Commission Notice on the concept of full-function joint ventures under Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings
Date: 1998-03-02
Institutions: European Commission
Subjects: competition law, economic concentration, joint venture, merger control, restriction on competition

2.3.98

EN

Official  Journal  of  the  European  Communities

C  66/1

I

(Information)

COMMISSION

on  the  concept  of  full-function  joint  ventures  under  Council  Regulation  (EEC)  No  4064/89
on  the  control  of  concentrations  between  undertakings

COMMISSION  NOTICE

(98/C  66/01)

(Text  with  EEA  relevance)

I. 

INTRODUCTION

II. 

JOINT  VENTURES  UNDER  ARTICLE  3  OF  THE  MERGER  REGULATION

1.  Joint  control

2.  Structural  change  of  the  undertakings

III.  FINAL

I. INTRODUCTION

2. 

1. 

The  purpose  of  this  notice  is  to  provide  guidance
as  to  how  the  Commission  interprets  Article  3  of
Council  Regulation  (EEC)  No  4064/89 (1)  as  last
amended  by  Regulation  (EC)  No  1310/97 (2)
(hereinafter  referred  to  as  the  Merger  Regulation)
in  relation  to  joint  ventures (3).

(1)  OJ  L  395,  30.12.1989,  p.  1,  corrected  version  No  L  257,

21.9.1990,  p.  13.

(2)  OJ  L  180,  9.7.1997,  p.  1.
(3)  The Commission intends, in due course, to provide guidance
on  the  application  of  Article  2(4)  of  the  Merger  Regulation.
Pending the adoption of such guidance, interested parties are
referred  to  the  principles  set  out  in  paragraphs  17  to  20  of
Commission Notice on the distinction between concentrative
and  cooperative  joint  ventures,  OJ  C  385,  31.12.1994,
p.  1.

This  Notice  replaces  the  Notice  on  the  distinction
between  concentrative  and  cooperative 
joint
ventures.  Changes  made  in  this  Notice  reflect  the
amendments  made  to  the  Merger  Regulation  as
well  as  the  experience  gained  by  the  Commission
in  applying  the  Merger  Regulation  since  its  entry
into  force  on  21  September  1990.  The  principles
set  out  in  this  Notice  will  be  followed  and  further
developed  by 
in
individual cases.

the  Commission’s  practice 

3. 

Under  the  Community  competition  rules,  joint
ventures  are  undertakings  which  are 
jointly
controlled  by  two  or  more  other  undertakings (4).
In practice joint ventures encompass a broad range

(4)  The  concept  of  joint  control  is  set  out  in  the  Notice  on  the

concept  of  concentration.

C  66/2

EN

Official  Journal  of  the  European  Communities

2.3.98

4. 

5. 

6. 

of  operations,  from  merger-like  operations  to
cooperation 
functions  such  as
R & D,  production  or  distribution.

for  particular 

Joint  ventures  fall  within  the  scope  of  the  Merger
Regulation  if  they  meet  the  requirements  of  a
concentration  set  out  in  Article  3  thereof.

According  to  recital  23  to  Council  Regulation
(EEC)  No  4064/89  it  is  appropriate  to  define  the
concept  of  concentration  in  such  a  manner  as  to
cover  only  operations  bringing  about  a  lasting
in  the  structure  of  the  undertakings
change 
concerned.

structural 

The 
changes  brought  about  by
concentrations frequently reflect a dynamic process
of restructuring in the markets concerned. They are
permitted under the Merger Regulation unless they
in  serious  damage  to  the  structure  of
result 
competition  by  creating  or 
strengthening  a
dominant  position.

7. 

The  Merger  Regulation  deals  with  the  concept  of
full-function 
in  Article  3(2)  as
follows:

joint  ventures 

‘The  creation  of  a  joint  venture  performing  on  a
lasting  basis  all  the  functions  of  an  autonomous
economic  entity  shall  constitute  a  concentration
within  the  meaning  of  paragraph  1(b).’

