A bill introduced in the House this spring to allow states greater authority to regulate the interstate shipment of alcohol is facing growing opposition.

In the latest declaration against the bill, the California Assembly last week unanimously passed Senate Joint Resolution 34, urging Congress to defeat H.R. 5034, the Comprehensive Alcohol Regulatory Effectiveness (CARE) Act of 2010.

The CARE Act is a short measure – no more than 450 words, titles included – which would “reaffirm and protect the primary authority of States to regulate alcoholic beverages.”  The Act gives lip service to the bar against states discriminating against out-of-state producers – but only “without justification.”  The Act would eliminate existing law which requires that regulation of out-of-state shipments be only “to the same extent and in the same manner” as in-state production.  The law would also impose a “presumption of validity” upon state law, restricting legal challenges to state laws governing the interstate shipment of alcohol.

The bill would allow states greater leeway to impose protectionist regulations and to block alcohol e-commerce while protecting traditional distributors.  The bill is supported by wholesalers of beer, wine and spirits who seek to protect the “three-tier system” in which wholesalers serve as middlemen between breweries, wineries, and distilleries and retailers. click here for more »

The House-Senate Conference Committee considering financial services reform legislation is on the verge of adopting provisions that could shake up the world of debit cards. 

After much controversy and intense lobbying by merchants and banks, key conferees have announced an agreement that preserves most of the Durbin Amendment and, remarkably, adds a critical and potentially groundbreaking new prohibition aimed at the networks and debit issuing banks.

While the situation remains fluid and things could change, if this agreement holds the merchants have won a huge victory.

In discussing where things currently stand, let’s start with the key provisions regarding debit interchange.

While the Federal Reserve still will be given the power to pass rules regarding debit interchange, those rules will not apply to federal, state and local government program prepaid debit cards.  Reloadable prepaid cards, such as the cards increasingly used by the unbanked, are also exempted.

In another change the definition of “interchange transaction fee” has been changed to prevent the Fed from regulating the fees that banks pay to Visa and other debit networks for membership except to the extent that such fees are used to undermine the interchange regulations.

Lastly, in a potentially significant change,  the Fed can now take fraud prevention costs into account in configuring rules  aimed at capping the amount that merchants will pay  for debit interchange but such costs can only be considered if a bank demonstrates that they are complying with standards established by the Fed to reduce fraud. 

That brings us to the most significant change that came out of the conference.  The initial legislation included a provision that prohibited the card networks from passing rules against merchants from offering discounts to favor one card network over another.  That provision has been removed.

Instead, the agreement includes a provision that directs the Fed to adopt rules that preclude debit network exclusivity that comes about by “contract, requirement, condition, penalty, or otherwise.”  This provision could effectively nullify the partnership agreements between numerous banks – particularly some of the largest banks in the country – and Visa, as those agreements have resulted in an increasing number of debit cards bearing on the Visa and Interlink. click here for more »

Recognizing that “credit card companies” and “Wall Street banks” may not have the most sympathetic political image these days, the payment card industry has enlisted small financial institutions as proxies to undercut support for Senator Dick Durbin’s (D.-IL) amendment giving the Federal Reserve the power to scrutinize fees imposed on merchants accepting debit cards.

Durbin’s amendment was incorporated into the Senate version of the pending financial reform package by a surprisingly large, bipartisan 64-33 vote last month – thus the vociferous opposition campaign as House and Senate conferees got to work to reconcile the Senate’s version with a House bill that has no provision addressing interchange fees.  The conferees are expected to continue debating the potential curb on fees this week.

Durbin’s amendment requires the Federal Reserve to establish rules requiring that debit card “interchange fees” are “reasonable and proportional” to the costs incurred by an issuer or payment network “with respect to” a transaction.  The Federal Reserve’s rules are to set such levels taking into consideration the fact that the debit cards are an electronic replacement for checks, which clear at par, and the incremental costs of a card transaction.  In contrast, debit card interchange fees currently can amount to 1 percent or more of a card transaction.  Merchants would like these fees reduced to reflect no more than actual processing costs, to ensure, for example, that merchants are not forced to pay for the costs associated with airline frequent flyer points awarded when a customer swipes a “rewards” debit card. 

In response to concerns raised by community banks and credit unions during the drafting of the amendment, Durbin’s amendment expressly carved out from the sections coverage fees paid to card issuers that have assets of $10 billion or less.  According to Senator Durbin, the result is that only 85 financial institutions are covered by the debit interchange fee provision, including just the three largest of America’s over seven thousand credit unions.

 Nevertheless, credit unions and community banks have been at the forefront of the card industry’s efforts to ensure that the Durbin amendment is not included in the final financial reform legislation that emerges from the House-Senate conference process.  As the Washington Post put it, “credit unions and community banks say that [the exemption] isn’t enough in this case, arguing that they will be indirectly affected by any government efforts to curtail the lucrative fees. And they have not been shy in letting lawmakers know,” with a credit union trade association staffer announcing, “[w]e’re really trying to ramp up the noise this week.” click here for more »

Merchants in the United States are on the verge of a significant victory in their long struggle to limit credit and debit card fees. 

The Senate has approved an amendment to its financial reform bill that curtails the power of the card issuers in significant ways, including requiring that the “interchange fees” charged by banks on fees on debit card transactions be “reasonable and proportional to the actual” costs of processing those transactions, and permitting merchants to offer discounts for cash payments.  Whether those limits are enacted into law, however, remains to be seen since the Senate bill must still be reconciled with the House financial reform bill – which does not contain the amendment.

