Joint venture's prices win high court's OK


March 01, 2006|By BLOOMBERG NEWS

WASHINGTON -- Joint ventures have broad power to set prices without violating antitrust laws, the Supreme Court ruled yesterday, overturning a lower court decision in an oil industry case that drew a torrent of objections from companies and the Bush administration.

The justices unanimously threw out a suit that accused Royal Dutch/Shell Group and Chevron Corp. of using two joint ventures to jack up prices for 23,000 service station owners. A U.S. appeals court in San Francisco had let the suit go forward.

"As a single entity, a joint venture, like any other firm, must have the discretion to determine the prices of the products that it sells," Justice Clarence Thomas wrote for the court in Washington.

Companies said the case had threatened to unleash a wave of litigation, leaving joint ventures vulnerable to multimillion-dollar damage claims. Visa USA Inc., Coca-Cola Co., Verizon Communications Inc. and Microsoft Corp. all filed briefs saying the case had implications for their own joint ventures.

"It was a real potential landmine for all joint venture activity," said Joseph F. Winterscheid, a Washington lawyer with McDermott, Will & Emery who filed a brief for the Chamber of Commerce siding with the oil companies.

The ruling is the most significant business decision under new Chief Justice John G. Roberts Jr.

Shell Oil Co. and Texaco Inc., which is now part of Chevron, merged their retail and refining businesses in 1998 to form Equilon Enterprises LLC and Motiva Enterprises LLC. The joint ventures continued to sell gas under both the Shell and Texaco names, although the two brands didn't compete with each other. Federal antitrust enforcers cleared both transactions.

Texaco sold its stake in the ventures to gain Federal Trade Commission approval of its acquisition by Chevron in 2001. Shell now owns all of Equilon and 50 percent of Motiva.

The central question in the case was whether a joint venture should be treated as a unified business, and thereby be immune from claims that its units conspired to fix prices, or as two separate companies.

The 9th U.S. Circuit Court of Appeals in San Francisco chose the latter approach, saying the price-setting by the two entities might be illegal "per se," regardless of any benefits of competition.

The court said the station owners would win their suit unless joint price-setting was "sufficiently important to attaining the lawful objectives of the joint venture." Thomas disagreed, saying that "the pricing policy challenged here amounts to little more than price-setting by a single entity."

The ruling means that future lawsuits against joint ventures will be judged under a "rule of reason" standard - an approach to antitrust law that involves detailed economic analysis.

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