On Tuesday, the Supreme Court will hear oral arguments in the consolidated cases of Texaco, Inc. v. Dagher and Shell Oil Company v. Dagher. The cases ask the relatively straightforward question of whether a joint venture between two companies can set prices for their products without running afoul of antitrust prohibitions on “price fixing.” In this case, Shell and Texaco formed a joint venture to combine their gasoline refining, distribution, and retailing operations in the western United States. The joint venture, called Equilon, sold separately branded Shell and Texaco gasoline at a uniform price in each geographic market. A group of independent gas station owners filed a class action suit, alleging that this constituted horizontal “price fixing.”A trial court dismissed the plaintiffs complaint, but the Ninth Circuit Court of Appeals reinstated the case. That court said that even though Equilon was a lawful joint venture under the antitrust laws, the common pricing policy was still a per se antitrust violation under the so-called “ancillary restraints” doctrine.
This is an example of how antitrust can be interpreted to outlaw any business decision. Had Equilon priced similar gasoline products differently, it could have been sued for “price discrimination” under the Robinson Patman Act. Alternatively, had Shell and Texaco merged outright instead of forming a joint venture, that could have been challenged as a Clayton Act violation.
The Justice Department and the Federal Trade Commission have sided with Texaco and Shell in asking the Supreme Court to overrule the Ninth Circuit. This isn’t a case of the Bush administration backing their oil pals, but rather antitrust regulators defending their own turf from judicial encroachment. The FTC originally reviewed the Equilon venture and declared it legal—after forcing some concessions from the oil companies. And the FTC and DOJ both maintain that their enforcement guidelines generally permit joint ventures to determine their own pricing policies.
All antitrust policy is the product of either judicial or executive branch activism. The antitrust laws themselves are vague and unenforceable. The courts invented the per se rule, the rule of reason, the ancillary restraints doctrine, etc., while the DOJ and FTC fabricated “merger review guidelines” and the like to maximize regulatory control over private businesses. Antitrust is a classic example of the rule of men over the rule of law.
If the Ninth Circuit’s decision here is upheld, the per se rule will be expanded beyond the scope preferred by the DOJ and FTC. It’s not important to the regulators what the rules are, only that they be the ones to make them. That’s not to say the Ninth Circuit shouldn’t be slapped down. It most certainly should. But in the course of restraining the scope of private antitrust litigation, the Supreme Court would paradoxically affirm the DOJ and FTC’s ability to continue expanding the scope of government antitrust enforcement.
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How did the justices get the scope they have? Under common law? or via legislation? If the latter, we play the State’s game — the justices are then the State’s lightning rod, drawing fire away from the _legislation_ which is the _real_ problem.
To me it is difficult to understand how a cooperative joint venture might have been cleared by antitrust agencies. The price fixing dangers should have been dealt with when the oil companies sought authorisation to incorporate the JV. No surprise that the mess comes out now.
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