[Federal Register Volume 59, Number 91 (Thursday, May 12, 1994)]
[Unknown Section]
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From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-11571]
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[Federal Register: May 12, 1994]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Electronic Payment Services, Inc.; Proposed
Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Stipulation, Final
Judgment, and a Competitive Impact Statement have been filed in the
United States District Court for the District of Delaware in United
States of America v. Electronic Payment Services, Inc., Civ. No. 94-
208.
The Complaint alleges that the defendant, Electronic Payment
Services, Inc. (``EPS''), the owner of the MAC automatic teller machine
network, has forced MAC member institutions to purchase ATM processing
from EPS and that this is a per se unlawful tying arrangement between
regional ATM network access and ATM processing. The Complaint also
alleges that the tying arrangement is a means by which EPS has
maintained a monopoly in regional ATM network access in Pennsylvania,
New Jersey, Delaware, West Virginia and New Hampshire, and in
substantial portions of Ohio.
The proposed Final Judgment enjoins EPS from requiring MAC members
to purchase ATM processing from EPS, requires EPS to ensure that
independent providers of ATM processing can obtain communication links
to the MAC network, and enjoins EPS from forbidding MAC members to join
other regional ATM networks.
Public comment on the proposed Final Judgment is invited within the
statutory 60-day comment period. Such comments and responses thereto
will be published in the Federal Register and filed with the Court.
Comments should be directed to Richard Rosen, Chief, Communications and
Finance Section, room 8104, U.S. Department of Justice, Antitrust
Division, 555 4th Street, NW., Washington, DC 20001.
Constance K. Robinson,
Director of Operations, Antitrust Division.
Complaint
The United States of America, by its attorneys, acting under the
direction of the Attorney General of the United States, brings this
civil action to obtain equitable and other relief against the defendant
named herein and complains and alleges as follows:
Nature of This Action
1. The United States brings this civil antitrust action to obtain
permanent injunctive relief against an anticompetitive practice of
defendant Electronic Payment Services, Inc. (``EPS'') that constitutes
a tying arrangement that is per se unlawful under Sherman Act section
1, 15 U.S.C. 1, and that constitutes a means whereby EPS unlawfully has
maintained a monopoly in access to regional automatic teller machine
(``ATM'') networks in the Commonwealth of Pennsylvania and the States
of New Jersey, Delaware, West Virginia and New Hampshire, and in
substantial portions of the State of Ohio (collectively the ``affected
states''), all in violation of Sherman Act section 2, 15 U.S.C. 2.
2. EPS owns and operates the Money Access Service (``MAC'') ATM
network, which has market power or monopoly power in the market for
regional ATM network access in the affected states. EPS generally
prohibits its customers--banks, savings and loan associations and
credit unions (collectively ``banks'') that seek to make ATM network
services available to their depositors--from obtaining ATM processing
services (described at paragraph 6 below) from independent data
processing firms who seek to compete for that business. Instead EPS
requires MAC customers either to obtain those services from EPS or to
provide them in-house, at a cost that is prohibitive for many smaller
banks.
3. As more fully described below, EPS's tying practice not only
serves to raise the cost to banks of processing services, but also
prevents banks from participating in more than one regional ATM
network. Defendant thereby has maintained its monopoly in the affected
states.
4. The United States seeks a permanent injunction, pursuant to
Sherman Act section 4, 15 U.S.C. 4, prohibiting EPS from refusing to
allow its customers to obtain ATM processing from third party
processors; requiring EPS to connect to those third party processors on
nondiscriminatory terms; and other and further relief appropriate to
remedy these violations.
Definitions
5. ``ATM network'' means an arrangement whereby more than one ATM
and more than one depository institution (or the deposit records of
such depository institutions) are interconnected by electronic or
telecommunications means, to one or more computers, processors or
switches for the purpose of providing ATM services to the retail
customers of depository institutions.
6. ``ATM processing'' means providing the data processing services
and telecommunications facilities and services used:
1. To operate, monitor and support the operation of ATMs deployed
by a depository institution;
2. To connect the ATMs deployed by a depository institution to that
institution's deposit authorization records, for authorization and
confirmation of ``on-us transactions,'' and the record-keeping and
other functions related to such transactions; and
3. To connect the ATMs deployed by a depository institution to one
or more branded ATM networks for authorization and confirmation of
``on-others transactions,'' and the record-keeping and other functions
related to such transactions.
ATM processing can be provided as a service distinct from branded ATM
network access, and can be performed in the facilities of the ATM
switch, a depository institution's own facilities, or in the facilities
of a data processing service organization.
7. ``ATM switch'' means a telecommunications and data processing
facility used to receive and route transactions from ATMs or ATM
processors to data processing facilities used by depository
institutions to authorize ATM transactions. A ``MAC switch'' is an ATM
switch operated by or on behalf of, or providing such functionality for
branded ATM network access to, MAC or any successor branded ATM network
controlled by defendant.
8. ``Interceptor processor'' means a depository institution that
provides ATM processing for itself.
9. ``MAC'' means Money Access Service, the branded ATM network
owned, controlled and operated by EPS, or any successor brand to
``MAC.''
10. ``Third party processor'' means any person that currently or in
the future offers ATM processing services to depository institutions.
Third party processors may include both depository institutions
providing ATM processing for other depository institutions and firms
unaffiliated with depository institutions that provide such services.
Party Defendant, Jurisdiction and Venue
11. EPS is made a defendant in this action. EPS has its principal
place of business at 1100 Carr Road, Wilmington, Delaware 19809. EPS is
owned by four bank holding companies: CoreStates Financial Corp.,
Philadelphia, Pa.; PNC Financial Corp., Pittsburgh, Pa; Banc One Corp.,
Columbus, Ohio; and KeyCorp, Albany, New York. EPS owns and operates
MAC, a regional ATM network, and other businesses. ``EPS'' and ``MAC''
are used interchangeably in this Complaint.
12. This Court has jurisdiction over the subject matter of this
civil antitrust action pursuant to Section 4 of the Sherman Act, 15
U.S.C. 4. This Court has jurisdiction over EPS pursuant to Section 12
of the Clayton Act, 15 U.S.C. 22.
13. EPS is a Delaware corporation, and is found and transacts
business in the District of Delaware. Venue is proper in the District
of Delaware pursuant to 15 U.S.C. 12 and 28 U.S.C. 1491.
Interstate Commerce
14. Defendant's MAC ATM network is the largest ATM network in the
United States by transaction volume. In 1992, the MAC network handled
92 million transactions monthly for 1,455 depository institutions
deploying 13 thousand ATMs.
15. The MAC network operates in interstate commerce, and
defendant's practices affect interstate commerce.
The MAC ATM Network and Its Practices
16. ATMs permit a depositor, using an ATM card and personal
identification number, to obtain cash, monitor account balances, and
transfer money or make payments. Some ATMs also permit customers to
make deposits, and some dispense items of value other than cash (such
as travelers checks, railroad tickets, etc.) ATMs usually are owned and
maintained by individual banks, and are deployed by banks on premises
and at other public locations convenient to their customers.
17. ATMs typically are connected by telephone wires to a computer
that provides processing, also known as driving, for several ATMs. That
computer often is connected to a network switch, such as the MAC
switch, for interchange of transactions among otherwise unaffiliated
banks. An ATM network typically charges a switch fee per transaction,
and may also charge various monthly or annual membership fees. The
processor charges a separate fee for its services. Outside the MAC
network, the driving computer might be operated by the bank, by a
network, or by an independent data processing firm, and driving
computer might connect those ATMs to several different networks. MAC's
rules and practices, however, constrain interconnection of different
ATM networks.
18. Banks seek to participate in shared ATM networks, such as MAC,
in order to give their depositors ubiquitous access to their accounts.
While a bank can deploy its own ATMs, the advantage to a shared ATM
network is that a bank's depositors will be able to use ATMs at many
more locations than one bank alone could practicably support. The areas
a bank seeks to serve through a shared ATM network include the areas in
which its depositors live, work and ship, and the broader areas in
which they move regularly. A bank's ability to offer its depositors
access to other bank's ATMs, and thereby to offer its depositors
convenient access to their accounts, is in most bankers' view necessary
to attract and retain deposits. A bank--particularly a small bank,
thrift or credit union with one or only a few offices--would be at a
competitive disadvantage if it could not offer its depositors access to
many conveniently located ATMs. Because no other service constitutes a
reasonably close substitute for regional ATM network access, regional
ATM networks constitutes a product market and a line of commerce within
the meaning of the antitrust laws.
