Federal Maritime Board v. Isbrandtsen Company, Inc. – Oral Argument – December 11, 1957 (Part 1)

Media for Federal Maritime Board v. Isbrandtsen Company, Inc.

Audio Transcription for Oral Argument – December 11, 1957 (Part 2) in Federal Maritime Board v. Isbrandtsen Company, Inc.

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Earl Warren:

Number 73, Federal Maritime Board, petitioner versus Isbrandtsen Company, United States of America and Secretary of Agriculture and number 74 Japan-Atlantic and Gulf Freight Conference et al., petitioner versus United States of America, et al.

Mr. Gardner?

Warner W. Gardner:

May it please the Court?

This case is here on writ of certiorari for the Court of Appeals for the District of Columbia circuit.

That court set aside orders of the Federal Maritime Board, approving a so called contract rate system proposed by the Japan-Atlantic and Gulf Freight Conference.

A contract rate system is broadly an agreement by the member of lines of the steamship conference that they will contract with the shippers in the trade, so that in return for a promise to ship only by member lines, the shippers will be charged this smaller freight, here nine-and-one-half percent less than the rate charged non-signatories.

By pre-hearing stipulation of that order, the review of the boards orders confined to the fact as found by the board.

The trade involved is the trade from Japan Okinawa and Korea to the United States Atlantic and Gulf ports.

The important movement is from Japan to the North Atlantic ports.

The trade is overtonnage that is too little cargo moves for the 330 odd sailings made each year and all vessels carry substantial empty space on their inbound journey to the United States.

The trade is served by 18 steamship lines operating a regular or berth liner service.

All except one, the respondent Isbrandtsen here, are members of the conference.

The stated purpose of the conference is to establish and maintain agreed rate.

Any line regularly operating in the trade may become a member of the conference.

Until March of 1953, the conference operated to prevent rate wars, to preserve rate stability and regularity of the service.

In 1949, Isbrandtsen entered the east bound trade from Japan to the United States Atlantic ports.

Isbrandtsen, as a matter of policy, refuses to join conferences and quotes rates which are ordinarily 10% below the conference rates, whatever those rates maybe.

So long as it is thus freed of rate competition from conference members who adhere to their agreed rate, Isbrandtsen can, by its 10% differential, attract substantial cargos away from its competitors and to its own vessels.

In each year, from 1950 through 1952, Isbrandtsen on the average loaded more than three times the amount of cargo that was loaded by the average conference line vessel.

The conference lines considered that they must take protective steps.

The conference accordingly, in December 1952, filed with the board, a proposal to inaugurate a contract rate system upon the approval of the board.

After notice, the respondents here entered protest.

The board sent the case for a hearing, but refused to suspend the contract rate system pending that hearing.

The court below first restrained and then enjoined that interlocutory order holding that the contract rate system could not be inaugurated even provisionally without full approval of the board.

The conference, in March 1953 with its contract rate system restrained, voted to open rates on 10 major commodities, that is to leave each line free to make the Isbrandtsen competition by quoting its own rates.

Within a short time the rates on all significant commodities in the trade had been opened.

The rates fell to about one-third of the March levels.

On a number of commodities, the rates were well below the costs merely of loading and discharging the cargo.

There was, in short, a full fledged rate war.

Isbrandtsen dropped out of the rate war in May of 1953 and has since carried little cargo in the trade.

Warner W. Gardner:

This is not a shipper’s paradise.

While the rates are low they are fluctuating and unpredictable.

There is no assurance that competing sellers will not have different freight rates.

Forward buying becomes a gamble.

United States inventory values are made thoroughly unstable.

Orders were postponed.

In fact, the shippers, while believing that the March 1953 rates were too high, have requested the conference to close its rates and it testified in the hearing before the board that they considered the nine-and-a-half percent differential to be reasonable.

The contract which the conference lines have here agreed to be submitted to the shippers is to be read against the tariff published by the conference which contains two rates, the contract rate and the non-contract rate, with the rate for contract shippers’ nine-and-a-half percent below the non-contract rate.

The actual contract agreed to be submitted to the shippers has these salient provisions.

The shipper agrees to forward all shipments by conference line vessels.

The carriers agree to maintain a service adequate to meet the reasonable needs of the trade and to carry the goods so far as regular vessels are available and they note that they will always be available in this overtonnage trade 330 sailings a year, but should they not be, the shipper is released from his obligation to use only conference line vessels and the conference liability maybe put to arbitration.

A shipper, who breaches his contract and patronizes a non-conference line, is to pay his liquidated damages, 50% of the contract freight rate.

Either party may terminate on three months notice.

Rate decreases are effective immediately, rate increases two months after the end of the calendar month in which they were noticed.

The board held four hearings and filed a comprehensive report covering 50 pages of the printed record here starting at page 19.

Its salient findings were these.

The contract rate system is necessary for the survival of the conference and necessary to preserve rate stability and regular service in this trade.

The nine-and-a-half percent differential, the board found to be reasonable.

It is generally accepted by the shippers to protect the conference lines against undue diversion of traffic to Isbrandtsen and yet will not drive Isbrandtsen from the trade.

In fact Isbrandtsen is about 7% of the sailings in 1953, who probably, the Board found, carried 10% or somewhat more of the traffic.

Their well and short be that many shippers who will find it advantageous to use Isbrandtsen charging rates 10% below the contract rate and when necessary to supplement Isbrandtsen’s fortnightly service to pay the full contract rate, to conference line.

Possibly a arithmetical example will make that a little clear.

If you assume a contract — a non-contract rate of $33 a ton, the conference proposes to offer to the shippers a rate of $30 a ton if they agree to patronize the conference line.

Isbrandtsen on past performance and on the basis of the announcement made to the trade will reduce the $30 rate by another 10% making it $27.

Accordingly, for a number of shippers it’ll be advantageous to pay $27 to Isbrandtsen, when they can use the Isbrandtsen service and $33 to the conference when they’re forced to use conference vessels.

Other shippers, and undoubtedly the majority will find it advantageous to pay the straight $30 to the conference who will accordingly sign the contracts proposed by the conference.

The Court of Appeals, on review, held that the board had no power to approve a contract rate system.

Its reasons were given in two opinions, in each of which all three judges joined.

Judge Fay said that the contract rate system was condemned by Section 14 Third of the Shipping Act of 1916, as a retaliatory and discriminating method resorted to because the shipper had patronized another carrier.

Since we consider it was absolutely banned, the opinion continues that it’s immaterial that the contract rate system maybe desirable, or that it maybe reasonable or that it’s objectives maybe consistent with the statute.

Warner W. Gardner:

Judge Washington added that the exclusive patronage contracts which were known to and impliedly proved by the Congress when the Shipping Act was enacted, for what he considered to be bona fide requirement contracts, quite different from those at the bar.

We must start with Section 15 of the Shipping Act of 1916, printed at pages 77 and 78 of the Board’s briefs.

Section 15 requires that all agreements between carriers be filed, including those fixing or regulating transportation rates or fares, pooling earnings or traffic, allotting ports or regulating the sailings or volume or character of freight, and also those agreements giving or receiving special rates, privileges or advantages, and those controlling, regulating, preventing or destroying competition.

The Board is directed to approve any such agreement, unless it finds it to be unjustly discriminatory or unfair, detrimental to the commerce of the United States or in violation of the Act.

Approved agreements are accepted from the antitrust laws.

The Shipping Act does not, the Court will note, enact a limited exception to the antitrust laws as does the Interstate Commerce Act, but moves along a broad car, very far in precisely the opposite direction.

No other statute enacted by the Congress, has ever gone so far away from the policy of the antitrust laws.

The statutory recognition of agreements controlling, regulating, preventing, or destroying competition is not an exception to, but in the field of ocean shipping is a reversal of the antitrust principles.

The explanation of Section 15 is not hard to find.

