Joint ventures: Issues in enforcement policy

Antitrust Law Journal

Volumn 66, Issue 3, 1998, Pages 737-771

  Correia, Edward ^a,b  

^a NORTHEASTERN UNIVERSITY   (United States)

^b FEDERAL TRADE COMMISSION   (United States)

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EID: 0032348597     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (138)

1. U.S. Department of Justice Antitrust Enforcement Guidelines for International Operations (1988), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,109 [hereinafter 1988 International Guidelines].
2. U.S. Department of Justice and Federal Trade Commission Antitrust Enforcement Guidelines for International Operations (1995), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,107 [hereinafter 1995 International Guidelines]; also at 〈http://www.usdoj.gov/atr/ public/guidelines/ipguide.wp5〉.
3. See U.S. Department of Justice and Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual Property (1995) § 3.4, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,132 [hereinafter Intellectual Property Guidelines].
4. See Joseph F. Brodley, Joint Ventures and Antitrust Policy, 95 HARV. L. REV. 1521, 1524 (1982).
5. See HERBERT HOVENKAMP, FEDERAL ANTITRUST POLICY 185-86 (1994).
6. See Brodley, supra note 4, at 1524-25; Robert Pitofsky, Joint Ventures Under the Antitrust Laws: Some Reflections on the Significance of Penn-Olin, 82 HARV. L. REV. 1007, 1007 (1969); PHILLIP AREEDA & LOUIS KAPLOW, ANTITRUST ANALYSIS 270 (4th ed. 1988).
7. See Brodley, supra note 4, at 1524-25; Robert Pitofsky, Joint Ventures Under the Antitrust Laws: Some Reflections on the Significance of Penn-Olin, 82 HARV. L. REV. 1007, 1007 (1969); PHILLIP AREEDA & LOUIS KAPLOW, ANTITRUST ANALYSIS 270 (4th ed. 1988).
8. Even firms in a vertical relationship can be said to have created a joint venture when they work closely in developing specifications for products to be sold by one to the other. See Statement of Joseph Kattan Before FTC 2-3 (June 5, 1997), available at 〈http:// www.ftc.gov/opp/jointvent/june5.htm〉.
9. If the parties take a sufficient equity interest in each other, they would be viewed as having become a single economic actor. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) (parent and wholly owned subsidiary should be treated as single actor). Even if the participants to a joint venture remain independent companies, some courts treat joint ventures as single actors if they appear to have organized themselves so as to pursue common, rather than divergent, interests. See, e.g., Siegel Transfer, Inc. v. Carrier Express, Inc., 54 F.3d 1125, 1127 (3d Cir. 1995); City of Mt. Pleasant, v. Associated Elec. Coop., 838 F.2d 268, 276-77 (8th Cir. 1988).
10. As some have suggested, it might be more helpful to use the phrase "competitor collaboration policy."
11. Cases with extensive discussions of the relationship between the per se rule and the rule of reason include National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679 (1978); Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1 (1979); NCAA v. Board of Regents of the Univ. of Okla., 468 U.S. 85 (1984); and FTC v. Indiana Fed'n of Dentists, 476 U.S. 447 (1986).
12. Massachusetts Bd. of Registration in Optometry, 110 F.T.C. 549 (1988); 1988 FTC LEXIS 34.
13. FTC v. California Dental Ass'n, 1996 FTC LEXIS 88; aff'd, 129 F.3d 720 (9th Cir. 1997).
14. Joel I. Klein, A Stepwise Approach to the Antitrust Review of Horizontal Agreements, Address Before the ABA Antitrust Section (Nov. 7, 1996), available at 〈http://www.usdoj. gov.atr/public/speeches/jikaba.htm〉.
15. § 3.41.
16. § 3.4.
17. U.S. Department of Justice and Federal Trade Commission, Statements of Antitrust Enforcement Policy in Health Care (1996) [hereinafter Health Care Statements], reprinted in 4 Trade Reg. Rep. ¶ 13,153; also available at 〈http://www.usdoj.gov/atr/public/guidelines/hcqdln96.wp5〉. The Health Care Statements are intended to treat health care joint ventures no more strictly or more leniently than joint ventures in other industries. Id. at 20,800.
18. Congress itself mandated a form of rule of reason for certain joint ventures in the National Cooperative Research and Production Act. 15 U.S.C. §§ 4301-4305.
19. The per se rule on boycotts now appears limited to boycotts of customers or suppliers, intended to drive competitors of the boycotters out of the market. See, e.g., FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 458 (1986); Fashion Originators' Guild of Am., Inc. v. FTC, 312 U.S. 447 (1941); Eastern States Retail Lumber Dealers' Ass'n v. United States, 234 U.S. 600 (1914).
