United States v. Lykes Bros. Steamship Co., Inc.; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Lykes Bros. Steamship Co., Inc.; Proposed Final

Judgment and Competitive Impact Statement

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,

Stipulation, and Competitive Impact Statement have been filed with the

United States District Court for the District of Columbia in United

States v. Lykes Bros. Steamship Co., Inc., Civil No. 95-CV01839 as to

Lykes Bros. Steamship Co., Inc.

The Complaint alleges that the defendant and Universal Shippers

Association entered into a contract containing an automatic rate

differential clause, which required defendant to charge competing

shippers of wine and spirits from Europe to the United States rates for

ocean transportation services that were at least 5% higher than

[[Page 52209]]

Universal's for any lesser volume of cargo. This clause required

maintenance of a 5% differential in favor of Universal at all times,

thereby placing shippers who compete with Universal at a competitive

disadvantage.

The proposed Final Judgment enjoins the defendant from maintaining,

agreeing to, or enforcing an automatic rate differential clause in any

of its individual contracts, and also requires the defendant to

establish an antitrust compliance program.

Public comment on the proposed Final Judgment is invited within the

statutory 60-day comment period. Such comments and responses thereto

will be published in the Federal Register and filed with the Court.

Comments should be directed to Roger W. Fones, Chief, Transportation,

Energy and Agriculture Section, Room 9104, U.S. Department of Justice,

Antitrust Division, 555 Fourth Street, NW., Washington, DC 20001

(telephone: 202/307-6351).

Rebecca P. Dick,

Deputy Director, Office of Operations, Antitrust Division.

[Civil Action No.: 1:CV01839] Judge Gladys Kessler

United States of America, Plaintiff, v. Lykes Bros. Steamship

Co., Inc., Defendant.

Stipulation

It is stipulated by and between the undersigned parties, by their

respective attorneys that:

1. The Court has jurisdiction over the subject matter of this

action and over each of the parties thereto, and venue of this action

is proper in the District of Columbia;

2. The parties consent that a Final Judgment in the form hereto

attached may be filed and entered by the Court, upon the motion of any

party or upon the Court's own motion, at any time after compliance with

the requirements of the Antitrust Procedures and Penalties Act (15

U.S.C. 16), and without further notice to any party or other

proceedings, provided that Plaintiff has not withdrawn its consent,

which it may do at any time before the entry of the proposed Final

Judgment by serving notice thereof on Defendants and by filing that

notice with the Court;

3. In the event Plaintiff withdraws its consent or if the proposed

Final Judgment is not entered pursuant to this Stipulation, this

Stipulation shall be of no effect whatsoever, and the making of this

Stipulation shall be without prejudice to any party in this or in any

other proceeding.

This ____ day of September, 1995.

For the Plaintiff, United States of America:

Roger W. Fones,

Chief, Transportation, Energy and Agriculture Section.

Donna N. Kooperstein,

Assistant Chief, Transportation, Energy and Agriculture Section.

Michele B. Felasco,

Attorney, Transportation, Energy and Agriculture Section.

For the Defendant, Lykes Bros. Steamship Co., Inc.:

Andrew K. Macfarlane, Esquire,

Macfarlane Ausley Ferguson & McMullen.

Final Judgment

Plaintiff, United States of America, filed its Complaint on

September 26, 1995 United States of America and Lykes Bros. Steamship

Co., Inc., by their respective attorneys, have consented to the entry

of this final Judgment without trial or adjudication of any issue of

fact or law. This Final Judgment shall not be evidence against nor an

admission by any party with respect to any issue of fact or law.

Therefore, before the taking of any testimony and without trial or

adjudication of any issue of fact or law herein, and upon consent of

the parties, it is hereby

Ordered, Adjudged, and Decreed, as follows:

I.

Jurisdiction

This Court has jurisdiction over the subject matter of this action

and over each of the parties consenting hereto. The Complaint states a

claim upon which relief may be granted against the defendant under

Section 1 of the Sherman Act, 15 U.S.C. 1.

II.

Definitions

As used herein, the term:

(A) ``automatic rate differential clause'' means any provision in a

contract that requires the defendant, as an ocean common carrier, to

maintain a differential in rates, whether expressed as a percentage or

as a specific amount, between rates charged by defendant to the shipper

under the contract and rates charged by defendant to any other

similarly situated shippers of the same commodities for lesser volumes.

(B) ``contract'' means any contract for the provision of ocean

liner transportation services, including a service contract.

