Opposition Brief — MountainWest Financial Corp. v. Visa U. S. A. Inc.

No. 94-1719 KY 12

i

In the Supreme Court axe

OF THE

United States

OCTOBER TERM, 1994

MOUNTAINWEST FINANCIAL CORPORATION,

Petitioner,

we

VISA USA INnc.,

Respondent.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Tenth Circuit

RESPONDENT’S BRIEF IN OPPOSITION

Of Counsel: ¢.

DALE A. KIMBALL

CLARK WADDOUPS

KIMBALL, PARR,

WappoupPs, BROWN & GEE

185 South State Street

Suite 1300

Salt Lake City, Utah 84147

(801) 532-7840

May 18, 1995

M. LAURENCE POPOFSKY

Counsel of Record

STEPHEN V. BOMSE

MARIE L. FIALA

RENATA M. Sos

ROBERT G. MERRITT

HELLER, EHRMAN, WHITE

& MCAULIFFE

333 Bush Street, Suite 3100

San Francisco, California 94104

(415) 772-6000

Attorneys for Respondent

Bowne of San Francisco, Inc., Law Printers (415) 362-2300

i

PARTIES TO THE PROCEEDING

Respondent VISA USA Inc. is a joint venture membership

corporation. The petitioner is properly identified in the Petition

for Writ of Certiorari.

RULE 29.1 LISTING

Pursuant to Rule 29.1, respondent VISA USA Inc. discloses

that it does not have subsidiaries or affiliates that have issued

shares to the public.

li

TABLE OF CONTENTS

Page

PARTIES TO THE PROCEEDING ..... 2. ccccccccees: i

8 & SRF... Frere rer meri es i

See Ge Fas PEE us boedesoesscsases ee ili

OPINIONS BELOW, JURISDICTION AND

STATUTORY PROVISION INVOLVED........... l

Sey Sa NE a0 n a ka ben eeaeedleaeenene) thal 2

COUNTER-STATEMENT OF THE CASE ........... 3

VISA amd Tesmer Cemepetttee ... wc ccc ccc cccncess 3

Intersystem (or Interbrand) Competition ............. 4

Ss 0k a5 ck da nuedea bak ees eee ce eens 6

Dean Witter’s Efforts to Become a VISA Member..... 7

We EE 6b 0 iss ok 065s weed eda ee eee 8

PURRr Hee WOMENS 6 6.66 Svs kc diceyscensenus¥ackse 11

The Court of Appeals Opinion ...................... 12

REASONS WHY THE WRIT SHOULD BE DENIED 13

I.

THERE IS NEITHER CONFLICT NOR ERROR IN

THE TENTH CIRCUIT’S ANALYSIS OF VISA’S

PIE DUPED 6 o.oo d cass 0dcwade¥ewctucen 13

Fai Se ee ED 660.5 o ke bu taw snes keen os 13

B. Efficient Joint Venture Membership Rules ......... 15

II.

THERE IS NO CONFLICT AMONG THE CIRCUITS

AS TO MARKET POWER; NOR DID THE

DECISION BELOW TURN ON MARKET POWER

tbh io naib nann edee een meeeeuaes sens 22

III.

THIS CASE IS INAPPROPRIATE FOR REVIEW IN

DEEPEN, (5 c< Knead bh Keke ee ead ean eee 27

a eer eer eer reer rhe 29

aetna il

lil

TABLE OF AUTHORITIES

Cases

American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d

DU EM BTOD orev sete cceeccesessseesesees

Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328

EE er eee eee ee

Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc.,

TES FOG 1555 CPie Cir. 19G6) .. nn cw cree eves

Brooke Group Ltd. v. Brown & W.'liamson Tobacco Corp.,

Se EE SO UEED sn ccewecacucsccesevacccess

Capital Imaging Assocs. v. Mohawk Valley Medical

Assocs., 996 F.2d 537 (2d Cir. 1992), cert. denied, 114

Ce i ivesexeesees

Cargill Inc. v. Monfort of Colorado, Inc. 479 U.S. 104

eee a eg

Edwin K. Williams & Co., Inc. v. Edwin K. Williams &

Co. — East, 542 F.2d 1053 (9th Cir. 1976), cert. denied,

RC

In re Detroit Auto Dealers Ass'n, Inc., 955 F.2d 457 (6th

Cir.), cert. denied, 113 S. Ct. 461 (1992) ...........

FTC v. Indiana Federation of Dentists, 476 U.S. 447

CS aCe aw hs Kaew 56060 b0b 00 ye 0s

Layne & Bowler Corp. v. Western Well Works, Inc., 261

EES EE ae ee ee ee

Los Angeles Memorial Coliseum Comm'n v. NFL, 726

F.2d 1381 (9th Cir.), cert. denied, 469 U.S. 990 (1984)

Miroyan v. Unite? States, 439 U.S. 1338 (1978) .......

National Bancard Corp. (NaBanco) v. VISA U.S.A., Inc.,

596 F. Supp. 1231 (S.D. Fla. 1984), affd., 779 F.2d 59

(ilth Cir.), cert. denied, 479 U.S. 923 (1986) .......

NLRB v. Pittsburgh S.S. Co., 340 U.S. 498 (1951) .....

North Am. Soccer League v. NFL, 670 F.2d 1249 (2d

Cir.), cert. denied, 459 U.S. 1074 (1982) ...........

27

29

28

14

iv

TABLE OF AUTHORITIES

CASES

Olympia Equip. Leasing Co. v. Western Union Tel. Co.,

797 F.2d 370 (7th Cir. 1986), cert. denied, 480 U.S. 934

COs ico ca eaeanknlcieaskoeaes enters 17, 18

Phil Tolkan Datsun, Inc. v. Greater Milwaukee Datsun

Dealers’ Advertising Ass'n. 672 F.2d 1280 (7th Cir.

Pissed cintesasiee recent citer etie sents es)

