[House Report 110-860]
[From the U.S. Government Publishing Office]
110th Congress Rept. 110-860
HOUSE OF REPRESENTATIVES
2d Session Part 1
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RAILROAD ANTITRUST ENFORCEMENT ACT OF 2008
_______
September 18, 2008.--Ordered to be printed
_______
Mr. Conyers, from the Committee on the Judiciary, submitted the
following
R E P O R T
[To accompany H.R. 1650]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the bill
(H.R. 1650) to amend the Federal antitrust laws to provide
expanded coverage and to eliminate exemptions from such laws
that are contrary to the public interest with respect to
railroads, having considered the same, report favorably thereon
with an amendment and recommend that the bill as amended do
pass.
CONTENTS
Page
The Amendment.................................................... 1
Purpose and Summary.............................................. 3
Background and Need for the Legislation.......................... 4
Hearings......................................................... 8
Committee Consideration.......................................... 9
Committee Votes.................................................. 9
Committee Oversight Findings..................................... 9
New Budget Authority and Tax Expenditures........................ 9
Congressional Budget Office Cost Estimate........................ 9
Performance Goals and Objectives................................. 10
Constitutional Authority Statement............................... 11
Advisory on Earmarks............................................. 11
Section-by-Section Analysis...................................... 11
Changes in Existing Law Made by the Bill, as Reported............ 13
The Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Railroad Antitrust Enforcement Act
of 2008''.
SEC. 2. APPLICATION OF THE ANTITRUST LAWS TO RAIL COMMON CARRIERS.
(a) Application of the Antitrust Laws.--The antitrust laws shall
apply to a common carrier by railroad that is subject to the
jurisdiction of the Surface Transportation Board under subtitle IV of
title 49, United States Code, without regard to whether such common
carrier filed a rate or whether a complaint challenging a rate is
filed.
(b) Definition.--The term ``antitrust laws'' has the meaning given
it in subsection (a) of the 1st section of the Clayton Act (15 U.S.C.
12(a)), but includes section 5 of the Federal Trade Commission Act to
the extent such section 5 applies to unfair methods of competition
SEC. 3. MERGERS AND ACQUISITIONS OF RAILROADS.
The last undesignated paragraph of section 7 of the Clayton Act (15
U.S.C. 18) is amended by inserting ``(excluding transactions described
in section 11321 of title 49 of the United States Code)'' after
``Surface Transportation Board''.
SEC. 4. ANTITRUST ENFORCEMENT AUTHORITY.
Section 11(a) of the Clayton Act (15 U.S.C. 21(a)) is amended by
inserting ``(excluding agreements described in section 10706 of such
title and transactions described in section 11321 of such title)''
after ``Code''.
SEC. 5. INJUNCTIONS AGAINST RAILROAD COMMON CARRIERS.
The proviso in section 16 of the Clayton Act (15 U.S.C. 26) is
amended by inserting ``(excluding a common carrier by railroad)'' after
``Board''.
SEC. 6. REMOVAL OF PRIMARY JURISDICTION AS LIMITATION.
The Clayton Act (15 U.S.C. 12 et seq.) is amended by adding at the
end thereof the following:
``Sec. 29. In any civil action against a common carrier railroad
under section 4, 4A, 4C, 15, or 16, the district court shall not be
required to defer to the jurisdiction of the Surface Transportation
Board.''.
SEC. 7. UNFAIR METHODS OF COMPETITION.
Section 5(a)(2) of the Federal Trade Commission Act (15 U.S.C.
45(a)(2)) is amended by adding at the end the following:
``For purposes of this paragraph with respect to unfair methods of
competition, the term `common carrier' excludes a common carrier by
railroad that is subject to jurisdiction of the Surface Transportation
Board under subtitle IV of title 49 of the United States Code.''.
SEC. 8. TERMINATION OF EXEMPTIONS IN TITLE 49.
(a) In General.--Section 10706 of title 49, United States Code, is
amended--
(1) in subsection (a)--
(A) in the 3d sentence of paragraph (2)(A) by
striking ``, and the Sherman Act (15 U.S.C. 1 et
seq.),'' and all that follows through ``or carrying out
the agreement'',
(B) in paragraph (4)--
(i) by striking the 2d sentence, and
(ii) in the 3d sentence by striking
``However, the'' and inserting ``The'', and
(C) in paragraph (5)(A) by striking ``, and the
antitrust laws set forth in paragraph (2) of this
subsection do not apply to parties and other persons
with respect to making or carrying out the agreement'',
(2) in subsection (d) by striking the last sentence, and
(3) by striking subsection (e) and inserting the following:
``(e) Nothing in this section exempts a proposed agreement
described in subsection (a) from the application of the antitrust laws
(as defined in subsection (a) of the 1st section of the Clayton Act,
but including section 5 of the Federal Trade Commission Act to the
extent such section 5 applies to unfair methods of competition).
``(f) In reviewing any proposed agreement described in subsection
(a), the Board shall take into account, among any other considerations,
the impact of the proposed agreement on shippers, consumers, and
affected communities. The Board shall make findings regarding such
impact, which shall be--
``(1) made part of the administrative record;
``(2) submitted to any other reviewing agency for
consideration in making its determination; and
``(3) available in any judicial review of the Board's
decision regarding such agreement.''.
(b) Combinations.--Section 11321 of title 49, United States Code,
is amended--
(1) in subsection (a)--
(A) by striking ``The authority'' and inserting
``Except as provided in sections 4, 4A, 4C, 15, and 16
of the Clayton Act, the authority''; and
(B) in the 3d sentence by striking ``is exempt from
the antitrust laws and from all other law,'' and
inserting ``is exempt from all other law (except the
laws referred to in subsection (c)),'', and
(2) by adding at the end the following:
``(c) Nothing in this subchapter exempts a transaction described in
subsection (a) from the application of the antitrust laws (as defined
in subsection (a) of the 1st section of the Clayton Act, but including
section 5 of the Federal Trade Commission Act to the extent such
section 5 applies to unfair methods of competition). The preceding
sentence shall not apply to any transaction relating to the pooling of
railroad cars approved by the Surface Transportation Board or its
predecessor agency pursuant to section 11322.
