Pulse Network, L.L.C. v. Visa, Inc.

30 F.4th 480

PULSE NETWORK, L.L.C., Plaintiff—Appellant,

v.VISA, INCORPORATED, Defendant—Appellee.

No. 18-20669

United States Court of Appeals, Fifth Circuit.

FILED April 5, 2022

Paul D. Clement, Erin Murphy, Kirkland & Ellis, L.L.P., Washington, DC, David J. Beck, Esq., Geoff A. Gannaway, Esq., Russell S. Post, Beck Redden, L.L.P., Houston, TX, for Plaintiff-Appellant.

Allyson Newton Ho, Bradley G. Hubbard, Gibson, Dunn & Crutcher, L.L.P., Dallas, TX, Lee Landa Kaplan, Smyser Kaplan & Veselka, L.L.P., Houston, TX, John Watkins Keker, Esq., Keker, Van Nest & Peters, L.L.P., San Francisco, CA, Michael Adam Rubin, Arnold & Porter Kaye Scholer, L.L.P., Washington, DC, Jacob T. Spencer, Gibson, Dunn & Crutcher, L.L.P., Washington, DC, Andrew Tulumello, Senior Litigation Attorney, Weil, Gotshal & Manges, L.L.P., Washington, DC, for Defendant-Appellee.

Eric Franklin Citron, Goldstein & Russell, P.C., Bethesda, MD, for Amicus Curiae Retail Litigation Center, Incorporated.

Shannen Wayne Coffin, Linda C. Bailey, Steptoe & Johnson, L.L.P., Washington, DC, for Amici Curiae Merchant Advisory Group, National Association of Convenience Stores, National Retail Federation, and Food Marketing Institute.

Seth David Greenstein, Constantine Cannon, L.L.P., Washington, DC, for Amicus Curiae SHAZAM, Incorporated.

Cory L. Andrews, Washington Legal Foundation, Washington, DC, for Amici Curiae Richard Epstein, Geoffrey A. Manne, and Washington Legal Foundation.

Before Smith, Willett, and Duncan, Circuit Judges.

Stuart Kyle Duncan, Circuit Judge:

This appeal concerns an antitrust dispute between Pulse and Visa, competitors in the multi-billion-dollar debit network market. After litigation had been dawdling for years, the district court dismissed Pulse's Sherman Act claims against Visa for lack of antitrust standing. We reverse in part, remand for further proceedings, and direct reassignment to a different judge.

I. BACKGROUND

First, a brief sketch of the debit network market (infra I.A), Visa's challenged policies (infra I.B), and the district court proceedings (infra I.C).

A. The Debit Network Market

1. The Market Structure

To pay for breakfast at the local coffee shop, you swipe (or tap) your debit card. So begins an invisible process that transfers your money to the shop. The electronic architecture that makes this possible is a "debit network." This diagram shows roughly how it works:

Located at the central hub of the diagram, the debit network links the merchant's bank (or "acquirer") with the cardholder's bank (or "issuer"). Data races back and forth between acquirer and issuer. If the issuer approves the transaction, the price of breakfast zips from your account to the coffee shop's.

There are two kinds of debit networks. A "PIN network" is used when you complete a sale by punching in your personal identification number. A "signature network" is used when you sign your name. Nearly all debit cards enable one signature network and at least one PIN network.¹ Notably, though, the line between the two kinds of networks has blurred: companies have developed "PINless" technology that lets PIN networks process sales that would otherwise route through signature networks.

Debit networks are not free. Two kinds of fees are collected on every transaction. First, debit network companies collect "network fees," which are their primary revenue. These are paid by both merchants and issuers. They are typically low—averaging a few cents per transaction—and slightly higher for signature than for PIN networks. Second, issuers collect "interchange fees" from merchants' banks. These make up the largest portion of the prices merchants pay for debit transactions.² Both kinds of fees are big business. In 2019, issuers and merchants paid $2.94 billion and $5.32 billion, respectively, in network fees, and issuers received $24.31 billion in interchange fees.³

The debit network market is "two-sided," meaning debit network companies compete for business from both merchants and issuers. Issuers choose which PIN and signature networks to enable on cards; merchants choose which of those networks to route sales over. Thus, debit network companies compete by (1) convincing issuers to include their networks on cards and (2) convincing merchants to route sales over their networks. Success means pleasing both sides, because effects on one side ripple over to the other. If a network's fees go up, issuers may not choose it, lowering that network's value to merchants. If in turn merchants opt not to use that network, it has even less value to issuers, triggering "a feedback loop of declining demand." Ohio v. Am. Express Co. , ––– U.S. ––––, 138 S. Ct. 2274, 2281, 201 L.Ed.2d 678 (2018).

