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A federal appeals court on Friday reinstated Wisconsin's 71-year-old minimum markup law on gasoline, a decision that could limit competition among retailers and drive up gas prices.

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 imposed 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.

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 major 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 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 rarely brought enforcement actions in recent years, but gas stations have taken advantage of the law to sue their rivals for violations.

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.