• U.S. Supreme Court Holds Joint Venture Product Pricing Not Subject to Per Se Rule
  • April 3, 2006
  • Law Firm: Orrick, Herrington & Sutcliffe LLP - San Francisco Office
  • In the first of two major antitrust cases the Supreme Court has decided this Term, the Court held that a joint venture's pricing of its own products - even products bearing the brand names of the joint venture parents - is not subject to the per se rule.

    Between 1998 and 2002, Texaco Inc. and Shell Oil Co. collaborated in a joint venture known as Equilon Enterprises ("Equilon") to refine and sell gasoline in the western United States under the original Texaco and Shell Oil brands. Texaco and Shell Oil pooled their refining and marketing resources into Equilon and shared the risks of and profits from Equilon's activities. The FTC and several states approved the formation of Equilon subject to certain conditions, which did not include any restrictions on the pricing of Equilon gasoline.

    A class of Texaco and Shell Oil service station owners brought suit, arguing that Equilon's single price for both Texaco and Shell Oil brand gasoline constituted a per se illegal activity under Section 1 of the Sherman Act. In reversing the Ninth Circuit, the Supreme Court held that Equilon's setting of a single price was not per se illegal. The Court found that Texaco and Shell Oil did not compete with one another in the relevant market - namely, the sale of gasoline to service stations in the western United States. Instead, they participated in that market jointly through their investment in Equilon. In the Court's view, that is no different than any two businesses combining their capital and sharing the opportunity for profit and the risk of loss.

    The Court rejected the Ninth Circuit's application of the ancillary restraints doctrine. That doctrine governs the validity of restrictions imposed by legitimate business collaboration on non-venture activities. The Court held that the Equilon business practice challenged by plaintiffs involved the core activity of the joint venture itself - namely, the pricing of the very goods Equilon produced and sold. And even if the doctrine were invoked, the Court held that Equilon's pricing policies were clearly ancillary to the sale of its own products.

    Texaco Inc. v. Dagher, No. 04-805, ___ U.S. ___ (2006).