II. JOINT  VENTURES  UNDER  ARTICLE  3  OF  THE
MERGER  REGULATION

8. 

In  order  to  be  a  concentration  within  the  meaning
of Article 3 of the Merger Regulation, an operation
must  fulfil  the  following  requirements:

1.  Joint  control

9. 

A  joint  venture  may  fall  within  the  scope  of  the
Merger Regulation where there is an acquisition of
joint control by two or more undertakings, that is,
its  parent  companies  (Article  3(1)(b)).  The  concept
of  control  is  set  out  in  Article  3(3).  This  provides
that  control 
the  possibility  of
exercising  decisive  influence  over  an  undertaking,
which  is  determined  by  both  legal  and  factual
considerations.

is  based  on 

10.  The principles for determining joint control are set
out  in  detail  in  the  Commission’s  Notice  on  the
concept  of  concentration (5).

2.  Structural  change  of  the  undertakings

11.  Article  3(2)  provides  that  the  joint  venture  must
perform,  on  a  lasting  basis,  all  the  functions  of  an
autonomous  economic  entity.  Joint  ventures  which
satisfy  this  requirement  bring  about  a  lasting
change 
in  the  structure  of  the  undertakings
concerned.  They  are  referred  to  in  this  Notice  as
‘full-function’  joint  ventures.

12.  Essentially  this  means  that  a  joint  venture  must
operate  on  a  market,  performing  the  functions
normally carried out by undertakings operating on
the  same  market.  In  order  to  do  so  the  joint
venture  must  have  a  management  dedicated  to  its
day-to-day  operations  and  access  to  sufficient
finance,  staff,  and  assets
resources 
(tangible  and  intangible)  in  order  to  conduct  on  a
lasting  basis  its  business  activities  within  the  area
provided  for  in  the  joint-venture  agreement (6).

including 

13.  A  joint  venture  is  not  full-function  if  it  only  takes
over  one  specific  function  within  the  parent
companies’ business activities without access to the
market.  This  is  the  case,  for  example,  for  joint
ventures  limited  to  R & D  or  production.  Such
their  parent
joint  ventures  are  auxiliary 
companies’ business activities. This is also the case
where  a  joint  venture  is  essentially  limited  to  the
distribution  or  sales  of  its  parent  companies’
products  and,  therefore,  acts  principally  as  a  sales
agency.  However,  the  fact  that  a  joint  venture
makes  use  of  the  distribution  network  or  outlet  of
one or more of its parent companies normally will
not  disqualify  it  as  ‘full-function’  as  long  as  the
parent  companies  are  acting  only  as  agents  of  the
joint  venture (7).

to 

Case 

Voest 

IV/M.585  — 

(6)  Case  IV/M.527  —  Thomson  CSF/Deutsche  Aerospace,  of  2
December  1994  (paragraph  10)  —  intellectual  rights,  Case
IV/M.560 EDS/Lufthansa of 11 May 1995 (paragraph 11) —
outsourcing, 
Alpine
Industrieanlagenbau  GmbH/Davy  International  Ltd,  of  7
September  1995  (paragraph  8)  —  joint  venture’s  right  to
demand  additional  expertise  and  staff  from  its  parent
companies,  Case  IV/M.686  —  Nokia/Autoliv,  of  5  February
1996  (paragraph  7),  joint  venture  able  to  terminate  ‘service
agreements’  with  parent  company  and  to  move  from  site
retained  by  parent  company,  Case  IV/M.791  —  British  Gas
Trading Ltd/Group 4 Utility Services Ltd, of 7 October 1996,
(paragraph  9) 
intended  assets  will  be
transferred  to  leasing  company  and  leased  by  joint  venture.
(7)  Case  IV/M.102  —  TNT/Canada  Post  etc.  of  2  December

joint  venture’s 

(5)  Paragraphs  18  to  39.

1991  (paragraph  14).

