Joint Ventures Between and Among Competitors
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CHAPTER 5
JOINT VENTURES BETWEEN AND AMONG
COMPETITORS
The antitrust laws do not define the term joint venture. Accordingly,
there is no single accepted definition of what constitutes a joint venture.
In general, the term joint venture encompasses a wide array of
arrangements that cover some measure of collaboration between and
among independent firms. It can range from loose contractual
arrangements to a virtually complete integration of the collaborating
firms’ resources in a particular line of business that is functionally
equivalent to a full merger.
As with any agreement between or among otherwise independent
firms, joint ventures could have a wide range of competitive effects. This
chapter begins by providing an overview of general antitrust principles
that apply to the analysis of j oint ventures. It then discusses typical j oint
ventures used in the energy industry. Following that is a discussion of the
court’s determination of when joint ventures and their participants make
up separate economic actors for purposes of Section 1 of the Sherman
Act. The chapter then proceeds to examine the application of the antitrust
laws and agency guidelines to the types of joint ventures routinely
formed in the energy industry. Particular examples are then discussed.
A. General Principles
A joint venture is an arrangement where “competitive incentives
between independent firms are intentionally restrained and their
functions and operations integrated to achieve efficiencies and increase
output.”
1
A joint venture would typically involve firms contributing their
resources to a common economic activity via contract or the formation of
a legal entity. Regardless of its structure, a joint venture can involve a
wide range of economic activity, including but not limited to, producing
and marketing a product or service, building capital intensive facilities
and sharing risk, or purchasing inputs. When such joint activities occur
among competitors, they are generally referred to as “competitor
collaborations.”
1
. SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963 (10th Cir. 1994).
126 Energy Antitrust Handbook
These joint endeavors are quite common in the energy industry. Each
requires an independent antitrust risk assessment both at the time of
formation and during its operation. But as we note below, there is little
antitrust enforcement or litigation over these joint ventures. Enforcement
is largely at the formation stage and conducted by the Federal Trade
Commission and Department of Justice using a Section 7 analysis.
As with any coordination between independent firms, joint ventures
may be subject to scrutiny under Sections 1 and 2 of the Sherman Act
2
and Section 5 of the Federal Trade Commission Act (FTC Act).
3
Moreover, joint ventures may be subject to review under Section 7 of the
Clayton Act when, for example, one party acquires a partial interest in an
existing entity or contributes assets or voting securities to a newly
formed entity i n exchange for an ownership interest in the entity.
4
Although all of these antitrust laws are applicable to joint ventures, most
litigation in the joint-venture context occurs under Section 1 of the
Sherman Act or Section 7 of the Clayton Act.
Joint ventures also may be subject to the reporting requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 if they
constitute an acquisition of assets, voting securities, or control of non-
corporate entities.
5
2
. 15 U.S.C. §§ 1-2. Section 2 of the Sherman Act may apply if formation or
operation of the joint ve nture constitutes an act of monopolization, an
attempt to monopolize a market or a conspiracy to monopolize any part of
trade or commerce. See United States v. Pan Am. World Airways, 193 F.
Supp. 18, 36 (S.D.N.Y. 1961) (unilateral suppression by one joint -venture
parent of growth of 50 percent-owned subsidiary into fields occupied by
such parent held violative of Secti on 2), rev’d on other g rounds, Pan Am.
World Airways v. United States, 371 U.S. 296 (1963). There is little case
law applying Section 2 of the Sherman Act to energ y industry joint
ventures. As such, this chapter does not discuss Section 2 any further. For
a general discussion of the applicatio n of Section 2 of the S herman Act to
the energy industry, see Chapter 4.
3
. 15 U.S.C. § 45.
4
(remanding for further fact finding the government’s challenge under
Section 7 to a joint venture in which two chemical manufacturing
companies jointly formed a third corporation, held in equal shares, to
produce and market sodium chlorate).
5
jurisdictional t hresholds ( which are adjusted an nually), u nless ot herwise
exempted, ventures formed as limited liability companies, p artnerships,
Joint Ventures Between and Among Competitors 127
Because joint ventures provide unique opportunities for risk and cost
sharing, they are frequently used in the energy industry. To capitalize on
the benefits from collaborations with others in the energy markets, many
companies have used joint ventures to serve myriad business ends. For
instance, in electricity markets, electric utilities have used joint ventures
to share the risks of generation and transmission, offer new services, and
enlarge their geographic footprint to service broader markets. Similarly,
in the oil and natural gas industries, collaboration via the joint -venture
mechanism has allowed oil and natural gas companies to share and
diversify upstream and midstream risks and to minimize costs associated
with exploring, developing, transporting, and selling energy products.
B. Joint Ventures in the Energy Industry
Energy companies tend to use joint ventures because finding,
developing and producing sources of energy as well as processing them
to comply with quality standards and transporting, storing and delivering
energy is capital-intensive and risky. Joint ventures enable firms to pool
capital and diversify risk. The form of any joint venture will vary
depending on, among other things, the business segment at issue, the
or other forms of unincorporated entities are subject to Hart-Scott-Rodino
Act preformation notification and review if: (1) the creation of the
venture results in one person obtaining a controlling interest in the
venture—i.e., having the right to 50 percent or more of the venture’s
profits or assets upon dissolution; (2) t he value of that interest is more
than $78.2 million (adjusted annually); (3) the value of non-exempt assets
is greater than $78.2 million; and (4) the size-of-the-parties test, if
applicable, is satisfied. 15 U.S.C. § 18a; Revised Jurisdictional
Thresholds for Section 7A of the Clayton Act, 81 Fed. Reg. 4299-300
(Jan. 26, 2016). The size-of-the-parties test is satisfied if: (1) the
acquiring person has annual net sale s or total assets of $156.3 million o r
more (adjusted annually) and the newly formed entity has total assets of
$15.6 million or more (adjusted annually); or (2) the acquiring person has
annual net sales or total assets of $15.6 million or more (adjusted
annually) and the newly for med entity has total assets of $156.3 million
or more (adjusted annuall y). Id. Special rules apply to determine the total
value of assets of the newly formed entity. ABA SECTION OF ANTITRUST
LAW, THE MERGER REVIEW PROCESS 176-184 (4th ed. 2012).
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