19. The MAC network is the dominant ATM network in the affected
states. In Pennsylvania, New Jersey and Delaware, more than 90% of the
ATMs are connected to MAC; in New Hampshire, approximately 80% of the
ATMs are connected to MAC. No other regional network has a significant
presence in Pennsylvania, Delaware, West Virginia or New Hampshire.
Although the New York Cash Exchange (``NYCE``) ATM network has a
presence in New Jersey, for reasons set forth below, EPS's MAC network
nonetheless has monopoly or market power in New Jersey.
20. Nearly all banks in the affected states believe they have no
choice but to participate in the MAC network. Banks in the affected
states affiliate with MAC because MAC is the only ATM network that
provides ubiquitous ATM network access throughout all or most of the
contiguous affected states. Banks that do not seek to provide regional
ATM network access in areas smaller than these States do not have
significantly greater alternatives than do statewide banks.
21. Banks in the affected states often obtain ATM network access
from MAC even though defendant's switching and processing fees, and
other costs of doing business with MAC, are higher than those charged
by other networks and by independent processors. Defendant has market
power in the market for regional ATM network access in the affected
states. That market power is of sufficient size and durability to
constitute monopoly power.
22. Until 1992, MAC generally did not permit its customers to
participate in rival ATM networks while also participating in MAC.
While the rule against multiple affiliations was formally dropped in
1992, MAC engages in practices that make it impractical for many
participating banks--particularly smaller banks--to belong to a rival
network while belonging to MAC. In particular, MAC requires banks
either to obtain ATM driving from defendant or to provide ATM driving
in-house as intercept processors, which is prohibitively expensive for
many smaller banks, thrifts and credit unions. MAC generally forbids
its network customers from obtaining ATM driving from any of the
several data processing firms that provide that service in a national
market.
23. There are several regional and national firms in the business
of ATM processing that could and would seek to compete to provide ATM
driving services to MAC network members. Absent MAC's prohibition, many
MAC customers would seek to obtain ATM processing from these or other
firms. Defendant's rules and practices thus prevent willing buyers and
sellers from conducting business at competitively determined prices and
terms.
24. Once defendant drives a bank's ATM, defendant can prevent that
bank from connecting its ATM to another network. To connect to a
network other than MAC, MAC must establish the connection. MAC
generally has not provided connections to the ATM networks that would
be its strongest competitors.
25. The anticompetitive effects of MAC's ``no-third-party-
processing'' rule are twofold.
a. First, it excludes competitors from the market for ATM
processing in areas where MAC has market power in the market for ATM
network access, extending the exercise of that market power into the
processing market and permitting MAC to charge higher prices--which it
does both directly and indirectly; and
b. Second, by preventing many banks from participating in networks
other than MAC, the rule makes it substantially more difficult for
other networks to enter into MAC's areas of dominance to compete with
MAC. The rule therefore serves to exclude competitors and maintain
MAC's monopoly power.
26. The rule against third party processing is not necessary to
obtain any efficiencies or quality control assurances that could not
reasonably be obtained through less anticompetitive means. MAC allows
some of its largest members to use third party processors, and permits
those third party processors to connect to MAC, but will not allow
those same third party processors to prove ATM driving services to
other smaller MAC customers.
First Violation Alleged
27. The United States repeats and realleges the allegations of
paragraphs 1 to 26 herein.
28. The provision by defendant of ATM network access and processing
services pursuant to MAC's rules, constitute an agreement or agreements
within the meaning of Section 1 of the Sherman Act.
29. Regional ATM network access and ATM processing are separate
products.
30. Defendant has market power in the market for regional ATM
network access in the affected states.
31. The amount of commerce affected in the market for ATM
processing in the affected states is substantial.
32. Defendant's rules and practices act to force many of its ATM
network access customers to purchase ATM processing from defendant,
rather than from other firms of the customer's choosing.
33. Defendant's tying arrangement unreasonably restrains trade and
is unlawful per se under Section 1 of the Sherman Act.
Second Violation Alleged
34. The United States repeats and realleges the allegations of
paragraphs 1 to 33 herein.
35. Defendant possesses substantial monopoly power in the market
for regional ATM network access in the affected states.
36. Defendant willfully has maintained its monopoly power in the
market for regional ATM network access in the affected states through
exclusionary practices.
37. Defendant's actions and practices constitute unlawful
monopolization under Section 2 of the Sherman Act.
Prayer for Relief
Wherefore, plaintiff the United States prays that:
a. Defendant be enjoined from requiring any depository institution
that obtains ATM network access from defendant to obtain any ATM
processing from defendant; from selling or contracting to see access
to, membership in, or switching of transactions by the MAC network, on
the condition, agreement, or understanding that the purchaser thereof
shall not use or purchase ATM processing services from any other
person; or from restricting in any manner, directly or indirectly, the
ability of a depository institution to obtain ATM processing for access
to the MAC ATM network from any person other than defendant;
b. Defendant be enjoined to provide third party processors with
nondiscriminatory access to the MAC switch that is at least equal in
type and quality to the access MAC provides to intercept processors;
c. Defendant be enjoined from discriminating in the pricing of
access to the MAC network;
d. The United States be granted such other structural, injunctive
or further relief as this Court may deem just and proper; and
e. The United States recover the costs in this action.
Dated: April 21, 1994.
Anne K. Bingaman,
Assistant Attorney General.
Robert E. Litan,
Deputy Assistant Attorney General.
Mark C. Schechter,
Deputy Director of Operations, Antitrust Division, U.S. Department of
Justice, Washington, DC 20530.
Richard L. Rosen,
Chief, Communications and Finance Section, Antitrust Division, 555
Fourth Street, NW., Washington, DC.
Richard Liebeskind,
Assistant Chief, Communications & Finance Section.
Don Allen Resnikoff,
Attorney, Communications & Finance Section.
John J. Sciortino,
Attorney, Communications & Finance Section.
Kevin C. Quin,
Attorney, Communications & Finance Section, Antitrust Division, 555
Fourth Street, NW., Washington, DC 20001, (202) 514-5628.
Richard G. Andrews,
United States Attorney.
Nina A. Pala,
Assistant United States Attorney, Delaware Bar No. 2622, District of
Delaware, 1201 Market Street, Wilmington, Delaware 19801, (302) 573-
6277.
Stipulation
It is hereby stipulated and agreed, by and between the undersigned
parties, by their respective attorneys, that:
1. The parties consent that a Final Judgment in the form hereto
attached may be filed and entered by the Court, upon the motion of any
party or upon the Court's own motion, at any time after compliance with
the requirements of the Antitrust Procedures and Penalties Act, 15
U.S.C. 16, and without further notice to any party or other
proceedings, provided that plaintiff has not withdrawn its consent,
which it may do at any time before the entry of the proposed Final
Judgment by serving notice thereof on defendants and by filing that
notice with the Court.
2. The parties shall abide by and comply with paragraphs IV.J.4 and
IV.J.5 of the proposed Final Judgment pending entry of the Final
Judgment. The parties likewise shall abide by and comply with all other
paragraphs of Section IV of the proposed Final Judgment pending its
entry, provided that, not later than September 1, 1994, the public
comment period provided for in 15 U.S.C. 16 shall have expired and the
Department of Justice shall have filed with the district court its
motion for entry of the proposed Final Judgment in its entirety and
without modification.
3. In the event plaintiff withdraws its consent or if the proposed
Final Judgment is not entered pursuant to this Stipulation, this
Stipulation will be of no effect whatever, and the making of this
Stipulation shall be without prejudice to any party in this or any
other proceeding.
4. This Stipulation and the Final Judgment to which it relates are
for settlement purposes only and do not constitute an admission by
defendant in this or any other proceedings that Section 1 or 2 of the
Sherman Act, 15 U.S.C. 1, 2, or any other provision of law, has been
violated.
Counsel for the Plaintiff:
Anne K. Bingaman,
Assistant Attorney General.
Robert E. Litan,
Deputy Assistant Attorney General.
Mark C. Schechter,
Deputy Director of Operations.
Antitrust Division,
U.S. Department of Justice, Washington, DC 20530.
Richard L. Rosen,
Chief, Communications & Finance Section.