From 1875 onwards, when the steam engines had made regular liner service, the order of the day, it has been painfully evident that rate competition is almost inevitably destructive of ocean transport service and almost inevitably favors the large shippers over the small.

We show in our main brief the economic forces which inexorably drive competing ocean liners into rate wars, in which only the largest and the strongest line can survive.

It’s sufficient here that the congressional committee which in 1912 set out under its resolution to investigate whether any such ship lines had formed any agreements preventing or destroying competition, ended up after long and careful investigation by authorizing just such agreements, these were the same men who contemporaneously were strengthening and expanding in fields other than ocean transport, the antitrust laws by enactment of the Clayton Act and the Trade Commission Act.

Felix Frankfurter:

There have been decisions bringing ocean traffic within the Sherman law, have there not?

Warner W. Gardner:

There have not been into almost contemporaneously with the enactment of the Act.

In 1915, the Second Circuit held that the so called dual rate system was not violative of the Sherman antitrust law.

In 1917, this Court on a triple damage suit reached the opposite conclusion.

Felix Frankfurter:

There had been litigation which became moot during the First World War.

Warner W. Gardner:

Yes sir.

The government’s suits became moot.

One private triple damage suit survived and was decided by this Court.

I want to repeat the committee’s reasons which must be remembered if the Shipping Act of 1916 is to be intelligible to a court, which is more familiar with the Sherman Act than with ocean trade rates.

Rate competition, the committee found, means rate wars, which in turn means the death of the weaker line and favoritism to the large shippers.

Yet rate regulation by a single government was impossible.

Having found rate competition intolerable and rate regulation impossible, the Congress provided a supervised conference system by which the carriers, subject to governmental protection against abuse, could reach rate agreements.

Basically the question before this Court is whether the Congress, in 1916, intended that the conferences, they were thus establishing and making their main reliance for control of ocean shipping, were to have some capacity or none at all, to protect themselves against dissolution in the face of outside competition.

Specifically, the issue in this particular form is whether the contract rate system is forbidden by Section 14 Third of the Act.

That Section is printed at page 76 of our brief.

It enacts four categories of offenses, each punishable by a fine of $25,000 for an offense.

Fourteen First, forbids deferred rebates precisely defined by the statute, as meaning giving a rebate for exclusive patronage, both during the agreed period in which it accrued and a further period of deferment.

Fourteen Second, prohibited fighting ships, again precisely defined.

Warner W. Gardner:

Section 14 Fourth, prohibited miscellaneous unfair practices.

Section 14 Third with which we are here concerned, admits, as a matter of grammar of at least three readings, literally it can be read, to make it unlawful to resort to discriminating methods for any reason.

This would contradict or make surplusage virtually the whole of the Act and is urged by none.

The Court below and the respondents temper this extreme literalism and read two qualifications into the broad prohibition.

It’s unlawful, they say, to retaliate against any shipper by resort to other discriminating methods because that shipper had patronized any other carrier.

This reading of the Court below, makes Section 14 First complete an unnecessary surplusage, that the Congress thus intended by Section 14 Third to outlaw all expressive patronage rate inducements.

It hardly found it necessary to make the detailed and precise condemnation of one deferred rebates which is found in Section 14 First.

We say the statute should be made consistent and surplusage is voided by carrying a gist in generous, one small step farther, so that it is unlawful to retaliate against any shipper by refusing a space accommodation or resort to similar discriminating or unfair methods, because such shippers patronize any other carrier or for any other reason.

Under our view Section 14 Third is concerned with the denial of space or service.

It is in that view unimportant here, whether or not a contract rate system could ever be called retaliatory.

That word is however important that Section 14 Third should be thought to reach to rate making.

We show in our reply brief at pages seven and eight that as it is universally defined, retaliation simply cannot be stretched to include the offer of a rate discount in order to induce exclusive patronage.

The Court does not have Section 14 Third placed before it on a fresh and newly turned page of history.

From 1916, until the decision below 40 years later, no agency and no court has ever read Section 14 Third to condemn the contract rate system.

To the contrary the Board and its predecessor agencies, from 1922 to 1957, have seven times held that the contract rate system is not prohibited by Section 14 Third.

Felix Frankfurter:

Mr. Gardner, before — may I break in, before you go on with what is administrative or judicial construction, to go on to your, abstract analysis of 14 Third, and that’s where I followed you.

You said after rejecting what you would regard as a conclusion of separate, you referenced at first, did I understand you to say that it’s restricted to refusal of space accommodation or resort to other discriminating or unfair methods, you gave that sort of concrete confining process, meaning.

Now what is — I follow the brief, I understand that, but I want to know what it is resort to other discriminating or unfair methods in your view, in that construction, this is second view offered, what is the confining limitation of other discriminating or unfair method?

I understand space accommodation that’s concrete, now what are the other?

Warner W. Gardner:

Other sir by a uniform and widely applied rudimentary rule of a gist and generous, we say should be read to mean similar.

Felix Frankfurter:

So now what are the similar?

Warner W. Gardner:

One example given to the Alexander Committee was of lighterage in Buenos Aires, for the lighterage firm is owned by a conference member, people did not ship by conference lines, found it exceedingly difficult to testify, to get the cargo alight at the shore.

That was the only other concrete example given to the committee.

In point of fact, through the testimony and through the summaries by the committee, it is confined exclusively to denial of space accommodation, the last recommendation of the committee, the sixth time they dealt with it, mentioned or other unfair methods.

Felix Frankfurter:

Well you’ve passed this and you’ve put before me at least dilemma of either dealing with first a surplusage, or Third is read out what is the Third, if it’s confined to space accommodation and I’m confronted with the other difficulty of giving —

Warner W. Gardner:

No sir, by the simple process of reading other to be similar, the Act becomes consistent and consistent not only with its text, but with its very full and very complete —

Felix Frankfurter:

But I have to fish around and find out what the other are?

Warner W. Gardner:

That’s right sir, there is nothing under the face of the statute.

Felix Frankfurter:

Third, well I don’t care about merely the face of the statute, we are dealing with an industry and presumably Congress addressed itself to the industry and I’m perfectly hospitable to getting other concrete suggestions.

Warner W. Gardner:

Every complaint made to the committee dealt with the denial of space accommodations, except for one, relating to lighterage.

Warner W. Gardner:

The committee directed itself explicitly to space accommodations until the final paragraph of its recommendation, the sixth time that it deal with retaliation, therefore always in terms of space accommodation and it added those three general words.

Felix Frankfurter:

Another question, you said there were three possible readings, what is the third?

Warner W. Gardner:

That is the third we have been discussing, the second is that of the court below, which limits what could be the very broad —

Felix Frankfurter:

The first was that which you found involves a collision between first and third, is that right?

Warner W. Gardner:

That was the court below.

Felix Frankfurter:

That’s one, the second is yours that it’s used in generous, what’s the third?

Warner W. Gardner:

All right, the third, the one which I mentioned first is to take these broad clauses without any of the qualifications which can be attached to it and find a prohibition against the use of any discriminating method, which goes so far as to make a mockery of the rest of the Act.

Earl Warren:

At the time this committee report was made, was this dual rate practice a common practice?

Warner W. Gardner:

It was sir.

It was denied by Judge Washington below.

It’s not that contact are somehow different from those concurrently before the Court and I believe the respondents say that there is something to distinguished from it.

I have taken the pains in pages 12 to 15 of our reply brief to provide a summary analysis of the 70 contract rate arrangements that were exhibited to or described to the committee.

If you will glance through the legislative history which Solicitor General and the Board have jointly presented in the Court, you will find virtually every witness asked by the Chairman of the Committee, do you have a contract system?

Do you have contracts with shipper?

The witnesses say yes.

The Chairman will pass on to points that are quite evidently concerned him, did it discriminate between the large shipper and the small and some of them did.

The Congress prohibited that discrimination.

They prohibited the deferred rebate.

They did not prohibit the contract rate system.

