Paycom vs. MasterCard - lawsuit dismissed

[HMS]

Interesting article this morning. Looks like Visa wins again (as usual) :-(

Steve Kimberling, AVP
Humboldt Merchant Services
877-635-3339
[email protected]




Suit Over MC Web Chargebacks Dismissed

American Banker Tuesday, April 5, 2005
By David Breitkopf



A federal judge has dismissed a lawsuit in which an Internet payment processor assailed the fees that MasterCard International charges when Internet customers refuse to pay.

The plaintiff is Paycom Billing Services Inc., many of whose customers sell pornographic material through the Internet.

The decision was a victory for MasterCard against the New York lawyer Lloyd Constantine, whose Constantine & Partners was also the lead plaintiff's attorney in the landmark Wal-Mart Stores Inc. suit against MasterCard and Visa U.S.A.

But Paycom's attorney in the current case, Jeffrey I. Shinder of the Constantine firm, said the company may appeal. It had asked for $23 million in damages.

The suit, filed in May 2003, claimed that MasterCard's chargeback fees are anticompetitive and discriminatory because they are higher for "card-not-present" transactions. Card companies say they are higher because fraud is less likely when a card is presented.

The heart of the suit was Paycom's claim that MasterCard's duality rule prohibited its member banks from issuing any competing cards other than Visa cards. As a result, there were fewer American Express and Discover cards in the market, and Paycom therefore processed fewer transactions with those cards. Those duality rules have been dismantled.

Paycom claimed that Discover cards, which have lower chargeback fees than MasterCard's, "could not gain sufficient power in the general purpose or credit ? markets to challenge MasterCard and its onerous 'chargeback system,' " which forced Paycom to pay MasterCard's higher chargeback fees.

However, U.S. District Judge David G. Trager in New York wrote in his March 29 dismissal that Paycom had access to other payment cards, including those from Visa, American Express Co., and Discover Financial Services Inc.

Paycom's "claimed injuries are merely derivative of the injury to Discover," the judge wrote. "Plaintiff is a remote party, and allowing it to recover under this theory could result in punishing MasterCard multiple times for the same offense."

Judge Trager's decision, handed down in Eastern District of New York U.S. District Court in Brooklyn, concluded that MasterCard's policies do not harm competition. "Instead, plaintiff has merely shown that MasterCard's 'chargeback system' harms plaintiff, because it increases its costs."

Mr. Shinder said the judge demonstrated "numerous errors of law in dismissing this case." He added, "It's legally wrong to make this kind of finding of fact on a motion to dismiss." He said Paycom has a "very strong appeal here."

Eileen Simon, MasterCard's associate general counsel, said, "If there was any claim that Discover was hindered in its growth, Discover is the appropriate ? [party] to bring that claim, not Paycom." In fact Discover filed lawsuits against both Visa and MasterCard last year.

Ms. Simon noted that the decision "recognized that the plaintiff has multiple options for accepting payment and could choose not to participate in our network."

Mr. Shinder scoffed at the judge's argument that Paycom could simply stop taking MasterCard and inform its customers to use other payment cards or brands. "Virtually every merchant, including Wal-Mart, must accept MasterCard credit cards to be competitive," he said. "That was in the merchant case."

[European Lee]

Yet another person in somewhat of an 'authority' who doesnt understand how the 'real' world works.

Regards,

Lee

[Jason]

bumped for Rand.. haha