Full opinion text
MEMORANDUM AND ORDER JOHN GLEESON, District Judge: CONTENTS A. Preliminary Statement.......................................................214 1. Structure of a Credit Card Transaction; Interchange Fees....................214 2. The Default Interchange Rule; Honor-all-Cards Rules; Anti-Steering Rules ................................................................214 3. The Course of the Litigation; Industry Changes Occurring During the Litigation; and the Proposed Settlement..................................215 4. Overview of Reasons for Approval .........................................217 B. The Claims in the Case ......................................................220 C. The Standard for Approving a Proposed Settlement .............................221 1. Procedural Fairness......................................................221 2. Substantive Fairness.....................................................222 a. The Complexity, Expense, and Likely Duration of the Litigation...........222 b. The Reaction of the Class to the Settlement.............................223 c. The Stage of the Proceedings and the Amount of Discovery Completed.....224 d. The Risks of Establishing Liability and Damages, and of Maintaining the Class Action through the Trial ...................................224 e. The Ability of Defendants to Withstand a Greater Judgment...............229 f. The Range of Reasonableness of the Settlement Fund in Light of the Possible Recovery and Attendant Risks of Litigation ...................229 D. The Objections..............................................................230 1. Rule Reforms...........................................................230 a. The Elimination of the Networks’ No-Surcharge Rules...................230 b. The Buying Group Provision...........................................234 2. The Releases............................................................235 3. The Health Insurers’ Objections...........................................237 4. Claims by States Acting in their Sovereign Capacity..........................237 5. Diseover’s Objection......................................................238 6. The Notice to Class......................................................238 7. Cohesiveness of the Rule 23(b)(2) Class; Adequacy of Class Plaintiffs...........239 E. The Plan of Allocation .......................................................240 In this antitrust action, a putative class of approximately 12 million merchants alleges that, among other things, defendants Visa U.S.A. Inc. (“Visa”) and MasterCard International Incorporated (“MasterCard”), as well as issuing and acquiring banks (collectively the “defendants”), conspired to fix interchange fees in violation of Section 1 of the Sherman Act. Before me now is a motion by Class Plaintiffs, certain other plaintiffs who are not members of the class (referred to throughout the case and in this opinion as the “Individual Plaintiffs”), and the defendants for final approval of a proposed settlement. In essence, the settlement calls for (1) a cash recovery slightly in excess of $7 billion (before reductions for opt-outs) by members of a Rule 23(b)(3) class; and (2) certain reforms of the defendants’ rules and practices to benefit the members of a Rule 23(b)(2) class. SA ¶¶ 33, 68. They also seek approval of the proposed plan of allocation of the settlement fund, and Class Counsel seeks attorneys’ fees and costs. I held a fairness hearing on September 12, 2013, at which there was extensive oral argument in support of and in opposition to the proposed settlement. For the reasons discussed below, I approve the proposed settlement and the plan of allocation. The motion for fees and costs will be decided separately. A. Preliminary Statement 1. Structure of a Credit Card Transaction; Interchange Fees A Visa or MasterCard credit card transaction involves five parties: (1) the customer; (2) the merchant; (3) the “acquiring bank”; (4) the “issuing bank”; and (5) the network itself, that is, Visa or MasterCard. The acquiring bank is the link between the network and the merchant that accepts the card for payment. The issuing bank is the bank that issued the credit card to the customer. When the cardholding customer presents a credit card to pay for goods or services, the accepting merchant relays the transaction information to the acquiring bank. The acquiring bank processes the information and transmits it to the network. The network relays the information to the issuing bank, which approves the transaction if doing so is consistent with the cardholder’s account status and credit limit. The approval is conveyed to the acquiring bank, which in turn relays it to the merchant. The issuing bank then transmits to the acquiring bank the amount of the purchase price minus the “interchange fee.” The acquiring bank withholds an additional fee — called the “merchant discount fee”— for its processing services. Thus, the total amount the merchant receives for the transaction is the purchase price minus the sum of the interchange fee and the merchant discount fee. Interchange fees vary based on factors that include the type of card used and the type of merchant. Many Visa and MasterCard credit cards provide rewards to the cardholders. Those rewards cost money, and thus these cards, referred to in the industry and here as “premium cards,” are associated with higher interchange fees. 2. The Default Interchange Rule; Honor-aIJr-Cards Rules; Anti-Steering Rules The competitive problem that gave rise to this case, according to the plaintiffs, is the result of a combination of network rules. The Honor-all-Cards rules require merchants who accept any Visa- or MasterCard-branded credit cards to accept all cards of that brand, no matter what bank may have issued them and no matter the interchange fee. The Honor-all-Cards rules created what the merchants term the “hold-up problem.” Unlike checks, which are redeemed by the drawee banks “at par,” that is, without the drawee bank charging a fee for acceptance, the issuing bank of a Visa or MasterCard credit card is free to demand whatever interchange fee it chooses (“hold-up”) in order to accept the transaction from the merchant who is required to accept the card. As the merchants describe them, the default interchange rules are the networks’ “solution” to the hold-up problem. Those rules establish mandatory interchange fees that apply to every transaction on the network unless the merchant and the issuing bank have entered into a bilateral interchange agreement. However, the merchants complain that the combination of the Honor-all-Cards rules and the anti-steering rules, which are discussed further below, strips the issuing banks of any incentive to accept interchange fees lower than the default interchange fees. And obviously merchants have no incentive to negotiate a higher interchange fee. Thus “default interchange,” the merchants assert, becomes a fixed rate that applies to every credit card transaction (with the narrow exception of transactions by very large merchants who have sufficient volume that they can negotiate their own private interchange fees). A linchpin to the problem, as far as the merchants are concerned, is the package of anti-steering restraints that prohibit merchants from using price signals at the point of sale to steer customers to less costly forms of payment. The no-surcharge rules prohibit merchants from adding a surcharge to a transaction involving either of the networks’ credit cards. Thus, a merchant who must pay a 2% interchange fee upon accepting a Visa or MasterCard credit card is prohibited from adding a 2% surcharge (or any surcharge at all) to either discourage the use of that card or to recoup the cost of acceptance. Similarly, until recently (as discussed further below), no-discount rules prohibited merchants from offering price discounts at the point of sale. There are other components to the networks’ anti-steering regimes, some of which are mentioned below. In the aggregate, these essentially identical regimes prohibit merchants from informing customers about higher-cost payment cards, incentivizing customers to use lower-cost cards or other forms of payment, or recouping the acceptance costs of the cards the merchants are required to honor. 