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February 1999
TRADE ASSOCIATIONS
U.S. ANTITRUST GUIDELINES
This memorandum sets forth general guidelines to assist Trade Associations
and their members in reducing the possibility of violating the U.S. antitrust
laws while fulfilling the Associations' purposes of improving business
conditions in their industries. These guidelines are necessarily general,
however, because questions involving the antitrust laws can involve a wide range
of circumstances, making it virtually impossible to issue guidelines that cover
all the questions that may arise.
In addition, this memorandum is directed primarily towards the activities of
the Association as an organization seeking to perform its stated purpose, not
towards anticompetitive activities by the Association's members that are clearly
outside the scope of the Association's purposes. That is, we have assumed that
the Association's members will not use Association meetings to discuss prices,
divide markets, or engage in other activities that would raise serious antitrust
problems wholly apart from the Association. In so doing, we assume that counsel
for each of the members of the Association has cautioned those members against
such activities, whether they be at meetings of the Association, at meetings of
professional societies or other organizations, or otherwise.
The National Cooperative Research and Production Act
of 1993
In November 1980, the Department of Justice (Antitrust Division) (the
"DOJ") published the "Antitrust Guide Concerning Research Joint
Ventures" (the "Guide" or the "1980 Guide"). The Guide
assessed the antitrust laws in relation to joint research projects conducted by
market competitors. However, the Guide was not as helpful to industry as the DOJ
had anticipated. Instead, businesses continued to shy away from entering R&D
joint ventures for fear of unfavorable DOJ evaluations and private institution
of treble-damage actions.
Responding to these concerns, Congress passed The National Cooperative
Research Act of 1984 (the "NCRA"). Congress intended that the NCRA
would dispel the uncertainties surrounding enforcement of the antitrust laws
under the 1980 Guide and thus encourage R&D joint ventures among
competitors. In 1993 Congress amended and redesignated the NCRA as the National
Cooperative Research and Production Act of 1993 (the "Act") to include
certain forms of production joint ventures. By extending the Act to certain
forms of production joint ventures, Congress aimed to promote innovation,
facilitate trade, and strengthen the competitiveness of the United States in
world markets.
Analysis of the Act
Three provisions of the Act make joint R&D or production activity among
competitors more attractive. First, the Act provides that conduct falling within
the definition of "joint venture" will be judged under the so-called
"rule-of-reason."
Second, with respect to R&D activity, the Act exempts such activity from
treble-damage suits, provided the participants in the research venture have made
certain disclosures pursuant to a voluntary notification procedure. With respect
to production joint ventures, the Act exempts such ventures from treble-damage
suits provided two requirements are met in addition to the disclosure
requirement: (1) the venture's production facilities must be located in the
United States or its territories; and (2) the joint venturers and those parties
who control the joint venturers must be either United States persons, or foreign
persons from a country "whose law" accords parity of antitrust
treatment to United States persons and domestic persons with respect to
participation in production joint ventures.(1)
Finally, should private suits against the venture ensue, the Act permits
awarding the venture costs, including reasonable attorney's fees, to the extent
that the plaintiff's claim or conduct during the litigation was "frivolous,
unreasonable, without foundation, or in bad faith."
Protected Activity
An R&D or production joint venture may bring itself within the protection
of the Act only if the venture fits the Act's definition of a "joint
venture". This term is both positively and negatively defined.
Paraphrasing, "joint venture" specifically excludes from the
Act's protection:
- the exchange by competitors of information relating to costs, sales,
profitability, prices, marketing, or distribution of any product, process or
service that is not reasonably required to carry out the purpose of such
venture;
- joint production, marketing, or distribution of any product, process, or
service, other than (1) the distribution among the parties to such venture,
(2) the marketing of proprietary information developed through such venture
formed under a written agreement entered into before June 10, 1993 (the
effective date of the Act), or (3) the licensing, conveying, or transferring
of intellectual property developed through such venture formed under a
written agreement entered into on or after June 10, 1993;
- any restriction or requirement relating to (1) the sale, licensing or
sharing of developments, products, processes, or services not developed
through, or produced by such venture, or (2) any person who is a party to
such venture in other R&D activities, that is not reasonably required to
prevent misappropriation of proprietary information contributed to or
resulting from the venture;
- any agreement or other conduct allocating a market with a competitor;
- the exchange of information among competitors if such information is not
reasonably required to carry out the purpose of such venture;
- any restriction or requirement involving the production (other than the
production by such venture) of a product, process, or service;
- the use of existing facilities for the production of a product, process,
or service unless such use involves the production of a new product or
technology; and
- except as provided above, any agreement or conduct restricting or
requiring participation by any person who is a party to such venture, in any
unilateral or joint activity not reasonably required to carry out the
purpose of such venture.
Congress intended the exclusions to imply that when the sole purpose
of the venture is to prepare a product for the marketplace, the protections of
the Act are not available.
Conduct that does fall within the Act's definition of a "joint
venture" includes:
- theoretical analysis, experimentation, or systematic study of observable
facts;
- development or testing of basic engineering techniques;
- extension of investigative findings or scientific theory to practical
application for experimental or demonstrative purposes;
- production of a product, process, or service;
- testing in connection with the production of a product, process, or
service by such venture;
- collection, exchange, and analysis of research reproduction information;
or
- any combination of the above.