20. See National Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679 (1978) (agreement among engineers not to engage in competitive bidding); Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643 (1980) (agreement among wholesalers not to offer credit-free sales).
21. See United States v. General Elec. Co., No. CV96-121-M (D. Mont. filed Oct. 28, 1996). Memorandum of the United States in opposition to defendant's motion to dismiss, available at 〈http://www.usdoj.gov/atr/cases/f1000/1001.htm〉.
22. There might well be differences as to which restraints are appropriate for criminal prosecution, but that issue is outside the scope of this discussion.
23. Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958).
24. The Court made the point that the literal form of the agreement does not prevent a finding of per se illegality. See United States v. Penn-Olin Chem. Corp., 378 U.S. 158, 170 (1964).
25. The importance of not applying the per se rule based on the "literal" form of the agreement appear was made fifteen years after Timken in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979).
26. See United States v. Topco Assocs., 405 U.S. 596 (1972).
27. See Palmer v. BRG of Ga., 498 U.S. 46, 49 (1990).
28. The territorial allocation scheme in Palmer was unrelated to any plausible goal of promoting interbrand competition. Two bar review course providers, which had vigorously competed in Georgia, agreed that one would not operate in the state and the other would not operate outside the state. As a result, bar review prices rose from $150 to over $400. See id. at 46-49.
29. Market allocations schemes are the most obvious example. See United States v. Sealy, Inc., 388 U.S. 350 (1967). Some might put the price-fixing arrangement struck down in Arizona v. Maricopa County Medical Society, 457 U.S. 332 (1982), in this category as well.
30. 1988 FTC LEXIS 34 at 10-13.
31. Id. at 13. The opinion mentioned price fixing and market divisions as examples. Id.
32. Id. A "plausible" justification was defined to mean that one that "cannot be rejected without extensive factual inquiry." Id.
33. See id. at 13-14.
34. 1996 FTC LEXIS 88 at 26. The Commission read Professional Engineers to say that the per se rule applies to "agreements whose nature and necessary effect are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality" and that the rule of reason applies to "agreements whose competitive effect can only be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed." Id. (quoting Professional Engineers, 435 U.S. at 691-92).
35. "We use the term 'rule of reason' when speaking about the individualized analysis, in contradistinction to the categorical per se approach." Id.
36. 1996 FTC LEXIS 88 at 29 ("We . . . believe it to be well grounded in . . . experience and in precedent to strip CDA's price advertising restrictions of their professional garb and declare them per se unlawful as naked restraints on price competition.").
37. Id. at 31-32.
38. Id.
39. Id. at 32-33. The Commission, nevertheless, concluded that the association did have market power. Id.
40. See supra note 13.
41. Id.
42. See supra note 20.
43. Klein, supra note 13, at n.6 and accompanying text.
44. Id. at n.7 and accompanying text.
45. Id.
46. 1988 FTC LEXIS 34 at 13.
47. See, e.g., id. at 11, where the Commission discussed Blalock v. Ladies Professional Golf Association, 359 F. Supp. 1260 (N.D. Ga. 1973). In that case, a district court found that the suspension of a golfer by a professional association for moving her ball was per se illegal as a group boycott.
48. 1988 FTC LEXIS at 13.
49. See id. at 30 n.13 ("[W]e have been open to arguments that might carry weight under Broadcast Music, but CDA has simply failed to assert the requisite competitive benefits that might save it from per se condemnation.").
50. See id. ("The view that the Commission's reasoning foreshadows summary condemnation for a vast array of future cases . . . overstates our conclusion. Only cases involving equivalent conduct will be accorded similar treatment in the future.").
51. See United States v. General Elec. Co., No. CV96-121-M (D. Mont. filed Oct. 28, 1996). GE licensed diagnostic software to hospitals that purchased GE's medical equipment and used the software to service the equipment. The hospitals competed with GE in servicing other hospitals' equipment. As a condition of the licensing agreement, GE insisted that the hospitals could not compete with it in servicing any other equipment regardless of brand. The Division took the position that the agreement should be seen as a "naked agreement not to compete in the medical servicing market." Klein, supra note 13, at n.5.
52. Klein, supra note 13. Thus, under both agencies' approaches there will continue to be an evolution of the per se rule, expanding to cover certain arrangements (and perhaps contracting as well).
53. See id. ("[In] the next step of our analysis, if we conclude that a horizontal agreement that directly limits competition on price or output between or among competitors is not per se illegal, we then inquire whether there's a procompetitive justification for the agreement.").
