Wednesday, July 02, 2008

Marathon Defeats Dealer’s Tying Arrangement, Price Fixing Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Tying and price fixing claims brought by Marathon and Speedway gasoline dealers against Marathon Petroleum Company and its wholly-owned subsidiary Speedway SuperAmerica LLC were properly dismissed, the U.S. Court of Appeals in Chicago has ruled. An Indiana Marathon dealer failed to state an antitrust claim.

The complaining dealer alleged that, as a condition of granting a dealership, Marathon required the dealer to agree to process credit card purchases through a processing service designated by Marathon. Although Marathon dealers were required to use the service for sales involving Marathon’s proprietary credit card, the dealer contended that it was compelled to use the designated processing system for all credit card transactions in order to avoid the cost of duplicate processing systems.

Market Power Over Tying Product

Even assuming that Marathon tied the processing of all credit card sales by its dealers to the Marathon franchise, the oil company could not have engaged in a per se illegal tying arrangement, according to the court. A per se tying claim required proof that the seller had “market power” in the market for the tying product, and Marathon did not have such market power.

The complaint stated that Marathon was “the fourth-largest United States-based integrated oil and gas company and the fifth-largest petroleum refiner in the United States” and sold “petroleum products to approximately 5,600 Marathon and Speedway branded direct-served retail outlets and approximately 3,700 jobber-served retail outlets.”

Despite the allegations, the oil company did not have significant unilateral power over the market price of gasoline. Marathon could not charge a supracompetitive price (folded into the price for gasoline that it charged its dealers) for credit card processing, according to the court.

Product Market for Marathon Franchises

While Marathon had a “monopoly” over its franchises, there was no separate product market for Marathon franchises, the court held. “Marathon” was not a market; it was a trademark, the court explained. And a trademark did not confer a monopoly. Moreover, no local gasoline markets were alleged in which the oil company had market power.

If Marathon raised the price of using its name or trademark to sell gasoline above the competitive level by raising the price of the credit card processing service that it offered, competing oil companies would nullify its price increase by keeping their own wholesale gasoline prices at the existing level.

In any event, Marathon required that the particular card processing services be used only for transactions using its brand of credit card. The complaining service station operator might have had an incentive to route all credit card transactions through the designated system to avoid having duplicate processing equipment. However, the additional cost of using multiple card processing systems was not a penalty imposed by Marathon. This was not tying.

Price Fixing

The dealer also failed to state a plausible price fixing claim against Marathon. The dealer contended that Marathon, in exchange for overcharging its dealers for credit card processing, was receiving kickbacks from banks and other financial institutions that offered credit cards. The theory made no sense, in the court's view.

If Marathon forced its dealers to pay an exorbitant fee for processing credit card sales, then this would only hurt firms that offered credit cards, the court observed. Most of the fee would be passed on to the consumer in the form of a higher gasoline price, which would reduce the demand for gasoline and hence the use of credit cards. Issuers of credit cards would not pay the oil company to reduce the demand for their product.

The decision, written by Judge Richard A. Posner, is Sheridan v. Marathon Petroleum Co., LLC, decided June 23, 2008. The opinion appears at 2008-2 Trade Cases ¶76,192.

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