The New York style community is a world leader in pushing creative boundaries. Crowell & Moring’s New York Fashion & Beauty Breakfast Series is designed to create a forum that brings together fashion and beauty industry executives to explore topics of relevance and to develop lasting connections.

On June 6, 2019, industry insiders gathered for the third Fashion & Beauty Breakfast Series, titled “Spring Mingle – What’s News in Retail 2019,” to discuss developments in fashion during the first half of the year and what might lie ahead in the fashion and beauty industries. Key topics included sustainable fashion, intellectual property protection and makeup artists, and immersive retail experiences:

  • Sustainable fashion has become a widespread design philosophy among industry participants. For instance, H&M sets an example by offering their “Conscious Collection,” which consists of clothing made using sustainable and recycled materials, while Fair Harbor, a new market entrant, has engineered a process for making high-quality beachwear for men and women out of recycled plastic.
  • The focus on women’s faces, driven by the ascendance of selfies which, by definition, have to be close-ups…begs the question…when does a “look” become a work of art? Currently, copyright law only protects works of art that are fixed in a permanent state, and makeup washes off.  Is this requirement worth revisiting, as the lines between fashion and high art continue to blur? How about as the lines between teenager, influencer, celebrity and artist are eroding altogether?
  • The Hudson Yards isn’t the first development to combine dining, shopping, and cultural experiences; however, it is betting that consumers will flock to brick and mortar for shopping “experiences.” On the “Floor of Discovery,” brands that started online have not only opened storefronts but are also using their platforms in the space to test new concepts and immersive experiences, seeking to capitalize on the statistic that in markets where you have physical retail, e-commerce business increases by 30%.

Are you an industry executive who is interested in joining our next Fashion & Beauty Breakfast Series event? Contact for more information or visit our Fashion Law webpage to learn more.


On Wednesday, Ann Marie Buerkle made a surprise announcement that she is withdrawing her nominations to serve as the Chairman of the U.S. Consumer Product Safety Commission (CPSC), and to serve an additional seven year term at the agency.  As noted in an earlier post, President Trump re-nominated Buerkle in January of this year to be permanent Chairman of the CPSC.  This was the third time that President Trump nominated Buerkle for this role.  In 2017 and 2018, the Senate failed to vote on Buerkle’s nomination once reported out of committee.

Buerkle has served as the Acting Chairman of the CPSC for two and a half years, since February 9, 2017.  She will continue as Acting Chairman until September 30, and will complete the remainder of her current term, which runs until October 27 of this year.   Buerkle’s announcement comes as she was awaiting Senate confirmation of her nomination to be Chairman and re-nomination to a new term.  Had the Senate voted to confirm, Buerkle would have led the CPSC for another seven years.

The significance of Buerkle’s decision not to pursue a new term is that once she leave the agency at the end of October, the Commission will, once again, have an even 2-2 split of commissioners along partisan lines.  This, of course, assumes that the White House will not nominate, and the Senate will not confirm, a new (Republican) Commissioner prior to the expiration of Buerkle’s term.  But, if not, the Commission may once again be in limbo or deadlocked with a 2-2 voting “tie.”  And, in the absence of the nomination and confirmation of a new Chairman prior to September 30, another “Acting” Chairman will be named, likely Republican Commissioner Dana Baiocco or Peter Feldman.

Companies and consumers alike will eagerly await information on the next nominee.  As always, we will continue to update our readers as this dynamic unfolds.

As more organizations incorporate technology in newfound ways to increase efficiency and effectiveness, government agencies have done the same. Take, for instance, the CPSC’s new recall app, which makes recall information more accessible to consumers on their mobile devices. Now government agencies are looking towards companies to apply the latest technologies to protecting consumer safety.

