Pan American World Airways, Inc. v. United States/Opinion of the Court

This is a civil suit brought by the United States charging violations by Pan American, W. R. Grace & Co., and Panagra of §§ 1, 2, and 3 of the Sherman Act, 15 U.S.C. §§ 1, 2, and 3. This suit, which the Civil Aeronautics Board requested the Attorney General to institute, charged two major restraints of trade. First, it is charged that Pan American and Grace, each of whom owns 50% of the stock of Panagra, formed the latter under an agreement that Panagra would have the exclusive right to traffic along the west coast of South America free from Pan American competition and that Pan American was to be free from competition of Panagra in other areas in South America and between the Canal Zone and the United States. Second, it is charged that Pan American and Grace conspired to monopolize and did monopolize air commerce between the eastern coastal areas of the United States and western coastal areas of South America and Buenos Aires. Pan American was also charged with using its 50% control over Panagra to prevent it from securing authority from the C.A.B. to extend its route from the Canal Zone to the United States.

In 1928, when Pan American and Grace entered into an agreement to form Panagra, air transportation was in its infancy; and this was the first entry of an American air carrier on South America's west coast. Pan American in 1930 acquired the assets of an airline competing with it for air traffic from this country to the north and east coasts of South America and received a Post Office air mail subsidy contract.

The District Court found that there was no violation by Pan American and Grace of § 1 of the Sherman Act through the division of South American territory between Pan American and Panagra. It held, however, that Pan American violated § 2 of the Sherman Act by suppressing Panagra's efforts to extend its route from the Canal Zone to this country-in particular, by blocking Panagra's application to the Civil Aeronautics Board for a certificate for operation north of the Canal Zone. It indicated that Pan American should divest itself of Panagra stock. But it directed dismissal of the complaint against Grace and against Panagra, holding that none of their respective practices violated the Sherman Act. 193 F.Supp. 18. Both Pan American and the United States come here on direct appeals (15 U.S.C. § 29); and we postponed the question of jurisdiction to the merits. 368 U.S. 964, 966, 82 S.Ct. 438, 440, 7 L.Ed.2d 395.

When the transactions, now challenged as restraints of trade and monopoly, were first consummated, air carriers were not subject to pervasive regulation. In 1938 the Civil Aeronautics Act (52 Stat. 973 (49 U.S.C. § 401 et seq., 1952 Ed.)) was passed which was superseded in 1958 by the Federal Aviation Act, 72 Stat. 731, 49 U.S.C. § 1301 et seq., the latter making no changes relevant to our present problem. Since 1938, the industry has been regulated under a regime designed to change the prior competitive system. As stated in S.Rep. No. 1661, 75th Cong., 3d Sess., p. 2, 'Competition among air carriers is being carried to an extreme, which tends to jeopardize the financial status of the air carriers and to jeopardize and render unsafe a transportation service appropriate to the needs of commerce and required in the public interest, in the interests of the Postal Service, and of the national defense.'

Some provisions of the 1938 Act deal only with the future, not the past. Such, for example, are the provisions dealing with abandonment of routes (§ 401(k)), with loans or financial aid from the United States (§ 410), and with criminal penalties. § 902. The Act, however, did not freeze the status quo nor attempt to legalize all existing practices. Thus § 401 requires every 'air carrier' to acquire a certificate from the Board, a procedure being provided whereby some could obtain 'grandfather' rights. By § 401(h) the Board has authority to alter, amend, modify, or suspend certificates whenever it finds such action to be in the public interest.

Section 409, in regulating interlocking relations between air carriers and other common carriers or between air carriers and those 'engaged in any phase of aeronautics,' looks not only to the future but to the past as well. For the prohibition is that no air carrier may 'have and retain' officers or directors of the described classes. Section 408, which is directed at consolidations, mergers, and acquisition of control over an 'air carrier,' makes it unlawful, unless approved by the Board, for any 'common carrier' to 'purchase, lease, or contract to operate the properties' of an 'air carrier' or to 'acquire control of any air carrier in any manner whatsoever' or to 'continue to maintain any relationship established in violation of any of the foregoing' provisions of § 408(a). By § 408(b) a common carrier is taken to be an 'air carrier' for the purposes of § 408; and transactions that link 'common carriers' to 'air carriers' shall not be approved unless the Board finds that 'the transaction proposed will promote the public interest by enabling such carrier other than an air carrier to use aircraft to public advantage in its operation and will not restrain competition.'

