U.S. Supreme Court Throws Out Joint Venture Price Fixing Case
WASHINGTON, D.C. (February 28, 2006) — Today, the U.S. Supreme Court ruled in favor of Texaco and Shell Oil in an antitrust case (Texaco Inc. v. Dagher et al.) brought by a group of service station owners alleging anti-competitive price fixing by a Texaco/Shell joint venture. In September, McDermott Will & Emery filed an amicus brief on behalf of the U.S. Chamber of Commerce in support of the legality of the joint venture's conduct, as confirmed by the Court's decision today.
"The Court ruled today joint venture pricing decisions are not tantamount to 'price fixing' in an antitrust sense, but are part and parcel of legitimate joint venture conduct," said Joseph F. Winterscheid, a partner on McDermott's team representing the Chamber. "By reversing the Ninth Circuit, the Court provides much-needed legal certainty to the business community that legitimate joint venture activity will not be paralyzed by the specter of per se illegality."
The amicus brief, prepared by members of the Firm’s Antitrust Practice Group, urged the Court to reverse the Ninth Circuit’s decision in Dagher. The McDermott brief argued that the Ninth Circuit’s fundamentally flawed legal analysis would chill the formation and operation of legitimate joint ventures if permitted to stand. The consequences of such a chilling effect are significant, given the economic benefits offered by joint ventures, including innovation, investment and job creation, among others. McDermott had also previously filed an amicus brief to the Supreme Court on behalf of the Chamber in January 2005 urging the Court to grant certiorari the case.
In Dagher, a divided Ninth Circuit panel held that a pricing decision made by a legitimate, integrated joint venture could be subject to per se condemnation under Section 1 of the Sherman Act as a “price fixing” scheme. In the case, Shell Oil Company and Texaco, Inc. formed a legitimate, integrated joint venture (Equilon) which combined Shell’s and Texaco’s refining and marketing operations and was approved by the antitrust authorities. Upon the formation of Equilon, Shell and Texaco exited the market. Among other things, after it was formed, Equilon was responsible for pricing the products it manufactured and owned—i.e., Shell and Texaco gasoline products. The Ninth Circuit viewed Equilon’s post-formation conduct as a per se unlawful price fixing conspiracy, notwithstanding the fact that it was conceded that Equilon was a legitimate joint venture.
In its amicus submission, McDermott argued that the Ninth Circuit's reasoning represented a significant deviation from well-settled precedent, which makes clear that antitrust challenges to legitimate joint ventures are properly assessed under the rule of reason, which also takes the venture’s procompetitive benefits into account. Had the Supreme Court permitted the Ninth Circuit's decision to stand, it would have created considerable uncertainty as to the legality of virtually all joint venture activity by subjecting virtually all joint venture conduct to potential per se condemnation under the antitrust laws.
A McDermott Will & Emery team, led by Raymond A. Jacobsen, Jr. and including Joseph F. Winterscheid, M. Miller Baker and Andrea L. Hamilton prepared the amicus brief.