The reason sir is ready at hand.

The committee said at page 185 of the joint appendix, in summarizing the disadvantages of the conference system, it included this condemnation of the deferred rebate.

Earl Warren:

But in the record here (Inaudible)

Warner W. Gardner:

The so called joint (Inaudible) which Solicitor General and the Board have joined together to commit to the Court.

Felix Frankfurter:

What page Mr. Gardner?

Warner W. Gardner:

185.

Felix Frankfurter:

Thank you.

Warner W. Gardner:

By deferring the payment of the rebates until three or six months following the period to which the rebate applied ship owners effectively tied the merchants to a group of line for successive periods.

In this connection, it is argued that the ordinary contract rate system, note the ordinary contract rate system, does not place the shipper in the position of continued dependence that results in the deferred rebate system.

The Congress, just as other countries dealing with the similar problem that found the deferred rebate objectionable did not find the contract rate system which did not tie the shipper over for a successive periods to be objectionable.

Earl Warren:

Does that — do those contracts that they were considering have this retaliatory clause in that that this particular contract has?

Warner W. Gardner:

If by retaliatory do you mean the clause requiring the shipper to live up to his agreement, the liquidated damage clause.

Earl Warren:

No, no I mean charges from the higher rate, if they go —

Warner W. Gardner:

Oh, certainly.

Earl Warren:

— if they go to anybody else.

Warner W. Gardner:

Yes sir, all these contracts –

Earl Warren:

All these things were in –

Warner W. Gardner:

— provided a lower rate for the shipper who signed the contract.

Earl Warren:

Yes then how about — how about if he was willing to ship with them, but wasn’t willing to sign a contract to do it exclusively with them, was that in the common use at that time?

Warner W. Gardner:

If he got the lowered rate you had to sign the contract in confining all of his shipments to the member lines or in some cases the individual lines.

Earl Warren:

That was all in the contracts agreement — common use at the time –

Warner W. Gardner:

Yes sir.

You will find a, what I consider a complete index to those contracts in our reply brief.

They were so numerous — the reference is so numerous that on some point or two there maybe an error, but basically I think you can find any point of those contract by turning the pages —

Earl Warren:

Has that been conceded in this case or is that an issue here?

As to whether those things were in there?

Warner W. Gardner:

I beg your pardon.

Earl Warren:

As to whether those contracts did include those clause, is that conceded in this case or has it been —

Warner W. Gardner:

If it has not been I am sure that it is now sir.

Earl Warren:

I beg your pardon.

Warner W. Gardner:

I am sure that it is now if it’s not there.

Felix Frankfurter:

It’s now what?

Warner W. Gardner:

In issue.

Earl Warren:

Oh in issue?

Warner W. Gardner:

Yes sir.

Earl Warren:

All right.

Warner W. Gardner:

In general I think the thought has been that there weren’t any contract rate system in effect in 1913.

I think that was a provision impossible to maintain and I would expect the empirical shift to one detail or another, but basically the lowered rates were exclusive patronage, the cost was recognized by the Congress not condemned, present then and present now.

Felix Frankfurter:

May I ask you an innocent question?

If one goes to the hearings of the Alexander Committee, are there in those hearings set forth the contract in terms by which without anybody’s aid except ordinary intelligent reading of English I will find the kind of a provision that Mr. Chief Justice referred namely two level contracts, two level rates; one where a shipper bind themselves for a lower rate by the conference and to use those ships exclusively and one way it does not.

Warner W. Gardner:

You will find the following; an agreed rate in the contract, an agreement by the shipper to confine all of his shipments through the line or the conference lines.

Warner W. Gardner:

You will not find a recitation of the higher rate that you have to look at the testimony of the man who introduced the contract to explain that the rate is lower than that otherwise charged.

William J. Brennan, Jr.:

Will you find a provision for liquidated damages?

Warner W. Gardner:

No sir, I think there is no provision for liquidated damages there.

The actual damages were that the conference rates demonstrate be higher than the liquidated damages here provided.

Felix Frankfurter:

Whether the — the gravamen of the controversy doesn’t or does it, I don’t know, turn on the question of the enforceability for such a contract.

Warner W. Gardner:

No sir, no problem —

Felix Frankfurter:

The question that it exists is what I — that’s a different question maybe irrelevant today but the essential question is that you are seeking to support an arrangement whereby a shipper will bind himself to use exclusively conference lines will get a lower rate (Inaudible)

Warner W. Gardner:

I am thinking it’s supported and relying on the committee that passed the act and on this Court’s analysis of the act and of the issue in Swayne & Hoyt in 300 United States and the consistent 40-year history of board decisions.

I fear my time has expired.

Earl Warren:

Mr. O’Connor, oh yes, yes of course I didn’t see — you have to –

Elkan Turk, Jr.:

You heard the pleasure of Mr. O’Connor’s presentation.

Earl Warren:

Yes, all right that’s fine.

Mr. Turk.

Elkan Turk, Jr.:

Yes.

I would like to say in addition to what Mr. Gardner has told you that the following appears in the Alexander Committee Report which appears on page 161 of this joint appendix presented by the two government departments.

It’s contractual shippers which maybe classified as follows, A) Joint contracts made by the conference as a whole, such contracts are made for the account of all of the alliance in the agreement.

Each carrying its proportion of the contract freight as tended from time to time.

The contracting lines agree to furnish steamers at regular intervals and the shipper agrees to confine all of his shipments to the conference steamers and to announce the quantity of cargo to be shipped in ample time to allow for proper supply of tonnage.

The rates on such contracts are less than those specified in the regular tariff.

But the alliance generally pursued a policy of giving the small shipper the same contract rates as the large shipper i.e. willing at all times to contract with all shippers on the same terms.

The way that that appeared is a — was accurately stated by Mr. Gardner, perhaps I should like to emphasis it.

The carriers would produce pursuant to the subpoena or request of the Alexander Committee a contract which they had made say with the International Harvester Company at a certain rate.

Then they would be asked whether or not that same contract at the same rate would be open to other shippers of agricultural influence.

The answer would be if they sign the contract, yes.

And the question is what would they pay if they didn’t sign the contract, and this was an exclusive patronage contract, the answer was they would pay then the regular tariff rates.

Now this — there is no question about that that the Alexander Committee thought of such contracts and I think that after looking at the reply brief of the Federal Maritime Board with its 70 illustrations, I don’t think there is any question that any one — any reasonable person will be convinced that they actually did see that sort of contract and that they didn’t condemn it.

Felix Frankfurter:

Well as I understood Mr. Gardner’s hindsight was that the contracts that were before the Alexander Committee did not have interns, there was provision in the contract between the hearings whatever they extended themselves from 15, 16 whatever it was that there was no provision in the then outstanding contracts of the conference explicitly stating the lower rate for exclusive patronage, is that correct?

Elkan Turk, Jr.:

It stated the lower rate, but it didn’t say that there was also a higher rate, nor does our contract.

Felix Frankfurter:

Very well, now what I want to know is the contract we now have is evidently has great explicitness?

Elkan Turk, Jr.:

No, no it merely says, —

Felix Frankfurter:

But it must be different, Mr. Gardner said it is different.

Elkan Turk, Jr.:

Well —

Felix Frankfurter:

What is the difference?

State the difference as per the rate structure?

Elkan Turk, Jr.:

As far as a rate structure is concerned today we have a Federal Maritime Board and we file a tariff of contract –

Felix Frankfurter:

I understand that.

Elkan Turk, Jr.:

— and non-contract rates.

The contract merely entitles the shipper to the contract rates.

It doesn’t say that anyone who doesn’t sign must pay the non-contract rate.

Felix Frankfurter:

When did this new provision come in, as soon as you came under the Maritime Commission?

Elkan Turk, Jr.:

The first actual contract system after the shipping act was adopted came into affect in 1922, but in the mean time we’d have the war with the destruction of tonnage and the American government really was the only carrier.