U.S. Department of Justice,
Antitrust Division, Communications and Finance Section, 555 Fourth
Street, NW., Washington, DC 20001.
Richard Liebeskind,
Assistant Chief.
John J. Sciortino,
Don Allen Resnikoff, Kevin C. Quin, Attorneys.
U.S. Department of Justice,
Antitrust Division, Communications and Finance Section, 555 Fourth
Street, NW., Washington, DC 20001, (202) 514-5628.
Richard G. Andrews,
United States Attorney, District of Delaware.
Counsel For the Defendants:
Stephen Paul Mahinka,
Morgan, Lewis & Bockius, 1800 M Street NW., Washington DC 20036, (202)
467-7205.
Nina A. Pala,
Assistant United States Attorney, Delaware Bar No. 2622, District of
Delaware, 1201 Market Street, Wilmington, Delaware 19801, (302) 573-
6277.
Brett D. Fallon,
Smith, Katzenstein & Furlow, Delaware Bar No. 2480, 1220 Market Street,
5th Floor, Wilmington, Delaware 19801, (302) 652-8400.
Dated: April 21, 1994.
Final Judgment
Whereas Plaintiff, United States of America, having filed its
Complaint in this action on April 21, 1994, and plaintiff and
defendant, by their respective attorneys, having consented to the entry
of this Final Judgment without trial or adjudication of any issue of
fact or law; and without this Final Judgment constituting any evidence
or admission by any party with respect to any issue of fact or law;
And whereas defendant has agreed to be bound by the provisions of
this Final Judgment pending its approval by the Court;
Now, therefore, before any testimony is taken, and without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is hereby
Ordered, adjudged and decreed as follows:
I
Jurisdiction
This Court has jurisdiction of the subject matter of this action
and of the person of the defendant. The Complaint states a claim upon
which relief may be granted against the defendant under Sections 1 and
2 of the Sherman Act, 15 U.S.C. Sec. 1, 2.
II
Definitions
As used in this Final Judgment:
A. ``Defendant'' and ``EPS'' means defendant Electronic Payment
Services, Inc., its divisions, subsidiaries, affiliates, agents,
officers, employees, successors and assigns, and without restriction
means the business currently known as ``Money Access Service'' or
``MAC,'' its employees, agents, officers, and any successor or assign
of that business or any significant portion of the assets of that
business. ``Defendant'' also includes all persons made subject to this
Final Judgment pursuant to Section III hereof.
B. ``ATM'' means automatic teller machine, a machine typically
owned and deployed by a depository institution, and used by depositors
of that institution and others to withdraw cash and, in certain
configurations, to perform one or more of the following additional
functions: account inquiry, payment authorization, transfer or deposit.
C. ``ATM network'' means an arrangement whereby more than one ATM
and more than one depository institution (or the deposit records of
such depository institutions) are interconnected by electronic or
telecommunications means, to one or more computers, processors or
switches for the purpose of providing ATM services to the retail
customers of depository institutions.
D. ``ATM processing'' means providing the data processing services
and telecommunications facilities and services used:
1. To operate, monitor and support the operation of ATMs deployed
by a depository institution;
2. To connect the ATMs deployed by a depository institution to that
institution's deposit authorization records, for authorization and
confirmation of ``on-us transactions,'' and the recordkeeping and other
functions related to such transactions; and
3. To connect the ATMs deployed by a depository institution to one
or more branded ATM networks for authorization and confirmation of
``on-others transactions,'' and the recordkeeping and other functions
related to such transactions.
ATM processing can be provided as a service distinct from branded ATM
network access, and can be performed in the facilities of the ATM
switch, a depository institution's own facilities, or in the facilities
of a data processing service organization.
E. ``ATM switch'' means a telecommunications and data processing
facility used to receive and route transactions from ATMs or ATM
processors to data processing facilities used by depository
institutions to authorize ATM transactions. A ``MAC switch'' is an ATM
switch operated by or on behalf of, or providing such functionality for
branded ATM network access to, the MAC or any successor branded ATM
network controlled by defendant.
F. ``Authorization processing'' means providing the data processing
services and telecommunications facilities and services used to connect
a branded ATM network to a depository institution's deposit
authorization records, for authorization and confirmation of ATM
transactions, and the recordkeeping and other functions related to such
transactions.
G. ``Branded ATM network access'' means access to an ATM network
identified by a common trademark or logo displayed on ATMs and ATM
cards, and includes the offering for sale of the ability for an ATM
card holder with an account at one member depository institution to
request withdrawal, deposit, payment authorization, transfer or account
inquiry transactions at an ATM identified by a network's trademark or
logo owned by another member depository institution; transaction
switching by an ATM switch; and the right to brand ATMs or ATM cards
with the trademark or logo of an ATM network.
H. ``Depository institution'' means a bank, savings bank, savings
and loan association, credit union or other institution authorized by
federal or state law to take deposits. For the purpose of this Final
Judgment, ``depository institution'' also includes any other member of
a branded ATM network operated by defendant that also deploys ATMs
within that network.
I. ``Intercept processor'' means a depository institution that
provides ATM processing for itself.
J. ``MAC'' means Money Access Service, the branded ATM network
owned, controlled and operated by EPS, or any successor brand to
``MAC.''
K. ``MAC Midwest Platform'' means MAC's data facility (or
facilities) that on October 1, 1994, provides branded ATM network
access to depository institutions located in the States of Illinois,
Indiana, Kentucky, Michigan, Ohio and Tennessee, and at least the
greater number of the depository institutions in the State of West
Virginia that are branded ATM network customers of defendant.
L. ``Person'' means any natural person, corporation, firm, company,
sole proprietorship, partnership, association, institute, governmental
unit, or other legal entity.
M. ``Third party processor'' means any person that currently or in
the future offers ATM processing services to depository institutions.
Third party processors may include both depository institutions
providing ATM processing for other depository institutions and firms
unaffiliated with depository institutions that provide such services. A
third party processor is ``qualified'' within the meaning of this Final
Judgment if it is qualified within the meaning of Section IV.E below.
III
Applicability
The Final Judgment shall apply to defendant and each of its
affiliates, subsidiaries, officers, directors, employees, agents,
successors, and assigns; to any successor to any substantial part of
the MAC business; to any entity that controls defendant as control
currently is defined under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 and its implementing regulations (see 16 CFR 801.1(b)); and
to all persons acting in concert with defendant and having actual
notice of this Final Judgment.
IV
Prohibited Conduct
Defendant is permanently enjoined and restrained as follows:
A. Defendant shall not require any depository institution that
obtains branded ATM network access from defendant to obtain any ATM
processing or authorization processing from defendant. Defendant shall
not maintain or enforce any rule, policy, contract, agreement or
arrangement pursuant to which defendant requires any depository
institution to obtain ATM processing or authorization processing from
defendant; that prohibits or purports to prohibit a depository
institution from obtaining ATM processing or authorization processing
from any third party processor; or that conditions MAC membership or
availability of MAC or any successor branded ATM network access on any
depository institution's obtaining ATM processing or authorization
processing from defendant or not obtaining ATM processing or
authorization processing from a qualified third party processor.
B. Defendant shall not sell or contract to sell access to,
membership in, or switching of transactions by the MAC or any successor
branded ATM network controlled by defendant, on the condition,
agreement, or understanding that the purchaser thereof shall not use or
purchase ATM processing or authorization processing services from any
other person.
C. Defendant shall not establish as any condition, agreement, or
understanding with respect to access to, membership in, or switching of
transactions by the MAC or any successor branded ATM network controlled
by defendant, or the price or terms of such access, membership, or
switching, that the purchaser thereof shall not use or purchase ATM
processing or authorization processing services from any other person.
Defendant shall not impose any additional fees on any depository
institution based on its obtaining ATM processing or authorization
processing from any person other than defendant, except that defendant
may impose additional fees for set-up and establishment of the network.
Defendant will not require an unreasonable amount of set-up and
establishment testing and certification. The aggregate of set-up and/or
establishment fees charged to a depository institution, as allowed by
this paragraph, and/or its third party processor, as allowed by
paragraph IV.E.2 of this Final Judgment, shall not exceed $100 per
person hour expended by Defendant up to a maximum of $1,000 unless
significant difficulties that require additional work are caused by the
third party processor or the depository institution. In such case,
Defendant will charge $100 per hour for the next 40 person hours and
$250 per hour for each additional hour that it expends. The hourly
rates and maximum fees set forth in this paragraph may be adjusted over
the term of this Final Judgment in accordance with the Consumer Price
Index.
