[Federal Register: May 14, 2004 (Volume 69, Number 94)]
[Notices]
[Page 26885-26892]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14my04-75]
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DEPARTMENT OF JUSTICE
Antitrust Division
Public Comments and Response on Proposed Final Judgment in United
States v. First Data Corporation and Concord EFS, Inc.
Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C.
16(b)-(h), the United States hereby publishes below the comments
received on the proposed Final Judgment in United States v. First Data
Corporation and Concord EFS, Inc., Civil Action No. 1:03CV02169, filed
in the United States District Court for the District of Columbia,
together with the United States' response to the comments.
Copies of the comments and response are available for inspection at
Room 200 of the Department of Justice, Antitrust Division, 325 Seventh
Street, NW., Washington, DC 20530, telephone (202) 514-2481, and at the
Office of the Clerk of the United States District Court for the
District of Columbia, E. Barrett Prettyman United States Courthouse,
333 Constitution Avenue, NW., Washington, DC 20001. Copies of any of
these materials may be obtained upon request and payment of a copying
fee.
J. Robert Kramer, II,
Director of Operations, Antitrust Division.
In the United States District Court for the District of Columbia
United States of America, et al., Plaintiffs, v. First Data Corporation
and Concord EFS, Inc., Defendants
Case Number: 1:03CV02169.
Judge: Hon. Rosemary M. Collyer.
Filed: May 7, 2004.
Response to Public Comments
Pursuant to the requirements of the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h) (``Tunney Act''), the United States
files the comments of the public concerning the proposed Final Judgment
in this case and the United States' responses to those comments. After
careful consideration of the comments, the United States continues to
believe that the proposed Final Judgment will provide an effective and
appropriate remedy for the antitrust violation alleged in the
Complaint. The United States will move the Court to enter the proposed
Final Judgment after the public comments and this Response have been
published in the Federal Register, pursuant to 15 U.S.C. 16(d).
I. Background
On October 23, 2003, plaintiffs the United States and the states of
Connecticut, Illinois, Louisiana, Massachusetts, New York, Ohio,
Pennsylvania, and Texas, and the District of Columbia (collectively
``Plaintiff States'') filed a Complaint alleging that the proposed
acquisition of Concord EFS, Inc. (``Concord'') by First Data
Corporation (``First Data'') would violate section 7 of the Clayton
Act, as amended, 15 U.S.C. 18. The Complaint alleged that First Data's
acquisition of Concord would substantially reduce competition in the
market for PIN debit network services by combining the STAR and NYCE
point-of-sale PIN debit networks.\1\ Concord's STAR network is the
largest PIN debit network in the United States, currently switching
approximately half of all U.S. PIN debit transactions. NYCE is the
third-largest PIN debit network. First Data owns a 64 percent
controlling interest in NYCE. The transaction would have eliminated the
competition between STAR and NYCE, leading to higher prices for PIN
debit network services to merchant customers. Merchants would have
passed on at least some of the higher costs of PIN debit transactions
by raising the prices of their goods and services, to the detriment of
tens of millions of consumers throughout the United States.
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\1\ PIN debit networks are the telecommunications and payment
infrastructure that connects merchants to consumers' demand deposit
accounts at banks. These networks enable consumers to purchase goods
and services from merchants through PIN debit transactions by
swiping their bank card at a merchant's terminal and entering a
Personal Identification Number, or PIN. Within seconds, the purchase
amount is debited from the customer's bank account and transferred
to the retailer's bank.
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On December 15, 2003, the United States, the Plaintiff States and
the Defendants filed a proposed Final Judgment and Hold Separate
Stipulation and Order. On January 9, 2004, the parties, by consent,
filed an Amended Hold Separate Stipulation and Order. The proposed
Final Judgment requires First Data, within 150 calendar days after the
Court's signing of the original Hold Separate Stipulation and Order, or
five days after notice of the entry of the Final Judgment by the Court,
whichever is later, to divest all of its governance rights in NYCE and
its entire 64 percent ownership interest in NYCE (collectively ``NYCE
Holdings''). In addition, the Amended Hold Separate Stipulation and
Order requires First Data to take certain steps to ensure that NYCE is
operated as a competitively independent, economically viable and
ongoing business concern that will remain independent and uninfluenced
by the consummation of the acquisition, and that competition is
maintained during the pendency of the ordered divestiture.
