RAILROAD ANTITRUST ENFORCEMENT ACT 

OF 2009 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS AND 

COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON

H.R. 233 

MAY 19, 2009 

Serial No. 111–63 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

RAILROAD ANTITRUST ENFORCEMENT ACT OF 2009 

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

49–781 PDF 2010

RAILROAD ANTITRUST ENFORCEMENT ACT 

OF 2009 

HEARING 

BEFORE THE

SUBCOMMITTEE ON COURTS AND 

COMPETITION POLICY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

ON

H.R. 233 

MAY 19, 2009 

Serial No. 111–63 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON COURTS AND COMPETITION POLICY

HENRY C. ‘‘HANK’’ JOHNSON, JR., Georgia, Chairman 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ROBERT WEXLER, Florida 

CHARLES A. GONZALEZ, Texas 

SHEILA JACKSON LEE, Texas 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MIKE QUIGLEY, Illinois 

HOWARD COBLE, North Carolina 

JASON CHAFFETZ, Utah 

BOB GOODLATTE, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

DARRELL ISSA, California 

GREGG HARPER, Mississippi 

CHRISTAL SHEPPARD, Chief Counsel 

BLAINE MERRITT, Minority Counsel 

(III) 

C O N T E N T S 

MAY 19, 2009 

Page 

THE BILL 

H.R. 233, the ‘‘Railroad Antitrust Enforcement Act of 2009’’ .............................. 3 

OPENING STATEMENTS 

The Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress 

from the State of Georgia, and Chairman, Subcommittee on Courts and 

Competition Policy ............................................................................................... 1 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Ranking Member, Subcommittee on Courts and 

Competition Policy ............................................................................................... 10 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 11 

WITNESSES 

The Honorable Rodney Alexander, a Representative in Congress from the 

State of Louisiana 

Oral Testimony ..................................................................................................... 12 

Prepared Statement ............................................................................................. 15 

Mr. M. Howard Morse, Chair, Exemptions and Immunities Committee, American Bar Association, Section of Antitrust Law, Washington, DC 

Oral Testimony ..................................................................................................... 18 

Prepared Statement ............................................................................................. 21 

Mr. J. Michael Hemmer, Vice Chairman, Policy and Advocacy Committee, 

Association of American Railroads, Washington, DC 

Oral Testimony ..................................................................................................... 35 

Prepared Statement ............................................................................................. 44 

Mr. Terry Huval, Director, Lafayette Utilities System, Lafayette, LA 

Oral Testimony ..................................................................................................... 74 

Prepared Statement ............................................................................................. 76 

Dr. Mark N. Cooper, Director of Research, Consumer Federation of America, 

Washington, DC 

Oral Testimony ..................................................................................................... 87 

Prepared Statement ............................................................................................. 90 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 109 

(1) 

RAILROAD ANTITRUST ENFORCEMENT ACT 

OF 2009 

TUESDAY, MAY 19, 2009 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS AND

COMPETITION POLICY

COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 3 p.m., in room 

2141, Rayburn House Office Building, the Honorable Henry C. 

‘‘Hank’’ Johnson, Jr. (Chairman of the Subcommittee) presiding. 

Present: Representatives Conyers, Johnson, Wexler, Jackson Lee, 

Watt, Sherman, Coble, Goodlatte, and Harper. 

Also present: Representatives Scott and Smith. 

Staff present: Anant Raut, Majority Counsel. 

Mr. JOHNSON. This hearing of the Committee on the Judiciary’s 

Subcommittee on Courts and Competition Policy will now come to 

order. Without objection, the Chair is authorized to declare a recess. 

Today’s hearing is about H.R. 233, a bill that would eliminate 

antitrust exemptions in the railroad industry. The bill would enable the Department of Justice and the Federal Trade Commission 

to enforce antitrust laws in the railroad industry. The bill would 

also restore the full range of antitrust rights and remedies to private parties. 

Under the Interstate Commerce Commission, and later the Surface Transportation Board, the number of class one railroads in 

this country shrank from 63 to 7. As of now, four of the class ones 

handle 90 percent of the Nation’s rail carrier traffic, two to the 

East and two to the West. 

The effect of this consolidation has been an increase in prices. 

According to an October 2006 GAO study, the volume of traffic 

traveling at significantly noncompetitive rates has increased since 

1985. The rates paid by so-called ‘‘captive shippers,’’ that is shippers with only one carrier option, on part of that route are, on average, almost 21 percent higher than on competitive routes, costing 

shippers an additional $1.3 billion every year. 

These costs are ultimately passed on to consumers as higher 

prices. They mean higher prices at the dealership for the cars 

transported by rail. They mean higher prices at the grocery store 

for the crops shipped by rail, et cetera, et, cetera, et cetera. 

As a matter of public policy, we shy away from antitrust exemption. The Antitrust Modernization Commission, created by this 

2 

Committee, made the following observation about exemption: ‘‘Antitrust exemptions create economic benefits that flow to small groups 

while the costs are usually passed on to a large population of consumers though higher prices, reduces output, lower quality, and reduced innovation.’’ 

The bill before us today would leave the rail carrier industry no 

differently situated than any other number of industries subject to 

both antitrust laws as well as regulation. It would, however, remove antiquated antitrust exemptions favoring the industry, which 

will spur innovation, drive down costs, and ultimately lower prices 

for consumers. 

[The bill, H.R. 233, follows:] 

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Mr. JOHNSON. I now recognize my colleague, Howard Coble, the 

distinguished Ranking Member of this Subcommittee for his opening remarks. 

Mr. COBLE. Thank you, Mr. Chairman. And I appreciate your 

having called today’s hearing. Last year, Mr. Chairman, the full 

Committee approved similar legislation by voice vote. I have not 

changed my views on the impact that shipping costs have on many 

industries in the district I represent, many of which provide essential services; but as I did not serve on the Antitrust Task Force last 

session, I appreciate this opportunity to more closely review H.R. 

233 and to discuss its impact, as you have just done. 

My concern with the rail shipping industry and hope for today’s 

hearing is that we approve the most effective solution. Perhaps 

antitrust review by the Justice Department or FTC is the most effective solution, although are needed improvements at the Service 

Transportation board, known as the STB. 

And a visit back down memory lane, in an antiquated way, Mr. 

Chairman, in 1887 the Congress passed the Interstate Commerce 

Act, which established the Interstate Commerce Commission. That 

body was in charge of regulating virtually every facet of the railroad’s operations, including the rates that they charged customers 

to ship goods across the country. 

Congress’ regulation of the railroads began at about the same 

time as it passed the Sherman Antitrust Act. As the two laws developed over time, the courts and the Congress recognized that 

heavily regulated industries, such as railroads, should not be subject to the full reach of the antitrust laws. The courts developed the 

so-called ‘‘filed rate,’’ or Keogh Doctrine, to shield railroads from 

antitrust liability for rates that were set through a regulatory body, 

and the Congress statutorily exempted certain pooling arrangements from antitrust security. 

Over time, the Nation’s attitude toward heavy regulation 

changed, particularly as some heavily regulated industries, including the railroads, began to suffer. By 1980, the rail industry had 

become glaringly inefficient, and as a result, the Congress passed 

the Staggers Act, which deregulated the industry and shortly 

thereafter replaced the Interstate Commerce Commission with the 

STB. 

