Visa Turns to an Old Friend in Antitrust Cases
Fickenscher, Lisa, American Banker
Visa International and MasterCard International face unprecedented legal challenges this year in the form of two major antitrust lawsuits slated to go to trial within six months of each other.
Behind-the-scenes wrangling during the discovery periods of both cases has given glimpses of the defense strategies the credit card powerhouses are developing. The maneuvering also indicates that Visa may be turning to an old friend to supply the intellectual cornerstone of its defense.
Richard L. Schmalensee, dean of the Sloan School of Management at the Massachusetts Institute of Technology, is perhaps best known as an expert witness in the Microsoft trial. His ties to the credit card industry, and Visa in particular, go back nearly a decade.
These roots, legal experts say, could be both an advantage and a detriment if he becomes Visa's expert witness at trial.
The lawsuits, one filed more than a year ago by the Department of Justice and the other filed three years ago by the biggest retailers -- known as the Wal-Mart case -- have trial dates of June 5 and November 27 respectively. There are many overlapping issues in the cases -- so many, in fact, that that the Department of Justice was granted permission by the judge in the retailer case to intervene. This means that the lawyers for the government and the retailers may share documents.
In an interview, Mr. Schmalensee said he is involved in both cases on behalf of Visa. People close to the legal proceedings said Mr. Schmalensee appears on Visa's witness lists in both lawsuits and that he is likely to be its expert witness. Mr. Schmalensee declined to confirm that he is named as a witness. He said only that " there is no commitment to call everyone on the witness list."
In an odd twist, the case would also provide Mr. Schmalensee a chance to square off against a recent adversary. Franklin M. Fisher, the economic expert for the government in the Microsoft case and an M.I.T colleague of Mr. Schmalensee, is also the retailers' economic expert.
If Mr. Schmalensee is called to the stand, it would not be his first testimony on behalf of Visa. He first worked for the San Francisco-based association in 1991, when Sears Roebuck & Co., the Discover card's owner at the time, filed an antitrust lawsuit after Visa refused to let Sears issue a Visa card. Mr. Schmalensee testified with limited success as Visa's expert witness in defending a rule preventing competitors Discover and American Express from issuing Visa cards. A jury in 1992 sided with Discover. Visa appealed, and in 1994 a judge overturned the decision.
The focus of the Department of Justice's lawsuit, among other things, is another rule that prohibits Visa's and MasterCard's member banks from issuing the card brands of competitors.
Mr. Schmalensee said the credit card industry is uniquely misunderstood, and that that misunderstanding has caused the industry's legal woes. A new book Mr. Schmalensee wrote with David Evans, a senior vice president of National Economics Research Associates Inc., "Paying with Plastic" (M.I.T Press), is meant to address misperceptions, Mr. Schmalensee said.
"It is an attempt to unpack a rather unusual competitive landscape," he said. "The courts need to recognize that these joint ventures (Visa's and MasterCard's) have done a lot for the American consumer and economy."
Mr. Schmalensee said he approached Visa about writing the book and Visa provided the funding for it as well as much of the data. The book was distributed to journalists by a public relations firm hired by Visa.
The professor described "Paying with Plastic" as an "academic analysis" and disputed that the book, published in December, "was an exercise in paid-for advocacy." Mr. Schmalensee said, "I've been an academic for 30 years. The notion that I would sell my reputation for the little bit of money I got for this ... not a chance. …