Respondents Brief — Federal Maritime Comm'n v. Aktiebolaget Svenska Amerika Linien

Supreme Court brief1968

Ask Donna

What actually matters in this document.

Text

a. be

; : é LIBRARY ; a Fiery | it ¥O3 = D Ns }

SUPREME COURT Il. 5. : ar .

+ oaS AN 8 1968.

IN THE ‘ :

JOHN F, DAViS, CLERK F

eigen Court of the United Stat

OctoBER. TERM, 1967 }

‘Nos.-257 and. 258 | ; 7 | .

(Consolidated) | | |

—

Feperan Maritime Commissron.and ‘Unrrep StTaTEs oF

AMERICA, and AMERICAN Soomry OF TRAVEL AceEnts, Inc.,

. Ae Petitioners,

- AKTIEBOLAGET SvENSKA Amarrka Linten

(SwepisH American Live), e¢ al., .

; ee

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT -

_ BRIEF FOR RESPONDENTS

Epwarp R. NEAHER

25 Broadway

New York, New York 10004

a : Counsel for Respondents

Cart S. Rowz . ; . : : -—

GERTRUDE S. RosENTHAL ay

Of Counsel . -*

January 8, 1968

. ‘s = .

ae a a eee

Question Presented

Summary = Argument’

Statement of the, Case

The International Trade Involved

| The Purpose Served by Conferences .........:-:-

The Conferenca Agreements Involved. Bere +

Conference Relationships With Travel Agents ....

Proceedings Before the Commission ....t

The J udgments Below

ARGUMENT:

I. ~The Commission’s disapproval of the tieing .

rule was properly set aside as: unsupported by.

-—-gubstantial evidence -of violation of Shipping ©

Act standards

II. The reasons advanced by the Commission for

' disapproving the unanimity rule are unsup-

ported by substantial evidence and do not estab-

lish any violation of Shipping Act standards -

A.. No Substantial Evidence Supports the

Conclusion That the Unanimity Rule Pre-

vented Conference Agents From Render-

-- ing Complete and Effective Service ....... ;

.. 39

PAGE

B. No Substantial Evidence Supports the

Conclusion That‘the Unanimity Rule Is ©

a Source of Competitive Disadvantage to °

the Conference Lines

. C. No Substantial Evidence Supports a Cane

clusion That the Unanimity Rule Violated .

Any Section 15 Standard .

——

ence rules on the basis of national antitrust

lation of Section 15 standards

‘A ;

_ A. Congress Has .Provided for the Accom-

_ Hl, The Commission cannot disapprove. the confer:

policy or conference failure to.justify a need |

for them, in lieu of substantial evidence of vio- -

D0.

modation of the Shipping Act and the si

\ Antitrust Laws

B. ‘The 1961 Amendments to the Shipping -

. Aet Did Not Authorize the Commission.

to Disapprove the Conference Rules on

. Antitrust Grounds ‘

"IV. ASTA’s independent legal ground is neither

oes substantiated nor reviewable

- Conciusion

APPENDIX A:

Judgment of United ‘States Court of Appeals,

dated Ji une 10, 196§ --

DD *

-@ -

66°.

la’

in eee. Beh a as a

Ts * . fa *

| : hen pata TaBLE oF AUTHORITIES .

\ ; ae , > 2 ; s

Cases:

ae Aktiebolaget —- Amerika Linien v. Federal Mari-

| "time Commission, 351 F. 2d 756 (D. C. Cir. 1965) .,.23, 27,

: ee. 30, 35, 40, 43, 55,56

ear Aktishslnget Beeidha peuer Linien-v. Federal Mari- _

1 . time Commission, 372 F. 2d 9°2 (D. C. Cir. bygeye 24, 26,

wes : 27, 30, 31, 44

: Burlington Truck Lines, ‘los. v. United States, tl ~

6 U. S. 156 (1962) ae ms BE a----29, 37, 66

[. os Carkation Co. v. Pacific Westbound Conference, 383

| - U.S. 213 (1966) | ...28, 56,63

ry, Chae-Sik Lee v. Kennedy, 111 App. D. C. 35, 294 F. . .

ae " 2d 231° (1961), cert. denied 868 U. S. 926 (1961) ... 66

4 _ Consolo v. Federal ee Commission, 383 U. S. ee 2 ee

607 (1966) sani piiannioet 25, 35, 36

4 ‘ . Denver & Rio Grande Western Railroad Co. v. United ;

sia” ey 387 U. S. 485 (1967) .....2... ‘ 63

: . Federal Conanniiations Commission v. “ROA Com-

tid ~- munications, Inc., 346 U. S. 86 (1953) 37, 38

pee! Federal Maritime Board v. _—— Co., 356 U. 8.

481 (1958) i 63

Federal Trade Commission v. Raladam Co., 283 U.S. |

643 tae ; 36-37

Helvering 1 Vv. Gowran, 302 U. S. 238 (1937) 66

| oo. Traffic Conference: Rasolation, 6C. A. B. 639 |

| (1946) - ; 52,54 |

PAGE

Isbrandtsen’ Co. v. United States, 93 U. S. App. D.C.

" 293, 211 F. 2d 51, cert. denied sub nom. Japan-Atlan-

tic & Gulf Conference v. United States, 347 U.S. 990° ~~

(1954). #.....; Ct : 24, 55

' Loeal: 357, International Brotherhood of Teamsters, |

Z \ Chauffeurs, Warehousemen and Helpers of America

—- National Labor Relations Board, 365 U. S..667 .

es : i teh

Peas & St. Louis Railway Co. ' v. United States, |

361 U. 8. 173 (1959) aS scntindeswineeatg DD 62; '6S-,

N ational Labor Relations Board Vv _ Brown, 380 U.. 8.

"278 (1965) ° Gas ....3T, 38

- National Labor. Relations Board v. Insurance Agents’ .

International Union, AF'L- CIO, 361 U.S. 477 (1960) 62°.

National Labor Relations Board v. Metropolitan | Life

Insurance Co., 380: U. S. 438 (1965) 66

New York v. United States, 342 U. S.°882 (1951) ..... 37

North Atlantic Tourist Commissions Case, 16:C. A. B.

225 (1952) Aes 54 -

‘dinates Line v. Anchor Line, Ltd., 5 F. M. B.. 714 e.

" (1959) . i sine

| Pacific Codst European ConferencoeAgreement, 3 v. S.

M. C. 11 ( 1948) Seasnines 59

| Seaboard Air Line Railroad Co. v. United bind, 382

- U.S. 154 (1965) 29, 62, 63, 64

Securities and Exchange Commission v. Chenery

PeP 318 U. S. 80 an) ~ ‘a . 66

i -. ‘ . ; , é ¢ , PAGE

Singer y. ‘Prone Atthntic Passenger Conference, 1

U. 8. s. B. B, 520 (1936) .. . : _ a

U.S. Afiantis & Gulf wale Happs Zealand Confer-

ence v. Federal Maritime Commission, 124 U. S.

_. App. D. C. 303, 364 F. 24 696 5 (1966) . "52"

, Statutes: . ;

“Shipping Act, 1916 [39 Stat. 728, “46 U. g.. :C. §§801 .

et seqg.] passim:

“Section 14 [41 Stat. 996, 46 U. S. C. §813] ......... 63

- Section 15 (39 Stat. 733, 46 U. S. C. §814] ~-epassim

"iP. L, 87-346 75 Stat. 762, 46 U. 8. C. §813(a)] . ete

per Eee | a

Povthishit acts te j ew

Congressional Material:

. House Committee on the Merchant ‘Masia, and. Fish-

_eries, Steamship Agreements and ‘Affiliations in the

. American Foreign and Domestic Trade, H. Doc. No.

805, 63rd Cong., 2nd Sess. (1914) -.......-- 3, 5, 10, 11, 58

H. Rep. No. 498, 87th Cong. 1st Sess. (1961) ./..4,5, 6,7,

7 Nites 7) 61, 62

S. Rep. No. 860, 87th Cong., 1st Sess.:(1961) ........ 3, 5,6, 7,

" 40, 60, 61

’ Other Authorities:

~ Boyd, The Future Of The hiberedbionst atin —

eens ;

54 |

_, Forum 7, September, : “1964

: Federal’ Maritime Commission Docket No. 66-12, Ap- :

proved Scope of Trades Covered by Agreement 7840,

os Amended—Atlantic Passenger Steamship Confer-

ence, ‘7 Pike m Fischer S..R. R, 401 (1966) .2........-, 3

.\ Wederal Maritime Commission Docket’No, 6755, Rules

| Governing the Filing’ of Agreements Between Com-

_ mon Cagriers of Freight by Water in the Foreign

Commerce of the United States, Pike & Fischer

8." R. p, 321 61 at.321:69

->- -—.—

Ix THe

Supe Caut of the Vuited States

ee ae OcToBER’ 7am, 1967

7 Nos: 257 ind 258.

: (Consolidated)

- <>

FEDERAL MarITIME Commission and Unrrep States oF

AMERICA, and AMERICAN Society oF TRAVEL AGENTS, INc.,

ae Petitioners,

—against—

AKTIEBOLAGET Svenska AMERIKA LINIEN .

(Swepisx AMERICAN Lins), ca, <<.

Respondents.

_ ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

- ~~

BRIEF FOR RESPONDENTS:

Question Presented |

The real question in this case is whether an order of the

Federal Maritime Commission issued under Section 15 of

the Shipping Act, 1916, as amended (46 U..S. C. $814),

' which disapproved two fundamental provisions of steam-.

ship conference agreements, for years previously approved

by the Commission and its predecessors; was properly set

aside as “not supported by substantial evidence on the rec-

ord considered as a whole” (R. 654)#

1 “R.” refers to the printed Appendix in this Court.

Statement of the Case

Petitioners’ efforts to present this Shipping Act case as

an antitrust case have not only divorced it from the record

below but from the Shipping Act as well. Ignored also is

the reaffirmed intent of Congress that under that Act our

traditional antitrust concepts cannot be fully applied to

the international commerce involved. To restore the case

_ to a.true perspective requires some attention to the unique

-- character of the transatlantic passenger trade, the historic

political and economic reasons which explain the need. for

‘steamship conferences in that trade, and the actual state

of the evidence below as distinguished from the gloss al

tioners put upon it.

The International. Trade Involved

Respondents, comprising ‘all American and European -

steamship lines furnishing regular passenger liner service

across. the Atlantic, are members of either-or- both the

-Trans-Atlantic Passenger Steamship Conference (TAPC) . |

and the Atlantic PasSenger Steamship Conference (APC)

(R. 402, 403, 414, 416, 419, 453-454). Fifteen principal

maritime nations of the world, including the United States,

are represented in the present membership of the confer-

~ ences.? These conferences are the successors of similar con-

ferences in the transatlantic passenger steamship trade

_ long antedating the enactment of the Shipping Act in 1916

(R. 414-416, 454-455). In their present form they have been

. operating under conference agreements filed - and - |

* Two of the 25 members, of TAPC and three of the 25 members

of APC are American-flag earriers (R. 403, 414, 416, 454-455).

The other nations represented are Canada, France, Greece, Israel,

Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden,

United Kingdom, Soviet Russia and West Germany.

: \ , } : y

proved by the Commission for upwards of 40 years (Ex.

119, R. 388; R, 403, 454-455).

There have existed historically separate siditivtesen de-

pending upon the direction. of trade routes or passenger

origin, i.e., inbound to the United States and: Canada from

Europe (westbound) and outbound from the United States

and Canada to Europe and beyond (eastbound).* This

- accounts for what the Commission describes here as “over-

lapping” conferences (C. Br. 5)* and why the westbound

conference has its headquarters and records in’ England

while the eastbound conference is ‘headquartered in° New

York (C. Br. 5),

Another historical facet of the Atlantic passenger trade

—and one which petitioners would ignore ‘though the

Commission partially recognized it (R. 486-487)—is that,

- because of their geographical proximity, trade to Canadian

and United States ports was always considered as one.‘

The Congressional Alexander Report of 1914,’ which led to

* See S: Rep. No. 860, 87th Cong., Ist Sess., p. 4 (1961).

*“O. Br.” refers. to pages of the Commission’s brief in No. 257,

- -and “Commission” ‘as used, herein includes predecessor agencies.

“A. Br.” refers to pages of the brief of petitioner ‘rican Society

of Travel Agents, Inc. (hereinafter ASTA) in: 8.

>It also explains why one American-flag respondent, American

President Lines, whose ships sail westward across the Atlantic on

of TAPC (R. 43 455).

®See also ASproved Scope of “Trades Covered by ‘Agreement

7840, as Amended—Atlantic Passenger Steamship Conference .

(FMC Docket No, 66-12), reported only in7 Pike & siaumard S. R. R.

401°(1966). |

* House Committee on the Merchant Marine and Fisheries, Steam.

ship Agreements es Affiliations in the American Foreign and —

Domestic Trade, Doe. No. 805, 63rd Cong., 2d Sess., pp. 21-48

(1914), hereinafter referred to'as “Alexander Report.”

their return ye is a member of APC and not a member

the Shipping Act, 1916, contains a comprehensive analysis

of the Atlantic. passenger steamship conferences and

‘agreements existing at that time. It shows that Canadian

ports were ‘uniformly included with United States ports .

and that there never were separate Canadian-European or .

United States-European passenger trades or conferences.

This substantial cross-competition. for American and

Canadian passenger traffic still exists as between member -,

lines serving Canadian ports and those serving United

States ports (R. 620; Ex. 96, R. 373). All member lines

thus have a distinct interest in the rates of commission to

_ be paid their agents, whether located in Canada or the

United States—an interest reflected in ASTA’s own organ-

izational setup, whose membership includes Canadian travel .

agents and whose presidents and directors are elected from

_ Canada as well as the United States (Ex. 135, R. 398).

The foreign policy implications of the interfationa] ©

trade involved were of much concern to our Department of

State when Congress undertook to amend the Shipping Act

in 1961 by enacting the so-called “Dual Rate Law” (P. L.

87-346, 75 Stat. 762). The House Committee considering

the amending legislation had included provisions to which

the State Department objected on foreign policy grounds,

even though the committee had recognized that

_ “The foreign commerce of the United States: is

_ also the foreign commerce of another nation. No gov-

ernment completely controls more than one end of the

journey and only a fraction of the carriers are its own

nationals. ccd ie

-® See H. Rep. No. 498, 87th Cong., Ist Sess., p. 2 (1961).

power to pass upon the reasonableness of rates.’