Then as soon as the foreign shipping sprang up again and there was an overtonnaging, immediately they have this cut rate competition and the Maritime Board itself in those days the old shipping board took the initiative and said we’ve got to have a conference to govern these rates and the first contract system was at that time adopted and that’s now been 35 years ago.

Felix Frankfurter:

Well as I understand do you say that contracts that were before the committee about which the Chief Justice interrogated Mr. Gardener, it sounds at face a lesser rate, and to me a lesser rate implies there must somewhere else to hide it.

Elkan Turk, Jr.:

It doesn’t say, I think that Mr. Gardner will agree that it didn’t say this is a lesser rate, they say that your rate is so and so.

Felix Frankfurter:

But —

Elkan Turk, Jr.:

The testimony was —

Felix Frankfurter:

I am a little confused all over again.

Elkan Turk, Jr.:

I am sorry.

Felix Frankfurter:

As I understand the Chief Justice question and I like to join that question.

Elkan Turk, Jr.:

Yes.

Felix Frankfurter:

What if I may say we want to know is whether before the Alexander Commission, there were contracts which in fact no matter how worded indicated to that commission that an exclusive patronage meant a lower rate to the person, to the shipper who availed himself of the exclusive patronage.

What is the answer to that?

Elkan Turk, Jr.:

That the answer to that Your Honor is this, that if you take the contract and the testimony of both the carriers and the shippers, you know that this rate that is specified is the lower of that two rates and the same thing would be true of our contract.

If you’d look at our contract, you’d have to go to external evidence which is our tariff to see what the higher rate is.

I hope I’ve answered the question.

Harold Burton:

(Inaudible) contract said $30 and tariff rate is say 33.

Elkan Turk, Jr.:

Yes.

Harold Burton:

And you have to look at the two of them to get the whole picture?

Elkan Turk, Jr.:

That’s right, you would see in our tariff that in our contract that he is entitled to contract rates.

Then you would have to go to the tariff to see what — dependant on what he wants to ship.

Elkan Turk, Jr.:

Today he may want to ship groceries and tomorrow hardware and unless you went to the tariff you wouldn’t know what the rate on groceries was contract and non-contract, no other rate on hardware contract.

Felix Frankfurter:

Well are you saying that now the difference is that now your tariffs have to filed and therefore somewhere in Washington on file, if that’s where the Maritime Commission is, somewhere there is a tariff filed, a document which tells you it’s 33 and when the Alexander Committee was sitting there was no such thing —

Elkan Turk, Jr.:

Those were secrets at that time.

Felix Frankfurter:

All right.

Elkan Turk, Jr.:

That was the only difference but in substance there was actually no difference.

There are a couple of points of fact that I would like to dwell on for a moment before I discuss the legal aspect of this thing.

Mr. Gardner I think fail to give to the Court the impression of the extent to which Isbrandtsen’s rate cutting does diminish the carryings of the conference lines.

By 1953, after this had gone on for three or four years, Isbrandtsen’s vessels were carrying three times as much Japanese cargo per vessel as the conference lines and I’d like just to canvas with you for a moment what the effect of that sort of difference is.

The business of ocean carriage is one what the economists call a business of increasing profits or decreasing costs.

A ship is a tremendous carrying inflexible entity, and if you start that ship on its voyage you incur all of the expenses by way of crews’ wages and subsistence on fuel and the overhead item such as depreciation, if she is full or if she is empty.

The result is that if you pass a certain breakeven point on your costs, over and above the actual cost of loading and discharge, the more cargo you carry, the more profit you make and correspondingly the less cargo you carry, the greater your loses are.

Therefore if you have the apparent anomaly that Isbrandtsen while charging 10% less than the conference, is making good money whereas the conference lines by carrying less than the breakeven point at a 10% higher rate are losing and losing very heavily, the evidence was here $500,000 a month.

Another thing I would like to bring out is what is the nature of a conference?

A conference is not a monolithic unit by any means.

The conference agreement in this case demonstrates that their only common interest is in fixing rates.

They do not pool earnings, they do not fix sailings.

They have no common interest by way of stock holdings and when they get through with fixing the rate, from that time on, they are the most vigorous competitors and that competition takes the form not of cutting rates, as long as the conference is not subjected to this sort of competition, but in the matter of service and today in these trades we have vessels that are capable of making 18 and 20 and greater speed than that, I’m speaking of knots, whereas in the days when the first conference here was organized they were happy to have a 10 knot steamer and only three a month and today as Mr. Gardner said they have 300 a year, that is the effect of eliminating rate competition and bringing into effect competition by way of service.

Felix Frankfurter:

How many independent lines are there at the conference?

Elkan Turk, Jr.:

How many?

Felix Frankfurter:

How many independent lines unconnected —

Elkan Turk, Jr.:

There are 17, of which two I think must be eliminated for this reason, that one of them goes around through Suez and the other one carries cargo only to the gulf and Isbrandtsen doesn’t carry cargo to the gulf so that I think that we must speak here of 15 lines who have this interest.

Now and therefore when Mr. Gardner said that as the Board found, the conference might carry approximately 90% of the cargo if the dual rate system was in effect and Isbrandtsen 10%, to find out what the individual conference line would average you would have to divide the 90 by 15 and you will see that Isbrandtsen would come out better even if we had the contract system in effect so far as carryings are concerned, although they would not have the tremendous advantage that they did — that they have had up to the time when this great competition came in, when they were carrying three to one over us.

Earl Warren:

Are all those lines independent to each other?

Elkan Turk, Jr.:

Yes, they have absolutely no interest one on the other and I can assure you that in every way they are at each other’s throats except that they agree on rates.

Felix Frankfurter:

I want to know, but I don’t, does the Act control, regulate; attempted control of one by another or acquisition?

Elkan Turk, Jr.:

You would have to judge that by Section 15, which says all agreements among common carriers or other persons subject to the Act, which effect or control or regulate competition must be filed and approved and my answer to you would be this, that I assume that (Inaudible) merger might not require —

Felix Frankfurter:

But there is no such specific provision is there in the Interstate Commerce Act?

Elkan Turk, Jr.:

No, not affecting consolidations or mergers.

Having passed over that — those economic features, I’d like to consider with you something of the broad basis of this legislation.

Now Mr. Gardner says it travels in the up direction which is opposite to the direction of the Sherman Antitrust Act, and I’d like to examine with you for a moment why that is necessarily so.

Elkan Turk, Jr.:

When you come to ocean shipping, as contrasted even with such public service companies as the railroads and the telephone company, you have to deal with different nationalities.

In the course of every voyage, let us say in the Japan, Atlantic and Gulf trade, you have not alone the laws of Japan to take into account, but also the laws of the United States and vice versa.

In addition to that, we have engaged in this trade vessels of many other nationalities who have treaties of friendship and commerce with us and when you come to the matter of over tonnaging which Mr. Gardner expressed, when you come to the matter of that kind, you find that our government is not able to deal with the problem at all because we cannot shut our ports to the vessels of friendly countries.

The only possible way that we could deal with over tonnaging is by telling the American flag vessels that they should stop serving this American trade and that is directly contrary to the primary objective of Shipping Act 1916 and Merchant Marine Act 1936.

The next problem where the international phase comes in is the matter of rate fixing.

We cannot fix rates by government edict in foreign commerce as we can in interstate and domestic commerce.

Let’s assume an illustration, let’s take the — a case suppose our Federal Maritime Board would say that the minimum rate on goods, on Chinaware should be $30.

And suppose the Japanese government would say that the maximum rate should be $25.

By then there is only one way that you could possibly dispose of that sort of an argument and that is by arising to the diplomatic level and having our consuls or diplomats get together to decide what rates should be charged in the carriage of goods from Japan to United States.

Now in all other countries, in all other countries, this problem has been dealt with by the meeting together of the ship owners and determining what the rates should be.

