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U.S. Supreme Court Upholds Right of Joint Venture to Set Its Prices

Texaco Inc. and Shell Oil Co. collaborated in a joint venture, Equilon Enterprises, to refine and sell gasoline in the western U.S. under the two companies’ original brand names. After Equilon set a single price for both brands, service station owners, using the name of Texaco and Shell Oil, brought suit against Texaco and Shell Oil alleging that, by unifying gas prices under the two brands, the companies had violated the per se rule against price fixing long recognized under the Sherman Act. Granting summary judgment, the District Court determined that the rule of reason, rather than a per se rule, governs the claim, and that, by eschewing rule of reason analysis, the service station owners had failed to raise a triable issue of fact. The Ninth Circuit reversed, characterizing the position of Texaco and Shell as a request for an exception to the per se price-fixing prohibition, and rejecting that request.

Texaco Inc. and Shell Oil Co. collaborated in a joint venture, Equilon Enterprises, to refine and sell gasoline in the western U.S. under the two companies’ original brand names. After Equilon set a single price for both brands, service station owners, using the name of Texaco and Shell Oil, brought suit against Texaco and Shell Oil alleging that, by unifying gas prices under the two brands, the companies had violated the per se rule against price fixing long recognized under the Sherman Act. Granting summary judgment, the District Court determined that the rule of reason, rather than a per se rule, governs the claim, and that, by eschewing rule of reason analysis, the service station owners had failed to raise a triable issue of fact. The Ninth Circuit reversed, characterizing the position of Texaco and Shell as a request for an exception to the per se price-fixing prohibition, and rejecting that request.

The Supreme Court, in an 8-0 decision, held that it is not per se illegal under the Sherman Act for a lawful, economically integrated joint venture to set the prices at which it sells its products. Although the Act prohibits “[e]very contract [or] combination… in restraint of trade,” the Court did not take a literal approach to that language, recognizing, instead, that Congress intended to outlaw only unreasonable restraints. Under rule of reason analysis, antitrust plaintiffs must demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive. Per seliability is reserved for “plainly anticompetitive” agreements. While “horizontal” price-fixing agreements between two or more competitors are per se unlawful, the Court held that the present case did not present such an agreement, because Texaco and Shell Oil did not compete with one another in the relevant market – i.e., gasoline sales to western service stations – but instead participated in that market jointly through Equilon.

When those who would otherwise be competitors pool their capital and share the risks of loss and opportunities for profit, they are regarded as a single firm competing with other sellers in the market. As such, Equilon’s pricing policy may be price fixing in a literal sense, but it is not price fixing in the antitrust sense, according to the Supreme Court. The Court of Appeals erred in reaching the opposite conclusion under the ancillary restraints doctrine, which governs the validity of restrictions imposed by a legitimate joint venture on nonventure activities. That doctrine has no application in this case, according to the Court, where the challenged business practice involves the core activity of the joint venture itself – the pricing of the very goods produced and sold by Equilon.

  • Partner

    Christie practices in the area of white collar crime defense and complex commercial litigation, representing clients in health care, antitrust, securities, intellectual properties, RICO, and False Claims Act matters. She has ...

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