In a recent statement, the FDA expressed its expectations that companies use even more technology in the execution of recalls. The FDA’s guidance on the “Initiation of Voluntary Recalls Under 21 CFR Part 7, Subpart C” is helpful for anyone undergoing a recall and includes recommendations in three key areas: (1) Training, (2) Record Keeping, and (3) Procedures. In particular, the FDA has openly embraced “tapping into modern approaches such as Blockchain technology to further advance [their] mission of protecting public health.” This is an endorsement of sorts of Walmart and its Sam’s Club division’s plans to implement Blockchain technology to provide real-time, end-to-end traceability of leafy green products back to their suppliers’ farms in September 2019.

In addition to the FDA, many government agencies have expressed their commitment to using new technology to protect consumers from potentially dangerous products. In addition to its new app, the CPSC offers CPSC Recall Widgets that will allow others to put CPSC recall information on their own websites. If you’re a member of the consumer product industry, automotive industry or any other industry where recalls and corrective actions are necessary, you should take note.

To read the statement made by FDA Associate Commissioner for Regulatory Affairs Melinda K. Plaiser regarding the agency’s issue of new draft guidance on the initiation of regulatory affairs, click here.

To view the proposed draft guidance for the initiation of voluntary recalls, click here.

To learn how the use of Blockchain in product recalls also could impact the insurance underwriting process, click here.

For twenty years or more, the European Commission (EC) has taken little or no formal enforcement action against anticompetitive distribution practices. However, the recent fines on Nike, Guess and others mark a dramatic change of policy. In the latter half of 2018, the EC imposed fines totalling over €150 million in relation to online distribution practices.  And its recent antitrust fine on Nike – €12.5 million for restricting cross-border and online sales – continues the trend.

All of these developments can be traced back to the EC’s 2017 e-commerce sector inquiry report. In our second blog post about antitrust and e-commerce in Europe, we look back at that report, what’s behind it, and what it tells us about antitrust risk for those engaged in e-commerce in Europe going forward.

1. The EU E-Commerce Sector Inquiry

Cross-border sales have been traditionally viewed as an important tool for European integration and, as a result, enjoy special protection under EU antitrust rules. Under the so-called single market objective, restrictions on trade between EU/EEA Member States are treated as per se unlawful. Furthermore, e-commerce is considered an important mechanism for allowing consumers in one Member State to approach suppliers in another and, therefore, most restrictions on online sales in distribution agreements are treated as per se infringements.

That was the theory. However, in practice, the EC had failed to take enforcement action to back it up. In 2015, the EC launched an inquiry into what it called the e-commerce sector. When the results were published in May 2017, they identified a range of potentially problematic distribution strategies in online distribution. The EC highlighted four main areas of concern:

  • cross-border sales and advertising restrictions (so-called geo-blocking);
  • restrictions on online pricing;
  • the use of selective distribution systems to limit online commerce; and
  • restrictions on the use of online marketplaces (such as Amazon).

As stated, contractual restrictions on cross-border and online sales have long been regarded as per se unlawful, so in principle, little changed here. (The EU has, nonetheless, now adopted a Geo-Blocking Regulation, which specifically prohibits certain types of geo-blocking.)

Similarly, fixed and minimum resale prices are well-established per se infringements under EU antitrust rules. What the e-commerce sector inquiry highlighted was that online markets are particularly sensitive in this regard; as prices are transparent and are easier to monitor through tools such as pricing software. At the same time, suppliers sometimes wish to protect their brick and mortar stores from aggressive online competition by controlling online pricing.

Selective distribution systems are those where the supplier sells only to particular retailers or distributors, which are selected on the basis of specified criteria. In these distribution systems, sales outside the authorised network are prohibited. Such systems are typically used for luxury and high-value branded goods. The concern identified in the EC report was that pure online players were being excluded from selective distribution systems without justification.

The final priority concern identified by the EC report was contractual restrictions on the use of online marketplaces, such as Amazon and eBay, by retailers and distributors. These are viewed as partial restrictions on online sales and are, therefore, presumptively unlawful – although potentially justifiable in the context of selective distribution or otherwise. (This is an issue explored further by the EU Court of Justice decision in Coty which will be the subject of a later post in this series.)

