Opinion ID: 411639
Heading Depth: 2
Heading Rank: 2

Heading: THE COMMISSION'S BURDEN UNDER THE Svenska DOCTRINE

Text: 178 Assuming arguendo that the Commission has jurisdiction to approve intermodal conference agreements, it cannot do so without engaging in a more extensive inquiry, resulting in more detailed findings of facts, than it did in this case. The Supreme Court, accepting the FMC's own interpretation of its statutory mandate to disapprove agreements that it finds to be contrary to the public interest, places on the proponents of an anticompetitive agreement the burden of  'bring[ing] forth such facts as would demonstrate that the ... rule was required by a serious transportation need, necessary to secure important public benefits or in furtherance of a valid regulatory purpose of the Shipping Act.'  FMC v. Aktiebolaget Svenska Amerika Linien, 390 U.S. 238, 243, 88 S.Ct. 1005, 1008, 19 L.Ed.2d 1071 (1968). Moreover, once an antitrust violation is established, this burden cannot be satisfied unless other evidence in the record detracts from the weight of this factor. Id. at 246, 88 S.Ct. at 1010. In my view, this means that, once triggered by an acknowledgedly anticompetitive agreement such as this one, the Commission may not confine its inquiry to the justification for the agreement, but must explicitly balance this justification against the agreement's anticompetitive costs. Such balancing cannot take place without an initial exploration of the extent of these costs, an exploration that is the Commission's responsibility to perform rather than a burden resting on the opponents of the agreement. 179 That this is the proper interpretation of Svenska is made clear in another case decided that term, Volkswagenwerk Aktiengesellschaft v. FMC, 390 U.S. 261, 273, 88 S.Ct. 929, 936, 19 L.Ed.2d 1090 (1968), in which the Court emphasized that a broad reading of section 15 is tied to the Commission's duty to consider the antitrust implications of the agreements it approves. Moreover, this court has repeatedly adhered to this interpretation. In Seatrain International, S.A. v. FMC (Seatrain I), 189 U.S.App.D.C. 388, 584 F.2d 546 (1978), we remanded to the Commission an order approving an intermodal tariff agreement between conference members because of its failure to adequately explore its antitrust implications saying, 180 [the Commission] must conduct whatever proceedings are necessary for it to secure sufficient information so that its final decision will reflect a consideration of the relevant factors. 181 Id. at 392, 584 F.2d at 550. One of these factors was the agreement's likely anticompetitive effects. Id. 391, 584 F.2d at 549. In Seatrain International, S.A. v. FMC (Seatrain II), 194 U.S.App.D.C. 370, 598 F.2d 289 (1979), the court again remanded the same order to the Commission for its continued failure to perform its duties with a full understanding of the economic and commercial situation. Id. at 295. The court warned the agency, 182 [a]ntitrust considerations thus must be fully considered and anticompetitive agreements can be approved only if there are serious and important advantages for the public. 183 Id. 374, 598 F.2d at 293. In United States Lines, Inc. v. FMC, 189 U.S.App.D.C. 361, 584 F.2d 519 (1978), furthermore, this court explicitly rejected the argument that the FMC need only consider the evidence of anticompetitive effects put forward by the opponents of an agreement, calling the FMC's duty to investigate the antitrust implications of agreements an independent statutory responsibility. Id. 373, 584 F.2d at 531. 184 The Commission itself seems to have admitted in other cases that it must explore the noncompetitive consequences of agreements before it can decide if they are justified. See Brief for Respondent FMC at 34 (The scope and depth of proof required for approval varies from case to case in relation to the degree of invasion of the antitrust laws.); Agreement No. 57-96--Pacific Westbound Conference--Extension of Authority for Inter-Modal Services, 19 F.M.C. 291, 300 (1975); Agreement No. 8760-5--Modification of the West Coast United States & Canada/India, Pakistan, Burma & Ceylon Rate Agreement, 17 F.M.C. 61, 62 (1973). 185 However, the Commission has patently failed to meet this independent statutory responsibility in this case. Although in 1977, just one year earlier, the FMC limited an extension of the involved agreement to one year because it determined that a closer examination is needed regarding agreements between all water carriers and minibridge carriers, J.A. 35, in 1978, this closer examination was reduced to a cursory glance. The FMC's sole bases for concluding that [t]he actual anticompetitive effect of Agreement No. 10140 does not appear to be of major significance--it is most certainly not 'severe,'  J.A. 153, despite its recognition that [a]s a price fixing agreement, Agreement No. 10140 is per se violative of the Sherman Act, J.A. 149, are conclusory statements unsupported by data, analysis, or even explanation. 186 The majority opinion accepts this conclusory expert judgment that any anticompetitive effects engendered by the agreement will be justified if the carriers survive; they remand only to decide whether the conference is truly threatened. See Maj.Op. at 821-24. They do so on the ground that no disputed fact questions were raised, that the Department's objections were merely economic and antitrust theories. See id. 187 While it may well be that the Commission need not have a formal on the record evidentiary hearing, see United States Lines, Inc. v. FMC, 189 U.S.App.D.C. 361, 378-79, 584 F.2d 519, 536-37 (1978), in my view, it has to do more than it did to meet the Svenska burden. It must provide a record that explores, discusses, and investigates in detail the anticompetitive effects of this agreement. The implications of the decision are enormous; they deserve more attention than they received. Two areas in particular need further substantiation.