We do not suggest that Grace, a common carrier, need get the Board's approval to continue the relationship it had with Panagra when the 1938 Act became effective. It is clear, however, that the Board under § 411 of the 1958 Act has jurisdiction over 'unfair practices' and 'unfair methods of competition' even though they originated prior to 1938.

That section provides.

'The Board may, upon its own initiative or upon complaint by     any air carrier, foreign air carrier, or ticket agent, if it      considers that such action by it would be in the interest of      the public, investigate and determine whether any air      carrier, foreign air carrier, or ticket agent has been or is      engaged in unfair or deceptive practices or unfair methods of      competition in air transportation or the sale thereof. If the     Board shall find, after notice and hearing, that such air      carrier, foreign air carrier, or ticket agent is engaged in      such unfair or deceptive practices or unfair methods of      competition, it shall order such air carrier, foreign air      carrier, or ticket agent to cease and desist from such      practices or methods of competition.' (Italics added.) 49      U.S.C. § 1381.

The words 'has been or is engaged in unfair * *  * practices or unfair methods of competition' plainly include practices started before the 1938 Act and continued thereafter as well as practices instituted after the effective date of the Act.

The parentage of § 411 is established. As the Court stated in American Airlines v. North American Airlines, 351 U.S. 79, 82, 76 S.Ct. 600, 604, 100 L.Ed. 953 this section was patterned after § 5 of the Federal Trade Commission Act, and '(w)e may profitably look to judicial interpretation of § 5 as an aid in the resolution of * *  * questions raised *  *  * under § 411.' As respects the 'public interest' under § 411, the Court said:

' * *  * the air carriers here conduct their business under a      regulated system of limited competition. The business so     conducted is of especial and essential concern to the public,      as is true of all common carriers and public utilities. Finally, Congress has committed the regulation of this     industry to an administrative agency of special competence      that deals only with the problems of the industry.' Id., 84,      76 S.Ct. 604.

The Board in regulating air carriers is to deal with at least some antitrust problems. Apart from its power under § 411, it is given authority by §§ 408 and 409, as already noted, over consolidations, mergers, purchases, leases, operating contracts, acquisition of control of an air carrier, and interlocking relations. Pooling and other like arrangements are under the Board's jurisdiction by reason of § 412. Any person affected by an order under §§ 408, 409 and 412 is 'relieved from the operations of the 'antitrust laws," including the Sherman Act. § 414. The Clayton Act, insofar as it is applicable to air carriers, is enforceable by the Board. 52 Stat. 973, 1028, § 1107(g); 15 U.S.C. § 21.

There are various indications in the legislative history that the Civil Aeronautics Board was to have broad jurisdiction over air carriers, insofar as most facets of federal control are concerned.

'It is the purpose of this legislation to coordinate in a     single independent agency all of the existing functions of      the Federal Government with respect to civil aeronautics,      and, in addition, to authorize the new agency to perform      certain new regulatory functions which are designed to      stabilize the airtransportation industry in the United      States.' H.R.Rep.No.2254, 75th Cong., 3d Sess., p. 1.

No mention is made of the Department of Justice and its role in the enforcement of the antitrust laws, yet we hesitate here, as in comparable situations, to hold that the new regulatory scheme adopted in 1938 was designed completely to displace the antitrust laws-absent an unequivocally declared congressional purpose so to do. While the Board is empowered to deal with numerous aspects of what are normally thought of as antitrust problems, those expressly entrusted to it encompass only a fraction of the total. Apart from orders which give immunity from the antitrust laws by reason of § 414, the whole criminal law enforcement problem remains unaffected by the Act. Cf. United States v. Pacific & Artic Co., 228 U.S. 87, 105, 33 S.Ct. 443, 448, 57 L.Ed. 742. Moreover, on the civil side violations of antitrust laws other than those enumerated in the Act might be imagined. We, therefore, refuse to hold that there are no antitrust violations left to the Department of Justice to enforce.