54. Id. ("This [per se] category appears to be reasonably well-defined and usually the sole question we face in deciding if a particular agreement fits within it is whether, despite the effort to make it seem like the agreement is ancillary to some arrangement, it in fact isn't.").
55. The Supreme Court has sometimes said that procompetitive justifications are irrelevant in the case of per se offenses. See, e.g., Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 351 (1982) ("The anticompetitive potential inherent in all price-fixing agreements justifies their facial invalidation even if procompetitive justifications are offered for some." (citing United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 226 n.59 (1940)). However, this is the precise proposition that was rejected in Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979).
56. Ironically, perhaps, the Antitrust Division has stressed that it wishes to avoid placing too much significance on characterization: [W]e reject the notion that there should be two methods of analysis - per se or full-blown rule of reason market analysis. As a matter of both sound and efficient antitrust analysis, we think this dichotomy is too stark and, frankly, that it leads to far too much of a front-end emphasis on which approach to apply, a choice that can sometimes be outcome determinative. Klein, supra note 13.
57. I use the term "limited rule of reason" because the suggested terminology varies widely and there is no consensus about what any of the terms mean. Other descriptions of a limited rule of reason include "presumptive illegality," "strict antitrust scrutiny," "hard-boiled rule of reason," "truncated rule of reason," and "quick look." See, e.g., Richard H. Steuer, Indiana Federation of Dentists: The Per Se-Rule of Reason Continuum, 8 CARDOZO L. REV. 1101 (1987); Donald L. Beschle, "What Never? Well, Hardly Ever": Strict Antitrust Scrutiny as an Alternative to Per Se Illegality, 38 HASTINGS L.J. 471 (1987); Timothy Muris, The New Rule of Reason, 57 ANTITRUST L.J. 859, 864 (1988); Phillip Areeda, The Changing Contours of the Per Se Rule, 54 ANTITRUST L.J. 27 (1985).
58. I use the term "limited rule of reason" because the suggested terminology varies widely and there is no consensus about what any of the terms mean. Other descriptions of a limited rule of reason include "presumptive illegality," "strict antitrust scrutiny," "hard-boiled rule of reason," "truncated rule of reason," and "quick look." See, e.g., Richard H. Steuer, Indiana Federation of Dentists: The Per Se-Rule of Reason Continuum, 8 CARDOZO L. REV. 1101 (1987); Donald L. Beschle, "What Never? Well, Hardly Ever": Strict Antitrust Scrutiny as an Alternative to Per Se Illegality, 38 HASTINGS L.J. 471 (1987); Timothy Muris, The New Rule of Reason, 57 ANTITRUST L.J. 859, 864 (1988); Phillip Areeda, The Changing Contours of the Per Se Rule, 54 ANTITRUST L.J. 27 (1985).
59. I use the term "limited rule of reason" because the suggested terminology varies widely and there is no consensus about what any of the terms mean. Other descriptions of a limited rule of reason include "presumptive illegality," "strict antitrust scrutiny," "hard-boiled rule of reason," "truncated rule of reason," and "quick look." See, e.g., Richard H. Steuer, Indiana Federation of Dentists: The Per Se-Rule of Reason Continuum, 8 CARDOZO L. REV. 1101 (1987); Donald L. Beschle, "What Never? Well, Hardly Ever": Strict Antitrust Scrutiny as an Alternative to Per Se Illegality, 38 HASTINGS L.J. 471 (1987); Timothy Muris, The New Rule of Reason, 57 ANTITRUST L.J. 859, 864 (1988); Phillip Areeda, The Changing Contours of the Per Se Rule, 54 ANTITRUST L.J. 27 (1985).
60. I use the term "limited rule of reason" because the suggested terminology varies widely and there is no consensus about what any of the terms mean. Other descriptions of a limited rule of reason include "presumptive illegality," "strict antitrust scrutiny," "hard-boiled rule of reason," "truncated rule of reason," and "quick look." See, e.g., Richard H. Steuer, Indiana Federation of Dentists: The Per Se-Rule of Reason Continuum, 8 CARDOZO L. REV. 1101 (1987); Donald L. Beschle, "What Never? Well, Hardly Ever": Strict Antitrust Scrutiny as an Alternative to Per Se Illegality, 38 HASTINGS L.J. 471 (1987); Timothy Muris, The New Rule of Reason, 57 ANTITRUST L.J. 859, 864 (1988); Phillip Areeda, The Changing Contours of the Per Se Rule, 54 ANTITRUST L.J. 27 (1985).
