Federal Trade Commission v. Texaco Inc.

Background

Texaco, a major oil company, agreed with Goodrich, a tire and accessory maker, that Goodrich would pay Texaco a 10% commission on purchases of Goodrich tires, batteries, and accessories (TBA) by Texaco service-station dealers. The Federal Trade Commission challenged that sales-commission plan as an unfair competitive practice. After related proceedings involving other oil and tire companies and conflicting appellate rulings, the case reached the Court for review of whether the FTC’s order against Texaco was justified.

Reasoning

The Court considered three factual points: Texaco’s dominant economic power over its dealers, Texaco’s use of that power to promote Goodrich products, and whether that use tended to harm competition. The record showed many dealers leased stations from Texaco with short renewal periods, contracts terminable on short notice, close oversight by Texaco salesmen, and large volumes of sponsored purchases. The Court concluded the FTC reasonably found the commission plan induced dealers to favor the sponsored brand and thereby tended to foreclose rivals, so the FTC’s finding of an unfair method of competition was warranted. The Court reversed the appeals court and ordered enforcement of the FTC’s order, with limited exceptions.

Real world impact

Service-station dealers face continued pressure to carry sponsored brands when their business relationships depend on the oil company’s approval. Smaller tire and battery makers that rely on the replacement market may have a harder time selling at Texaco stations. The decision lets the FTC stop such commission schemes before they eliminate significant competition, and it directs enforcement of the agency’s order (except for two narrow paragraphs not enforced).

Dissents or concurrances

Justice Harlan joined the opinion. Justice Stewart dissented, arguing the record here had far less direct coercion than in a prior case and criticizing a per se rule of “inherent” coercion.