D. Defendant shall not restrict in any manner, directly or
indirectly, the ability of a depository institution to obtain ATM
processing or authorization processing for access to the MAC or any
successor branded ATM network controlled by defendant from any
qualified third party processor. Defendant shall not require any
depository institution that obtains ATM processing or authorization
processing from a third party processor to obtain any other service
that is not required to provide such ATM or authorization processing
from that processor or from any other person.
E. Defendant shall provide qualified third party processors with
nondiscriminatory branded ATM network access to the MAC or any
successor branded ATM network controlled by defendant that is at least
equal in type and quality to the access defendant: (a) Provides to
intercept processors, and (b) provided to intercept processors as of
the date of the commencement of this action. Defendant shall not deny
any qualified third party processor access to telecommunications ports
or links necessary for the third party processor to provide ATM
processing or authorization processing for depository institutions
obtaining ATM network access from defendant. Defendant shall permit
qualified third party processors to aggregate transactions of multiple
banks over one or several telecommunications links and ports as
technically reasonable, and defendant shall not require third party
processors to obtain a separate link or port for each of its depository
institution customers. A third party processor is qualified, within the
meaning of this Final Judgment, if it completes defendant's
certification process and meets:
1. The technical, financial and operating criteria for intercept
processors and third party processors that provide services to only one
depository institution established by defendant and in effect as of the
date of commencement of this action, or such other reasonable and
nondiscriminatory technical, financial and operating criteria for
intercept processors and third party processors hereafter established
by defendant; and
2. Such additional technical criteria regarding transaction
information transmitted and the format for transmission of such
information as is reasonably appropriate for third party ATM processing
for unaffiliated multiple banks. No such criteria shall distinguish or
discriminate between intercept processors and third party processors,
except that volume discounts may be offered in a nondiscriminatory
manner as provided in paragraph IV.G of this Final Judgment. Defendant
shall not require any third party processor to satisfy additional
certification requirements, or pay additional certification fees (other
than reasonable set-up fees), by reason of its seeking or obtaining the
business of additional customers as long as the processor elects to
employ for these additional customers a message format/communications
protocol combination for which defendant already has certified the
processor.
Notwithstanding the foregoing, Defendant is not required to certify as
a qualified processor any branded ATM network that is dominant on a
state-wide basis or a subsidiary of such network that seeks to become a
qualified processor in the MAC or any successor branded ATM network
controlled by Defendant unless reciprocal access to become a processor
in that network is available on a substantially similar basis as to
pricing and terms to all qualified third party processors including
other branded ATM networks that offer third party ATM or authorization
processing to depository institutions.
F. Defendant shall not terminate any third party processor's access
to the MAC or any successor branded ATM network controlled by defendant
except on written notice to the processor thirty (30) days before such
termination, except that Defendant can terminate any processor
immediately if that processor: (1) Fails to pay at any time specified
fees, charges or other amounts due and owed to defendant or any
participant in defendant's branded ATM network; (2) violates any law or
government regulation applicable to it that has adverse effect upon the
MAC or any successor branded ATM network controlled by defendant; (3)
has a bankruptcy or insolvency proceeding filed against it; or (4)
appoints or has appointed by court order a trustee or receiver for any
substantial part of its property. Defendant shall provide a copy of any
notice of termination to the Antitrust Division of the Department of
Justice, to the attention of counsel of record or their named
successors. Any termination in violation of this Final Judgment shall
constitute a contempt of this Court and be punishable thereby.
G. Defendant shall not discriminate in the pricing of branded ATM
network access to the MAC or any successor branded ATM network
controlled by defendant on the basis of a customer's choice of ATM
processor, but shall offer branded ATM network access on a
nondiscriminatory basis, except that:
1. Defendant may offer volume discounts on branded ATM network
access fees on a nondiscriminatory basis, provided that defendant shall
permit any depository institution or third party processor for a
depository institution to aggregate that institution's transaction
volume delivered to a MAC switch, and any such depository institution
shall be entitled to any such nondiscriminatory volume discount.
Defendant shall not offer volume discounts to a depository institution
operating as an intercept processor that are more favorable than those
offer to a depository institution that obtains ATM or authorization
processing from a qualified third party processor.
2. Defendant shall be permitted to offer depository institutions
the option of obtaining transaction switching between member depository
institutions by third party processors at nondiscriminatory royalties
that shall not be greater than the price for switched transactions.
3. Defendant shall provide branded ATM network access pursuant to a
nondiscriminatory price schedule applicable at least to depository
institutions located in the States of Pennsylvania, New Jersey, and
Delaware. Defendant's provision of branded ATM network access in States
other than Pennsylvania, New Jersey, and Delaware, pursuant to a
nondiscriminatory price schedule in one State, shall not be deemed to
be discriminatory by reason of the use of a different price schedule in
another State.
H. Defendant shall not restrict in any manner the ability of a
depository institution to obtain branded ATM network access through
qualified third party processors or through their own intercept
processor facilities to multiple providers of branded ATM network
access. Defendant shall not condition its provision of branded ATM
network access on a depository institution's not obtaining branded ATM
network access from any other person. Defendant shall not sell or
contract to sell access to, membership in, or switching of transactions
by any branded ATM network controlled by defendant, on the condition,
agreement, or understanding that the purchaser thereof shall not use or
purchase branded ATM network access from any other person, or establish
a price for, discount from, or rebate upon access to, membership in, or
switching of transactions by the MAC or any successor branded ATM
network controlled by defendant, on the condition, agreement, or
understanding that the purchaser thereof shall not use or purchase
branded ATM network access from any other person. Defendant shall in no
manner restrict any depository institution ATM deployer that chooses to
be affiliated with multiple ATM networks from displaying multiple ATM
network logos on its ATMs. Defendant shall not prohibit any depository
institution ATM card issuer located in the States of Pennsylvania, New
Jersey, Delaware, Indiana or Ohio that chooses to be affiliated with
multiple ATM networks from issuing cards that display multiple ATM
network logos. Notwithstanding the preceding, Defendant may require
that its ATM network logo be displayed on ATMs and ATM cards in equal
frequency and prominence as the logos of any other ATM networks and may
restrict the branding of access cards that contain an integrated
circuit computer chip with a stored value function. Defendant shall in
no manner restrict any depository institution ATM deployer from
enabling ATMs to function in multiple ATM networks.
I. Notwithstanding the preceding, defendant is not enjoined from
entering into an agreement, not inconsistent with the terms of this
Final Judgment, for the provision of ATM processing or authorization
processing to any depository institution to which defendant has
provided actual notice of, and a true copy of, this Final Judgment. Any
such agreement shall be severable from any agreement to provide branded
ATM network access to the MAC or any successor branded ATM network
controlled by defendant.
J. The injunctions specified in Sections IV.A through IV.E of this
Final Judgment shall become effective as provided by the terms of this
paragraph:
1. Defendant shall commence certification of third party processors
not later than January 1, 1995, except that defendant shall commence
certification of processors in the MAC Midwest Platform not later than
October 1, 1994.
2. Each third party processor who seeks certification shall be
allowed to complete certification in a reasonably prompt manner and
within the range of time common in the industry, and shall not be
denied such resources under the control of defendant (e.g., test time)
as are necessary for certification. Upon a third party processor's
completion of certification, such processor shall be permitted to act
as a qualified third party processor in the MAC network, except that
defendant is not required by this paragraph IV.J.2, prior to January 1,
1995, to permit a third party processor that completes certification in
the MAC Midwest Platform to act as a qualified third party processor
for depository institutions not located in the States of Illinois,
Indiana, Kentucky, Michigan, West Virginia or Ohio, or depository
institutions located in the State of West Virginia but not served by
defendant through the MAC Midwest Platform as of the date of
commencement of this action.
3. Sections IV.A through IV.E of this Final Judgment shall be
effective and in force, as to any third party processor and the
depository institution customers of such processor, as of the date upon
which such third party processor becomes a qualified third part
processor.