The State Department cautioned. that

«* * * it would appear most important to our foreign

policy that the U.S. Government consider carefully

any futtire action in the general field of governmental

regulation of shipping engaged in the foreign com-

_merce of the United States, and that no further de-

partures from the international pattern should be made

unless a clear and conclusive necessity therefor is

demonstrated. ie

Heeding that advice, the Senate committee deleted pro-

posed amendments to the Shipping Act attempting to

extend the jurisdiction of the Commission over foreign

nationals and foreign records and giving the Commission

a ——

The Purpose Séroed by Conferences

Steamship conferences came inte existence to preserve,

among other advantages, regularity and frequency of

_ service,. ‘stability and uniformity of rates,. economy in ‘the

cost of service, better distribution of sailings, ‘and equal —

treatment of the public through the elimination of secret

arrangements and . underhanded methods: of discrimina-

tion." Conferences have been defined as “voluntary asso-

ciations -:of ocean common carriers formed so that the

members may agree upon rates and certain other com-

petitive practices.” ** One of their purposes is the reduc-

10S, Rep. No. 860, 87th Cong., 1st Sess., pp. 24-25 (1961).

11 Alexander Report, p. 416; see also H. Rep. No, 498; 87th h Cong,

1st Sess., p. 4 (1961). ;

12 §. Rep. No. 860, 87th Cong., Ist Sess., p. 4 (1961).

—————

tion of “the rigors of competition which otherwise would

exist among the member lines.” ** Recognizing the need

of our foreign trade for effective and stable shipping con-

ferences, Section 15 of the Shipping Act, 1916, expressly .

excepts approved conference agreements from the .opera-

tion of the antitrust laws. 89 Stat. 733, 46 U. S. C. §814.

_ The “necessary evil” characterization of conferences: ap-

plied here by the regulatory. agency charged with super-

_vising them (C. Br. 14) hardly seems consistent with its

recommendation to the Congress when’ the 1961 amend-

ments to the Shipping a were under consideration. Then

“it said:

“The Board belflves that conferénces are needed if —

stability in rates and ser'vices is to be maintained in

the foreign trade. We further believe that if the con-

ferences are to be continued they must have the power

. to assure themselves of the loyalty of merchants upon -

- ‘whose trade they. depend.’ we |

The Coninifiniba saiensitilines here that the Shipping

Act, 1916, was enacted “to accommodate the unique needs

_ 138. Rep. No. 860, 87th: i Ist Sens., ‘p. 4 (1961). As -

Senate Report pointed out (p. 4): d

“For Many years all of the maritime nations of the world,

including the United States, have realized that the inevitable

monopolistic and discriminatory nature of rate-war competi-

tion among the ocean common carriers serving their foreign

commerce, justified the formation of conferences so that the

carriers may limit or regulate competition between or among

themselves.”

14H. Rep. No. 498, 87th Cong., Ist Sess., p. 15 (1961). The Com-

mission was, of course, then speaking of the dual rate system, the

legalizing of which’ it favored as “the only workable method of

achieving such purpose [%.¢., stability of rates and services] and ©

which is not at the same time contrary to the American concept of

fairness *-* * .” Ibid.

: poee Bicone! bey Ri Ve

_ of the shipping industry” for workable conference arrange-

“ments to the demands of. our antitrust laws (C, Br. 11). ©

The Congressional reports accompanying the 1961 legisla-

tion amending the Act re-emphasized that ordinary anti- ~

trust rules cannot be fully applied in international shipping

matters.. Thus the Senate committee —_— ss the

House report; noted

: “The Department of Justice testimony on the legis--

lation was generally unfavorable. While. its position

_ is consistent with the antitrust policy of the United

States, it fails to take into account the peculiar nature .

of the particular business involved * * * .

* * * * * ;

“The hearings of the committee have made it quite

_elear that our traditional antitrust concepts cannot be

fully applied to.this aspect of international commerce.

Your committee has concluded.that any attempt to |

effect regulation of this commerce in a measure com-

parable to that applied to our domestic commerce

wduld be highly detrimental to our essential American- .

_ flag merchant marine.” **

The Conference Agreements Involved Here ;

- Two conference agreements are involvéd here: No. 120

constituting TAPC in 1929 (Ex. 1, R. 160) and No. 7840

reconstituting APC in. 1946 (Ex. 2, R. 204)..° The agree- —

ments were filed with the Commission at the time of their

adoption in compliance with Section 15 of the Shipping

- Act and received continuous Commission approval in all

respects until the Commission rendered its first opinion

15 §. Rep. No. 860, 87th Cong., 1st Sess., p. 2 (1961).

16 APC dates back to 1921 but was terminated during World

War II, (&, 33, 139; Ex. 119, R. 388). ‘

and order herein in J anuary, 1964 (R. 403, 451, 454-455, 502-

503).27 Each agreement expressly provided for -accurate

‘Tecording and filing with the Commission of copies of

minutes of conference meetings and conference minutes —

were‘filed as required by such ents and as required

by the Commission’s regulations’(Ex. 1, R.'162; Ex. 2,

R. 217). Not until the Examiner rendered his initial deci-

sion herein in J anuary, 1963 had the Commission indicated

any dissatisfaction concerning the adequacy of minutes

- filed (R. 402, 423).

Pursuant to Agreement: 7840 (Ex, 2, R. 204), APC estab-

lishes, inter alia, uniform business policies among the mem-

ber lines regarding passenger fares and rates of com--

mission payable to agents (R. 416)—important economic

matters which mutually concern and apply to members on

both sides of the Atlantic. The APC agreement, like every

predecessor conference agreement back to atleast 1879

(Ex. 119; R. 388), is founded upon the principle that con-

ference action shall be taken by unanimous agreement a :

the member lines (Ex. 2, R. 210).

‘The fundamental requirement of'unanimity is specifically’ |

made applicable to the rates of commission payable to —

conference agents in the following terms (Ex. 2, R. 212):

“a

- “(a) Rates of Commission and Handling Fees which

_'Member Lines may pay to their General Agents or

Sub-Agents* shall be established by unanimous agree-

ment of the Member Lines. = 3 aN

* 27 As of 1960 the agreement numbers on the most recent modi-.

fications (““7840-40” and “120-76”) indicate that’the APC agree-

ment had been before the Commission 40 times and the TAPC

agreement 76 times for approval of various modifications adopted .

over the years (Ex. 1, R. 155; Ex. 2, R. 188).

18“Syb-agents” is a traditional term for conference selected

. approved travel agenty appointed ad conference member lines

_ (R. 410).

; _- shall"be appointed pursuant to a uniform agency appoint- —

9 ar

This is tlie long-approved “unanimity rule” which the Com-

mission has now disapproved as violating Section 15 of: -

the Shipping Act (R. 475-478, 587). It was ‘this procedure

_ which established the current rates of commission paid to

agents, as to which the Commission found (R. 481-482):

«*** that the record in this proceeding does not sup-

port a finding that. tlie level of commissions is un-

reasonably low.”

And

“«** * on this record there is not a sufficient showing

. for. us to declare that such levels are detrimental to

the commerce of the United States or otherwise unlaw- ~

- ful under section 15.” |

‘ TAPC Agreement 120 expressly-states its purpose to be

“to coordinate action, harmonise policies, and regulate all

matters, other than the fixation of rates and commission,

‘relating to the operation and enforcement in.the United

States and Canada of the ATLANTIC PAssENGER STEAMSHIP:

ConFERENCE (Folkestone, England) .Agreement and The

rules and regulations addpted iperounder, eee” (By, I,’

R, 160-161; R. 415). ma

Agreement 120 contains, inter alia, basic. provisions and

rules relating to the selection and supervision of agents ”

in the United States and Canada for the sale of transporta-

tion on this side of the Atlantic and the obligations ef the

member lines to such agents (Ex. 1, R. 169; R. 415). It

provides, for example, that the member lines’ sale of trans-

at aiid agents shall be confined to their respec-

tive. appointed agents (Ex. 1, R. 169); that such agents

ment agreement (Ex. 1, R. 172); and that the relationship

between the lines and agents shall. es governed va uniform. —

rules (Ex. 1, R. 172). Both the uniform agency appoint-

‘ment agreement and rules are incorporated in Agreement

120 as approved by the Commission (Ex. 1, R. 172-174,

— |

“As the {eure Report pointed out,”® passenger steam-

ship conferences were traditionally founded upon two prin-

ciples, (1) unanimous voting, already referred to; and

(2) prohibition of conference agents representing non- |

conference competitive services. The TAPC agreement, like

its predecessors, embodied a prohibition against appointed

_agents representing non-conference lines in the following

terms (Ex. 1, R. 171;.R. 418): 3

“(e) Sub-agencies Selling Tickets for Non-Member

Lines—A sub-agency shall be prohibited from selling

passage tickets for any steamer not connected with the -

_ fleets of the member Lines for which it has been duly

appointed or from representing in any capacity any

steamship company operating such a steamer, if such

‘steamer, is operating in any competitive trans-Atlantic .

trade (unless written permission to do so is first

obtained from the member Lines), or acting or repre-

senting itself as agency for, or as entitled to do busi--

ness with, any mémber Line it does not represent by

regular appointment. This rule shall not prevent any |

sub-agent from booking for any United States peren-

ment Line.”

This is the long-approved fundamental “tieing rule” (Ex. 3,'

R.. 227), now disapproved by the Commission as violating

_ © Alexander Report, p. 43.

tiie Se bE aid SW inte t 0

_ Ex. 2, R. 206, 207).

it 3 | aS Oh:

the euleiaina Act (R. 484-485, 587).7° Aside Bien the total

absence of evjdence to support such a conclusion (mfra, p

31), the Commission ignored the provisions in these agree- te

ments tinder which any transatlantic water carrier, includ- .

ing freighter ships offering limited passenger capacity, may

= easily become a conference member and thus have ready -

access to the corps of conference — (Ex. ) R. 164, 167;

Conference Relationships with Travel Agents ie

_ As the Alexander Report recognized in 1914, passenger.

: steamship lines “regard the control of agency forces a

_ primary object” of conference agreements and the agents

' themselves favor such control. ” There are sound economic

- 20 The tieing rule is also included in the “Rules” forming part

of the uniform sub-agency appointment agreement which agents

enter into upon appointment by member lines, and -which was filed .

with and approved by the Commission as part of Agreement 120°

(Ex. 1, R. 172, 175). '

ar Passenger water carriers offering or intending to offer regular

transatlantic service are eligiblé for full voting membership (Ex.

1, R. 164; Ex. 2, R. 206). Freighter shipping lines whose normal

passenger capacity is not more than twelve per ‘vessel are eligible.

for associate membership (Ex. 1, R. 167; Ex. 2, R. 207). Associate

members, as regular members, may utilize all conference agents.

Membership may not ibe denied eligible applicants except “for just

and reasonable cause” and any denial of membership must be re-

. ported to the Commission (Ex. 1, R. 164, 167; Ex. 2, R. 206, 207).

In 1961 TAPC had nine associate members (Ex.:111, R. 382).

Member lines of both conferences also operate freighter ships upon

which’ transatlantic passage is available for sale by appointed

agents.at regular commission to people who desire to travel i in that

manner (R. 589).

22 Alexander Report, p. 43. Even ASTA, through a main spokes-

man at the hearing, recognized “that, thes conference is the only

modus operandi to run’ a respectable business. The.carriers and

the principals [top officers of the lines, who meet together and make ,

the high level policy decisions of the conference] must have some

(continued on following page)

". reasons for this. First, the conference lines are required

>! to furnish regular, dépendable’ passenger service to the

‘public (Ex. 1, R. 159, 164; Ex. 2, R. 204, 206). If the public

. interest in such service all year round is to be maintained,

and the passenger lines are to have the requisite financial —

: ability to furnish it, they must be able to fill their ships

with as many passengers as possibile in all seasons.”* The

lines rely upon their appointed agents as their principal

gales force to produce the passerigers and make it possible

for the lines to perform regular service ‘to the public (R.

448). Just as.freight conferences “must have the power

to assure themselves of the loyalty of merchants upon —

. whom they depend”—asg ‘the Commission has recognized

‘ {supra, p. 6)—the passenger conference lines must:also —

* have the means to insure the contractual loyalty of their

agents upon whom they depend. This is one purpose of.the

_ tieing rule, the ofher having to do with preserving the

stability of the conference itself (infra, p. 33). |

4 control. ¢ over their paleuiinttl and their agents” (R. 434-435). See

also the recommendation of the International Consultative Council

of Travel Agents (I. C.C. TA.) (Ex. 50, R. 291, 293-294).

ha: ‘Because of seasonal weather conditions affecting the desirability .

of transatlantic travel, conference fares and rates of commission

had in the past béen geared to “high season” and “off season” (R.

68, 118; Ex. 59, R. 334, 337; Ex. 66, R. 347). “High season” is the

spring-summer ‘period when. ocean travel i is. pleasurable and respon-

‘dents have little difficulty filling their ships (R. 105; Ex. 111, R.

380). “Off season” is the fall-winter period when space is plentiful

and passenger fares have. traditionally been reduced and agents’.

-eommission rates sometimes increased in order to attract travelers

by sea even though vessel operating expense is not appreciably dif- .

ferent than in the a. season (R. 105,107, 118; Ex. 28, R. 251; Ex.

50, R. 276; Ex. 67, R. 351- 852 ; Ex. 96, R. 374(3)).

me Appointed agents accounted for 75 to 80 per cent of ireland

atlantic bookings sold annually in the United States by TAPC mem-

ber lines in the 1955- 1960 period (Exs. 96, soa R. 371, 375).

‘Second, the conference lines also bind themselves to deal

exclusively. with and pay commissions only to their ap-

pointed agents (Ex. 1, R. 169). The agents are not mere .

independent ticket brokers; their relationship to the con- _

ference lines “is of a fiduciary nature, as large sums of —

money are handled by” them.* Through conference screen-

ing procedures the member lines endeavor to secure the .

appointment.of competent and trustworthy travel agents—

agents on whom the traveling public can rely and agents -

who can produce business in sufficient volume to warrant

the expense. to the lines of maintaining the conference |

_ system of agency supervision and assistance.”*

In addition. to the commissions ‘paid them, appointed

agents receive other benefits from the member lines. They

and their wives and children travel on member line vessels.

at a 75 per cent fare reduction. This also applies to the .

agents’ responsible steamship clerks and their families (Ex. ©

3, R. 224). Agents or their employees obtain free passage

when serving as party org s or tour conductors (Ex.

3, R, 225). For a relatively nominal annual fee” appointed

agents receive various services from TAPC, including bond- -

as ® Singer v. Trans-Atlantic Passenger. Conference, 10.8.8. B. B. .

520, 523 (1936).

26 'The Commission has in the past refused to weaken the tié be-

tween the TAPC lines and their appointed agents. In Singer. v.

Trans-Atlantic Passenger Conference, supra, the Commission up-

‘held the member lines’ right not to appoint all ticket sellers.as their

agents and to refuse payment of commissions to non-appointed

ticket sellers licensed by the State of New York who had booked

passengers 6n member line ships (1 U.S. S. B. B. at 523).

* Ranging from $15 for agents located in smaller towns up to

- $40 for those located in New York City (Ex. 3, R. 228-229). Con-

trary to the Commission’s assertions (R. 564 ;- C. Br. 21) these

amounts do not cover the direct ‘expense (exclusive of overhead) of

each member line of maintaining agents, which was estimated to be

$100 per agent per year ‘(R. 56).

yee

14...

ing, informative bulletins on applicable laws, regulations,

passport and visa requirements, etc. (Ex. 3, R. 230; R.

