Visa 2007 Annual Report Download - page 53

Table of Contents
Indemnification by Visa U.S.A. Members
The members of Visa U.S.A. have indemnification obligations with respect to the covered litigation pursuant to Visa U.S.A.'s certificate of
incorporation and bylaws and in accordance with their membership agreements, although we currently intend to use the escrow amount, including any
additional proceeds from the sale of loss shares, to satisfy obligations under the covered litigation before seeking to enforce these indemnification obligations.
To the extent that the initial escrow amount and any additional sale of loss shares is insufficient to fully satisfy obligations under the covered litigation
and reimburse judgment sharing and loss sharing payments by Visa U.S.A.'s members, we will use commercially reasonable efforts to enforce the
indemnification obligations of Visa U.S.A.'s members for such excess amount, including but not limited to enforcing indemnification obligations pursuant to
the loss sharing agreement, Visa U.S.A.'s certificate of incorporation and bylaws and in accordance with their membership agreements.
Covered Litigation
The Discover Litigation
On October 4, 2004, Discover Financial Services, Inc. filed a complaint against Visa U.S.A., Visa International and MasterCard. 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 the same
judge who issued the DOJ decision described under "—Other Legal and Regulatory Proceedings—Department of Justice Antitrust Litigation and Related
Litigation." The complaint alleged that the implementation and enforcement of Visa's bylaw 2.10(e) and MasterCard's Competitive Programs Policy, or CPP
(which prohibited their respective members from issuing American Express or Discover cards), as well as Visa's "Honor All Cards" rule (which required
merchants that accept Visa cards to accept for payment every validly presented Visa card) and a similar MasterCard rule violated Sections 1 and 2 of the
Sherman Act as well as California's Unfair Competition Act in an alleged market for general purpose card network services and an alleged market for debit
card network services. The complaint also challenged Visa's no surcharge rule and a similar MasterCard rule, under the same statutes. On December 10, 2004,
Visa U.S.A. and Visa International moved to dismiss the complaint in its entirety for failure to state a claim. In lieu of filing its opposition papers to this
motion, Discover filed an amended complaint on January 7, 2005. In the amended complaint, Discover dropped some of its claims, including its challenge
against the no surcharge rule and its claims under California's Unfair Competition Law, but continued to allege that the implementation and enforcement of
Visa U.S.A.'s bylaw 2.10(e), MasterCard's CPP, and the "Honor All Cards" rule violated Sections 1 and 2 of the Sherman Act. 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 the
names of the plaintiffs.
Specifically, Discover claims that Visa U.S.A.'s bylaw 2.10(e) unreasonably restrained trade by prohibiting financial institutions that were members of
Visa U.S.A. from issuing payment cards on the Discover network in the United States. Discover requests that the District Court apply collateral estoppel with
respect to the court's final judgment in the DOJ litigation and enter an order that bylaw 2.10(e) and the CPP have injured competition and caused injury to
Discover. Discover seeks treble damages in an amount to be proved at trial, along with attorneys' fees and costs. On February 7, 2005, Visa U.S.A. and Visa
International moved to dismiss Discover's amended complaint in its entirety for failure to state a claim. On April 14, 2005, the District Court denied, at this
stage in the litigation, Discover's request to give collateral estoppel effect to the findings in the DOJ litigation. However, the District Court indicated that
Discover may refile a motion for collateral estoppel after discovery. Under the doctrine of collateral estoppel, a court has the discretion to preclude one or
more issues from being relitigated in a subsequent action if: (1) the same issues were actually litigated and determined in the prior action; (2) proof of those
issues was necessary to reach the prior judgment; and (3) the party to be estopped had a full and fair opportunity to litigate those issues in the prior action.
Accordingly, if the District Court were to give
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