61. In both NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85, 109 (1984), and FTC v. Indiana Federation of Dentists, 476 U.S. 447, 460 (1986), the Court commented that the absence of market power does not justify a "naked restriction on price or output."
62. Some commentators advocate dispensing with the market power inquiry for at least cases in Categories II and III. See Muris, supra note 56, at 864; Areeda, supra note 56.
63. In both NCAA and Indiana Federation of Dentists, the Court said that "naked" restraints can be found unlawful in a rule of reason case without proof of market power. However, both opinions then went on to discuss marketplace effects. Thus, both statements are dicta.
64. Mass. Board distinguished between "plausible" and "valid" efficiency justifications. A "plausible" efficiency justification was simply one that is rational on its face; that is, it "cannot be rejected without extensive factual inquiry." 1988 FTC LEXIS 34 at 12. The meaning of a "valid" justification is less clear. The opinion concluded that there was not a "plausible" procompetitive justification for a restriction on price advertising and that the justifications offered for a ban on certain forms of nonprice advertising were not "legally plausible." Id. at 21-22. Thus, the opinion did not explain how a restraint would be determined to be "valid."
65. Id. at 9-10.
66. 1996 FTC LEXIS 88 at 32-33.
67. Id. at 40.
68. See id. at 40. The majority relied on the facts that the association could police and enforce its prohibition and that the market did not force the dentists to advertise even when consumers desired additional information. Id. at 40-42. In addition, the Commission cited evidence of entry barriers to dentistry in California and the fact that, even though some dentists wished to advertise, they preferred to remain in the organization. Id. at 48-49. See also the majority's discussion of how CDA's "quick look" approach would have led to the same results in Mass. Board by focusing on some indicators of marketplace effects. Id. at 61-62.
69. See Klein, supra note 13: [I]f we conclude that a horizontal agreement that directly limits competition on price or output is not per se illegal, we then inquire whether there's a procompetitive justification for the agreement . . . [W]e expect a response that doesn't merely speculate about the existence of efficiencies, but rather comes forward with real-world evidence - factual evidence, expert economic evidence, and preferably both. . . . And, if we find that the proffered procompetitive justifications are unsubstantiated, we conclude that the agreement should be struck down. On the other hand, if we find that there are significant procompetitive benefits . . ., we then . . . seek to determine whether its likely anticompetitive effects outweigh its procompetitive benefits.
70. An example cited by the Department is a joint selling arrangement between two radio stations, under which one of the stations agreed to pay the other station a fixed price in return for which the second station could sell all of the first station's advertising and keep the revenue. The Department concluded that there might be procompetitive justifications, but the parties were not able to offer any. See id.
71. The Intellectual Property Guidelines use different, but perhaps equally ambiguous, language: [The rule of reason] inquiry may be truncated in certain circumstances. If the Agencies conclude that a restraint has no likely anticompetitive effects, they will treat it as reasonable, without an elaborate analysis of market power or the justifications for the restraint Similarly, if a restraint facially appears to be of a kind that would always or almost always tend to reduce output or increase prices and the restraint is not reasonably related to efficiencies, the Agencies will challenge the restraint without an elaborate analysis of particular industry circumstances. §3.4 (emphasis added; footnotes omitted).
72. See Gellhorn, supra note 58, at 3-4 (arguing against a requirement that there must be financial or operational integration to avoid application of the per se rule because integration may be a response to other legal requirements or exogenous effects, such as tax consequences).
73. In that case, however, a court might be able to dismiss the case for failure to show antitrust injury.
74. The Supreme Court, of course, has a long tradition of stating overly broad per se rules, which then must be narrowed in subsequent cases. The per se rule against price fixing described in United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940); the per se rule against boycotts described in United States v. General Motors Corp., 384 U.S. 127 (1966); and the per se rule against market allocations described in United States v. Topco Associates, 405 U.S. 596 (1972), are good examples.
75. Courts are hesitant to accept new "per se" violations. See, e.g., California Dental Ass'n v. FTC, 128 F.3d 720 (9th Cir. 1997) (rejecting the Commission's conclusion that price-advertising restrictions are per se unlawful).
76. The Department's treatment of the licensing restriction discussed above may be an example. See supra note 50.
77. The fact that parties are "allowed" to offer a justification does not preclude criminal enforcement where the arguments are spurious. As long as a jury concludes that there was a purpose to restrict competition, the mens rea requirements for criminal conviction are met. See United States v. United States Gypsum Co., 438 U.S. 422 (1978).