3. The Course of the Litigation; Industry Changes Occurring During the Litigation; and the Proposed Settlement This case has been extensively litigated for more than eight years. Discovery, which began in 2005, included more than 400 depositions, the production and review of more than 80 million pages of documents, the exchange of 17 expert reports, and a full 32 days of expert deposition testimony. While the case has been pending, there have been significant developments in the industry, some of which are attributable in whole or in part to the case itself. The very structures of Visa and MasterCard themselves changed; in 2008 and 2006, respectively, initial public offerings (“IPOs”) converted each from a consortium of competitor banks into single-entity, publicly traded companies with no bank governance. In addition, federal legislation — the so-called “Durbin Amendment” — in 2010 removed the networks’ restrictions on discounting credit and debit cards at the network level. Thus, Visa, MasterCard, American Express and Discover can no longer prohibit merchants from discounting their cards. The Durbin Amendment did not change the networks’ rules prohibiting surcharging. In 2010, after an investigation assisted by the information developed by the plaintiffs here, the Department of Justice (“DOJ”) filed lawsuits against Visa, MasterCard and American Express. In consent decrees filed in 2011, Visa and MasterCard agreed to remove their rules prohibiting merchants from product-level discounting of credit and debit cards. Again, the resolution of that case against these defendants did not affect the surcharging prohibitions. By 2011, several significant motions had been briefed and were ripe for decision, including a motion to certify classes, a motion to dismiss supplemental complaints arising out of the IPOs, and cross-motions for summary judgment. Even as they litigated the case full-throttle, beginning in 2008 the parties engaged in efforts to settle their disputes. They participated in mediation sessions with the Honorable Edward A. Infante (Ret.) and, beginning in 2009, with Professor Eric D. Green as well. The parties had dozens of meetings and conference calls with the mediators over the next several years. On November 2, 2011, I held oral argument on, inter alio, the parties’ cross-motions for summary judgment. See DE 1560. Even before that argument, however, the parties requested through the mediators that any decision on those motions and on the motion for class certification be withheld pending settlement discussions with the Court itself. On Friday and Saturday, December 2 and 3, 2011, at the express request of all parties, Judge Orenstein and I engaged in lengthy settlement discussions with the parties and the mediators. The ground rules were made clear and were agreed to on the record at the outset. In an effort to foster as much candor and engagement as possible, all parties consented to ex parte, off-the-record discussions about all of the various issues that required resolution before the case could be settled. It was a process that had proven useful in a successful effort to settle a previous antitrust class action against Visa and MasterCard. See In re Visa Check/MasterMoney Antitrust Litig., 297 F.Supp.2d 503 (E.D.N.Y.2003), aff'd sub nom. Wal-Mart Stores, Inc. v. Visa U.S.A., Inc., 396 F.3d 96 (2d Cir.2005). Indeed, several of the participants in the settlement discussions in this case had been involved in those other settlement talks ten years earlier. The settlement discussions on December 2 and 3, 2011 were productive. They illuminated the parties’ positions and concerns regarding the merits of the plaintiffs’ claims, the defendants’ defenses, the purposes and effects of the challenged rules, and the various ways in which the rules might be changed by agreement to inject competition into the setting of interchange fees for Visa and MasterCard credit cards. After a third meeting with Judge Orenstein and me on December 15, 2011, the parties resumed discussions with the mediators. On February 21, 2012, those discussions resulted in an acceptance by all of the defendants and all of the named plaintiffs of the terms of a mediators’ proposal. When the efforts to reduce the agreed-upon terms of that proposal to a settlement agreement stalled, the parties once again sought and obtained the assistance of the Court. On June 20 and 21, 2012, additional settlement discussions occurred in chambers pursuant to the same terms and consent that had governed the discussions six months earlier. At the conclusion of those two days of discussions, the parties informed the Court that they had reached agreement on all of the issues necessary to settle the case. On July 13, 2012, the parties filed a Memorandum of Understanding attaching a document setting forth the terms of the settlement. See DE 1588. In October 2012, after completing the drafting of related documents, including escrow agreements and a Plan of Administration and Distribution, the parties executed the Settlement Agreement. See DE 1656. On October 19, 2012, Class Counsel moved for preliminary approval of the proposed settlement, which I granted on November 27, 2012. The order granting preliminary approval provisionally certified classes under Rule 23(b)(2) and (b)(3). The Class Administrator notified class members of the terms of the proposed settlement through a mailed notice and publication campaign that included more than 20 million mailings and publication in more than 400 publications. The notice plan was carried out between January 29, 2013 and February 22, 2013. Class members had until May 28, 2013 to opt out of the damages class, object to the proposed settlement, or both. The proposed Settlement Agreement provides for, among other things: • The creation of two cash funds totaling up to an estimated $7.25 billion (before reductions for opt-outs). SA ¶¶ 9-10,11-13. • Visa and MasterCard 'rule modifications to permit merchants to surcharge on Visa- or MasterCard-branded credit card transactions at both the brand and product levels. SA ¶¶ 42, 55. • An obligation on the part of Visa and MasterCard to negotiate interchange fees in good faith with merchant buying groups. SA ¶¶ 43, 56. • Authorization for merchants that operate multiple businesses under different “trade names” or “banners” to accept Visa and/or MasterCard at fewer than all of its businesses. SA ¶¶ 41, 54. • The locking-in of the reforms in the Durbin Amendment and the DOJ consent decree with Visa and MasterCard, even if those