherman Act claim must fail as a matter

of law pursuant to Rule 50(b) of the Federal Rules of Civil

Procedure. Visa raises two general arguments. First, Visa argues

that Sears’ claim is legally insufficient and should never have gone

to the jury. This argument is based on general economic principles,

including notions of private property and the preservation of

efficiency-enhancing joint ventures. Next, Visa argues that the facts

of this case are so lacking that no reasonable jury could have ruled in

Sears’ favor. For organizational purposes, the court will refer to the

former as Visa’s “legal argument” and to the latter as Visa’s “factual

argument,” recognizing, of course, the essentially legal nature of each

argument under Rule 50(b), as well as the considerable overlap of the

factors that pertain to both arguments.

39a

A. Visa's “Legal Argument”

Visa’s legal argument has been presented several times to the

court.? The argument has evolved and changed somewhat over time,

having been articulated slightly differently each time it has been

presented. In each instance, however, the central theme of Visa’s

legal argument has remained the same: that under the circumstances

of this case, the restraint imposed by Bylaw 2.06 cannot violate the

antitrust laws. Visa contends that when a joint venture such as Visa

does nothing more than refuse to share its property with a successful

competitor such as Sears, there can be no violation of Section 1 of the

Sherman Acct.

1. Legal Structure of the Sherman Act

Before addressing the details of Visa’s legal argument, it is

helpful to examine Section 1 of the Sherman Act and the legal

requirements necessary to establish a violation of that section.

Section | provides:

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or commerce

among the several States, or with foreign nations, is

declared to be illegal . . .

® Visa first raised the argument in support of its Motion for

Summary Judgment. The court denied the motion in a written opinion.

SCFC ILC, Inc. v. Visa U.S.A., Inc., 801 F. Supp. 517, 523 (D. Utah 1992).

Thereafter, the issue was raised again in connection with Visa’s Motion for

Certification for Interlocutory Appeal under 28 U.S.C. § 1292(b), which the

court denied. The argument was again presented at the close of Sears’ case

at trial as Visa’s Motion for Judgment as a Matter of Law under Rule 50(a)

of the Federal Rules of Civil Procedure. Finally, Visa raises the issue in

support of this Rule 50(b) Motion for Judgment as a Matter of Law.

40a

15 U.S.C.A. § 1 (Supp. 1992).'° The plain language of the section

appears to prohibit a// restraints of trade. However, courts

determined early on that the section was not intended to be applied

so broadly, finding that “restraint is the very essence of every

contract,” and “read literally, § 1 would outlaw the entire body of

private contract law.” National Soc'y of Professional Eng'rs v.

United States, 435 U.S. 679, 687-88, 98 S.Ct. 1355, 1363, 55 L.Ed.2d

637 (1978); see also Board of Trade v. United States, 246 U.S. 231,

238, 38 S.Ct. 242, 243, 62 L.Ed. 683 (1918). As a result, it has been

clearly established that a restraint of trade does not violate Section |

unless it is found to be “unreasonable.” A restraint of trade is

unreasonable if it substantially harms competition in the relevant

market to the extent that the harmful effects substantially outweigh

any beneficial effects. This process of determining whether a

restraint is unreasonable is known as the “Rule of Reason.” See

Standard Oil Co. v. United States, 221 U.S. 1, 67, 31 S.Ct. 502, 518,

55 L.Ed. 619 (1911); Board of Trade, 246 U.S. at 238-39, 38 S.Ct.

at 243-44; Professional Engineers, 435 U.S. at 687-88, 98 S.Ct. at

1363; Reazin v. Blue Cross & Blue Shield, 899 F.2d 951, 960 (10th

Cir.), cert. denied, 497 U.S. 1005, 110 S.Ct. 3241, 111 L.Ed.2d 752

(1990).

a. The Rule of Reason

“[T]he inquiry mandated by the Rule of Reason is whether the

challenged agreement is one that promotes competition or one that

suppresses competition.” Professional Engineers, 435 U.S. at 691, 98

S.Ct. at 1365. This determination is generally made by the tner-of-

fact. “{T]he factfinder weighs all of the circumstances of a case in

'0 Sears’ claim is actually one for damages under Section 4 of the

Clayton Act, 15 U.S.C. § 15. Although Section 1 of the Sherman Act

provides for criminal penalties, Section 4 of the Clayton Act allows for

private enforcement of the antitrust laws by private parties. Section 4

provides in relevant part:

. . . any person who shall be injured in his business or property

by reason of anything forbidden in the antitrust laws may sue

therefor in any district court of the United States in the district in

which the defendant resides or is found or has an agent... . 15

U.S.C.A. § 15 (Supp. 1992).

4la

deciding whether a restrictive practice should be prohibited as

imposing an unreasonable restraint on competition.” Jd. at 691 n.17,

98 S.Ct. at 1365 n.17. The fact-finder must examine “a variety of

actual market factors” in making this determination. Smith Mach.

Co. v. Hesston Corp., 878 F.2d 1290, 1298 (10th Cir. 1989), cert.

denied, 493 U.S. 1073, 110 S.Ct. 1119, 107 L.Ed.2d 1026 (1990).

This includes an analysis of the restraint imposed-the nature and

history of the restraint, and whether the restraint affects price, output,

or product quality. The fact-finder may also examine the relevant

market—the structure of the market, the parties’ positions in the

market, and the nature of the market before and after the restraint was

imposed. Board of Trade, 246 U.S. at 238-39, 38 S.Ct. at 243-44.

Furthermore, a Rule of Reason analysis may include an examination

of the party’s purpose in imposing the restraint.

Visa correctly observes that not all Section 1 cases must be

submitted to a jury. A complete Rule of Reason inquiry often

requires a protracted and complicated examination of the relevant

facts. As a result, courts have developed presumptions, or “screens,”

as Visa calls them in its briefs, to filter out those cases which do not

require full Rule of Reason analysis by the fact-finder at trial, but

rather, may be decided as a matter of law.

b. Per Se Illegality

The first presumption developed by the courts is the rule of

per se illegality. “Per se rules are invoked when surrounding

circumstances make the likelihood of anticompetitive conduct so

great as to render unjustified further examination of the challenged

conduct.” NCAA v. Board of Regents of the Univ. of Okla., 468 U.S.

85, 103-04, 104 S.Ct 2948, 2961, 82 L.Ed.2d 70 (1984). Certain

activities are so facially pernicious that they are declared

presumptively unreasonable by the court. Agreements and practices

which are “plainly anticompetitive,” Professional Engineers, 435

U.S. at 692, 98 S.Ct. at 1365, and which are lacking in “any

redeeming virtue,” Northern Pac. Ry. v. United States, 356 U.S. l,

5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545 (1958), are presumed to be illegal

without conducting a detailed Rule of Reason analysis. Price fixing

and bid rigging are examples of these types of activities.

42a

The United States Supreme Court has explained the benefits of

the per se analysis approach:

This principle of per se unreasonableness not only makes

the type of restraints which are proscribed by the Sherman

Act more certain to the benefit of everyone concerned, but

it also avoids the necessity for an incredibly complicated

and prolonged economic investigation into the entire

history of the industry involved, as well as related

industries, in an effort to determine at large whether a

particular restraint has been unreasonable—an inquiry so

often wholly fruitless when undertaken.

Northern Pacific, 356 U.S. at 5, 78 S Ct. at 518.

Courts, however, are hesitant to find alleged restraints of trade

illegal per se. The anticompetitive effect must be relatively certain.

See United States v. Topco Assocs., 405 U.S. 596, 607-08, 92 S.Ct.

1126, 1133, 31 L.Ed.2d 515 (1972) (“It is only after considerable

experience with certain business relationships that courts classify

them as per se violations of the Sherman Act.”). Even when the per

sé presumption appears to be proper, the presumption will not be

applied if the restraint could possibly have legitimate, beneficial

effects or if the restraint is such that it is necessary for the product to

exist at all."

'! Joint ventures often fall into this category. See North Am. Soccer

League v. National Football League, 670 F.2d 1249, 1259 (2d Cir.), cert.

denied, 459 U.S. 1074, 103 S.Ct. 499, 74 L.Ed.2d 639 (1982) (“Because

agreements between members of a joint venture can under some

circumstances have legitimate purposes as well as anticompetitive effects,

they are subject to scrutiny under the rules of reason.”); NCAA, 468 U.S. at

100-01, 104 S.Ct. at 2960 (Per se analysis inappropriate in an industry in

which “honzontal restraints on competition are essential if the product is to

be available at all.”); Broadcast Music, Inc. v. Columbia Broadcasting Sys.,

441 US. 1, 23, 99 S.Ct. 1551, 1564, 60 L.Ed.2d 1 (1979) (“Joint ventures

and other cooperative arrangements are also not usually unlawful, at least

not as price-fixing schemes, where the agreement on price is necessary to

market the product at all.”) Furthermore, the per se presumption will not be

used against a joint venture if the defendant lacks market power or exclusive

access to an essential facility. See Northwest Wholesale Stationers, Inc. v.