``Contract'' does not include any contract for charter services or for

ocean common carriage provided at a tariff rate filed pursuant to 46

U.S.C. App. Sec. 1707.

(C) ``conference'' means an association of ocean common carriers

permitted, pursuant to an approved or effective agreement, to engage in

concerted activity and to utilize a common tariff in accordance with 46

U.S.C. App. Sec. 1701, et seq.

(D) ``conference contract'' means a contract between a conference

and a shipper.

(E) ``defendant'' means Lykes Brothers Steamship Co., Inc., each of

its predecessors, successors, divisions, and subsidiaries, each other

person directly or indirectly, wholly or in part, owned or controlled

by it, and each partnership or joint venture to which any of them is a

party, and all present and former employees, directors, officers,

agents, consultants or other persons acting for or on behalf of any of

them.

(F) ``individual contract'' means a contract between a shipper and

defendant in its capacity as an individual ocean common carrier and not

in its capacity as a conference member.

(G) ``service contract'' means any contract between a shipper and

an ocean common carrier or conference in which the shipper makes a

commitment to provide a certain minimum quantity of cargo over a fixed

time period, and the ocean common carrier or conference commits to a

certain rate or rate schedule as well as a defined service level.

(H) ``shipper'' means the owner of cargo transported or the person

for whose account the ocean transportation of cargo is provided or the

person to whom delivery of cargo is made; ``shipper'' also means any

group of shippers, including a shippers' association.

(I) ``shippers' association'' means a group of shippers that

consolidates or distributes freight on a nonprofit basis for the

members of the group in order to secure carload, truckload, or other

volumes rates or service contracts.

III.

Applicability

(A) This Final Judgment applies to the defendant and to each of its

subsidiaries, successors, assigns, officers, directors, employees, and

agents.

(B) Nothing contained herein shall suggest that any portion of this

Final Judgment is or has been created for the benefit of any third

party and nothing herein shall be construed to provide any rights to

any third party.

IV.

Prohibited Conduct

Defendant is restrained and enjoined from maintaining, adopting,

agreeing to,

[[Page 52210]]

abiding by, or enforcing an automatic rate differential clause in any

individual contract.

V.

Nullification and Limiting Conditions

(A) Nullification

(1) Any automatic rate differential clause in any of defendant's

individual contracts shall be null and void by virtue of this Final

Judgment. Promptly upon entry of this Final Judgment, defendant shall

notify in writing each shipper with whom defendant has an individual

contract containing an automatic rate differential clause that this

Final Judgment prohibits such clause.

(B) Limiting Conditions

(1) Nothing in this Final Judgment shall affect any conference

contracts to which defendant is a party pursuant to defendant's

membership in a conference agreement.

(2) Nothing in this Final Judgment shall limit defendant's ability

to participate in any conference contract that contains an automatic

rate differential clause.

(3) Nothing in this Final Judgment shall prevent defendant from

entering a contract to maintain, for any single voyage, a differential

in rates between the rates charged by defendant to the shipper under

the contract and the rates charged by defendant to another shipper that

has contracted for a single shipment on the same voyage.

VI.

Compliance Measures

Defendant is ordered:

(A) To send, promptly upon entry of this Final Judgment, a copy of

this Final Judgment to each shipper whose individual contract contains

an automatic rate differential clause;

(B) To send a copy of this Final Judgment to each shipper that

requests an automatic rate differential clause;

(C) To maintain an antitrust compliance program which shall include

the following:

(1) Designating within 30 days of entry of this Final Judgment, an

Antitrust Compliance Officer with responsibility for accomplishing the

antitrust compliance program and with the purpose of achieving

compliance with this Final Judgment. The Antitrust Compliance Officer

shall, on a continuing basis, supervise the review of the current and

proposed activities of defendant to ensure that it complies with this

Final Judgment.

(2) The Antitrust Compliance Officer shall be responsible for

accomplishing the following activities:

(a) Distributing copies of this Final Judgment in accordance with

Sections VI(A) and VI(B) above; and

(b) Distributing, upon entry of this Final Judgment, a copy of this

Final Judgment to all officers and employees with responsibility for

negotiating contracts with shippers, overseeing compliance with such

contracts, or shipper relations.

(c) Briefing annually defendant's Board of Directors, Executive

Committee, officers, and non-clerical employees on this Final Judgment

and the antitrust laws.

VII.