That does not, however, end our inquiry. Limitation of routes and divisions of territories and the relation of common carriers to air carriers are basic in this regulatory scheme. The acts charged in this civil suit as antitrust violations are precise ingredients of the Board's authority in granting, qualifying, or denying certificates to air carriers, in modifying, suspending, or revoking them, and in allowing or disallowing affiliations between common carriers and air carriers. The case is therefore quite unlike Georgia v. Pennsylvania R. Co., supra, where a conspiracy among carriers for the fixing of through and joint rates was held to constitute a cause of action under the antitrust laws, in view of the fact that the Interstate Commerce Commission had no power to grant relief against such combinations. And see United States v. R.C.A., 358 U.S. 334, 346, 79 S.Ct. 457, 464, 3 L.Ed.2d 354. And the present Act does not have anything comparable to the history of the Capper-Volstead Act, which we reviewed in Maryland and Virginia Milk Producers Assn. v. United States, 362 U.S. 458, 80 S.Ct. 847, 4 L.Ed.2d 880, and which showed that farmer-producers were not made immune from the class of predatory practices charged in that civil suit as antitrust violations. Id., pp. 464-467, 80 S.Ct. p. 853.

The words 'unfair * *  * practices' and 'unfair methods of competition' as used in § 411 contain a 'broader' concept than 'the common-law idea of unfair competition.' American Airlines v. North American Airlines, supra, 351 U.S. 85, 76 S.Ct. 600, 100 L.Ed. 953. They derive, as already noted, from the Federal Trade Commission Act; and their meaning in the setting of that Act has been much discussed. They do not embrace a remedy for private wrongs but only a means of vindicating the public interest. Federal Trade Comm'n v. Klesner, 280 U.S. 19, 25-30, 50 S.Ct. 1, 4, 74 L.Ed. 138. The scope of 'unfair practices' and 'unfair methods of competition' was left for case-by-case definition. The Senate Report stated:

'It is believed that the term 'unfair competition' has a     legal significance which can be enforced by the commission      and the courts, and that it is no more difficult to determine      what is unfair competition than it is to determine what is a      reasonable rate or what is an unjust discrimination. The     committee was of the opinion that it would be better to put in a general      provision condemning unfair competition than to attempt to      define the numerous unfair practices, such as local price      cutting, interlocking directorates, and holding companies      intended to restrain substantial competition.' S.Rep.No. 597,     63d Cong., 2d Sess., p. 13.

The legislative history was reviewed in Federal Trade Comm'n v. Raladam Co., 283 U.S. 643, 649-650, 51 S.Ct. 587, 75 L.Ed. 1324, the Court concluding that 'unfair competition was that practice which destroys competition and establishes monopoly.' Id., 650, 51 S.Ct. 591. The provision was designed to supplement the Sherman Act by stopping 'in their incipiency those methods of competition which fall within the meaning of the word 'unfair.' * *  * All three statutes (the Sherman and Clayton Acts and § 5) seek to protect the public from abuses arising in the course of competitive interstate and foreign trade.' Id., 647, 51 S.Ct. 590. See Federal Trade Comm'n v. Beech-Nut Co., 257 U.S. 441, 453 454, 42 S.Ct. 150, 154, 66 L.Ed. 307; Federal Trade Comm'n v. R. F. Keppel & Bro., 291 U.S. 304, 310-312, 54 S.Ct. 423, 426, 78 L.Ed. 814; 2 Toulmin's Anti-Trust Laws (1949) § 43.6. Joint ventures may be combinations in violation of the antitrust laws. Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 71 S.Ct. 971, 974, 95 L.Ed. 1199. Whatever the unfair practice or unfair method employed, § 411 of this Act, like § 5 of the Federal Trade Commission Act (Federal Trade Comm'n v. Motion Picture Adv. Co., 344 U.S. 392, 394-395, 73 S.Ct. 361, 363, 97 L.Ed. 426), was designed to bolster and strengthen anti-trust enforcement.

We have said enough to indicate that the words 'unfair practices' and 'unfair methods of competition' are not limited to precise practices that can readily be catalogued. They take their meaning from the facts of each case and the impact of particular practices on competition and monopoly.

