[Federal Register Volume 62, Number 179 (Tuesday, September 16, 1997)]
[Pages 48660-48662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24515]



Comment and Hearings on Joint Venture Project

AGENCY: Federal Trade Commission.

ACTION: Notice of second opportunity for comment and public hearing on 
Joint Venture Project.


SUMMARY: The Federal Trade Commission (``FTC'' or ``Commission'') is 
requesting public comment about issues to be addressed in the Joint 
Venture Project that the Commission has authorized. The Project is 
being undertaken by the Commission in collaboration with the Department 
of Justice. Comments may be provided to the Commission in writing as 
specified below. In addition, the Commission will hold public hearing 
concerning these issues in November, 1997.
    The Joint Venture Project grows out of public hearings held by the 
FTC in the fall of 1995, at which businesses reported that global and 
innovation-based competition is driving firms toward ever more complex 
collaborative agreements that sometimes raise new competition issues. 
Some commenters at those hearings also requested clarification and 
updating of current antitrust policy toward business collaborations 
among competitors.
    The Joint Venture Project will address whether antitrust guidance 
to the business community can be improved through clarifying and 
updating antitrust policies regarding joint ventures and other forms of 
competitor collaborations. As has been generally noted, businesses may 
find it desirable to collaborate with rivals in order to achieve a 
large variety of goals: Attain economies of scale; increase capacity 
and market access; minimize risk; avoid duplication; transfer, 
commercialize, or distrubte technology efficiently; combine 
complementary or co-specialized capabilities; or better appropriate the 
returns of innovation. Some competitor collaborations, however, raise 
antitrust concerns about the degree to which competition among rivals 
has been curtailed. In such cases, antitrust enforcers must assess 
whether and to what extent competition is harmed.
    Issues relevant to why and how competitors wish to collaborate with 
their rivals, and the impact those arrangements have on competition, 
are of interest to the Commission in connection with the Joint Venture 
Project. In order to better inform itself as to these issues, the 
Commission engaged in a first round of public comment and hearings 
regarding issues identified in a notice published on April 28, 1997, at 
62 FR 22945. Now the Commission is seeking comment and testimony 
regarding additional issues, including some issues that the first round 
of comments and testimony have indicated warrant follow-up attention.
    The Commission's April 28 notice sought information relating to 
many of the issues associated with the potential anticompetitive 
effects of competitor collaborations. Consequently, the factual 
questions in this notice deal primarily with possible efficiencies. 
Specifically, the FTC is seeking comment at this time on the following 

Factual Questions Relating to Competitor Collaborations

    The Commission is interested in better understanding the 
efficiencies that may be generated by competitor collaborations.\1\ As 
an aid to understanding, the Commission has included the following 
questions as examples of the kinds of factual information in which the 
Commission is interested. Those who respond should neither feel 
constrained by those questions nor compelled to answer each one, 

    \1\ For purposes of this notice, ``competitor collaborations'' 
should be understood as including all collaborations, short of a 
merger, between or among entities that would have been actual or 
likely potential competitors in a relevant market absent that 

    Because real-world examples are usually the most informative, the 
Commission would prefer information concerning competitor 
collaborations that actually have been undertaken. However, recognizing 
that businesses may wish to protect confidential information about some 
collaborations, the Commission also encourages the use of hypothetical 
fact patterns to describe and discuss the efficiencies that may result 
from collaborations among competitors.


    What kinds of efficiency benefits are most frequently attributed to 
competitor collaborations, e.g., economies of scale, risk reduction, or 
learning advantages?
    To what extent are differences in assets or technology among 
prospective participants important to the possible efficiency benefits 
from a competitor collaboration?
    What contractual problems do prospective competitor collaboration 
participants encounter in designing an arrangement to achieve 
efficiency gains, and how have those problems been solved? What types 
of agreements or mechanisms are most frequently or most successfully 
used to align incentives? to safeguard the value of assets or efforts 
that individual participants might contribute to the collaboration? to 
deal with possible disputes among the participants? Are particular 
contractual problems more pressing in certain kinds of ventures, or in 
certain industries, than in others?
    How and under what circumstances do variations in a competitor 
collaboration's governance structure--such as variations in individual 
participants' abilities to affect the collaboration's level of output 
or to control portions of its productive capacity--affect the 
collaboration's ability to achieve efficiencies?
    Under what circumstances might restrictions on the ability of 
participants to compete promote legitimate efficiency goals? 
Specifically, when and how can restrictions on price, quality, 
advertising, geographic scope, or other dimensions of competition 
contribute to legitimate efficiency ends? Are some restrictions more 
closely related to the formation of a competitor collaboration, while 
others are needed to help the collaboration run smoothly after it is 
    Under what circumstances might various exclusivity provisions be 
related to the efficiency goals of the competitor collaboration? 
Examples could include

