Chapter VIII. Practical Considerations for Joint Ventures

• Pages: 137-155

137

CHAPTER VIII

PRACTICAL CONSIDERATIONS FOR JOINT

VENTURES

This chapter examines practical factors for antitrust counselors to

consider when advising on the formation, governance, and management

of joint ventures. For example, as discussed further below, a frequent

concern in this context is the potential for coordination among joint ven-

turers as to competitive activities outside the scope of the venture. The

existence of clearly established and enforced guidelines, and information

firewalls can help prevent such coordination. Moreover, because it can

be difficult to prove a “negative” (i.e., the absence of coordination), such

guidelines can at least serve as some evidence that no coordination has

taken place, and that the parties are cognizant of the issue.

A. Composition of the Joint Venture

The relationship between the joint-venture parties, the structure of

the joint venture, and the membership model adopted by the venture can

have a significant impact on the nature and degree of antitrust risks the

venture presents. Therefore, parties should at an early stage of any ven-

ture consult antitrust counsel who can provide guidance as to these issues

as the venture takes shape. Important questions that counselors should

ask in the preliminary stages include why the parties want to form the

joint venture, whether and how the parties could achieve the same objec-

tives outside of the joint venture, and what their expectations are as to the

procompetitive benefits of the venture. Understanding the anticipated

customer reaction to a joint venture is also critical; as a practical matter,

this can have a significant impact on the antitrust risks the joint venture

will face. The procompetitive justifications for a venture should be re-

flected in the related business and strategic planning documents. The

formation stage is also a useful time to collect other documents and de-

velop evidence to support the procompetitive justifications for a joint

138 Joint Ventures

venture; this may be more difficult to do in the event of a post-formation

challenge. For example, in a teaming arrangement where two defense

contractors jointly bid on a project because neither has the capacity or

expertise to handle it individually, having a well-developed assessment

of their individual capabilities and expertise at the time of the joint bid

will be helpful in the event of a post-bid challenge.

1. The Parties’ Relationships

a. Identifying Areas of Overlap

A critical threshold issue in the analysis of any joint venture is the re-

lationships among the parties, i.e., the relationship between the joint ven-

ture itself and its members and the relationship between or among the

joint venture’s parents. As a practical matter, antitrust risks vary depend-

ing on whether the parties are horizontal competitors, stand in a vertical

relationship, or operate in unrelated markets. A joint venture between

parties in unrelated markets is less likely to raise antitrust issues than a

joint venture involving parties in related markets.

For a number of reasons, it is important to understand all of the mar-

kets in which the parties operate and identify any overlaps. As discussed

previously, a common concern is the potential for coordination or infor-

mation exchanges that reduce competitive rivalry between the parties as

to markets outside that of the venture.

1

In addition, agreements not to

compete between a joint venture and its parents are common.

2

Therefore,

in order to evaluate the scope of any noncompete provisions, identify any

sensitive areas from an information-sharing standpoint, and analyze other

potential antitrust risks, counselors should understand at the outset the

full scope of the competitive relationship between the parties and the

1

. See U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST

GUIDELINES FOR COLLABORATIONS AMONG COMPETITORS § 2.2 (APR.

2000), availa ble at http://www.ftc.gov/os/200 0/04/ftcdojguidelines.pdf

[hereinafter Competitor Colla boration Guidelines] (observing that joint

ventures “may facilitate explicit or tacit collusion through facilitating

practices such as the exchange or disclo sure of competitively sensitive in-

formation”).

2

. See, e.g., United States v. Penn-Olin Chem., 378 U.S. 158, 169 (1964)

(“[I]f the parent co mpanies are in competition . . . it may be assumed that

neither will compete with the progeny in its line of commerce.”)