An association of marine pilots in Oregon has agreed to settle Federal Trade Commission charges that it monopolized and unreasonably restrained competition in the market for pilotage services on the Columbia River. The proposed consent order announced today would prohibit Columbia River Pilots ("COLRIP"), a group of approximately 40 marine pilots licensed by the state of Oregon to provide navigational assistance to vessels on the Columbia River, from imposing unreasonable noncompete agreements on its members, allocating customers with any competing pilotage group, limiting any competing pilotage group's size, or restricting exclusive dealing contracts or rate proposals.
According to the Commission's complaint, COLRIP's allegedly illegal practices were a response to two pilots who left the association in 1989 to form a competing pilotage group, Lewis & Clark Pilotage ("L&C"). L&C's emergence was the first time in 40 years that marine pilots had competed on the Columbia River, and shippers immediately benefitted. Shippers' profitability depends on the speed and volume of shipments, and L&C competed by expanding the hours its pilots would move vessels, by working with shippers to get a maximum load for the time of sailing, and by being available to move vessels twenty-four hours a day, without significant advance notice. At Peavey Grain Company, a ConAgra-owned elevator that is among the largest on the West Coast, L&C's practices improved the rate at which Peavey funneled grain through its elevators by more than 10 percent, resulting in significant cost reductions for Peavey.
COLRIP reacted to this new competition, the FTC charged, by adopting substantial penalties for any other pilots who left to compete with COLRIP, including the forfeiture of $200,000, appreciation in stock in a corporation owned by COLRIP's members, pension benefits, and six months work on the Columbia. This last penalty would not only cost the marine pilot approximately $70,000 in lost revenues, but would also provide grounds under Oregon law for requiring that the pilot either be retrained or have his license revoked.
COLRIP settled a 1991 antitrust suit brought against it by L&C on terms that allowed L&C to continue operating, but restricted competition between L&C and COLRIP. For example, the settlement agreement allowed L&C to serve shippers berthing at the Peavey Grain Company, but prohibited L&C from providing pilotage to any other vessels at existing docks on the river. L&C could bid on business at new docks, but it could not expand by more than a single pilot, which limited its ability to serve new business. In addition, the settlement barred L&C from entering into exclusive dealing contracts such as L&C's exclusive dealing contract with Peavey. Finally, the settlement prohibited L&C from proposing or supporting a rate structure that did not have the essential features of the current rate structure.
The FTC's complaint charges that COLRIP's penalties on pilots who leave or wish to leave in order to compete and its settlement with L&C violate the FTC Act. COLRIP's penalties protected COLRIP from additional competition by preventing other COLRIP pilots from either joining L&C or forming their own pilotage group. L&C was unable to lure pilots from COLRIP after COLRIP adopted its new penalties, and L&C was forced to exit the market when its founding members retired, reinstating COLRIP's monopoly. Even before L&C's demise, COLRIP's private settlement with L&C all but eliminated competition between the pilot groups. According to the agency's complaint, COLRIP's settlement provisions with L&C and the penalties on departing pilots were not justified on efficiency grounds.
The proposed consent order would prohibit COLRIP from penalizing marine pilots who leave to compete with COLRIP, unless the pilots either have been members of COLRIP for less than five years or fail to give COLRIP 90 days notice of their intention to leave. Three-quarters of COLRIP's pilots have been members for at least five years. COLRIP also would be required to notify its members and the local shippers' association of this prohibition.
Should one or more pilots leave to compete with COLRIP, the proposed consent order would protect that competition by prohibiting COLRIP from entering into agreements like those contained in its private settlement with L&C. COLRIP could not agree with a competitor to allocate customers, limit a competitor's size, or restrict its ability to enter exclusive agreements with customers, or to submit rate proposals, or otherwise communicate with the Oregon Board of Maritime Pilots.
The Commission vote to publish the proposed consent order was 4-0.
The proposed consent order will be published in the Federal Register shortly and will be subject to public comment for 60 days, after which the Commission will decide whether to make the order final. Comments on the proposed consent order should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
Copies of the complaint, proposed consent order, and an analysis to aid public comment are available from the FTC's web site at http://www.ftc.gov or from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W, Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 9410047)