RATE REGULATION AND ANTITRUST
IMMUNITY IN TRANSPORTATION:
THE GENESIS AND EVOLUTION
OF THIS ENDANGERED
SPECIES
PAUL STEPHEN DEMPSEY*
INTRODUCTION
The progress of civilized man is reflected in his accomplishments in
transportation: the invention of the wheel; the voyages of Leif Ericson
and Christopher Columbus; the explorations of Cook, Drake, Magellan,
and Marco Polo; Charlemagne's construction of the canal system of Europe; the driving of the golden spike into the tracks at Promontory
Point, Utah, linking the American east and west; the construction of the
Suez and Panama Canals; the Wright Brothers' flight at Kitty Hawk;
the assembly lines of Henry Ford; the transatlantic flight of Charles
Lindbergh; the construction of the German Autobahn and the American Interstate Highway System; and Neil Armstrong's "giant leap for
mankind" onto the surface of the moon. These events enabled man to
explore and conquer the planet and to arrive at the threshold of exploring outer space.
Transportation has been a fundamental element in the growth of civilization and industrial development, and has had a profound effect on
collective economic growth.' Long ago, people recognized the essential
* Associate Professor and Director, Transportation Law Program, University of Denver
College of Law. Member, State Bar of Georgia and District of Columbia Bar. A.BJ., 1972, University of Georgia; 1974, Hague Academy of International Law; J.D., 1975, University of Georgia;
LL.M., 1978, George Washington University. The author would like to thank Joel Jensen for his
assistance in preparing this Article.
I. The birth of civilization in Mesopotamia has, to some extent, been attributed to the existence of trade routes crossing the Tigris and Euphrates, permitting intellectual exchange between
people of different cultures. Many European cities, such as Rotterdam, Copenhagen, Vienna,
Hamburg, and American cities, such as New York, Chicago, Atlanta, Denver, and New Orleans,
owe much of their existence and economic growth to their geographic proximity to natural trade
routes. For example, Atlanta was born when a rail line extending from Chicago to Florida crossed
another rail line extending from New York to New Orleans.
Many cities, however, owe their economic decline to the relocation of trade routes. For instance,
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role of transportation and began to treat it differently from other industries, thereby allowing the public interest to prevail over individual economic interests.2 Traditionally the transportation industry has been
deemed too important to be left to the vicissitudes of the marketplace.3
The regulation of American business began with the regulation of the
transportation industry. In 1887 the U.S. Government established the
first independent regulatory agency, the Interstate Commerce Commission (ICC or Commission), and granted it jurisdiction to regulate the
rates and practices of the railroads. 4 Currently the ICC and several
other agencies, including the Federal Maritime Commission, the Civil
Aeronautics Board, the Federal Energy Regulatory Commission, and
the Department of Transportation, regulate rail, motor, air, and water
carriage, as well as pipelines and freight forwarding. Despite substantive differences between the kind and scope of regulation by the various
agencies,5 each is in the business of moving passengers or commodities
Brugges, Belgium, Rothenburg ob der Tauber, Germany, and Venice, Italy, were important mcdieval centers for trade and commerce that since have been "frozen in time" because of changing trade
patterns. Similarly, major American ports of the Colonial era, such as Alexandria, Virginia,
Charleston, South Carolina, and Savannah, Georgia, have experienced economic decline because of
either the loss of traffic to other ports or the shift of traffic to nonmaritime modes of transportation.
2. As this author has noted elsewhere:
Several of these industries were natural monopolies (e.g., the early railroads, telephone,
telegraph, gas, and electric companies, and to some extent, television and radio), which if
unregulated would produce in lower quantities and at higher prices than would industries
in a competitive market. Regulation seeks to substitute what is lacking in the marketplace
by insisting that such natural monopolies produce at a lower price and high volume than
they otherwise might.
Recognizing this distinction, virtually every major industrial nation on the planet treats
these industries in a manner significantly different from the rest. In most, the industries
are owned and operated by the state. In transportation, most of the rail, motor, barge,
and air carriers are socialized, even in Western Europe.
In the United States, the services of transportation, communications, and energy have
largely been performed by the private sector, with government serving the role of a vigorous regulator of a wide variety of activities, weighing and balancing the public interest
against what would otherwise be the economic laws of the market place. The government
plays a dual and perhaps schizophrenic role-on the one hand, it seeks to stimulate the
inherent economics and efficiencies of the regulated industries; on the other, it seeks to
protect the public from the abuses which these industries might otherwise perpetrate. For
the most part, the United States has been able to avoid nationalizing these industries, for
private ownership thereof has, on the whole, proven successful. The major exception is rail
passenger service.
Dempsey, Erosion of the Regulaling Processin Transportation-The Windr of Change, 47 I.C.C. PRAC.
303, 311-12 n.31 (1980).
J.
3. It is difficult to delineate the precise point at which the regulation of transportation began. Some literature indicates that barge traffic on the Nile was regulated by the Pharoahs. See
Brewer, Regulation-The Balance Point, I PEPPERDINE L. REv. 355, 356 n.2 (1974). The German
robber barons regulated commerce on the Rhine and Moselle Rivers by demanding the payment of
tolls. Common carriers were regulated in England during the reign of William and Mary. See
Braden, The Stofy of the HistoricalDevelopment a( the Economic Regulation of, Transportation, 19 I.C.C.
PRAC. J. 659 (1952); Dempsey, Congressional Intent and Agency Diocretion--Wever the Twain Shall Meet:
The Motor CarrierAct of 1980, 58 CHI. KENT L. REV. 1, 48 n.211 (1981).
4. See infra text accompanying notes 31-36.
5. The differences in regulation reflect the inherent economic differences among the modes
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
337
from one point to another.
The objectives in regulating transportation have changed significantly since 1887. Congress initially instituted regulation under the ICC
in order to protect the public from the monopolistic abuses of the railroads. 6 Between 1920 and 1975, however, the goal of the national transportation policy was to protect the transportation industry from the
deleterious consequences of unrestrained competition, thereby bringing
to light the antitrust issues involved in the regulatory process. While
contemporary regulatory policy has sought to stimulate competition in
order to achieve economy and efficiency of operations, federal regulation in the areas of entry and pricing has diminished in the past few
years.
This Article addresses the issue of whether motor carrier collective
ratemaking should be protected by antitrust immunity beyond its scheduled expiration in 1984. Part I reviews the historical development of
government regulation of the transportation industry. Part II examines
how railroad and motor carrier rate bureaus contribute to the regulation of the transportation industry and how immunity from the antitrust
laws permits their collective decisionmaking. Part III analyzes the nature of the transportation market under government regulation and the
effect of a repeal of antitrust immunity on collective ratemaking. The
Article concludes that the expiration of antitrust immunity is likely to
have a devastating effect on an industry that has prospered under
regulation.
I.
A.
GOVERNMENT REGULATION OF RATEMAKING
Genesis of Regulation: Protectingthe Publicfrom Rate Abuses
The growth, development, and expansion of the rail system into the
midwest and western United States in the nineteenth century were for
the most part attributable to governments and individual investors.
State and local governments provided construction capital through tax
exemptions, stock subscriptions, loans, loan guarantees, and capital donations. 7 The Federal Government encouraged rail expansion and provided various incentives including loans, remissions of the duty on
imported iron, and land grants.8 Farmers, who would be served by the
of transportation, the legislative history of the regulation, the language of the specific statutory
provisions, the philosophical and political composition of the individuals serving on the independent regulatory commission, and the role of the judiciary in either circumscribing or encouraging
regulatory activity.
6. See infra text accompanying notes 10-32.
7. See I. BARTLETT, E. FENTON, D. FOWLER & S. MANDELBAUM, A NEW HISTORy OF THE
UNITED STATES 298-99 (1969).
8. During the decade preceding the Civil War, the states granted 32 million acres of land to
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new roads, mortgaged their farms and invested in rail stock in anticipation of lucrative dividends and reasonable transportation costs for shipping their crops to eastern markets. 9
Governments and farmers alike suffered as many railroads went
through bankruptcy and reorganization, effectively wiping out the value
of the stock sold to investors. State governments attacked the rail industry for its bribery of public officials, t0 sale of worthless securities," and
rate and service discrimination between places and persons.' 2 In addition, farmers were left with mortgages, worthless stock, exorbitantly
priced or nonexistent transportation, and increased taxes needed to
cover local government investments.' 3 Midwestern farmers, the primary
victims of the rate abuses, assailed the excessively high and discriminatory rates that the railroads charged to carry agricultural products from
points of origin, over which carriers had a monopoly, to eastern markets
4
or processing areas.'
the rail industry. Between 1862 and 1871, the states granted 17 million acres of land to the railroads, and the federal government granted 130 million acres. The land grant system did not solely
favor the railroads. Although the rail industry enjoyed substantial revenue from the sale of land
and the exploitation of mineral and timber resources situated on it, the government also benefited:
as the value of public land increased, economic development was encouraged, and the gross national product increased. In addition to land grants, huge sums of money, representing the largest
industrial investment in the country before the Civil War, were spent to construct and maintain the
railroads. Their development expanded the market for agricultural and manufactured products,
increased the value of property, spurred the growth of the iron and steel industry, and supported
the entire industrial economy. Id See also R. CURRENT, A. DECONDE & A. DANTE, UNITED
STATES HISTORY: SEARCH FOR FREEDOM 371-73 (1967). By 1890 English businessmen alone had
invested more than $2 billion in U.S. railroad securities. R. WIEBE, THE SEARCH FOR ORDER 25,
309 (1967). Legislative proposals pending before Congress would require land grant railroads to
include income derived from such real estate into their branch line balance sheets and forfeit land
when they decide to abandon its corresponding line. H.R. 5114, 97th Cong., 1st Sess,, 127 CONG.
REC. H8867 (daily ed. Dec. 3, 1981); H.R. 5115, 97th Cong., 1st Sess., 127 CONG. REG. H8867
(daily ed. Dec. 3, 1981). See a/so Legislation Requires Rails to FigureLand Grant Income in AMandonments,
TRAFFIC WORLD, Dec. 14, 1981, at 36.
Water transportation, which received federal aid before the railroads, obtained $4 billion in fcderal aid between 1789 and 1945, not including early land grants for canals and river improvements.
Between the Second World War and 1975, barge operators received an additional $10.6 billion in
federal aid. Since 1975, the barge industry has received subsidies approximating $800 million annually. F. WILNER, COMPETITIVE EQUITY: THE FREIGHT RAILROADS' STAKE 53 (1981).
9. See N. PLATT & M. DRUMMOND, OUR NATION FROM ITS CREATION '180-90 (1964).
10. See S. MORRISON, THE OXFORD HISTORY OF THE AMERICAN PEOPLE 730-32 (1965).
Motivated by private gain and unable to see any public interest, the "federal chieftains" of the
railroads bribed or coerced their way out of taxation and government regulation. Id at 763-64.
11. See N. PLATr & M. DRUMMOND, supra note 9, at 444-45. The sale of watered stock, as in
the takeover battle between the New York Central and Erie Railroads, injured both stock investors
and the public, because the carriers found it necessary to keep rates high in order to pay dividends
on the inflated stock issues. See H. BRAGDON & S. MCCUTCHEN, HISTORY OF A FREE PEOI'LE 427
(1967).
12. U.S. DEP'T OF TRANSPORTATION, A PROSPECTUS FOR CHANGE IN THE FREIGHT RAILROAD INDUSTRY 115-16 (1978). For a summary of the effects of rebates and rate cutting, see
Brewer, supra note 3, at 365-66.
13. See N. PLATr & M. DRUMMOND, supra note 9, at 480-90.
14. D. BOWERSOX, P. CALABRO & G. WAGENHEIM, INTRODUCTION TO TRANSPORTATION
164 (1981) [hereinafter cited as INTRODUCTION TO TRANSPORTATION].
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RATE REGULATION AND ANTITRUST IMMUNITY
The most significant abuse that prompted government to regulate the
transportation industry was rate irregularities. Preferred shippers enjoyed special rates, underbilling, and rebates. t 5 Transportation rates
from location points that a single rail carrier served were significantly
higher than those rates charged at points where rail carrier competition
existed. This was true although points in the former group were often
closer to the ultimate destination. ' 6 Indeed, it was common for transportation costs to be higher on a shorter haul than on a longer haul on the
same line in the same direction. Price competition among carriers serving common geographical points led to rampant rate wars: carriers handled many shipments at substantial losses in hopes of forcing other
carriers out of business, thereby enabling the victorious carrier to service
17
the particular location point on its own terms.
Under the aegis of the "Patrons of Husbandry," the Granger movement, which lobbied for the political and commercial interests of farmers, persuaded numerous states to enact legislation restricting the
activities of rail carriers.' 8 In 1869 Illinois passed the first statute requiring the railroads to offer just, reasonable, and uniform rates. In 1871
Minnesota enacted a law that regulated maximum rates and prohibited
unjust discrimination. During the subsequent fifteen years, Iowa, Wisconsin, Missouri, California, Nebraska, Kansas, Oregon, and several
southern states passed similar legislation.19 Because many state legislators had neither the time or talent nor the expertise to regulate rates,
several states established independent commissions to develop such expertise in order to adjudicate rate disputes, regulate the intricacies of the
railroad industry, and protect the public interest in transportation matters. In the west, these state commissions had the power to regulate rail
20
rates, whereas in the east, they usually had only advisory powers.
Rail carriers were dissatisfied with the imposition of these state regulatory schemes and challenged their constitutionality. In Munn v. ZIii15.
For example, Standard Oil had a secret agreement with the railroads running out of
Cleveland by which the rates on its products would be 25% to 50% below those charged other
companies. See H. BRAGDON & S. MCCUTCHEN, spra note 11, at 391-92.
16. For example, it cost more to ship goods from Poughkeepsie to New York City on the only
line available, the New York Central Railroad, than to ship goods from Chicago to New York City,
where both the Pennsylvania and Erie Railroads competed with the New York Central Railroad.
Id. at 427.
17. In the late 1860's, cattle were moved from Buffalo to New York City at a cost of$1.00 per
car. During this same period, the first-class rate for shipments from Chicago to New York City
ranged from 5.25 to $2.15 per hundred pounds. In the late 1870's, cattle were carried free of charge
from Chicago to Pittsburgh and for $5.00 per car from Chicago to New York. Harris, Introduction,
Symposium on the InterstateCommerce Commission, 31 GEo. WASH. L. REV. 1, 5 (1962).
18. Id at 6-7.
19.
Id
20. Id at 7, 10. See genera4y R. CURRENT, A. DECONDE & A. DANTE, UNITED STATES HISTORY: A WORLD POWER 23-24 (1974) (social and historical perspective on America in the 1880's).
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nois21 managers and lessees of grain storage elevators in Chicago were
prosecuted for ignoring state licensing and ratesetting statutes. The defendants argued that the state had no right to infringe on their economic
freedom through such regulations and that the state law was inconsistent with the commerce clause of the U.S. Constitution. 22 The Supreme
Court stated that private property used in a manner affecting the general community becomes "clothed with a public interest" and subject to
control "by the public for the common good."'23 Hence, a state government could regulate private property dedicated to a public use. The
Court also noted that regulation of the grain elevators was a domestic
concern, and therefore found that the state was free to exercise its governmental powers over such a concern, "even though in so doing it
[might] indirectly operate upon commerce outside its immediate jurisdiction." 24 Thus, the state's power to regulate would be restricted only
when Congress itself enacted legislation dealing with interstate rate
regulations.
