Federal Trade Commission v. Sinclair Refining Co.

Background

The Federal Trade Commission accused Sinclair Refining Company and many other refiners of leasing underground tanks and pumps to retail dealers for nominal payments while requiring the equipment be used only with the lessor’s gasoline. The Commission said this practice harmed competitors, reduced competition, and violated the Federal Trade Commission Act and the Clayton Act. The Commission ordered Sinclair to stop the leasing practice. Multiple federal circuit courts, including the Second, Third, Sixth, and Seventh Circuits, had set aside similar Commission orders before this case reached the Court.

Reasoning

The Court examined the written lease form, testimony, and the Commission’s conclusions. The contracts required the lessee to use the equipment only for the lessor’s product, but they did not expressly forbid dealers from buying competitors’ gasoline or prevent them from adding additional pumps. The Court found the equipment inexpensive to buy, the contracts open on their face, and no evidence that the practice produced monopoly power or deceptive conduct. The Court concluded that the leasing arrangement, under the circumstances shown, was not an unfair method of competition under the statutes, and that the Commission had exceeded its authority in condemning the practice.

Real world impact

By affirming the lower courts, the Court allowed refiners to continue leasing pumps and tanks under similar contracts and limited the Commission’s power to forbid such business methods absent stronger proof of monopoly or deception. The ruling recognizes that this leasing practice helped some small dealers enter the gasoline business and that the contracts, as used, did not make competing brands impossible to sell. The decision leaves open that different facts could produce a different result in another case.