4. Sections IV.A through IV.E of this Final Judgment shall be
effective and in force as of the date of entry of this Final Judgment
in any portion of the MAC or any successor ATM network controlled by
defendant in which depository institutions had the option of using
third party multi-bank ATM processors as of January 1, 1993. Defendant
shall not renounce or deny any right that it previously granted to
depository institutions to obtain ATM processing or authorization
processing from third party processors.
5. Defendant shall not take steps to prevent or discontinue any
existing arrangements whereby third party processors provide ATM
processing or authorization processing in connection with branded ATM
network access as of January 1, 1993.
V
Sanctions
Nothing in this Final Judgment shall bar the United States from
seeking, or the Court from imposing, against any defendant or person
any relief available under any applicable provision of law.
VI
Plaintiff Access
A. To determine or secure compliance with this Final Judgment and
for no other purpose, duly authorized representatives of the plaintiff
shall, upon written request of the Assistant Attorney General in charge
of the Antitrust Division, and on reasonable notice to the defendant,
be permitted:
1. access during the defendant's office hours to inspect and copy
all records and documents in its possession or control relating to any
matters contained in this Final Judgment; and
2. to interview the defendant's officers, employees, trustees, or
agents, who may have counsel present, regarding such matters. The
interviews shall be subject to the defendant's reasonable convenience
and without restraint or interference from defendant.
B. Upon the written request of the Assistant Attorney General in
charge of the Antitrust Division, a defendant shall submit such written
reports, under oath if requested, relating to any of the matters
contained in this Final Judgment as may be reasonably requested.
C. No information or documents obtained by the means provided in
this Section VI shall be divulged by the plaintiff to any person other
than a duly authorized representative of the executive branch of the
United States, except in the court of legal proceedings to which the
United States is a party, or for the purpose of securing compliance
with this Final Judgment, or as otherwise required by law.
VII
Further Elements of Decree
A. Defendant shall provide actual notice and a true copy of this
Final Judgment to each depository institution to which it provides
branded ATM network access as of the date of this Final Judgment.
B. Jurisdiction is retained by this Court for the purpose of
enabling any of the parties to this Final Judgment to apply to this
Court at any time for further orders and directions as may be necessary
or appropriate to carry out or construe this Final Judgment, to modify
or terminate any of its provisions, to enforce compliance, and to
punish violations of its provisions.
C. This Final Judgment shall terminate ten years from the date of
entry.
D. Entry of this Final Judgment is in the public interest.
Dated: Wilmington, Delaware
U.S.D.J.
Competitive Impact Statement
The United States, pursuant to Section 2(b) of the Antitrust
Procedures and Penalties Act (``APPA'' or ``Tunney Act''), 15 U.S.C.
16(b), files this Competitive Impact Statement relating to the proposed
Final Judgment submitted for entry in this civil antitrust proceeding.
I
Nature and Purpose of the Proceedings
On April 21, 1994, the United States filed a civil antitrust
complaint pursuant to Section 4 of the Sherman Act, as amended, 15
U.S.C. 4, against defendant Electronic Payment Services, Inc.
(``EPS''), owner of the Money Access Service (``MAC'') regional
automatic teller machine (``ATM'') network.\1\ The complaint alleges
that EPS's refusal to allow the MAC network's bank customers\2\ to
obtain ATM processing services from providers other than EPS violates
the antitrust laws.
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\1\EPS is a Delaware corporation owned by four bank holding
companies: CoreStates Financial Corporation, Philadelphia,
Pennsylvania; PNC Financial Corporation, Pittsburgh, Pennsylvania;
Banc One Corporation, Columbus, Ohio; and KeyCorp, Albany, New York
(successor to Society Corporation, Cleveland, Ohio). These four bank
holding companies consolidated their various ATM networks (MAC, Owl,
Jubilee and Green Machine) into EPS. MAC had previously been owned
entirely by CoreStates. EPS plans to add two other equity owners:
Mellon Bank Corporation and National City Corporation.
\2\The customers of an ATM network are the depository
institutions (banks, savings banks, savings and loan associations
and credit unions) that seek to give their depositors access to an
ATM network. These depository institutions are referred to
collectively as ``banks'' in this Competitive Impact Statement.
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The complaint's two counts allege: (1) That a business practice of
EPS is a tying arrangement that is per se unlawful under Section 1 of
the Sherman Act, as amended, 15 U.S.C. 1, and (2) that this typing
arrangement is a means by which EPS has maintained a monopoly in
regional ATM network access in the States of Pennsylvania, New Jersey,
Delaware, West Virginia and New Hampshire, and in substantial portions
of the State of Ohio (the ``affected states''), in violation of Section
2 of the Sherman Act, as amended, 15 U.S.C. 2.
The effect of this practice is to foreclose competition from
competing data processing companies in the affected states.
Furthermore, because those competing data processing companies would
otherwise provide means by which MAC member banks could access
competing regional ATM networks, this practice has the effect of
excluding those networks and maintaining EPS's monopoly in regional ATM
network access in the affected states. The complaint seeks an
injunction prohibiting EPS from continuing the tying arrangement, and
other relief.
On April 21, 1994, the United States and EPS filed a Stipulation by
which the parties consented to entry of the attached proposed Final
Judgment. This Final Judgment, as explained more fully below, enjoins
EPS from requiring any of its regional ATM network customers to
purchase ATM processing from EPS.
The United States and EPS have stipulated that the proposed Final
Judgment may be entered after compliance with the Tunney Act, unless
the government withdraws its consent. Entry of the proposed Final
Judgment would terminate this action, except that the Court would
retain jurisdiction to construe, modify, and enforce the proposed Final
Judgment and to punish violations thereof.
II
Facts Giving Rise to the Alleged Violation
The Antitrust Division of the United States Department of Justice
has conducted an extensive investigation of EPS's business practices.
That investigation shows the following:
A. Background
1. ATMs and ATM Networks. ATMs are machines typically owned and
deployed by banks and used by their depositors with ATM cards most
frequently to withdraw cash, but also to accomplish balance inquiries,
deposits, payment authorizations, and transfers. An ATM network is an
electronic telecommunications systems connecting various banks, their
ATMs, and data processing companies, which allows an account holder of
one bank to accomplish transactions at ATMs not owned by that bank.\3\
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\3\Some banks and bank holding companies operate switches
connecting only the ATMs deployed by branches of their own bank or
their subsidiary banks, rather than connecting to non-affiliated
banks. These networks are also generally referred to as ATM
networks. However, in this Competitive Impact Statement, the term
``network'' is used to refer to what is sometimes called a ``shared
network,'' in that it connects multiple non-affiliated banks.
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Most ATM networks are ``regional,'' operating in areas encompassing
a state or several contiguous states. ATMs and ATM cards within the
regional ATM network display a mark or brand identifying the network,
so that depositors can identify the ATMs from which they may access
their accounts. National ATM networks exist, but these are by design
networks of last resort, used only where the two banks involved in a
transaction do not both belong to any one regional ATM network.
National ATM network transactions are typically more expensive, and
those networks provide only a subset of the transactions available
through regional ATM networks.
An ATM network allows banks to provide their depositors with
ubiquitous, 24-hour access to their accounts. A bank that becomes a
member of a regional ATM network can offer its depositors access to
their accounts not just at the bank's own ATMs, but also at other
banks' ATMs. Bankers believe that the ability to offer depositors the
convenience of access to their accounts at other banks' ATMs is
necessary to attract and retain deposits. A bank--especially a small
bank, thrift or credit union with one or only a few offices, and that
deploys few, if any, ATMs--would be at a significant competitive
disadvantage without the ability to offer its depositors access to many
conveniently located ATMs. No other service is a close substitute for
regional ATM network access, and regional ATM network access
constitutes a product market within the meaning of the antitrust laws.
2. ATM processing. ``ATM processing'' consists of the data
processing services and telecommunications facilities and services used
to operate, monitor and support the operation of ATMs deployed by a
bank. ATM processing also involves the connection of the ATMs deployed
by a bank to that bank's deposit records, for authorization and
confirmation of that bank's depositors' transactions, and the
connection of the ATMs deployed by a bank to one or more ATM networks
for authorization and confirmation of other banks' depositors'
transactions. Finally, ATM processing connects ATMs to an ATM network
or to several ATM networks.
A bank can purchase this ATM processing service from a regional ATM
network or from an independent data processing company (``third party
processor''), or can provide this processing service to itself (as an
``intercept processor''). However, a bank must deploy a large number of
ATMs before it becomes economical to provide ATM processing internally.
