Internet Payment Service Provider Claims MasterCard’s Policies Violate Antitrust Law

May 21, 2003

MasterCard International, Inc. is exercising its power in the payment card market in violation of federal antitrust law, according to a complaint filed May 12 in the U.S. District Court for the Central District of California. Paycom Billing Services, Inc. v. MasterCard International, Inc. (Complaint), 2003 ILRWeb (P&F) 1806 [CD Cal, 2003].

The plaintiff, an Internet payment services provider, alleged that MasterCard’s policies regarding chargebacks and extra fines fees for certain providers constitute a conspiracy in restraint of trade and monopolization in violation of the Sherman Antitrust Act.

Paycom Billing Services, Inc. of Marina del Rey, California, which does business as Paycom.net, Epoch Transaction Services, Epoch Systems, and Paycom, Inc., acts as a payment service for consumers buying goods and services from a variety of web sites. According to the complaint, about 40 percent of the payments processed by Paycom are made through MasterCard-associated cards.

The complaint alleged that MasterCard’s policies regarding chargebacks, which are made when a card holder claims that a charge made to the card account was unauthorized or otherwise illegitimate, puts all the risk of loss on Paycom. Furthermore, MasterCard has instituted a system of penalties for merchants whose share of transactions that result in chargebacks exceeds a certain threshold. Paycom claimed that these penalties are imposed even in periods when its chargeback rate does not exceed the threshold.

Meanwhile, according to the complaint, MasterCard’s own policies have hindered Paycom from identifying beforehand what credit card transactions might be fraudulent, for example, by withholding a list of credit card numbers that had been stolen.

Paycom Must Accept MasterCard Cards. Paycom claimed that it must accede to such actions because it cannot remain in business if it cannot complete transactions made through MasterCard-branded cards. If it refused to accept such cards, then the web sites that are its clients would find alternative means to complete transactions.

Furthermore, the complaint stated that MasterCard is using its market power in the payment card market to pressure Paycom to change its business model.

Paycom alleged these actions amount to a contract or conspiracy in restraint of trade under the Sherman Antitrust Act §1. According to the complaint, MasterCard’s policies “have unreasonably restrained competition in the general payment card market by ... improper and illegal means ... , which resulted in an unreasonable restraint on competition.” Furthermore, MasterCard’s imposition of “perpetual fines and penalties” have an effect of creating a boycott of Paycom.

The second claim for relief alleged illegal creation, enhancement, and maintenance of a monopoly in the general payment card market under the Sherman Act §2.

The complaint also alleged violations of the Robinson-Patman Act and the California Cartwright Act. There were also claims for denial of fair procedure, unfair competition, breach of contract, breach of implied covenant, intentional interference with contractual relations, intentional interference with prospective business and economic advantage, negligent interference with actual and prospective business and economic advantage, and fraud.

The plaintiff asked for declaratory and injunctive relief prohibiting the imposition of the fines and penalties for chargebacks, actual damages in excess of $3 million, and exemplary damages of $20 million.

The plaintiff was represented by Richard P. Crane Jr. William McD. Miller, and Dennis M. P. Ehling of Music, Peeler & Garrett, Los Angeles.

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