Posted on: Tuesday, November 16, 2004
American Express suit seeks billions
By Eileen Alt Powell
Associated Press
NEW YORK — Travel and financial services giant American Express Co. yesterday sued Visa and MasterCard as well as eight banks for damages stemming from anti-competitive practices that prevented American Express from issuing cards through U.S. banks.
The New York-based company did not say exactly how much it was seeking, but said it expected the total would be "in the billions of dollars."
The suit, filed in U.S. District Court in Manhattan, is the second against the two biggest card associations in America, Visa USA Inc. and MasterCard International Inc.
Last month, Discover Financial Services, a unit of New York-based Morgan Stanley, filed a similar federal suit against MasterCard and Visa seeking unspecified damages for practices that kept it out of the lucrative bank market.
Both lawsuits follow an Oct. 4 ruling by the U.S. Supreme Court in an antitrust case brought by the Justice Department that accused Visa and MasterCard of restraining competition. The high court's decision let stand a lower court ruling requiring Visa and MasterCard to allow member banks to issue competing cards. That cleared the way for American Express and Discover to begin partnering with U.S. financial institutions.
Suits filed under antitrust law can seek triple damages.
Also yesterday, Discover Financial Services announced that it was merging with PULSE EFT Association card processing network in a deal valued at $311 million. It was Discover's first deal with an American financial firm since the Supreme Court ruling.
Visa and MasterCard are nonprofit associations made up of thousands of bank members.
MasterCard called the action by American Express "a misguided lawsuit."
American Express "will face significant obstacles that the government didn't face in its lawsuit," MasterCard spokeswoman Sharon Gamsin said.
"This will be a very difficult case, as American Express will need to prove it was injured and suffered damages ... claims we believe the reality of the marketplace demonstrates are entirely unfounded."
Visa said in a statement that it would "vigorously fight" the lawsuit.
"It's time for American Express to stop looking to the courts to solve its problems and compete in the marketplace instead," the Visa statement said.
Experts said the American Express suit was not unexpected.
"The Justice Department documented in detail the ways, because of Visa and MasterCard rules, that American Express was blocked from entering into arrangements with banks," said David A. Balto, an antitrust attorney with Robins, Kaplan, Miller & Ciresi in Washington, D.C.
"The question is how much American Express was damaged ... because they certainly were damaged for a period of time."
Bert Ely, a bank consultant based in Alexandria, Va., said he thought American Express "is looking for a clear shot at at least trying to sell banks on offering the American Express card along with Visa and MasterCard."
Louis Parent, general counsel for American Express, told a news conference that the suit was being brought because of "the obligation to our shareholders to seek to recover our damages."
David Boies, a founding partner of Boies, Schiller & Flexner and lead attorney on the case, told reporters that the American Express and Discover cases might be combined during the initial "discovery" period in the court.
But, he added, he expected they would be tried separately.
"The arguments each of us will make are particular to our approaches, and some defenses are particular either to Discover or to us," he said.
Earlier this month, credit-card issuer MBNA Corp. began rolling out its new American Express-branded cards in the first deal between American Express and a U.S. financial institution.
