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Court reinstates markup law for Wisconsin gasoline, 3rd Ld-Writethru, WI

September 3, 2010

MADISON, Wis. (AP) — A federal appeals court on Friday reinstated Wisconsin’s 71-year-old minimum markup law on gasoline, a decision that could save some jobs but increase the cost of gas.

Siding with an association representing small gas station owners, the 7th Circuit Court of Appeals ruled the law that requires retailers to sell gas above cost does not encourage illegal price-fixing.

The court lifted an order entered last year that put enforcement of the law on hold after U.S. District Judge Rudolph Randa concluded it violated federal antitrust law and increased the price at the pump by up to 30 cents a gallon.

The appeals court overturned Randa’s decision, saying the law does not require gas stations to agree to what price they will charge. Flying J Inc., the nationwide gasoline chain that brought the lawsuit, offered no evidence gas stations “are colluding or manipulating gasoline prices in Wisconsin,” the court ruled.

The ruling is a victory for the Wisconsin Petroleum Marketers & Convenience Store Association, which argued its members would be driven out of business from larger competitors without the law. The association intervened to continue the case after Attorney General J.B. Van Hollen and state regulators had decided not to appeal Randa’s ruling.

“The Unfair Sales Act protects all consumers by ensuring a competitive marketplace that leads to more jobs in local communities,” its president, Matt Hauser, said in a statement. “That is its greatest value — and at a time when local communities are struggling, we need to do all we can to keep those good jobs.”

The law requires retailers to sell gas for 6 percent above what they paid, or 9.18 percent above the average local wholesale price, whichever is higher. Stores can go below the minimum to match a competitor’s advertised price. State regulators have not prosecuted violations in recent years, instead sending warning letters notifying stations of the violations. Rival stations then can file lawsuits to seek damages.

Janet Jenkins, a state consumer protection official in charge of enforcing the law, said the department had several hurdles to clear before it could resume enforcing the markup. She said there’s widespread confusion about the status of the law among retailers that would need to be cleared up.

What’s more, she said some data that retailers need to determine the markup also is no longer free and requires a subscription to a price reporting service. The department needs to find a solution to make the information available before enforcing the law, she said.

“A lot of unanswered questions at this point,” Jenkins said. “Issues that have been raised and there’s just things to do before the department can think of moving forward.”

She said she had no idea what the impact would be on gas prices.

Flying J argued it could sell gasoline lower than the markup required and still make a profit. The Utah-based chain sued to strike down the law after Kenosha-based Lotus Business Group filed a lawsuit claiming Flying J’s stations did not mark up gas enough.

In its case, Flying J cited a 2003 report by the Federal Trade Commission that said the law was unnecessary, deterred competitive price-cutting and caused some stores to raise prices. A separate 1999 report by the Wisconsin Policy Research Institute, a conservative think tank, reached a similar conclusion and raised the specter of collusion among stations.

“This is simply not enough to support a facial challenge to this statute,” appeals court judge Michael Kanne wrote for the three-judge panel.

Hauser said Wisconsin’s gas prices track national trends and are set by market forces.

Flying J attorney John Mackay declined comment. The company argued that Wisconsin citizens had paid millions of dollars more than they should have for gas over the decades.

But Jimmy Peltier, a marketing professor at University of Wisconsin-Whitewater who has done consulting work for the convenience store association, said he disagreed.

He said his research of states’ gasoline prices over 20 years shows those that have minimum markup laws have seen a slower decline in the number of gas retailers, which has preserved competition and kept prices low.

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