Antitrust analysis of joint ventures: An overview

Antitrust Law Journal

Volumn 66, Issue 3, 1998, Pages 701-734

  Werden, Gregory J ^a  

^a US Department of Justice   (United States)

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EID: 0032341204     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (168)

1. Far narrower definitions have been offered. See, e.g., Joseph F. Brodley, Joint Ventures and Antitrust Policy, 95 HARV. L. REV. 1521, 1526 (1982): [A] joint venture may be defined for antitrust purposes as an integration of operations between two or more separate firms, in which the following conditions are present: (1) the enterprise is under joint control of the parent firms, which are not under related control; (2) each parent makes a substantial contribution to the joint enterprise; (3) the enterprise exists as a business entity separate from its parents; and (4) the joint venture creates significant new enterprise capability in terms of new productive capacity, new technology, a new product, or entry into a new market. Moreover, the term "joint venture" appears to have been used in other areas of law and in much antitrust case law to refer to a concept narrower than the broad conceptualization of a joint venture used here.
2. That role can be as slight as submitting a single joint bid, supplying a single participant with a minor input, or offering a single bundled product, such as the combined lift ticket in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 589-91 (1985). Although many joint ventures are incorporated, have a place of business, employees, and such, none of that is necessary to satisfy the broad definition used here.
3. All participants in a joint venture commonly have ownership interests, but a joint venture may feature ownership by some participants and contractual rights for others, and the contractual rights may or may not be comparable to ownership rights. It is even possible for no participant in a joint venture to own a share of the venture itself because the venture is not a separate legal entity. The foregoing scenarios normally call for the same general analysis and are not distinguished below. Ownership without control (e.g., a minority equity interest in a venture controlled by its independent management) can give rise to a joint venture, but most of the competitive issues associated with joint ventures arise from control.
4. This definition excludes public corporations jointly owned by ordinary investors, such as individuals, pension plans, and mutual funds.
5. For similar definitions, see 7 PHILLIP E. AREEDA, ANTITRUST LAW 348 (1986) ("'joint venture' usually refers to a research, production, or marketing enterprise created by several persons other than ordinary investors"); HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY 185-86 (1994) ("A joint venture is any association of two or more firms for carrying on some activity that each might otherwise perform alone.").
6. For similar definitions, see 7 PHILLIP E. AREEDA, ANTITRUST LAW 348 (1986) ("'joint venture' usually refers to a research, production, or marketing enterprise created by several persons other than ordinary investors"); HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY 185-86 (1994) ("A joint venture is any association of two or more firms for carrying on some activity that each might otherwise perform alone.").
7. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768 (1984) ("[M]ergers, joint ventures, and various vertical agreements hold the promise of increasing a firm's efficiency and enabling it to compete more effectively. Accordingly such combinations are judged under a rule of reason, an inquiry into market power and market structure designed to assess the combination's actual effect."); NCAA v. Board of Regents of the Univ. of Okla., 468 U.S. 85, 103 (1984) ("a joint selling arrangement may be so efficient that it will increase sellers' aggregate output and thus be procompetitive").
8. See Bradley, supra note 1, at 1527-28; Edmund W. Kitch, The Antitrust Economics of Joint Ventures, 54 ANTITRUST L.J. 957, 964-65 (1986); Howard H. Chang, David S. Evans & Richard Schmalensee, Some Economic Principles for Guiding Antitrust Policy Toward Joint Ventures, 1998 COLUM. BUS. L. REV. 223, 237-39. This sort of analysis is sometimes termed "transaction cost economics." See OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM ch. 4 (1985). It is more often applied to the similar scenario of vertical integration. See, e.g., id.; Benjamin Klein et al., Vertical Integration, Appropriable Rents, and the Contracting Process, 21 J.L. & ECON. 297 (1978).
9. See Bradley, supra note 1, at 1527-28; Edmund W. Kitch, The Antitrust Economics of Joint Ventures, 54 ANTITRUST L.J. 957, 964-65 (1986); Howard H. Chang, David S. Evans & Richard Schmalensee, Some Economic Principles for Guiding Antitrust Policy Toward Joint Ventures, 1998 COLUM. BUS. L. REV. 223, 237-39. This sort of analysis is sometimes termed "transaction cost economics." See OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM ch. 4 (1985). It is more often applied to the similar scenario of vertical integration. See, e.g., id.; Benjamin Klein et al., Vertical Integration, Appropriable Rents, and the Contracting Process, 21 J.L. & ECON. 297 (1978).
10. See Bradley, supra note 1, at 1527-28; Edmund W. Kitch, The Antitrust Economics of Joint Ventures, 54 ANTITRUST L.J. 957, 964-65 (1986); Howard H. Chang, David S. Evans & Richard Schmalensee, Some Economic Principles for Guiding Antitrust Policy Toward Joint Ventures, 1998 COLUM. BUS. L. REV. 223, 237-39. This sort of analysis is sometimes termed "transaction cost economics." See OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM ch. 4 (1985). It is more often applied to the similar scenario of vertical integration. See, e.g., id.; Benjamin Klein et al., Vertical Integration, Appropriable Rents, and the Contracting Process, 21 J.L. & ECON. 297 (1978).
11. See Bradley, supra note 1, at 1527-28; Edmund W. Kitch, The Antitrust Economics of Joint Ventures, 54 ANTITRUST L.J. 957, 964-65 (1986); Howard H. Chang, David S. Evans & Richard Schmalensee, Some Economic Principles for Guiding Antitrust Policy Toward Joint Ventures, 1998 COLUM. BUS. L. REV. 223, 237-39. This sort of analysis is sometimes termed "transaction cost economics." See OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM ch. 4 (1985). It is more often applied to the similar scenario of vertical integration. See, e.g., id.; Benjamin Klein et al., Vertical Integration, Appropriable Rents, and the Contracting Process, 21 J.L. & ECON. 297 (1978).
12. The underlying economics is familiar in the context of vertical integration that eliminates "double marginalization" or "successive monopoly" and thereby lowers the final product price. See Fritz Machlup & Martha Tabor, Bilateral Monopoly, Successive Monopoly, and Vertical Integration, 27 ECONOMICA (n.s.) 101 (1960); Joseph J. Spengler, Vertical Integration and Antitrust Policy, 68 J. POL. ECON. 347 (1950). The basic insight dates to the 1838 classic AUGUSTIN COURNOT, RESEARCHES INTO THE MATHEMATICAL PRINCIPLES OF THE THEORY OF WEALTH 103 (Nathaniel T. Bacon trans., Augustus M. Kelley 1971).
13. The underlying economics is familiar in the context of vertical integration that eliminates "double marginalization" or "successive monopoly" and thereby lowers the final product price. See Fritz Machlup & Martha Tabor, Bilateral Monopoly, Successive Monopoly, and Vertical Integration, 27 ECONOMICA (n.s.) 101 (1960); Joseph J. Spengler, Vertical Integration and Antitrust Policy, 68 J. POL. ECON. 347 (1950). The basic insight dates to the 1838 classic AUGUSTIN COURNOT, RESEARCHES INTO THE MATHEMATICAL PRINCIPLES OF THE THEORY OF WEALTH 103 (Nathaniel T. Bacon trans., Augustus M. Kelley 1971).
14. The underlying economics is familiar in the context of vertical integration that eliminates "double marginalization" or "successive monopoly" and thereby lowers the final product price. See Fritz Machlup & Martha Tabor, Bilateral Monopoly, Successive Monopoly, and Vertical Integration, 27 ECONOMICA (n.s.) 101 (1960); Joseph J. Spengler, Vertical Integration and Antitrust Policy, 68 J. POL. ECON. 347 (1950). The basic insight dates to the 1838 classic AUGUSTIN COURNOT, RESEARCHES INTO THE MATHEMATICAL PRINCIPLES OF THE THEORY OF WEALTH 103 (Nathaniel T. Bacon trans., Augustus M. Kelley 1971).
15. See Richard C. Levin et al., Appropriating the Returns from Industrial Research and Development, 3 BROOKINGS PAPERS ON ECONOMIC ACTIVITY 783 (1987); Chang et al., supra note 7, at 238.
16. See, e.g., Gene M. Grossman & Carl Shapiro, Research Joint Ventures: An Antitrust Analysis, 2 J.L. ECON. & ORG. 315, 316-17, 321 (1986).
17. See, e.g., Copperweld, 467 U.S. at 768-69 ("Concerted activity is inherently fraught with anticompetitive risk. It deprives the marketplace of the independent centers of decision making that competition assumes and demands.").
18. See, e.g., National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 692 (1977) ("Price is the 'central nervous system of the economy.'"); see also Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 23 (1979) ("competitive pricing as the free market's means of allocating resources" is "the 'central nervous system of the economy.'"); NCAA v. Board of Regents of the Univ. of Okla., 468 U.S. 85, 107-08 (1984) ("Restrictions on price and output are the paradigmatic examples of restraints of trade that the Sherman Act was intended to prohibit.").
19. The analysis here is very similar to that proposed by AREEDA, supra note 5, ¶ 1478.
20. Copperweld, 467 U.S. at 767 (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984)).
21. 467 U.S. at 767.
22. Id. at 768.
23. See Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 356 (1982) ("In . . . joint ventures, the partnership is regarded as a single firm competing with the other sellers in the market."); NFL v. North Am. Soccer League, 459 U.S. 1074, 1077 (1982) (Rehnquist, J., dissenting from denial of cert.) ("the league competes as a unit against other forms of entertainment"); Chicago Prof'l Sports Ltd. v. NBA, 95 F.3d 593, 599-60 (7th Cir. 1996) ("the NBA is best understood as one firm when selling broadcast rights to a network in competition with a thousand other producers of entertainment, but is best understood as a joint venture when curtailing competition for players who have few other market opportunities"); AREEDA, supra note 5, at 355 ("In general, once a venture is judged to have been lawful at its inception and currently, its decisions should be regarded as those of a single entity rather than the parent's daily conspiracy on every purchase-sale-hiring-licensing choice."). See also City of Mt. Pleasant v. Associated Elec. Coop., 838 F.2d 268 (8th Cir. 1988) (Associated Electric Cooperative, consisting of forty-three separate distribution cooperatives and six generation and transmission cooperatives, constituted a single entity because the member cooperatives were not competitors).
