MasterCard 2010 Annual Report Download - page 136

Download and view the complete annual report

Please find page 136 of the 2010 MasterCard annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 162

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—continued
U.S. Merchant and Consumer Litigations
Commencing in October 1996, several class action suits were brought by a number of U.S. merchants
against MasterCard International and Visa U.S.A., Inc. challenging certain aspects of the payment card industry
under U.S. federal antitrust law. Those suits were later consolidated in the U.S. District Court for the Eastern
District of New York. The plaintiffs claimed that MasterCard’s “Honor All Cards” rule (and a similar Visa rule),
which required merchants who accept MasterCard cards to accept for payment every validly presented
MasterCard card, constituted an illegal tying arrangement in violation of Section 1 of the Sherman Act. Plaintiffs
claimed that MasterCard and Visa unlawfully tied acceptance of debit cards to acceptance of credit cards. In June
2003, MasterCard International signed a settlement agreement to settle the claims brought by the plaintiffs in this
matter, which the Court approved in December 2003. In January 2005, the Second Circuit Court of Appeals
issued an order affirming the District Court’s approval of the settlement agreement thus making it final. In July
2009, MasterCard International entered into an agreement with the plaintiffs to prepay MasterCard
International’s remaining payment obligations under the settlement agreement at a discount. In August 2009, the
court entered a final order approving the prepayment agreement. The agreement became final pursuant to its
terms In September 2009 as there were no appeals of the court’s approval, and the prepayment was subsequently
made in September 2009.
In addition, individual or multiple complaints have been brought in nineteen different states and the District
of Columbia alleging state unfair competition, consumer protection and common law claims against MasterCard
International (and Visa) on behalf of putative classes of consumers. The claims in these actions largely mirror the
allegations made in the U.S. merchant lawsuit and assert that merchants, faced with excessive merchant discount
fees, have passed these overcharges to consumers in the form of higher prices on goods and services sold.
MasterCard has been successful in dismissing cases in seventeen of the jurisdictions as courts have granted
MasterCard’s motions to dismiss for failure to state a claim or plaintiffs have voluntarily dismissed their
complaints. However, there are outstanding cases in New Mexico and California. On June 9, 2010, the court
issued an order granting MasterCard’s motion to dismiss the complaint in the New Mexico action. The plaintiffs
have filed a notice of appeal of that decision. With respect to the California state actions, and as discussed above
under “Department of Justice Antitrust Litigation and Related Private Litigations,” in September 2009, the
parties to the California state court actions executed a settlement agreement which required a payment by
MasterCard of $6 million, subject to approval by the California state court. On August 23, 2010, the court
executed an order granting final approval of the settlement, subsequent to which MasterCard made the payment
required by the settlement agreement. The plaintiff from the Attridge action described above under “Department
of Justice Antitrust Litigation and Related Private Litigations” and three other objectors have filed a notice that
they intend to appeal the settlement approval order.
At this time, it is not possible to determine the outcome of, or, except as indicated above in the California
consumer action, 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.
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 purchase 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
126