Although numerous bills involving rail regulation were introduced
into Congress prior to and following Munn, 25 Congress did not feel compelled to act until the Court decided Wabash, St. Louis and Pacific Railwaay
v.Illinois.26 In Wabash the Court held unconstitutional an Illinois law
that prohibited a rail carrier from charging the same or a higher rate for
transporting the same commodity over a lesser distance than over a
greater distance in the same direction. The Supreme Court of Illinois
had conceded that the statute might affect interstate commerce, but
ruled that the state legislature was free to act until Congress exercised its
power to regulate interstate rail traffic.2 7 In overturning the lower
court's ruling, the Supreme Court recognized that Congress had not enacted legislation in this area, yet focused on the oppressive conditions
that would be imposed on carriers if the individual states regulated interstate transportation within their borders. The Court emphasized that
the framers of the Constitution had vested in Congress the sole authority
to regulate interstate commerce: "the right of continuous transportation
21. 94 U.S. 113 (1876).
22. Id at 119.
23. Id at 126. Although Munn did not directly involve rail carriers, subsequent decisions
applied this principle to railroads. Se, e.g., Winona & St. P.R.R. v. Blake, 94 U.S. 180 (1876)
(railroad rates subject to regulation by Minnesota legislature); Peik v. Chicago & Nw. Ry., 94 U.S.
164 (1876) (railroad rates subject to ceilings prescribed by Wisconsin legislature); Chicago, B. &
Q.R.R. v. Iowa, 94 U.S. 155 (1876) (railroads engage in public employment and affect public
interest; rates subject to legislative control).
24. Munn v. Illinois, 94 U.S. 113, 135 (1876).
25. Between 1868 and 1886, Congress considered approximately 150 bills and resolutions.
Harris, supra note 17, at 11.
26. 118 U.S. 557 (1886).
27. Id at 566.
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
from one end of the country to the other is essential in modern times to
that freedom of commerce from the restraints which the State might
choose to impose upon it.1'28 This decision appeared to state a conclusion contrary to that expressed in lunn. The Court was expressly holding that even when Congress had not exercised its jurisdiction under the
commerce clause of the Constitution, the state could not regulate businesses operating in interstate or foreign commerce. 2 9 Because approximately seventy-five percent of the commodities shipped at the time were
transported in interstate commerce, the Wabash decision effectively
deregulated the bulk of rail traffic. 30
The Wabash ruling provided a significant impetus for Congress to enact federal regulation of interstate transportation. In 1887 Congress
passed an act to regulate commerce, popularly known as the Interstate
Commerce Act, 31 which established the first independent federal
agency, the ICC. The Act granted the ICC the authority to regulate the
interstate rates charged by railroads, thereby ensuring that the rates
would be just and reasonable. 32 Under the Act, rail carriers could no
longer discriminate in rates or services between persons, localities, or
traffic. 3 3 Furthermore, they could no longer charge a higher rate for a
shorter distance that was included within a longer haul over the same
line in the same direction. 34 Nor could the rail carriers pool freight or
revenues. 35 Most important, railroads were required to make their rates
public, file them with the newly formed Commission, and adhere to the
36
published tariffs.
Following the promulgation of the Act in 1887, the Supreme Court
issued several decisions disfranchising the ICC of its ability to regulate
effectively the rail industry. For example, in two cases involving Cincinnati, New Orleans & Texas Pacific Railway the Court held that the ICC
had no authority to prescribe rates for the future.3 7 Although the Com28. Id. at 572-73.
29. Id. at 577.
30. Harris, supra note 17, at 15.
31. Interstate Commerce Act, ch. 104, 24 Stat. 379 (1887) (codified as amended at 49 U.S.C.
§§ 10101-11917 (Supp. IV 1980)). Congress had passed two bills that imposed limited constraints
on the rail industry. In 1886, it authorized state chartered railroads to carry passengers in interstate
commerce and to connect with other rail carriers in order to form continuous carriage. Act ofJune
15, 1886, ch. 124, 14 Stat. 66. In 1873, Congress required humane treatment of animals transported
by rail. Act of March 3, 1873, ch. 252, 17 Stat. 584.
32. Interstate Commerce Act, ch. 104, § 1, 24 Stat. 379, 379 (1887) (current version at 49
U.S.C. § 10701 (Supp. IV 1980)).
33. d § 3, 24 Stat. 379, 380 (1887) (current version at 49 U.S.C. § 10741 (Supp. IV 1980)).
34. Id § 4, 24 Stat. 379, 380 (1887) (current version at 49 U.S.C. § 10726 (Supp. IV 1980)).
35. Id § 5, 24 Stat. 379, 380 (1887) (current version at 49 U.S.C. § 11342 (Supp. IV 1980)).
36. Id § 6, 24 Stat. 379, 380-81 (1887) (current version at 49 U.S.C. §§ 10761-10762 (Supp.
IV 1980)).
37.
See Interstate Commerce Comm'n v. Cincinnati, N.O. &T. Pac. Ry., 167 U.S. 479 (1897);
Cincinnati, N.O. & T. Pac. Ry., 162 U.S. 184 (1896).
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[Vol. 32:335
mission could conclude that an existing rate was excessive and unlawful,
and therefore award reparations to the complaining party, it could not
insist on a reduction in future rates, which would have protected others
similarly situated or the general public.3 8 In Interstate Commerce Commission v. Alabama Midland Railway,39 the Court effectively deprived the
Commission of its ability to enforce the long- and short-haul provisions
of the 1887 statute. Thus, by the turn of the century, an essentially impotent ICC faced increasing rail rates, rail consolidations that were reducing competition, and rail carriers who were continuing jointly to fix
40
rates.
Given this situation, Congress expanded .the Commission's jurisdiction through legislation passed between 1903 and 1910. In 1903 Congress enacted the Elkins Act, 4 1 which granted the Commission authority
to impose civil and criminal penalties for intentional acts of discrimination and intentional violations of published tariffs. 4 2 Three years later
Congress passed the Hepburn Act, 43 which gave the Commission jurisdiction over express, sleeping car, and steamship companies, as well as
over fuel pipelines. 44 This Act also conferred on the ICC the jurisdiction
to determine and prescribe maximum rates for the future in those situations in which existing rates were deemed unlawful. 45 Additionally, it
gave the Commission the power to establish through-routes and joint
rates among noncompeting carriers and to prescribe their divisions. 46
Finally, in 1910 Congress passed the Mann-Elkins Act, 4 7 which revitalized the long- and short-haul provisions48 and established new rate procedures. 49 Under this Act the Commission could, on its own motion,
suspend tariffs pending an investigation of their lawfulness. 50
In retrospect, promulgation of the Interstate Commerce Act established an important precedent in American public law: the federal government may regulate a major industry when the public interest so
requires. In creating the Commission, Congress began a tradition of es38. Interstate Commerce Comm'n v. Cincinnati, N.O. & T. Pac. Ry., 167 U.S. 479, 506
(1897); Cincinnati, N.O. & T.P. Ry. v. ICC, 162 U.S. 184, 196-97 (1896).
39. 168 U.S. 144 (1897).
40. 1 1. SHARFMAN, THE INTERSTATE COMMERCE COMMISSION 32-35 (1931).
41. Ch. 708, 32 Stat. 847 (1903) (codified as amended in scattered sections of 49 U.S.C.).
42. Id § 1, 32 Stat. 847, 847-48 (current version at 49 U.S.C. §§ 11902-11903 (Supp. IV
1980)).
43. Ch. 3591, 34 Stat. 584 (1906) (codified as amended in scattered sections of 49 U.S.C.).
44. Id § 1, 34 Stat. 584, 584 (current version at 49 U.S.C. § 10102(4) (Supp. IV 1980)).
45. Id § 4, 34 Stat. 584, 589 (current version at 49 U.S.C. § 10704 (Supp. IV 1980)).
46. Id § 4, 34 Stat. 584, 590 (current version at 49 U.S.C. § 10705 (Supp. IV 1980)).
47. Ch. 309, 36 Stat. 539 (1910) (codified as amended in scattered sections of 49 U.S.C.).
48. Id § 8, 36 Stat. 539, 547 (current version at 49 U.S.C. § 10726 (Supp. IV 1980)).
49. Id § 9, 36 Stat. 539, 548 (current version at 49 U.S.C. §§ 10761-10762, 10764-10765
(Supp. IV 1980)).
50. Id § 13, 36 Stat. 539, 554 (current version at 49 U.S.C. § 10708 (Supp. IV 1980)).
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
343*
tablishing specialized federal administrative agencies, many of which
would be patterned after the ICC.
B.
Growth of Regulation: Protecting TransportationIndustries
Subsequent to 1906, Congress established regulations for each kind of
transportation 5' and expanded the scope of government intervention
and oversight to embrace a wide range of activities engaged in by all
common carriers, including market entry, market exit, and intercorporate.relationships. After World War I, the policy of the federal government shifted from one of protecting the public from the market abuses
of the transportation industry to one of preserving a healthy economic
environment for common carriers. This policy shift reflected congressional recognition that the rail industry was overexpanded and had suffered deferred maintenance. The Transportation Act of 192052
expanded the jurisdiction of the ICC to give the Commission authority
to determine minimum, as well as maximum, rail rates, to regulate entry
and exit of rail facilities, and to control intercorporate relationships and
the issuance of securities.
The Motor Carrier Act of 1935,53 which brought motor common and
contract carriers within the jurisdiction of the ICC, resulted from events
51. The Shipping Act of 1916, ch. 451, 39 Stat. 728 (codified as amended in scattered sections
of 46 U.S.C.), established federal regulation of ocean vessel conference ratemaking activities. The
Act granted limited antitrust immunity to the conference's price-fixing activities, but subjected it to
a regulatory scheme seeking to eliminate other anticompetitive abuses. Although such price-fixing
activities were clearly inconsistent with existing antitrust laws, Congress recognized that shielding
conference activity from antitrust attack would enable shippers to enjoy the benefits of more frequent and regular sailings, greater rate stability, and enhanced capital investment in new ships.
Thus, carriers would be spared the economic injury inherent in the industry's "boom-to-bust cycle."
See Pansius, Plottingthe Return of Isbrandtsen: The Illegality ofIterconference Rate Agreements, 9 TRANSP.
LJ. 337, 337-38 (1977). Ocean vessel jurisdiction currently is vested in the Federal Maritime Commission. Recently introduced legislation would expand the ability of the agency to shield conference pricing decisions from the antitrust laws. S.1593, 97th Cong., 1st Sess., 127 CONG. REC.
59,159, 59,231 (1981).
In 1938 Congress enacted the Civil Aeronautics Act, ch. 601, 52 Stat. 973 (1938) (codified as
amended in scattered sections of 49 U.S.C.), adding the airlines to the federal regulatory scheme.
For a discussion of the reasons prompting Congress to pass the legislation, see Dempsey, The Rise and
Fall of the Civil Aeronautics Board-Opening Wide the Floodgates of Ently, I1 TRANSP. LJ. 91 (1979);
Dempsey, The InternationalRate and Route Revolution in North Atlantic Passenger Transportation, 17
COLUM. J. TRANSNAT'L L. 393 (1978). Two years later Congress enacted the Transportation Act of
1940, ch. 722, 54 Stat. 898 (codified as amended in scattered sections of 49 U.S.C.), and brought
domestic water carrier and freight forwarders within the jurisdiction of the ICC. The statute exempts bulk carriage from water transport regulation, effectively removing approximately 70% of
this industry from regulation. For a discussion of the regulation of freight forwarders, see Dempsey,
Entr Control Under the Interstate Commerce Act: A Comparative Analysis of the Statutory Criteria Governing
Enty in Transportation, 13 WAKE FOREST L. REv. 729, 763-69 (1977); Dempsey, The Contemporar
Evolution of Internationaland Inteemodal Transport Regulation Under the Interstate Commerce Act-Land, Sea
and Air Coordination of Foreign Commerce Movements, 10 VAND. J. TRANSNAT'L L. 505, 536-41 (1977).
52. Ch. 91, 41 Stat. 456 (codified as amended in scattered sections of 49 U.S.C.).
53. Ch. 498, 49 Stat. 543 (codified as amended in scattered sections of 49 U.S.C.).
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54
similar to those that had preceded the Interstate Commerce Act.
Again, the courts played a significant role in prompting Congress to en-
act legislation regulating the transportation industry. For example, at
issue in Buck v. Kuykendal155 was the denial by the State of Washington of
a motor common carrier's application for operating authority on the
ground that the routes were adequately served by four connecting auto
stage lines and frequent steam rail service. 56 Although the Supreme
Court recognized that a state legitimately may constrain interstate
transportation in order to promote safety or conservation of the highways, the Court concluded that states could not obstruct the entry of
motor carriers into interstate commerce for purposes of prohibiting competition. 57 Prior to this decision, forty states had denied the use of their
highways to motor carriers operating without certificates of public convenience and necessity. 58 The ruling in Buck not only prohibited state
controls on entry for motor carriers engaged in interstate commerce, it
also invalidated insurance requirements and service standards. Thus,
the decision limited state regulation of interstate motor carriers to a
state's police powers-motor vehicle safety and highway construction.5 9
Although the Motor Carrier Act of 1935 was promulgated in order to
fill the gap in state regulation left by the decision in Buck, additional
reasons prompted Congress to enact legislation in the motor carrier industry, including the need to stabilize economic conditions and eliminate cutthroat competition. 60 During the Great Depression, an
oversupply of transportation facilities and intense competition among
truckers depressed freight rates excessively and caused many bankruptcies. Some feared that continuation of such unrestrained market forces
might lead to a loss of service or higher prices for small shippers and
communities, leaving the surviving carriers to concentrate on high-revenue traffic. 6 ' Moreover, Congress passed the legislation in order to
achieve equality in the regulatory scheme, protect wages and working
conditions, provide stable service and "just and reasonable" rates for
shippers, and ensure that carriers operated safely and were financially
62
responsible.
54. See supra text accompanying notes 21-30.
55. 267 U.S. 307 (1925).
56. Id at 313.
57. Id at 315-16.
58. Webb, Legislative and Regulatog Histog of EntV. Controls on Motor Carriers of Passengers, 8
TRANSP. L.J. 91, 92 (1976).
59. Id
60. See also Baker & Greene, CommercialZones and TerminalAreas: Histoy, Development, Expansion,
Deregulation, 10 TRANSP. L.J. 171, 177-78 (1978).
61. See Webb, supra note 58, at 95-97.
62. See id at 98. One commentator has summarized succinctly the most salient provisions of
the Interstate Commerce Act governing motor carrier ratemaking:
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
C
ICC Regulation of Ratemaking by Rail and Motor Camers
Under the Interstate Commerce Act, 63 carriers initiate rates and include them in tariffs64 that are filed with the ICC.65 Motor carriers
must file the tariffs thirty days prior to the effective date of the rates,
66
unless special permission is granted to file within a shorter period.