reforms are repealed or otherwise undone. SA ¶¶ 40, 44, 53, 57, Appendix J. 4. Overview of Reasons for Approval As class action settlement proceedings go, this one has been anything but typical. Some of the merchant plaintiffs who directly participated in the lengthy settlement discussions and initially agreed to the terms of the settlement broke away and objected, as they were entitled to do. Numerous other members of the merchant class have objected as well, on a variety of grounds. The behavior of a small number of objectors has threatened to undermine the efforts of the others. Specifically, in their zeal to drum up objections and opt-outs by merchants around the country, certain merchant groups established websites that spread false and misleading information about the settlement and the merchants’ options. In April of this year I had to order injunctive relief to remedy that situation; in May I came close to holding certain entities in contempt of that injunction. The oral presentations of the objectors at the fairness hearing were afflicted by needless hyperbole. One of the merchant association principals who participated in the settlement discussions and initially agreed to its terms argued that the members of his association would be worse off if I approved the proposed settlement than they would be if they proceeded all the way through trial and lost. Another likened the prospect of approval to the deprivation of civil liberties in the aftermath of a terrorist attack, warning that only a “slippery slope” would separate an order binding a large retailer to the proposed settlement and the government stripping us of our houses and civil rights. A third cast Visa and MasterCard as modern-day Nazis, and warned me not to assume the role of Neville Chamberlain. If only the issues here were that simple. But in reality the vitriol and poor behavior and feigned hysteria mask complex and difficult issues on which reasonable merchants can and do disagree. Some of those issues stem from the fact that a lawsuit is an imperfect vehicle for addressing the wrongs the plaintiffs allege in their complaint. For example, there are forms of relief many objectors seek, such as the regulation of interchange fees, that this Court could not order even if the plaintiffs obtained a complete victory on the merits. In addition, there are features of the industry landscape, such as other credit card issuers with whom the defendants compete, and laws in some states that prohibit merchants from surcharging the use of credit cards, that are beyond the reach of this case but will undermine (at least in the near term) the efficacy of the agreed-upon relief. The proponents of the settlement disagree strongly with the objectors over the economic value of the proposed settlement to the class members, and specifically over the benefits of the proposed rules changes to the merchant class. As a result, I availed myself of the provisions in Rule 706 of the Federal Rules of Evidence allowing for court-appointed expert witnesses. On April 8, 2013, I appointed Dr. Alan 0. Sykes of New York University School of Law “to advise the Court with respect to any economic issues that may arise in connection with the forthcoming motion for final approval of the proposed settlement.” Dr. Sykes filed a memorandum with the Court on August 28, 2013. It has proved quite helpful, and he has the gratitude of the Court. Fortunately, well-established law provides a rubric for deciding the motion, and I engage below in the prescribed multifactor inquiry. By way of overview, however, I conclude that the proposed settlement secures both a significant damage award and meaningful injunctive relief for a class of merchants that would face a substantial likelihood of securing no relief at all if this case were to proceed. Specifically, although the settlement either obtains or locks in place an array of rules changes, at its heart is an important step forward: a rules change that will permit merchants to surcharge credit cards at both the brand level (ie., Visa or MasterCard) and at the product level (ie., different kinds of cards, such as consumer cards, commercial cards, premium cards, etc.), subject to acceptance cost and limits imposed by other networks’ cards. For the first time, merchants will be empowered to expose hidden bank fees to their customers, educate them about those fees, and use that information to influence their customers’ choices of payment methods. In short, the settlement gives merchants an opportunity at the point of sale to stimulate the sort of network price competition that can exert the downward pressure on interchange fees they seek. Relief directed at the default interchange fees (even if such relief were available from a court as opposed to a legislature) would not share that characteristic. Both Visa and MasterCard have other elements to their fee structures. Relief aimed solely at the interchange fees would leave them free to recoup any associated lost revenues by tinkering with those other fees, and the merchant restraints would, in effect, place the merchants back where they started. By focusing on those restraints, the proposed settlement seeks to empower merchants to steer cardholders to lower-cost payment alternatives. The goal is to incentivize the networks to compete for the merchants’ credit card volume through lower fees of all kinds, including interchange fees, and to allow merchants to recoup their costs when their efforts to steer customers to lower-cost means of payment do not succeed. The objections to the proposed settlement are numerous, but in the main, they fail for one of two reasons. First, the objectors complain about the failure of the proposed settlement to ehminate other Visa and MasterCard rules, such as the default interchange and Honor-all-Cards rules. But those rules undeniably have significant procompetitive effects, and they lay at the heart of Visa’s and MasterCard’s efforts to build the successful networks they now have. Class Counsel have good reason to believe that even if the default interchange and the Honor-all-Cards rules are characterized as horizontal restraints (despite the IPOs), they will still receive only Rule-of-Reason antitrust scrutiny, which they could quite easily withstand. Perhaps most telling of all is that the Department of Justice, which recently conducted a thorough investigation of these networks’ operating rules, declined even to challenge either rule. In short, it is hard to persuasively challenge a compromise on the ground that it fails to eliminate rules that even a complete success on the merits might not eliminate. Second, the objectors complain about factors that they say will limit the usefulness of their newfound ability to surcharge credit cards that carry costly interchange fees. Those factors, which include the merchant restraints imposed by American Express and the laws prohibiting surcharging in approximately ten states, are real, and they in fact undermine to an extent the immediate utility of the rules reforms in the proposed settlement. A merchant’s ability to surcharge a particularly expensive Visa card is less valuable if the merchant remains unable because of American Express’s merchant restraints to steer customers away from even higher-priced American Express cards. Similarly, the option to surcharge that the proposed settlement affords merchants obviously cannot be exercised in states