No MIFS or buts

This article was first published on the Competition Bulletin here, by Flora Robertson.

The Tribunal’s recent judgment in the interchange proceedings gives important guidance on the use of counterfactuals in competition infringement claims.

The Trial 1 judgment in the Merchant Interchange Fee Umbrella Proceedings [2025] CAT 37 was handed down on 27 June (here). The claims initially comprised over 2000 individual claims brought by merchants against Visa and / or Mastercard (the “Schemes”) in relation to the Multilateral Interchange Fee (“MIF”). This is a default fee paid by acquirers (who process card payments on behalf of merchants) to card issuers on transactions effected by the Schemes as a result of the Schemes’ “Default Interchange Fee Rule” (“DIFR”). The MIF was alleged to set a “floor” to the “Merchant Service Charge” (“MSC”) paid by merchants to their acquirers.

The Tribunal found, unanimously, that the DIFR constitutes a “by object” infringement in relation to all types of card transaction where the MIF is not externally capped (e.g. by the Interchange Fee Regulation (“IFR”)). Even where such a cap does apply, the Tribunal found infringement by effect [353].

This post focusses on “the battle between counterfactuals” [235] advanced for the purposes of the Article 101(1) TFEU effects analysis. The purpose of such a counterfactual is to compare the competitive position with and without the restrictive provision. But what does this mean in practice? Two issues emerge particularly clearly. First, in considering a world without the offending provision what exactly should one seek to remove? And second, how broad a perspective can one take when considering the competitive conditions which would apply in the counterfactual?

1: The three rivals

The merchants contended that the counterfactual must completely eliminate the MIF, through the absence of the DIFR (the “No-MIFs Counterfactual”). This was the counterfactual endorsed by the Supreme Court in Sainsbury’s [2020] UKSC 24, [93(iv)]. The Schemes argued that it was sufficient to amend the DIFR: Mastercard proposed a counterfactual in which issuers and acquirers would have to bilaterally negotiate terms (the “Pure Bilaterals Counterfactual”) while Visa’s counterfactual permitted issuers to unilaterally determine the fee where bilateral agreement was not reached (the “Unilateral Interchange Fee Counterfactual”).

Although Smith J held that either elimination or replacement could in theory work [142], the No-MIFs Counterfactual triumphed [216].

The starting point is the “mischief” to be removed. The Tribunal, like the Supreme Court, identified this as the “dictatorship” of the Schemes in the form of the default fee [154-158], [192]. Importantly (resolving a debate kept alive following Dune [2022] EWCA Civ 1278) this mischief applied to all default MIFs, including inter-regional and commercial card default MIFs (not dealt with in Sainsbury’s) because the issue was the imposition of a default, not its level [190-193].

More generally, Smith J observed that counterfactual findings needed to (i) be consistent with the market and nature of the focal product; (ii) be realistic; (iii) properly reflect the economic evidence; and (iv) appropriately respect decisions of prior courts, regulators and authorities. Also relevant was the extent to which a counterfactual is over-complex [143-145].

Considered on their own merits, the Schemes’ counterfactuals failed these tests. The (heavily criticized) Pure Bilaterals Counterfactual [168-187] either contained a disguised DIFR or, if issuers and acquirers were free not to reach agreement, was unworkable. Furthermore (i) Mastercard had in prior proceedings successfully argued that bilaterals could not be agreed; and (ii) although the counterfactual relied on a “universal cap” provided by the IFR, the IFR is not of universal application. Visa’s Unilateral Interchange Fee Counterfactual also failed for its dependence on the universal application of the IFR. In addition it still incorporated a default fee; this default was “arguably worse” than the existing position; and it was itself co-ordinated conduct [188-199].

2: Trespassing on Article 101(3)

In relation to the second issue (competitive conditions in the counterfactual), the Tribunal emphasized the importance of maintaining a narrow focus at the Article 101(1) stage to preserve a clean distinction between the Article 101(1) and 101(3) TFEU analyses. That meant considering only competition between acquirers for merchants [322]-[323]. The Schemes sought to invoke the wider competitive context, arguing in relation to inter-regional and commercial cards that the real-world restriction did not cause any adverse effects because in the counterfactual customers would switch to other market players (e.g. Amex), resulting in higher prices being charged to merchants.

The Tribunal (its members taking somewhat different routes [252]) concluded that such broader considerations must be confined to the subsequent Article 101(3) exercise [318]-[319]. No “rule of reason” applies in relation to Article 101(1) requiring assessment of the pro and anticompetitive effects of an agreement in order to determine whether it is caught by the prohibition [308]-[309]. Rather: “The correct question for the Article 101(1) TFEU counterfactual is whether the competition that exists between Acquirers for Merchant contracts might be different without interregional MIFs and commercial Card MIFs, not whether merchants might be overall worse off because of some other consequence in the market […]. The answer to that correct question is clear… The removal of any of them will allow a greater degree of competition between Acquirers for Merchant contracts, so the default MIF restrictions for all of them do have an appreciable effect on competition” [326].

There was, Mr Tidswell said, an “obvious logic” to this separation of the two stages [338]: in particular, it avoided uncertainty as to the scope of the Article 101(1) enquiry and the potential redundancy of Article 101(3).

The Tribunal’s conclusions are inevitably fact specific. However they reiterate the importance in any Article 101(1) context of the careful construction of a “realistic” counterfactual which eliminates the specific mischief alleged. Moreover, in exploring the impact of that counterfactual, there is a need for caution in invoking the wider competitive context to avoid trespassing on Article 101(3) territory. Where the line is to be drawn in any particular case will of course remain a battleground.