Chapter V. Fully Integrated Joint Ventures

• Pages: 59-79

59

CHAPTER V

FULLY INTEGRATED JOINT VENTURES

Section 1 of the Sherman Act reaches contracts, combinations, or

conspiracies that unreasonably restrain trade.

1

By definition, section 1

applies only when independent actors take some action together. Thus, if

the alleged restraint is deemed to be the conduct of a single entity for

antitrust purposes it cannot be scrutinized under section 1 of the Sherman

Act although it may be evaluated under section 2.

Whether or not a joint venture or competitor collaboration is deemed

a single entity depends on the degree of economic integration of the ven-

ture’s business activities. At one end of the spectrum is full and lasting

integration, where a combination is complete and enduring such that the

entity’s actions must be viewed as unilateral and cannot, without more,

give rise to section 1 liability.

2

At the other end of the spectrum are enti-

1

. See, e.g., Arizona v. Maricopa County Med. Soc’y, 457 U.S. 332, 342 -43

(1982) ( “Section 1 of the Sherman Act of 1890 literally prohibits every

agreement ‘in restraint of trade.’ In United States v. Joint Traffic Ass’n,

171 U.S. 505 (1898), we recognized that Congress could not have intend-

ed a literal interpretation of the word ‘every’; since Standar d Oil Co. of

New Jersey v. United States, 2 21 U.S. 1 (1911), we have analyzed most

restraints under the so-called ‘rule of reason.’ As its name suggests, the

rule of reason requires the factfinder to decide whether under all the cir-

cumstances of the case the restrictive practice imposes an unreasonable

restraint on competition.”).

2

. However, such ventures would be subject to censure based on the same

analysis applied to mergers. See U.S. DEP’T OF JUSTICE & FED. TRADE

COMM’N, Antitrust Guidelines for Collabora tion Among Competitors

§ 1.3 (2000), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,161 Preamble,

availa ble a t http://www.ftc.g ov/os/2000/04/ftcdojguidelines.pdf [herein-

after Competitor Collabor ation Guidelines].

60 Joint Ventures

ties that have not integrated their economic activities in any way; clearly

agreements among them can give rise to liability under section 1. In the

middle are many joint ventures and partial combinations, which, because

they are only partially integrated, may be deemed, under certain circum-

stances, to be conspiracies among their creators. If a joint venture is

viewed as a tool or instrumentality of its creators, then the venture or its

creators may be liable under section 1 for an act of the venture that re-

strains competition.

The test for whether a joint venture should be treated as a single enti-

ty for antitrust purposes originated in the case of Copperweld Cor p. v.

Independence Tube Corp.,

3

which addressed parent/subsidiary relations

rather than joint ventures. The Supreme Court’s 2010 decision in Ameri-

can Needle v. NFL,

4

a case concerning the intellectual property rights of

the NFL, clarified the standard for evaluating the applicability of section

1 to joint ventures. Under the Supreme Court’s decision in American

Needle, “the relevant inquiry . . . is whether there is a ‘contract, combina-

tion . . . or conspiracy’ amongst ‘separate economic actors pursuing sepa-

rate economic interests’ such that the agreement ‘deprives the market-

place of independent centers of decisionmaking’ and therefore of ‘diver-

sity of entrepreneurial interests.’”

5

A. Historical Treatment: The Copperweld Single-Entity Doctrine

1. Copperweld v. Independence Tube

In Copperweld, the Supreme Court reversed the Seventh Circuit’s

holding that a corporation and its wholly-owned subsidiary had con-

spired to violate section 1.

6

The Court reasoned that section 1 does not

reach “wholly unilateral” conduct and instead prohibits only those unrea-

sonable restraints of trade brought about by a contract, combination, or

conspiracy where that joint activity “deprives the marketplace of the in-

dependent centers of decisionmaking that competition assumes and de-

mands.”

7

Likening a parent and its wholly owned subsidiary to a “team

3

. 467 U.S. 752 (1984).

4

. 560 U.S. 183 (2010).

5

. Id. at 195.

6

. 467 U.S. at 758-59, 768.

7

. Id. at 767-70.