State Oil Co. v. Khan
Citation and Court
522 U.S. 3 (1997), Supreme Court of the United States
Facts
State Oil Company leased a gas station to Khan under an agreement that set the maximum price Khan could charge for gasoline and required Khan to rebate to State Oil any amounts received above that price. Khan fell behind on rent; State Oil terminated the lease. Khan sued, arguing the maximum resale price clause was per se illegal under Albrecht v. Herald Co. (1968).
Issue
Whether vertical maximum resale price maintenance agreements are per se illegal under § 1 of the Sherman Act.
Holding
Vertical maximum resale price maintenance is not per se illegal under the Sherman Act; it is subject to rule of reason analysis, overruling Albrecht v. Herald Co.
Rule / Doctrine
The per se rule applies only when conduct lacks any redeeming virtue and its anticompetitive consequences are so clear that case-by-case analysis is unwarranted. Maximum resale price agreements can have procompetitive effects — preventing downstream retailers from charging supracompetitive prices — and are not so uniformly harmful as to warrant per se condemnation. Rule of reason analysis is the appropriate standard.
Significance
Khan continued the post-Sylvania trend of replacing per se rules with rule of reason analysis for vertical restraints. It was a precursor to Leegin Creative Leather Products v. PSKS (2007), which similarly overruled the per se rule for minimum resale price maintenance, completing the shift of all vertical price restraints to rule of reason analysis.