Chapter II. Joint Ventures: What and Why

• Pages: 5-28

CHAPTER II

JOINT VENTURES: WHAT AND WHY

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“[G]lobal and innovation-based competition [continues] driving

firms toward ever more complex collaborative agreements.”1 Firms enter

into joint ventures for a multitude of pro-competitive reasons, such as to

lower costs, provide economies of scale, increase production capacity,

pool research and development resources, commercialize new products,

facilitate entry into new markets, and so on.2 Of course, firms may enter

into joint ventures for anticompetitive reasons as well. Among other

things, a joint venture could be a ruse for a price-fixing conspiracy,

curtail competition between significant competitors, facilitate collusion

between the co-venturers, or control a third-party rival’s supply of a

needed input.3

A. DEFINITION

A joint venture, defined broadly, encompasses any collaborative

undertaking by which two or more entities devote their resources to

pursuing a common objective.4 The Collaboration Guidelines describe a

1 Comments and Hearings on Joint Venture Project, 62 Fed. Reg. 22,945,

22,946 (Apr. 28, 1997) (“Project Hearings”).

2 See, e.g., id.; U.S. Dep’t of Justice & Federal Trade Comm’n, Antitrust

Guidelines for Collaborations Among Competitors, Preamble, reprinted in

4 Trade Reg. Rep. (CCH) ¶ 13,161 (Apr. 12, 2000), available at

http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf [hereinafter Collabora-

tion Guidelines].

3 Cf. Charles A. James, Recent Developments and Future Challenges at the

Antitrust Division, Address Before the Dallas Bar Ass’n (Sept. 17, 2002)

(“we also have launched a number of important joint venture investigations

involving, among other products, on-line media, financial services and

electronic air passenger ticketing. Joint ventures are a high priority for the

Division, in part because we believe that many firms are turning to joint

ventures as an alternative to mergers, and in part because joint ventures are

an important way in which competitors interact with each other in emerging

markets.”), available at

http://www.usdoj.gov/atr/public/speeches/200239.htm.

4 See, e.g., Project Hearings, supra note 1, at 22,946 n.1 (“competitor

6 Joint Ventures: Antitrust Analysis

“competitor collaboration” as “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.”5 The

courts generally follow similar definitions.6 Thus, the form of a joint

venture can range from a mere contractual relationship between two

independent companies where they share some direct or indirect control

collaborations” include “all collaborations, short of a merger, between or

among entities that would have been actual or likely potential competitors

in a relevant market absent that collaboration”); Robert Pitofsky, A

Framework for Analysis of Joint Ventures, 74 Geo. L.J. 1605, 1605 (1986)

(“A joint venture could involve any business enterprise in which two or

more persons collaborate to achieve some commercial goal – a definition

that includes all of antitrust, except, perhaps, some single firm attempts to

monopolize.”).

5 Collaboration Guidelines § 1.1. “Competitors” include both actual and

potential competitors. Id.

6 See, e.g., Arizona v. Maricopa Cty. Med. Soc’y, 457 U.S. 332, 356 (1982);

Instructional Sys. Dev. Corp. v. Aetna Cas. & Sur. Co., 817 F.2d 639, 643

n.2 (10th Cir. 1987) (defining a joint venture for antitrust purposes as “an

integration of operations between two or more separate firms, in which the

following conditions are present: (1) the enterprise is under the joint control

of the parent firms, which are not under related control; (2) each parent

makes substantial contribution to the joint enterprise; (3) the enterprise

exists as a business entity separate from its parents; and (4) the joint venture

creates significant new enterprise capability in terms of new productive

capacity, new technology, a new product, or entry into a new market”)

(internal quotations and citations omitted); COMPACT v. Metro. Gov’t,

594 F. Supp. 1567, 1574 (M.D. Tenn. 1984) (a joint venture is “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”); McElhinney v. Med. Protective

Co., 549 F. Supp. 121, 131 n.7 (E.D. Ky. 1982) (“In antitrust law, the term

‘joint venture’ denotes a group of independent economic actors who have

joined together, in part, to provide a common product or service.”). A

competitor collaboration for antitrust purposes thus need not meet the

common law requirements imposed by many states in order to be a true

“joint venture.” See, e.g., Union Carbide Corp. v. Montell, N.V., 944 F.

Supp. 1119, 1132 (S.D.N.Y. 1996) (noting the requirements to create a joint

venture under New York law).