Monday, May 12, 2003

MasterCard attacked again

Just a week after settling its last antitrust attack, MasterCard is on the defensive once again:

Paycom Billing Services, Inc., an Internet Payment Service Provider, processing credit card and check transactions for Internet merchants, filed a multi-million dollar lawsuit today in Federal Court in Los Angeles against MasterCard International for antitrust violations, fraud and other issues.

Paycom's suit alleges that MasterCard has established monopolistic rules that allow it unreasonable discretion to dominate Internet merchants, and it has exercised this power to illegally impose fines and penalties in the millions of dollars.

Former Federal Prosecutors for the US Department of Justice, William McD. Miller and Richard P. Crane, Jr. of the Los Angeles law firm Musick, Peeler & Garrett LLP and Dennis M. P. Ehling, filed the lawsuit on behalf of the Plaintiff. Mr. Crane stated, "A United States Federal District Court has already determined that MasterCard is a monopoly. MasterCard's continued unfair dealings and the imposition of baseless fines, penalties and fees on Internet merchants, such as Paycom, simply prove the abusive control that one
finds in a monopoly."

This is yet another example of the parasitic, entitlement mentality that dominates antitrust law. Paycom's business model is based on processing credit card transactions. Thus, without MasterCard's large, well-developed credit card network, businesses like Paycom wouldn't even exist in the first place. Yet now Paycom is attacking its benefactor for being "monopolistic."

The way Paycom's lawyers see it, MasterCard is some sort of public resource that their clients are entitled to use at their discretion. MasterCard, I presume, sees their network as their private property, hence they get to determine the terms of its use. MasterCard does charge Paycom more to process transactions than traditional "bricks and mortar" businesses, but there are numerous business justifications for this practice, such as the higher security costs of online transactions and the relative instability of many Internet retailers.

Paycom's federal complaint can be found at this link.

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