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S P E C I A L : Supreme Court: 1997-1998 Session

Court: Vertical price fixing isn't necessarily illegal

Court graphic 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 charge.

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 arrangements 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.


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Supreme Court:
1997-1998 Session

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