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Regardless whether a restraint is subjected to a full Rule of

Reason analysis or a presumption, the “essential inquiry” is the

same—whether the restraint substantially harms competition in the

relevant market. NCAA, 468 U.S. at 104, 104 S.Ct. at 2961. “[T]here

is often no bright line separating per se from Rule of Reason

analysis.” Jd. at 104 n.26, 104 S.Ct. at 2962 n.26.

c. Legal “Screens” for Nonviolations

At the opposite end of the spectrum from per se illegality, courts

will sometimes find a restraint “reasonable,” or perhaps more

accurately, “not unreasonable” as a matter of law. This occurs when

no reasonable fact-finder could find the restraint to be unreasonable,

and therefore submitting it to the jury for a complete Rule of Reason

analysis would not be of value. Based on current precedent, there

appear to be two general types of cases in this category.

The first situation arises when it can be shown that the defendant

does not possess market power. “Market power is the ability to raise

prices above those that would be charged in a competitive market.”

NCAA, 468 U.S. at 109 n.38, 104 S.Ct. at 2964 n.38. The plaintiff

bears the burden of proving that the defendant possessed and

exercised market power.'* “To demonstrate ‘market power,’ a

plaintiff may show evidence of either ‘power to control prices’ or

‘the power to exclude competition.”” Westman Comm'n Co. v.

Hobart Int'l, Inc., 796 F.2d 1216, 1225-26 n.3 (10th Cir. 1986), cert.

denied, 486 U.S. 1005, 108 S.Ct. 1728, 100 L.Ed.2d 192 (1988)

(emphasis in original). A restraint is not unreasonable under the

antitrust laws unless it substantially harms competition. When a

defendant lacks market power, it lacks the ability to substantially

harm competition. Consequently, when the evidence clearly

demonstrates an absence of market power, no reasonable jury could

Pacific Stationery & Printing Co., 472 U.S. 284, 296-98, 105 S.Ct. 2613,

2620-21, 86 L.Ed.2d 202 (1985).

'2 In some circumstances, not applicable to this case, detailed

ev dence of market power may be unnecessary. See FTC v. Indiana Fed'n

of Dentists, 476 U.S. 447, 460, 106 S.Ct. 2009, 2018, 90 L.Ed.2d 445

(1986), Reazin v. Blue Cross & Blue Shield, 899 F.2d 951, 968 n.24 (10th

Cir), cert. denied, 497 U.S. 1005, 110 S.Ct. 3241, 111 L.Ed.2d 752 (1990).

44a

find the restraint to be unreasonable. Under such circumstances, a

court may declare the restraint not unreasonable as a matter of law

and dismiss the claim without submitting it to a jury. Capital

Imaging Assocs. v. Mohawk Valley Medical Assocs., 791 F. Supp.

956, 966-67 (N.D.N.Y. 1992); see Town Sound & Custom Tops, Inc.

v. Chrysler Motors Corp., 959 F.2d 468, 482 (3d Cir.), cert. denied,

_US._, 113 S.Ct. 196, 121 L.Ed.2d 139 (1992); Rebel Oil Co. v.

Atlantic Richfield Co., 808 F. Supp. 1464, 1466 (D. Nev. 1992).

The second type of circumstance in which a restraint was found

to be “not unreasonable” as a matter of law was recognized in

Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 US.

574, 597, 106 S.Ct. 1348, 1361, 89 L.Ed.2d 538 (1986). There, the

Court found that when a plaintiff's theory of violation does not

“make economic sense,” dismissal is appropriate. See also Eastman

Kodak Co. v. Image Technical Servs., US._, _, 112 §.Ct. 2072,

2083, 119 L.Ed.2d 265 (1992).

The central focus of Visa’s legal argument is that the court

should apply a shorthand presumption or screen to dismiss Sears’

claim without submitting it to a jury. Visa argues that such a

dismissal is warranted under the market power and economic sense

screens. In addition, Visa proposes that the court adopt a new screen,

based upon economic principles, to declare Bylaw 2.06 not

unreasonable as a matter of law. The court will now evaluate Visa’s

position under these three screens.

2. The Market Power Screen

Visa claims the court should find no Sherman Act violation

because, as a matter of law, Bylaw 2.06 was not an exercise of

market power. Visa submits that because the bylaw does not restrict

competition or control the price or output of Visa cards within the

Visa system, it cannot be an exercise of market power.

The court finds, however, that the market power screen is not

applicable in this case. The market power screen is based on the

existence rather than the exercise of market power. If the relevant

facts clearly demonstrate an absence of market power, the court may

dismiss the case. If the court determines, however, that there is

sufficient evidence from which a reasonable fact-finder could find the

45a

existence of market power, the case must be submitted to the jury.

The jury then determines factually whether the defendant possessed

market power, and, if so, whether the defendant exercised market

power to unreasonably restrain trade.

At trial, Sears presented sufficient evidence of Visa’s market

power to allow this case to proceed to the jury. The evidence showed

that Visa members control 45.6% of the relevant market through the

Visa system. This fact alone suggests the existence of market power.

The evidence also showed that Visa members, through their

membership in the MasterCard association, control an additional

24.6% of the market—for a total of 72%.'? Sears’ expert witness,

Professor James Kearl, testified that this position in the relevant

market gives Visa members the ability to collectively exercise market

power. Accordingly, the court finds there was sufficient evidence of

Visa’s market power to support a submission to the Jury regarding the

possession and exercise of that power.

3. The Economic Sense Screen

Visa next argues that Sears’ theory of a Sherman Act violation

makes no economic sense. This argument is based on the United

States Supreme Court’s rulings in Matsushita Electric Industrial Co.

v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538

(1986), and Eastman Kodak Co. v. Image Technical Serv'ces, Inc.,

_US.__, 112 S. Ct. 2072, 119 L.Ed.2d 265 (1992), in which the

Court recognized that a case may be dismissed when the plaintiff's

theory regarding the defendant’s alleged restraint of trade makes no

economic sense. Under this theory, Visa claims, the court should

apply a similar “screen” to find that Bylaw 2.06 is not unreasonable

as a matter of law.

Visa bases this argument on the inherent economic benefits of

a joint venture, and the claim that a joint venture’s exercise of its

Property rights cannot substantially harm competition. Specifically,

Visa emphasizes that Bylaw 2.06 does not restrict competition as to

'? In 1991, for example, the top five Visa/MasterCard issuers

controlled 36.7% of the total charge volume for the two associations. (P1.’s

Ex. 752). Those five issuers were Citicorp, First Chicago, AT&T Universal,

Chase Manhattan, and MBNA America.

46a

price or output. Competition among the 6000 members ts said to be

vigorous, and therefore the exclusion of one additional competitor

cannot harm competition. Visa argues that any challenge to such

conduct is economically unsound.

Visa’s reliance on the concept of no economic sense used in

Matsushita and recognized in Eastman Kodak is misplaced in the

present case. In both Matsushita and Eastman Kodak, the focus of

the economic sense inquiry centered on whether the alleged restraint

of trade was economically detrimental to the defendant. If the

alleged restraint were significantly detrimental, the plaintiff's

argument could be said to make no economic sense and dismissal

could be appropniate. —

For example, in Matsushita, American television manufacturers

alleged that Japanese manufacturers, over a twenty-year period, had

illegally conspired to drive American firms from the market. 475 U.S.

at 577, 106 S.Ct. at 1351. This conspiracy allegedly focused on a

“scheme to raise, fix and maintain artificially Aigh prices for

television receivers sold by [the defendants] in Japan and, at the same

time, to fix and maintain /ow prices for television receivers exported

to and sold in the United States.” /d at 578, 106 S.Ct. at 1351

(emphasis in original). The Court found that a conspiracy to depress

prices in the American market to drive out American competitors was

implausible because it required the conspirators to incur substantial

losses to recover uncertain gains. /d. at 590, 106 §.Ct. at 1357. As

such, the Court found the allegation made no economic sense because

“as presumably rational businesses, [defendants] had every incentive

not to engage in the conduct with which they are charged, for its

likely effect would be to generate losses for [defendants] with no

corresponding gains.” Jd at 595, 106 S.Ct. at 1360. The Court

concluded that if the defendants had “no rational economic motive to

conspire, and if their conduct [was] consistent with other, equally

plausible explanations, the conduct [would] not give rise to an

47a

inference of conspiracy,” and summary judgment was appropriate. '‘

Id. at 596-97, 106 S.Ct. at 1361.