``(d) In reviewing any transaction described in subsection (a), the
Board shall take into account, among any other considerations, the
impact of the transaction on shippers and affected communities.''.
(c) Conforming Amendments.--
(1) Heading.--The heading for section 10706 of title 49,
United States Code, is amended to read as follows: ``Rate
agreements''.
(2) Analysis of sections.--The analysis of sections of
chapter 107 of such title is amended by striking the item
relating to section 10706 and insert the following:
``10706. Rate agreements.''.
SEC. 9. EFFECTIVE DATE.
(a) In General.--Except as provided in subsection (b), this Act and
the amendments made by this Act shall take effect on the date of
enactment of this Act.
(b) Limitation.--A civil action under section 4, 4A, 4C, 15, or 16
of the Clayton Act, or a complaint under section 5 of the Federal Trade
Commission Act (15 U.S.C. 45) to the extent such section 5 applies to
unfair methods of competition, may not be filed with respect to any
conduct or activity that--
(1) occurs before the expiration of the 180-day period
beginning on the date of enactment of this Act; and
(2) was exempted from the antitrust laws (as defined in
subsection (a) of the 1st section of the Clayton Act (15 U.S.C.
12(a)), but including section 5 of the Federal Trade Commission
Act (15 U.S.C. 45) to the extent such section 5 applies to
unfair methods of competition) by an order of the Interstate
Commerce Commission or the Surface Transportation Board issued
before the date of the enactment of this Act and pursuant to
law.
Purpose and Summary
H.R. 1650, the Railroad Antitrust Enforcement Act of 2008,
will eliminate certain carve-outs from the Federal antitrust
laws enjoyed by railroad common carriers, thereby subjecting
railroad industry practices to the pro-competitive influence of
the antitrust laws. The carve-outs are a holdover from a bygone
period in which railroads were subject to extensive regulation.
In the modern environment of deregulation that commenced more
than thirty years ago with the passage of the Railroad
Revitalization and Regulatory Reform (4R) Act\1\ and the
Staggers Rail Act,\2\ these carve-outs work primarily to
subvert the free-market dynamics that would otherwise prevail
in the industry.
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\1\Pub.L. No. 94-210 (1976).
\2\Pub.L. No. 96-448 (1980).
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The bill will extend to the railroad industry remedies and
enforcement mechanisms generally applicable to other industries
under the Federal antitrust laws. Those harmed by antitrust
violations perpetrated by a rail carrier will now have the full
range of remedies available under the Federal antitrust laws.
The Federal Trade Commission (FTC) and the Department of
Justice (DOJ) (collectively, the Agencies) and State attorneys
general acting in parens patriae on behalf of their citizens
will be able to enforce the Federal antitrust laws with respect
to anticompetitive business practices and mergers and
acquisitions in the railroad industry.
The bill is prospective in effect. Any merger or
acquisition consummated prior to the date of the bill's
enactment, or conduct that will have occurred prior to that
date and that was immunized under an order by the Surface
Transportation Board (STB) or its predecessor, the Interstate
Commerce Commission, will not become subject to antitrust
action as a result of this bill. Any merger or acquisition or
conduct taking place after passage of the bill, however, will
be subject to the bill's provisions.
There is an additional 180-day grace period for conduct
that began pursuant to immunity under the previous law and that
is continuing at the date of enactment. After the expiration of
that 180-day period, however, that conduct will also become
subject to the new law.
Except with respect to conferring antitrust immunity, the
bill fully preserves the STB's regulatory authority. With
respect to reviewing railroad mergers and acquisitions, the STB
will retain its public interest authority alongside the
Agencies' antitrust authority. The two reviews will be
conducted concurrently yet separately.
Background and Need for the Legislation
By eliminating Federal antitrust exemptions from the
railroad industry, H.R. 1650 would subject railroad industry
practices to appropriate antitrust enforcement. This completes
a process begun nearly three decades ago with the
procompetitive deregulation of the railroad industry. Absent
the bill's corrective measures, the railroad industry can only
partially achieve the pro-competitive benefits of deregulation.
BACKGROUND
The railroad industry is in its third decade of
deregulation after a long history as a regulated industry. In
the 1920's, while the industry was still heavily regulated,
Congress granted the industry a number of antitrust immunities.
Thirty years ago, the industry was largely deregulated
following enactment of the 4R Act and the Staggers Act, which
provided carriers with greater flexibility in setting their own
rates. However, many of the industry's antitrust exemptions
remained in place.
As a result, the Agencies are limited in their ability to
enforce the Federal antitrust laws in the railroad industry.
STB-approved transactions under 49 U.S.C. Sec. 11321-11328
(consolidations, mergers, acquisitions, some leases, trackage
rights, pooling arrangements, and agreements to divide traffic)
are exempt from antitrust enforcement. Certain rate- and
charge-related agreements approved by the STB under 49 U.S.C.
Sec. 10706 are similarly exempt.
Under current law, the STB has the exclusive authority to
approve a railroad merger or acquisition (including other forms
of consolidation or market divisions that would alter the
competitive landscape). The Board evaluates mergers and
acquisitions under a broad ``public interest'' standard, which
differs markedly from the standard used by the Agencies in
performing an antitrust review. Because common carrier mergers
subject to the STB's jurisdiction are expressly exempt from the
FTC Act, the FTC has no authority to review them. And, DOJ's
role is limited to submitting advisory recommendations to the
STB for its consideration, which the STB is free to reject.