2. EU Action Following the E-Commerce Sector Inquiry

The importance of the sector inquiry report lies not so much in its description of the law as in the fact that it has triggered actual enforcement by the EC – an action that led to very large fines. In July 2018, the Commission imposed fines totalling €111 million on four manufacturers of consumer electronics – Asus, Denon & Marantz, Philips and Pioneer – for imposing resale price constraints on online retailers. In December 2018, the Commission fined Guess €40 million for imposing geo-blocking and advertising restrictions on its distributors and retailers in relation to online sales.

All of these cases have been expressly identified by the EC as arising out of the sector inquiry.  And more will follow. In April 2019, the Commission sent a charge sheet (SO) to Valve and five video game publishers in relation to their agreements concerning the Steam video game distribution platform.  An investigation into online hotel booking arrangements between individual hotels and the largest European tour operators including Kuoni, REWE and Thomas Cook is also ongoing; as is an investigation of the licensing and distribution practices of Sanrio (owner of the Hello Kitty brand) and Universal Studios.

3. National Developments

The EU e-commerce sector inquiry both reflected and inspired similar action by national antitrust authorities in Europe.  The French Competition Authority had already issued an Opinion on the functioning of competition in e-commerce in 2012. In 2017, the UK CMA published a Market Study on online price comparison tools. In February 2019, the Dutch Competition Authority published new guidelines on vertical agreements and announced it would be more vigorous vis-à-vis vertical restraints and online sales. In April 2019, the German Federal Cartel Office (FCO) published a report on its sector inquiry into comparison websites.

These national publications have also been accompanied by enforcement action. In 2015, the FCO took infringement action against Adidas and Asics in relation to their online sales policies, in particular by removing the ban on the use of online marketplaces. In the UK, the CMA imposed a £1.45 fine on Ping for prohibiting the online sales of golf clubs. And most recently, in October 2018, the French Competition Authority imposed a €7 million fine on Stihl, a manufacturer of chainsaws, for requiring its distributors to hand-deliver its products to customers so that they could receive safety instructions.

Unfortunately, these blossoming national actions have also led to inconsistencies. The position taken by the German FCO in relation to online marketplace bans in cases like Asics is stricter than, and not fully consistent with, that taken by the EC. And in the Stihl case, the behaviour condemned by the French authority had been informally cleared by the German, Swedish, and Swiss authorities, which had each been consulted by Stihl. (The French decision is currently under appeal before the French courts).

European national antitrust authorities have also expanded the range of priority issues for enforcement. The French Opinion of 2012, the UK Market Study of 2017, and the German Asics case of 2015 all identified restrictions on the use of brand names in online advertising (e.g. the use and acquisition of Google AdWords) as a potentially anticompetitive restriction. In its Guess decision last year, the EC followed suit, finding that such restrictions constitute another (new) form of per se infringements.

4. Where Does This Leave Us?

The combination of (i) active enforcement including the imposition of fines of tens of millions of Euros and (ii) a complex, inconsistent, and still evolving set of legal rules creates a high risk environment in relation to online distribution in Europe.

However, it is possible to identify key areas of risk.  Any of the following restrictions in the context of online distribution currently attracts significant enforcement risk in Europe:

  • restrictions on the ability of retailers or distributors to make online sales or sell online to any and all territories in the EEA;
  • online pricing restrictions;
  • the exclusion of online retailers from distribution networks, absent careful justification;
  • prohibitions on the use of online marketplaces, absent careful justification; and
  • restrictions on the use of brand names in online advertising.

Finally, in case of doubt, companies are currently well advised to seek legal advice that takes due account of national law developments and differences.



Last year, “GDPR” was without any doubt one of the most hyped boardroom buzzwords, and a popular topic at conferences. This European-wide General Data Protection Regulation aims at harmonizing European data protection legislation and empowering EU-based individuals by enhancing their rights and the protection of their personal data. It was without any doubt the huge potential fines for infringement (up to 4% of an organization’s worldwide turnover) that put the GDPR on the C-suite’s agenda.

