How antitrust law affects international joint ventures - review of six antitrust laws

Business America, Nov 21, 1988 by Robert H. Brumley

The competitiveness of U.S. goods and services, especially in the field of science and technology, can often be enhanced by the use of joint ventures. However, careful planning may be needed to ensure that a joint venture does not raise concerns under U.S. antitrust law.

Why should U.S. businesses consider the formation of an international joint venture? A joint venture can spread the risks of international trade. U.S. businesses may find that by combining their different strengths they can compete more successfully. Often, a joint venture can achieve important economies of scale that assist U.S. firms in competing with larger foreign firms, or with foreign joint ventures.

U.S. businesses considering the formation of international joint ventures need to be aware of the potential effect of our antitrust laws on the proposed venture. The purpose of U.S. antitrust law is to protect and foster competition. The Antitrust Division of the U.S. Department of Justice has never challenged a pure research and development international joint venture. In general, the less effect a joint venture will have on U.S. markets, and the fewer issues it raises concerning applied research, the more likely it is that the venture will be acceptable under U.S. antitrust laws.

Six basic antitrust laws can affect international joint ventures; brief summaries follow:

* Section 5 of the Federal Trade Commis

sion Act prohibits unfair methods of competition in or affecting commerce and also unfair or deceptive acts in or affecting commerce.

* Section 1 of the Sherman Act sets forth the basic antitrust prohibition against contracts, combinations, or conspiracies "in restraint of trade or commerce among the several States, or with foreign nations." Section 2 of the Sherman Act prohibits monopolization, attempts to monopolize, and conspiracies to monopolize "any part of trade or commerce among the several States, or with foreign nations." Section 6a defines the jurisdictional research of the Sherman Act with respect to non-import foreign commerce.

* Section 7 of the Clayton Act expands on the general prohibitions of the Sherman Act by prohibiting any merger or acquisition "where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly."

* The Hart-Scott-Rodino Antitrust Improvements Act of 1976 ("H-S-R Act") amended the Clayton Act by providing the Department of Justice and the Federal Trade Commission with several procedural devices to facilitate enforcement of the antitrust laws with respect to anticompetitive mergers and acquisitions. The H-S-R Act requires businesses to notify the Department of Justice and the Federal Trade Commission of proposed mergers or acquisitions that would exceed certain thresholds concerning the size of the parties and the size of the transaction,

* The National Cooperative Research Act of 1984 clarifies substantive application of U.S. antitrust laws to joint research and development (R&D) activities. Of all the antitrust laws listed here, the National Cooperative Research Act of 1984 (NCRA) is the most important to international technology joint ventures. Congress recognized that cooperative research and development efforts may improve productivity, bring better products to consumers sooner and at a lower cost, and foster technology innovation. The NCRA significantly improved the legal climate for joint research and development ventures. Ordinarily, treble damages may be imposed for a violation of the U.S. antitrust laws. The NCRA provides that only actual damages, and not treble damages, may be awarded for an antitrust violation if the parties to a joint research and development venture file a notification with the Department of Justice or Federal Trade Commission disclosing the nature of the joint venture.

Further, the NCRA requires the application of the "rule of reason" to joint R&D ventures. This means that if a venture is challenged the court will consider the procompetitive effects of a joint research and development venture as well as the anticompetitive effects. The application of the rule of reason assures a balancing of all factors by the court in examining whether or not a joint research and development joint venture has violated the law.

* Title III of the Export Trading Company Act of 1982 (ETC Act) is also important to international joint ventures. Under the ETC Act, any person engaged in U.S. export trade can apply for an export trade certificate of review. A certificate of review, issued by the Secretary of Commerce with the concurrence of the Attorney General, confers immunity from governmental criminal and civil suits under state and federal antitrust laws for activities that are specified in and comply with the certificate.

In addition, a certificate holder can only be sued for actual damages, not treble damages. A certificate of review will be issued to any applicant that shows that its proposed export conduct will not have domestic anticompetitive effects.