56-57; Ex. 111, R. 380-382), and assistance from a. confer-

ence auditor in setting up efficient record-keeping —

(R. 58).

Third, the conference lines’ own economic interest dic+

tates that the agents who produce 75 to 80 per cent of the

transatlantic bookings be reasonably compensated, if the

lines are to continue to get their business (R. 71-72). The

records of. APC introduced into evidence show beyond dis-

pute that the question of the proper level of such compensa-

tion was considered at least once, and often more frequently,

in virtually every year covered aby the Commission’s investi-

gation. a

Indeed, a procedure was established to insure that views

of travel agents on both sides of the Atlantic on thig and —

other matters of mutual interest would be regularly and

- formally brought to the attention of APC. Representatives

of a-group known as the International Consultative Council

of Travel Agents (I.C.C.T.A.), representing travel agent

‘associations from the various countries served by APC —

lines, met with APC Principals at a. General Meeting _-

28 See Ex. 50: March 1950 (R. 273-274), October 1950 (R. 276),

October 1951 (R. 281-282), February 1952 (R. 382-383), August

1953 (R. 283-284), September 1955 (R. 293-299), September 1956

(R. 303-307) ; Ex. 54: Minutes of Meeting of March 1951 (R. 316-

$21) ; Ex. 59: March, June 1952 (R. 322-338) ; Ex. 66: Minutes of

Meeting of May 1956 (R. 344-347) ; Ex. 67: September 1957 (R..°

348-354) ; Ex. 68: Febru 1958 (R. 355-362) ; Ex. 23: October

1958 (R. 249); Ex. 22: February 1959 (R. 246-248) ; Ex. 28:

Minutes of Meeting of May 1960 (R. 250-253) ; Ex. 60: Minutes of

Meetings of March 5, 1963 and June 1953 (R. 339-341); Ex. 62:

Minutes of Meeting of October 1953 (R. 342) ; Ex, 64: March 1955 .

= — ; Ex. ‘96 (R. SPRCESPEES), Ex. 29 (R. 254-270). ;

‘

Ce ae ee Oe eee

in 1953 (R. 65-68; Ex. 50, R: 283-284). ‘Thereafter, an —

L.C.C.T.A. delegation met with an APC committee just

prior to the Principals’ General Meeting held in October

1955, and again in 1956 and 1957 (Ex. 50, R.,291-299, 300- -

307 ; Ex. 67, R. 348-354). Beginning in 1958 ASTA refused

to participate in I.C.C.T.A. meetings, delivering. instead

an ultimatum that it “can no longer accept the continuation

of the unanimity rule * * *” (R. 50; Ex. 50, R. 299-300).

Far from any “freeze” (A. Br. 4), the commission rate

has in fact been incréased a number of times by APC

operating pursuant to the unanimity rule. Before World

War II, the commission rate for transatlantic bookings .

was 5 per cent (R. 128); in October 1946 it was raised to

6 per cent for all crossings; in March 1951 to 71% per cent

for off-season (fall-winter) crossings; and in March 1956—

to 7 per cent, all classes, all seasons (R. 118).”° In 1960

APC provided for the retroactive payment of commissions

for bookings sold by travel agents during the year prior

to their appointment as agents: of member lines (R. 5-7,

9), and in 1961 provision was made for additional allow-

ances to agents for the cost of tour advertising folders (Ex. ©

2° The -_March 1956 biscetne alore was estimated by ASTA to

represent $1,000, 000 a year in- additional commission revenues to

agents (Ex. 135, R. 398). And it has, despite a simultaneous in-

_ crease in passenger fares (Ex. 29, R. 258) ‘(inereasing the base to

- which the increased commission rate is applied), absorbed approxi-

mately 30 per cent of the average annual revenue increase of the

lines from passenger bookings sold in the United States since the

commission increase ($3,348 ,700) (Ex. 98,-R. 375):

‘It should also be noted that since 1955 ‘agents have increased the

amount of bookings sold on the lines’ vessels (Ex. 98, R. 375) and

derived from such bookings approximately the same proportion of —

their total income as such bookings bear to total bookings from air,

sea and other travel (Ex. 106, R. 379); and that more:and more ©

travel agents in the United States and Canada have been applying

to the lines for appointment (Ex. 29, R.-260), some 1,100 having

been added between 1950 and 1960 (Ex. 117,-R. wavs

. 16

100, R. 37 6). In 1962, the lines also unanimously agreed

to pay a 10 per cent commission on the ocean portion of

tours (R. 425, 431, 468-469).

Although ASTA urged the Commission to find such

- commissions “unremunerative, noncompensatory, or a

burden on ASTA’s other services” (R. 481),®° the Commis-.

sion refused, agreeing with the Examiner that the record

“does not support a finding that the level of commissions

is unreasonably low” (R. 7

Proceedings Before the Commission ‘

'The Commission’s order of investigation published in

. the Federal Register invited “all interested persons to

intervene and participate herein” (R. 2).: Aside from

ASTA, only two non-appointed travel agencies intervened,

‘and only one of these ( McManus) actually appeared (R. i,.

' . jtems 3, 4 and 6; R. 8, 26, 588-589). No non-conference

carrier or anyone representing such carriers or any seg-

' ment of the traveling public participated in the proceed-

ings and no evidence was produced as to the effect of eon-

ference agreements or practices upon suclr persons.

Upon the entire record of the investigation the. Exam-

_ iner’s ultimate conclusion » was (R. 449):

8° ASTA, of course, is but a trade association of neal agents, .

’ which represents about 1,400 travel agents in the United States and

Canada (R. 414), approximately 90% of whom hold .appointment

from one or more PC lines (ASTA ee to Intervene,

- par. I [R. i, item 5]).

31 Referring to ASTA’s proffered Exhibit 106 (R. 379), the

Commission commented that it “merely shows the rapid expansion: -

of the airlines. It does not show that the agents are being forced —

out of ‘business or losing money through the sale of sea bookings”

(R. 482). This is reinforced by the data a in ne

29 on p. 15; supra.

aA? ve Po Sie he —,

“Insofar as they relate to travel agents, Agreement

No. 7840 of APC and Agreement No. 120 of TAPC

are not found, in principle, to be unjustly discrimina-

tory or unfair as between the parties named in section —

15 of the, Act, to operate to the detriment of the com-

merce of the United States, to be contrary to the public

interest, nor to be in violation. of the Shipping Act,

1916, provided they are modified’ in accordance with

- this decision. The agreements therefore should not be:

disapproved or cancelled insofar as. ney relate to

travel agents.” *?

The Examiner recommended disapproval of the tieing

rule not because of evidence showing violation of any Sec-

- tion 15 standard but solely on the ground that it was not

shown to be: “necessary in order to promote stability in -

rates or to combat desttuctive competition” -(R. 441).*

However, he recommended approval of the unanimity rule

(R. 442).

Despite “a searching review of the conference recor

conducted by petitioners (R. 403), the Examiner concluded

32 The recommended modifications related to TAPC practices and

procedures. for the selection, appointment and supervision of agents.

All were accepted by respondents, except abolition of the tieing rule -

‘and disenfranchisement of member lines serving Canadian ports

' from voting on changes in agents’ commissions (R. 471-474). A

thoreugh-going revision updating the TAPC provisions and regu-

lation’ regarding travel agents was filed with the Commission as-

directed (R. 450).

33 The Examiner, however, recognized that if.such agents’ services

‘ + « ~~ were made freely available to non-conference carriers, “lines who are.

- presently members of the conference might choose to become inde-

‘pendent by relinquishing their membership” (R. 419). He failed

to recognize the clear intent of Congress that arrangements designed

to effectuaté conference stability were not to be disapproved on the

basis of our traditional antitrust concepts (supra, p. 7).

os : Re ee ree

theré was no proof in the rennnd supporting their siete

tions that the unanimity rule (a) had blocked.or delayed —

conference ‘action to increase commissions payable to

agents, (b) had placed the member lines at a competitive

disadvantage relative to the airlines, and (c) should be —

disapproved as detrimental to the commerce of the United’

States (R. 441-444). Furthermore, although the Examiner

excluded lines not engaging “in the foreign commerce of:

the United States” from voting on commissions to be paid

agents here (R. 444), he did not find that such member

lines had blocked, delayed or vetoed conference action to

- increase agents’ commissions, and could not have done so

on this record.** His recommended disenfranchisement of

lines which he mistakenly thought. had no direct interest

in commissions payable for transportation to and from

' the United States constituted in no sense a “qualified” or .

limited aceeptance of the unanimity rule, as petitioners

suggest (C. Br. 6-7; A. Br. 8, 10, fn. 10). The Examiner

clearly approved the unanimity rule as to all>lines he

thought \had a real interest in the trade involved.

In explaining the democratic purpose of. the rule as ap-

plied to all member lines (cf. C. Br. 16), he ee out

(R. 442):

“It is not difficult to: understand why the individual

.-. lines would desire to retain‘a: considerable amount of

_ %4 Both petitioners misread the evidence in stating that seven

member lines do not serve United States ports (C..Br. 6; A. Br. 8).

R. 120 contains no such proof and R. 620. 625 (A. Br. 8),. contrary

to ASTA’s footnote, shows that Portuguese Line, Incres Line -and

Oranje Line (connected with Holland-America Line) served United

States ports (R. 621, 623, 624). Of the four remaining lines serving

only Canadian ports, at least one, Canadian Pacific Steamships, sells

a. rR 878). number of bookings — agents here - 620; Ex.

96, R. 373

~~ - autonomy. (or veto power) over the question of com-

missions when they enter into a conference agreement

with other lines. If only a simple majority of the

member lines were required to increase or decrease ©

the rate of commission, the will of the conference.

would be imposed upon that of many of the individual

member lines quite frequently on this vital question.” *

The Examiner stressed the protection afforded by the

unanimity rule to American-fiag carriers (R. 423) : |

“The executives of the American-flag steamship

lines which are members of APC, and who testified

at the hearing, stated that in view of the small minor-

ity of American-flag ‘Tines in the conference, the

unanimity rule was of substantial value to the Ameri-

. can-flag lines. They stated that the rules were neces-.

_ sary to protect the interests of the American operators

and, without a they. favored the rule. Re-

. spondents assert that the advantages of unanimity is

to prevent travel agents from playing one line against

_ another.. They state that when all lines participate in

the selection of rates of commission, no line is in a —

position to say that it is tsi agents more than

another.”

Having noted the continuous adherence to the unanimity

rule since 1879 (R. 423), the Examiner concluded (R. 442-

443): 0 7 oor |

°° The Examiner apparently overlooked the historic unity of.the -.

United States-Canadian side of the Atlantic ._passenger trade and

the unrebutted evidence that lines he would disenfranchise in fact

had appointed agents or general agents in the United *States as

well as Canada through whom bookings here were sold ‘sou 96, -

R. 372- 374; supra, pp. 3- 4).

“Tf, in their business judgment, the lines all feel the

need for the protection afforded them by the Unanimity .

Rule, this judgment should not be disturbed by the -

Commission unless it results in a clear violation of

section 15 peaking,

Respondents excepted to the Examiner’s recommended

disapproval of the net and exclusion of lines serving

Canadian ports from voting on rates of commission to

agents in the United States (if that was what he intended)

(R. 484, 486).*° ASTA and Commission hearing counsel,

on the other hand, excepted to the Examiner’s recommended

approval of the unanimity rule and ASTA urged again

that the 7 per cent commission rate be declared unlawful

(R. 408, 475, 480).

In passing upon the exceptions,yand with two Commis-

sioners dissenting in each instance, the Commission agreed

with the Examiner’s disapproval of the TAPC tieing rule

(R. 484) and disagreed with his recommendation on the

APC unanimity rule (R. 475). The Commission held that

°° Contrary to ASTA’s contention (A. Br.'9), respondents’ ex-

ceptions did not acquiesce in the Examiner’s legal “standards” but

contested vigorously his application of strict antitrust principles i in

construing the Shipping Act (R. 484).

Equally misleading is ASTA’s related assertion that respondents

“now operafe with a three-fourths voting rule” in the TAPC con-

ference. As the Commission acknowledges (C. Br. 7), the TAPC

' unanimity provision referred to had nothing to do with commissions °

or any similarity or relationship to the APC unanimity rule here

involved. The-TAPC rule applies only to action of the TAP@

committee on control of sub-agencies in approving travel agency

applicants for the eligible list, passing upon requests of appointed

agents to sell their. agencies and like matters, No change has been

ordered in the provision of TAPC Agreement 120 that control com-

mittee representatives shall be ‘selected by unanimous vote of the

‘member lines or in any of the other unanimous voting provisions of

- that agreement.

panigy a. 2 isi a ,

_ and

21 .

the unanimity rule. “operates to the detriment of the com- _

merce of the United States” (R. 478). This conclusion was.

placed on two stated. grounds: -

(1) “Tt j is a regulation which prevents lathe agents

in the,United States from rendering complete and ef-

reign service both to passengers and to ocean car-

riers.” °

(2) “It has in some cases prevented the principals

from even considering the question of commission —

levels and in others has defeated, or at least delayed

or watered down the desires of the majority of the .

‘lines to raise commission levels, thus placing the steam-

ship lines at a competitive disadvantage vis-a-vis the

airlines” - 478).

ies 2 reasons are in sharp conflict-with the Commission’s

‘findings, noted supra, p. 16, that there was no evidence that

‘conference commission levels established under the rule’

were unreasonably: low, or that such levels were unre-

munerative or a burden on agents, or detrimental to com-

merce or otherwise unlawful under Section 15 (R. 480,

482) and with its finding that (R. 481)

“The record does show a décrease in the relative’

number of steamship bookings in’ relation to total

bookings. But it is not established that the level of.

commissions is the primary reason for this. The prob-

lem of diversion of passengers from sea to air does

exist, and it is a problem which the lines have at--

tempted to solve by increasing the commission level.

But it is undisputed that the enormous growth in air

trayel is largely attributable to factors unrelated to ~

99.

the: steamship passenger industry, such as the ‘in-

creased ‘seating capacity and speed provided by the

new jet aircraft, and the introduction of many new

foreign air carriers serving the United. States.”*

Contrary to the Commission’s implication in its brief

here (C. Br. 8), no “extensive findings” were made in the

majority report on remand. Following the remand, the

Commission received no new evidence to support its find-

ings. It simply held an oral. argument and directed the

parties to file briefs “with any fact relied on by either.