Rail carriers must file twenty days before the effective date of the tariff,
unless special permission is granted. 67 If the ICC fails to reject the proposed tariff within the applicable notice period, the tariff automatically
becomes effective. 68 During these notice periods, however, the ICC may
suspend the tariff either on the motion of an interested party or sua
sponte. 69 Currently, the Commission cannot suspend a rail tariff unless
it appears that
(1) there is a substantial likelihood that the protestant will prevail on
the merits,
(2) without suspension, the rate will cause substantial injury to the
protestant, and
for
(3) because of peculiar circumstances of the protestant, provisions
70
subsequent compensation will not adequately protect him.
If the ICC suspends a tariff, it has a designated time period within
which to investigate and determine the validity of the proposed rate. 71
The ICC can investigate a rail tariff without suspending it. When
1. Publication of rates and fares is required and there must be strict observance of tariffs.
2. Rates and fares are to be reasonable and not unjustly discriminatory.
3. Carrier practices and regulations relating to fares and charges are to be just and
reasonable.
4. Notice of at least 30 days is required for changes in rates and fares.
5. Proposed rates and fares may be suspended by the Commission for a period not exceeding seven months.
6. The Commission has power to prescribe the maximum, minimum, or actual rate to be
charged in lieu of a rate found unreasonable or otherwise unlawful.
7. The Commission has the power to hear complaints and institute investigations pertinent to its Congressional mandate.
O'Neal, Price Competition and the Role ofRate Bureaus in the Motor CarrierIndustiy, 10 TRANSP. L.J. 309,
317 (1978).
63. 49 U.S.C. §§ 10101-11916 (Supp. IV 1980).
64. A tariff is a filed publication in which a carrier, or its agent, states its rates and charges. It
may include rules or conditions governing the provision of transportation and related services. See
Rosenak, Rate Proceduresand Proceedings, 12 TRANSP. L. INsT. 1, 1 (1979).
65. 49 U.S.C. § 10762 (Supp. IV 1980).
66. Id § 10762(a)(2), (d).
67. Id § 10762(c)(3), (d).
68. Id § 10762. Once effective, the tariff can only be attacked pursuant to the formal complaint procedures of§ 11701. Id § 11701;see 49 C.F.R. § 1100.24-.32 (1981).
69. 49 U.S.C. §§ 10707(a), 10708(a) (Supp. IV 1980). See id § 10704(0.
70. See id § 10707(c)(1).
71. The Commission has seven months to investigate a proposed motor carrier rate. Id
§ 10708(b). If the ICC fails to act within that time, the proposed rate becomes effective. Id The
ICC has five months within which to complete an investigation of a proposed rail carrier rate,
unless it reports the delay to Congress, in which case the Commission may have an additional three
months. Id § 10707(b)(1).
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THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
determining whether to investigate, the ICC must consider several factors: the amount of traffic generating revenues that do not contribute to
going concern value, the efforts made to reduce such traffic, the amount
of traffic that contributes only marginally to fixed costs, and the effect of
the proposed rate on national energy goals and rail transportation policy. In reaching its decision, the ICC must recognize "the railroads' role
as a primary source of energy transportation and the need for a sound
rail transportation system." 72 If the proposed rate is deemed unlawful,
the ICC will cancel it. 73 If the ICC decides not to investigate a rail rate
increase, it must set forth its reasons. The courts cannot review a nonsuspension decision by the Commission resulting from a tariff
74
investigation.
Although an aggrieved party protesting under section 10707 or 10708
of the Interstate Commerce Act cannot compel the ICC to suspend a
filed tariff, such a party nevertheless may institute a formal complaint
under section 11701 of the Act, thus requiring the ICC to investigate the
lawfulness of the filed tariff.75 In this situation, the Commission's failure
to investigate, as well as its decision to approve or disapprove the carrier
rates, is subject to judicial review. 76 Generally, the burden of proving
the reasonableness of a proposed tariff under section 10707 or 10708 lies
with the carrier that originally filed it. 77 In a section 11701 proceeding,
however, the burden of proof lies with the complaining party, who must
78
establish that the rates are unlawful.
When the ICC concludes that a rate charged is unlawful, it may prescribe the maximum or minimum rate to be charged. 79 In the situations
in which the ICC has investigated but not suspended a rate, the carrier
must refund that portion of the rate determined to be unreasonable plus
interest. 80 If the tariff originally had been suspended and the ICC ulti72. Id § 10707a(e)(2)(B).
73. O'Neal, supra note 62, at 320.
74. Southern Ry. v. Seaboard Allied Milling Corp., 442 U.S. 444 (1979) (ICC decisions not to
suspend a tariff are not subject to judicial review).
75. Id at 454. See 49 U.S.C. §§ 10707-10708, 11701 (Supp. IV 1980).
76. The Supreme Court, in Trans Alaska Pipeline Rate Cases, 436 U.S. 631 (1978), noted that
the judiciary has jurisdiction to review ICC suspension determinations for the limited purposes of
determining whether the actions taken are ultra vires and, hence, beyond the Commission's statutory
authority. Id at 638 n.17. In light of this narrow exception, the Court reaffirmed its prior position:
the judiciary may neither enjoin surface carrier rate changes prior to the Commission's evaluation
of their lawfulness nor undertake an independent evaluation of the reasonableness of the involved
rates. See United States v. SCRAP, 412 U.S. 669, 691 (1973); Arrow Transp. Co. v. Southern Ry.,
372 U.S. 658, 669 (1963). For a review of the ICC's investigation procedures, see Southern Motor
Carriers Rate Conference, Inc. v. United States, 676 F.2d 1374 (11 th Cir. 1982).
77. 49 U.S.C. § 10708(c) (Supp. IV 1980).
78. Id § 11701. See Southern Ry. v. Seaboard Allied Milling Corp., 442 U.S. 444, 454-55
(1979).
79. 49 U.S.C. § 10704(a)(1), (b)(1), (c)(1) (Supp. IV 1980).
80. Id § 10707(d)(1).
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RATE REGULATION AND ANTITRUST IMMUNITY
347
mately determines that some portion is reasonable, the carrier must collect the difference between the actual rate charged and the rate level
determined to be reasonable plus interest. 8'
Pending investigation of a proposed tariff, the ICC can impose a
mandatory condition precedent to nonsuspension of the tariff; the carrier must spend the resulting profits for specified purposes.8 2 The Court
has upheld such action as a legitimate extension of the Commission's
explicit suspension powers, necessary to protect the public from unjustified increases in transportation costs, safeguard the community against
and maintain reasonable charges and
irreparable losses, and establish
proper rate relationships.83 In Trans Alaska Pipeline Rate Cases,8 4 the
Supreme Court expanded the Commission's suspension powers in concluding that the ICC not only held authority to suspend initial tariff
schedules, but also held auxiliary power to fix maximum interim rates
for the suspension period and to require that as a condition of nonsuspension the carriers must refund any amounts collected but ultimately
found to be unlawful. The Court reasoned that these auxiliary powers,
in conjunction with the suspension powers, allowed the Commission to
balance the needs of the public against the needs of the carriers. 85
L
Preventing discriminatory rates
The Interstate Commerce Act requires that a carrier provide interstate transportation services only at the rate specified in the tariff filed
with the ICC.8 6 This rule, which represents congressional intent to prevent unjust discrimination in interstate commerce, 87 has prevailed over
theories based on either contract and agency law or estoppel princi81. Id § 10707(d)(2).
82. United States v. Chesapeake & 0. Ry., 426 U.S. 500 (1976). In this case, a number of rail
carriers requested ICC approval of a general revenue increase. The Commission concluded that the
rates in question would be unjust and unreasonable unless the revenue derived from them was
targeted for delayed capital improvements and deferred maintenance. The Commission suspended
the proposed rates, but authorized the filing of new tariffs subject to the condition that the monies
collected be designated for such projects.
83. Id at 513-15.
84. 436 U.S. 631 (1978).
85. Id at 653.
86. 49 U.S.C. § 10761 (Supp. IV 1980).
87. In Louisville & N.R.R. v. Maxwell, 237 U.S. 94 (1915), the Supreme Court stated:
Under the interstate commerce act, the rate of the carrier duly filed is the only lawful
charge. Deviation from it is not permitted upon any pretext. Shippers and travelers are
charged with notice of it, and they as well as the carrier must abide by it, unless it is found
by the Commission to be unreasonable. Ignorance or misquotation of rates is not an
excuse for paying or charging either less or more than the rate filed. This rule is undeniably strict, and it obviously may work hardship in some cases, but it embodies the policy
which has been adopted by Congress in the regulation of interstate commerce in order to
prevent unjust discrimination.
d at 97.
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
ples. 8 Nevertheless, differences in rates, classifications, rules, or practices do not violate the antidiscrimination provisions of the Interstate
Commerce Act if they reflect substantive differences in services
performed. 9
The Act establishes several basic standards. A carrier may not charge
any person a different rate for a like or contemporaneous service under
substantially similar circumstances, 90 nor may a carrier charge a higher
rate for transportation over a shorter distance vis-a-vis a longer distance
over the same line in the same direction. 91 It is also unlawful for a carrier to confer any undue or unreasonable preference or advantage to any
person, region, territory, or traffic. 92 Furthermore, a carrier cannot dis93
criminate between interlining carriers in its rates, fares, or charges.
2.
Determiningjust and reasonable rates
In addition to preventing discrimination, the Commission is charged
with determining the reasonableness of a proposed rate schedule. 94 Reasonableness is principally a question of fact, 95 and thus the Commission
96
has been given considerable deference and discretion in ratemaking.
The ICC's flexibility in determining whether a rate is reasonable is limited by common law and statutory notions of a "zone of reasonableness." Justice Cardozo, in United States v. Chicago, Milwaukee, St. Paul &
Pacific Railroad,97 characterized the common law zone of reasonableness
as follows: "A zone of reasonableness exists between maxima and minima within which a carrier is ordinarily free to adjust its charges for
itself. . . . '[A] carrier is entitled to initiate rates and, in this connection, to adopt such policy of rate-making as to it seems best.' "98 Traditionally, the cost of service has been deemed to be the point below which
rates should not be lowered, and the value of service the point above
which rates should not be raised. Thus, competition itself becomes the
88. Tariff provisions, which have been construed to have the force and effect of a statute,
"may not be waived, altered, or deviated from either by express agreement between a carrier and a
shipper or by implication through customary trade practices." Rosenak, supra note 64, at I.
89. 49 U.S.C. § 10741(e) (Supp. IV 1980).
90. Id § 10741(a).
91. Id § 10726.
92. Id § 10741(b).
93. Id § 10742. See id § 10701(a), (c).
94. Southern Ry. v. Seaboard Allied Milling Corp., 442 U.S. 444 (1979). See also Board of
Trade v. United States, 314 U.S. 534, 546 (1942).
95. Illinois Cent. R.R. v. ICC, 206 U.S. 441, 455 (1907) (courts will interfere with rates shown
to be result of clear and unmistakable error).
96. Baltimore & O.R.R. v. United States, 345 U.S. 146, 150 (1953).
97. 294 U.S. 499 (1935).
98. Id at 506 (citations omitted) (quoting United States v. Illinois Cent. R.R., 263 U.S. 515,
522 (1924)).
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
349
determiner of the precise point within this zone at which the rates
should be set.
The ICC has used many criteria in determining whether proposal
rates are just and reasonable. These criteria include the existence of
competition, distance of haul, transportation characteristics of the commodity, anticipated volume of shipments, and economic status of the
industry served. The ICC has emphasized rate comparisons for similar
commodities, territories, distances, revenues per unit, traffic densities,
and transportation peculiarities affecting costs. 99 The Commission also
has considered the economic effect of the proposed rate on consumers of
the commodity, as well as the relationship between the rate proposed
and variable costs.' 0 0 Currently, there is controversy about the validity
of product competition as a criterion in determining the reasonableness
of rail rates.10 '
The judiciary has upheld rate ceilings imposed by the ICC and set at
a carrier's fully allocated costs as being within the common law zone of
reasonableness. 102 Additionally, the courts have upheld the general notion of differential pricing' 0 3 as beneficial in achieving the statutory objective of providing adequate revenues for carriers.' 0 4 Nevertheless, the
Court of Appeals for the District of Columbia Circuit has found a recent
ICC decision, which set unit coal rates seven percent above fully allocated costs, to be arbitrary and capricious.105 The court noted that the
need to consider the revenue requirements of the carriers and the economics of differential pricing was so broad a rationale as to be a mean06
ingless standard.'
3. Limiting ICCjurisdictionby expanding the zone of reasonableness
Recent legislation has expanded the common law zone of reasonableness. The Motor Carrier Act of 1980,107 which amended the Interstate
Commerce Act, prohibits the ICC from interfering with a proposed rate
99. Salt Cases of 1923, 92 I.C.C. 388, 410 (1924).
100. Burlington N., Inc. v. United States, 555 F.2d 637, 641 (8th Cir. 1977). Variable costs are
defined as "unit-costs of output which change with changes in the volume of outcome." Id. at 643
n.6.
101. See infra note 125.
102. Burlington N., Inc. v. United States, 555 F.2d 637 (8th Cir. 1977). Fully allocated costs
are defined as "that level of expenses which represents the sum of 'variable costs' plus an appropriate allocation of fixed expenses, ie., an allocation which assigns an adequate portion of fixed expenses to the movement of traffic on which the rate in issue applies." Id. at 644 n.7.
103. Differential pricing involves setting certain rates at levels higher than full costs in order to
compensate for losses incurred because certain services must be priced below full cost if the railroad
is to be competitive. San Antonio v. United States, 631 F.2d 831, 850 (D.C. Cir. 1980).
104. Houston Lighting & Power Co. v. United States, 606 F.2d 1131, 1148 (D.C. Cir. 1979).
105. San Antonio v. United States, 631 F.2d 831 (D.C. Cir. 1980).
106. Id. at 852.
107. Pub. L. No. 96-296, 94 Stat. 793 (codified in scattered sections of 49 U.S.C.).
350
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[Vol. 32:335
on the ground that it is excessively high or low when the rate in question
is ten percent above or below the rate set one year before.' 0 8 Moreover,
the Commission may increase the zone by five percent during any year
in which it concludes that not only is there sufficient competition to
regulate the rates adequately, but also that the public will benefit from
the increased rate flexibility. 109
The purpose ofthese amendments is to reduce government regulation
and broaden the carriers' opportunities to set transportation rates."10
Thus, the intent is to spur competition in both service and pricing.
These provisions, however, do not interfere with the Commission's powers to police discriminatory or predatory pricing. The Motor Carrier
Act of 1980 also permits motor carriers to take into account foreseeable
future costs when determining a rate base.' 1 ' For motor carriers of
property, the 1980 Act authorizes rate levels that would provide "a flow
of net income, plus depreciation, adequate to support prudent capital
outlays, *assure repayment of debt, permit the raising of equity capital,
'' 2
and cover the effects of inflation." "
The Staggers Rail Act of 1980,113 intended to free the railroads from
unnecessary government regulation and to aid market mechanisms in
providing adequate revenues for a financially needy industry, 114 adds to
the Interstate Commerce Act a new congressional declaration of policy
for railroads." 5 Competition is mentioned repeatedly as a policy objective. "1 6 In order to increase competition, railroad carriers must be able
to enter and exit the market without being subject to unnecessary federal regulatory barriers.11 7 Furthermore, they must be permitted to
earn adequate revenues." I8 Nevertheless, the ICC must continue to prohibit discriminatory or predatory pricing," 9 regulating those markets
20
that lack effective competition among carriers.
