Price Ruling Struck Down
Childs, Kelvin, Editor & Publisher
The U.S. Supreme Court ruled unanimously, Nov. 4 that a manufacturer's vertical setting of prices is not a per se, or automatic, violation of the Sherman Antitrust Act.
In so doing, the court swept aside a 1968 ruling against a newspaper company that had sued an independent distributor who was charging his home delivery customers more than the paper wished.
The ruling gave newspapers more freedom to set the prices that distributors charge readers.
In State Oil vs. Khan the court held that the reasoning behind the earlier Albrecht vs. Herald Co. decision, which was meant to protect inter-brand competition, has been eroded by subsequent decisions.
Justice Sandra Day O'Connor wrote for the court, "Vertical maximum price fixing, like the majority of commercial arrangements subject to the antitrust laws, should be evaluated under the rule of reason." The rule of reason calls for case-by-case evaluation of anti-competitive effect rather than the per se assumption that price fixing is always illegal.
Several media companies -- Advance Publications Inc., A.H. Belo Corp., Cox Enterprises Inc., Dow Jones & Co., Gannett Co., Knight-Ridder Inc., New York Times Co. and Washington Post Co. -- and the Newspaper Association of America had filed a joint friend-of-the-court brief in support of State Oil. The Justice Department also argued in favor of overturning Albrecht.
State Oil exclusively, supplied gasoline to a service station and convenience store owned by Barkat U. Khan under terms that set a suggested retail price for the gasoline and provided a 3.25 [cts.] per gallon profit margin. The agreement stipulated that Khan could set any price he wished, but if prices were raised above the margin, the excess profit had to go to State Oil.
Lowering the price would cut into the margin accordingly.
Khan fell behind on lease payments and was evicted, and the gas station was then run for several months by a court-appointed receiver who was not obligated to honor State Oil's pricing terms The receiver lowered prices on regular gasoline and raised them on premium gasoline, obtaining an overall profit margin that was more than 3. …