Texaco, Inc. v. Dagher
Encyclopedia
Texaco Inc. v. Dagher, 547 U.S. 1
(2006), was a decision by the Supreme Court of the United States
involving the application of U.S. antitrust law to a joint venture
between oil companies to market gasoline
to gas stations. The Court ruled unanimously that the joint venture's unified price for the two companies' brands of gasoline was not a price-fixing scheme between competitors in violation of the Sherman Antitrust Act
. The Court instead considered the joint venture a single entity that made pricing decisions, in which the oil companies participated as cooperative investors.
and Shell Oil, historically competitors in the national and international oil and gasoline markets, formed a joint venture in 1998 called "Equilon" to consolidate their operations in the western United States
, which ended competition between the two companies in the domestic refining and marketing of gasoline. Under the joint venture agreement, Texaco and Shell agreed to pool their resources and share the risks of and profits from Equilon's activities. Equilon's board of directors
would comprise representatives of Texaco and Shell Oil, and Equilon gasoline would be sold to gas stations under the original Texaco and Shell Oil brand names. The formation of Equilon was approved by consent decree
, subject to certain divestments and other modifications, by the Federal Trade Commission
, as well as by the state attorneys general
of California
, Hawaii
, Oregon
, and Washington. The consent decrees did not impose any restrictions on the prices Equilon charged.
lawsuit in the United States District Court for the Central District of California
, alleging that, by unifying gasoline prices under the two brands, petitioners had violated the per se rule against price fixing
that the Supreme Court had long recognized under § 1 of the Sherman Act. The District Court awarded summary judgment
to Texaco and Shell Oil. It determined that the rule of reason
governed the plaintiffs' claim, under which only "unreasonable restraints of trade" were prohibited by the Sherman Act. Because they had eschewed rule of reason analysis, the plaintiffs had failed to raise a triable issue of fact.
reversed, ruling that the per se rule against price fixing instead applied, which conclusively presumed that the arrangement was illegal. The Ninth Circuit reached that decision by applying the ancillary restraints doctrine, which provided an exception from the rule of reason whenever a restraint on trade was not ancillary to the main purpose of an agreement. The court did not believe the oil companies had explained why the unified pricing for their two brands of gasoline was necessary to further the legitimate goals of the joint venture, and so reversed summary judgment. Texaco and Shell both petitioned for certiorari
to the Supreme Court, which consolidated the petitions and granted certiorari to determine the extent to which the per se rule against price fixing applies to joint ventures.
delivered the opinion of the U.S. Supreme Court, in which the other seven participating justices joined in reversing the Ninth Circuit. Significant to the outcome of the case was the Court's presumption that the joint venture itself was legal, which it based on the prior approval by the FTC and the several states involved.
The Court ruled that the Equilon joint venture pricing decisions were not illegal price-fixing between competitors. Texaco and Shell did not compete with one another in the relevant market, but instead participated in that market jointly through their investments in Equilon. The two companies shared in Equilon's profits, and should be regarded as a single entity competing with other sellers in the market, regardless of the decision to market their gasoline under two brands instead of one.
Contrary to the Ninth Circuit's ruling, the Court did not believe that the ancillary restraints doctrine applied because the challenged business practice involved the "core activity" of the joint venture—the pricing of the goods it produced and sold. Even if the doctrine applied, pricing was certainly integral to a business that produced and sold goods.
Case citation
Case citation is the system used in many countries to identify the decisions in past court cases, either in special series of books called reporters or law reports, or in a 'neutral' form which will identify a decision wherever it was reported...
(2006), was a decision by the Supreme Court of the United States
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
involving the application of U.S. antitrust law to a joint venture
Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
between oil companies to market gasoline
Gasoline
Gasoline , or petrol , is a toxic, translucent, petroleum-derived liquid that is primarily used as a fuel in internal combustion engines. It consists mostly of organic compounds obtained by the fractional distillation of petroleum, enhanced with a variety of additives. Some gasolines also contain...
to gas stations. The Court ruled unanimously that the joint venture's unified price for the two companies' brands of gasoline was not a price-fixing scheme between competitors in violation of the Sherman Antitrust Act
Sherman Antitrust Act
The Sherman Antitrust Act requires the United States federal government to investigate and pursue trusts, companies, and organizations suspected of violating the Act. It was the first Federal statute to limit cartels and monopolies, and today still forms the basis for most antitrust litigation by...
. The Court instead considered the joint venture a single entity that made pricing decisions, in which the oil companies participated as cooperative investors.
Joint venture
TexacoTexaco
Texaco is the name of an American oil retail brand. Its flagship product is its fuel "Texaco with Techron". It also owns the Havoline motor oil brand....
and Shell Oil, historically competitors in the national and international oil and gasoline markets, formed a joint venture in 1998 called "Equilon" to consolidate their operations in the western United States
Western United States
.The Western United States, commonly referred to as the American West or simply "the West," traditionally refers to the region comprising the westernmost states of the United States. Because the U.S. expanded westward after its founding, the meaning of the West has evolved over time...
