Class Members' Options In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation MDL 1720

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1 To: From: Members of MDL 1720 Settlement Classes K. Craig Wildfang, Thomas J. Undlin Date: May 14, 2013 Re: I. Introduction Class Members' Options In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation MDL 1720 The purpose of this memorandum is to provide to merchants who are considering their options as members of the settlement classes in the proposed Settlement of MDL 1720, the opinions of all Class Counsel. 1 Our purpose is not to persuade merchants that they should not object to the Settlement, or should not opt out. Rather, our goal is to provide our perspective on the litigation we have managed for the last seven years in the hope that it will enable merchants, and their counsel, to make decisions that will best serve their interests. We hope and expect you will rely upon the advice of your in-house counsel, and any litigation counsel you may have retained, to help you decide upon a course of action that will further your interests. The Class Counsel leadership group has collectively tried to verdict many, many antitrust and other complex litigation matters. Counsel for the many large merchants who brought direct action, e.g. non-class cases, are similarly highly experienced antitrust litigators. Every one of these experienced lawyers believes 1 The sophisticated merchants who brought direct action cases that were consolidated with the class actions in MDL 1720 some of the largest in America that litigated this case with the Class since 2005, are members of the Injunctive Relief Class and agree that the Settlement, including injunctive relief and release, are in the best interests of merchants. These Individual Plaintiffs include: The Kroger Co.; Walgreen Co., Rite Aid Corporation; Safeway, Inc.; Publix Supermarkets, Inc.; Ahold U.S.A., Inc.; SuperValu Inc.; Albertson's Inc.; BI-LO, LLC; Bruno's Supermarkets, Inc.; Delhaize America, Inc.; Eckerd Corporation; The Great Atlantic & Pacific Tea Company; H.E. Butt Grocery Company; Hy-Vee, Inc.; Maxi Drug, Inc. (and doing business as Brooks Pharmacy); Meijer, Inc.; Meijer Stores Limited Partnership; Pathmark Stores, Inc.; QVC, Inc.; Raley's; and Wakefern Food Corporation. Several of these Individual Plaintiffs are members of some of the trade associations who have complained about the Settlement.

2 Page 2 that the proposed Settlement of MDL 1720 is an outcome for merchant class members that is far superior to any possible alternatives in the foreseeable future. These opinions are based on the experiences of decades of litigation experience, and over seven years of experience in this particular case, before this particular judge. Moreover, every one of the almost two dozen large merchants who have litigated this case over the last seven years (and who are members of the Injunctive Relief Class) similarly believes that this Settlement is not only in the best interest of merchants, but likely contains all of the injunctive relief that the Class Plaintiffs could reasonably expect to attain after a trial to the Court, whenever that might occur. From what we have seen, those who have advised class members to object and opt out have failed to identify any future strategy at all, much less a future strategy that has any realistic chance of producing a superior outcome for merchants in any reasonable period of time. In preparing and disseminating this memorandum, we are motivated by the barrage of misleading information to which class members have been subjected over the last ten months, which may cause even large and sophisticated merchants to make ill-advised decisions on the important choices they must make. Some trade associations have provided such misleading information to their own members 2 that they have been ordered by Judge John Gleeson 3 to correct those misstatements, and were ordered to show cause why they should not be held in contempt for their violation of his Order of April 11, Judge Gleeson s finding that these trade associations have misled their own members should alert merchants to view with skepticism the information they may have received from these organizations. In order for a merchant rationally to decide that it should object to the Settlement and urge the Court to require the parties to return to active litigation, a merchant must conclude that there is a better than 50/50 chance that further litigation will produce an outcome sufficiently better for itself than the benefit it would receive as a member of the Class under the Settlement to justify incurring the substantial costs, and taking the substantial risks, of further litigation. 4 And, 2 See Exhibits 1, 2, 3 and 4. Copies of Transcripts of April 11 and May 3 hearings, and April 1 and April 24 Orders. 3 Judge Gleeson has not only presided over MDL 1720 since 2005, but he also presided for over a decade over the litigation and settlement of the prior antitrust litigation against Visa and MasterCard, In re Visa Check/Mastermoney Antitrust Litigation. 4 This assumes that the analysis is an assessment of the benefits, costs and risks of litigation and not some political calculation based upon some speculation about how the Settlement fits into the myriad of factors that would be part of an assessment of the likelihood of Congress and the President agreeing to extend the Durbin Amendment s regulation of debit interchange rates to

