TEXACO INC. v. DAGHER et al.

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CASES ADJUDGED
IN THE
SUPREME COURT OF THE UNITED STATES
AT
OCTOBER TERM, 2005
TEXACO INC. v. DAGHER et al.
certiorari to the united states court of appeals for
the ninth circuit
No. 04–805. Argued January 10, 2006—Decided February 28, 2006*
Petitioners, Texaco Inc. and Shell Oil Co., collaborated in a joint venture,
Equilon Enterprises, to refine and sell gasoline in the western United
States under the two companies’ original brand names. After Equilon
set a single price for both brands, respondents, Texaco and Shell Oil
service station owners, brought suit alleging that, by unifying gas prices
under the two brands, petitioners had violated the per se rule against
price fixing long recognized under § 1 of the Sherman Act, see, e. g.,
Catalano, Inc. v. Target Sales, Inc., 446 U. S. 643, 647. Granting peti
tioners summary judgment, the District Court determined that the rule
of reason, rather than a per se rule, governs respondents’ claim, and
that, by eschewing rule of reason analysis, respondents had failed to
raise a triable issue of fact. The Ninth Circuit reversed, characterizing
petitioners’ position as a request for an exception to the per se price
fixing prohibition, and rejecting that request.
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
*Together with No. 04–814, Shell Oil Co. v. Dagher et al., also on certio
rari to the same court.
1

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2 TEXACO INC. v. DAGHER
Syllabus
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.
369 F. 3d 1108, reversed.
Thomas, J., delivered the opinion of the Court, in which all other Mem
bers joined, except Alito, J., who took no part in the consideration or
decision of the cases.
Glen D. Nager argued the cause for petitioners in both
cases. With him on the briefs for petitioner in No. 04–805
were Craig E. Stewart, Joe Sims, and Louis K. Fisher. On
the briefs for petitioner in No. 04–814 were Ronald L. Olson,
Bradley S. Phillips, Stuart N. Senator, and Paul J. Watford.
Jeffrey P. Minear argued the cause for the United States
as amicus curiae urging reversal in both cases. With him
on the brief were Solicitor General Clement, Acting Assist
ant Attorney General Barnett, Deputy Solicitor General
Hungar, Catherine G. O’Sullivan, and Adam D. Hirsh.

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3 Cite as: 547 U. S. 1 (2006)
Opinion of the Court
Joseph M. Alioto argued the cause for respondents in both
cases. With him on the brief were Daniel R. Shulman and
Gregory Merz.†
Justice Thomas delivered the opinion of the Court.
From 1998 until 2002, petitioners Texaco Inc. and Shell Oil
Co. collaborated in a joint venture, Equilon Enterprises, to
refine and sell gasoline in the western United States under
the original Texaco and Shell Oil brand names. Respond
ents, a class of Texaco and Shell Oil service station owners,
allege that petitioners engaged in unlawful price fixing when
Equilon set a single price for both Texaco and Shell Oil brand
gasoline. We granted certiorari to determine whether it is
per se illegal under § 1 of the Sherman Act, 15 U. S. C. § 1,
for a lawful, economically integrated joint venture to set the
prices at which the joint venture sells its products. We con
clude that it is not, and accordingly we reverse the contrary
judgment of the Court of Appeals.
I
Historically, Texaco and Shell Oil have competed with one
another in the national and international oil and gasoline
†Briefs of amici curiae urging reversal in both cases were filed for the
American Bankers Association et al. by W. Stephen Smith and Beth S.
Brinkmann; for the American Petroleum Institute by Robert A. Long, Jr.,
Harry M. Ng, and Douglas W. Morris; for the Chamber of Commerce of
the United States of America by Raymond A. Jacobsen, Jr., Stephen A.
Bokat, Robin S. Conrad, and Amar D. Sarwal; for Verizon Communica
tions Inc. by Roy T. Englert, Jr., Donald J. Russell, John Thorne, and
Paul J. Larkin, Jr.; and for Visa U. S. A. Inc. et al. by M. Laurence Popof
sky and Stephen V. Bomse.
Stephen F. Ross filed a brief for the American Antitrust Institute as
amicus curiae urging affirmance in both cases.
Briefs of amici curiae were filed in both cases for the Northwest Ohio
Physician Specialists Cooperative, LLC, by Charles D. Weller and Freder
ick Byers; and for the Retail Industry Leaders Association et al. by Lloyd
Constantine and Michelle A. Peters. Steve C. Vaughn filed a brief for the
Parker Hannifin Corp. as amicus curiae in No. 04–805.

