Chapter 8. Joint Ventures

• Pages: 239-319

239

CHAPTER 8

JOINT VENTURES

In a typical acquisition, the buyer obtains complete ownership of the

acquired business, whether it be a company, an unincorporated division,

a line of business, or some collection of assets. Upon closing, the seller

transfers dominion over the acquired properties to the buyer. The buyer

then employs the properties as directed by its management and its

owners’ best interests. The seller may continue to exist and retain its

pre-transaction identity, but it no longer has any post-transaction control,

either directly or indirectly, over the acquired properties. Similarly, the

combining firms in a merger lose their independent identities to become

a single firm under the control of a unified management. The

management and shareholders of both firms may continue their

involvement in the business.

Joint ventures differ from the transactions just described. In a joint

venture, rather than one firm assuming dominion over the properties to

the exclusion of all other contributors, two or more of the contributors

continue their independent existence, but share some direct or indirect

control over the properties. To the extent that such transactions involve

actual or potential competitors, they may be referred to as “competitor

collaborations.”1

Joint ventures are inherently difficult to categorize, and there is no

single, well-accepted definition of the term under the antitrust laws.2 In

its broadest sense, a joint venture can embrace any collaborative activity

1.The U.S. Department of Justice and the Federal Trade Commission use

this term in describing antitrust implications of joint ventures. See U.S.

DEP’T OF JUSTICE & FEDERAL TRADE COMM’N, ANTITRUST GUIDELINES

FOR COLLABORATIONS AMONG COMPETITORS (2000) [hereinafter

COMPETITOR COLLABORATIONS GUIDELINES], reprinted in 4 Trade Reg.

Rep. (CCH) ¶ 13,161, at www.ftc.gov/os/2000/04/ftcdojguidelines.pdf

and in Appendix N. These guidelines arose out of the Joint Venture

Project initiated by the agencies in 1997. See FTC Comment and

Hearings on Joint Venture Project, 62 Fed. Reg. 22,945 (1997).

2.See COMPACT v. Metropolitan Gov’t, 594 F. Supp. 1567, 1574 (M.D.

Tenn. 1984) (“Joint ventures present a difficult concept for antitrust

analysis, defying neat classification and precise definition and, by

extension, well established rules for evaluating their competitive

impact”).

240 MERGERS AND ACQUISITIONS

among multiple firms, accompanied by some degree of integration of

resources, management, and risk, and designed to produce or procure

some product or service.3 The Competitor Collaborations Guidelines

issued by the Federal Trade Commission (FTC or Commission) and the

Antitrust Division of the U.S. Department of Justice (DOJ or the

Division) define competitor collaborations as comprising “a set of one or

more agreements, other than merger agreements, between or among

competitors to engage in economic activity, and the economic activity

resulting therefrom.”4

As in the case of mergers and acquisitions, integrations through joint

ventures can have a wide variety of competitive effects. Depending on

their structure, the applicable technology and the market environment,

joint ventures can create additional productive capacity through the

formation of a new operating unit, engage in research and development

for a new product or technology, lower costs through economies of scale

and scope, achieve synergies from the pooling of complementary

resources, create entry into new markets, and share or diversify risk.5

3.See Joseph F. Brodley, Joint Ventures and Antitrust Policy, 95 HARV. L.

REV. 1521, 1574 (1982) (defining joint venture as “a separate enterprise

characterized by an integration of operations between and subject to

control by its parent firms which results in the creation of significant new

enterprise capability in terms of new productive capacity, new

technology, a new product, or entry into a new market”); see also Robert

Pitofsky, Joint Ventures Under the Antitrust Laws: Some Reflections on

the Significance of Penn-Olin, 82 HARV. L. REV. 1007 (1969) (explaining

that “joint venture” refers to almost any collaboration by competitors that

is not a merger).

4.COMPETITOR COLLABORATIONS GUIDELINES, supra note 1, § 1.1.

5.See, e.g., Northwest Wholesale Stationers v. Pacific Stationery & Printing

Co., 472 U.S. 284, 295 (1985) (economies of scale from joint purchasing

joint venture); Broadcast Music, Inc. v. CBS, 441 U.S. 1, 20-23 (1979)

(economies of scale and reduced transaction costs from blanket licenses);

SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963 (10th Cir. 1994)

(recognizing that “efficiencies created by joint ventures are similar to

those resulting from mergers—risk-sharing, economies of scale, access to

complementary resources and the elimination of duplication and waste”);

Brunswick Corp., 94 F.T.C. 1174, 1265 (1979) (“The combined capital,

assets, or know-how of two companies may facilitate entry into new

markets and thereby enhance competition, or may create efficiencies or

new productive capacity unachievable by either alone”), aff’d in part and

modified in part sub nom.,Yamaha Motor Co. v. FTC, 657 F.2d 971 (8th

Cir. 1981); cf. In re Warner Communs. Inc., 66 Fed. Reg. 41,238, 41,240

(FTC Aug. 7, 2001) (aid to public comment) (“joint ventures can enable

Joint Ventures 241

But joint ventures also may provide a venue for collusion among the

venture parents, facilitate anticompetitive coordination among the

venture parents and third parties, create or enhance market power in the

hands of the venture or its parents, foreclose competitors from access to a

competitively advantageous resource, or eliminate potential

competition.6

The mission of antitrust law is to distinguish those joint ventures that

on balance are procompetitive or competitively neutral from those that

are anticompetitive and reduce consumer welfare. To do this, the law

must assess the overall competitive effect of a joint venture in its

formation and in its operation by carefully considering all of the potential

positive and negative effects of the joint venture on price, aggregate

output, product quality, and the rate and direction of technological

innovation.

A. Antitrust Statutes Applicable to Joint Ventures

Because joint ventures involve an agreement of separate and

independent parties, Section 1 of the Sherman Act7 applies to the

venture’s formation. After formation, the venture’s operation and any

collateral agreements among the venture’s parents also are subject to

Section 1 unless the venture participants embody such unity of interest

that the Copperweld doctrine prevents the parties from being deemed

separate persons for Section 1 purposes.8 In addition, where the joint

companies to expand into foreign markets, fund expensive innovation and

research efforts, and lower costs to the benefit of industry and consumers

alike”) (Statement of Commissioner Thompson).

6.See COMPETITOR COLLABORATIONS GUIDELINES, supra note 1, § 2.2

(listing potential anticompetitive effects of joint ventures); see also

Citizen Publ’g Co. v. United States, 394 U.S. 131 (1969) (joint venture

gave participants monopoly power in relevant market); United States v.

Penn-Olin Chem. Co., 378 U.S. 158 (1964) (joint venture unlawful

because of lessening of potential competition); Timken Roller Bearing

Co. v. United States, 341 U.S. 593 (1951) (agreement styled as joint

venture found to be a per se unlawful naked agreement to divide

territories and fix prices); Associated Press v. United States, 326 U.S. 1

(1945) (joint venture news gathering association unlawfully denied access

to competing newspapers).

7.15 U.S.C. § 1.

8.See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984).

Similarly, courts will treat a joint venture as a single actor if the purpose

of its organization is to pursue a common interest, even if the participants

remain independent companies. See Siegel Transfer, Inc. v. Carrier