3 Page 3 separate and apart from the question of whether it is in a merchant s interest to have the Court deny final approval to the Settlement, is the question of whether it is in the merchant s interest to opt-out and pursue litigation on its own, or as a group or class of merchants Both of these questions involve difficult and complicated, but different, analyses of the law and the facts relevant to the issues, as well as the economics of complex antitrust litigation. 5 This memorandum will discuss factors that we think should be part of merchants decision-making with respect to objecting to and/or opting out of the Settlement, so that they can make fully-informed decisions. 6 As we discuss more fully below, any decision to object to the Settlement and to urge the Court to deny final approval and return the parties to active litigation must consider, the following: (1) What are the chances that the Court s rulings on the pending motions of Defendants will adversely affect the Class ability to ultimately prevail in the litigation? 7 credit interchange rates. We believe that anyone who offers an opinion on the effect of the settlement of MDL 1720 on the chances of Congress enacting further reforms of the payment card markets is engaging in the most extreme form of speculation. 5 Notwithstanding the complaints of some objectors, the most relevant facts are not substantially disputed, and the legal analysis of those facts contained in the parties respective briefs on summary judgment is comprehensive. For a merchant and its counsel who really wants to make an informed decision on these two crucial questions, a thorough review of the summary judgment and Daubert record will enable them to come to their own conclusions on the risks to the MDL 1720 Class claims posed by the Defendants affirmative dispositive motions, and their opposition to the Class motion for class certification. 6 Counsel for some merchants who have objected to the proposed Settlement have focused their efforts on obtaining materials from the record that have been redacted. E.g., March 21, 2013 letter from Kimberly Weber Herlihy of Vorys, Sater, Seymour and Pease LLP on behalf of Target, Macy s, Saks, and others; and April 24, 2013 letter from Jeffrey I. Shinder of Constantine Cannon on behalf of objecting plaintiffs and certain absent class members. Class Counsel have not opposed those requests since the materials redacted is from documents produced by Defendants to the Class. However, Class Counsel believe that the materials in the public record, especially the summary judgment filings, are more than sufficient for merchants to make sound judgments about objecting or opting out. Indeed, Class Counsel believe counsel for these merchants would better serve their clients if they spent their time reviewing the record that is available to them rather than seeking those few additional materials that have been redacted. 7 Since MDL 1720 was commenced at least two actions brought on similar liability theories have been dismissed on motions. See PayCom Billing Servs. v. MasterCard International, Inc., 463 F.3d 283 (2d Cir. 2006); Nat l ATM Council, Inc. v. Visa, Inc. (D.D.C. Feb. 13, 2013). These two opinions are attached as Exhibits 5 and 6.

