MasterCard 2008 Annual Report Download - page 137

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
European Union. In September 2000, the European Commission issued a “Statement of Objections”
challenging Visa International’s cross-border default interchange fees under European Community competition
rules. On July 24, 2002, the European Commission announced its decision to exempt the Visa interchange fees
from these rules through the end of 2007 based on certain changes proposed by Visa to its interchange fees.
Among other things, in connection with the exemption order, Visa agreed to adopt a cost-based methodology for
calculating its interchange fees similar to the methodology employed by MasterCard, which considers the costs
of certain specified services provided by issuers, and to reduce its interchange rates for debit and credit
transactions to amounts at or below certain specified levels.
On September 25, 2003, the European Commission issued a Statement of Objections challenging
MasterCard Europe’s cross-border default interchange fees. On June 23, 2006, the European Commission issued
a supplemental Statement of Objections covering credit, debit and commercial card fees. On November 14 and
15, 2006, the European Commission held hearings on MasterCard Europe’s cross-border default interchange
fees. On March 23, 2007, the European Commission issued a Letter of Facts, also covering credit, debit and
commercial card fees and discussing its views on the impact of the IPO on the case. MasterCard Europe
responded to the Statements of Objections and Letter of Facts and made presentations on a variety of issues at the
hearings.
The European Commission announced its decision on December 19, 2007. The decision applies to
MasterCard’s default cross-border interchange fees for MasterCard and Maestro branded consumer payment card
transactions in the European Economic Area (“EEA”) (the European Commission refers to these as
“MasterCard’s MIF”), but not to commercial card transactions (the European Commission stated publicly that it
has not yet finished its investigation of commercial card interchange fees). The decision applies to MasterCard’s
MIF for cross-border consumer card payments and to any domestic consumer card transactions that default to
MasterCard’s MIF, of which currently there are none.
The decision required MasterCard to cease applying the MasterCard MIF, to refrain from repeating the
infringement, and not to apply its then recently adopted (but never implemented) Maestro SEPA and Intra-
Eurozone default interchange fees to debit card payment transactions within the Eurozone. MasterCard
understood that the decision gave MasterCard until June 21, 2008 to comply, with the possibility that the
European Commission could have extended this time at its discretion. The decision also required MasterCard to
issue certain specific notices to financial institutions and other entities that participate in its MasterCard and
Maestro payment systems in the EEA and make certain specific public announcements, regarding the steps it has
taken to comply. The decision does not impose a fine on MasterCard, but provides for a daily penalty of up to
3.5% of MasterCard’s daily consolidated global turnover in the preceding business year (which MasterCard
presently estimates to be approximately $500 U.S. per day) in the event that MasterCard fails to comply.
On March 1, 2008, MasterCard filed an application for annulment of the European Commission’s decision
with the EU Court of First Instance. MasterCard also has the right to seek interim relief to prevent the decision
from becoming effective before the outcome of its appeal or with respect to other aspects of the decision,
although it is uncertain whether MasterCard would receive any such relief.
On March 26, 2008, the European Commission announced that it has opened formal antitrust proceedings
against Visa Europe Limited, under Article 81 of the EC Treaty, in relation to Visa’s multilateral interchange
fees for cross-border consumer payment card transactions within the EEA and Visa’s ‘honor all cards’ rule as it
applies to these transactions.
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