24. Treating joint ventures as single entities for limited purposes allows meritless group-boycott and price-fixing claims, which could erroneously be decided under the per se rule, to be rejected as a matter of law. When a manufacturing joint venture purchases a particular raw material from one supplier rather than another, there is not a group boycott. And it is not price fixing for a joint venture to set the price of a product it produces, at least when its participants individually could not have produced that product. As the Supreme Court explained: "Joint ventures and other cooperative arrangements are not usually unlawful, at least not as price-fixing schemes, where the agreement on price is necessary to market the product at all." Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 23 (1979). Note that the Court was not referring to the necessity of the joint venture in marketing the product, but rather to the necessity of an "agreement on price." See also id. at 21 ("a necessary consequence of an aggregate license is that its price must be established"). Such an "agreement on price" does not eliminate independent decision making among competitors, and thus is not even akin to price fixing.
25. Numerous cases have held that the NFL does not act as a single entity in imposing restraints on labor markets, franchise location, or franchise ownership. See, e.g., Sullivan v. NFL, 34 F.3d 1091, 1099 (1st Cir. 1994) (restraint on franchise ownership); Los Angeles Mem'l Coliseum Comm. v. NFL, 726 F.2d 1381, 1387-90 (9th Cir. 1984) (franchise location restraints); McNeil v. NFL, 790 F. Supp. 871, 878-80 (D. Minn. 1992) (labor market restraint).
26. This concept was introduced into antitrust law by then-Judge Taft's opinion in United States v. Addyston Pipe & Steel Co., 85 F. 271 (6th Cir. 1898), aff'd, 175 U.S. 211 (1899). Summarizing the common law, Judge Taft held that "no conventional restraint of trade can be enforced unless the covenant embodying it is merely ancillary to the main purpose of a lawful contract, and necessary to protect the covenantee in the full enjoyment of the legitimate fruits of the contract, or to protect him from the dangers of an unjust use of those fruits by the other party." 85 F. at 282. The implication of ancillarity has changed considerably since 1898, but the meaning of the term has not.
27. "The antitrust laws impose a standard of reasonableness, not a standard of absolute necessity." NFL v. North Am. Soccer League, 459 U.S. 1074, 1079 (1982) (Rehnquist, J., dissenting from denial of cert.). This is the standard used in the 1996 Statements of Antitrust Enforcement in Health Care issued jointly by the U.S. Department of Justice and the Federal Trade Commission. For hospital joint ventures involving expensive equipment or services and physician network joint ventures, collateral agreements are analyzed separately if they are not "reasonably necessary to achieve the efficiencies sought by the joint venture." § 2B, Step Four; § 3A, Step Four, § 8B2, Step Four; reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,153. Without explicitly invoking the concept of ancillarity, many cases use the "reasonably necessary" formulation in explaining the relevant inquiry when a restraint with anticompetitive effects also has legitimate objectives. See Law v. NCAA, 134 F.3d 1010, 1019 (10th Cir. 1998) (inquiring whether the challenged conduct is "reasonably necessary to achieve the legitimate objectives" and whether "those objectives can be achieved in a substantially less restrictive manner"), petition for cert. filed, 66 U.S.L.W. 3800 (U.S. June 23, 1998) (No. 97-2004); Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1367-68 (3d Cir. 1996) (inquiring whether the restraint is "reasonably necessary to achieve the stated objective"); United States v. Brown Univ., 5 F.3d 658, 669 (3d Cir. 1993) (same); Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566, 1581 (11th Cir. 1991) (inquiring whether the restraint is "reasonably necessary to the accomplishment of the legitimate goals and narrowly tailored to that end"); United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1375 (5th Cir. 1980) (same). See also AREEDA, supra note 5, at 397 ("Once the plaintiff satisfies his burden of persuasion on the existence of a significant restraint, he will prevail unless the defendants introduce evidence sufficient to allow the tribunal to find that their conduct promotes a legitimate objective. The plaintiff may rebut by introducing evidence that the objective is illegitimate or the restraint is not reasonably necessary to achieve it.").
28. See SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 970 (10th Cir. 1994) (a restraint is ancillary to a joint venture if it "is reasonably related to [a venture's] operation and no broader than necessary to effectuate the [venture's] business"); Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986) ("To be ancillary . . . an agreement eliminating competition must be subordinate and collateral to a separate, legitimate transaction. The ancillary restraint is subordinate and collateral in the sense that it serves to make the main transaction more effective in accomplishing its purpose. Of course, the restraint imposed must be related to the efficiency sought to be achieved. If it is so broad that part of the restraint suppresses competition without creating efficiency, the restraint is, to that extent, not ancillary."); Polk Bros., Inc. v. Forest City Enters., Inc., 776 F.2d 185, 189 (7th Cir. 1985) ("A restraint is ancillary when it may contribute to the success of a cooperative venture that promises greater productivity and output.").
29. The 1995 Antitrust Guidelines for the Licensing of Intellectual Property issued jointly by the U.S. Department of Justice and the Federal Trade Commission take a similar approach: If the Agencies conclude that the restraint has, or is likely to have, an anticompetitive effect, they will consider whether it is reasonably necessary to achieve procompetitive efficiencies. If the restraint is reasonably necessary, the Agencies will balance the procompetitive efficiencies and the anticompetitive effects to determine the probable net effect on competition in each relevant market. § 4.2, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,132.
30. That a joint venture would not have formed or would not have been profitable but for one or more restraints is evidence that they are ancillary but is far from dispositive of the issue. There remains the question of why the restraint affects the profitability or attractiveness of the joint venture. Price fixing unrelated to a joint venture but contained in the agreement forming the venture could make a joint venture profitable and attractive when it otherwise would not be, but the price fixing would not be ancillary if its impact were merely to raise profits by raising prices. To be ancillary, the price fixing would somehow have to further the accomplishment of the joint venture's efficiency-enhancing purposes. Similarly, the fact that a joint venture likely would not be dissolved if a collateral restraint was enjoined does not establish that the restraint is non-ancillary. Enjoining the restraint could substantially reduce the efficiencies generated by a joint venture but still not reduce them to the point that the marginal costs of continuing the venture exceeded the marginal benefits. This is true in part, and only in part, because much of the cost associated with a venture may have been sunk.
31. See, e.g., Blackburn v. Sweeny, 53 F.3d 825 (7th Cir. 1995) (per se rule applied to restraint on territories in which advertising was permissible, which was found not to be ancillary to an agreement to dissolve a law partnership); General Leaseways, Inc. v. National Truck Leasing Ass'n, 744 F.2d 588, 595 (7th Cir. 1984) (per se rule applied when there was no "organic connection between the restraint and the cooperative needs of the enterprise").
32. In Citizen Publishing Co. v. United States, 394 U.S. 131 (1969), the Supreme Court effectively found that "price fixing" and "profit pooling" were non-ancillary to the joint venture, although the Court did not phrase its analysis in such terms. In 1940 the owners of the two daily newspapers in Tucson, Arizona, formed what is now commonly referred to as a joint operating agreement, under which the advertising, circulation, and production departments of the papers were merged but editorial and news operations were not. The joint venture company controlled the pricing of circulation and advertising of both papers, and profits were distributed according to an agreed ratio. Id. at 134. On a motion for summary judgment, the district court held these restraints per se illegal, and the Supreme Court affirmed. Id. at 134-35. However, the district court had found that the merger of "circulation, advertising, and production departments has resulted in substantial cost savings." 280 F. Supp. 978, 982 (D. Ariz. 1968). Consequently, the decree entered by the district court and affirmed by the Supreme Court did not dissolve the joint venture, but merely ordered that the price fixing, profit pooling, and common ownership cease. Id. at 993-94. In 1970 Congress effectively reversed the decision by enacting the Newspaper Preservation Act, Pub. L. No. 91-353, 84 Stat. 466, codified at 15 U.S.C. §§ 1801-04.
33. HOVENKAMP, supra note 5, at 188, concludes that the price restraint in a similar hypothetical is ancillary.
34. Cf. National Bancard Corp. v. Visa USA, Inc., 779 F.2d 592, 601, 605 (11th Cir. 1986) (refusing to apply per se rule to joint price setting of interchange fees for the Visa system because "individual price negotiations are impractical, would produce instability and higher fees, and could result in the demise of the product offered").
35. Without finding the conduct to be that of a single economic entity, similar conduct was found not violative of the Sherman Act in Sewell Plastics, Inc. v. Coca-Cola Co., 720 F. Supp. 1186 (W.D.N.C. 1988) (summary judgment), 720 F. Supp. 1196 (W.D.N.C. 1989) (merits), aff'd in relevant part without published opinion, 912 F.2d 463 (4th Cir. 1990). Thirty-three Coca-Cola bottlers formed a cooperative to supply most of their plastic bottle requirements. The nation's largest supplier of plastic bottles challenged the arrangement, alleging a variety of antitrust claims. See 720 F. Supp. at 1198-99. Largely because the bottlers had exclusive territories, the district court first held that the arrangement was not the sort of conduct properly deemed a per se unlawful group boycott. Id. at 1192-93. The court then rejected several rule of reason claims on the grounds that the venture had not been shown to possess market power or to have had an adverse impact on competition. Id. at 1218-20.
36. Free riding could be said to occur whenever the sales share of a participant exceeded its share of contributions for the national promotional activities.
37. A restraint preventing one joint venture participant from selling "non-joint-venture products anywhere but in Japan" was found not to be "'reasonably necessary' to the purpose of the joint venture" in Yamaha Motor Co. v. FTC, 657 F.2d 971, 981 (8th Cir. 1981).
38. 405 U.S. 596 (1972).