Currently the STB is not required to approve shipping rates, and 

the rail industry is not covered by the antitrust laws, which is why 

the Justice Department can not independently challenge rail mergers. This authority rests solely with the STB and is at the heart 

of H.R. 233 and today’s hearing. 

Many shippers who also claim to be captive to unjustified rates 

and rigid schedules argue that there are instances where shipping 

from other countries can be more cost effective than shipping within two points in the United States. Meanwhile, we all know the 

benefit of railroads. They are energy efficient; they can move massive amounts of goods; and they are, indeed, a driving force in our 

sagging economy. 

I have heard from constituents back in my district, Mr. Chairman, about this issue. I want to help solve the problem, but feel 

very strongly that we should understand how H.R. 233 will affect 

the rail industry. While I am here with an open mind, in my view 

11 

the onus today and moving forward is on the rail industry to help 

us identify problems and to recommend solutions or improvements 

to H.R. 233. 

That said, I look forward to today’s testimony and yield back the 

balance of my time, and thank you again, Mr. Chairman, for having called the hearing. 

Mr. JOHNSON. Thank you, Ranking Member Coble. 

I thank the gentleman for his statement, and I now recognize 

John Conyers, a distinguished Member of the Subcommittee and 

the Chairman of the Committee on the Judiciary, should he wish 

to make a statement. 

He has said, ‘‘Good afternoon.’’ And is there anyone else who 

wishes to make a statement for the record? 

The Honorable Lamar Smith, the Ranking Member of the full 

Committee? 

Mr. SMITH. Thank you, Mr. Chairman. 

Mr. Chairman, let me begin by saying that I appreciate the concerns of the shipping industry. Like many others in the economy, 

they are suffering. Rising costs mean that when their existing longterm contracts for the shipment of coal expire, for example, some 

power companies in my district will face drastically higher rates 

from the railroads. 

While I am sympathetic and concerned about the plight of the 

captive shippers, I am also concerned that the legislation before us 

will not necessarily solve their problem. The bulk of the shippers’ 

concerns seem to lie with what they view as an ineffectual regulatory body, the Surface Transportation Board, or STB. 

Like the members of the Antitrust Modernization Commission, I 

am skeptical about many antitrust exemptions. To me, the elimination of some antitrust exemptions for the railroad industry, such 

as subjecting mergers in the industry to review before the antitrust 

division of the Department of Justice, makes sense. 

However, the Railroad Antitrust Enforcement Act of 2009 does 

more than just that. It would subject railroads to search for injunctive relief throughout the country. Because railroads are widespread networks that are not easily diverted into other channels, 

an injunction in one part of the network could have serious repercussions throughout. 

In addition, a railroad that runs across multiple districts and circuits, as most do, could be subject to an injunction in one district, 

whereas the exact same conduct could be deemed ‘‘not problematic’’ 

just one district over. Worse still, discrepancies among district circuit courts may lead to form shopping by aggressive plaintiff lawyers, which is something that has created problems in the class action arena before. 

Another issue raised by this bill is the provision that specifies 

that Federal district courts do not have to defer to the discretion 

of the Surface Transportation Board in these suits. As it is currently worded, this provision, which is inconsistent with generally 

accepted principles of administrative law, is likely to encourage 

judges to be overly reluctant to refer suits that would most appropriately be handled by the Surface Transportation Board to that 

regulatory body. 

12 

Finally, I am concerned that the section of the bill that provides 

for a grace period for civil suits after the enactment of the bill may 

actually invite courts to look retroactively into practices that were 

exempted from the antitrust laws or were specifically approved by 

the STB at the time they occurred. I am worried that in an effort 

to address the shippers’ concerns about bottleneck pricing and 

paper barriers courts may be tempted to undo mergers that were 

approved years ago. Such unscrambling of the eggs is something 

that is generally discouraged in antitrust law. 

Mr. Chairman, I appreciate the issues that bring us here today. 

I am hopeful that this hearing will give us the opportunity to consider the concerns that I have with this legislation. And I am also 

hopeful that we will be able to come up with solutions that will address the shippers’ concerns without ruining our vital railroad infrastructure or undermining widely and long held aspects of regulatory law and practice. And with that I will yield back. 

Mr. JOHNSON. I thank the gentleman for his statement, and 

without objection, other Members’ opening statements will be included in the record. 

I am now pleased to introduce the witnesses at today’s hearing. 

On our first panel is the Honorable Rodney Alexander. Congressman Alexander proudly represents the Fifth District of the great 

southern State of Louisiana. He is also an original cosponsor of the 

legislation we have before us today. 

Congressman Alexander, will you proceed please? 

TESTIMONY OF THE HONORABLE RODNEY ALEXANDER, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA 

Mr. ALEXANDER. Thank you, Mr. Chairman. First thing I would 

like to do is thank you and the Ranking Member for allowing me 

the opportunity to be here today and to thank the full Committee 

for hearing this bipartisan bill that attempts to level the playing 

field out there today. 

I would like to be clear, in starting, that this bill is not about 

reregulation of the railroad industry. The bill does nothing of the 

sort. It simply places the rail industry under the same antitrust 

laws that every other industry, such as energy, telecommunications, or even other forms of freight transportation, including 

trucking and aviation, places. These laws, of course, are the Nation’s basic laws for ensuring competitive markets. 

As you know, Mr. Chairman, 30 years ago the railroad industry 

was failing and Congress removed much of the regulatory oversight 

over the industry, and merger authority was transformed to the industry’s only regulator, the Surface Transportation Board. Unfortunately, at that time Congress did not remove the antitrust exemptions from the industry that had accumulated through various acts 

of Congress and the courts during the 1900’s. 

Since 1980, the railroad industry has been able to use the antitrust exemptions that they still currently enjoy to consolidate over 

40 major class one railroads into four major carriers that today 

carry 90 percent of our Nation’s rail freight. The problem that this 

poses is that freight rail customers are subject to abusive practices 

without the protection of our Nation’s antitrust laws. 

13 

This problem is now evident not only to consumers but to the Department of Justice as well. In her Senate nomination hearings, 

Christine Varney, who is now the chief antitrust enforcer at the 

Justice Department, recognized the need for competition in the rail 

industry when she stated that she enthusiastically supports the bill 

that we are debating today. 

Shippers continue to report skyrocketing rates and unreliable 

service. Louisiana is the second largest chemical manufacturing 

state in the Nation. As such, the chemical industry provides significant economic benefits to the state and to the Nation as a whole. 

I think it is important to remind ourselves that over 96 percent 

of all manufactured goods are directly touched by the business of 

chemistry, making the industry an essential part of every facet of 

Louisiana and the national economy. But these businesses do not 

see the railroads as a reliable source of transportation, especially 

when you compare that service to the rates they are forced to pay. 

The chemical companies are not alone. Utility companies are 

being forced to raise the cost of electricity provided to the businesses and households that they serve. On the next panel, Terry 

Huval, the director of utilities for the city of Lafayette, will testify 

concerning a bottleneck that prevents a large coal-fired electricity 

generating plant near Boyce, Louisiana, called the Rotomaker 

Plant, from gaining access to competitive coal transportation rates 

for over 95 percent of the length of a coal haul from Wyoming. 