78. For example, a desire to discourage unionization does not change the conclusion that a restriction on hours of operation is per se unlawful. See Detroit Auto Dealers Ass'n, 111 F.T.C. 417 (1989), aff'd in part, 955 F.2d 457 (6th Cir. 1992).
79. One might put in this category, for example, the claimed justifications by the beer wholesalers in Catalano. There, the argument was that an agreement not to provide interest-free credit to customers promoted competition by encouraging entry. The court of appeals was persuaded by this argument, though the Supreme Court was not. See Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 648-50 (1980).
80. In Detroit Auto Dealers Assoaation, 111 F.T.C. 417 (1989), aff'd in part, 955 F.2d 457 (6th Cir. 1992), the majority was troubled by what it concluded was a "per se" approach by the Commission in finding an agreement to restrict hours of operations to violate the FTC Act. See 955 F.2d at 471. Nevertheless, it affirmed the Commission's finding of an unreasonable restraint of trade, in part because the Commission was able to show harmful competitive effects. Another member of the panel, who would have affirmed the Commission's findings in their entirety, stressed that the Commission was not applying the per se rule. Id. at 475 ("[T]he FTC . . . did not use a per se analysis. Under a per se analysis, the agreement would have been invalid without any consideration of its procompetitive effects. The FTC, however, did consider the efficiency justifications offered by respondents . . . ."). It seems likely all three members of the panel would have been troubled if the Commission had flatly declared procompetitive justifications to be irrelevant. Similarly, the Ninth Circuit affirmed the Commission's decision in CDA only after rejecting the Commission's per se characterization and relying on the Commission's finding of anticompetitive effects. See California Dental Ass'n v. FTC, 128 F.3d 720 (9th Cir. 1997).
81. See the discussion in the Department of Justice and Federal Trade Commission Horizontal Merger Guidelines (1992) § 0.1, reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,104.
82. This section discusses the power to price over competitive levels obtained through tacit or express collusion, rather than the power obtained by excluding competitors or raising their costs. The issue of exclusionary market power is discussed in the next part of the article.
83. See 1988 International Guidelines, supra note 1, § 3.3 ("[A joint venture] may be unlikely to facilitate the exercise of market power in circumstances [where a] complete merger would be likely to do so.").
84. There are several possible considerations. For example, special provisions to limit information exchange may reduce the likelihood of spillover effects; the incentive to compete may increase as the number of collaborators increase, see Pitofsky, supra note 6, at 1012; the incentive to compete may decrease if the venture is large compared to individual capacity, see Edmund W. Kitch, The Antitrust Economics of Joint Ventures, 54 ANTITRUST L.J. 957, 962 (1985); and the likelihood of competition may decrease to the extent that parents continue to have control over the venture's price and output decision, see Timothy F. Bresnahan & Steven C. Salop, Quantifying the Competitive Effects of Production Joint Ventures, 4 INT'L J. INDUS. ORG. 155, 156 (1986). These issues are discussed generally in Michael S. McFalls, The Role of Classical Market Power in Joint Venture Analysis, 66 ANTITRUST L.J. 651 (1998).
85. There are several possible considerations. For example, special provisions to limit information exchange may reduce the likelihood of spillover effects; the incentive to compete may increase as the number of collaborators increase, see Pitofsky, supra note 6, at 1012; the incentive to compete may decrease if the venture is large compared to individual capacity, see Edmund W. Kitch, The Antitrust Economics of Joint Ventures, 54 ANTITRUST L.J. 957, 962 (1985); and the likelihood of competition may decrease to the extent that parents continue to have control over the venture's price and output decision, see Timothy F. Bresnahan & Steven C. Salop, Quantifying the Competitive Effects of Production Joint Ventures, 4 INT'L J. INDUS. ORG. 155, 156 (1986). These issues are discussed generally in Michael S. McFalls, The Role of Classical Market Power in Joint Venture Analysis, 66 ANTITRUST L.J. 651 (1998).
86. There are several possible considerations. For example, special provisions to limit information exchange may reduce the likelihood of spillover effects; the incentive to compete may increase as the number of collaborators increase, see Pitofsky, supra note 6, at 1012; the incentive to compete may decrease if the venture is large compared to individual capacity, see Edmund W. Kitch, The Antitrust Economics of Joint Ventures, 54 ANTITRUST L.J. 957, 962 (1985); and the likelihood of competition may decrease to the extent that parents continue to have control over the venture's price and output decision, see Timothy F. Bresnahan & Steven C. Salop, Quantifying the Competitive Effects of Production Joint Ventures, 4 INT'L J. INDUS. ORG. 155, 156 (1986). These issues are discussed generally in Michael S. McFalls, The Role of Classical Market Power in Joint Venture Analysis, 66 ANTITRUST L.J. 651 (1998).
