Supreme Court to Consider Whether Allegations of Adherence to a Business Association’s Rules Can Trigger Antitrust Liability

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Can participation in a business or trade association and allegiance to its rules trigger antitrust liability for association members under the Sherman Act?  Next term, the Supreme Court will hear Osborn v. Visa Inc., the appeal of a 2015 decision of the U.S. Court of Appeals for the District of Columbia Circuit, which held that allegations of members’ participation in the governance of an association and adherence to its rules is sufficient to plead a conspiracy for purposes of Section 1 of the Sherman Act. The Supreme Court’s decision will resolve a circuit split between the D.C. Circuit and the 3rd, 4th, and 9th Circuits, which held that allegations of substantially similar conduct, without more, are insufficient to plead conspiracy to support Section 1 liability.

In Osborn v. Visa Inc., the plaintiff consumers and automatic teller machine (ATM) operators alleged that Visa, MasterCard, and several affiliated banks conspired to fix access fees at ATMs not owned by the cardholder’s bank (foreign ATMs). 797 F.3d 1057 (D.C. Cir. 2015). The plaintiff alleged that Visa and MasterCard prohibit foreign ATM operators from charging cardholders access fees for transactions routed over the Visa and MasterCard networks that are higher than those over other networks. The plaintiffs alleged that the access fee rules were generated by “horizontal” agreements among the Visa and MasterCard networks. According to the plaintiffs, the horizontal conspiracy requirement of a Sherman Act claim was met by virtue of defendants’ membership in associations, which did not permit the application of higher ATM transaction fees to certain networks.  

Relying heavily upon the 9th Circuit’s decision in Kendall v. Visa U.S.A., Inc., which presented similar allegations, the U.S. District Court for the District of Columbia dismissed the plaintiffs’ complaint without prejudice. 518 F.3d 1042 (9th Cir. 2008). In Kendall, the plaintiffs alleged that the defendant banks were owners of Visa and MasterCard, served on their respective boards, and adhered to their network rules. Upon appeal, the 9th Circuit found that “merely charging, adopting or following the fees set by [defendants MasterCard or Visa] is insufficient as a matter of law to constitute a violation of Section 1 of the Sherman Act.” Id. at 1048. Notwithstanding the decision of its sister court, the D.C. Circuit in Osborn, vacated the district court’s opinion and agreed with the plaintiffs, holding that the “[defendant] member banks used the bankcard associations to adopt and enforce a supracompetitive pricing regime for ATM access fees.” Osborn, 797 F.3d at 1067.

In their cert petition, the defendant-appellants challenged the D.C. Circuit’s ruling in light of its split with contrary decisions of the 3rd, 4th, and 9th Circuits concerning the requirements for pleading a Section 1 conspiracy claim.

The Department of Justice and Federal Trade Association have long recognized the procompetitive benefits that business and trade associations bestow upon society and the economy. The D.C. Circuit’s ruling, if undisturbed, could have a chilling effect upon the willingness of businesses to participate in association governance or adhere to association rules in the shadow of potential antitrust liability. Accordingly, the Supreme Court’s decision will impact business and trade associations, which depend upon members’ adherence to rules to enable efficient cooperative activities.

Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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