1. What were the terms of Mr. Khan’s lease? Include a discussion of the price terms.

2. Is vertical price fixing a per se violation? What does the court say about inefficient retailers and vertical price controls?

3. What does the court say about a long-standing precedent and stare decisis?

Barkat U. Khan and his corporation entered into an agreement with State Oil to lease and operate a gas station and convenience store owned by State Oil. The agreement provided that Khan would obtain the gasoline supply for the station from State Oil at a price equal to a suggested retail price set by State Oil, less a margin of $3.25 per gallon. Khan could charge any price he wanted, but if he charged more than State Oil’s suggested retail price, the excess went to State Oil. Khan could sell the gasoline for less than State Oil’s suggested retail price, but the difference would come out of his allowed margin.

After a year, Khan fell behind on his lease payments, and State Oil gave notice of, and began, eviction proceedings.

The court had Khan removed and appointed a receiver to operate the station. The receiver did so without the price constraints and received an overall profit margin above the $3.25 imposed on Khan.

Khan filed suit, alleging that the State Oil agreement was a violation of Section 1 of the Sherman Act because State Oil was controlling price. The district court held that there was no per se violation and that Khan had failed to demonstrate antitrust injury. The Court of Appeals reversed, and State Oil appealed.

JUDICIAL OPINION

O’CONNOR, Justice … In Albrecht v Herald Co., 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968), this Court held that vertical maximum price fixing is a per se violation of that statute. In this case, we are asked to reconsider that decision in light of subsequent decisions of this Court. We conclude that Albrecht should be overruled.

Although the Sherman Act, by its terms, prohibits every agreement “in restraint of trade,” this Court has long recognized that Congress intended to outlaw only unreasonable restraints.

As a consequence, most antitrust claims are analyzed under a “rule of reason,” according to which the finder of fact must decide whether the questioned practice imposes an unreasonable restraint on competition, taking into account a variety of factors, including specific information about the relevant business, its condition before and after the restraint was imposed, and the restraint’s history, nature, and effect. [I]n United States v Arnold, Schwinn & Co., 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed. 2d 1249 (1967), the Court reconsidered the status of exclusive dealer territories and held that, upon the transfer of title to goods to a distributor, a supplier’s imposition of territorial restrictions on the distributor was “so obviously destructive of competition” as to constitute a per se violation of the Sherman Act. In Schwinn, the Court acknowledged that some vertical restrictions, such as the conferral of territorial rights or franchises, could have procompetitive benefits by allowing smaller enterprises to compete, and that such restrictions might avert vertical integration in the distribution process. The Court drew the line, however, at permitting manufacturers to control product marketing once dominion over the goods had passed to dealers………………..