__ party to be specifically identified by ‘reference to the place

in the record where found” (R: 530): No new-facts were

‘referred to, or claimed to have been previously overlooked

in the existing record, as support for its disapproval of the

tieing and unanimity rules (R. 531-567, 587).%

57 Tt is this “enormous growth in air travel,” rather than a decline

in sea travel, which accounts for the “decrease in the relative number

of steamship bookings.”, The lines have maintained a fairly constant’

total of passenger carryings consistent with their capacity limita-

tions (R. 138; Ex. 138, R. 401). It is indeed “not established that

the level of commissions is the rimary reason for this” relative

decrease. As the New York Area Director of ASTA, a travel agency

owner, testified: “I never expect that even if the steamship com-

mission will be 15 or 20 per cent, that we can — the trend”

(Ex. 90, R. 368). e

38 As Vice-Chairman Patterson stated in his dissent (R. 570) :

“There is just as much lack of evidence now as when we made

the decision in the same Docket No. 873, reported in 7 FMC 737

' (1964). There is still no proof in the form of evidence sum-

marized in findings that.the agreements may be found:

“(a) to be unjustly. discriminatory or unfair as between

carriers, shippers, exporters, importers, or ports, or between

exporters from the United States and their foreign competitors;

“(b) to operate to the detriment of the commerce of the

United States ;

“(¢) to be contrary to the public interest ; or

_“(d) to be in violation of the Act.”

(continued on following page)

oe a Mish. hoticthnia ea scitsateaaillithl de poitt Mitkas ‘. bride marine. sateireitheicni thi Son Sathtadllbbiibe DE en ang Seba e-

. .

sate

pa eine Sl 2 tahinstiaina —

As before, the ‘Coramission’ S disapproval of the rules

rested upon unproved ° assumptions unsupported by evi-

- dence showing any relationship between those assumptions

. and the criteria set forth in Section 15 of the Act. The

minority had pointed this out even before the remand

(RB. 408). 9

The Judgments Below (ranges

_ The first opinion. and judgment herein was. entered June

10, 1965 (R. 517; 122 U. S. App. D. C. 59, 351 F. 2d 756;

see App. A hereto). On respondents’ petition for review

(R. 504) the court remanded the case to the Commission

for reconsideration “and with directions for further pro-

ceedings consistent with the opinion of “this court” (App.

A, p. 2a).: Although the court’s opinion dealt with all mat-

ters of law and fact now complained of by petitioners, no

~~ review of that judgment was sought (C. Br. 8).

Even the suggestion that on “one occasion” a single line had

“blocked an increase in the maximum commission rate” (C. Br. 8,

fn. 5) is contrary to the record. The cited reference (R. 374(2))

' shows only “strong objection to an immediate adjustment to 7%” |

~ sought an alternative rate ‘of 8 per cent “during the off season * *.* . ,

by a line whose Principal was a party to the “aide memoire” dated

March 1, 1956 (R. 374(3); 374(8) ) which resulted in the increase to

7 per cent adopted May 7, 1956 (R. 346-347), and whose’ objection

with the idea of emcouraging the booking of more [off-season] busi-

ness” (R. 374(3)). Spar

8° The minority opinion by Vice-Chairman Patterson observed |

(Rx493%494) :

“The effect ‘of the obligation [Unanimity Rule] on the public —

and on our commerce is the relevant test. The majority seems

to assume without the need to prove that if it ¢éan show the obli-

gation allows “one single vote’ to ‘block a proposal on, commis--

- sion matters even though the proposal was favored by an over-

whelming majority of the’ member lines,’ then it has auto-

matically shown betwen injury. This does not follow at all.

Some connection _— cause and effect nis to be enere

_ After ae Ne, the inadequacy of the. facts. cited w

-. the Commission as reason for disapproving the two rules -

in question, the court instructed the Commission concerning —

its statutory duty to find “as a fact that the agreement

. operates in one of the four ways set out in the section by

Congress” [emphasis supplied], referring to Section 15 of ©

the Shipping Act, 1916. The court further poinfed out

. that the Commission — must also consider antitrust prin--

~ \ ciples i in determining whether Shipping Act standards have

‘heen met, citing its own. decision in. Isbrandtsen ’ Co. v.

United States, 93 U. S. App. D. C. 293, 299, 211 F. 2d 51, 57,

cert. denied sub nom. Japan-Atlantic & Gulf Conference v..

United States, 347 U: S. 990 (1954) (R. 527).

The Commission’ s report and order on, remand, served

‘on July 20, 1966, AR. 531-587), was reversed by the Court

of Appeals on respondents’ petition for review (R. 642,

655; 125 U.'S. App. Dc. 359, 372 F’, 2d 932). The court

“saw no purpose in further remand since (R. 654; 372 F. 2d

at 934) rs oe ™e

“Careful analysis of the record, however, convinces 1 lis”

that nothing substantial has been added: to support,

sustain, or even justify the Commission’s condemna-

tion and voiding of.the Conference “actions. As the

two dissenting opinions of Commission members accu-

rately point out, the Commission Report lacks suffi-

cient basis in supporting facts or evidence of reéord

and.consists only of rationalizasions, conjecture and

- opinion.” :

This absence of substantial evidence pointed out by the

- eourt, and now demonstrated, renders all the more inex-

plicable the complete reversal of long-standing Commission

policy without compelling reason therefor, which the Com-

mgeian’ s order i in, me case. represents. oa

Summary of Argument 7

The Commission’s: disapproval of the long-approved

TAPC tieing rule was not based on substantial evidence

of violation of any of the prescribed standards in Section

15 of the Shipping Act. The record contains not even a

_ scintilla of evidence that the tieing rule operated to pro- |

duce: any unfairness, unjust discrimination or injury to

non-conference carriers, loss to conference agents, harin

to the traveling public or detriment to the commerce of

_ the United States. —

. The only non-conference. carriers affected by the tieing |

rule are those engaged primarily i in the carriage of cargo,

not passengers, but « even these may become, as many have,

associate members of the conference ard thus make use

of conference agents. . The tieing rule is not designed to

combat steamship competition in the Atlantic: passenger

‘trade but to strengthen the contractual allegiance between

the member lines and their appointed agents upon whom

they depend as their principal sales force. The: conference

system of agency selection and supervision is also one of

_the chief inducements TAPC can offer to hold its present

members. Abolition of the tieing rule would impair the

stability of TAPC and defeat the clear intent of Congress

to encourage such conferences.

_ Agency action may be set aside if unsupported by sub- .

stantial evidence; i.c., “such relevant evidence as a rea-

sonable mind might accent as adequate to support a con-

clusion”. Consolo v. Federal Maritime Commission, 383

U. S. 607, 619 (1966). The Court of Appeals correctly

remanded the Commission’s order with directions to ap-

= — ee bite kita iS pa atrgedA s

ee ee ere ca _

‘ prove the agreement unless it could make adequately sup-

ported findings showing that the tieing rule violated one:

of the prescribed Shipping Act standards. The Court of

Appeals properly reversed the Commission’s order issued

after remand when it was found unsupported by substan-

tial evidence in the record as a. whole and based upon

_ rationalizations, conjecture and opinion, and when the

Commission had invalidated the rule on the-ground it was

. * - @ounter to antitrust principles.

The Commission’s reasons for disapproving the long-

approved APC unanimity rule, pursuant to which agents’

‘commission rates are established, are without-a basis in

substantial evidence and are in fact contrary to the record

and the Commission’s own findings. The Commission over-

ruled its Examiner’s recommendation that approval of

the rule be continued. Yet the ‘Commission agreed that

the record would not support a finding that agents’:com- |

mission levels were unreasonably low, non-compensatory —

to agents, detrimental to commerce or otherwise iti vio-

lation of the Act. The Commission also found the record

did not establish that the level of commissions to agents

was responsible for the relative decline in sea travel versus

air travel. This, the Commission attributed “to factors

unrelated to the steamship passenger industry”, such as 7

the expansion and improvement of transatlantic air trans-

portation.. | | |

The Commission declared.the unanimity rule detrimental

to commerce on two grounds, (1) it prevented travel agents —

from rendering complete and effective service to the car-

riers and the public, and (2) it placed the conference lines |

at a compétitive disadvantage vis-a-vis the airlines. The

27 |

first sida is peband by the Cinidalaaten ’s finding that

the record discloses no evidence that conference agents _

persuaded any specific traveler to use air travel in prefer-

ence to sea travel against the traveler’s desires or to his

disadvantage. _

The second ground of disapproval was predicated on

assumptions that the unanimity rule had prevented con-

ference consideration of, and had blocked or delayed in-

creases in agents’ commission rates desired by a majority

of lines, a ground the Examiner had rejected because

mere conjecture would be required to find what commission

_ rate would have been established under some other voting

rule. The Commission’s purported “evidence” of confer-

ence inaction and delay is contrary .to the evidence in the.

record, which shows continual consideration and action

regarding agents’ commission levels by member lines over -

the years and full parity of steamship and airline commis-

sion rates before this proceeding was decided. The Com-

mission’s order reflects not only a misunderstanding of the

workings of the conference but also of the important eco-

nomic reasons why no member line—and especially: the

American-flag minority—wishes to: surrender control over

basic financial decisions to the will of a majority of com-

petitors.

The Court of Appeals correctly remanded the Com-

mission’s order in the first instance and properly reversed

it when the Commission issued its order after remand

with the same lack of substantial evidence and on the same

rationalizations, eee and opinion as had prompted

the remand. .

The Court of Appeals correctly instructed the Com-

“mission that the conference rules can be disapproved under

Section 15 of the Shipping Act, 1916, only on the basis of

adequately supported findings of fact that the agreements

violated one of the four standards specified by Congress

in that séction. This Court. has recognized that the lan- ~

guage of Section 15 was deliberately selected by Congress

to indicate how the need for concerted activities in the

shipping industry. and the antitrust laws were to be ac-

‘commodated. Carnation Co. v. Pacific Westbound Con-

ference, 383 U. S. 213 (1966).

The Commission, in “disagreement with this principle,

the Court of Appeals and congressional intent, has never-

theless disapproved the conference rules as per se unlawful

under antitrust principles, contending that- respondents

showed no justification for them. Congress, however, has

already found compelling justification for the approval of

conference agreements, otherwise unlawful under our anti-

trust: laws, by enacting Section 15 of the Shipping Act. -

It has not placed the burden of affirmatively showing justi-

fication for such agreements upon those seeking approval

but has commanded: the Commission to approve.all such

‘agreements unless found to operate in violation. of the

. prescribed standards,

‘The 1961 amendments to the Shipping Act which added

“contrary to the public interest” to the Section 15 stand-

, ards did not empower the Commission to test the validity

of conference agreements by the application of strict anti- .

trust principles, as was done here. Congress in enacting

those amendments reaffirmed that “our traditional ‘anti-

trust concepts cannot be fully ‘applied to this aspect ‘of

international commerce.” The -Commission itself recom-

‘mended that it not’be required, as initially proposed under

the 1961 amendments, to affirmatively find that agreements

were in the public interest before approving. them and —

"Congress adopted ‘that recommendation.

This Court has on many occasions held that where, as

here, Congress has selected specific standards by which

agreements otherwise in violation of the antitrust laws

may be exempted from those laws, those standards must .

' be applied, not antitrust standards. Minneapolis ¢ St.

Louis Railroad Co. v. United:States, 361 U.S. 173 (1959) ;.

Seaboard Air Lane Railroad Co. v. United States, 382 U.S.

154 (1965). ;

The Court of Peas sibepeaty: remanded the Commis-

sion’s order for failure to apply the standards prescribed

by Section 15.of the. Shipping Act and then properly re-

versed it when, in lieu of substantial evidence of violation

- of those standards, the Commission again disapproved the

conference rules on antitrust ground.

IV.

‘ The Examiner found that ASTA’s independent ground,

urged here as a basis for affirmance of the Commission’s

‘order, was not substantiated in the record. Neither the

Commission nor the Court of Appeals considered it. The

order not having been based on that ground, and the

ground clearly involving determinations of fact which

could only be made by the administrative agency, it cannot.

be made the basis for decision here. Burlington Truck -

Lines, Inc. v. United States, 371 U. S. 156, 168-169 (1962).

ARGUMENT

The Commission’s disapproval of the tieing rule was -

properly set aside as unsupported by substantial evi-

- dence of violation of Shipping Act standards.

Section 15 of the Shipping Act, 1916, imposes an affirma-

tive duty upon the Commission to approve agreements be-

tween water carriers unless it finds them “unjustly discrim-

-inatory.or unfair as between carriers * * * , or to operate

- to the detriment of the commerce of the United States,

or to be contrary to the public interest, or to be in viola-

tion of this chapter. * * * ” (39 Stat. 733, 46 U. S. C. §814,

as amended 75 Stat. 763). When this proceeding was first

before the Court of Appeals in 1965, the Court was “unable

to find any ultimate factual conclusion within those speci-

fied in that section which would support” disapproval . of

_ the court remanded

the tieing rule (R. 525; 351 F. ad’ at 760). eed

“with directions that either an adequately supported —

ultimate finding be made which warrants disapproval

under the statute, or if no such finding can: be made

on the record, that the tieing rule be approved as_

directed by 46 U. S. C. 4814.” (R. 528; 351 F. 2d at:

762; emphasis supplied. )

- On the second review after remand a new panel of the

Court of Appeals (except for J udge Danaher) unanimously

found that there had still been no showing that the Com-

mission’s conclusion that the tieing rule should be disap-

proved was supported by substantial evidence. As the

Court accurately pointed out: <,

“The case now returns to us pon the same eviden- |

tiary record which: was before us when we previously

Bee . | Si pili Maida

31°

reviewed the proceedings. True it is that the Commis-

_sion’s present opinion enlarges upon its previously .

stated views and is:couched at various points in the

phraseology of the statute. Careful analysis of the

record, however, convinces us that nothing substantial

has been added to support, sustain, or even justify the

‘Commission’s condemnation and voiding of the Con-

. ference actions. As the two dissenting opinions of Com-

mission members accurately point out, the Commission

Report lacks sufficient basis in supporting facts or evi-

dence of record and consists only of rationalizations,

conjecture and opinion” (R. 654; 372 F. 2d at 933-934).

Disapproval of the tieing ‘rule was not based upon evi-

dence of violation of Shipping Act standards because theré

was no such evidence. No non-conference carrier (or

_ spokesman) appeared as complainant, intervenor or wit-

ness although the proceedings were widely publicized, and

no evidence was produced of any unfairness, unjust dis-

crimination against or injury to such carriers by reason

of the rule.“ Nor was there any evidence that the rule -

operated to cause any measurable loss to conference agents, ©

harm to the traveling public or detriment to the commerce

of the United States.*? The Commission’s Examiner found

«0 The total evidence on the tieing rule consists of the testimony

- of one travel agent and a former conference:chairman, four con-

ference circulars, and three letters which were typical of those sent

from time to time to agents regarding their obligation under the

tieing rule (R. 271, 390-397). The travel agent testified that he

did not do business with non-conference lines and told customers -

reasons why it was better and perhaps less costly to travel tourist

class than on a freighter, but that “some” customers were lost be-

cause a freighter was -what they wanted (R. 46-47). The confer-

ence witness recalled one occasion when he had told an agent that |

under the rules the agent could not book. a family with baggage -

and household goods who wanted to travel.on a non-conference car-

rier direct to Italy (R.144-145). The issue, of course, is not whether

the rule was ever enforced but whether its enforcement in fact con-

travenes any of the standards of the Shipping Act.

