JOINT VENTURE AGREEMENTS "MAY PASS MUSTER" WHERE MERGERS WOULD NOT, U.S

Executive Summary

JOINT VENTURE AGREEMENTS "MAY PASS MUSTER" WHERE MERGERS WOULD NOT, U.S. Assistant Attorney General Paul McGrath, chief of the Justice Department's antitrust division, said in remarks delivered at the 18th Annual New England Antitrust Conference, Nov. 2, at Harvard University Law School. Noting that joint ventures are "becoming an increasingly significant form of business organization" in today's high-tech environment, McGrath said his agency will not challenge joint ventures if market entry for products or services "is easy," and if "a significant number of potential entrants exist." Justice "will also recognize that when a venture adds new, state-of-the-art capacity in the market where the parents operate, it may promote a procompetitive output expansion -- rather than an anticompetitive shrinkage in output." In general, McGrath said that Justice will not question joint venture agreements that "are reasonably tailored to bring about significant efficiencies, such as large-scale economies in marketing." For example, McGrath said, "joint selling and buying arrangements that effectuate new, efficient distribution systems will not be condemned out of hand. Only 'naked' horizontal restraints whose real purpose is to raise price and restrict output are likely to be condemned as per se illegal." The department will challenge ancillary portions of joint venture agreements if they restrain competition."For example," he said, "while we may approve a joint purchasing agreement that lowers distribution costs, we would closely scrutinize an ancillary restriction under which competing members of the purchasing group divide markets or restrict output." In analyzing a joint venture, McGrath said that Justice will consider (1) "the competitive impact of the arrangement on the market in which the venture operates;" (2) "the venture's competitive impact on other markets in which some or all of the coventurers compete;" and (3) the effect on competition of "any ancillary restrictions contained in the agreement."