X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Three long days have passed in the Manhattan courtroom of U.S. District Judge Barbara Jones, who is presiding over the trial of charges that Visa and MasterCard, the two largest credit card networks, conspired to violate the antitrust laws by denying consumers choice in credit cards. And not a single nasty e-mail from the defendants’ files has been offered into evidence or projected on the courtroom’s video monitors by government prosecutors. The Microsoft trial has spoiled us. The closest thing to a smoking gun that a team of five Justice Department lawyers, led by Melvin A. Schwarz, has introduced is a 1997 letter from a Visa executive vice president. The letter warned the chief executive of a bank in Puerto Rico that the bank’s branches on the U.S. mainland would lose their right to operate Visa programs “if they are involved in any issuance or solicitation activity for American Express.” The government’s first witness, an executive from Banco Popular of Puerto Rico, had little to say about the document, and the prosecutor, Scott Scheele, quickly moved on. The moment passed, barely noticed by the observers in the packed gallery on June 12, the first day of a trial that is expected to continue for several months. The Justice Department’s antitrust case against Visa and MasterCard is off to a more muted start than the high drama orchestrated by David Boies in the 78-day trial of Microsoft Corp. that portrayed the company as untrustworthy. It began with the opening statement, a tour de force that left many with their jaws dropped in the gallery. Boies played excerpts from the videotaped deposition of Microsoft founder Bill Gates, to devastating effect. Gates testified, “I had no sense of what Netscape was doing” in June 1995, when in fact he had written a series of e-mails at that time — all displayed on the video monitor by Boies — calling Netscape Communications Corp. “a new competitor born on the Internet.” Schwarz, a former partner at Dechert Price & Rhoads who joined the Justice Department in 1998, has the unenviable task of following a blockbuster. In his opening, he showed videos from Canadian television, in which Visa and MasterCard snipe at each other in advertisements, and a 1985 NBC “Today” show clip in which a MasterCard executive proclaimed that smart cards would be coming soon. The government contends that this technology was delayed because Visa and MasterCard are too cozy. Boies had the benefit of the Gates deposition, a three-day ordeal on tape that proved disastrous for Microsoft. Schwarz has less dramatic evidence at his disposal. Litigators keeping tabs on the trial say that the Justice Department has begun on a shy note. Schwarz chose not to call as his first witness an executive from American Express, which lobbied the government to put an end to policies that forbid Visa and MasterCard banks from issuing American Express credit cards. At the end of the week, he informed the judge that there would be no witness from Discover, the other credit card network allegedly harmed. “Don’t cry for American Express,” said Visa U.S.A. Inc.’s lawyer, Kenneth A. Gallo, of Clifford Chance Rogers & Wells. “They don’t need a court to help them compete.” The defense raised the same concerns at the Microsoft trial. John L. Warden, of New York’s Sullivan & Cromwell, repeatedly referred to Netscape as the government’s “ward” during opening statements. That did not stop the government from calling James Barksdale, Netscape’s chief executive, as its first and star witness in its narrative of Microsoft’s relentless attack on rivals that threaten its Windows operating system monopoly. Barksdale was emphatic that Microsoft had offered Netscape a deal to divide the Internet browser market that was “as explicit as you can get,” and that Microsoft had set out to destroy Netscape after it rejected the offer. That’s pretty powerful stuff. In the Visa/MasterCard case, the Justice Department called Larry B. Kesler, an executive vice president at Banco Popular, as its first witness. He testified that the bank has opened about 64,000 American Express accounts in the 21 months since it began offering the Optima card to its customers on the island of Puerto Rico. The bank wanted to do it, he said, “to give our customers more choices, to have a third brand” in addition to Visa and MasterCard. And the bank would still like to offer those cards at its mainland branches. But it doesn’t, he testified, “strictly because of the rules which would cause it to lose its Visa or MasterCard membership if it did so.” A MICROCOSM Justice Department officials believe that Kesler’s story shows its case in microcosm because his experience demonstrates the impact of the rules. But much of his testimony focused on the state of banking in Puerto Rico, burying the government’s larger theme. Kesler’s testimony on cross-examination may hurt the government’s case. He admitted that “there is a definite interest in competing” between Visa and MasterCard. Kesler sits on MasterCard’s Latin American Regional Board, even though 75 percent of the credit cards issued by Banco Popular are Visa cards. The Justice Department contends that the associations have refrained from competing with each other under this system of “dual governance.” Kesler testified that he had never voted against a MasterCard initiative because it would have a negative impact on Visa. Scheele, the prosecutor, did not return to this subject on redirect. Dual governance has also led the associations to refrain from innovations, the government contends. Its chief example is the delay of smart cards, which contain a chip capable of storing more information than the traditional magnetic strip, and of providing superior fraud protection. John Elliott, the government’s witness on smart cards, testified about a January 1997 MasterCard executive committee meeting when he presented the case for smart cards. Members who also issued Visa cards balked. “They wanted MasterCard to wait for Visa,” Elliott testified. The defense claims that smart cards still aren’t in the marketplace because there is “no business case” for them. This isn’t the most gripping stuff. In the Microsoft case, Judge Jackson often appeared to doze after the luncheon recess. In this trial, a few lawyers from the prosecution and the three defense teams have been caught nodding off.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]

 
 

ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.