0 elite Rielle er R DAHA (ete OOS be

tae ich ish See AIR IP th ty Smt

eS i nnn ah alee at

ee ee ee

- that no agent had lost his appointment because he booked

passengers on a non-conference line (R. 420), and the Com-

mission céncedes “there was no proof that the tieing rule

had been wholly effective in depriving outsiders of travel |

agents” (C. Br. 20; italics in original). In fact, there is.

no proof at all in the record that any “outsider”—non-

conference line: or member of the traveling public—had ;

been deprived of the services of: travel agents.*

The Commission’s brief can cite no such evidence. It can

only refer to the conclusory statements of the Commission

that the effect of the tieing rule “is to impose serious re-

straints” (C. Br. 18-20). Consequently, the Commission is |

forced to contend that “ ‘rationalizations, conjecture and

opinion’ have a place in the agency determination” .(C. Br.

16).- But neither these nor the Commission’s conclusory

statements ‘constitute “substantial evidence” in support of.

the Commission’s action. It was for this reason that the

Court of Appeals reversed.

The Commission disapproved the tieing rule solely on the °

basis of the Examiner’s rationale (R. 441) that the rec-

- ord-did not demonstrate “that it was necessary to promote

_ Stability in rates or ‘to combat destructive competition” |

** As the Commission now concedes (C. Br: 20), it “did not find,

for example, that a non-conference carrier cannot find non-confer-

ence agents to represent it or that a prospective passenger on a non-

, conference line has nowhere to go to book his passage.” The Com:

mission could not ‘have made such findings because non-appointed

agents were witnesses or intervenors in this very proceeding (R. i,

items 3, 4, 6; R. 21, 27, 29) and even some 10 per cent of ASTA’s

membership of 1,400 travel agents does not hold conference appoitit.,

ment (ASTA’s Application to Intervene, Par. I, R. i, item o}.. 15,’

addition, the Commission could have made no such finding because

- there was no evidence whatsoever as to the total number of non-

conference agents. While it ‘is clear that there are many travel

agents who are not members of ASTA, there is no data in the record

as to the total number of such agents nor as to how many of these

do not hold conference appointment.

agai ~~

and “[s]Juch tieing arrangements generally run counter

to antitrust principles” (R. 484). Both point to the fact

that all passenger lines furnishing regular transatlantic

‘service are conference members, and that the tieing rule

affects only freight services which are not full or associate’

conference members (R. 419, 463),—and whose business is

obvicusly. the carriage of cargo, not passengers. This,

however, does not rationally support a conclusion that

Shipping Act standards were violated or that the tieing |

rule was unnecessary. — es :

Respondents have never claimed in this proceeding that

the tieing rule is necessary to combat steamship competi-

tion in the Atlantic passenger trade.** They have con-

_ sistently maintained that the tieing rule performs for pas-

senger carriers the same functions performed for freight

_earriers by dual rate contracts advocated by the Commis-

sion (supra, p. 6). Both create a “tie” between the

carriers and the source of their traffic and thereby induce

_ carriers to join and remain members of conferences.

The conference system of agency selection and super-

‘vision is unquestionably one of the chief inducements

TAPC can offer to hold its present members and attract

new ones. TAPC member lines have incurréd and con-

tinue to incur substantial expense in maintaining the con--

ference system of selection, bonding and supervision of

qualified agents for the sale of transportation on their

*? Without any record support the Commission’s report.on re-

mand thrice asserted that respondents “admit” that the rule’s pur-

pose is “to eliminate non-conference competition” (R. 540, 563,

566). The record contains no such admission anf the Commission

contradicts itself by asserting that respondents “could hardly make

the claim that the rule is necessary to protect the conference from

outside competition, and has im fact admitted that it is not” (R.

563)@ °C

Go yr

ships (R. 8), and in providing their agents with adver-’

tising and promotional materials to assist their sales ef-

forts (R. 56). Respondents justifiably feel that if carriers .

wish to utilize conference-appointed agents, they should

to some extent share in the .expetise of the conference sys-

- tem by accepting the Teadily available conference member-

ship. If, through abolition of the tieing rule, TAPC ap-

pointed agents are made equally available to carriers,

whether they continue to be meinbers of TAPC or not,

* one of: the principal reasons for TAPC membership would ©

scease to exist. The stability of TAPC would inevitably

be impaired and the clear intent of ongress to encourage

such’ conférences would be defeated. The Commission

made no attempt to explore these considerations ; it sum-

marily dismissed them with the comment that “respondent

~ lines operate Caribbean cruises without the benefit of a tie-

ing rule and no adverse consequences have resulted” (R.

485).*

_* The Commission disregarded the evidentiary inadequacy of the

record pointed out by its own Vice-Chairman. As Commissioner

Patterson said (R. 497-498) : 3

“The , competitive necessity problem was not explored nor

developed in this record. Even assuming this to be a valid

wonder the record ‘did not demonstrate’ anything. Since the

burden is on the Commission to approve unless we can show

| detriment or contrariety with public interest, . we ‘May not

' invert the burden at the last minute and say the respondent

did not prove enough. It is up to the Commission to do the

The Commission must know. that Caribbean cruises are operated

“not only “without the benefit of a tieing rule” but also without

' benefit of a conference—hardly proving that a tieing rule does not

contribute to conference stability. Conditions ir the Caribbean

: ; (continued on following page)

aoe

Pe OT tT

: “es 35

The Commission was directed on remand to make either

} (1) “an adequately supported ultimate finding” that the

» tieing rule operates in any one of the four ways which

Congress prescribed in 46 U. S. C. §814 for disapproval

or (2) to approve the rule “if no such finding can be made

on the record” (R. 528; 351 F. 2d at 762). The Court of, |

Appeals found that the Commission’s reaffirmance on te-

mand of its earlier disapproval of the rule, while in terms

restated, was not supported by substantial evidence. « _

This Court expressly recognized in Consolo v. Federal

. Maritime Commission, 383 U. S. 607, 619 (1966), that a

reviewing court could set aside agency action if “arbitrary,

capricious, [or] an abuse of discretion” or if “ansupported

by substantial evidence.” The latter ground was explained

as follows (383 U. S. at 619-620): .

We have defined ‘substantial evidence’ as ‘such relevant ©

- evidence as a reasonable mind might accept as ade-

» quate to support :a conclusion.’ Consolidated Edison

Co. v. Labor Bourd, 305 U. 8. 197, 298. ‘[I]t must be.

enough to fustify, if the trial were to a jury, a refusal

to direct a verdict when the’ conclusion sought to be

drawn from it is one‘of fact for the jury.’ Labor Board

v. Columbian Enameling & Stamping Co., 306 U.S. 292,

300. This is something less than the weight of the

evidence, and the possibility of drawing two incon- .

_Sistent conclusions from the eviderice does not prevent

, 7

acre

. | . | 2%

an- administrative agency’s finding from being sup-

ported by substantial evidence.” [Citations and foot-

‘note omitted] = 7

The Commission’s report on remand points to no evi-

. dence which satisfies that definition. The ultimate findings

' eouched in ‘the language of the statute (i.e., detriment to

commerce, unjustly discriminatory between carriers, con-

_ trary to the public interest [R. 565]) are, of course, no

better than the intermediate findings upon which they rest

_ and the latter, in turn, must be tested by the underlying

evidence offered to support the entire structure. Here, as .

already pointed out: (supra, p. 31), there is no relevant

evidence “a reasonable mind might accept as adequate to

support” (383 U. S. at 620) the general conclusions of

~ “pernicious” effect upon travel agents, non-conference car-

_ riers and the traveling public on which the Commission

relies to condemn the tieing rule (R. 565; C. Br. 21).**

— Coneeding to the Commission all the expertise due it as

the agency charged by Congress with the administration

of the Shipping Act, its conclusions unsupported by sub-

stantial evidence cannot be the basis of a valid order under

that Act. .Whatever the role of “rationalizations, con- —

jecture. and’ opinion * * *-in the. agency: determination”

(C. Br. 16), this Court has never treated them as substi-

tutes for. substantial evidence. Federal Trade Commission

«« This total lack of substantial evidence is what distinguishes the

instant case from the. Consolo case, upon which petitioners rely

.(C. Bri 15; A. Br. 20-21, 35-40). This Court pointed out in Con-

solo that the standard of review ‘does not permit a. reviewing court

>. to reverse agency action based upon substantial evidence. simply

_ because the court beljeves the evidence could support a conclusion

contrary to that reached by the agency (383 U. S. at 618-619).

That is not the situation here. - a4

_ v. Raladam Co., 283 U. S. 643 (1931).* National Labor

Relations Board v. Brown, 380 U. S. 278 (1965).“* Nor

does “expert judgment” (see, e.g., C. Br. 15, A. Br. 20, 40)

give an administrative agency discretion to rule as it

pleases. As this Court-has said, quoting from a dissenting

opinion in an earlier case,’ “‘unless wé make the require-

ments for administrative action strict and demanding, ez-

_pertise, the strength of modern government, can become

a monster which rules with no practical limits on its dis-

cretion’ ” (italics by the Court). Burlington Truck Lines,

Inc, v. United States, 371 U. S. 156, 167 (1962), also citing

Federal-Communications Commission v. RCA Communica-

tions, Inc., 346 U. S. 86, 90 (1953).

It is plain that the Commission’s disapproval of the

tieing rule was based entirely upon asserted antitrust prin-

ciples in disregard of the instructions of the Court of Ap-

peals in this case (R. 527; 351 F. 2d at-761-762). The

Commission persisted in this course apparently believing

that its expert judgment entitled it to. disagree with the

reviewing court (R.-541). The Commission, however, is not.

_ an expert in the application of the antitrust laws and in

**In Raladam the Court affirmed reversal of a Federal Trade —

~ Commission order because “there is neither ‘finding nor evidence

from which ‘the conclusion legitimately, can be drawn that these

advertisements substantially injured or tended thus to injure the -

business of any_competitor or of competitors generally, whether

legitimate or not” (Jd. at 652-653); As the Court said, “All this

was left without proof and remains, at best,-a matter of conjecture.

Something more substantial than that is required as a basis for

the exercise of the authority of the commission” (Id. at 653).

**In Brown the Court again upheld reversal.of agency action.

As it said, “In sum, the Court of Appeals was required to conclude

that there’ was not sufficient evidence gathered from the record as

a whole to support the Board’s finding that respondénts’ conduct

violates” the statute (Id. at 290). an

New York v. United States, 342°U. 8. 882, 884 (1951).

sO acting it clearly exceeded its competence.“ As this

Court pointed out in Federal Communications Commission

v. RCA Communications, Inc., supra, viz. (346 U.S. at 91):.

“The Commission * * *.seems to have, relied almost

entirely on its interpretation of national ‘policy. Since

the Commission professed to dispose of .the case —

merely upon its view of a principle which ‘it derived

from the statute and did not base its conclusion on -

matters within its own special competence, it is for us

_ to determine what the governing principle is.”,

The. Court of Appeals did not misunderstand the Com- ©

mission’s role under Section: 15 of the Shipping Act as

contended here (C. Br. 15; see infra, p. 56). The court

correctly instructed-the Commission to make adequate sup-

porting findings under the Shipping Act, 1.e., findings based

upon substantial evidence. The Commission chose to apply .

antitrust principles exclpsively in obvious frustration of

_congressional policy. The Court of Appeals on the second -

review was entitled to treat this as a tacit admission that

no such evidence could be produced and to reverse the

Commission’s order as unsupported by substantial evidence. .

In so doing, the court.properly followed this Court’s guide-

line in National Labor Relations Board v. Brown, supra,

viz. (380 U. S. at 291-292):

| “Reviewing courts are. not obliged to stand aside

‘and rubber-stamp. their affirmance of administrative

decisions that they deem inconsistent with a statutory ~

' 48 Tllustrative is the Commission’s, mistaken description of the

tieing rule as a “tieing arrangement” and its statement that “Tsluch -

tieing arrangements generally run counter to antitrust principles”

(emphasis supplied) (R. 484). The rule, of course, is not a tieing

_ arrangement and petitioners now make no such claim.

Lnsidesd ams hi bad Bed Saas 5 * 3 =

‘. UBER me Ge cous Camtasia MMe NA ae Be

‘

ore eee

ei |

~~.

| mandate or —aaaeee the congressional policy un-

derlying a statute... . Of course due deference is to”

be rendered to agency determinations of fact, so long

as there is substantial evidence to be found in the

record as a whole, But where, as here, the review is

. not a’ question of fact, but of a judgment as to the

proper balance'to be struck between conflicting inter-

_ ests, ‘[t]he deference owed to an expert tribunal] can-

not be allowed to slip into a judicial inertia which

results.in the unauthorized assumption by an agency ©

of major policy decisions properly made by Congress.’

American Ship Building Co..v. Labor Board, [380 U. S.

300 (1965) ] supra at 318.”

Similar inbipeitlins inietbtiite the Commission’s condem ~

nation of the conference unanimity rule.

II.

The reasons advanced by the Commission for disap-

proving the unanimity rule are unsupported by substan-

tial evidence and do -not establish any violation of Ship-

ping Act standards.

_ Agents’ commissions are, of course, an expense of pas-

‘senger carrier operation which directly affect net revenués -

(R. 70, 72, 73). If there were no. conference agreement,

each individual line would decide for itself the amount of

commission it- would pay its agents (R. 442). The Ex-

aminer had no difficulty recognizing that the unanimity |

rule was necessary because lines entering into a ¢onference

agreement would not wish to completely surrender control

over financial decisions which might affect their ability to.

compete or even survive as against-carriers having greater

resources (R. 442). All member lines for this reason urged

SOP ee Te Ee RN

bd .

ribet ie Welt aatus | HEROS SARA 8 Re

PORE MO TES

_ the Commission to continue its approval of the unanimity

yule as a fair and practical accommodation of conflicting ©

intérests which had worked satisfactorily for many years

with Commission approval. As the Examiner pointed out,

only “a clear. violation of section 15” justified disturbing

‘the lines’ business judgment in this respect (R. 442-443) .*°

~ The Examiner, moreover, found uncontradicted evidence

that “the unanimity rule was of substantial value to the

American-flag lines” (R. 423), who are greatly outnumbered

by the foreign-flag carriers in the conferences and whose

operating and capital costs are higher (supra, p. 2, fn. 2).

The Commission’s ultimate response was that “this rule,

as implemented contrary to the considered business judg-

' merit of nearly all the conference members, has worked to

the detriment of the commerce of the United States” (R.

581). Not only are the reasons advanced for this conclusion °

without a basis in substantial evidence, the conclusion itself

is wholly at odds with the record evidence and other Com- .

mission findings.

