Joint Ventures and EU Competition Law 9781472561541, 9781841137933

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Table of Contents List of Abbreviations .............................................................................................................. xiii Table of Cases ........................................................................................................................ xvii Table of Legislation ................................................................................................................xxv General Notes on the Text ....................................................................................................xxxv Introduction ......................................................................................................................... 1 1 Objectives of the Research in this Book ..............................................................................1 1.1 General Aspects of Joint Ventures in the Context of Cooperation between Undertakings ...................................................................................................1 1.2 How to Define the Category of Joint Venture in the Field of Competition Law and in Other Areas of Law..........................................................4 1.3 The Treatment of Joint Ventures under EU Competition Law ...................................5 1.4 The Treatment of Joint Ventures and Changes in EU Competition Law.................................................................................................8 1.4.1 The Various Phases of Evolution of EU Competition Law ...............................8 1.4.2 The Treatment of Joint Ventures Before and After the Adoption of the EU Merger Control Regulation .......................................12 1.4.3 Treatment of Joint Ventures Focused on Article 101 TFEU ............................17 1.5 The Building of a General Model of Evaluation of Joint Ventures under Competition Law Rules and the Transition to a New Stage of EU Competition Law ..............................................................................................17 1.6 Particular Features of Joint Ventures in the Financial Sector....................................19 2 Methodology .......................................................................................................................20 3 Structure of the Book .........................................................................................................23 Chapter 1 The Concept of Joint Ventures in Competition Law ................................... 25 1 Introduction—The Inherent Vagueness of the Concept of Joint Venture in US Antitrust Law and EU Competition Law ................................................................25 1.1 Relevant Definitions of the Concept of Joint Venture in Competition Law .......................................................................................27 1.2 Distinctive Features of the Concept of Joint Venture—A Preliminary View.....................................................................................28 1.3 Factors Underlying the Vagueness of the Concept of Joint Venture in Competition Law .........................................................................30 1.4 Different Legal Models of Structuring Cooperation Links between Undertakings—The Creation of Joint Ventures and their Underlying Goals .........................................................................31 1.4.1 The Emergence of the ‘Joint Venture’ Nomen Juris in Various Legal Systems ....................................................................................31 1.4.2 Structuring Cooperation through Joint Ventures as a Common Form of Innominate or Atypical Contract.......................................51

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1.4.3 The Basic Constituent Elements of Different Joint Venture Structures as a Socially Recurrent Type of Contract (Statutory Atypical) ..............................................................60 1.4.4 The Joint Venture Category in the Context of Cooperation between Undertakings—Comprehensive Overview ........................................92 2 The Concept of Joint Venture and the Concept of Undertaking in EU Competition Law...........................................................................96 2.1 General Perspective ......................................................................................................96 2.1.1 The Key Elements of the Concept of Undertaking in Competition Law and the Joint Venture Category ......................................96 2.1.2 Clarification of the Concept of Single Economic Unit When Applied to Joint Ventures .............................................................103 3 The Dual Treatment of Joint Ventures in EU Competition Law ...................................107 3.1 Systemic Approaches to Joint Ventures in US Antitrust Law and EU Competition Law..........................................................................................107 3.1.1 General Perspective ..........................................................................................107 3.2 The Two Fundamental Categories of Joint Ventures in EU Competition Law.............................................................................................111 3.2.1 The Systematic Divide Arising from the Adoption of the MCR ...................111 3.2.2 The Limits of Convergence in the Systematic Treatment of Joint Ventures in EU Competition Law......................................................114 4 The Basic Elements of a Legal Definition of Joint Venture in EU Competition Law ...................................................................................................119 4.1 Introductory Remarks ...............................................................................................119 4.2 Initial References to the Concept of Joint Venture in Guidelines and Reports on Competition Policy .........................................................................120 4.2.1 First Formal References to Joint Ventures ......................................................120 4.2.2 Elements of Characterization of Joint Ventures in Reports on Competition Policy ..................................................................121 4.3 The Concept of Joint Venture Arising from Various Regulations in the Field of EU Competition Law ........................................................................123 4.3.1 Joint Ventures and Block Exemption Regulations..........................................123 4.3.2 Elements Relevant to Establishing a Legal Concept of Joint Venture as Dealt with in other EU Regulations..............................................124 4.4 Elements of a Legal Definition of Joint Venture in the EU Merger Control Regulation .......................................................................................125 4.4.1 The Adoption of the EU Merger Control Regulation Setting the Basis for a First Legal Definition of the Joint Venture Category in EU Competition Law...................................................................125 4.4.2 The Reforms of the EU Merger Control Regulation; its Impact on the Legal Definition of Joint Ventures; and Parallel Developments...............................................................................128 4.5 The Legal Definition of Joint Venture in the Competition Law of other Jurisdictions .................................................................................................133 4.5.1 General Overview .............................................................................................133 4.5.2 The Legal Definition of Joint Venture in US Antitrust Law .........................................................................................134