In all countries except Japan, which moved along our lines under the American post war influence, those conferences are without regulation.

And the countries, the governments depend for the protection of the shippers on the enlightened self interest of the carriers because they know that if they charge rates which will put the Japanese merchant out of business here, that the German merchant will get the business and our vessels will carry even less cargo.

Our answer, our answer to that problem is the, is the matter that engaged the attention of the Alexander Committee back in 1912.

And they came up with the answer that we cannot, we cannot outlaw conferences because if you do — you are not alone going to have non-conference competition of one against all but every — every carrier is going to be at the throat of every other carrier.

And the committee said that they were convinced that in such a situation they — that the large carriers would survive and the smaller ones would be driven out of business.

Whenever you have such a situation prevailing in a public service field, it’s always the small man in business who gets the worst of it and the big man who can hold out in this bargaining field who can get the best rates.

And that is the testimony before the Alexander Committee that the, that where there was open competition, it was in the interests of the big and contrary to the interest of the small carriers.

Now I would like to go with Your Honors for just a second on this Section 14 Third which was the, the statutory enactment that caused us the trouble in the Court of Appeals.

As Mr. Gardner said that he didn’t think that there was any other evidence in the statute as to what might possibly be the kinds of physical common carrier facilities which might be denied by way of retaliation, but I think that if we will drop down to the next section which is Section 14 Fourth, and which does not setup a per se violation but only a discretionary violation, it says, “make any unfair or –” this is on page 2A in the appendix of our brief, I think it’s the easiest way to find it, 2A.

It says “Make any unfair or unjustly discriminatory contract with any shipper based on the volume of traffic offered or unfairly treat or unjustly discriminate against any shipper in the matter of A) cargo space accommodations when the same are available,” there we find the same language as we had in subdivision 3rd due regard being had for the proper loading of the vessel, “B) the loading and landing of freight in proper condition, and C) the adjustment and settlement of claims.”

Now there we have two illustrations, they certainly are not all inclusive but there are two illustrations of cases in which a carrier could, retaliate against a shipper in matters other than rate discrimination.

And may I say this, Your Honors that Mr. O’Connor in his brief has cited a case, the Alaska Steamship Company case and I don’t think it’s got too much to do with this case, this situation, but it does have a great value on this point, it is a perfect catalog of ways in which a shipper can retaliate against a carrier, I am sorry, a carrier can retaliate against a shipper in matters that have nothing whatsoever to do with rate matters, a rate adjustment.

Now it’s our position if the Court please that even if, even if Section 14 Third should be read as the court below read it so that it would condemn retaliation because a shipper had entered into a freight contract it still would not justify any holding that the dual rate system is illegal per se.

And that is true for this very simple reason that whenever anybody enters into any kind of a contract, the man who contracts obtains an advantage for which he bargained.

The man who doesn’t contract does not obtain the advantage, question retaliation, ordinarily not, because that may have horses to sell and the man who buys them and pays the price gets the horses, and the man who doesn’t, isn’t retaliated against.

When you come to the situation of a, an exclusive patronage contract then you might have a closer question and I think there motivation will enter in.

If the carriers here had in mind the punishment of some carrier, some shippers who had been patronizing outside lines in a — some penal manner I would say then yes.

In fact you have retaliation.

In our case our good friends specifically asked the board to make a finding that there was retaliation.

And there was a factual finding that there was no retaliation.

Elkan Turk, Jr.:

And not only did the board refuse to find retaliation but they actually found that there were good business reasons, reasons in our own self interest whereby we would put this system into effect, and why?

Because as against the cut rate independent competition it would enable us to get for our 15 lines who are directly in this trade approximately 6.5% of the business on the average among them.

It wouldn’t work out that way evenly because as I said there are strokes whereas the court found, I am sorry the board found that is Isbrandtsen would retain at least 10%.

Now I would like next to consider in the very few minutes that I have before me, have before me, some of the cases that are decided in this Court and which I believe unless they are reversed require a decision in our favor.

And the first one is the United States Navigation against Cunard Steamship Company.

In that case — that case came up to this Court on a private antitrust — in a private antitrust suit in which an injunction only was added, it was requested no damages.

In that case a dual rate system was alleged.

As contrasted with our —

Earl Warren:

You finish your sentence.

Elkan Turk, Jr.:

Alright, as contrasted with our 9.5% spread, the complaint alleged that there was as high as 100% spread between the contract and non-contract rates.

I wish that I had an opportunity to discuss this, but my time is up.

Earl Warren:

Mr. O’Connor.

John J. O’Connor:

May it please the Court.

I apologize for a bad throat.

I’ve been in bed for four days, but I’d like to defer answering the distinguished counsel for the petitioners here.

I think they have been mistaken in all their answers to the Court’s inquiries, until I make an attempt to lay before this Court a picture of just what this system is.

Now the main issue here is whether or not a common carrier in the ocean trade, obligated to take every shippers’ cargo within their capacity, can and in concert charge two shippers two different rates for identical transportation, being the same in every respect as to the type of cargo, the quantity of cargo, the distance involved, loaded at the same port, discharged at the same port, handled under these very same conditions, placed even on the same ship, whether or not they can do that under the 1916 Act or under any provision of law.

Of course they couldn’t do it in common law.

That was definitely held in Thompson against Kaiser which just before the 1916 Act held that the system was illegal in ocean transportation.

Now, the only consideration for the lower rate is the agreement by the shipper to give his exclusive patronage to the conference lines and to boycott any other line, an independent line such as Isbrandtsen which is the only independent line in this trade.

There is no question of volume involved, Section 14(a) handles that and would restrict any dealing with that.

There is no question of frequency of service.

We say and have said from the beginning for ten years, that it just cannot be done, whether it can be accomplished by precise legislation which has already been drafted we understand, is a serious question which we shall met when we come to that bridge.

To start out it’s a price fixing arrangement among these carriers, and in addition to that you have the tie-in arrangement, both of which are fundamentally unlawful under our laws.

Now it maybe the Section 15 permits these companies to get together and fix prices, uniform rates, that was the purpose of it, that was the purpose of the Bulwinkle Act for railroads to get together, but there is no provision that they could fix two rates for the same transportation services and in no other form of transportation is that even attempted to fix tour rates under an exclusive patronage contract.

Now it says in Section 15 permitting this extraordinary privilege, and this limited immunity from the antitrust laws, that they may even destroy competition, but it is not even claimed by the Board that they can do more than destroy competition among themselves, and not destroy any outside competition.

And because of these theories and this testimony before the Alexander Committee, not a report just testimony, stands for anything, it shows repeatedly if there was attempt of Congress to spray limits that it was the intent to preserve independent competition; that, that runs through it and the other theme running through the whole historical background which they call is there shall be no retaliation.

The word retaliation is constantly used.

Felix Frankfurter:

Do we know the origin — do we know the origin of the use of that word in this context or is it just an English word that they thought was appropriate?

John J. O’Connor:

Well, they found many instances of retaliation against shippers who would not patronize or exclusively sign up even with one carrier or with a group of carriers.

John J. O’Connor:

They were not given service, they were charged higher rates, they were not given service to particular ports, they couldn’t pick the ports to which they were to ship their goods and so forth and I don’t believe retaliation here is used in the ordinary sense of like for like as the Board would have it, and the Court below of course went into that and said retaliation here is doing something to a shipper because he will not surrender his fundamental right to do a certain thing.

Felix Frankfurter:

You think no other meaning for the English word retaliate is permissible under that meaning.

John J. O’Connor:

Oh no I think there is a variety of meanings for it.

Felix Frankfurter:

And it may become important?

John J. O’Connor:

Well, I do not believe that the meaning is applicable here, except by reading the statute and seeing right from the statute itself there is no ambiguity.

Reading the statute and seeing what the aim was to protect shippers and you go through Section 16, 17 you will find other provisions against discrimination, against preferences and so forth.

