South-Western Legal Studies in Business

Joint Venture by Competitors Not Per Se Illegal
Description

Supreme Court held that for two competitors to form a joint venture to produce a product sold at one price was not per se illegal. Since the companies did not compete directly with each other in the market affected by the joint venture, there was no violation of the Sherman Act under a rule of reason analysis.

Topic Antitrust
Key Words

Price Fixing, Horizontal Agreement, Per Se Rule, Rule of Reason, Joint Venture

C A S E   S U M M A R Y
Facts

Texaco and Shell formed a joint venture, Equilon, to refine and sell gasoline in the western U.S. under the two companies' original brand names. Equilon set a single price for both brands. A group of Shell and Texaco service station owners sued, contending that by unifying gas prices under two brands, the companies violated the per se rule against price fixing under Section 1 of the Sherman Act. The district court held that a rule of reason applied to the situation and found no violation of the Sherman Act. The appeals court reversed. Texaco and Shell appealed.

Decision

Reversed. It is not per se illegal under the Sherman Act for an economically integrated joint venture to set prices at which it sells its products. Per se liability is reserved for only those agreements that are so plainly anticompetitive that no elaborate study of industry is needed to establish their illegality. The Act only prohibits unreasonable restraints of trade. Under a rule of reason analysis, a plaintiff must show that a particular contract or combination is in fact unreasonable and anticompetitive before it will be found unlawful. Shell and Texaco did not directly compete in the retail gas market served by Equilon, so there was no anticompetitive act.

Citation

Texaco Inc. v. Dagher, 126 S.Ct. 1276 (Sup. Ct., 2006)

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