Apple Conspired With Visa, Mastercard to Restrain Trade in POS Systems: Class Action

Apple had the leverage to “disrupt” Visa's and Mastercard's dominant position in the U.S. market for point-of-sale payment card network services when it was preparing to introduce its iPhone Apple Pay feature in 2014, but instead it colluded with them to maintain their market domination, alleged Mirage Wine & Spirits, a liquor store in O’Fallon, Illinois, in an antitrust class action Thursday (docket 3:23-cv-03942) in U.S. District Court for Southern Illinois in East St. Louis.

The dominance of Visa and Mastercard allowed them to impose “inflated fees” on merchants for their POS payment networks, said the complaint. In addition, U.S. merchants “have paid fees that significantly exceed fees charged in other jurisdictions,” it said. Visa and Mastercard worried that Apple's iPhone and Apple Pay would disrupt their dominance “by driving down the lucrative fees” they charged merchants for decades, it said.

But rather than compete in POS payments, Apple made deals with Visa and Mastercard “to allocate that market,” alleged the complaint. Apple reached agreements with Visa and then with Mastercard not to use the iPhone to establish its own POS payment network, it said. Instead, Apple agreed to run Apple Pay transactions over existing Visa and Mastercard networks, it said.

Apple also agreed with Visa and Mastercard “to protect their market division from competition” by blocking third parties from accessing certain “secure element” hardware in the iPhone, said the complaint. Those third parties could have used the hardware to establish mobile-based payment systems that competed with Visa and Mastercard. Apple later reached similar agreements with American Express and Discover, though the class action names only Apple, Visa and Mastercard as defendants.

In exchange for Apple’s agreement to protect Visa and Mastercard's POS domination, the parties agreed that Apple would collect a portion of the fees generated through existing payment systems, said the complaint. Visa and Mastercard arranged for Apple to receive 0.15% on the value of all U.S. credit card POS transactions, and 0.5 cents on all U.S. debit card transactions initiated with Apple Pay POS on their respective networks, it said. Those payments “initially amounted to hundreds of millions of dollars each year and are now worth billions of dollars each year,” it said.

“But for this anticompetitive agreement,” Apple had the incentive “to welcome all payment solutions to its Apple Pay wallet as it derived its income by taking a percentage of the transaction fee earned by the payment system on transactions facilitated by Apple Pay,” said the complaint. Instead, Apple’s collusion with Visa and Mastercard violated Section 1 of the Sherman Act, it said.

Since entering into these unlawful agreements, starting in 2014, Apple, Visa and Mastercard “have continued to take affirmative steps in furtherance of the conspiracy,” including, on information and belief, reaffirming this agreement via written contract as recently as 2020, said the complaint. Mirage Wine & Spirits brings its action under sections 4 and 16 of the Clayton Act on behalf of itself and a proposed class consisting of similarly situated U.S. merchants, it said.

It defines the class as including all U.S. merchants that accepted Apple Pay as a method of payment at the physical point of sale from Dec. 14, 2019, to the present, and that haven’t “previously released the claims asserted” in the complaint. The plaintiff and class members seek monetary relief for the inflated fees they have paid as a result of the “unlawful agreement” Apple struck with Visa and Mastercard “to restrain trade,” including treble damages, court costs and reasonable attorneys’ fees, plus injunctive relief “if the unlawful conduct continues through trial.”