Former MasterCard head Alex W. "Pete" Hart, a celebrity of sorts in the clubby credit card industry, gave testimony yesterday that seemed to bolster the Justice Department's contention that MasterCard and Visa are not true competitors.

Mr. Hart confirmed that he once compared his job at MasterCard International to "being a coach of a football team that didn't care whether it won or not." He was chief executive officer from 1988 to 1994.

Melvin A. Schwarz, the government's lead prosecutor in the antitrust case, presented documents from previous depositions Mr. Hart had given for this case and other litigation, in which he described a lack of competition between Visa and MasterCard.

According to those documents Mr. Hart said, "many members looked at the brands [Visa and MasterCard] interchangeably" and "we were not encouraged to do anything that would diminish the other."

He also said, "Members don't allow Visa and MasterCard to compete head-to-head," according to the documents.

Mr. Hart sought to clarify these statements in his testimony Thursday, insisting that Visa and MasterCard are fierce competitors: "My bonus structure was tied to gaining share over Visa," he said.

But he tempered his remarks with statements that would suggest otherwise.

"Members were happy to have [Visa and MasterCard] put on the boxing gloves, but they don't want you to gouge the other's eyes out," said Mr. Hart, who is now a private consultant.

The government's core arguments against the bank card associations is that they colluded for years to offer products in tandem, they do not compete in advertising and other areas, and they delayed innovation in order to introduce products at the same time.

Mr. Schwarz pointed to a MasterCard advertising campaign from 1992 dubbed "sisters gold MasterCard," which he said was yanked because of objections from Visa. The ad mentioned Visa by name, claiming that "no card is accepted in more places, not American Express, not Visa." After Visa complained, MasterCard deleted any mention of another card brand.

Mr. Hart testified that he was not aware of any Visa ad campaign in the United States that directly attacked MasterCard by name, nor of any Visa ad that named MasterCard, because "they have common interests."

After Mr. Hart left MasterCard, he was chief executive officer of Advanta Corp. from 1994 to 1998. Mr. Schwarz invoked Mr. Hart's tenure at Advanta to try to prove another point in the government's case - that Visa's and MasterCard's rules prohibiting member banks from forming partnerships with competitors such as American Express Co. and Morgan Stanley Dean Witter & Co., the issuer of the Discover card, are anti-competitive.

Mr. Hart described in detail Advanta's thwarted efforts to work with American Express, and his subsequent disillusionment with the card associations. Advanta, of Horsham, Pa., was one of the most successful credit card issuers in the industry until a confluence of events - including its ill-fated negotiations with American Express - led it to sell its consumer credit card portfolio to FleetBoston Financial Corp. in 1998.

Mr. Hart disclosed that Advanta had also considered issuing Discover cards.

Mr. Hart said he called Harvey Golub, chief executive officer of American Express, and Kenneth I. Chenault, its president and chief operating officer, in 1995 to discuss the possibility of Advanta issuing Amex cards. Because of Visa's and MasterCard's membership rules, the executives decided instead to first form a co-marketing deal in which Advanta's Visa and MasterCard customers could earn points in Amex's Membership Rewards program.

Advanta wanted to do this, Mr. Hart said, because it would differentiate Advanta's credit cards from others. The executives worked on this product, called Rewards Accelerator, for nearly a year.

In the meantime, Mr. Hart sought clarification from MasterCard on whether such a product would violate MasterCard's rules. The answer he got from the president of MasterCard's U.S. operations, Alan Heuer, was that Advanta would not violate any rules. MasterCard's chief executive officer at the time, Eugene Lockhart, had publicly endorsed banks' deals with Amex that would only involve the "distribution" - not issuance - of Amex cards.

Around this time, Mr. Golub made his now famous speech at a 1996 credit card conference, inviting banks to work with American Express.

After the speech, MasterCard apparently changed its mind, Mr. Hart said, about allowing its members to work with Amex. Several weeks later, however, Advanta launched Rewards Accelerator. Three weeks into mailing solicitations to consumers, Advanta was slapped with lawsuits from Visa and MasterCard, and was forced to halt the program.

