X

Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Credit card giants Visa International and MasterCard International accused their rival American Express Co. of orchestrating the Justice Department’s antitrust trial, which opened Monday, to regain a strategic advantage. American Express “has gotten the government to be its point man,” said the lawyer for Visa, Eugene Bannigan, of Morgan, Lewis & Bockius in New York, in his opening statements in U.S. District Court in Manhattan. “American Express doesn’t need the government’s help to compete,” added MasterCard’s lawyer Kenneth A. Gallo, a partner at Clifford Chance Rogers & Wells. But the government needs American Express. Just as it relied on Microsoft Inc.’s rivals such as Netscape Communications to formulate its successful antitrust prosecution against the computer behemoth, the Justice Department is counting on a rival to help make its claims against Visa and MasterCard. In fact, Harvey Golub, the CEO of American Express and his heir apparent, Kenneth I. Chenault, will testify for the government at the nonjury, multimonth trial before U.S. Judge Barbara Jones. The government is charging San Francisco-based Visa; its parent, Visa International, and Purchase, New York-based MasterCard with engaging in anticompetitive business practices that also stifled innovation in the credit-card payment industry in the United States. Specifically, the companies’ used their intersecting corporate structures and exclusionary rules to dominate 75 percent of the U.S. credit-card business, the government alleges. Melvin A. Schwarz, the Justice Department’s lead lawyer explained that Visa and MasterCard are nonprofit associations controlled by the same large banks whose representatives simultaneously serve on the board of directors of one and on important committees of the other. Each of these banks issues significant numbers of Visa and MasterCard cards. That corporate governance structure is called “duality.” The government alleges that Visa and MasterCard have agreed not to compete because of that duality and thus, violate antitrust laws. The joint control was responsible for MasterCard not attacking Visa in its advertising campaign and for a more-than decade-long delay in bringing so-called “smart cards” to consumers, Schwarz argued. The smart card has a computer chip that carries a great deal more personal information of its owner than on a regular credit card. The Justice Department also wants Judge Jones to wipe out Visa and MasterCard rules that prohibit member banks from issuing the cards of American Express or Morgan Stanley DeanWitter’s Discover card. “If a bank has the temerity to issue American Express, then they lose the right to issue Visa and MasterCard, and their customers lose access to Cirrus and Plus at ATM machines,” Schwarz said in court. Those exclusionary rules “should be ended so American Express and Discover have access” to the 7,000 banks that issue MasterCard and/or Visa, he added. The credit card defendants said that they are operating in an extremely competitive environment, that they compete vigorously with each other and denied that their joint relationship prevented new products from coming to market. But, sometimes it just wasn’t profitable to innovate, they claim. An early version of the smart card would have cost $1 billion to roll out, and MasterCard “would have lost money for a decade,” Gallo said. By 1994, MasterCard invested $150 million in a company that set the standard for smart card chips. Visa and MasterCard claim they have forged relationships with their member banks on their own merits. If the government wins here, the result is that “American Express can pick and choose with whom it wants to contract,” said M. Laurence Popofsky, Visa U.S.A. Inc.’s lawyer and a partner with San Francisco-based Heller Ehrman White & McAuliffe. Copyright �2000 TDD, LLC. All rights reserved.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

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 © 2021 ALM Media Properties, LLC. All Rights Reserved.