Private parties are similarly precluded from relying on the
antitrust laws to protect themselves against or seek remedies
for anticompetitive harm caused by the railroads. Under Section
16 of the Clayton Act,\3\ injunctive relief against a common
carrier subject to the STB's jurisdiction is available only in
a suit filed by the Federal Government. In addition, the so-
called Keogh Doctrine\4\ precludes private parties from
recovering damages.
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\3\15 U.S.C. Sec. 126.
\4\Keogh v. Chicago & Northwestern Railway, 260 U.S. 152 (1922).
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Businesses that ship by rail argue that the antitrust
exemptions have enabled railroads to engage in a number of
anticompetitive practices. Some shippers claim that the rates
charged when the shippers have no competing rail options (i.e.,
when they are ``captive shippers'') are unfairly inflated, and
that the rate appeal process at the STB favors the rail
carriers. In addition, certain practices by the rail carriers--
such as entering into contracts with operators of connecting
short line tracks that unduly punish them for doing business
with competing carriers (also known as ``paper barriers'') and
refusals to segment long-haul transportation quotes so as to
permit interconnecting rail carriers to compete on some
portions (a.k.a. ``bottlenecks'')--may be resulting in
anticompetitive rates that are ultimately passed on to
consumers in the form of higher prices. In fact, in a September
2004 letter, the DOJ indicated that these practices could very
well violate Federal antitrust laws.\5\
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\5\Letter from Assistant Attorney General William E. Moschella to
Rep. F. James Sensenbrenner, Jr. (September 27, 2004).
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ANTITRUST ANALYSIS
This bill will enhance competition by enabling the Agencies
to enforce the antitrust laws in the railroad industry and by
providing private parties with the full panoply of relief and
remedies available under the antitrust laws.
Empowering Federal Agencies to Enforce Antitrust Laws
Enacement of this legislation would enable the Agencies to
enforce the antitrust laws in the railroad industry. Under
current law, DOJ, the agency traditionally charged with
antitrust oversight of railroad mergers and acquisitions, can
offer little more than a defanged advisory evaluation of
railroad industry mergers and acquisitions. DOJ lacks antitrust
enforcement authority over railroad mergers and acquisitions
because 49 U.S.C. Sec. 11321 provides that a ``rail carrier,
corporation, or person participating in [an STB-] approved or
exempted transaction 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 . . .''
The STB evaluates rail carrier mergers and acquisitions
under a broad public interest standard outlined in 49 U.S.C.
Sec. 11324. This public interest standard is broader and more
diffuse than the antitrust standard, which is focused on
preventing mergers and acquisitions that substantially lessen
competition, resulting in restrictions on output or increases
in price.
Although section 11324(d)(2) requires the STB, in making
its determination regarding a proposed rail carrier merger or
acquisition, to ``accord substantial weight to any
recommendations of the Attorney General,'' the STB remains free
to disregard any such recommendation. The STB's 1996 decision
approving the Union Pacific/Southern Pacific merger over DOJ's
vigorous objections, subsequently affirmed on appeal by the
Eighth Circuit,\6\ starkly demonstrates the limits of DOJ's
current role under the antitrust laws. The STB ruled that its
statutory mandate ``sharply contrasts with the approach to
mergers taken by the DOJ and the Federal Trade Commission. The
policies embodied in the antitrust laws provide guidance, but
are not determinative. . . . Thus the [STB] can . . . approve
transactions even if they otherwise would violate the antitrust
laws.''\7\
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\6\Union Pac. Corp., 1 S.T.B. 233, 1996 WL 467636 (Aug. 12, 1996),
petition for review denied, Western Coal Traffic League v. STB, 169 F.
3d 775 (1999), opinion clarified, Union Pac. Corp., 2002 WL 335181
(Feb. 28, 2002).
\7\Union Pac. Corp., 1 S.T.B. at 86-88.
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Passage of the bill would subject railroads to the same
kind of concurrent oversight by both a Federal enforcement
agency and a regulatory body found in other partially-regulated
industries, including electricity transmission in interstate
commerce, the operation of liquid natural gas import terminals,
the transportation of natural gas by interstate pipeline, and
the transportation of oil by interstate common carrier
pipelines. While the STB would continue to maintain oversight
over a variety of other operational issues related to the
operation of the railroad industry, antitrust enforcement by
the Agencies as warranted would operate alongside the
regulatory authority.
Enhanced Ability of Shippers to Challenge Anticompetitive Rail Rates
So-called ``captive'' shippers (rail carrier customers with
a single carrier option for part of, or all of, a shipping
route they depend on) are frequently charged higher rates due
to a lack of competition among rail carriers and the ability of
carriers to charge differential pricing under the Staggers Act.
Some of these rating practices might violate the antitrust
laws; under current law, however, neither shippers nor the
Agencies have any effective recourse under the antitrust laws.
The bill would give shippers additional avenues by which to
challenge anticompetitive rail practices.
According to an October 2006 U.S. Government Accountability
Office report, the volume of traffic traveling at significantly
non-competitive rates (defined as more than 300% of variable
cost) has increased since 1985.\8\ The rates paid by these
captive shippers are, on average, 20.9% higher, costing captive
shippers an estimated excess of $1.3 billion on an annual
basis.\9\
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\8\October 2006 United States Government Accountability Office
Report to Congressional Requesters, ``Freight Railroads: Industry
Health Has Improved, but Concerns about Competition and Capacity Should
Be Addressed,'' available at http://www.gao.gov/new.items/d0794.pdf.
Because the total number of rail shippers has increased over the past
twenty years, the percentage represented by captive shippers has
decreased, but not their actual number.