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4.5.3 The Legal Definition of Joint Venture Arising from Guidelines Adopted in the Context of US Antitrust Law ..............................137 4.6 The Legal Definition of Joint Venture Arising from Guidelines Adopted in the Context of EU Competition Law ....................................................143 4.6.1 General Overview—The Guidelines on the Concept of Full Function Joint Ventures .......................................................................143 4.6.2 Other Relevant Guidelines in the Field of Concentration Control...............151 4.6.3 Commission Guidelines on the Assessment of Cooperative Joint Ventures .........................................................................153 5 The Definition of Joint Venture in EU Competition Law—Conclusion ......................156 5.1 Overview .....................................................................................................................156 5.2 The Ratio Underlining the Autonomy of the Joint Venture Category in a Middle Ground between Cooperation and Concentration of Undertakings .........................................................................157 5.3 Proposed Approach for the Definition of Joint Venture .........................................159 5.3.1 The Key Elements of the Proposed Concept of Joint Venture in the Context of EU Competition Law .........................................................159 5.3.2 The Praxis of Identifying and Assessing the Key Elements of the Definition of Joint Venture ...................................................................161 5.3.3 The Time Horizon of Cooperation of Undertakings and its Relevance for the Definition of Joint Venture ................................................163 5.4 Final Conclusion ........................................................................................................165 Chapter 2 An Analytical Model for the Assessment of Joint Ventures in EU Competition Law ............................................................................... 169 1 The Substantive Assessment of Competitive Effects of Joint Ventures—General Perspective ..........................................................................169 1.1 Introductory Remarks—Reasons for Privileging the Assessment of Joint Ventures under Article 101 TFEU ...............................................................169 1.2 The Key Legal Tests for the Substantive Assessment of Anticompetitive Effects of Joint Ventures ............................................................................................172 1.3 The First Fundamental Dimension of Assessment of Joint Ventures .....................174 1.4 The Second Fundamental Dimension of Assessment of Joint Ventures and the Focus of My Analysis ....................................................................176 1.5 The Treatment of Joint Ownership of Undertakings Without Joint Control ...............................................................................................182 1.6 General Overview of the Analysis to be Developed .................................................183 2 The Main Elements of the Proposed Analytical Model for the Assessment of Joint Ventures ...............................................................................184 2.1 General Remarks ........................................................................................................184 2.2 First Stage of Analysis of Joint Ventures—Types of Situations Not Usually Prohibited ..............................................................................................185 2.2.1 Preliminary Considerations on the Delineation of a First Level of Analysis of Joint Ventures in Light of the 2001 and 2011 Horizontal Cooperation Guidelines................................................................185 2.2.2 Relevance and Shortcomings of the Revised 2011 Horizontal Cooperation Guidelines to My Analytical Model of Joint Ventures ...................................190