An organization known as the Louisiana Energy and Power Authority also receives electricity from the Rotomaker Plant and distributes it to six towns in my congressional district: Alexandria, 

Jonesville, New Roads, Plaquemine, Vidalia, and Winnfield. The 

citizens, businesses, and schools in these towns are facing a cost of 

captivity that is similar to the cost that Terry will describe for the 

city of Lafayette. 

In 2004, the Bush administration Department of Justice wrote 

the Chairman of this Committee, indicating that the bottleneck ruling that is causing these high transportation costs that my constituents are paying likely violates the antitrust laws, if those laws 

applied here. 

Unfortunately, until this Congress enacts H.R. 233, the railroads 

will remain exempt from and beyond the reach of the Nation’s antitrust laws. I want to see my constituents relieved of this cost of 

captivity through the enactment of this legislation, of which I am 

proud to be a lead cosponsor of my political party with Congresswoman Tammy Baldwin. 

Coal-fired electric generating stations serving citizens across our 

Nation are facing similar problem. Recently, in Florida, the CSX 

Railroad, which is the sole source of transportation of coal from the 

Appalachians to Seminole Electric Co-op, doubled its rate for coal 

shipments to Seminole. Seminole states that this rate hike will cost 

its electricity consumers an additional $100 million annually beginning in 2009. 

American manufacturing, agriculture, timber, and paper companies that are all facing rising rates that they are forced to attempt 

to pass on to their consumers at a time when their customers can’t 

afford the cost of these increases. While these rate hikes don’t work 

for most Americans and most businesses, the hikes have served the 

14 

freight rail industry well, as can be seen by the returns of the four 

major freight railroads in the fourth quarter of 2008. These four 

railroad companies each posted earning increases on decreased volumes of traffic moved. Unfortunately, few if any of their consumers—their customers—could report such a positive economic 

performance. 

Congressman Baldwin, Congressman Pomeroy, Congressman 

Walsh, and I introduced this bill to level that playing field. First, 

the railroad antitrust exemption that has no current public policy 

jurisdiction and is protecting anticompetitive conduct for the railroad industry. Second, the bill permits the Justice Department and 

the FTC to review railroad mergers, line sales, and other railroad 

transactions under the antitrust law standard to ensure competitive markets. 

Third, the bill ensures that the regulatory program developed by 

the Surface Transportation Board will be pro-competitive. And finally, the bill allows the state attorney general and other private 

parties to sue for damages and for injunctions to halt anticompetitive conduct, both of which are currently allowed due to the railroad industry’s exemptions from the antitrust laws. 

In March of this year, the Senate Judiciary Committee passed 

unanimously by a vote of 14 to zero bipartisan legislation very 

similar to this. Some have argued that his legislation would result 

in overlapping dual regulation by antitrust courts and the STB; but 

in fact, they would not be overlapping nor would the conflict. 

Rail transportation that is subject to STB jurisdiction is the only 

major Federal regulated activity that operates outside the U.S. 

antitrust laws. All other U.S. industry activities that are subject to 

Federal economic regulation are also subject to the antitrust laws 

that protect consumers from monopolization, agreements in restraint of trade, and mergers that may lessen competition. 

While the bill is by no means the final solution for restraining 

railroad monopoly power, the enactment of the bill would be a 

giant step forward in that direction. 

Again, I thank you, Mr. Chairman, for allowing me to testify in 

support of this legislation, and I look forward to working with the 

Committee as we move forward with this legislation. Thank you. 

[The prepared statement of Mr. Alexander follows:] 

15 

PREPARED STATEMENT OF THE HONORABLE RODNEY ALEXANDER, 

A REPRESENTATIVE IN CONGRESS FROM THE STATE OF LOUISIANA


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Mr. JOHNSON. Thank you, Congressman Alexander. The Subcommittee appreciates you being with us today. 

And we will now turn to our second panel and ask them to take 

their seats here at the table. And while they are doing that I will 

introduce them. 


RA-3.eps
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First we have Mr. Howard Morse. Mr. Morse is a partner at the 

law firm Drinker Biddle & Reath. Before joining the firm, Mr. 

Morse spent 10 years at the Federal Trade Commission, where he 

served as assistant director of the bureau of competition. Mr. 

Morse is here today on behalf of the American Bar Association’s 

section of antitrust law and he is currently chair of the section’s 

exemptions and immunities committee. 

Next is Mike Hemmer—— 

And by the way, Mr. Morse, welcome today. 

Next is Mike Hemmer, Vice Chairman of the Policy and Advocacy Committee of the Association of American Railroads. In addition to his position with AAR, Mr. Hemmer is a Senior Vice President and general council of Union Pacific Railroad. Prior to his appointment, Mr. Hemmer was a partner in the Washington, D.C. office of Covington & Burling, specializing in transportation law. 

Welcome, sir. 

Next we have Mr. Terry Huval, director of Lafayette Utilities 

System, located in Lafayette, Louisiana—or is it Lafayette? 

Mr. HUVAL. Lafayette. 

Mr. JOHNSON. Lafayette. Okay. LUS is a municipally-owned utility providing electric water and waste water services to over 60,000 

customers. 

Finally, we have Dr. Mark Cooper. Dr. Cooper is director of research at the Consumer Federation of America. He has provided 

expert testimony in over 200 cases for public interest clients, including state attorneys general and citizen interveners for state 

and Federal agencies, courts and legislatures in the United States 

and Canada. 

Thank you for being here, Dr. Cooper. 

And I appreciate all of you all’s willingness to participate in today’s hearing. Without objection, your written statement will be 

placed into the record, and we would ask that you limit your oral 

remarks to 5 minutes. You will note that we have a lighting system 

here, right on the table in front of you. Nobody ever complies with 

it. [Laughter.] 

But we are asking you to do so. 

You will note that at 4 minutes the little light turns yellow, and 

then at 5 minutes it goes red. After each witness has presented his 

testimony, Subcommittee Members will be permitted to ask questions subject to the 5-minute limit. 

Mr. Morse, please begin your testimony. 

Sir, if you would put on your mic? 

TESTIMONY OF M. HOWARD MORSE, CHAIR, EXEMPTIONS AND 

IMMUNITIES COMMITTEE, AMERICAN BAR ASSOCIATION, 

SECTION OF ANTITRUST LAW, WASHINGTON, DC 

Mr. MORSE. Chairman Johnson, Congressman Coble, Members of 

the Subcommittee, my name is Howard Morse. I am an antitrust 

partner here in Washington with Drinker Biddle & Reath. As your 

introduction indicated, I also serve as chair of the Exemptions and 

Immunities Committee of the American Bar Association’s Section 

of Antitrust Law, and I am testifying today on behalf of the Section. 

19 

The Antitrust Section appreciates the opportunity to be here and 

express support for H.R. 233, the Railroad Antitrust Enforcement 

Act, which would dismantle antitrust exemptions that insulate the 

railroad industry from antitrust actions. The Section Council has 

approved this position. Our testimony has not been reviewed, however, by the ABA House of Delegates or Board of Governors, and 

so I speak only for the section. 

The Section believes that statutory exemptions and immunities 

from the antitrust laws should be strongly disfavored. Competition 

has proven time and again to lead to lower prices, better quality 

and service, and more innovation. 

