In this antitrust case, the Supreme Court finally took an action at which it had long hinted: it overruled Albrecht v. Herald Co., 390 U.S. 145 (1968). Albrecht had held vertical maximum price fixing illegal per se under the Sherman Act. Vertical maximum price fixing will now be judged under the "rule of reason," which requires antitrust plaintiffs to prove harm to competition. Minimum price fixing remains illegal per se.Barkat U. Khan leased a gasoline station from State Oil and agreed to market its products. Under the agreement, State Oil set a suggested retail price for the gasoline and Kahn paid State Oil 3.25 cents per gallon less than that price. Kahn could sell gasoline for more than the suggested retail price, but was required to pay State Oil any excess. Because the agreement eliminated any profits from charging above the suggested retail price, the agreement in effect fixed the maximum price Kahn would charge. Ultimately, Kahn failed to make lease payments, State Oil terminated the lease, and Kahn sued for antitrust violations. The district court held that the arrangement was not a per se violation of the Sherman Act and granted summary judgment for State Oil because Kahn had not presented sufficient evidence that the arrangement actually reduced competition. The Seventh Circuit, while sharply critical of the Albrecht rule, nevertheless felt obliged to reverse because under Albrecht any contract to fix maximum prices was illegal per se, regardless of the demonstrated effect on competition.
The Supreme Court, in an opinion by Justice O'Connor, unanimously overruled Albrecht. Although the Court does not lightly reverse its precedent, it noted that in the antitrust area especially it must "adapt[] to . . . the lessons of accumulated experience." This experience, the Court found, undermined each of the economic justifications for the Albrecht rule. In the Court's view, Albrecht did not protect dealer freedom, but actually substantially reduced it by prompting some suppliers to integrate forward into distribution. Maximum price fixing would not force dealers to cut back on essential or desired services because such conduct would drive away customers and ultimately harm the suppliers. The Court also found it unlikely that maximum price fixing could be used to mask minimum price fixing, which remains illegal per se. On the other hand, the Court noted that the Albrecht rule, far from protecting consumers, harmed them in some situations by allowing unfettered exercise of market power by monopolist-dealers. The Court therefore concluded that "rule of reason" analysis, rather than per se invalidity, should apply to vertical maximum price-fixing arrangements.
The NAM filed an amicus brief in this case, urging the rule ultimately adopted.