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2.3 First Stage of Joint Venture Analysis—Types of Situations Usually Prohibited under EU Competition Rules....................................................192 2.3.1 First Stage of Joint Venture Analysis and Normally Prohibited Joint Ventures.................................................................................192 2.3.2 Normally Prohibited Joint Ventures vis a vis Restrictions of Competition by Object in General in the 2011 Horizontal Guidelines ......................................................................................194 2.4 The Situations that May be Prohibited under Article 101, Paragraph 1 TFEU and the Successive Stages of Joint Venture Assessment in My Analytical Model ...........................................................196 2.4.1 Preliminary Remarks........................................................................................196 2.4.2 The Second Stage of Analysis of Joint Ventures .............................................198 2.4.3 The Third Stage of Analysis of Joint Ventures................................................204 2.4.4 Third and Complementary Stages of Analysis of Joint Ventures—The Analytical Parameter Based on the Relation of the Joint Venture to the Parents’ Markets...................................................214 2.4.5 Other Complementary Analytical Elements...................................................221 2.4.6 Conditions or Remedies Imposed on Undertakings Participating in Joint Ventures .........................................................................227 Chapter 3 The Substantive Assessment of Different Types of Joint Ventures under Article 101 TFEU............................................................................... 231 1 General Overview .............................................................................................................231 1.1 Envisaged Sequential Analysis ...................................................................................231 1.2 The Particular Relevance of Specific Types of Joint Ventures According to their Prevailing Economic Function ..................................................234 1.3 The Main Types of Risks of Anticompetitive Effects Arising from Joint Ventures ....................................................................................................237 1.4 The Fundamental Analytical Tools Applicable to Partial Function Joint Ventures on the Basis of the Prevailing Economic Function of Such Joint Ventures .............................................................238 2 Research and Development Joint Ventures .....................................................................242 2.1 Introductory Remarks—How to Define and Qualify Research and Development Joint Ventures ..............................................................242 2.2 Typical Goals Underlying the Creation of Research and Development Joint Ventures ..............................................................................245 2.2.1 The European Commission View....................................................................245 2.2.2 Critical and Systemic View of the Chief Aims Underlying the Creation of Research and Development Joint Ventures ..........................246 2.3 Analytical Model for the Antitrust Assessment of Research and Development Joint Ventures ..............................................................................251 2.3.1 The Analytical Model Proposed—Overview and First Stage of Analysis .....251 2.3.2 Main Anticompetitive Risks Arising from Research and Development Joint Ventures ....................................................................254 2.3.3 First Level of Analysis of Research and Development Joint Ventures—Categories of Joint Ventures Normally Allowed (Not Falling Under Article 101, Paragraph 1 TFEU) .....................................258

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2.3.4 First Level of Analysis of Research and Development Joint Ventures—Categories of Joint Ventures Normally Prohibited (Almost Always Falling under Article 101, Paragraph 1 TFEU) ...................273 2.3.5 Research and Development Joint Ventures that Require Further Analysis..................................................................................277 3 Production Joint Ventures ................................................................................................340 3.1 General overview—How to Define and Qualify Production Joint Ventures .........................................................................................340 3.1.1 The Concept of Production Joint Venture......................................................340 3.1.2 Overall Characterization of Production Joint Ventures.................................342 3.2 Typical Goals Underlying the Creation of Production Joint Ventures ...................344 3.2.1 The European Commission View....................................................................344 3.2.2 Critical and Systemic View of the Chief Goals Underlying the Creation of Production Joint Ventures .....................................................346 3.3 Analytical Model for the Antitrust Assessment of Production Joint Ventures .............................................................................................................350 3.3.1 First Level of Analysis of Production Joint Ventures—Categories of Joint Ventures Normally Allowed (Not Falling under Article 101, Paragraph 1 TFEU) ......................................................................350 3.3.2 Chief Risks of Anticompetitive Effects Arising from Production Joint Ventures ...............................................................................352 3.3.3 First Stage of Analysis of Production Joint Ventures—Categories of Joint Ventures Normally Permitted (Not Falling under Article 101, Paragraph 1 TFEU) ......................................................................358 3.3.4 First Level of Analysis of Production Joint Ventures—Categories of Joint Ventures Normally Prohibited (Almost Always Falling under Article 101, Paragraph 1 TFEU) ...........................................................365 3.3.5 Production Joint Ventures that Need Further Analysis .................................367 4 Commercialization Joint Ventures...................................................................................399 4.1 General Overview.......................................................................................................399 4.1.1 How to Define and Qualify Commercialization Joint Ventures ...................................................................................................399 4.1.2 The Distinction between Commercialization Joint Ventures and Several Forms of Joint Commercialization Agreements ........................401 4.1.3 The Distinction between Commercialization Joint Ventures that Cover Joint Selling and Commercialization Joint Ventures with Narrower Functions .................................................................405 4.1.4 Complementary Systemic Qualification of Subcategories of Commercialization Joint Ventures..............................................................408 4.1.5 The Organizational and Functional Diversity of Commercialization Joint Ventures and its Main Consequences ....................................................410 4.2 Typical Aims Underlying the Creation of Commercialization Joint Ventures .............................................................................................................411 4.2.1 The European Commission View....................................................................411 4.2.2 Critical and Systemic View of the Chief Goals Underlying the Creation of Commercialization Joint Ventures........................................411