[[Page 48661]]

agreements that participants satisfy all of their input needs from the 
collaboration or that participants refrain from competing with the 
collaboration, either unilaterally or as part of another group.
    When can information exchanges (including exchanges of 
competitively sensitive data) among participants in a competitor 
collaboration be necessary to achieving efficiencies?
    How and under what circumstances do restrictions on membership in 
or access to assets controlled by a competitor collaboration promote 
efficiency? What criteria do firms employ in initially selecting co-
participants when establishing competitor collaborations?
    Can reciprocal buying agreements among participants or restrictions 
on participants' activities outside the collaboration's market have 
efficiency rationales?
    Under what circumstances do restraints in competitor collaborations 
give rise to efficiencies that are experienced over the long run or 
that affect competition in a dynamic sense (such as through incentives 
for innovation) rather than in the short run?
    What factors affect determinations to pursue business goals through 
traditional joint ventures as opposed to alternative mechanisms such as 
short-term contracts, long-term contracts, licensing and franchise 
agreements, minority equity investments, strategic alliances, and asset 
acquisitions? When are the various alternatives relatively good or 
relatively poor substitutes in achieving efficiency goals?
    Has the mix between traditional joint ventures, short- and long-
term contracts, licensing or franchising, minority equity investments, 
strategic alliances, and asset acquisitions changed over time? If so, 
what factors are responsible?
    In what ways does the initial agreement as to the duration of a 
competitor collaboration affect its ability to achieve efficiencies?
    Antitrust law often considers whether efficiency goals might be 
achieved with less competitively restrictive alternatives. What factors 
must participants in competitor collaborations take into account (other 
than potential antitrust liability) in determining the breadth of a 
competitive restraint? Are there real-world examples in which 
relatively narrow restraints were ineffective in achieving efficiency 
    To what extent has non-exclusivity--the ability of the participants 
in a competitor collaboration to compete with the collaboration--
reduced the anticompetitive effects of competitor collaborations? What 
factors tend to demonstrate that a competitor collaboration is non-
exclusive in fact as well as on paper?

Policy and Legal Questions Relating to Competitor Collaborations

    The Commission also is interested in better understanding the 
extent to which antitrust law and the antitrust agencies' current 
policy guidelines have successfully dealt with issues raised by 
competitor collaborations and how the usefulness of antitrust guidance 
might be improved. The following questions are suggestive of issues 
that would be of interest in responses, but, again, the questions are 
not intended to constrain or to require responses.


The State of Antitrust Law
    What aspects of antitrust law regarding the efficiencies of 
competitor collaborations require clarification? For example, is 
clarification required regarding the evaluation of efficiency 
justifications for competitive restrictions, information exchanges, or 
membership rules?
    Have there been any circumstances in which the chosen form of 
competitor collaboration (such as traditional joint ventures, short- 
and long-term contracts, licensing and franchise agreements, minority 
equity investments, strategic alliances, and asset acquisitions) has 
been affected by uncertainty about antitrust rules or possible costs of 
antitrust investigation or litigation?
    Have there been any circumstances in which antitrust standards 
regarding less restrictive alternatives, including burdens of proof, 
have failed to take into account the difficulty in practical terms of 
fashioning and implementing a theoretically less restrictive 
    Antitrust standards for distinguishing legitimate competitor 
collaborations from ``sham'' arrangements often have been articulated 
in terms of ``integration'' rather than in terms of ``efficiencies.'' 
Have there been circumstances when the use of integration-based 
standards has deterred the formation or impaired the operation of 
competitor collaborations that could have enhanced competition? If so, 
please give specific real-world examples (or explain in the context of 
hypothetical facts). Under what circumstances might greater integration 
signal greater potential for anticompetitive effects as opposed to a 
greater likelihood of achieving procompetitive efficiencies? Should 
more specific standards for distinguishing legitimate from sham 
arrangements be considered in conjunction with particular types of 
collaborative activity or particular industries?
    To what extent, if any, should the expected evolution of a 
competitor collaboration be taken into account in determining its state 
of integration? For example, when, if ever, should rule of reason 
treatment be accorded a collaboration that fails integration criteria 
today on grounds that it may pass muster in the near future? How could 
enforcement agencies evaluate such a likelihood? Would such dynamic 
considerations be particularly relevant in certain industries or in 
particular circumstances? If so, where and why?
    Antitrust standards for distinguishing competitor collaborations 
warranting rule of reason review rather than per se condemnation have 
sometimes looked to whether the collaboration has created a new 
product. What are the factors that should be included in a 
determination that the fruits of a competitor collaboration constitute 
a new product? What role should a determination that a competitor 
collaboration produces a new product play in the assessment of the 
collaboration's competitive effects?
    What role should a determination that a competitor collaboration 
adds capacity in a relevant market play in the assessment of the 
collaboration's competitive effects?
    What role should a determination that a competitor collaboration is 
non-exclusive--that is, that it allows its participants to compete 
independently in the joint venture market--play in the assessment of 
the collaboration's competitive effects?
    What mechanisms should be employed in assessing the net effects of 
a competitor collaboration (or of a restraint associated with a 
competitor collaboration) that would likely achieve efficiencies but 
also would likely harm competition absent the efficiencies?
    Are there instances when unusual cost or demand conditions might 
make it appropriate to modify or qualify general antitrust policy with 
regard to competitor collaborations? For example, should enforcement 
policy concerning competitor collaborations be modified when there are 
substantial scale economies from increasing group size or consumer 
switching costs, such as may arise in network industries or in 
standard-setting contexts?
    Under what circumstances, if any, should participants be able to 
assert that membership restrictions are necessary to ensure that 
members of a competitor collaboration can use cost advantages or 
innovation to compete more effectively in the output market?