4 Page 4 (2) What is the actual likelihood of the merchant class members in MDL 1720 obtaining a better outcome for merchants either via settlement or judgment in the foreseeable future? (3) What would that hypothetical better outcome be? (4) How many years of further litigation will it take to get the hypothetical better outcome that is assumed in the answer to (3) above? (5) What is the net incremental value of this hypothetical better outcome, 8 i.e. by how much (in terms of economic value to merchants) does this hypothetical better outcome exceed the value of the proposed settlement, plus the cost of further litigation, the risk of failure, and the foregone benefits to merchants of the Settlement, and accounting for the time value of the use of the results of the Settlement that will be delayed many years? (6) Who is going to fund the costs of many years of further litigation? To date Class Counsel have funded out of their own pockets the entire cost of the litigation, almost $200 million. Given the likely many years of further litigation (see discussion below) in order to have any chance at the hypothetical better outcome, some groups of merchants will have to invest and risk $100 million, and perhaps much more. 9 8 Estimating the costs and risks of complex antitrust litigation, and then estimating the value of likely outcome that might come a decade later, is difficult even for experienced counsel who have done this for many years. Relying upon such estimations by counsel who are inexperienced in the task is risky. To arrive at estimated costs, risks, and likely net benefits of a decision to reject the settlement (or to opt out of the Settlement) and litigate the Class claims a merchant must first project the value of the hypothetical better outcome, an extraordinarily difficult task in itself, that number then must be discounted by the likelihood of that outcome being achieved in the context of changing law, rapidly evolving technology, and a multiplicity of other factors. So if the hypothetical better outcome, if achieved, would have an economic value to merchants of $100 but the chances of getting that outcome is only 50%, then the net economic value is only $50. The net economic value must also be further discounted for the time value of money. Thus, a recovery of $50 in ten years is plainly worth substantially less than $50 received today. In order to be a rational choice, a decision to forego the $7.25 Billion and the relief that permits merchants to recover their costs of acceptance through charges to customers, and to instead await a hypothetical superior outcome in the future, must necessarily be based upon a conclusion that the net economic benefits of the latter are greater than the former. The Class expert economist has valued the benefits to the Class of the injunctive relief at approximately $94 billion over the next 10 years. 9 The Court has indicated that it is open to requiring merchants who want to continue the litigation to compensate Class Counsel whose efforts and money have created the record which has led to the Settlement. (See, transcript of status conference dated September 11, 2012 at pp ) See Exhibit 7.

5 Page 5 (7) Would merchants be more likely to obtain further reforms of the payment card markets by using the $100 million in other ways, e.g. lobbying Congress and/or state legislatures, or investing in alternative payment methods, etc.? After receiving the Mediators Proposals in December, 2011, the consideration of the first five of the factors enumerated above by Class Counsel, and by counsel for the many large merchants who are the Individual Plaintiffs, lead to the unanimous conclusion by these highly experienced and knowledgeable lawyers that the Settlement was easily the better choice for merchants, instead of many more years of litigation with substantial risks and an uncertain outcome. Of these factors the most important were factors (2) and (3) above, which together pose the question of whether it is likely that the Class could both win a trial on the merits, convince a jury to award hundreds of billions of dollars to the Class, and persuade the Court to grant injunctive relief greater than that obtained by the Settlement, and keep both on appeals that almost certainly would go the Supreme Court and would go on for at least six years. It was the unanimous conclusion of Class Counsel and Individual Plaintiffs counsel that the answer to this question is that it is not likely that greater injunctive relieve or a significantly greater cash recovery could be obtained by further litigation, either by settlement or by a judgment, that could withstand appeals. Regardless of whether consideration of the above factors leads a merchant to object to the Settlement, any separate decision to opt out of the Settlement should consider, among other things, how the following factors affect the balancing of the benefits of remaining in the Class versus the net benefits of opting out: (1) As in item (1) above, what are the potential adverse effects on an optout claim arising from the Court s ruling on the pending motions? (2) How much will it cost to litigate the individual claims of opt outs? 10 (3) How many years will it take to get to a settlement or judgment sufficiently larger than the amount of the merchant s share of the settlement to justify the risks and costs of opting out? 10 Given the substantial risks of taking this case to trial by opt-outs, Class Counsel and Individual Plaintiffs Counsel think it is unlikely that counsel as qualified and experienced as Class Counsel and Individual Plaintiffs Counsel would take the opt out cases on a contingent basis. Of course, any such contingent fee agreement should give fees to counsel only based upon the incremental economic value obtained though further litigation, especially in light of the fact that Class Counsel are likely to seek an award of fees from any recovery by opt outs based on the common fund doctrine.

