United States v. Socony-Vacuum Oil Co.

Rule of Law:

Under Section 1 of the Sherman Act, a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of a commodity in interstate commerce is illegal per se. The reasonableness of the prices and the existence of competitive abuses are not valid defenses to a price-fixing conspiracy charge.

Facts:

• In the late 1920s and early 1930s, the American oil industry experienced massive overproduction of crude oil, particularly after the discovery of the East Texas oil field.
• This overproduction created a large volume of surplus gasoline, known as "distress gasoline," which independent refiners lacked the storage capacity for and were forced to sell at very low prices.
• The sale of distress gasoline destabilized the market, driving down spot market tank car prices, which in turn lowered the retail price of gasoline throughout the Mid-Western area.
• Following the invalidation of the National Industrial Recovery Act, several major oil companies, including Socony-Vacuum Oil Co., formed a "Tank Car Stabilization Committee."
• Beginning in February 1935, these companies participated in two informal, concerted "buying programs" to purchase this distress gasoline from independent refiners in the Mid-Continent and East Texas fields.
• Each major company was assigned independent refiners (called "dancing partners") and assumed responsibility for purchasing their surplus supply at the "fair going market price."
• The purpose of this coordinated buying was to absorb the surplus gasoline, thereby preventing it from depressing the market and creating a "floor" under prices, which would raise and stabilize the price for jobbers and consumers.
• During the period of the buying programs, spot market, jobber, and retail gasoline prices rose significantly and stabilized.

Procedural Posture:

• The United States indicted Socony-Vacuum Oil Co. and other major oil companies and individuals in the U.S. District Court for the Western District of Wisconsin, charging them with violating Section 1 of the Sherman Act.
• Following a jury trial, the respondents were found guilty of conspiring to artificially raise and fix the price of gasoline.
• The respondents' motions for a new trial were denied by the district court.
• The respondents (appellants in that court) appealed to the U.S. Circuit Court of Appeals.
• The Circuit Court of Appeals reversed the convictions and remanded for a new trial, holding that the trial court erred in instructing the jury that the combination was illegal per se and that the "rule of reason" should have applied.
• The United States (petitioner) and the oil companies (cross-petitioners) both petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.