The United States, the Plaintiff States and the Defendants have
stipulated that the proposed Final Judgment may be entered after
compliance with the Tunney Act. Entry of the proposed Final Judgment
would terminate this action, except that the Court would retain
jurisdiction to construe, modify or enforce the provisions of the
proposed Final Judgment and to punish violations thereof.
Pursuant to the requirements of the Tunney Act, the United States
filed a Competitive Impact Statement (``CIS'') on January 23, 2004, and
published the proposed Final Judgment and the CIS in the Federal
Register on February 10, 2004. A summary of the terms of the proposed
Final Judgment and CIS, with directions for the submission of written
comments relating to the proposed Final Judgment, were published in the
Washington Post for seven days on February 6, through February 12,
2004. The sixty-day period for public comments, during which the two
comments described below were received, expired on April 12, 2004.
[[Page 26886]]
II. Response to Public Comments
A. Legal Standard Governing the Court's Public Interest Determination
Upon publishing the public comments and this Response, the United
States will have fully complied with the Tunney Act. After receiving
the motion of the United States for entry of the proposed Final
Judgment, the Tunney Act directs the Court to determine whether entry
of the proposed Final Judgment ``is in the public interest.'' 15 U.S.C
16(e). In making that determination, ``the court's function is not to
determine whether the resulting array of rights and liabilities is one
that will best serve society, but only to confirm that the resulting
settlement is within the reaches of the public interest.''United States
v. W. Elec. Co., 993 F.2d 1572, 1576 (D.C. Cir. 1993) (citations and
emphasis omitted). The Court should evaluate the relief set forth in
the proposed Final Judgment and should enter the Judgment if it falls
within the government's ``rather broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); accord United
States v. Associated Milk Producers, Inc., 534 F.2d 113, 117-18 (8th
Cir. 1976). The Court should review the proposed Final Judgment ``in
light of the violations charged in the complaint and * * * withhold
approval only [(a)] if any of the terms appear ambiguous, [(b)] if the
enforcement mechanism is inadequate, [(c)] if third parties will be
positively injured, or [(d)] if the decree otherwise makes a `mockery
of judicial power.' '' Mass. Sch. of Law at Andover, Inc. v. United
States, 118 F.3d 776, 783 (D.C. Cir. 1997) (quoting Microsoft, 56 F.3d
at 1462).
Because ``[t]he court's authority to review the decree depends
entirely on the government's exercising its prosecutorial discretion by
bringing a case in the first place'' it follows that ``the court is
only authorized to review the decree itself,'' and not to ``effectively
redraft the complaint'' to inquire into other matters the United States
might have, but did not, pursue. Microsoft, 56 F.3d at 1459-60. The
Tunney Act does not empower the Court to reject the remedies in the
proposed Final Judgment based on the belief that ``other remedies were
preferable,'' Id. at 1460, nor does it give the Court authority to
impose different terms on the parties. See, e.g., United States v. Am.
Tel. & Tel. Co., 552 F. Supp. 131, 153 n.95 (D.D.C. 1982); accord H.R.
Rep. No. 93-1463 (1974). Further, the United States is entitled to
``due respect'' concerning its ``prediction as to the effect of
proposed remedies, its perception of the market structure, and its view
of the nature of the case.'' United States v. Archer-Daniels-Midland
Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003) (citing Microsoft, 56 F.3d at
1461).
B. Summary of Public Comments and the United States' Responses
The United States received comments from the Citizens for Voluntary
Trade (``CVT'') (Exhibit 1) and Ryco, Ltd. (Exhibit 2) in response to
its publication of the Final Judgment in the Federal Register.
1. CVT
CVT's comment states that the United States incorrectly alleged in
the Complaint that there is a relevant product market for PIN debit
network services. The comment maintains that PIN debit network services
are part of a broader product market that includes all demand forms of
payment, including signature debit network services, cash, checks,
money orders, and traveler's checks. CVT concludes that because NYCE
and STAR compete in a broader market, combining the two networks does
not threaten competition and, therefore, entering the Final Judgment
does not serve the public interest.
