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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1609%3A2

## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1995
- **Citation:** 515 U.S. 1152

## Text

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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.

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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.

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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

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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.

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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.

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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

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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.”

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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 |

5

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).

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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

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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

1

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.'*

14

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.

1S

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-

19

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,

V.

VISA U.S.A. INC.,
Defendant.

VISA U.S.A. INC. and Visa International
Service Association, Delaware corporations,

Counterclaimants,
v.

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).

4

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

33a

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.

34a

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.

36a

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.

43a

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.

18

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
considera

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_1609%3A2. Public record. Not legal advice.