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06/10/65 Aktiebolaget Svenska v. Federal Maritime

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT


June 10, 1965

ET AL., PETITIONERS

v.

FEDERAL MARITIME COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS, AMERICAN SOCIETY OF TRAVEL AGENTS, INC. , INTERVENOR 1965.CDC.104

Edgerton, Senior Circuit Judge, and Washington and Danaher, Circuit Judges.

UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT

AKTIEBOLAGET SVENSKA AMERIKA LINIEN

APPELLATE PANEL:

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE WASHINGTON

This is a petition by steamship lines, which are members of the Trans-Atlantic Passenger Steamship Conference and the Atlantic Passenger Steamship Conference , to review a final order of the Federal Maritime Commission in a proceeding begun on petition of the American Society of Travel Agents, Inc. . Insofar as relevant here, that order disapproved under Section 15 of the Shipping Act of 1916, as amended, 46 U.S.C. § 814 (Supp. V, 1959-63), two provisions of the steamship conference agreements, namely: (1) the provision which requires unanimous action of Conference members (the petitioning steamship companies) to fix or alter the maximum commission payable to travel agents appointed by the Conferences to sell passenger bookings on Conference ships (hereinafter referred to as the "unanimity rule"); and (2) the provision which prohibits travel agents so appointed from selling passenger bookings on competing non-conference steamship lines without prior permission from the Conferences (hereinafter referred to as the "tieing rule").

Three United States steamship lines and twenty-three foreign-flag steamship lines comprise the membership of the steamship conferences before us. *fn1 We note that our country has adopted a policy, in the international transportation field, of encouraging, or at least allowing, United States carriers to participate in the steamship conferences, and to be governed by unanimity in respect of matters covered by conference agreements, barring disapproval under the standards prescribed by 46 U.S.C. § 814. Congress has recognized that, without such agreements, competition could become so destructive as to wreck the carriers. See S.Rep.No. 860, 87th Cong., 1st Sess. 4, 8-9, and passim (1961), issued with respect to an investigation of the shipping industry, *fn2 and the "Alexander Report," H.Doc.No. 805, 63d Cong., 2d Sess. 46-47, 295 (1914), the study leading to the Shipping Act of 1916. And cf. Boyd [the then Chairman of the Civil Aeronautics Board], The Future of the International Carrier, FLIGHT FORUM 7 (Sept. 1964). *fn3 To this end, Congress has provided in 46 U.S.C. § 814 that such steamship conference agreements are exempt from the provisions of the United States antitrust laws when approved by the Federal Maritime Commission, that the Commission may disapprove an agreement only if it finds the agreement to be

"unjustly discriminatory 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 violation of this chapter,"

and that it shall approve all other agreements. *fn4

1. The Unanimity Rule.

In his Initial Decision the Hearing Examiner, appointed by the Commission, concluded that the unanimity rule should be approved. Upon review the Commission (by vote of three members, with two members dissenting) disagreed, finding that the unanimity rule as applied to agents' commissions operates to the detriment of the commerce of the United States and hence must be disapproved under Section 15 of the Shipping Act. *fn5 The Commission based its factual conclusion on the following considerations:

"It [the unanimity rule] is a regulation which prevents travel agents in the United States from rendering complete and effective service both to passengers and to ocean carriers. 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 steamship lines at a competitive disadvantage vis-a-vis the airlines."

As to the first point, we cannot agree that the unanimity rule prevents complete and effective service by travel agents. The commission rate of 7% which was being paid at the time of the hearing below was arrived at by unanimous agreement and was the same as that paid by the transatlantic airlines. It was found, however, that appointed agents tend to push air rather than sea travel, because, as the Commission stated, it "takes approximately three or four times as much of an agent's time to sell sea as compared with air space, and several years of experience are required to produce a really competent steamship passage salesman." *fn6 On the basis of the Commission's own statement, therefore, it is not the unanimity rule, but economic factors which prevent agents "from rendering complete and effective service both to passengers and to ocean carriers" -- if by that the Commission meant the "pushing" of air over sea travel. *fn7 And the Commission's opinion suggests no other way in which complete and effective service by appointed agents is prevented. *fn8

In this connection it is to be noted that the Hearing Examiner pointed out that, because of the economic advantage to the agent in selling air transportation over steamship transportation, the practice by appointed agents of diverting a prospective passenger from sea to air transportation "is prevalent enough to constitute a substantial competitive disadvantage for the shiplines and an interference with a free and objective choice between the two modes of transportation by potential travelers, such interference being based on the self-serving interest of the travel agents." He found that this practice is not in "the best interest of the traveler"; "is not in the best interest of commerce and is adverse to the public interest." But he noted that the conferences might amend their rules to prohibit such diversion, with appropriate penalties for violations (though we do not pass on this conclusion as a matter of law); and that it was not the unanimity rule on commissions which had caused the evil. We find this reasoning persuasive.