Polk Bros., Inc. v. Forest City Enters., 776 F.2d 185 (7th

a Sa od inca ged CAE wk Keen eese ie oe 13

Powell v. Nevada, 114 S. Ct. 1280 (1994) ............. 14

Premier Elec. Constr. Co. v. National Elec. Contractors

Assn. $14 F.2d 358 (7th Cir. 1987)............... 14

Reserve Supply Corp. v. Owens-Corning Fiberglass Corp.,

OT eee Oe GT cs CS 6h 64S aka eins eens tears 26

Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792

F.2d 210 (D.C. Cir. 1986), cert. denied, 479 U.S. 1033

Ce 5 ii 5 6a ea ck ce ee 14

SCFC ILC, Inc. v. VISA U.S.A. Inc., 936 F.2d 1096 (10th

a: RED sind ek ae A Se AR RE Chae enieee 8

Sanjuan v. American Bd. of Psychiatry & Neurology, Inc.,

OFS ee CF GE, BOD onc ki deck ce iccccwens: 10

Schachar v. American Acad. of Ophthalmology, Inc., 870

fe cot, 4° | ere re Pera 15, 22

Stamatakis Indus. v. King, 965 F.2d 469 (7th Cir. 1992) 13

Standard Oil Co. v. United States, 221 U.S. 1 (1911)... 18

Sullivan v. NFL, 34 F.3d 1091 (1st Cir. 1994), cert. denied,

te Re Ee | rr er penn rie 14

United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th

Cir. 1898), affd as modified, 175 U.S. 211 (1899) ... 15

United States v. Terminal R.R. Ass'n, 224 U.S. 383

CPs s abl eeker s oRKs cake Cana n kb encase 15, 18

Wilkerson v. McCarthy, 336 U.S. 53 (1949) ........... 14

ties —_ a —Ee

ee” eee

Vv

TABLE OF AUTHORITIES

Statutes and Rules

Page

Clayton Act § 7, 18 ULB.C. $18 2... ccc eccceceeessees 22

Other Authorities

DP. Aamnte. Ame BOW ooo vse veh esting se eneiensess 21, 27

Areeda, Essential Facilities: An Epithet in Need of Limit-

ing Principles, 58 Antitrust L.J. 841 (1990) ......... 17

D. Baker & R. Brandel, The Law of Electronic Fund

Transfer Systems (2d ed. 1988) ........... 60s eee 3, 5, 20

Baker, Compulsory Access to Network Joint Ventures

Under the Sherman Act: Rules or Roulette?, 1993 Utah

PS err Tor TS oT rer rer er ree ee 18

Balto, Access Demands to Payment Systems Joint Ven-

tures, 18 Harv. J.L. & Pub. Pol’y 636 (forth-

CN NN BIDE oo ha Sieben deca des ¥ensn ne esce's 5, 20

Balto, Antitrust and Credit Card Joint Ventures, 47 Con-

sumer Fin. L.€). Rep. 266 (1993) .......cccencceces 21

Blumenthal, Three Vexing Issues Under the Essential Fa-

cilities Doctrine: ATM Networks as an Illustration, 58

po a Sl ere err rrr ee 20

Carlton & Frankel, The Antitrust Economics of Credit

Card Networks, 63 Antitrust L.J. 643 (1995) ........ 18

Carlton & Salop, You Keep on Knocking But You Can't

Come In: Evaluating Restrictions on Access to Input

Joint Ventures, Working Paper No. 111, Center for the

Study of the Economy and the State, The University of

Celotens CAME TSGS) onc cc ccccccccecessvevescenss 18

Cole, Petitioning for Certiorari in the Big Case, Litigation,

BE Bs OE Ok vo ws osc nese sannccasdsccciuass 26

vi

TABLE OF AUTHORITIES

OTHER AUTHORITIES

Page

Constantine, Presentation (Dec. 6, 1990), in Economists’

Perspectives on Antitrust Today: Antitrust Issues in Reg-

ulated Industries, (C. River Assocs. eds., 1991)....... 5

Dep’t. of Justice, Antitrust Enforcement Guidelines for

International Operations, reprinted in 4 Trade Reg. Rep.

(CCH) © RGR Cie ayaa x ccnnebeeas Pe cnanceses 20

Dep’t. of Justice & FIC, Statements of Enforcement

Policy and Analytical Principles Relating to Health Care

and Antitrust, 67 Antitrust & Trade Reg. Rep. (BNA)

(Sump. Bagh. Fi Fee as Gaaaeenkveesbcadeaesa sete 20

Einhorn, One Word: Plastic, Barrons, Sept. 19, 1994, at29 =. 21

Evans & Schmalensee, Economic Aspects of Payment

Card Systems and Antitrust Policy Toward Joint Ven-

tures, 63 Antitrust L.J. (forthcoming June 1995) ..... 24

Hay, Market Power in Antitrust, 60 Antitrust LJ.

OOF (TDI ocanh cue pee ee ee 23, 26

Hovenkamp, Exclusive Joint Ventures and Antitrust Pol-

icy, 1995 Colum. Bus. L. Rev. | (forthcoming Summer

1995) . 0.08 isvendaukeee eee tene eee 18

Kattan, Antitrust Analysis of Technology Joint Ventures:

Allocative Efficiency and the Rewards of Innovation, 61

Antitrust Ld. SEF CURR 5 ies vic b ee wavseee dees ans 19, 20

Pitofsky, A Framework for Antitrust Analysis of Joint

Ventures, 54 Antitrust L.J. 893 (1985) ............. i9

Pitofsky, New Definitions of Relevant Market and the

Assault on Antitrust, 90 Colum. L.Rev. 1805 (1990) .. 23

No. 94-1719

In the Supreme Court

OF THE

United States

OCTOBER TERM, 1994

MOUNTAINWEST FINANCIAL CORPORATION,

Petitioner,

¥.

VISA USA INc.,

Respondent.

On Petition for Writ of Certiorari

to the United States Court of Appeals

for the Tenth Circuit

RESPONDENT'S BRIEF IN OPPOSITION

Respondent VISA USA _ Inc. (“VISA”) opposes

MountainWest Financial Corporation’s (“Dean Witter’s”) Peti-

tion for a Writ of Certiorari to review the judgment of the United

States Court of Appeals for the Tenth Circuit.

OPINIONS BELOW, JURISDICTION AND

STATUTORY PROVISION INVOLVED

The petition properly identifies the opinions below, the basis for

the district court’s and the court of appeals’ jurisdiction, as well as

Dean Witter’s basis for invoking this Court’s jurisdiction. The

petition also sets forth the text of the relevant statute.

2

INTRODUCTION

Dean Witter asserts that this is a “landmark” case. Its own

petition demonstrates otherwise. To be sure, the payment card

industry is important and large damages are claimed. But those

are not grounds for review and there is nothing exceptional about

the court of appeals’ decision in this case. It applied familiar legal

principles and simply held that, on the record presented, peti-

tioner failed to prove any cognizable harm to competition.

Faced with that unexceptional holding, petitioner labors to

construct supposed “conflicts” among the circuits (three-way no

less) on the issues of (a) ancillarity and (b) market power. But to

do so it must materially contort the decision below, including the

legal principles and factual record on which it was based. Moreo-

ver, it elevates differences of judicial expression into fundamental

jurisprudential disputes that none of the supposedly “conflicting”

cases even recognize, let alone deem of great moment. It is surely

telling that the “conflicts” claimed by petitioner not only were

unnoticed by the Tenth Circuit, but were not even called to its

attention by Dean Witter.

This is an easy case, both factually and legally. The issuance of

general purpose charge cards is one of the most remarkably

diffuse and competitive lines of business in American commerce.

That fact was demonstrated, without dispute, at trial by evidence

of the market’s virtually “atomistic” character, the near total

absence of barriers to entry, and consistent growth in both output

and new card programs. App. 16a. Given that market structure, it

was scarcely surprising that petitioner offered no evidence of

supracompetitive profits or other competitive failure.

Instead, Dean Witter demanded access to VISA’s trademarks

and goodwill so that it could follow a preferred “branding strat-

egy” (its term) and avoid “cannibalizing” (ditto) its own Dis-

cover card by offering both a proprietary card (Discover) and a

further brand of VISA. In short, it demanded judicially com-

pelled access to VISA’s property (to wit, a compulsory trademark

license) without any proof of monopolization, “‘essentiality,”

market failure, or even its inability to be an effective competitor in

the market.

re

Sue Aiea Ala tli all

1S bese IABP et ne se a at Sean alt

3

Such a claim utterly confounds the most fundamental notions

of protecting private property and encouraging investment in

innovation and entrepreneurial risk-taking upon which that pre-

cept rests. It is small wonder, therefore, that the Tenth Circuit

had no difficulty rejecting Dean Witter’s claims as a matter of

law, that not a single judge of that court voted to grant rehearing,

and that even the district judge (although feeling constrained to

honor the jury’s decision) observed that “I would have hung the

jury before I would have come back with that verdict.” R. at

1592.

COUNTER-STATEMENT OF THE CASE

VISA and Issuer Competition

VISA is a joint venture membership corporation. Its basic

structure and operation remain largely unchanged from its early

days when it pioneered development of the general purpose

charge card.” It operates pursuant to a system of rules that govern

its interdependent financial exchange network. It is responsible

for providing the systems and processes through which millions of

VISA transactions are approved, cleared and settled between

members every day. R. at 423-34, 1408.

VISA, itself, does not issue cards or contract with merchants.

Nor does it limit the finance rates, annual fees or other terms on

'Or, as he put it in denying plaintiff's post-trial request for an

injunction:

To this moment I don’t see how a company the size of Sears

Roebuck [Dean Witter’s parent at the time of trial] has to resort to

our antitrust laws to obtain the property of a joint venture, or a

single company or anyone else, when they have shown their ability,

impressively so, to be successful and viable and very profitable in

this very arena. (R. at 1592).

?For a description of the growth of general purpose charge cards, see

D. Baker & R. Brandel, The Law of Electronic Fund Transfer Systems

49 1.02[3], 23.02[1] (2d ed. 1988) (“EFT”); National Bancard Corp.

(NaBanco) v. VISA U.S.A., Inc., 596 F. Supp. 1231, 1236-37 (S.D. Fla.

1984), aff'd, 779 F.2d 59 (11th Cir.), cert. denied, 479 U.S. 923 (1986).

4

which cards are offered. It also does not restrict output or the

geographic areas in which members compete to issue cards or

sign merchants. R. at 433-35; App. 4a, 15a. As a result, in literally

every area of the country numerous banks compete to solicit new

cardholders and merchants on a wide variety of terms. Overall,

VISA today has approximately 6,000 issuer-members with the

top 10 issuers accounting for approximately 50% of its total

volume. App. 16a. However, even the smallest bank can offer its

customers the full range of VISA services. R. at 877-83, 915-29.