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4.3 Analytical Model for the Antitrust Assessment of Commercialization Joint Ventures .............................................................................................................415 4.3.1 First Level of Analysis of Commercialization Joint Ventures—Categories of Joint Ventures Normally Allowed (Not Falling under Article 101, Paragraph 1 TFEU)......................................415 4.3.2 Chief Risks of Anticompetitive Effects Arising from Commercialization Joint Ventures ..................................................................417 4.3.3 Commercialization Joint Ventures Normally Prohibited (Almost Always Falling under Article 101, Paragraph 1 TFEU) ...................422 4.3.4 Commercialization Joint Ventures Normally Permitted (Not Falling under Article 101, Paragraph 1 TFEU)......................................423 4.3.5 Specific Factors to be Taken into Consideration for the Assessment of Commercialization Joint Ventures ...................................426 4.3.6 Reasons for Rejecting a Negative Pre-Established Hermeneutical Understanding of Commercialization Joint Ventures....................................427 4.4 Commercialization Joint Ventures that Need Further Analysis ..............................428 4.4.1 General Overview .............................................................................................428 4.4.2 The Participating Undertakings’ Market Share Criterion..............................428 4.4.3 Third Level of Analysis of Commercialization Joint Ventures ......................429 4.4.4 Complementary Levels of Analysis of Commercialization Joint Ventures ...................................................................................................450 4.4.5 Critical Analysis of Relevant Case Law in the Field of Commercialization Joint Ventures and Related Situations .......................451 5 Purchasing Joint Ventures ................................................................................................469 5.1 General Overview.......................................................................................................469 5.2 Analytical Model for the Antitrust Assessment of Purchasing Joint Ventures .....................................................................................473 5.2.1 Risks of Anticompetitive Effects Arising from Purchasing Joint Ventures ................................................................................473 5.2.2 Purchasing Joint Ventures that Need Further Analysis ..................................477 6 Joint Ownership of Undertakings Without Joint Control .............................................481 6.1 General Overview.......................................................................................................481 6.2 Analytical Criteria for Assessment of Effects on Competition Arising from Ownership of Undertakings Short of Individual or Joint Control ...............488 6.2.1 Identifying Relevant Situations which Inherently Lead to Potential Restrictions of Competition ........................................................488 6.2.2 Possible Anticompetitive Effects Arising from Minority Shareholdings in Particular Undertakings ......................................................491 Chapter 4 Concluding Remarks on Joint Ventures and Global Changes of EU Competition Law............................................................................... 495 1 General Overview .............................................................................................................495 2 The Changes of Teleological Priorities and the Renewal of Legal Methodology as Essential Dimensions of the Transition to a New Model of EU Competition Law More Closely Associated with Joint Venture Analysis ...........................................................................497 2.1 The Redressing of Teleological Priorities of EU Competition Law ........................497

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2.1.1 Joint Venture Analysis and the Definition of Teleological Coordinates of Competition Law....................................................................497 2.2 The Renewal of the Understanding of the Main Categories of Cooperation between Undertakings and of the Legal Methodology of EU Competition Law .....................................................................509 2.2.1 General Perspective ..........................................................................................509 2.2.2 Complementary Observations on the Development of General Analytical Models in Competition Law ..........................................................519 2.2.3 Establishing a New Normative Logic in the Systematic Interpretation of Article 101, Paragraphs 1 and 3 TFEU...............................523 Index ......................................................................................................................................537