39. Id. at 598-600 & nn.3-4.
40. Id. at 601-03.
41. Id. at 605.
42. Id. at 605-06; 319 F. Supp. 1031, 1037, 1042-43 (N.D. Ill. 1970).
43. 405 U.S. at 608-12. On remand, less restrictive alternatives were permitted, provided that their effect was not to create de facto exclusive territories. United States v. Topco Assocs., 1973-1 Trade Cas. (CCH) ¶ 74,391 (N.D. Ill. 1973) (final judgment), 1973-1 Trade Cas. (CCH) ¶ 74,486 (N.D. Ill.) (opinion), aff'd without opinion, 414 U.S. 801 (1973). United States v. Sealy, Inc., 388 U.S. 350 (1967), is in a similar vein. Sealy was owned by some thirty licensees, which sold Sealy trademarked bedding products in exclusive territories. Id. at 351-53. The licensees employed resale price maintenance, which the district court held to be per se illegal. Id. at 355. The district court did not find the territorial restraints unlawful, and the government appealed that decision to the Supreme Court. Id. at 351-52. The Court reversed, holding the "territorial limitations [to be] part of 'an aggregation of trade restraints' including unlawful price fixing." Id. at 357 (quoting Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598 (1951)). A synopsis of the two decades of litigation that followed the Supreme Court's decision is provided by Ohio-Sealy Mattress Manufacturing Co. v. Kaplan, 745 F.2d 441, 443-47 (7th Cir. 1984). Shortly after the Supreme Court handed down its decision, Sealy replaced exclusive territories with areas of primary responsibility and significant financial disincentives for selling outside them. In 1971 one of the Sealy licensees brought suit for damages and injunctive relief. The plaintiff was awarded damages, but the trial court imposed no injunctive relief. The court of appeals remanded the case with instructions to consider injunctive relief. Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 823-31, 843-45 (7th Cir. 1978). In 1981 the district court enjoined the practices mentioned above, and the court of appeals affirmed. Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 669 F.2d 490, 495-96 (7th Cir. 1982). Additional suits were filed in 1976 and 1979. See 745 F.2d at 446. The litigation apparently concluded in 1986. A study co-authored by plaintiff's expert concluded that the injunctive relief ordered in 1981 reduced prices and that the restraints were thus anticompetitive. Willard F. Mueller & Frederick E. Geithman, An Empirical Test of the Free Rider and Market Power Hypotheses, 73 REV. ECON. & STAT. 301 (1991). A second study, however, argued that the first was flawed. It found that the relief ordered in 1981 increased Sealy's profits and therefore concluded that the restraints were simply mistakes. E. Woodrow Eckard, Jr., An Empirical Test of the Free Rider and Market Power Hypotheses: A Comment, 76 REV. ECON. & STAT. 586 (1994).
44. 405 U.S. at 608-12. On remand, less restrictive alternatives were permitted, provided that their effect was not to create de facto exclusive territories. United States v. Topco Assocs., 1973-1 Trade Cas. (CCH) ¶ 74,391 (N.D. Ill. 1973) (final judgment), 1973-1 Trade Cas. (CCH) ¶ 74,486 (N.D. Ill.) (opinion), aff'd without opinion, 414 U.S. 801 (1973). United States v. Sealy, Inc., 388 U.S. 350 (1967), is in a similar vein. Sealy was owned by some thirty licensees, which sold Sealy trademarked bedding products in exclusive territories. Id. at 351-53. The licensees employed resale price maintenance, which the district court held to be per se illegal. Id. at 355. The district court did not find the territorial restraints unlawful, and the government appealed that decision to the Supreme Court. Id. at 351-52. The Court reversed, holding the "territorial limitations [to be] part of 'an aggregation of trade restraints' including unlawful price fixing." Id. at 357 (quoting Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598 (1951)). A synopsis of the two decades of litigation that followed the Supreme Court's decision is provided by Ohio-Sealy Mattress Manufacturing Co. v. Kaplan, 745 F.2d 441, 443-47 (7th Cir. 1984). Shortly after the Supreme Court handed down its decision, Sealy replaced exclusive territories with areas of primary responsibility and significant financial disincentives for selling outside them. In 1971 one of the Sealy licensees brought suit for damages and injunctive relief. The plaintiff was awarded damages, but the trial court imposed no injunctive relief. The court of appeals remanded the case with instructions to consider injunctive relief. Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 823-31, 843-45 (7th Cir. 1978). In 1981 the district court enjoined the practices mentioned above, and the court of appeals affirmed. Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 669 F.2d 490, 495-96 (7th Cir. 1982). Additional suits were filed in 1976 and 1979. See 745 F.2d at 446. The litigation apparently concluded in 1986. A study co-authored by plaintiff's expert concluded that the injunctive relief ordered in 1981 reduced prices and that the restraints were thus anticompetitive. Willard F. Mueller & Frederick E. Geithman, An Empirical Test of the Free Rider and Market Power Hypotheses, 73 REV. ECON. & STAT. 301 (1991). A second study, however, argued that the first was flawed. It found that the relief ordered in 1981 increased Sealy's profits and therefore concluded that the restraints were simply mistakes. E. Woodrow Eckard, Jr., An Empirical Test of the Free Rider and Market Power Hypotheses: A Comment, 76 REV. ECON. & STAT. 586 (1994).
45. See 405 U.S. at 613 (arguing that the territorial restraints were "minimal ancillary restraints that are fully reasonable in view of the principal purpose" of the joint venture); see also ROBERT H. BORK, THE ANTITRUST PARADOX 274-79 (1978); HOVENKAMP, supra note 5, at 190-91 (1994); RICHARD A. POSNER & FRANK H. EASTERBROOK, ANTITRUST 248-49 (2d ed. 1981). Although Topco has been severely criticized for applying the per se rule to restraints that should have been considered ancillary, Topco's per se condemnation of a joint venture's plausibly ancillary territorial restraints was followed in Bascom Food Products v. Reese Finer Foods, 715 F. Supp. 616 (D.N.J. 1989). Reese private labeled, but did not manufacture or package, over 500 food products distributed by twenty shareholders and about ten other distributors in what were generally exclusive territories. Id. at 619-22. Bascom alleged that Reese committed per se antitrust violations by refusing to allow Bascom to become a Reese distributor and by refusing to allow Reese distributors to sell to wholesalers as well as retailers. Bascom also alleged that some of the Reese products had no good substitutes. The district court found that the exclusive territories were per se illegal under Topco, id. at 630-31, and that the refusal to deal "appears to constitute the type of boycott to be treated under per se analysis." Id. at 634. The court thus granted the preliminary relief sought. Without invoking the term "ancillary," the court held that Reese had not demonstrated that "various Reese Foods products would not be sold other than pursuant to the distribution restrictions." Id. at 632.
46. See 405 U.S. at 613 (arguing that the territorial restraints were "minimal ancillary restraints that are fully reasonable in view of the principal purpose" of the joint venture); see also ROBERT H. BORK, THE ANTITRUST PARADOX 274-79 (1978); HOVENKAMP, supra note 5, at 190-91 (1994); RICHARD A. POSNER & FRANK H. EASTERBROOK, ANTITRUST 248-49 (2d ed. 1981). Although Topco has been severely criticized for applying the per se rule to restraints that should have been considered ancillary, Topco's per se condemnation of a joint venture's plausibly ancillary territorial restraints was followed in Bascom Food Products v. Reese Finer Foods, 715 F. Supp. 616 (D.N.J. 1989). Reese private labeled, but did not manufacture or package, over 500 food products distributed by twenty shareholders and about ten other distributors in what were generally exclusive territories. Id. at 619-22. Bascom alleged that Reese committed per se antitrust violations by refusing to allow Bascom to become a Reese distributor and by refusing to allow Reese distributors to sell to wholesalers as well as retailers. Bascom also alleged that some of the Reese products had no good substitutes. The district court found that the exclusive territories were per se illegal under Topco, id. at 630-31, and that the refusal to deal "appears to constitute the type of boycott to be treated under per se analysis." Id. at 634. The court thus granted the preliminary relief sought. Without invoking the term "ancillary," the court held that Reese had not demonstrated that "various Reese Foods products would not be sold other than pursuant to the distribution restrictions." Id. at 632.
47. See 405 U.S. at 623-24 (Burger, C.J., dissenting); BORK, supra note 38, at 276.
48. The district court found that "the cost of developing consumer acceptance for the Topco private brands was born by each member in its own territory." 319 F. Supp. at 1042. Consequently, some degree of free riding was inevitable without exclusive territories or some other restraint that imposed charges to defray promotional costs.
49. Chief Justice Burger emphasized this point (see 405 U.S. at 613) but did not take the argument a step further.
50. The 1995 Antitrust Guidelines for the Licensing of Intellectual Property, supra note 23, make a similar point. In § 4.1.2, they explain why a certain licensing arrangement does not present antitrust concerns by stating that it "does not diminish competition that would occur in its absence."
51. Of course, competition in private label products would not have been created by the joint venture if, absent the joint venture, the individual Topco members likely would have introduced private label products on their own.
52. Cf. HOVENKAMP, supra note 5, at 186 ("to characterize something as a 'joint venture' is to say nothing about its effect on competition or its legality under the antitrust laws"); Robert Pitofsky, A Framework for Antitrust Analysis of Joint Ventures, 74 GEO. L.J. 1605, 1606 (1986) ("attaching the label 'joint venture' . . . tells one virtually nothing useful about the likely legality of an arrangement under the antitrust laws").
53. See Timken Roller Bearing Co. v. United States, 341 U.S. 593, 597-98 (1951) ("Nor do we find any support in reason or authority for the proposition that agreements between legally separate persons and companies to suppress competition among themselves and others can be justified by labeling the project a 'joint venture.' Perhaps every agreement and combination to restrain trade could be so labeled."). Prohibiting the sort of conduct described in the text was the central purpose of the Sherman Act. The trust from which antitrust takes it name was precisely the sort of arrangement described. See, e.g., 21 CONG. REC. 2457, 2460 (1890) (remarks of Senator Sherman describing the trusts and the evils they bring about).
54. See ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 398 (4th ed. 1997) ("an arrangement qualifies for rule of reason treatment as a joint venture only when it involves some potential for an efficiency-generating integration of the parties' resources"); Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures, 76 MINN. L. REV. 1, 7 (1991) ("Joint ventures are distinguished from . . . cartels . . . by the extent to which they integrate the resources of the partners. A cartel constitutes a naked agreement among competitors unaccompanied by any integration of resources."); Neil E. Roberts, Cartels and Joint Ventures, 57 ANTITRUST L.J. 849, 853 (1989) (a joint venture is not a cartel if "it does integrate assets or abilities of the parties so as to create efficiencies and new or more effective competition for the benefit of consumers"). The absence of economic integration means that the per se rule might apply but not that it does apply. Agreements among competitors not involving any economic integration may be competitively benign or even procompetitive.
