UNITED STATES OF AMERICA
In the Matter of
Columbia River Pilots, an unincorporated association.
Docket No. C-3854
Pursuant to the provisions of the Federal Trade Commission Act, as amended, 15 U.S.C. § 41, et seq., and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Columbia River Pilots (hereafter "respondent") has violated the provisions of Section 5 of the Federal Trade Commission Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues this complaint, stating its charges as follows:
PARAGRAPH ONE: For purposes of this complaint, the following definitions shall apply:
PARAGRAPH TWO: Respondent is an unincorporated association whose members are marine pilots or corporations owned by marine pilots. Respondent is organized and does business under the laws of the State of Oregon, and has its offices at 13225 N. Lombard, Portland, Oregon 97203.
PARAGRAPH THREE: Respondent is engaged in the business of facilitating the provision of services by marine pilots, including, but not limited to, dispatching marine pilots and collecting and distributing marine pilots' fees. In addition, respondent is licensed by the Oregon Board of Maritime Pilots to provide training to individuals seeking to become marine pilots.
PARAGRAPH FOUR: Respondent's acts and practices, including the acts and practices alleged herein, are in or affecting commerce, as "commerce" is defined in the Federal Trade Commission Act, as amended, 15 U.S.C. § 44.
Marine Pilotage on the Grounds
PARAGRAPH FIVE: In order to operate on the Grounds, large commercial vessels engaged in foreign trade are required by the State of Oregon to obtain the assistance of a licensed marine pilot. To obtain a marine pilot's license for the Grounds, an individual is required by the State to complete a multi-year training program overseen by Oregon's Board of Maritime Pilots ("the Board") and administered by pilot organizations licensed by the Board to provide training. Oregon law limits the number of pilots but does not limit the number of pilot organizations licensed for the Grounds. Oregon law also expressly protects competition in marine pilotage by prohibiting the Board from passing any rule that significantly reduces competition among licensees or pilot organizations existing on January 1, 1991, without first finding the rule is essential to safety.
PARAGRAPH SIX: The Board sets the fees that may be charged for pilotage services; and those fees, once set, are not subject to competition. Before the Board sets fees for pilotage, individuals and businesses providing, purchasing or otherwise having an interest in pilotage services may submit competing rate proposals for the Board to consider.
PARAGRAPH SEVEN: Service competition among marine pilots may affect the cost of pilotage and shipping because marine pilots make decisions concerning, among other things, the number of tug boats used to move a vessel, the number of hours before and after high tide when a vessel may be moved, and the amount of product that may be loaded onto a vessel.
PARAGRAPH EIGHT: From approximately the 1950's to late 1989, and since late 1995, respondent has been the only pilot organization on the Grounds, and every marine pilot has been a member of respondent.
Pilotage Competition on the Grounds
PARAGRAPH NINE: On October 25, 1989, two of respondent's approximately 40 marine pilots resigned from respondent and formed Lewis & Clark Pilotage, Inc. ("L&C"). L&C signed an exclusive contract with ConAgra, Inc., the owner of one of the largest grain elevators on the West Coast. Vessels calling at ConAgra's facility accounted for about 10% of the pilotage revenues on the Grounds, approximately twice the revenues earned by L&C's pilots when they were with respondent.
PARAGRAPH TEN: The competition produced by L&C's entry had immediate benefits for purchasers of pilotage services and purchasers of shipping services. Within months, L&C's improved service enabled ConAgra to increase the rate at which it funneled grain through its elevators by more than 10%.
PARAGRAPH ELEVEN: Respondent responded by adopting practices similar to those of L&C -- dispatching pilots more quickly, and moving longer and deeper vessels, under a broader range of conditions, with fewer tugs. These practices served to reduce shipping costs for respondent's customers.
Respondent's Actions to Maintain Its Monopoly
PARAGRAPH TWELVE: After L&C's formation, respondent protected its near-monopoly by:
PARAGRAPH THIRTEEN: The acts or practices described in PARAGRAPH TWELVE were not justified on efficiency grounds.
PARAGRAPH FOURTEEN: L&C was unable to obtain significant business beyond its exclusive contract with ConAgra. On January 8, 1991, L&C filed an antitrust suit against respondent.
PARAGRAPH FIFTEEN: On December 22, 1991, respondent and L&C settled their lawsuit. The settlement agreement substantially restored respondent's monopoly by prohibiting L&C from seeking or accepting business from any of respondent's existing customers, from hiring more than one additional marine pilot, from entering into any new exclusive dealing contracts, from proposing any dispatch or rotation rule without respondent's permission, and from proposing or supporting any rate structure that did not have the "essential features" of the existing rate structure.
PARAGRAPH SIXTEEN: Respondent and L&C submitted the settlement agreement to the Oregon Board of Maritime Pilots for its approval. The Board neither approved nor disapproved of the settlement, nor did it make any findings concerning whether the settlement is essential to safety.
PARAGRAPH SEVENTEEN: Respondent's new rules protected respondent from additional competition, either from L&C or from any other pilot group, by imposing penalties so prohibitive that no other pilot would leave respondent to compete with it. The settlement agreement also significantly limited L&C's ability to compete. At the end of 1994, one of L&C's founders retired from pilotage, leaving L&C with one pilot. After L&C's remaining founder retired in 1995, L&C went out of business; and respondent regained its monopoly.
Nature and Effects of Respondent's Conduct
PARAGRAPH EIGHTEEN: By engaging in the acts and practices described in PARAGRAPH TWELVE, and by acting on its own and as a combination of and in conspiracy with its members, respondent has unreasonably restrained competition in and has monopolized the market for marine pilotage on the Columbia and Willamette River Pilotage Ground. Respondent's settlement agreement described in PARAGRAPH FIFTEEN also constituted an agreement that unreasonably restrained competition on the Grounds.
PARAGRAPH NINETEEN: The purpose, effect, tendency or capacity of respondent's acts and practices described in PARAGRAPHS TWELVE and FIFTEEN is and has been to monopolize the market for marine pilotage on the Grounds, to restrict competition in that market, and to make it more difficult for new competition to develop in that market, thus depriving consumers of more efficient and less expensive pilotage and shipping services.
PARAGRAPH TWENTY: The conspiracies, acts and practices described in PARAGRAPHS TWELVE and FIFTEEN constitute unfair methods of competition in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Such conspiracies, acts and practices, or the effects thereof, are occurring or may recur in the absence of the relief herein requested.
WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this first day of March, 1999, issues its complaint against respondent.
By the Commission.
Donald S. Clark