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News > Companies
Visa antitrust trial set for Monday
June 8, 2000: 7:36 p.m. ET

U.S. court denies dismissal motions by Visa and MasterCard in antitrust suit
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NEW YORK (CNNfn) - A federal judge in New York rejected motions to dismiss a potentially monumental federal antitrust case against Visa and MasterCard on Thursday.

U.S. District Judge Barbara Jones in New York dismissed the card networks' motions for summary judgment on several issues in a pre-trial hearing. The case is scheduled for trial on Monday.

The U.S. Justice Department, fresh from its antitrust victory in breaking up Microsoft Corp. (MSFT: Research, Estimates), has now set its sights on San Francisco-based Visa and Purchase, N.Y.-based MasterCard, which together own 80 percent of the total U.S. credit card market compared with rivals Discover and American Express, both based in New York.

The Justice Department sued Visa and MasterCard in 1998 alleging the two credit networks quashed competition through an exclusion policy with their member banks. The policy prohibits member banks, which collectively own, manage and operate Visa and MasterCard, from issuing competitors' cards.

The suit also takes issue with Visa and MasterCard's practice of duality, a policy in which executives of the networks' member banks who hold significant financial stakes in Visa and MasterCard are allowed to serve on each other's governing board of directors.

The Justice Department is seeking an end to both practices because it says consumers are being hurt by less competition.

Visa completely denies the charges, saying that it actually promotes competition because its member banks are responsible for setting fees and interest rates. Visa also claims that American Express pushed the Justice Department into filing the suit.

In her ruling Thursday, Jones denied motions that Visa International should not be part of the suit because it is not governed by the same rules as Visa U.S.A., and that the suit is baseless because competitors American Express and Discover have some of the highest card distributions in the country.

In dismissing the motions, Jones said there were too many conflicting facts and that a trial was needed in order to sort them out.

"Today's ruling was not unexpected, but what was surprising is the blatant role American Express is playing in this litigation," said Kelly Presta, a Visa spokesman. "In their arguments today, the government's lawyers relied almost completely on American Express' woes to make their case."

Lawrence Popofsky, the lead Visa attorney, argued Thursday that the exclusionary rule does indeed restrict American Express and Discover, but in the spirit of competition.

"Banks cannot offer American Express and Discover Cards if they issue Visa and MasterCards," Popofsky said. "It's a loyalty rule: either you are with us, or you are against us."

But Melvin Schwarz, the lead DOJ attorney, said Visa and MasterCard are in fact hurting consumers, arguing that the coziness of their relationship has hampered innovations in the credit card industry because of their hesitancy to compete with one another.

"We have a market here that is seriously oligarchical in that two major players don't really compete," Schwarz said. "...These rules are intended to severely restrict competition by depriving American Express and Discover of the ability to sell network services to people who are potential customers."

Experts think Justice may have a case.

"I don't think it's a wildly adventurous case, but it shows they're looking at types of competitive restraints they didn't before," Spencer Waller, a Brooklyn Law School professor, said earlier this week. "I'd sort of look at the government's ability to prove that there is a harm to competition in the sense of either effects on prices, or on the offering of new services in the markets they're concerned about. This isn't a slam-dunk where you prove something and you win. This case involved the economy, and it's much more complex."

The suit promises to be the biggest antitrust action initiated by DOJ, following Justice's victory against Microsoft. Dozens of witnesses are expected to testify on both sides.

In addition, Justice has alleged that Visa and MasterCard, which are actually owned and operated by a group of member banks, prohibit those banks from issuing competitors' cards, namely American Express and Discover.

In a hearing before a Senate Banking subcommittee last month, Visa and MasterCard executives portrayed the suit as part of a lobbying campaign by American Express.

But Discover, a unit of Morgan Stanley Dean Witter, and American Express (AXP: Research, Estimates) argued that Visa and MasterCard went to extraordinary lengths to hold their dominant position, harming both consumers and merchants.

"Time and again, whenever we have posed any kind of challenge, Visa enacted punitive new rules tailored to interfere with our business plans and our ability to compete," Philip Purcell, Morgan Stanley's chairman and chief executive officer, said during the hearing.

Lawmakers said they had held the hearing to familiarize themselves with the issues in case legislation was needed to follow up any court decision. Back to top





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.