Using the Matsushita case as a foundation, the concept of “no

economic sense” was also used as a defense in Eastman Kodak

There, defendant Eastman Kodak, a manufacturer of photocopiers

and related equipment, instituted a policy of selling parts only to

those who had purchased Kodak equipment, and those who used

Kodak service or did their own repairs. US. at, 112 S.Ct. at

2076-77. After several independent service companies were forced

out of business, a group brought suit alleging that Kodak “had

unlawfully tied the sale of service for Kodak machines to the sale of

parts.” Jd, US. at __, 112 S.Ct. at 2078. In response, Kodak

argued that it made no economic sense for Kodak to raise “its parts

Or service prices above competitive levels” because potential

customers would simply stop buying Kodak equipment. Jd, _US.

at__, 112 S.Ct. at 2084.

On this basis, Kodak argued that the Court, as a matter of law,

should accept a “basic economic reality” that competition in the

equipment market would prevent market power in the parts and

service areas. Jd The Court rejected this argument, finding that it

was possible for Kodak to lose equipment sales and still not suffer

economic detriment. /d, US. at__, 112 S.Ct. at 2084-88. “The

sales of even a monopolist are reduced when it sells goods at a

monopoly price, but the higher price more than compensates for the

loss in sales.” /d, U.S. at__, 112 S.Ct. at 2084. Asa result, the

Court concluded that the plaintiff's argument made sufficient

“economic sense” to avoid dismissal. /d. _US.at__,112S.Ct at

2088.

In the instant case, Visa argues, in effect, that Sears’ antitrust

allegation against Visa makes no economic sense. However, unlike

the defendants in Matsushita and Eastman Kodak, Visa does not base

'* The case was remanded to the United States Court of Appeals for

the Third Circuit which was then “free to consider whether there is other

evidence that is sufficiently unambiguous to permit a trier of fact to find that

[defendants] conspired to price predatorily for two decades despite the

absence of any apparent motive to do so.” Matsushita, 475 U.S. at 597, 106

S.Ct. at 1362.

48a

this argument on any claim that Bylaw 2.06, as interpreted by Sears,

is economically detrimental to Visa members. Rather, Visa claims

that Sears’ argument should be dismissed as a matter of law because

joint ventures have inherent economic benefits. The court finds that

Visa’s argument is not consistent with the economic sense screen

described by the Supreme Court.

=~,

Even if Visa’s argument of no economic sense were based on

claims of economic detriment to Visa, there was sufficient evidence

presented by Sears to rebut the claim and warrant a submission of the

issue to the jury. Sears alleged that Bylaw 2.06 was designed to

economically benefit Visa members by excluding Prime Option Visa,

a potentially large-scale, low-cost competitor in the general purpose

charge card market. This exclusion, Sears argued, restricts

competition within the Visa system, thereby allowing current

members to keep prices artificially high.

In evaluating Sears’ theory of anticompetitive effects, the court

does not find Sears’ claims to be economically implausible or

senseless. Despite the fact that competition within the Visa system

is said to be vigorous, there is evidence to support a reasonable jury

finding that Bylaw 2.06’s exclusion of Sears from the Visa system

harms competition.'°

4. Visa's Proposed Screen

Regardless of, and in addition to, the applicability of the two

previously-mentioned screens of market power and economic sense,

Visa argues the court should recognize a new “screen” applicable to

the facts here.

Visa’s argument rests upon two general economic principles.

First, Visa stresses the importance of protecting private property in

a capitalistic market. It asserts that a party should not be required to

deal with its competitor or share its property absent unusual

circumstances. Imposing a duty to deal, it is argued, harms

consumers by destroying incentives and innovation. Second, Visa

argues that efficiency-enhancing joint ventures such as the Visa

association should be entitled to special treatment under Section | of

the Sherman Act. Such joint ventures, Visa argues, are beneficial to

'$ See Part 1.B.2. of this Opinion, infra.

49a

competition and consumers. The threat of antitrust litigation,

however, discourages the creation of such ventures. Accordingly,

Visa contends, they should be entitled to special treatment.'®

These two economic principles, Visa argues, are so compelling

that they warrant special protection from antitrust scrutiny.

Specifically, Visa asserts that when a joint venture refuses to deal

with a competitor, it should not be subject to Section I’s Rule of

Reason examination unless the excluded competitor meets a

heightened standard—showing that it is unable to compete without the

withheld property. When a competitor is able to compete

successfully on its own, it is argued, there can be no antitrust

violation from refusing to deal with that competitor. Visa would

require that the excluded competitor show that it is unable to compete

without access to the joint venture’s property. In other words, the

property must be an “essential facility” necessary for the success of

the excluded competitor.

A competitor challenging its exclusion from a joint venture, Visa

argues, is not entitled to a Rule of Reason trial—absent a showing of

essential facilities. When such a showing is not made, the court

should dismiss the challenge without submitting it to a jury. Based

on this analysis, Visa seeks “a ‘screen’ based on economic learning

which justifies a legal rule limiting the circumstances in which a duty

to deal will be imposed by the antitrust laws[.]” Visa's Nov. 24,

1992, Memorandum in Support of Motion for Judgment under Rule

50(6), at 12. Visa would have the court employ such a screen to

declare Bylaw 2.06 “not unreasonable” as a matter of law!”

‘© — These principles are also important to Visa’s factual argument.

Based upon the same economic principles, Visa argues that no reasonable

jury could find Visa’s conduct to have a substantially harmful effect upon

competition.

'7 It is not entirely clear the extent to which this is a proposal for a

new screen or the extent to which it is based on the two previously-

mentioned screens of market power and economic sense. In any event, the

court recognizes, and Visa concedes, that there is no direct precedent for

Visa’s argument either in the case law or from the language of the Sherman

Act itseif.

50a

The court will now analyze Visa’s economic principles to

determine whether, under the antitrust laws, they are sufficient to

impose a heightened burden on the plaintiff. The court will then

examine Visa’s proposed essential facilities standard, to determine

when, if ever, such a showing is required as a matter of law.

a. Private Property: The Right to Refuse to Deal

Visa’s first economic principle is based on the premise that the

right to deal, or to refuse to deal, with whomever one pleases is

subject to special protection from antitrust scrutiny. Visa argues that

Bylaw 2.06 is nothing more than a refusal to share its property. The

bylaw is merely an agreement among Visa members to exercise their

right to refuse to deal with a non-member competitor. This type of

agreement, it is argued, does not raise traditional Section 1 concerns

and should not be subject to complete Section | scrutiny.

Visa submits that there is an important distinction between the

types of agreements made among the members of a joint venture. On

the one hand, there are those agreements which restrict competition

by and among members of the joint venture. Such agreements place

limits on competition within the system and may result in serious

restraints of trade. These types of agreements include price fixing,

output limitations, and geographic restrictions. On the other hand,

there are those agreements which preserve competition between and

among members of the joint venture. For example, when members

of a joint venture act as a single unit to refuse to deal with a non-

member competitor, Visa argues, intrasystem competition is not

adversely affected.

Visa asserts that the difference between these types of

agreements is crucial. A limit on intrasystem competition is likely to

result in a serious restraint of trade, whereas a refusal to deal will not

have the same effect. Visa argues that the former is properly suspect

under the antitrust laws, while the latter does not raise the same

concerns.

Visa stresses that because of the fundamental difference between

the two types of agreements, it would be inappropriate to subject

them to the same antitrust standard. An agreement to limit

competition among venture members, Visa argues, is properly subject

Sla

to full Rule of Reason scrutiny, while a refusal to deal with a non-

member competitor is not. Such a refusal, it is argued, should not be

limited by Section 1.

Visa contends that the right to refuse to deal with a competitor

is important because it protects private property. Protection of that

right from strict antitrust scrutiny is essential to the preservation of

incentives in the market. Forcing entities to share their property with

competitors, it is argued, is harmful to competition in the long run.

If firms know they may be forced to share new products and

innovations with their competitors, they will be less likely to

undertake the effort and the risk required for the development of new

products. Rather, the incentive would be to wait for competitors to

create new products, and then enter the market by usurping the

competitors’ innovations. Compulsory sharing of private property

discourages innovation and the creation of new products. Because

imposing a duty to deal would “negate incentives in our capitalist

society,” Visa argues that its right to deal with whomever it chooses

should be upheld and respected by the antitrust laws. Visa's Nov. 24,

1992, Mem., at 14.