188 I find it difficult to understand how as critical an issue as the immunization from the antitrust laws of intermodal transportation can be decided without a full airing of the economic effects of this expansion of section 15 authority. The decision has the potential to significantly affect the economics of intermodal carriers, all-water carriers, conference carriers, and independent carriers. 189 Intermodalism, although existing in embryonic form in 1916 when the Shipping Act was passed, did not become a major factor in the transportation industry until the advent of containerization in the late 1950's. It has since been hailed as the wave of the future, in large part because it is supposed to lead to the reduction of shippers' costs. See Note, Containerization and Intermodal Service in Ocean Shipping, 21 Stan.L.Rev. 1077, 1090-91 (1969) (Intermodal service offers the shipper both internal savings and procedural simplification .... The combination of containerization and intermodal service creates a reinforcing effect and provides savings and service options that neither could offer independently.). The nonconference carriers like Seatrain and United States Lines pioneered the transition to intermodalism; the carrier conferences, despite the FMC's encouragement, delayed implementation of intermodal innovations. Chief Judge Wright wrote in Seatrain II, 194 U.S.App.D.C. 370, 377, 598 F.2d 289, 296 (1979): 190 [i]t seems at best naive to expect a cartel, which has no more important purpose than preserving stability in its industry, to pioneer innovations .... Thus conferences might well be viewed as less effective vehicles for implementing intermodal service. 191 This agreement threatens to depress even further any incentive for conference members to enter into intermodal ventures by doing away with competition between water and intermodal carriers and artificially equalizing their rates. 192 The ultimate issue in this case is who, if anyone, will benefit from the admitted economies of containerization and intermodalism: shippers and their customers or the carrier cartels. See Final Report of the National Transportation Policy Study Commission: National Transportation Policies Through the Year 2000 at 286 (1979); Schmeltzer & Peavey, Prospects and Problems of the Container Revolution, 1 J.Mar.L. & Com. 211 (1970); Note Coordination of Intermodal Transportation, 69 Colum.L.Rev. 247, 252 (1969); Note, Containerization and Intermodal Service in Ocean Shipping, 21 Stan.L.Rev. 1077, 1095-96 (1969); 9 McGee, Ocean Freight Rate Conferences and the American Merchant Marine, 27 U.Chi.L.Rev. 191, 226 (1960). 193 Intermodal arrangements can embrace an infinite variety of combinations, including cross-country surface as well as international air hauls. By allowing all water conference carriers to agree with minibridge land and air carriers on through rates from any point of origin to any destination, the Commission is excluding from the reach of our antitrust laws and the free market a momentous transportation development, not remotely anticipated by the drafters of section 15 in 1916, without any kind of full airing of the effects of such insulation on the transportation industries, shippers and customers. 194
195 Agreement No. 10140 threatens not only to forestall the assimilation of technological innovation into the industry, but in so doing, to undermine any price competition which heretofore existed to limit the monopolistic tendencies of the carrier cartels. When Congress passed the Shipping Act, 1916, allowing the carrier conferences to set rates, it relied on the presence of independent nonconference carriers to assure that the conferences did not exploit the shippers. 10 See Alexander Report, supra note 3, at 298-300. The same concern for preserving independent carriers was evinced during the debates on the 1961 amendments to the Shipping Act, see Index to Legislative History of Steamship Conferences Dual Rate Law, S. Doc. 100, 87th Cong., 2d Sess. 425 (1962) (statement of Senator Kefauver), and has been noted by the Court, see Federal Maritime Board v. Isbrandtsen Co., 356 U.S. 481, 491, 78 S.Ct. 851, 858, 2 L.Ed.2d 926 (1958) (The Congress in Sec. 14 [of the Shipping Act] has flatly prohibited practices of conferences which have the purpose and effect of stifling the competition of independent carriers.). By creating a binding agreement between independent