Verizon Seeks Reversal in Texaco v. Dagher

October 11, 2005. The Supreme Court issued an order in Texaco v. Dagher that grants leave to file several amicus curiae briefs. The amici covered by this order are Verizon, American Bankers Association, Northwest Ohio Physician Specialist Cooperative, Parker Hannifin Corporation, Visa USA, American Petroleum Institute, and Washington Legal Foundation. See, Order List [19 pages in PDF], at page 3. See also, Supreme Court docket.

Verizon argues in its brief that the Court of Appeals decision under review threatens lawful and beneficial joint ventures in the telecommunications industry.

The Supreme Court has not yet scheduled oral argument. However, this case is not on the argument calendars for the sessions beginning October 3, October 31, or November 28.

The Supreme Court granted certiorari back on June 27, 2005. At that time it granted motions for leave to file amicus curiae briefs on the issue of granting certiorari.

This case arises out of an oil industry agreement. Texaco and Shell formed a lawful joint venture. This included a unified price for gasoline produced and sold by the joint venture. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] on June 1, 2004. It held that Texaco and Shell may have committed a per se violation of Section 1 of the Sherman Act, which is codified at 15 U.S.C. § 1. The Court of Appeals opinion is reported at 369 F.3d 1108.

This case reaches far beyond the oil industry. Lawful joint venture agreements are common in many sectors, including telecommunications and technology. The Court of Appeals opinion has generated wide criticism on the grounds that it puts at risk a wide range of agreements, that are beneficial to the economy, and that deal with many subjects other that product pricing. Many have argued that these lawful joint venture agreements should be subject to the rule of reason, rather than treated as per se violations.

The Department of Justice's (DOJ) Office of the Solicitor General and the Federal Trade Commission (FTC) wrote in their amicus brief [PDF] on the merits, filed in September, that the issue is "Whether an agreement between the owners of a lawful joint venture with respect to the pricing of the joint venture's products may be treated as a per se violation of Section 1 of the Sherman Act, 15 U.S.C. 1, when the joint venture's owners do not compete in the market for those products." They argue that the agreement should not be so treated, and that the judgment of the Court of Appeals should be reversed.

Verizon also argues for reversal. Verizon wrote in its motion and amicus brief [37 pages in PDF], filed in September, that joint venture agreements are common in the telecommunications industry. It states that "Verizon and other telecommunications companies rely on many forms of cooperative arrangements to bring new services to the market and to reduce the cost and improve the quality of existing services. In this respect, Verizon's interest in appropriate antitrust rules for restraints ancillary to legitimate productive cooperation is similar in kind to the interest of countless other businesses in all sectors of the economy. Verizon's interest differs in degree, however, because productive cooperation is especially common and useful in the telecommunications industry.

For example, Verizon states that "high-risk investments that require large amounts of capital are often undertaken through joint ventures or other cooperative arrangements. Cooperation between potential competitors played a major role in the deployment of transoceanic fiber optic cables to carry telephone and internet traffic between the United States and Europe, Asia, South America, and other parts of the world."

Verizon stated that "Cooperative arrangements are also commonly used for research and development projects, where they allow the partners to share costs and risks, and also bring together the partners’ complementary skills and knowledge. Consumers of telecommunications services often have communications needs that extend beyond the boundaries of any single carrier’s network. Joint ventures and other cooperative arrangements have been a valuable mechanism for serving such customers. For example, MCI partnered with British Telecom to provide complex services to multinational corporations with facilities throughout the world."

Finally, Verizon argued that "The importance of coordination and standard setting motivated the creation of another joint venture, Bellcore, in connection with the breakup of AT&T pursuant to an antitrust decree. That joint venture, financed and controlled by the seven regional Bell companies, was created to ``perform the coordination for national defense and other emergency purposes that is vital to the nation’s security´´ and to ``set the standards which will permit telecommunications to continue to operate in an engineering sense as one national network.´´ ... The decree court explained, ``It seems beyond debate that uniform standards are necessary to ensure high quality in the telephone system, indeed its very survival as a nationwide network. Nor are such standards incompatible with competition.´´" (Citing United States v. Western Elec. Co., 569 F. Supp. 1057  (D.D.C. 1983).

Verizon is represented by Roy Englert of the Washington DC law firm of Robbins Russell.

See also, the January 14, 2005 joint amicus brief [30 pages in PDF] of the U.S. Chamber of Commerce and the National Association of Manufacturers urging the Supreme Court to grant certiorari. They argued that the Court of Appeals decision threatens all joint venture agreements, and the innovation, investment, jobs, and other economic benefits that they create.

This case is Texaco, Inc. v. Fouad N. Dagher, et al., Sup. Ct. No. 04-805, and Shell Oil Company v. Fouad N. Dagher, et al., No. 04-814, petitions for writ of certiorari to the U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 02-56509. The Court of Appeals heard an appeal from the U.S. District Court (CDCal), D.C. No. CV-99-06114-GHK.