Visa concedes that the right is not absolute. In Aspen Skiing Co.

v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601, 105 S.Ct. 2847,

2856, 86 L.Ed.2d 467 (1985), the United States Supreme Court

stated: “The high value that we have placed on the right to refuse to

deal with other firms does not mean that the right is unqualified.”

T' Court recognized that although there is a general right to deal, or

to refuse to deal, with whomever one pleases, that right is restricted

by the antitrust laws.

Visa’s position, however, is that the right is restricted only in

limited circumstances-when the defendant possesses monopoly

power, or when the property is an essential facility for competition in

the market. Absent these limited and unusual circumstances, Visa

_ argues, the right to refuse to deal should remain unqualified. Neither

of these circumstances is applicable to the present case: Visa does not

possess monopoly power, and membership in Visa is not an essential

facility for Sears’ success in the relevant market. Therefore, Visa

argues, a duty to deal may not be imposed and Sears’ claim should be

dis:nissed.

52a

Visa stresses that Aspen is based on Section 2, rather than

Section 1, of the Sherman Act.'* Section 2 requires that a defendant

possess and exercise monopoly power in the relevant market. See

Bright v. Moss Ambulance Serv., 824 F.2d 819, 823 (10th Cir. 1987)

(“The elements of monopolization under Section 2 are ‘the

possession of monopoly power in the relevant market’ and ‘the

willful acquisition or maintenance of that power as distinguished

from growth or development as a consequence of a superior product,

business acumen, or historic accident.’” (quoting United States v.

Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, i704, 16

L.Ed.2d 778 (1966))). Monopoly power is not a requirement under

Section 1.

In Aspen, a ski resort sued a competitor for violating the

monopolization prohibitions of Section 2 of the Sherman Act. 472

U.S. at 595, 105 S.Ct. at 2853. The Court upheld the jury’s verdict,

finding that the antitrust laws imposed on the defendant a duty to deal

with its competitor. Jd. at 611, 105 S.Ct. at 2861. Visa argues that

the duty to deal was imposed only because the defendant possessed

monopoly power under Section 2. In a Section 1 case, Visa asserts,

a duty to deal will not be imposed absent unusual circumstances

equivalent to monopoly power.

Again, Visa argues that imposing a duty to deal is harmful to

consumers and competition. It stresses that imposing such a duty will

negate incentives for investment, innovation, and product-creation.

To protect such incentives, Visa argues, “[a] duty to share or deal

must be imposed only under very limited conditions—conditions

captured in the notions of essentiality or market power of such a

degree that it is tantamount to monopoly or deprivation of an input

necessary to effective competition.” Visa's Nov. 24, 1992, Mem., at

21.

Section 2 provides:

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other person or

persons, to monopolize any part of the trade or commerce .. .

shall be deemed guilty of a felony . . .

15 U.S.C.A. § 2 (Supp. 1992).

53a

Visa’s argument raises legitimate economic policy issues.

Visa’s legal argument fails, however, because it is not supported by

the law-it is contradicted by the language of Section 1 of the

Sherman Act and all case law interpreting the Act. The law does not

recognize an antitrust exemption for a joint venture’s refusal to deal.

Such refusals are not insulated from the Rule of Reason examination.

All combined activities, whether contracts, conspiracies or

combinations, which restrain trade-even simple refusals to deal—are

subject to the reasonableness inquiry. Economic concerns cannot

change the legal structure of the antitrust laws. Nothing in the

Sherman Acct itself or in the case law Suggests that a refusal to deal

by a joint venture such as Visa is limited to Section 2 restrictions, or

that such a refusal is entitled to a special protective “screen” from

Section | scrutiny.

The Supreme Court addressed this issue in the Aspen case. The

Court did not limit the qualification of the right to dea! to Section 2

cases. Rather, the Court noted that the right is also qualified by

Section 1, stating that “[ujnder § 1 of the Sherman Act, a business

‘generally has a right to deal, or refuse to deal, with whomever it

likes, so long as it does so independently.” 472 U.S. at 601 n.27, 105

S.Ct. at 2856 n.27 (quoting Monsanto Co. v. Spray-Rite Serv. Corp.,

465 US. 752, 761, 104 S.Ct. 1464, 1469, 79 L.Ed 2d 775 (1984)

(emphasis added)). A firm’s right to refuse to deal is unqualified

only if it does so independently; a firm which acts in concert with

other firms is subject to full Section | antitrust scrutiny.'®

'9 Visa cites Copperweld Corp. v. Independence Tube Corp., 467

U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984), as support for its

argument. Visa argues: “Applying the standard that properly governs

restrictions on competition by or among members to a refusal to share

property is, in our view, as inappropriate as treating a ‘conspiracy’ between

a parent and its subsidiary as a conspiracy subject to Section 1.” Visa's Oct

26, 1992, Memorandum in Support of Motion for Judgment Under Rule 50 ;

at 10 (emphasis in original).

The court finds no merit in this argument. Copperweld offers no

support for Visa’s position. Copperweld stands for the simple proposition

that a parent and its subsidiary constitute a single entity for antitrust

purposes. 467 U.S. at 777, 104 S.Ct. at 2744. As such, their activities are

not governed by Section |. The Court focused on the distinction between the

S4a

Visa’s argument concerning the economic benefits of a joint

venture’s refusal to deal, as opposed to other joint venture restraints,

is not entirely ielevant to the Section | inquiry. In some

circumstances, the distinction between the two types of restraints may

be important. For example, the distinction may be relevant in the

court’s determination whether to apply the per se illegality

presumption. An agreement to limit competition by or among

members of the joint venture is more likely to harm competition than

is a simple refusal to deal with a competitor. Therefore, intrasystem

restraints such as price-fixing or output limitations, are usually struck

down as illegal per se, whereas simple refusals to deal are more likely

to be governed by a complete standard Rule of Reason analysis. See

Las Vegas Sun, Inc. v. Summa Corp., 610 F.2d 614, 619 (9th Cir

1979), cert. denied, 447 U.S. 906, 100 S.Ct. 2988, 64 L.Ed.2d 855

(1980); Fount-Wip, Inc. v. Reddi-Wip, Inc , 568 F.2d 1296, 1300 (9th

Cir. 1978).

Visa's argument is also reicvant to the fact-finder. Under the

Rule of Reason, the jury may consider all evidence of harmful and

beneficial effects. Economic arguments concerning the preservation

of private property incentives may be, and in this case certainly were,

presented to the jury as evidence of beneficial effects.

Thus, both the court and the jury may consider the economic

implications of a refusal to deal. This argument, however, does not

alter the legal standard. All restraints imposed by joint action,

whether simple refusals to deal or restrictions on competition among

the members, are governed by Section |’s Rule of Reason analysis.

What Visa gains from its legal argument is an escape from a finding

that Bylaw 2.06 is per se illegal, not the opposite result of some form

of per se non-illegality.

This notion is illustrated in several cases. For example, in

Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89

independent activities of a single entity and the concerted conduct of

multuple entities. It found no “joint activity” and therefore Section | was not

applicable. /d. The holding of the case has no application whatsoever to the

issue in this case regarding the application of Section | to joint venture

activity, regardless of the fact that there are different types of agreements

among joint venture members.

55a

L.Ed.2d 2013 (1945), the Supreme Court struck down a joint

venture’s refusal to deal as a violation of Section | of the Sherman

Act based on a Rule of Reason analysis. There, the Court was called

upon to consider whether certain bylaws of the Associated Press, a

joint venture, constituted an unreasonable restraint of trade. The

bylaws “granted AP members powers to impose restrictive conditions

upon admission to membership of non-member competitors.” 326

U.S. at 6, 65 S.Ct. at 1418. Thus, similar to the present case, the

bylaws allowed members to refuse membership to existing

competitors. The restriction constituted a refusal to share property

with a competitor. The Court determined that the restraint was

unreasonable under Section 1.

The Court rejected the defendant’s plea for special treatment

based on notions of private property. It stated:

It has been argued that the resurictive By-Laws should be

treated as beyond the prohibitions of the Sherman Act,

since the owner of the property can choose his associates

and can, as to that which he has produced by his own

enterprise and sagacity, efforts or ingenuity, decide for

himself whether and to whom to sell or not to sell. While

it 1s true in a very general sense that one can dispose of his

property as he pleases, he cannot “go beyond the exercise

of this right, and by contracts or combinations, express or

implied, unduly hinder or obstruct the free and natural flow

of commerce in the channels of interstate trade.” _.. The

Sherman Act was specifically intended to prohibit

independent businesses from becoming “associates” in a

common plan which is bound to reduce their competitor’s

opportunity to buy or sell the things in which the groups

compete. Victory of a member of such a combination over

its business rivals achieved by such collective means

cannot consistently with the Sherman Act or with practical,

everyday knowledge be attributed to individual “enterprise

and sagacity”; such hampering of business rivals can only

be attributed to that which really makes it possible—the

collective power of an unlawful combination. That the

object of sale is the creation or product of a man’s

ingenuity does not alter this principle.