CVT's comment is directed at whether the United States should have
filed this case, not to whether the relief in the proposed Final
Judgment is adequate to address the harm alleged in the Complaint.
Comments challenging the validity of the United States' case, or
alleging that it should not have been brought, are challenges to the
initial exercise of the United States' prosecutorial discretion and are
outside the scope of the Tunney Act proceeding. The purpose of this
proceeding is not to evaluate the merits of the United States' case. A
Tunney Act proceeding is not an opportunity for a ``de novo
determination of facts and issues,'' but rather ``to determine whether
the Department of Justice's explanations were reasonable under the
circumstances'' because ``[t]he balancing of competing social and
political interests affected by a proposed antitrust decree must be
left, in the first instance, to the discretion of the Attorney
General.'' United States v. W. Elec. Co., 993 F.2d at 1577 (citations
omitted). Consequently, the courts consistently have refused to
consider ``contentions going to the merits of the underlying claims and
defenses.'' United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir.
1981); accord United States v. Thomson Corp., 949 F. Supp. 907, 913
(D.D.C. 1996) (``[T]he court is to compare the complaint filed by the
government with the proposed consent decree and determine whether the
remedies negotiated between the parties and proposed by the Justice
Department clearly and effectively address the anticompetitive harms
initially identified.''). Thus, CVT's challenge to the merits of the
United States' underlying case are beyond the purview of appropriate
Tunney Act inquiry.
Nevertheless, in response to CVT's comment, the United States
observes that it conducted an extensive and thorough investigation into
the provision of PIN debit network services, including to what extent
these services potentially competed with other products or services.
The facts found by the investigation demonstrated that PIN debit
network services are a relevant product market under the antitrust
laws. Many merchants strongly prefer PIN debit network services because
PIN debit network services offer substantial advantages that set them
apart from other forms of demand payment, most notably from the closest
potential substitute, signature debit network services.\2\ First, PIN
debit networks generally charge merchants considerably lower prices
than those offered by signature debit networks. Second, PIN debit
networks provide a more secure method of payment than signature debit
networks because it is easier to forge a person's signature than to
obtain an individual's PIN. Consequently, fraud rates, and the expenses
imposed by such fraud, are generally lower for PIN debit network
services than for signature debit. The greater security provided by PIN
debit networks also typically eliminates the need for costly charge-
back procedures that allow consumers to challenge signature debit
transactions. Third, PIN debit transactions also generally settle
instantaneously, guaranteeing the merchant ready access to its
receipts, while signature debit transactions often take one or two days
to settle. Finally, PIN debit networks usually enable shorter times at
the check-out counter than signature debit networks, further reducing
merchants' costs.
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\2\ Signature debit networks are telecommunications and payment
infrastructure that enable consumers to purchase goods and services
by swiping a debit card and then signing for the transaction as the
means of authentication.
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Merchant preference for PIN debit network services over other forms
of demand payment, including signature debit transactions, cash, money
orders, and travelers checks, is further strengthened by the strong
demand of many consumers to use PIN debit network services,
particularly at
[[Page 26887]]
supermarkets, mass merchandisers and drug stores. Many consumers value
the security and speed of PIN debit transactions, as well as the unique
``cash back'' feature that allows them to receive cash at the register
when making a purchase. Consumers cannot receive cash back when making
a signature debit purchase. Today, consumers request cash back in
approximately twenty percent of all PIN debit transactions. Because of
their generally substantial lower costs and superior features, the
United States determined that a small but significant increase in the
price of PIN debit network services would not cause a sufficient number
of merchants to stop accepting PIN debit transactions, or to discourage
their customers from executing such transactions, to defeat the price
increase. Based on this finding, the United States concluded, and
properly alleged in its Complaint, that PIN debit network services is a
relevant antitrust product market.
