Barbara S. Jones, the presiding judge in the Justice Department's antitrust case against Visa and MasterCard, said Monday that she would not grant the card associations' motion to dismiss the lawsuit, but would listen to the defense's arguments before deciding the case.

The trial is expected to resume today, with MasterCard and Visa starting to give their side.

The card associations' request for a "directed verdict" after the government had presented its case for five weeks was a standard one, and Judge Jones' response to it was not surprising. Perhaps more heartening for Visa and MasterCard were the tough questions she asked the government about why it wants her to rule in its favor.

Judge Jones said she was confused about a number of arguments the government is making, and zeroed in on the remedies the government is seeking: removal of the card associations' ban on members' issuance of American Express and Discover cards, and a requirement that banks sitting on the board of a card association "dedicate" their portfolio to that brand in a sizable way.

"Where is the justification for a bank to be 90% dedicated?" the judge asked. "I do have some difficulty in determining the remedy on dedication. Is this where the market is going?"

The Justice Department's lead prosecutor, Melvin I. Schwarz, said it is no coincidence that the market has moved toward dedication since the government's lawsuit was filed. There needs to be a ruling that makes dedication more than voluntary, he said, because nothing stops the associations or banks from turning back the clock, and letting banks whose card portfolios tip heavily toward one brand sit on the board of the other.

Mr. Schwarz pointed to the testimony of longtime Visa general counsel Bennett Katz, who said that if the markets shifted away from dedication, the banks would change in a heartbeat. Mr. Schwarz said a legal remedy is needed. "The defendants have moved to cure the problem, but it doesn't mean that it will stay that way."

Judge Jones said she was frustrated by the testimony of the government's expert witness, Professor Michael L. Katz of the University of California at Berkeley, because he discussed the merits of board dedication without saying what would qualify as an appropriate level of dedication.

"It struck me as unusual that Mr. Katz would not look at the unanimous votes" of the associations' board members, the judge said. "I didn't understand why he didn't look at those."

The judge said Michael Katz had been indecisive about dedication. She pointed to his testimony that it would be all right if one to three members of a board were not dedicated. "What am I supposed to do with shifting standards here?" she asked. "Is there proof that skew makes a difference?"

The judge also expressed concern about the evolution of Internet payments. She wanted to know whether new payment methods might supplant Visa and MasterCard there. "Aren't new competitors getting into the market via the Internet?"

Mr. Schwarz dismissed this notion, saying that 99% of online transactions involve credit or charge cards, and that any entrants would simply "enhance the existing payments infrastructure." These new companies are not "challenges" to Visa's and MasterCard's dominance, he said.

Judge Jones persisted. "Isn't it conceivable that banks will create their own [new] networks?" she asked.

M. Laurence Popofsky, a Visa attorney, echoed Judge Jones' concerns. "We have no idea what the future will look like," he said. "If this trial is all about innovation, then the Internet changes the equation in ways we really do not know."

Within the last year or so Visa and MasterCard have created "partnership programs" that encourage banks to sign contracts committing them to issuing a high percentage of cards under one brand name or the other.

Some of the big card issuers, such as MBNA Corp. and Capital One Financial Corp., which have board seats on MasterCard and Visa, have not signed the contracts.

The judge asked whether major issuers that do not sign the contracts will be precluded from helping govern Visa and MasterCard. "Is the market going to see that these major issuers won't go on the board?"

Mr. Schwarz answered, "Right now, the banks can walk away from these contracts without a lot of penalty. The contracts don't have a lot of teeth."

Judge Jones asked Mr. Popofsky why Visa is moving toward these agreements. He said they were important in terms of issuance, not governance. The government has it upside down, he said. "Governance is not the problem - dual membership is the problem."

The judge asked Mr. Popofsky, "What is your position on 100% dedication?"

He replied, "That would be perfectly acceptable to Visa, but it should be the market that decides, not the U.S. government that imposes a regulatory regime."

Mr. Schwarz said the notion that the associations are fragile is nonsense. MasterCard has been "cherry-picking Visa's best banks, but if Amex did that, it would be horrible," he said.

He recalled how MasterCard used price breaks and other incentives to get Citibank to switch dedication to its brand and to defect to its board. "That is good for MasterCard," Mr. Schwarz said. "That is what Amex and Discover want to do. That is what the Sherman [Antitrust] Act is all about."

Mr. Schwarz also argued that Visa and MasterCard dominate the market. Their interchange rates rose 13% in 1999, he said, but consumers did not switch brands because they do not know they are paying more for the goods they buy. Merchants did not switch because they cannot afford to stop accepting Visa and MasterCard, he said.

But Mr. Popofsky said that prices actually declined, because "price is a composite of what is charged to consumers and merchants." Since annual fees have virtually disappeared and interest rates have dropped, the "composite price" has actually come down, he argued.

"The interchange example does not support the government's conclusion that Visa and MasterCard have market power," Mr. Popofsky said.

Judge Jones asked the government why it did not include debit cards in the market it defined for the purposes of this case. Mr. Schwarz said the Justice Department "could have expanded our case to include offline debit," but Visa and MasterCard already required dedication for debit cards, which are used differently from credit and charge cards.

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