The Staggers Rail Act, which focuses primarily on rail ratemaking,
narrows the jurisdiction of the ICC and increases the freedom of the rail
108. See 49 U.S.C. § 10708(d)(1) (Supp. IV 1980).
109. Id § 10708(d)(2).
110. H.R. REP. No. 1069, 96th Cong., 2d Sess. 25, reprinted in 1980 U.S. CODE CONG. & AD.
NEws 2283, 2307.
111. 49 U.S.C. § 10701(e) (Supp. IV 1980).
112. H.R. REP. No. 1069, 96th Cong., 2d Sess. 26, reprinted in 1980 U.S. CODE CONG. & AD.
NEws 2283, 2308.
113. Pub. L. No. 96-448, 94 Stat. 1895 (codified in scattered sections of 11, 45 & 49 U.S.C.).
114. H.R. CONF. REP. No. 1430, 96th Cong., 2d Sess. 80, reprintedin 1980 U.S. CODE CONG. &
AD. NEWS 4110, 4111.
115. 49 U.S.C. § 10101a (Supp. IV 1980).
116. See, e.g., id § lOlOla(1), (4), (5).
117. Seeid § 1010a(2), (7).
118. Id § lOlOla(3).
119. Id § 1010la(13).
120. Id § 1010la(6).
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
351
carriers to raise or lower rates without ICC interference. The ICC's jurisdiction is eliminated with respect to the reasonableness of rate increases unless the carrier has "market dominance."1 21 The legislation
affirms the concept of market dominance as established by the Railroad
Revitalization and Regulatory Reform Act of 1976 (4R Act). 22 When
Congress passed the 4R Act, it indicated that market dominance "refers
to an absence of effective competition from other carriers or modes of
transportation, for the traffic or movement to which a rate applies." 1 23
The concept was not imposed as a test of the reasonableness of the rate,
but was designed as a jurisdictional threshold: 24 only when the rail carrier had market dominance over the traffic could the ICC address the
question of whether the rate was excessively high. Although the definition of market dominance has not been altered, the ICC has used a tripartite test to define the concept.' 25 In determining the reasonableness
of rates, the ICC must recognize that carriers are entitled to earn ade121. Id § 10701a(b)(1).
122. Pub. L. No. 94-210, § 202(b), 90 Stat. 31, 34 (codified at 49 U.S.C. § 10709(a) (Supp. IV
1980)).
123. 49 U.S.C. § 10709(a) (Supp. IV 1980).
124. See H.R. REP. No. 499, 94th Cong., 2d Sess. 46-47, reprintedin 1976 U.S. CODE CONG. &
AD. NEWS 14, 61.
125. Prior to a 1981 ICC decision, market dominance existed only where "(1) the proposed
railroad carried more than 70% of the traffic in the relevant market; (2) the proponent railroad
would, under the proposed rate, earn more than 160% of its variable cost of providing the service;
or (3) affected shippers had made a substantial investment in rail-related facilities." PROSPECTUS
FOR CHANGE, supra note 12, at 120-21.
The ICC subsequently has set out four criteria that it will employ to determine whether market
dominance exists: First, intramodal competition (whether more than one rail carrier transports the
involved commodity between origin and destination); second, intermodal competition (whether
water or motor carriers compete with railroads for the involved traffic); third, geographic competition (whether the shipper or consignee can obtain the commodity from another origin or ship it to
another destination); and, fourth, product competition (the ability of a shipper or consignee to use a
substitute for the involved commodity). See Ex Parte No. 320 (Sub-No. 2), Market Dominance
Determinations and Consideration of Product Competition, 365 I.C.C. 1, 118 (1981). These new
criteria are believed to make it more difficult for opponents of rail rate increases to establish the
existence of market dominance. See Guidelines Replace ICC Presumptions to Prove Market Dominance,
TRAFFIC WORLD, July 19, 1981, at 42.
Product competition, which includes geographic competition, is defined as "the availability to
the consignee, at a competitive delivered cost and in sufficient quantities, of products or commodities which are of the same type of commodity or product to which the rate in question applies,
without regard to whether such products or commodities are available from the same or different
origin as those to which the rate applies." Ex Parte No. 320 (Sub-No. 2), 365 I.C.C. at 2 (quoting
§ 205 of the Staggers Rail Act, 49 U.S.C. § 10701a note (Supp. IV 1980)).
The formula for determining whether market dominance exists is as follows:
Total Revenue (produced by transportation of all rail traffic)
Revenue-Variable Cost Percentages
Total Variable Cost (of such transportation)
49 U.S.C. § 10709(d)(1)(B)(ii) (Supp. IV 1980). Market dominance will not be deemed to exist if
the revenue-variable cost percentage for such transportation is less than:
160% between the date of promulgation of [the] Act, and Sept. 30, 1981,
165% between Oct. 1, 1981, and Sept. 30, 1982,
170% between Oct. 1, 1982, and Sept. 30, 1983, and
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26
quate revenues.'
In addition to addressing the issue of rate increases, the Staggers Rail
Act eliminates the ICC's jurisdiction over rate decreases unless the rail
rates are below a reasonable minimum. 2 7 Rates contributing to the going concern value will be construed as reasonable, whereas rates not contributing to the going concern value will be presumed unreasonable. 28
Although Congress acknowledged that there may be circumstances in
which such rates are reasonable even though they do not contribute to
the going concern value, such circumstances are likely to be unusual. In
essence, a rate that meets or exceeds the variable costs of providing particular services is "conclusively presumed to contribute to the going concern value" 1 29 and, thus, is not below a reasonable minimum. Yet once
a party has demonstrated that the rail carrier's rates do not meet this
statutory minimum, the burden of establishing that the proposed rates
are, in fact, reasonable shifts to the carrier. On concluding that the rate
is too low and that the "carrier is worse off than it would be if the rates
were raised,"' 30 the ICC may order the rate raised to a minimum level
t3
benefiting the carrier. '
In an attempt to increase a carrier's freedom to adjust its rates, the
175% or the cost recovery percentage, whichever is less, between Oct. 1, 1983, and Sept.
30, 1984.
Id § 10709(d)(2). A cost recovery percentage is used after October 1, 1984, id § 10709(d)(5)(A).
The ICC annually must establish a cost recovery percentage. Although the revenue-variable cost
percentage for such transportation exceeds these percentages, this does not establish either a presumption that the carrier has market dominance or that the rates are excessively high. Id.
§ 10709(d)(4).
It was the intent of Congress to establish a jurisdictional level that varies according to the performance of the industry: when the industry earns adequate levels of revenue, the ICC can examine
rate increases more carefully. H.R. REP. No. 1035, 96th Cong., 2d Sess. 4, reprinted in 1980 U.S.
CODE CONG. & AD. NEWS 3978, 3984.
126. 49 U.S.C. § 10701a(b)(3) (Supp. IV 1980). The standard for determining the reasonableness ofjoint rates is intended to be the same for all rates. "A joint rate must be reasonable, as must
the divisions [thereof] . . . and the Commission should not. . .require joint rates or any carrier's
division of a joint rate to be maintained below the rate levels permitted by this Act." H.R. CONF.
REP. No. 1430, 96th Cong., 2d Sess. 90, reprintedin 1980 U.S. CODE CONG. & AD. NEWS 4110,4121.
Congress believed that competition would serve as the optimum means of inhibiting rail rate increases and that diminishing governmental regulation might reverse the decline of the rail industry.
Id
127. 49 U.S.C. § 10701a(c)(1) (Supp. IV 1980).
128. Id § 10701a(c). The burden of proving whether rates are too low is on the party challenging such rates. Id § 10701a(c)(3)(B).
129. Flexner & Mathias,Antitrust Immunity, Rate Setling Alteredby RailAct, Legal Times of Wash.,
Dec. 1, 1980, at 8, col. I. See Cost Standards for Railroad Rates, 364 I.C.C. 898, 905 (1981).
130. H.R. CONF. REP. No. 1430, 96th Cong., 2d Sess. 90, reprintedin 1980 U.S. CODE CONG. &
AD. NEws 4110, 4122.
131. Congress did not intend that the ICC insist on an increase in rates that does contribute to
the carrier's going concern value. Hence "rates that contribute to the going concern value shall be
reasonable and the Commission may not require that those rates be raised." Id Further, as the
legislative history states, "Railroads should not be carrying traffic which is losing money but in a
competitive environment railroads should be attracting whatever traffic they can at the lowest rates
that will attract the traffic." Id at 95, reprintedin 1980 U.S. CODE CONG. & AD. NEWS at 4127.
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
353
Staggers Rail Act expands the zone of reasonableness by establishing a
zone of rate flexibility. This zone consists of a base rate, which is the
rate that was in effect on the date the legislation was enacted, 13 2 and an
adjusted base rate, 133 which is computed quarterly through the use of a
"'rail cost adjustment factor."' 3 4 A rail carrier is free to adjust its rates to
conform to the adjusted base rate at any time without challenge, except
when it has received an inflation increase through the general rate increase of section 10706 or through the inflation rate increase provisions
of section 10712.135 Therefore, if the rate conforms to the adjusted base
rate, the ICC cannot claim that it exceeds a maximum reasonable
level. t136 Moreover, certain percentage increases over the adjusted base
rate are presumed reasonable as a procedural mechanism to reduce ICC
interference with industry ratemaking 3 7 These statutory changes reflect the belief that the marketplace can better regulate ratemaking.13 1
In addition to the provisions discussed, the Staggers Rail Act authorizes rail carriers to enter into contracts with shippers for transportation
132. 49 U.S.C. § 10707a(a)(l)(A) (Supp. IV 1980).
133. Id § 10707a(a)(2)(A).
134. Id § 10707a(a)(2)(B). The rail cost adjustment factor includes a quarterly Adjusted Index of Railroad Costs, which prevents rates from being diluted by inflation.
135. Id. § 10707a(b)(3).
136. Id § 10707a(3).
137. Id § 10707a(c)(1). A rail carrier may increase any rate by 6% above the adjusted base
rate. If the ICC concludes that increases above 6% are not unreasonably high, it may allow such
increases. H.R. REP. No. 1035, 96th Cong., 2d Sess. 4, reprintedin 1980 U.S. CODE CONG. & AD.
NEws 3978, 3999. During the four-year period following promulgation of the legislation, however,
the total increase is limited to 118% of the adjusted base rate. 49 U.S.C. § 10707a(c)(1) (Supp. IV
1980). There are carry-over provisions for unused percentages. Id § 10707a(c)(2)(A).
When considering a rate increase within this 6% zone and below the point 20% greater than the
jurisdictional level or at the point where 190% of revenue equals variable costs, whichever is lower,
the ICC must determine whether the carrier has adequate revenues. A carrier with adequate revenues should not realize excessive profits on the involved traffic, yet a carrier without adequate
revenues should be permitted to realize excessive profits on the involved traffic through increased
rates, thereby reaching an adequate revenue level. Id § 1010la(l). This does not imply that excessive profits always will be deemed reasonable when imposed by carriers with inadequate revenue
levels. The Commission must continually examine whether the revenues are adequate, considering
all factors when determining reasonableness. H.R. REP. No. 1035,supra, reprintedin 1980 U.S. CODE
CONG. & AD. NEWvs at 3999.
Under certain circumstances, a carrier may increase its rate 4% and be free from suspension and
investigation if the resulting rate is less than either 20% or 190% above the jurisdiction threshold,
whichever is lower. 49 U.S.C. § 10707a(e)(2)(A) (Supp. IV 1980). This zone is limited to carriers
without adequate revenues, and is inapplicable to carriers with single-line rates having adequate
revenues. The zone will be applied to carriers with joint-line rates, provided the ICC has established
that it is unable to promulgate rules prohibiting such carriers with inadequate revenues from taking
advantage of the zone.
Neither the 4% nor the 6% zone is designated to create any presumptions about market dominance or reasonableness with respect to rates set above these percentages. The ICC may investigate
an increase within the 4% or 6% zone only if the rate is 20% above the jurisdictional threshold or
190% of revenue to variable cost, whichever is lower. For example, in the first year the jurisdictional threshold is 160% and, therefore, the ICC may investigate when the rate equals 180%. Id.
§ 10707a(e)(2)(A).
138. H.R. REP. No. 1035, 96th Cong., 2d Sess. 4, reprinted in 1980 U.S. CODE CONG. & AD.
NEws 3978, 3999.
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services. 13 9 The contracts must be filed with the ICC,140 and within
thirty days of filing the ICC may begin reviewing them. 14 ' Shippers
may protest the contract on the ground that the contract impairs the
railroad's duty to fulfill its common carrier obligations, whereas ports
may protest on the ground that they will be harmed.' 42 Furthermore,
the ICC may order carriers transporting agricultural commodities to adhere to rates and services offered in a contract for shippers not parties
thereto when the refusal to contract constitutes unreasonable discrimination. 4 3 Should the ICC determine that additional contracts would
impair the railroad's ability to fulfill its common carrier obligations, it
44
may limit the right of the carrier to enter into future contracts.
II.
ANTITRUST IMMUNITY FOR COLLECTIVE RATEMAKING
Rate bureaus, associations of two or more carriers, disseminate information regarding rates charged for transportation between various
points and collectively consider the prices to be charged by participating
rate bureau members.145 Collective ratemaking dates back to early railroad development in the United States. Indeed, rate bureaus were formally established in the mid-nineteenth century, and grew in size and
number as the rail network expanded.' 46 Today there are ten major
regional motor carrier general commodity bureaus and many specialized bureaus for other sectors of the industry. 4 7 Additionally, the Na139. 49 U.S.C. § 10713(a) (Supp. IV 1980). This statutory provision codifies a prior ICC policy statement that approved rail contract rates on the ground that the certainties of contractual
agreements allow for better business planning, which in turn promotes efficient, improved service.
Change of Policy, Railroad Contract Rates, 361 I.C.C. 205, 206 (1979). These contracts are subject
to the antitrust laws. H.R. REP. No. 1035, 96th Cong., 2d Sess. 4, reprintedin 1980 U.S. CODE
CONG. & AD. NEWS 3978, 4003.
140. 49 U.S.C. § 10713(b) (Supp. IV 1980).
141. Id § 10713(d)(1).
142. Id § 10713(d)(2)(A).
143.
144.
Id § 10713(d)(3)(B).
Id § 10713(0.
145. McFadden, Compeitive Ratemaking, 12 TRANSI. L. INsT. 71 (1979). The rate bureaus essentially have three functions:
1. Toprocess proposals for changes in rates and other tariff matters, including specified
conditions under which the rates apply;
2. To publish the rates and related matter in tariff form in accordance with rules and
regulations issued by the ICC;
3. To fitsti and defend the collective actions of the carriers before the ICC and the
Federal courts, if necessary; and to serve the carriers by developing management information useful in the decision-making process as well as in defense of actions taken.