‘The Commission’s disapproval of the unanimity rule

as detrimental to commerce under the Shipping Act is

9° The Court of Appeals on. the first review, though recognizing

the Commission’s right to disapprove previously approved agree-

ments (which respondents do not question), agreed: that “where dis-

approval follows a history of prior approvals * * * we think that the

- finding should be scrutinized by a reviewing court with greater

eare” (R. 521; 351 F. 2d at 759). a

50 See S.’ Rep. No. 860, 87th Cong., Ist Sess.. (1961), where th

Senate Committee pointed out (p. 5): ;

“No extended discussion is needed of the fact that the operat-

ing and capital costs of American-flag ocean common carriérs

are considerably higher than.those of any other nation. Since

most carriers. cannot operate as cheaply as- some competitor

which possesses national-cost advantages, the conference affords -

a device whereby“all carriers working as a group, set rates at

a point where such an advantage is not absolutely controlling.”

. y e

San

41° e-*

bottomed on the same evidence the Examiner found inade-

quate. Commission hearing counsel and ASTA had con-

tended that the rule “blocked or unduly delayed” APC

action to “increase” agents’ commissions, thereby allowing

the airlines “to hold a superior competitive position” to

the detriment of ‘the commerce of the United States (R.

elie 441-442). The Examiner rejected those contentions in rec-

ommending continued approval of the rule (R. 442):

“As pointed out on page 39° [R. 422], the record i in

this proceeding. does not prove that the commissions

would have been increased any more than they have

been increased if the Unanimity Rule had not been in

existence. It would require mere conjecture to find ©

what conclusions might have been reached by the con-

_ ference if a majority rule had been applicable or a

' ’ two-thirds rule or a seventy-five percent rule. Even

assuming that a majority of the lines might have pre-

ferred to increase the rate of commission, it cannot

be concluded that the Unanimity Rule must be stricken

down as. being detrimental to commerce under section

15.”. , |

a ~ ‘

The Commission itself, although overruling. the Exam-.

iner’s recommended approval (R. 449), found the record did

not establish that commissions to agents were responsible

for the relative decline in sea travel versus air travel, which

it attributed “to factors unrelated to the steamship pas-—

senger industry, such as the increased seating cavacity and

speed provided by the new jet aircraft, and the introduc-

tion of many new foreign air carriers serving the United :

States” (R. 481; see pp. 21-22, supra).

. As for the commission rate itself (or “evel” as the Com-

mission termed it), the Commission agreed with the Ex-

aminer “that the record in this proceeding does not support

ye ie. ; te “a

a finding that the level of commissions is unreasonably

low” :(R. 481), or that any sufficient showing had been made

“to declare that such levels are detrimental to the com-

merce of the United States or. otherwise unlawful under

section 15 [of the Shipping Act]” (R. 482).

‘Despite its recognition that no actual detrimental result

ad in fact heen established, ‘the Commission nonetheless

concluded that the unanimity rule should be disapproved

- as operating to the detriment of the commerce of the United

. States (R. 478). The two reasons given for this conclusion

_ (BR. 478, p. 21, supra; R. 560) are demonstrably not based |

upon substantial evidence in the record. They do not, in

any event, support the ultimate conclusions. Additionally,

they are negated by the. Commission’s acknowledgment that

' the commission rate has not been shown to be unredson-

abl low or detrimental to the commerce of the United

‘Stats ¢ or otherwise in violation of Section 15 and by its

' finding that the greater growth of air travel compared with |

sea travel is largely attributable to the expansion and

improvement of air transportation _ -). |

A. No Subsiantial Evidence Supports ini Conclusion

That the Unanimity Rule Prevented Conference

Agents From Rendering Complete and Effective

The first’ reason advanced by the Commission for con-

demning the’ unanimity rule as detrimental to commerce

was that it prevented travel agents from rendering com- ©

plete and effective service, both to passengers and to ocean

_tarviers (R. 478). This reason—always difficult to compre-

“-hend—evolved into the -contention, that because travel

agents are motivated by economic self-interest, “the

undecided traveler” is deprived of his “right” to deal with

an agent free of such motivation (R.. 560). No mention is ~

‘

a atiesisitds [eo 7 .s a = —_

' :

i . ‘

* made of this in the Commission’s brief here; instead, it- is

suggested that the conference lines ought to know that -

the “rate of commissions * *.* is likely to influence the.

action of travel agents in suggesting one mode ‘of travel ~

‘over another”, thereby placing the steamship lines in an

adverse competitive position (C..Br. 25-26). The Commis-

sion thus admits that it is not the unanimity rule but the

rate of commission which is the alleged offender. This,

of course, is negated by the other findings i Commission

made. — :

- _ As the Court of Appeals pointed out on the first review

- (R. 522-523; 351 F. 2d. at 759):

“On the basis of the ecient s own statement, thére-

fore, it is not the unanimity rule, but economic factors

which prevent agents ‘from rendering complete -and

effective service both to passengers and to ocean car-.

riers’—if by that.the Commission meant the ‘pushing’

of air over sea travel.’ And the Commission’s opinion .

suggests no other way in which complete and effective

service by appointed agents is prevented.”

Pa DRI ARBOR

“7 Although the Commission did not refer to it, the record:

shows that sales of transportation on steamship lines have

been. increasingly adversely affected by the preference of

.. many travelers for air transportation. As the Examiner noted,

this preference is due in part to the pushing of air travel by

agents in their own interests, and in part to the saving of

travel time, particularly on jets, extensive advertising by air-

lines, and other factors. * * *”

The “economic factors” the court referred to include the

undeniable inherent differences between air travel and sea

travel. Even the Commission found that the only evidence

of “diversion” from sea to air passage against the best in-

terest of prospective passengers “related solely to the.

activities of agents who were not appointed by the con-

ference lines” (R. 477). Moreover, the record shows with-

out contradiction that once an agent was appointed by

member lines, and accordingly received a commission for

his efforts, he pushed sea as well as air travel (R. 19, 22,

23, 24, 26, 31). ce ae ata

The Commission added nothing to the record after re-

mand by the Court of Appeals. (R. 652; 372 F. 2d at 933).

If anything, its report on remand confirmed the lack of any

evidence that the unanimity rule prevented agents from

completely and effectively servicing passengers and car-

riers, by pointing out (R. 538) :

“The record discloses no evidence that a specific trav-

eler has been persuaded to air travel against his |

desires or to his disadvantage.” ™

B. No Substantial Evidence Supports the Conclusion

That the Unanimity Rule Is a Source of Competitive

‘Disadvantage to the Conference Lines.

The Commission’s second reason for invalidating the -

unanimity rule is essentially no more than an objection that

it has prevented a presumed majority of conference mem-

‘1 This is why the Commission retreated after remand to its “defi-

nite tendency” theory based on one travel agent’s testimony that

“ |. if it is easier to sell someone an air line-ticket and if it isa

tour where you make more money, there is a definite tendency to

sell air travel” (R..538; emphasis supplied). Even this one agent,

does not say there is a definite tendency to push non-tour airline

bookings. This testimony was clearly directed’ to the fact that-at

-- the dateof the testimony the tour rate for airlines was 10 per cent

and the tour rate for steamship lines was 7 per cent. Thus, there

was then an acfual rate difference on tour sales—although not on .

other sales. .That difference was eliminated in December, 1962,

more than a year before the Commission’s original report, when .

the lines adopted a 10 per cent tour rate (R. 537). Since then there

has been no actual rate. difference and thus no rational basis in the

record to support the Commission’s “definite tendency” finding .

either with respect to tour or non-tour steamship travel.

tN calle aT ERRNO 8 aN a DL AH pm tet

ge =

“Ne

. 45

bers from imposing their presumed will upon all members

in the matter of agents’ commissions. The Commission’s

assertion that thé unanimity rule is “unfair” as between

the member lines (R..557) is belied by the fact that not a

single member line objected to the rule and all are in fact

appearing here and urging its approval. This is undoubt-

edly the reason why the Commission’s brief no longer

refers to that ground and relies only upon claims that the

rule was “detrimental to commerce and contrary to the B

public interest” (C. Br. 22).

The Commission’s conclusion of competitive disadvan-

tage in its opinion is founded on the supposition that what

_it refers to as “evidence” supports a finding that-a minority

of conference members “defeated”, “delayed”, “watered

down”, “blocked” or “vetoed” the desires of a “strong ma-

jority” to increase agents’ commissions to meet the com-

petition of the airlines (R. 478, 536, 554).

First, the Commission’s “evidence” does not say what

the Commission claims and the Commission’s discussions

of this reflects a complete misunderstanding of the workings

of the conference as clearly set forth in the record.” In

°? Apart from administrative matters handled by a conferencé

secretary, APC business is conducted at general meetings of the

. “Principals” of the member lines held, as required by Agreement

7840, in March and October of each year and at such special meet-

ings as may be called from time to time (Ex. 2, R. 209-211). The |

Principals are top executiyes of the member lines, i.€., actual. heads

of the lines, general managers, directors or their European equiv-

alents, having authority to bind their respective lines (R. 109).

At their meetings the Principals consider all matters which involve

the overall operation of the lines, including passenger fares and

' rates of commission payable. to agents (R. 65). The minutes of

these meetings, reflecting agreed actions, are signed by each of the

Principals and, as required by Agreement 7840, filed with the Com-

mission (R. 69; Ex. 100, R. 376).

(continued on following page) .

; : &

46 ene

" ‘five of the nine instances of “conference” x jie referred.

-to by the. Commiss#®n (R. 553), the references are to meet-

ings of subcommittees not Principals.* These subcommit-

_ \ tees had no power to bind or otherwise act for the member

lines, but were authorized only to make recommendations ¢

(Ex. 2, R. 211; Ex. 50, R. 272; R. 421-422). Meetings of the.

Principals can and do take action which has not been unan-. .

imously recommended by a subcommittee and even unani-

mous recommendations by a subcommittee can-be and have

been disregarded by the Principals (R. 111, 476, 552).*

Only the Principals can change the commission rate. More-

over, subcommittees may and do make recommendations to

the Principals even when there is no unanimity in the sub-

committee (R. 111, 367). |

All matters of joint action are decided by the Principals by |

unanimous agreement. The practice is to have full and free dis-

cussion as a résult of which positions are altered and proposals

modified until; more often than not, unanimous agreement is

reached (R. 68-69, 77, 111,422). From as far back as‘the early

1920’s, there has never: been a time when action desired by a large

majority of the members—on the question of rates of commission,

for example—was blocked by a small minority (R. 68, 77-78, 114,

118-119, 128). Those questions on which action is deferred or that

are not disposed of at any given meeting are referred back to a

subeommittee of passenger traffic managers or equivalent officials

for. further exploration and study, often with instructions from

the Principals, with a view to presenting new recommendations

which might attract unanimous acceptance at a subsequent Prin-

cipals’ meeting (R. 129-130). :

‘neously described as March 9 (R. 314-315) ; October, 1951 (R. 280,

et seq.) ; June, 1952 (R. 536); October, 1952 (R. 332, 536).

_54 There is no basis in the record for the Commission’s statements

that subcommittee “determinations .:. . are apparently conditions

precedent to any conference action with respect to the level of

commissions” and that “the record, moreover, affirmatively shows

that a lack of unanimity on several occasions prevented the sub-

_ committee from reporting the positions of the lines to the princi- :

pals” (R. 98-100, 111, 367, 476). | a

ENS, itn the bisctt Ny Ail tg aN ea oh om h

eee 47

In four of these five instances, although lack of unanimity .

(and perhaps even a lack of majority—the record as to

“one instance does not show) prevented a subcommittee from

unanimously recommending a- particular commission in-

¢rease, as. the Commission contends, it also shows that

specifi¢ recommendations concerning commission increases

- were nevertheless submitted to the Principals for considera-

tion.** . |

“In not one of the instances where Principals, rather

than subcommittees, were involved does the record show

that a majority of Principals favored a commission in- :

crease.*®

One: of these instances referred to by the Commission

record reference to such a meeting simply reflects that “all

[lines] agree some action necessary encourage tour tific:

and majority favour establish as trial ten percent com-

mission for advertising inclusive tours * * * and matter _

referred TAPC for positive recommendation for considera-

” Meetings of March 8, 1950 (R. 313, 535), October 9, 1950,

erroneously described as March 9 (R. 535), October, 1951 (R. 280,

' 585), October, 1952 (R. 332, 536).

°° Meetings of March 1, 1951 (R. 316, 535), March, 1 (R

329, 536), February-March 1956 (R. 536, 553); and May 3, 1960°

(RB. 537, 553). '

_ Also incorrect is the reference to “records of United States Lines”

_Tegarding the meeting in February-March 1956 where “one of the’

lines exercised its veto power under the unanimity rule” (R. 536).

The memorandum simply refers to “the only Line who indicated

strong objection”; it does not refer to a veto; nor does it say no

other lines had any objections (R. 374(2)). The same correspon-

dence, moreover, shows that United States Lines itself was not in

favor of an immediate commission ehange (R..374(2)). Finally,

as noted supra, p. 22, fn. 38, the correspondence shows that the

line who had “strong objection” had already committed itself to an

increase in agent’s commission but simply wished to advance an

alternative proposal for an-even higher rate in low season to attract

business (R, 374(3), 374(8)). .

a A a |

« tion principals October next” (R. 374(1)). Far from evi-

‘dencing: any frustration of a majority, desire, the exhibits

show as.to this subject that: ; ‘mathe e

“The 10% commission on inclusive tours and payment _

of 50% of the cost of folderswere primarily the views

+. of the Holland Line and supported by a few others.

However, our position [United States Lines], as well

7 as the majority of lines, was that the matter should .

j ) oh receive careful consideration * * * we [United States

, | Lines], as well as many of the others, felt that we

| should not get. into-the tour business and it would

im require a great deal of study before reaching a deci-

sion” (Meeting of March 1960; R. 374(1)).

After that study had been made, ‘respondents unanimously .

adopted a tour advertising allowance for their appointed

agents in May 1961 (R. 376), and in ‘December 1962 -in-

} —-_.... ereased the rate of commission on tour travel to 10%, as

the Commission acknowledges (R. 536-537).

Second, the Commission’s “evidence” of Shipping Act

violation is not only out of step with the actual evidence

but is demonstrably inadequate: to be reasonably accepted

to the detriment of the commerce of the United States.

Implicit in the Commission’s conclusion are assumptions

that (1) respondents have been guilty of inaction with re-

spect to. agents’ commissions, (2) earlier increases. in the

commission rate would have occurred without a unanimity

rule, (3) these would have increased the sale of steamship

“bookings by travel agents, and (4) the increased ‘expendi-

4ture for commissions by the conference carriers would have

been: in their interest and that of the traveling public.

' Those assumptions are either disproved or unproved.

P ate Ch. a en

Bc nensicem

~49 i

(1) Nothing is better documented in the record than -

that APO.Principals have continually considered and acted

upon the question of commission levels during the ten-year

-_ period covered by the Commission’s investigation, and long

before that (R. 80, 110; see also record references cited «

p. 14, fn. 28, supra). The Commission, moreoyer, has con-

veniently ignored the fact that for portions of the period

covered by the investigation, the steamship lines actually

paid a higher commission rate than the airlines during the

off-season when’ passenger space was abundant. For. ex-

ample, from 1952 through 1953 the 6 per cent airlines com- _

mission on off-season tourist class travel was 11% per cent -

below the comparable steamship commission rate of 714

per cent (R. 374(6), 297). Similarly, from 1953 through

1956 the airline commission rate for both first and tourist

class off-season travel was % per cent below the compa- “

rable steamship commission rate (R. 374(7)). > ,.