that now have anti-consumer no-surcharge laws. But the virulent objections — based on those and other practical limitations on the relief the- proposed settlement affords — fail to take sufficient account of the fact that, in the end and despite its outsized proportions, this is just an antitrust lawsuit. Even if the plaintiffs spent several years pursuing this unwieldy case to a successful conclusion (despite substantial odds against such a result), this Court would be in no position to grant the sweeping relief the objectors seek. It cannot regulate interchange fees or enjoin nonparties or preempt state laws or reform network rules that do not violate the antitrust laws. The Sherman Act affords relief only from certain proven anticompetitive business practices. And the agreed-upon relief here, which has the potential to unleash a new competitive force on interchange fees, falls squarely in the wheelhouse of what this lawsuit is all about. The first Visa/MasterCard multi-district litigation broke the tie between credit and debit cards. The Durbin Amendment removed discounting restrictions at the network level. The consent decree in the government’s case removed product-level discount restrictions. The IPOs wrested control of Visa and MasterCard from the banks. This proposed settlement adds another crucial reform — the lifting of restrictions on network- and product-level surcharging. Even if the objectors are right in contending that additional dominoes must fall before the alleged anticompetitive behavior of Visa and MasterCard is eradicated, those dominoes will have to fall in other forums. That does not alter the significance of the relief provided by the proposed settlement. B. The Claims in the Case Beginning in June 2005, more than 40 class action complaints were filed by merchants against the defendants. The class actions were consolidated in 2005, together with 19 individual actions. The Court appointed Class Counsel as co-lead counsel and a consolidated amended complaint was filed on April 24, 2006. DE 317. As mentioned above, the plaintiffs allege that Visa and MasterCard adopted and enforced rules and practices relating to payment cards that had the combined effect of unreasonably restraining trade and injuring merchants. Those rules and practices include: • Rules regarding the setting of default interchange fees. See Second Cons. Am. Class Action Compl. • A number of “anti-steering” rules— including “no surcharge” rules, “no discounting” or “non-discrimination” rules, and “no minimum purchase” rules — that restrict merchants from steering customers to lower-cost credit cards and/or forms of payment other than Visa or MasterCard payment cards. • A number of “exclusionary” rules— including “all outlets” rules, “no bypass” rules, and “no multi-issuer” rules — that restrict merchants in accepting and processing payments made with Visa and MasterCard cards. • “Honor-all-Cards” rules, which required merchants to accept all the network’s credit cards or all the network’s debit cards when proffered for payment, regardless of which bank issued the card. Class Plaintiffs allege that these rules insulate the Visa and MasterCard networks from competition with each other, from other brands and from other forms of payment, allowing Visa and MasterCard and the issuing banks to set supracompetitive default interchange fees. Class Plaintiffs allege that these rules were adopted pursuant to unlawful agreements among the banks and Visa, and among the banks and MasterCard. Specifically, they allege that the defendant banks were members of Visa or MasterCard and were represented on their boards, and thus determined the networks’ rules and practices. Class Plaintiffs allege that the banks owned and effectively operated Visa and MasterCard, such that Visa and MasterCard were unlawful “structural conspiracies” or “walking conspiracies” with respect to their network rules and practices. Class Plaintiffs further allege that after the Visa and MasterCard IPOs, the unlawful agreements among the banks and Visa, and among the banks and MasterCard, continued. Based on these allegations, Class Plaintiffs seek damages to compensate merchants for supracompetitive default interchange fees in the past. They also seek injunctive relief to restructure the networks’ rules and practices in the future. C. The Standard for Approving a Proposed Settlement Pursuant to Federal Rule of Civil Procedure 23(e), any settlement of a class action requires court approval. A court may approve such a settlement if it is “fair, adequate, and reasonable, and not a product of collusion.” Joel A. v. Giuliani, 218 F.3d 132, 138 (2d Cir.2000). In so doing, the court must “eschew any rubber stamp approval” yet simultaneously “stop short of the detailed and thorough investigation that it would undertake if it were actually trying the case.” Detroit v. Grinnell Corp., 495 F.2d 448, 462 (2d Cir.1974), abrogated on other grounds by Goldberger v. Integrated Resources, Inc., 209 F.3d 43 (2d Cir.2000). Judicial discretion is informed by the general policy favoring settlement. See Weinberger v. Kendrick, 698 F.2d 61, 73 (2d Cir.1982); see also Denney v. Jenkens & Gilchrist, 230 F.R.D. 317, 328 (S.D.N.Y.2005) (“There is a strong judicial policy in favor of settlements, particularly in the class action context. The compromise of complex' litigation is encouraged by the courts and favored by public policy.”) (footnotes, citations and internal quotation marks omitted), aff'd in part and vacated in part, 443 F.3d 253 (2d Cir.2006). To evaluate whether a class settlement is fair, a district court examines (1) the negotiations that led up to the settlement, and (2) the substantive terms of the settlement. See In re Holocaust Victim Assets Litigation, 105 F.Supp.2d 139,145 (E.D.N.Y.2000). In evaluating procedural fairness, “[t]he [negotiation] process must be examined ‘in light of the experience of counsel, the vigor with which the case was prosecuted, and the coercion or collusion that may have marred the negotiations themselves.’ ” Id. at 145-46 (quoting Malchman v. Davis, 706 F.2d 426, 433 (2d Cir.1983)). Factors relevant to the substantive fairness of a proposed settlement include: (1) the complexity, expense, and likely duration of the litigation; (2) the reaction of the class to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the class action through trial; (7) the ability of the defendant to withstand a greater judgment; (8) the range of reasonableness of the settlement fund in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. See Grinnell, 495 F.2d at 463. 