Case C-382/12 P - MasterCard and Others v Commission, Judgment of 11 September 2014 ECLI:EU:C:2014:2201.

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1 CASE NAME AND NUMBER; DATE OF JUDGMENT Case C-382/12 P - MasterCard and Others v Commission, Judgment of 11 September 2014 ECLI:EU:C:2014:2201. TYPE OF PROCEDURE Appeal on case T-111/08. KEY WORDS Appeal - Cross-appeals - Admissibility - Article 81 EC - Open system of payment by debit, charge and credit cards - Multilateral fallback interchange fees - Association of undertakings - Restrictions of competition by effect - Standard of judicial review - Concept of ancillary restriction - Objectively necessary and proportionate nature - Appropriate counterfactual hypotheses - Two-sided systems - Treatment of annexes to the application at first instance. OPERATIVE PART OF THE JUDGMENT On those grounds, the Court (Third Chamber) hereby: 1. Dismisses the main appeal and the cross-appeals; 2. Orders MasterCard Inc., MasterCard International Inc. and MasterCard Europe SPRL to bear their own costs relating to the main appeal and the cross-appeals, and to pay the European Commission s costs relating to the main appeal; 3. Orders Royal Bank of Scotland plc, Bank of Scotland plc and Lloyds TSB Bank plc to bear their own costs and to pay the European Commission s costs relating to their respective cross-appeals; 4. Orders HSBC Bank plc, MBNA Europe Bank Ltd, British Retail Consortium, EuroCommerce AISBL and the United Kingdom of Great Britain and Northern Ireland to bear their own costs. PRESS RELEASE COURT BACKGROUND Whenever a debit/credit card transaction is executed the following parties are involved: the cardholder (i.e. the purchaser), the issuing bank (i.e. the bank that issued the card), the merchant (who makes a product or service available for the cardholder) and the acquiring bank (i.e. the bank that has equipped the merchant with services enabling him to accept a credit card).

In such debit/credit card systems there are various types of fees charged: (i) merchant service charges (fees paid by the merchant to the acquiring bank for the provision of the service, usually a

bank to the issuing bank (the fee can be either set bilaterally between the acquiring and issuing bank or multilaterally by the card scheme), (iii) cardholder fees (usually in the form of a monthly

2 In such debit/credit card systems there are various types of fees charged: (i) merchant service charges (fees paid by the merchant to the acquiring bank for the provision of the service, usually a certain percentage of the transaction value), (ii) interchange fees which function as a special element of the system to transfer part of the revenue of processing a transaction from the acquiring bank to the issuing bank (the fee can be either set bilaterally between the acquiring and issuing bank or multilaterally by the card scheme), (iii) cardholder fees (usually in the form of a monthly or annual membership) and (iv) card scheme fees (i.e. fees paid by the issuing and acquiring banks to the card scheme). The illustration bellow shows the money flow and the merchant and interchange fees charged in a transaction of 100 euros where the merchant fee is 3% and the interchange fee is 2% The case at hand relates to the MasterCard credit card scheme operating in the EEA, in particular the Multilateral Interchange Fees ( MIFs ) it imposes on cross-border transactions. On 19 December 2007 the Commission adopted Decision C(2007) 6474 final, where it found that from 22 May 1992 to 19 December 2007, MasterCard s intra-eea MIFs infringed Article 81(1) TEC (now 101(1) TFEU). MasterCard appealed the decision before the GC, which rejected all of MasterCard s arguments on

