A key witness in the Department of Justice's antitrust case against Visa and MasterCard testified on Wednesday that the credit card associations deliberately held back smart card technology so that one association would not come out with a product before the other.

John Elliott, a former MasterCard executive who left the New York-based card company in March 1989, and an important witness for the government, said Visa's and MasterCard's member banks in the mid-1980s wanted the card companies to introduce smart cards in tandem. At that time MasterCard was further along in its development of these chip-based cards, Mr. Elliott said, and put the brakes on its initiatives primarily because Visa was not yet ready to come out with its own product.

Mr. Elliott's testimony seemed to lend strong credence to the government's contention that collaboration between Visa and MasterCard stifled the introduction of products that the government says could have helped consumers. According to the Justice Department's complaint, Visa International, Visa U.S.A. and MasterCard International are not true competitors because they are owned and governed by the same banks.

MasterCard's lawyer, Kenneth Gallo, tried to undermine Mr. Elliott's testimony by coaxing the information that Mr. Elliott had worked for American Express Co. for three years, and was paid $500,000 to be a consultant for Amex in 1998 and 1999. Under his agreement with Amex, Mr. Elliott was required to work only 10 days a month for his fees. Mr. Elliott, now a Florida-based consultant, appeared in court with his attorney, whose fees are being paid by Amex.

Under friendly questioning from government lawyers, Mr. Elliott recalled that an executive committee at MasterCard had been charged with making decisions about smart card initiatives. Mr. Elliott testified that at least one MasterCard committee member, Alex W. "Pete" Hart, received several calls from Visa members saying they did not want MasterCard to move ahead of Visa in smart cards.

Mr. Hart was at the time an executive at First Interstate Bank, and later became chairman and chief executive officer of MasterCard. Now a private consultant, Mr. Hart is on the government's list of trial witnesses.

In 1985, Mr. Elliott was responsible for running MasterCard smart card pilots in Palm Beach, Fla., and Columbia, Md. Smart cards were seen at the time as a means to reduce fraud, security problems, and credit loss problems, and to lower transaction authorization costs.

Mr. Elliot was a staunch advocate of smart cards. He said that he urged senior management, including MasterCard's then-president, Russell Hogg, to press forward with them.

The government sought to show that MasterCard was prepared to run with smart cards, but was stifled by the member banks that own both MasterCard and Visa. Evidence included video clips from 1985 and 1986, one of which showed Mr. Hogg in an interview on NBC's "Today" show, extolling the benefits of smart cards.

The second tape, which Mr. Elliott created, was meant to promote smart cards and illustrate MasterCard's cutting-edge lead. It was distributed to member banks, vendors, trade associations, and the media.

In a blistering cross-examination, Mr. Gallo of MasterCard tried to prove that Mr. Elliott's motives in testifying against MasterCard were tainted by his relationship with American Express. Visa and MasterCard maintain that Amex is chiefly responsible for convincing the government to sue them, and say that much of the government's evidence against them is based on information from Amex.

Mr. Gallo tried to show that Mr. Elliott acted presumptuously at MasterCard, trying to promote smart cards before the association had time to analyze the total cost. Pointing to studies conducted by consultants, Mr. Gallo said MasterCard would have incurred a cost of $1.3 billion to implement a smart card system.

Mr. Gallo referred to a Jan. 10, 1986, memo from a MasterCard marketing executive, Alan Schultheis, who described a conversation with Mr. Elliott about advancing MasterCard's smart card initiatives. Mr. Schultheis wrote to another marketing executive, John Cunningham, that, based on his conversation with Mr. Elliott, MasterCard ought to pump up its public relations and financial commitment to smart cards, to continue to bring cards and merchants into the program. By then, Visa had announced a "super" smart card product, and Mr. Elliott was apparently concerned that Visa would appear to have a superior product.

"After Mr. Hogg appeared on television and after the video, the economics at MasterCard had still not been determined?" Mr. Gallo asked.

Mr. Elliot said, "Yes, they [the studies] were under way." Still, Mr. Elliott insisted his advice had been right. "MasterCard would have been better off rolling out smart cards," he said.

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