2.3.98

EN

Official  Journal  of  the  European  Communities

C  66/3

in 

into 

assessing 

consideration 

14.  The  strong  presence  of  the  parent  companies  in
upstream  or  downstream  markets  is  a  factor  to  be
taken 
the
full-function character of a joint venture where this
presence  leads  to  substantial  sales  or  purchases
between  the  parent  companies  and  the 
joint
venture.  The  fact  that  the  joint  venture  relies
almost  entirely  on  sales  to  its  parent  companies  or
purchases  from  them  only  for  an  initial  start-up
period  does  not  normally  affect  the  full-function
character  of  the  joint  venture.  Such  a  start-up
period  may  be  necessary  in  order  to  establish  the
joint  venture  on  a  market.  It  will  normally  not
exceed  a  period  of  three  years,  depending  on  the
specific  conditions  of  the  market  in  question (8).

to 

in  addition 

trade  markets  may 

companies  which  specialise  in  the  selling  and
distribution  of  products  without  being  vertically
integrated 
those  which  are
integrated,  and  where  different  sources  of  supply
are  available  for  the  products  in  question.  In
addition,  many 
require
operators  to  invest  in  specific  facilities  such  as
outlets, 
depots,
stockholding,  warehouses, 
transport  fleets  and  sales  personnel.  In  order  to
constitute  a  full-function  joint  venture  in  a  trade
market,  an  undertaking  must  have  the  necessary
facilities  and  be  likely  to  obtain  a  substantial
proportion  of  its  supplies  not  only  from  its  parent
competing
companies  but  also 
sources (10).

from  other 

Where  sales  from  the  joint  venture  to  the  parent
companies  are  intended  to  be  made  on  a  lasting
basis,  the  essential  question  is  whether,  regardless
of these sales, the joint venture is geared to play an
active  role  on  the  market.  In  this  respect  the
relative  proportion  of  these  sales  compared  with
the  total  production  of  the  joint  venture  is  an
important  factor.  Another  factor  is  whether  sales
to  the  parent  companies  are  made  on  the  basis  of
normal  commercial  conditions (9).

15. 

the 

its  parent  companies, 

In  relation  to  purchases  made  by  the  joint  venture
from 
full-function
character  of  the  joint  venture  is  questionable  in
particular  where 
is  added  to  the
little  value 
products  or  services  concerned  at  the  level  of  the
joint  venture  itself.  In  such  a  situation,  the  joint
venture  may  be  closer  to  a  joint  sales  agency.
However, in contrast to this situation where a joint
venture  is  active  in  a  trade  market  and  performs
the normal functions of a trading company in such
a market, it normally will not be an auxiliary sales
agency  but  a  full-function  joint  venture.  A  trade
the  existence  of
market 

is  characterised  by 

(8)  Case 

IV/M.560  —  EDS/Lufthansa  of  11  May  1995
(paragraph 11); Case IV/M.686 Nokia/Autoliv of 5 February
1996 (paragraph 6); to be contrasted with Case IV/M.904 —
RSB/Tenex/Fuel Logistics of 2 April 1997 (paragraph 15-17)
and  Case  IV/M.979  —  Preussag/Voest-Alpine  of  1  October
1997  (paragraph  9-12).  A  special  case  exists  where  sales  by
the joint venture to its parent are caused by a legal monopoly
downstream  of  the 
joint  venture  (Case  IV/M.468  —
Siemens/Italtel  of  17  February  1995  (paragraph  12),  or
where  the  sales  to  a  parent  company  consist  of  by-products,
which  are  of  minor  importance  to  the  joint  venture  (Case
IV/M.550  —  Union  Carbide/Enichem  of  13  March  1995
(paragraph  14).