\9\The Status of Economic Railroad Regulation: Hearing before the
H. Comm. on Transportation and Infrastructure, Subcommittee on
Railroads, 108th Cong. 1 (2004) (Statement of Dr. Curtis Grimm,
Professor of Supply Chain and Strategy, University of Maryland).
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Subjecting ``Bottlenecks'' to Antitrust Scrutiny
Enactment of this legislation would subject so-called
``bottlenecks'' to appropriate antitrust scrutiny. Bottlenecks
are shipping situations in which customers have only a single
rail line transportation option to a point of interconnection
with other carriers. Oftentimes, the rail carrier operating the
bottleneck will quote the shipper a single quote for the
entire, or ``long haul,'' route, and will refuse to offer the
alternative of a separate price for the single-carrier portion
of the route. This practice, which was upheld by the STB in a
1996 decision and affirmed by the Eighth Circuit,\10\ denies
captive shippers the benefits of competition on the other
portions of the route where they are not otherwise captive.
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\10\See Central Power & Light Co. v. Southern Pacific
Transportation Co., 1 S.T.B. 1059 (1996), clarified at 2 S.T.B. 235
(1997), aff'd by the US Court of Appeals for the Eighth Circuit,
MidAmerican Energy Co. v. STB, 169 F.3d 1099 (8th Cir. 1999). Note that
the Eighth Circuit's review was limited to determining whether there
were compelling indications that the Board's interpretations of the
applicable statutes were not correct. 169 F.3d at 1106.
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There is no justifiable logistical or practical reason
preventing rail carriers controlling bottleneck situations from
offering compartmentalized rates other than a calculated
business decision--legal under current law--to use their
monopoly power in the segment they control to extract the
maximum profit possible from shippers who must depend on that
segment. The higher cost borne by the shippers ultimately
translates into higher costs for consumers for the goods being
transported.
H.R. 1650 would subject bottleneck pricing to the antitrust
laws. In a 2004 letter to then-Chairman Sensenbrenner, the
Department of Justice stated that ``[i]f [bottlenecking] were
subject to the antitrust laws, it could be evaluated as a
refusal to deal in possible violation of Section 2 of the
Sherman Act, or as a tying arrangement in possible violation of
Section 1 of the Sherman Act.''\11\
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\11\Letter from Assistant Attorney General William Moschella to
Hon. F. James Sensenbrenner, Jr. (September 27, 2004).
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Subjecting ``Paper Barriers'' to Antitrust Scrutiny
Enactment of this legislation would subject so-called
``paper barriers'' to appropriate antitrust scrutiny. ``Paper
barriers,'' also known as ``interchange commitments,'' are a
range of contractual obligations between smaller railways (so-
called ``short line'' railroads) and the owners of the larger
interstate (or ``trunk line'') railways off of which the short
lines branch. Many of these contracts limit the short line
railroads from doing meaningful business with any major rail
carrier other than the one from which they leased or purchased
their track.
The terms of these leases can be anticompetitive in their
effect. The rent due on the track leases typically decreases
markedly with increasing volumes of traffic sent to the trunk
line. This has the effect of substantially lessening the
competitive presence of other railways that connect to the
short line, and effectively eliminating the competitive options
available to shippers using the short line.
H.R. 1650 would subject paper barriers to the antitrust
laws. In its 2004 letter to then-Chairman Sensenbrenner, DOJ
stated that ``[i]f paper barriers were subject to the antitrust
laws, they would be evaluated under section 1 of the Sherman
Act. The Department would examine whether the restraint is
ancillary to the sale of the trackage--i.e., whether the
restraint is reasonably necessary to achieve the pro-
competitive benefits of the sale.''\12\
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\12\Id.
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Effectuating Recommendations of the Antitrust Modernization Commission
Removal of these antitrust immunities would follow the
recommendations of the Antitrust Modernization Commission
established by Congress to assess and make recommendations
regarding antitrust issues warranting attention. According to
the Commission, ``[s]tatutory exemptions from the antitrust
laws undermine, rather than upgrade, the competitiveness and
efficiency of the U.S. economy'' in that they ``reduce the
competitiveness of the industries that have sought antitrust
exemptions.''\13\ The railroad industry is precisely the type
of industry envisioned by the Commission as benefiting from
heightened competition following the removal of statutory
antitrust exemptions.
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\13\Antitrust Modernization Commission, Report and Recommendations,
335 (2007).
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Passage of H.R. 1650 would open industry practices to
scrutiny by the Agencies, which should result in more
competitive rates for shippers and, ultimately, lower prices
for end consumers. Private parties such as rail shippers who
are harmed by anticompetitive rail carrier practices would be
able to seek appropriate monetary remedies and injunctive
relief. The Agencies would have authority to investigate rail
carrier mergers and acquisitions and conduct and, where
appropriate, bring enforcement actions to prevent or remedy
anticompetitive results. In addition, State attorneys general
will also be able to bring actions in Federal court in parens
patriae challenging actions by railroad common carriers in
violation of the Federal antitrust laws.
The bill is carefully written to be prospective in its
effect. Mergers that will have taken place prior to the bill's
enactment and were exempted from antitrust scrutiny under the
current standards would remain exempt. Conduct that will have
taken place before the bill's enactment and was exempted would
not become subject to retroactive antitrust enforcement.
Mergers and acquisitions that take place after the bill's
enactment will be subject to the antitrust laws, as will
conduct that takes place after the bill's enactment. Under a
special grace period, parties who continue to engage in conduct
previously exempted by STB approval prior to the bill's passage
have 180 days to discontinue such conduct, after which any
continuing conduct will becomes subject to the antitrust laws.
