In the transportation field, antitrust joint venture issues may arise when one or more carriers agree to provide joint services, when logistic providers contract with various carriers, and when shippers arrange their own networks of transportation providers imposing uniform conditions.

SECTION 1 OF THE SHERMAN ACT

Section 1 of the Sherman Act is brief and very general. It consists of only one substantive sentence.

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states, or with foreign nations, is hereby declared to be illegal.

It is upon these thirty-two words that most antitrust litigation is based, for the bulk of antitrust cases are instituted under Section 1 of the Sherman Act.

Section 1 is both a criminal statute with heavy fines and possible imprisonment for up to three years and a civil remedy statute. Private civil suits may be maintained for violations of Section 1 with victorious plaintiffs being able to recover treble damages and attorneys fees. 15 U.S.C. § 15(a).

Because most questions pertaining to the lawfulness under the antitrust laws of joint venture arrangements have to be analyzed under Section 1, I will give an overview of how Section 1 has been interpreted by the courts.

If Section 1 was applied literally, then practically every business arrangement of any type would violate it. To deal with the absurd result of Section 1 banning practically every business arrangement, the courts, early in its interpretative history, developed the "rule of reason". Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911).

Under "rule of reason" analysis, it is assumed that competition is good and that ordinary commercial transactions promote competition. National Society of Professional Engineers v. United States, 435 U.S. 679 (1978). Generally, under the rule of reason, a court's inquiry is limited to whether the challenged practice promotes or suppresses competition, in other words, its impact upon a particular market Section 1 protects the competitive atmosphere in a particular market, not individual competitors in that market Hence, if a trucking company unilaterally elects to serve one particular shipper that fact may mean that it cannot serve another shipper because of a lack of capacity. That would not, however, rise to a violation of Section 1.

Of particular importance in any rule of reason case will be the intent of those participating in the practice. Hence, courts will look to see if the restraints involved were reasonably necessary to achieve a lawful business purpose. Chicago Board of Trade v. United States, 24 U.S. 231 (1918).

As part of the rule of reason analysis, the courts have developed the per se approach to certain types of commercial practices challenged under Section 1. When a practice is deemed to be a per se violation then the defendant may not offer proof that no harm has occurred or that the conduct was beneficial for the economy. The per se rule is applied to agreements "[w]hich because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." Northern Pacific Railway Co. v. United States, 356 U.S. 1,5 (1958).

Price fixing (which includes bid rigging), boycotts and market allocation are the activities recognized by the courts today as per se violations of Section 1. If a plaintiff can have a court recognize the challenged practice as a per se offense, then the Section 1 action is greatly simplified and elaborate proof as to market definition and function are eliminated.

The per se approach to Section 1 cases is found most often in horizontal arrangements. The per se approach is seldom used in vertical relationships except in efforts to control resale prices.

For a Section 1 violation to occur there must be concerted action. Simply because prices or other business arrangements among competitors may be the same does not mean that Section 1 has been violated.

The Supreme Court recognized in 1925 in Maple Flooring Manufacturers' Assoc. v. United States, 268 U.S. 563, that similar prices may simply result from unilateral action by those observing the same market facts. The Supreme Court stated:

It is not, we think, open to question that the dissemination of pertinent information concerning any trade or business tends to stabilize that trade or business and to produce uniformity of price of trade practice. Exchange of price quotations of market commodities tends to produce uniformity of prices in the markets of the world. ..But, the natural effect of the acquisition of wider and more scientific knowledge of business conditions, on the minds of the individuals engaged in commerce, and its consequent effect in stabilizing production in price, can hardly be deemed a restraint of commerce, or, if so, it cannot, we think, be said to be an unreasonable restraint, or in any respect unlawful.

268 U.S. at 582.

This has become known as the doctrine of "conscious parallelism." As indicated in Maple Flooring, proof of parallel business behavior is not enough to establish a Section 1 violation. There must be evidence of an actual agreement, tacit or expressed, to establish a per se violation of Section 1. Theatre Enterprise v. Paramount Film Distributor Corp., 346 U.S. 537 (1954). There must be a "plus" factor or other evidence of an agreement in addition to parallel business behavior.

Price Fixing. Agreements among direct competitors on the price to be charged would be a classic Section 1 violation. United States v. Joint-Traffic Association, 171 U.S. 505 (1898). Also included within the term "price fixing" are agreements to rig bids such as submitting collusive bids or allocating bids among competitors. United States v. Koopers Co., 652 F.2d 290 (2d Cir.), cert. denied, 454 U.S. 1083 (1981). Limits on the advertising of prices can be price fixing, United States v. Serta Associates, 296 F.Supp. 1121 (N.D. Ill. 1968), aff'd memo 393 U.S. 534 (1969), as well as elements of the price such as credit terms. Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980).

Market Allocation. Agreements to divide markets can be either geographic (competitors agreeing to only operate in certain territories) or by customer. Either type of market allocation will be considered a Section 1 violation. Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 (1899). In United States v. Topco Associates, Inc., 405 U.S. 596 (1972) the Supreme Court held that it was per se Section 1 violation for a group of regional supermarket chains to agree to market a particular brand name only in certain territories under stated conditions.

