Antitrust Update Blog

Procompetitive Effects of Business Associations in the Balance?: Business Association Membership and the Sufficiency of Sherman Act Allegations

What facts beyond mere membership in a trade association trigger Sherman Act liability?  Next term, the Supreme Court will hear an antitrust case testing the requirements for pleading the conspiracy element of a claim brought under the Sherman Act—namely, whether the allegation that defendants belong to an association is sufficient for a Section 1 claim.

In Visa v. Osborn, the Supreme Court will review a decision of the District of Columbia Circuit which held that the conspiracy element of a claim brought under Section 1 of the Sherman Act was properly pleaded by Plaintiffs, representatives of a putative class of consumers who engaged in transactions at ATMs not operated by the bank hosting their deposit accounts (“foreign ATMs”).  Plaintiffs-Appellees alleged that Visa and MasterCard do not permit operators of foreign ATMs to charge higher access fees for transactions routed over the Visa and MasterCard networks.   Defendants-Appellants have argued that the D.C. Circuit decision “poses a grave threat to the procompetitive benefits of business associations” by holding that “nothing more than agree[ment] to follow a business association’s rules and participate in its governance” is needed to successfully plead anticompetitive conduct.

Visa and MasterCard were business associations comprised of and owned by U.S. bank members until 2008 and 2006 when, respectively, each held an initial public offering (“IPO”) and became a publicly held corporation.  Before the IPOs, Visa and MasterCard were operated as joint ventures by the member banks.  After they went public, the member banks relinquished control.  The rules governing access fees, however, remained the same.

Plaintiffs-Appellees alleged that membership in associations, which prohibited the application of higher fees to certain networks, constituted anticompetitive conduct satisfying the horizontal conspiracy requirement of a Sherman Act claim.  The D.C. Circuit agreed with Plaintiffs, holding that the banks “used the bankcard associations to adopt and enforce a supracompetitive pricing regime for ATM access fees.”

In their cert petition, Defendants-Appellants challenge the D.C Circuit’s ruling and argue that the D.C. Circuit split from holdings of the Third, Fourth, and—especially—the Ninth Circuits.  Defendants-Appellants rely on the following decisions:

•  The Ninth Circuit in Kendall v. Visa U.S.A., Inc., where the court found that “merely charging, adopting or following the fees set by [MasterCard or Visa] is insufficient as a matter of law to constitute a violation of Section 1 of the Sherman Act.”

•  The Fourth Circuit in SD3, LLC v. Black & Decker (U.S.), which held that allegations of membership in and governance of an association are not sufficient to establish the conspiracy element of a Sherman Act claim.

•  The Third Circuit in In re Insurance Brokerage Antitrust Litigation, holding that “neither defendants’ membership in [and insurance trade association], nor their common adoption of the trade group’s suggestions, plausibly suggest conspiracy.”

Plaintiffs-Appellees argue that the D.C. Circuit’s decision causes no Circuit split, and underscore that the appellate court below echoed the holding in Kendall that membership alone in an association “does not render an association’s members automatically liable for antitrust violations.”  Rather, Plaintiffs-Appellees contend that their allegations focus not on mere membership in an association, but rather agreement among the association’s members “to adopt a rule that requires ATM operators to fix prices charged to consumers.”

According to Defendants-Appellants, the approximately 68,000 business associations operating in the United States engender precompetitive benefits recognized by the Department of Justice and Federal Trade Commission.  Plaintiffs-Appellees maintain that such procompetitive benefits cannot shield associations from antitrust scrutiny.

The Supreme Court’s decision may certainly have a significant impact on the willingness of businesses, particularly in certain industries prone to scrutiny by antitrust regulators, to participate in trade associations.