6 Page 6 (4) What are the chances of actually getting to such a larger settlement or judgment? 11 (5) What are the ancillary costs of deciding to engage in protracted, costly and likely highly contentious litigation against the nation s largest financial institutions, and Visa and MasterCard? 12 Unlike the question of whether the Class could likely achieve a better outcome through further litigation, which Class Counsel explicitly and carefully considered before agreeing to the terms of the Settlement, we only considered the question of whether a merchant who opts out could likely obtain a net cash recovery greater than its share of the Settlement after the Settlement was reached. It was then that we analyzed the factors enumerated above. The analysis we have done leads us to conclude that, in light of the substantial costs, risks and delay associated with opt-out litigation, it is likely not in the interest of any merchant to opt out of the damages Class. In the remainder of this memorandum we explain our thinking behind these conclusions. II. How Would the Future Litigation of the Class Claims in MDL 1720 Proceed If the Settlement Fails Final Approval or If the Settlement Is Finally Approved and Opt-Outs Litigate Their Claims Separately? In considering the question of whether continued litigation of MDL 1720 is the superior alternative to the proposed Settlement and the question of whether litigating as an opt out is a superior alternative to participating in the Settlement, there are several important factors to evaluate. Among them are: what the continuation of the MDL 1720 litigation would look like; and how long it would take to get to a hypothetical superior outcome via settlement or judgment. So the discussion which follows is based on (1) the hypothetical circumstance that assumes that the Settlement is not finally approved and the Class and the 11 One factor in this analysis is the fact that, under this hypothetical scenario, an opt out is litigating its claims before the same judge who has approved a settlement of the Class claims as fair, reasonable and adequate. 12 For example, will the company which opts out complicate its banking relationships, face issue conflicts that may affect its interests in other litigation, anger shareholders if the litigations is costly and yields a result no better than the Settlement. Also, for example, if the company elects to forego a multi-million dollar free recovery as a member of the Class, and fails to obtain a more favorable outcome as an opt-out litigant, will it face shareholder lawsuits or other challenges to firm management.

7 Page 7 Defendants return to active litigation, and (2) a merchant decides to opt out and litigate its claims individually. A. What claims likely would survive the pending motions which Judge Gleeson must decide before the case can move forward? As Class Counsel describe in the materials submitted in support of the Motion for Final Approval, there are many very important motions which remain undecided by the Court, each of which poses significant risks to the Class Plaintiffs. 13 Although Class Counsel are very confident in their arguments on each of these motions, an objective analysis must consider the possibility of adverse rulings on each of these motions: (i) the motion for class certification; (ii) the defendants dispositive motions relating to their restructurings and IPOs; and (iii) the dispositive motions based on the release in the In re Visa Check class action. For example, several pending motions pose great risk to the Class claims, the loss of any one of which could end the litigation in favor of the defendants on injunctive relief, on damages, or both. We focus here on just three motions. The first is class certification. It is beyond dispute that the law on class certification has been evolving adversely to the interests of the Class in MDL It is also beyond dispute that if the Class in MDL 1720 is not certified, the leverage the Class 15 had which lead to the Settlement s advantageous terms will be eliminated. Only the threat of a bet the company judgment motivated the Defendants to agree to settle MDL 1720 on the terms they did. Absent that threat, no settlement of MDL 1720 is possible on any terms remotely similar to the Settlement. Denial of class certification would be, as some courts describe it, the death knell of Class Plaintiffs case. Given the decisions of the Second Circuit in In re Initial Public Offering Litig., 16 and of the Supreme Court in Wal-Mart v. Dukes 17 and Comcast 13 These motions are discussed the Memorandum In Support of Class Plaintiffs Motion for Final Approval at pp , and in Exhibit 3 thereto, the Declaration of Charles B. Renfrew as to the Risks of Litigation. See, Exhibit 8 hereto. 14 See e.g., Class Action Lawyers Face Triple Threat at Supreme Court. Forbes, October 1, 2012; High Court Sides with Comcast. Washington Post, March 28, 2013 at B3. 15 MasterCard s documents regarding its reasons for undertaking its re-structuring that lead to its IPO make it clear that it was the threat of ruinous liability that lead it to restructure itself F.3d 24 (2d Cir. 2006) U.S., 131 S.Ct (2011).