55. See ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 398 (4th ed. 1997) ("an arrangement qualifies for rule of reason treatment as a joint venture only when it involves some potential for an efficiency-generating integration of the parties' resources"); Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures, 76 MINN. L. REV. 1, 7 (1991) ("Joint ventures are distinguished from . . . cartels . . . by the extent to which they integrate the resources of the partners. A cartel constitutes a naked agreement among competitors unaccompanied by any integration of resources."); Neil E. Roberts, Cartels and Joint Ventures, 57 ANTITRUST L.J. 849, 853 (1989) (a joint venture is not a cartel if "it does integrate assets or abilities of the parties so as to create efficiencies and new or more effective competition for the benefit of consumers"). The absence of economic integration means that the per se rule might apply but not that it does apply. Agreements among competitors not involving any economic integration may be competitively benign or even procompetitive.
56. See ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 398 (4th ed. 1997) ("an arrangement qualifies for rule of reason treatment as a joint venture only when it involves some potential for an efficiency-generating integration of the parties' resources"); Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures, 76 MINN. L. REV. 1, 7 (1991) ("Joint ventures are distinguished from . . . cartels . . . by the extent to which they integrate the resources of the partners. A cartel constitutes a naked agreement among competitors unaccompanied by any integration of resources."); Neil E. Roberts, Cartels and Joint Ventures, 57 ANTITRUST L.J. 849, 853 (1989) (a joint venture is not a cartel if "it does integrate assets or abilities of the parties so as to create efficiencies and new or more effective competition for the benefit of consumers"). The absence of economic integration means that the per se rule might apply but not that it does apply. Agreements among competitors not involving any economic integration may be competitively benign or even procompetitive.
57. 457 U.S. 332 (1982).
58. Id. at 356-57.
59. Also notable is that the dissenting Justices disagreed about this characterization. Id. at 364-65.
60. 405 U.S. at 598.
61. Competitors may feign integration, but the per se rule cannot be avoided by mere cosmetic integration with no real efficiency-enhancing potential. On the other hand, if there is a nontrivial potentially efficiency-enhancing economic integration among the participants, a joint venture ought not to be subject to second guessing about its motives. There are better ways in which to uncover the anticompetitive effects of a joint venture. Even if documents suggest that a joint venture was formed as an excuse for imposing collateral restraints, it should be assessed under the rule of reason if there is a nontrivial potentially efficiency-enhancing economic integration among the participants. As discussed in the next section, the rule of reason analysis should be highly truncated when certain collateral restraints are imposed.
62. The 1995 Antitrust Guidelines for the Licensing of Intellectual Property, supra note 23, take a similar approach in § 3.4: "To determine whether a particular restraint in a licensing arrangement is given per se or rule of reason treatment, the Agencies assess whether the restraint in question can be expected to contribute to an efficiency-enhancing integration of economic activity."
63. Cost is used here in its economic sense - "real resource usage." A joint venture that reduces the price paid for inputs without achieving any reduction in resource usage is merely exercising market power.
64. This treatment of economic integration has advantages over narrower constructions advocated by some commentators and that may be implicit in some case law. It avoids both arbitrary distinctions that cannot be justified on the basis of economic analysis and fact-intensive judgments on matters of degree, which require completing much of a rule of reason analysis just to determine whether such an analysis is appropriate. Cf. Ernest Gellhorn & W. Todd Miller, Competitor Collaboration Guidelines - A Recommendation, 42 ANTITRUST BULL. 851, 854-55 (1997) (criticizing narrower integration tests). This expansive treatment of integration does not drastically alter the antitrust treatment of borderline conduct. As is explained in the next section, a truncated rule of reason analysis is employed in many situations.
65. A similar distinction is drawn and well explained by William F. Baxter, Preface, 15 J. REPRINTS ANTITRUST L. & ECON. i, v-viii (1985). Apart from cartels, the requisite economic integration may be absent with information exchange and standard setting.
66. Brodley's integration requirement, quoted supra note 1, appears to require more.
67. Brodley's integration requirement, quoted supra note 1, mandates contributions but does not specifically indicate that they cannot be monetary.
68. In Maricopa County the absence of pooling of risks was a factor emphasized by the Supreme Court in concluding that the requisite integration was absent. See text accompanying note 48 supra. Until revised in 1996 (see supra note 21), federal enforcement policy was understood by some to hold that risk sharing was inherently part of the requisite economic integration in health care joint ventures. See John J. Miles, Joint Venture Analysis and Provider-Controlled Health Care Networks, 66 ANTITRUST L.J. 127, 139 & n.47 (1997), commenting on U.S. Department of Justice and Federal Trade Commission, Statements of Enforcement Policy and Analytical Principles Relating to Health Care and Antitrust (1994), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,152.
69. See Citizen Publ'g Co. v. United States, 394 U.S. 131, 135 (1969); Northern Sec. Co. v. United States, 193 U.S. 197, 328 (1904).
70. These criteria do not consider whether participants compete with each other in markets unrelated to those in which the joint venture operates. A joint venture can provide a conduit for anticompetitive communication regarding such markets, but a joint venture does not make such communication inevitable or even reasonably likely, and there surely are other conduits for such communication.
71. Mergers are sometimes said to differ from joint ventures in that mergers are permanent, while joint ventures are not. See, e.g., Thomas A. Piraino, Jr., A Proposed Antitrust Analysis of Telecommunications Joint Ventures, 1997 WISC. L. REV. 639, 660. However, the case law does not require that a transaction be permanent to be treated as a merger under § 7 of the Clayton Act. See United States v. Archer-Daniels-Midland Co., 584 F. Supp. 1134 (S.D. Iowa 1984) (13-year lease with options for extension and purchase held to be a merger within the meaning of § 7). Moreover, joint ventures subject to termination may last long enough to be essentially permanent for purposes of antitrust analysis.
72. With each firm having a half interest in the third, the third firm is almost certain to be actively and jointly controlled by the first two firms. When all participants own minority interests, control by participants may be absent, and the definition of joint venture used here does not require control. In the absence of control, however, the proper antitrust analysis is a straightforward variation on merger analysis, accounting for the incentive effects of partial equity interests in competitors. The discussion below assumes that participants control any joint venture not treated as a merger.
73. See, e.g., United States v. Penn-Olin Chem. Co., 378 U.S. 158, 167-72 (1964); FTC v. Warner Communications Inc., 742 F.2d 1156, 1159, 1163-65 (9th Cir. 1984); United States v. Ivaco, Inc., 704 F. Supp. 1409, 1414 (W.D. Mich. 1989).
74. See, e.g., Piraino, supra note 61, at 643 n.26.
75. Mutual partial equity interests - A owning a share of B, and B owning a share of A - can arise with a joint venture, and mutual majority interests produce anticompetitive effects greater than common full ownership. See William Nye, Can a Joint Venture Lessen Competition More Than a Merger?, 40 ECON. LETTERS 487 (1992). In addition, Firm A's acquisition of Firm B's business in market X can lessen competition in only market X (and possibly vertically related markets), while a joint venture between A and B also may restrain competition in market Y, in which A and B also compete. Any restraint on market Y, however, is likely to be non-ancillary.
76. See HOVENKAMP, supra note 5, at 195-96.
77. Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988); Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 289-90 (1985); Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1, 19-20 (1979). See also NCAA v. Board of Regents of the Univ. of Okla., 468 U.S. 85, 103-04 (1984) ("Per se rules are invoked when surrounding circumstances make the likelihood of anticompetitive conduct so great as to render unjustified further examination of the challenged conduct."); National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 692 (1978) (agreements are per se illegal only if their "nature and necessary effect are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality").
78. Denials of access to joint ventures should always be subject to a fuller rule of reason analysis. Northwest Wholesale Stationers did not foreclose this approach. The Supreme Court held that the per se rule does not apply to the exclusion of a competitor from a joint venture unless it "possesses market power or exclusive access to an element essential to effective competition," 472 U.S. at 296; however, the Court undercut any inference that it was establishing a rule of per se illegality when the venture "possesses market power or exclusive access to an element essential to effective competition" by its comment that exclusion from a joint venture "might justify per se invalidation if it placed a competing firm at a severe competitive disadvantage," id. at 295-96 n.6. The leading case applying this precedent also evaluated the denial of access to a joint venture under the rule of reason. SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 963-65 (10th Cir. 1994).
79. See, e.g., Lie v. St. Joseph Hosp., 964 F.2d 567, 569 (6th Cir. 1992) (truncated rule of reason analysis applied "when the agreement at issue is very similar to per se violations and might, but for prudential constraints, be analyzed under the per se presumption"); AREEDA, supra note 5, at 428-29 (truncated rule of reason analysis applicable when a "restraint is of the kind that has been regarded as very serious and usually without recognized redeeming virtue" but the "defendant claims justification of a kind which a 'quick look' - usually at the arguments alone - shows to be legitimate in principle and capable of being proved").
80. NCAA, 468 U.S. at 110. See also id. at 109 ("As a matter of law, the absence of proof of market power does not justify a naked restraint on price or output. To the contrary, when there is an agreement not to compete in terms of price or output, 'no elaborate industry analysis is required to demonstrate the anticompetitive character of such agreement."') (quoting National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 692 (1978)); FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 459 (1986) ("A refusal to compete with respect to the package of services offered to consumers, no less than a refusal to compete with respect to the price term of an agreement, impairs the ability of the market to advance social welfare by ensuring the provision of desired goods and services to consumers at a price approximating the marginal cost of providing them. Absent some countervailing procompetitive virtue - such as, for example, the creation of efficiencies in the operation of a market or the provision of goods and services . . . - such an agreement limiting consumer choice by impeding the 'ordinary give and take of the market place,' . . . cannot be sustained under the Rule of Reason."). The NCAA Court relied on the late Professor Areeda's teaching that the rule of reason sometimes can be applied "in the twinkling of an eye." See 468 U.S. at 109-10 n.39 (quoting Phillip Areeda, The "Rule of Reason" in Antitrust Analysis: General Issues 37-38 (Federal Judicial Center, June 1981)). Professor Areeda's revision of the cited analysis can be found in AREEDA, supra note 5, at 403. His example of a practice that can be assessed "very quickly" is a selling joint venture formed by Chrysler, Ford, and General Motors that sets the prices of all three companies' cars.