List of Abbreviations AB ALJ Am Econ Rev Am J Comp L CJEU Cal L R CDE CEPR CI CMLR Col Bus L Rev Col J Trans L Col L Rev Corn L R D Comm Int DGCOMP EC ECLR ECR EEC EE Rev ELJ EL Rev EU EUI EuR Ford Int L J Ford L Rev GC Geo L J Harv B R Harv L Rev Harv Int’l L J IBA ICN IP IPR IUE

Antitrust Bulletin Antitrust Law Journal American Economic Review American Journal of Comparative Law Court of Justice of the European Union California Law Review Cahiers de Droit Européen Centre for Economic Policy Research Contratto e Impresa Common Market Law Review Columbia Business Law Review Columbia Journal for Transnational Law Columbia Law Review Cornell Law Review Diritto del Commercio Internazionale Directorate General of Competition/European Commission European Community European Competition Law Review European Court Reports (before 1986) European Economic Community European Economic Review European Law Journal European Law Review European Union European University Institute EuropaRecht Fordham International Law Journal Fordham Law Review General Court Georgetown Law Journal Harvard Business Review Harvard Law Review Harvard International Law Journal International Bar Association International Competition Network Intellectual Property Intellectual Property Right Istituto Universitario Europeo

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LIST OF ABBREVIATIONS

J Bus L JCMS J Fin J Fin Ec JEP J Ind Ec J Ind Org JITE JL & Comm JL & Econ JLE Org JOCE JPE MCR MCR 1989

Journal of Business Law Journal of Common Market Studies Journal of Finance Journal of Financial Economics Journal of Economic Perspectives Journal of Industrial Economics Journal of Industrial Organization Journal of Institutional and Theoretical Economics Journal of Law & Commerce Journal of Law and Economics Journal of Law and Economic Organization Jornal Oficial das Comunidades Europeias Journal of Political Economy European Merger Control Regulation EC Regulation No 4064/89, of 21 December 1989 (first Council Regulation on the control of concentrations between undertakings (OJ L 395/1, 30.12.1989) MCR 1997 First Merger Control Regulation as reformed by Council Regulation (EC) No 1310/97, of 30 June 2007 (OJ L 180/1, 9.7.1997) MCR 2004 Current European Merger Control Regulation adopted through Regulation (EC) No 139/2004, of 20 January 2004 (OJ L 24/1, 29.1.2004) Mich L R Michigan Law Review Minn L R Minnesota Law Review Mod L R Modern Law Review NCAs National competition authorities of the Member States NCRPA National Cooperative Research and Production Act NGCC Nuova Giurisprudenza Civile Commentata NYULR New York University Law Review NYUR New York University Review OECD European Organization for Cooperation and Development. OFT UK Office of Fair Trading OJ Official Journal of the European Union OREP Oxford Review of Economic Policy R&D Research and Development R D Comm Rivista de Dirittto Commerciale Res P Research Policy Rev E Ind Révue d’Economie Industrielle Rev Ind O Review of Industrial Organization Rev int dr comp Revue Internationale de Droit Compare Rev Int’l Dr Econ Revue Internationale de Droit Economique RID Comp Révue Internationale de Droit Compare R Int Org Review of International Organization Riv Dir Civ Rivista Diritto Civile Riv D Comm Rivista di Diritto Commerciale Riv Soc Rivista delle Società

LIST OF ABBREVIATIONS

RMC RMCUE RMUE RTDCDE RTDCiv RTDE SSNIP Stanf L R TEU Tex L R TFEU U Pa L Rev Virg L R W Comp WTO YEL YLJ

Revue du Marché Commun Revue du Marché Commun et de l’Union Européenne Revue du Marché Unique Européen Révue Trimestrielle de Droit Commerciel et de Droit Economique Révue Trimestrielle de Droit Civil Revue Trimestrielle de Droit Européen Small but Significant Non-Transitory Increase in Price Stanford Law Review Treaty on the European Union Texas Law Review Treaty on the Functioning of the European Union University of Pennsylvania Law Review Virginia Law Review World Competition World Trade Organisation Yearbook of European Law Yale Law Journal

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Table of Cases Arbitral Awards Sapphire International Petroleums Ltd v National Iranian Oil Company (Ad Hoc Tribunal, 1963) .................................................................................................................... 70