8 Page 8 Corp. v. Behrend 18 the danger of an ultimate denial of class certification has increased. 19 Another substantial risk to the success of the Class claims is posed by the restructurings of Visa and MasterCard, by which they became publicly traded companies. Their restructurings form a centerpiece defense that the setting of default interchange fees is no longer horizontal price fixing because Visa and MasterCard are now single entities. If Visa and MasterCard prevail on this issue, then not only is the Class damages claim reduced by about 60%, the Class ability to obtain injunctive relief is vastly reduced, or even eliminated. The discovery served by Class Plaintiffs regarding MasterCard's restructuring was extensive. It is clear from the MasterCard documents that the overriding purpose of the restructuring was to avoid future antitrust liability and the discovery record of MasterCard, at least, shows that it chose a new structure that would give it, according to its top outside antitrust advisors, a minimum a 90% certainty that any future antitrust litigation challenging their structure for setting interchange fees or enacting network operational rules would be dismissed. Visa, in large part, followed MasterCard s lead. While Class Plaintiffs were able to arrive at a theory that they believed would permit Class Plaintiffs to challenge both the restructurings themselves, and what is referred to as the post-ipo conduct, the entire issue remained hotly contested in dispositive motions pending at the time the parties reached the current Settlement Agreement, and are argued in great detail in the parties respective summary judgment submissions. And this is no idle threat. MasterCard moved to dismiss Class Plaintiffs initial challenge to its restructuring in In his report and recommendation, Magistrate Judge Orenstein accepted the theory of harm that Class Plaintiffs plead, and recommended denying MasterCard's motion in large part, with the exception of narrow aspects which were dismissed based on easily correctable, technical errors in plaintiffs pleadings. Judge Gleeson rejected Magistrate Judge Orenstein's recommendation, however, and granted defendants motion to dismiss the challenge to the MasterCard restructuring, albeit with leave to replead. In their amended supplemental complaints Class Plaintiffs did re-plead their challenges to the MasterCard and Visa restructurings. MasterCard and Visa again moved to dismiss these claims under Rule 12, and further sought summary judgment on the issue, which were argued in consolidated hearings to Judge U.S., No (Mar. 27, 2013). 19 Many large merchants have contributed to this evolution of the law of class certification in cases they have litigated See e.g. Wal-Mart v. Dukes, infra. and as amici, see Amicus Brief of the Retail Litigation Center (affiliated with the Retail Industry Leaders Association (RILA)) in Comcast Corp. v. Behrend, 569 U.S. No (March 27, 2013)

9 Page 9 Gleeson in November, From that argument it was far from clear whether Class Plaintiffs had remedied the pleading deficiencies Judge Gleeson had found in the first pleading, or whether Class Plaintiffs had overcome Defendants arguments on summary judgment. Those motions are among the motions that will be re-activated and would be among the first decisions issued by the Court if the current MDL 1720 Settlement fails. They will, no doubt, be reincarnated in the face of any op-out litigation as well. We are also mindful of the fact that two different class actions that pursued liability against Visa under Section 1 of the Sherman Act under similar theories to our theory of post-ipo liability was dismissed on the pleadings. 20 In the event that Judge Gleeson determines that Class Plaintiffs have not cured the deficiency which he found in their initial challenge to the restructurings of MasterCard and Visa, or have not added sufficient evidence to survive summary judgment on the post-ipo conduct claims, Class Plaintiffs likely will be left without a Sherman Section One claim challenging the post IPO conduct of MasterCard, Visa and their member banks, and would have to rely upon Sherman Section Two claims, which are much more difficult to prove. In such an eventuality, Class Plaintiffs, and any merchants who opt out of the damages class, very possibly would be left without a remedy, both for injunctive relief and for damages post-ipo. The third highly contentious pending motion is the Defendants motion to dismiss based upon the release obtained in the settlement of In re VisaCheck Master Money Antitrust Litigation. In 2008 the Court granted the defendants motion to dismiss the Class Plaintiffs damage claims for periods prior to January 1, 2004, based upon that release. At that time the defendants reserved the right to move to dismiss all of the Class Plaintiffs damages claims based on the same release, and they later did so in motions for summary judgment submitted on February 11, Defendants argument is straightforward, i.e. the release in VisaCheck released all claims relating in any way to conduct [by Visa and MasterCard] prior to January 1, 2004 concerning any claims that were alleged. or could have been alleged, in the Complaint, and all of the conduct of which the Class Plaintiffs complain of in MDL 1720 relates to rules and practices that were in place before January 1, Thus, argue defendants, the claims are barred by the release. 21 Class Plaintiffs lost the first battle over the reach of the VisaCheck release, and it is certainly possible that the Class could lose again. In deciding that first Rule See fn. 7 supra. 21 See Defendants Memorandum of Law in Support of Their Motion for Summary Judgment as to the Claims in the Second Consolidated Class Action Complaint, dated February 11, 2011 at pp