Banks compete for cardholders in numerous ways: some adver-

tise heavily; others solicit only their regular banking customers.

Some charge relatively higher prices in return for greater service

or add-ons, such as extended product warranties, or credit towards

free airline tickets or other products, ranging from small house-

hold appliances to a new car. Some offer very low interest rates by

strictly controlling credit standards; others are more generous in

their credit evaluation and must charge higher rates as a conse-

quence; still others offer programs that support charitable, cul-

tural or educational institutions. R. at 859-60, 864-79, 1458-59,

1461-64.

VISA membership originally was open only to traditional

commercial banks. However, over the years, membership eligibil-

ity has been expanded to include savings and loans, thrifts, credit

unions and, most recently, even the banking affiliates of industrial

corporations such as Ford Motor Company, General Electric, and

ITT. R. at 1503. In fact, with the exception of its two major

intersystem competitors (Discover and American Express),

VISA membership is open to any financial institution that is

eligible for federal deposit insurance. R. at 1400-03. In addition,

numerous non-member industrial companies participate in the

business through so-called “affinity” partnerships with member

banks. Many of the largest new VISA and MasterCard programs,

such as the AT&T Universal Card and the Shell/Chemical Bank

Card, are examples of such programs.

Intersystem (or Interbrand) Competition

While card issuance is the focus of Dean Witter’s claims, it

does not reflect the full nature of competition in the general

Bis -

purpose charge card market. VISA also competes at the brand

level against its system rivals (principally American Express and

Discover), and vice versa. This competition between different

card brands or systems — intersystem competition — is equally

important. Certain important functions are (and must be) carried

out at the system level. Thus, as noted, VISA has established a

number of sophisticated computer and communication mecha-

nisms that are responsible for controlling the approval, clearing

and settlement of transactions. Each of the other interbrand

competitors operates similar systems and there has been substan-

tial technological competition over the years to create greater

efficiency at the intersystem level by such things as improving the

approval and settlement process in order to limit fraud and bad

debt losses and to increase customer convenience.

Intersystem competition also takes the obvious form of direct

brarid-level promotion, such as VISA’s well-known sponsorship of

the Olympics and its ubiquitous “and they don’t take American

Express” advertising campaign. R. at 432-33. Equally important,

vast amounts of money are invested by members, both at the

systems and bank institution level, to promote the VISA brand

and enhance the efficient operation of the service for consumers.

Unlike the thousands of competing issuers, there has never

been more than a handful of systems competitors. Moreover,

there is a nearly complete overlap in ownership between VISA

and its early intersystem rival, MasterCharge (now Master-

Card).’? While new system-level entry is possible, as Discover

itself attests, there is considerable doubt that others will consider

it prudent, given the costs involved and the emerging potential of

home computers to effect consumer financial transactions.

That overlap has been broadly criticized. See, e.g., EFT § 23.02(3];

Constantine, Presentation (Dec. 6, 1990), in Economists’ Perspectives

on Antitrust Today: Antitrust Issues in Regulated Industries (C. River

Assocs. eds., 1991) (R. at 1613); Balto, Access Demands to Payment

Systems Joint Ventures, 18 Harv. J.L. & Pub. Pol’y 636, 638-40

(forthcoming June 1995). For a history of the subject, see EFT

4 23.02{2]-[3].

Discover

In 1986, Sears, Roebuck & Company and its Dean Witter

subsidiary entered the market with Discover. Before doing so,

Dean Witter conducted an elaborate analysis of the economics of

the general purpose charge card industry. R. at 313-14. A high-

level task force was appointed to consider two alternatives: be-

come a major issuer of VISA or MasterCard or, alternatively,

enter the business with a new, wholly-owned proprietary card. R.

at 366-74. The study showed that membership in VISA or

MasterCard offered certain advantages and was less economically

risky. R. at 536-50, 1325-26. Those advantages, however, were

perceived to be outweighed by the significant disadvantages of

being just one more VISA (or MasterCard) member, with no

ultimate control over product configuration and identity or over

business and marketing <trategies. R. at 536-50, 1327-28. Thus,

the task force recommended that Dean Witter follow what it

termed the “high reward/high risk” strategy of going into active

competition with the two bankcard joint ventures through a new

wholly-owned product. R. at 542-50, 1327.

Discover was launched in early 1986 with a massive promo-

tional campaign, offering a no-fee card and a rebate of up to 1%.

R. at 322-24.* The new brand came complete with its own

authorization, clearing and other systems that were comparable to

those of VISA, MasterCard and American Express.°

“Whatever the appeal of these features as a consumer “come on,”

they scarcely qualified the product as “low price” when its high interest

rate and deceptively expensive method of computing finance charges

were taken into account — a fact the district court was at pains to note.

See App. 70a & n.30.

‘Dean Witter’s decision to go “head to head” in competition with

VISA understandably was not welcome. VISA urged its members to

avoid helping Discover and (for a short time) denied Discover access to

VISA-owned terminals in some merchant locations, thereby requiring

Discover to compete by creating its own terminals, which it did. See

App. 3la. Both at trial and, again, here (Petition (“Pet.”’) 5-6) Dean

Witter has portrayed this “anti-Discover” campaign as purported evi-

dence of anticompetitive conduct by VISA. But absent any claim that

After substantial early losses, Discover became very success-

ful.° R. at 325-26, 379-80, 386-87, 1586. Within five years of its

introduction, it had become the second largest issuer of general

purpose charge cards in the United States, with over 20 million

card accounts. R. at 533-35, 885-86, 888-90. By the time of trial it

had signed over 1.5 million merchants to accept its card, including

virtually every major merchant in the country. R. at 379-82, 533-

35, 791. With system volume of over $14 billion and net profits of

$170 million, Discover was a major contributor to Sears’ overall

profitability. R. at 311, 325-28, 1585-86. In fact, according to

documents produced on the eve of trial, the value of Discover as a

stand-alone business was assessed at approximately two billion

dollars by Sears’ investment bankers. R. at 403-04.

Dean Witter’s Efforts to Become a VISA Member

In 1989, Greenwood Trust Co., the issuer of the Discover card

and a Sears, Roebuck & Company subsidiary,’ applied to become

a VISA member. VISA rejected the application because it

believed that it was inconsistent with the interests of the joint

venture to admit a direct intersystem competitor. At the same

time, the Board adopted By-Law 2.06 which, by its terms,

prohibits membership in VISA by existing system competitors,

VISA’s activities were deceptive or otherwise unfair, they reflect nothing

more than “vigorous competition,” which the antitrust laws encourage.

Cf. Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325,

1338 (7th Cir. 1986) (“Competition is a ruthless process.... The

deeper the injury to rivals, the greater the potential benefit. These

injuries to rivals are byproducts of vigorous competition, and the

antitrust laws are not balm for rivals’ wounds.’’).

*Its success was not always certain. In fact, based on some early press

reports, VISA’s management believed that Discover’s start-up costs

were so great that it might seek to convert its program into VISA.

VISA’s willingness to explore that possibility is documented in the

testimony of VISA’s former CEO, Charles Russell. R. at M745-46.

"Sears recently spun off its Dean Witter subsidiary which has since

been renamed Dean Witter, Discover & Co.

8

specifically Discover and American Express." The by-law

provides:

[I]f permitted by applicable law, the corporation shall not

accept for membership any applicant which is issuing, di-

rectly or indirectly, Discover cards or American Express

cards, or any other cards deemed competitive by the Board

of Directors....

At the time Greenwood Trust applied for membership, Dean

Witter had no plans to initiate a VISA card program. Rather, as

discovery in the subsequent litigation showed, its purposes were to

blunt intersystem competition by VISA against Discover and to

obtain information about VISA’s operations and plans. R. at 387-

89, 1346.

In 1990, Dean Witter decided that it did want to issue a VISA

(or MasterCard). Rather than approach the matter directly,

Dean Witter purchased the assets (including a VISA member-

ship) of a failed Utah thrift from the Resolution Trust Corpora-

tion and, without notice to VISA, set about to use that

membership to launch its proposed new VISA card program.

VISA fortuitously discovered those plans and thwarted them.

