Supreme Court upholds unified Equilon gasoline, product pricing

March 6, 2006
Shell Oil Co. and Texaco Inc. did not violate federal antitrust laws by unifying gasoline and other product prices in their Equilon Enterprises downsteam joint venture, the US Supreme Court ruled Feb 28.

Shell Oil Co. and Texaco Inc. did not violate federal antitrust laws by unifying gasoline and other product prices in their Equilon Enterprises downstream joint venture, the US Supreme Court ruled Feb. 28. The decision overturned a ruling by the Ninth US Circuit Court of Appeals, which in turn had reversed a federal district court’s ruling in favor of Shell and Texaco.

Attorneys for Shell and Texaco, now Chevron Corp., appealed the circuit court’s ruling to the Supreme Court, which heard the case on Jan. 10.

The Supreme Court decision was written by Justice Clarence Thomas. The other justices concurred, except for Justice Samuel A. Alito Jr., who was not on the court when it heard the matter.

It said the case did not constitute price-fixing because Texaco and Shell did not compete with each other in the western US, where Equilon operated until 2002, but participated in that market jointly through their investments in Equilon. “In other words, the pricing policy challenged here amounts to little more than price-setting by a single entity-albeit within the context of a joint venture-and not a pricing agreement between competing entities with respect to their competing products,” the decision said.

It noted that the appeals court reached the opposite conclusion by invoking the ancillary restraints doctrine, which governs the validity of restrictions imposed by legitimate business collaboration on nonventure activities.

But the Supreme Court felt that the ancillary restraints doctrine did not apply in the Shell-Texaco case because the challenged business practice involved the pricing of the goods produced and sold by Equilon.

“Even if we were to invoke the doctrine in these cases, Equilon’s pricing policy is clearly ancillary to the sale of its own products,” the decision said.

“We are pleased that the US Supreme Court’s ruling upholds the District Court’s original decision that neither Shell nor the joint ventures violated any antitrust law,” said Shawn Frederick, spokesman for Shell Oil Products US. “The Equilon and Motiva joint ventures were carefully and extensively reviewed by the Federal Trade Commission and by several state attorneys general prior to their formation. Neither the FTC nor the attorneys general raised any issue about the alleged antitrust violations that the plaintiffs claimed in their lawsuit,” he noted.

Removes a cloud

The decision was significant beyond the oil and gas business because it removed a cloud of uncertainty that the ninth circuit’s ruling had created for joint ventures, according to W. Stephen Smith, cochair of the antitrust practice at Morrison & Foerster LLP in Washington, DC.

That uncertainty was whether businesses forming joint ventures would be found in violation of federal antitrust laws.

“It is a welcome clarification and, more importantly, an elimination of the uncertainty that the ninth circuit had created about the scope of liability for joint ventures,” Smith told OGJ.

He said approval of the Equilon venture by the FTC and several states’ attorneys general prior to its formation may have been a factor but did not determine the high court’s ruling or decision to hear the case.

“The FTC and state attorneys general established, in their reviews, that the joint venture was legitimate and not anticompetitive. The plaintiffs, in the original case, did not challenge this,” Smith said.

The case began as separate lawsuits against Shell and Texaco by 23,000 retailers, which the courts consolidated. Soon after Chevron bought Texaco in 2001, Shell bought out Texaco’s interest in Equilon and in Motiva Enterprises, a similar downstream joint venture that operated in the eastern US during the same period and had Saudi Aramco as a partner.