10 Page 10 motion on the release the Court found that [t]he breadth of that release was underscored by the comprehensive and open-ended wording upon which the parties agreed. Report and Recommendation dated September 7, 2007 at 17 (Dkt. 740), adopted as Order of Court by Judge Gleeson, Order dated January 7, 2008 (Dkt. 874). If Judge Gleeson grants just that one motion, the defendants win on all counts, and Class Plaintiffs would recover no damages, and never obtain any injunctive relief. Class Plaintiffs believe that we have the better of the argument on the scope of the release, but, especially given Judge Gleeson s familiarity with that release, and his prior rulings construing it, it is certainly a serious risk Class Plaintiffs had to consider in the decision to propose the current settlement, and one that must be seriously considered by any merchant who may opt out of the Settlement and bring new litigation. B. How long would it take for Class Plaintiffs, or opt outs, to get to a final judgment after all appeals? Proceeding further with the presumption that the Settlement is not finally approved, and active litigation resumes, and Judge Gleeson rules on all of the motions, and at least some of the Class s claims survive, the next relevant question is how long will it take to get to the end of the litigation and achieve a presumed better outcome? The short answer is that it will take many years. A reasonable hypothetical timeline starts with the assumption that the Court denies final approval in the fall of 2013, and turns immediately to ruling on the pending motions. It would likely take Judge Gleeson several weeks or a few months to rule on all of them. Optimistically, the Court might rule on class certification first, in the knowledge that an appeal to the Second Circuit Court of Appeals under Rule 23(f) will certainly be filed by the loser. Assuming the Court certifies a class on April 1, 2014, it would likely take at least 18 months for the appeal to be processed and decided, based on the average length of time from a notice of appeal to a final decision in the Court of Appeals for the Second Circuit. Next, if you further assume that, despite the trend in the law making class certification more difficult to obtain, the Second Circuit affirms Judge Gleeson's order certifying class on July 1, 2015, it is almost a certainty that Defendants would seek certiorari in the Supreme Court, which could realistically take another nine months, to March, After such appeals run their course, the Court would likely hold a status conference to discuss what remains to be done to get ready for trial. Merits discovery in MDL 1720 concluded, for all practical purposes, in 2009, so there would be need for supplementation of discovery to reflect the evolving facts related to the networks and the payment card industry between 2009 and 2016.

11 Page 11 Assume that this discovery supplementation can be completed by the end of calendar year 2016; the Class could anticipate a trial on the merits, at the earliest based on our assumptions thus far, in May Assuming the trial begins as on May 1 through skillful management of the trial by Judge Gleeson, the trial would conclude within three months, or July of The trial would be followed by post-trial motions, and the Court would be required to draft findings of fact and conclusions of law and craft what the court believed was appropriate injunctive relief. 22 It is not unreasonable to assume that these tasks would consume at least nine months of the Court s time, which would bring the case to April, 2018 five years from now, and 13 years from commencement in Assuming that the Class Plaintiffs prevailed at trial and on all post-trial motions, Defendants will then have the opportunity to appeal the judgment through the process and over the timeline described above. At this point, since we have been assuming all along that the class plaintiffs will enjoy an unbroken string of victories in the District Court, the next question would be: Is it likely that the Court of Appeals will affirm a trebled damages judgment that could be hundreds of billions of dollars against Visa and MasterCard and their member banks, an amount likely to threaten their solvency? Is it likely that Judge Gleeson will award injunctive relief substantially greater than the Settlement obtained in 2012? Will the evolution of the marketplace and technology by 2018 have rendered moot the disputes that motivated the merchants suing the banks and networks in 2005? C. What Would the Hypothetical Better Outcome Be and How Likely is it to Become a Reality? 1. If the Settlement Is Not Finally Approved Those merchants and trade associations who have been most vocal in objecting to the terms of the Settlement have avoided describing what the better outcome would be, i.e. what would the terms of the injunctive relief be? The objectors have also been notably silent in describing what legal theories and facts they would present to the Court to persuade the Court to adopt this better outcome. Finally, they have also not described (or likely even analyzed) how likely it is that they will prevail and actually achieve this better outcome. 22 Specific injunctive relief is in the province of the Court, not the jury. It would be up to the Court to decide what type of rule modifications or other relief is necessary, if any, to remedy any violations of the antitrust laws that are proven and would improve competitive conditions in in the payment card markets.