Godecker, Operations of a Rate Bureau, in REGULAR COMMON CARRIER CONFERENCE, ISSUES IN
AMERICAN TRUCKING 35, 37 (1981).
146. Development of Rate Bureau, in REGULAR COMMON CARRIER CONFERENCE, ISSUES IN
AMERICAN TRUCKING 29 (1981).
147. Motor carrier rate bureaus have been supported for many reasons. See Friedman, Collective
Ratemaking by Motor Common Cariers:Economic and Public Poliq Considerations, 10 TRANSP. LJ. 33, 40-
41 (1978); infra text accompanying notes 262-67.
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
355
tional Classification Board allows carriers to agree collectively regarding
the specific classifications of particular commodities to which particular
t48
rates will apply.
The Interstate Commerce Act, as enacted in 1887, was silent on the
issue of collective ratemaking, although it specifically prohibited pooling
of traffic or revenue. 4 9 Only three years later, however, Congress passed
the Sherman Act.15 0 Section 1 of the Sherman Act provides that contracts, combinations, and conspiracies in restraint of trade or commerce
are illegal,' 5' whereas section 2 proscribes monopolies and attempts to
52
monopolize, combine, or conspire to monopolize trade or commerce.'
Such violations constitute felonies punishable by a fine of not more than
$100,000 for individuals and $1 million for corporations, imprisonment
53
for not more than three years, or both.
Despite early indications from the Supreme Court that collective
54
ratemaking activities by common carriers violated the Sherman Act,'
for almost fifty years there were no significant federal efforts to constrain
carrier rate bureaus or their collective ratemaking activities. The Department of Justice did not enforce the antitrust laws with respect to
rate bureaus 55 principally because the bureaus afforded their members
the right of independent action.t 56 Furthermore, the Court adopted a
148.
149.
150.
151.
152.
153.
154.
See 49 U.S.C. § 10706(a)(2)(A) (Supp. IV 1980).
See supra note 35 and accompanying text.
Ch. 647, 26 Stat. 209 (1890) (codified as amended at 15 U.S.C. §§ 1-7 (1976)).
15 U.S.C. § 1 (1976).
Id § 2.
Id.
In United States v. Trans-Missouri Freight Ass'n, 166 U.S. 290 (1897), the Court con-
cluded that the collective ratemaking activities of rail carriers were within the prohibition of the
Sherman Act. Id at 312-13. The Court also noted that the Interstate Commerce Act did not
authorize anticompetitive agreements among carriers. Id at 314, 335. In response to the argument
that rail carriage did not constitute trusts or other anticompetitive activities to which the Sherman
Act was directed, the court recognized:
[R]ailways are public corporations organized for public purposes, granted valuable
franchises and privileges, among which the right to take the private property of the citizen
in inwitum is not the least. . . many of them are the donees of large tracts of public lands
and of gifts of money by municipal corporations. . . they all primarily owe duties to the
public of a higher nature even than that of earning large dividends for their shareholders.
The business which the railroads do is of a public nature, closely affecting almost all
classes in the community-the farmer, the artisan, the manufacturer and the trader.
Id at 332-33 (citation omitted). The following year, in United States v. Joint Traffic Ass'n, 171
U.S. 505 (1898), the Court reaffirmed the conclusion that the collective price-fixing activities of
common carriers violated the antitrust laws. The Court emphasized its position in United States v.
Trenton Potteries Co., 273 U.S. 392 (1927), when it stated that "uniform price-fixing by those
controlling in any substantial manner a trade or business in interstate commerce is prohibited by
the Sherman Law, despite the reasonableness of the particular prices agreed upon." Id at 398.
155. The Sherman Act, however, was enforced against other combinations and conspiracies in
restraint of trade. See, e.g., United States v. Pacific & Arctic Ry. & Navigation Co., 228 U.S. 87,
106-07 (1913) (White Pass & Yukon Railroad violated the antitrust laws by refusing to do business
with any steamship company except the Wharves Company).
156. McFadden, supra note 145, at 72. For examples of independent action opportunities
available to rate bureau members, see Ajayem Lumber Corp. v. Penn Cent. Transp. Co., 487 F.2d
356
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
rule of reason in interpreting antitrust violations, concluding that only
unreasonable restraints of trade fell within the proscriptions of the Sherman Act. 157
The Clayton Act, t 58 enacted in 1914, today contains several sections
relevant to common carrier ratemaking, including prohibitions against
discrimination in prices, services, or facilities,t 59 as well as prohibitions
against rebates and price fixing.160 The ICC was given jurisdiction to
enforce section 7 of the Clayton Act, a prohibition against mergers that
might substantially lessen competition, insofar as it involved rail mergers. 16 Further, although Congress included a provision for private relief
in section 16 of the Clayton Act, it denied private parties a remedy with
respect to any matter subject to the jurisdiction of the ICC.
A.
62
Need to Shield Rate Bureaus From Antitrust Laws
A major shift in federal antitrust policy occurred in 1920 when Congress, in promulgating the Transportation Act of 1920,163 provided antitrust immunity for certain rail mergers approved by the ICC.164 This
shift represented the first congressional attempt to reconcile the pragmatic realities of the surface transportation industry with antitrust principles. The legislation established an exemption for activities that
would otherwise violate the antitrust laws 165 -the first in a long series of
antitrust exemptions for surface carriers.
By 1940 Congress had added virtually all forms of transportation to
what had become a comprehensive federal regulatory scheme. t66 The
Transportation Act of 1940167 gave the ICC jurisdiction over mergers
and acquisitions of control of all surface carriers.168 The Act permitted
the ICC to approve pooling agreements for traffic, service, or earn179 (2d Cir. 1973), cert. denied, 419 U.S. 884 (1974); United Van Lines, Inc. v. United States, 353
F.2d 741 (Ct. Cl. 1965); Axinn & Sons Lumber Co. v. Long Island R.R., 466 F. Supp. 993
(E.D.N.Y. 1978); Baltimore & O.R.R. v. New York, N.H. & H.R.R., 196 F. Supp. 724 (S.DN.Y.
1961).
157. Ste United States v. American Tobacco Co., 221 U.S. 106, 179 (1911); Standard Oil Co. v.
United States, 221 U.S. 1, 60 (1911); McFadden, supra note 145, at 72.
158. Ch. 323, 38 Stat. 730 (1914) (codified as amended at 15 U.S.C. §§ 12-27 (1976)).
159. 15 U.S.C. § 13 (1976).
160. Id § 14.
161. Id § 21(a).
162. Id § 26. See Soma, AnAntitrust Primer, 13 TRANSP. L. INsT. 190, 191-92 (1980). As late as
1933 the Court upheld the prohibition in § 16 of the Clayton Act against private suits. Central
Transfer Co. v. Terminal R.R. Ass'n, 288 U.S. 469 (1933). The Court viewed the purpose of§ 16 as
protecting interstate carriers from disruptions resulting from injunctions sought by parties other
than the government. Id at 475.
163. Ch. 91, 41 Stat. 456 (codified as amended in scattered sections of 49 U.S.C.).
164. 49 U.S.C. §§ 11341-11344 (Supp. IV 1980).
165. See Soma, supra note 162, at 192.
166. See supra notes 51-53 and accompanying text.
167. Ch. 722, 54 Stat. 898 (codified as amended in scattered sections of 49 U.S.C.).
168. 49 U.S.C. §§ 11341-11343 (Supp. IV 1980).
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
ings, t69 and provided that such ICC-approved agreements were exempt
from the antitrust laws.170 Significantly, the antitrust laws did not
shield the activities of rate bureaus, which were widespread prior to
t
1940. 17
In the early 1940's the Department of Justice was no longer reticent in
pursuing antitrust remedies against regulated common carriers. In 1942
the Department convened a grand jury, which was interrupted by the
war, to investigate the issue.1 72 In 1944 the Department resumed its efforts and initiated litigation, contending that rate bureau activity violated the Sherman Act. That same year the State of Georgia brought an
action against several northern railroads alleging rate discrimination
and antitrust violations in price fixing. In Georgia v.Pennsylvania Railroad'73 the Supreme Court held that a conspiracy "to use coercion in the
fixing of rates and to discriminate against Georgia in the rates which are
fixed"' 174 stated a cause of action under the antitrust laws. Justice Douglas, writing for the majority, was particularly disturbed by the allegation
that the activities of the rate bureau had led to regional price discrimi-
nation.' 75 Because the relief sought was an injunction against the ratefixing combination and conspiracy among the carriers, and not against
the continuance of any tariff, the case was not within the jurisdiction of
the ICC.176 Section 16 of the Clayton Act, therefore, did not bar Geor-
gia from bringing the action. 177 Nevertheless, the dissenters argued that
section 16 barred suits concerning "any matter" within the jurisdiction
of the Commission. They believed the purpose of that provision was to
prevent the maintenance of individual suits that would lead to the
breakdown of the Commission's nationwide rate structure.i78
169. Id §§ 11342-11343, 11914.
170. Id § 11343. See Robertson, Antitrust Legislation and the Motor CartierIndust, 7 TRANSP. L.
INST. 39, 52 (1974).
171. See Soma, supra note 162, at 193.
172. McFadden, supra note 145, at 78.
173. 324 U.S. 439 (1945).
174. Id at 462.
175. Id at 450-5 1. Justice Douglas specifically addressed the illegality of such activity:
[We find no warrant in the Interstate Commerce Act and the Sherman Act for saying
that the authority to fix joint through-rates clothes with legality a conspiracy to discriminate against a state or region, to use coercion in the fixing of rates, or to put in the hands
ofa combination of carriers a veto power over rates proposed by a single carrier. The type
of regulation which Congress chose did not eliminate the emphasis on competition and
individual freedom of action in ratemaking. . . .The Act was designed to preserve private initiative in rate-making as indicated by the duty of each common carrier to initiate
its own rates.
Id at 458-59.
176. The Court suggested that had Georgia sought an injunction against the continuation of
the tariff, or to have a tariff provision cancelled, relief would have been barred under § 16 of the
Clayton Act. Id. at 455.
177. See id
178. Id at 484.
358
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
Although a bill intended to shield collective ratemaking activities
from such litigation had been introduced in the U.S. Senate before the
Court's decision in Georgia v. Pennsylvania Ralroad, the decision-to a
large extent-prompted Congress to promulgate the Reed-Bulwinkle
Act.1 79 The Act shielded the rate bureaus from the application of the
antitrust laws when the ICC had approved carrier ratemaking agreements.'° 0 The Senate report described the purposes of the Act as "harmonizing and reconciling the policy of the antitrust laws, as applicable
to common carriers, with the national transportation policy in such a
manner as to protect the public interest."' 8' Congress recognized that it
was not breaking new ground in establishing such antitrust immunity,
but rather was extending immunity beyond those areas that it had already designated as within the exclusive jurisdiction of the ICC.t8 2 The
Commission thus became the sole arbiter of whether collective ratemaking agreements served the public interest. If such agreements satisfied
the Commission, they were free from judicial challenge.
Under existing law, ICC approval of a rail or motor carrier ratemaking agreement continues to shield such action from the antitrust laws,1 83
including the Sherman Act, 8 4 the Clayton Act, 8 5 sections 73 and 74 of
the Wilson Tariff Act,' 86 the Act of June 19, 1936,187 and the Federal
179. Ch.491, 62 Stat. 472 (1948) (codified as amended at 49 U.S.C. § 10706 (Supp. IV 1980)).
180. 49 U.S.C. § 10706 (Supp. IV 1980). See Marnell v. United Parcel Serv. of Am., Inc., 260
F. Supp. 391, 399 (N.D. Cal. 1966). This legislation passed with the unanimous support of the
shippers and carriers who testified before Congress, see H.R. REP. No. 1100, 80th Cong., 2d Sess.
2-3, reprinted in 1948 U.S. CODE CONG. & AD. NEWS 1844, 1845, and over the veto of President
Truman, 1948 U.S. CODE CONG. & AD. NEws 484, 485-86.
181. S. REP. No. 44, 80th Cong., 1st Sess. 3 (1947). The Senate reaffirmed these purposes
almost three decades later in its report on the Railroad Revitalization Reform Act of 1976 (4R
Act). The report noted that "cooperation and collective action by and among common carriers is
necessary if the national transportation [policy] is to be effectuated and the public is to receive the
kind of transportation service to which it is entitled and if the rates are to be reasonable and nondiscriminatory." S. REP. No. 499, 94th Cong., 1st Sess. 14 (1975), cited bi Atchison, T. & S.F. Ry. v.
United States, 597 F.2d 593, 594 n.2 (7th Cir. 1979). See Motor Carriers Traffic Ass'n, Inc. v.
United States, 559 F.2d 1251, 1253 (4th Cir. 1977) (history of collective ratemaking for transportation carriers has been long and controversial); Atchison, T. & S.F. Ry. v. Aircoach Transp. Ass'n,
253 F.2d 877, 881-82 (D.C. Cir. 1958) (ICC controls rates to avoid inconsistency with congressional
policy).
182. See S. REP. No. 44, 80th Cong., 1st Sess. 3 (1947).
183. See Interstate Commerce Act, 49 U.S.C. § 10706(a)(2), (b)(2) (Supp. IV 1980); Coburn,
Carrier Defenses to Antitrust Litigation, 13 TRANSP. L. INsT. 267, 281-82 (1980); Soma, supra note 162,
at 194. Seegenerally Kenworthy, Antitrust Considerationsin Motor CarrierRatemaking-Rate Bureau Opera.
tions and Alternatives, 11 TRANSP. L.J. 65 (1979) (tracing the history of antitrust immunity for rate
bureaus).
184. 15 U.S.C. §§ 1-7 (1976).
185. Id §§ 12-27. Congress amended the Clayton Act in 1950 to provide that the ICC could
enforce § 13 (discriminations in price or service having an adverse effect on competition), § 14
(agreements not to use competitors, discounts, rebates, or price fixing), § 18 (acquisition of corporate stock), and § 19 (interlocking directorates or officers) only when the carrier came within the
Commission's jurisdiction. See ISSUES IN AMERICAN TRUCKING, supra note 146, at 32-33.
186. 15 U.S.C. §§ 8-9 (1976).
187. Id §§ 13, 13a-13b, 21a (Robinson-Patman Price Discrimination Act).
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
359
Trade Commission Act. 188 The Commission may approve rail and motor carrier ratemaking agreements only when such agreements further
the transportation policy of the Interstate Commerce Act.' 8 9 'In reviewing ICC approval of such agreements, courts have held that although
the Commission does not have jurisdiction to conclude that common
carriers have violated the antitrust laws, the Commission must consider
the competitive effects of the proposed actions.'19
B. Scope ofAntitrust Immunity
Although the ICC can exempt ratemaking agreements from the operation of the antitrust laws, the federal courts have held that such antitrust immunity does not embrace activity that would eliminate the
competition of another carrier.' 9' Furthermore, ratemaking is not im92
mune from the antitrust laws when ICC procedures are not followed.'
