Practical Considerations for Joint Ventures

• Pages: 133-149

133

CHAPTER VII

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

documents.

The formation stage is also a useful time to collect other documents

and develop evidence to support the procompetitive justifications for a

Joint Ventures

134

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. DEP’T OF JUSTICE & FED. TRADE COMM’N, Antitrust Guidelines

for Collaborations Among Competitors § 2.2 (2000), reprinted in 4 Trade

Reg. Rep. (CCH) ¶ 13,161, available at http://www.ftc.gov/os/2000/04/

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.”)