These words, transferred to the Civil Aeronautics Act, gather meaning from the context of that particular regulatory measure and the type of competitive regime which it visualizes. Cf. American Power & Light Co. v. Securities & Exchange Comm'n, 329 U.S. 90, 104-105, 67 S.Ct. 133, 142, 91 L.Ed. 103. That regime has its special standard of the 'public interest' as defined by Congress. The standards to be applied by the Board in enforcing the Act are broadly stated in § 2:

'In the exercise and performance of its powers and duties     under this chapter, the Board shall consider the following,      among other things, as being in the public interest, and in      accordance with the public convenience and necessity-

'(a) The encouragement and development of an     air-transportation system properly adapted to the present and      future needs of the foreign and domestic commerce of the      United States, of the Postal Service, and of the national      defense;

'(b) The regulation of air transportation in such manner as     to recognize and preserve the inherent advantages of, assure      the highest degree of safety in, and foster sound economic      conditions in, such transportation, and to improve the      relations between, and coordinate transportation by, air      carriers;

'(c) The promotion of adequate, economical, and efficient     service by air carriers at reasonable charges, without unjust      discriminations, undue preferences or advantages, or unfair      or destructive competitive practices;

'(d) Competition to the extent necessary to assure the sound     development of an air-transportation system properly adapted      to the needs of the foreign and domestic commerce of the      United States, of the Postal Service, and of the national      defense; '(e) The regulation of air commerce in such manner as to   best promote its development and safety; and

'(f) The encouragement and development of civil aeronautics.'     52 Stat. 980. And see 49 U.S.C. § 1302.

The 'present and future needs' of our foreign and domestic commerce, regulations that foster 'sound economic conditions,' the promotion of service free of 'unfair or destructive competitive practices,' regulations that produce the proper degree of 'competition'-each of these is pertinent to the problems arising under § 411.

It would be strange, indeed, if a division of territories or an allocation of routes which met the requirements of the 'public interest' as defined in § 2 were held to be antitrust violations. It would also be odd to conclude that an affiliation between a common carrier and an air carrier that passed muster under § 408 should run afoul of the antitrust laws. Whether or not transactions of that character meet the standards of competition and monopoly provided by the Act is peculiarly a question for the Board, subject of course to judicial review as provided in 49 U.S.C. § 1486. Cf. Federal Maritime Bd. v. Isbrandtsen Co., 356 U.S. 481, 78 S.Ct. 851, 2 L.Ed.2d 926; Schaffer Transportation Co. v. United States, 355 U.S. 83, 78 S.Ct. 173, 2 L.Ed.2d 117.

In case of a prospective application of the Act, the Board's order, as noted, would give the carrier immunity from antitrust violations 'insofar as may be necessary to enable such person to do anything authorized, approved, or required by such order.' § 414. Alternatively, the Board under § 411 can investigate and bring to a halt all 'unfair * *  * practices' and all 'unfair methods of competition,' including those which started prior to the Act. If the courts were to intrude independently with their construction of the antitrust laws, two regimes might collide. Furthermore, many of the problems presented by this case, which involves air routes to and in foreign countries, may involve military and foreign policy considerations that the Act, as construed by a majority of the Court in Chicago & Southern Air Lines v. Waterman S.S.C.orp., 333 U.S. 103, 68 S.Ct. 431, 92 L.Ed. 568, subjects to presidential rather than judicial review. It seems to us, therefore, that the Act leaves to the Board under § 411 all questions of injunctive relief against the division of territories or the allocation of routes or against combinations between common carriers and air carriers. See Texas & Pacific R. Co. v. Abilence Cotton Oil Co., 204 U.S. 426, 27 S.Ct. 350, 51 L.Ed. 553; Keogh v. Chicago & N.W.R. Co., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183.

The fact that transactions occurring before 1938 are involved in this case does not change our conclusion. The past is prologue and the impact of pre-1938 transactions on present problems of air carriers is eloquently demonstrated in a recent order of the Board concerning the United States flag carrier route pattern between this country and South America which is set forth in part in the Appendix to this opinion. The status of Panagra- jointly owned by Pan American and Grace-is central to that problem, as that order makes clear. What was done in the pre-1938 days may be so disruptive of the regime visualized by the Act or so out of harmony with the statutory standards for competition set by the Act that it should be undone in proceedings under § 411. The transactions in question are reached by the terms of § 411. But more important, the particular relation of this problem to the general process of encouraging development of new fields of air transportation makes it all the more appropriate that the Board should decide whether these particular transactions should be undone in whole or in part, or whether they should be allowed to continue.