Indeed, rate bureaus cannot operate validly without the protective
194
shield of ICC approval.1 93 Under the doctrine of primary jurisdiction
the ICC must determine the applicability of the antitrust exemption to
a challenged ratemaking agreement before the courts will address the
antitrust issues raised.' 95 Various courts have attempted to narrow the
application of the doctrine to those situations in which the sole or dominant issue is the intent and effect of a rate reduction provision included
in an ICC-approved agreement.' 96 In any case, the rationale underlying
the doctrine is the need for orderly administration of antitrust
97
immunity.
Primary jurisdiction is not the only principle that the courts have
used to deny relief in actions alleging antitrust violations. Efforts of private plaintiffs to recover damages under the antitrust laws were signifi188. Id. §§ 41-51. Congress has prohibited the Federal Trade Commission from proceeding
against regulated carriers on the basis of unfair trade practices.
189. See 49 U.S.C. § 10706(a)(2)(A), (b)(2) (Supp. IV 1980).
190. Board of Trade v. ICC, 646 F.2d 1187, 1193 (7th Cir. 1981).
191. See, e.g., Luckenbach S.S. Co. v. United States, 364 U.S. 280 (1960), affgperariam 179 F.
Supp. 605 (D. Del. 1959); Atchison, T. & S.F. Ry. v. Aircoach Transp. Ass'n, 253 F.2d 877 (D.C.
Cir. 1958), vacating 154 F. Supp. 106 (D.D.C. 1957).
192. See Board of Trade v. ICC, 646 F.2d 1187, 1193 (7th Cit. 1981).
193. Motor Carriers Traffic Ass'n v. United States, 559 F.2d 1251 (4th Cir. 1977).
194. Under the doctrine of primary jurisdiction, a court may decline to address a controversy
involving a question that is within the jurisdiction of an administrative agency when that agency
has yet to decide the issue. This is particularly true when the question requires administrative
interpretation based on the agency's special knowledge and experience in deciding technical and
intricate matters of fact. See Luckenbach S.S. Co. v. United States, 179 F. Supp. 605, 611-13 (D.
Del. 1959); Riss & Co. v. Association of Am. R.R.'s, 170 F. Supp. 354, 363-64 (D.D.C. 1959).
195. Luckenbach S.S. Co. v. United States, 179 F. Supp. 605, 610 (D. Del. 1959).
196. See, e.g., Sunoco Energy Dev. Co. v. Burlington N., Inc., 483 F. Supp. 119, 125-27 (D.
Wyo. 1980); Riss & Co. v. Association of Am. R.R.'s, 187 F. Supp. 306 (D.D.C. 1960); Riss & Co. v.
Association of Am. R.R.'s, 170 F. Supp. 354 (D.D.C. 1959).
197. Luckenbach S.S. Co. v. United States, 179 F. Supp. 605, 610 (D. Del. 1959).
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
cantly stifled with the decision of the Supreme Court in Keogh v. Chicago
&Northwestern Railway. 198 In this case a shipper alleged, under section 7
of the Sherman Act, that eight railroads had combined to fix freight
rates. He claimed damages to the extent of the difference between the
rates charged and those paid before they had been arbitrarily and unreasonably fixed. The Court stated that the federal government,
through criminal proceedings, injunction, and forfeiture, could redress
the activities of illegal combinations of carriers to fix rates, even when
the ICC had approved the rates in question.' 9 9 Nevertheless, the Court
held that a private shipper was precluded from recovering damages
under the antitrust laws, except when the Commission had concluded
that the rates established through such an unlawful conspiracy were unreasonably high or discriminatory under the relevant provisions of the
Interstate Commerce Act.2 00 Had the Commission ruled that such rates
were unlawful, the shipper could have sought damages under sections 9
and 16 of the Interstate Commerce Act in proceedings before either the
ICC or a federal court.
In reaching its decision, the Court expressed two reasons for prohibiting private relief under such circumstances, essentially focusing on the
incompatibility of such a result with the other provisions of the Interstate Commerce Act. First, the only lawful rate is that filed by the carrier on its tariff and approved by the ICC. 20 t The legal rights of a
shipper are measured by that tariff, which the carrier cannot vary by
contract or tort.20 2 Second, prevention of unjust discrimination might
be thwarted if a party were to recover damages in an antitrust action,
20 3
thereby enjoying a preference over its competitors.
Courts have refused to expand the principle of Keogh beyond its precise holding. In Marnellv. UnitedParcelService of America, Inc. 204 a federal
district court emphasized that antitrust exemptions are not to be implied indiscriminately.2 0 5 Hence, if conduct is to be shielded from anti198.
260 U.S. 156 (1922).
199. Id at 160-62.
200. The Court noted, "If the Commission has found the rates reasonable and nondiscriminatory, a private shipper cannot recover under the antitrust laws for damages caused by loss of the
benefits of rates still lower which except for the conspiracy he would have enjoyed." Id at 162.
201. See supra text accompanying notes 86-93.
202. Keogh v. Chicago & Nw. Ry., 260 U.S. 156, 163 (1922) (citing Erie R.R. v. Stone, 244
U.S. 332 (1917)); Dayton Coal & Iron Co. v. Cincinnati, N.O. & T.P. Ry., 239 U.S. 446 (1915);
Louisville & N.R.R. v. Maxwell, 237 U.S. 94 (1915); Atchison, T. & S.F. Ry. v. Robinson, 233 U.S.
173 (1914); Texas & P. Ry. v. Mugg, 202 U.S. 242 (1906).
203. Keogh v. Chicago & Nw. Ry., 260 U.S. 156, 163 (1922).
204. 260 F. Supp. 391 (N.D. Cal. 1966).
205. Id at 402 (citing Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213 (1966);
Georgia v. Pennsylvania R.R., 324 U.S. 439 (1945)). The court held that there was no per se
exemption from the antitrust laws for all regulated industries:
[A]n express provision . . .exempting certain approved rate-making activities strongly
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
trust scrutiny, it must not only fall within the specific parameters of the
immunity provisions that Congress included in the Interstate Commerce
20 6
Act, but it must also be approved by the Commission.
Recently, the ability to apply antitrust exemptions to intrastate rate
bureau activities by implication has been questioned. 20 7 In one group of
decisions 20 8 a lower federal court concluded that the ICC had no jurisdiction over intrastate transportation, even though the exercise of such
jurisdiction might remedy discriminatory effects on interstate commerce. 20 9 The court stated that Congress could have authorized the
ICC to regulate intrastate rates charged by motor carriers when such
transportation was in the stream of commerce and the rates were found
to have a substantial effect on interstate commerce. 2i 0 Under such reasoning, intrastate rates are not within the Commission's jurisdiction, and
2
ICC approval of those rates does not afford antitrust immunity. i The
court therefore held that such rate bureau activities were not within the
protection of either the state action exception to antitrust liability2t 2 or
the Noerr-Pennington doctrine.2i 3 Moreover, the price-fixing activities of
implies that unapproved rate-making activities were not intended by the Congress to be
exempted from the antitrust laws ....
. . . 'Repeals of the antitrust laws by implication from a regulatory statute are strongly
disfavored, and have only been found in cases of plain repugnancy between the antitrust
and regulatory provisions.'
Id at 399 (citations omitted) (quoting United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 35051 (1963)).
206. See, e.g., Sunoco Energy Dev. Co. v. Burlington N., Inc., 483 F. Supp. 119, 123, 125 (D.
Wyo. 1980).
207. One court has stated that because the ICC has no jurisdiction over intrastate rates for
motor carrier transportation, there is no conflict between the regulatory authority of the ICC and
the application of the federal antitrust laws in this context. United States v. Southern Motor Carriers Rate Conference, 439 F. Supp. 29, 35-36 (N.D. Ga. 1977) (citations omitted).
208. United States v. Southern Motor Carriers Rate Conference, Inc., 467 F. Supp. 471 (N.D.
Ga. 1979), aj'd, 672 F.2d 469 (5th Cir. 1982); United States v. Southern Motor Carriers Rate
Conference, 439 F. Supp. 29 (N.D. Ga. 1977); In re Grand Jury Subpoena Duces Tecum Issued to S.
Motor Carriers Rate Conference, Inc., 405 F. Supp. 1192 (N.D. Ga. 1975). For a discussion of
antitrust issues in intrastate transportation, see Gross, A Plaintiff's View of Potential CarrierAntitrust
Violations.- Personaland Corporate, 13 TRANSP. L. INST. 229, 245-46 (1980).
209. United States v. Southern Motor Carriers Rate Conference, 439 F. Supp. 29, 35 (N.D. Ga.
1977); In re Grand Jury Subpoena Duces Tecum Issued to S. Motor Carriers Rate Conference, Inc.,
405 F. Supp. 1192, 1195 (N.D. Ga. 1975). Contra Colorado v. United States, 271 U.S. 153 (1926).
210. United States v. Southern Motor Carriers Rate Conference, 439 F. Supp. 29, 34-35 (N.D.
Ga. 1977).
211. In re Grand Jury Subpoena Duces Tecum Issued to S. Motor Carriers Rate Conference,
Inc., 405 F. Supp. 1192, 1195-96 (N.D. Ga. 1975). The Seventh Circuit, however, has held that the
ICC has jurisdiction to approve and exempt rail carrier agreements from the application of the
antitrust laws, even though the agreements involve intrastate rates affecting interstate commerce.
This decision reversed the Commission's conclusion that it had no jurisdiction to shield such activities from antitrust scrutiny. Atchison, T. & S.F. Ry. v. United States, 597 F.2d 593, 595-96 (7th Cir.
1979). For further discussion of these antitrust issues, see Coburn, supra note 183, at 278-79.
212. United States v. Southern Motor Carriers Rate Conference, 439 F. Supp. 29, 44-46 (N.D.
Ga. 1977).
213. California Motor Transp. Co. v. Trucking Unlimited, 404 U.S. 508 (1972) (carrier's first
amendment rights not immune from regulation when integral part of conduct violating antitrust
362
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
the intrastate rate bureaus constituted a per se violation of the antitrust
laws.2 14 This decision, which the Court of Appeals for the Fifth Circuit
affirmed,2 1 5 provided an indication of the potential liability to which
interstate bureaus may be subject should single-line immunity be
2t 6
repealed.
C
Erosion ofAntitrust Immunity
In 1973 the ICC instituted Ex Parte No. 297,217 which ultimately established three rules that must be incorporated into rate bureau agreements if there is to be a continuation of antitrust immunity. First, a
bureau cannot protest the independent action of its member carriers.
Second, carrier members affiliated with shippers cannot serve on the bureau's board of directors, general rate committee, or any other ratemaking committee absent specific Commission approval. Third, a bureau
cannot operate as a profit-making enterprise.2 1 8 The rule granting the
right of independent action reflected a significant change from administrative and judicial approval of rate bureau opposition to such independent action.21 9 The Court of Appeals for the Fourth Circuit
praised the new rule for preserving both the integrity of antitrust immunity for collective ratemaking and the traditional free enterprise
220
system.
The 4R Act 221 significantly changed the principles governing the collective ratemaking activities of rail carriers. It prohibited rail carriers
laws); United Mine Workers v. Pennington, 381 U.S. 657 (1965) (Notr shields from Sherman Act
concerted efforts to influence public officials regardless of intent or purpose); Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961) (Sherman Act not applicable to
railroad activities constituting mere solicitation of government action).
214. Price fixing is a per se violation of § 1 of the Sherman Act; no weight is given to the
reasonableness or possible benefit of the action taken. See United States v. Socony-Vacuum Oil
Co., 310 U.S. 150 (1940); United States v. Trenton Potteries Co., 273 U.S. 392 (1927).
The Court did not use the "rule of reason" doctrine. Under that test, a court evaluates whether
the involved activity constitutes an unreasonable restraint on trade. If it does not, there usually is
no liability. See Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980); Broadcast Music, Inc. v.
Columbia Broadcasting Sys., 441 U.S. 1 (1979); Standard Oil Co. v. United States, 221 U.S. I
(1911).
215. United States v. Southern Motor Carriers Rate Conference, Inc., 467 F. Supp. 471 (N.D.
Ga. 1979), af'd, 672 F.2d 469 (5th Cir. 1982).
216. See Kenworthy, supra note 183, at 67, 80. There is still some question whether implied
state action antitrust immunity is sufficient to shield these collective ratemaking activities on intrastate rates. For an excellent discussion of state action immunity, see Coburn, supra note 183, at 28890.
217. Rate Bureau Investigation, 349 I.C.C. 811 (1975).
218. These rules were upheld in All Island Delivery Serv., Inc. v. United States, 565 F.2d 290
(4th Cir. 1977), and in Motor Carriers Traffic Ass'n v. United States, 559 F.2d 1251 (4th Cir. 1977).
219. See Malone Freight Lines v. United States, 204 F. Supp. 745, 755-56 (N.D. Ala. 1962);
Arbet Truck Lines, Inc., 321 I.C.C. 460 (1963).
220. Motor Carriers Traffic Ass'n v. United States, 559 F.2d 1251, 1255 (4th Cir. 1977).
221. Pub. L. No. 94-210, 90 Stat. 31 (codified as amended in scattered sections of 15, 31, 45 &
49 U.S.C.).
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
363
from participating in or voting on single-line rate proposals of another
carrier, unless the proposals involved general rate increases or broad
tariff changes. 222 Rail carriers were, however, permitted to discuss rate
changes. The 4R Act limited ICC approval of rate agreements to those
agreements that furthered the national transportation policy.2 23 Be-
cause approval of the agreements continued to shield the carriers from
the antitrust laws, 224 such approval could be made contingent on certain
conditions. 225 The 4R Act also enhanced the opportunities of the Commission for monitoring rate bureaus by mandating an ICC investigation
226
once every three years.
In 1979 the ICC promulgated regulations, under section 10505 of the
Interstate Commerce Act, that removed the antitrust exemption for collective rates on the transportation of fresh fruits and vegetables. 227 In so
doing, the Commission noted that "violation of the antitrust laws is a
risk inherent in a deregulated environment." 228 The following year,
when Congress passed the Staggers Rail Act of 1980,229 antitrust immu-
nity was constricted even further: discussions of single-line rates were
prohibited; 230 participation in and voting on interline rate agreements
were limited to carriers participating in the interline movement; 23 t and
immunity for agreements on general rate increases and broad tariff
changes was curtailed.23 2 These provisions "virtually extinguishe[d] all
antitrust immunity for carriers acting pursuant to a rate bureau
233
agreement."
Similarly, the Motor Carrier Act of 1980234 threatened to extinguish
antitrust immunity for motor carriers acting pursuant to rate bureau
agreements. Congress recognized that while rate bureaus provide an advantageous predictability in rate structures, they tend to create a rate
system that compensates even the least efficient carrier, thereby causing
consumers to lose the benefits of price competition. 235 The 1980 Act was
designed to implement a number of procedural reforms. Congress em222. 49 U.S.C. § 10706(a)(3)(A)(i) (Supp. IV 1980).
223. Id § 10101(a).
224. Id § 10706(a)(2).
225. Id
226. Id See Rosenak, supra note 64, at 11-12.
227. 49 U.S.C. § 10505 (Supp. IV 1980).
228. Rail General Exemption Authority-Fresh Fruits and Vegetables, 361 I.C.C. 374, 376
(1979). See Augello, Ratemaking Without Regulation, 12 TRANSP. L. INST. 101, 103 (1979).