Dean Witter promptly filed the present lawsuit and obtained a

preliminary injunction to allow it to proceed with its planned new

program. The Tenth Circuit equally promptly stayed and subse-

quently vacated that injunction. See 936 F.2d 1096 (10th Cir.

1991).

The Tria!

Dean Witter asserted at trial that VISA’s refusal to permit it to

become a member precluded it from pursuing a preferred ‘“‘brand-

‘Dean Witter argues that a recital about preserving intersystem

competition in the resolution that accompanied adoption of the new by-

law is disingenuous, since the VISA Board surely did not act out of any

such selfless motive. But the concern expressed was not for preserving

Dean Witter’s competition; it was about the unfairness to intersystem

competition against VISA’s members if Dean Witter was allowed to

have the benefits of a proprietary card as well as a VISA membership.

R. at 475-78.

9

ing”’ strategy of offering both a Discover card and a VISA card to

consumers. R. at 306-07, 309. It further asserted that its new

Prime Option card would be attractive to consumers because of

its supposedly low interest rate and other features. /d. Dean

Witter did not claim, however, that it possessed any unique

abilities as a card issuer. Nor did it claim that it was unable to

compete successfully without access to the VISA name and

systems or that it was prevented from offering Prime Option on its

own with all of the same features (except, of course, the VISA

name), either as a new proprietary card or as an additional brand

of Discover. Rather, it claimed that, as a proprietary card, it could

not “reach” those potential customers who preferred a bank card.

Hence, it asserted that it could be a more “effective” competitor

if it could also issue its competitor's brand. According to its

expert economist, James Kearl of Brigham Young University,

VISA’s refusal to let it become a member unreasonably re-

Strained trade, given the aggregate market share of VISA’s

members.

VISA’s defense rested in part on the undisputed evidence

concerning market structure, which negated any claim that com-

petition was harmed by its membership rules. VISA’s By-Law

2.06 excluded only two firms (Dean Witter and American Ex-

press) from access to the VISA branc, not from the general

purpose charge card market, which has consistently grown both in

Output and new issuers. By contrast to the competition among

issuers, undisputed evidence showed that competition at the

systems level was significantly limited. Allowing Dean Witter to

issue a VISA card would compromise that intersystem competi-

tion by increasing the opportunities for collusion and strategic

coordination, notwithstanding Dean Witter’s claim that it still

intended to compete vigorously with Discover.

VISA’s expert, Richard Schmalensee, a professor at MIT and a

member of President Bush’s Council of Economic Advisors,

testified about the importance of preserving incentives for both

joint ventures and single firms to innovate — testimony which was

not substantially contested. R. at 947-50; compare R. at 829-33.

Dr. Schmalensee testified that, for the same reasons courts do not

oblige single firms to share the fruits of their investment in

10

entrepreneurial innovation short of monopolization or control of

an “essential facility,” it is inappropriate to require such sharing

by efficiency-creating joint ventures. To do otherwise would make

joint ventures less competitively attractive than single firms or

complete integration through merger, even though partial integra-

tion is often the most efficient means of achieving economies of

scale and scope. R. at 948-49.

Dean Witter also advanced two other themes at trial. The first

— repeated no fewer than six times in its present petition’ — is

that VISA discriminated against it by allowing Citicorp’s Diners

Club to remain a member while it (and American Express) were

excluded. But aside from the fact that the Sherman Act is not a

civil rights statute,'° the evidence showed that VISA’s members

viewed Diners as a mere corporate niche product with nearly 20%

of its business attributable to a single account (since lost) with

the United States government.'’ Moreover, VISA viewed it as a

stagnant, if not failing, product. R. at 634-35. Thus, other than as

a “fairness” theme (which, of course, was how Dean Witter

played the issue to the jury), VISA’s failure to deem Diners a

competitive card proved nothing.’

*Its technique in this regard is not new. The fact that the meeting at

which VISA adopted By-Law 2.06 took place in Cannes, France was

mentioned to the jury 61 times during the tnal.

'°See Sanjuan v. American Bd. of Psychiatry & Neurology, Inc., 40

F.3d 247, 252 (7th Cir. 1994) (“the Sherman Act is not a precursor to

the Civil Rights Act of 1964’).

'' Diners Club is solely a non-credit card targeted at business travelers.

The fact that there is some overiap with VISA’s cardmember base does

not distinguish Diners from numerous other proprietary and local card

programs (ATM and point-of-sale principally) that overlap in a similar

fashion but are scarcely considered “competitive” with VISA.

The implicit assertion of the argument is that Dean Witter was

singled out for exclusion because it allegedly would have offered a “low-

priced” VISA card. But that argument fails to take account of the fact

that the prices of VISA’s 6,000 other issuers were not controlled in any

way, and that numerous large and equally low-cost new VISA programs

have come into the system in recent years.

11

Second, Dean Witter asserted that VISA’s by-laws were an-

ticompetitive for the independent reason that they created a

“disincentive” for other firms, including existing VISA members,

to develop new charge card systems in competition with VISA.

The claim was presented as pure theory by Dean Witter’s expert

without evidence that any VISA member actually considered

going into systems competition with VISA, let alone desisted

from doing so because of its by-laws. Not only was the claim

hopelessly speculative, as the Tenth Circuit concluded (see App.

19a n.14), but Dean Witter lacked standing to raise it since it

would have been helped — not harmed — by any such “disincen-

tive” effect. Nonetheless, the district court allowed the claim to

go to the jury which rendered a general verdict in Dean Witter’s

favor. The general verdict format makes it impossible to deter-

mine what factual determinations the jury made, and on which

theory.

Post-Trial Proceedings

Following the jury’s verdict, VISA moved for judgment as a

matter of law under Rule 50 or, in the alternative, for a sew trial

under Rule 59. Contemporaneously, the parties briefed VISA’s

Section 7 counterclaim that had been tried to the court. On

April 1, 1993, the court denied VISA’s motions and entered

judgment against VISA on its counterclaim.

The court stated that, in its view, VISA’s arguments were

sound, both as a matter of antitrust policy and on the evidence

presented. App. 69a-7la. The court noted that VISA’s concern

with the need to protect incentives for innovation by joint ventures

not only raised “legitimate policy considerations” but was “logical

and well reasoned.” App. 60a; see also id. at 66a-67a. Specifically,

[t]he court found Visa’s policy and economic arguments to

be the more compelling.... [T]he court found persuasive

Visa’s positions regarding the need to protect joint venture

innovation, the importance of protecting private property,

and the economic and competitive consequences of keeping

the owner of the Discover Card out of the Visa system.

12

Id. at 71a. Similarly,

the court acknowledge[d] that its view of the evidence

differs from the jury’s findings. ... In fact, the court would

have concluded that the harm to competition from letting

Sears into the Visa system is greater than any harm from

keeping Sears out.

... [T]he court believes that Bylaw 2.06 fosters intersys-

tem competition in the relevant market... [and that]

{s]uch competition is important . . . with only five active

intersystem competitors.... Simply adding another high-

priced card issuer, as Sears has always been... may provide

short-term intrasystem competitive benefits within the Visa

system, but in the long run... the damages irom such

inclusion will outstrip the benefits.

Id. at 69a-70a.

Despite these views, the court held that VISA’s policy argu-

ments were beyond its power to implement and that the jury’s

verdict was not so unreasonable that it should be set aside as a

matter of law. App. 70a. The court, as finder of fact on VISA’s

Section 7 claim, similarly favored VISA but held that the

asserted harm to competition resulting from Dean Witter’s pro-

posed partial acquisition was not great enough to justify an

injunction. App. 96a.

The Court of Appeals Opinion

The Tenth Circuit reversed the district court’s Sherman Act

decision on the ground that the record failed to demonstrate

(a) that VISA possessed market power in the issuance of general

purpose charge cards, (b) that there was any harm to competition

in that market, or (c) that Dean Witter had proven the kind of

“extraordinary” facts that would trigger a compelled duty for

VISA to share its property with its competitors. App. 19a, 25a.

Given those conclusions, Dean Witter’s claim reduced simply

to a concern for advancement of its own strategic objectives. And,

as the court observed, “a producer’s loss is no concern of the

13

antitrust laws, which protect consumers from suppliers rather

than suppliers from each other.” App. 25a (citing Stamatakis

Indus. v. King, 965 F.2d 469, 471 (7th Cir. 1992))."

