## Facts

- Visa U.S.A. and MasterCard operated as bank-owned, “open” payment-card networks, with member banks issuing cards and acquiring merchant transactions over the networks.
- American Express and Discover operated “closed” networks and sought to expand distribution by having banks issue their cards.
- Visa and MasterCard maintained “exclusionary rules” that allowed member banks to issue cards on the other association’s network but prohibited issuing American Express or Discover cards.
- Some banks desired to issue American Express cards but were prevented from doing so by the exclusionary rules.
- The United States (DOJ) sued under Sherman Act § 1, challenging both (i) governance arrangements and (ii) the exclusionary rules.
- After a bench trial, the district court rejected the governance challenge but held the exclusionary rules unlawful, voided them, and permanently enjoined enforcement and adoption of similar rules.
- Visa U.S.A., Visa International, and MasterCard appealed, disputing market definition/power, competitive effects, and Visa International’s liability.

## Issues

1. Whether the relevant market was “general purpose card network services,” and whether Visa and MasterCard possessed market power in that market.
2. Whether the exclusionary rules constituted an unreasonable restraint of trade under Sherman Act § 1 under rule-of-reason analysis.
3. Whether asserted business justifications (e.g., network integrity, free-riding, conflicts) outweighed any anticompetitive effects.
4. Whether Visa International could be held liable for participation in Visa U.S.A.’s exclusionary rules.

## Decision

- The Second Circuit affirmed the judgment holding the exclusionary rules unlawful under Sherman Act § 1.
- The court accepted the district court’s market definition centered on general purpose card network services and upheld findings supporting market power.
- The court found the exclusionary rules produced actual adverse effects on competition by blocking American Express and Discover from access to banks as issuers, limiting inter-network price competition and innovation.
- The court rejected claimed justifications as unsupported by the record and insufficient to offset proven harms.
- The court affirmed that Visa International was liable based on evidence of affirmative encouragement of the exclusionary policy.
- The court upheld the permanent injunction voiding the rules and prohibiting materially similar future restrictions.

## Legal Principles

- Under Sherman Act § 1, horizontal restraints adopted by participants in a joint venture are evaluated under the rule of reason when not condemned as per se unlawful.
- Proof of actual adverse competitive effects can establish an unreasonable restraint and may reduce the need for extensive structural proof of market power.
- Joint-venture membership rules that foreclose rivals from a key channel of distribution can violate § 1 when they materially restrict interbrand rivalry and lack substantiated offsetting benefits.
- Procompetitive justifications for restrictive rules must be supported by evidence and must plausibly relate to the restraint; speculative claims do not justify substantial competitive harm.
- An affiliated entity may be subject to injunctive relief when it participates in, or affirmatively encourages, the unlawful restraint.

## Conclusion

The Second Circuit held that Visa and MasterCard’s bank-issuer exclusionary rules unlawfully restrained trade by foreclosing rival networks from bank issuance and suppressing competition in general purpose card network services, and it affirmed a permanent injunction eliminating the restraints and binding Visa International based on its participation.


United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003)