Now the court below found that the Board had no authority to approve such a system and even in the Swayne & Hoyt case which has been cited to you as some authority which we dispute for a decision in this case, that court said that this system which is known not as a contract rate system as counsel as said, it’s generally known as the exclusive patronage contract, non-contract, dual rate system.

It was created in 1923 in this country, seven years after 1916 Act and it was not enforced in any extent by conferences till the 30’s.

Now, it’s just a substitute as the Supreme Court said in Swayne & Hoyt, for the outlaw deferred rebate system.

Now gentlemen these conferences are nothing less than cartels and the (Inaudible) cartels, they are known as cartels.

The latest book on this subject is by Professor Marx of Gartner International Shipping Cartels, in England they are know as shipping rings.

Now the only system ever used before 1923 other than the referred rebate system which we have outlawed made a crime, was the contract system, and you notice that’s all counsel said, the contract system, a contract of shipment, whereby the shipper agreed to send his goods exclusively by the particular line of the conference lines in consideration of a certain rate.

Now one of the justices, I think it was Mr. Justice Frankfurter said in the contract used by this conference, whether or not there was any provision as to two rates whether there is or not.

On page 203 of the joint appendix, you will find that the contract which the conference submits to the shippers refers to — gives them the contract rate, and of course that implies that if they don’t sign up they’ll pay the non-contract rate, which of course is in this instance substantially 10% higher and some shippers said well it’d put out of business, that’s our margin of profit.

Some rates run to $200 a ton that will be $20.

Now this conference going the other way, outbound, which is the profitable trade, that’s why the homeward bound ships, the same ships are overtonnaged.

The conference going the other way of the same line substantially to file these to conference, they only charged a flat rate of $4 a ton.

We claim not only is this system unlawful under Section 14 of the 16 act, we claim is unlawful under Section 15, 16 and 17 that’s unlawful under the anti-trust laws which still persists because of the limited immunity in Section 15 and this act as unlawful under the Constitution.

The court below of course having arrived at this illegality under Section 14(3) saw no occasion to discuss these other questions.

In all there were five questions submitted to the Court of Appeals which we considered, but we believe here that there should be due respect of the court an earnest consideration of these other questions which we submitted to the court below and especially in any case that there is an attempt to revive this system, in 1936 there was an attempt to revise this outlawed dual rate system and in 1938 there was an attempt to legalize it, to revive the deferred rebate system and in 1938 there was an attempt to legalize the dual rate system, this is exclusive package system.

Now all these petitioners or appellants have to stand upon, and had to stand upon for 10 years during which we have been in this ligation and two implications admittedly they have nothing.

They claim that this system was impliedly approved by the Alexander Committee because it was not condemned and I practically quote their language and they say it was also impliedly approved by at least two decisions of this Court because it was not specifically condemned.

And of course they will not argue that it was ever an issue before this Court or before any other court because counsel for board and the board chairman have admitted that issue has never been before this Court and the court says this as they cited this quote, well merely cases.

Some of you distinguished justices will recall upon these conference case in 1952 was merely a case of primary jurisdiction.

Likewise the Cunard referred to here in 284 US was merely a case of primary jurisdiction both sent back to the board for exhaustion of administrative remedy.

And the Swayne & Hoyt case so called which had some dictum, admittedly dictum by the chairman of the board, did not have the issue as to the legality of this system before it, merely whether or not it violated Section 16 of the act as to unjust discrimination between shippers and the court affirmed the decision of the Maritime Authority that it did violate.

Now that’s all, those are the weak reasons to which they cling throughout these cases.

For 10 years we’ve struggled.

Say – we use grants in Departments of Justice and Agriculture have struggled to get a definitive determination of this issue and we have been brought that every move by a claim of primary jurisdiction would been brought by the conferences and we have been brought principally by the Maritime Board which in each case has sat as the judge in – at least I (Inaudible) as it were.

But it’s been the most active appellant mover for certiorari to stop any upsetting of this cartel.

John J. O’Connor:

Well as to the Alexander Committee report as important, on the first page of it, board counsel and department of justice admit the submission of these extracts carries with it no implication as to its relevance or significance in the legislative history of the shipping act.

Outside of that it can be taken for whatever word can be found in it, whenever company has any legislation it was a just a summary by a paid employee of certain testimony would be forced.

The committee back in 1912 the members of which did not survive to enact the law in 1916 and when counsel for the board says it was a summary by the committee, he innocently mistakes the summary by a higher employee of the committee.

Felix Frankfurter:

It’s the way reports are usually written, aren’t they Mr. O’Connor?

John J. O’Connor:

They use the written, but they, they are written, they accomplish some legislation.

Now —

Felix Frankfurter:

I am not addressing myself on that, but I am sure you have the same high respect particularly of your experience for the people who really write these reports.

John J. O’Connor:

I am afraid that no member of the committee, the changes were so great and the time had lapsed nearly four years, no member of the committee had much to do with this writing because they had a professor, professor of transportation Mr. Huebner from University of Pennsylvania and he sat down and he attempted to summarize and you have been read to use something about — the deferred rebate system of course was a hardship but the contract system he didn’t say that the committee found, he said it was argued.

Now in five places in the board’s brief they drop out the words, ‘it was argued’ and it was left to this Court, language quoted as if the committee itself said or found that the ordinary contract system, and notice the language ‘the ordinary contract system.’

Now you’ve had Section 14 (3) written.

Now the court below in these two separate opinions found that to retaliate against a shipper because he would not sign the exclusive patronage contract was the one of the methods of retaliation referred to in the act.

In addition of course if after citing you patronize a non-conference independent operator, he would be fined 50% of the freight which he would have paid to conference.

There was no suggestion that steamship lines make 50% of freights they take in.

Now an important point in here, over the years it’s been said well, all discrimination must be unjust, unreasonable, and as we point out the history of this legislation puts the words ‘unjust’ in every section except Section 14 (3) and the history of the legislation of various views that went through the process and is finally adopted, it is clear beyond question that those qualifying words were deliberately left out of Section 14 (3) because of the intent desire of Congress to prevent retaliation of any kind.

Now Section 15 would be reason to disapprove the section, the system, Section 16 which forbids, which forbids giving any undue or unreasonably preference or advantage to any particular person, Section 17 all common carrier shall charge any rate, was unjustly discriminatory between shippers.

Now let me address myself to the others, substantially which we couldn’t even get the board to pay any attention to us about.

We claim that this system is fundamentally illegal because it informs the signing of the shippers’ contract between the conference or the conference on behalf of its lines and a shipper.

And such a contract is not granted any immunity under Section 15 of the act because a shipper is not a person subject to the act.

Only person subject to the act carriers and forwarders can enter into a combination or conference.

Now when the — the means of carrying out this system is this contract, printed at page 203 of the joint appendix, between the conference and the shipper whereby he agrees to patronize those lines exclusively, the other side brushes it aside.

They don’t immediately – even their brief says oh that’s just a contract carries out — enter in to a contract with shippers, sure they do.

On the ordinary system they on every shipping transaction, they enter into a bill of lading.

And they do here where they use this exclusive patronage system but in between that and the agreement of a set up of a system, there is a contract entered into between the conference and the shipper.

And that contract is never filed for approval and has never been approved by the board.

Likewise we contend and is a very serious question that if by any possibility such a power was lodged in the board, as placed by the proponents of the system, it would be an undue delegation of power to the board without the fixing of proper standards.

And further than that and worst, it would be — it is further delegated by the board to the conferences under what they call self regulation to determine whether or not the conferences shall be put a non conference independent carrier out of business.

Let me quote to you what the board itself and the chairman think about this system.

It’s only recently they claim it, if this isn’t intended we would stand for monopoly.

In the first case we brought back in 1948 to test this question, Isbrandtsen case before a statutory court in New York which ultimately came here in 342 US 1952, board counsel made this statement which Judge Frank quoted.