In addition, permissible conduct may include the establishment and operation
of facilities for conducting such research, operating the venture on a
proprietary basis, or licensing of or obtaining patents to cover the results of
such research.
Standard of Review
Permissible conduct, if ever met with an antitrust challenge, will be judged
by rule-of-reason analysis. Impermissible conduct does not automatically receive
the same benefit, but will not necessarily be deemed per se
illegal.
By authorizing rule-of-reason analysis, Congress has mandated that courts
consider all relevant economic factors when evaluating the venture's effect on
competition. This fluctuating standard permits courts to be sensitive to often
rapid advances in technology, as well as changing global and domestic economic
climates. Rule-of-reason analysis also recognizes that toleration of some degree
of anticompetitive impact may be warranted depending on the value or complexity
of any particular project.
Limited Remedy Where Venture Has Satisfied Public
Disclosure Requirements
Should a venture's conduct, though falling within the Act's definition of
"permissible", violate, under rule-of-reason analysis, Section 4 of
the Clayton Act or similar state laws, recovery against the venture will be
limited to actual damages where notice of the venture has been published in the Federal
Register. Publication is obtained by filing a disclosure statement with the
DOJ and the Federal Trade Commission ("FTC") describing the nature of
the venture and identifying its participants.
In the case of a joint venture one of whose purposes is the production of a
product, process, or service, the notification must contain additional
information: the nationality of all parties and the identity and nationality of
all persons who control any party to the venture whether separately or with one
or more other persons acting as a group for the purpose of controlling such
party. The term "control" means having the power to direct the
management or policies of a person. This controlling influence may be exercised
either directly or indirectly and the means used can vary.
Each participant must file the notice within 90 days of entering into a
written agreement to conduct the venture.
The DOJ has promulgated a form of original and supplemental notice for the
venture's disclosure of its nature and purpose to the DOJ and the FTC. The DOJ
strongly urges that the participants to the venture draft their notice in the
form provided to expedite its publication. The Premerger Notification Unit/FTC
Liaison Office is responsible for review of the notice and forwards the
notification to the appropriate section, task force or field office to determine
whether it adequately identifies the parties to the venture and the venture's
objectives.
After filing the notice but prior to publication, each member of the venture
has the opportunity to review the proposed notice, which does not have to
disclose any information that would result in competitive harm to the venture.
Parties to the venture that review the draft notice have only two working days
in which to express any objection to the notice before publication. If the
members disapprove of the notice and cannot agree on its contents, the parties
may withdraw notification. If the parties approve the contents, the FTC or DOJ
must publish the notice within 30 days of receipt of the filings. If the DOJ
fails to disapprove or publish the notice within thirty days of receipt, the
venture can consider itself protected under NCRPA beginning on the expiration of
the thirty-day period.
Publication, however, is not a governmental stamp of approval of the venture.
Thus the venture remains obligated to police its activities and file notice
again if membership in the venture changes, and the venture may not use
publication as a defense to an antitrust suit. Publication, moreover, does not
protect a venture that acts in violation of an injunction, DOJ consent decree,
or FTC cease-and-desist order.
Finally, although the notification procedures limit recovery to actual
damages, courts have the discretion to award prejudgment interest. Where just,
such interest accrues from the earliest date that antitrust injury can be
established.
Costs and Fees
Courts may award fees to a substantially prevailing claimant. Defendants are
also protected. A defendant may receive a fee award, or offset a judgment in
favor of the claimant, to the extent that the claimant acted unreasonably or in
bad faith.
To date, no cases have been brought by federal or state agencies against a
NCRPA reported joint venture. Only one private action has been initiated by an
unsuccessful plaintiff. See Addamax Corp. v. Open Software Foundation,
888 F. Supp. 274 (D. Mass. 1995).
Since 1993, there have been several hundred joint ventures noticed in the Federal
Register pursuant to NCRPA, however, only a relative few identify
production of a product, process or service as one of their purposes. Several
commentators blame the nationality restrictions in NCRPA for deterring parties
interested in forming production joint ventures. Others claim that the problem
stems from a lack of concrete guidelines for analyzing joint venture activity.
Recent Developments
Legislation
The Act is the result of a number of bills introduced in the U.S. House of
Representatives over a three-year period seeking to clarify the treatment of
production joint ventures under the antitrust laws and to eliminate unnecessary
perceptual obstacles to their formation.
As noted above, the Act extends to production joint ventures the coverage and
conditions of the NCRA, legislation that provided similar antitrust
clarification for R&D joint ventures.
The FTC in conjunction with the DOJ conducted public hearings on June 5, 1997
and December 15, 1997 entitled the Joint Venture Project (the "JVP").
The issue addressed at these hearings was 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.
The JVP hearings also focused on the effectiveness of the NCRPA since its
enactment.
The FTC and the DOJ hope to produce new antitrust guidelines or a series of
policy statements for competitor collaborations that would be applicable to a
wide variety of industry settings and flexible enough to apply as industries
continue to evolve and innovate. To date, no formal guidelines or statements
have evolved from the JVP hearings, and neither agency has indicated a possible
publication date of any guidelines or statements.
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