Hearings
The Committee on the Judiciary Task Force on Antitrust and
Competition Policy held a one-day hearing on February 25, 2008
on H.R. 1650. Testimony was received from Representative Tammy
Baldwin (D-WI); Susan M. Diehl, Senior Vice President for
Logistics and Supply Chain Management, Holcim, Inc.; Terry
Huval, Director of Utilities, Lafayette Utilities System
(Lafayette, Louisiana) and Chairman, American Public Power
Association; G. Paul Moates, Partner, Sidley Austin LLP on
behalf of the Association of American Railroads; and Dr. Darren
Bush, Associate Professor of Law, University of Houston Law
Center (Houston, Texas).
Committee Consideration
On April 30, 2008, the Committee met in open session and
ordered the bill, H.R. 1650, favorably reported, as amended, by
voice vote, a quorum being present.
Committee Votes
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that there
were no recorded votes during the Committee's consideration of
H.R. 1650.
Committee Oversight Findings
In compliance with clause 3(c)(1) of rule XIII of the Rules
of the House of Representatives, the Committee advises that the
findings and recommendations of the Committee, based on
oversight activities under clause 2(b)(1) of rule X of the
Rules of the House of Representatives, are incorporated in the
descriptive portions of this report.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of rule XIII of the Rules of the House of
Representatives is inapplicable because this legislation does
not provide new budgetary authority or increased tax
expenditures.
Congressional Budget Office Cost Estimate
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, the Committee sets forth, with
respect to the bill, H.R. 1650, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, September 9, 2008.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1650, the Railroad
Antitrust Enforcement Act of 2008.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Leigh Angres,
who can be reached at 226-2860.
Sincerely,
Peter R. Orszag,
Director.
Enclosure
cc:
Honorable Lamar S. Smith.
Ranking Member
H.R. 1650--Railroad Antitrust Enforcement Act of 2008.
H.R. 1650 would expand the authority of the Department of
Justice (DOJ) and the Federal Trade Commission (FTC) to
prosecute, under the Sherman and Clayton Acts, certain
antitrust violations relating to railroads. Currently, the
Surface Transportation Board (STB) has the primary authority to
regulate mergers, acquisitions, rate-setting, and pooling
arrangements under the Interstate Commerce Act. The roles of
DOJ and FTC are generally limited to investigating potential
violations and providing advice to the STB.
Based on information provided by DOJ, CBO estimates that
implementing H.R. 1650 would have no significant effect on the
federal budget. We expect that DOJ would continue to perform
investigations of railroads, but that very few of those
investigations would result in enforcement actions. (CBO also
expects that DOJ, rather than FTC, would handle antitrust
enforcement matters specified under the bill; thus, we do not
anticipate that FTC would incur significant additional
enforcement costs.) Anyone convicted of antitrust violations
specified in the bill would be subject to criminal fines, which
are recorded as revenues, deposited in the Crime Victims Fund,
and later spent. Thus, enacting H.R. 1650 could increase
revenues and direct spending, but CBO estimates that any such
effects would be insignificant given the small number of cases
involved.
H.R. 1650 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would impose no
costs on State, local, or tribal governments.
H.R. 1650 would impose a private-sector mandate, as defined
in UMRA, on railroads by eliminating exemptions from certain
antitrust laws. It is unclear how making railroads subject to
provisions of those antitrust statutes would affect current
business practices, if at all. The extent to which railroad
carriers would have to forgo business opportunities and what
the value of those lost opportunities would be are also
uncertain. Because of these uncertainties, CBO has no basis for
estimating the cost to railroads and whether that cost would
exceed the annual threshold established in UMRA for private-
sector mandates ($136 million in 2008, adjusted annually for
inflation).
On November 21, 2007, CBO transmitted a cost estimate for
S. 772, the Railroad Antitrust Enforcement Act of 2007, as
ordered reported by the Senate Committee on the Judiciary on
September 20, 2007. S. 772 and H.R. 1650 are similar, and CBO's
estimates of costs are the same.
The CBO staff contacts for this estimate are Leigh Angres
(for federal costs), who can be reached at 226-2860, and Jacob
Kuipers (for the private-sector impact), who can be reached at
226-2940. This estimate was approved by Theresa Gullo, Deputy
Assistant Director for Budget Analysis.
Performance Goals and Objectives
The Committee states that pursuant to clause 3(c)(4) of
rule XIII of the Rules of the House of Representatives, H.R.
1650 will bring the pro-competitive benefits of the antitrust
laws into the railroad industry by eliminating certain
antitrust exemptions from current law.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds the authority for
this legislation in article I, section 8, clause 3 of the
Constitution.
Advisory on Earmarks
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 1650 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.
Section-by-Section Analysis
The following discussion describes the bill as reported by
the Committee.
Section 1. Short Title. Section 1 sets forth the short
title of the bill as the ``Railroad Antitrust Enforcement Act
of 2008.''
Section 2. Application of the Antitrust Laws to Rail Common
Carriers. This section amends the Clayton Act to overturn the
filed rate doctrine, or Keogh Doctrine. This doctrine, created
by the Supreme Court during the era of pervasive regulation of
the rail industry, limits damages recoverable in a civil
antitrust suit to the railroad's filed rate.\14\ Section 2 of
the bill will make standard damages available regardless of
whether the railroad has filed rates.
---------------------------------------------------------------------------
\14\Keogh v. Chicago & Northwestern Railway, 260 U.S. 152 (1922).
---------------------------------------------------------------------------
Section 3. Mergers and Acquisitions of Railroads. This
section modifies section 7 of the Clayton Act to empower the
Agencies to enforce the Federal antitrust laws against certain
STB-approved rail carrier rate agreements.