Interchange fees are set by the credit card networks (Visa, MasterCard, Discover and American Express) to banks that issue those networks’ branded cards.  When a merchant accepts a credit or debit card, it loses a small percentage of each purchase price to the issuer through this fee.  For Visa and MasterCard transactions, which dominate the credit and debit markets, the fees vary from 1.5 to 2 percent of the price for credit card purchases and are approximately 0.75 percent for an average debit card purchase.  These little fees add up to big money: they totaled an estimated $48 billion in 2008.

Merchants have lobbied Congress to limit or eliminate interchange fees for years.  And a federal merchants’ putative class action in New York claims that Visa’s and MasterCard’s interchange fees result from price-fixing in violation of Section One of the Sherman Act.  According to the plaintiffs, Visa and MasterCard set their interchange rates through collusion with their member banks, which compete with each other: that is, price-fixing by competitors with the networks as facilitators.

The Senate has now given the merchants a major win by adopting an amendment by Senator Richard Durbin (D – Ill.) to the financial reform bill.  That amendment passed by a solid bipartisan vote of 64-33 despite fierce lobbying by Visa and MasterCard.

Durbin’s amendment would reform the debit card interchange system in two ways.  First, it would require debit card interchange fees to be “reasonable and proportional” to the issuers’ actual costs.  This provision addresses complaints that interchange fees, while purportedly compensating card-issuing banks for their transaction costs, in fact has steadily climbed out of proportion to such actual costs.  And the networks have continued to raise those rates in the United States at the same time as they have lowered them abroad in the face of foreign regulatory pressure, further fueling complaints that they are higher here than necessary.

Second, the amendment would direct the Federal Reserve System’s Board of Governors to establish standards for assessing whether interchange rates meet the “reasonable and proportional” standard described above. click here for more »

The Senate Judiciary Committee has voted to overturn the Supreme Court decision that gave the green light to resale price maintenance.

The Committee has passed S. 148, the “Discount Pricing Consumer Protection Act.”  This bill would reverse the Supreme Court’s decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 887 (2007).  Leegin overruled a 1911 Supreme Court decision holding that resale price maintenance was per se illegal.

Under Leegin, resale price maintenance is judged under the rule of reason.  Under S. 148, resale price maintenance would again be treated as a per se violation.   

A link to the archived webcast of the Senate Judiciary Committee’s markup can be found here. 

On January 13, 2010, the House Judiciary Committee passed similar legislation, H.R. 3190, by voice vote.  

A link to the archived webcast of the House Judiciary Committee’s markup can be found here.  At this time neither the House nor the Senate has scheduled floor action on the respective bills. 

For further information on Leegin repeal legislation, see our earlier posts.

The chairman of the House Judiciary Committee, Rep. John Conyers (D.-Mich.), has announced that on January 20, the Committee’s Subcommittee on Courts and Competition Policy will hold a hearing on the Supreme Court’s pending decision in American Needle, Inc. v. National Football League. 

The notice of the hearing can be found here:

http://judiciary.house.gov/hearings/hear_100120.html

In the case below, the Seventh Circuit held that the NFL was a single entity for antitrust purposes – not a group of 32 separate companies that could conspire together. 

            That decision can be found here: 

http://www.ca7.uscourts.gov/tmp/T40LC5H9.pdf

            The Court granted certiorari last June and heard arguments on January 13.  The Subcommittee has not as yet released a witness list for the hearing.

News reports indicate that the Senate Judiciary’s Antitrust Subcommittee will vet the Comcast-NBC Universal joint venture in late January or early February.  The reports indicate that Comcast Chairman Brian Roberts and NBC Universal President Jeff Zucker will testify at the hearing.  

Comcast and NBC Universal announced the $30 billion deal on December 3, 2009.  Because it combines substantial assets in television programming and distribution in one company, the deal will face considerable congressional and regulatory scrutiny.

In addition to the expected Senate hearing, other congressional committees will likely hold similar hearings.  Under the Hart-Scott-Rodino Act, the Department of Justice will review the deal for competitive concerns.  The Federal Communications Commission will consider the communications policy aspects.

Update 01/06/10 – For more information, see today’s Wall Street Journal article on this topic here.

On December 3, the House of Representatives passed a 5-year extension of the compulsory copyright license for satellite television providers.  The bill passed by a vote of 394-11.  The current license is scheduled to expire on December 31, 2009. 

Chairman John Conyers (D.-Mich.) of the House Judiciary Committee described the other major changes the bill makes:   

In addition to simply reauthorizing the license, the bill ambitiously tackles several other issues for consumers, for content owners, and for cable and satellite companies as well. For example, this bill restores the section 119 license to DISH Satellite Network if they serve every market in the United States, even neglected rural markets. The bill also resolves the phantom signal problem that has caused instability and confusion for the cable and content industries, to the detriment of consumers.

In addition, the bill provides an audit right to content owners so they can be sure that they are being fairly compensated for the use of their intellectual property. It significantly increases penalties for copyright infringement under the licenses and updates the licenses to reflect the national digital television transition.

You can find the full text of the House debate here.

You can find the text of the bill as passed by the House here.

The Senate has not yet considered the bill, but it is expected to do so before it adjourns for the year.