After that, "We were angry, frustrated, and I was very distressed," Mr. Hart said.

"I think Rewards Accelerator would have given us a leg-up in the market," Mr. Hart said, revealing also that "American Express was a big part of our strategy" to differentiate Advanta.

Mr. Schwarz sought to prove that during Mr. Hart's tenure at MasterCard, smart card innovation was stifled because of Visa. Mr. Hart adamantly disagreed, and questioned the relevance of the MasterCard documents that Mr. Schwarz showed him. Mr. Hart supported the associations' contention that the lack of a business case for smart cards led MasterCard to postpone them.

Mr. Hart also shed light on a letter the government has referred to numerous times, one written by MasterCard's general counsel, Robert Norton, in the mid-1990s. Mr. Norton was seeking clarification from the government on whether there would be an objection to a bank being represented on both boards - Visa's and MasterCard's. Citibank was apparently interested in sitting on MasterCard International board of directors, but already held a place on Visa U.S.A.'s board of directors.

Mr. Schwarz read from a letter from a senior MasterCard executive who wrote: "The interests of the Visa/MasterCard boards are fundamentally identical."

On cross-examination, MasterCard's attorney, Kenneth A. Gallo, sought to prove that the government was confusing the issues, having only proved that duality - not dual governance - was anti-competitive.

"Dual governance is supposedly the heart of the government's case," Mr. Gallo said. Mr. Hart concurred that "there is no dual governance" of the bank card associations. Mr. Gallo seemed to win some points when he asked Mr. Hart to give specific examples of how Visa and MasterCard compete. Mr. Hart provided compelling testimony, describing the cutthroat competition between Visa and MasterCard in the areas of branding and cobranding.

Mr. Gallo attacked American Express, pointing out that Advanta would not have had access to Amex's Optima customers. Shortly after the Amex/Advanta deal fell through - after Visa and MasterCard had sued Advanta - Amex poached one of Advanta's key target marketing executives, Mr. Gallo said, proving that it was no friend to the bank card issuer.

During the era of the lawsuit against Advanta, Mr. Hart said, he was "very angry [at Visa and MasterCard] and I suspected there was some conspiracy."

Stephen Bomse, Visa's attorney, said it was not Visa's and MasterCard's membership rules, but trademark infringement, that was to blame for the demise of the Rewards Accelerator program. The card associations had sued Advanta for trademark infringement, and the case was settled, with Advanta agreeing to pull the plug on the product.

Andrea Cooper contributed to this article


NEW YORK - The full-page advertisements about the antitrust trial running this week in The Wall Street Journal from a group that calls itself Americans for Consumer Education and Competition may look like they represent opinions of an uninvolved organization, but the nonprofit is actually funded entirely by Visa U.S.A.Visa's name does not appear in the ads, which slam American Express Co. and the government's case.

The organization, founded in May, says its main mission is to increase financial literacy, and that it is working to explain to consumers that they will be hit with higher credit card costs if the Justice Department wins the case. Visa's role in the ACEC is mentioned on the organization's Web site.

Susan Molinari, a spokeswoman for the ACEC and a former member of Congress, said Visa's name was not included in the ads because "that would infer that we've run all this by Visa, and we're not."

"We're primarily funded by Visa, but we make our own decisions," Ms. Molinari said.

According to the ACEC, the ads are meant to explain the "facts" of the antitrust case against MasterCard and Visa to consumers and public opinion leaders. The advertisements list the ways that - in the opinion of the ad sponsors - American Express made bad business decisions that led to its position in the trial. The ads point out that American Express hired former Supreme Court nominee Robert Bork to lobby the Justice Department to file the antitrust suit in 1998.

Amex spokesman Michael O'Neill called the ads a "desperate tactic," saying, "All they're trying to do is divert attention from their legal misdeeds."

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