Texaco Inc. v. Dagher, No. 04-805.

• Court: United States Supreme Court
• Writing for the Court: Thomas
• Citation: 164 L. Ed. 2d 1,126 S. Ct. 1276,547 U.S. 1
• Decision Date: 28 February 2006
• Docket Number: No. 04-805.
• Parties: TEXACO INC. <I>v.</I> DAGHER et al.

547 U.S. 1 126 S. Ct. 1276 164 L. Ed. 2d 1 TEXACO INC.
v.
DAGHER et al. No. 04-805. Supreme Court of United States. Argued January 10, 2006. Decided February 28, 2006.^*

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 two companies' original brand names. After Equilon set a single price for both brands, respondents, Texaco and Shell Oil service station owners, brought suit alleging that, by unifying gas prices under the two brands, petitioners had violated the per se rule against price fixing long recognized under § 1 of the Sherman Act, see, e. g., Catalano, Inc. v. Target Sales, Inc., 446 U. S. 643, 647. Granting petitioners summary judgment, the District Court determined that the rule of reason, rather than a per se rule, governs respondents' claim, and that, by eschewing rule of reason analysis, respondents had failed to raise a triable issue of fact. The Ninth Circuit reversed, characterizing petitioners' position as a request for an exception to the per se price-fixing prohibition, and rejecting that request.

Held: It is not per se illegal under § 1 of the Sherman Act for a lawful, economically integrated joint venture to set the prices at which it sells its products. Although § 1 prohibits "[e]very contract [or] combination ... in restraint of trade," 15 U. S. C. § 1, this Court has not taken a literal approach to that language, recognizing, instead, that

[547 U.S. 2]

Congress intended to outlaw only unreasonable restraints, e. g., State Oil Co. v. Khan, 522 U. S. 3, 10. Under rule of reason analysis, antitrust plaintiffs must demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive. See, e. g., id., at 10-19. Per se liability is reserved for "plainly anticompetitive" agreements. National Soc. of Professional Engineers v. United States, 435 U. S. 679, 692. While "horizontal" price-fixing agreements between two or more competitors are per se unlawful, see, e. g., Catalano, supra, at 647, this litigation does not present such an agreement, because Texaco and Shell Oil did not compete with one another in the relevant market—i. e., gasoline sales to western service stations—but instead participated in that market jointly through Equilon. When those who would otherwise be competitors pool their capital and share the risks of loss and opportunities for profit, they are regarded as a single firm competing with other sellers in the market. Arizona v. Maricopa County Medical Soc., 457 U. S. 332, 356. As such, Equilon's pricing policy may be price fixing in a literal sense, but it is not price fixing in the antitrust sense. The court below erred in reaching the opposite conclusion under the ancillary restraints doctrine, which governs the validity of restrictions imposed by a legitimate joint venture on nonventure activities. That doctrine has no application here, where the challenged business practice involves the core activity of the joint venture itself—the pricing of the very goods produced and sold by Equilon. Pp. 5-8.

369 F. 3d 1108, reversed.

THOMAS, J., delivered the opinion of the Court, in which all other Members joined, except ALITO, J., who took no part in the consideration or decision of the cases.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Glen D. Nager argued the cause for petitioners in both cases. With him on the briefs for petitioner in No. 04-805 were Craig E. Stewart, Joe Sims, and Louis K. Fisher. On the briefs for petitioner in No. 04-814 were Ronald L. Olson, Bradley S. Phillips, Stuart N. Senator, and Paul J. Watford.

Jeffrey P. Minear argued the cause for the United States as amicus curiae urging reversal in both cases. With him on the brief were Solicitor General Clement, Acting Assistant Attorney General Barnett, Deputy Solicitor General Hungar, Catherine G. O'Sullivan, and Adam D. Hirsh.

[547 U.S. 3]

Joseph M. Alioto argued the cause for respondents in both cases. With him on the brief were Daniel R. Shulman and Gregory Merz.^†

JUSTICE THOMAS delivered the opinion of the Court.

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.

I

Historically, Texaco and Shell Oil have competed with one another in the national and international oil and gasoline

547 U.S. 4

markets. Their business activities include refining crude oil into gasoline, as well as marketing gasoline to downstream purchasers, such as the service stations represented in respondents' class action.

In 1998, Texaco and Shell Oil formed a joint venture, Equilon, to consolidate their operations in the western United States, thereby ending competition between the two companies in the domestic refining and marketing of gasoline. Under the joint venture agreement, Texaco and Shell Oil 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 downstream purchasers 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, see In re Shell Oil Co., 125 F. T. C. 769 (1998), as well as by the state attorneys general of California, Hawaii, Oregon, and Washington. Notably, the decrees imposed no restrictions on the pricing of Equilon gasoline.

After the joint venture began to operate, respondents brought suit in District Court, alleging that, by unifying gasoline prices under the two brands, petitioners had violated the per se rule against price...