European Union Commission Decisions ACEC/Berliet [1968] OJ L 201/7............................................................................................309, 357, 380 ANSAC (Commission Decision 91/301/CEE) (IV/33.016) [1991] OJ L 152/54 ....................... 454–455 Aer Lingus v Commission....................................................................................................................... 485 Airtours/First Choice (IV/M1524) (1999) ............................................................................................ 414 Alitalia/KLM (JV.19) (11 August 1999) ......................................................................................65, 69, 78 Alliance de Constructeurs Français de Machines–Outils [1968] OJ L 201/1 ................................ 408, 426 Allianz/Dresdner (M.2431) (19 July 2001) ........................................................................................... 485 Allied-Lyons/Carlsberg (28 July 1992) .................................................................................................. 379 Alupower-Chloride [1990] OJ C 152/3 ................................................................................................. 244 Amersham Buchler [1982] OJ L 314/34 ................................................................................................ 440 Asahi/Saint Gobain [1994] OJ L 354/87 ......................................................................... 74, 395–397, 503 Astra (Commission Decision 93/50/CEE) (IV/32.745) [1993] OJ L 020/23 ..................... 451–452, 454 BBC/Brown Boveri [1998] OJ L 301/68.............................................................................76, 90, 308, 439 BP/MW Kellogg [1985] OJ L 369/6.............................................................................................. 303–304 BP Kemi/DDSF [1979] OJ L 286/32 ..................................................................................................... 373 BSN/St Gobain (1977) CMLR 687 ............................................................................................... 383, 425 BT/AT&T (IV/JV15) ............................................................................................................................. 434 BT/MCI [1994] OJ L 223/36 ................................................................................................................. 115 Bayer/BP Chemicals [1988] OJ L 150/35 .............................................................................................. 353 Bayer/Gist [1976] OJ L 30/13 ............................................................................................................... 382 Beecham/Parke Davis[1979] OJ L 70/11 ........................................................................................ 76, 325 Bertelsmann/Kirch/Premiere (IV/M993) (1999) ................................................................................. 219 British Airways/TAT (IV.M 259) ........................................................................................................... 165 Candle Waxes (COMP/39.181) (1 October 2008) ............................................................................... 105 Carbon Gas Technologie [1993] OJ L 376/17................................................................................ 244, 439 Carlsberg [1984] OJ L 207/26 ............................................................................................................... 374 Chloroprene Rubber (COMP/38.629) (5 December 2007) .......................................................... 104–105 Cobelaz (No 1) [1968] OJ L 276/13 ...................................................................................................... 403 Cobelaz (No 2) [1968] OJ L 276/19 ...................................................................................................... 403 Continental/Michelin [1988] OJ L 305/33.............................................................325, 336, 339, 347, 415 De Laval-Stork [1977] OJ L 215/11 ....................................................................................................... 88 Decision adopted on 18 June 2010 under the MCR (M 5655) ........................................................... 456