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4 TEXACO INC. v. DAGHER
Opinion of the Court
markets. Their business activities include refining crude oil
into gasoline, as well as marketing gasoline to downstream
purchasers, such as the service stations represented in re
spondents’ class action.
In 1998, Texaco and Shell Oil formed a joint venture,
Equilon, to consolidate their operations in the western
United States, thereby ending competition between the two
companies in the domestic refining and marketing of gaso
line. Under the joint venture agreement, Texaco and Shell
Oil agreed to pool their resources and share the risks of and
profits from Equilon’s activities. Equilon’s board of direc
tors would comprise representatives of Texaco and Shell Oil,
and Equilon gasoline would be sold to downstream purchas
ers under the original Texaco and Shell Oil brand names.
The formation of Equilon was approved by consent decree,
subject to certain divestments and other modifications, by
the Federal Trade Commission, see In re Shell Oil Co., 125
F. T. C. 769 (1998), as well as by the state attorneys gen
eral of California, Hawaii, Oregon, and Washington. Nota
bly, the decrees imposed no restrictions on the pricing of
Equilon gasoline.
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.

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Opinion of the Court
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).
II
Section 1 of the Sherman Act prohibits “[e]very contract,
combination in the form of trust or otherwise, or conspiracy,
in restraint of trade or commerce among the several States.”
15 U. S. C. § 1. This Court has not taken a literal approach
to this language, however. See, e. g., State Oil Co. v. Khan,
522 U. S. 3, 10 (1997) (“[T]his Court has long recognized that
Congress intended to outlaw only unreasonable restraints”
(emphasis added)). Instead, this Court presumptively ap
plies rule of reason analysis, under which antitrust plaintiffs
must demonstrate that a particular contract or combination
is in fact unreasonable and anticompetitive before it will be
found unlawful. See, e. g., id., at 10–19. Per se liability is
reserved for only those agreements that are “so plainly anti
competitive that no elaborate study of the industry is needed
to establish their illegality.” National Soc. of Professional
Engineers v. United States, 435 U. S. 679, 692 (1978). Ac
cordingly, “we have expressed reluctance to adopt per se
rules . . . ‘where the economic impact of certain practices is
not immediately obvious.’ ” State Oil, supra, at 10 (quoting
FTC v. Indiana Federation of Dentists, 476 U. S. 447, 458–
459 (1986)).
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

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6 TEXACO INC. v. DAGHER
Opinion of the Court
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
1 We presume for purposes of these cases that Equilon is a lawful joint
venture. Its formation has been approved by federal and state regula
tors, and there is no contention here that it is a sham. As the court below
noted: “There is a voluminous record documenting the economic justifica
tions for creating the joint ventures. [T]he defendants concluded that
numerous synergies and cost efficiencies would result” by creating Equilon
as well as a parallel venture, Motiva Enterprises, in the eastern United
States, and “that nationwide there would be up to $800 million in cost
savings annually.” 369 F. 3d 1108, 1111 (CA9 2004). Had respondents
challenged Equilon itself, they would have been required to show that its
creation was anticompetitive under the rule of reason. See Copperweld
Corp. v. Independence Tube Corp., 467 U. S. 752, 768 (1984).

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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
2 Respondents have not put forth a rule of reason claim. 369 F. 3d, at
1113. Accordingly, we need not address petitioners’ alternative argument
that § 1 of the Sherman Act is inapplicable to joint ventures.
3 Respondents alternatively contend that petitioners should be held lia
ble under the quick look doctrine. To be sure, we have applied the quick
look doctrine to business activities that are so plainly anticompetitive that
courts need undertake only a cursory examination before imposing anti
trust liability. See California Dental Assn. v. FTC, 526 U. S. 756, 770
(1999). But for the same reasons that per se liability is unwarranted here,
we conclude that petitioners cannot be held liable under the quick look
doctrine.

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8 TEXACO INC. v. DAGHER
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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:
“In this case, nothing more radical is afoot than the
fact that an entity, which now owns all of the production,
transportation, research, storage, sales and distribution
facilities for engaging in the gasoline business, also
prices its own products. It decided to price them the
same, as any other entity could. What could be more
integral to the running of a business than setting a price
for its goods and services?” 369 F. 3d, at 1127.
See also Broadcast Music, supra, at 23 (“Joint ventures and
other cooperative arrangements are . . . not usually unlawful,
at least not as price-fixing schemes, where the agreement on
price is necessary to market the product at all”).
* * *
Because the pricing decisions of a legitimate joint venture
do not fall within the narrow category of activity that is per
se unlawful under § 1 of the Sherman Act, respondents’ anti
trust claim cannot prevail. Accordingly, the judgment of the
Court of Appeals is reversed.
It is so ordered.
Justice Alito took no part in the consideration or deci
sion of these cases.