Legal Analysis of Joint Venture Formation and Conduct

• Pages: 79-131

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CHAPTER VI

LEGAL ANALYSIS OF JOINT VENTURE

FORMATION AND CONDUCT

A. General Analytical Framework

The formation and conduct of a joint venture may implicate section 7

of the Clayton Act1 and section 1 of the Sherman Act.2 A joint venture’s

legality may be challenged under either or both statutes.3

Courts and agencies that apply antitrust laws generally analyze joint-

venture conduct in a series of burden-shifting stages. They first

determine whether the restraint at issue should be viewed as a per se

illegal naked restraint or as ancillary to the efficiency enhancing features

of the venture to be analyzed under the rule of reason. In the majority of

cases analyzed under the rule of reason, the plaintiff bears the initial

burden of presenting evidence that the restraint at issue harms

competition. If the plaintiff meets that burden, the defendant must

present evidence that the restraint has procompetitive effects. Next, the

court or agency determines whether the restraint is reasonably related to

those effects. Finally, if the defendant meets that burden, the plaintiff

maintains the ultimate burden to show that the harm to competition

outweighs the benefits of the restraint.4

1. 15 U.S.C. § 18. The formation of a joint venture may also be subject to

reporting under section 7A of the Clayton Act (Hart-Scott-Rodino). The

application of Hart-Scott-Rodino reporting requirements to the formation

of joint ventures is discussed in Chapter III.

2. 15 U.S.C. § 1.

3. United States v. Penn-Olin Chem. Co., 378 U.S. 158 (1964) (holding

section 7 and section 1 applicable to joint ventures).

4. E.g., NCAA v. Bd. of Regents o f Univ. of Okla., 468 U.S. 85, 109-10

(1984); United States v. Am. Express Co., 838 F.3d 179, 194 (2d Cir.

2016); Medical Ctr. at Elizabeth Place, LLC v. Premier Health Partners,

2017 U.S. Dist. LEXIS 126499 (N.D. Ohio Aug. 9, 2017); In re Nexium

(Esomeprazole) Antitrust Litig., 42 F. Supp. 3d 231, 262 (D. Mass.

2014).

Joint Ventures

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1. Distinguishing Horizontal Joint Ventures from Horiztonal Mergers

Both horizontal joint ventures and horizontal mergers are forms of

competitor collaborations. It is important to distinguish between them

because they are analyzed differently. The DOJ and FTC analyze

horizontal mergers under the agencies’Horizontal Merger Guidelines

(Merger Guidelines).5 In contrast, the agencies analyze the potential

competitive impacts of horizontal joint ventures under their Competitor

Collaboration Guidelines.6 The focus of the Competitor Collaboration

Guidelines is on potential efficiency gains and anticompetitive risks,

which the agencies review using a per se or rule-of-reason analysis.7 The

2010 Merger Guidelines in contrast, focus on whether the merger would

“create, enhance, or entrench market power or to facilitate its exercise.”8

The principal difference between a horizontal joint venture and

horizontal merger is that joint-venture participants often remain

competitors outside the parameters of the venture.9 A merger involves a

5. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES (2010), available at public/guidelines/hmg-2010.html

[hereinafter Merger Guidelines].

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

FOR COLLABORATIONS AMONG COMPETITORS, § 2.1 (2000), reprinted in 4

Trade Reg. Rep. (CCH) ¶ 13,161, available at

https://www.ftc.gov/system/files/documents/public_statements/300481/0

00407ftcdojguidelines.pdf [hereinafter Competitor Collaboration

Guidelines]. The DOJ and FTC have also outlined the agencies’ approach

to certain health care collaborations and enforcement policies with

respect to intellectual property licensing agreements among competitors.

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

ANTITRUST ENFORCEMENT POLICY IN HEALTH CARE (1996), available at

http://www.ftc.gov/reports/hlth3s.pdf; STATEMENT OF ANTITRUS T

ENFORCEMENT POLICY REGARDING ACCOUNTABLE CARE

ORGANIZATIONS PARTICIPATING IN THE MEDICARE SHARED SAVINGS

PROGRAM, 76 FED. REG. 67026 (OCT. 28, 2011), available at

http://www.ftc.gov/os/fedreg/2011/10/ 111020aco.pdf; U.S. DEP’T OF

JUSTICE & FED. TRADE COMM’N, ANTITRUST GUIDELINES FOR THE

LICENSING OF INTELLECTUAL PROPERTY (1995), available at

https://www.ftc.gov/system/files/documents/public_statements/1049793/

ip_guidelines_2017.pdf.

7. Competitor Collaboration Guidelin es § 1.2.

8. Merger Guidelines § 1.

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

Among Competitors, 86 IOWA L. REV. 1137, 1168 (2001).

Legal Analysis of Joint Venture Formation and Conduct

81

completely integrated arrangement that permanently eliminates all

competition between the parties.10

To distinguish between horizontal joint ventures and mergers, the

agencies look to the scope and duration of the venture.11 The DOJ and

FTC will likely treat a joint venture as a merger and analyze it under the

Merger Guidelines if the collaboration involves an integration of

economic activity that ends all competition in the relevant market

between the joint-venture entities.12 On the other hand, a joint venture

will be analyzed under the Competitor Collaboration Guidelines if the

collaboration preserves some form of competition between the entities.

As to duration, generally, the DOJ and FTC “use ten years as a term

indicating sufficient permanence to justify treatment of a competitor

collaboration as analogous to a merger.”13

For example, in a research-and-development joint venture, the

venture may eliminate competition between the joint venture partners for

research and development purposes. But if the venture preserves other

forms of competition between the partners, or at least the potential for

future competition, the venture will likely be analyzed as a joint venture

under the Competitor Collaboration Guidelines.14

The Competitor Collaboration Guidelines give the following

example of a joint venture that would require a merger analysis.

Two oil companies agree to integrate all of their refining and refined

product marketing operations. Under terms of the agreement, the

collaboration will expire after twelve years; prior to that expiration

date, it may be terminated by either participant on six months’ prior

notice. The two oil companies maintain separate crude oil operations.15

10. Id.

11. Competitor Collaboration Guidelines § 1.3.

12. Id. (“The Agencies treat a competitor collaboration as a horizontal merger

in a relevant market and analyze the collaboration pursuant to the

Horizontal Merger Guidelines if appropriate, which ordinarily is when:

(a) the participants are competitors in that relevant market; (b) the

formation of the collaboration involves an efficiency-enhancing

integration of economic activity in the relevant market; (c) the integration

eliminates all competition among the participants in the relevant market;

and (d) the collaboration does not terminate within a sufficiently limited

period by its own specific and express terms.”).

13. Id. § 1.3, n.10.

14. Id. § 1.3.

15. Id. § 1.3 app. at 28.