Section 7 of the Clayton Act prohibits mergers and
acquisitions that are likely to substantially lessen
competition. The sixth undesignated paragraph of section 7
exempts ``transactions duly consummated pursuant to the
authority'' of specified agencies, including the STB. Section 3
of the bill removes that exemption as to STB-approved
agreements described in 49 U.S.C. Sec. 11321, which covers
agreements among rail carriers ``to pool or divide traffic or
services or any part of their earnings'' pursuant to 49 U.S.C.
Sec. 11322 as well as consolidations, mergers, and acquisitions
of control pursuant to 49 U.S.C. Sec. 11323. Under this bill,
these transactions will now be subject to review under the
Federal antitrust laws even if approved by the STB.
Section 4. Antitrust Enforcement Authority. This section
amends the Clayton Act to authorize the FTC to enforce certain
sections of the Clayton Act against railroad common carrier
transactions described in 49 U.S.C. Sec. 10706 (STB-approved
agreements among two or more rail carriers relating to rates)
and 49 U.S.C. Sec. 11321 (STB-approved agreements or
combinations).
Section 11(a) of the Clayton Act extends enforcement
authority for sections 2, 3, 7, and 8 of the Clayton Act to the
STB with respect to common carriers subject to its
jurisdiction, which removes those common carriers from the
residual clause in section 11(a) that would otherwise give the
FTC that authority. Section 4 of the bill carves out from the
authority extended to the STB agreements described in 49 U.S.C.
Sec. 10706 and 49 U.S.C. Sec. 11321, thereby bringing those
agreements within coverage of the residual clause.
Other sections of the bill make agreements now covered by
49 U.S.C. Sec. 10706 and 49 U.S.C. Sec. 11321 subject to
antitrust enforcement, and the change to section 11(a) of the
Clayton Act ensures that the antitrust enforcement authority is
vested in the FTC as well as the DOJ.
Section 5. Injunctions Against Railroad Common Carriers.
This section modifies section 16 of the Clayton Act to remove
the prohibition on private parties seeking injunctive relief
against a railroad common carrier for a violation of the
antitrust laws.
Section 16 of the Clayton Act permits private parties
threatened with loss or damage by a violation of the Federal
antitrust laws to sue for injunctive relief. Under current law,
section 16 exempts common carriers subject to the jurisdiction
of the STB from suit for injunctive relief by anyone except the
United States. Section 5 of the bill removes this carve-out
with respect to railroads, situating the railroad industry
identically to all other industries subject to section 16 of
the Clayton Act.
Section 6. Removal of Primary Jurisdiction as Limitation.
This section adds a new section 29 to the Clayton Act,
clarifying that in a civil antitrust action brought against a
common carrier railroad, either by a private party seeking
treble damages or injunctive relief or by the United States or
by a State attorney general, the Federal district court in
which the case is brought need not defer to the jurisdiction of
the STB on these or related issues. Specifically, this section
rejects the doctrine of primary jurisdiction, which suggests or
requires Federal district courts to defer to regulatory bodies
on the adjudication of certain issues that were considered to
be within the special competence of an administrative body.
Section 7. Unfair Methods of Competition. This section
eliminates the carve-out in the FTC Act preventing enforcement
of the FTC Act with respect to railroads.
Section 5(a)(2) of the FTC Act prohibits the FTC from
enforcing the FTC Act's prohibition against ``unfair methods of
competition in or affecting commerce and unfair or deceptive
acts or practices in or affecting commerce'' in certain
industries. Among the industries excluded by this section
5(a)(2) are ``common carriers subject to the Act to regulate
commerce.'' Section 7 of the bill removes from this exclusion,
with respect to unfair methods of competition, railroad common
carriers subject to the STB's jurisdiction under subtitle IV of
49 U.S.C., enabling antitrust scrutiny of the railroad industry
by the FTC under the FTC Act. The scope of the FTC's
enforcement authority regarding unfair and deceptive acts or
practices is not affected.
Section 8. Termination of Exemptions in Title 49. This
section eliminates antitrust exemptions currently in title 49
of the United States Code that apply to rail carriers. These
include exemptions pertaining to STB-approved rate agreements
in 49 U.S.C. Sec. 10706(a)(2)(A); agreements that provide
``solely for compilation, publication, and other distribution
of rates in effect or to become effective'' in 49 U.S.C.
Sec. 10706(a)(4); STB-approved discussions among shippers
regarding compensation to be paid by rail carriers for the use
of rolling stock owned or leased by the shippers in 49 U.S.C.
Sec. 10706(a)(5)(A); and mergers and acquisitions and
agreements referred to in 49 U.S.C. Sec. 11321. In addition,
section 8 of the bill eliminates a requirement for reporting to
the FTC and DOJ, and substitutes provisions clarifying that the
Federal antitrust laws apply to all proposed agreements
described in 49 U.S.C. Sec. 10706(a). Furthermore, section 8
specifies a reporting requirement for the STB; that such report
shall become a part of the administrative record of any lawsuit
against the STB's decision; that such report shall be made
available to any other reviewing agency; and that such report
shall be available in any judicial review of the Board's
decision regarding such agreement.
Section 8(b) of the bill clarifies that the exemption for
STB-approved pooling agreements under 49 U.S.C. Sec. 11322 is
preserved.
Section 9. Effective Date. This section establishes the
bill's effective dates. The bill is prospective in effect, with
a special grace period for continuing conduct.
