MasterCard 2008 Annual Report Download - page 134

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
decision on MasterCard’s motion to dismiss in New Mexico. In December 2008, MasterCard reached an
agreement in principle to resolve the California state court actions described above for a payment by MasterCard
of $6,000. The parties are negotiating a settlement agreement that will be subject to court approval. On January 7,
2008, MasterCard executed a settlement agreement, in which it agreed to resolve the West Virginia consumer
action for a payment by MasterCard of $3,400, which is consistent with the reserve that MasterCard had
established for the case in the second quarter of 2007. The court granted final approval of this settlement on
August 22, 2008.
At this time, it is not possible to determine the outcome of, or, except as indicated above in the West
Virginia and California consumer actions, estimate the liability related to, the remaining consumer cases and no
provision for losses has been provided in connection with them. The consumer class actions are not covered by
the terms of the settlement agreement in the U.S. merchant lawsuit.
On April 29, 2005, a complaint was filed in California state court on behalf of a putative class of consumers
under California unfair competition law (Section 17200) and the Cartwright Act. The claims in this action seek to
piggyback on the portion of the DOJ antitrust litigation in which the United States District Court for the Southern
District of New York found that MasterCard’s CPP and Visa’s bylaw constitute unlawful restraints of trade under
the federal antitrust laws. See “—Department of Justice Antitrust Litigation and Related Private Litigations.”
MasterCard and Visa moved to dismiss the complaint and the court granted the defendants’ motion to dismiss the
plaintiffs’ Cartwright Act claims but denied the defendants’ motion to dismiss the plaintiffs’ Section 17200
unfair competition claims. MasterCard filed an answer to the complaint on June 19, 2006 and the parties are
proceeding with discovery. In November 2008, MasterCard and Visa moved for summary judgment seeking to
dismiss plaintiffs remaining causes of action. The parties are currently briefing the motion. At this time, it is not
possible to determine the outcome of, or estimate the liability related to, this action and no provision for losses
has been provided in connection with it.
eFunds Litigation
On December 13, 2006, MasterCard notified eFunds Corporation (“eFunds”) that it was terminating the
Marketing Sales and Services Alliance Agreement (the “Agreement”) whereby the parties agreed to work
together to provide debit processing services to financial institutions. On or about January 30, 2007, eFunds filed
a verified complaint against MasterCard in Superior Court for the State of Arizona, alleging that MasterCard’s
termination of the Agreement was improper. On December 23, 2008, the parties executed a settlement agreement
resolving the action. The settlement involved no financial payment by either party, and MasterCard and eFunds
agreed to a mutually satisfactory commercial resolution.
Interchange Litigation and Regulatory Proceedings
Interchange fees represent a sharing of payment system costs among the financial institutions participating
in a four-party payment card system such as MasterCard’s. Typically, interchange fees are paid by the acquirer to
the issuer in connection with transactions initiated with the payment system’s cards. These fees reimburse the
issuer for a portion of the costs incurred by it in providing services which are of benefit to all participants in the
system, including acquirers and merchants. MasterCard or its customer financial institutions establish default
interchange fees in certain circumstances that apply when there is no other interchange fee arrangement between
the issuer and the acquirer. MasterCard establishes a variety of interchange rates depending on such
considerations as the location and the type of transaction, and collects the interchange fee on behalf of the
institutions entitled to receive it and remits the interchange fee to eligible institutions. As described more fully
below, MasterCard’s interchange fees are subject to regulatory or legal review and/or challenges in a number of
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