It is suggested that the power of the Board to issue a 'cease and desist' order is not broad enough to include the power to compel divestiture and that in any event its power to do so under § 411 runs solely to air carriers, not to common carriers or other stockholders. We do not read the Act so restrictively. The Board has no power to award damages or to bring criminal prosecutions. Nor does it, as already noted, have jurisdiction over every antitrust violation by air carriers. But where the problem lies within the purview of the Board, as do questions of division of territories, the allocation of routes, and the affiliation of common carriers with air carriers, Congress must have intended to give it authority that was ample to deal with the evil at hand.

We need not now determine the ultimate scope of the Board's power to order divestiture under § 411. It seems clear that such power exists at least with respect to the particular problems involved in this case. Of principal importance here, we think, is the fact that the Board could have retained such power over these transactions, if they had occurred after 1938, by so conditioning its grant of approval. The terms of § 411 do not distinguish between conduct before or after that date. If the Act is to be administered as a coherent whole, we think § 411 must include an equivalent power over pre-enactment events of the kind involved in this case -although, of course, the Board might find that the historic background of these pre-1938 transactions introduces different considerations in formulating a suitable resolution of the problem involved.

We think the narrow questions presented by this complaint have been entrusted to the Board and that the complaint should have been dismissed. Accordingly we reverse the judgment and remand the case for proceedings in conformity with this opinion.

So ordered.

Judgment reversed and case remanded.

Mr. Justice CLARK and Mr. Justice HARLAN took no part in the consideration or decision of these cases.

(For dissenting opinion of Mr. Justice BRENNAN, see 371 U.S. 319, 83 S.Ct. 489.) APPENDIX TO OPINION OF THE COURT.

UNITED STATES OF AMERICA CIVIL AERONAUTICS BOARD WASHINGTON, D.C.

Adopted by the Civil Aeronautics Board at its office in Washington, D.C. onthe 8th day of August, 1961.

In the matter of the United States-South America Route Case

The Board has decided that it is appropriate at this time to institute a comprehensive review of the U.S. flag carrier route pattern between the United States and South America. The most recent extensive study of that route structure was undertaken in 1946, some 15 years ago. Since then considerable developments, hereinafter referred to, have taken place which affect these services and require the review here contemplated.

Three U.S. carriers are presently certificated to provide the major services to points in South America. Pan American World Airways, Inc. (Pan American), is authorized to provide service between San Francisco, Los Angeles, Houston, New Orleans, Washington, Philadelphia and New York-Newark, on the one hand, and points on the north and east coasts of South America including Rio de Janeiro and Buenos Aires, on the other hand, via points in Central America and the Caribbean, on route 136. Pan American-Grace Airways, Inc. (Panagra) is authorized to provide service between Balboa, Guayaquil, Lima, Santiago and Buenos Aires, via intermediate points, primarily along the west coast of South America, on route 146. Braniff Airways, Inc. (Braniff) is authorized to provide service between Houston and Miami, on the one hand, and Havana, Balboa, Bogota, Guayaquil, Lima, Rio de Janeiro and Buenos Aires, on the other hand, via intermediate points, on route FAM-34.

As previously indicated, the basis U.S. flag carrier route patterns between the United States and South America presently in effect were established some years ago in the Additional Service to Latin America Case, 6 C.A.B. 857 (1946). Matters involving service between the United States and South America were, however, further considered in the New York-Balboa Through Service Proceeding, Reopened, 18 C.A.B. 501 (1954), 20 C.A.B. 493 (1954), and certain through-service aircraft interchange agreements were approved as a result of the New York-Balboa case by Order E-9481, 21 C.A.B. 1005 (1955). Also, the certification of a Los Angeles/San Francisco-Guatemala City route, last considered in Order E-9514, August 3, 1955, permitted Pan American to operate between the west coast of the United States and points in South America.