For more than a century, the antitrust laws have effectively promoted competition, consumer welfare, and efficient markets. Indeed, the Supreme Court, in a 1972 opinion by Justice Marshall, 

called the antitrust laws the Magna Carta of free enterprise, as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. 

The antitrust laws encourage firms to compete aggressively. 

They permit collaborations that generate pro-competitive efficiencies. But they prohibit conduct that excludes rivals to the detriment of consumers, collusion among competitors, and mergers 

that lessen competition. 

The Section of Antitrust Law has frequently noted its opposition 

to antitrust exemptions based on claims that immunity is needed 

because of unique characteristics of particular industry. The section 

has opposed exemptions in industries from baseball, to health care, 

to ocean shipping. Claims that an antitrust exemption is necessary 

for competition to flourish, or because competition is itself harmful 

or undesirable, or that competition does not work in an industry, 

or that an immunity is necessary in order to provide an industry 

with certainty and predictability to encourage investment should 

not prevail. 

The 2007 report of the congressionally-mandated Antitrust Modernization Commission, which was already mentioned today, similarly advises that statutory immunities from the antitrust laws 

should be disfavored. They should be granted rarely, and only 

where and for so long as is necessary. 

The Section of Antitrust Law believes it is time to repeal exemptions adopted in an era that considered protection of particular industries to be beneficial. It is the Section’s view that even if antitrust exemptions may have made some sense in a regulated environment, deregulation of the railroad industry has eroded the basis 

for continuing exemptions. 

Antitrust enforcement is all the more important where there may 

be uncertainty as to whether activity is subject to regulation. While 

the railroad industry today is not immune from all antitrust actions, the industry does benefit from express statutory and judicially-created immunity, which would be eliminated by the Railroad Antitrust Enforcement act. 

Even after the act becomes law, of course, the implied immunity 

doctrine will prevent antitrust from imposing obligations that conflict with regulation. The act would, however, among other things, 

remove railroads from the protection of the judicially-created ‘‘filed 

20 

rate’’ or Keogh Doctrine, which insulates firms from antitrust damages actions. 

The act would also allow private parties to seek injunctive relief 

against railroads. So-called ‘‘bottleneck rates’’ and ‘‘paper barriers,’’ 

or tying arrangements and exclusive dealings, would be subject to 

scrutiny, as in other industry, but whether they would be unlawful 

would depend upon the facts in the particular situation. 

The act would also bring railroad mergers within the ambit of 

Section 7 of the Clayton Act and empower the Department of Justice and Federal Trade Commission to block acquisitions which 

lessen competition, as the agencies can even in other regulated industries. 

The Section of Antitrust Law supports these steps. I thank you 

for your time and welcome your questions. 

[The prepared statement of Mr. Morse follows:] 

21 

PREPARED STATEMENT OF M. HOWARD MORSE


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Mr. JOHNSON. Thank you, Mr. Morse. 

Mr. Hemmer, would you proceed now? 

And by the way, Mr. Morse, that was right within the 5 minutes. 

I am extremely blown away by that. 

Mr. MORSE. We try to be respectful. 


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Mr. COBLE. Mr. Chairman, would you want to give Mr. Morse 5 

more minutes? [Laughter.] 

Only kidding. 

Mr. JOHNSON. I am afraid not. This subject matter is so riveting 

that I don’t want anyone to get overexcited about it. 

But, proceed. 

TESTIMONY OF J. MICHAEL HEMMER, VICE CHAIRMAN, POLICY AND ADVOCACY COMMITTEE, ASSOCIATION OF AMERICAN RAILROADS, WASHINGTON, DC 

Mr. HEMMER. Mr. Morse set a high standard for performance. I 

will try to equal it. 

Chairman Johnson, Ranking Member Coble, Ranking Member 

Smith, and Members of the Committee, I am Mike Hemmer, from 

Union Pacific Railroad. Thank you for the opportunity to comment 

on H.R. 233 today. 

During my testimony today I will review three points and refer 

you otherwise to the lengthy written testimony that I supplied previously. The first point is, if this bill did nothing more than what 

Mr. Morse said—that is, to repeal statutory immunities—the railroad industry would not have much trouble with it. My second 

point, though, is that this bill goes considerably beyond repealing 

statutory immunities, and I will explain why. And finally, we are 

concerned about what we believe is the likely retroactive application of those additional changes. 

Let me begin, though, if I may, by attempting to dispel a myth. 

I continue to be astonished at broad statements that the railroad 

industry is completely exempt from the antitrust laws or broadly 

exempt and that shippers do not have antitrust remedies. That is 

a myth. 

I am going to hold up a—this is a law firm bill. It is typical of 

a bill that I receive every month for about a quarter of a million 

dollars to defend Union Pacific against an antitrust class action— 

or attempted class action. Cases like this are brought periodically. 

We win most; we lose some. But we are by no means exempt from 

the antitrust laws. 

As I explained in my written testimony, where the railroads have 

statutory exemptions today, and some other exemptions, we are 

prepared to work with you to remove them. This includes allowing 

dual review of all rail mergers by the Department of Justice and 

the Surface Transportation Board, so I hope we get that opportunity. 

This bill, however, extends beyond simply removing exemptions. 

And you don’t have to take my word for it. 

There have been several mentions today of the Antitrust Modernization Commission, which was quite hostile to exemptions, as 

was the ABA. In annex A of the commission’s report, they listed 

all of the major exemptions from the antitrust laws. I assume you 

have seen a copy of it—it looks something like this. 

I commend it to you. That list did not include the doctrine of primary jurisdiction, which H.R. 233 curtails for railroads only. It did 

not include the exclusion of FTC jurisdiction over common carriers, 

which this bill overturns for railroads only. And it certainly didn’t 

mention anything about protecting local communities in STB transVerDate Aug 31 2005 11:45 Mar 24, 2010 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6601 H:\WORK\COURTS\051909\49781.000 HJUD1 PsN: 49781
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actions, which of course, has nothing whatsoever to do with the 

antitrust laws, but is in this bill. 

We believe that H.R. 233 overrides for railroads only fundamental principles of antitrust jurisdiction and of civil procedure, 

which are embodied in numerous Supreme Court cases. For example, it guides courts that they may not choose to apply the doctrine 

of primary jurisdiction, which is a fundamental set of principles 

embodied in numerous Supreme Court cases that instructs courts 

about how to interact with regulated industries. Frankly, I don’t 

know what a trial judge should do with that guidance. 

Moreover, the report accompanying last session’s comparable bill 

virtually instructed antitrust courts that they should disregard 

antitrust analysis, and instead should override certain Surface 

Transportation Board decisions. In doing so, they counsel courts 

not to follow Supreme Court jurisprudence on such issues as unilateral behavior and applied immunity. 

To put it simply, this bill does not merely open up the railroads 

to antitrust—that we have little objection to. It alters substantive 

law when it comes to railroads, and only to railroads. We think 

antitrust discrimination against one industry ought to be at least 

as troubling as antitrust protection of one industry. 

So why is this happening in this bill? Last session’s Committee 

report made it quite clear that an objective of the bill was to overturn certain STB decisions that some shipper groups disliked, but 

that, I must say, were crucial in transforming the railroad industry 

from the Chrysler Motor Company of its day into a very vibrant 

and effective industry that meets national needs. 

