Transcript of Proceedings re: Conference held on 11/12/2024 — United States v. Visa Inc. (Dkt. 33, S.D.N.Y. No. 1:24-cv-07214)

Record facts

U.S. District Court for the Southern District of New York · No. 1:24-cv-07214-JGK · Doc. 33 · 2024-11-12 · Docket on CourtListener

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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 
------------------------------x 
 
UNITED STATES OF AMERICA, 
 
               Plaintiff,    
 
 
           v.                           24 CV 07214  
 
VISA, INC., 
                                         
               Defendant.   
                                        Conference 
------------------------------x 
                                        New York, N.Y.       
                                        November 12, 2024 
                                        5:00 p.m. 
 
Before: 
 
HON. JOHN G. KOELTL, 
 
                                        District Judge         
 
APPEARANCES 
DEPARTMENT OF JUSTICE, ANTITRUST DIVISION 
     Attorneys for Plaintiff  
BY:  EDWARD WILLIAM DUFFY  
     BENNETT MATELSON  
     KEVIN KRAUTSCHEID  
     GREGG MALAWER 
 
WILKINSON STEKLOFF, LLP 
     Attorneys for Defendant  
BY:  BETH A. WILKINSON  
     KIERAN GAVIN GOSTIN 
 
 
 
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          SOUTHERN DISTRICT REPORTERS, P.C.
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(Case called) 
THE COURT:  Who is on the line, please, for the
government?
MR. DUFFY:  Your Honor, this is Edward Duffy on behalf
of the United States.
THE COURT:  Who's on the line for Visa?
MS. WILKINSON:  Good afternoon, your Honor.  Beth
Wilkinson and Kieran Gostin, who will be speaking on behalf of
Visa.
THE COURT:  Thank you.  This is Judge Koeltl.
The reason for the call is Visa's letter of
November 5, which indicated that the parties had agreed on a
schedule for a motion to dismiss and looked forward to
exchanging pre-motion letters.  The reason for pre-motion
letters for a motion to dismiss, as far as I'm concerned, under
my practices, is for the moving party to explain the reasons
for the motion and to allow me to express any thoughts about
the motion -- in some cases, the motion might be withdrawn or
not made -- and to give the plaintiff an opportunity to file an
amended complaint to attempt to moot the motion.
It seems reasonably clear to me that this is not a
case where I could, if I wanted to, discourage a motion to
dismiss, and it's unlikely that the government wants to file an
amended complaint, so I don't see much purpose for an exchange
of pre-motion letters.  I'm certainly happy to listen to the
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
defendant, as a prelude, so that I can better understand the
briefs or what the basis for the motion to dismiss will be, and
for a brief response by the government if you would like to
tell me about that now.  If you're not in a position to do
that, so be it.
Mr. Gostin?
MR. GOSTIN:  This is Kieran Gostin, your Honor.  I
would --
MS. WILKINSON:  Were you calling on us, your Honor?
THE COURT:  Yes.
MS. WILKINSON:  Okay.  Thank you.
MR. GOSTIN:  So I'll just give it at a very high
level.  We're planning on challenging a few bases for the
motion, and I'm happy to answer any questions.  One of them
relates to market definition, and others relate to the two
courses of conduct that they challenged.  So if the motion was
granted, it would dispose of the complaint entirely or
significantly limit its scope.
For the market definition, the government has defined
the market as debit network services, which is defined, and
this is a quote from the complaint, as payment products and
services that facilitate the debit, i.e., withdrawal, of funds
directly out of a consumer's bank account, often using a
credential or other account number to identify the consumer.
However, the government has excluded from its market definition
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
one of the primary ways that consumers can pay merchants, by
debiting funds directly from their bank accounts.  
So we plan to rely on their own allegation, their
definition of the market, and other allegations that are
inconsistent with their reasons for excluding this payment
method as a basis for our challenge to their market definition.
This is a significant point, because they've alleged our market
share is 60 percent.  If this payment method were included, it
would significantly decrease that I think under any analysis,
likely halving it, which would seriously undercut any argument
of market power and would certainly end any claim of monopoly
power.  
So, at a high level, that's the market definition
argument, which I'm happy to discuss in more detail.
THE COURT:  Can I just ask you a question on that?
MR. GOSTIN:  Yes.  Of course.
THE COURT:  Why is that the basis for a motion to
dismiss and rely upon the development of the factual record?
MR. GOSTIN:  Your Honor, it's a great question.  Let
me try to explain why I think it's appropriate to do at the
motion to dismiss stage.
So I need to give just a slight bit of background
about what the payment method is I'm talking about.  It's ACH,