87. See ABA SECTION OF ANTITRUST LAW, ANTITRUST LAW DEVELOPMENTS 395 (4th ed. 1997) ("Ordinarily, the threshold issue with respect to a joint venture involving actual or potential competitors is whether it involves a significant integration of the economic resources of the parties to escape condemnation as a per se unlawful cartel . . . .").
88. Some literature suggests that a monopolist will not underinvest in research. See 1988 International Guidelines, supra note 1, at 53 n.236.
89. Id. at 53.
90. A five-effort rule, in which all of the ventures are the same size, would lead to an HHI market concentration of 2000, close to the 1800 threshold for highly concentrated markets. See 1992 Horizontal Merger Guidelines, supra note 77, § 1.51.
91. See, e.g., BOC Int'l Ltd. (British Oxygen) v. FTC, 557 F.2d 24 (2d Cir. 1977) (government must prove that entry is sufficiently probable and imminent); FTC v. Atlantic Richfield Co., 549 F.2d 289 (4th Cir. 1997); United States v. Siemens Corp., 621 F.2d 499 (2d. Cir. 1980).
92. See United States v. Penn-Olin Chem. Co., 378 U.S. 158 (1964). In Penn-Olin two firms formed a joint venture to establish a new plant. The new venture increased the capacity in a highly concentrated market by about 50%. The district court had found that there would be a violation of § 7 only if the government could show that both firms would have entered the market independently. The Court remanded for a determination whether one of the collaborators would have entered the market on its own, while the other collaborator remained "at the edge of the market," exerting a healthy procompetitive influence on market behavior. Id. at 173.
93. Robert Pitofsky, A Framework for Antitrust Analysis of Joint Ventures, 54 ANTITRUST L.J. 893, 897 (1985).
94. See, e.g., United States v. Ivaco, 704 F. Supp. 1409, 1414 (W.D. Mich. 1989).
95. See Broadcast Music, Inc. v. CBS, Inc., 441 U.S. 1 (1979) (Court viewed package licenses as new products).
96. See Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332 (1982) (Court viewed physician-organized health insurance plan as constituting price fixing).
97. See, e.g., United States v. Columbia Picture Indus., 507 F. Supp. 412, 430-31 (S.D.N.Y. 1980), aff'd mem., 659 F.2d 1003 (2d Cir. 1981) (court focused on the fact that a joint venture among producers to sell movies involved existing movies not new ones).
98. Penn-Olin involved a clear and substantial addition to capacity. See supra note 86. On remand, the district court found that neither firm was reasonably likely to enter the market, so eventually the right result was reached. See United States v. Penn-Olin Chem. Co., 246 F. Supp. 917, 928 (D. Del. 1965), aff'd per curiam, 389 U.S. 308 (1967). Nevertheless, the prospect that such a significant addition to market capacity could be challenged can give pause to parties planning similar efforts.
99. The finding of a loss of potential competition in Yamaha Motor Co. v. FTC, 657 F.2d 971 (8th Cir. 1981), was more defensible than in Penn-Olin. Brunswick, a domestic manufacturer of outboard motors entered into a joint venture with Yamaha, a Japanese manufacturer of outboard motors. Brunswick contributed capital and technology and the venture created a motor designed especially to compete in the United States. See 1979 FTC LEXIS 107 at 208. However, the venture used primarily existing capacity owned by Yamaha. 657 F.2d at 980. Moreover, there was substantial evidence that the venture precluded independent entry by Yamaha into the United States market. Id.
100. See 457 U.S. at 353-53 (rejecting argument that the plan represented a new addition to the market).
101. See, e.g., Palmer v. BRG of Ga., 498 U.S. 46 (1990) (two bar review course providers agreed that one would no longer compete within the state, while the other agreed that it would not enter other states).
102. One suggestion is that, after an initial antitrust review at formation, joint ventures should generally be judged as single actors. Gellhorn, supra note 58, at 11-12.
103. See Statement of Robert Skitol Before the FTC 2-5 (June 5, 1997), available at 〈http://www.ftc.gov/opp/jointvent/june5.htm〉.
104. Id.
105. See HOVENKAMP, supra note 5, at 207.
106. There are several Supreme Court cases dealing with a claim by excluded outsiders. See, e.g., United States v. Terminal R.R. Ass'n of St. Louis, 224 U.S. 383 (1912); Associated Press v. United States, 326 U.S. 1 (1945); Northwest Wholesale Stationers v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985); Radiant Burners, Inc. v. People's Gas Light & Coke Co., 364 U.S. 656 (1961); Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988). See also Statement of Steven C. Bomse Before the FTC 22 (1997).