With all due respect, if Congress wishes to change STB regulation, it should do that rather than attempting to use the blunt 

cudgel of antitrust policy changes to override legislation and create 

conflicts with regulation—override regulation, I am sorry. We urge, 

as the Antitrust Modernization Commission urged, that antitrust 

changes be coordinated with changes, if any, in regulation. 

Finally, we also urge you to repair defective section nine, which 

we believe would allow retroactive application of antitrust law to 

literally 100 years of STB and ICC decisions, which have conferred 

express antitrust law immunity. We know you don’t intend retroactivity, but as you know, retroactivity is highly unusual. It creates 

constitutional issues; it may create taking issues. And we believe 

that you didn’t—that that section needs to be repaired. 

In closing, I ask that we be allowed to submit for the record 

three letters from major railroad unions which recognize that this 

bill could hurt not only shippers and customers and railroads and 

the national interest, but labor employment—— 

Mr. JOHNSON. Without objection. 

[The information referred to follows:] 

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Mr. HEMMER. Thank you, sir. That concludes my remarks, and 

I would be happy to answer questions. 

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Mr. JOHNSON. Thank you sir. 

Next we will hear from Mr. Terry Huval. 

TESTIMONY OF TERRY HUVAL, DIRECTOR, 

LAFAYETTE UTILITIES SYSTEM, LAFAYETTE, LA 

Mr. HUVAL. Thank you very much, Mr. Chairman. My name is 

Terry Huval, from Lafayette, Louisiana. I would like to thank the 

Members of the Subcommittee for allowing me to testify before you 

today. 

I am appearing on behalf of my community, Lafayette, Louisiana. 

I am at America Public Power Association, which represents 2,000 

publicly-owned utility systems in the country, and the Consumers 

United for Rail Equity. 

What we are asking is to seek removal of any antitrust law exemptions applicable to railroads, which we believe—and we will be 

able to show you in a couple of minutes—affects the marketplace 

and creates significant—of harm to our customers and the customers of many other entities. House Resolution 233, the Railroad 

Antitrust Enforcement Act of 2009, we think is a necessary step. 

We congratulate, of course, the Judiciary Committee of last year 

for having voted for similar legislation, and believe that taking this 

to the final conclusion would be in the best interest of the public. 

I want to tell you a little story about Lafayette, Louisiana. We 

serve 125,000 people. Those are residents of our population. We 

have 60,000 customers, as a whole. We own 523 megawatts—50 

percent of our 523-megawatt Rotomaker Power Plant in Boyce, 

Louisiana. 

We are the 50 percent owner of that 523-megawatt unit; been an 

owner of that unit since 1982. And that particular unit provides almost two-thirds of our electricity, so whatever cost impacts affect 

that plant have an impact on two-thirds of the energy costs that 

we provide to our customers. 

If you look at the screen, I will refer you to the trek that our coal 

must take from the Powder River Basin in Wyoming all the way 

down to Louisiana. You will notice that we have one rail provider 

that is in red and an alternative rail provider that is in green and 

blue. 

The whole trek to our plant is 1,500 miles; 1,480 miles of that 

trek has a competitive option. In other words, we could either 

choose, in a purely competitive environment, to buy rail transportation from the company in red or we could purchase from the company in green or blue. The only part that is subject to monopoly 

control, where there is only one provider, is the last 20 miles to our 

plant. 

But as the Surface Transportation Board addresses an issue like 

this, they will not force or put the railroad companies in any position where they have to give us a price either for the last 20 miles, 

so therefore we could get a competitive option for the 1,480 miles 

coming is, or for us to be able to get a price from the competitive 

provider so we could make a decision on how we would deal with 

the last 20 miles. And that is tied down to the Surface Transportation Board’s 1996 bottleneck decision, which allows this practice 

to take place where we are forced to have to take rail service on 

from one provider. 

75 

So, bring it to some simple conclusions, and that description nets 

us 1 percent of our rail—the rail I take to get the service—that 1 

percent monopoly transforms itself to monopoly over the entire 

train route. What does that do to our customers? Since 1999 we estimated that our customers have paid over $65 million more in energy costs because of those additional costs for rail transportation. 

Those costs are passed directly to our customers. 

As an example, 10 percent of our total electrical service in Lafayette, Louisiana is provided to educational institutions, public and 

private. That means that that $65 million translates to $6.5 million 

that those public and private educational institutions have had to 

pay over the last 10 years. The remainder of the $65 million, of 

course, goes to everybody else—all of the businesses, all of the residences in our community. 

In addition to costs, we have had service quality level interruptions, where because of derailment, because of lack of proper maintenance of the tracks, that we have had to purchase coal from Venezuela and have that shipped to our plant. We have had to use late 

night, which created some operational problems with our plant. We 

have had to move forward with prematurely retiring steel coal cars 

in exchange for aluminum coal cars at a price of about $16 million, 

the purpose of that being, of course, to be able to get all of our coal 

in the event of a disruption. 

And so I ask this Committee to strongly consider and to vote into 

this—this bill to move forward. We believe it is what is necessary 

to negate the anticompetitive behavior that we have experienced, 

and until the Surface Transportation Board’s bottleneck decision is 

rescinded, this problem will persist. 

So I encourage your passage of H.R. 233 and thank you for your 

attention, and I look forward to answering any questions that you 

may have later on. 

[The prepared statement of Mr. Huval follows:] 

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PREPARED STATEMENT OF TERRY HUVAL


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Mr. JOHNSON. Thank you, Mr. Huval. 

Dr. Cooper, your turn. 

TESTIMONY OF MARK N. COOPER, DIRECTOR OF RESEARCH, 

CONSUMER FEDERATION OF AMERICA, WASHINGTON, DC 

Mr. COOPER. Thank you, Mr. Chairman, Members of the Committee. The Consumer Federation of America has been involved in 

public policy affecting the rail sector for 30 years for a simple reason: two-thirds of the coal shipped by rail is captive to a single railroad, and excessive coal rail rates end up in the electricity bills 


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paid every month by American consumers. Excessive rail rates paid 

by other captive shippers of agriculture, chemical commodities, 

automobiles, industrial commodities distort the economy, lowering 

output and reducing employment. 

The report we have filed for the record today demonstrates the 

pervasive abuse of market power that afflicts the rail sector. The 

vast majority of rail markets are highly concentrated. Abusing 

their market power, the railroads have accumulated billions of dollars of excess profits and cost subsidies on large quantities of traffic 

that they carry below cost. The current rail sector is a textbook 

case of abuse of market power run rampant, and we give about a 

dozen indicators of that in our analysis. 

Combining the fact that we warned Congress this would happen 

before the Staggers Act was passed with the dramatic increase in 

abuse in the recent years, we conclude that as implemented by the 

Interstate Commerce Commission and the Surface Transportation 

Board, the Staggers Rail Act is among the first and worst examples 

of irrational exuberance for deregulation that has brought our economy to the brink of disaster. 

We must reaffirm our commitment to competition and the prevention of the abuse of market power if we are to rebuild our economy. Enacting H.R. 233, the Railroad Antitrust Enforcement Act of 

2009, is a perfect place to start. 

