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March 30, 2014

One competition law topic that I continually find interesting is joint ventures (i.e., collaborations between competitors).  While this is a significant area, with a variety of competition law issues that may need to be addressed in relation to a broad spectrum of types of JVs (e.g., joint marketing, joint production, joint R&D, etc.), I have always found the issues that can arise in the JV context very interesting.

These can include, among other things: questions of whether a JV is one or multiple entities (for the application of cartel/conspiracy rules); whether, if challenged on concerted theories of harm, a JV should be reviewed on a per se or rule of reason standard (or in Canada, under our amended Competition Act, as a criminal conspiracy under section 45 or under the civil agreements provision, with an assessment of competitive effects); how to structure JVs to minimize competition/antitrust law risk (e.g., in relation to the flow of competitively sensitive information between JV partners); and whether, and to what extent, merger control rules should apply to JVs.

Of course, this is only the tip of iceberg in terms of the kinds of issues that may need to be considered in the context of forming and operating a competitor-competitor JV.

In this respect, I recently had the opportunity to discuss some of these points and others with an industry group, including how the Competition Bureau in Canada views JVs and some basic do’s and don’ts for minimizing the risk of competitor JVs in Canada.  As a result of this discussion, I came up with a few key points about JVs in Canada:

Canadian Competition Law & Joint Ventures:
Some Key Points & Best Practices to Minimize Risk

1.  Merely referring to a competitor collaboration as a “joint venture” will not necessarily mean there is no competition law risk.  Joint ventures are fact specific and can take a number of forms.

2.  In this respect, joint ventures may be pro-competitive or anti-competitive (or partially some of each, which may complicate matters and mean that questions including the primary purpose of the JV, whether competitive restraints are “ancillary”, etc. need to be considered).

3.  In Canada, the federal Competition Act includes both: (i) criminal conspiracy offences that prohibit, among other things, agreements between competitors to fix prices or restrict output; and (ii) a civil agreements section under which some competitor-competitor agreements, that are not “bare” or “naked” agreements to fix prices, divide markets or restrict output, may be challenged by the Bureau before the Competition Tribunal, where they may prevent or lessen competition substantially.

4.  “Joint ventures” or other types of collaborations between competitors are much more likely to attract liability where they are in essence merely agreements to fix prices, not compete, restrict output, etc. (i.e., joint venture partners really can’t point to any or few pro-competitive rationales for the JV or the overall purpose of the JV is to reduce competition).  In this regard, in some Canadian cases companies were convicted for operating “joint ventures” that were in fact shams and in essence mere price-fixing arrangements to pool and limit production, fix price, etc.

5.  The Competition Bureau is more likely it is thought, since the Competition Act was amended in 2009, to challenge legitimate competitor-competitor joint ventures (if at all) under the civil agreement section of the Act (section 90.1) or other civil sections.  One recent example of this was the Bureau’s challenge of certain JV agreements between Air Canada and United, in which the Bureau brought a section 90.1 (civil agreements provision) challenge in a case that was ultimately settled with an agreement reached between the Bureau and Air Canada / United.

6.  Where, however, JV partners can point to pro-competitive justifications for teaming up with a competitor(s), such arrangements are less likely to be challenged as criminal arrangements/agreements.  In this respect, it is also often prudent to internally document the pro-competitive justifications for any joint initiative with a competitor.

7.  Some of the types of pro-competitive considerations that can be relevant include: an inability to complete projects individually; complementary resources (e.g., one party has marketing capabilities, another access to capital, expertise, etc.); efficiencies likely to be achieved through the joint venture; scale required to complete a particular project (e.g., exploration project), etc.

8.  When entering into a JV with a competitor(s), the following are a few general best practices: (i) limit coordination to the JV (i.e., keep the collaboration as narrow as necessary to achieve the pro-competitive objectives of the project); (ii) restrict / limit the flow of competitively sensitive information relating to non-JV activities; (iii) as discussed above, internally document the pro-competitive rationales for cooperation (and also reflect those pro-competitive rationales in public announcements, updates, etc.); and (iv) keep marketing / sales personnel in non-JV activities (i.e., where JV partners compete) apart.

In short, many competitor-competitor JVs can (and often are) pro-competitive, but the particular facts of each need to be considered.  Also, for a more detailed discussion of competitor collaborations and the application of the criminal conspiracy and civil agreement provisions of the Competition Act, the Bureau’s leading guidelines remain its Competitor Collaboration Guidelines – see: Competitor Collaboration Guidelines.

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I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law.  I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.

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