REASONS WHY THE WRIT SHOULD BE DENIED

I.

THERE IS NEITHER CONFLICT NOR ERROR IN THE

TENTH CIRCUIT’S ANALYSIS OF VISA’S MEMBER-

SHIP RULES.

Petitioner initially seeks certiorari on the ground that the Tenth

Circuit’s decision is in “‘conflict{ ] with other circuits” because it

“validatles] as ancillary a joint venture’s counter-efficient and

hence naked restraint of trade.” Pet. 13. That assertion is wrong.

A. There Is No Conflict.

Dean Witter’s claimed conflict in the circuits on the issue of

ancillary restraints is transparently contrived. The fundamental

tension in the law which Dean Witter says necessitates urgent

resolution by this Court went utterly unnoticed by the Tenth

Circuit. That is not surprising since Dean Witter invited no

debate over the issue in that court. In fact, virtually none of the

cases relied on by Dean Witter in its petition were even cited, let

alone discussed, in its brief in the court below. Of the eight court

of appeals cases cited in the “ancillary restraint” section of the

petition, five were not mentioned at all.'* Of the remaining three,

'? Having rejected plaintiff's Sherman Act claim as a matter of law,

the court had no reason to consider the tral court’s disposition of

VISA’s Clayton Act counterclaim. App. 26a.

'*In re Detroit Auto Dealers Ass'n, Inc., 955 F.2d 457 (6th Cir.), cert.

denied, 113 S. Ct. 461 (1992); Polk Bros., Inc. v. Forest City Enters.,

776 F.2d 185 (7th Cir. 1985); Los Angeles Memorial Coliseum Comm'n

v. NFL, 726 F.2d 1381 (9th Cir.), cert denied, 469 U.S. 990 (1984);

Edwin K. Williams & Co., Inc. v. Edwin K. Williams & Co. — East, 542

F.2d 1053 (9th Cir. 1976), cert. denied, 97 S. Ct. 2973 (1977);

American Motor Inns, Inc. v. Holiday Inns, Inc., 521 F.2d 1230 (3d Cir.

14

Rothery’ and Premier Electrical'® were cited in passing and for

entirely unrelated propositions. The final case, NASL,'’ was

discussed substantively, but its only claimed relevance in the

pending petition concerns the question of “less restrictive alterna-

tives” — a matter not materially addressed in the Tenth Circuit.

Equally telling, with the exception of an unrelated citation of

Rothery, none of the cases relied on here was cited in Dean

Witter’s request to the Tenth Circuit for en banc review.

Moreover, none of the opinions cited by Dean Witter perceived

a conflict in the law, and for good reason. Like many doctrines

that establish a generalized framework for analysis, the concept of

ancillary restraints is expressed in different words by different

courts within, as well as among, the various circuits. In fact, the

Tenth Circuit's decision quoted two different formulations of the

rule. App. 2la. Such nuances of expression do not create a

conflict. Layne & Bowler Corp. v. Western Well Works, Inc., 261

U.S. 387, 393 (1923) (conflict must be “real and embarrass-

ing’); see also Powell v. Nevada, 114 S. Ct. 1280, 1285 (1994)

(Thomas, J., dissenting); Wilkerson v. McCarthy, 336 U.S. 53,

66-67 (1949) (Frankfurter, J., concurring).

Dean Witter’s further assertion that the Tenth Circuit failed to

understand the law as explained in Rothery (and applied in

Premier Electrical) is equally misguided. Contrary to the petition,

it is hardly a “naked” restraint of trade for venturers to decide

1975). One additional case, Sullivan v. NFL, 34 F.3d 1091 (1st Cir.

1994), cert. denied, 115 S. Ct. 1252 (1995), cited on the “less restrictive

alternative” issue, was decided after briefing in the main appeal but

before Dean Witter’s Tenth Circuit petition for en banc review. It was

not cited in that petition, but was mentioned in a footnote in one of the

amicus briefs filed on Dean Witter’s behalf.

'S Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210

(D.C. Cir. 1986), cert. denied, 479 U.S. 1033 (1987).

'© Premier Elec. Constr. Co. v. National Elec. Contractors Ass'n, 814

F.2d 358 (7th Cir. 1987).

"North Am. Soccer League v. NFL, 670 F.2d 1249 (2d Cir.), cert.

denied, 459 U.S. 1074 (1982).

15

that they alone will be partners, or that they are going to keep the

fruits of their success for themselves.

B. Efficient Joint Venture Membership Rules.

1. The “ancillary restraint” doctrine comes from Justice Taft's

opinion in United States v. Addyston Pipe & Steel Co., 85 F. 27]

(6th Cir. 1898), affd as modified, 175 U.S. 211 (1899). It

captures the important — though hardly obscure — notion that in

order to get the benefits of integration parties may need to limit

competition among themselves in certain respects. Such agree-

ments are lawful when part of an integration even if they would be

illegal if made apart from it.

Agreements among joint venture participants to limit territories

or establish prices are examples of “ancillary” agreements which

may limit competition thai stherwise would exist between venture

members. To determine whether such agreements are lawful

courts ask whether the limitation removes more competition

between the venturers than is reasonably necessary for the legiti-

mate goals of their venture. By contrast, there is no elimination of

competition between venturers to be tested for ancillarity when

members merely decide not to share the venture’s property with

outsiders. Accordingly, cases considering compulsory admission

to joint ventures typically do not focus on the ancillary restraint

doctrine at all.'* But whether phrased in terms of ancillary

restraint principles or not, the relevant issue is whether a firm or

group of firms is obliged to share the fruits of their investment in

risk-taking and innovation with others. Absent such a duty, no

antitrust issue is presented.

2. Not even Dean Witter denies that the VISA venture

creates efficiencies. VISA joined banks together to establish a

network of card-issuing and merchant-signing members. Because

of so-called network efficiencies, the original venturers admitted

'® See, e.g., United States v. Terminal R.R. Ass'n, 224 U.S. 383 (1912)

(“St. Louis Terminal’); Schachar v. American Acad. of Ophthaimoi-

ogy, Inc., 870 F.2d 397 (7th Cir. 1989); Phil Tolkan Datsun, Inc. v

Greater Milwaukee Datsun Dealers’ Advertising Ass'n, 672 F.2d 1280

(7th Cir. 1982).

16

many new members with certain qualifications. According to

petitioner, this “network” efficiency is the sole justification for

collaboration. It must justify every one of its rules but cannot

justify the exclusion of a new member who would add to the

network efficiencies. This is the essence of the petition and it is

wrong in three fundamental ways: it ignores free riding, incentives

to form joint ventures, and the importance of favoring competi-

tion over combination.

3. Up to a point, new members add to a network’s efficiency,

as the petition argues. Yet different applicants for admission bring

different benefits and costs to VISA as well as the economy.

Excluding Dean Witter and American Express from VISA avoids

the free riding that would result, for example, were they to use

VISA’s goodwill as part of joint solicitation or promotional

campaigns (to cardholders and/or merchants) or when they

obtain access to and influence over product development and

marketing plans.’ That VISA chose not to allow its major

interbrand competitors to use the VISA brand is fully consistent

with welcoming other new members.”

‘Dean Witter vigorously protests that “free riding” forms no part of

its intentions. But VISA’s value to it is only the free nde. Since Dean

Witter independently established all of the systems and other infrastruc-

ture necessary to operate its own national credit card network, the only

things it could get from VISA are the goodwill attached to the VISA

brand and access to the VISA merchant base — neither of which it did

anything to create. That is free riding and nothing but.

Nor does the possibility of “payment” solve the problem. Determining

the appropriate charge for a system-level competitor would be extremely

difficult, if not impossible. Indeed, as a practical matter that process is

likely simply to lead to further litigation. More important, payment does

not address either the issue of initial incentives or intersystem competi-

tion, discussed in text.

© at trial, Dean Witter made much of VISA’s admitting others while

“discriminatorily” excluding it. It further suggested that it could not

demand admission had VISA been a closed venture in the first place.