One year after its go-live it is time to look back and determine what this first GDPR year has meant for the retail sector. Did it disrupt well-established business models? Were there any fines and if so, were they as huge as many expected? Was the budget allocated to GDPR-compliance money well-spent? Or was it a lot of fuss about nothing?

Those who saw GDPR as a mere tick-the-box compliance exercise and just wanted to avoid a fine might be disappointed that huge GDPR fines have not been the standard front-page story in the last couple of months. This does not mean, however, that no fines have been issued. The European Data Protection Board recently reported total fines of nearly 56 million euro. To put things in perspective, however, it should be mentioned that the three most important fines (€50M in France, €400K in Brazil and €220K in Poland) account for most of that sum.

While the fines mentioned above were issued to a major technology company, a hospital and a data broker respectively and, thus, not to retail companies, there is no reason to believe that retail companies should consider themselves exempt from regulatory investigations or other actions. With a total of 144,376 queries and complaints submitted to European data protection authorities and with a total of 89,271 reported data breaches, it is indeed very unlikely that any sector can get away with non-compliance.

Investigation and enforcement procedures take time, so given these numbers there is more to come for sure. GDPR’s impact on  the retail sector is highlighted by the fact that most of the complaints related to telemarketing, promotional emails, and video surveillance/CCTV. So while the sleepless nights were not as numerous as expected, we should still be keeping a close eye on this one-year-old.

Those who saw the GDPR as an opportunity to get their data-house in order and to enhance the quality of the personal data stored under their supervision are certainly reaping the benefits of last year’s GDPR efforts. With data increasingly becoming a liability, and with the move from Big Data strategies to Smart Data strategies, knowing where your data resides and what you can use them for is not only a GDPR requirement, but absolutely crucial for any data-driven business development initiative.

Additionally, GDPR efforts are being leveraged by many companies to prepare for compliance with recent and upcoming data-centric legislation in other jurisdictions. The California Consumer Privacy Act (“CCPA”) in the United States and the General Data Protection Law (Lei Geral de Proteção de Dados Pessoais  or“LGPD”) in Brazil are just two of the most important examples.

Furthermore, organizations that embraced the GDPR as an opportunity have enhanced the quality – and thus value – of their data, used them for well-considered loyalty programs and built crucial bridges between their Legal, Compliance, Sales and Marketing departments.

After one year, GDPR’s impact on the retail sector demonstrates that a key strategy to success seems to be linking GDPR compliance efforts to business-specific customer-centric initiatives, creating a win-win with true business value on the one hand and regulatory expectations on the other hand.




On Monday, May 20, 2019 the Supreme Court settled a decades-long circuit split regarding a licensee’s ongoing trademark usage rights following the rejection of a trademark license agreement under the U.S. bankruptcy code. In an eight to one decision, the Court found that “rejection breaches a contract but does not rescind it. And that means all the rights that would ordinarily survive a contract breach, including those conveyed here, remain in place.”

As discussed in our earlier alert, upon filing for bankruptcy, the debtor – or, for these purposes, the licensor – is given the right to either “assume” or “reject” the debtor’s executory contracts such as a trademark license. Under bankruptcy law, the rejection of a contract “constitutes a breach,” rendering the contract unenforceable against the debtor-licensor. Whether said rejection also had the effect of stripping the licensee of any and all continued rights to use the licensed trademark, is the crux of this case. (See our earlier discussion of the oral arguments for this case here.)

For decades, a licensee’s fate upon rejection of a trademark license rested in the hands of individual bankruptcy courts. On the one hand, the First and Fourth Circuits found that a licensee cannot continue using the mark following rejection citing, in part, the burden this would impose on the licensor to continue monitoring the quality control of the mark. On the other hand, the Seventh Circuit found that rejection had no bearing on the licensee’s continued right to use the licensed mark.