The Staggers Rail Act is a particularly pernicious example of excessive deregulation because at the same time that Congress deregulated the rails, it also exempted the sector from the antitrust 

laws, entrusting the protection and promotion of competition to a 

regulatory agency that has been thoroughly captured by the industry it is supposed to oversee. 

The result has been a double whammy for captive shippers and 

consumers. Over the objection of the Department of Justice, the 

STB has allowed the railroads to increase their market power 

through mergers and anticompetitive tactics while simultaneously 

failing to implement the residual regulation contained in the Staggers Act to prevent the abuse of market power. 

Let us be clear: You can not look at what the STB and the ICC 

have done for a quarter of a century and say that this is a regulated industry. The regulator has been absent, irresponsible, and 

absolutely useless in terms of protecting shippers. That claim has 

zero credibility. 

If this Congress and this Administration can not quickly restore 

the commitment to vibrant competition as the cornerstone of the 

American economy, we will be doomed as a Nation to economic mediocrity. All across the economy, Congress is beginning to repair 

the damage of accepted deregulation—in the financial sector, in the 

energy sector. But antitrust has a special place in our economy because it should affect and drive competition in all sectors. 

Now, in some areas restoring the vitality of antitrust requires 

administrative action and court cases. Those will take a great deal 

of time. The rail sector is one area where Congress and quickly and 

decisively correct a mistake that Congress made. 

We urge you to reverse that error and pass H.R. 233, which will 

restore antitrust scrutiny in the rail sector. This will eliminate artificial barriers to competition, called paper barriers, because they 

89 

are a blatant affront—a contractual obligation not to compete— 

they are a blatant affront to the antitrust laws. 

The threat of antitrust suits will also put pressure on railroads 

to behave more reasonably with respect to bottleneck facilities and 

reciprocal switching rates, as you have heard by the previous witness. Antitrust alone will not solve the problem of market power 

in the rail sector because the fabric of competition has been so severely damaged by more than a quarter of a century of neglect that 

we will need more. We will need regulation too. 

But restoring antitrust oversight of this sector is a critical first 

step to addressing the problem of market power. We must use antitrust to drive competition as deeply as possible into our economy, 

and then rely on regulation where market power can not be addressed or where market failure is likely. 

In the rail sector, we really do not know how far competition will 

carry us because it was never allowed to have a chance under the 

Staggers Act. Now is the time to give competition a chance and reform this industry as much as it is can, and then we will deal with 

regulation someplace else. Competition is the first thing we need 

to do to fix this sector. 

Thank you. 

[The prepared statement of Mr. Cooper follows:] 

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PREPARED STATEMENT OF MARK N. COOPER


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Mr. JOHNSON. Thank you, Dr. Cooper 

We will now begin the questions, and I will recognize myself for 

5 minutes. 

For all of you, I would like to—well, prior to that, I would like 

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signed by hundreds of companies across the country that ship their 

products by railroad. Any objection? 

Without objection, it is so entered. 

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Mr. JOHNSON. These companies believe that the antitrust exemptions are raising their costs, which, in turn, raise the prices that 

consumers have to pay. Is there anything that makes railroads different from any other industry that should make us hesitate before 

applying antitrust laws? 

Anybody who wished to respond, please do. 

Mr. HUVAL. This is Terry Huval. No, I don’t see any reason why, 

you know, the railroads should be exempt from any of the antitrust 

laws that many other industries must deal with, in the utilities 


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business—whether you are in the electric business or the gas business—you have regulation and you have to abide by the antitrust 

laws. So we think that ought to be uniform and we think that that 

type of umbrella requirement the railroad companies would create 

a different behavior on how they deal with customers like Lafayette. 

Mr. HEMMER. If I may, I have already pointed out that in many 

respects H.R. 233 would treat Union Pacific and other major railroads differently than other regulated industries. So we would like 

to at least start with the proposition that you should treat us the 

same way other regulated industries are treated. 

Are there unique characteristics of the railroad industry that 

make them appropriate for antitrust exemptions? Well, given the 

fact that I have already told you that we would be relatively 

untroubled by eliminating the statutory exemptions I am not going 

to make that claim. What you have to look at, though, and what 

would be looked at by any antitrust court looking at any regulated 

or partially regulated industry is, what is the structure of that regulation and how does that regulation interact with an antitrust 

court’s jurisdiction? 

We would expect to be accorded the same treatment. My colleague on the right said something very important. He said the implied immunity doctrine would still apply to railroads. 

I am very concerned, especially given the legislative history that 

was prepared for last year’s bill, that this Committee was instructing courts not to apply the implied immunity doctrine. So if I had 

some reassurance about that—again, about equal treatment with 

other regulated industries—I would feel more comfortable. 

Mr. COOPER. The suggestion that regulation has somehow— 

should be accorded any credibility in this industry is literally absurd. You can go back over 25-year history and look at the number 

of cases that shippers have won and you can count them on one 

hand, and then you will look at the relief they got and you will discover that the hand was just slapping them in the face. There is 

literally no notion that there is regulation of rates over captive 

shippers whatsoever. 

So that leads to the reason why there may be an effort to look 

back a little bit, because we have had a 25-year history of the 

rampant exercise of market power under a lack of regulation and 

a lack of competition and a lack of antitrust oversight. And so you 

combine that 25-year history with an incredible increase in profitability in rates in the last few years, a tightness of capacity, and 

the answer is that this is an old problem, and I worked on the 

Staggers Act as it went through this Congress, and we knew this 

could happen, and it has happened. 

You can look at the mergers of the mid-1990’s—a tremendous increase in market power. The Department of Justice opposed those 

mergers. That is anticompetitive, and the out—the result has been 

abuse of market power. 

So yes, we have to look back to try and unravel a quarter of a 

century of abuse. 

Mr. HEMMER. Mr. Chairman, if I may try to unravel some of the 

misstatements that were just made, the Surface—— 

102 

Mr. JOHNSON. Well, Mr. Hemmer, I really don’t want us to get 

into a debate on this, so I would appreciate your forbearance. 

Mr. Cooper, by removing the railroad industry’s antitrust exemptions, how much do you think we could save consumers every year? 

Mr. COOPER. Well, we have estimated a total figure that we see 

as abuse—a combination of excess profit and cost subsidy. It is remarkable after a quarter of a century that so much traffic is carried on the rail that doesn’t cover its costs. We think there are $3 

billion or more of abuse. 

How much would come out from any particular decision, you can 

not predict. And the point is that, in a certain sense, that is the 

magic of real competition. If you let competition reign, if you tear 

up those paper barriers, if you put pressure on these bottleneck decisions that frustrate competition that could take place over 99 percent of a movement, you—shippers will get lower rates, railroads 

will be more efficient, and the economy will be better off. 

I can’t put a dollar figure on any particular decision. It is the 

principle of competition that we really need to get back to. The 

competitive marketplace will sort that out. 

Lafayette, Louisiana will get a fair rate because they have an alternative. There are many power plants in America that don’t have 

this situation of 99 percent potential competition and 1 percent bottleneck. Some of those are 100 percent monopolies, and those rates 

will be decided not in the competitive marketplace, but they should 

be overseen by the Surface Transportation Board. 

Mr. JOHNSON. Thank you, sir. 

And last but not least, this question: Mr. Hemmer, in his written 

testimony, argues that courts are incapable of evaluating the network effects of applying the antitrust laws to bottleneck situations. 

