State Oil Company v. Khan

PETITIONER: State Oil Company
RESPONDENT: Khan et al.
LOCATION: United States Shoe Corporation

DOCKET NO.: 96-871
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 522 US 3 (1997)
ARGUED: Oct 07, 1997
DECIDED: Nov 04, 1997

Anthony S. DiVincenzo - on behalf of the Respondents
John Baumgartner - on behalf of the Petitioner
Joel I. Klein - for United States, as amicus curiae, supporting Petitioner
Pamela J. Harbour - for State amici curiae, supporting Respondents

Facts of the case

Barkat U. Khan and his corporation contracted with State Oil to lease and run a gas station. Under the agreement, State Oil set a maximum profit margin for gasoline and required Khan to return any excess profits to State Oil. Khan fell behind in lease payments and was evicted. Khan then sued State Oil claiming that State Oil had engaged in price fixing in violation of Section 1 of the Sherman Act, which disallows restrictions on trade. State Oil claimed that in setting profit margins, they had not prevented Kahn from setting prices and therefore were not guilty of price fixing.

On appeal, the U.S. Court of Appeals for the Seventh Circuit found in favor of Kahn based on the logic of Albrecht v. Herald Co. in which the Supreme Court ruled that some restrictions on trade, such as price-fixing, always have such negative effects coupled with such little competitive benefit that these restrictions are always unlawful.


Is the setting of maximum prices always ("per se") a violation of the Sherman Act's prohibition on price fixing?

Media for State Oil Company v. Khan

Audio Transcription for Oral Argument - October 07, 1997 in State Oil Company v. Khan

Audio Transcription for Opinion Announcement - November 04, 1997 in State Oil Company v. Khan

William H. Rehnquist:

The opinion of the Court in No. 96-871, State Oil Co. against. Khan will be announced by Justice O'Connor.

Sandra Day O'Connor:

This case comes to us on writ of certiorari to the Court of Appeals for the Seventh Circuit.

It stands from a dispute concerning respondent's agreement with State Oil Company to lease and operate a gas station.

Under the agreement the price at which Mr. Khan was obligated to purchase gasoline from State Oil built in a profit margin that Khan could not exceed, thus, through the agreement State Oil imposed a vertical restriction on a maximum resale price of the gasoline.

After State Oil instituted eviction proceedings against Khan, he filed suit in Federal District Court alleging in part that State Oil had violated Section 1 of the Sherman Antitrust Act by improperly fixing his gasoline resale prices.

The District Court entered summary judgment for State Oil on that claim.

The Court of Appeals for Seventh Circuit reversed relying on this Court's opinion in Albrecht v. Herald Co. in which this Court, in the year of 1968, adapted a rule that vertical maximum price fixing is illegal per se under the Sherman Act.

We granted certiorari to consider whether the per se rule of Albrecht should be overruled in light of subsequent decisions of this Court and a substantial criticism that Albrecht has received.

In an opinion filed with the Clerk today, we reverse the decision of the Court of Appeals based on our conclusion that any anticompetitive effects of vertical maximum price fixing can be appropriately detected and punished if necessary under the rule of reason applicable to most antitrust claims.

Although, the doctrine of stare decisis is the preferred course, it is not an inexorable command.

In the area of Antitrust Law, there is a competing interest in recognizing and adapting to change circumstances and to the lessons of accumulated experience.

We find the conceptual foundations of Albrecht had been so weakened by subsequent developments in antitrust law that it should be overruled.

Accordingly, we vacate the decision of the Court of Appeals and remand for further consideration of the case.

The decision is unanimous.