Certification

(A) Within 75 days after the entry of this Final Judgment, the

defendant shall certify to the plaintiff that it has complied with

Sections V and VI(A) above, designated an Antitrust Compliance Officer,

and distributed the Final Judgment in accordance with Sections VI(B)

and VI(C) above.

(B) For each year of the term of this Final Judgment, the defendant

shall file with the plaintiff, on or before the anniversary date of

entry of this Final Judgment, a statement as to the fact and manner of

its compliance with the provisions of Sections V and VI above.

VIII.

Plaintiff Access

(A) To determine or secure compliance with this Final Judgment and

for no other purpose, duly authorized representatives of the plaintiff

shall, upon written request of the Assistant Attorney General in charge

of the Antitrust Division, and on reasonable notice to the defendant

made to its principal office, be permitted, subject to any legally

recognized privilege:

(1) Access during the defendant's office hours to inspect and copy

all documents in the possession or under the control of the defendant,

who may have counsel present, relating to any matters contained in this

Final Judgment; and

(2) Subject to the reasonable convenience of the defendant and

without restraint or interference from it, to interview officers,

employees or agents of the defendant, who may have counsel present,

regarding such matters.

(B) Upon the written request of the Assistant Attorney General in

charge of the Antitrust Division made to the defendant's principal

office, the defendant shall submit such written reports, under oath if

requested, relating to any matters contained in this Final Judgment as

may be reasonably requested, subject to any legally recognized

privilege.

(C) No information or documents obtained by the means provided in

Section VIII shall be divulged by the plaintiff to any person other

than a duly authorized representative of the Executive Branch of the

United States, except in the course of legal proceedings to which the

United States is a party, or for the purpose of securing compliance

with this Final Judgment, or as otherwise required by law.

(D) If at the time information or documents are furnished by the

defendant to plaintiff, the defendant represents and identifies in

writing the material in any such information or documents to which a

claim of protection may be asserted under Rule 26(c)(7) of the Federal

Rules of Civil Procedure, and defendant marks each pertinent page of

such material, ``Subject to claim of protection under Rule 26(c)(7) of

the Federal Rules of Civil Procedure,'' then 10 days notice shall be

given by plaintiff to defendant prior to divulging such material in any

legal proceeding (other than a grand jury proceeding) to which

defendant is not a party.

IX.

Further Elements of the Final Judgment

(A) This Final Judgment shall expire five years from the date of

entry, provided that, before the expiration of this Final Judgment,

plaintiff, after consultation with defendant, and in plaintiff's sole

discretion, may extend the Final Judgment for an additional five years.

(B) Jurisdiction is retained by this Court for the purpose of

enabling the parties to this Final Judgment to apply to this Court at

any time for further orders and directions as may be necessary or

appropriate to carry out or construe this Final Judgment, to modify or

terminate any of its provisions, to enforce compliance, and to punish

violations of its provisions.

(C) Entry of this Final Judgment is in the public interest.

Dated:

----------------------------------------------------------------------

United States District Judge

Case Number: 1:95CV01839.

Judge: Gladys Kessler.

Deck Type: Antitrust.

Date Stamp: 09/26/95.

Competitive Impact Statement

Pursuant to Section 2(b) of the Antitrust Procedures and Penalties

Act,

[[Page 52211]]

15 U.S.C. Sec. 16(b)-(h), the United States submits this Competitive

Impact Statement relating to the proposed Final Judgment submitted for

entry against and with the consent of defendant Lykes Bros. Steamship

Co., Inc. (``Lykes'') in this civil proceeding.

I

Nature and Purpose of the Proceeding

On September 26, 1995, the United States filed a civil antitrust

Complaint alleging that Lykes Bros. Steamship Co., Inc. (``Lykes'')

entered into an agreement with a shippers' association that

unreasonably restrains competition by restraining discounting of rates

for ocean transportation services in violation of Section 1 of the

Sherman Act, 15 U.S.C. Sec. 1.

On the same date, the United States and Lykes filed a Stipulation

by which they consented to the entry of a proposed Final Judgment

designed to undo the challenged agreement and prevent any recurrence of

such agreements in the future.

Entry of the proposed Final Judgment will terminate this action,

except that the Court will retain jurisdiction over the matter for any

further proceedings that may be required to interpret, enforce or

modify the Judgment or to punish violations of any of its provisions.

II.

Practices Giving Rise to the Alleged Violation

Defendant Lykes is a Louisiana corporation with its principal place

of business in Tampa, Florida. Lykes is an ocean common carrier that

provides ocean transportation services for cargo worldwide, including

services in the North Atlantic trade between the United States and

Northern Europe. In 1994, Lykes' vessel operating revenues totaled

approximately $625 million.