How would you respond, Mr. Morse? 

Mr. MORSE. I think we have seen—let me make clear, I am not 

sure that the antitrust section has addressed that position in its 

testimony, so let me address it personally in answer to your question. I think we have seen the benefits of competition in other industry when interconnections have been opened up. 

There was a long time when we viewed the telephone industry 

in this country as a monopoly and we were told that we could not 

interconnect and connect our personal telephones or other devices 

within our home to the telephone network for fear that it would 

cause the entire network to fall apart. As we have seen competition 

increase in the telecommunications industry, in those areas where 

competition can flourish, we have seen tremendous benefits to consumers. 

Mr. JOHNSON. All right. We appreciate that. 

I will now recognize the Ranking Member for his questions. 

Mr. COBLE. Thank you, Mr. Chairman. 

And gentlemen, thank you for being here. We only have 5 minutes, so let me move along. 

Mr. Hemmer, it is your belief that H.R. 233 is retroactive and 

that past mergers could be contested in the future by the Justice 

Department or FTC. Explain to us how that would be problematic 

for the railroads, A, for shippers, B, and how it would impact consumers. 

103 

Mr. HEMMER. Well, transactions that have been approved in the 

past have been fully implemented. Operations of network industries have been fully combined. You can no longer distinguish, in 

my case, the Missouri Pacific from the Union Pacific from the 

Western Pacific, all of which were combined back in 1980. 

If an antitrust court were attempt—to attempt to disassemble 

various parts or segments of that network, we would have a chaotic 

situation that would take years to unravel. You may recall, and I 

confess, that following the Union Pacific-Southern Pacific merger 

there were service disruptions. Those would be modest compared to 

the disruption that would occur if we were to attempt to untangle 

the railroad system that has been operating as a single system for 

decades. 

Mr. COBLE. Mr. Morse, what competitive standard will be used 

by the Justice Department if, in fact, 233 is enacted, and how 

would that standard differ from the one currently used by STB? 

Mr. MORSE. Congressman, I am not a railroad regulatory expert, 

and therefore am not in a position to address the question of how 

the STB regulates. I have read the testimony that indicates that 

the STB, with respect to some of these issues with respect to bottleneck rates, for instance, with the STB, does allow the railroads to 

quote rates for the entire distance. And I believe that antitrust, in 

approaching that issue, would look at that as a tying question, 

would question whether a firm has market power in one market 

and is using that market power to foreclose competition in a second 

market and might condemn those arrangements in those circumstances where there is market power and a tying agreement. 

Mr. COBLE. Thank you, sir. 

Dr. Cooper, would you oppose an amendment clarifying that past 

mergers would continue to remain exempt from challenges by the 

FTC or the Justice Department—and as briefly as you can, because 

I am running out of time. 

Mr. COOPER. That would be an extraordinary exemption from the 

antitrust laws. The fascinating thing, as you heard, the mention of 

the AT&T case, and that was—their exact argument was, ‘‘You 

can’t break us up.’’ Why? The network will collapse. And my god, 

20 years later we are a lot better off for having had competition. 

So the question here is that if the Department of Justice looks 

at that monopoly situation and discovers that market power is 

being abused, they could well take action against that far short of 

requiring divestiture. They might look upon the paper barriers as 

illegal restraints on trade and have those removed; they might look 

at the refusal to deal, in terms of bottleneck facilities, and have 

those be eliminated. So those are actions that ought to be allowed 

when the Department of Justice examines a monopoly. 

Mr. COBLE. Okay. I don’t want to omit Mr. Huval. Let me bring 

him in as my cleanup hitter. 

Mr. Huval, I am been told and I think it has been aired today, 

that in certain instances some electric companies have found it to 

be less effective to ship foreign oil into the United States by a 

barge rather than shipping domestic coal by railroads to points 

within this country. Is this a common conclusion? 

104 

Mr. HUVAL. We would by far prefer having all of our energy 

sources come from this country versus having to ship it from 

abroad. 

Mr. COBLE. Mr. Chairman, not unlike Mr. Morse, I have beat the 

red light. 

Mr. JOHNSON. Thank you, Mr. Coble, 

And I would just admonish everyone that don’t—no spontaneous 

outbursts will be done here today, and if they are then they will 

be treated very harshly, even though they may be based on your 

irrational exuberance, Dr. Cooper, and anyone else that may find 

themselves afflicted with this urge. 

We will now begin with our questions by the Members. First, 

Congressman Mel Watt, North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. And thank you for convening this important hearing, which, for some of us, has given us 

an opportunity to focus on this issue for the first time. I have two 

concerns that I want to explore, and I will explore them with Mr. 

Hemmer and Mr. Morse, since they seem to be on opposite sides 

of them. 

Mr. Hemmer, you suggested that section nine of the bill allows 

this bill to be applied retroactively. Can you concisely give me an 

example of how that might play out, and without getting into a debate, which the Chairman said he didn’t want to encourage, I 

would like to have Mr. Morse respond to whatever situation you 

describe. So describe your best situation where you think this 

would be retroactive. 

I take it Dr. Cooper wants it to be retroactive. I am a little concerned about retroactivity when we are writing laws and applying 

them. 

So give us an example of where and how you believe section nine 

would make this—allow this to be retroactive. 

And then, Mr. Morse, if you can respond to Mr. Hemmer’s example, that would be helpful to me, just to frame the issue here. 

Mr. HEMMER. I actually thought Mr. Morse and I were getting 

along reasonably well. I believe that section nine establishes two 

requirements for limitations. Basically, it says that conduct that 

takes place within the first 180 days after passage of the act and 

that has been immunized from the antitrust laws can not be challenged. However, conduct that takes place after the 180th day, 

which is essentially the continued implementation and carrying out 

of all of those immunized transactions, would be subject to attack. 

To take a specific example, when Union Pacific and Southern Pacific railroads merged, they formed a very efficient, now extremely 

competitive, single-line route across the southern tier of the United 

States, from Los Angeles into Texas and other points beyond. On 

the 181st day, I am fearful that someone might say, ‘‘The Surface 

Transportation Board’s creation and authorization of that route can 

now be attacked under the antitrust law.’’ 

Mr. WATT. Let me be clear on that. If we changed the word ‘‘and’’ 

to ‘‘or,’’ would that solve that problem? 

Mr. HEMMER. I believe it goes a long way toward doing that, but 

I would want to look very carefully at the language to make sure 

that it would. 

Mr. WATT. Mr. Morse? 

105 

Mr. MORSE. Actually, as Mr. Hemmer said, we don’t quite disagree so much on some of these issues. Let me be clear: In our testimony—— 

Mr. WATT. Do you agree with Dr. Cooper that you intend for it 

to be retroactive? 

Mr. MORSE. I may take a middle ground between them. And 

what our testimony said is, we said that we thought that the 

House bill takes a more sound approach than the Senate bill, with 

respect to this issue. 

I read the Senate bill as potentially opening up the issue that 

Mr. Hemmer identified, because it talks about previously exempted 

agreements. The House bill, as I read it, only talks about ongoing 

conduct. I am not sure—— 

Mr. WATT. Would it do injustice to change the word ‘‘and’’ to ‘‘or’’ 

on page seven, line seven of the bill? 