The petition’s arguments, however, would require a “network’’-type

venture to admit all applicants, even if monopoly results. Indeed, a

compulsory admission rule for open ventures would induce venturers to

17

VISA is an “open” venture — not unlike manufacturers or

franchisors who expand the number of outlets but “close” their

system to some new participants. Thus, it would not be unusual

for McDonald’s (1) to stop franchising in a certain area after

enough penetration had been achieved or (2) to decline to allow

Wendy’s to own and operate McDonald’s outlets even in an area

where it was still “open,” and even though Wendy’s says “I can

make tastier ‘Big Macs’ or sell them cheaper.” It is neither

counter-intuitive, nor uncommon, for a business not to want to

help its competitors. See, e.g., Olympia Equip. Leasing Co. v.

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

denied, 480 U.S. 934 (1987).

4. Efficiency, properly understood, embraces not merely the

narrow ex post effects of a particular decision to share one’s

property, but also the ex ante “macro” efficiencies that depend

upon general assumptions about the way the economy works. As

Prof. Areeda noted several years ago, the efficiency justification

for refusing to imply a duty to share one’s creations with others

rests fundamentally upon broad policy considerations:

These legitimate business purposes are not personal to any

particular defendant, but are propositions of general policy.

For example, the justification for refusing to share a research

laboratory does not focus on the practical infeasibility of

letting another use the laboratory, but on the general concern

that the defendant never would have built a laboratory of

that size and character in the first place if he had known that

he would be required to share it. Required sharing discour-

ages building facilities such as this, even though they benefit

consumers.

Areeda, Essential Facilities: An Epithet in Need of Limiting

Principles, 58 Antitrust L.J. 841, 851 (1990).

There is no question that the foregoing principles apply to the

property of single firms. Indeed, no one would take a demand for

compelled sharing of a single firm’s property seriously. See, e.g.,

create only closed ventures even when additional members would be

efficient for the venture and procompetitive for the economy.

18

Olympia, 797 F.2d at 375-76. There is no reason to apply a

different rule generally to joint ventures. St. Louis Terminal said

as much in 1912.7! In fact, both Dean Witter’s trial expert and its

academic consultants not only acknowledge the need to protect

property rights and incentives for innovation, but concede that

such considerations generally apply to the property of joint ven-

tures as well as single firms. See R. at 829-33. It could not be

otherwise since a different rule would discourage the formation of

joint ventures by making their property and innovations less

secure against forced sharing and, hence, less valuable.

These are scarcely novel observations. In fact, prior to the

cottage-industry of post-trial writings by Dean Witter’s consul-

tants,” the efficiency-enhancing attributes of joint venture mem-

*' St. Louis Terminal is often referred to as the source of the essential

facilities doctrine under the Sherman Act. It involved a group of

railroads that had acquired a monopoly over the means of crossing the

Mississippi River. The Court remedied the monopolistic combination by

requiring admission of the excluded railroads, but only after very

carefully limiting its scope. Invoking Standard Oil's observation that a

“fundamental purpose[] of the [Sherman Act] is to protect, not to

destroy, rights of property,” 224 U.S. at 409, the Court held that “‘in

ordinary circumstances,” a group of independent companies might

combine to control facilities for their “exclusive use.” Others could

thereafter “be admitted” on any terms set by the owners or could be

“excluded altogether.” 224 U.S. at 405, 409. It was only where “inherent

conditions” (or some other insuperable obstacle) made fair competition

impossible (and, therefore, made access “‘essential”) that a duty to deal

might be imposed. See, e.g., Baker, Compulsory Access to Network Joint

Ventures Under the Sherman Act: Rules or Roulette?, 1993 Utah L. Rev.

999, 1088-89 & n.339. (Research for the Baker article was funded by

several VISA members.)

See Carlton & Frankel, The Antitrust Economics of Credit Card

Networks, 63 Antitrust L.J. 643 (1995); Carlton & Salop, You Keep on

Knocking But You Can't Come In: Evaluating Restrictions on Access to

Input Joint Ventures, Working Paper No. 111, Center for the Study of

the Economy and the State, The University of Chicago (Apnil 1995);

Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995

Colum. Bus. L. Rev. | (forthcoming Summer 1995). Every one of these

authors is a retained consultant in this case for Dean Witter, although

A

19

bership limitations was nearly universally recognized. For

example, Prof. Roberi Pitofsky, now Chairman of the Federal

Trade Commission, has noted:

Why should joint venturers, particularly those who took

significant risks in order to establish the project, offer the

advantages of membership to rivals? Incentives for risk-

taking and innovative efforts will certainly diminish if advan-

tages of the undertaking must be made available to non-

participants. The [compulsury access] rule becomes even

more questionable where the rival applicants passed up an

opportunity to participate in the joint venture in the first

place.

Pitofsky, A Framework for Antitrust Analysis of Joint Ventures,

54 Antitrust L.J. 893, 902-03 (1985).

Similar observations were made by Joseph Kattan, former head

of the Policy Section of the FTC’s Bureau of Competition:

From an efficiency standpoint, mandatory access rules are

troubling. Limitations on joint venture membership offer a

great procompetitive potential.... [A] requirement of

mandatory access after a venture has succeeded in attaining

its goals [also] can inhibit collaborative efforts to innovate in

the first place. If free and open access is required, potential

venturers may decide to avoid entering a joint venture, and

incurring the risk that membership in the venture entails,

because they may be required to share the fruits of the joint

venture with outsiders if the venture succeeds but will be

required to bear the losses alone if the venture fails. This free

rider effect creates a serious risk that some efficiency-

enhancing projects would be delayed or altogether deterred.

none was ever called as a witness or made available for cross-examina-

tion. Given these relationships, Dean Witter should hesitate to point to

these consultants as “commentators” who have “already specifically

criticized the mischievous implications of the Tenth Circuit’s market

power analysis in this case.” Pet. 29.

20

Kattan, Antitrust Analysis of Technology Joint Ventures: Alloca-

tive Efficiency and the Rewards of Innovation, 61 Antitrust L.J.

937, 963 (1993).”

5. Far from condemning membership limitations, the primary

antitrust concern is that a joint venture might become “overinclu-

sive” by admitting those who can compete effectively with the

venture. See Department of Justice, Antitrust Enforcement

Guidelines for International Operations, reprinted in 4 Trade Reg.

Rep. (CCH) $1 13,109 (1988). Yet, Dean Witter insists here

that antitrust law requires the partial integration of Dean Witter

See also EFT. supra, § 21.05[{2], at 21-36 (duty of joint ventures to

“grant compulsory access to their competitors whenever they achieve a

really significant success... blunt{s] their incentive to invest and

innovate’’); Balto, Access Demands, supra, at 667 (“Where the excluded

party is able to compete effectively with the joint venture, its mandatory

admission into the venture is likely to diminish competition in the

market in which the venture competes.”’); Blumenthal, Three Vexing

Issues Under the Essential Facilities Doctrine’ ATM Networks as an

Illustration, 58 Antitrust L.J. 855, 868 (1990).

“The joint venture discussion in the 1988 Guidelines (quoted at

length by the Tenth Circuit, App. 25a n.20) was not included in the

1995 revisions of those guidelines because the earlier version did not

address any issue uniquely germane to international commerce. How-

ever, there is no reason to believe that the Department’s view of the

subject of joint venture membership rules has changed. Dean Witter

pretends otherwise, suggesting that the Department’s 1994 Health Care

Guidelines are somehow at odds with the Tenth Circuit's opinion

(Pet. 17-18, 28). However, Dean Witter inexplicably ignores the portion

of the guidelines most directly pertinent to the issues here. See Dep't of

Justice & FTC, Statements of Enforcement Policy and Analytical

Principles Relating to Health Care and Antitrust, 67 Antitrust & Trade

Reg. Rep. (BNA) (Supp. Sept. 29, 1994), at S-24 (exclusion from

multiprovider networks raises competitive concerns only if “providers

are unable to compete effectively without access to the network, and

competition is thereby harmed. . . . In addition, in certain circumstances

network membership restrictions may be procompetitive by giving non-

member providers the incentive to form other networks in order to

compete more effectively with the network.”) (emphasis added); see

also Balto, Access Demands, supra, at 673.

21

with VISA — thereby increasing its market power in the sense

Dean Witter uses that term (see infra p. 23), potentially to

monopoly”’ — even though such integration is not essential to its

effective competition.