Prices in the ocean shipping industry are not set in a vigorously

competitive market. The ocean shipping industry is comprised of both

conference and independent ocean common carriers. A conference is a

legal cartel of ocean common carriers; its members receive immunity

from the antitrust laws (46 U.S.C. App.Sec. 1701, et seq., ``1984

Shipping Act'') to agree on prices and engage in other otherwise

illegal concerted activity. There are over 15 carriers that serve the

North Atlantic trade between the United States and Europe, but the

majority of these are members of the Trans-Atlantic Conference

Agreement (``TACA''). TACA is a conference that has received antitrust

immunity to jointly fix prices and limit capacity in the North Atlantic

trade. Their prices are set forth in tariffs filed with the Federal

Maritime Commission (``FMC'') and are available to all customers (who

are called ``shippers''). Defendant Lykes is not a member of TACA. It

operates as an independent carrier in the North Atlantic, offering

transportation services to all shippers at tariff prices that it sets

independently. In trades with a significant conference, such as the

North Atlantic trade, independents as well as the conference possess

some degree of market power over freight rates because there are

relatively few separate sellers.

Under the 1984 Shipping Act, independent carriers or conferences

may enter into service contracts with shippers or shippers'

associations. A shippers' association is a group of shippers that

consolidates or distributes freight for its members on a nonprofit

basis in order to secure volume discounts. In a service contract, a

shipper or shippers' association commits to provide a certain minimum

quantity of cargo over a fixed period, and the ocean carrier or

conference commits to a certain price schedule based on that volume.

Service contract prices are typically lower than the tariff prices.\1\

\1\ Independent carriers and conferences may also enter into

service contracts with non-vessel operating common carriers

(``NVOCCs''). An NVOCC offers transportation services to shippers

but does not operate the vessels. NVOCCs typically consolidate the

freight of small shippers and then arrange for carriage of the

consolidated freight.

---------------------------------------------------------------------------

Universal Shippers Association (``Universal'') is a shippers'

association composed of member shippers' associations and large

independent distillers that ship their own products. Universal accounts

for about half of the wine and spirits carried across the North

Atlantic. Universal entered into a service contract with Lykes on or

about October 26, 1993 (effective through December 31, 1995), for the

ocean transportation of wine and spirits from Northern Europe to the

United States. The Lykes/Universal contract contained the following

``automatic rate differential clause'':

Carrier guarantees that rates and charges in this Contract shall

at all times be at least 5% lower than any other tariff, Time Volume

or other service contract rates for similar commodities at a lesser

volume and essentially similar transportation service. As necessary,

Carrier shall reduce rates/charges in this Contract as necessary to

honor this guarantee, promptly informing the Association and the

FMC.

This clause requires Lykes to charge competing shippers or shippers'

associations that purchase lesser volumes than Universal a rate that is

at least 5% higher than Universal's.

Other shippers and shippers' associations compete with Universal

and its members for importing wines and spirits into the United States.

Universal's competitors seek to minimize their costs by, inter alia,

obtaining the lowest possible rates for the ocean transportation of

wine and spirits. But the automatic rate differential clause limits

Lykes' incentive to offer to Universal's competitors transportation

rates as favorable as Lykes could otherwise offer. To comply with the

clause, Lykes must either offer these shippers prices that are at least

5% higher than the prices in Universal's service contract, or it must

lower Universal's price for all of Universal's service contract

shipments in order to maintain the 5% differential. The latter is not

an attractive alternative for Lykes, given Universal's volume. And in

either case, Universal's competitors pay prices 5% higher than

Universal--regardless of Lykes' cost of providing them with

transportation--which adversely affects their ability to compete with

Universal.

Where there are few separate sellers, as is the case here, an

automatic rate differential clause in effect places a tax on the

buyer's competitors. There is a danger that this tax will protect the

buyer from competition from firms whose costs may otherwise be lower

than its own, thus erecting barriers to competition. It is the raising

of these barriers to competition with Universal, which already has a

substantial market presence, that constitutes the unreasonable

restraint of trade in this case.

III.

Explanation of the Proposed Final Judgment

The Plaintiff and Lykes have stipulated that the Court may enter

the proposed Final Judgment after compliance with the Antitrust

Procedures and Penalties Act, 15 U.S.C. Sec. 16(b)-(h). The proposed

Final Judgment provides that its entry does not constitute any evidence

against or admission of any party concerning any issue of fact or law.

