Law School Case Brief
Texaco Inc. v. Dagher - 547 U.S. 1, 126 S. Ct. 1276 (2006)
Section 1 of the Sherman Act, 15 U.S.C.S. § 1, prohibits every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States. The United States Supreme Court has not taken a literal approach to this language, however. Instead, the Court presumptively applies rule of reason analysis, under which antitrust plaintiffs must demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive before it will be found unlawful. Per se liability is reserved for only those agreements that are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality. Accordingly, the Court has expressed reluctance to adopt per se rules where the economic impact of certain practices is not immediately obvious.
Petitioners, Texaco Inc. (Texaco) and Shell Oil Co. (Shell), collaborated in a joint venture, Equilon Enterprises, to refine and sell gasoline in the western United States under the two companies' original brand names. After Equilon set a single price for both brands, respondents, Texaco and Shell Oil service station owners (owners), brought suit alleging that, by unifying gas prices under the two brands, Texaco and Shell had violated the per se rule against price fixing long recognized under § 1 of the Sherman Act. Granting Texaco and Shell summary judgment, the District Court determined that the rule of reason, rather than a per se rule, governs owners’ claim, and that, by eschewing rule of reason analysis, owners had failed to raise a triable issue of fact. The Ninth Circuit reversed, characterizing Texaco and Shell’s position as a request for an exception to the per se price-fixing prohibition, and rejecting that request. The United States Supreme Court granted certiorari.
Did Texaco and Shell violate the per se rule against price fixing under § 1 of the Sherman Act, 15 U.S.C.S. § 1, by entering into a joint venture?
The United States Supreme Court held that the joint venture agreement was not a horizontal price-fixing agreement because the oil companies did not compete with one another in the relevant market, namely, the sale of gasoline to service stations in the western United States; instead the oil companies participated in that market jointly through their investments in the joint venture. In other words, the challenged pricing policy amounted to little more than price setting by a single entity -- albeit, within the context of a joint venture -- and not a pricing agreement between competing entities with respect to their competing products. Throughout the joint venture's existence, the oil companies shared in the profits of its activities in their role as investors, not competitors. As such, though the joint venture's pricing policy may have been price fixing in a literal sense, it was not price fixing in the antitrust sense.
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