Dean Witter argued at trial that these concerns were beside the

point because it did not intend to abandon Discover if it became a

VISA member. But VISA did not suggest otherwise and nothing

turns on that point. Rather, VISA’s point is that both VISA’s and

Dean Witter’s competitive incentives inevitably would be affected

by Dean Witter becoming both a proprietary system owner and a

major card association member. Dean Witter in particular would

have strong incentives to coordinate its brand strategies as well as

to attempt to blunt VISA’s competition against Discover. See 5 P.

Areeda, Antitrust Law 4 1203c, at 319-20 (discussing potential

effects of partial integration on competitive incentives, including

possible misuse of confidential information or the creation of

“tacit understandings”). Moreover, the relative amount of re-

sources (financial and human) devoted to Dean Witter’s two

brands could well be affected, particularly over time. See Balto,

Antitrust and Credit Card Joint Ventures, 47 Consumer Fin. L.Q.

Rep. 266, 271 n.38 (1993).

Nor are these concerns merely theory. At trial, VISA intro-

duced a memorandum from a high-ranking Discover official who

urged Dean Witter to apply for membership in VISA in 1988

(even though Dean Witter then had no plans to issue a VISA

card) because Discover would be “in a position to know every-

thing that takes place at VISA.” R. at 1346. Equally candidly,

Dean Witter’s CEO testified that he wanted to join VISA

because VISA and its members were competing too aggressively

against his new Discover brand and he hoped to “limit” that

competition by being on the inside. R. at 387-89.

Dean Witter’s argument substantially undervalues the impor-

tance of preserving competition at the system (or brand) level.

*5 american Express filed an amicus curiae brief in support of Dean

Witter below and has stated its intention to follow Dean Witter in

issuing a VISA and/or MasterCard. See Einhorn, One Word: Plastic,

Barrons, Sept. 19, 1994, at 29, 33.

22

But many important types of competition in the charge card

business take place at the systems level. The district court, as trier

of fact, found that preservation of such competition yielded

important benefits for consumers and that, on balance, the bene-

fits of such preservation exceeded any intrasystem benefits which

might result from Dean Witter’s forced admission — although not

by a sufficient margin te support an injunction under Section 7 of

the Clayton Act. See App. 70a-71la, 96a-97a.

Dean Witter professes shock that VISA failed to welcome the

reduction of competition that would have resulted from its partial

integration with Dean Witter. In fact, of course, a firm may prefer

to resist combinations potentially resulting in monopoly because

of possible regulation by federal or state antitrust suits. More

important than petitioner’s doubt about VISA’s state of mind,

however, are the facts about competition. Admitting Dean Witter

and American Express would significantly threaten intersystem

competition (where the market is already highly concentrated),

without any offsetting showing that adding yet another issuer to

the thousands that already exist would have a material impact on

issuer competition. The Tenth Circuit readily perceived the per-

versity of that outcome. Invoking contrived arguments about

ancillary restraints based upon an insupportably narrow view of

economic efficiency states no case for review by this Court.

Il.

THERE IS NO CONFLICT AMONG THE CIRCUITS AS TO

MARKET POWER; NOR DID THE DECISION BELOW

TURN ON MARKET POWER ALONE.

Market power is important in rule of reason cases because it

has the potential to save courts and litigants from the burden,

expense and possible error of evaluating a practice which has no

potential to harm competition in any event. See, e.g., Schachar v.

American Acad. of Ophthalmology, Inc., 870 F.2d 397, 398 (7th

Cir. 1989); Ball Memorial Hosp., Inc. v. Mutual Hosp. Ins., Inc.,

784 F.2d 1325, 1334 (7th Cir. 1986). It is a structural way of

getting to the question that antitrust law is directly concerned

with: whether a particular practice is likely to raise prices or

23

restrict output in some relevant area of commerce. As this Court

noted in FTC v. Indiana Federation of Dentists, market power is

simply a surrogate for evaluating actual effects. 476 U.S. 447, 461

(1986); cf. Hay, Market Power in Antitrust, 60 Antitrust L.J. 807,

825 (1992).

Dean Witter alternatively seeks certiorari because of an alleged

conflict among the circuits about “the role and definition of

market power” in joint venture cases. Pet. 22-30. Review is no

more appropriate on this ground. First, Dean Witter’s entire

argument depends on the false premise that, in deciding this case,

the Tenth Circuit adopted a market power “screen” that was

outcome determinative. Second, as with ancillary restraints, there

is no meaningful conflict in any event.

1. The principal market power issue addressed by the court

below was not the existence of a market power “screen” but Dean

Witter’s “collective share” thesis. Dean Witter argues that

VISA’s market power should be measured by comparing all

VISA volume with total volume in the stipulated market for

general purpose charge cards (adding in MasterCard volume to

boot). The Tenth Circuit rejected Dean Witter’s market power

analysis as fatally flawed because it had nothing to do with the

underlying “effects” question the court was attempting to answer:

to wit, whether excluding Dean Witter and American Express

from a 6,000 member venture (with an issuer-level HHI below

500), and with no restriction on pricing, geographic distribution

or output by any of the system’s members gives VISA’s members

(or anyone else, for that matter) the power to raise price or

restrict output.

To measure market power the Tenth Circuit correctly asked, in

effect, “power to do what?” The answer depends on the threat to

competition that Dean Witter alleged — namely, preventing

Dean Witter from issuing a VISA card. Because members do not

26“FTHI” refers to the Herfindahl-Hirschman Index, a statistical

method for measuring market concentration. An industry with an HHI

of less than 1,000 is considered unconcentrated for market structure

purposes. See Pitofsky, New Definitions of Relevant Market and the

Assault on Antitrust, 90 Colum. L. Rev. 1805, 1821 (1990).

24

collectively determine the prices or output of VISA’s many

issuers, one must measure power, not by reference to collective

market shares, but by the structure of competition among card

issuers and the effect of the brand exclusion upon such competi-

tion. Not only are there some 6,000 issuers of VISA cards alone,

but nothing prevents Dean Witter from charging low subscription

fees or interest rates on any existing or new version of its Discover

card including, if it chose, one with all of the features of its

proposed Prime Option card (except the VISA name). The

Tenth Circuit correctly saw a highly competitive market for the

issuance of general purpose charge cards that would not be

noticeably more competitive whether or not Dean Witter issued a

VISA card.

This point was explained at trial by VISA’s expert, Richard

Schmalensee. It is explained again, in only slightly more concep-

tual terms, in a recent article which he co-authored with

Prof. David Evans, Economic Aspects of Payment Card Systems

and Antitrust Policy Toward Joint Ventures, 63 Antitrust L.J.

(forthcoming 1995). As they note:

When established sellers get together to prevent another

firm from entering the market, they prevent price (and

other) competition between the potential entrant and all

existing firms. Assuming that the existing firms are competi-

tive in all other respects, the effect of the exclusion does not

depend on the market share of the firms that acted to prevent

entry but on the amount of competition excluded. Even if all

existing sellers with 100 percent of the market prevent entry,

prices would not increase (or output decrease) if they only

barred a small potential competitor.... What we need to

know ... [therefore] is what the market would look like with

and without the exclusion. That is the only inquiry that helps

us get to the question that market power analysis is designed

to answer. Market effects therefore depend on the magnitude

of the output excluded from the market, and aggregating the

market shares of the “excluders” does not address that issue.

What is more, the Tenth Circuit did not even rest its reversal

upon its conclusions about market power. What is called an

analysis of market power is equally well described as an analysis

25

of effects (or, rather, the absence thereof). Indeed the court made

that point explicitly. Assuming arguendo that Dean Witter some-

how demonstrated market power through its ‘‘collective share”

thesis,”’ the court held that petitioner’s case still failed because of

its inability to prove any adverse effect upon competition. See

supra p. 12. Indeed, the opinion specifically takes Dean Witter to

task for its failure to focus meaningfully on effects:

[I]t 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 [ Dean Witter’s expert] testified “if they

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

money” to support his conclusion that Visa USA possesses

market power, there was no evidence that price had been

increased, output had decreased, or other indicia of anticom-

petitive activity had occurred.

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

making became the factual basis for rule of reason condem-

nation of Bylaw 2.06. Consequently, rule-making was not

only divorced from its functional analysis but also from the

facts of the case.

App. 19a (emphasis added).