1. Procedural Fairness The proposed settlement is the product of arm’s-length negotiations between experienced and able counsel on all sides. The lawyers for the parties spent a great deal of time in face-to-face, telephonic and written negotiations. Those negotiations were assisted by two eminent mediators, Judge Infante and Professor Green, who have informed the Court that the settlement negotiations were fair and conducted at arm’s length. My own participation in the efforts to settle the case (along with Magistrate Judge Orenstein) confirmed those descriptions of the negotiations, and nothing in the record suggests otherwise. The objecting plaintiffs argue from the fact that a number of class members and class representatives now oppose the settlement that the negotiations were not fair. I do not find this argument persuasive. A number of objectors were deeply involved in the settlement negotiations and mediation, and indeed accepted the mediators’ proposal that outlined the key components of what became the Settlement Agreement. Wildfang Supp. Deck, ¶29, DE 5939-1. Their current dissatisfaction with the terms of that agreement raises genuine issues of substantive fairness, but it does nothing to undermine a record that demonstrates beyond any reasonable doubt that the negotiations were adversarial and conducted at arm’s length by extremely capable counsel. Furthermore, there is no indication that the Settlement Agreement is the product of collusion or that it confers upon the class representatives or any other subset of the class “improper[ ] ... preferential treatment.” In re Nasdaq Market-Makers Antitrust Litigation, 176 F.R.D. 99, 102 (S.D.N.Y.1997). The objecting plaintiffs argue that because Visa and MasterCard were able to negotiate jointly with Class Plaintiffs this may indicate collusion — specifically in regard to the revisions to the no-surcharging rules. Again, I am not persuaded. Mediators and the Court were involved in the settlement negotiations. The Second Circuit has recognized that the involvement of a mediator in precertification settlement negotiations helps to ensure that the proceedings are free of collusion and undue pressure. D'Amato v. Deutsche Bank, 236 F.3d 78, 85 (2d Cir.2001). In addition, as discussed more fully below, I conclude that the injunctive relief at the heart of the settlement inures equally to the benefit of every single member of the merchant class. Accordingly, I conclude that the negotiation process fairly protected the interests of the settlement class. 2. Substantive Fairness a. The Complexity, Expense, and Likely Duration of the Litigation The potential for this litigation to consume considerable additional time and resources is great. The complexity of federal antitrust law is well known. See, e.g., Virgin Atl. Airways Ltd. v. British Airways PLC, 257 F.3d 256, 263 (2d Cir.2001) (noting the “factual complexities of antitrust cases”); Weseley v. Spear, Leeds & Kellogg, 711 F.Supp. 713, 719 (E.D.N.Y.1989) (antitrust class actions “are notoriously complex, protracted, and bitterly fought”). Numerous motions remain pending before the Court, including motions to dismiss, summary judgment motions, Daubert motions, and a motion to certify both a damages class under Rule 23(b)(3) and an injunctive-relief class under Rule 23(b)(2). As to the class certification motion, the losing party would likely seek interlocutory review by the Second Circuit under Federal Rule of Civil Procedure 23(f) (review this Court would welcome and encourage), delaying the case substantially. Class Counsel represent that a trial would take several months, and I have no doubt they are correct. The losing parties would likely appeal any adverse jury verdicts, thereby extending the duration of litigation. By contrast, the proposed settlement allows class members to take advantage of rules changes now— those changes are already in place — and further provides for significant monetary compensation in the near future. b. The Reaction of the Class to the Settlement Class Counsel report that almost 21 million long-form notices were mailed. Taking into account duplicate mailings, and in light of various other factors that make the precise size of the class impossible to determine, Class Counsel estimate that approximately 12 million merchants comprise the class. Only .05% of them have objected to the settlement, and 90% of the objections are on boilerplate forms downloaded from websites that disseminated false and misleading information for the precise purpose of drumming up objections and opt-outs. It is thus difficult to ascribe significant weight to the bulk of the objections. On the other hand, because the roster of objectors includes some of the nation’s largest retailers, the objectors in the aggregate represent 19% of the total transaction volume. Many of the named plaintiffs in the case are objectors. Indeed, the motion for final approval has caused a rift among large United States retailers, all of whom agree that the current interchange fees are too high due to anticompetitive practices. The divisions among the major merchants run deep, but they are also nuanced. For example, of the top 60 merchants (measured by transaction volume) to opt out of the (b)(3) damages class, about half (27) have not objected to the settlement. Thus, those merchants, which include almost all the major airlines, will seek to obtain a greater damage award from Visa and MasterCard, but they apparently see value in the (b)(2) relief. And the conduct of the airlines is significant; in other markets that allow the surcharging permitted by the proposed settlement, airlines were among the first to adopt the practice, which has had the effect of moving transactions to cheaper payment alternatives. Thus, not all of the opt-outs evidence dissatisfaction with the rules changes in the proposed (b)(2) settlement. Similarly, although some merchants have argued that the ability to surcharge is useless to smaller retailers, such as grocery stores and convenience stores, Class Counsel report that 15 of the top 25 convenience stores have not objected to the settlement, and 5 of those neither objected nor opted out. In short, the reaction of the class to the proposed settlement is a mixed bag. To paraphrase the argument by counsel for the Individual Plaintiffs at the fairness hearing, intelligent and thoughtful merchants with a common complaint, a common goal, and many other things in common part company on the degree to which the proposed settlement obtains for the merchant class what can reasonably be expected to be obtained in this case. Given the transaction volume represented by the objectors, it would be facile to conclude that the reaction of the class strongly favors approval of the settlement simply because substantially less than one-tenth of one percent of the merchants have objected. But see Alba Conte & Herbert Newberg, Newberg on Class Actions § 11.41, at 108 (4th ed. 2002) (“[A] certain number of objections are to be expected in a class action with an extensive notice campaign and a potentially large number of class members. If only a small number of objections are received, that fact can be viewed as indicative of the adequacy of the settlement.”); see also D'Amato v. Deutsche Bank, 236 F.3d 78, 86-87 (2d Cir.2001) (holding that “[t]he District Court properly concluded that this small number of objections [18 out of 27,883 notices] weighed in favor of settlement”). I also reject, however, the objectors’ argument that the transaction volume they represent means that their objections must weigh heavily against approval. Rather, the reasons advanced by the objectors require careful consideration in the ultimate determination of whether the benefits offered by the settlement create a more attractive alternative to the merchant class than incurring the risks of continued litigation. For reasons discussed throughout this memorandum, I conclude that the objectors have failed adequately to acknowledge not only the substantial impediments to succeeding on the merits in this case, but also the limitations on the relief that would be available even if success were achieved. They have also underestimated the significance of the Rule 23(b)(2) relief afforded by the