81. See, e.g., Law v. NCAA, 134 F.3d 1010, 1020 (10th Cir. 1998), petition for cert. filed, 66 U.S.L.W. 3800 (U.S. June 23, 1998) (No. 97-2004); California Dental Ass'n v. FTC, 128 F.3d 720, 727 (9th Cir. 1997), petition for cert. filed, 66 U.S.L.W. 3668 (U.S. April 3, 1998) (No. 97-1625); Chicago Prof'l Sports Ltd. v. NBA, 95 F.3d 593, 596 (7th Cir. 1996); United States v. Brown Univ., 5 F.3d 658, 669 (3d Cir. 1993); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 593-94 (1st Cir. 1993). Assistant Attorney General Joel I. Klein has termed this a "stepwise" analysis. See Joel I. Klein, A "Stepwise" Approach for Analyzing Horizontal Agreements Will Provide a Much Needed Structure for Antitrust Review, ANTITRUST, Spring 1998, at 41; Joel I. Klein, A Stepwise Approach to the Antitrust Review of Horizontal Agreements, Speech Before ABA Antitrust Section Semi-Annual Fall Policy Program (Nov. 7, 1996), reprinted at 7 Trade Reg. Rep. (CCH) ¶ 50,157.
82. See, e.g., Law v. NCAA, 134 F.3d 1010, 1020 (10th Cir. 1998), petition for cert. filed, 66 U.S.L.W. 3800 (U.S. June 23, 1998) (No. 97-2004); California Dental Ass'n v. FTC, 128 F.3d 720, 727 (9th Cir. 1997), petition for cert. filed, 66 U.S.L.W. 3668 (U.S. April 3, 1998) (No. 97-1625); Chicago Prof'l Sports Ltd. v. NBA, 95 F.3d 593, 596 (7th Cir. 1996); United States v. Brown Univ., 5 F.3d 658, 669 (3d Cir. 1993); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 593-94 (1st Cir. 1993). Assistant Attorney General Joel I. Klein has termed this a "stepwise" analysis. See Joel I. Klein, A "Stepwise" Approach for Analyzing Horizontal Agreements Will Provide a Much Needed Structure for Antitrust Review, ANTITRUST, Spring 1998, at 41; Joel I. Klein, A Stepwise Approach to the Antitrust Review of Horizontal Agreements, Speech Before ABA Antitrust Section Semi-Annual Fall Policy Program (Nov. 7, 1996), reprinted at 7 Trade Reg. Rep. (CCH) ¶ 50,157.
83. Cf. NCAA, 468 U.S. at 100-01, 109-10, 117-20 (employing a truncated analysis for restrictions on the amount of televised intercollegiate football); Law, 134 F.3d at 1020-24 (employing a truncated analysis to the NCAA rule limiting total compensation for a category of basketball coaches at Division I schools); United States v. Brown Univ., 5 F.3d 658, 673-78 (3d Cir. 1993) (employing a truncated analysis for agreements among universities on financial aid offerings to particular students); Chicago Prof'l Sports Ltd. v. NBA, 961 F.2d 667, 673-76 (7th Cir. 1992) (employing a truncated analysis for the NBA's restraints on number of games broadcast on television superstations). See also American Ad Mgmt., Inc. v. GTE Corp., 92 F.3d 781, 789 (9th Cir. 1996) (refusing to employ a truncated analysis to an agreement among yellow pages publishers not to pay commissions to sales agents for certain accounts); U.S. Healthcare, Inc. v. Healthsource, Inc., 986 F.2d 589, 594 (1st Cir. 1993) (refusing to employ a truncated analysis to an exclusive dealing arrangement); Illinois Corporate Travel, Inc. v. American Airlines, 806 F.2d 722, 727 (7th Cir. 1986) (refusing to employ a truncated analysis to the refusal of an airline to deal with travel agent that would not agree to refrain from advertising discounts); Timothy J. Muris, The Federal Trade Commission and the Rule of Reason: In Defense of Massachusetts Board, 66 ANTITRUST L.J. 773, 800 (1998) ("An agreement among competitors is inherently suspect [hence, requiring justification] if it eliminates or limits significant aspects of their competitive rivalry . . . .").
84. Cf. California Dental, 128 F.3d at 727-30 (applying quick look to an agreement among dentists to restrict price advertising as a part of ethical guidelines to prevent false and misleading advertising).
85. Cf. Professional Engineers, 435 U.S. at 692 (apparently applying quick look to an ethical rule against competitive bidding). It is doubtful that bid rigging could ever be an ancillary restraint, and bid rigging outside the joint venture context is per se illegal and is criminally prosecuted.
86. Cf. Detroit Auto Dealers Ass'n, Inc. v. FTC, 955 F.2d 457, 469-72 (6th Cir. 1992) (applying quick look to an agreement among auto dealers to restrict showroom hours).
87. Cf. Indiana Federation of Dentists, 476 U.S. at 459 (agreement among members of federation of dentists to withhold X rays from dental insurers for use in evaluating claims for benefits held to "impair[] the ability of the market to advance social welfare by ensuring the provision of goods and services to consumers at a price approximating the marginal cost of providing them").
88. While the formation of joint ventures and ancillary restraints may be subject to the quick look, the denial of access to a joint venture necessarily should not be.
89. For example, in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979), the blanket license was a new product made possible by the joint venture. To the extent that pricing that product is understood to involve an agreement on price among the venture's participants, that agreement, standing alone, does not warrant per se or quick-look treatment. Hence, the Court reversed the contrary determination by the lower court. Id. at 6-10, 23-24.
90. Although no court has endorsed such an approach, economic logic dictates an alternative path. Rather than demonstrate significant plausible efficiencies, joint venture participants could demonstrate the absence of a plausible anticompetitive effect. See C. Frederick Beckner III & Steven C. Salop, Decision Theory and Antitrust Rules, 67 ANTITRUST L.J. (forthcoming 1999). In some cases, such a demonstration could be accomplished without elaborate market analysis, as when the joint venture participants collectively have only a small share of any plausible relevant market. Cf. Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 221 (D.C. Cir. 1986) (opinion by Bork, J.) (suggesting that a small share of a well defined market may be sufficient to establish that a restraint is efficient, since the small share assures that the restraint could not restrict output).
91. See generally William J. Kolasky, Jr., The Department of Justice's "Stepwise" Approach Imposes Too Heavy a Burden on Parties to Horizontal Agreements, ANTITRUST, Spring 1998, at 41, 45 (arguing that a defendant's burden should be commensurate with the showing the plaintiff has made); Chang et al., supra note 7, at 308-11 (cautioning against an application of the quick look that imposes a heavy burden to demonstrate efficiencies).
92. See, e.g., Law v. NCAA, 134 F.3d 1010, 1019 (10th Cir. 1998) (inquiring whether a venture's "objectives can be achieved in a substantially less
93. This standard is comparable to that in the revised efficiency section of the Horizontal Merger Guidelines promulgated jointly by the U.S. Department of Justice and the Federal Trade Commission: "Only alternatives that are practical in the business situation faced by the merging firms will be considered in [determining whether efficiencies are merger specific]; the Agency will not insist upon a less restrictive alternative that is merely theoretical." § 4, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104, at 20,573-13 (revised Apr. 8, 1997).
94. See, e.g., Chicago Prof'l Sports Ltd. v. NBA, 961 F.2d 667, 674 (7th Cir. 1992) (interpreting Supreme Court precedent to hold that "any agreement to reduce output . . . requires some justification - some explanation connecting the practice to consumers' benefits - before the court attempts an analysis of market power. Unless there are sound justifications, the court condemns the practice without ado, using the 'quick-look' version of the Rule of Reason").
95. See, e.g., Levine v. Central Fla. Med. Affiliates, 72 F.3d 1538, 1551 (11th Cir.), cert. denied, 117 S. Ct. 75 (1996); K.M.B. Warehouse Dist. v. Walker Mfg. Co., 61 F.3d 123, 129 (2d Cir. 1995); Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1434 (9th Cir. 1995); United States v. Brown Univ., 5 F.3d 658, 668 (3d Cir. 1993); Flegel v. Christian Hosp. Northeast-Northwest, 4 F.3d 682, 688 (8th Cir. 1993); Lie v. St. Joseph Hosp., 964 F.2d 567, 569 (6th Cir. 1992); Wilk v. AMA, 895 F.2d 352, 359-60 (7th Cir. 1990). These cases follow FTC v. Indiana Federation of Dentists, 476 U.S. 447, 461 (1986) ("the finding of actual, sustained adverse effects on competition . . . is legally sufficient to support a finding that the challenged restraint was unreasonable even in the absence of elaborate market analysis").
96. NCAA, 468 U.S. at 104 ("[T]he essential inquiry [is] whether or not the challenged restraint enhances competition. Under the Sherman Act the criterion to be used in judging the validity of a restraint on trade is its impact on competition."); see also National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 691 (1978) (the issue is whether the restraint "is one that promotes competition or one that suppresses competition").What this means is open to debate. Most recently in NCAA, the Supreme Court held that "Congress designed the Sherman Act as a 'consumer welfare prescription.'" 468 U.S. at 107 (quoting Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979), quoting BORK, supra note 38, at 66). Judge Bork defined "consumer welfare" to include profits, i.e., to mean aggregate economic welfare. See BORK, supra, chs. 2-5. The Ninth Circuit has elaborated: "[R]eduction of competition does not invoke the Sherman Act until it harms consumer welfare. Consumer welfare is maximized when economic resources are allocated to their best use, and when consumers are assured competitive price and quality. Accordingly, an act is deemed anti-competitive under the Sherman Act only when it harms both allocative efficiency and raises the prices of goods above competitive levels or diminishes their quality." Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421, 1433 (9th Cir. 1995) (citations omitted). In economic terms, this means that the test under the Sherman Act is whether a restraint enhances aggregate economic welfare. For more on the welfare debate, see Gregory J. Werden, An Economic Perspective on the Analysis of Merger Efficiencies, ANTITRUST, Summer 1997, at 12, 13-14.
97. The issues in this section are usefully discussed, although from a different perspective, by Michael S. McFalls, The Role and Assessment of Classical Market Power in Joint Venture Analysis, 66 ANTITRUST L.J. 651 (1998).