Boycotts. Agreements not to deal with particular customers or suppliers may also be a per se violation of Section 1. Klor', Inc. v. Broadway Hale Stores, Inc., 359 U.S. 207 (1959). However, a business has a right to make a unilateral decision not to deal. United States v. Colgate & Co., 250 U.S. 300 (1919). Therefore, absent a conspiracy, monopolization or a regulatory requirement, a transportation company could, on its own, elect not to deal with a particular customer or supplier without violating the antitrust laws.

ANTITRUST GUIDELINES FOR COLLABORATIONS AMONG COMPETITORS

Joint venture arrangements have always caused problems under the antitrust laws because businesses are often uncertain that a particular arrangement will not be challenged. On the other hand, some businesspersons may have a real desire to engage in behavior that violates Section 1 of the Sherman Act, but try to characterize it as merely a "joint venture". In affect, trying to engage in unlawful cartel behavior by labeling it a "joint venture". Timken Roller Bearing Co. v. United States, 341 U.S. 593 (1951).

In April 2000 the Federal Trade Commission ("FTC") and the Antitrust Division of the Department of Justice issued joint guidelines called Antitrust Guidelines For Collaboration's Among Competitors. A copy of the Guidelines is attached.

These Guidelines were issued to help provide some clarification in the often murky area of joint ventures. The enforcement agencies recognized that there were an increasing variety of collaborative arrangements among business entities and that guidelines were needed "to assist businesses in assessing the likelihood of an antitrust challenge to a collaboration with one or more competitors." FTC Press Release "FTC and DOJ Issue Antitrust Guidelines For Collaborations Among Competitors" (April 7, 2000), page 1.

It is important to note that the Guidelines recognize that often joint ventures among enterprises will have no anticompetitive impact and may even be procompetitive.

The overriding theme of the Guidelines is whether a particular arrangement will promote or retard competition. In structuring a joint venture, the principles of the Guidelines should be considered and it is best to include in the joint venture plan an analysis of how the arrangement may impact the relevant market from a competition standpoint. Sensitivity to these antitrust issues during the formative stages of a joint venture can alleviate problems later and provide a procompetitive justification should the arrangement ever be challenged. Therefore, identifying factors such as efficiency gains from the arrangement can be important. Guidelines page 6.

The Guidelines define "competitor collaboration" as "a set of one or more agreements, other than merger agreements, between or among competitors to engage in economic activity, and the economic activity resulting therefrom." Guidelines page 2

The Guidelines recognize the per se and rule of reason standards discussed previously. Guidelines page 3.

The Guidelines also recognize that something described as a collaborative arrangement may be so comprehensive as to amount to a virtual merger of the entities. In such a circumstance, the agencies may treat the arrangement as a merger and expect the parties to file under the Hart-Scott-Rodino Antitrust Improvements Act (15 U.S.C. § 18a) and review the collaboration under the Horizontal Merger Guidelines. Guidelines page 5.

To conform to the Guidelines, the joint venture should be able to demonstrate how it will be procompetitive. At the same time careful consideration should be given to identifying any anticompetitive aspects of the arrangement. Guidelines page 8

In analyzing possible anticompetitive implications under the Guidelines, the impact on the arrangement in the relevant market is important. The enforcement agencies will generally view the "relevant market" as they do in merger analysis situations in accordance with the Horizontal Merger Guidelines. Guidelines page 17. Clearly, the more concentrated the relevant market, the more potential for a problem. The Guidelines establish a "safety zone" of the participants not controlling more than twenty percent of the relevant market. Guidelines page 26. This twenty-percent, however, does not apply to per se conduct.

The enforcement agencies will also examine how the collaboration is organized. For instance, is a joint venture a separate corporation with an equal number of shares owned by each of the joint venture partners? Is each joint venture partner represented on the board of directors? Does one joint venture partner tend to dominate the arrangement? Guidelines page 20.

There may also be an examination of whether the participants could have selected less restrictive alternatives. Guidelines page 24. For instance, have the members of the joint venture established more limits on independent action then is really necessary to accomplish the objectives of the joint venture?

The Guidelines help in providing a framework to analyze collaborative arrangements and should be consulted in the formative stages of joint venture arrangements.

POOLING

Motor Carriers

Under 49 U.S.C. § 14302(a), a motor carrier "may not agree or combine with another carrier to pool or divide traffic or services or any pan of their earnings without the approval of the [Surface Transportation ("STB")] Board under this section."

Further, under 49 U.S.C. § 14302(f), any such arrangement approved by the STB "is exempt from the antitrust laws and from all other law, including state and municipal law, as necessary to let that person carry out the arrangement."

Consequently, joint venture agreements among motor carriers that in someway involve the pooling or dividing of either traffic, services or earnings will receive an exemption from the antitrust law by statute if the arrangement is approved by the STB.

The STB, and its predecessor, the Interstate Commerce Commission, has approved many such "pooling" arrangements. The latest was Groendyke Transport, Inc., et al, STB Docket No. MC-F-20941, served June 17, 1999. The STB approved the application over the protests of four motor carriers who were not among the applicants.

