The decision by 10 states to file a brief supporting the Justice Department in its antitrust case against Visa and MasterCard International stems from a 10-year-old lawsuit that these states filed against the card companies over the development of debit cards.
The states, led by Ohio, said their interest in the current case relates to their 1990 antitrust suit against Visa and MasterCard's attempt to create a joint debit card program called Entrée. The states argued that this program would create a monopoly in the point of sale debit card market. The case was settled when Visa and MasterCard abandoned the project and agreed to create separate debit cards.
Ever since, the states have monitored the card associations' adherence to the settlement agreement. Last week, the states filed a friend-of-the-court brief with U.S. District Judge Barbara S. Jones, urging her not to make a decision setting the burden of proof in antitrust cases so high that the states would be hindered in pursuing cases of their own.
The 10 states also include California, Connecticut, Florida, Maryland, Massachusetts, Minnesota, Texas, Utah, and Wisconsin. The friend-of-the-court brief indicates that the states' primary concern is the federal government's charge that Visa and MasterCard acted in concert to stifle product innovations, including smart cards. The states take issue with the card associations' argument that any slowdown in innovation attributable to them caused no specific harm to consumers.
"It is well established that harm to innovation is consumer harm," the brief stated. "The defendants have endorsed an erroneous standard of proof that would require the government in this case not only to prove that defendants have corrupted the innovation process but also to prove precisely which innovations would have appeared in the marketplace but for defendants' interference. Such a standard is unsupported."
The brief urges Judge Jones to adopt the government's suggested remedies: to end dual governance and to allow banks that belong to Visa and MasterCard to issue other payment card brands, including American Express and Discover.
The issue of innovation and how to define it is one often raised in antitrust cases, said Lloyd Constantine, principal of the New York law firm Constantine & Partners, who represents the country's major retailers in a lawsuit about debit cards that is awaiting trial. "The states are saying, 'Don't make a decision that would have bad implications in other cases,' " he said. "They are less concerned about this case than a decision that will influence other cases."
Mr. Constantine said the brief might not carry much weight with the judge. "The problem with friend-of-the-court briefs in cases where most of the record is sealed is, there is a little bit of shooting in the dark," he said. "They relied on a limited amount of information, but I think they did" as well as they could.
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