Texaco Inc. v. Dagher
2006 U.S. LEXIS 2023, 164 L. Ed. 2d 1, 547 US 1 (2006)
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Rule of Law:
The internal pricing decisions of a lawful, economically integrated joint venture are not subject to the per se rule against price-fixing under Section 1 of the Sherman Act and should instead be analyzed under the rule of reason.
Facts:
- Historically, Texaco Inc. and Shell Oil Co. were competitors in the refining and marketing of gasoline.
- In 1998, Texaco and Shell Oil formed a joint venture, Equilon Enterprises, to consolidate their operations in the western United States, thereby ceasing competition with each other in that market.
- Under the joint venture agreement, Texaco and Shell Oil pooled their resources, shared the risks of loss, and shared the profits from Equilon’s activities.
- The formation of Equilon was approved by federal and state regulators.
- Equilon sold gasoline to downstream purchasers, such as service stations, under both the original Texaco and Shell Oil brand names.
- Equilon set a single, unified price for both the Texaco-branded and Shell-branded gasoline it sold.
Procedural Posture:
- A class of service station owners (Respondents) sued Texaco Inc. and Shell Oil Co. (Petitioners) in U.S. District Court, alleging per se illegal price fixing.
- The District Court awarded summary judgment to Texaco and Shell Oil, holding that the rule of reason, not the per se rule, governed the claim.
- The service station owners appealed to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit reversed the District Court, holding that the pricing policy was a per se violation of the Sherman Act.
- The U.S. Supreme Court granted certiorari to review the Ninth Circuit's decision.
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Issue:
Does a lawful, economically integrated joint venture's decision to set a single price for the products it sells constitute per se illegal price-fixing under Section 1 of the Sherman Act?
Opinions:
Majority - Justice Thomas
No. The pricing policy of a legitimate joint venture is not a per se violation of the Sherman Act. When competitors pool their capital and share the risks and profits of a joint enterprise, they are regarded as a single firm, not as competitors fixing prices. The pricing policy challenged here was set by a single entity, Equilon, not by an agreement between two competing entities, Texaco and Shell Oil. Although this is 'price fixing' in a literal sense, it is not the kind of horizontal price-fixing agreement between competitors that the per se rule is designed to prohibit. The court found it irrelevant that Equilon sold its product under two distinct brands, as a single firm must have the discretion to determine the prices of the products it sells. The ancillary restraints doctrine does not apply because the pricing decision is a core activity of the joint venture itself, not a restriction on nonventure activities.
Analysis:
This decision provides significant legal certainty for joint ventures by clarifying that their core pricing activities will not be judged under the harsh per se standard. It treats legitimate, integrated joint ventures as single economic entities, akin to a standard corporation, for the purpose of their internal pricing decisions. This encourages pro-competitive collaborations by reducing the risk of automatic antitrust liability, shifting the burden to plaintiffs to prove an actual anticompetitive effect under the more flexible rule of reason analysis.
