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Last month, the Supreme Court ruled 8-0 that it was not presumptively illegal for a joint venture to price its own products. Superficially, Justice Clarence Thomas’ opinion for the Court in the combined cases of Texaco v. Dagher and Shell Oil Company v. Dagher appears to limit the reach of the federal antitrust laws. But not even a “strict constructionist” like Thomas could undo the damage of 116 years of antitrust policy, and in fact the Dagher opinion reinforces the most dangerous principles of the Sherman Act and its progeny.The first paragraph of Thomas’ seven-page opinion—at least he’s succinct—neatly summarizes the cases:

From 1998 until 2002, petitioners Texaco Inc. and Shell Oil Co. collaborated in a joint venture, Equilon Enterprises, to refine and sell gasoline in the western United States under the original Texaco and Shell Oil brand names. Respondents, a class of Texaco and Shell Oil service station owners, allege that petitioners engaged in unlawful price fixing when Equilon set a single price for both Texaco and Shell Oil brand gasoline. We granted certiorari to determine whether it is per se illegal under §1 of the Sherman Act, 15 U. S. C. §1, for a lawful, economically integrated joint venture to set the prices at which the joint venture sells its products. We conclude that it is not, and accordingly we reverse the contrary judgment of the Court of Appeals.

When Thomas calls Equilon a “lawful” joint venture, he does not mean that Texaco and Shell had a basic right to combine their operations; he means that the federal and state governments made the political decision to permit the venture. Thomas notes that the Federal Trade Commission and several state attorneys general forced divestitures and imposed other conditions on Shell and Texaco before Equilon was declared “legal.”

The issue here is whether having Equilon set the price for both Shell and Texaco gasoline violates the Sherman Act. Section One of that act forbids “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States.” Under a strict construction, this prohibits every act of commerce in the United States, as it is impossible to engage in any commercial transaction without imposing a “restraint” on some other transaction. Justice Thomas, like his predecessors, simply dodges this issue by stating, “This Court has not taken a literal approach to this language, however.” Here, with this one sentence, Thomas (and Justice Antonin Scalia, who joined the opinion) unequivocally rebuts the premise that he’s a “strict constructionist.” Here, Thomas is admittedly “interpreting” the subjective intent of Congress without any regard for the text of the actual statute, to say nothing of the Constitution itself.

In the absence of strict construction, Thomas cites a brief history of the Court’s Section One subjectivism:

his Court has not taken a literal approach to this language, however. See, e.g., State Oil Co. v. Khan, 522 U. S. 3, 10 (1997) (“[T]his Court has long recognized that Congress intended to outlaw only unreasonable restraints” (emphasis added)). Instead, this 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. See, e.g., id., at 10-19 (concluding that vertical price-fixing arrangements are subject to the rule of reason, not per se liability). 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.” National Soc. of Professional Engineers v. United States, 435 U. S. 679, 692 (1978). Accordingly, “we have expressed reluctance to adopt per se rules . . . where the economic impact of certain practices is not immediately obvious.” State Oil, supra, at 10 (quoting FTC v. Indiana Federation of Dentists, 476 U. S. 447, 458-459 (1986)).

Let’s take these propositions in order:

1. Congress intended to outlaw only unreasonable restraints.

The word “unreasonable” does not appear in Section 1, and by Thomas’ admission it is a judicial fabrication. Consequently, there is no legislative standard for separating “reasonable” and “unreasonable” restraints, leaving that determination to the executive and judicial branches. The executive—principally the Justice Department—has long maintained that “price fixing” is subject to criminal antitrust liability, and the judiciary has played along by labeling such actions as a “per se” violation. But again, none of this can be ascertained from legislative intent, as the Congress that assembled in 1890 could not foresee, in perpetuity, every “unreasonable” restraint that might fall under the Sherman Act.

2. 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.

The Court equates “anticompetitive” with “illegal.” This is a half-hearted attempt to cloak politics in pseudo-economic language, because a per se rule requires “no elaborate study” to determine its validity. Put another way, even if a defendant can prove there was no “competitive” injury due to price-fixing, no court will admit such evidence because it challenges the government’s predetermined notions of what is “anticompetitive.” Banning truth as a defense violates the Constitution’s due process requirements.

3. We have expressed reluctance to adopt per se rules where the economic impact of certain practices is not immediately obvious.

The word “immediately” is critical, because antitrust regulation generally revolves around changes in short-term prices—higher is presumptively bad, and lower is presumptively good (unless we’re talking about “predatory” pricing.) The courts, particularly the Supreme Court, prize judicial expediency over all other considerations in antitrust cases. Whatever decision gets the court out of its immediate predicament is the preferred outcome, irrespective of the impact on current and future defendants. This is what Justice Thomas did here.

More precisely, Thomas and his colleagues acquiesced to the judgment of the executive branch, which here backed the two oil companies. This was not because the Bush administration is “pro-business” or even “pro-oil.” The Justice Department’s objective was simply to maximize the executive’s control over the interpretation of the antitrust laws. Since the Equilon venture was approved, with conditions, by the FTC, that should be the end of the antitrust story. Why the FTC approved the venture is not a matter of concern for the judiciary, according to the DOJ.

Having accepted the executive branch as the sole arbiter of Equilon’s legitimacy, Thomas quickly concludes that there is nothing unseemly about a state-approved joint venture setting its own prices. Thomas again employs subjective textualism: “though Equilon’s pricing policy may be price fixing in a literal sense, it is not price fixing in the antitrust sense.”

This argument is logically inconsistent with federal antitrust policy. If we assume that “price-fixing” is bad, then the joint venture should be condemned under the Sherman Act. After all, a joint venture represents the median position between, on the one hand, a full integration of the two firms; and on the other hand, a cartel arrangement, whereby prices are fixed outside a public—legal—setting, and which lacks enforceability. A cartel is unquestionably “price fixing in the antitrust sense.” A merger may be an antitrust violation, depending on how the government—the executive branch—chooses to define the market and measure “market power.” So if cartel pricing is illegal and a merger could easily be held illegal, then how can joint venture pricing be presumed legal?

The answer is that cartels are considered a “per se” antitrust violation because, unlike joint ventures and mergers, there is no built-in role for the government in their execution. The executive branch can, and does, impose conditions on joint ventures and mergers. And in the case of mergers, the state receives a kickback in the form of mandatory “filing fees” to defer the cost of antitrust reviews. But cartels are essentially “private” joint ventures with no tribute paid to the local crime bosses, i.e. executive branch officials. This is why “cartel” activity is treated as a criminal matter—the state exacts retribution on those who reject its authority.

Justice Thomas’ opinion does not preclude the DOJ or FTC from cracking down on joint venture “price fixing” in the future. Here, too, we see a contradiction in antitrust policy. The plaintiffs in this case were the customers allegedly injured by Equilon’s “anticompetitive” acts. In theory, they should be in the best position to pursue antitrust action. But the executive has cut off their access to the courts in order to protect its own authority. This is hardly unusual. In criminal cartel prosecutions, the DOJ extracts large fines from defendants, but expressly refuses to use those funds to compensate the purported victims.

Nor are the Dagher cases atypical of recent Supreme Court jurisprudence. In the last seven antitrust-related cases heard by the justices, the position taken by the executive branch prevailed every time; indeed, most of those cases were decided unanimously. For all the conservative wailing about the “imperial judiciary,” there has been nothing but deference to the executive when it comes to antitrust enforcement.

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