371 U.S. 296 (1963), 23, Pan American World Airways, Inc. v. United States

• Citation: 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325
• Party Name: Pan American World Airways, Inc. v. United States
• Case Date: January 14, 1963
• Court: U.S. Supreme Court

Page 296

371 U.S. 296 (1963)

83 S.Ct. 476, 9 L.Ed.2d 325

Pan American World Airways, Inc.

v.

United States

No. 23

United States Supreme Court

Jan. 14, 1963

Argued November 8, 1962

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF NEW YORK

Syllabus

Charging violations of §§ 1, 2, and 3 of the Sherman Act, the United States brought this civil suit against Pan American World Airways, W. R. Grace & Co., and their jointly owned subsidiary, Pan American-Grace Airways (Panagra). The complaint alleged that, when Pan American and Grace organized Panagra in 1928, they agreed that Pan American and Panagra would not parallel each other's air routes, that this was a combination and conspiracy in restraint of trade and monopolization and attempted monopolization of air transportation between the United States and South America, and also that Pan American had used its control over Panagra to prevent it from obtaining authority from the Civil Aeronautics Board to extend its route from the Canal Zone to the United States. The District Court found that Pan American had violated § 2 of the Sherman Act by suppressing Panagra's efforts to extend its route from the Canal Zone to this country, and it ordered Pan American to divest itself of its stock in Panagra; but it dismissed the complaint against Grace and Panagra, holding that none of their practices violated the Sherman Act.

Held: the narrow questions presented by this complaint had been entrusted by Congress to the Civil Aeronautics Board, and the entire complaint should have been dismissed. Pp. 298-313.

(a) Since enactment of the Civil Aeronautics Act in 1938, the airline industry has been regulated under a regime designed to change the prior competitive system, and the Federal Aviation Act of 1958 made no changes relevant to the problem presented by this case. Pp. 300-301.

(b) Under § 411 of the Federal Aviation Act of 1958, the Civil Aeronautics Board has jurisdiction over "unfair practices" and "unfair methods of competition," even though they originated prior to 1938. Pp. 302-303.

Page 297

(c) In regulating air carriers, the Board is to deal with at least some antitrust problems. In addition to its power under § 411, it is given authority by §§ 408, 409, and 412 over consolidations, mergers, purchases, leases, operating contracts, acquisition of control of an air carrier, interlocking relations, pooling arrangements, etc.; and the Clayton Act is enforced by the Board insofar as it is applicable to air carriers. P. 304.

(d) The legislative history indicates that the Civil Aeronautics Board was intended to have broad jurisdiction over air carriers insofar as most facets of federal control are concerned. P. 304.

(e) This Court does not hold, however, that there are no antitrust violations left to the Department of Justice to enforce. Pp. 304-305.

(f) The Acts charged in this 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. Pp. 305-306.

(g) Whatever the unfair practice or unfair method employed, § 411 of the Act was designed to bolster and strengthen antitrust enforcement. Section 411 is patterned after § 5 of the Federal Trade Commission Act, and cases interpreting § 5 are relevant in determining the meaning of § 411; but the application of § 411 in any given situation must be determined in light of the standards set by the Civil Aeronautics Act. Pp. 306-308.

(h) 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. Pp. 308-310.

(i) The Board's power to issue a "cease and desist" order is broad enough to include the power to compel divestiture where the problem lies within the purview of the Board. Pp. 311-313.

193 F.Supp. 18 reversed and cause remanded.

Page 298

DOUGLAS, J., lead opinion

MR. JUSTICE DOUGLAS delivered the 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 [83 S.Ct. 479] 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 CAB to extend its route from the Canal Zone to the United States.¹

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In 1928, when Pan American and Grace entered into an agreement to form Panagra,² 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.³

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.⁴ It held, however, that Pan

Page 300

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.⁵ It indicated that Pan American should divest itself of Panagra [83 S.Ct. 480] 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.

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) was passed, which

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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

Page 302

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 [83 S.Ct. 481] became effective.⁶ 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...