Joint Ventures and Licensing Agreements

• Pages: 231-270

231

CHAPTER V

JOINT VENTURES AND LICENSING

AGREEMENTS

The term “joint venture” does not have a single, well-defined meaning

under the antitrust laws. “In its broadest sense, the term embraces any

collaborative activity, short of a full merger, by which separate firms pool

resources to produce or sell a common product or service, to obtain needed

inputs, or to pursue some other common objective.”1A joint venture has

thus been defined as “a collaborationamong competitors designed to

achieve a specific business objectivethrough some integration of

resources or risk, short of a complete merger.”2The federal antitrust

agencies refer to joint ventures among actual or potential competitors as

“competitor collaborations.”3This chapter provides an overview of the

different types of joint ventures and the case law and government

guidelines applicable to analyzing joint ventures.

A.Joint Venture Analysis

Joint ventures have become quite common in the pharmaceutical

industry. In recent years, for example, joint ventures have been created to

expand the availability of products internationally (Merck & Co. and

Supera Farma Laboratories S.A.) and to take advantage of economies of

scale by combining consumer healthcare businesses (Novartis and

1. 1 ABA SECTION OF ANTITRUS T LAW,ANTITRUST LAW DEVELOPMENTS

453 (8th ed. 2017) [hereinafter ALDEIGHTH].

2. Thomas A. Piraino, Jr., A Proposed Antitrust Approach to Collaborations

Among Competitors, 86 IOWA L.REV. 1137, 1171 (2001) (citing ABA

SECTION OF ANTITRUST LAW,ANTITRUST LAW DEVELOPMENTS372 (3d

ed. 1992)); see also ABA SECTION OF ANTITRUSTLAW, JOINT VENTURES:

ANTITRUST ANALYSIS OF COLLABORATIONS AMO NG COMPETITORS 6n.6

(2d ed.2014)[hereinafter JOINT VENTURES](collecting cases that define

“joint ventures”).

3. See,e.g., U.S.DEP’T OF JUSTICE &FED.TRAD E COMM’N,ANTITRUST

GUIDELINES FORCOLLABOR ATIONS AMONG COMPETITORS(2000)

[hereinafter COMPETITOR COLLABORATIONS GUIDELINES], available at

http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf.

232Pharmaceutical Industry Antitrust Handbook

GlaxoSmithKline).4 In each instance, the strengths of the two companies

complemented each other in an important enough way that combining

certain resources made sense. By using a joint venture, rather than a

merger, each company was able to remain independent and continue to

focus its efforts in areas other than those specifically covered by the joint

venture.

When two or more companies form a joint venture, they must define

the scope of their collaborationas well as the structural and operational

limitations that will protect the member firms while ensuring efficient

output. “Operational issues turn on the nature and scope of collective

action by a venture’s members. Structural issues turn on the identity of

those members and the rules, if any, governing changes in membership.”5

Absent such limitations, risks of free-riding, dissension, or outright

misappropriation—always present to some degree in a joint venture—may

assume unworkable proportions. Even with such restrictions, joint

ventures are prone to failure.6

Both the free interchange of information in the joint venture and the

restrictions placed upon it can give rise to antitrust concerns . Joint ventures

may be subject to regulatory review7and to challenges from disadvantaged

customers or suppliers, competitors and excluded participants, the

government, and even the joint venture partners themselves. In analyzing

a prospective or existing joint venture, the individual agreements that

constitute the joint venture must be evaluated separately and the venture

must be evaluated as a whole.8

4. See, e.g., Press Release, Merck & Co., Merck Establishes Joint Venture to

Commercialize Innovative Pharmaceutical Products and Branded Generics

in Brazil (Feb. 15, 2012), available athttp://www.merck.com/

licensing/our-partnership/Supera-Farma-Licenses-partnership.html;

Media Release, Novartis, Novartis Announces Portfolio Transformation

(Apr. 22, 2014), available athttp://www.novartis.com/newsroom/media-

releases/en/2014/1778515.shtml.

5. Howard H. Chang, David S. Evans & Richard Schmalansee, Some

Economic Principles for Guiding Antitrust Policy Toward Joint Ventures,

1998 COLUM.BUS.L.REV. 223, 227 (1998).

6. SeePiraino, supranote 2, at 1172 (“[A]pproximately sixty p ercent of joint

ventures ultimately fail.”).

7. See generally15 U.S.C. § 18a; see also Hart-Scott-Rodino Antitrust

Improvements Act of 1976, Pub. L. No. 94-435, 90 Stat. 1383 (1976)

(codified in multiple sections of 15 U.S.C.).

8. SeeWilk v. Am. Med. Ass’n, 895 F.2d 352 (7th Cir. 1990) (both the

collaboration and an individual restraint within the collaboration are

Joint Ventures and Licensing Agreements233

1.Types of Joint Ventures

There are six primary types of joint ventures: production; purchasing;

fully-integrated; research and development; marketing and distribution;

and network.9

Production joint venturesinvolve agreements between parties to

produce jointly a product to be sold to others or used by the participants.

In the jointly issued Competitor Collaborations Guidelines, the U.S.

Department of Justice (DOJ) and the Federal Trade Commission (FTC)

specifically recognize that such agreements are often procompetitive, as

participants may combine complementarytechnologies, know-how, or

other assets to enable the collaborationto produce a good more efficiently

by, for example, achieving economies of scale or to produce a good that

neither participant could produce alone.10 On the other hand, joint

production ventures also may involve agreements on output, price, quality,

service, or other competitively significant variables that may create or

enhance market power and limit the participants’ ability or incentive to

compete independently.11

Courts typically analyze joint production ventures under the rule of

reason.12The National Cooperative Research Act of 1984 was amended

in 1993 to include production joint ventures and retitled the National

Cooperative Research and Production Act (NCRPA), which provides that

a venture will “be judged onthe basis of its reasonableness, taking into

account all relevant factors affecting competition.”13

Purchasing joint ventures, or buying collaborations, including

business-to-business agreements, allow buyers to identify and access

subject to review); COMPETITOR COLLABORATIONS GUIDELINES, supra

note 3, §2.3.

9. SeeJOINT VENTURES,supranote 2, at7-17.The Competitor

Collaborations Guidelinesdiscuss four of these: production collaborations,

buying collaborations, research and development collaborations, and

marketing collaborations. SeeCOMPETITOR COLLABORATIONS

GUIDELINES, supranote 3, §3.31(a).

10. COMPETITOR COLLABORATIONS GUIDELINES, supranote 3, §3.31(a).

11. Id.; see alsoProposed Final Judgment, United States v. ConAgra Foods,

79 Fed. Reg. 30,881, 30,882 (D.D.C. May 29, 2014) (requiringjoint

venture intended to combine production facilities to divest four production

facilities because joint venture would control large share of capacity in the

markets as defined by the DOJ).

12. See, e.g., Texaco v. Dagher, 547 U.S. 1, 6-7 (2006); United States v. Alcan

Aluminum, 605 F. Supp. 619, 621-22 (W.D. Ky. 1985).

13. 15 U.S.C. § 4302.