As to the second reason or ground given by the Commission for disapproval of the unanimity rule as applied to agents' commissions -- that the desires of the majority of the steamship lines are frustrated, thus placing steamship lines at a competitive disadvantage -- we find nothing in the Commission's findings to indicate that frustration of the desires of the majority is the factor which places steamship lines at a competitive disadvantage. As the Examiner stated, the record does not show that a majority would decide now to raise the commission level above 7% or would have raised it to that figure at any time before the conference voted unanimously to do so in 1956. Indeed, the Commission itself said that for economic reasons, it perhaps is not feasible for the steamship lines to raise commission levels at the present time. Most significantly there is no finding that a higher rate would improve the competitive position of the steamship lines.

As Commissioners Patterson and Day point out, even though effectuation of the wishes of the majority as to the commission level has been delayed or deterred by the unanimity rule, that result does not fall within any of the statutory tests. As they said: "The effect of the obligation [unanimity rule] on the public and on our commerce is the relevant test." Moreover, as both the Commission and the Examiner noted, disapproval at one meeting does not block further consideration of the proposal at the next meeting-as the history of the agents' commissions in this case indicates -- and eventually ultimate agreement -- as again the history here supports. The fact that the wishes of the majority may be blocked temporarily, or in an extreme case even permanently, by the unanimity rule is not in our view a sufficient reason under the statute for disapproval -- failing some persuasive findings demonstrating detriment to the commerce of the United States. We do not find that here.

We must remand the order disapproving the unanimity rule to the Commission for reconsideration, with directions either to make supporting findings which adequately sustain the ultimate finding that the unanimity rule operates to the detriment of the commerce of the United States, or, if this cannot be done, to vacate that ultimate finding and approve the contract in this respect. Cf. Securities & Exchange Commission v. Chenery Corp., 318 U.S. 80, 63 S. Ct. 454, 87 L. Ed. 626 (1943); Bond v. Vance, 117 U.S.App.D.C. 203, 327 F.2d 901 (1964).

2. The Tieing Rule.

Although the Commission disapproved the tieing rule under 46 U.S.C. 814, we are unable to find any ultimate factual conclusion within those specified in that section which would support its disapproval. That is, there is no finding that the rule is "unjustly discriminatory or unfair as between carriers, . . .," that it operates to the detriment of the commerce of the United States, or is contrary to the public interest, or is in violation of "this chapter." In the absence of such a specific finding, the rule is, by direction of Section 814, to be approved.

To be sure, the Commission may have relied on the criteria established by the Hearing Examiner as follows:

"Any provisions . . . [of the agreements or rules thereunder] which prevent travel agencies in the United States from rendering complete and effective service both to passengers and to ocean carriers operate to the detriment of the commerce of the United States. All conference-imposed restraints which prevent the travel agent from properly performing his function of selling ocean transportation, for which no reasonable justification exists, should be eliminated by the Commission's disapproval, cancellation, or modification of the subject agreements . . .."

But the Commission did not demonstrate or find that the tieing rule prevents travel agencies in the United States from rendering complete and effective service both to passengers and ocean carriers to the detriment of the commerce of the United States, nor did it find that the rule prevents the travel agent from properly performing his function of selling ocean transportation. It found that TAPC members carry 99% of the passengers moving by water across the Atlantic and that the non-conference cargo vessels must rely on travel agents for the sale of their 1% share of ocean transportation, but it did not find that non-conference vessels must rely on conference-appointed travel agents. It stated also that there is no evidence to demonstrate that TAPC would disintegrate without the rule. It pointed out that, although the principal economic threat to the conference lines is from the air carriers, the conference allows its appointed agents to sell air travel. But there is a complete lack of findings bringing the case within the criteria adopted by the Examiner, assuming for present purposes that such criteria are properly used to supplement the statutory provisions themselves.

The Examiner disapproved the tieing rule also, without stating his specific ground for disapproval in the statutory language. He pointed out that the purpose of the rule was an anti-competitive one -- to keep non-conference vessels from booking passengers -- but that the practice is not applied to sale of air transportation, the chief competition for the conference lines. The Examiner concluded that the tieing rule had not been shown to be necessary to promote stability in rates or to combat destructive competition, and that the need for the rule no longer exists, if it ever did.

We do not read the statute as authorizing disapproval 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 conference rules are restrictive and even monopolistic in tendency. Yet, if the agreement is approved under 46 U.S.C. § 814, an exemption from the antitrust laws is specifically given by that section. 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 in the section by Congress. *fn9 See the dissent of Commissioner Patterson, joined by Commissioner Day, on this point, emphasizing that the need for the rule from a competitive standpoint has not been made a standard for approval or disapproval by the statute.

Since there is no finding here that the tieing rule operates in any one of the four ways which Congress prescribed in 46 U.S.C. § 814 for disapproval, we must return the case to the Commission. Such a finding is not for us to make. Accordingly, we remand for the purpose of reconsideration, 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. § 814.

So ordered.


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