Accordingly, small banks, thrifts, and credit unions very rarely act as
intercept processors.
3. Competitive effects of third party processors. Third party
processors provide banks, especially smaller ones, with a competitive
source for ATM processing. Equally important, third party processors
offer a channel for the entry of competing regional ATM networks. Third
party processors typically maintain connections to several regional ATM
networks, and those networks therefore can reach all of the banks
connected to a third party processor. Accordingly, the cost of and
barriers to entry of regional ATM networks fall dramatically.
In addition, third party processors themselves are potential
entrants. Because a third party processor could switch transactions
among its customer banks itself (a process known as ``subswitching'')
rather than passing those transactions to the network switch, it is a
potential ``unbranded'' ATM network. To become a competitor to the
existing branded regional ATM networks, the third party processor need
only put its brand on the ATMs and ATM cards of its customer banks and
begin switching transactions.
B. EPS and Its Actions
The complaint alleges that EPS has monopoly power in ATM network
access in the affected states, and that EPS has illegally tied the sale
of access to its MAC regional ATM network to the sale of the ATM
processing for many of EPS's bank customers. The complaint also alleges
that this illegal tying arrangement has worked to maintain EPS's
monopoly power in the market for regional ATM network access in the
affected states. This section, discusses EPS's actions and their
anticompetitive effects in more detail.
1. Elimination of ATM processing competition. EPS requires its
member banks to purchase ATM processing services from EPS or provide it
themselves as intercept processors.\4\ The effect of this rule is that
small banks, thrifts, and credit unions--banks that cannot economically
become intercept processors--are forced to purchase ATM processing from
EPS. This rule has foreclosed third party processors from competing for
banks' ATM processing business within the MAC regional ATM network.
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\4\Under MAC's rules, only those banks which have previously
been intercept processors can obtain ATM processing from third party
processors.
---------------------------------------------------------------------------
EPS's exclusion of third party processor competition from the MAC
network has allowed EPS to exact very high profits from small banks,
thrifts and credit unions. EPS has done so via two sorts of fees.
First, and most directly, EPS charges much more per ATM for ATM
processing than third party processors typically charge. Second, EPS
increases its own switching volume and revenues by prohibiting third
party processing. Where EPS drives a bank's ATMs, every transaction at
those ATMs passes through the MAC switch and is charged to the bank as
a switched transaction, including those transactions by the bank's own
depositors (its ``on-us'' transactions). In contrast, intercept
processors and banks that use third party processors do not send on-us
transactions to a network switch. If banks could use third party
processors, MAC would not process, or collect switch fees, for those
on-us transactions. Without third party processors, EPS's switch volume
and switch fee revenues are commensurately higher.
EPS's switch fees hit hardest those MAC banks with the fewest ATM
processing options. EPS banks large enough to be intercept processors
escape the EPS charge for ``on-us'' transactions, and only pay MAC
switch fees when their depositors use other banks' ATMs. The smaller
banks that cannot afford to be intercept processors pay switch fees for
a much higher proportion of their depositors' transactions. EPS takes
advantage of this by imposing on its membership the steepest switch fee
schedule in the industry.\5\ The result is that the small banks that
are forced--by EPS's third party processing restriction--to send all
their ATM transactions to the MAC switch must also pay very high fees
for the switching of those transactions.
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\5\MAC switch fees range from a low of 5 cents (what large
member banks with a large number of ATMs and transactions pay) to a
high of 25 cents (what the smaller banks with fewer ATMs and
transactions--the ones effected by EPS's third party processing
restriction--usually must pay). No other major regional ATM network
excludes third party processors, and all have much flatter switch
fee schedules: e.g. Star, 3.5 cents to 8 cents; NYCE, 6 cents to
13 cents; Honor, 2 cents to 10 cents; Most, 3.5 cents to 14 cents;
Pulse 6 cents; Accel/Exchange, 12 cents; Yankee 24, 12 cents; and
Magic Line, 12 cents. ``EFT Switch Fee Slide May Be Nearing Its
End,'' Bank Network News (Jan. 27, 1993).
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2. Deterrence of entry by competitor regional ATM networks. The
complaint alleges that a further anticompetitive effect of the illegal
tying arrangement is to maintain EPS's market power in the market for
regional ATM network access in the affected states. EPS's third party
processor prohibition has insulated the MAC regional ATM network from
the competitive influences of third party processors. This subsection
gives a history of the MAC network's largely successful efforts to keep
competitors out of its core areas, and explains how EPS's current
practice of excluding third party processors from the MAC network
deters entry today.
a. A History of anticompetitive practices. For most of its
existence and until 1992, the MAC network explicitly prohibited its
bank customers from belonging to other regional ATM networks. MAC
combined this practice with a number of strategic purchases of adjacent
regional ATM networks. These acquisitions, the prohibition on multiple
regional ATM network affiliation, and the third party processor
prohibition together proved to be a formidable force for keeping the
affected states free from competition.
b. Effect of the third party processor prohibition. EPS's third
party processing prohibition forces small banks that cannot
economically provide their own ATM processing to purchase the service
from EPS. Because EPS effectively controls the communications links of
their ATMs, these banks cannot connect their ATMs to other regional ATM
networks without the assistance--and approval--of EPS. EPS therefore
exercises an effective veto over these banks' access to other networks
in the affected states, and conversely, other networks' access to these
banks. Third party processors, on the other hand, often offer access to
several regional ATM networks. If these banks were able to utilize
third party processors, other regional networks would be much more
likely to seek and obtain their business. EPS's control over access to
other regional ATM networks prevents these networks from entering the
affected states.\6\
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\6\EPS offers its members``gateways'' through MAC to a few
regional ATM networks, but controls the price and terms of this
route of access. EPS does not offer gateways to most regional ATM
networks operating in areas adjacent to the affected states, which
would offer the greatest competition to MAC. Gateways therefore do
not remove the entry barrier to regional ATM networks created by
EPS's restrictions on third party processing.
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EPS's exclusion of third party processors also prevents the
establishment of new networks. As discussed above, if third party
processing were allowed in the affected states, a third party processor
could almost instantly form a new network simply by placing a new
``brand'' on the ATMs and cards of its customer banks. The third party
processor would then switch these banks' transactions itself. The MAC
network would switch transactions in only two cases: (1) When a
depositor of a bank connected to the third party processor used an ATM
owned by a bank not connected to the third party processor; or (2) when
a depositor of a bank not connected to the third party processor used
an ATM owned by a bank connected to the third party processor.
While EPS excludes third party processors from the MAC network,
would-be entrant regional ATM networks are substantially unable to
enter. The small banks that wish to join another network (which might
offer ATM network access at lower prices) will not be able to do so
unless the other network has enough of a presence to provide small
banks' depositors with sufficient ubiquity and convenience. The entrant
network, of course, cannot achieve the critical mass necessary to
attract banks. Accordingly, EPS's third party processing restriction
creates what economists call a ``collective action problem,'' and EPS's
monopoly persists.
C. The Alleged Violations
1. First claim for relief--tying. The actions and policies of EPS
described above constitute a tying arrangement that is per se unlawful
under Section 1 of the Sherman Act. An unlawful tying arrangement is
one in which two separate products are sold together, the seller forces
buyers to purchase these products together, the seller has market power
in the tying product, and the tying arrangement prevents what would
otherwise be a substantial amount of commerce in the tied product.
Eastman Kodak Co. v. Image Technical Services, Inc., 112 S.Ct. 2072
(1992); Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2
(1984).
The two products in this case are regional ATM network access and
ATM processing, which outside of MAC can be, and often are, purchased
separately. As described above, however, EPS's practices force banks
wishing to obtain membership in MAC, and thereby access to its regional
ATM network, to also purchase ATM processing from MAC. Because MAC is
the only ubiquitous regional ATM network in the affected states and
banks will not forego access to such a network, EPS has market power in
this tying product. Evidence gathered in the investigation indicates
that there is substantial commerce in the tied product.
2. Second claim for relief-monopolization. EPS's actions and
practices also constitute monopolization in violation of Section 2 of
the Sherman Act. An unlawful monopoly involves both the possession of
monopoly power in the relevant market and the willful acquisition or
maintenance of that power. Willful acquisition or maintenance of a
monopoly is shown by conduct that excludes rivals on some basis other
than efficiency, superior skill, foresight or industry. Aspen Skiing
Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985); United States
v. Grinnell Corp., 384 U.S. 563 (1966).