Approved pooling applications present an excellent opportunity for joint ventures among motor carriers to be exempt from the antitrust laws. It was the stated policy of the ICC, and restated with approval by the STB in footnote 10 in Groendyke Transportation, et al., supra, in Policy Statement on Motor Carrier Pooling Applications, 127 M.C.C. 746, 748 (1981).

"The Motor Carrier Act of 1980 seeks to encourage pooling arrangements when such arrangements are in the interest of better service to the public or of economy of operation and when they do not unreasonably restrain competition. [Citation to H. Rep. 96-1~9, 961h Cong., 2d Sess. 34 (1980).] In view of this change and the general thrust of that legislation, we have taken care not to impede unnecessarily carriers seeking to enter pooling agreements."

The U.S. Court of Appeals for the D.C. Circuit has noted that it was the intent of Congress that the ICC simplify and expedite review of pooling applications. Three Way Corp. v. Interstate Commerce Commission, 792 F.2d 232, 235, cert. denied, 479 U.S. 985 (1986).

Under the statute, an application for approval of a "pooling" agreement is to be submitted to the STB no less than 50 days before the effective date of the agreement. Prior to the effective date, the STB is to "determine whether the agreement or combination is of major transportation importance and whether there is substantial likelihood that the agreement or combination will unduly restrain competition." 49 U.S.C. § 14302(c)(2).

If the STB finds that either or both of these factors exist, then the STB must hold a hearing to determine "whether the agreement or combination will be in the interest of better service to the public or of economy in operation and whether it will unduly restrain competition." 49 U.S.C. § 14302(c)(3).

The statute provides for special consideration for "pooling" among household goods carriers and their agents. 49 U.S.C. § 14302(c)(4).

Hence, the STB is obligated to consider the impact of motor carrier "pooling" arrangements on the economy and the extent to which they will impact competition.

Rail Carriers

Under 49 U.S.C. § 11322(a) a "rail carrier . . . may not agree or combine with another of those rail carriers to pool or divide traffic or services or any pan of their earnings without the approval of the [STB]."

Under 49 U.S.C. § 11321, as with motor carriers, a "pooling" arrangement between or among rail carriers approved by the STB under 49 U.S.C. § 11322 "is exempt from the antitrust laws and from all other law, including state and municipal law, as necessary to let that rail carrier, corporation, or person carry out the transaction."

This provision, and its predecessor under the Interstate Commerce Act, has been subject to a number of court decisions. In Chicago & N.W Ry. Co. v. Peoria & P.U: Ry. Co, 319 F.2d 117 (7th Cir.), cert. denied 375 U.S. 969 (1963), the Court of Appeals held that an arrangement among rail carriers whereby one rail carrier had the right to transfer, switch and handle all of another rail carrier's traffic going into or out of a particular city and to establish rates for all origin traffic was "pooling" under the statute and was invalid unless approved by the STB's predecessor, the Interstate Commerce Commission.

The U.S. Supreme Court has held that one rail carrier simply leasing its tracks to another rail carrier did not necessarily constitute a "pooling" arrangement. Escanaba & Lake Superior R. Co. v. US., 303 U.S. 315 (1938).

CO-OPERATIVE PURCHASING

Co-operative purchasing arrangements usually provide an opportunity for buyers to obtain lower prices through economies of sale. Accordingly, it has been held that joint venture arrangements among buyers who do not control a market will not violate the antitrust laws. Northwest Wholesale Stationers v. Pacific Stationary & Printing Co., 472 U.S. 284 (1985).

In general shippers may form joint ventures to co-operatively purchase transportation services as long as the arrangement does not go beyond the scope of transportation to include product price restraints and market divisions. Shippers joint ventures to procure transportation services often take the form of shippers' associations. The antitrust implications of such groupings were reviewed by the then Deputy Assistant Attorney General for Antitrust in a prepared speech delivered on October 21, 1985 "The Antitrust Division's, Approach To Shippers' Association."

DOJ BUSINESS REVIEW LETTERS

The Antitrust Division of the Department of Justice has issued a number of Business Review Letters in connection with joint venture arrangements involving transportation. Under the Business Review Process, 28 C.F.R. § 50.6, businesses may submit statements to the Antitrust Division pertaining to proposed business practices and request an advisory statement as to whether the Antitrust Division would challenge the arrangement.

Of particular interest are the following Business Review Letters:

• The Antitrust Division stated that it would not challenge a common billing and collection agency for ocean carriers serving Puerto Rico (issued May 1,2001).

• The Antitrust Division stated that it would not challenge a joint marketing agreement between two major airlines for international air cargo service (issued March 6, 2001).

• The Antitrust Division stated that it would not challenge a proposal by five small providers of armored car services that would enable them to serve financial institutions that they could not presently serve (issued March 12, 1998).

CONCLUSION

The transportation industry has developed a number of joint venture arrangements among service providers. This trend should continue. As the scope and variety of such arrangements expands antitrust issues will arise. All such arrangements need to be analyzed from an antitrust standpoint to determine their impact on relevant markets.

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