settlement. Accordingly, I conclude on balance that the reaction of the class favors approval of the proposed settlement, c. The Stage of the Proceedings and the Amount of Discovery Completed This factor relates to whether Class Plaintiffs had sufficient information on the merits of the case to enter into a settlement agreement, Cinelli v. MCS Claim Services, Inc., 236 F.R.D. 118, 121 (E.D.N.Y.2006), and whether the Court has sufficient information to evaluate such a settlement, Wal-Mart, 396 F.3d 96, 118. Before the parties executed the Settlement Agreement, fact discovery had been completed, the parties had exchanged expert reports and deposed the experts, and all dispositive motions had been briefed and argued. Class Counsel thus had a more than adequate basis for assessing the claims. See Wal-Mart, 396 F.3d at 118 (where several years of discovery, summary judgment and mediation occurred prior to settlement, plaintiffs had a “thorough understanding of their case”). This factor weighs in favor of approval. d. The Risks of Establishing Liability and Damages, and of Maintaining the Class Action through the Trial “In assessing the Settlement, the Court should balance the benefits afforded the Class, including the immediacy and certainty of a recovery, against the continuing risks of litigation.” In re Top Tankers, Inc. Sec. Litig., 06 CIV. 1376KCM), 2008 WL 2944620, at *4 (S.D.N.Y. July 31, 2008) (emphasis in original). In this case, the risks of establishing liability and damages at trial, and of maintaining the class throughout the trial (the fourth, fifth, and sixth factors bearing on substantive fairness, respectively) all militate in favor of approval. Indeed, perhaps the most significant defect in the objectors’ collective presentation to the Court is the abject failure to acknowledge the perils of not settling the case. Instead, the objectors appear to proceed on the assumption that a complete victory on the merits is a foregone conclusion. A wide range of outstanding issues affects Class Plaintiffs’ ultimate likelihood of establishing liability, including the legal characterization of the challenged practices of Visa and MasterCard, and whether those practices on balance would be deemed anticompetitive under the Rule of Reason. Class Plaintiffs allege that a number of core network practices, including the setting of default interchange fees, the Honor-all-Cards rule, and various network rules that discourage merchants from encouraging or requiring consumers to use less expensive payment mechanisms, have resulted in excessively high interchange fees. But proving that those rules violate the antitrust laws is no mean feat. And even if that feat were accomplished, proving damages is just as difficult. i. Illinois Brick First, there is a threshold problem of standing. Defendants rely on Illinois Brick Co. v. Illinois, 431 U.S. 720, 736, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), in which the Supreme Court held that “indirect purchasers” may not recover antitrust damages. The Court reasoned that permitting suits by these third parties would essentially transform treble-damages antitrust actions into efforts to apportion the recovery among all potential plaintiffs that might have absorbed part of the illegal overcharge, from direct purchasers to middlemen to ultimate consumers. However appealing an effort to allocate the overcharge might seem in theory, it would add a dimension of complexity to actions for antitrust damages that would seriously undermine their effectiveness. Id. at 737, 97 S.Ct. 2061. Illinois Brick was an action brought by the State of Illinois and local government entities alleging that concrete block manufacturers had engaged in a price-fixing conspiracy. Id. at 726-27, 97 S.Ct. 2061. The government entities had contracted with general contractors, who in turn hired masonry subcontractors who bought the concrete blocks for installation in government projects. Id. at 735, 97 S.Ct. 2061. The Supreme Court held that only a direct purchaser of the concrete blocks (ie., a masonry subcontractor) was a party “injured in his business or property” by the alleged antitrust violation and thus entitled to sue under Section 1 of the Sherman Act. Id. at 729, 735-37, 97 S.Ct. 2061. The defendants here contend that the merchants lack standing because they are indirect purchasers — the acquiring banks being the direct purchasers — with respect to the interchange fees they allege were fixed. The objectors argue that the fees are effectively paid by the merchants directly. The concern about costly and inefficient apportionment proceedings that fueled Illinois Brick dissipates where contractual arrangements permit ready determinations of how an anticompetitive overcharge is allocated along the distribution chain. Illinois Brick itself acknowledged a narrow exception to its rule for cases in which the overcharge is passed along via a pre-existing cost-plus contract. 431 U.S. at 736, 97 S.Ct. 2061. The plaintiffs here might successfully appeal to such policy considerations; the issuing banks’ interchange fees are identifiable and separate from the total package of fees (including other network fees and the acquiring banks’ merchant discount fees) that are passed along to the merchants. On the other hand, the indirect purchaser doctrine is strictly applied, and the exceptions are narrow. In the current posture of the case I need not resolve the issue, but I think it clear that the indirect purchaser doctrine would be a source of significant uncertainty for the plaintiffs if they sought to litigate their claims to a decision on the merits. ii. The Effect of the IPOs As stated above, part of the “core conduct” the plaintiffs sought to address was that “Visa and MasterCard member banks [...] effectively control the decisions of both Networks” by setting rules and interchange fees for the networks to serve their collective interest. First Consol. Am. Cl. Action Compl., ¶¶ 131-34, DE 317. However, after the filing of that complaint, both Visa and MasterCard came out from under the control of their member banks. The IPOs that accomplished that result strengthened the defendants’ argument that they were no longer structural or “walking” conspiracies, and thus that the setting of interchange fees cannot constitute horizontal price-fixing. iii. Default Interchange Rules The vast majority of the objectors oppose final approval of the Settlement Agreement because it does not require Visa and MasterCard to eliminate then-default interchange rules. But even assuming default interchange fees operate to increase the acceptance costs of Visa and MasterCard credit cards, that does not mean they violate the antitrust laws. The objectors assume that default interchange is inherently illegal, but in reality it is a very complicated issue. Defendants contend that without default interchange, the costs of Visa and MasterCard credit card transactions would have been higher because of the costs associated with the negotiation of individual interchange agreements. They further argue that their networks’ default interchange rules are procompetitive because they enable issuers to improve card features and rewards and reduce card finance charges and other costs. And default interchange benefits merchants, the networks argue, by providing consumers greater purchasing incentives, thus increasing consumer demand, which in turn increases merchant