Monday, April 17, 2006, 3:09 PM

Does Dagher Imply That Vertical Minimum Price Fixing Is Subject To The Rule Of Reason?

In Texaco, Inc. v. Dagher, the Supreme Court held that the pricing decisions of a joint venture were not per se illegal horizontal price fixing. In describing the background of the Sherman Act and the Court's approach to price fixing, Justice Thomas stated that in State Oil Co. v. Khan, 522 U.S. 3, (1997), the Court "conclude[ed] that vertical price-fixing arrangements are subject to the rule of reason, not per se liability." Although many economists, antitrust lawyers, and companies may wish this statement were true, State Oil merely held that vertical maximum price fixing was subject to the rule of reason. Vertical minimum price fixing -- also known as minimum resale price maintenance -- is still considered per se illegal by the courts and by the Federal Trade Commission. Justice Thomas's characterization of the State Oil decision, therefore, was missing the word "maximum."

I recently attended a conference on Product Distribution and Marketing, in which one of the speakers suggested that Justice Thomas's mischaracterization of State Oil may have been intentional and forecast the Court's application of the rule of reason to vertical minimum price fixing as well as vertical maximum price fixing.

At that point, FTC Commissioner Pamela Jones Harbour -- who was sitting a few rows in front of me -- spoke up. A supporter of the per se rule, Commissioner Harbour stated that she contacted Justice Thomas's chambers and pointed out that he had mischaracterized the State Oil holding. According to Commissioner Harbour, Justice Thomas's law clerk indicated that the omission of the word "maximum" was not intentional and that Justice Thomas was considering amending his opinion in Dagher.

For a description of the holding in Dagher, see this post.

For a description of a debate between a noted economist and an FTC Commissioner on whether the per se rule should apply to vertical minimum price fixing, see this post.

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