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A courtroom food fight of sorts has broken out between big merchant processor Heartland Payment Systems Inc. and a leading hospitality-industry technology provider supported by a network gateway owned by No. 1 merchant acquirer Chase Paymentech Solutions LLC. Princeton, N.J.-based Heartland today said it has filed a federal antitrust lawsuit against Micros Systems Inc., Merchant Link LLC, and Merchant Link's owner, Chase Paymentech. The suit claims that through a tying arrangement, Micros and Merchant Link force independent competitors such as Heartland to pay for the use of Merchant Link's gateway in order to process credit and debit card payments on the Micros point-of-sale platform. The suit, filed in U.S. District Court in Trenton, N.J., alleges violations of the Sherman Antitrust Act and New Jersey unfair-competition laws. It seeks preliminary and permanent injunctions banning the alleged anticompetitive arrangement as well as least $10 million in damages. “We believe it's going to be a number north of that,” Heartland general counsel Charles Kallenbach tells Digital Transactions News. But Peter J. Rogers Jr., executive vice president of investor relations and business development at Columbia, Md.-based Micros, had this to say about the suit: “We are disappointed that they are using the press to air their grievances.” A Chase Paymentech spokesperson said her company and Merchant Link haven't yet been served with the suit. “Nonetheless, the two companies believe the lawsuit is without merit,” she says via e-mail. “Of course, the companies will vigorously defend the lawsuit.” She adds that Chase Paymentech and Merchant Link “go to great lengths to ensure that they operate at all times with the highest of ethical standards and in full compliance with all applicable laws and regulations.” Micros makes a variety of software and hardware for 300,000 hotels, restaurants, and specialty retailers throughout the world for handling inventory, financial management, and other functions, including POS payments. Some 150,000 to 175,000 U.S. restaurants use Micros systems, but only 30,000 use Merchant Link, Rogers says. Heartland, meanwhile, got 40% of its 2006 charge volume from restaurants. The battle involves a few thousand of Heartland's approximately 54,000 restaurant locations that use Micros payment applications. Heartland claims that because of its market power, Micros requires table-service restaurants using its POS payment applications to use Merchant Link as their gateway for card transactions. Merchant Link charges 4 cents for each Internet Protocol-based transaction and 6 cents for a dial-up transaction, according to Kallenbach. Heartland's suit says Merchant Link assesses the fee, which it claims bears no relation to the cost of its services, to outside processors such as Heartland, which pass it back to the merchants in order to cover their costs. That creates an opening for Chase Paymentech to undercut rivals on price while still charging restaurants a rate above what it would charge without the tying arrangement, according to Heartland. “Processors who wish to compete for Micros POS restaurants are, in effect, required to pay a subsidy to Paymentech for the privilege,” says the complaint, which also alleges Micros gets a portion of the revenue stream. While Heartland claims Merchant Link acts as a “toll collector” that adds no unique value to the transaction-clearing process, Rogers says the gateway plays an essential role in Micros's business. Micros saves on development costs by writing its applications only for the Merchant Link gateway. “It allows us to incorporate changes,” he says. “There are constant changes in credit card standards by Visa, MasterCard, and American Express. I reduce my development costs by writing to one network rather than multiple networks.” Merchant Link also provides Micros's help desk, he adds. Rogers also notes that the Micros-Merchant Link relationship goes back to 1993, before Chase Paymentech predecessor Paymentech bought what started out as an independent sales organization called Credit Link. Credit Link later split into two companies, with Paymentech buying the network/gateway portion now known as Merchant Link about a decade ago, Rogers says.