98. A production joint venture embracing an entire industry may lead to competitive performance if any unused productive capacity can be employed by any participant willing to pay the associated variable costs. See Ian Gale, Price Competition in Noncooperative Joint Ventures, 12 INT'L J. INDUS. ORG. 53 (1994). This concept - often referred to as a "competitive rules joint venture" - originated in the Department of Justice in the 1970s. See Lucinda M. Lewis & Robert J. Reynolds, Appraising Alternatives to Regulation for Natural Monopolies, in OIL PIPELINES AND PUBLIC POLICY 135 (Edward J. Mitchell ed., 1979). The concept was applied in crafting the decree in United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 625 (W.D. Ky. 1985) (approving proposed merger consent decree).
99. A production joint venture embracing an entire industry may lead to competitive performance if any unused productive capacity can be employed by any participant willing to pay the associated variable costs. See Ian Gale, Price Competition in Noncooperative Joint Ventures, 12 INT'L J. INDUS. ORG. 53 (1994). This concept - often referred to as a "competitive rules joint venture" - originated in the Department of Justice in the 1970s. See Lucinda M. Lewis & Robert J. Reynolds, Appraising Alternatives to Regulation for Natural Monopolies, in OIL PIPELINES AND PUBLIC POLICY 135 (Edward J. Mitchell ed., 1979). The concept was applied in crafting the decree in United States v. Alcan Aluminum Ltd., 605 F. Supp. 619, 625 (W.D. Ky. 1985) (approving proposed merger consent decree).
100. An illustration in a somewhat unusual context is provided by the landmark case, Chicago Board of Trade v. United States, 246 U.S. 231 (1918). The Chicago Board of Trade was and still is a large market in which agricultural commodities are traded by its members. The Board adopted a rule prohibiting trade between sessions at prices other than the closing price. The Supreme Court found that the effect was primarily to restrict hours of trading and that the restraint was reasonable. The opinion by Justice Brandeis articulated an oft-quoted statement of the rule of reason. Id. at 238.
101. In the 1970s the Department of Justice was concerned that several joint ventures in the petroleum industry produced anticompetitive effects by sizing facilities to produce monopoly, rather than competitive, levels of output. See Donald L. Flexner, Oil Pipelines: The Case for Divestiture, in OIL PIPELINES AND PUBLIC POLICY 135 (Edward J. Mitchell ed., 1979).
102. This possibility is little noted in the joint venture literature but is discussed by Brodley, supra note 1, at 1550-51; and Carl Shapiro & Robert D. Willig, On the Antitrust Treatment of Production Joint Ventures, J. ECON. PERSP., Summer 1990, at 113, 115.
103. There is an anticompetitive effect whenever a joint venture supplies participants with an input at an incremental cost to them in excess of the venture's short-run marginal cost of production. Hence, the socially optimal way in which to finance a joint venture's fixed costs is through lump sum payments by participants (perhaps original contributions of capital). Such a systems works perfectly, however, only if the shares of the fixed costs are allocated in proportion to usage of the venture's output.
104. The mere existence of some form of taxation scheme is neither surprising nor suspect Industry trade associations must tax their members to fund informational and promotional functions for the benefit of the entire industry. Any procompetitive activities of a joint venture have to be financed by taxing the participants in some manner. A tax levied on output also may be reasonably necessary. If taxes are disproportionate to output, it is likely that some joint venture participants disproportionately benefit from its activities, and the possibility of disproportionate benefits may prevent participants from joining in the first instance.
105. A scheme using labor contracts to collect taxes was held to be per se illegal price fixing. Premier Elec. Constr. Co. v. National Elec. Contractors Ass'n, 814 F.2d 358 (7th Cir. 1984); National Elec. Contractors Ass'n v. National Constructors Ass'n, 678 F.2d 492 (4th Cir. 1982). Both cases arose from the same conduct Members of the National Electrical Contractors Association (NECA) carry out about half of the nation's electrical contracting work. The International Brotherhood of Electrical Workers (IBEW) represents workers at NECA and non-NECA firms. An agreement between NECA and IBEW established the National Electrical Industry Fund to defray costs associated with collective bargaining. The agreement called for the IBEW to include a clause in contracts with non-NECA members requiring them to contribute 1% of gross payroll to the Fund, just as NECA members did. Without a provision like this, the non-members could have free ridden on the negotiations. Judge Easterbrook's Premier decision recognized this free-rider issue but held that the antitrust laws encourage and protect this sort of free riding because it is akin to the free riding of a cheater on a cartel. 814 F.2d at 368-71. It is certainly true, as the court suggested, that the Fund could be a cartelization device if the revenues collected exceeded the negotiation costs and the excess was somehow rebated, but there was no indication that such was the case. It is also true that, as the court suggested, the Fund could have been used to raise the costs of non-NECA contractors and thereby lessen competition among contractors, but there was no indication that nonmembers paid more than members. The sort of free riding in these cases is commonly addressed by government intervention. For example, under the authority granted by Agricultural Marketing Agreement Act of 1937, as amended, 7 U.S.C. § 608c(6)(I), the Department of Agriculture has organized thirty-six generic advertising and promotion programs. See NICHOLAS J. POWERS, U.S. DEPARTMENT OF AGRICULTURE, AGRICULTURAL ECONOMIC REPORT No. 629, FEDERAL MARKETING ORDERS FOR FRUITS, VEGETABLES, NUTS, AND SPECIALTY CROPS 18-20 (1990). The constitutionality of several of these programs was upheld in Glickman v. Wileman Bros. & Elliott, Inc., 117 S. Ct. 2130 (1997).
106. The classic problem of a cartel is cheating, which is normally highly profitable if not easily detected. See George J. Stigler, A Theory of Oligopoly, 72 J. POL. ECON. 44 (1964). Exchange of information on prices, quantities, or customers served can be enormously useful in detecting cheating. For essentially this reason, information exchanges may violate the antitrust laws. See United States v. Container Corp. of Am., 393 U.S. 333, 337 (1969) (finding unlawful an exchange of price information that "had an anticompetitive effect in the industry, chilling the vigor of price competition"). While the exchange of information concerns the antitrust laws, it is the information itself, without regard to its source, that produces the anticompetitive effect. A recent study concludes that the Danish government produced a significant anticompetitive effect by publishing price data for concrete. Svend Albæk et al., Government-Assisted Oligopoly Coordination? A Concrete Case, 45 J. INDUS. ECON. 429 (1997).
107. The classic problem of a cartel is cheating, which is normally highly profitable if not easily detected. See George J. Stigler, A Theory of Oligopoly, 72 J. POL. ECON. 44 (1964). Exchange of information on prices, quantities, or customers served can be enormously useful in detecting cheating. For essentially this reason, information exchanges may violate the antitrust laws. See United States v. Container Corp. of Am., 393 U.S. 333, 337 (1969) (finding unlawful an exchange of price information that "had an anticompetitive effect in the industry, chilling the vigor of price competition"). While the exchange of information concerns the antitrust laws, it is the information itself, without regard to its source, that produces the anticompetitive effect. A recent study concludes that the Danish government produced a significant anticompetitive effect by publishing price data for concrete. Svend Albæk et al., Government-Assisted Oligopoly Coordination? A Concrete Case, 45 J. INDUS. ECON. 429 (1997).
108. The most competitively worrisome information exchanges are likely to be clearly non-ancillary, as when a joint venture requires participants in an input supply venture to exchange final product prices.
109. McFalls, supra note 86, opposes market-share safe harbors on these and other grounds.
110. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 589-91, 605-11 (1985).
111. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
112. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
113. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
114. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
115. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
116. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
117. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
118. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
119. These issues have been the subject of intense debate in recent years. Leading contributions include: Donald I. Baker, Compulsory Access to Network Joint Ventures Under the Sherman Act: Rules or Roulette?, 1993 UTAH L. REV. 999; David A. Balto, Access Demands to Payment Systems Joint Ventures, 18 HARV. J.L. & PUB. POL'Y 623 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks, 63 ANTITRUST L.J. 643 (1995); Dennis W. Carlton & Alan S. Frankel, The Antitrust Economics of Credit Card Networks: Reply to Evans and Schmalensee Comment, 63 ANTITRUST L.J. 903 (1995); Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Input Joint Ventures, 9 HARV. J.L. & TECH. 319 (1996); Chang et al., supra note 7; David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861 (1995); Herbert Hovenkamp, Exclusive Joint Ventures and Antitrust Policy, 1995 COLUM. BUS. L. REV. 1; Thomas A. Piraino, Jr., The Antitrust Analysis of Network Joint Ventures, 47 HASTINGS L.J. 5 (1995); William H. Pratt et al., Refusals to Deal in the Context of Network Joint Ventures, 52 BUS. LAW. 531 (1997).
120. It was assumed at the outset of this article that participants in joint ventures were competitors. That assumption needs to be modified slightly in the context of access issues. What is relevant is whether those excluded from a joint venture compete with those included. It is possible that none of a joint venture's participants compete with one another, yet they do compete with other would-be participants.
121. United States v. Terminal R.R. Ass'n of St. Louis, 224 U.S. 383 (1912).
122. Associated Press v. United States, 326 U.S. 1 (1945).
123. Terminal Railroad, 224 U.S. at 391-94. The relevant facts are presented in greater detail by David Reiffen & Andrew N. Kleit, Terminal Railroad Revisited: Foreclosure of an Essential Facility or Simple Horizontal Monopoly?, 33 J.L. & ECON. 419, 425-31 (1990).
124. Terminal Railroad., 224 U.S. at 390, 409.
125. See Reiffen & Kleit, supra note 102. Reiffen and Kleit further argue that there was no reason for the Association to exclude rivals; it was a monopoly, and could act accordingly simply by charging monopoly prices. Their argument is correct as a proposition of economic theory, but its applicability to the real world is less clear. If the Association had no satisfactory means of paying monopoly profits out to its owners in a lump-sum form, simply setting monopoly prices for its services would not be its profit-maximizing strategy.
126. Terminal Railroad, 224 U.S. at 397-405.
127. Id. at 405-06.
128. Id. at 411-12.
129. 326 U.S. 3-4, 8-11 & n.4.
130. Id. at 13, 17.
131. Id. at 29.
132. See, e.g., RICHARD A. POSNER, ANTITRUST LAW 173 (1976); Robert H. Bork, Vertical Integration and the Sherman Act: The Legal History and Economic Misconception, 22 CHI. L. REV. 157, 196-98 (1951). With variable proportions, forward integration by a monopolist is likely to raise final product price. See, e.g., Martin K. Perry, Vertical Integration: Determinants and Effects, in 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 183, 191-92 (Richard Schmalensee & Robert D. Willig eds., 1989); FREDERICK R. WARREN-BOULTON, VERTICAL CONTROL OF MARKETS 91-107 (1978); Fred M. Westfield, Vertical Integration: Does Product Price Rise or Fall?, 71 AM. ECON. REV. 334 (1981). Vertical integration also can be used to evade price regulation.
