Saturday, January 28, 2006

Wall Street Journal: "Letter To The Editor"

[The below "letter to the editor" was submitted to the Wall Street Journal and published on Jan 28th in response to a recent WSJ commentary. Disclosure - The co-editors of The Credit Card Interchange Report are also co-owners of 30 Minute Photos Etc., which is a client of Mr. Wildfang's law firm, Robins, Kaplan, Miller and Ciresi LLP and lead plaintiff in the interchange antitrust litigation].

Dear Editor,

Your Jan. 12 editorial "Credit Where It's Due" ignores the undisputed facts that relate to credit card fees paid by merchants to banks, and the application of the antitrust laws to those facts. As counsel for the merchant plaintiffs in the litigation addressed in the editorial, which challenges the unlawful fixing of these charges by banks, I feel compelled to respond.

First, there is no dispute that these fees charged to merchants by card-issuing banks, so-called "interchange fees," are set collusively by the major banks that control Visa and MasterCard. Representatives of Citibank, Chase, Bank of America, MBNA and the other mega-banks that issue credit cards meet periodically to agree upon how much all banks will charge merchants for credit card processing. Visa and MasterCard do not dispute that they do this; indeed, they claim that it is absolutely necessary to the functioning of their networks. One of the goals of the litigation is to test whether this claim is true.

Second, merchants do not deny that credit card services are valuable to merchants and to consumers. However, the fact that a product or service is valuable is no defense to a charge of price-fixing. Indeed, the principal federal antitrust law, the Sherman Act, was enacted by Congress in 1890 in part as a reaction to price-fixing by railroads of shipping charges to farmers in the Midwest for transporting their corn and wheat to distant markets. There is no doubt that the railroads provided a valuable service, compared with the horse-and-wagon alternative, but that did not permit them to collude on how much they would charge farmers.

Similarly, in today's business world, telecommunications services, airline travel and computers are vital to U.S. businesses, but providers of those products and services are not permitted to fix prices by agreement. And I don't think the publishers of the Wall Street Journal would agree that it would be a good thing for sellers of paper and ink, or Internet services, to agree among themselves on how much they would charge newspaper publishers for these products, even though these products are vital to newspaper publishers.

The cases recently filed by merchants are just at their beginning, but my clients are confident that the courts will ultimately conclude that the fixing of these fees by banks is unlawful. Such a finding would be good news both for merchants and consumers.

K. Craig Wildfang
Robins, Kaplan, Miller & Ciresi, LLP