which is, instead of using your debit card number, you can
also -- and you may have experienced this with paying bills or
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
other things -- you can also put in your routing number and
banking account number and have money directly withdrawn from
your account.
The basis of the motion is that there are other -- in
their complaint, they allege that that payment method is part
of the market when it's done by -- done in connection with
certain technology companies like Pay Pal, where they exclude
it all other times.  And the reason they include it for Pay Pal
is they need it for one of their allegations of competitive
harm.  So we think they've been inconsistent there.
Now, the reason for excluding it is a single sentence
in the complaint that describes three features that they say
ACH lacks:  Fraud detection, dispute resolution, and charge
back rights.  However, by their own allegations, they've
included other payment methods in their market that do not have
those features.
For example, they include PIN networks, and I don't
want to get too far into the details here, because I don't want
to get bogged down, but PIN networks are basically a form of
debit that is relying on ATM networks.  That's why you have to
use a PIN when you use them.  And in their complaint, for
example, they allege that those PIN networks in many situations
lack acceptably robust fraud detection.  So we think that their
allegations are contradicting each other in a variety of ways.
Those are just a couple of examples.
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
But we would plan for the motion to be based on what
they've alleged, other products they've included, while
excluding these products for similar reasons, and we think that
makes it implausible.  There is case law that says complaints
should be viewed at motion to dismiss stage, shorn of all their
internal contradictions.
THE COURT:  Okay.  Did you say there was a second
basis for the motion?
MR. GOSTIN:  Yes, your Honor.  There's two other bases
of the motion, which go after each of the courses of conduct
that they've alleged.
So the first is that they allege that Visa has
violated the antitrust laws by offering volume-based discounts.
Actually, the way Visa gets paid for debit is they get paid by
the merchants.  We offer them lower per transaction prices if
they offer -- if they provide us with a greater volume of
transactions.
There's case law that says that lowering prices,
cutting prices unsurprisingly is considered pro-competitive
under the antitrust laws, not anticompetitive, except in really
rare circumstances such as price discrimination, predatory
pricing.  I mean, they haven't alleged anything that suggests
that this is a form of predatory pricing.  So we're essentially
saying, even if you take their allegations as true, they fail
under the law.  So that's one of the courses of conduct.
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
The second course of conduct is about agreements that
Visa has entered into with certain technology partners.  These
are -- an example would be they have an agreement with Apple
whereby Visa has provided technology to Apple that allows Apple
Pay to work, which is a way you can pay debit and credit with
your phone.  And as part of those agreements, they allege that
we have -- and they're relying entirely on the written
agreements here.  They allege that we have essentially paid
them off not to compete.
So we've entered into these agreements with them, and
under the agreements, they're not allowed to compete in debit.
However, if you actually look at the terms of the agreements
which are incorporated by reference into the agreements, they
don't do that.  What they do is they say that if Apple decides
to become a competitor, Visa no longer has to continue to deal
with them and no longer has to provide their technology to
them.
So under the terms of the agreements themselves, we
don't think that's anticompetitive product, because there's
lots of law that says that there's no duty to deal with
competitors.
THE COURT:  Okay.  Mr. Duffy.  
MR. DUFFY:  Yes.  If I can just have a few minutes to
respond, you know, with our initial thoughts on the substantive
bases of the motion, and then I did want to follow up with our
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
view of the benefits of having the pre-conference letter still
submitted.
First, with respect to market definition, Mr. Gostin
referenced ACH, which you know, as we've put forward in our
complaint, it is our position that ACH is not in the same
market as debit network services, and there are a few reasons
for that.  I think one of the more important is that ACH simply
does not provide for a near instantaneous form of payment, and
for that reason, it is not reasonably interchangeable with
debit cards and cannot be used for many of the same types of
processes.
Mr. Gostin also indicated that there are several
criteria that we think are necessary for a product to be within
the market.  Fraud protections being one.  And although we do
say that the other smaller debit networks, called the PIN
