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DOJ targets credit cards
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June 6, 2000: 6:54 p.m. ET
Move over Microsoft: Antitrust trial against Visa, MasterCard is set
By Staff Writer John Chartier
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NEW YORK (CNNfn) - Visa may be everywhere you want to be, but the U.S. Department of Justice wants to make sure MasterCard, American Express and Discover are as well.
In a trial that begins Monday in U.S. District Court in New York, the Justice Department will try to prove that members of the boards of directors of two organizations -- Visa USA Inc. and MasterCard International Inc. -- are so closely related that the two companies in effect are a duopoly.
On Thursday, lawyers representing Visa and MasterCard plan to ask U.S. District Court Judge Barbara C. Jones to dismiss the suit. Observers expect no such dismissal.
"This isn't a slam-dunk where you prove something and you win. This case involved the economy, and it's much more complex."
-- Spencer Waller, Brooklyn Law School Professor
DOJ officials believe that the two companies, which dominate the credit card industry, are too cozy, hurting the consumer by stifling competition and virtually shutting out American Express and Discover from reaching a greater share of the market.
"I don't think it's a wildly adventurous case, but it shows they're looking at types of competitive restraints they didn't before," said Spencer Waller, a Brooklyn Law School professor. "I'd sort of look at the government's ability to prove that there is a harm to competition in the sense of either effects on prices, or on the offering of new services in the markets they're concerned about. This isn't a slam-dunk where you prove something and you win. This case involved the economy, and it's much more complex."
The suit promises to be the biggest antitrust action initiated by DOJ, following Justice's victory against Microsoft. Dozens of witnesses are expected to testify on both sides.
The Justice Department filed the suit in 1998 against both Visa and MasterCard, which together control more than 75 percent of the U.S. credit card market.
Lawyers involved in the case said that DOJ alleges that the two companies violate its policy of "governance duality." In other words, the government believes that a MasterCard board member may own a sizable portfolio of Visa and vice versa, which, Justice argues, quells competition.
In addition, Justice has alleged that Visa and MasterCard, which are actually owned and operated by a group of member banks, prohibit those banks from issuing competitors' cards, namely American Express and Discover.
In a hearing before a Senate Banking subcommittee last month, Visa and MasterCard executives portrayed the suit as part of a lobbying campaign by American Express.
But Discover, a unit of Morgan Stanley Dean Witter, and American Express (AXP: Research, Estimates), argued that Visa and MasterCard went to extraordinary lengths to hold their dominant position, harming both consumers and merchants.
"Time and again, whenever we have posed any kind of challenge, Visa enacted punitive new rules tailored to interfere with our business plans and our ability to compete," Philip Purcell, Morgan Stanley's chairman and chief executive officer, said during the hearing.
Lawmakers said they had held the hearing to familiarize themselves with the issues in case legislation was needed to follow up any court decision. 
-- Reuters contributed to this report
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