Texaco Inc. v. Dagher, 547 U.S. 1 (2006)

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] com bination . . . in restraint of trade,” 15 U. S. C. § 1, this Court has not taken a literal approach to that language, recognizing, instead, that [p. 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. Na tional 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., gaso line 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 opportuni ties 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 ancil lary restraints doctrine, which governs the validity of restrictions im posed by a legitimate joint venture on nonventure activities. That doc trine 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.

After the joint venture began to operate, respondents brought suit in District Court, alleging that, by unifying gas oline prices under the two brands, petitioners had violated the per se rule against price fixing that this Court has long recognized under § 1 of the Sherman Act, ch. 647, 26 Stat. 209, as amended, 15 U. S. C. § 1. See, e. g., Catalano, Inc. v. Target Sales, Inc., 446 U. S. 643, 647 (1980) (per curiam). The District Court awarded summary judgment to Texaco and Shell Oil. It determined that the rule of reason, rather than a per se rule or the quick look doctrine, governs re spondents’ claim, and that, by eschewing rule of reason anal ysis, respondents had failed to raise a triable issue of fact. The Ninth Circuit reversed, characterizing petitioners’ posi tion as a request for an “exception to the per se prohibition on price-fixing,” and rejecting that request. Dagher v. [p. 5] Saudi Refining, Inc., 369 F. 3d 1108, 1116 (2004). We consol idated Texaco’s and Shell Oil’s separate petitions and granted certiorari to determine the extent to which the per se rule against price fixing applies to an important and increasingly popular form of business organization, the joint venture. 545 U. S. 1138 (2005).

Price-fixing agreements between two or more competitors, otherwise known as horizontal price-fixing agreements, fall into the category of arrangements that are per se unlawful. See, e. g., Catalano, supra, at 647. These cases do not pre sent such an agreement, however, because Texaco and Shell Oil did not compete with one another in the relevant mar ket—namely, the sale of gasoline to service stations in the western United States—but instead participated in that [p. 6] market jointly through their investments in Equilon.1 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. Throughout Equilon’s existence, Texaco and Shell Oil shared in the profits of Equilon’s activi ties in their role as investors, not competitors. When “per sons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit . . . such joint ventures [are] regarded as a single firm competing with other sellers in the market.” Arizona v. Maricopa County Medical Soc., 457 U. S. 332, 356 (1982). As such, though Equilon’s pricing policy may be price fixing in a literal sense, it is not price fixing in the antitrust sense. See Broadcast Music, Inc. v. Columbia Broadcasting Sys tem, Inc., 441 U. S. 1, 9 (1979) (“When two partners set the price of their goods or services they are literally ‘price fix ing,’ but they are not per se in violation of the Sherman Act”).

This conclusion is confirmed by respondents’ apparent con cession that there would be no per se liability had Equilon simply chosen to sell its gasoline under a single brand. See Tr. of Oral Arg. 34. We see no reason to treat Equilon dif ferently just because it chose to sell gasoline under two dis [p. 7] tinct brands at a single price. As a single entity, a joint venture, like any other firm, must have the discretion to de termine the prices of the products that it sells, including the discretion to sell a product under two different brands at a single, unified price. If Equilon’s price unification policy is anticompetitive, then respondents should have challenged it pursuant to the rule of reason.2 But it would be inconsistent with this Court’s antitrust precedents to condemn the inter nal pricing decisions of a legitimate joint venture as per se unlawful.3

The court below reached the opposite conclusion by invok ing the ancillary restraints doctrine. 369 F. 3d, at 1118–1124. That doctrine governs the validity of restrictions imposed by a legitimate business collaboration, such as a business association or joint venture, on nonventure activi ties. See, e. g., National Collegiate Athletic Assn. v. Board of Regents of Univ. of Okla., 468 U. S. 85, 113–115 (1984); Citizen Publishing Co. v. United States, 394 U. S. 131, 135–136 (1969). Under the doctrine, courts must determine whether the nonventure restriction is a naked restraint on trade, and thus invalid, or one that is ancillary to the legiti mate and competitive purposes of the business association, and thus valid. We agree with petitioners that the ancillary restraints doctrine has no application here, where the busi ness practice being challenged involves the core activity of the joint venture itself—namely, the pricing of the very [p. 8] goods produced and sold by Equilon. And 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. Judge Fernandez, dissenting from the ruling of the court below, put it well: