Joint Ventures and the Sherman Act: The Problem Revealed by American Needle and How Best to Address It

Thomas Brown, Katherine Robison, Ian Simmons, Mar 26, 2010

The transcript of the oral argument in this year’s most watched antitrust case, American Needle v. National Football League, captures a struggle about where to draw the line between joint venture activities that must be scrutinized under Section One and those that should not. That the Justices of the Supreme Court seemed uncertain about how to draw such a line while preserving the ability to review the activities of joint ventures under Section One is not surprising given the current state of antitrust law applicable to joint ventures.

Antitrust law holds joint ventures to an exacting standard. Joint ventures are required to defend their formation and their actions under Section One of the Sherman Act. Although pricing decisions of an integrated joint venture may not be subject to per se condemnation, all the actions of such a joint venture are, according to mainstream antitrust authorities, subject to scrutiny under Section One.

Antitrust law does not hold other collaborative enterprises to a similar standard. It does not demand that other legitimate cooperative forms of business (such as merged companies or parent and subsidiary corporations) justify each of their post-formation activities. And, although subjecting joint ventures to a more exacting antitrust standard can be reconciled with the text and structure of the Sherman Act, it makes no sense to predicate the level of scrutiny applied on the form of the cooperative venture. At a practical level, this formalism simply encourages firms to by-pass potential opportunities or to pursue them within a more rigid structure.

The solution lies in pursuing a less ambitious agenda for joint venture review. If joint ventures are akin to merged companies, then antitrust review of their activities should more closely follow the law applicable to mergers. As with proposed mergers, the government and private parties should be allowed to challenge the joint venture upon formation to determine whether the joint venture may properly pursue the activities falling within its proposed scope. And if the joint venture were later to expand its scope, activities falling within that revised scope would be analyzed under the same standards that apply at formation. But, once the scope of the venture has been defined, activities falling within that scope cannot be singled out for challenges under Section One. Those activities must be challenged, if at all, under Section Two. Of course, activities falling outside the original scope of the joint venture may still be challenged under Section One.

By stepping back from the overambitious antitrust agenda currently applied to joint ventures, the courts can create the clarity needed to allow joint ventures to fulfill the promise recognized in Copperweld–“increasing a firm’s efficiency and enabling it to compete more effectively.”