229. Pub. L. No. 96-448, 94 Stat. 1895 (codified in scattered sections of 11, 45 & 49 U.S.C.).
230.
231.
232.
233.
49 U.S.C. § 10706(a)(3)(A)(i) (Supp. IV 1980).
Id § 10706(a)(3)(A)(ii). See aleo id § 10706(a)(3)(C).
Id § 10706(a)(3)(A)(i).
Flexner & Mathias,supra note 129, at 10, col. 2.
234.
235.
See supra note 107 and accompanying text.
H.R. REP. No. 1069, 96th Cong., 2d Sess. 27-30, reprintedin 1980 U.S. CODE CONG. & AD.
NEws 2283, 2309-12.
364
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
phasized that the Act proposed not to eliminate rate bureaus, but to
limit their consensual activities. 236 Specifically, the legislation provides
that only those carriers participating in the movements to which a rate
applies may vote on a bureau proposal regarding that rate.23 7 A bureau
may not either interfere with a carrier's right of independent action 238 or
file a protest with the ICC in opposition to any tariff published by a
carrier.239 No collective discussion or voting is permitted for rates that
fall within the zone of rate freedom 240 or limited liability rates. 24 The
legislation also mandates total disclosure of and admission to rate bureau discussions and voting.24 2 Exceptions to the prohibitions allow the
Commission to approve collective agreements on general increases and
decreases in rates, 243 changes in the tariff structure, 244 changes in commodity classifications, 245 and ministerial bureau functions, including
publishing tariffs, filing independent actions for member carriers, providing support services for members, and changing rules or regulations
246
of general application.
Significantly, the Act establishes a presumption that agreements
meeting the statutory requirements of the Motor Carrier Act are
valid. 247 The presumption effects the purpose of the Act: to limit the
236. Id
237. 49 U.S.C. § 10706(b)(3)(B)(i) (Supp. IV 1980). Rate bureaus must vote to accept or reject
any proposed rules or rates within 120 days of their filing. Id § 10706(b)(3)(B)(vii). Other rate
bureau members may discuss freely the rate in question. Id
238. Id § 10706(b)(3)(B)(ii).
239. Id § 10706(b)(3)(B)(iii).
240. Id § 10708(d).
241. Id § 10730(b). See id § 10706(b)(3)(C).
242. Id § 10706(b)(3)(B)(v).
243. Id § 10706(b)(3)(D)(i). This is an exception to the limitation on single- and joint-line
ratemaking. It is subject to the following restrictions:
(1) The agreement must provide procedures to give shippers at least 15 days' notice of a
proposal;
(2) Shippers must be given the opportunity to present comments on the proposal before it
is filed with the Commission;
(3) Discussion of these proposals must be limited to industry average carrier costs; and
(4) After January 1, 1984 (or July 1, 1984), there may be no discussion of individual
markets or particular single-line rates, even if discussion is limited to industry average
Costs.
Ex Partk No. 297 (Sub.-No. 5), Motor Carrier Rate Bureaus-Implementation of P.L. 96-296, 364
I.C.C. 464, 491 (1980). See Gross, supra note 208, at 263-64.
244. 49 U.S.C. § 10706(b)(3)(D)(iii) (Supp. IV 1980). This exception is limited to discussion of
industry average costs and does not include discussion of individual markets or particular singleline rates after antitrust immunity is eliminated for such rates in 1984. Id
245. Id § 10706(b)(3)(D)(ii). Carriers may vote on these changes regardless of whether they
hold authority to transport the involved commodities. Id
246. Id § 10706()(3)(D)(iv).
247. Id § 10706(b)(2). The section does not require a carrier to seek Commission approval of
such agreements. According to the statute, any carrier that is a party to such a rate agreement
"may" submit the agreement to the Commission for approval. Once an agreement is submitted,
the Commission "shall" approve an agreement that complies with the statutory requirements unless
it is inconsistent with the national transportation policy. See Coburn, supra note 183, at 298.
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
365
discretion of the ICC to approve or disapprove rate agreements. 248 The
Commission thus must validate rate agreements that meet congressionally mandated conditions, unless the agreements are contrary to the
249
national transportation policy.
To interpret the statutory provisions, the ICC adopted regulations
that significantly affect the ability of rate bureaus to influence ratemaking by member carriers. 250 The most significant regulation prohibits rate
bureaus from informing the public of independent actions of member
carriers that desire confidentiality. 251 The practical effect of the requirement is that neither shippers served by the independent actor nor carriers competing with it will be apprised of the independent action before
the effective date of the tariff. Hence such shippers effectively will be
precluded from filing a protest under either section 10707 or 10708 of
the Interstate Commerce Act on the ground that the proposed rates are
excessively high and discriminatory or excessively low and predatory.
Shippers are unlikely to know that the independent actor has raised its
rates until they are billed, which usually occurs several weeks subsequent to the transporting of their commodities. Shippers then will be
forced not only to pay the higher rates, but also to bear the burden of
proving unreasonableness if there is a formal complaint proceeding
under section 11701.252 The same burden of proof will be placed on
competing carriers that object to a predatory rate. As a result, a tariff
may become effective without the Commission having heard opposing
arguments from concerned parties. Consequently, a higher percentage
of tariffs will be of questionable legality, thereby eroding rate stability.
Although the Motor Carrier Act of 1980 did not amend the statutory
concept of discrimination, 253 the ICC recently has taken steps that erode
the concept of nondiscrimination in carrier ratemaking. In Ex Pare No.
248.
249.
49 U.S.C. § 10706(b)(2) (Supp. IV 1980).
Fessenden, What the Motor Carrier Act Does and Does Not Do, in IssuEs IN AMERICAN
TRUCKING 69, 71 (1981).
250. Ex Parte No. 297 (Sub.-No. 5), Motor Carrier Rate Bureaus, Implementation of P.L. 96296, 364 I.C.C. 921 (1981) (modifying regulations published in Ex Parte No. (Sub.-No. 5)). See 49
C.F.R. § 1331 (1981). Ex Parte No. 297 (Sub.-No. 5) imposes five additional burdens on rate bureaus: a prohibition against bureau employees initiating tariff proposals or determining whether to
accept or reject such proposals; sunshine requirements for detailed public notice of meetings, which
must be open to the public, and identification of tariff proponents and voting records; a requirement for detailed written proxies; specific quorum requirements; and a requirement for detailed
minutes of each meeting. As of the date of this writing, these rules are on appeal before the Fifth
Circuit.
251. Ex Parte No. 297 (Sub.-No. 5), Motor Carrier Rate Bureaus-Implementation of P.L. 96296, 364 I.C.C. 464, 468-69 (1980); 49 C.F.R. § 1331.6(A)(1) (1981). See American Trucking Ass'n
v. United States, 688 F.2d 1337, 1347 (1 1th Cir. 1982).
252. See supra text accompanying notes 77-78.
253. See supra text accompanying notes 87-93.
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
MC-158, 254 the Commission proposed a rule that would eliminate the
general prohibition against publishing rates restricted to named shippers, receivers, and locations.2 55 If adopted, this rule effectively would
shift the burden of proving unlawful discrimination to opponents of the
field tariffs-a burden they may find impossible to meet.
The ICC recently turned down a petition for a declaratory order,2 56
thus foregoing the opportunity to establish standards to govern the filing
of discount rates. This is not surprising given that the ICC has approved individual tariffs embracing a wide range of discount tariffs, including introductory discounts of up to fifty percent to open a new
territory, aggregate tender discounts or allowances, volume discounts,
blanket discounts, and discounts specifically limited to named facilities,
commodities, or shippers. The petitioners unsuccessfully argued that
widespread rate discounting in the motor carrier industry was causing a
significant loss of business and jeopardizing the financial viability of
much of the industry, 25 7 and that such discounting was inconsistent with
the national transportation policy of establishing reasonable rates without discrimination. 258 They also alleged that rates unrelated to costs
discriminated between shippers, contrary to the specific statutory prohibition against discrimination and unfair or destructive practices. 2 59 The
dissent characterized discounts as "innovative rate activity" generally
consistent with the national transportation policy, but recognized the
increasing number of allegations of predatory and discriminatory
60
rates.2
It is important to realize that antitrust immunity for collective
ratemaking on single-line rates will expire in 1984, unless Congress acts
to extend its applicability. During the interim, the Motor Carrier
Ratemaking Study Commission is conducting comprehensive studies of
public interest reasons for and against continuation of such immunity. 26' Unless Congress extends single-line immunity after 1984, rate
254. Rates for a Named Shipper or Receiver, 47 Fed. Reg. 28,430-31 (1982) (to be codified at
49 C.F.R. pt. 1310).
255. Id
256. Petition for Declaratory Order-Lawfulness of Volume Discount Rates by Motor Common Carriers of Property, 365 I.C.C. 711 (1982).
257. Id at 711.
258. Set 49 U.S.C. § 10101(a)(1), (4), (13) (Supp. IV 1980).
259. Petition for Declaratory Order-Lawfulness of Volume Discount Rates by Motor Common Carriers of Property, 365 I.C.C. 711, 712 (1982).
260. Id at 717.
261. 49 U.S.C. § 10706(b)(3)(D) (Supp. IV 1980). Such immunity would have expired on Jan.
uary 1, 1984, but the Motor Carrier Ratemaking Study Commission failed to submit its final report
on or before January 1, 1983. See Feaver, CongressionalPanel at Stalemate on Antitrust Immunilyfor
Truckers, Wash. Post, Dec. 10, 1982, at Fl, col. 2. The termination date for single-line immunity
therefore is extended automatically to July I, 1984. 49 U.S.C. § 10706(b)(3)(D) (Supp. IV 1980).
A single-line rate is defined as a charge "by a single motor common carrier of property that is
applicable only over its line and for which the transportation can be provided by that carrier." Id.
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
367
bureaus ultimately will be limited to the acquisition and dissemination
of general cost data and the discussion of general rate increases, commodity classifications, and tariff structures. To the extent rate bureaus
can survive without immunity, they essentially will become tariff publishing agencies, much like today's rail rate bureaus that focus on tariff
publishing and general revenue increases.
III.
COLLECTIVE RATEMAKING IN THE ABSENCE
OF ANTITRUST IMMUNITY
The most important issue now confronting public officials in the area
of collective ratemaking is whether antitrust immunity for motor carriers should extend beyond 1984. One of the justifications for extending
immunity is that rate bureaus aid and support responsible regulation of
the motor carrier industry. They do so by compiling and disseminating
industry information in the form of tariff bulletins, research and documentation of traffic and commodity statistics, and individual rate bureau member protests of tariff applications.2 6 2 Furthermore, rate
bureaus inhibit price and service discrimination. 263 This is accomplished primarily through publishing tariffs, which provides shippers
with comprehensive, current rate information with which to demand
and enforce their right to fair and equitable rates and services. The
collective tariffs also make the ICC's review of the industry's rates substantially less cumbersome than it otherwise would be. Such review
benefits smaller shippers and carriers that are not in a position to monitor and protest rates that could adversely affect their operations.
A reliable, integrated network of transportation, an undisputed necessity in our modern economy, 26 is promoted through an orderly, standardized system of tariffs and underlying classifications. Rate bureaus
not only facilitate the use of joint and interline shipping through simplifying the carriers' task of securing interconnection agreements, but also
facilitate the cross-subsidization of the joint lines through rate equaliza§ 10706(b)(1). After 1984, rate bureau discussion must be limited to industry average costs and
may not involve local markets or particular single-line rates. Id § 10706(b)(3)(D)(i).
The Bus Regulatory Reform Act of 1982 establishes guidelines for the bus industry's rate bureau
and constricts antitrust immunity for passenger carriers. Pub. L. No. 97-261, 96 Stat. 1102 (to be
codified in scattered sections of 49 U.S.C.). Section 10 would have eliminated single-line immunity
as of January 1, 1983, id, 96 Stat. 1109, had the Study Commission completed its report. General
rate increases or decreases are exempted from these prohibitions, however, and immunity is retained for rate bureau publication of member tariffs, filing of independent actions, and provisions
of support services for members. There is no immunity for rates involving special or charter passenger operations. Id
262. See Friedman, supra note 147, at 41. Individual rate bureau member protests are comparable to individual treble damage actions.
263. See id at 42-43.
264. See id at 43-45.
368
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
tion between the joint line and the competing single lines. The uniformity and stability of rates, a direct result of the collective ratemaking
process, are acclaimed by shippers as primary benefits of rate bureaus. 26 5
The collective formation of rates by a representative body of motor carriers inhibits the wild fluctuation of rates inherent in individual
ratesetting.
When considering the justifications for extending immunity, it is important to remember that rate bureaus are bound by law to provide
notice of and access to their ratemaking proceedings; 266 the decisionmaking process is open to interested outside parties. Under the rules, an
interested party, 267 such as a shipper, has direct involvement in the decisions of the rate bureau, including the ability to protest a rate proposal
that would adversely affect its operation. Moreover, shippers are free to
propose their own set of rates. Interested parties may confer with motor
carriers prior to the making of rate proposals, thereby eliminating many
potential disputes and controversies and encouraging compromise and
modification of rate proposals.
Notwithstanding the positive functions of the motor carrier rate bureaus, support for them has not been unanimous. Many agree with
Adam Smith, who stated that members of the same industry "seldom
meet together, even for merriment and diversion, but that the conversation ends in conspiracy against the public or in some contrivance to raise
prices. '268 Indeed, one argument frequently made is that rate bureaus
are nothing more than cartels, keeping prices artificially high and protecting even their most inefficient participants. 26 9 The proponents of increased competition in the regulated industries insist that such
competition will serve as well as, or better than, regulation. These "free
market" disciples firmly believe that the invisible hand of competition
and the forces of the marketplace will lead to conduct that optimizes the
allocation of resources and best serves the public interest. 270 Nevertheless, some economic observers have warned that overreliance on the
competitive forces of the free market can lead to adverse structural
changes in an industry, a drastic loss of revenue for certain portions of
that industry, increased risks of discrimination, and the possibility of
chaotic and destructive rate wars. 27 1
In analyzing the propriety of deregulation, the underlying principles
265. See id. at 45-46.
266. 49 U.S.C. § 10706 (Supp. IV 1980).
267. An interested party is anyone affected by the rates. Id
268. 1 WEALTH OF NATIONS 117 (Everyman's ed. 1910).
269. See, e.g., Miller, Collective Ratemaking Reconsidered.- A Rebuttal, II TRANSP. L.J. 291 (1980).
270. Id
271. Popper, The Antitust System: An Impediment to the Development of Negotiation Models, 32 AM.
U.L. Rev. 283 (1983) [hereinafter cited as The Antitrust System]; Popper, Collective Ratemaking: A Case
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
and objectives become important guides. The Constitution evidences
the drafters' strong belief that there was a need to encourage and regulate commerce in order to ensure an unrestricted flow of essential goods
and services.2 72 The transportation industry's essential role in the development of commerce and industry was an important reason for its early
regulation.2 73 Under the regulatory scheme of the Interstate Commerce
Act, protection of the public interest has been the dominant focus of
policy development. 2 74 That Congress deemed it necessary to regulate
the transportation industry manifested a belief that competition alone
would not adequately serve that public interest. Congress also believed
that eliminating the discrimination in transportation prices and services,
which had stifled competition among communities and shippers, would
enhance competition in the remainder of the economy.
