Increasingly, competitor firms have been joining together in order to achieve their goals such as expanding into foreign markets, funding expensive innovation efforts, and lowering production and other costs. Seeking to provide clarity regarding the treatment of such joint ventures among business rivals, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice (collectively, the "Agencies") recently issued guidelines for such ventures in draft form in order to solicit comments and advice from businesses, consumers and antitrust practitioners.

Through the Antitrust Guidelines for Collaborations among Competitors (the "Guidelines"), the Agencies intend to provide businesses with a general statement of their analytical approach to such competitor joint ventures and to assist them in assessing the likelihood of an antitrust challenge to those ventures. These Guidelines "should enable businesses to evaluate proposed transactions with greater understanding of possible antitrust implications, thus encouraging procompetitive collaborations, deterring collaborations likely to harm competition and consumers, and facilitating the Agencies’ investigations of collaborations." Guidelines, p. 2.

Competitor collaborations are distinct from mergers because 1) the participants remain potential competitors and perhaps actual competitors for some purposes; and 2) the collaboration typically is only for a limited period of time. Accordingly, the Agencies will analyze a collaboration under a different analytical framework than a merger review unless the collaboration causes competitive effects similar to those resulting from a merger. A collaboration will be reviewed as a horizontal merger in a relevant market pursuant to the Horizontal Merger Guidelines if:

Where the collaboration affects a market or markets in which the parties currently do not compete, the collaboration’s effects will be analyzed as appropriate under the new Guidelines or other applicable precedent. Guidelines, p. 5.

The Guidelines announce four general principles for the evaluation of agreements among competitors: 1) the potential procompetitive benefits; 2) the potential anticompetitive harms; 3) the overall collaboration and the agreements of which it consists; and 4) the competitive effects as assessed as of the time of possible harm to competition. In brief, these principles entail the following:

• Potential Procompetitive Benefits:  Potential benefits to consumers include greater selection of products, more competitive pricing, and products of higher quality. In addition, businesses may experience efficiency gains from combinations of different capabilities and resources.
• Potential Anticompetitive Harms:  Potential harms to competition include increasing the ability or incentive profitably to raise prices or reduce output, quality, service, or innovation; limiting independent decision making or combining the control of or financial interests in production, key assets, or decisions regarding price, output or other competitively sensitive variables, or otherwise reducing the parties’ ability or incentive to compete independently. Furthermore, competitors who collaborate are likely to exchange or disclose competitively sensitive information or experience increased market concentration which may result in greater opportunity to collude, explicitly or tacitly.
• Overall Collaboration and the Agreements of Which It Consists: The Agencies will evaluate the competitive effects of the overall collaboration and any agreements involved that may produce harm to competition. According to the Guidelines, "two or more agreements are assessed together if their procompetitive benefits or anticompetitive harms are so intertwined that they cannot meaningfully be isolated and attributed to any individual agreement." Guidelines, p. 7.
• Competitive Effects as Assessed as of the Time of Possible Harm to Competition: The Agencies declare their right to evaluate a competitor collaboration at virtually any time, not merely at the formation of the venture. The Agencies observe that the competitive effects of the agreements may change over time. Thus, the collaboration will be scrutinized "as of the time of possible harm to the competition, …as appropriate." Guidelines, p. 7. The Guidelines assure, however, that: "[A]n assessment after a collaboration has been formed is sensitive to the reasonable expectations of participants whose significant sunk cost investments in reliance on the relevant agreement were made before it became anticompetitive." Id.

Collaborations among competitors will either be found per se illegal or evaluated under the rule of reason analysis. Agreements that are challenged as per se illegal are those that "are so likely to be harmful to competition and to have no significant benefits that they do not warrant the time and expense required for particularized inquiry into their effects." Guidelines, p. 7. Per se illegal agreements typically include those that always or almost always tend to raise price or reduce output (such as price fixing agreements), and those that share or divide markets by allocating customers, suppliers, territories or lines of commerce. Under certain circumstances, however, even these types of agreements may be given a more flexible, far-reaching review. For example, under the Guidelines, the rule of reason analysis will be applied if parties in an efficiency-enhancing integration of economic activity enter into an agreement that is 1) reasonably related to the integration and 2) reasonably necessary to achieve its procompetitive benefits. Certain procompetitive benefits cognizable under the efficiencies analysis resulting from a collaboration may offset an agreement’s anticompetitive tendencies. The Agencies note, however, that it is the nature of the conduct, not its designation, which controls their analysis; the mere label of joint venture will not shield from inquiry a collaboration that serves to increase prices or reduce output.

Unlike the determination of per se illegality, the rule of reason analysis involves an in-depth scrutiny and inquires about the state of competition with, as compared to without, the relevant agreement. Under the rule of reason, the main issue is "whether the relevant agreement likely harms competition by increasing the ability or incentive profitably to raise price above, or reduce output, quality, service or innovation below, what likely would prevail in the absence of the relevant agreement." Guidelines, p. 8.

The Agencies propose that a rule of reason analysis of a competitor collaboration involve investigation of the following elements:

• Nature of the relevant agreement, e.g., business purpose, operation in the marketplace, and possible competitive concerns
• Relevant agreements that limit independent decision-making or combine control or financial interests:
• Relevant agreements that may facilitate collusion
• Relevant markets affected by the Collaboration, e.g., goods markets, technology markets, R&D/innovation markets
• Market shares and market concentration;
• Factors relevant to the ability and incentive of the participants and the collaboration to compete, including:
• exclusivity
• control over assets
• financial interests in the collaboration or in other participants
• control of the collaboration’s competitively significant decision-making
• likelihood of anticompetitive information sharing
• duration of the collaboration
• Entry Barriers
• Procompetitive benefits of the collaboration
• Cognizable efficiencies must be verifiable and potentially procompetitive
• Reasonable necessity and less restrictive alternative
• Overall competitive effect

Finally, the Guidelines propose two "antitrust safety zones." One safety zone is applicable to any competitor collaboration where the market shares of the collaboration and its participants collectively account for no more than twenty percent of each relevant market in which competition may be affected. The second is applicable to research and development collaborations whose competitive effects are analyzed within an innovation market. The Agencies will not challenge these two types of collaborations "absent extraordinary circumstances." The safety zones are "designed to provide participants in a competitor collaboration with a degree of certainty in those situations in which anticompetitive effects are so unlikely that the Agencies presume the arrangements to be lawful without inquiring into particular circumstances." Guidelines, p. 26. Exceptions to each safety zone are agreements that are per se illegal, or that would be challenged without a detailed market analysis, or to competitor collaborations to which a merger analysis is applied.

The FTC and the DOJ request that parties interested in submitting views regarding the new Guidelines for Collaborations among Competitors do so by January 5, 2000.