“That the purpose of the dual rate provisions was if possible to bring about a condition in which an independent carrier,” such as Isbrandtsen, “could be compelled through loss or threatened loss of profits either to join the conference or go out of business.

John J. O’Connor:

If a contract system is wholly effective, it will result in a complete monopoly.

Necessarily, in these circumstances, there would be no service by independent operators.”

Isbrandtsen is the American flag line competing against 12 foreign liners, eight of them Japanese lines and the board’s chairman said in a decision, coming down in just about the same time, a decision in this particular conference case, “in considering an application to institute a dual rate system in any trade, we must recognize the immediate purpose of the system simply stated to be the elimination of non conference competition as such.”

Now, well, that’s what Congress intended and they wasted lot of language in the 16 act trying to protect shippers and trying to protect independent operators.

Now over the years the board and the champions of this cartel system have had two alibis as it were, have been expressed almost ad nauseam.

Some of us simple people claim that it even in (Inaudible) intelligence.

They say first the shipper who refuses to sign up can do so if he wants to, can’t he, can’t he sign up, not so preventive.

Well, of course the board itself in the early 30s when they used reason (Inaudible) ridicule that silly alibi.

And the second is that Isbrandtsen is an independent, he could joint the conference, can’t he, not to prevent them, but of course (Inaudible) imagine that the victim of Alibaba and his 40 thieves might have had that opportunity to join up to become that 41st.

But surely in this land of ours, there’s no such as this compulsory joining to save one’s skin, but that wouldn’t even help a large segment of this trade, which is another serious consideration here because clamp operators, bulk carriers, comprise a tremendous portion of our foreign commerce.

They compete with these conference lines and the conference lines always cite their competition when they come in and ask for permission to use a dual rate system.

And under the act, clamp operators are not permitted to join a conference because only common carriers could join.

Now as I say for ten years we have struggled against this matter down to a position of a definitive determination on the fundamental issue involved.

So that’s why we are here again today.

We were here five years ago, and the Isbrandtsen case went off on another tangent, we won it but didn’t go to the fundamental legal question.

Could I ask you a question, you referred as I understood it some legislation introduced and the Congress —

John J. O’Connor:

Has not been introduced.

Has not been introduced.

John J. O’Connor:

I understand it is ready to be introduced in the event of certain decision by certain tribunal.

But we ask this Court to give, fortuitous to say serious consideration, give considerations to all of the questions involved here because they are fundamental, every exporter, importer and consumer of the United States.

I remind you, let me — one word as to the indispensability of this, only half the conference is used.

Another point they say the board says we only given permit the system to be used to meet independent competition.

And in the 62 conferences which use the system, in only three of them is there any independent competition.

So they sign up all shippers but the real purpose of the system is to deter any independent entering a trade that’s what that board calls potential competition.

So even on the board’s own criteria of preventing monopoly, stability of rates, there was no instability of rates here or to meet independent competition, there is no situation in this case and even the chairman said to prescribe that — to guess that Isbrandtsen would get 10% in this trade if this system was set up was a pure hazard, just looking into a crystal ball, no one had the right to make such an estimation in any trade.

For those reasons we respectfully submit it to you.

We have gone through the torture ten years and even a victory at the end of that time does not entirely relieve the torture.

Hugo L. Black:

Do they anatomize (Inaudible) in the record of the different rates for the charge in the dual rate system? You said that in some cases it was 10 times as much, I believe.

John J. O’Connor:

In this conference —

Hugo L. Black:

Is there in this record, a place that we can see how much a man is charged (Inaudible)

John J. O’Connor:

I think the record shows, the records has attached to it, certain tables showing the rates of this conference, of course in the various conferences of the 125 conferences authorized, only 62 used the system, the others will (Inaudible) and that the conferences authorized the spread of differential between the contract and non- contract rates, varies from $4 a ton to $9 a ton, where they used the flat dollars.

Hugo L. Black:

And in the record — is that in the record?

John J. O’Connor:

Well I don’t think it’s actually in the record —

Hugo L. Black:

(Inaudible) you’ve stated it —

John J. O’Connor:

Well I don’t think its disputed, it’s in the record of the Maritime Board, and the only deferential here is 9.5% and was so low and not 20 or 30, because the Japanese authorities had adopted that limit, Japanese authorities did not approve this system, but they said if you do use any system you can’t use over 9.5%, that’s the only reason for this, minimum, this is the very minimum they charge, they charge —

Hugo L. Black:

Does the record show that?

John J. O’Connor:

Yes it does.

Thank you.

Earl Warren:

Mr. Elman.

Philip Elman:

Mr. Chief Justice, may it please the Court?

I speak for the United States and for the Secretary of Agriculture, whose contention it is that the order of the Federal Maritime Board approving the dual rate system proposed in this case by the conference rests upon errors of law and should therefore be set aside.

As Mr. Gardner has stated, all parties accept the facts as found by the Board.

Our disagreement is solely as to the legal consequences of those facts, the central fact in the case being of course, the nature, the purpose and the effect of the dual rate system.

At the outset I should state very clearly, that the essence of that system is an agreement among carriers.

It is an agreement among all the members of the conference that they will charge two sets of rates to shippers for precisely the same transportation service, costing exactly the same to the carrier, having the same value to the shippers involved.

They will charge two system, two sets of rates depending solely upon whether the shippers have agreed to give all of their business for the indefinite future exclusively to the conference upon penalty of a 50% liquidated damages provision and where it is admitted by the conference in tendering this system, this agreement among themselves to the Board for approval, and where the Board itself recognizes that the purpose of this arrangement among the carriers is to meet the competition of an independent carrier who for reasons of his own, desires to stay outside the conference and to be independent.

The purpose of this arrangement is to compel that independent carrier either to join the conference or to suffer a very substantial diminution of his business, perhaps even to eliminate him from the trade entirely.

That is the dual rate system.

It is a phenomenon which is unique to the maritime transportation industry.

It is unknown in any other mode of transportation.

It is not used by carriers or groups of carriers by rail, by motor, by air.

If any such other mode of transportation attempted to use such a system on elementary principles of transportation law, not antitrust law but transportation law, principles of transportation law antedating Interstate Commerce Act of 1887 recognized a common law, under those principles, such a system would be clearly illegal, because it would involve charging shippers different rates for precisely the same service and the courts have — from beginning of the regulation of public utilities and common carriers applied the principle that shipper A cannot be discriminated against in relation to shipper B for precisely exactly the same kind of service he receives from a common carrier, unless there is a difference in the cost —

Harold Burton:

Eventually the other side is as I understand it, that Congress had authorized that very thing and your contention is that although Congress has (Inaudible) it does not authorize it?

Philip Elman:

Yes sir.

Our contention is, that when an argument is made to this Court, that Congress has in the Shipping Act of 1916, made something legal for the maritime business which it has made illegal for every other business, certainly one would expect to find rather clear, rather explicit indication of congressional purpose, if that was the purpose of Congress in the statute or at least in the committee reports which accompanied the statute.

On the contrarily we find here the reliance is not what is in the statute, but rather on what is not in the statute.

Felix Frankfurter:

Am I wrong — am I wrong Mr. Elman in reading Section 15 as cutting into some extent, I’m not saying to your extent.

Section 15 does cut into the common law of a carrier’s liability?

Philip Elman:

Yes Sir.

Felix Frankfurter:

Am I wrong in that, I’m wrong?

Philip Elman:

No you’re not wrong.

Section 15 carries out what was the purpose of Congress in 1916 to legalize conference agreements, which would otherwise be illegal to the extent that those agreements among the carriers fixed rates among themselves, but Congress didn’t stop there, Congress didn’t give the conferences a blank check anymore than it gave a Federal Maritime Board a blank check.

Felix Frankfurter:

I am not suggesting, but I am suggesting that that the common law of common carrier is not the measure of construction of this statute?

Philip Elman:

The question, the question of this, the meaning of this statute we think it can be determined entirely within the four borders of that statute.