(2) The Commission’s ‘assertion that “but for the una-—

nimity rule the majority * * * would have increased agents’

-_ ‘commissions” (R. .560-561) .is totally unsupported, as we

‘have shown (supra, pp..45-48).. As the. Examiner pointed

out, there is no proof that steamship “commissions would

have been increased any more than they have been if ‘the |

,Unanimity Rule had not -been in. existence” (R 442). -

(3) The higher off-season steamship commission ‘rates

mentioned above did not impede the overall trend toward

airline travel during the periods they were in effect; there

is no evidence in the record that, nor is there any reason

whiy, a higher rate in any season would do'so today. In-

deed, the record reflects that after equalization of the air-

sea disparity during high season by thé increase in the

_ steamship commission rate to 7 per cent in 1956, the sale

My 5 ape: hives nist Ai

° ; Ps

- 50

-- of steamship bookings in the United States showed little,

if any, increase as jet aircraft came into service (Ex. 96,

R. 371; R. 481).. Fhese figures demonstrate that no cause

- and effect relationship as te passenger bookings can be

‘attributed to the differences in commission rate.

- Because the Court of Appeals pointed out: in its first *.

opinion that there was no finding that a higher rate of com-

mission would improve the competitive position of the

steamship lines (R. 524), the Commission on remand went:

through the motions of making such a finding (R. 557). It-

pointed to no new evidence and made no new findings of

fact to support such a conclusion. An administrative agency 3

cannot so easily support-its decisions by “substantial evi-.

dence” by parroting in conclusory: language a finding the re- -

. viewing court had pointed out it had previously been unable |

to .aake.

The Commission could not. properly make the previously

‘missing finding because it is in direct conflict’ with two —

other findings (1) that it was economic factors that account

for the growth of air travel (supra, p. 41) and (2) that the

steamship commission rate lias not been shown to be un-

reasonably low (supra, p. 16). - :

_ (4) There is nothing in the record to support the Com-

mission’s assumption that an increase in agents’ commis- -

sion rates would be in the’ interest of the carriers or the

o public. Such ‘evidence as there is points the other way.

‘One American-flag carrier Principal testified that vessel

operating expenses have increased and his line was-“some-

what worse” off economically since the 1956 commission

increase (R. 73). ‘Yet the lines cannot increase passage

rates because “we are confronted with a competitor [the

ns tadiss Sati nad heabre Alec

oa,

airline industry] who is -committed to a solid policy of

reducing fares” (R. 74) ,*" :

: ’ e

C. No Substantial Evidence Supports a Conclusion

‘That the Unanimity, Rule Violated Any Other .—

Section 15 Standard. .

The Commission on remand also asserted that the una-

nimity rule. produced results “detrimental to the commerce

of the United States” and “unfair as between the majority

_ of carriers” and was “contrary to the public interest”

(R. 566-567). But it referred to. no evidence supporting

these conclusions except.the very same “evidence” it dis-

cussed in connection with its conclusions that the unanimity

rule prevents agents from rendering complete and effective

service and that it is a souree of competitive disadvantage

‘to the conference lines. As we have shown (supra, pp.

42-51), this did not constitute substantial evidence in sup- .

port of such conclusions of the Commission, For the same

reasons its does not constitute substantial evidence in sup-

port of its additional conclusions. ,

In the final analysis, the Commission’s disapproval is

not based on any characteristic inherent in the unanimity

' st He also ‘pointed out that “[o]ne jet [airplane] costing $6 |

_ million can carry trans-Atlantic traffic equal to the capacity of the

[S.S.] UNITED STATES in one year” (R. 75).

Also apposite is Vice-Chairman Patterson’s dissenting opinion

(R. 495): ~ ;

“To the extent economies are relevant, this record is devoid

of data showing the effect: of a change in commissions either

up-or down on the respective parties or on thé public. Natu-

rally, the travel agents waht more money, but we. would have

to know a great deal more than we can learn from this record

as to the effect of an increase on passenger fares and on the

precarious competitive balance that now seems to exist between .

ocean and air transportation. Passenger. choices would seem

to be governed as much by convenience and pleasure as by

economics or passenger agent activity.” :

rule other than the fact that it can, at least in theory, pro-

* duce results contrary to. the desires of the majority. . The

“unsubstantiated assertion that the unanimity -rule “frus-

’ trated” the wishes of the majority is in essence the only

reason given by the (ommission for its disapproval. In

fact, the Commission. expressly stated (R. 555):

“The evidence of the blocking of the desires of a.

majority of the member. lines to achieve their goal .

present in this proceeding is a sufficient reason for

declaring the unanimity-rule detrimental to the com-

merce of the United States.” aioe

As the court below has recently told the Commission, “Tt]his

says no more to us than that, where unanimity is made the-

order of-the-day, approval must be withheld.” ' U. S. At- -

lantic & Gulf/Australia—New Zealand Conference v. Fed-

oral Maritime Commission, 124 U. S. App. D. C. 303, 364

F. 2d 696 at 699 (1966). The Commission’s reasoning would

_ render unanimity rules invalid per se, a result that even the

Commission would disclaim. ret eay ee

The Commission’s awareness of the lack of substance in

its factual predicates has forced it to fall back on sugges-’

tions that (1). respondents are responsible because they

failed to “keep and provide the requisite records” (R. 554;

see also R. 476) and (2) the Civil Aeronautics Board has

‘recognized-the need for curbing the effects of the airline

‘ industry’s unanimity provision, citing IATA Traffic Con-

ference Resolution, 6 C.A.B. 639, 645 (1946) ; North Atlantic

Tourist Commissions Case; 16 C.A.B. 225, 229 (1952) (C.

Br. 23). Not only are these not reasons ‘under the Shipping

Act for condemning the unanimity rule but they also lack

substance. ae pe ;

(1) Petitioners throughout have been attempting to sub-

stitute for the missing supporting findings of ‘fact allega-

53 ;

tions that respondents’ failure to keep and file complete

__ conference minutes has been responsible for the Commis-

sion’s inability to make such findings (R. 476, 554; C. Br.

_ 23-24;.A. Br. 10 and fn. 9, 13 and fn. 13, 48). But the record

is clear. that conference minutes were filed as required by

Commission regulations (supra, p. 8), and that Commission

hearing counsel made a “searching review of the. confer-

‘erice records” (R. 403)—not merely filed minutes but also

conference and member lines’ correspondence (see, e.g., R.

241-376, 395-397). “The documentary exhibits received in

- evidence exceed 1,700 pages (A. Br. 6). The Commission’s

grievance: is not that records were not produced but that

they do not support what. the, Commission claims.” |

~ (2) The Commission derives no support from the Civil

Aeronautics Board’s actions under the act it administers.

- Passing over the differences between the Civil Aeronautics .

Act and the Shipping Act, between the competitive situa-

tion in air and in sea transportation and between passage

fares and agency commissions, it suffices to point out that

the International Air Transport Association (IATA), the

—~-eonference of international air carriers, operates under a

- wnanimous voting rule and still sets fares and commissions

only by unanimous agreement. As the former Chairman -

58 Another Commission allegation, repeated by ASTA here (A.

Br. 13, fn. 13), requires answer—a.charge that the conference “pur-

posely adopted this practice [failing to keep records] ‘because: of

its concern over the American antitrust laws” (R. 476). This is

——, a reference to testimony of an ASTA former president

that at a meeting he attended in 1957 between representatives of

1.C.C.T.A: and APC, he was told by a member line representa-

tive that no “minutes [would be] published or circulated” because

of the Sherman Anti-Trust Act (R. 60-61). Even accepting this

hearsay testimony at face value, it does not support the Commis-

sion’s charge. The meeting referred to was not a meeting of APC.

. It was not one at which any APC action was or could ‘have been

agreed upon. Neither the Shipping Act nor approved APC Agree-

ment 7840 required that minutes of such a meeting be kept or filed.

O47

_ Of the Civil Aeronautics. Board (now. Secretary of Trans- ~*

portation) said, that rule was “originally adopted and in-

sisted upon by the United ‘States to protect each carrier’s

right of individual action,.* * *” (BR. 546). While stating

that the rule “has its. ——— his conclusion . was A(R.

547) : eae

- “However, I am inclined to- conclude these are less than

those which w ould stem from a form of majority ..

vote. ”? 59

If IATA Traffe Conference Resolution, 6 C.A.B. 639

(1946) (C. Br. 23), has ‘any relevance here, it is only be-

-\eause it wpheld'a unanimous voting’ requirement in order

to “preserve the right.of any carrier to take independent ~

action” (6 C.A.B. at 645). North Atlantic Tourist .Com-

missions Case, 16 C.A.B. 225 (1952) (Id. 23); also upheld

the “fixing, of commissions by agreement” under the IATA —

a unanimity rule as not “adverse to, the public interest” (16 °

* C.A.B: at 227).

‘The Commission itself, in a.general rule-making proceed-

ing, adopted regulations in 1966 pertaining to conferences”

which expressly provide for unanimous voting provisions

in addition to alternative methods (46 CFR $537.2). More-

over, in a separate proceeding relating to freight confer-

ences, the Commission is proposing to sanction the use

of a unanimity rule for fixing brokerage commissions, a—

comparable situation in freight trahsportation. It has put

forward a sample form of conference agreement “which

‘ could, in most instances, result in approval without the

necessity for formal hearings”. The form agreement pro-

vides, inter r alia:

Aen

89 Boyd, The Future of the International Carrier, oe Forum 7,

September, 1964. . ‘

. &

pe bi Neti D id Mela kas Ca onde

= | * 55

mT, Unanimous consent shall be required: — A ‘

od * 2 = .

“d. To agree upon amounts of brokerage, commis-

sions or other peecin toate to be paid brokers .

eee

The Commission cannot disapprove the conference.

rules on the basis, of national antitrust policy or confer-

ence failure to justify a need for them, in lieu of substan-

' tial evidence of violation of Section 15 standards.

A. Congress Has Provided for the Accommodation

‘of the Shipping Act and the Antitrust Laws.

The Court of Appeals in its 1965 opinion. instructed the

Commission as to its authority under Section 15 of the

Shipping Act, 1916, as follows (R. 527; 351 F. 2d at 761) :

“The statutory language authorizes disapproval only _

‘when the Commission finds as a fact that the agreement

operates in one of the four ways set out i in the section |

. by Congress.® .

“8 This is not to say of course that the Commission must

completely separate itself from antitrust principles in deter-

mining whether an agreement operates detrimentally to United

States commerce, or against the public interest, or unfairly as

' between carriers, or in violation of the Shipping Act. Cf..

Isbrandtsen Co. v. United States, 93 U.S. App. D. C. 293,

299, 211 F.2d 51, 57, cert. denied sub nom. Japan-Atlantic

& Gulf Conference v. United States, 347 U. S. 990, 74 S. Ct.

852, 98 L. Ed..1124 (1954), where we pointed out that the

prohibitions of the antitrust laws are not to be invaded: ‘any

. peed than is necessary to serve the purposes’ of the Shipping

ct. °

*° Docket No. 67-55, Rules Governing the Filing of Agreements

Between Common Carriers of Freight by Water in the Foreign

- Commerce of the United States (46 CFR Ch. IV). Reported only

.. -in Pike & Fischer, Shipping Regulation, SR p. 321:61 at 321:69.

«<

“= ’ 56

oS .

' The court also pointed out (R. 527; 351 F. 2d at 761):

“We do not read the statute as authorizing disap-

proval of an agreement on the ground that it runs’

counter to antitrust principles, the theory on which

seemingly the Commission’s disapproval rests. here. |

Many of the matters covered by conférence rules are:

restrictive and even monopolistic in teridency. Yet, if

the agreement is approved under 46.U.S.C. §814, an |

’ exemption from the antitrust laws is ——— given

by that section. ai ; on

The Court of Appeals’ instructions to thé Commission .

were clear and in accord with the intent of Congress as

_-récofnized by this Court m Carnation Co. v. Pacific West- —

bound Conference, 383 U. 8. 213 (1966), cited by petitioners

(C. Br. 12, 13, 17; A. Br. 19, 27, 28).. This Court in Car-

nation specifically referred to Ohitian 15 of the. Shipping .

- Act as “an accomméddation provision” (Id. at 218). It ane

concluded that. ‘ A

; “the language of that provision must hate een selected —

[by Congress] as a matter of deliberate choice in order

to indicate the extent to which the industry’s rate-

_. making activities remain subject to the antitrust laws

as well as the extent to which those activities are eXx-

enipted from antitrust regalation” (Id. at 220).

‘In Section 15 Gensiren expressly india’ out how the

Shipping Aet andthe antitrust laws should be accommo-

- dated. It prescribed only four-gro uds on which an. agree-

Pe menticovered by that section could be disapproved, in which

event: the antitrust laws would be applicable. It provided

that if a Section 15 agreement did not contravene any one

of these Shipping Act standards, it “shall” be approved by

the Commission and that the antitrust lawe would then be

inapplicable. Congress. has thus determined that .invasion

~~ of the antitrust laws is justified an the shipping industry -

.. unless that invasion would also violate one of Section 15’s

specific standards. For the Commission, as ‘here, to con-

elude that because agreements yiolate the antitrust laws

they therefore violate the Shipping Act is to ignore the

standards for reconciling. those ‘statutes which Congress"

deliberately chose.

In obvious disagreement with ee? seirantinin of the

* Shipping Act, the Commission would disapprove the con-.

Lae ference rules. on antitrust grounds. Thus the Commission

therefore the Commission would have been justified in dis-

approving ‘it, without more, unless a compelling justifica-

tion was’ shown (C. Br. 18-19). But this proves much too

much. The principal reason for the’ existence of every con-.

ference is rate. fixing. Absent the immunization: granted

‘by Section 15 this would be a per se. violation of the anti-

trust laws. Yet, that a conference involves ‘rate fixing, -as

all do, has never been viewed by the Commission as a

ground for disapproving the relevant’conference agree- -—

ment “unless a. compelling justification was shown” to the

Commission. as now-contended (C. Br. 19).

Congress has: already found compelling justifiestdon for

- the conference system.. It has consequently directed the

Commission to approve conference agreements unless found _—

in conflict with a specific Shipping Act standard. Congress

did not say, as petitioners in effect contend, that the Com-

mission should approve all those agreements that would

not otherwise involve per se violations of the antitrust laws,

but should disapprove those that would, ‘“anless a com-

pelling is: was shown.”

» f

(

58:

* Any cach interpretation of Section 15 web require a

. finding by the Commission as ‘to each conference agreement

submitted to it that there was & compelling justification for

the conference system. But this has never been the law or

the practice of the Commission. Even the Commission con-

in the maritime area—notably, the conferences themselves”

(C. Br. 18): And.when the 1961 amendments were before

“ Congress: the Commission requésted the deletion from the

~proposed legislation of a provision that would have re-

'. quired it to make just such a finding before approving an

agreement. As a result, this provision was deleted from

the legislation as enacted (infra, pp. 61-62). .