Justice Kagan authored the opinion, adopting the Seventh Circuit’s approach. “The question is whether the debtor-licensor’s rejection of that contract deprives the licensee of its rights to use the trademark. We hold it does not.” The Court based its decision, in part, on the longstanding bankruptcy rule: “The estate cannot possess anything more than the debtor itself did outside bankruptcy.” Namely, to permit the debtor to rescind the license and all accompanying rights it had conveyed to the licensee upon rejection would give the debtor more rights than it would have outside bankruptcy, in direct violation of this rule. In adopting the rejection-as-breach rule, but not the rejection-as-rescission rule, the Court “prevents a debtor in bankruptcy from recapturing interests it had given up.”

The Court also rejected the lower court’s argument that because Section 365(n) of the Bankruptcy Code provides significant protection for licensees of all intellectual property except trademarks, that an opposite rule must apply to trademark licensees. On the contrary, the Court made it clear that no such negative inference arises. Justice Kagan explained that this argument “pays too little heed to the main provisions governing rejection and too much to subsidiary ones.” That is, “Congress did nothing in adding Section 365(n) to alter the natural reading of Section 365(g)—that rejection and breach have the same results.”

The key takeaway from this decision is that “[r]ejection of a contract – any contract – in bankruptcy operates not as a rescission but as a breach.”

These boots were made for walkin’– no not your ugg boots, my UGG® boots.

On May 10, 2019, an eight-person jury in Illinois federal court found Sydney-based company Australian Leather Ltd. and owner Adnan Oygur liable for willful infringement of the “UGG” trademark (U.S. Reg. No. 3,050,925), registered to Deckers Outdoor Corporation since 2005.

In Deckers Outdoor Corporation v. Australian Leather Pty Ltd, 1:16-cv-03676 (N.D. Ill.), Oygur, accused of selling 12 pairs of boots called “ugg boots” online to U.S. customers, was ordered to pay Deckers $450,000 in statutory damages and possibly millions more in attorney’s fees. During the four-day trial, Oygur tried—but ultimately failed—to convince the Illinois jury that in Australia, “ugg” is a generic term for the sheepskin boot style of footwear, claiming it should never have been granted trademark protection in the first place. He based this argument, in part, on his 35 years of experience in the sheepskin industry and 20 years of manufacturing the “ugg boots.”

Deckers’ victory perhaps showcases the importance for brand owners to actively and aggressively police and protect their trademarks, lest a rogue infringer, however sympathetic, chip away at their brand—and its attendant intellectual property rights.

“The hallmark of the continuing offense is that it perdures beyond the initial illegal act, and that ‘each day brings a renewed threat of the evil Congress sought to prevent’…” Toussie v. United States, 90 S. Ct. 858, 864 (1970). In a ruling issued May 9, the Seventh Circuit determined that a failure to report under the Consumer Product Safety Act is a continuing violation by affirming the lower court decision fining Spectrum Brands, Inc. for failing to report an alleged coffee pot defect.[1] This rare instance of a court ruling on CPSC activity highlights the need for companies to report when a product may contain a potential safety defect.

A Failure to Report Is a Continuing Violation

The Seventh Circuit found a failure to report to be a continuing violation until the day a company’s Section 15(b) report is made because the peril of the unreported coffee pot – physical harm – continues to be a risk for the public. The debate in this case turned on when the five-year default statute of limitations for federal statutes containing no time bar begins to run on CPSC enforcement actions. The lower court found the CPSC enforcement action against the company for late reporting not time-barred, and the Seventh Circuit agreed.

The Seventh Circuit looked at the issue in two ways: First, that every report the company received that should have been reported was a separate violation. And, second, that the stream of complaints the company received could be viewed as evidence of the continuing risks posed by the allegedly defective coffee pot.