107. 1988 International Guidelines, supra note 1, § 3.42: [T]he Department in general is concerned about the anticompetitive effects of a joint venture when it is overinclusive - that is, when it restricts competition among competitors that account for a large portion of sales (or capacity) in the market, thereby creating, enhancing or facilitating the exercise of market power. A recent FTC Staff Report is somewhat more ambivalent, at least with regard to network joint ventures: [W]e find that a denial of membership in a network joint venture or of access to a standard may enhance the incentives to establish a competing venture or to develop a new standard, while maximizing the reward to incumbents for creating and developing the existing venture or standard. . . . On the other hand, we find that mandating access to membership or to a standard may increase competition within the joint venture or among firms who make use of the established standard. FTC STAFF REPORT, COMPETITION POLICY IN THE NEW HIGH-TECH, GLOBAL MARKETPLACE 9-29 (1996) [hereinafter COMPETITION POLICY].
108. In these cases, the role of the exclusionary policy (e.g., a group's "by-law" or contractual provision) is likely to be facially ambiguous. The purpose and effect of the policy must be determined from its historical use.
109. See, e.g., United States v. MCI Communications Corp., 1994-2 Trade Cas. (CCH) ¶ 70,730 (D.D.C. 1994) (Antitrust Division challenged a joint venture involving MCI and British Telecommunications).
110. See Dennis W. Carlton & Steven C. Salop, You Keep on Knocking But You Can't Come in: Evaluating Restrictions on Access to Joint Ventures, 9 HARV. J. L. & TECH. 319, 330 (1996) ("A joint venture access rule can harm competition by raising the costs or otherwise disadvantaging rivals of its members in the output market. This can reduce competition and lead to higher prices than would otherwise occur.").
111. See id.
112. COMPETITION POLICY, supra note 101, at 9-6 to 9-7.
113. Northwest Wholesale Stationers v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985).
114. See id. at 294.
115. Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted. . . . Absent such a showing with respect to a cooperative buying arrangement, courts should apply a rule of reason analysis. Id. at 296.
116. See id. at 298: A plaintiff seeking application of the "per se" rule must present a threshold case that the challenged activity falls into a category likely to have predominant anticompetitive effect. The mere allegation of a concerted refusal to deal does not suffice because not all concerted refusals to deal are predominately anticompetitive. When the plaintiff challenges expulsion from a joint buying cooperative, some showing must be made that the cooperate possesses market power or unique access to a business element necessary for effective competition. In FTC v. Indiana Federation of Dentists, 476 U.S. 447, 458 (1986), the Court characterized the breadth of the per se rule stated in Northwest Stationers as a narrow one. ("As we observed [in Northwest Stationers], the category of restraints classed as group boycotts is not to be expanded indiscriminately, and the per se approach has generally been limited to cases in which firms with market power boycott suppliers or customers in order to discourage them from doing business with a competitor . . . .").
117. See, e.g., Wigod v. Chicago Mercantile Exch., 981 F.2d 1510, 1517 (7th Cir. 1992); Bascom Food Prods. Corp. v. Reese Finer Foods, Inc., 715 F. Supp. 616, 633-34 (D. N.J. 1989).
118. See, e.g., Hahn v. Oregon Physicians' Serv., 868 F. 2d 1022, 1030 n.9 (9th Cir. 1988); Collins v. Associated Pathologists, 844 F.2d 473 (7th Cir. 1988) ("[B]oycotts are illegal per se only if used to enforce agreements that are themselves illegal per se - for example, price-fixing agreements."); Carleton v. Vermont Dairy Herd Improvement Ass'n, 782 F. Supp. 926, 933 (D. Vt. 1991).
119. See ANTITRUST LAW DEVELOPMENTS, supra note 81, at 426.
120. In the context of denial of a facility by a monopolist, an influential formulation of the doctrine stated that it applies only if: (1) there is control of the facility by the monopolist; (2) the competitor is unable to reasonably duplicate the facility; (3) the competitor is denied use of the facility; and (4) it is feasible to provide access to the facility. See MCI Communications Corp. v. AT&T, 708 F.2d 1081, 1132-33 (7th Cir. 1983). The doctrine has been frequently criticized. See HOVENKAMP, supra note 5, at 273 ("The so-called 'essential facility doctrine' is one of the most troublesome, incoherent and unmanageable of bases for Sherman section 2 liability. The antitrust world would almost certainly be a better place if it were jettisoned . . . ."); Phillip Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 ANTITRUST L.J. 841 (1990).