, which ended competition between the two companies in the domestic refining and marketing of gasoline. Under the joint venture agreement, Texaco and Shell agreed to pool their resources and share the risks of and profits from Equilon's activities. Equilon's board of directors
Board of directors
A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...
would comprise representatives of Texaco and Shell Oil, and Equilon gasoline would be sold to gas stations under the original Texaco and Shell Oil brand names. The formation of Equilon was approved by consent decree
Consent decree
A consent decree is a final, binding judicial decree or judgment memorializing a voluntary agreement between parties to a suit in return for withdrawal of a criminal charge or an end to a civil litigation...
, subject to certain divestments and other modifications, by the Federal Trade Commission
Federal Trade Commission
The Federal Trade Commission is an independent agency of the United States government, established in 1914 by the Federal Trade Commission Act...
, as well as by the state attorneys general
Attorney General
In most common law jurisdictions, the attorney general, or attorney-general, is the main legal advisor to the government, and in some jurisdictions he or she may also have executive responsibility for law enforcement or responsibility for public prosecutions.The term is used to refer to any person...
of California
California
California is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third-largest by land area...
, Hawaii
Hawaii
Hawaii is the newest of the 50 U.S. states , and is the only U.S. state made up entirely of islands. It is the northernmost island group in Polynesia, occupying most of an archipelago in the central Pacific Ocean, southwest of the continental United States, southeast of Japan, and northeast of...
, Oregon
Oregon
Oregon is a state in the Pacific Northwest region of the United States. It is located on the Pacific coast, with Washington to the north, California to the south, Nevada on the southeast and Idaho to the east. The Columbia and Snake rivers delineate much of Oregon's northern and eastern...
, and Washington. The consent decrees did not impose any restrictions on the prices Equilon charged.
District Court proceedings
After Equilon began to operate, a class of 23,000 Texaco and Shell gas station owners filed a class actionClass action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
lawsuit in the United States District Court for the Central District of California
United States District Court for the Central District of California
The United States District Court for the Central District of California serves over 18 million people in southern and central California, making it the largest federal judicial district by population...
, alleging that, by unifying gasoline prices under the two brands, petitioners had violated the per se rule against price fixing
Price fixing
Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand...
that the Supreme Court had long recognized under § 1 of the Sherman Act. The District Court awarded summary judgment
Summary judgment
In law, a summary judgment is a determination made by a court without a full trial. Such a judgment may be issued as to the merits of an entire case, or of specific issues in that case....
to Texaco and Shell Oil. It determined that the rule of reason
Rule of reason
The Rule of Reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. The rule, stated and applied in the case of Standard Oil Co. of New Jersey v. United States, 221 U.S...
governed the plaintiffs' claim, under which only "unreasonable restraints of trade" were prohibited by the Sherman Act. Because they had eschewed rule of reason analysis, the plaintiffs had failed to raise a triable issue of fact.
Ninth Circuit decision
The Ninth CircuitUnited States Court of Appeals for the Ninth Circuit
The United States Court of Appeals for the Ninth Circuit is a U.S. federal court with appellate jurisdiction over the district courts in the following districts:* District of Alaska* District of Arizona...
reversed, ruling that the per se rule against price fixing instead applied, which conclusively presumed that the arrangement was illegal. The Ninth Circuit reached that decision by applying the ancillary restraints doctrine, which provided an exception from the rule of reason whenever a restraint on trade was not ancillary to the main purpose of an agreement. The court did not believe the oil companies had explained why the unified pricing for their two brands of gasoline was necessary to further the legitimate goals of the joint venture, and so reversed summary judgment. Texaco and Shell both petitioned for certiorari
Certiorari
Certiorari is a type of writ seeking judicial review, recognized in U.S., Roman, English, Philippine, and other law. Certiorari is the present passive infinitive of the Latin certiorare...
to the Supreme Court, which consolidated the petitions and granted certiorari to determine the extent to which the per se rule against price fixing applies to joint ventures.
The court's decision
Justice Clarence ThomasClarence Thomas
Clarence Thomas is an Associate Justice of the Supreme Court of the United States. Succeeding Thurgood Marshall, Thomas is the second African American to serve on the Court....
delivered the opinion of the U.S. Supreme Court, in which the other seven participating justices joined in reversing the Ninth Circuit. Significant to the outcome of the case was the Court's presumption that the joint venture itself was legal, which it based on the prior approval by the FTC and the several states involved.
The Court ruled that the Equilon joint venture pricing decisions were not illegal price-fixing between competitors. Texaco and Shell did not compete with one another in the relevant market, but instead participated in that market jointly through their investments in Equilon. The two companies shared in Equilon's profits, and should be regarded as a single entity competing with other sellers in the market, regardless of the decision to market their gasoline under two brands instead of one.
Contrary to the Ninth Circuit's ruling, the Court did not believe that the ancillary restraints doctrine applied because the challenged business practice involved the "core activity" of the joint venture—the pricing of the goods it produced and sold. Even if the doctrine applied, pricing was certainly integral to a business that produced and sold goods.
See also
External links
- [ Full text of the Supreme Court's decision]