(9)  Case  IV/M.556  —  Zeneca/Vanderhave  of  9  April  1996
(paragraph 8); Case IV/M.751 — Bayer/Hüls of 3 July 1996
(paragraph  10).

to 

the 

joint  venture 

joint  venture 

Furthermore, the joint venture must be intended to
operate on a lasting basis. The fact that the parent
companies  commit 
the
resources  described  above  normally  demonstrates
that this is the case. In addition, agreements setting
up  a 
joint  venture  often  provide  for  certain
contingencies,  for  example,  the  failure  of  the  joint
venture  or  fundamental  disagreement  as  between
the parent companies (11). This may be achieved by
the  incorporation  of  provisions  for  the  eventual
dissolution  of  the 
itself  or  the
possibility  for  one  or  more  parent  companies  to
withdraw  from  the  joint  venture.  This  kind  of
provision  does  not  prevent  the  joint  venture  from
being  considered  as  operating  on  a  lasting  basis.
The  same  is  normally  true  where  the  agreement
specifies  a  period  for  the  duration  of  the  joint
venture  where  this  period  is  sufficiently  long  in
order  to  bring  about  a  lasting  change  in  the
structure  of  the  undertakings  concerned (12),  or
where  the  agreement  provides  for  the  possible
continuation  of  the  joint  venture  beyond  this
period.  By  contrast,  the  joint  venture  will  not  be
considered to operate on a lasting basis where it is
established  for  a  short  finite  duration.  This  would
be  the  case,  for  example,  where  a  joint  venture  is
established  in  order  to  construct  a  specific  project
such  as  a  power  plant,  but  it  will  not  be  involved
in  the  operation  of  the  plant  once  its  construction
has  been  completed.

(10) Case  IV/M.788  —  AgrEVO/Marubeni  of  3  September  1996

(paragraphs  9  and  10).

(11) Case  IV/M.891  —  Deutsche  Bank/Commerzbank/J.M.  Voith

of  23  April  1997  (paragraph  7).

(12) Case  IV/M.791  —  British  Gas  Trading  Ltd/Group  4  Utility
Services  Ltd  of  7  October  1996,  (paragraph  10);  to  be
contrasted  with  Case 
IV/M.722  —  Teneo/Merill
Lynch/Bankers  Trust  of  15  April  1996  (paragraph  15).

C  66/4

EN

Official  Journal  of  the  European  Communities

2.3.98

III. FINAL

16.  The  creation  of  a  full-function 

joint  venture
constitutes  a  concentration  within  the  meaning  of
Article  3  of  the  Merger  Regulation.  Restrictions
accepted  by  the  parent  companies  of  the  joint
venture  that  are  directly  related  and  necessary  for
the implementation of the concentration (‘ancillary
restrictions’),  will  be  assessed  together  with  the
concentration  itself (13).

Further,  the  creation  of  a  full-function 
joint
venture  may  as  a  direct  consequence  lead  to  the
coordination  of  the  competitive  behaviour  of
undertakings  that  remain  independent.  In  such
cases  Article  2(4)  of  the  Merger  Regulation
provides  that  those  cooperative  effects  will  be
the
assessed  within 
concentration.  This  assessment  will  be  made  in

the  same  procedure  as 

accordance  with  the  criteria  of  Article  85(1)  and
(3)  of  the  Treaty  with  a  view  to  establishing
whether  or  not  the  operation  is  compatible  with
the  common  market.

The  applicability  of  Article  85  of  the  Treaty  to
other  restrictions  of  competition,  that  are  neither
the  concentration,  nor  a  direct
ancillary 
consequence  of  the  creation  of  the  joint  venture,
will  normally  have  to  be  examined  by  means  of
Regulation  No  17.

to 

17.  The Commission’s interpretation of Article 3 of the
Merger Regulation with respect to joint ventures is
without  prejudice  to  the  interpretation  which  may
be  given  by  the  Court  of  Justice  or  the  Court  of
First  Instance  of  the  European  Communities.

(13) See  Commission  Notice  regarding  restrictions  ancillary  to

concentrations,  OJ  No  C  203,  14.8.1990,  p.  5.