The company had argued that the CPSC’s enforcement was barred by the Gabelli doctrine – the principle that a claim accrues when fraudulent conduct occurs, not when discovered, and that generally refuses to apply a discovery rule to a statute of limitations for government enforcement. The Court found the Gabelli doctrine did not apply because it was not the discovery rule that made the government’s case timely. The Gabelli doctrine, originating from an SEC case, is an equitable doctrine seeking to protect plaintiffs from a malefactor’s fraudulent actions. An individual plaintiff is not expected to be in a constant state of investigation to suss out fraud. This equitable doctrine does not apply similarly to the government, whose resources and non-individual nature are not consistent with the purpose of the Gabelli doctrine. On the other hand, a separate equitable doctrine, the continuing violation doctrine, exists to prevent wrongdoers from using their earliest wrongdoing as a way to avoid liability for wrongdoing that continued over time. It is this doctrine that the Seventh Circuit found to apply to make CPSC enforcement timely. The majority and concurring opinions differed only on how to characterize the continuing violation: as one continuous wrong of non-reporting (the majority) or as a series of isolated wrongful acts of non-reporting, each one restarting the clock (the concurrence).

The Court’s decision reinforces that the CPSA intends that consumer reports and other evidence of potential defects that present a risk of injury be promptly reported in order to protect public safety. See also U.S. v. Michaels Stores, Inc. et al., 2016 WL 1090666 (N.D. Tex. Mar. 21, 2016) at 2. A failure to report presents a continuing risk to public safety, therefore a failure to report is a continuing violation.

Turning on the Statute of Limitations Clock

It is rare to find courts interpreting sections of the CPSA. In doing so, the Seventh Circuit’s decision continues to reinforce, as in the district court decision, that the five-year statute does not start to run until a company has filed a Section 15(b) report. At that time, the five year statute of limitations on penalty claims by the CPSC will begin to run. 28 U.S.C. § 2462.

[1] The Seventh Circuit also found that the district court had authority to enter and did not abuse its authority by entering an injunction requiring the company to implement a compliance program and retain an expert. The district court ruling imposed a failure to report fine, a fine for the sale of recalled products, and an injunction requiring the company to adhere to its new compliance practices and to retain an independent consultant to recommend modifications to those practices.

On March 25, the European Commission (EC) fined Nike €12.5 million for restricting cross-border and online sales of branded merchandise by its European licensees. In December last year, the EC fined Guess €40 million for imposing restrictions on the use of its brand by distributors online. In total in 2018, the EC imposed fines of over €150 million on suppliers of consumer goods in relation to online distribution practices. And there is more to come. Further cases against companies including Universal Studios and Sanrio (owner of the Hello Kitty brand) are ongoing.

This represents a huge change in the antitrust risk faced by suppliers distributing goods online in Europe. After 20 years of little or no formal enforcement in relation to vertical distribution issues, the EC has suddenly imposed a series of very large fines, focusing on online distribution. Indeed, it seems the EC launched its investigation of Nike on its own initiative rather than in response to a complaint.

All of this activity can be traced back to the EC’s e-commerce sector inquiry, and the inquiry report published in May 2017. In a series of blog posts, we will look at the nature of and background to this change. This post examines the Nike case. Others will examine the Guess case and the lessons to be learned from the e-commerce sector inquiry more broadly.

What Did Nike Do?

Nike’s fine relates to various measures it took to prevent its EEA licensees – and the customers of its licensees – from selling products bearing trademarks owned by Nike cross-border and online within the EU Single Market. Its licensing agreements included conditions designed to prevent out-of-territory sales by licensees and, in some cases, by the customers of its licensees. Nike also threatened to terminate licensees making out-of-territory sales and engaged in other practices to prevent such sales occurring.

Both the relevant license conditions and the related practices were clear and well-established, per se infringements of EU antitrust law. The EC and EU courts have always taken the view that, in addition to traditional antitrust goals, the purpose of EU antitrust rules is to actively promote a single, unified market across the EU/EEA (the so-called “single market objective”). As a result, contractual restrictions and behaviors that restrict imports and/or exports between EU/EEA countries have always been treated as per se infringements of EU antitrust law. Nike’s actions fall squarely within that category.

