Chapter V. Venture Formation

• Pages: 61-83

CHAPTER V

VENTURE FORMATION

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The formation of a joint venture can be complicated from both

business and legal perspectives. Consequently, it is critical that antitrust

issues be considered at the earliest stages in the formation of a joint

venture.

A. PRE-FORMATION

At the pre-formation stage, the joint venture entities must evaluate

the business benefits and legal risks to determine acceptable parameters

for a collaboration. Such an evaluation could consider the sharing of

pricing information, customer information, cost information, marketing

and strategic plans, technology, bidding information, and other future

plans and forecasts.1 Sharing information in any of these areas before the

joint venture has been approved by the antitrust authorities creates

unnecessary risks and should not occur without a careful review of the

antitrust implications.2

Pricing information potentially could include data concerning

historic, current, or projected prices or trends.3 It also could include

information about discounts, rebates, allowances, or payment terms.4

Customer information could include not only the customer identities, but

also information about a firm’s relationships with particular customers.5

“Cost information relates to costs attributable to specific products or

services, including costs paid to or quoted by, or any discounts or

allowances received from, any outside suppliers.”6 This category might

also include employee compensation and sales commission plans.7

1 Williard K. Tom & Jason A. Lomax, Antitrust Issues in Joint Ventures,

1437 PLI/CORP 301, 323-24 (2004).

2 Id. at 323.

3 Id. at 324.

4 Id. Obviously, the exchange of pricing information is a very sensitive area.

5 Id. at 324. An exchange of this information may raise concerns about

allocating customers or markets. Id. at 326.

6 Id. at 324.

7 Id.

62 Joint Ventures: Antitrust Analysis

Marketing and strategic plans are self-explanatory, but also may include

any future service changes.8 Technology information involves ongoing

research and development projects, in addition to detailed manufacturing

know-how.9 Finally, bidding information may relate “to the terms of a

bid or the allocation of responsibility under a bid proposal in which

either party is participating, whether alone or in combination with

others.”10

Both the Department of Justice and the FTC have expressed concern

about the exchange of this type of information by firms contemplating

the formation of a joint venture. For example, exchanging competitive

information could facilitate collusion if the entities decide not to form a

collaboration; indeed, negotiations concerning such a venture could

merely be a sham for anticompetitive conduct.11 “[T]he sharing of

information related to a market in which the collaboration operates or in

which the participants are actual or potential competitors may increase

the likelihood of collusion on matters such as price, output, or other

competitively sensitive variables.”12 And because the joint venture did

not come into existence, procompetitive benefits would not offset the

harm.

Although firms considering a joint venture must exchange some

information so they can make an informed decision about the venture's

benefits, they should only disclose to each other information that is

necessary to evaluate the proposed transaction.13 To help ensure that only

8 Id.

9 Id.

10 Id.

11 Id. “Competitor collaborations also may facilitate explicit or tacit collusion

through facilitating practices such as the exchange or disclosure of

competitively sensitive information or through increased market

concentration.” U.S. Dep’t of Justice & Federal Trade Comm’n, Antitrust

Guidelines for Collaborations Among Competitors, § 2.2, 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].

12 Id. § 3.31(b). The agencies further noted that “the sharing of information

relating to price, output, costs, or strategic planning is more likely to raise

competitive concern than the sharing of information relating to less

competitively sensitive variables. Similarly, other things being equal, the

sharing of information on current operating and future business plans is

more likely to raise concerns than the sharing of historical information.” Id.

13 Tom & Lomax, supra note 1 at 323.