sales. Default interchange also allows the banks that issue credit cards, rather than the merchants that accept them, to assume the costs of fraud and non-payment. The plaintiffs’ experts don’t dispute these assertions as much as they argue that they have become obsolete because the Visa and MasterCard networks have “matured” over time. However, given that these practices are at the core of the defendants’ successful business model, it would be difficult for plaintiffs to show that these practices have become antitrust violations by virtue of industry maturation. No American court has ever held that Visa or MasterCard’s default interchange rules violate the antitrust laws. In National Bancard Corporation, a district court concluded, after a full trial on the merits, that the default interchange rule was “of vital import” to the payment-card system because it relieved issuing and acquiring banks of the need to negotiate potentially thousands of bilateral agreements, and it also assured universal acceptance. Nat’l Bancard Corp. v. VISA U.S.A., Inc., 596 F.Supp. 1231, 1259-61 (S.D.Fla.1984). The Eleventh Circuit then upheld Visa’s default interchange rule. Nat’l Bancard Corp. v. VISA U.S.A., Inc., 779 F.2d 592, 605 (11th Cir.1986) (“NaBanco ”). While it is true that the factual underpinning of NaBanco— that issuing banks need interchange fees to have adequate incentives to participate in networks — has eroded, a 2008 decision of the Ninth Circuit affirmed the dismissal of challenges aimed at Visa and MasterCard’s default interchange rules. In Kendall v. Visa U.S.A., Inc., the court dismissed the “allegation that the Banks conspired to fix the interchange fee” on the ground that “merely charging, adopting or following the fees set by a Consortium is insufficient as a matter of law to constitute a violation of Section 1 of the Sherman Act.” 518 F.3d 1042, 1048 (9th Cir .2008). In short, the default interchange rules played an essential role in the construction of the networks at issue here, and those networks provide substantial benefit to both merchants and consumers. While the plaintiffs contend that the rules have outlived their procompetitive effects now that the networks have matured, the setting of default interchange fees would almost certainly be evaluated under the Rule of Reason, and the prospect that its anticompetitive effects remain outweighed by its procompetitive ones is real. DOJ’s recent decision not to challenge the default interchange rules despite the entreaties by Class Counsel that it do so further suggests that the plaintiffs’ antitrust challenge to the rules could easily fail. Professor Sykes has advised “that the expected returns to continued litigation are highly uncertain, and that plaintiffs[ ] face a substantial probability of securing little or no relief at the conclusion of trial.” Sykes Report at 3. Specifically, he states that “the plaintiffs face considerable difficulty in establishing ... that the core practices at issue in the case and left in place by the proposed settlement — such as default interchange and [H]onor[-]all[C]ards rules — cause anticompetitive harm that outweighs their pro-competitive benefits.... ”/d iv. The Honor-all-Cards Rules A number of objectors argue that the settlement should not be approved because it does not eliminate the networks’ Honor-all-Cards rules. As discussed earlier, the Honor-all-Cards rules require merchants that accept Visa and/or MasterCard credit cards to accept all credit cards issued on the same network, regardless of the issuer or the interchange fees associated with the issuer’s card. The Honor-all-Cards rules are closely interrelated in both their history and rationale with the default interchange rules. The assurances that a network’s cards will be accepted wherever the network’s logo is displayed is critical to customers’ desire to carry such cards and to merchants’ willingness to accept them. A number of courts and economists have found the Honor-all-Cards rule and similar rules to be procompetitive under the Rule of Reason. The Second Circuit upheld a “blanket license” — a system analogous to the Honor-all-Cards rule — in Buffalo Broadcasting Co. v. ASCAP, 744 F.2d 917 (2d Cir.1984). See also Benjamin Klein et al., Competition in Two-Sided Markets: The Antitrust Economics of Payment Card Interchange Fees, 73 Antitrust L.J. 571, 592-93 (2006) (“An honor-all-cards rule is the essence of a payment card system because it assures each cardholder that his card will be accepted at all merchants that display the mark of the card payment system.”). As one antitrust practitioner put it: [The Honor-all-Cards rule] is a classic example of a restraint that was actually necessary for the functioning of the joint venture. When Visa and MasterCard were formed — think about this: You have thousands of banks across the country issuing these cards, thousands of banks acquiring merchants, millions of merchants accepting these cards— you need to have a seamless acceptance experience. We all take it for granted, but you needed to have a rule that ensured to you, as a consumer, that when you proffer the Visa card, the merchant is going to take it. It’s not going to say, “I’ll take a Chase Visa card, but I don’t like Citibank, so I’m going to turn that one down.” Panel Discussion II: Consumer Issues at 5-6 (Statement of Jeffrey Shinder) (Ford-ham Univ. Sch. of Law 2008), Marth Deck, Ex. C. In light of the procompetitive features of the Honor-all-Cards rules, it is no sure thing, to put it mildly, that Class Plaintiffs will be able to prove they have anticompetitive effects to such an extent that they violate the antitrust laws. The proposed settlement preserves the integrity of the rules that made (and continue to make) the networks successful. At the same time, by further relaxing merchant restraints regarding pricing, it provides for transparency and competition at the point of sale. Merchants who choose to use the power the proposed rules changes give them will be able to exercise control over (and perhaps reduce) their costs from accepting Visa and MasterCard credit cards, v. Damages Even if liability is established, Class Plaintiffs would still face the problems and complexities inherent in proving damages to the jury. The plaintiffs’ theory of damages would be hotly contested at trial. See, e.g., In re NASDAQ Market-Makers Antitrust Litig., 187 F.R.D. 465, 476 (S.D.N.Y.1998) (“[T]he history of antitrust litigation is replete with cases in which antitrust plaintiffs succeeded at trial on liability, but recovered no damages, or only negligible damages, at trial, or on appeal.”). As Professor Sykes points out, it is very difficult to envision the world that would exist “but for” default interchange fees and the Honor-all-Cards rules. It is not likely that credit card interchange fees would then become zero, and given the greater total costs to users of credit cards as compared to debit cards, it is also unlikely that credit card interchange would be reduced by competition to the level of debit card interchange. Moreover, there is reason to believe that lower interchange fees would make cards less attractive to cardholders (e.g., through higher fees and charges, or reduced rewards). Thus, even if a damage award measured by the reduction in interchange were possible, it might need to be offset by the costs associated with the cards’ diminished value to the holders. These