Opinion ID: 678902
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Heading: Joint Ventures and Section I

Text: 22 Section 1 forbids agreements in restraint of trade. 5 Read costively, section 1 might prohibit every conceivable contract or combination ... anywhere in the whole field of human activity. Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 60, 31 S.Ct. 502, 516, 55 L.Ed. 619 (1911). However, the 'rule of reason' limits the Act's literal words by forbidding only those arrangements the anticompetitive consequences of which outweigh their legitimate business justifications. Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 486 (1st Cir.1988) (citing 7 P. Areeda & D. Turner Antitrust Law p 1500, at 362-63 (1978)), cert. denied, 488 U.S. 1007 (1989). Hence, when we ask if a particular practice is reasonable or unreasonable, or if the practice is anticompetitive, we use these terms with special antitrust meaning reflecting the Act's basic objectives, the protection of a competitive process that brings to consumers the benefits of lower prices, better products, and more efficient production methods. Id. at 486. In this lexicon, a practice ultimately judged anticompetitive is one which harms competition, not a particular competitor. Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 cert. denied, 429 U.S. 1090, 97 S.Ct. 1099, 51 L.Ed.2d 535 (1977); Brown Shoe Co. v. United States, 370 U.S. 294, 319-20, 82 S.Ct. 1502, 1521-21, 8 L.Ed.2d 510 (1962). 23 Of course, reasonability is of no consequence when certain practices, for example, price fixing, are entirely void of redeeming competitive rationales. These we deem per se illegal under section 1, no offsetting economic or efficiency justifications salvaging them. This per se approach permits categorical judgments with respect to certain business practices that have proved to be predominantly anticompetitive. Northwest Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 289, 105 S.Ct. 2613, 2617, 86 L.Ed.2d 202 (1985). 24 The sharp line between per se and rule of reason analysis, however, especially blurs under section 1 when the actors change. In the case of a joint venture, present here in the Visa USA association, competitive incentives between independent firms are intentionally restrained and their functions and operations integrated to achieve efficiencies and increase output. See Joseph F. Brodley, Joint Ventures and Antitrust Policy, 95 Harv.L.Rev. 1523, 1524 (1982). Although virtually any collaborative activity among business firms may be called a joint venture, joint ventures differ from mergers and cartels 25 by the extent to which they integrate the resources of their partners. A cartel constitutes a naked agreement among competitors unaccompanied by any integration of resources. In a joint venture, partners contribute assets, such as, capital, technology, or production facilities to a common endeavor. This integration of resources creates economic efficiencies that cannot be achieved by naked agreements among competitors. Indeed, the efficiencies created by joint ventures are similar to those resulting from mergers--risk-sharing, economies of scale, access to complementary resources and the elimination of duplication and waste. Joint ventures, however, differ from mergers in a critical way: because they are less integrated than mergers, they allow their partners to continue to compete with each other in the relevant market. 26 Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures, 76 Minn.L.Rev. 1, 7 (1991) (italics added). The whole becomes greater than the sum of its parts. However, at its center remains an agreement among competitors to eliminate competition in some way. 27 The Supreme Court has recognized this tension in its evolving treatment of allegedly anticompetitive agreements by joint ventures. In Broadcast Music, Inc. v. Columbia Broadcasting, Inc., 441 U.S. 1, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) (BMI), the Court refused to condemn under a per se analysis blanket licenses which amounted to price fixing among the participants. The joint venture, the American Society of Composers, Authors and Publishers (ASCAP), was created as a clearinghouse through which individual music copyright owners licensed their compositions, and ASCAP then monitored the use of their work. Virtually all participants in the copyright music market participated in ASCAP. However, eschewing per se treatment, the Court acknowledged, Joint ventures and other cooperative arrangements are also not usually unlawful, at least not as price-fixing schemes, where the agreement on price is necessary to market the product at all. Id. at 23, 99 S.Ct. at 1564. Viewed in this light, the efficiency justification of increasing the aggregate output in the market rendered the agreement procompetitive. 28 Similarly, in NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984), the Court held inappropriate the application of per se treatment to the NCAA's horizontal price fixing and output limitation of the number of games college football teams could negotiate to televise. Again the Court recognized the horizontal restraint on competition was essential to make the product available at all. Id. at 101, 104 S.Ct. at 2960. Under a rule of reason analysis, however, the rule decreased output and had the effect of increasing prices. While cooperation may be necessary and justified, the Court suggested it fit a different mold, such as, rules defining the condition of the contest, the eligibility of participants, or the manner in which members of a joint enterprise shall share the responsibilities and the benefits of the total venture. Id. at 117, 104 S.Ct. at 2969. 29 Finally, in Northwest Wholesale Stationers, 472 U.S. at 284, 105 S.Ct. at 2613, the Court looked at the economic efficiency justifications of a joint purchasing cooperative to determine the anticompetitive effect of its expelling a member who did not comply with one of the cooperative's rules. Rejecting per se condemnation, the Court suggested the disclosure rule which excluded plaintiff from membership might be necessary to monitor the creditworthiness of the cooperative's members. Wholesale purchasing cooperatives must establish and enforce reasonable rules in order to function effectively.... Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted. Id. at 296, 105 S.Ct. at 2620-21 (citations omitted). 30 In rejecting automatic per se treatment in these joint venture cases, 6 the Court directs us instead to look at the challenged agreement to judge whether it represents the essential reason for the competitors' cooperation or reflects a matter merely ancillary to the venture's operation; whether it has the effect of decreasing output; and whether it affects price. Underlying these cases is an effort to appreciate the economic reality of the particular business behavior to assure that the procompetitive goals, in fact, are neither undervalued nor mask a reduction in competition. Key to the analysis of the competitive significance of the restraint, NCAA, 468 U.S. at 103, 104 S.Ct. at 2961 (quoting National Soc'y of Professional Eng'r v. United States, 435 U.S. 679, 692, 98 S.Ct. 1355, 1365, 55 L.Ed.2d 637 (1978)), is the Court's appreciation that the horizontal restraint may be essential to create the product in the first instance. That understanding properly values the proprietary rights and incentives for innovation embodied by the joint venture as well as concerns about free-riding, the diversion of value from a business rival's efforts without payment. Chicago Professional Sports Ltd. Partnership v. NBA, 961 F.2d 667, 675 (7th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 409, 121 L.Ed.2d 334 (1992). 31 We do not read the Court's precedent involving joint ventures to imply any special treatment or differing antitrust analysis. 7 Indeed, aside from clarifying the inappropriateness of automatically invoking per se scrutiny of a joint venture's alleged antitrust violation, the Court has not articulated a different rule of reason approach. Thus, under the Court's precedent, cooperative business activity in one setting may permit its participants to achieve market efficiencies or economies of scale, while in another, a similar activity might run afoul under rule of reason review. 32 Again, in the context of section 1, the focus of the procompetitive justifications for the business practice remains the ultimate consumer. To be judged anticompetitive, the agreement must actually or potentially harm consumers. Stamatakis Indus., Inc. v. King, 965 F.2d 469 (7th Cir.1992). That concept cannot be overemphasized and is especially essential when a successful competitor alleges antitrust injury at the hands of a rival. Indeed, [w]henever producers invoke the antitrust laws and consumers are silent, this inquiry becomes especially pressing. Chicago Professional Sports, 961 F.2d at 670.