133. See, e.g., RICHARD A. POSNER, ANTITRUST LAW 173 (1976); Robert H. Bork, Vertical Integration and the Sherman Act: The Legal History and Economic Misconception, 22 CHI. L. REV. 157, 196-98 (1951). With variable proportions, forward integration by a monopolist is likely to raise final product price. See, e.g., Martin K. Perry, Vertical Integration: Determinants and Effects, in 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 183, 191-92 (Richard Schmalensee & Robert D. Willig eds., 1989); FREDERICK R. WARREN-BOULTON, VERTICAL CONTROL OF MARKETS 91-107 (1978); Fred M. Westfield, Vertical Integration: Does Product Price Rise or Fall?, 71 AM. ECON. REV. 334 (1981). Vertical integration also can be used to evade price regulation.
134. See, e.g., RICHARD A. POSNER, ANTITRUST LAW 173 (1976); Robert H. Bork, Vertical Integration and the Sherman Act: The Legal History and Economic Misconception, 22 CHI. L. REV. 157, 196-98 (1951). With variable proportions, forward integration by a monopolist is likely to raise final product price. See, e.g., Martin K. Perry, Vertical Integration: Determinants and Effects, in 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 183, 191-92 (Richard Schmalensee & Robert D. Willig eds., 1989); FREDERICK R. WARREN-BOULTON, VERTICAL CONTROL OF MARKETS 91-107 (1978); Fred M. Westfield, Vertical Integration: Does Product Price Rise or Fall?, 71 AM. ECON. REV. 334 (1981). Vertical integration also can be used to evade price regulation.
135. See, e.g., RICHARD A. POSNER, ANTITRUST LAW 173 (1976); Robert H. Bork, Vertical Integration and the Sherman Act: The Legal History and Economic Misconception, 22 CHI. L. REV. 157, 196-98 (1951). With variable proportions, forward integration by a monopolist is likely to raise final product price. See, e.g., Martin K. Perry, Vertical Integration: Determinants and Effects, in 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 183, 191-92 (Richard Schmalensee & Robert D. Willig eds., 1989); FREDERICK R. WARREN-BOULTON, VERTICAL CONTROL OF MARKETS 91-107 (1978); Fred M. Westfield, Vertical Integration: Does Product Price Rise or Fall?, 71 AM. ECON. REV. 334 (1981). Vertical integration also can be used to evade price regulation.
136. See, e.g., RICHARD A. POSNER, ANTITRUST LAW 173 (1976); Robert H. Bork, Vertical Integration and the Sherman Act: The Legal History and Economic Misconception, 22 CHI. L. REV. 157, 196-98 (1951). With variable proportions, forward integration by a monopolist is likely to raise final product price. See, e.g., Martin K. Perry, Vertical Integration: Determinants and Effects, in 1 HANDBOOK OF INDUSTRIAL ORGANIZATION 183, 191-92 (Richard Schmalensee & Robert D. Willig eds., 1989); FREDERICK R. WARREN-BOULTON, VERTICAL CONTROL OF MARKETS 91-107 (1978); Fred M. Westfield, Vertical Integration: Does Product Price Rise or Fall?, 71 AM. ECON. REV. 334 (1981). Vertical integration also can be used to evade price regulation.
137. This may not be what he had in mind, but Learned Hand's majority district court opinion in Associated Press could be read to make precisely this point. (In the district court, the case was heard by a three-judge panel of circuit court judges under provisions of the since-repealed Expediting Act of 1903, ch. 544, 32 Stat. 823, § 1. The same panel later heard United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945), when the Supreme Court failed to reach a quorum.) Judge Hand was not concerned that open access would lead to monopoly. He reasoned that "if AP were open to all who wished the service, could pay for it and were fit to use it, it would no longer be a monopoly: a monopoly of all those interested in an activity is no monopoly at all, for no one is excluded and the essence of monopoly is exclusion." 52 F. Supp. 362, 374-75 (S.D.N.Y. 1943).
138. See note 87 supra.
139. Donald Baker has argued that the decree in Associated Press may well have led to the demise of competing organizations. Baker, supra note 98, at 1034-35, 1068-72. More recently, the antitrust laws may also have been responsible for the common ownership and control of the Visa and MasterCard networks and a consequent reduction in competition between the networks. See id. at 1057-60; Balto, supra note 98, 625-27. Visa (originally BankAmericard) and MasterCard began as exclusive networks. In 1971 a Ma'sterCard bank challenged Visa's exclusivity, and the district court held that the exclusivity was a per se violation of § 1 of the Sherman Act. Worthen Bank & Trust Co. v. National BankAmericard, Inc., 345 F. Supp. 1309 (E.D. Ark. 1972). The court of appeals reversed the per se characterization and remanded the case for trial under the rule of reason. 485 F.2d 119 (8th Cir. 1973). Thereupon, the case settled. All exclusivity bylaws were eliminated after a requested business review letter from the Department of Justice failed to provide an unqualified endorsement of the association's revised exclusivity bylaws.
140. The Supreme Court has suggested that the presumption is irreversible: "statutory policy precludes inquiry into the question whether competition is good or bad." National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 695 (1978).
141. It is also possible in some cases that mandating access would not tend to produce monopoly because joint ventures may serve significantly different purposes and compete only to a limited extent.
142. Because the benefits of an R&D effort may be partially captured by firms that do not participate in that effort, combining competitors in an R&D joint venture can increase the incentives to innovate and enhance economic welfare. See, e.g., Claude d'Aspermont & Alexis Jacquemin, Cooperative and Noncooperative R&D in Duopoly with Spillovers, 78 AM. ECON. REV. 1133 (1988); Morton I. Kamien et al., Research Joint Ventures and R&D Cartels, 82 AM. ECON. REV. 1293 (1992); Michael L. Katz, An Analysis of Cooperative Research and Development, 17 RAND J. ECON. 527 (1986); Janusz A. Ordover & Robert D. Willig, Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers, 18 J.L. & ECON. 311 (1986); Joanna Poyago-Theotoky, Research Joint Ventures and Product Innovation: Some Welfare Aspects, 5 ECON. INNOVATION & NEW TECH. 51 (1997). Yet economic analysis indicates that the socially optimal number of competing R&D ventures is likely to be more than one. See Morton I. Kamien & Israel Zang, Competing Research Joint Ventures, 2 J. ECON & MGMT. STRATEGY 23 (1993).
143. Because the benefits of an R&D effort may be partially captured by firms that do not participate in that effort, combining competitors in an R&D joint venture can increase the incentives to innovate and enhance economic welfare. See, e.g., Claude d'Aspermont & Alexis Jacquemin, Cooperative and Noncooperative R&D in Duopoly with Spillovers, 78 AM. ECON. REV. 1133 (1988); Morton I. Kamien et al., Research Joint Ventures and R&D Cartels, 82 AM. ECON. REV. 1293 (1992); Michael L. Katz, An Analysis of Cooperative Research and Development, 17 RAND J. ECON. 527 (1986); Janusz A. Ordover & Robert D. Willig, Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers, 18 J.L. & ECON. 311 (1986); Joanna Poyago-Theotoky, Research Joint Ventures and Product Innovation: Some Welfare Aspects, 5 ECON. INNOVATION & NEW TECH. 51 (1997). Yet economic analysis indicates that the socially optimal number of competing R&D ventures is likely to be more than one. See Morton I. Kamien & Israel Zang, Competing Research Joint Ventures, 2 J. ECON & MGMT. STRATEGY 23 (1993).
144. Because the benefits of an R&D effort may be partially captured by firms that do not participate in that effort, combining competitors in an R&D joint venture can increase the incentives to innovate and enhance economic welfare. See, e.g., Claude d'Aspermont & Alexis Jacquemin, Cooperative and Noncooperative R&D in Duopoly with Spillovers, 78 AM. ECON. REV. 1133 (1988); Morton I. Kamien et al., Research Joint Ventures and R&D Cartels, 82 AM. ECON. REV. 1293 (1992); Michael L. Katz, An Analysis of Cooperative Research and Development, 17 RAND J. ECON. 527 (1986); Janusz A. Ordover & Robert D. Willig, Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers, 18 J.L. & ECON. 311 (1986); Joanna Poyago-Theotoky, Research Joint Ventures and Product Innovation: Some Welfare Aspects, 5 ECON. INNOVATION & NEW TECH. 51 (1997). Yet economic analysis indicates that the socially optimal number of competing R&D ventures is likely to be more than one. See Morton I. Kamien & Israel Zang, Competing Research Joint Ventures, 2 J. ECON & MGMT. STRATEGY 23 (1993).
145. Because the benefits of an R&D effort may be partially captured by firms that do not participate in that effort, combining competitors in an R&D joint venture can increase the incentives to innovate and enhance economic welfare. See, e.g., Claude d'Aspermont & Alexis Jacquemin, Cooperative and Noncooperative R&D in Duopoly with Spillovers, 78 AM. ECON. REV. 1133 (1988); Morton I. Kamien et al., Research Joint Ventures and R&D Cartels, 82 AM. ECON. REV. 1293 (1992); Michael L. Katz, An Analysis of Cooperative Research and Development, 17 RAND J. ECON. 527 (1986); Janusz A. Ordover & Robert D. Willig, Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers, 18 J.L. & ECON. 311 (1986); Joanna Poyago-Theotoky, Research Joint Ventures and Product Innovation: Some Welfare Aspects, 5 ECON. INNOVATION & NEW TECH. 51 (1997). Yet economic analysis indicates that the socially optimal number of competing R&D ventures is likely to be more than one. See Morton I. Kamien & Israel Zang, Competing Research Joint Ventures, 2 J. ECON & MGMT. STRATEGY 23 (1993).
