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The Department of Justice and First Data Corp. will square off next week in a case that will decide not only the fate of the company’s $7 billion purchase of Concord EFS Inc., but also the structure of the debit card industry. “This will have a large impact on the way debit cards develop and on the type of competition that we get,” said Albert Foer, president of the American Antitrust Institute, a Washington advocacy organization that has analyzed the deal. “There will be a lot of changes as a result of the case. It will lay the groundwork for the future of this industry.” The Justice Department charges the merger would combine the No. 1 and No. 3 providers of so-called online debit services, in which consumers enter personal identification numbers to use their bank cards to make purchases. First Data maintains that it competes in a broader market that includes so-called signature debit, where consumers sign their name to complete a transaction rather than enter a PIN code. It also says that credit cards and checks represent competitive alternatives to online debit. The parties appear Dec. 15 in Washington before U.S. District Judge Rosemary M. Collyer for a seven-day trial. The judge is expected to rule in early January. Robert Doyle Jr., a partner at law firm Sheppard, Mullin, Richter & Hampton in Washington, said how Collyer defines the market in question will have broad ramifications for merging companies. Much of the dispute centers on Visa International and MasterCard International Inc., which are the leaders in signature debit. The Justice Department argues that such transactions are distinct from online debit because they are more expensive for merchants, take 24 to 48 hours longer to close and are more susceptible to fraud. First Data, however, says that Visa and MasterCard have the clout to push consumers to use their signature debit at the expense of online debit products. Visa and MasterCard also are moving into the online market, with Visa becoming the No. 2 processor in the sector. At trial, First Data is expected to contend that Visa and MasterCard are both actual and potential competitors. This will force the judge to address the issue of potential competition, a theory of antitrust that has received little judicial scrutiny in recent years. “It will be interesting to see the evidence the judge relies on when evaluating the potential competition argument,” Doyle said. This will provide a road map for others who want to raise potential competition in a merger case, he said. Of course, First Data could still derail the trial at any point by offering to settle the case. Market watchers for months have believed that First Data could resolve the government’s antitrust concerns by divesting its NYCE debit processing network. That would allow First Data to retain Concord’s larger Star network. But First Data chairman Charlie Fote has refused to make such concessions, and Doyle said the market at this point would be surprised by a settlement. “I have some doubt about whether it will go to trial, but I have been consistently wrong on this,” said Doyle, who has followed the deal for months. “Conventional wisdom is that Fote will not settle the case.” Sources said First Data recently suggested that the Justice Department settle the case on terms similar to those the company offered around the time regulators filed suit to block the deal. Previous reports said those earlier offers did not include the divestiture of NYCE. Sources declined to provide specifics of the more recent offer, which the Justice Department rebuffed. That First Data would suggest a settlement is not surprising. Litigation experts said parties often will offer to settle right before trial in case the government decides to resolve the case. That First Data apparently did not offer up NYCE was taken by one source as a sign that the case is going to trial. Doyle said this litigation a risky proposition for First Data, especially given a decision last week by Wal-Mart Stores Inc. to stop accepting MasterCard’s signature debit cards, though it will honor its PIN debit product. “That shows that Wal-Mart sees differences with PIN and signature debit, which hurts First Data’s case,” he said. Although the trial does not officially start until Dec. 15, the judge got an early start on the proceedings Friday when she heard from expert witnesses for the government and the companies. Collyer said the experts would explain the basis for their conclusions that the $7 billion merger was either legal or anti-competitive. What these witnesses actually said, however, will remain a mystery until Wednesday. Collyer closed the courtroom to the public, rejecting a motion by Bloomberg News to keep the proceeding open. The judge said she was compelled to close the hearing because it was the only way to protect the confidentiality of sensitive business information. Yet she also warned the parties not to expect the full trial to be sealed, noting that parties will not be able to prevent the disclosure of information simply by saying it is private or sensitive. “The only issues that will remain under seal will be real trade secrets,” Collyer said. “The trial will be open.” First Data and Concord unveiled their merger April 1. The government sued in October. Copyright �2003 TDD, LLC. All rights reserved.

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