In the only testimony scheduled this week in the credit card antitrust trial, a law professor appearing as an expert witness for Visa said a Justice Department proposal would be highly disruptive to the industry.

The Justice Department submitted its final proposed remedy to Judge Barbara S. Jones late Friday. The proposal, which was the center of attention during questioning of Prof. Ronald Gilson, calls for banks that sit on the Visa or MasterCard board to issue new cards only under the respective brand. Banks not on an association's board would be free to issue any card brand they choose, including American Express and Discover.

Prof. Gilson, a professor of law and business at Stanford Law School and Columbia University School of Law, had submitted a report on the card industry earlier in the trial. In his return appearance, he did not argue for preserving the current system - in fact, he testified, duality as it exists is already deteriorating because of new competitive pressures in the marketplace. He cited recent developments such as Visa's partnership program as evidence that Visa is moving towards exclusive issuance.

"The process is changing, no question," Prof. Gilson said. "The question is whether the government wants to impose regulatory" change on an industry.

"If Visa tries to experiment [with exclusivity] and they don't like it, they can change it," Prof. Gilson said. "With a court ruling this gets written in stone, and that is a very different process."

The Justice Department has toughened its stance against the card industry and is proposing a more stringent remedy than earlier. It now is calling for banks to commit 100% of their new credit and debit cards to the association they govern. The rest of banks' portfolios would be switched over slowly, with the expectation that by 2003, at least 80% of a portfolio would be dedicated to one brand.

Justice had originally said banks would only have to dedicate themselves in some meaningful way to the brand they govern, a practice that has already been started by the card associations themselves.

Perhaps of most concern to the card associations however, is the Justice Department's remedy that allows banks that do not sit on a board to issue any brands they wish.

Prof. Gilson called the Justice Department's remedy an "unusual experiment," which runs "counter-purpose to the corporate government movement."

"The remedy takes the position that large equity owners are prohibited from governance rules," he said. "You're separating ownership and management."

In cross-examination, lead prosecutor Melvin A. Schwarz argued that the government's proposed remedy gives issuers "a choice over whether [they] want to be a governor."

Prof. Gilson compared the possible outcome of government intervention to the telecommunications industry, where he said regulatory force was detrimental to competition and innovation.

MasterCard said its sole scheduled witness for the week, senior MasterCard executive Henry Mundt, would not be called to the stand. Mr. Mundt has been ill, and MasterCard said the main purpose of his testimony had already been stated in previous testimony.

The trial will resume Monday, with Visa expert witness Dean Richard Schmalensee scheduled to testify.

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