By Joe Forward, Legal Writer, State Bar of Wisconsin

Sept. 13, 2010 – Federal antitrust law does not preempt the Wisconsin laws that require gasoline retailers in the state to increase prices by a set percentage above cost, the U.S. Court of Appeals for the Seventh Circuit recently held.

In Flying J, Inc. v. Wisconsin Petroleum Marketers and Convenience Store Association, No. 09-1883 (Sept. 3, 2010), the appeals panel reversed a federal district court ruling that federal antitrust law, the Sherman Act, preempted the minimum mark-up provisions of the Wisconsin Unfair Sales Act (WUSA), which was enacted in 1939.

Certain provisions of WUSA require gasoline retailers to sell gas for 6 percent above invoice price, or 9.18 percent above the average wholesale price, whichever is higher. But a competing gas retailer can decrease prices to meet a competitor’s price.

Flying J, Inc. filed suit to challenge the mark-up provisions on their face, arguing that the Sherman Act, a law that prohibits price-fixing, preempted Wisconsin laws in that area. The U.S. District Court for the Eastern District of Wisconsin granted summary judgment to Flying J and issued a permanent injunction against the state from enforcing the provisions.

The state, through Attorney General J.B. Van Hollen, did not appeal. But the Wisconsin Petroleum Marketers and Convenience Store Association intervened, challenging the district court’s ruling. On Sept. 3, 2010, the appeals panel dissolved the permanent injunction.

Facial challenge fails 

Flying J Inc. is a Utah corporation with gasoline retail operations in Wisconsin. The gas mark-up provisions prevent Flying J and other gas retailers from underpricing the competition, presumably to preserve smaller retail businesses that find it harder to compete with larger ones.

Flying J argued that laws establishing minimum pricing create a “scheme that allows retail sellers of gasoline to collude on prices to the detriment of consumers.” Since the Sherman Act governs price fixing, Flying J argued, the Wisconsin provisions are preempted.

The gasoline corporation based its arguments on two reports, one from the Federal Trade Commission and one from the Wisconsin Policy Research Institute. The reports asserted that Wisconsin’s gas mark-up provisions deter competition and facilitate collusion among dealers.

But the appeals panel ruled that a state statute is not preempted by federal antitrust laws unless the statute mandates or authorizes collusive conduct.

“The statute neither requires nor authorizes gasoline dealers to get together and agree on what price they will all charge for gasoline,” Judge Michael Kanne wrote for the panel. “[T]he fact that the parties or the court can envision scenarios under the regulatory scheme in which private parties could more easily collude is insufficient to invalidate the statute.”

The panel also noted that Flying J presented no evidence that Wisconsin gasoline dealers were colluding to fix or raise the price of gasoline and that a party with such evidence could challenge as-applied under antitrust laws at a later time.

The panel also rejected Flying J’s characterization of WUSA as a preempted “hybrid statute,” one that lets private parties set prices that the government then enforces.

“Because the state itself is mandating the minimum price, the mere fact that interested private parties may enforce the minimum pricing scheme does not make [WUSA] a hybrid statute.” The panel also explained that allowing retailers to match prices “is insufficient alone to make the statute a preempted hybrid statute.”