Pursuant to this section, mergers and acquisitions that
will have taken place prior to the bill's enactment and were
exempted from antitrust scrutiny under the current standards
would remain exempt. Conduct that will have taken place before
the bill's enactment and was exempted would not become subject
to retroactive antitrust enforcement. Mergers and acquisitions
that take place after the bill's enactment will be subject to
antitrust laws, as will conduct that takes place after the
bill's enactment. Under the special grace period, parties who
are engaging in conduct previously-exempted by STB approval
prior to the bill's passage will have 180 days to discontinue
such conduct, after which such conduct will become subject to
the antitrust laws to the extent it continues.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
CLAYTON ACT
* * * * * * *
Sec. 7. That no person engaged in commerce or in any
activity affecting commerce shall acquire, directly or
indirectly, the whole or any part of the stock or other share
capital and no person subject to the jurisdiction of the
Federal Trade Commission shall acquire the whole or any part of
the assets of another person engaged also in commerce or in any
activity affecting commerce, where in any line of commerce or
in any activity affecting commerce in any section of the
country, the effect of such acquisition may be substantially to
lessen competition, or to tend to create a monopoly.
* * * * * * *
Nothing contained in this section shall apply to
transactions duly consummated pursuant to authority given by
the Secretary of Transportation, Federal Power Commission,
Surface Transportation Board (excluding transactions described
in section 11321 of title 49 of the United States Code), the
Securities and Exchange Commission in the exercise of its
jurisdiction under section 10 of the Public Utility Holding
Company Act of 1935, the United States Maritime Commission, or
the Secretary of Agriculture under any statutory provision
vesting such power in such Commission, Board, or Secretary.
* * * * * * *
Sec. 11. (a) That authority to enforce compliance with
sections 2, 3, 7, and 8 of this Act by the persons respectively
subject thereto is hereby vested in the Surface Transportation
Board where applicable to common carriers subject to
jurisdiction under subtitle IV of title 49, United States Code
(excluding agreements described in section 10706 of such title
and transactions described in section 11321 of such title); in
the Federal Communications Commission where applicable to
common carriers engaged in wire or radio communication or radio
transmission of energy; in the Secretary of Transportation
where applicable to air carriers and foreign air carriers
subject to the Federal Aviation Act of 1958; in the Federal
Reserve Board where applicable to banks, banking associations,
and trust companies; and in the Federal Trade Commission where
applicable to all other character of commerce to be exercised
as follows:
* * * * * * *
Sec. 16. That any person, firm, corporation, or association
shall be entitled to sue for and have injunctive relief, in any
court of the United States having jurisdiction over the
parties, against threatened loss or damage by a violation of
the antitrust laws, including sections two, three, seven and
eight of this Act, when and under the same conditions and
principles as injunctive relief against threatened conduct that
will cause loss or damage is granted by courts of equity, under
the rules governing such proceedings, and upon the execution of
proper bond against damages for an injunction improvidently
granted and a showing that the danger of irreparable loss or
damage is immediate, a preliminary injunction may issue:
Provided, That nothing herein contained shall be construed to
entitle any person, firm, corporation, or association, except
the United States, to bring suit for injunctive relief against
any common carrier subject to the jurisdiction of the Surface
Transportation Board (excluding a common carrier by railroad)
under subtitle IV of title 49, United States Code. In any
action under this section in which the plaintiff substantially
prevails, the court shall award the cost of suit, including a
reasonable attorney's fee, to such plaintiff.
* * * * * * *
Sec. 29. In any civil action against a common carrier
railroad under section 4, 4A, 4C, 15, or 16, the district court
shall not be required to defer to the jurisdiction of the
Surface Transportation Board.
----------
FEDERAL TRADE COMMISSION ACT
* * * * * * *
Sec. 5. (a)(1) * * *
(2) The Commission is hereby empowered and directed to
prevent persons, partnerships, or corporations, except banks,
savings and loan institutions described in section 18(f)(3),
Federal credit unions described in section 18(f)(4), common
carriers subject to the Acts to regulate commerce, air carriers
and foreign air carriers subject to the Federal Aviation Act of
1958, and persons, partnerships, or corporations insofar as
they are subject to the Packers and Stockyards Act, 1921, as
amended, except as provided in section 406(b) of said Act, from
using unfair methods of competition in or affecting commerce
and unfair or deceptive acts or practices in or affecting
commerce. For purposes of this paragraph with respect to unfair
methods of competition, the term ``common carrier'' excludes a
common carrier by railroad that is subject to jurisdiction of
the Surface Transportation Board under subtitle IV of title 49
of the United States Code.
* * * * * * *
----------
TITLE 49, UNITED STATES CODE
* * * * * * *
Subtitle IV--INTERSTATE TRANSPORTATION
* * * * * * *
PART A--RAIL
* * * * * * *
CHAPTER 107--RATES
Sec.
10701. Standards for rates, classifications, through routes, rules,
and practices.
* * * * * * *
[10706. Rate agreements: exemption from antitrust laws.]
10706. Rate agreements.
* * * * * * *
Sec. 10706. [Rate agreements: exemption from antitrust laws] Rate
agreements
(a)(1) In this subsection--
(A) * * *
* * * * * * *
(2)(A) A rail carrier providing transportation subject to
the jurisdiction of the Board under this part that is a party
to an agreement of at least 2 rail carriers that relates to
rates (including charges between rail carriers and compensation
paid or received for the use of facilities and equipment),
classifications, divisions, or rules related to them, or
procedures for joint consideration, initiation, publication, or
establishment of them, shall apply to the Board for approval of
that agreement under this subsection. The Board shall approve
the agreement only when it finds that the making and carrying
out of the agreement will further the transportation policy of
section 10101 of this title and may require compliance with
conditions necessary to make the agreement further that policy
as a condition of its approval. If the Board approves the
agreement, it may be made and carried out under its terms and
under the conditions required by the Board[, and the Sherman
Act (15 U.S.C. 1, et seq.), the Clayton Act (15 U.S.C. 12, et
seq.), the Federal Trade Commission Act (15 U.S.C. 41, et
seq.), sections 73 and 74 of the Wilson Tariff Act (15 U.S.C. 8
and 9), and the Act of June 19, 1936 (15 U.S.C. 13, 13a, 13b,
21a) do not apply to parties and other persons with respect to
making or carrying out the agreement]. However, the Board may
not approve or continue approval of an agreement when the
conditions required by it are not met or if it does not receive
a verified statement under subparagraph (B) of this paragraph.
