Chapter VII. Post-Formation Joint-Venture Conduct

• Pages: 103-136

103

CHAPTER VII

POST-FORMATION JOINT-VENTURE CONDUCT

A. Types of Joint Ventures

Joint ventures generally adopt either an “open,” “closed,” or “lim-

ited” membership model. In the “open” model, membership is available

to all market participants that meet stated qualifications.

1

Under “closed”

membership models, membership is generally determined when the ven-

ture is formed.

2

Such ventures generally do not contemplate the addition

1

. See, e.g., Charley’s Taxi Radio Dispatch Corp. v. SIDA of Hawaii, Inc.,

810 F.2d 869 (9th Cir. 1987) (organization open to any independent taxi

owner-operator); United States Dep’t of Justice, Business Review Letter

for the Associatio n of Fund -Raising Distributor and Suppliers, 2001

DOJBRL LEXIS 9 (Dec. 21, 2001) (association of suppliers and distribu-

tors establishing uniform product order formats for products sold to non-

profit organizations for fund-raising efforts); United State Dep’t of Jus-

tice, Business Review Letter for the Associated Press, 2010 DOJBRL 2

(Mar. 31, 2010) (non-profit cooperative of more than 1,300 newspaper

members established centralized digital database of content for licensing

purposes which was open to both members and nonmembers).

2

. See, e.g., United States Dep’t of Justice, Business Review Letter for

Olympus America, Inc. and C.R. Bard, Inc., 2000 DOJBRL LEXIS 26

(Sept. 28, 2000) (joint-marketing, sales, and leasing of complementary

products between companies that also produced competitive substitute

products); United States Dep’t of Justice, Business Review Letter for

Containers America LLC, 2000 DOJBRL LEXI S 6 (Mar. 8, 2000) (joint

venture for bidding on national supply contracts and jo int purchase of i n-

puts by five single-plant ma nufacturers of steel drums); United States

Dep’t of Justice, Business Review Letter for the Relian ce Network 2009

DOJBRL LEXIS 1 (Sep. 8, 2009) (group of seven regional freight carr i-

104 Joint Ventures

of new members. “Limited” membership joint ventures have highly re-

strictive policies constraining the number of venturers but allow for some

additional members after the ventures are formed.

3

The membership structure and size of joint venture have a significant

effect on how the enforcement agencies and courts will assess the validi-

ty of their membership rules, their ability to exclude or expel members,

and any obligation the ventures might have to accept additional mem-

bers. Closed joint ventures generally have more freedom to exclude par-

ticipants and deny others access to joint-venture facilities than do open

joint ventures.

1. Closed-Membership Joint Ventures

In a strict closed-membership joint venture, membership is deter-

mined when the ventures is formed. This is the prototype structure for

most ventures involving joint production of goods and other ventures in

which the participants expect to make significant contributions of capital,

assets, employees, or technical knowledge. For example, production,

marketing and distribution, research and development, and fully integrat-

ed joint ventures are typically classified as closed.

4

Both the enforcement

agencies and courts recognize that the participants in such ventures have

a legitimate, but not unlimited, interest in preventing free riding by other

ers establishing national network of integrated operations including li m-

ited collaborative pricing).

3

. See, e.g., United States Dep’t of Justice, Business Review Letter for the

Advanced Energy Consortium, 2007 DOJBRL LEXIS 5 (Aug. 23, 2007)

(group of five oil companies and two oilfield service companies estab-

lished research and development joint venture open only to limited num-

ber of new members, subject to approval of two-thirds of the management

board); United States Dep’t of Justice, Business Review Letter for Michi-

gan Hospital Group, Inc., 2002 DOJBRL LEXIS 3 (Apr. 3, 2002) (joint

venture by seven s mall, geographically dispersed community hospitals

which would only add new members absent significant patient overlap);

United States Dep’t of Justice, Business Review Letter for NSM Purchas-

ing Association, 1999 DOJBRL LEXIS 8 (Jan. 13, 1999) (joint casket

purchasing by privately-owned funeral home members which capped

membership to prevent casket sales exceeding 35 percent of United States

casket sales).

4

. See Chapter II for a discussion of each of these types of joint ventures.

Post-Fo rmation J oint-Venture Conduct 105

market participants that did not make any substantial investment in the

venture.

5

As a result, where the closed-membership model is selected at the

venture’s formation, courts and agencies rarely challenge the venture’s

membership unless the venture raises serious concerns about market

power, or controls an “essential facility.”

6

Closed membership models

adopted after the venture is formed may raise concerns that membership

in the venture is being used to limit competition from a rival. Even these

types of restrictions might be justified, however, absent detrimental ef-

5

. Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 221-

23 (D.C. Cir. 1986) (“The chief efficiency . . . is the elimination of the

problem of the free ride.”); FTC AND U.S. DEP’T OF JUSTICE, ANTITRUST

GUIDELINES FOR COLLABORATIONS AMONG COMPETITORS § 3.36(b)

(2000), r eprinted in 4 Trade Reg. Rep. ( CCH) ¶ 13,161 Preamble, avail-

able at http://www.ftc.gov/os/2000/04/ftcdoj guidelines.pdf [hereinafter

Competitor Collaboration Guidelines] (“The reasonable necessity of an

agreement a lso may depend on whether it deters individual participants

from undertaking free ridin g or other opportunistic conduct that could re-

duce significantly the ability of the co llaboration to achieve cognizable

efficiencies.”); see gener ally United States v. Addyston Pipe & Steel Co.,

85 F. 271, 282 (6th Cir. 1898) (defending unj ust use of benefits by non-

contributing parties). The free rider problem can exist within joint ven-

tures as well. See, e.g., MLB Props., Inc. v. Salvino, Inc., 542 F.3d 290,

340 (2d Cir. 2008) (limited joint venture was allowed to centralize intel-

lectual property of the various member teams).

6

. Competitor Collabo ration Guidelines § 4.1 (establishing a “safe zone” in

which competitor collaboration with participants whose collective market

shares are below 20 perce nt would generally not be challenged); see also,

e.g. Northwest Wholesale Stationers, Inc. v. Pac. Stationery & Printing

Co., 472 U.S. 284, 296-97 (1985) (requiring showing of market power in

cooperative purchasing joint venture before applying rigorous review

standard) ; U.S. Dep’t of Justice, Business Review Letter for the Re liance

Network 2009 DOJBRL LEXIS 1 (2 009) (not challenging group of seven

regional freight carriers establishing national network of int egrated opera-

tions where with fe w exceptions participants’ market share was below 20

percent, and network created procompetitive efficiencies); U.S. Dep’t of

Justice, Business Review Letter for Delta Airlines and Société Air

France, 2001 DOJBRL LEXIS 1 (2001) (allowing Delta and Air France

joint venture which combined international air cargo marketing and sales

operations because of low combined market share, between 12.1 and 12.7

percent, in a unconcentrated market).