Visa 2007 Annual Report Download - page 152

Table of Contents
VISA U.S.A. INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Inc. (American Express) filed a similar action in the same court against Visa U.S.A., Visa International, MasterCard and certain of their member financial
institutions. Both complaints sought treble damages and injunctive relief under Sections 1 and 2 of the Sherman Act, asserting that Visa's bylaw 2.10(e) and
MasterCard's Competitive Programs Policy (CPP) prevented banks from issuing payment cards on the American Express and Discover networks. Discover
also contends that Visa's "Honor All Cards" rule reinforced the anticompetitive effects of bylaw 2.10(e).
Both lawsuits were assigned to the district court judge who presided in United States v. Visa (the DOJ Case), in which the Department of Justice
challenged bylaw 2.10(e) and the CPP. In the DOJ Case, the court in 2001 enjoined Visa and MasterCard from enacting, enforcing, or maintaining any bylaw,
rule, policy, or practice that prohibits members from issuing general purpose or debit cards on any other general purpose card network. In accordance with this
court order, Visa U.S.A. repealed bylaw 2.10(e). The court deferred ruling on whether, or to what extent, it would give collateral estoppel effect in the
American Express and Discover cases to factual findings made in the DOJ case.
The defendants moved to dismiss certain claims in the American Express and Discover cases. In the fall of 2005, the court granted MasterCard and Visa
International's motions to dismiss Discover's attempted monopolization and monopolization claims against them, because Discover did not allege that either
MasterCard or Visa International individually had sufficient market share to maintain these claims. The court denied Visa U.S.A.'s analogous motion,
however, finding that Discover had alleged sufficient market share as to Visa U.S.A. The court also denied Visa and MasterCard's motions to dismiss the
plaintiffs' debit card claims, ruling that the plaintiffs had properly alleged a debit card market. Visa's motion to dismiss American Express's exclusive-dealing
claim was also denied.
Fact discovery is complete. At a hearing on April 25, 2007, the District Court for the Southern District of New York set a trial date of September 9,
2008 for both the American Express and Discover cases. The court also established deadlines and procedures for motions practice and expert discovery.
On June 7, 2007, Discover filed a Second Amended Complaint, which eliminated allegations related to the "Honor All Cards" rule, dropped attempted
monopolization and monopolization claims against MasterCard and Visa International to conform to the court's rulings on motions to dismiss and made
technical changes to names of the plaintiffs. On July 24, 2007, American Express and Discover served expert reports seeking substantial damages. Expert
reports were served jointly by Visa U.S.A., Visa International and the financial institution defendants on October 9, 2007. In accordance with SFAS No. 5,
"Accounting for Contingencies," Visa U.S.A. recorded a litigation provision of $650 million related to the Discover matter at September 30, 2007.
On November 1, 2007, Visa Inc., Visa U.S.A. and Visa International entered into an agreement with American Express to resolve all current litigation
between American Express and Visa U.S.A. and Visa International and the related litigation between American Express and U.S. Bancorp, Wells Fargo &
Co., Washington Mutual, JPMorgan Chase & Co. and Capital One Financial Corp. Visa Inc.'s board of directors approved the settlement agreement on
November 6, 2007 and American Express's board of directors approved the agreement on November 7, 2007. Visa U.S.A. members approved the settlement
on November 9, 2007.
Under the settlement agreement, American Express will receive maximum payments of $2.25 billion including $2.07 billion from Visa Inc. and $185
million from the five co-defendant banks. An initial payment of $1.13 billion will be made on or before March 31, 2008, including $945 million from Visa
Inc. and $185 million from the five co-defendant banks. Beginning March 31, 2008, Visa Inc. will pay American Express an additional amount of up to $70
million per quarter for 16 quarters, for a maximum total of $1.12 billion.
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