networks, don't have as robust fraud capabilities as Visa does,
for a variety of reasons, they still do offer some type of
fraud protections that do set them apart from a basic ACH
product.  And as your Honor mentioned, to the extent there are
disputes about this, they are very much factual issues that we
don't think would be suitable for a motion to dismiss,
irrespective of the substance.
Going to the two types of conduct that Mr. Gostin was
talking about.  The volume based discounts, first, I think it's
important for us to point out we're not alleging a predatory
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
pricing theory of harm under that theory.  What the United
States is alleging is that Visa has created incentive
structures with their contracts with merchants and with banks
that are tantamount to exclusive dealing because of the nature
of the terms that are set forth.
So what Visa does is that there are certain
transactions that a merchant is going to have no choice but to
use Visa for routing that transaction.  Visa is able to
leverage those non-contestable transactions and create pricing
structures that make it entirely uneconomical for merchants and
their banks to consider alternative networks for those
transactions that the networks could compete for.  And, you
know, we think the law is quite clear that that type of de
facto exclusive dealing is a cognizable violation of the
Sherman Act, both as monopolization and an unreasonable
restraint on trade.
And then, finally, with respect to the tech partner
contracts that Mr. Gostin was discussing, the key
anticompetitive element of those agreements is not Visa
refusing to deal.  It is, instead, the nature of the threat of
basically telling potential competitors if you do not compete
with me, I will provide you with lucrative incentives, and if
you do choose to complete with me, I am going to impose
penalties upon you.  So it is not a duty to deal situation as
much as it is an incentive being offered to not compete with
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
Visa.
And then if I can briefly just address kind of the
process issue of the three-page pre-motion letter.  When
agreeing to the briefing schedule, the United States was very
interested in ensuring that we would have Visa's letter
outlining the bases of its motion to help us, you know, kind of
get a head start on the response to a motion to dismiss given
the holiday schedule and so forth.  It was kind of important
for us to be able to get a better sense as to what their
arguments would be.  So we think we would benefit very much
from having that letter on November 20 as Visa committed when
proposing that schedule.
We also think, and the parties have submitted some
letters dealing with the issue of discovery, and we think that
the Court will eventually need to decide whether discovery can
commence while a motion to dismiss is pending.  And we do think
that the three-page letter would help the Court in that
determination when the issues is properly before the Court.
THE COURT:  I must say I'm unpersuaded that the
letters would do anything.  You've heard from Visa the
arguments that it intends to make.  I'm sure you all can talk
among yourselves.  But as far as I'm concerned, it appears to
be unnecessary paper.
I also don't think that that exchange of letters is
going to sufficiently inform me of the merits or lack of merits
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
of the motion to stay discovery that I could base a decision on
the simple exchange of letters.
By the way, I thought the exchange of letters with
respect to -- brief letters with respect to the issue of
staying discovery or not staying discovery was helpful to me,
but we can get back to that in a moment.
Does Visa have any views with respect to further
letters in preparation for the motion to dismiss?
MR. GOSTIN:  Your Honor, we don't think a letter is
necessary for all the reasons that you stated.
THE COURT:  Okay.  So I agree with that, and the
schedule that was laid out in Visa's letter is fine.  I'll do
an order establishing the schedule for the motion to dismiss in
accordance with the parties' agreement reflected in the
November 5th letter.
A couple of other things.  I should have pointed out
at the outset that I'm confident that I have at least one Visa
card.  I may have more.  Visa may be on the front or back of
other cards that I have, but nothing about that affects
anything that I do in the case.  But I bring it to your
attention at the outset.
So the parties have noted that I have a conference
scheduled for January 6.  That would have been scheduled as a
matter of course when the case was filed.  The assumption is
that the parties would have gotten together for their 26(f)
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
conference before that and produced for me a 26(f) report by
January the 6th.  I could talk to you about it on January 6, or
approve your schedule.
I know that there is a dispute about whether I should
stay discovery pending a decision on the motion to dismiss.
That really would require briefing.  I thought both of your
letters were very good, and good in part for their brevity.  I