Mr. MORSE. I think I would want to look at that—— 

Mr. WATT. If you all could look at that and give me something 

in writing on that. Let me go on—— 

Mr. MORSE. Let me make one point, though, with respect to this, 

and that is, I do see a difference with respect to mergers and with 

respect to the paper barrier issue, simply because there was a divestiture or trackage at some point in time. But let me be clear: 

I don’t think the antitrust section does not believe that previously 

consummated mergers should be subject to challenge. But at least 

looking at the question of a paper barrier, where you had a divestiture of trackage, if that included an agreement that would permanently prohibit competition—— 

Mr. WATT. I understand that. 

Mr. MORSE [continuing]. Then to allow that continued prohibition 

on competition is a different situation than the merger situation. 

Mr. WATT. My time has run out, Mr. Chairman, but if I could 

just ask the other question for them to respond to in writing, it 

would be helpful. 

Mr. JOHNSON. Proceed. 

Mr. WATT. The other thing that I have some concern about was 

the prospect of inconsistent liability and outcomes if you have various folks along in various jurisdictions interpreting the statute. 

And so I would like any of you who care to to give me something 

in writing on that, and whether that might be addressed by—instead of giving the final authority to the STB, perhaps giving jurisdiction over these disputes to one particular court as the ultimate 

auditor, so that we don’t end up with courts in different parts of 

the country reaching results on essentially the same facts that are 

inconsistent with each other. I know we don’t have time for the 

witnesses to respond, but if you could do that in writing that would 

be wonderful, and I will be happy to put it in the record if you will 

address it to me. 

I thank the Chairman for his indulgence and yield back. 

Mr. JOHNSON. Certainly. Thank you, Congressman Watt. 

Next we will have questions from Bob Goodlatte, of the great 

state of Virginia. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

And I want to thank all of the witnesses. I would like to pick up 

right where the gentleman from North Carolina left off and give 

106 

you an answer—give you an opportunity to answer the very question that he just asked—— 

Mr. JOHNSON. Can you speak into the microphone? I can barely 

hear you—— 

Mr. GOODLATTE. This microphone doesn’t tilt in the right direction. There we go. 

If you could follow up and address—I will ask each of you to do 

that—how we would handle the issue of the fact that these rail 

lines do transcend not just district court boundaries, but even Federal court of appeal jurisdiction boundaries. How is a railroad to 

behave when they have three different decisions from three different jurisdictions instruct them how to act? 

Mr. MORSE. Let me say, I think that is the nature of the judicial 

system that we live in. Many of my clients in many industries face 

the possibility of being in court in different parts of the country. 

We give advice to clients on how to comply with the law based on 

the fact that we have different circuits sometimes coming up. 

When you actually end up in litigation, generally we tend to see 

courts at least listening to what other courts have said, but I don’t 

think that is an issue which would confront the railroad industry 

different than it confronts every other industry in the—— 

Mr. GOODLATTE [continuing]. In some respects. I mean, there are 

certain types of industries where you can, and many industries do, 

operate in different fashions in different jurisdictions. The insurance industry operates differently regulated by each state insurance commissioner, and they can tailor that. 

But when you are shipping the same goods along the same line 

between the same communities and you are only operating along 

that line, you could have conflicting opinions that affect the same 

transaction, as opposed to two transactions engaged in by the same 

company but in different places. 

So I don’t know if you want to add to that, or I will just turn 

to Mr. Hemmer and see what reflection he can give on that. 

Mr. HEMMER. Let me note at the outset that the railroad industry faces a more complex situation, which is typical of regulated industries, in that we may have one standard of performance established by the Surface Transportation Board and conflicting standards of performance under this bill set by the FTC and potentially 

by courts, whether they are in different parts of the country or sitting right next to each other. 

Mr. GOODLATTE. Well, that is my next question, which is what 

you do when you have a conflict between a court decision and the 

Surface Transportation Board. Does this legislation tell us the answer to that? 

Mr. HEMMER. The legislation, in my view, doesn’t clearly instruct 

a court about what to do. With respect to so-called paper barriers 

and so-called bottleneck rates, the legislative history virtually tells 

a court what to do and it, in my view, tells it to ignore several doctrines of antitrust jurisprudence that would normally apply in deciding what the relationship is between the court and the regulatory agency. That is a major concern for us, and if we could get 

that cleared up that would make a big difference. 

So I think we might find courts not knowing how to interact with 

regulation, whereas, for decades they have had basic standards, 

107 

such as primary jurisdictions, implied immunity—modified recently 

by the Credit Suisse decision—and they can apply those things. We 

know the standards and they know the standards. I believe this 

bill creates significant confusion. 

Mr. GOODLATTE. Dr. Cooper? 

Mr. COOPER. Well, ultimately, in America we have federalism. 

And in the court system we do get conflicts between the courts, and 

they get resolved, when there is a conflict, through the court system. And we do get uniformity. And that takes time, but that is 

the process that we have in this country for resolving those judicial 

outcomes. And frankly, we are frequently proud of that federalism—— 

Mr. GOODLATTE. Let me ask you, Dr. Cooper, would you—with 

this legislation would you preserve the Surface Transportation 

Board—or if you are going to go to a system where you can have 

legal action and Federal Trade Commission supervision, do you 

also need the Surface Transportation Board, or can you go with one 

or the other? 

Mr. COOPER. No. The simple fact of the matter is that there is 

pervasive market power in this industry, as several other industries, and we, as a Nation, have actually had both antitrust and 

regulation. The problem here is that we didn’t have antitrust, and 

so we don’t know how far antitrust can carry us. 

And some of the most important antitrust cases have, in fact, 

been in regulated industries—in the electric utility industry 

ottertails require the integrated grid. And believe me, an electric 

utility system is a lot more integrated than a railroad system; electrons are more difficult. Second of all, AT&T—antitrust cases take 

place in regulated industries, and by introducing competition we 

are much better off for it. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

Mr. JOHNSON. Thank you. 

Next we will hear from Mr. Bobby Scott, from—oh yes, that is 

right. That is right. I am sorry. I will hear from Mr. Scott. [Laughter.] 

Let us see. Do we have any other—anyone else that is interested 

in testifying? 

Looks like we do not. Everybody has departed, so I would like 

to thank all the witnesses for their testimony today. Without objection, Members will have 5 legislative days to submit any additional 

written questions, which we will forward to the witnesses and ask 

that you answer as promptly as you can. They will be made part 

of the record. Without objection, the record will remain open for 5 

legislative days for the submission of any other additional material. 

Mr. WATT. Mr. Chairman? 

Mr. JOHNSON. Yes. 

Mr. WATT. Could I ask the Chair to buttress my request for written responses to the questions that we ask on the record? I am not 

sure I have the authority to do that. It may require the Chair’s 

intervention on my behalf. 

Mr. JOHNSON. Well, thank you, Congressman Watt. Of course, 

just because you have seniority doesn’t mean that I have got to do 

what you say, but you are on—— 

108 

Mr. WATT. That is why I made the request, Mr. Chairman. It 

wasn’t a directive; it was a request. 

Mr. JOHNSON. All right. Any objection? 

All right. Thank you. Thank you, and this Subcommittee meeting 

is adjourned. 

[Whereupon, at 4:15 p.m., the Subcommittee was adjourned.] 

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