minibridge operators and a conference to control both all-water and intermodal rates, Agreement No. 10140 not only prevents the development of intermodal routing by the conference, and the resultant trickling-down of benefits to shippers, but also eliminates the possibility that independents will pass on part of the savings engendered by intermodalism to the shippers. See Larner, Public Policy in the Ocean Freight Industry in Promoting Competition in Regulated Markets 103, 133 (Philips, ed. 1975) (advocating rejection of rate agreements between group carriers in one mode and individual carriers in another). Quite simply, it allows the conference to control the through rate of the intermodal service at the price prevailing on the water carrier routes. The independents' role as a potential brake on prices is thus destroyed. 196 It seems to me that Svenska requires that the Commission explore much more thoroughly than it did the extent of the effect of this agreement, with its potential for eliminating competitive restraints central to the Congressionally devised plan, on price and service. Any rational weighing of the benefits against the costs of Agreement No. 10140 requires the collection and analysis of data on its effect on competition (1) between water carrier conference members, (2) between minibridge operators, (3) between water carrier members and minibridge operators, and (4) between all of the above and Baltic carriers, as well as its repercussions on shippers and consumers. 197 Moreover, this agreement may run counter to a specific prohibition contained in the statute. Section 15 forbids the Commission to approve any agreement between carriers not members of the same conference ... that would otherwise be naturally competitive, unless in the case of agreements between carriers, each carrier, ... retains the right of independent action. The FMC and Seatrain assert that the 48 hour opt-out provision of the agreement sufficiently preserves the right of independent action to meet the statutory mandate. J.A. 109-10. However, they back this assertion with little, and I might add, highly equivocal evidence. 11 Therefore, I would require the Commission to investigate the practical utility of the opt-out provision, and to issue findings on its conformity with section 15's independent action requirements. 198 Finally, it is becoming clear that Agreement No. 10140 has an anticompetitive ripple effect. The FMC, we are informed, has authorized dual rate contracts for intermodal shipments covered by conference agreements. Because Congress specifically authorized dual rate agreements in 1961, the FMC is maintaining that these new agreements may be approved following a lesser showing of justification than that required by Svenska. See In re: Agreements Nos. 150 DR-7 and 3103 DR-7, 19 S.R.R. 1229, FMC Docket No. 76-11, slip op. at 21 (December 31, 1979). Therefore, water carriers may now agree with independent intermodals to set one through rate, thereby eliminating competition both between the intermodals party to the agreement and between the all-water and intermodal carriers. They also may set a special rate for shippers who agree to adhere to the conference-set intermodal rate rather than shop around the non-party intermodal carriers for the best price for individual shipments. This development accelerates the conferences' monopoly over the traffic on that route and limits the shippers' options still further by decreasing substantially the likelihood they can benefit in any instance from any of the inherent economies of containerization and intermodalism. 12 199 In sum, I find it astounding that the FMC 13 and this court are willing to allow intermodalism, with its promise of greater efficiency and consumer savings, to be so swiftly and silently 14 subsumed under the conference mechanism with so little inquiry into the economic consequences of this development. I would require a searching inquiry into these consequences before sanctioning an agreement such as Agreement 10140. I would hold the Commission responsible for developing the data necessary to make findings about the foreseeable anticompetitive effects on the shipping industry, the expected effects upon the shippers, and the availability of more competitive alternatives. Only after such an inquiry would I feel comfortable passing on the thorny question of whether section 15 authorizes Agreement No. 10140.