United States: Joint Ventures Subject to Increased Antitrust Scrutiny

Recently, Assistant Attorney General Charles James stated that the Department of Justice's Antitrust Division plans to subject joint ventures to increased scrutiny. "Joint ventures are a high priority for the division," James told the American Bar Association's Section of Antitrust Law. The DOJ is currently investigating joint ventures in the on-line media, financial services and electronic airline ticketing sectors.

Joint ventures have become an increasingly common business tactic as an alternative to mergers. The DOJ plans to subject joint ventures to even tougher scrutiny than mergers, in part, because joint ventures have become an important way in which competitors interact with each other in the emerging markets.

The DOJ evaluates collaboration by firms on a case-by-case basis to determine whether there will be anticompetitive effects. The two types of analysis used to determine the lawfulness of an agreement among competitors are: 1) per se and 2) rule of reason. Per se analysis applies to agreements found to have no significant procompetitive benefit. Per se violations of the Sherman Act are blatantly illegal. Under a rule of reason analysis, the anticompetitive results of an agreement are balanced against the procompetitive effects.

Analyzing joint ventures of competitors begins with determining whether the collaboration produces economic efficiencies, according to James. If there are no efficiencies, then the DOJ argues that the joint venture is a per se violation of Section 1 of the Sherman Act. Thus, joint ventures lacking any significant procompetitive benefit are illegal, resulting in the government not having to prove competitive harm. If some efficiencies exist, the DOJ must determine if the collaboration is truly "meaningful" and whether the efficiencies outweigh any competitive harms.

Companies must consider several issues when entering into a joint venture, especially due to the increased scrutiny the venture will attract. First, the company must determine whether it is dealing with a competitor or potential competitor. Deals involving direct competitors may reduce competition between them during the joint venture, thus possibly resulting in anticompetitive harm. Companies may also need to ascertain whether a supplier-customer relationship exists that may negatively affect the market during the joint venture, subjecting the venture to heightened scrutiny.

The recent decrease in the number of mergers may be an indication that companies are entering into joint ventures to avoid antitrust scrutiny. Accordingly, joint ventures have become a priority for the DOJ antitrust division and may be subject to increased antitrust scrutiny than they had been in recent years.