Nor was market structure the only obstacle over which Dean

Witter stumbled irretrievably. Confronted with a competitive and

diffuse market, petitioner was unable to adduce any evidence of

supracompetitive profits or any other indicia concerning price or

output suggesting that the competitive structure of the issuing

market somehow failed to reflect actual market conditions.” See

App. 25a.

"See App. 18a: “even if Visa USA possesses market power...”

(emphasis added).

8 Petitioner did attempt to color its jury case with assertions about

VISA banks’ “high profits,” but such assertions cannot be equated with

“supracompetitive” profits absent “evidence, such as studies on the

comparative costs of production or on market conditions, to indicate that

26

In short, Dean Witter’s case failed without regard to any

particular standard of market power. It failed because of peti-

tioner’s simple — if wholly predictable — failure to prove harm to

competition. However much petitioner may attempt to stand the

concept of harm to “competition, not competitors” on its head

(see Pet. 13, 27) its failure to prove anything more than a loss to

itself obviates the asserted need to review any other issue.

2. Petitioner’s strained effort to assert an inter-circuit conflict

on the role of market power in applying the rule of reason

founders on the same rock as its other purported conflict — a

misguided assumption that courts can or should adopt a single set

of words to describe an approach to market power. Cf. Miroyan v.

United States, 439 U.S. 1338, 1339 (1978) (Rehnquist, Circuit

Justice) (“difference of approach” is different from “square

conflict”); see also Cole, Petitioning for Certiorari in ‘ae Big

Case, Litigation, Spring 1986, at 33, 34 (“A true conflict is what

Professor Felix Frankfurter called a ‘head-on collision’ between

two courts.”). All courts applying the rule of reason recognize the

great importance of market power or actual effects. Some courts

speak of substantial power as a preliminary hurdle (filter or

screen) that must be jumped before proceeding further — espe-

cially when a plaintiff has failed to prove a relevant market at all,

the defendant’s market share seems truly trivial, or the relevant

market is vigorously competitive in structure or results. That a

failure to prove market power can doom a rule of reason claim

hardly requires examination or explication by this Court.

these profits were above those available in a competitive market.”

Reserve Supply Corp. v. Owens-Corning Fiberglass Corp., 971 F.2d 37,

52 (7th Cir. 1992); see also Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp., 113 S. Ct. 2578, 2595 (1993); Hay, Market Power,

supra, at 825 (“[p]rofits can be the result of luck, skill, or simply the

short-run disequilibrium of an industry’). Moreover, no inference of

supracompetitive pricing could have been drawn here when much of the

competition in the charge card industry is “nonprice” competition, such

as high credit limits, more lenient credit approval standards, or purchase

“add-ons” such as frequent flier miles or credit towards the purchase of

other products. See Brooke Group, 113 S. Ct. at 2594.

27

Nor is there any inconsistency among the circuits when the

courts buttress their doubts about market power with observations

about the legitimacy of a defendant’s conduct. Indeed, far from

conflicting with other circuits, the Tenth Circuit here variously

described the role of market power as a “‘filter,” “screen,” or

“presumption,” while also favoring a “two-step process’ that

considers an alleged restraint’s redeeming virtues.”

3. Dean Witter’s further claim that the Tenth Circuit required

it to prove that it was excluded “entirely from the market’’ is

false. Rather, the Tenth Circuit emphasized the lack of evidence

that excluding Dean Witter from VISA disabled it from effective

competition in the stipulated market. (App. 25a-26a.)

Ill.

THIS CASE IS INAPPROPRIATE FOR REVIEW IN ANY

EVENT.

The stated premise underlying Dean Witter’s petition is that

joint ventures present increasingly important antitrust issues that

this Court has not fully addressed. But whatever “great” joint

venture issues might exist in theory do not arise on the record in

this case or the Tenth Circuit’s routine disposition of it.

1. The court of appeals simply ruled that there was no proof of

sufficient power or effect. While petitioner may quarrel with that

Thus, for example, the petition asserts a conflict between the

decision below and the Second Circuit’s decision in Capital Imaging

Assocs. v. Mohawk Valley Medical Assocs., 996 F.2d 537 (2d Cir.

1992), cert. denied, 114 S. Ct. 388 (1993). In fact, the Second Circuit

affirmed judgment for the defendant as a matter of law on account of

plaintiff’s failure to meet its “initial burden of showing that the chal-

lenged action has had an actual adverse effect on competition as a whole

in the relevant market... .” 996 F.2d at 543 (emphasis in orginal). In

addition, the Second Circuit goes at least as far as the Tenth in noting

that market power is a “highly relevant factor” and in quoting with favor

Prof. Areeda’s observation that “[w]hen market power is lacking,

antitrust litigation is not needed to police restraints and maintain

competition...” 996 F.2d at 546 (quoting 7 P. Areeda, Antitrust Law

q 1511, at 429).

28

determination, it does not seek review on that ground but on

invented conflicts. Cf NLRB v. Pittsburgh S.S. Co., 340 U.S. 498,

502-03 (1951).

2. The petition is inconsistent with the theory on which Dean

Witter tried the case below. The petition’s arguments make no

distinction between open and selectively closed joint ventures,

while Dean Witter argued at trial and in the Tenth Circuit that its

position depended heavily on VISA’s having adopted only re-

cently a rule closing it to firms like Dean Witter and American

Express. See App. 23a. Issues involving such a generally-open-

then-selectively-closed venture are hardly so widespread as to

need this Court’s resolution.

3. The alleged anticompetitive effect that Dean Witter as-

serted before the Tenth Circuit and in its petition is its exclusion

from issuing VISA or MasterCard “bank cards,” although the

relevant market to which Dean Witter stipulated was the general

purpose charge card.*°

4. Accepting the petition’s invitation to pronounce abstractly

on ancillarity is inappropriate when the “efficiency” concept is so

much broader than the petition asserts and when there was no

proof of market power, supracompetitive pricing or anticompeti-

tive effects.

5. Petitioner’s claim that VISA’s by-law was anticompetitive

on the separate ground that it would discourage present or future

VISA members from developing proprietary cards is not

The implicit suggestion that there is some narrower market, limited

to the bank association cards, is far-fetched in any event. Consumers, in

fact, carry many credit cards. They do so for many different reasons,

ranging from a desire for multiple credit lines, to different features, to a

need to maintain separate personal and business accounting, to mention

but a few. However, the fact that one consumer carries a Citibank VISA

card and a Chemical Bank MasterCard, another carries a Bank of

America VISA, an American Express True Grace and a NationsBank

VISA, and still another carries a Chase Manhattan VISA card and a

Dean Witter Discover card scarcely suggests that Discover has been

excluded from anything — let alone that there is a separate market

limited to “bank cards.”

29

presented by this case. The claim involved no proof but only “the

widest array of speculation.” App. 19a n.14. Moreover, Dean

Witter already had developed a successful proprietary card and

could not itself have been harmed but only benefitted by any

“disincentive” for the creation of other new proprietary cards.

Thus it lacked standing to seek either damages or an injunction on

that basis. Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S.

328, 337-38, 342 (1990); see also Cargill Inc. v. Monfort of

Colorado, Inc., 479 U.S. 104 (1986) (same re injunction).

Nonetheless, this speculative claim was submitted to the jury

under instructions and a verdict form that make it impossible to

determine what weight the jury gave to any particular evidence or

theory. Petitioner cannot now ignore that problem, either in

describing what the jury “surely perceived” (Pet. 21) or “specifi-

cally found” (id. at 27), or in attempting to isolate controlling

legal issues for review by this Court.

CONCLUSION

For the foregoing reasons, the Petition for a Writ of Certiorari

should be denied.

Respectfully submitted,

M. LAURENCE POPOFSKY

Of Counsel:

DALE A. KIMBALL

CLARK WADDOUPS

KIMBALL, PARR,

WADDOUPS, BROWN

& GEE

185 South State Street

Suite 1300

Salt Lake City, Utah 84147

(801) 532-7840

May 18, 1995

Counsel of Record

STEPHEN V. BOMSE

MARIE L. FIALA

RENATA M. Sos

ROBERT G. MERRITT

HELLER, EHRMAN, WHITE

& McCAULIFFE

333 Bush Street, Suite 3100

San Francisco, CA 94104

(415) 772-6000

Attorneys for Respondent