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Three to watch before the Supreme Court
Docket of corporate cases could change the landscape for joint ventures, manufacturer discounts.
October 3, 2005: 3:11 PM EDT
By Shaheen Pasha, CNN/Money staff writer

NEW YORK (CNN/Money) - The Supreme Court convened for a new session Monday with a number of cases on its docket that could have a huge impact on the business world.

While much of the attention was on new Chief Justice John Roberts, and on Harriet Miers, President Bush's just-announced nominee to fill Sandra Day O'Connor's seat, corporate executives have their own reasons to watch the new term closely. (For more on the Miers' nomination, click here).

In one antitrust case, Texaco and Shell Oil v. Dagher, the Federal Trade Commission and Department of Justice's antitrust division are asking the high court to overturn an appeals court ruling that said a Texaco-Shell joint venture was guilty of price fixing.

A federal district court in California originally threw out the case against the oil companies, saying that the venture, called Equilon, is one entity allowed to charge one price. But the ruling was overturned by the 9th Circuit Court of Appeals in San Francisco in June 2004. Texaco and Shell, two of the nation's biggest oil companies, appealed to the Supreme Court.

In essence, the high court must decide if a joint venture can set prices as one corporate entity or if the two companies, Texaco and Shell, which each market gasoline products through the joint venture, must offer their gas station owners different prices to create a more competitive market.

Jeffrey Lamken at the law firm Baker Botts said that if the Supreme Court were to maintain the appellate court's ruling, it would change the fundamental nature of joint ventures.

"These two companies have a joint venture for processing and distribution of refined petroleum and while they agreed not to compete with each other, they still compete with other companies," he said.

If the high court decides that even within a joint venture, two companies would have to set competing prices, the joint venture system would probably collapse, resulting in a rash of mergers and spin-offs.

Truck case

Another antitrust case that's being closely watched: Volvo Trucks North America v. Reeder-Simco GMC.

The case will determine whether Reeder-Simco GMC, an Arkansas truck dealer, lost business due to price discrimination when Volvo provided discounts of its trucks to other dealers.

Reeder-Simco stopped buying certain trucks from Volvo because it couldn't compete with the lower prices Volvo was offering other dealers.

The case looks to clarify which claimants are covered under the Robinson-Patman Act -- a law meant to prevent price discrimination.

A federal court awarded Reeder $4.1 million in damages and an appeals court upheld the verdict. The Supreme Court's ruling could determine whether the Robinson-Patman Act applies to a business that wasn't actually selling the product that it claims it lost business on.

So if Volvo were to lose, it could open the floodgates for businesses across the country to claim that a manufacturer's preferential deals with competitors undermined their ability to sell certain products -- even if they never purchased the product from the manufacturer to begin with.

David Price, attorney at public interest law firm Washington Legal Foundation, added that the public may also be impacted by such a ruling since preferential discounts are often given to school systems and police departments. If the ruling were to make it difficult for manufacturers to provide discounts on a case-by-case basis, public systems may be forced to pay more.

Illegal tying?

In Illinois Tool Works Inc. v Independent Ink Inc., competitor Independent Ink sued Illinois Tool Works claiming that the company violated the Sherman Act by forcing customers to buy a certain type of printer ink in order to use its patented ink-jet printer -- a practice known as tying.

An appeals court found that Illinois Tool works was guilty of tying. "Typically courts require in a tying lawsuit that you show that a company has market power, which is the ability to control the price that you sell the product for because there are no real competitors," Price said. "In this case, the appeals court said that since this printer is a patented product, the existence of that patent is enough to say that you have market power."

The appeals court's judgment was based on a 1962 Supreme Court ruling that said market power is implied when someone has a patent or copyright on a product. But

Illinois Tool Works hopes to overturn the 1962 ruling, saying that its patent doesn't mean there aren't competitors with similar products. Tying is only illegal if the company has no other competitors forcing customers to buy artificially expensive products because there are no alternatives.

Price said if the Supreme Court finds in favor of Independent Ink, it would help other companies challenging tying arrangements across industries. That could mean increased pressure on corporate profits if companies are unable to tie the sale of legitimate products to each other.

A case that's attracting attention -- even though the high court has yet to decide whether or not to hear it -- is the U.S. government's petition to force the tobacco industry to pay back $279 billion in back profits stemming from the State's lawsuit which big tobacco agreed to settle.

The industry has already asked the Supreme Court to refuse to hear the case, arguing that no court has ever upheld an award of disgorgement -- back profits that were the result of ill-gotten gains -- under the civil provisions of the Racketeering Influenced and Corrupt Organizations Act (RICO). A person, company or industry can be charged with violating RICO if there is a pattern of certain criminal offenses.

Baker Botts' Lamken put the chances the high court will hear the case at 50-50 because the federal judge in the case has yet to decide whether the tobacco industry violated civil provisions of RICO. The government argues that the industry misrepresented the health risks of smoking to the public.

Lamken said the high court usually waits for district courts to make a final ruling before deciding whether to hear a case.

If the Supreme Court refuses to hear the case, that would be a victory for the tobacco industry, which has been hammered by law suits and signed a $206 billion national settlement agreement in 1998 with 46 states.

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For more on Bush's nomination of a new Supreme Court justice, click here.  Top of page

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