The Supreme Court Reverses Dagher
Today, the Supreme Court reversed the Ninth Circuit Court’s of Appeals decision in Texaco v. Dagher in a unanimous opinion. As I discussed in an earlier post, the Ninth Circuit’s decision in Dagher was clearly wrong, and so the Supreme Court did not have to break new ground to justify its holding.
First, the court correctly classified Texaco and Shell as shareholders in a joint venture, not as competitors.
Texaco and Shell Oil did not compete with one another in the relevant market … but instead participated in that market jointly through their investment in Equilon [the joint venture]. … Throughout Equilon’s existence, Texaco and Shell Oil shared in the profits of Equilon’s activities in their role as investors, not competitors.Thus, the joint venture’s own price setting activities failed to meet the “agreement among competitors” prong of a §1 horizontal price fixing claim.
Second, the court correctly rejects the application of the ancillary restraints doctrine, even though the reasoning seems a bit muddled. The ancillary restraints doctrine applies to conduct (i) by competitors; (ii) outside the scope of the joint venture. Obviously, neither prong is fulfilled in the Dagher case, because Texaco and Shell no longer compete in the market for refining and selling gasoline and the agreement on price relates to the JV’s products, not to any products that Texaco and Shell sell. That should have been the end of the ancillary restraints discussion. But Justice Thomas continues, fortunately in dictum, stating:
And even if we were to invoke the [ancillary restraints] doctrine in these cases, Equilon’s pricing policy is clearly ancillary to the sale of its own products.That, however, misses the point. If we accept the premise of the ancillary restraints doctrine, then the question is whether a restraint (here, selling Shell and Texaco gas at the same price) is reasonably necessary to achieve the venture-specific efficiencies (here, cost savings of about $800 million/year). To that, the answer is no. One doesn’t have to charge the same prices for two brands in order to save on production costs. The opinion would have been stronger but for the arguendo line of reasoning with respect to the ancillary restraints.
Technorati Tags: antitrust, joint venture, Dagher, Texaco, Shell, Equilon, ancillary restraints
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February 28th, 2006 at 3:07 pm
[...] Hanno Kaiser adds his thoughts at Antitrust Review. Filed under: antitrust Permalink | Trackback URL | [Comments (0) TrackBack(0)] [...]
February 28th, 2006 at 5:42 pm
[...] In addition to our own early analysis, you can find early coverage of the Court’s Dagher decision from Reuters, the AP, the Contra Costa Times, MarketWatch and Bloomberg. [...]
March 1st, 2006 at 11:34 am
Blog Round-Up – Wednesday, March 1st…
Here the Antitrust Review has a post on the Court’s decision in Texaco v. Dagher. Here is Dahlia Lithwich with an article titled, “Rack and Ruin: The Supreme Court considers Anna Nicole’s surprisingly real claims.” Here is the Volokh Conspiracy……
September 11th, 2006 at 7:50 am
[...] The Supreme Court’s decision in Texaco v. Dagher (which I discussed on this blog here and here) may have a lasting impact on step (4) of the joint venture analysis. In essence, as James Keyte persuasively argues in the current issue of the Antitrust Magazine (which, amazingly, doesn’t seem to have an up-to-date website, so no link), Dagher creates an inside/outside dichotomy, which may be outlined as follows: [...]