Gasoline Marketing Practices and "Meeting Competition" Under the Robinson-Patman Act: Maryland's Response to Direct Retail Marketing by Oil Companies

Maryland Law Review Volume 37 | Issue 2 Article 6 Gasoline Marketing Practices and "Meeting Competition" Under the Robinson-Patman Act: Maryland's Response to Direct Retail Marketing by Oil Companies Follow this and additional works at: http://digitalcommons.law.umaryland.edu/mlr Part of the Antitrust and Trade Regulation Commons Recommended Citation Gasoline Marketing Practices and "Meeting Competition" Under the Robinson-Patman Act: Maryland's Response to Direct Retail Marketing by Oil Companies, 37 Md. L. Rev. 323 (1977) Available at: http://digitalcommons.law.umaryland.edu/mlr/vol37/iss2/6 This Casenotes and Comments is brought to you for free and open access by the Academic Journals at DigitalCommons@UM Carey Law. It has been accepted for inclusion in Maryland Law Review by an authorized administrator of DigitalCommons@UM Carey Law. For more information, please contact . 1977] Comments GASOLINE MARKETING PRACTICES AND "MEETING COMPETITION" UNDER THE ROBINSON-PATMAN ACT: MARYLAND'S RESPONSE TO DIRECT RETAIL MARKETING BY OIL COMPANIES INTRODUCTION The energy shortage of 1973 focused public attention on the petroleum industry. Foreseeing the possibility that shortages would continue to occur, the Maryland General Assembly enacted a statute in 1974, amended in 1975,1 designed to equalize the impact of decreased gasoline supplies among gasoline retail dealers. Major national oil companies promptly challenged the statute on constitutional and federal preemption grounds. In Governor of Maryland v. Exxon Corporation,2 the Court of Appeals of Maryland held that the statute was constitutional and was not preempted by either the Federal Emergency Petroleum Allocation Act of 19733 or the RobinsonPatman Act.4 This Note will outline the Exxon decision, focusing primarily on the holding that, as a matter of law, the Maryland statute was not preempted by the Robinson-Patman Act. After evaluating the apparent conflict among the Supreme Court, lower federal courts, and the Federal Trade Commission regarding the construction of the "meeting competition" defense in the federal anti-price discrimination statute, the position adopted by the Court of Appeals will be analyzed. The discussion will conclude that the Maryland interpretation is accurate and solidly based on national antitrust policy. At Governor Mandel's request, the Comptroller of the Treasury conducted a study during the summer of 1973 on the effects of the oil shortage on local gasoline markets. The study focused on the effects of increased direct retailing by the large, vertically integrated oil companies on other major types of marketing in Maryland.5 In past years, the twenty largest oil companies typically have operated at the crude oil production, transportation, refining, and wholesale marketing levels of the petroleum industry.6 This involvement at the successive stages from production through wholesaling is characterized as vertical integration. 7 However, in recent years, both major and semi-major oil companies8 have exerted 1. MD. ANN. CODE art. 56, § 157E (Cum. Supp. 1976). 2. 279 Md. 410, 370 A.2d 1102 (1977), prob. juris. noted, 46 U.S.L.W. 3214 (U.S. Oct. 3, 1977). 3. 15 U.S.C. § 753 (Supp. III 1973). 4. 15 U.S.C. § 13 (1970). 5. See 279 Md. at 420-21, 370 A.2d at 1108-09. 6. THE STRUCTURE OF AMERICAN INDUSTRY 120 (4th ed. W. Adams 1971). 7. See, e.g., J. PATTERSON & F. ALLVINE, COMPETITION LTD.: THE MARKETING OF GASOLINE 5 (1972) [hereinafter cited as COMPETITION LTD.]. 8. For detailed discussions of the structure and practices of large, vertically integrated oil companies, see J. BLAIR, THE CONTROL OF OIL (1976) [hereinafter cited (323) (VOL. 37 MARYLAND LAW REVIEW increased control over the retail marketing of their products.9 The most significant manifestation of this forward integration into retail marketing is the trend toward converting company owned retail outlets ordinarily leased to independent dealers into company owned and operated retail stations. 10 The ramifications of forward integration into marketing are important because the existence of employee operated stations effectively precludes application of antitrust laws regulating sales from distributors to dealers, 1 increases the unwillingness of large oil companies to supply gasoline to as THE CONTROL OF OIL]; COMPETITION ALLVINE, HIGHWAY ROBBERY: AN LTD., ANALYSIS supra note 7; J. OF THE PATTERSON & F. CRISIS (1974) GASOLINE [hereinafter cited as HIGHWAY ROBBERY]; Note, Gasoline Marketing Divestiture Statutes: A Preliminary Constitutionaland Economic Assessment, 28 VAND. L. REV. 1277 (1975) [hereinafter cited as Gasoline Marketing Divestiture Statutes]. 9. In domestic marketing, integrated oil companies employ various methods to control individual dealers: short-term lease contracts, supervision by company representatives, price discipline through strategically located company stations, commission dealerships, price protection programs, rent manipulation, and pressure to conform to advertised "specials." See, e.g., COMPETITION LTD., supra note 7, at 46-48. For a description of such practices in operation, see Hearings Pursuant to S. Res. 45 on a National Fuels and Energy Policy Study Before the Comm. on Interior and Insular Affairs, 93d Cong., 1st Sess., pt. 1, at 7 (1973) (statement of Richard Tubbs). 10. See, e.g., GasolineMarketing Divestiture Statutes, supra note 8, at 1290. This trend was motivated largely by the need to increase profits at the marketing level and by the desire to avoid new franchise laws that protected independent gasoline dealers from oil company leasing terms that many consider oppressive. Id. at 1287-90. The major oil companies suffered a drastic decline in domestic retail profits in the late 1960's and early 1970's, attributable in large part to successful competition by independent marketers. THE CONTROL OF Oil, supra note 8, at 241-42. In addition, the international companies, strongly dependent upon profits at the crude oil level of operation, were seriously threatened by foreign expropriations and by the Arab embargo. See, e.g., THE CONTROL OF OIL, supra note 8, at 220-30; N.Y. Times, May 27, 1973, §3, at 1, col. 1. Between August 31, 1970 and January 1, 1974, Arabian light crude oil prices rose from $1.80 per barrel to $11.651 per barrel. HIGHWAY ROBBERY, supra note 8, Table 4-1 at 53. At the marketing level of the industry, oil companies began to lose some of their power over their dealers. For example, the Maryland legislature enacted the Gasoline Products Marketing Act, MD. COM. LAW CODE ANN. §§ 11-301 to 308 (1975), to prevent unfair control of independent gasoline dealers. Among other provisions, the Act requires a distributor to disclose past gallonage to a prospective franchisee, allows a dealer to cancel a marketing agreement within seven days of signing, prohibits a distributor from setting a dealer's hours of business unless otherwise provided in the franchise agreemen (...truncated)