Since the original establishment of the basic South America route structure, there have been basic changes in technology and patterns of service. Thus, in 1944, the range of aircraft was relatively limited and operational requirements, as well as economic considerations, required multiple stops on the long-haul service. Today, available aircraft can, and do, serve the most distant points on a nonstop basis. Of the relative attractiveness of nonstop to multi-stop service in comparable equipment there can be no question; consequently, the changed technology which has made nonstop services operationally feasible warrants a careful review of the economics of such service in relation to the existing and future route structure. Similarly, changes have taken place in the competitive picture. Prior to the decision in the Latin America Case, supra, Pan American and Panagra operated in competition with three foreign air carriers. Today, 19 South American foreign air carriers are authorized to serve the United States-South America market. There has also been an increase in service within South America by local carriers. Not only do these services rendered by non-U.S. flag carriers dilute the potential economic support for the services of the U.S. carriers, but also they bring into question the need for point-to-point duplication of such services. In this connection, we cannot be unmindful of the fact that the U.S. flag carriers' operations are marginal economically.

Our concern with the current South America route pattern is not a recent one. As long ago as 1954, the Board publicly suggested that the available traffic in South America did not warrant continuation of three United States flag services. In the Interim Opinion in the New York-Balboa case, supra, it was noted that Braniff was not an effective competitor for South American traffic and that the public interest of the United States would be served by the establishment of a single independent carrier operation between Houston and Miami, on the one hand, and the points served on the combined routes of Panagra and Braniff, on the other hand. The Board then also voiced its interest in making such a route available to northeastern United States traffic. The hope then was that the carriers concerned would voluntarily seek to resolve the problem along the lines suggested. In this connection, we were fully cognizant of the recent institution of a suit by the Attorney General against Pan American, Panagra, and W. R. Grace and Company, which, on antitrust grounds, sought divestiture by Pan American and Grace of their interest in Panagra. However, the principals did not come forward with a proposal. Instead, the suit was permitted to proceed to trial and judgment, and it is currently pending possible review by the United States Supreme Court.

Assuming that the District Court's judgment, at least insofar as it ordered divestiture by Pan American of its interest in Panagra, is sustained, it is clear that the Board will, in the near future, be called upon to consider further the consequences of divestiture with respect to U.S. flag services in South America. And in order for the Board to be able promptly and effectively to take such further steps as might be required in the circumstances, it would be well for it to have considered carefully the overall need for U.S. flag services in South America in the light of a litigated record.

Since the selection of carrier issues will remain somewhat clouded until final resolution of the pending antitrust suit, it appears appropriate and in the interest of a sound and orderly disposition of this proceeding to consider separately the appropriate route structure prior to consideration of selection of carrier matters. We recognize that factual matters relative to public convenience and necessity issues may also have their carrier selection aspects; similarly, we are not unmindful of the fact that, while the prescribed route pattern can be established in substantial part without regard to carrier selection, some adjustment in route pattern may be found necessary at the time we decide the carrier selection issues. We anticipate, however, the full cooperation of all concerned to facilitate an appropriate separation of these issues.

The Board intends that the scope of the proceeding instituted herein include issues with respect to authorization of services to new points, the deletion of presently certificated points, and the consolidation of separate routes into single routes. Caribbean points will be considered only to the extent that they are in issue as possible intermediate points on United States-South America routes, and the proceeding will not examine services wholly within the Caribbean area, or between points in the United States and the Caribbean.

In its study of the South American route pattern, the Board has tentatively concluded that an east coast route and a west coast route are required. The details of the routes are set forth in the attached analysis. In addition, and because we have found that considerable route modifications are necessary to meet present needs and problems, we have compiled and attached hereto data which we believe will facilitate hearing and decision. The attached materials should serve as the focal point for the trial of this case, and we direct that the presentation of participants in the proceeding, unless otherwise ordered by the Board upon good cause shown therefor, be pointed to showing why and in what manner the conclusions derived from the study should be modified. Such an approach can restrict the hearing to relevant and material facts and otherwise minimize procedural delay.

Mr. Justice BRENNAN, with whom THE CHIEF JUSTICE concurs, dissenting.