Bennett Katz, Visa's longtime general counsel, continued his testimony as a government witness on Tuesday, alternately making points that seemed to support the government's position and ones that seemed to favor the bank card associations that the Justice Department has sued.
Mr. Katz told the court that in the early 1970s, when Visa asked the Justice Department to prohibit duality, the government had had the opportunity to influence the history of the credit card industry, but had declined. Mr. Katz said it was understandable at the time that the Justice Department did not want to forbid banks from issuing both MasterCard cards and Visa cards.
"You have to put into context that DOJ wanted to encourage banks to get into the [credit card] business," Mr. Katz said.
M. Laurence Popofsky, a lawyer for Visa, was eager to show the court that Visa had objected to duality nearly 30 years ago, when it asked the government to advise the association on the appropriate structure for the fledgling card industry. In response, the government wrote a letter to Visa's attorneys that said duality in card issuance is not a problem. The letter also expressed disapproval for a Visa plan - never carried out - to prevent duality in merchant-acquiring.
Mr. Popofsky wanted to make the point that the government has simply changed its mind about duality over the years, and now wants the court to ignore its earlier actions.
Melvin A. Schwarz, the government's lead counsel, objected several times to Mr. Popofsky's line of questioning about the Justice Department's long-ago decision. Judge Barbara S. Jones, who is presiding over the case in U.S. District Court in New York, said, "The Department of Justice is not a defense for this case."
Judge Jones' comment was consistent with her rulings in June at the beginning of the case, in which she gave Visa and MasterCard a green light to argue that the government had had a hand in the history of duality. But Judge Jones has implied that the Justice Department's actions in the 1970s do not justify everything that Visa has done since then.
Mr. Popofsky introduced as evidence a letter from the 1970s that Visa's then-president Dee W. Hock wrote to members. It said "the problem of confidentiality in the face of dual membership is obvious and has become acute," since Visa board members who also belong to MasterCard are privy to confidential Visa marketing plans.
Mr. Popofsky asked Mr. Katz whether dual directors - meaning Visa board members who also have an interest in MasterCard - pose a problem today. Mr. Katz said the same problem Mr. Hock described holds true. "You are afraid that some banks will have a competitive advantage over another bank," Mr. Katz said.
Lawyers for Visa and MasterCard sought to coax testimony from Mr. Katz showing that his concerns about competition were rooted in the past. But Mr. Katz said, "I don't think the problems have changed."
Mr. Katz did acknowledge that changes in the market have created more competition, particularly among banks that issue cards. In the new climate, some large banks would like to diminish the roles of Visa and MasterCard, which Mr. Katz said "leads to a lessening of inter-system competition, which makes the competition from outsiders even more important."