As described above, EPS's MAC network is the only ubiquitous
regional ATM network available to banks in the affected states, and
banks cannot forego access to such a network. EPS's prohibition of
third party processing and other practices prevents many banks from
using competing regional ATM networks, and results in the exclusion of
those networks. EPS's conduct therefore constitutes unlawful
monopolization.
III
Explanation of the Proposed Final Judgments
The proposed Final Judgment will end unlawful practices that
substantially reduce competition in the markets for regional ATM
network access and ATM processing. The injunctions of the proposed
Final Judgment do so by removing substantial barriers to the entry of
competition in the affected states. Removal of these barriers is the
most effective means of providing current and future MAC member banks
with additional options for the purchase of these services.
These practices are enjoined, and these barriers are removed, by
the injunctions of Section IV of the proposed Final Judgment, which
require EPS to terminate its restrictions on the use of third party
processors by MAC members, to ensure that qualified third party
processors can obtain access to the MAC network, and to enable MAC
members to join other regional ATM networks.
Paragraphs A through D of Section IV require EPS to terminate its
restrictions on the use of third party processors by MAC members. EPS
is enjoined from requiring its members to purchase ATM processing from
MAC, from forbidding the use of third party processors, from
conditioning the price or other terms of MAC membership on the use or
non-use of third party processors, and from restricting the ability of
MAC members to obtain third party processing. EPA is also enjoined from
charging any additional fees to MAC members for the use of third party
processors.\7\
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\7\The proposed Final Judgment permits EPS to charge an hourly
fee for reasonably necessary work performed by its personnel in
connection with a bank becoming the customer of a third party
processor. The total charge may not exceed $1000 unless significant
difficulties arise at the processor's or bank customer's end.
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Paragrahs E and F of Section IV ensure that qualified third party
processors will be able to access the MAC network in order to forward
network transactions of their MAC member customers. To ensure that
qualified third party processors will obtain adequate communications
links to MAC, the links provided to third party processors must be
provided on the same terms as the links MAC provides to its intercept
processor customers.\8\ So that qualified third party processors can
operate in the most efficient manner, EPS must, to the extent feasible,
permit transactions from multiple banks to pass over a single
communications link rather than requiring a separate link for each
bank. Except under specified circumstances where immediate termination
would be appropriate, EPS may not terminate a third party processor
without providing 30 days notice, and it must provide a copy of the
notice to the United States. This will give the United States an
opportunity to examine the competitive consequences of any such
termination.
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\8\As explained in Section II.A.2 of this Competitive Impact
Statement, intercept processors are generally the larger banks and
therefore those that have the largest ATM transaction volumes.
Accordingly, they provide the most revenue per bank to EPS, giving
EPS a strong incentive to provide them adequate services, including
communications links. Because EPS has an incentive to deal fairly
with its intercept processor customers, several provisions of the
decree concerning treatment by EPS of third party processors (and
MAC members that use third party processors) are tied to EPS's
treatment of intercept processors in similar circumstances. By using
the treatment of intercept processors as a benchmark, the proposed
Final Judgment avoids a detailed regulatory approach to these
issues.
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To allow EPS to ensure the quality of the MAC network, the proposed
Final Judgment requires EPS to provide MAC network access only to
qualified third party processors. As with the quality of communications
links, the standards for qualification of third party processors are
tied to MAC's qualification standards for intercept processors. A third
party processor is qualified if it meets MAC's technical, financial and
operating criteria for intercept processors and third party processors
providing services to only one bank, and whatever additional technical
criteria concerning the format and content of transmissions are
appropriate for third party processors processing for multiple banks.
These criteria may not discriminate between intercept and third party
processors, nor may EPS charge additional fees to third party
processors for certification.\9\
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\9\As discussed in footnote 7, EPS may charge a one-time fee for
reasonably necessary work it performs when a third party processor
adds another bank. This charge, whether directed to the bank or the
third party processor, may not exceed $1000.
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Paragraph G of Section IV prevents EPS from discriminating in the
price of ATM network access against MAC members that choose to utilize
third party processors. The volume discounts available to members using
third party processors must be the same as the volume discounts
available to intercept processors. Also, EPS must use a single price
schedule for banks in Pennsylvania, New Jersey and Delaware, the areas
in which the MAC network has historically had the greatest monopoly
power, and in which two of its principal owners (CoreStates and PNC)
are located. By drawing this larger area, EPS may not favor its own
stockholders in Pennsylvania without giving similar volume discounts to
large banks in New Jersey and Delaware. EPS may use different price
schedules in other states.
The preceding injunctions will remove the restrictions EPS has
imposed on MAC member banks in their choice of ATM processors, and
thereby break the unlawful tie EPS has established between purchase of
MAC ATM network services and purchase of ATM processing. The direct
consequence will be to make the purchase of third party processing a
realistic option for MAC members. This should bring about the entry of
competitors to MAC for ATM processing. As discussed in Section II.A.3
of this Competitive Impact Statement, third party processors often have
links to many regional ATM networks, and so use of a third party
processor by a bank can facilitate its joining of multiple ATM
networks. Therefore, an indirect consequence of breaking the unlawful
tie between MAC ATM network services and processing services will
likely be an increase in competition in the markets for regional ATM
network access in the affected states.
To ensure that competition for ATM network services is in fact
enhanced, Paragraph H of Section IV of the proposed Final Judgment
enjoins EPS from restricting the ability of MAC members to access other
networks through their own facilities or those of third party
processors. While MAC itself is not required to establish gateways to
competing networks, it may not hinder its members form joining other
networks. EPS also may not condition the price or terms of MAC
membership upon not joining another network. EPS must permit MAC
members to display multiple network marks on ATMs and ATM cards, except
for electronic stored value cards.\10\ The injunction against
prohibiting multiple branding of ATMs applies in all areas where MAC
operates; the injunction against prohibiting multiple branding of ATM
cards applies only in the States of Pennsylvania, New Jersey, Delaware,
Ohio and Indiana, areas in which MAC historically had monopoly power,
or in which there is a dangerous probability that MAC might soon gain
monopoly power.\11\
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\10\Permitting EPS to restrict the multiple branding of
electronic stored value cards will not lessen the procompetitive
impact of the proposed Final Judgment, because the branding of
ordinary ATM cards, which are by far more common, is not restricted.
EPS maintains that allowing restrictive branding of electronic
stored value cards will encourage innovation and competition in
services among firms marketing such cards.
\11\The United States believes that MAC also has monopoly power
in New Hampshire and West Virginia. However, the United States
believes that the proposed Final Judgment contains sufficient
guarantees to open up those States to competition since there is
substantial commerce between those States (or portions of them) and
other regions in which MAC is not a significant competitor.
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Portions of the proposed Final Judgment, including the section
lifting EPS restrictions on the participation of MAC members in
competing ATM networks, will take effect immediately upon entry.
Paragraphs A through E of Section IV, which lift EPS restrictions
concerning the use of third party processors, will take effect in two
stages. On October 1, 1994, EPS must begin the certification process
for third party processors in the MAC Midwest Platform. It must allow
third party processors to complete certification in a reasonably prompt
manner, after which these processors will be able to act as third party
processors for banks in MAC's midwest region. On January 1, 1995, EPS
must allow certified third party processors to act as third party
processors for all banks in the MAC network, and it must begin the
process of certifying third party processors in any remaining region.
The delay between entry of the proposed Final Judgment and the
effective dates of the injunctions provides EPS sufficient time to
undertake the technical steps necessary to ensure that all regions of
the MAC network will be able to accommodate third party processors.
These provisions take effect immediately in any area where banks
were permitted to use third party processors as of January 1, 1993.
This prevents EPS from banning third party processing in recently
acquired or soon to be acquired networks where third party processing
has not been restricted. Also, EPS may not discontinue existing
arrangements whereby MAC members use third party processors.
The United States and EPS have stipulated that the proposed Final
Judgment may be entered by the Court at any time after compliance with
the APPA. The proposed Final Judgment constitutes no admission by
either party as to any issue of fact or law. Under the provisions of
Section 2(e) of the APPA, entry of the proposed Final Judgment is
conditioned upon a determination by the Court that the proposed Final
Judgment is in the public interest.