56a

Associated Press, 326 U.S. at 14-15, 65 S.Ct. at 1422 (emphasis in

original) (citation omitted). The Court did not apply a special

“screen” to the refusal to deal, nor did it require a heightened

showing of monopoly power or the existence of “essential

facilities.”"*° Rather, the Court used the Rule of Reason to find the

restraint unreasonable.

This case makes it clear that notions of private property and

protection of incentives to create are not entitled to special protection

from the antitrust laws. Although such notions are important policy

considerations and may be important to the factual Rule of Reason

inquiry, they may not be used to avoid antitrust scrutiny.

Reazin v. Blue Cross & Blue Shield, 899 F.2d 951 (10th Cir.),

cert. denied, 497 U.S. 1005, 110 §.Ct. 3241, 111 L.Ed.2d 752 (1990),

is also instructive on this issue. There, an insurance company, Blue

Cross, conspired with two hospitals to injure a third hospital which

was affiliated with a competitor. Blue Cross terminated its contract

with the third hospital and structured its contract with the other two

SO as to increase the costs of the third hospital. Jd. at 954-55. The

agreement was challenged as an unreasonable restraint of trade under

Section 1. The restraint was submitted to a jury for determination

under the Rule of Reason. The jury found a violation of Section 1.

Id. at 955. On appeal, the Tenth Circuit upheld the jury’s findings.

Id. at 972.

The defendant’s conduct in Reazin is comparable, although not

completely analogous, to Visa’s conduct in the present case. Like

Visa, Blue Cross’s conspiracy constituted an exercise of the right to

deal and to refuse to deal. No special standards were applied to the

restraint despite the fact that the plaintiff hospital was a viable,

thriving competitor. The restraint was struck down because it was

found to substantially harm competition. Although Reazin involved

a vertical restraint of trade, the case supports the proposition that a

Associated Press is often referred to as a so-called “essential

facilities” case. As discussed in Part 1.A.4.c. of this Opinion, Associated

Press does not involve a facility that was essential to the existence of the

non-Associated Press newspapers as rival, on-going concerns. There is no

doubt the facility in question—membership in Associated Press—was very

important to the plaintiffs, but it was, strictly speaking, not essential.

57a

restraint imposed by a simple refusal to deal is not subject to special

treatment, but rather is to be judged by the same standard as all other

Section 1 restraints.”!

Visa’s legal argument must fail for another reason as well-it is

not applicable to the facts of this case. Even if the court were to grant

special legal deference to a simple refusal to deal, Bylaw 2.06 would

not qualify for such special treatment. The court finds, contrary to

Visa’s position, that Bylaw 2.06 is more than a simple refusal to deal.

Rather, as Sears argues, Bylaw 2.06 may also be a restriction on

intersystem competition in the general purpose charge card market

because it prohibits current Visa members from developing their own

proprietary cards.”

7! At the December 22, 1992, motion hearing, Visa pointed out that

Reazin was distinguishable from the instant case, noting that the two would

be analogous if Visa had conspired with merchants to deal only with Visa

members and not with Discover. The court agrees that Reazin's value here

is limited to showing that a Rule of Reason analysis is appropriate in Section

| refusal to deal cases.

* Visa argues that Sears lacks standing to make this argument.

Because Sears has apparently suffered no injury from the disincentive

aspects of Bylaw 2.06, Visa argues that Sears is prohibited from raising this

argument to the court or jury. The issue of Sears’ standing and injury is

discussed in Part I.C. of this Opinion. Sears properly argued the disincentive

aspects of Bylaw 2.06 to the court and the jury. Although standing is

required to challenge a given restraint, it is not necessary to have standing

as to each alleged harmful effect of the restraint. Sears has standing to bring

this action because of its exclusion from the Visa system. A party with

proper standing may present evidence as to all anticompetitive effects of the

challenged restraint, whether or not it has suffered direct antitrust injury

flowing from each effect. The question is actually one of admissibility of

the evidence, not one of standing. The court found the disincentive evidence

to be clearly relevant to the harmful effects issue. The court further found

that its probative value was not outweighed by unfair prejudice or any of the

other factors set forth in Rule 403 of the Federal Rules of Evidence.

58a

It is undisputed that Visa intended the restrictions of Bylaw 2.06

to apply to current Visa members as well as non-members.” Because

of the bylaw, current Visa members who develop successful,

competitive proprietary cards are subject to expulsion from the Visa

system. Sears argues that this imposes a substantial disincentive for

Visa members to develop competing proprietary cards. As such, Visa

is not simply refusing to share its property with competitors, it is

limiting the way in which its own members may compete within the

general purpose charge card market. Such a restriction might be

likened to a scheme to fix prices, or to limit output to geographical

areas. It is an agreement by multiple entities to limit the way in

which they compete with each other. It is true that Visa members

compete as to price and output of Visa cards within the system.

However, Bylaw 2.06 arguably prohibits, or at least substantially

hinders, potential intersystem competition by Visa members who may

wish to issue their own proprietary cards.

The disincentive aspect of Bylaw 2.06 is somewhat analogous

to the restraint discussed in North American Soccer League v.

National Football League, 670 F.2d 1249 (2d Cir.), cert. denied, 459

U.S. 1074, 103 S.Ct. 499, 74 L.Ed.2d 639 (1982). There, the

National Football League, a joint venture comprised of professional

football teams, enacted a rule forbidding its members from obtaining

or retaining ownership of any other professional sports team in any

other league. Jd. at 1250. The rule, while allowing for intrasystem

competition within the league, restricted the ability of league

members to engage in intersystem competition in the relevant market.

3 Although such an interpretation of Bylaw 2.06 is not apparent on

its face, Visa has made it clear that the bylaw applies to current members as

well as new applicants. Furthermore, after the amendment to Bylaw 2.06

was passed, Visa later amended Bylaw 2.10, to directly prohibit all current

Visa members from issuing other proprietary, competitive cards. This issue

is discussed further in this court’s ruling on Sears’ Motion for an Order

Enforcing its Rights Under Federal Banking Law. 784 F. Supp. 822, 832-34

(D. Utah 1992).

59a

The restraint was struck down as a violation of Section 1, pursuant to

the Rule of Reason.** /d. at 1261.

In conciu.ion, Visa’s arguments concerning private property and

the right of refusal to deal must fail for two reasons: A joint venture’s

private property rights are not subject to special legal treatment under

the antitrust laws, and Bylaw 2.06 is not a simple refusal to deal.

b. Joint Ventures Under the Antitrust Laws

The next principle of Visa’s legal argument goes to the manner

in which joint ventures are treated under the antitrust laws. Visa

argues that because of the beneficial aspects of joint ventures, they

should be given deferential treatment.

Visa first emphasizes the economic benefits of a joint venture.

A “true” joint venture, it is argued, is one in which single firms join

together to create products. The combining of efforts gives the joint

venture sufficient size and power to accomplish tasks which could

not be accomplished by a single firm individually. Thus, it is argued,

joint ventures are beneficial to consumers.

Visa also stresses that joint ventures are economically preferable

to outright mergers. Members of a joint venture retain their

individual identities, and are free to compete between and among

themselves. A merger, on the other hand, results in a large, single

entity which has no real competition within itself. Thus, a joint

** Such restrictions often trigger per se illegality presumptions.

However, as discussed in Part LA.l.b. of this Opinion, the per se

presumption may not be proper when the restraint has the potential for

legitimate, beneficial effects, or if it is necessary for the product to be

available at all. See North American Soccer, 670 F.2d at 1259.

Thus, although it could be argued that Bylaw 2.06 is subject to the per

se illegality presumption, the court has found the presumption is not proper

in this case. Visa has presented substantial evidence and argument as to the

beneficial aspects of Bylaw 2.06. Accordingly, the reasonableness of the

bylaw should be determined by the jury under the Rule of Reason.

Sears has apparently conceded this point. It has not argued for a per

se illegality declaration by the court. Rather, it agrees with the court’s

decision to submit the claim to the jury.

60a

venture retains many aspects of competition, whereas an outright

merger eliminates all intrasystem competition.