Although the National Transportation Policy, as set forth in section
10101 of the Motor Carrier Act of 1980,275 emphasizes competition as
both a means and an end, it reveals a continued reluctance to rely on
competition as the only effective means or as the only proper end. The
policy also recognizes many goals that are not purely competitive in nature, including efficiency, intramodal and intermodal diversity, safety,
sound economic conditions, reasonableness of rates, protection of small
27 6
communities and shippers, and increased minority participation.
Thus, the goals and objectives set forth in the National Transportation
Policy seek to promote a healthy marketplace.
Before major statutory changes are made, the strengths and weaknesses of the market should be examined. In judging a market's health,
the most common criteria are structural diversity, efficiency, innovation,
stability or predictability, entry responsiveness, and prices that bear a
rational relation to cost plus offer a reasonable rate of return sufficient to
induce continued investment.2 77 After th6roughly examining the particular market, a remedy should then be tailored to correct specific ills.
Because major statutory changes would affect the entire national motor
carrier industry, the scope of market analysis should be nationwide.
The analysis of the motor carrier market begins with a determination
of the degree of concentration in the industry nationwide. The greater
Analysis ofthe Eastern CentralRegion and an Hypothesisfor Analysing Competitive Structure, 10 TRANSP. L.J.
365, 377 (1978) [hereinafter cited as Collective Ratemaking].
272.
See U.S. CONsT. art. I, § 8, cl. 3. See also Wabash, St. L. & P. Ry. v. Illinois, 118 U.S. 557,
573 (1886) (commerce clause reflects need for unrestrained nationwide transportation).
273.
See supra text accompanying notes 1-6.
274. The public interest encompasses legitimate concerns for the well being of carriers, shippers, communities, and consumers.
275. 49 U.S.C. § 10101(a) (Supp. IV 1980).
276. Id
277. The AntitrustSystem, supra note 271, at 293, 298; Collective Ratemaking, supra note 271, at 36566, 368.
370
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[Vol. 32:335
the concentration within the industry, the more likely that a disproportionately small number of carriers will exert undue influence. The national motor carrier market, however, is overwhelmingly diverse and its
economic power dispersed-primary signs of market health. Out of
some 17,000 regulated members in the motor freight common carrying
market, the 8 largest members control only 14% of the market. 278 In no
other comparable segment of the national economy are the largest mem2 79
bers responsible for so small a portion of the relevant market.
The motor carrier industry efficiently provides the services demanded
of it. Arguments that resources are not being allocated according to
strict economic criteria and that the present system "carries" certain carriers are countered by the industry's overall success in providing adequate service at reasonable rates; the industry thus must be judged
efficient under any meaningful standard. Innovation in the motor carrier industry has been one of the direct results of collective ratemaking
and the reduction in price competition. Under the traditional system,
competition has been channeled into service, with shippers being the
beneficiaries of an individualized and highly competitive process. Stability and predictability also have been outgrowths of the operation of
traditional rate bureaus.
Another important criterion of market health is the effect of responsiveness to entry on market conditions. At present, the barriers to entry,
both legal and economic, are sufficiently low to permit entry at will,
with potential entrants demonstrating an overwhelming willingness to
enter all sectors of the industry. The ease and rapid increase of entry
into the motor carrier industry reflects the present general health of the
market, as well as ensures against the development of weaknesses. In a
time of massive entry, a claim of absence of competition is difficult to
support. This is especially true in the motor carrier industry, where
competition takes the forms of actual and potential independent action
by rate bureau members and specialized service offerings. Such competition also derives from sources outside the rate bureaus, including nonmember common carriers, private and contract carriers, and other
modes of transportation. When examined from this larger perspective,
the actions of the rate bureaus constitute much less of a threat to competition and the general health of the market than critics assert, providing
a core of stability and organization that anchors the rest of the market.
The last major elements of a healthy market involve prices and profits, which in the motor carrier industry translate into rates and rate of
278. The Antitrust System, supra note 271, at 298 & n.96.
279. See Kahn, Abolition of the Trucking Exemption: Pros and Cons, 48 ANTITRUST LJ. 555, 558
(1979).
1983]
RATE REGULATION AND ANTITRUST IMMUNITY
371
return. Citing figures such as those found in the ICC report of earnings
of the class I motor carriers for 1977, which showed an average return on
equity of 19.66%, critics of the present industry claim that such a rate of
return constitutes monopoly profits that are the result of monopoly
prices. 28 0 Assuming that one class of motor carriers for one year represents a valid sample, the existence of monopoly prices or profits encourages, rather than discourages, competition unless barriers to entry exist.
High profits attract new entry, which spurs competition, which in turn
lowers profits. This is standard economic doctrine that critics-who are
waving price and profit figures like red flags signaling the decadence of
the market-are ignoring.
The critics seem to misunderstand or consciously avoid one of the
traditional objectives of motor carrier regulation: although reasonable
rates for the industry as a whole may result in higher profit margins for
the larger, more economically efficient carriers, they also protect small,
marginally efficient carriers. Protection of small carriers, the preservation of diversity, and the willingness to pay the incremental additional
price have all contributed to the fundamental foundations of motor carrier regulation, and have preserved a healthy competitive structure. To
turn this practice against the rate bureaus and the industry, without first
addressing the underlying value judgment that "smallness" should be
protected for its inherent value in stimulating innovation in service and
price and "largeness" must be restricted for its inherent risks in stifling
such economic attributes, is to undermine the traditional objectives of
regulation without ever stating an acceptable justification for such a
radical change in course. This is but one example of the unfortunate
current practice of instituting drastic change based on assumed and unstated goals and values. Although politically expedient, this practice is
unfair to the industry involved, and antithetical to the democratic principle of informed decisionmaking.
In essence, the language of the Motor Carrier Act of 1980 embraces
the long held goals of motor carrier regulation. Although the secondary
objectives have changed over the years, the underlying principles have
remained essentially the same: the overriding goal is protection of the
public interest. Public officials should focus on the potential effects of
proposed changes on the target industry and the consequences of those
effects on the public.
Although the previous antitrust policies have affected motor carrier
280. Borghesani, Motor CarrierRegulatoqReform and Its Impact on Private Carriers, 10 TRANSP. L.J.
389, 395-96 (1978) (discussing remarks by Joe Sims, Deputy Assistant Attorney General, Antitrust
Division, at the 49th Annual Meeting of the Association of ICC Practitioners (June 22, 1978)).
372
THE AMERICAN UNIVERSITY LAW REVIEW
[Vol. 32:335
conduct, 28 ' the line drawn by the Motor Carrier Act of 1980 is elusive
and meandering. If immunity is not extended beyond 1984, the ICC,
with the backing of the Department of Justice and the Federal Trade
Commission, may attempt to apply restrictive interpretations to the existing immunity. The Department's Antitrust Division probably will
seek to draw its line at the point that most restricts the collective action
of the rate bureaus. In practice, the Division has reserved criminal prosecutions for the more serious "per se" violations, which usually involve
some degree of willfulness. Because price fixing always has been considered a "per se" violation for purposes of criminal prosecution, the Antitrust Division will have to assess the intent and culpability of actions in
choosing whether, and to what extent, it will pursue the violators. The
private antitrust action, with its threat of treble damages, must not be
ignored. Private actions have constituted a major source of antitrust
enforcement in the past, and the motor carrier industry should brace
itself for a marked increase in such litigation.
Substantial uncertainty presently exists in the area of antitrust enforcement. Part of this substantive uncertainty reflects the scope of the
laws' applications to rate bureau activities, whereas another part involves the political orientation of antitrust enforcement. Each new administration applies its own focus and attitudes in determining what is
best for the economy. 2
2
These political viewpoints are then translated,
to a greater or lesser extent, into agency action. Any uncertainty results
in a chilling effect on participation in the collective actions of rate bureaus. The pragmatic assessment of risk balanced against benefits derived will undoubtedly lead to diminished participation in rate bureaus,
particularly to the extent that risks will be increased while benefits correspondingly will be reduced. If conduct is of questionable legality, the
doubts will be resolved in favor of precluding such conduct, whether the
acts are those of the members or of the rate bureau itself. The legal
standards and antitrust analysis that will be used are complex and have
been explored comprehensively by other commentators. 28 3 Nevertheless,
it is almost certain that a "per se" standard will be applied to any collective action concerning price or price related matters. It is unlikely that
courts will apply the "rule of reason" test, which allows a showing of the
pro-competition or business justification aspects of a given kind of
conduct.
For purposes of analysis, the assumption is that substantially all of the
rate bureau antitrust immunity will expire in 1984. Such sudden expo281.
282.
adopted
283.
See McLean Trucking Co. v. United States, 321 U.S. 67 (1944).
Despite promising signs to the contrary, the Reagan administration apparently has
the radical, pro-deregulation philosophy of its predecessor.
Ste, e.g., Soma, supra note 162, at 189.
1983)
RATE REGULATION AND ANTITRUST IMMUNITY
sure to potential antitrust litigation will have a profound effect on the
conduct and existence of rate bureaus. First, the potential antitrust liability of the members of a rate bureau will be extensive. Although mere
membership is seldom sufficient to incur liability for antitrust violation,
membership is an element of proof; liability based on membership has
2 84
been extended to new members for the conduct of old members.
Also, the defendants in an antitrust suit have been held jointly and severally liable for their collective conduct.2 8 5 The extensive liability exposure of rate bureau members, combined with the uncertainty
surrounding the present state of the law, will reduce the number of bureau participants and generally weaken the rate bureaus.
Another segment of the trucking industry whose potential liability
will increase is that of the shipper. Under the Reed-Bulwinkle Act,28ship6
If
pers have enjoyed concurrent immunity with the motor carriers.
carrier immunity is eliminated, shipper immunity also will be eliminated. Withdrawing protection for individual and collective action by
shippers, or between shippers and carriers, is inconsistent with the measures that are being taken to improve the shippers' access to rate bureaus.
Giving practical consideration to risks and benefits, eliminating immunity will reduce the shippers' actual participation in rate bureaus.
In addition to restricting access to and participation in the rate bureau decisionmaking process, increased antitrust exposure will affect the
primary functions of rate bureaus. The ability of the rate bureaus to
assist in responsible ICC regulation will be curtailed drastically. At the
same time, the burden on the ICC will be increased substantively and
qualitatively, yet its budget will be reduced. Following the demise of
rate bureau collective ratemaking, the ICC will be the direct recipient of
individually filed tariffs. Given the funding cutbacks and the increased
volume of materials that the Commission will have to review, the result
will be an even more cursory review of tariffs, if any level of review will
be possible. The consequences of such a review are dire at best. The
risks of increased discrimination, preference, and prejudice, which arise
with any substantial reduction in ICC scrutiny of tariff application, result not only from the loss of substantive review, but also from the loss of
the prophylactic effect of motor carrier inhibitions that have been maintained b the actual threat of substantive review. Those supporting repeal of antitrust immunity argue that ICC policy changes would reduce
287
These assertions,
the impending overburdening of the Commission.
however, are more reflective of deregulation doctrine than they are of
284.
285.
Id. at 201.
Id at 215.
286. 49 U.S.C. § 10706(a)(2)(A) (Supp. IV 1980).
287. Se, e.g., Miller, supra note 269, at 295-96.
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[Vol. 32:335
thoughtful solutions to the enforcement problem that is looming on the
regulatory horizon.
A second major victim of antitrust exposure would be the contributions of the rate bureaus to building and maintaining a national trucking network, an essential element of which is the use of interconnecting
carrier routes. The rate bureaus have provided a means of achieving
almost automatic interlining capacity for carriers of all sizes. This will
cease with the severe restrictions imposed on rate bureaus in the form of
antitrust exposure. Even assuming that all joint-line discussions literally
fall within the law, the Commission has stated that discussions and rate
decisions for single lines are integrally related to those of joint lines. 281
Thus, joint-line service also may be affected. Because of its value in
maintaining the national network, joint-line service has enjoyed some
measure of cross-subsidization through the equalization of joint- and
single-line rates. This may also cease, with fewer and more expensive
joint lines being the likely result.
Uniform and standardized classifications also will suffer under unfettered competition and antitrust exposure. As individual carriers devise
their own tariffs, the achievements of collective classification gradually
will be eroded. Standardized classifications form the basis for comparing
rates and for judging the reasonableness and fairness of those rates.
Destandardizing classifications will make these comparisons and judgments much more difficult.
Publishing tariffs and collecting and disseminating trade information
are said to be the only remaining functions left to the rate bureaus after
their forced partial retirement. There are problems with this assertion.
First, antitrust laws limit the ability to publish, collect, or disseminate
such information. Because pricing activities are the "nervous system" of
the marketplace, 289 courts have restricted the publishing or exchange of
current price information. Although such use of current price information is not illegal per se, it has consistently been held illegal under the
"rule of reason" test. 29° Therefore, the only safe price-related information that a rate bureau could pass on to, or among, its members would
be that which is historical and accessible to the public. Because tariffs
inherently are of current or future application, their publication by a
rate bureau would, therefore, invite price-fixing conspiracy charges.
Second, given the limited scope of the rate bureaus' legal capacity in this
area, the practical considerations of cost, risk, and diminished benefit
would lead to reduced member participation and decreased incentive
288. Ex Parte No. 297, Rate Bureau Investigation, 349 I.C.C. 811, 848 (1975).
289. United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 224 n.59 (19,10).
290.
The Antitrust System, supra note 271, at 302-06.
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RATE REGULATION AND ANTITRUST IMMUNITY
375
for rate bureaus to conduct, compile, and document the necessary research data.
CONCLUSION
The future of the motor carrier industry under the free reign of competition almost certainly will perpetuate the fierce price competition
that already characterizes much of the industry. Rate wars are likely to
continue. This situation will lead to the expulsion of marginal carriers,
followed by significantly higher rates with simultaneous structural integrations on both horizontal and vertical planes.
The motor carrier industry today is a highly diverse and reasonably
efficient industry. Its main fault seems to be that it has prospered under
regulation. The proponents of deregulation complain that much, if not
all, regulation is cumbersome, overly complex, and unnecessary. In what
approximates a lemming's rush to the sea, these free market advocates
are running headlong towards the turbulent waters of competition, and
they are taking the motor carrier industry along for the ride. The exposure of the motor carrier industry to antitrust application is but one
aspect of this economic pilgrimage. It is, however, an important aspect
that carries with it the possibility of devastating damage to the nation's
transportation industry. While providing little benefit in the way of
solving the industry's problems, it imposes oppressive burdens by impairing or destroying the industry's positive attributes.
The traditional system of motor carrier regulation has proven itself in
the only arena that matters in reality-the marketplace. For free market advocates to discount successful marketplace performance in favor of
supposed theoretical inconsistencies shows the fragile foundation on
which their judgments are based. A forthright analysis of the advantages and disadvantages of traditional rate bureau functions demonstrates that the rate bureau is a fundamental element contributing to
the traditional success of the motor carrier industry. A review of the
principles and objectives behind the regulation of the industry and an
appraisal of how well the industry, as regulated, has followed those principles and met those objectives suggest no need for a radical alteration of
the existing system.