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 for enforcement agencies—and therefore a paramount concern
for parties to such ventures—is the potential for venturers to coordinate
activities outside the scope of the venture, i.e. “spillover” effects. 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
venture 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 objectives outside of the joint
venture, what their expectations are as to the procompetitive benefits of
the venture, and whether the joint venture is reportable under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR) or
the antitrust laws of a non-U.S. jurisdiction. 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 reflected in the related business and strategic planning
The formation stage is also a useful time to collect other documents
and develop evidence to support the procompetitive justifications for a
Joint Ventures
joint venture; this may be more difficult to do in the event of a
postformation 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 postbid challenge.
1. The Parties’ Relationships
a. Identifying Areas of Overlap
A critical threshold issue in the analysis of any joint venture is the
relationships among the parties, i.e., the relationship between the joint
venture itself and its members and the relationship between or among the
joint venture’s parents. As a practical matter, antitrust risks vary
depending 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
markets in which the parties operate and identify any overlaps. As
discussed previously, a common concern is the potential for coordination
or information 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
1. See U.S. DEPT OF JUSTICE & FED. TRADE COMMN, Antitrust Guidelines
for Collaborations Among Competitors § 2.2 (2000), reprinted in 4 Trade
Reg. Rep. (CCH) ¶ 13,161, available at
ftcdojguidelines.pdf [hereinafter Competitor Collaboration Guidelines]
(observing that joint ventures “may facilitate explicit or tacit collusion
through facilitating practices such as the exchange or disclosure of
competitively sensitive information”).
2. See, e.g., United States v. Penn-Olin Chem., 378 U.S. 158, 169 (1964)
(“[I]f the parent companies are in competition . . . it may be assumed that
neither will compete with the progeny in its line of commerce.”); see
also, Engine Specialties, Inc. v. Bombardier Ltd., 605 F.2d 1, 11 (1st Cir.
1979) (stating that a restraint of trade in the joint venture agreement “is
not offensive in and of itself: it purports to state merely that neither of the
parties to the joint venture will compete with it by acting as agents for
other parties.”)

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