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Late last year, the United States Supreme Court issued its opinion in State Oil Co. v. Khan, 118 S.Ct. 275 (1997), and overruled its prior 1968 Albrecht decision holding that vertical maximum price fixing was a per se antitrust violation. The Khan case involved an agreement to lease and operate a gas station, with that agreement including an obligation that the respondents buy gasoline from the defendant supplier at the suggested retail price minus a specified profit margin. If the respondents sold gasoline for higher prices, they were forced to disgorge the excess profit to State Oil. After falling behind in their lease payments and facing an eviction proceeding, respondents filed this antitrust suit, claiming that the arrangement constituted a per se violation of Section 1 of the Sherman Act.

Much was written about the Khan decision immediately after it was handed down, including more than 16 scholarly articles and scores of magazine-type overviews. In fact, the decision represented a natural evolution in antitrust law that had been long in coming. In Kahn, the Supreme Court recognized the criticism that has been levied against Albrecht, including the fact that the absolute ban on vertical maximum price-fixing could actually harm consumers and manufacturers. 118 S. Ct. at 283. The decision makes vertical maximum price fixing -- an attempt by a manufacturer, for example, to limit its distributors profits in order to strengthen its product position as against other brands -- subject to evaluation under the rule of reason "like the majority of commercial arrangements subject to the antitrust laws." Id. at 285. The Khan holding provides manufacturers/suppliers with more flexibility in implementing marketing and promotional programs and, in particular, those programs designed to enhance interbrand competition -- certainly a goal of the antitrust laws.

Since the decision in November of 1997, Khan has been cited over two dozen times, primarily for general propositions. Most notably, courts cite Khan as support for general statements about Section 1 only prohibiting unreasonable restraints and the current trend to analyze most antitrust claims under the rule of reason analysis (where the court balances all procompetitive and anticompetitive aspects of the challenged arrangement). It is also cited to emphasize the Supreme Court's sole power to overrule one of its decisions -- that lower courts cannot ignore or overrule its precedents.

The proverbial dust having now settled, it is clear that Khan was, in fact, the natural evolution of antitrust law. Because vertical maximum price-fixing is often procompetitive, assessing such arrangements under a rule of reason (versus condemning them automatically under a per se analysis) simply makes sense. And as antitrust law generally has moved away from mechanical rules and toward more realistic application, Khan was a natural, and necessary, step in that evolution.