The relevant practices included:

  • License conditions that directly frustrated sales outside the licensed territory – such as obligations to refer out-of-territory orders to Nike or to pay double royalties for out-of-territory sales;
  • License conditions prohibiting licensees from supplying products to customers that might make out out-of-territory sales;
  • Other, non-contractual measures – such as threatening to terminate or refusing to supply “official product” holograms to licensees making out-of-territory sales (and carrying out licensee audits to ensure compliance);
  • Requiring master licensees to impose restrictions on their sub-licensees prohibiting their sub-licensees from making out-of-territory sales within the EEA;
  • Requiring licensees to impose restrictions on out-of-territory sales in their contracts with retailer customers; and
  • Putting pressure on retailers to prevent them from purchasing products from Nike licensees based in other EEA territories (i.e. from outside the retailer’s own country).

It is unclear whether Nike was badly advised, or simply chose to take the risk due to the lack of enforcement, but its practices had been in place for over 12 years.

Indeed, Nike was arguably fortunate – its fine would likely have been substantially higher but for the fact that:

  • It cooperated extensively with the EC’s investigation – earning a 40% fine reduction as a result;
  • Its behavior did not relate to its main “Nike” brand, but the brands of certain soccer clubs and national soccer federations (such as Manchester United, Barcelona, and the French national federation) that Nike controlled under license agreements; and
  • The products involved – such as scarves, mugs and plastic bowls – were low value items generating limited revenues.

Finally, it is worth noting that Nike would likely have been able to impose some restrictions on out-of-territory sales – although not such extensive ones – if either (i) its licenses had been exclusive rather than non-exclusive or (ii) it had been licensing patents or know how as well as trademarks.

Retailers have been paying close attention to recent developments in the MasterCard/Visa Interchange Fee litigation, and for good reason. Every year, consumers increasingly expect and demand that retailers accept credit cards for payment, and for many, interchange fees—or the “swipe fees” retailers must pay to the banks and networks for every transaction—have now become the second highest cost of doing business, trailing only employee wages. In fact, industry reports calculate that retailers pay billions of dollars annually in interchange fees.

However, an opportunity for some cash relief may be forthcoming. On January 24, 2019, the tumultuous fourteen-year Interchange Fee litigation inched one step closer to final resolution when Judge Margo Brodie granted preliminary approval of the $6.2 billion settlement between Visa and MasterCard and a class of U.S. merchants. The court also set a July 23, 2019 deadline for retailers to either opt out of the settlement or remain in the class. Retailers that remain in the class would be entitled to their pro rata share of the settlement fund, while those that opt out would have to file a lawsuit or negotiate a settlement directly with the defendants. More information about the settlement can be found on the court approved website and official notice under

Unlike the prior 2012 settlement vacated by the Second Circuit, many within the industry anticipate that the current settlement will be approved this time around. If affirmed, the $6.2 billion settlement would constitute the largest antitrust settlement in U.S. history, making the upcoming July 23 opt-out deadline all the more important for retailers to mark on their calendars. This post provides: (1) a summary background of the Interchange Fee litigation; and (2) an overview of the pathways to recovery that retailers should evaluate in advance of the July 23 deadline.

The Interchange Fee Litigation

In 2005, merchants brought suit against Visa, MasterCard, and their member banks, alleging that the defendants violated antitrust law by conspiring to fix interchange fees and uniformly adopting anticompetitive rules, including anti-steering and “honor all cards” rules that prevent merchants from steering customers towards lower-cost payment methods and from negotiating lower interchange rates with the issuing banks.

The U.S. Department of Justice launched its own investigation into Visa and MasterCard’s anticompetitive conduct. This investigation resulted in a settlement with the government in 2010 which required the card networks to modify or eliminate various rules.

