MasterCard 2008 Annual Report Download - page 131

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
On February 25, 2008, the Antitrust Division of the DOJ issued a Civil Investigative Demand (“CID”) to
MasterCard seeking information regarding a potential violation of the final judgment in the DOJ litigation
discussed in the preceding paragraphs. The CID sought documents, data and narrative responses to several
interrogatory and document requests which focused on whether early termination and waiver provisions in
agreements between MasterCard and issuers violated the DOJ final judgment. On February 10, 2009, the DOJ
informed MasterCard that it had closed its investigation that led to the issuance of this CID.
On October 4, 2004, Discover Financial Services, Inc. filed a complaint against MasterCard, Visa U.S.A.
Inc. and Visa International Services Association. The complaint was filed in the U.S. District Court for the
Southern District of New York and was designated as a related case to the DOJ litigation, and was assigned to
Judge Barbara Jones, the same judge who issued the DOJ decision described above. In an amended complaint
filed on January 7, 2005, Discover alleged that the implementation and enforcement of MasterCard’s CPP, Visa’s
bylaw provision and the Honor All Cards rule violated Sections 1 and 2 of the Sherman Act in an alleged market
for general purpose card network services and an alleged market for debit card network services. Discover sought
treble damages in an amount to be proved at trial along with attorneys’ fees and costs. On June 7, 2007, Discover
filed a second amended complaint that mirrored the claims in its amended complaint but deleted allegations
relating to MasterCard’s Honor All Cards rule as well as Discover’s Section 2 monopolization and attempted
monopolization claims against MasterCard based upon an earlier ruling by the court dismissing those claims.
Fact discovery was completed on May 31, 2007. Discover submitted expert reports purporting to demonstrate
that it had incurred damages in excess of $6,000,000 before trebling. MasterCard submitted expert reports
countering the damages arguments made in Discover’s reports and concluding that damages are negative. Trial
was scheduled to commence on October 14, 2008. On July 29, 2008, MasterCard and Visa entered into a
judgment sharing agreement that provided for the apportionment of certain costs and liabilities which
MasterCard and Visa might incur, jointly and/or severally, in the event of an adverse judgment or settlement in
the Discover litigation. The judgment sharing agreement provided that Visa would be responsible for the
substantial majority of any judgment or settlement in the litigation, based primarily on relevant volumes. On
October 27, 2008, MasterCard and Visa entered into a settlement agreement with Discover, ending all litigation
between the parties for a total of $2,750,000. The MasterCard share of the settlement, paid to Discover in
November 2008, was $862,500. In addition, in connection with the Discover Settlement and pursuant to a
separate agreement, Morgan Stanley, Discover’s former parent company, paid MasterCard $35,000 in November
2008.
On November 15, 2004, American Express filed a complaint against MasterCard, Visa and eight member
banks, including JPMorgan Chase & Co., Bank of America Corp., Capital One Financial Corp., U.S. Bancorp,
Household International Inc., Wells Fargo & Co., Providian Financial Corp. and USAA Federal Savings Bank.
The complaint, which was filed in the U.S. District Court for the Southern District of New York, was designated
as a related case to the DOJ litigation and was assigned to Judge Jones. The complaint alleges that the
implementation and enforcement of MasterCard’s CPP and Visa’s bylaw provision violated Sections 1 and 2 of
the Sherman Act in an alleged market for general purpose card network services and a market for debit card
network services. In November 2007, Visa and the remaining bank defendants reached a settlement with
American Express and were dismissed from the case. On June 24, 2008, MasterCard entered into a settlement
agreement with American Express to resolve all current litigation between American Express and MasterCard,
following which Judge Jones dismissed the case without prejudice, pending full payment. Under the terms of the
settlement agreement, MasterCard is obligated to make twelve quarterly payments of up to $150,000 per quarter.
See Note 18 (Obligations under Litigation Settlements) for additional discussion. MasterCard’s maximum
nominal payments will total $1,800,000. The amount of each quarterly payment is contingent on the performance
of American Express’ U.S. Global Network Services business. The quarterly payments will be in an amount
equal to 15% of American Express’s U.S. Global Network Services billings during the quarter, up to a maximum
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