[[Page 48662]]

    Are there any circumstances under which the competitive effects of 
restraints associated with a competitor collaboration should be 
analyzed like the competitive effects of single firm conduct?
    Under what circumstances is a competitor collaboration less likely 
than a merger of the same participants to restrict competition within 
any relevant market? What adjustments to merger analysis could take 
these considerations into account? Under what circumstances is a 
competitor collaboration more likely than a merger to restrict 
competition within any relevant market? What adjustments to merger 
analysis could take these considerations into account?
    Under what circumstances is a competitor collaboration more likely 
than a merger of the same participants to achieve efficiencies within 
any relevant market? What adjustments to merger analysis could take 
these considerations into account? Under what circumstances is a 
competitor collaboration less likely than a merger of the same 
participants to achieve efficiencies within any relevant market? What 
adjustments to merger analysis could take these considerations into 
FTC/DOJ Guidelines
    If the Joint Venture Project were to result in the development of 
guidelines applicable to competitor collaborations, what factors should 
be considered in demarcating the division between transactions covered 
by the new guidelines and transactions covered by the existing 
Department of Justice and Federal Trade Commission Horizontal Merger 

DATES: Any interested person may submit written comments by December 
12, 1997. Requests to participate in public hearings should be 
submitted by October 17, 1997, or earlier if at all possible. Such 
requests should identify the requesting party and briefly state the 
matter than the party wishes to address at the hearings. Public 
hearings will be held in November, 1997, at the Federal Trade 
Commission, Sixth Street and Pennsylvania Avenue, N.W., Washington, 
D.C. 20580.

ADDRESSES: To facilitate efficient review of public comments, all 
comments should be submitted in written and electronic form. Electronic 
submissions may be made in one of two ways. They may be filed on either 
a 5 and \1/4\ or 3 and \1/2\ inch computer disk, with a label on the 
disk stating the name of the commenter and the name and version of the 
word processing program used to create the document. (Programs based on 
DOS or Windows 3.1 are acceptable.
    Files from other operating systems should be submitted in ASCII 
text format.) Alternatively, electronic submissions may be sent by 
electronic mail to [email protected]. Submissions should be captioned 
``Comments on Issues relating to Joint Venture Project--Second Federal 
Register Notice'' and addressed to Donald S. Clark, Office of the 
Secretary, Federal Trade Commission, Sixth Street and Pennsylvania 
Avenue, N.W., Washington, D.C. 20580.
    Notice of interest in participating in the hearings also should be 
addressed in writing to the Office of the Secretary at the above 

FOR FURTHER INFORMATION CONTACT: Policy Planning staff at (202) 326-

SUPPLMENTARY INFORMATION: The Commission is examining its role in 
enforcing antitrust laws in light of the above issues. Public comments 
and hearings are expected to provide information relevant to 
determining what, if any, actions may be desirable. The Commission has 
general authority under the FTC Act to interpret its substantive laws 
through guidelines, advisory opinions, and policy statements.

    By direction of the Commission.
Donald S. Clark,
[FR Doc. 97-24515 Filed 9-15-97; 8:45 am]