3 24 May 2012 (case T-11/08). MasterCard challenged the GC judgment before the CJEU seeking to set it aside and have the Commission decision annulled. Cross-appeals were also raised by Lloyd s Bank Group (LBG) and Royal Bank of Scotland (RBS). On 11 September 2014, the CJEU upheld the GC judgment thereby making the Commission decision final and binding. TO BE NOTED: Legal questions to be answered 1. Questions on admissibility of the cross appeals and of certain pleas or parts thereof of the appeal. 2. Challenge of the GC assessment of the MasterCard scheme as constituting an association of undertakings within the meaning of Art. 101 TFEU in light of the shareholders and board changes brought about by the 2005 Initial Public Offering ( IPO ). 3. Challenge of the restrictive effects of the MIFs on competition. 4. Whether the MIFs can be considered to be a form of ancillary restraints (i.e. objectively necessary for the operation of the MasterCard scheme). 5. Whether the Commission has concluded without erring in law that the appellants failed to demonstrate that MIFs satisfy the conditions laid down in Art. 101(3). Why is the case important? The case is not groundbreaking, yet it is an important one since, one the one hand, it provides closure to a long-lasting dispute that had affected litigation and legislation on the national level while, on the other, adds to the existing Court s case law related to the definition of the term association of undertakings under Art. 101 TFEU, to the notion of ancillary restraints and to the exemption under Art. 101(3) TFEU. Relevance for practice MasterCard is faced with follow-on damages actions before UK courts brought by merchants, who will now be able to rely on the now binding and final Commission decision. Court actions and regulatory investigations can be expected in this field in more Member States ( MS ) whereas the judgment will possibly bolster the legislative initiatives already brought forward by the Commission in this filed. Further, the judgment seems to slightly shift the debate to the question whether the MIFs can produce sufficient efficiencies to compensate for the restrictions. Based on the judgment, card schemes will carry the burden to prove such efficiencies, which in two-sided markets such as in this case may be a daunting task. Relevance for theory 1. Association of undertakings The Court upheld the Commission's characterization of MasterCard as an association of undertakings, even after MasterCard's 2005 IPO, which altered its shareholders and board structure. The Court s reasoning pointed to the decision-making powers held by the banks after the IPO (although not specifically over the setting of MIFs) (para. 68) and to the commonality of interests between MasterCard, the banks and its shareholders (para. 71), which continued (para. 68 and 71) to exist even after the IPO.

4 It can be argued whether this constitutes a new three-element test when determining an association of undertakings or whether this was rather a more functional approach, an operationalization of the test through a fact-cantered and fact-specific analysis that the Court had to resort to in this complex case. In any case 2. Ancillary restraints The Court, further, rejected MasterCard's argument that the GC had applied the incorrect legal test in its assessment of whether the MIFs were objectively necessary to the MasterCard scheme. According to the Court, the fact that an operation may be more difficult to implement, less efficient or less profitable (paras 89-91) in the absence of the restriction cannot be regarded as fulfilling objective necessity requirement. 3. Standard of review - the incorrect counterfactual hypothesis The Court accepted that the GC had erred in law by adopting a counterfactual scenario when assessing both whether the MIF was a restriction of competition and, if so, whether that restriction was objectively necessary. The Court noted that the adopted counterfactual scenario of the prohibition of ex post pricing was sufficient for the examination of the ancillary nature of the MIFs but insufficient when examining the restrictive effects of MIFs to competition (paras ). However, it concluded that this error had no impact on the operative part of the judgment, which was considered to be well founded on other legal grounds. Thus, according to the Court, there was no need to set aside the GC judgment, nor for the Commission decision to be annulled (para. 198). Rather it a case where a substitution of grounds is to take place (as explained in paras ). 4. Article 101(3) The Court followed the reasoning of the GC and of Advocate-General Mengozzi as regards the individual exemption provided in Art. 101(3) TFEU. In essence, the Court confirmed that benefits resulting from a restrictive agreement accruing to only one category of consumers of certain services (in this case the cardholders) cannot compensate for the negative effects on another category of consumers of other services on a different market (in this case the merchants) in two-sided markets. The Court reaffirmed that competition law is not intended to favour one category of consumers to the detriment of another (paras ). Why did the Court decide the way it did? The Court upheld the judgment of the GC following Advocate General Mengozzi s opinion as regards the main points of the case (with slight differentiations such as for instance avoiding referring to full compensation of all consumers affected by an agreement as part of the Art. 101(3) analysis, see paras 156 et seq. of the Opinion). Any other interesting element to be noted It is interesting to note that there has been an ongoing debate as to whether MIFs should be dealt with through antitrust enforcement or through ex ante regulation. A legislative package which proposes a revised Payments Services Directive (PSD2) and a Regulation on MIFs was brought forward by the Commission on 24 July 2013 and is currently still debated at the Council level (see the package in detail: There have

5 been suggestions that the proposed legislation has been used as a hedge in case the Court had not upheld the GC judgment. Agis Karpetas, 2 December 2014

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