Legal Resources


Unpacking Antitrust: What Is a Joint Venture?

June 5, 2023

Authors: Aaron Gott and Molly Donovan

The Short Answer: Two or more businesses that work together to produce something. Antitrust Law: An Analysis of Antitrust Principles and Their Application (Areeda and Hovenkamp) (“A joint venture is a form of organization in which two or more firms agree to cooperate in producing some input that they would otherwise have produced individually, acquired on the market, or perhaps would have done without.”).

Why Does It Matter? Absent a valid joint venture, it is per se unlawful for two competitors to work together to price a product. Per se means that the conduct is unlawful with no opportunity to present a defense that it was actually a good thing

“The pricing decisions of a legitimate joint venture,” however, escape the per se rule. Freeman v. San Diego Ass'n of Realtors, 322 F.3d 1133, 1144 (9th Cir. 2003). 

The decisions of a joint venture may still be subject to antitrust scrutiny, but the scrutiny is relaxed (under the rule of reason). 

So, I’ve Decided to Form a Joint Venture. What Do I Need to Know?

In forming the joint venture, sometimes officers and employees start out discussing a potentially procompetitive joint venture but end up crossing the line—instead discussing subjects relating to current, horizontal competition. Exchanges of competitively sensitive information, for example, should be structured to mitigate concerns of improper horizontal collusion.

Sometimes no-poach and non-solicitation agreements are reached by the officers and employees who are discussing the joint venture’s formation. Those agreements should be narrowly tailored to meet their procompetitive justifications.

The formation of the joint venture itself can be challenged as an antitrust violation. Typically, this occurs where the combination eliminates or endangers price competition.

How Do I Form A Legitimate Joint Venture? 

Legitimate joint ventures are “integrations of economic activity,” Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986), wherein “multiple sources of economic power cooperat[e] to produce a product,” Am. Needle, 560 U.S. at 199, 203 (2010). 

More simply: there is a single firm that competes with other sellers in the market. Arizona, 457 U.S. at 356-57. 

Courts are skeptical of claimed “joint ventures” that lack “economic integration” or do not provide “a new and unique product.” In re Sulfuric Acid Antitrust Litig., 743 F. Supp. 2d 827, 873 (N.D. Ill. 2010). 

Here are some questions to ask yourself:

  • Was the joint venture publicly announced?
  • Do others in the market regard the combination as a single firm competing in the market?
  • Is it confidential or otherwise kept a secret that two or more businesses are cooperating?
  • Is the joint venture formalized, including with a name or other form of identity? 
  • Are resources (including employees) integrated?
  • Does the joint venture do its own bookkeeping? 
  • Are the risks shared? The profits?

So, Now That I’ve Formed a Legitimate Joint Venture, My Antitrust Worries Are Over, Right?

No, the joint venture’s conduct could still be challenged as a restraint of trade.

Courts categorize three types of conduct: (1) core activity, (2) ancillary restraints, and (3) naked restraints. Core activity and ancillary restraints are judged under the rule of reason. Naked restraints are subject to per se analysis.

Core activity includes the pricing of the goods or services produced and sold by the joint venture so long as pricing is “integral” to operating the joint venture. 

The conduct cannot qualify as “core activity” if the firms involved remain competitors in the same relevant market in which the joint ventures participate.

Example of Core Conduct: A joint venture between a wine and an ice cream company produces a new product: iced wine (or maybe wine cream) for sale only in New York. The wine company doesn’t compete in the frozen dessert market. The ice cream company stops competing in the frozen dessert market in New York. The joint venture’s pricing of its new product is core activity.

Ancillary restraints are “subordinate and collateral to a separate, legitimate transaction” and must “make the [venture] more effective [or efficient] in accomplishing its purpose.” Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 224 (D.C. Cir. 1986) Rothery Storage, 792 F.2d at 224; see also Aya Healthcare Servs. v. AMN Healthcare, Inc., 9 F.4th 1102, 1109 (9th Cir. 2021) (“[T]he restraint must be (1) ‘subordinate and collateral to a separate, legitimate transaction,’ and (2) ‘reasonably necessary’ to achieving that transaction's pro-competitive purpose.”). 

But an agreement “with the objectively intended purpose or likely effect of increasing price” is not ancillary.

Example of Ancillary Restraint: The wine and ice cream company agree that they will not solicit for themselves the officers and employees seconded to the joint venture. This is a non-joint venture activity because it is undertaken by the two companies as independent firms. It’s collateral to the legitimate formation of the joint venture, and reasonably necessary to achieving the joint venture’s procompetitive purpose of introducing a new product to market without constant interference with the joint venture’s officers and employees.

An agreement that does not meet the ancillary-restraint test is a naked restraint of trade.

Example of Naked Restraint: The iced wine company agrees not to compete with a frosé company in New Jersey, so long as the New Jersey company stays out of New York. This agreement is not reasonably necessary to the joint venture’s procompetitive purpose. This is a naked restraint subject to the per se test.