Based on this analysis, Visa submits that “the antitrust laws give

joint ventures more, not less, leeway than independent entities in their

conduct.” Visa’s Oct. 26, 1992, Memorandum in Support of Motion

for Judgment under Rule 50, at 11 (emphasis in orginal) (citing

Broadcast Music, Inc. v. Columbia Broadcasting Sys., 441 U.S. 1, 23,

99 S.Ct. 1551, 1564, 60 L.Ed.2d 1 (1979)). Visa asserts that holding

joint ventures subject to strong antitrust scrutiny is harmful to

consumers. Applying a strict standard to joint ventures, it is argued,

discourages the incentive to create joint ventures. This disincentive

leaves potentially beneficial projects to be undertaken (if undertaken

at all) by smaller, less-efficient single firms, or results in outright

mergers which eliminate all competition between the merging firms.

See Visa's Nov. 24, 1°92. Mem., at 19 n.16.

Visa asserts that the Visa joint venture is a true, product-creating

joint venture in which “its members have come together to create a

new product, through nsk and innovation, that none of its members

could have created individually.” Jd. at 11. Visa's formation as a

joint venture, it is argued, has therefore been beneficial to consumers.

As such, the activities of the joint venture should receive greater

leeway under the antitrust laws.

Visa’s argument on this point raises legitimate policy

considerations. It sounds logical and well-reasoned. It suffers,

however, from one flaw-it is entirely inconsistent with the law. “The

theory that a combination of actors can gain exemption from § | of

the Sherman Act by acting as a ‘joint venture’ has repeatedly been

rejected by the Supreme Court.” North Am. Soccer League v.

National Football League, 670 F.2d 1249, 1257 (2d Cir.), cert.

denicd, 459 U.S. 1074, 103 S.Ct. 499, 74 L.Ed.2d 639 (1982). Joint

ventures are treated differently from single entities under the antitrust

laws based on the very structure of the Sherman Act. “[T]he Act’s

plain language leaves no doubt that Congress made a purposeful

choice to accord different treatment to unilateral and concerted

conduct.” Copperweld Corp. v. Independence Tube Corp., 467 U.S.

752, 775, 104 $.Ct. 2731, 2744, 81 L.Ed.2d 628 (1984).

6la

Section | applies only to “contracts, combinations and

conspiracies,” or in other words, joint activity. It has no effect

whatsoever on a single firm that acts alone. A single firm, acting

independently, can restrain trade in any manner without violating

Section 1. Unless it runs afoul of the monopoly prohibitions of

Section 2, it is immune from antitrust scrutiny.”

The distinction between Sections | and 2 is important. When

firms act in concert, they are subject to scrutiny under both sections.

See Copperweld, 467 US. at 774-75, 104 S.Ct. at 2743. Because

joint ventures, by their very nature, engage in combined activity, their

conduct is continually subject to antitrust scrutiny under Section 1.

The law is not unclear in this regard. The United States Supreme

Court explains this issue thoroughly in Copperweld:

Any reading of the Sherman Act that remains true to

the Act’s distinction between unilateral and concerted

conduct will necessarily disappoint those who find the

distinction arbitrary. It cannot be denied that § I's focus on

concerted behavior leaves a “gap” in the Act’s proscription

against unreasonable restraints of trade. An unreasonable

restraint of trade may be effected not only by two

independent firms acting in concert: a single firm may

restrain trade to precisely the same extent if it alone

possesses the combined market power of those same twu

firms. Because the Sherman Act does not prohibit

unreasonable restraints of trade as such—but only restraints

effected by a contract, combination, or conspiracy—it leaves

untouched a single firm’s anticompetitive conduct (short of

threatened monopolization) that may be indistinguishable

in economic effect from the conduct of two firms subject

to $ | liability.

467 U.S. at 774-75, 104 S.Ct. at 2743-44 (citation omitted).

Section 2, of course, applies to all entities, whether acting alone

or in concert. No entity, or group of entities, may act to monopolize or

attempt to monopolize without violating Section 2. Thus, the Sherman Act

makes a “basic distinction between concerted and independent action.”

Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761, 104 S.Ct. 1464,

1469, 79 L.Ed.2d 775 (1984).

62a

Regardless of Visa’s policy arguments, the simple fact of the

matter is that joint ventures are subject to Section |’s Rule of Reason.

This is the structure of the Sherman Act. The structure may be

arbitrary. It may or may not be economically unsound. It is,

however, the law.

This is not to say that a joint venture’s status as a legitimate,

product-creating venture is not relevant to the Rule of Reason

analysis. This argument, similar to Visa’s private property argument,

may be presented to the jury under the Rule of Reason.” The nature

and purpose of the joint venture is highly relevant to the issues of

anticompetitive intent and effect.

The argument is also relevant to the court’s determination

whether to apply per se illegality. As discussed in Part 1.A.1.b. of this

Opinion, under certain circumstances, activities which otherwise

would be declared illegal per se may be spared the presumption and

submitted to a jury for Rule of Reason inquiry. When the restraint

has an arguable iegitimate purpose or effect, or if the restraint is such

that it 1s necessary for the product to exist at all, per se analysis is

improper. Joint ventures often escape the per se illegality

presumption on these grounds. See Northwest Wholesale Stationers,

Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 296-98, 105

S.Ct. 2613, 2620-21, 86 L.Ed.2d 202 (1985); NCAA v. Board of

Regents of the Univ. of Okla., 468 U.S. 85, 100-01, 104 S.Ct. 2948,

2959-60, 82 L.Ed.2d 70 (1984); Broadcast Music, Inc. v. Columbia

Broadcasting Sys., 441 U.S. 1, 23, 99 S.Ct. 1551, 1564, 60 L.Ed.2d

6 Applying this analysis to the present case, Visa’s expert witness,

Professor Richard Schmalensee, stated at trial:

{I]t makes no more economic sense to require Visa to share its

property with Discover, because it is an association of 6,000

people, than it would make to require Discover to share its

property with others simply because it has been selfish in some

sense and not shared at all. Neither kind of reasoning makes

sense.

(Tr. at 2275). This is a proper economic factual argument, but it does not

reinvent the meaning of Section |. Unless Discover possesses monopoly

power, as a single business it is not required to share its property.

63a

| (1979); North Am. Soccer League v. National Football League, 670

F.2d 1249, 1259 (2d Cir. 1982).

Thus, the existence of a joint venture may save an otherwise

facially pernicious restraint from per se illegality, in favor of a jury’s

factual Rule of Reason analysis. In this limited respect, joint ventures

receive greater leeway than single firms which combine and conspire

to restrain trade.

This point is illustrated by Broadcast Music There, a joint

venture’s price-fixing restraint was such that it ordinarily would have

been declared illegal per se. The court, however, refused to declare

the restraint illegal per se, but rather, submitted it to “a more

discriminating examination under the rule of reason.” 441 US. at 24,

99 S.Ct. at 1565. The court found the per se presumption improper

because the restraint imposed by the joint venture was necessary for

the product to be available at all. Jd at 23, 99 S.Ct. at 1564.

Visa’s reliance on Broadcast Music as support fer its legal

argument is misplaced. Broadcast Music merely stands for the

proposition that joint ventures may escape the per se presumption.

Contrary to Visa’s position, there is no special treatment or “screen”

given to efficiency-enhancing joint ventures that would justify

dismissing Sears’ claim as a matter of law.

c. . “Essential Facilities” as a Legal Requirement

The final aspect of Visa’s economic argument is that under the

circumstances of this case, a showing of essential facilities is required

as a matter of law. Visa asserts that this heightened standard is

warranted on the basis of its two economic arguments. When a joint

venture does nothing more than to refuse to share its property with a

competitor, Visa argues, the excluded competitor has no antitrust

claim—absent essential facilities. Accordingly, Visa asserts that for

Sears to prevail, it must show that membership in Visa is essential to

Sears’ existence in the relevant market.

Sears clearly cannot make such a showing. Sears is a successful

competitor in the relevant market. It does not need membership in

Visa in order to compete in the general purpose charge card market.

Through the Discover Card, Sears has shown the ability to compete

successfully outside of the Visa system. Visa argues, therefore, that

64a

Visa’s exclusion of Sears cannot be an antitrust violation and Sears

as a matter of law, cannot prevail on its claim.

It is Visa’s claim, however, that fails as a matter of law. There

is nothing in the antitrust laws which requires Sears to meet a

heightened standard of a showing of essential facilities in order to

receive a jury trial. A showing of essential facilities is never required

as a matter of law. The standard which applies to Sears is exactly the

same standard applied to all plaintiffs in Section 1 cases—the plaintiff

must show that the restraint substantially harms competition in the

relevant market and that it has suffered antitrust injury therefrom.