damages-related issues may not be insurmountable, but they are formidable. In addition, as I noted in the WalMart case, the Class Plaintiffs would face a practical problem at trial: They would be asking jurors who feel they had absorbed in the past the cost of anticompetitive interchange fees through higher prices at the checkout counter to award extravagant damages that they would absorb in the future through higher bank fees. Jurors have great common sense. They would conclude with justification that they, not the merchants, were the ultimate victims of any antitrust violations they found to have occurred, and they would be naturally reluctant to victimize themselves yet again by awarding significant damages against the networks and the defendant banks. The various risks of establishing damages weigh strongly in favor of approving the settlement. vi. Maintaining Class Status Finally, Class Plaintiffs face the risk that the classes would not be certified or that certification would be modified as the litigation continued. Class Plaintiffs’ motion to certify Rule 23(b)(2) and (b)(3) classes is pending. A number of objecting class members voice the hurdles that Class Plaintiffs would have to overcome to maintain class certification. Though Class Plaintiffs have strong arguments that the classes should be certified, I note that the certification of a similar class in the WalMart case was affirmed only over a vigorous dissent, see Wal-Mart, 280 F.3d at 147 (Jacobs, J., dissenting), and the legal landscape in which class certification is litigated has deteriorated for plaintiffs in the intervening period. See, e.g., In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 40 (2d Cir.2006) (overruling the more lenient “some showing” standard of Caridad v. Metro-North Commuter Railroad, 191 F.3d 283, 293 (2d Cir.1999)); see also Com-cast Corp. v. Behrend, — U.S. -, 133 S.Ct. 1426, 185 L.Ed.2d 515 (2013) (reversing class certification in antitrust case based on an inadequate damages model). The risks associated with the certification of classes weigh in favor of settlement, e. The Ability of Defendants to Withstand a Greater Judgment Class Plaintiffs did not address this Grinnell factor, stating that the fact that the defendants would be able to pay a substantial judgment does not counsel against approval of an otherwise fair settlement. The objectors note that there is no risk that Visa and MasterCard and the bank defendants would become insolvent. I agree that these defendants could withstand a greater judgment, and thus this factor does not weigh in favor of approval. f. The Range of Reasonableness of the Settlement Fund in Light of the Possible Recovery and Attendant Risks of Litigation The objectors argue that Class Plaintiffs should have insisted on a cash payment closer to their expert’s damages projection. But the argument ignores the many factors that make a jury award consistent with that projection — nearly a trillion dollars after trebling — extraordinarily unlikely. The estimated $7.25 billion that defendants have agreed to pay represents approximately 2.5% of total interchange fees paid by class members during the class period, and thus 2.5% of the largest possible estimate of actual damage to merchants. The damages provided by the proposed settlement are within the range of reasonableness in light of the best possible recovery and in light of all the attendant risks of litigation. The settlement proceeds establish a guaranteed fund worth approximately $7.25 billion (before reductions for opt-outs), the largest-ever cash settlement in an antitrust class action. Class Plaintiffs’ expert estimates that the ability to surcharge could save merchants between $26.4 and $62.8 billion in acceptance costs over the next decade. Frankel Deck, ¶¶ 67-73, DE 2111-5. The agreement provides for substantial payments to the class members now rather than leaving them with the prospect of uncertain relief later. The settlement amount compares favorably with settlements reached in other antitrust class actions, especially given the lack of prior governmental investigation and the disparity between the parties’ damages calculations. See, e.g., In re Currency Conversion Fee Antitrust Litig., 263 F.R.D. 110, 123 (S.D.N.Y.2009) (settlement of $336 million and injunctive relief “represent an extraordinarily significant recovery” in light of the fact that “Plaintiffs did not have the benefit of a Government investigation”), aff'd, sub nom. Priceline.com, Inc. v. Silberman, 405 Fed.Appx. 532 (2d Cir.2010); NASDAQ, 187 F.R.D. at 478 (antitrust settlement of $1,027 billion approved where plaintiffs’ and defendants’ damages estimates were vastly disparate). The objectors’ complaint that the proposed settlement does not achieve everything the plaintiffs sought at the outset of litigation does not tip this factor in their favor. As the Second Circuit observed in Grinnell: The fact that a proposed settlement may only amount to a fraction of the potential recovery does not, in and of itself, mean that the proposed settlement is grossly inadequate and should be disapproved. In fact there is no reason, at least in theory, why a satisfactory settlement could not amount to a hundredth or even a thousandth part of a single percent of the potential recovery. 495 F.2d at 455 & n. 2. I conclude that the Settlement Agreement is both procedurally and substantively fair. D. The Objections As noted, there are numerous objections to the settlement. I discuss the principal ones below. 1. Rule Reforms a. The Elimination of the Networks’ No-Surcharge Rules One of the principal accomplishments of the injunctive relief obtained by the proposed settlement is the elimination, both at the network and product levels, of the rule prohibiting surcharging by merchants. The proponents of the settlement tout this change as a significant achievement; the objectors claim it is essentially worthless. The various facets of the objectors’ position are addressed in detail below, but I find their position to be largely unpersuasive. It is true that the value of surcharging to merchants is diminished by certain factors, some of which are beyond the reach of this lawsuit. It is also true that many merchants, for reasons sufficient to them, may choose not to avail themselves of the right to surcharge. Nevertheless, I find that this rule change, which the Class Plaintiffs and the Individual Plaintiffs fought very hard to obtain, is an indisputably procompetitive development that has the potential to alter the very core of the problem this lawsuit was brought to challenge. At most, the objectors’ arguments establish that the entire solution to that problem constitutes a mosaic, of which the right to surcharge (like the other forms of relief in the proposed settlement) is but one piece. But it is a central piece — a critical accomplishment— and the fact of the matter is that an entire solution to the problem would be unattainable in this action even if it were litigated to its final conclusion and (against considerable odds) plaintiffs prevailed on all of their claims. The Class Plaintiffs, the Individual Plaintiffs, and the objectors agree that the combined effect of the various rules challenged in this lawsuit is supracompetititve interchange fees on Visa and MasterCard credit cards. The rules work together to prevent inter-brand competition between each network’s cards at the point of sale. If a custom