A court-appointed economist in the $5.75 billion interchange settlement between retailers and credit-card companies told the court last week that merchants are better off economically with the price-fixing settlement—but he also expressed concern about releasing Visa (NYSE:V) and MasterCard (NYSE:MA) from future similar lawsuits.
Alan O. Sykes, an economist and law professor at New York University, reported to U.S. District Judge John Gleeson that the proposed settlement was economically likely to be a good deal for retailers because they were likely to obtain "little or no relief" if the case went to trial. Sykes also said the retailers face an uphill battle in trying to show that interchange fees "cause anticompetitive harm that outweighs their pro-competitive benefits." But he emphasized in his 51-page memo to the court that he hadn't read all the filings in the case and his opinion was from the point of view of economics, not law.
Sykes also agreed with another expert witness that releasing Visa, MasterCard and card-issuing banks from future similar litigation "raises a danger of adverse, unintended consequences" and suggested that the court should consider changing that part of the settlement or spelling out more clearly what would and wouldn't be covered. That release from liability is the key issue that retailers opposed to the settlement have cited.
"Litigation 'peace' need not include protection from liability for new and different violations of the law," Sykes wrote.
The report comes barely two weeks before Judge Gleeson will hold a "fairness hearing" on Sept. 12 to determine whether to accept the settlement as it stands. Retailers who are responsible for more than 25 percent of payment-card transactions by dollar value have opted out of the settlement, most citing objections to the part that would block future lawsuits against Visa and MasterCard. Those retailers would still be bound by that, even though they wouldn't share in any financial payments as part of the settlement.
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