We rely on the language of the statute.

We rely on what the committee said and rather as a board and the petitioner, and the petitioner conference rely, not on what was said by the committee, but what was said to the committee.

The reliance in this, in the legislative history and I think that there perhaps maybe some misunderstanding as Mr. O’Connor has pointed to this.

The government has furnished to the court for its conveyance a joint appendix setting forth the excerpts from the Alexander report upon which reliance is made here.

But everything prior to page 195 of that report, not a word in this joint appendix prior to page 195 of the report was written by the committee or in its name as a recommendation of the committee.

The recommendations of the committee appear on the last ten pages of volume 4 of the Alexander report.

What was has been read to Your Honors by petitioner’s counsel is a summary of the recommendations made by witnesses before the committee.

Now Mr. O’Connor pointed out that professor Huebner wrote that summary, he was writing it as a summary of a testimony before the committee.

Now I don’t think that that the materials referred to have any great significance even if they were directly the product of the committee itself, but I thought it’s important to clarify that point.

The dual rate system as a system of excluding competition, as system for agreement among carriers is of relatively recent origin even in the maritime industry.

It came into common use in the 1920s long after the enactment of this statute.

In this particular trade, the Japan Atlantic trade, it appears for the first time, as the board found in its report in 1928, at that time it was limited to three commodities, in 1934 it was extended across the board to the major important commodities.

With the advent of hostilities in 1941 all that stopped.

It was not — the dual rate system was not resumed after World War II.

The respondent Isbrandtsen is the 18th the lone rugged individualist of the — of this trade as in other trades.

It entered this trade in 1949.

It suffers under certain serious competitive disadvantages.

It has only 26 sailings a year as compared to 300 of the conference vessels.

Its equipment does not match that of conference vessels.

It does not go the gulf course.

So as the board found here any, any shipper or exporter from Japan who has a need for service more frequent than the fortnightly service offered by Isbrandtsen, who needs special shelf rooms or refrigeration service not offered by Isbrandtsen such a shipper has to use the conference vessels.

Despite that — those handicaps Isbrandtsen in the years 1949 to 1953 was able to enjoy a very substantial share of the business here.

It was able to do so because of its policy of consistently offering lower rates.

It was — its policy was to offer rates 10% lower than those offered by the conference.

As a result many shippers to whom that 10% difference was important used Isbrandtsen despite some of the disadvantages of doing so.

The conference was thus confronted with — to a very serious problem.

Philip Elman:

It responded to it in two ways.

First in December in 1952 it proposed this dual rate system for the Federal Maritime Board.

It proposed that that system which had not been in use since 1941 should again be instituted.

The conference took another action, a very important action within three months thereafter before the Federal Maritime Board could take any action on this proposal for a dual rate system.

In March of 1953 a proposal was made within the conference that it, that there be a 20% reduction of the conference rates in order to meet Isbrandtsen’s competition.

That proposal was rejected, instead the conference decided to open the rates, that is that it would no longer hold any of the conference lines bound by the conference fixed rate.

The board found that the purpose of that action, the hope of the conference in opening the rates was that the rate war, which would thereafter ensue, would leave Isbrandtsen to join the conference.

Or in the alternative that it would lead to the institution of the dual rate system.

As a result of that rate war, Isbrandtsen, as Mr. Gardner stated, has effectively lost almost all of its business in this trade, nonetheless it did not join the conference.

The conference succeeded, however, in its second phase.

The Federal Maritime Board has approved this dual rate system.

Now we contend that in doing so the Federal Maritime Board misconstrued the statute.

It applied an erroneous standard of law.

We think that Congress in enacting this statute, as is stated in the last 10 pages of this joint appendix and the committee report itself, Congress found in 1916 that these shipping conferences or shipping rings had established domination over the shipping business.

The choice before Congress was either to prohibit these combinations entirely, apply the principles of strict free competition or to legalize them entirely or without any restraints at all or a third alternative, the one actually chosen by Congress was to legalize these agreements, permit the conferences to get together among themselves fix rates subject to effective governmental restrain.

Now in 1916, the problem of meeting non-conference competition was just as important as it is now.

The dual rate system wasn’t used because there were far more effective methods used.

First most effective was a so called deferred rebate system whereby a shipper who violated his commitment to use all the vessels of a conference lost a rebate, a fixed rebate.

Another method that was used was a so called fighting ship.

That was a ship used by — subsidized by all of the members of the conference, it went into a particular port where the independent was, it was equivalent to a lost leader and that ship consistently undercut the independent, so the independent either had to join the conference or go out of business.

Those were the crude but very effective methods that were in use in 1916.

The dual rate system was not in use.

It is true as has been mentioned that there were contracts between carriers, individual carriers and individual shippers.

Those were negotiated contracts for the most part.

They varied in length of time, they varied in the differential, but the crucial difference, the essential difference is that those were not contracts among the members of the conference for the purpose of eliminating competition.

You will find what the board itself characterizes as a sample of such a contract on page 44 of its brief, brief with a light grey cover.

And I must say in all honesty that we have not found any other contract precisely along these lines, it goes quite as far as being conference among more than one carrier, a contract between more than one carrier.

But assuming this is the best, this is the closest you can get to something evidencing a dual rate system prior to enactment of the shipping act, it falls very far from what we have here which is a conference agreement.

An agreement among the ship — among the ship lines themselves whereby they establish two systems of rates, systems of rates.

All this contract did on page 44 is a negotiated contract on behalf of named carriers specifying named rates for named commodities.

Philip Elman:

And this one contains a firm obligation on the part of the alliance to provide space and as Judge Washington pointed it’s all the difference in the world between a requirements contract whereby the seller makes a firm commitment as this space where space is important and when there is no —

Felix Frankfurter:

May I ask you about carrying any innuendo if it’s relevant in this case under the statute, under the existing law may an individual carrier make a dual rate contract to the ship, meaning by that they are giving two rates if you —

Philip Elman:

An individual carrier with one shipper?

Felix Frankfurter:

Pardon me.

Philip Elman:

With one shipper?

Felix Frankfurter:

I don’t care whether one or more.

Philip Elman:

Well let me —

Felix Frankfurter:

(Inaudible) main individual carriers say, I will give you rate, rate of – the rate is x for anybody coming along, it’s x-y to deal exclusively with me.

Is it lawful under the act, I am not suggesting that —

Philip Elman:

I think it’s a, I think it’s — I think the problem would be precisely the same under this act as it would be under the Interstate Commerce Act, if you had such a contract which presumably would not run afoul with the specific probation with Section 14 which I am going to talk about later.

But assuming 14 isn’t there and it’s just the question of unjust discrimination, your initial question would be whether the obligation to give, give all of your — the commitment to give on part of the shipper to give all of its business exclusively to a carrier and would entitle him to a difference in rates.

Suppose for example an individual railroad undertook to make such an agreement.

Felix Frankfurter:

Well it couldn’t be —

Philip Elman:

I would, I would assume that the principle that forbids discrimination against shippers unless there is a difference in service would preclude it.

But let’s assume that you don’t apply that here.

At the very least if you — if the shipper who receives a discount because he commits all of his business to the carrier, the spread, the differential should bear some relation to a difference in costs.

If you could, if you could show that by reason of an exclusive patronage contract, an individual carrier is enabled to make some savings in this hour in determining a saving —

Felix Frankfurter:

Revise on the tonnage of a big shipper?

Philip Elman:

If he can show — if he can show that he saves x amount, it would seem to me that the very least you have to show that the x amount, which the shipper is given by way of a reduction is the same.

Now of course this differential is arbitrary in the sense that if — that it is not measured at all by any differences in cost, any savings to the carrier.

The only reason for the differential, the basis upon which it was computed was effective to accomplish its purpose namely to take the business away from Isbrandtsen and bring it back to the conference and by bringing it back from the conference, it would enable a conference to fill these otherwise half empty vessels.