Sherman Act Did Not Preempt Wisconsin’s Gasoline Pricing Regulations

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

The U.S. Court of Appeals in Chicago last week ruled that Wisconsin’s gasoline pricing regulations under the Wisconsin Unfair Sales Act did not violate federal antitrust laws. The Wisconsin Unfair Sales Act, which prohibits retailers of motor vehicle fuel from selling the fuel below cost, was not unconstitutional on the ground that it was preempted by the Sherman Act.

To be preempted, the state regulatory scheme had to irreconcilably conflict with the federal scheme, the appellate court explained. The Act requires similar markups by wholesalers and refiners who sell motor vehicle fuel at retail.

A supplier of motor vehicle fuel, which maintained that it could sell motor vehicle fuel for substantially less than the statutory minimum and still make a profit, sued to enjoin enforcement of the minimum markup provisions of the Act as they related to motor vehicle fuel. The supplier argued that the motor vehicle fuel provisions facilitated price fixing by establishing a minimum price for gasoline among retailers, allowing competitors to meet but not beat others’ prices, and providing a private mechanism for enforcement. Wisconsin had created a scheme that allows retail sellers of gasoline to collude on prices to the detriment of consumers, it was alleged.

However, the Wisconsin Unfair Sales Act did not mandate or authorize Wisconsin gasoline dealers to engage in conduct that was illegal under the Sherman Act, the court ruled. The state set the minimum price formula, and the Act, on its face, did not require or authorize private participation in setting the minimum price. Thus, the minimum markup provisions were unilaterally imposed by the state and therefore not preempted by the Sherman Act.

Permanent Injunction Dissolved

A permanent injunction barring Wisconsin from enforcing the Act was dissolved, even though the state did not appeal the lower court’s decision in favor of the complaining supplier. In March 2009, Wisconsin Attorney General J.B. Van Hollen announced that his office would not appeal the district court’s decision striking down the “minimum markup law.” Van Hollen said in the statement that clarifying the statute was a task better left for the state legislature than the federal appellate court.

Trade Association Intervention

The Wisconsin Petroleum Marketers & Convenience Store Association (WPMCA), an organization representing more than 80 percent of the convenience stores in Wisconsin, did, however, file an appeal. The WPMCA was permitted to intervene after the state officials declined to appeal.

In a September 3 statement, the WPMCA said that “the decision marks the 10th time an appellate court has ruled in favor of keeping the law in place.”

The text of the September 3, 2010, decision in Flying J, Inc. v. J.B. Van Hollen, Attorney General of Wisconsin, No. 09-1883, will appear in CCH Trade Cases.

Wisconsin Unfair Sales Act’s Fuel Markup Requirement Is Unconstitutional

This posting was written by Datius Sturmer, Editor of CCH Trade Regulation Reporter.

The motor vehicle fuel provisions of the Wisconsin Unfair Sales Act—mandating a minimum markup above an average terminal price or certain actual costs—were unconstitutional for violating the Sherman Act’s prohibition against restraints of trade, the federal district court in Milwaukee has ruled. An order enjoining the state from enforcing the provisions was therefore warranted.

Price Maintenance Among Competitors

By permitting retailers to match—but not undercut—competitors’ prices and forbidding sales below cost, the Act authorized and enforced resale price maintenance among competitors, “a per se violation of Sec. 1 of the Sherman Act since the early years of national antitrust enforcement.”

The minimum markup percentage created a range in which competitors could engage in collusive parallel pricing, which was exacerbated as the wholesale price of gasoline fluctuated, the court reasoned.

An argument that the restraint of trade amounted merely to a unilateral act of the state’s legislature was rejected. The restraint was not subject to consideration under the rule of reason because it was horizontal, in that it affected competing gasoline retailers in Wisconsin. Data suggested that the law kept gasoline prices higher than would otherwise be the case, thereby benefiting gas station owners at the expense of consumers, the court found.

State Action Immunity

The statutory provisions could not be saved from Sherman Act preemption on the basis of state action immunity, the court added. While the purposes of the restraint—namely, to regulate the sale of merchandise below cost in order to prevent deceptive advertising and unfair methods of competition—were “clearly articulated and affirmatively expressed as state policy,” evidence indicated that the pricing restraint was not actively supervised.

The markup percentage decreed by the statute was changed by the state legislature only once in the Act’s long history, and there was no program or effort to determine whether the “average posted terminal price” referenced by the provisions bore any relationship to the actual price paid by retailers.

A state could not simply authorize price setting and enforce the prices established by private parties, in the court’s view. The state’s purported enforcement efforts to ensure compliance with the Act did nothing to ensure the reasonableness of gas prices in Wisconsin. Through the Unfair Sales Act, the state had essentially displaced competition among gasoline retailers without substituting an adequate system of regulation, the court concluded.

The decision is Flying J, Inc. v. Van Hollen, 2009-1 Trade Cases ¶76,505.