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Judge rejects Discover
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August 3, 2000: 8:03 p.m. ET
Credit card network motion to join DOJ case against Visa, MasterCard denied
By Staff Writer John Chartier
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NEW YORK (CNNfn) - A federal judge on Thursday blocked an attempt by Discover Card to cash in on the government's antitrust lawsuit against rival credit card networks Visa and MasterCard, calling Discover's motion inappropriate.
Although she denied Discover's motion to join the suit, which began in June, U.S. District Judge Barbara Jones said she would accept briefs and information from Discover outlining how it believes it is affected by the suit. Jones said she would render a written opinion on her ruling Friday morning.
"We are disappointed that Judge Jones did not grant our motion to intervene in the antitrust suit against Visa and MasterCard," said David Nelms, president of Discover Financial Services Inc. "We remain hopeful that the court, having at least now had the benefit of a more detailed explanation and discussion of Discover's views, will fashion a remedy that would eliminate all the barriers to fair competition that Visa and MasterCard have written into their association bylaws since Discover entered the market in 1985."
Since the trial began, Riverwoods, Ill.-based Discover, which is owned by Morgan Stanley-Dean Witter, has remained on the sidelines watching as the Justice Department argued that Visa and MasterCard's policies harm consumers by shutting out competition.
 Donald Kempf, chief legal officer for Morgan Stanley, argued that Discover should be allowed to intervene because it will be directly affected by the outcome of the case.
"While we seek to intervene, our purpose is not to rain on anybody's parade," Kempf told Jones during the hour-long hearing. "The specific intervention we are asking for will be decided by the court."
In arguing against the motion, Visa and MasterCard's lawyers said Discover has had plenty of time to join the suit, since it helped the government prepare its case, and that it remains free to file its own suit against the two networks.
"Discover's attempt to insert itself into this lawsuit at this late stage is as misguided as the government's rationale for pursuing the case," Noah Hanft, deputy general counsel for MasterCard, said.
In the trial, which is being heard in the United States District Court for the Southern District of New York, the Justice Department has been trying to show that Visa and MasterCard slapped a lock on nearly 80 percent of the U.S. credit card market through measures designed to shut out American Express and Discover.
The Justice Department filed the suit against Visa and MasterCard in late 1998 based on alleged antitrust violations. The suit challenges an exclusivity rule adopted by both the credit card associations, under which banks that issue their cards are prohibited from issuing a competitor's card, such as those issued by American Express or Discover. Doing so means being dropped from the Visa and MasterCard networks.
A second aspect of the suit contends that Visa and MasterCard are operating what is known as a "duality," in which the approximately 7,000 banks that operate both associations in the United States engage in collusion.
Duality permits each card association to install board members who hold a significant interest in the other's card. That means a Visa board member may have a significant MasterCard portfolio and vice versa.
The government claims that duality has kept Visa and MasterCard from vigorously competing against one another and hampered the introduction of innovative new products, such as the so-called "smart cards": credit cards embedded with computer chips that encrypt the holder's financial information.
The Justice Department wants each network's board members to have a majority interest in their own card and for banks to be free to issue competitors' cards.
Discover agrees that Visa and MasterCard's policies hurt its business, but it does not like the government's proposed remedy.
The company claims the government's remedy to issue everyone's credit cards would hurt Discover because it is the smallest and could have trouble partnering with banks, which can make more money from American Express, Visa and MasterCard.
Instead, Discover wants all competitive rules erased freeing banks to issue Discover cards and allowing Discover to issue Visa and MasterCards, Kempf said. 
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