By filing private antitrust claims against MasterCard, Discover Financial Services seeks to exploit Federal Judge Barbara S. Jones’s decision in the Department of Justice’s case against MasterCard and Visa. Through the private lawsuit, Discover seeks to argue that it was somehow economically harmed in the general purpose credit card market and debit arena by MasterCard’s policies and is therefore entitled to damages.

Discover’s claims are entirely without merit and are not supported by the realities of the marketplace or by its own executives’ testimony before the Court and Congress. The facts are clear: Discover’s inability to grow its network has everything to do with its poor business model and nothing to do with MasterCard’s policies.

Repealing MasterCard’s Membership Policy Would Make Discover “Worse Off”

While the government had only to prove that the payments network market would be more competitive without MasterCard’s Competitive Programs Policy (CPP), Discover has a much higher hurdle to overcome to prove its case. Under U.S. antitrust laws, a private plaintiff like Discover must prove that its business was harmed and suffered damages because of MasterCard’s membership policy. Such claims are entirely unfounded, as demonstrated by the sample of Discover admissions highlighted below:

• Discover CEO David Nelms testified in the government’s case that Discover had not even made significant efforts to enter into issuing partnerships with MasterCard or Visa member banks because Discover felt it could not offer banks competitive rates.
• Discover CEO David Nelms further testified that merely repealing MasterCard’s CPP would result in less competition and actually harm Discover’s ability to grow by making their cards less attractive to banks for issuance.
• Mr. Nelms’s testimony is consistent with that of Phillip Purcell, the chairman and CEO of Morgan Stanley Dean Witter Company, Discover’s parent company. Mr. Purcell testified before the U.S. Senate Banking Subcommittee on Financial Institutions that a repeal of MasterCard’s membership policy would weaken Discover’s competitive position.
• In a motion to intervene in the government’s case, Discover submitted to the court that “the remedy [repeal of MasterCard’s CPP and Visa’s 2.10(e)] that the Government appears to be seeking would likely make the Discover network worse off than it is today.”
• In an amicus brief filed by Discover during the remedy stage of the government’s case, Discover reiterated that if MasterCard’s CPP were repealed “Discover still would be hampered in its ability to attract third-party issuing banks.”

These and other admissions garnered during the DOJ litigation expose the inherent failings in Discover’s case.

MasterCard Membership Policy Never Applied to Debit

Presumably due to the weakness of its claims relating to the general purpose credit card market, Discover alleges that MasterCard’s CPP also precluded Discover from entering the debit card market by preventing it from either purchasing a regional ATM network or partnering with a bank to issue a Discover debit card. Discover cannot prove MasterCard’s CPP affected its ability to enter the debit market because the policy never applied to debit, and any purported failure by Discover to enter or thrive in the debit arena cannot be attributed to MasterCard’s CPP.

Discover Has No Grounds to Challenge MasterCard’s Honor All Cards Rule

Finally, Discover also argues that it was somehow harmed by MasterCard’s Honor All Cards (HAC) rule. Again though, as with other parts of their claim, Discover offers no basis for how the HAC damaged its ability to enter either the alleged debit or general purpose credit card markets. MasterCard’s HAC rule never precluded merchants from accepting Discover cards or any other cards for that matter. Rather, the HAC rule stated that if a merchant participates in the MasterCard system it must accept all MasterCard-branded cards. The rule ensured that consumers have the ability to choose their preferred method of payment at the point of sale. In fact, many networks that offer payment cards—including MasterCard, Visa and American Express—have honor all cards rules. Even Discover has a rule in place requiring participating merchants that accept one type of Discover card to honor all cards bearing the Discover logo.