The plaintiff need not show that the restraint destroys its ability to

compete. Rather, it need only show that the restraint harms

competition and consumers. Because a restraint may substantially

harm competition without eliminating the competitor, a plaintiff may

prevail under Section 1 without proving essential facilities.~’

This is not to say that a showing of essential facilities is not

relevant under the Rule of Reason. Although essential facilities is not

required as a legal matter, it may be extremely important as a factual

matter. Certain restraints may be such that they will not be found

unreasonable under the antitrust laws unless a showing of essential

facilities is made. When a plaintiff is excluded from a facility which

is necessary to compete, it is more likely the exclusion is

unreasonable. The more essential the facility, the more likely a duty

to share will be imposed. The determination, however, is made by

the trier-of-fact under the Rule of Reason.

Visa relies on several cases in support of its essential facilities

argument. United States v. Terminal Railroad Association, 224 US.

383, 32 S.Ct. 507, 56 L.Ed. 810 (1912), is the leading so-called

“essential facilities” case. There, the defendants, by virtue of their

control of several bridges over the Mississippi River, controlled every

reasonable means of railway access into and out of the city of St.

Louis. The United States brought suit under the Sherman Act to

compei defendants to share access to the bridges with their

Of course, the plaintiff must establish that it has suffered antitrust

injury from the restraint. This does not require, however, a showing of

inability to compete. A showing of negative impact on the ability to

compete is sufficient.

65a

competitors. Those excluded from use of the bridges were effectively

shut out of the market. Thus, defendants controlled an essential

facility for competition in the market. Jd. at 397, 32 S.Ct. at 510.

The Court imposed a duty to share access to the bridges, based upon

both Sections 1 and 2 of the Sherman Act. Because railway access

was essential for competition, the Court held that the exclusion of

competitors constituted a combination in unreasonable restraint of

trade. Jd. at 411-12, 32 S.Ct. at 516.

This holding, however, does not support Visa’s position. The

case stands for the simple proposition that the existence of essential

facilities may result in the imposition of a duty to deal. This does not

mean, however, that a showing of essential facilities is required

before a duty to deal will be imposed.

Similarly, in Associated Press v. United States, 326 U.S. 1, 65

S.Ct. 1416, 89 L.Ed. 2013 (1945), newspapers excluded from

membership in the Associated Press sought access to the association.

The exclusion from membership caused the excluded parties to suffer

harm, “hindered and impeded the growth of competing newspapers,”

and set excluded parties at a “competitive disadvantage.” Jd. at 12,

18, 65 S.Ct. at 1420, 1423. It did not, however, destroy their ability

to compete. Many of the excluded newspapers had been and were

able to compete in the market without membership in the Associated

Press system. Thus, membership was not “essential,” and certainly

not as important as the bridges at issue in Terminal Railroad

Despite the fact that membership in Associated Press was not

“essential,” the exclusion was struck down as a violation of Section

1. As in Terminal Railroad, the importance of the facility in

Associated Press was a major, if not the controlling, factor in the

fact-finder’s determination that the defendants’ joint agreement was

an unreasonable restraint of trade. Neither case, however, stands for

the proposition that without a showing of essential facilities, a

plaintiff's case must be dismissed as a matter of law.

Many antitrust refusal to deal cases brought under Section | are

maintained by plaintiffs who are viable competitors in the relevant

market. In Reazin v. Blue Cross & Blue Shield, 899 F.2d 951 (10th

Cir.), cert. denied, 497 U.S. 1005, 110 S.Ct. 3241, 111 L.Ed. 2d 752

(1990), a competing hospital was successful in its Section | claim,

66a

even though it had been, and continued to be, a successful competitor

in the relevant market. Therefore, a contract with Blue Cross was not

an essential facility necessary for the hospital to successfully

compete. In Northwest Wholesale Stationers, Inc. v. Pacific

Stationery & Printing Co., 472 U.S. 284, 296-98, 105 S.Ct. 2613,

2620-21, 86 L.Ed.2d 202 (1985), the plaintiff was a viable competitor

and no essential facilities were established, yet its Section | suit was

allowed to proceed. See also FTC v. Indiana Fed'n of Dentists, 476

U.S. 447, 455-56, 106 S.Ct. 2009, 2016, 90 L.Ed.2d 445 (1986)

(dentists’ refusal to cooperate with insurers’ request for X-rays did

not involve essential facilities but did withhold particular desirable

service from customers); Jefferson Parish Hosp. Dist. No. 2 v. Hyde,

466 US. 2, 30, 104 S.Ct. 1551, 1567, 80 L.Ed.2d 2 (1984)

(anesthesiologist bringing Section | action a viable competitor),

Rickards v. Canine Eye Registration Found. , 783 F.2d 1329, 1332-33

(9th Cir.) cert. denied, 479 U.S. 851, 107 S.Ct. 180, 93 L.Ed.2d 115

(1986) (veterinarians bringing counterclaim did not possess

dominance in the relevant market nor did they control an essential

facility).

The case law indicates that a showing of essential facilities is not

required for a plaintiff to prevail under Section 1. Visa has failed to

show any reason for the imposition of a higher standard for Sears’

exclusion. The exclusion, therefore, was properly tried to the jury

under the Rule of Reason.

d. Summary and Conclusion of Visa’s Economic Legal

Argument

In summary, the economic principles upon which Visa relies do

not support its argument for judgment as a matter of law. There are

no legal principles granting antitrust immunity to a joint venture for

its refusal to share its property. Such a refusal is subject to the same

standard which governs other combinations in restraint of

trade—Section |’s Rule of Reason.

These economic arguments may be highly relevant to the

reasonableness inquiry. They may be strong and persuasive evidence

of the lack of anticompetitive effects. The jury is free to consider

such evidence when weighing the benefits and harms of a given

67a

restraint.” If a refusal to deal actually benefits, rather than harms,

competition, it will presumably be upheld by the jury’s verdict.

Visa submits that such a system is poor economic policy

Imposing joint venture conduct to a jury’s Section | scrutiny, it is

argued, harms consumers and competition. Every action undertaken

by a joint venture is potentially subject to a Section | challenge. The

defense of such a challenge can be very costly-especially when a jury

trial is involved. Under the present system, unless a shorthand

presumption is used to dismiss the claim, the case must go to trial.

An antitrust defendant, even if eventually successful, must expend

significant time and resources in defending against the claim.

According to Visa, this threat of antitrust litigation acts as a

disincentive to the creation of joint ventures. No matter how

beneficial a joint venture may be, firms will be hesitant to combine

for fear of exposure to antitrust liability. Unless Visa’s legal

arguments are adopted and joint ventures such as Visa are shielded

from Rule of Reason jury trials, Visa argues, consumers will be

deprived of the benefits which otherwise could have been achieved

through the pooling of efforts in joint ventures.

The court recognizes that such a System may or may not produce

detrimental effects. However, such is the present legal system

imposed by the Sherman Act. The determination of policy was made

in 1890 by the United States Congress when it enacted the Sherman

Act. Congress determined that concerted action in restraint of trade

would be subject to antitrust scrutiny. It provided that challenged

restraints will be subject to litigation. It made no exceptions for joint

ventures, or for refusals to deal.

Visa’s arguments would shield potentially anti-competitive

behavior from antitrust scrutiny. Such arguments are not properly

made to the court. Policy arguments may not be used to contradict

or alter the law. As explained by the United States Supreme Court:

In the present case, Visa presented its economic arguments to the

jury in considerable detail. The jury presumably considered all of Visa’s

arguments when making its determination of the unreasonableness of Bylaw

2.06.

68a

The early cases also foreclose the argument that because of

the special characteristics of a particular industry,

monopolistic arrangements will better promote trade and

commerce than competition. That kind of argument is

properly addressed to Congress and may justify an

exemption from the statute for specific industries, but it is

not permitted by the Rule of Reason.

National Soc’y of Professional Eng’rs v. United States, 435 U.S. 679,

689-90, 98 S.Ct. 1355, 1364, 55 L.Ed.2d 637 (1978) (footnote and

citations omitted). Policy arguments, no matter how persuasive,

which seek to shield concerted conduct from antitrust scrutiny are of

no practical effect when addressed to the court as the grounds for

dismissal as a matter of law.

