United States v. Universal Shippers Association, Inc.; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Universal Shippers Association, Inc.; Proposed

Final Judgment and Competitive Impact Statement

Notice is hereby given pursuant to the Antitrust Procedures and

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

Judgment, Stipulation, and Competitive Impact Statement have been filed

with the United States District Court for the Eastern District of

Virginia in United States v. Universal Shippers Association, Inc.,

Civil No. 96-1154-A as to Universal Shippers Association, Inc.

The Complaint alleges that the defendant and Lykes Bros. Steamship

Co., Inc. entered into a contract containing an ``automatic rate

differential clause,'' which required Lykes 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

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 contracts, and also requires 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, Suite 500, U.S. Department of Justice,

Antitrust Division, 325 Seventh Street, N.W., Washington, D.C. 20530

(telephone: 202/307-6351).

Rebecca P. Dick,

Deputy Director, Office of Operations, Antitrust Division.

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 Eastern District of Virginia;

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. Sec. 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 22nd day of August, 1996.

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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. Cano,

Attorney, Transportation, Energy and Agriculture Section.

Dennis E. Szybala,

Assistant United States Attorney V.S.B. # 22785.

For the Defendant Universal Shippers Association, Inc.:

Ronald N. Cobert, Esquire,

Grove, Jaskiewicz and Cobert, Suite 400, 1730 M Street, N.W.,

Washington, D.C. 20036-4579.

Final Judgment

Plaintiff, United States of America, filed its Complaint on August

22, 1996. United States of America and Universal Shippers Association,

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. Sec. 1.

II

Definitions

As used herein, the term:

(A) Automatic rate differential clause means any provision in a

contract the defendant has with an ocean common carrier or conference

that requires the ocean common carrier or conference to maintain a

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

specific amount, between rates charged by the ocean common carrier or

conference to the defendant under the contract and rates charged by the

ocean common carrier or conference to any other shipper of the same or

competing 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) Defendant means Universal Shippers Association, 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.

(E) 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.

(F) 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.

(G) 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

volume 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.

IV

Prohibited Conduct

Defendant is restrained and enjoined from maintaining, adopting,

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

clause in any contract.

V

Nullification

Any automatic rate differential clause in any of defendant's

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 ocean common carrier or conference with whom defendant has

a contract containing an automatic rate differential clause that this

Final Judgment prohibits such clause.

VI

Compliance Measures

Defendant is ordered:

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

this Final Judgment to each ocean common carrier or conference whose

contract with defendant contains an automatic rate differential clause;

(B) To provide a copy of this Final Judgment to each director and

officer at the time they take office, and to those employees that

negotiate contracts, and to maintain a record or log of signatures of

those persons that they received, read, understand to the best of their

ability, and agree to abide by this Final Judgment and that they have

been advised and understand that noncompliance with the Final Judgment

may result in disciplinary measures and also may result in conviction

of the person for criminal contempt of court;

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

an annual briefing of the defendant's Board of Directors, officers and

non-clerical employees on this Final Judgment and the antitrust laws.

VII

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

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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.

VIII

Further Elements of the Final Judgment

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

entry.

(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: ________.

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United States District Judge

Competitive Impact Statement

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

Act, 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 Universal

Shippers Association, Inc. (``Universal'') in this civil proceeding.

I

Nature and Purpose of the Proceeding

On August 22, 1996, the United States filed a civil antitrust

Complaint alleging that Universal Shippers Association, Inc.

(``Universal'') entered into an agreement with an ocean common carrier

that unreasonably restrains competition 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 Universal 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 Universal is a Delaware corporation with its principal

place of business in Bedford, Virginia. A shippers' association is a

group of ocean transportation customers (``shippers'') that

consolidates or distributes freight for its members on a nonprofit

basis in order to secure volume discounts. Universal is itself a

shippers' association and is 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.

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 shippers. Lykes

Bros. Steamship Co., Inc. (``Lykes'') is not a member of TACA. 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. 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. 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\

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\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 entered into a service contract with Lykes on or about

October 26, 1993, 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

[[Page 46487]]

spirits. But the automatic rate differential clause limited 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 Universal 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 VIII(C) of the proposed Final Judgment sets forth

such a finding.

The proposed Final Judgment is designed to eliminate the automatic

differential clause from defendant's contracts for the provision of

ocean liner transportation services with ocean common carriers or

conferences. Under Section IV of the proposed Final Judgment, Universal

is restrained and enjoined from maintaining, adopting, agreeing to,

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

contract with an ocean common carrier or conference. Section VIII(A) of

the proposed Final Judgment provides for a term of ten years. Section V

nullifies any automatic rate differential clauses currently in effect

in any of Universal's contracts with an ocean common carrier or

conference.

Section VI(A) of the proposed Final Judgment requires Universal to

send a copy of the Final Judgment to each ocean common carrier whose

contract with Universal contains an automatic rate differential clause.

Section IV(B) requires Universal to provide a copy of the Final

Judgment to each director and officer at the time they take office, and

to those employees that negotiate contracts for the provision of ocean

liner transportation services, and to maintain a record and log of

those signatures that they received, read, understand, and agree to

abide by the Final Judgment. Section VI also obligates Universal to

maintain an antitrust compliance program that meets the obligations

specified in Section VI(C). In addition, Section VII of the Final

Judgment sets forth a series of measures by which the plaintiff may

have access to information needed to determine or secure Universal's

compliance with the Final Judgment.

The relief in the proposed Final Judgment removes the contractual

clause that requires the ocean common carrier or conference 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 Universal 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; Liberty Place Building, Suite 500; 325 Seventh Street, N.W.;

Washington, D.C. 20530, 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 interest. 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. Sec. 16(b), were

considered in formulating the proposed Judgment, consequently, none are

filed herewith.

Dated: August 22, 1996.

Respectfully submitted,

Michele B. Cano,

Attorney, Antitrust Division, U.S. Department of Justice, 325 Seventh

Street, N.W., Suite 500, Washington, D.C. 2530, (202) 307-0813.

Dennis E. Szybala,

Assistant United States Attorney, V.S.B. #22785.

Certificate of Service

I hereby certify that, on this day August 22, 1996, I have caused

to be served, by hand delivery, a copy of the foregoing Complaint,

Stipulation, proposed Final Judgment, and Competitive Impact Statement

on counsel for Universal Shippers

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Association, Inc. at the address below: Ronald N. Cobert, Esq., Grove,

Jaskiewicz and Cobert, 1730 M Street, N.W., Suite 400, Washington, D.C.

20036-4579.

Michele B. Cano,

United States Department of Justice, Antitrust Division, 325 Seventh

Street, N.W., Suite 500, Washington, D.C. 20530.

[FR Doc. 96-22274 Filed 8-30-96; 8:45 am]

BILLING CODE 4410-01-M