2. The Market Players

Having sketched the market, we bring in the relevant players: Visa and Pulse. Both operate debit networks. Pulse has a PIN network; Visa has a signature network ("Visa Debit") and a PIN network ("Interlink"). Both companies have also developed PINless options: Pulse's "Pulse Pay Express" and Visa's "PAVD" (short for "PIN-authenticated Visa Debit").

The signature debit network market is dominated by Visa and Mastercard, which are the signature network on 99% of debit cards. Of the two, Visa is the bigger dog, currently with a 70–75% share of all signature network transactions. The PIN debit network market is more crowded. It includes not only Interlink and Pulse but also Maestro, STAR, NYCE, ACCEL, and Shazam, among others.

Federal law affects the debit network market. The "Durbin Amendment" to the 2010 Dodd-Frank Act regulates the market in two ways relevant here.⁴ First, the Amendment forces issuers to enable at least two unaffiliated debit networks on all debit cards. See 15 U.S.C. § 1693o-2(b)(1)(A) ; 12 C.F.R. § 235.7(a)(1). For Visa-branded debit cards (on which Visa's signature network is enabled), this means issuers must enable at least one non-Visa PIN network on each card. Second, the Amendment gives merchants total autonomy to choose which debit network to route transactions over. See 15 U.S.C. § 1693o-2(b)(1)(B) ; 12 C.F.R. § 235.7(b).⁵

B. Visa's Alleged Anti-Competitive Actions

In response to the Durbin Amendment, Visa made certain changes to its policies relevant here: PAVD, FANF, and volume-based agreements.

First, Visa instituted its PAVD program. This requires issuers to enable Visa's PAVD technology (i.e. , Visa's PINless system) on all Visa debit cards they issue. This guarantees that Visa can compete for PIN transactions on every Visa-branded card, even if the issuer has not enabled Interlink (Visa's PIN network) on that card.

Second, Visa instituted the "Fixed Acquirer Network Fee" ("FANF"). Instead of charging merchants only a per-transaction fee, Visa began charging them⁶ a fixed monthly fee for using its debit networks. Merchants must pay this up-front fee so long as they accept payment from any Visa product during the month. Visa continued to charge per-transaction fees, but they were substantially reduced from previous levels. Given the incentives created by this new pricing structure and Visa's market dominance, Pulse claims the FANF has these effects: (1) merchants can't refuse to pay the fixed monthly fee because, realistically, they can't stop accepting Visa cards, and (2) to recoup the fixed fee, merchants must route debit transactions through Visa's networks, which charge lower per-transaction fees than do Visa's rivals.

Third, Visa entered various volume-based agreements with issuers and merchants. These agreements offer incentives to merchants to route a certain number of transactions each month over Visa's networks. Similarly, Visa offers incentives to issuers—"rebates, discounts, and other incentives"—if certain numbers of transactions occur on Visa networks each month.

C. Pulse's Lawsuit

Pulse sued Visa in 2014, alleging the three policies just described violate federal and state antitrust statutes.⁷ The case was assigned to Judge Lynn Hughes of the Southern District of Texas. There, the case languished for four years. In 2017, despite the fact that little discovery had been allowed, Visa moved for summary judgment on both the merits and antitrust standing. About a year later, the district court held Pulse lacked antitrust standing and dismissed the case. The court's terse decision appeared to rest on three holdings.

First, the court concluded Pulse had suffered no injury-in-fact. It reasoned that "[e]ven if Visa stopped using [the challenged strategies], Pulse would not necessarily win more business." It noted that "Mastercard, a major market participant second only to Visa, has adopted a pricing structure like Visa's," and that "[t]he rise of fixed fees would not stop if Visa were barred from having them." Second, the court held Pulse did not suffer an antitrust injury. It reasoned that any injury inflicted by Visa's policies was felt by merchants and issuers, not Pulse, and that Visa's policies increased competition rather than harmed it. Third, the court appeared to hold that Pulse was too remote a plaintiff. In its view, because merchants, issuers, and acquirers were the parties potentially harmed by Visa's conduct, "[t]hey are better and more directly positioned to challenge Visa if they think that this conduct violates the antitrust laws."

Pulse timely appealed. Oral argument was first heard by a panel on October 9, 2019. Following argument, one judge recused. The case was reassigned to a different panel, which—following delays caused by the pandemic and a hurricane—heard argument on January 5, 2022.

II. ANTITRUST STANDING

On appeal, Pulse argues the district court erred in granting summary judgment based on Pulse's lack of antitrust standing. We review summary judgments de novo. In re La. Crawfish Producers , 852 F.3d 456, 462 (5th Cir. 2017) ; see FED. R. CIV. P. 56(a).

The Clayton Act provides that "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any ...