In 2012, the class reached a $7.25 billion deal with the card networks in exchange for a perpetual release of all future claims relating to the merchant rules at issue. Following numerous objections by retailers and other merchants across the nation that balked at the release, the Second Circuit in 2016 vacated the settlement on appeal.

On remand, the parties continued to litigate until late 2018, when the defendants reached the current $6.2 billion settlement. Meanwhile, retail industry groups such as the National Retail Federation continue to closely monitor the ongoing litigation with a separate class of merchants seeking injunctive relief to verify whether Visa and MasterCard will reform their rules. While the cash settlement will likely be appealed again, most observers believe that the likelihood of approval is higher now because the perpetual release from the prior settlement has been replaced with a more limited 5-year release of claims.

The Pathways to Recovery

As the July 23 opt-out deadline approaches, there are many considerations that retailers should weigh when deciding how to proceed. The right decision will, of course, be individualized to each retailer. Outside legal counsel can help retailers engage in a cost-benefit analysis and assessment of each option, including expected recoveries and potential timeframes for relief. The various pathways to recovery include, but are not limited to:

  • Remaining in the Class. Retailers may elect to remain in the class and file a claim as a member of the class settlement. This option requires the least amount of work and can be more appealing than pursuing direct action against the networks for retailers with small claims or few resources. However, a recovery through the class settlement may be smaller compared to the other options available, and retailers would likely be forced to wait a minimum of 2–3 years before a payout is realized due to the size and complexity of the claims administration process. Furthermore, there is a risk that the settlement is either rejected by the courts or voluntarily terminated by the defendants if the number of opt outs crosses a certain threshold.
  • Opt-Out Litigation. On the other hand, retailers that choose to opt out of the class and pursue litigation could potentially realize a recovery that is greater than what the class has achieved on its claims. As is true with all litigation, there is also a risk of no recovery for retailers that opt out. Litigation, however, provides retailers the best opportunity to maximize the full value of their claims and to negotiate for non-cash benefits and favorable business terms, such as a reduction in fee rates locked in for a number of years or a modification of merchant rules to allow for steering or surcharging for certain transactions. Hundreds of merchants have already litigated their claims and reached settlements, and many other retailers continue to litigate their claims. While litigation would entail higher costs and engaging in discovery, retailers may be able to share legal costs on a pro rata basis by jointly litigating the case as part of a larger merchant group, which would also provide additional benefits including increased leverage and cover.
  • Settlement Negotiations. Retailers with large claims may also consider engaging in settlement negotiations directly with the card companies before the close of the July 23 opt-out deadline. An independently negotiated settlement could be larger than—and pay out earlier than—a recovery obtained through the class. Retailers with smaller claims may find it helpful to engage the card companies as part of a merchant group in order to leverage aggregate transaction volume.
  • Sale of Claim. If increasing cash flow in the short term is a priority, retailers may want to consider monetization through a sale and assignment of their claims. A market for these claims has been increasingly developing since the parties have reached their current class settlement, and a number of third-party funders are now making offers in the range of 60–80 cents on the dollar. Retailers interested in selling their claims should be sure to solicit multiple bids from different funders before accepting a final offer.
  • Related Cases in Other Jurisdictions. Retailers with business operations outside of the U.S. should also track recovery opportunities that may present abroad. For instance, various Canadian courts in 2018 have approved settlements totaling CAD $45 million. Meanwhile, in Europe, the London Court of Appeal recently permitted a consumer class action lawsuit against MasterCard to proceed, and another related key case involving a group of U.K. supermarkets is set to be heard at the British Supreme Court. While opt-out deadlines have not yet been set in these cases, retailers that accept credit cards internationally should monitor developments arising from these important jurisdictions.

In light of the potential recovery and multiple opportunities at stake in this space, it is important for retailers to strategically evaluate their options and select a pathway to recovery that aligns with and will further the business objectives of each individual retailer.