12 Page 12 Defining what is the proposed better outcome is crucial to making the optimal judgment about whether denying final approval to the Settlement and litigating for an additional substantial period of time, at a very substantial cost, is actually worth the effort. It is also critical for identifying what legal theories would support the outcome that the objecting merchants might seek, and marshaling the evidence to go with that legal theory to convince the Court to grant injunctive relief that comprises that better outcome. One of the very important factors that led Class Counsel, and counsel for the Individual Plaintiffs, to collectively and unanimously conclude that the settlement was in the best interests of merchants, was that we believed it was unlikely that we could achieve further relief even if we were to take the case to trial before Judge Gleeson and prevail on the merits. The remedy all plaintiffs originally sought in MDL 1720, the divestiture of the banks ownership and control of Visa and MasterCard, has been accomplished. The further relief that resulted from the litigation, both that achieved via the Department of Justice consent judgment and via the Settlement of the Class claims in MDL 1720, leaves only relief that would be unlikely to be achieved even after a victorious trial. Another important question is what legal theories and what facts would support the Court granting any further relief? The banks abandonment of the joint venture structure of Visa and MasterCard and the networks change into publicly-owned, single entities, significantly reduces the likelihood of the Court finding a violation of the antitrust laws that would warrant further relief. Highly regarded antitrust counsel hired by MasterCard concluded that the restructuring was almost certain to permit MasterCard to prevail on a motion to dismiss any antitrust claims brought against the new entity. Those who claim that only the elimination of the networks default interchange fee model will be sufficient relief for merchants should be expected to describe the legal theory and the evidence that would support such relief. They have not. Nor have they identified any expert economist who is available to them to testify in support of such relief. Certainly the Court will insist that any such dramatic relief be supported by well-qualified and experienced experts. We know the Defendants have many highly-credentialed experts who will testify that Visa and MasterCard s existing business model is not anticompetitive, and that there is no basis for the Court to eliminate the default interchange rule. It seems to us incumbent on those claiming this Settlement is insufficient to answer these questions, which has not been done. 2. If the Settlement Is Finally Approved and Opt-Out Merchants Must Litigate Their Claims separately

13 Page 13 In the scenario in which the Settlement is finally approved and Opt-Out merchants have to litigate their claims separately, similar questions as those above arise, only in this case the better outcome is how much money a merchant may reasonably expect to obtain by litigating its claims separately. However, answering this question also requires an analysis of the legal theories, evidence, expert testimony, etc., only here applied to the question of recoverable damages. Of course, to obtain any antitrust damages the opt-out merchant must find an expert to opine on what the but for world would have been in the absence of the claimed anticompetitive conduct. As any experienced antitrust lawyer will tell you, this is the single most difficult part of a plaintiffs antitrust case. We assume that any Opt-Out merchant would want the but for world to be one in which there were no default interchange fees. But that requires the expert to describe how the forces of competition would lead to that result in a world in which the claimed anticompetitive rules ceased to exist at some point in the past. 23 Of course, in addition to solving the liability/damages problem, each Opt- Out must also consider the issues discussed above, i.e. the risk of losing their claim on a motion, the costs of obtaining any money from the Defendants, the delay in getting the money (which is likely to be substantial), the and the reputational and business risks of being a plaintiff in a big, complex case against the country s largest banks. III. Conclusion As we indicated in the opening paragraph of this memorandum, it is not our purpose to persuade any merchant that they should not opt out of the Damages Class. However, we think that the consideration of that option should be made only after full consideration of all of the factors that will affect whether that choice is the optimal one for any merchant. 23 An Opt-Out cannot safely assume that the rules were always anticompetitive, unless they are prepared to prove that, even in the early years of credit cards in the U.S. Visa and MasterCard each had market power.