146. Because the benefits of an R&D effort may be partially captured by firms that do not participate in that effort, combining competitors in an R&D joint venture can increase the incentives to innovate and enhance economic welfare. See, e.g., Claude d'Aspermont & Alexis Jacquemin, Cooperative and Noncooperative R&D in Duopoly with Spillovers, 78 AM. ECON. REV. 1133 (1988); Morton I. Kamien et al., Research Joint Ventures and R&D Cartels, 82 AM. ECON. REV. 1293 (1992); Michael L. Katz, An Analysis of Cooperative Research and Development, 17 RAND J. ECON. 527 (1986); Janusz A. Ordover & Robert D. Willig, Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers, 18 J.L. & ECON. 311 (1986); Joanna Poyago-Theotoky, Research Joint Ventures and Product Innovation: Some Welfare Aspects, 5 ECON. INNOVATION & NEW TECH. 51 (1997). Yet economic analysis indicates that the socially optimal number of competing R&D ventures is likely to be more than one. See Morton I. Kamien & Israel Zang, Competing Research Joint Ventures, 2 J. ECON & MGMT. STRATEGY 23 (1993).
147. Because the benefits of an R&D effort may be partially captured by firms that do not participate in that effort, combining competitors in an R&D joint venture can increase the incentives to innovate and enhance economic welfare. See, e.g., Claude d'Aspermont & Alexis Jacquemin, Cooperative and Noncooperative R&D in Duopoly with Spillovers, 78 AM. ECON. REV. 1133 (1988); Morton I. Kamien et al., Research Joint Ventures and R&D Cartels, 82 AM. ECON. REV. 1293 (1992); Michael L. Katz, An Analysis of Cooperative Research and Development, 17 RAND J. ECON. 527 (1986); Janusz A. Ordover & Robert D. Willig, Antitrust for High-Technology Industries: Assessing Research Joint Ventures and Mergers, 18 J.L. & ECON. 311 (1986); Joanna Poyago-Theotoky, Research Joint Ventures and Product Innovation: Some Welfare Aspects, 5 ECON. INNOVATION & NEW TECH. 51 (1997). Yet economic analysis indicates that the socially optimal number of competing R&D ventures is likely to be more than one. See Morton I. Kamien & Israel Zang, Competing Research Joint Ventures, 2 J. ECON & MGMT. STRATEGY 23 (1993).
148. In SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958 (10th Cir. 1994), there were already more than 5,000 Visa members not subject to restraints on their price or output decisions.
149. See Chang et al., supra note 7, at 243-44, 246-49.
150. This view is shared by Balto, supra note 98, at 663-66.
151. That was precisely what occurred in Valley Products Co. v. Landmark, 128 F.3d 398, 404-05 (6th Cir. 1997). According to a leading authority on trademark law, "in no reported private antitrust litigation has a plaintiff received the sanction of compulsory trademark licensing." J. THOMAS MCCARTHY, 4 MCCARTHY ON TRADEMARKS AND UNFAIR COMPETITION § 31:107, at 31-159 (4th ed. 1997). Trademark licensing has been agreed to as a remedy in government cases, id. at 31-160-63, although the antitrust violations remedied were not merely the refusal to license the trademarks.
152. At the formation of a joint venture, access pricing is not an issue. If a joint venture explicitly excludes some would-be participants at its formation, the venture should not be permitted to use access pricing issues in subsequent litigation as a basis for not granting relief.
153. See, e.g., POSNER & EASTERBROOK, supra note 37, at 768-69; Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 ANTITRUST L.J. 841, 851 (1990), Chang et al., supra note 7, at 266-67; Joseph Kattan, Antitrust Analysis of Technology Joint Ventures: Allocative Efficiency and the Rewards of Innovation, 61 ANTITRUST L.J. 937, 963 (1993).
154. See, e.g., POSNER & EASTERBROOK, supra note 37, at 768-69; Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 ANTITRUST L.J. 841, 851 (1990), Chang et al., supra note 7, at 266-67; Joseph Kattan, Antitrust Analysis of Technology Joint Ventures: Allocative Efficiency and the Rewards of Innovation, 61 ANTITRUST L.J. 937, 963 (1993).
155. This view is shared by Baker, supra note 98, 1105-11; Chang et al., supra note 7, at 287-89; Kattan, supra note 123, at 963.
156. For a detailed discussion of the essential facility doctrine and an argument in favor of a very narrow construction, see Gregory J. Werden, The Law and Economics of the Essential Facility Doctrine, 32 ST. LOUIS U. L.J. 433 (1987). For other useful recent treatments of the subject, see 3A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶¶ 772-74 (1996); Areeda, supra note 123; Kenneth L. Glazer & Abbott B. Lipsky, Jr., Unilateral Refusals to Deal Under Section 2 of the Sherman Act, 63 ANTITRUST L.J. 749 (1995).
157. For a detailed discussion of the essential facility doctrine and an argument in favor of a very narrow construction, see Gregory J. Werden, The Law and Economics of the Essential Facility Doctrine, 32 ST. LOUIS U. L.J. 433 (1987). For other useful recent treatments of the subject, see 3A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶¶ 772-74 (1996); Areeda, supra note 123; Kenneth L. Glazer & Abbott B. Lipsky, Jr., Unilateral Refusals to Deal Under Section 2 of the Sherman Act, 63 ANTITRUST L.J. 749 (1995).
158. AREEDA & HOVENKAMP, supra note 125, ¶ 772a, argue that a variety of considerations suggest that mandating access is more likely to be appropriate in the case of joint ventures than in the case of single firms, but the distinctions drawn are not persuasive. They correctly argue that a price for access will already have been set for a joint venture but not for a single firm, but the price already set for the joint venture is unlikely to be appropriate for a latecomer. They argue that a need to ration limited capacity is less likely with a joint venture, but that is not true with respect to the physical facilities of joint ventures. They argue that mandated access is less likely to impair efficiencies with a joint venture, but mandated joint venture access may severely complicate already difficult coordination problems. They argue that "[c]ompelling admission on equal terms at the outset of a [joint venture] would chill only [ventures] designed to exclude or to impair rival's competitive vitality," but that is correct only if an odd definition of "exclusion" is employed. Any firm's incentive to innovate is largely the prospect of gains that could be made at the expense of rivals.
159. The approach to joint venture access suggested here is equally applicable when access is sought not to the joint venture as such, but rather to the services it provides. Such is the issue in real estate multiple listing litigation. The typical factual setting is that access to multiple listing services is conditioned on membership to a local real estate association, for which dues must be paid that finance more than the multiple listing service. The cases have held that when denial of access to the multiple listing service inflicts a severe competitive handicap, the conditioning must be shown to be reasonably necessary. Thompson v. Metropolitan Multi-List, Inc., 934 F.2d 1566 (11th Cir. 1991) (holding that the membership condition was overly restrictive); Pope v. Mississippi Real Estate Comm'n, 872 F.2d 127, 129-30 (5th Cir. 1989) (rejecting a challenge to the fee structure for membership); Wells Real Estate, Inc. v. Greater Lowell Bd. of Realtors, 850 F.2d 803 (1st Cir. 1988) (rejecting a per se tying claim based on a membership condition); United States v. Realty Multi-List, Inc., 629 F.2d 1351 (5th Cir. 1980) (holding that a membership condition was overly restrictive).
160. See, e.g., Realty Multi-List, 629 F.2d at 1373 ("[T]he question before us is not whether [the multiple listing service] has a monopoly in the relevant market; rather, we must determine whether [the service] is of sufficient economic importance that exclusion results in the denial of the opportunity to compete effectively on equal terms.")
161. 36 F.3d 958 (10th Cir. 1994).
162. Id. at 962-66.
163. Id. at 967-68.
164. Id. at 967.
165. Id. at 967-68.
166. See Evans & Schmalensee, supra note 98, at 866-75. Even if several credit card networks were perfect substitutes from the standpoint of an issuer, a large group of issuers could account for all of the cards in each of the networks. This group could have considerable collective market power even if membership in any one network were unimportant to competition.
167. The significant problems created by the classic, unstructured rule of reason and some suggested remedies are insightfully discussed by Philip Areeda, Antitrust Law as Industrial Policy: Should Judges and Juries Make It?, in ANTITRUST, INNOVATION, AND COMPETITIVENESS 29 (Thomas M. Jorde & David J. Teece eds., 1992); and Frank H. Easterbrook, Ignorance and Antitrust, in ANTITRUST, INNOVATION, AND COMPETITIVENESS 119 (Thomas M. Jorde & David J. Teece eds., 1992). Among other things, Areeda notes: "Open-ended legal standards applied by juries under general instructions have the virtue of flexibility, but at the expense of quixotic results." Areeda, supra, at 42. Judge Easterbrook offers a more colorful and dire evaluation: "[N]o matter how well-intentioned the plaintiffs, no matter how astute the judges, the process of common law litigation is one of uncertainty. Until the last case is over, no one knows whether the practice can survive - indeed, no one knows whether its practitioners can survive (given the prospect of stupendous damages). Common law litigation is high-risk litigation. By the time the other shoe drops, the moment for this generation of products is past. Some other nation, with a legal system able to give quick and binding answers to tough questions, will take the baton. Antitrust must recognize this and adjust, or a system designed to promote consumers' welfare will inflict the wound of Amfortas." Easterbrook, supra, at 132.
168. The significant problems created by the classic, unstructured rule of reason and some suggested remedies are insightfully discussed by Philip Areeda, Antitrust Law as Industrial Policy: Should Judges and Juries Make It?, in ANTITRUST, INNOVATION, AND COMPETITIVENESS 29 (Thomas M. Jorde & David J. Teece eds., 1992); and Frank H. Easterbrook, Ignorance and Antitrust, in ANTITRUST, INNOVATION, AND COMPETITIVENESS 119 (Thomas M. Jorde & David J. Teece eds., 1992). Among other things, Areeda notes: "Open-ended legal standards applied by juries under general instructions have the virtue of flexibility, but at the expense of quixotic results." Areeda, supra, at 42. Judge Easterbrook offers a more colorful and dire evaluation: "[N]o matter how well-intentioned the plaintiffs, no matter how astute the judges, the process of common law litigation is one of uncertainty. Until the last case is over, no one knows whether the practice can survive - indeed, no one knows whether its practitioners can survive (given the prospect of stupendous damages). Common law litigation is high-risk litigation. By the time the other shoe drops, the moment for this generation of products is past. Some other nation, with a legal system able to give quick and binding answers to tough questions, will take the baton. Antitrust must recognize this and adjust, or a system designed to promote consumers' welfare will inflict the wound of Amfortas." Easterbrook, supra, at 132.