121. In that case, the particular facility controlled by one group is essential to the plaintiff, but not to others.
122. See Carlton & Salop, supra note 104, at 328-29. This discussion borrows from Carlton and Salop but the framework and terminology suggested here are somewhat different.
123. United States v. Terminal R.R. Ass'n of St. Louis, 224 U.S. 383 (1912).
124. Associated Press v. United States, 326 U.S. 1 (1945).
125. Radiant Burners, Inc. v. People's Gas Light & Coke Co., 364 U.S. 656 (1961).
126. See HOVENKAMP, supra note 5, at 274.
127. However, market power in the output market may be based on the fact that individual members have market power by virtue of their participation in the collaboration in the input market. In Associated Press the market power in the output market - sale of newspapers - was held by individual newspapers. 326 U.S. at 17-18.
128. There may be special cases in markets for differentiated products, where the outsider offers close substitute for the products produced by the group. Even though the excluding group does not have large market share, preventing the outsider from competing may allow the group to raise prices to some extent. See 1992 Horizontal Merger Guidelines, supra note 77, § 2.21; HOVENKAMP, supra note 5, at 212-13.
129. For example, excluding the outsider may simply mean that the outsider must enter the input market on its own or collaborate with other outsiders to enter.
130. In both Terminal Railroad and Associated Press, the Court assumed that admitting outsiders would promote competition. In Terminal Railroad the Court required that the joint venture of railroads, which owned a terminal and transfer facilities, make them available to any other railroads on non-discriminatory terms, even if these new users did not elect to become owners. The Court assumed that the large number of railroads that could use the facility, including non-owners of the terminal, would result in competition. In Associated Press the Court required a joint venture of newspapers, which gathered news and distributed it to all members, to admit outsiders. By preventing a member newspaper from excluding a competitor in its own city, the Court assumed that competition would be promoted in cities with more than one newspaper. See HOVENKAMP, supra note 5, at 208-09.
131. Under some circumstances, the "disruptiveness" of the outsider will be relevant. For example, excluding a discount broker from a listing service suggests that the broker, if admitted, will promote competition within the group. Under these circumstances, there may be particular concerns about excluding these maverick firms from the market, just as there are particular concerns about their being acquired. See 1992 Horizontal Merger Guidelines, supra note 77, § 2.12.
132. In Associated Press the efficiencies of the joint news-gathering activities could still be achieved if a newspaper was not allowed to bar another newspaper in its city from participating. In particular, the participants in the venture did not appear to be concerned that latecomers would take a free ride on earlier risk taking. See HOVENKAMP, supra note 5, at 209.
133. Demand side economies can occur, for example, if the product becomes more desirable the larger the number of collaborators. See COMPETITION POLICY, supra note 101, at 9-1.
134. See, e.g., United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1372-74 (5th Cir. 1980) (a group of real estate brokers, who would ordinarily benefit from sharing the listings of additional brokers, attempted to exclude brokers who could promote competition by charging discount fees).
135. See, e.g., Carlton & Salop, supra note 104, at 330.
136. The possibility that the outsider would be particularly disruptive played a role in Radiant Burners, Inc. v. People's Gas Light & Coke Co., 364 U.S. 656 (1961) (plaintiff stated a cause of action by alleging that the standards applied by the standard-setting organization were arbitrary and capricious); and Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988) (plaintiff proposed new product standard, which was rejected by established competitors).
137. This is not to say that the fairness of the procedures should become an important aspect of determining whether the outsider is "arbitrarily excluded." The Court rejected a general requirement of procedural fairness in Northwest Stationers, 472 U.S. at 293. In Allied Tube the unfair procedures used by the association ("packing" the meeting to vote against a proposed new standard) amounted to a discriminatory application of a standard by economically interested competitors. 486 U.S. at 509. In addition, the control over standard setting effectively excluded the outsider because the group's standards were routinely adopted by public and private building codes. Id. at 495-96.
138. There still remains the problem of determining whether exclusion is "arbitrary," without involving courts in the analysis of the objective validity of a certification standard. To this extent, it may be necessary to examine the motive of the organization despite the difficulties of doing so. The alternative - a court's attempting to assess the legitimacy of a professional or technical standard - is even less workable. See, e.g., Wilk v. AMA, 719 F.2d 207, 213 (7th Cir. 1983) (placing burden on association to show good faith in denying a chiropractor access to medical facilities); see also HOVENKAMP, supra note 5, at 213.