A lawyer for the Justice Department spent most of Wednesday trying to poke holes in a report written by Visa's first expert witness.

Richard T. Rapp, president of the National Economics Research Association, was assigned to study whether the example of banks' issuing American Express cards overseas was relevant to the antitrust case. During cross-examination Justice Department attorney Scott Scheele quizzed him on a range of issues and hypothetical situations.

The treatment mimicked that given by defense attorneys to the Justice Department's sole expert witness, economics professor Michael L. Katz of the University of California at Berkeley. Visa, which kept Prof. Katz on the witness stand for more than two days, questioned his expert status in the case because he had never worked in banking.

In a turnabout, Mr. Scheele made much of the fact that Mr. Rapp had never researched or worked in the credit card industry before.

Mr. Rapp, who said he has been an expert witness in about 10 cases during the past three years, testified that he based his report on certain portions of the litigation transcripts and interviews with Visa employees. His report was submitted but not directly discussed in court. Under cross-examination, he said he did not interview any American Express employee.

In his study, Mr. Rapp concluded that the examples of foreign banks' working with American Express - which is allowed under Visa and MasterCard's rules - "are not useful" to the antitrust case.

"These banking deals abroad were a means in countries where Amex didn't have a strong brand presence," he testified. "That is not like here, so these references couldn't be useful in the United States."

Mr. Rapp said he disagreed with Prof. Katz's testimony that dual governance has stalled innovation.

"With the assumption that Prof. Katz and the DOJ accumulated the best evidence that it could that dual governance has stalled innovation, the sum of those examples is weak," he said.

Mr. Scheele cited instances in which Justice Department witnesses - including former employees of MasterCard and Visa - testified that because of duality the two associations did not truly compete and thus did not want to outdo one another with new products.

Mr. Rapp responded, "I understood the problem duality poses - yes, it matters - but it doesn't materially affect my opinions about whether duality affects innovation for consumers."

Mr. Scheele then tried to show that if American Express were allowed to work with U.S. banks Visa and MasterCard would be forced to increase their competitive efforts, ultimately benefiting consumers.

He cited testimony by H. Eugene Lockhart, former chief executive officer of MasterCard, that once American Express stated its desire four years ago to work with banks, MasterCard decided in response to speed up the development of its premium card.

Mr. Scheele asked Mr. Rapp whether American Express' strategy had drawn a competitive response.

Mr. Rapp said his study only covered Amex's strategy outside the United States, but he agreed that MasterCard's decision "is in the nature of a competitive response."


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