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Lawyers for Visa USA Inc. and MasterCard International Inc. on Friday defended themselves on charges that the giant credit card companies conspired to suppress the use of rival debit cards in favor of their pricier versions, driving up costs for retailers and consumers. The allegations were made in a civil lawsuit filed six years ago in U.S. District Court in Brooklyn, N.Y., by a coalition of the nation’s largest retailers led by Wal-Mart Stores Inc. The U.S. Supreme Court cleared the lawsuit for class action status last summer, adding more than 5 million merchants as plaintiffs in the suit, which seeks tens of billions in damages. The hearing Friday concerned cross-motions for summary judgment, with the plaintiffs arguing that the court should find the credit card companies liable, leaving only damages to be decided at trial, and the defendants pressing for dismissal of the case. Eastern District Judge John Gleeson gave virtually no indication which way he was leaning. He limited his remarks to a handful of minor questions and complimenting both sides for their lawyering, which he described as “fantastic.” The suit alleges the two companies responded to the growing threat from online debit cards — in common parlance, ATM cards — by creating their own versions and leveraging their massive power in the credit card market to force merchants to accept them, in violation of federal antitrust law. Lloyd Constantine of New York’s Constantine & Partners argued for the plaintiffs that the credit card companies’ debit cards — which are advertised as “look[ing] like a credit card, work[ing] like a check” and are virtually indistinguishable from credit cards — are more expensive for merchants, more prone to fraud and less efficient than rival debit cards. “The merchants are seeking damages to compensate them for being forced to accept more than $1 trillion in slow, fraud-prone, inferior off-line signature debit transactions at anti-competitively high and fixed prices during the last decade,” Constantine said in a statement after the hearing. The retailers claim that when a customer signs a Visa or MasterCard debit card slip, it costs them as much as $1.49 for a $100 sale, compared with 9 cents for online debit cards that use a PIN number. They assert this difference has cost them between $13 billion and $16 billion over the past 10 years, a figure that would be tripled under the antitrust laws if the retailers win. They say the credit card companies established their dominance over the debit card industry by their “Honor All Cards” policy, which required merchants who accepted Visa and Mastercard credit cards to take their debit cards as well. The credit card companies also successfully lured banks away from the online debit card companies with big cash payments, the retailers claim. Bank of America Corp., for instance, got $30 million, and took advantage of widespread customer confusion about offline debit cards, deliberately designing them to look like credit cards, they allege. Visa and MasterCard counter that none of their actions were anti-competitive, but to the contrary were aimed at giving consumers more choices by making their own debit cards more widely available. They say that the merchants claims are unsupported by fact, law or the realities of today’s market. Arguing on behalf of Visa, Stephen V. Bomse of Heller Ehrman White & McAuliffe in San Francisco, said that contrary to the plaintiffs’ contentions, online debit cards were, in fact, thriving. “In grocery stores, discount stores, drug stores — places where they are particularly well suited — online debit cards are not only holding their own but are the dominant product,” he argued. Kenneth Gallo of Clifford Chance in Washington, D.C., pressed the court to dismiss the claims against his client, MasterCard, arguing that the vast majority of the evidence being proffered by the plaintiffs is against the much larger Visa. “The best evidence they can offer against MasterCard is that we weren’t being as friendly to the online debit card companies as before,” Gallo said. JUSTICE DEPARTMENT CASE The retailers argue that many of the key legal issues have already been decided in the U.S. Department of Justice’s antitrust case against Visa and MasterCard. U.S. District Judge Barbara S. Jones of the Southern District of New York ruled in October 2001 that the two companies engaged in unfair competition in the credit card and debit card markets. Under the doctrine of collateral estoppel, the rulings in the already-decided U.S. case will most likely be applied in the merchants’ case, the retailers argue. Lawyers for the defendants argue, however, that Judge Jones’ decision, which is on appeal to the 2nd U.S. Circuit Court of Appeals, is largely irrelevant to the present case. A jury trial in the merchants’ case is set to begin April 28.

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