Even at the time of the enactment of the original Ship- |

ping Act, Congress. considered the prohibition of the

' “agreements and understandings, now so universally used

* * * with a view to attempting the restoration of unre-

stricted competition.” But the Alexander Report rejected

this proposal. It was the “view of the Committee that open

competition can not be assured for any length of time by

od ordering existing agreements terminated.” It recognized |

that “[t]he entire history of steamship agreements shows

that in ocean commerce there i is ho happy medium between

war arid peace when several lines engage in the same:

trade.” * wee. 3 (-

_ Qblivious to this iddligtound and the long history of ap-

proved operation under the rules in question, the Commis-

sion insists that they should be disapproved on per se

antitrust grounds alone, since respondents have not shown

that their asserted anti-competitive effects are justified

®1 Alexander Report, p, 415.

4 cedes that ¥some anticompetitive agreements are condoned . ~

ees th a, ea eee eee

59 - ¢ |

. by any serious transportation need or teatbaate parpose |

(BR. 561; C. Br. 24-26). The tieing rule is said by petitioners ~

to be “pernicious * * * on its face” because it is a “group —

boycott” * (C. Br. 18; A. Br. 24); the unanimity rule is

* condemned as a per se “price fixing” provision, which pre- |

vents majority rule (C. Br. 23-24; A. Br. 23-28).°*

The Commission’s present view that the conference una-

nimity rule is invalid on antitrust grounds is in sharp con-

trast to its own decision in Pacific Coast European Con-

ference Agreement, 3 U.S. M. C. 11, 20 (1948), where the

Commission held: __ =

_ “There are conferences which have the unanimous,

two-thirds, three-fourths, or majority voting rules.

- No one of these can be disapproved as an organiza-

- tional procedure, but the lawfulness of any of them

_ must be based upon evidence as to their working in

- practice as intréduced in a public hearing. Tests of

lawfulness are found in actions or courses of conduet,

not i in orgenrpational procedure.”

63 Although petisionerl agree that the tieing rule is a “group

boycott”, they disagree as to the target of the boycott. The Com-

mission says it is the non-conference (freight) carriers (C. Br. 17-

18); ASTA says it is appointed agents who. violate the rule (A.

Br. 5). Neither contention is supported by any substantial evidence. _

* As for the price fixing effects of the unanimity rule (A. Br.

23), the dissenting observation of Vice Chairman -Patterson is

apposite (R. 495-496):

“* ® * the better public interest atgeninde, if anything, favor

the validity of the obligation to not change commission rate

levels without unanimous consent. * * * If anti-trust law over-

tones are to’ be injected: into our policy considerations, then

.. anything which lessens ‘the power of a group which makes

dominating pricing decisions is to bé favored. U.S. flag lines

'- are a minority in most confegences, and ‘the rae enhances

their power to influence group decisions or to protect them-

selves from oppression by the business needs of non-American |

lines. Generally the business needs of non-American member

lines are dictated by more favorable cost considerations than

our own.” :

Te ee ae ie ee oe A geik

Pe Ca Set ee > 5 ot oe ae P an 2

ae a. Bidhie PO AnihaSee OA ADZp e btt BNM oe ESE heen ety

; 7

~ ot 60

Oranje Line v. Anchor Line, Lid., 5 F. M.B. 714, 730 (1999),

' is to the same effect. j

B. The 1961 Amendments to the Shipping Act Did

Not Authorize the Commission to Disapprove the

Conference Rules on Antitrust Grounds.

Having come up with no substantial evidence that either

conference rule ‘was detrimental to commerce or unjustly

discriminatory or unfair as between carriers (supra, pp.. -

30-55), the Commission seeks to defend its order on the

basis of “a broad grant of authority” conferred upon it by -

Section 15 of the Shipping Act. The Commission relies

particularly on the 1961 amendment in which Congress

inserted “contrary to the public interest” as an additional

ground for disapproval of agreements under Section 15 |

-(C. Br. 14). The Commission now suggests that this new

ground gives it “a wide range of discretion” to disapprove

“an anti-competitive agreement” when no serious justifica-

tion is advanced for it (C. Br. 20-21).

Such a “back door” intrusion of antitrust concepts into .

Section 15 is completely contrary to Congressional intent,

to the Commission’s own position at the time the “public

interest” amendment was under consideration, and to the

teachings of this Court.

(1). As already noted (supe; p. 7), it was not the intent

of Congress, in amending the Shipping Act in 1961, to

’ broaden the role of antitrust principles in relation to the

Shipping. Act despite strong Department of J ustice urg-

ing. The legislative history of those amendments makes

clear that “our traditional antitrust concepts cannot be

- fully applied to this aspect of international commerce.” *

® §. Rep. No. 860, 87th Cong., Ist Sess., p. 2 (1961), supra, p. 7.

eae 61

Indeed, the siwniiai of J ustice itself sandhill wr at the

time of the adoption of the 1961 amendments, that:

“because: of the international nature of the shipping

industry, the supervision which the Board may exer-

cise is quite limited and hardly comparable to the more

comprehensive regulation exercised with respect to

_ domestic transportation ‘industries by such agencies as

the Civil Aeronautics Board and the Interstate Coin-

merce Commission.” é‘

- For the Commission now to say that the “public interest” |

standard empowers it to deny antitrust exemption to ship-

‘ping interests of this and: other nations banded in.a con-

ference, unless they. affirmatively show their agreements

are in the public interest (or there is “a compelling justi-

fication”) completely nullifies the intent and purpose of

Congress, and the Commission’s express request to Con-

gress with. oe, to such — as well.

=: (2) The ovainal House bill in 1961 dhintained eiieins

which would have authorized the Commission té approve

only agreements “it affirmatively finds to be in the public

interest.” *’ But the Commission then was. opposed to such

a proposal, since it thought that “requiring a positive

finding in favor of. the public interest would prevent car-

riers from operating under. arrangements which, although

not meriting disapproval under the standards of the stat-

‘ute, could not be shown to positively contribute to the:

_ public interest. The final House version adopted the Com-

mission’s phraseology, whieh required approval of all

** S. Rep. 860, 87th Cong., 1st Sess., p. 31 (1961).

*t H. Rep. 498, 87th Cong., 1st Sess., p. 18 (1961).

$8 Tbid., py 18.

agreenients that it “finds not contrary to ‘the publie in-

terest.

' The Senate version. of the Section 15 ‘ial which:

finally became law also incorporated the Commission’s rec-

ommendation but in keeping with the original form of

Section 15. That. version provided that the Board shall

“disapprove * * * any.agreement *-* * that it finds * * *

to operate to the detriment of the commerce of the United

States, or to be contrary to the public interest”, and’ that

it “shall” approve all others (46 U. S.C. §814).

The Commission is, of course, ound by that version and

cannot now change the provisions of the Act. National

-Labor Relations Board v. Insurance Agents’ International :

Union, AFL-CIO, 361 U. S. 477, 498-500 (1960). “LW here

Congress has adopted a selective system for dealing with

evils, the Board [the Commission here] is confined to that

system”, Local 357, Intérnational Brotherhood of Team-

sters, Chauffeurs, Warehousemen and Helpers of America

v. National Labor Relations Beard, 365 U. S. 667, 676

~ (1961). . %

No amount of rationalization concerning the Commis-

sion’s broad discretion or the deference due its expertise

can alter the fact that Congress did not authorize Commis- - ~

sion action on the basis of national antitrust policy.

(3) This Court-has often pointed out that where Con-

gress has selected the standards for approval by a regula-

tory agency of an. otherwise anti-competitive agreement,

such standards are to be applied and not those of the anti-

trust laws. Minneapolis & St. Louis Ratlway Co. v. United

States, 361 U. S. 173 (1959); Seaboard Air Line Railroad

6° H. Rep. 498, 87th Cong., Ist Sess., p. 40.

_ . the conference rules in question (Id. at 499). Indeed, the

63 |

Co. v. United States, 382 U. S. 154 (1965); Denver & Rio

Grande Western Railroad Co. v. United States, 387 U.S. ; 5

- 485 (1967). | f

Nor are any of the deancitic antitrust cases cited by

petitioners authority for the proposition that either con-

ference rule may be disapproved without substantial evi- i

_dence-of any violation of the statutory standards selected

~ by Congress. Nor do this Court’s decisions in Carnation

Co. v. Pacific Westbound Conference, supra, 383 U. S. 213 |

(1966) and Federal Maritime Board v. Isbrandtsen Co., 356

U.S. 481 (1958) point to such a, result. hs

In Carnation, this Court, applying the g the express _prohibi-

tions contained in Section 15 of the Shipping Act, held that

_ the implementation of “agreements which have not been

approved by the Federal Maritime Commission is subject

to the antitrust laws” (Id. at 216). Here, of course, the |

‘conference agreements have received continuous Commis-

sion approval for upwards of 40 years (supra, p. 8, n. 17).

Isbrandtsen was concerned not with Section 15 of the

Shipping Act but with Section 14, in which Congress out-

lawed practices of carriers committed individually or col-

lectively, which were designed to stifle independent -car-

rier competition. As demonstrated supra, pp. 31,.42, here

there were no substantially supported “precise findings

by the Board [Conimission] as to” any predatory effect of

Commission’s findings, to the extent supported by the rec-

_ ord, completely negated conclusions that these rules oper-

ated in violation of the Shipping Act. | |

As this Court said in Minneapolis, supra, at 186:

“Although § 5(11) [of the Interstate-Commerce Act]

does not authorize the Commission to ‘ignore’ the anti-

trust laws, McLean Trucking Co..v. United States, 321

. U.S. 67, 80, there can-be ‘little doubt that the Commis-

. sion is not to measure proposals for [acquisitions] by

the standards of the antitrust laws.’ 321 U. S., at 85-

- 86. The problem is one of accommodation of § ~~ ;

and the antitrust ——

_ This is what the ee of oo tid the Commission:

in this case (supra, pp. 55-56); and, as this Court said in

Seaboard, supra (Id. at p. 157), “[w]hether the Commis-

° gion has confined itself within the statutory limits upon its / :

discretion and has based its findings on ‘substantial evi-

dence” were precisely questions - for the court below to de-

cide. The Court of Appeals, therefore, was warranted in

reversing the Commission’s order because of the absence

of any substantial evidence showing that the conference

- violated ‘any Shipping Act standards. The. court below

correctly concluded, arid petitioners’ arguments here serve

only to confirm, that the basis upon which the rules were

disapproved was strict antitrust policy applied by the »

Commission contrary to the intent of Congress expressed

in the Shipping’ Act. °

IV.

- ASTA’s independent legal ground is wale” sabetai

tiated nor reviewable. Pee ies

‘ Sep enn eae ' : °

_ - Throughout these proceedings ASTA contended there is

“gndisputed evidence in the record of relationships ‘be-

tween respondents and their principal competitors, the *

international airlines, the existence of. which renders the

- unanimity rule inherently illegal” and the identical con-

_ tention is urged here as an independent ground upon which

the Commission’s order should have been affirmed by the —

Court of Appeals (A. Br. 49), =

The Examiner considered and dismissed ASTA's con-

tention, noting (R. 427):

“As stated in the reply brief of Hearing Counsel, the ,

purported evidence upon which ASTA asserts that:

| there was concerted action between APC ‘and the in--

ternational airlines or between APC and other steam-

_ ship conferences is remote and speculative and lacks .

probative weight. For these reasons the proposed find-

ing on this issue cannot be adopted and these questions

need not be discussed further in the Discussions and

eeouaala section of this decision. i

ASTA concedes “the she does not establish that un-

lawful concert of action has occurred betweeft the sea and

air carriers, *** *” (A. Br. 51). Its claim here is solely

that there is evidence “of a proclivity for such cooperation”

(Id. at 51). ?

An examination of the fecord references ASTA cites

(A. Br. 49, 51-52) explains why the Commission and the

Court of Appeals did not deem ASTA’s contention even

worthy of comment. The administrative order not having’

been based on such a ground, it cannot be decided on such

a basis now. Burlington Truck Lines, Inc. v. United States, :

371 U. S. 156, 168-1692(1962). See also National Labor’

Relations..Board ¥. Met politan Life Insurance Co., 380

U. S. 438, 442-444 9655."

CONCLUSION

For the reasons stated, the judgment below should be

affirmed.

Respectfully submitted,

Epwarp R. NEAHER

Counsel for Respondents —

Gerrruve S. RosENTHAL

— Of Counsel

Cart S. Rowe : bf Ps 3 €

January 8, -1968.

72 ASTA’s own cases, Securities and Exchange Commission v.

Chenery Corp., 318 U. S. 80 (1943) ; Helvering v. Gowran, 302 U. S.

238 (1937), and Chae-Sik Lee v. Kennedy, 111 App. D. C. 35, 38,

294 F. 2d 231, 234, cert. denied 368 U. S. 926 (1961), do nat

support this claim. The quotation from Chenery also_contains the

following, a language, also quoted by the Court jn Chae-Sik

« Lee:

“But it is also familiar appellate Srosedure that where the

correctness of the lower court’s decision depends upon a deter-

mination of fact which only a jury could make but which has

not been made, the appellate court cannot take the place of the

jury. Like considerations govern review of administrative or- |

@ ders. If an order is valid only as a determination of policy or

judgment which the agency alone is authorized to: make and

which it has not made, a judicial judgment cannot be made to

dp ris for an administrative judgment” [emphasis Pe-

plie

la..

‘APPENDIX A

UNITED STATES COURT OF APPEALS

* FOR THE DISTRICT OF COLUMBIA CIRCUIT

. No. 18554 September:Term, 1964

AxtrepoLaceT Svenska AMERIKA Linten (SwepIsH-

American Lins), et al.;, Paton

Petitioners,

-FeperaL Maritime Commission~and |

’ - Ustrep States or AMERICA,

‘.. be aes aoe Respondents,

" AMBnICAN Soctery or TRAVEL AGENTS, Inc: (“ASTA”), |

Interveny.”

. "Y : ;

On Petition ran Review of a Final Order of the Federal

‘Maritime Commission.

Before: Edgerton, Senior: Cireuit Judge, me Washing-

ton and Danaher, Circuit J udges. ,

- JUDGMENT

This case came on to be heard on the record from the

Federal Maritime Commission, and was argued by counsel.

| On ‘conswEhATION WHEREOF, it is ordered and adjudged

_ by this court that this case is remanded to the Federal

o ' ha

“Maritime Comfnission for reconsideration: and ‘with direc- «

tions for further proceedings consistent with the opinion —

- of this court. , | ,

ee " Per Cireuit’ Judge Washington.

. Dated: June 10, 1965. |

Unrrep Srares Courr or APPEALS —

ie for the District of Columbia Circuit ._—

ss Fimgp Juw 101965 *

cae /s/ NatHan J PAvtson |

%, - C :

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.