* * * * * * *
(4) Notwithstanding any other provision of this subsection,
one or more rail carriers may enter into an agreement, without
obtaining prior Board approval, that provides solely for
compilation, publication, and other distribution of rates in
effect or to become effective. [The Sherman Act (15 U.S.C. 1 et
seq.), the Clayton Act (15 U.S.C. 12 et seq.), the Federal
Trade Commission Act (15 U.S.C. 41 et seq.), sections 73 and 74
of the Wilson Tariff Act (15 U.S.C. 8 and 9), and the Act of
June 19, 1936 (15 U.S.C. 13, 13a, 13b, 21a) shall not apply to
parties and other persons with respect to making or carrying
out such agreement. However, the] The Board may, upon
application or on its own initiative, investigate whether the
parties to such an agreement have exceeded its scope, and upon
a finding that they have, the Board may issue such orders as
are necessary, including an order dissolving the agreement, to
ensure that actions taken pursuant to the agreement are limited
as provided in this paragraph.
(5)(A) Whenever two or more shippers enter into an
agreement to discuss among themselves that relates to the
amount of compensation such shippers propose to be paid by rail
carriers providing transportation subject to the jurisdiction
of the Board under this part, for use by such rail carriers of
rolling stock owned or leased by such shippers, the shippers
shall apply to the Board for approval of that agreement under
this paragraph. The Board shall approve the agreement only when
it finds that the making and carrying out of the agreement will
further the transportation policy set forth in section 10101 of
this title and may require compliance with conditions necessary
to make the agreement further that policy as a condition of
approval. If the Board approves the agreement, it may be made
and carried out under its terms and under the terms required by
the Board[, and the antitrust laws set forth in paragraph (2)
of this subsection do not apply to parties and other persons
with respect to making or carrying out the agreement]. The
Board shall approve or disapprove an agreement under this
paragraph within one year after the date application for
approval of such agreement is made.
* * * * * * *
(d) The Board may begin a proceeding under this section on
its own initiative or on application. [Action of the Board
under this section--
[(1) approving an agreement;
[(2) denying, ending, or changing approval;
[(3) prescribing the conditions on which approval
is granted; or
[(4) changing those conditions,
has effect only as related to application of the antitrust laws
referred to in subsection (a) of this section.
[(e)(1) The Federal Trade Commission, in consultation with
the Antitrust Division of the Department of Justice, shall
prepare periodically an assessment of, and shall report to the
Board on--
[(A) possible anticompetitive features of--
[(i) agreements approved or submitted for
approval under subsection (a) of this section;
and
[(ii) an organization operating under those
agreements; and
[(B) possible ways to alleviate or end an
anticompetitive feature, effect, or aspect in a manner
that will further the goals of this part and of the
transportation policy of section 10101 of this title.
[(2) Reports received by the Board under this subsection
shall be published and made available to the public under
section 552(a) of title 5.]
(e) Nothing in this section exempts a proposed agreement
described in subsection (a) from the application of the
antitrust laws (as defined in subsection (a) of the 1st section
of the Clayton Act, but including section 5 of the Federal
Trade Commission Act to the extent such section 5 applies to
unfair methods of competition).
(f) In reviewing any proposed agreement described in
subsection (a), the Board shall take into account, among any
other considerations, the impact of the proposed agreement on
shippers, consumers, and affected communities. The Board shall
make findings regarding such impact, which shall be--
(1) made part of the administrative record;
(2) submitted to any other reviewing agency for
consideration in making its determination; and
(3) available in any judicial review of the Board's
decision regarding such agreement.
* * * * * * *
CHAPTER 113--FINANCE
* * * * * * *
SUBCHAPTER II--COMBINATIONS
Sec. 11321. Scope of authority
(a) [The authority] Except as provided in sections 4, 4A,
4C, 15, and 16 of the Clayton Act, the authority of the Board
under this subchapter is exclusive. A rail carrier or
corporation participating in or resulting from a transaction
approved by or exempted by the Board under this subchapter may
carry out the transaction, own and operate property, and
exercise control or franchises acquired through the transaction
without the approval of a State authority. A rail carrier,
corporation, or person participating in that approved or
exempted transaction [is exempt from the antitrust laws and
from all other law,] is exempt from all other law (except the
laws referred to in subsection (c)), including State and
municipal law, as necessary to let that rail carrier,
corporation, or person carry out the transaction, hold,
maintain, and operate property, and exercise control or
franchises acquired through the transaction. However, if a
purchase and sale, a lease, or a corporate consolidation or
merger is involved in the transaction, the carrier or
corporation may carry out the transaction only with the assent
of a majority, or the number required under applicable State
law, of the votes of the holders of the capital stock of that
corporation entitled to vote. The vote must occur at a regular
meeting, or special meeting called for that purpose, of those
stockholders and the notice of the meeting must indicate its
purpose.
* * * * * * *
(c) Nothing in this subchapter exempts a transaction
described in subsection (a) from the application of the
antitrust laws (as defined in subsection (a) of the 1st section
of the Clayton Act, but including section 5 of the Federal
Trade Commission Act to the extent such section 5 applies to
unfair methods of competition). The preceding sentence shall
not apply to any transaction relating to the pooling of
railroad cars approved by the Surface Transportation Board or
its predecessor agency pursuant to section 11322.
(d) In reviewing any transaction described in subsection
(a), the Board shall take into account, among any other
considerations, the impact of the transaction on shippers and
affected communities.
* * * * * * *