Under the provisions of Section 2(e) of the Antitrust Procedures

and Penalties Act 15 U.S.C. Sec. 16(e), the proposed Final Judgment may

not be entered unless the Court finds that entry is in the public

interest. Section IX(C) of the proposed Final Judgment sets forth such

a finding.

[[Page 52212]]

The proposed Final Judgment is designed to eliminate the automatic

differential clause from defendant's individual contracts for the

provision of ocean liner transportation services with shippers or

shippers' associations. Under Section IV of the proposed Final

Judgment, Lykes is restrained and enjoined from maintaining, adopting,

agreeing to, abiding by, or enforcing an automatic rate differential

clause in any contract when acting in its capacity as an independent

carrier. Section IX of the proposed Final Judgment provides for an

initial term of five years, which the United States in its sole

discretion may extend up to five additional years. Section V(A)

nullifies any automatic rate differential clauses currently in effect

in any of Lykes' contracts as an independent ocean carrier.

The proposed Final Judgment does not affect any contracts of any

conference in which Lykes is member, and it does not limit Lykes'

ability to participate in any conference contracts that contain such a

clause. Section V(B)(1-2).

Section VI of the proposed Final Judgment requires Lykes to send a

copy of the Final Judgment to each shipper whose contract with Lykes,

as an independent carrier, contains an automatic rate differential

clause, and to send a copy of the Final Judgment to any other shipper

or shippers' association that requests an automatic rate differential

clause. Section VI also obligates Lykes to maintain an antitrust

compliance program that meets the obligations specified in Section

VI(C). The Final Judgment also contains provisions, in Section VII,

obligating Lykes to certify its compliance with specified obligations

of Sections V and VI of the Final Judgment. In addition, Section VIII

of the Final Judgment sets forth a series of measures by which the

plaintiff may have access to information needed to determine or secure

Lykes' compliance with the Final Judgment.

The relief in the proposed Final Judgment removes the contractual

clause that requires Lykes to place in essence a 5% ``tax'' on the

shipping costs of Universal's competitors. It restores to Universal's

competitors the ability to compete for the lowest shipping prices.

IV.

Alternative to the Proposed Final Judgment

The alternative to the proposed Final Judgment would be a full

trial on the merits of the case. In the view of the Department of

Justice, such a trial would involve substantial costs to both the

United States and Lykes and is not warranted because the proposed Final

Judgment provides relief that will fully remedy the violations of the

Sherman Act alleged in the United States' Complaint.

V.

Remedies Available to Private Litigants

Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any

person who has been injured as a result of conduct prohibited by the

antitrust laws may bring suit in federal court to recover three times

the damage suffered, as well as costs and reasonable attorney's fees.

Entry of the proposed Final Judgment will neither impair nor assist in

the bringing of such actions. Under the provisions of Section 5(a) of

the Clayton Act, 15 U.S.C. Sec. 16(a), the proposed Final Judgment has

no prima facie effect in any subsequent action that may be brought

against the defendant in this matter.

VI.

Procedures Available for Modification of the Proposed Final Judgment

As provided by the Antitrust Procedures and Penalties Act, any

person believing that the proposed Judgment should be modified may

submit written comments to Roger W. Fones, Chief; Transportation,

Energy, and Agriculture Section; Department of Justice; Antitrust

Division; Judiciary Center Building, Room 9104; 55 Fourth Street, N.W.;

Washington, D.C. 20001, within the 60-day period provided by the Act.

Comments received, and the Government's responses to them, will be

filed with the Court and published in the Federal Register. All

comments will be given due consideration by the Department of Justice,

which remains free, pursuant to Paragraph 2 of the Stipulation, to

withdraw its consent to the proposed Final Judgment at any time before

its entry if the Department should determine that some modification of

the Judgment is warranted in the public interests. The proposed

Judgment itself provides that the Court will retain jurisdiction over

this action, and that the parties may apply to the Court for such

orders as may be necessary or appropriate for the modification,

interpretation, or enforcement of the Judgment.

VII.

Determinative Documents

No materials and documents of the type described in Section 2(b) of

the Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b), were

considered in formulating the proposed Judgment, consequently, none are

filed herewith.

Dated: September 26, 1995.

Respectfully submitted,

Michele B. Felasco,

Attorney, Antitrust Division, Department of Justice.

[FR Doc. 95-24750 Filed 10-4-95; 8:45 am]

BILLING CODE 4410-01-M