commend all of you.  Articles that I've previously written on
brevity and civility, so far everything that you've given me
reflects a commendable cooperation and attention to both
civility and brevity, so for all of that, I thank you.
Where do we go from here?  My inclination, and I'm
perfectly happy to listen to the parties, is that we want to
follow the usual course, which was sort of implied in some of
the correspondence, which means that you ought to, as you
apparently have, talk about the case among yourselves, talk
about a potential schedule for the case.  It's certainly
possible for you all to talk about the future of the case, the
schedule for discovery, what your potential deadlines are,
taking into account that the parties may differ as to or do
differ as to whether the discovery should actually go forward
pending a decision on the motion to dismiss.
So you could meet and come up with schedules which are
dependent on whether the motion to stay discovery is granted or
not, what happens on the motion to dismiss, and give me a Rule
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
26(f) report based on that.  I do have a concern that the
motion to dismiss schedule that you've given me takes two and a
half months.  That's a generous schedule, but it means that if
I stayed discovery until a decision on the motion to dismiss,
we would be two and a half months, plus however many months it
may take me to decide the motion.  That's a long pause.  So you
can take that into account.  I'm certainly not going to decide
the motion to stay discovery now based on the letters that
you've just given me, but you can take that into account.
Is this a case where the case is likely to be
dismissed in its entirety?  Is it a case that some haircuts may
be made at the outset?  I can't decide those things based upon
what the parties have given me so far.
So, where are we?  I always prefer for the parties to
talk out what you think is the best timing for a motion to stay
discovery, as well as the alternatives that you want to propose
to me for the progress of the case if the case is going
forward, and you can give me a 26(f) report after you've had
your meetings with respect to that.  
If you all can't agree with respect to what the
correct timing is for a motion to stay discovery, of course
I'll give you a date.  I do think that, as Visa pointed out,
that the merits of a motion to dismiss are one of the factors
to be taken into account on whether to stay discovery.  I also
found somewhat persuasive the amount of time that the parties
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          SOUTHERN DISTRICT REPORTERS, P.C.
            (212) 805-0300
OBCDUniC                
have been engaged in pre-litigation discovery, including
depositions.  On the other hand, as I've said, the ample time
that you've afforded each other to brief the motion to dismiss
is a matter of concern to me.  I have no great desire to stall
the case for months and months at the outset.
So those are considerations that you can take into
account.  I'll leave at the moment the January 6 date for
another telephone conference with you, though I think one
reason for doing this by telephone conference is I didn't want
to drag all of you up from Washington when this conference is
really a ministerial conference to set the deadlines for the
motion to dismiss.  But to the extent that we have substantive
conferences, I may call you up from Washington for a personal
appearance, unless that's too onerous for you.
So that's where we are.  I'm perfectly happy to listen
to all of you.  I expect that all of you will have your
appropriate meetings and provide me with a 26(f) report, and I
would hope that you could all do it within a month, by
December 13.
So you'll give me all of the alternatives in the 26(f)
report, and you will have talked about a schedule for the
motion to stay discovery.  It's a motion, but I know what the
factors are and you don't have to write an extensively long
motion or response or reply.  I hope that you all can agree
upon that.
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          SOUTHERN DISTRICT REPORTERS, P.C.
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OBCDUniC                
So does that give all of you sufficient guidance?  I'm
perfectly happy to listen to you all now.
Plaintiff, Mr. Duffy?
MR. DUFFY:  Yes, your Honor.  I think that guidance is
clear to us on both the motion to stay schedule and the 26(f)
report.
THE COURT:  Okay.  Mr. Gostin?  Ms. Wilkinson?
MS. WILKINSON:  Yes, your Honor.  Ms. Wilkinson.  
Yes, we will be happy to work with Mr. Duffy and his
team and come up with all the deadlines to file the motion and
complete the 26(f).  I don't think we'll have any difficulty.
We've had constructive discussions with them before, and we
will always continue to do so in this case.
THE COURT:  All right.  That's great.
Anything else I can do for you today?
MS. WILKINSON:  Nothing on behalf of Visa, your Honor.
MR. DUFFY:  Nothing on behalf of the United States,
your Honor.
THE COURT:  Great.  Good to talk with you.  I look
forward to working with you.
Bye now.
(Adjourned)
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