IV
Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust action under
the Clayton Act. Under the provisions of Section 5(a) of the Clayton
Act, 15 U.S.C. 16(a), the proposed Final Judgment has no prima facie
effect in any private lawsuit that may be brought against the
defendant.
V
Procedures Available for Modification of the Proposed Final Judgment
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgments within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register. The United States will
evaluate the comments, determine whether it should withdraw its
consent, and respond to the comments. The comments and response(s) of
the United States will be filed with the Court and published in the
Federal Register.
Written comments should be submitted to Richard Liebeskind,
Assistant Chief, Communications and Finance Section, Antitrust
Division, U.S. Department of Justice, 555 Fourth Street, NW., room
8104, Washington, DC 20001.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and any party may apply to the Court for
any order necessary or appropriate for its modification, interpretation
or enforcement.
VI
Alternatives to the Proposed Final Judgment
As an alternative to the proposed Final Judgment, the United States
considered litigation seeking structural relief, including division of
the MAC network. The United States rejected that alternative because
the termination of MAC's restrictive practices concerning use of third
party processors and membership in multiple regional ATM networks will
effectively break the unlawful tie established by EPS between ATM
network access and ATM processing. Breaking this tie will encourage the
entry of competitors in the affected states in the markets for ATM
network services and ATM processing more efficiently than division of
the MAC network. In addition, division of the MAC network was likely to
involve the Court and the parties in a complex and time-consuming
process of reorganizing the network, delaying the desired improvement
in competition.
The United States also recognized that such litigation would
require determination of several disputed issues of law and fact, and
that there could be no assurance that the position of the United States
would prevail.
VII
Standard of Review Under the Tunney Act for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States are subject to a sixty-day comment
period, after which the court shall determine whether entry of the
proposed final judgment ``is in the public interest.'' In making that
determination, the court may consider--
(1) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration or relief sought, anticipated effects of
alternative remedies actually considered, and any other
considerations bearing upon the adequacy of such judgment;
(2) The impact of entry of such judgment upon the public
generally and individuals alleging specific injury from the
violations set forth in the complaint including consideration of the
public benefit, if any, to be derived from a determination of the
issues at trial.
15 U.S.C. 16(e) (emphasis added). The courts have recognized that the
term ``public interest'' ``take[s] meaning from the purposes of the
regulatory legislation.'' NAACP v. Federal Power Comm'n, 425 U.S. 662,
669 (1976). Since the purpose of the antitrust laws is to ``preserv[e]
free and unfettered competition as the rule of trade,'' Northern
Pacific Railway Co. v. United States, 356 U.S. 1, 4 (1958), the focus
of the ``public interest'' inquiry under the Tunney Act is whether the
proposed final judgment would serve the public interest in free and
unfettered competition. United States v. American Cyanamid Co., 719
F.2d 558, 565 (2d Cir. 1983), cert. denied, 465 U.S. 1101 (1984);
United States v. Waste Management, Inc., 1985-2 Trade Cas. 66,651, at
63,046 (D.D.C. 1985). In conducting this inquiry, ``the Court is
nowhere compelled to go to trial or to engage in extended proceedings
which might have the effect of vitiating the benefits of prompt and
less costly settlement through the consent decree process.''\12\
Rather,
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\12\119 Cong. Rec. 24598 (1973). See United States v. Gillette
Co., 406 F.Supp. 713, 715 (D. Mass. 1975). A ``public interest''
determination can be made properly on the basis of the Competitive
Impact Statement and Response to Comments filed pursuant to the
APPA. Although the APPA authorizes the use of additional procedures,
15 U.S.C. Sec. 16(f), those procedures are discretionary. A court
need not invoke any of them unless it believes that the comments
have raised significant issues and that further proceedings would
aid the court in resolving those issues. See H.R. Rep. 93-1463, 93rd
Cong. 2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & Ad. News
6535, 6538.
absent a showing of corrupt failure of the government to discharge
its duty, the Court, in making the public interest finding, should *
* * carefully consider the explanations of the government in the
competitive impact statement and its responses to comments in order
to determine whether those explanations are reasonable under the
---------------------------------------------------------------------------
circumstances.
United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. 61,508,
at 71,980 (W.D. Mo. 1977).
It is also unnecessary for the district court to ``engage in an
unrestricted evaluation of what relief would best serve the public.''
United States v. BNS, Inc., 858 F.2d 456, 462 (9th Cir. 1988) quoting
United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir.), cert.
denied, 454 U.S. 1083 (1981). Precedent requires that
the balancing of competing social and political interests affected
by a proposed antitrust consent decree must be left, in the first
instance, to the discretion of the Attorney General. The court's
role in protecting the public interest is one of insuring that the
government has not breached its duty to the public in consenting to
the decree. The court is required to determine not whether a
particular decree is the one that will best serve society, but
whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.\13\
\13\United States v. Bechtel, 648 F.2d at 666 (citations
omitted); see United States v. BNS, Inc., 858 F.2d at 463; United
States v. National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D.
Cal. 1978); United States v. Gillette Co., 406 F. Supp. at 716. See
also United States v. American Cyanamid Co., 719 F.2d at 565.
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A proposed consent decree is an agreement between the parties which
is reached after exhaustive negotiations and discussions. Parties do
not hastily and thoughtlessly stipulate to a decree because, in doing
so, they
waive their right to litigate the issues involved in the case and
thus save themselves the time, expense, and inevitable risk of
litigation. Naturally, the agreement reached normally embodies a
compromise; in exchange for the saving of cost and the elimination
of risk, the parties each give up something they might have won had
they proceeded with the litigation.
United States v. Armour & Co., 402 U.S. 673, 681 (1971).
The proposed consent decree, therefore, should not be reviewed
under a standard of whether it is certain to eliminate every
anticompetitive effect of a particular practice or whether it mandates
certainty of free competition in the future. Court approval of a final
judgment requires a standard more flexible and less strict than the
standard required for a finding of liability. ``[A] proposed decree
must be approved even if it falls short of the remedy the court would
impose on its own, as long as it falls within the range of
acceptability or is `within the reaches of public interest.' (citations
omitted).''\14\
---------------------------------------------------------------------------
\14\United States v. American Tel. and Tel Co., 552 F. Supp.
131, 150 (D.D.C.), aff'd sub nom. Maryland v. United States, 460
U.S. 1001 (1982) quoting United States v. Gillette Co., supra, 406
F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F. Supp.
619, 622 (W.D. Ky 1985).
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VIII
Determinative Documents
No documents were determinative in the formulation of the proposed
Final Judgments. Consequently, the United States has not attached any
such documents to the proposed Final Judgment.
Respectfully submitted,
Dated: April 21, 1994.
Anne K. Bingaman,
Assistant Attorney General.
Robert E. Litan,
Deputy Assistant Attorney General.
Mark C. Schechter,
Deputy Director of Operations.
Antitrust Division,
U.S. Department of Justice, Washington, DC 20530.
Richard L. Rosen,
Chief, Communications & Finance Section, U.S. Department of Justice,
Antitrust Division, Communications and Finance Section, 555 Fourth
Street, NY., Washington, DC 20001.
Richard Liebeskind,
Assistant Chief.
John J. Sciortino,
Don Allen Resnikoff, Kevin C. Quin, Attorneys.
U.S. Department of Justice,
Antitrust Division, Communications and Finance Section, 555 Fourth
Street, NW., Washington, DC 20001, (202) 514-5628.
Richard G. Andrews,
United States Attorney, District of Delaware.
Nina A. Pala,
Assistant United States Attorney, Delaware Bar No. 2622, District of
Delaware, 1201 Market Street, Wilmington, Delaware 19801, (302) 573-
6277.
Certificate of Service
I hereby certify that a true and correct copy of the foregoing
Competitive Impact Statement was served upon counsel for defendant
Electronic Payment Services, Inc. by enclosing same in a postage pre-
paid envelope addressed to:
Stephen Paul Mahinka, Morgan, Lewis & Bockius, 1800 M St., NW.,
Washington, DC 20036
Brett D. Fallon, Smith, Katzenstein & Furlow, 1220 Market Street, 5th
Floor, Wilmington, Delaware 19801.
and mailed this 20th day of April, 1994.
Kevin C. Quin.
[FR Doc. 94-11571 Filed 5-11-94; 8:45 am]
BILLING CODE 4410-01-M