2. Ryco's Comment
Ryco is an independent gas station and convenience store that does
business under the trade name ``Hansen's Good to Go.'' Ryco's comment
states that it objects to the merger of First Data and Concord because
Concord currently engages in alleged anticompetitive behavior. The
comment maintains that Concord provides Ryco and other merchant
customers with poor customer service by double-charging them on some
bills, routing some transactions to more expensive networks, and
negotiating unfavorable terms in its contracts concerning the forums
for litigating contractual disputes and the parties' responsibilities
for ``fees'' and ``costs'' that result from such litigation. Ryco
believes that the merger will increase the number of merchants to which
Concord provides debit card transaction related services and,
consequently, will increase Concord's leverage to provide poor customer
service. Ryco advocates conditioning approval of the merger on (a)
revisions to the choice of forum and attorneys' fees provisions in
Concord's contracts, and (b) improvements in Concord's customer
service.
Ryco's concerns do not indicate that the proposed Final Judgment is
not in the public interest. To the extent that Ryco's concerns are
directed to the provision of PIN debit network services, the Final
Judgment's requirement that First Data divest NYCE is a fully adequate
remedy. Preventing the combination of STAR and NYCE maintains the
competitive structure of the PIN debit network services market that
existed at the time First Data and Concord decided to merge.
Ryco also appears to be concerned about the merger's potential
impact on at least two other types of services, merchant processing and
acquiring services for credit and debit card transactions. These
concerns are not a proper focus for the Tunney Act proceeding because
they were not the subject of the Complaint. The Complaint alleged that
First Data's acquisition of Concord would reduce competition only in
the PIN debit network services market. As explained, Tunney Act review
may not ``reach beyond the complaint to evaluate claims that the
government did not make and to inquire as to why they were not made.''
Microsoft, 56 F.3d at 1459. See also Archer-Daniels-Midland Co., 272 F.
Supp. 2d at 6-7, 9 (rejecting argument that court should consider
effects in markets other than those raised in the complaint); United
States v. Pearson PLC, 55 F. Supp. 2d 43, 45 (D.D.C. 1999) (a court
should not ``base its public interest determination on antitrust
concerns in markets other than those alleged in the government's
complaint'') (citation omitted). Therefore, Ryco's apparent concerns
about the merger's impact on merchant processing and acquiring services
provides no basis for the Court to reject the proposed Final Judgment.
III. Conclusion
The CIS and this Response of the United States to the public
comments demonstrate that the proposed Final Judgment is in the public
interest. Accordingly, pursuant to Section 16(d) of the Tunney Act,
after these comments and this Response are published in the Federal
Register, the United States will move this Court to enter the Proposed
Final Judgment.
Dated: May 7, 2004.
Respectfully submitted,
Joshua H. Soven,
Networks and Technology Section, Antitrust Division, United States
Department of Justice, 600 E Street, NW., Suite 9500, Washington, DC
20530.
Certificate of Service
The undersigned certifies that a copy of the foregoing Response
to Public Comments was served on the following counsel, by
electronic mail in PDF format, on May 7, 2004:
Counsel for Defendant First Data Corp.
Counsel for Defendant Concord EFS, Inc.
Christopher Hockett, Esq., Bingham McCutchen LLP, Three Embarcadero
Center, San Francisco, CA 94111, e-mail: chris.hockett@bingham.com
Geraldine M. Alexis, Esq., Bingham McCutchen LLP, Three Embarcadero
Center, San Francisco, CA 94111, e-mail:
geraldine.alexis@bingham.com
Lawrence R. Fullerton, Esq., Sidley Austin Brown & Wood LLP, 1501 K
Street, NW., Washington, DC 20005, e-mail: lfullerton@sidley.com
Jeffrey T. Green, Sidley Austin Brown & Wood LLP, 1501 K Street,
NW., Washington, DC 20005, e-mail: jgreen@sidley.com
Stephen R. Patton, Esq., Kirkland & Ellis LLP, Aon Center, 200 East
Randolph Drive, Chicago, IL 60601-6636, e-mail: spatton@kirkland.com
James H. Mutchnik, Kirkland & Ellis LLP, Aon Center, 200 East
Randolph Drive, Chicago, IL 60601, e-mail: jmutchnik@kirkland.com
Counsel for Plaintiff States
Rebecca Fisher, Esq., Assistant Attorney General, P.O. Box 12548,
Austin, TX 78711-2548, e-mail: rebecca.fisher@oag.state.tx.us
Joshua H. Soven,
Networks and Technology Section Antitrust Division, United States
Department of Justice, 600 E Street, NW., Suite 9500, Washington, DC
20530.
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