Court: Vertical price fixing isn't necessarily illegal
November 4, 1997
Web posted at: 1:34 p.m. EST (1834 GMT)
WASHINGTON (CNN)-- The Supreme Court ruled Tuesday that
suppliers of goods and services don't necessarily violate
antitrust laws by setting maximum prices their retailers can
In a case brought to the high court by oil companies -- State
Oil vs. Khan -- the court unanimously decided to overturn an
existing law that makes such "vertical price fixing"
automatically, or "per se," illegal.
Writing for the court Tuesday, Justice Sandra Day O'Connor
said the court is abandoning its 1968 rationale and instead
wants judges to decide the legality of such arrangements on a
case-by-case basis -- what judges call a "rule of reason."
"We of course do not hold that all vertical maximum price
fixing is per se lawful," O'Conner said. "Instead, vertical
maximum price fixing, like the majority of commercial
subject to the antitrust laws, should be evaluated under the
rule of reason."
This ruling overturns an existing law established in the
Supreme Court opinion known as Albrecht vs. Herald Co.
Vertical price fixing pertains to arrangements between a
manufacturer, distributor, supplier or retailer. Horizontal
price fixing, which would involve competitors colluding to
set prices, remains illegal.
The oil companies had sought the court's consent to the "rule
of reason." Khan was a Illinois service station owner who
contended his contract with State Oil left him too little
profit margin since it set maximum prices.
Other industries that rely on manufacturer-retailer
arrangements -- including newspapers, beer distributors and
car dealers -- supported the oil company's case.
The case was argued before the Supreme Court on October 7.