Visa’s policy arguments should be directed to Congress rather

than the court. It is not the role of this court to alter the law in order

to establish what the court may or may not feel is “proper” economic

policy. If the structure of Section | is arbitrary, unfair, or harmful to

consumers, changes should be made by Congress through exemption,

amendment, or repeal. “[W]hen Congress has desired to permit

cooperatives to interfere with the competitive system of business, it

has done so expressly by legislation.” Associated Press v. United

States, 326 U.S. 1, 14,65 S.Ct. 1416, 1421-22, 89 L.Ed. 2013 (1945).

It is not the province of the judicial branch to alter the law as

established by Congress.”

29 At trial, Visa’s expert witness, Professor Richard Schmalensee,

stated he had been involved in drafting a legislative proposal aimed at joint

ventures created for the purpose of research and development. (See Tr. at

2276-78). This proposal addressed an antitrust exemption to allow separate

companies to pool their efforts into research and development joint ventures,

thereby obtaining greater efficiencies, without the constant threat of being

declared illegal per se. This exemption from the antitrust laws was sought

from the legislative branch, not the judiciary.

Arguments made to Congress in favor of the exemption were similar

to those Visa makes here: every joint research and development effort by

two or more firms, no matter how desirable for competition and consumers,

was subject to a Section | lawsuit and a possible finding of per se illegality.

Competitors not involved in the joint research and development venture,

69a

In conclusion, Visa’s economic arguments were properly made

to the jury under the Rule of Reason. They may be properly raised

before Congress in considering new legislation. They are not,

however, based upon current law, sufficient to support judgment in

Visa’s favor as a matter of law.

B. Visa's “Factual Argument”

Having rejected Visa’s legal argument for judgment as a matter

of law, the court now tums to Visa’s factual argument. This

argument is slightly different in nature from the legal argument, but

it is based on essentially the same facts. Visa asserts that the facts of

this case are so lacking that no reasonable jury could have returned

a verdict in support of Sears’ Section 1 claim.

At the outset, the court acknowledges that its view of the

evidence differs from the jury’s findings. If the court had been the

fact-finder under Sears’ Sherman Act claim, it would most likely not

have concluded that keeping Sears out of the Visa system

substantially harms competition in the relevant market. In fact, the

court would have concluded that the harm to competition from letting

Sears into the Visa system is greater than any harm from keeping

Sears out. If it had been the fact-finder, the court would have been

inclined to find no net harm to competition from Bylaw 2.06.

The court feels this acknowledgement is helpful and appropriate

under the unique circumstances of this case. Visa’s Clayton Act

counterclaim was tried to the court in equity. Accordingly, the court

therefore, had every incentive to file such a suit. It was asserted that this

threat of litigation and per se illegality was hindering American progress,

and was one reason America was lagging behind other countries in certain

economic respects. The proponents of the proposed bill argued that without

the threat of per se illegality, more American firms would combine money

and talent for joint research and development projects. S. Rep. No. 427,

98th Cong., 2d Sess. 1 (1984), reprinted in 1984 US.CCAN. 3105.

The result of this effort was passage of the National Cooperative

Research Act of 1984. 15 U.S.C.A. § 4301 et. seq. (Supp. 1983 to 1991). It

took an exemption specifically enacted by Congress to achieve the desired

antitrust relief in the research and development area. No court has the power

to grant such an antitrust exemption.

70a

was required to conduct a thorough factual review of the relevant

market. In that regard, the court as a fact-finder was obligated to

determine whether allowing Sears, the owner of the Discover Card,

to also be a Visa member may substantially lessen competition in the

relevant inarket within the meaning of Section 7 of the Clayton Act.

The court’s factual inquiry involved consideration of all the relevant

economic and policy issues considered by the jury in connection with

Sears’ Sherman Act claim. As a result, the court’s inquiry on the

Clayton Act counterclaim is in significant respects the opposite of the

jury’s inquiry on the Sherman Act claim. Whereas the jury was

asked to determine whether it violated the Sherman Act for Visa to

keep Sears out, the court was asked whether it violated the Clayton

Act to let Sears in. .Accordingly, hereafter in Part II of this Opinion,

the court performs its Clayton Act fact-finding role. Its factual

conclusions are identical to those it gratuitously expresses here. The

one and only reason the court does so at this point is to emphasize

and strengthen the court’s decision that notwithstanding the factual

attitude of the trial judge, Sears’ evidence as to the Sherman Act was

reasonable, credible and capable of supporting the verdict reached by

the jury.

Specifically, as explained more fully in its Clayton Act

discussion, the court believes that Bylaw 2.06 fosters intersystem

competition in the relevant market. Such competition is important in

the general purpose charge card market, with only five active

intersystem competitors (Visa, MasterCard, American Express,

Discover, and Diners Club/Carte Blanche). Simply adding another

high-priced card issuer, as Sears has always been with both the

Discover Card and the Sears charge card,” to the Visa system will

not solve the problem. It may provide short-term intrasystem

competitive benefits within the Visa system, but in the long run, in

the court’s judgment, the damages from such inclusion will outstrip

the benefits. Eventually, consumers will be left with one more top-

ten Visa issuer charging relatively high interest rates and a

30 The evidence showed that as of the time of trial, the Discover

Card had never charged less than a 19.8% annual percentage rate, the only

general purpose charge card never to have charged a lower rate. The Sears

Charge card used at Sears retail stores has historically charged an annual

percentage rate of approximately 21%.

EOE Eee

Tla

Visa/MasterCard system which will dominate the general purpose

charge card field to an even greater extent than it does today.

In addition, the court found Visa’s policy and economic

arguments to be the more compelling. As a factual matter, the court

found persuasive Visa’s positions regarding the need to protect joint

venture innovation, the importance of protecting private property, and

the economic and competitive consequences of keeping the owner of

the Discover Card out of the Visa System. The court found Visa’s

expert witness, Professor Richard Schmalensee, more compelling

than Sears’ expert witness, Professor James Kearl, and was persuaded

by Visa’s industry expert, Mr. Robert McKinley. Visa’s general

counsel, Mr. Bennett Katz, provided what the court felt was helpful

and persuasive evidence regarding the various business reasons why

Visa preferred to keep Sears out of the Visa system.*' The court does

not see the proposed Prime Option Visa card as the low-cost boon to

consumers that it is touted to be. In short, the court does not see the

facts Sears” way.

The court’s factual attitude, however, does not require an

overturning of the jury’s findings as a matter of law The fact that the

court may have ruled differently than the jury on the Sherman Act

does not warrant the granting of Visa’s Rule 50(b) Motion for

Judgment as a Matter of Law. It would be inappropriate for the court

to wrongly “substitute its judgment for that of the jury.”” Lucas v.

Dover Corp., Norris Div., 857 F.2d 1397, 1400 (10th Cir. 1988)

(quoting EEOC v. Prudential Fed. Sav. & Loan Ass'n, 763 F.2d

" Regardless of the intent and motivation of Visa’s member banks

in passing Bylaw 2.06, Mr. Katz, as Visa’s chief legal officer, expressed

concern about government regulation if Visa were to grow significantly

larger. Mr. Katz explained that if Sears were to become a Visa member and

as a result the Discover Card became less of a competitive force, the federal

government may well impose more intrusive regulations on the Visa

association or even require a dissolution or break-up of some kind. It is a

credible concern for a business in our free enterprise system to worry about

being run by the government, whether through the enactment of legislative

controls, executive branch administration, or perhaps worst of all, judicial

branch scrutiny and approval of its every move.

72a

1166, 1171 (10th Cir), cert. denied, 474 U.S. 946, 106 S.Ct. 312, 88

L.Ed.2d 289 (1985)).

The standard to be applied by the court under Rule 50(b) is net

based upon the court’s factual findings. Rather, the standard is

whether “there is no legally sufficient evidentiary basis for a

reasonable jury to have found for (the non-moving) party with respect

to that issue.” Fed.R.Civ.P. 50. A judgment as a matter of law is

“appropriate only when ‘the evidence points but one way and is

susceptible to no reasonable inferences which may sustain the

position of the party against whom the motion is made.” Prudential

Federal, 763 F.2d at 1171 (quoting Symons v. Mueller Co., 493 F.2d

972, 976 (10th Cir. 1974)). It is clear from the case law in this circuit

that in analyzing a Rule 50(b) motion, the court is “obligated to view

‘evidence and inferences most favorably to the nonmoving party”.

Rajala v. Allied Corp., 919 F.2d 610, 615 (10th Cir. 1990), cert.

denied, US._,111 S.Ct. 1685, 114 L.Ed.2d 80 (1991) (quoting

Zimmerman vy. First Fed. Sav. & Loan Ass'n, 848 F.2d 1047, 1051

(10th Cir. 1988)). “[T]he court must view the evidence and indulge

all inferences in favor of the pa

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