The Supreme Court ruled yesterday that businesses that conspire to fix the terms of credit to customers are engaging in illegal price fixing.
The justices voted unanimously to overturn a lower court holding that five California beer wholesalers who allegedly banded together to eliminate credit to retailers had acted within the law.
The Supreme Court said that the terms of credit are "an inseparable part of the price" paid for a product. Since price-fixing is automatically illegal under federal anti-trust law, the court said that credit-fixing must also be illegal.
Anti-trust lawyers said yesterday that the ruling could lay the groundwork for future lawsuits growing out of the current credit crunch. It is not enough to be cut off from credit under yesterday's ruling, however. Someone suing must be able to show that the cut off occured as the result of a conspiracy among different lenders or businesses.
The Ninth Circuit Court of Appeals in California, however, had ruled in yesterday's case that a credit fixing agreement was different than a price fixing agreement.
Since the credit terms allowed retailers in the California case (Catalano, Inc. vs Target Sales, Inc.) was in effect a discount to established customers, it might have discouraged new beer retailers from entering the market, the lower court reasoned. The wholesalers' decision to eliminate the credit, therefore, might actually enhance competition, the Court of Appeals said.
Had the same wholesalers combined to fix prices, however, it would have been automatically illegal under anti-trust laws.
The Supreme Court said the same rule of "per se" illegality applied to credit-fixing: "An agreement to terminate the practice of giving credit is tantamount to an agreement to eliminate discounts and thus falls squarely within the traditional per se rule against price-fixing."
While the credit elimination might enhance competition, the justices said "it is more realistic to view an agreement to eliminate credit sales as extinguishing one form of competition among the sellers . . .
"An agreement among competing wholesalers to refuse to sell unless the retailer makes payment in cash either in advance or upon delivery is plainly anticompetitive," the court said.
Associated Press also reported the following:
The Supreme Court yesterday left intact the government's power to force oil companies to tell how they subsidize gasoline sales with profits from other operations.
The justices, after being told that Exxon Corp., Shell Oil Co. and Marathon Oil Co. already have complied with subpoenas they first challenged early last year, refused to review a federal appeals court ruling ordering such compliance.
Lawyers for the three oil companies argued that the Department of Energy lacked the authority to issue the subpoenas seeking information about "motor fuel marketing subsidization."
The Supreme Court last March 17 refused to postpone temporarily the effect of the compliance orders, and the three firms subsequently turned over all the requested information.
Six companies -- Ashland Oil Co., Atlantic Richfield Co., Clark Oil and Refining Co., Gulf Oil Co., Standard Oil Co. (Indiana) and Texaco Inc. -- previously had agreed to turn over the requested information without challenging the DOE subpoenas in court.