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TABLE OF CASES

Dutch Transport Insurers ....................................................................................................................... 462 EMI Electronics/Jungheinrich (1978) CMLR 398/1.............................................................................. 309 Ecomet .................................................................................................................................................... 433 Eirpage [1991] OJ L 306/22 .................................................................................................................. 357 Electrolux/AEG [1993] OJ C–269/4 .............................................................................................. 354, 373 Elf Attochem/Shell Chimie ( IV/M475) (1994)....................................................................................... 80 Elopak/Metal Box-Odin [1991] OJ L 209/15 ................................................. 327, 333, 335, 500, 520, 527 Enichem/ICI [1988] OJ L 50/18 ............................................................................................................ 379 European Night Services (Commission Decision 94/663/CEE) [1994] OJ L 259/20 ..............................................................................................57, 120, 455–459, 520 Eurotunnel [1988] OJ L 311/36 ............................................................................................................ 415 Eurotunnel II .......................................................................................................................................... 415 Eurotunnel III [1994] OJ L 354/66 ....................................................................................................... 457 Exxon/Shell [1994] OJ L 144/20 ............................................................................115, 352, 394–395, 500 Feldmühle/Stora ............................................................................................................................. 378, 427 Floral [1980] OJ L 39/51 ........................................................................................................408, 425, 431 Ford/Volkswagen [1993] OJ L 20/14 .................................................................. 57, 76, 362, 373, 390, 397 GEC Weir Sodium Circulators [1977] OJ L 327/26 .................................................................88, 376, 386 Gas Insulated Switchgear (COMP/38.899) (24 January 2007) .................................................... 104–105 General Electric/Pratt & Witney [2000] OJ L 58/16 ............................................................................. 339 General Motors/Fiat ( COMP/33.653) (16 August 2000) .................................................................... 398 Generali/INA (COMP/M.1712) (2000) ............................................................................................... 494 Gosme/Martell ( IV/32.186) (15 May 1991)......................................................................................... 104 Guinness/Grand Metropolitan (IV/M938) (1998)................................................................................ 414 Henkel/Colgate [1972] OJ L 14/14 .........................................................................306–307, 319, 324, 499 Hudson’s Bay I [1988] OJ L 316/43............................................................................................... 425, 427 INTERGROUP [1975] OJ L 212/23 ..................................................................................................... 479 Industrial Gases ..................................................................................................................................... 383 Irish Distillers Group.............................................................................................................................. 383 Iveco/Ford [1988] OJ L 230/39 .............................................................................................................. 379 KSB/Goulds/Lowara/ITT [1991] OJ L 19/25.........................................................308, 330–331, 335, 499 Konsortium ECR 900 [1990] OJ L 228/3 .............................................................................................. 305 Langenscheidt/Hachette [1981] OJ L 39/25 .......................................................................................... 440 Machine Tools [1968] OJ L 201/1 ......................................................................................................... 426 Mastercard (Decision C(2007) 6474 final) (COMP/34.579, COMP/36.518 and COMP/38.580) (19 December 2007) ............................................................................... 466–468 Microsoft/Time Warner/ContentGuard/JV (COMP/M.3445) (2004) ................................................. 339 Mitchell Cotts/Sofiltra [1987] OJ L 41/31 ............................................................................................. 308 Morgan Stanley/Visa International and Visa Europe (COMP/D1/37860) (3 October 2007) ............................................................................................................................... 467 NC/Canal+/CDPOQ/Bank America ( IV/M.1327) ............................................................................... 95 NUAB/Vallourec [1986] OJ C–113/4; (1986) CMLR 194.................................................................... 384 National Sulphuric Acid Association [1980] OJ L 260/24 .................................................................... 479 Nordbanken/Postgirot (COMP/M.2567) (8 November 2001)..................................................... 485, 494 Nuovo CEGAM [1984] OJ L 99/29 ....................................................................................................... 462 Olivetti/Canon [1988] OJ L 52/51 .........................................................................352, 375, 378–379, 382 Olivetti/Digital decision (IV/43.410) [1994] OJ L 309/24 .................................................................. 494 Optical Fibers [1986] OJ L 236/30 ........................................................................................................ 459 Pasteur Mérieux-Merckl [1994] OJ L 309/1.................................................................................. 336, 338 Philips/Osram [1994] OJ L 378/37 ....................................................................................................... 357 Pilkington/Thomson [1991] OJ C 279/19 .............................................................................................. 15

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Procter & Gamble/V P Schickedanz (M.398) ........................................................................................ 329 Reuter/BASF [1976] OJ L 254/40 (26 July 1976) ................................................................................... 99 Röchling/Possehl [1986] OJ L 39/57 .............................................................................................. 435, 500 Rockweel/Iveco [1983] OJ L 224/19 ...................................................................................................... 372 SHV-Chevron [1975] OJ L 38/14 ......................................................................................................... 219 Seifa [1969] OJ L 173/8 ......................................................................................................................... 403 Siemens/Fanuc [1985] OJ L 376/29 ...................................................................................................... 308 Solvay/Sisecam [1999] OJ C 272/14...................................................................................................... 365 Sopelem/Vickers [1978] OJ L 70/47 ...................................................................................................... 264 TQ3 Travel Solutions GmbH/Opodo Limited (COMP/A.38.321/D2 2003) ........................................ 461 UIP [1989] OJ L 226/25 ........................................................................................................................ 432 United Reprocessors [1976] OJ L 51/7................................................................................................... 372 VEBA/Degussa ( IV/M.942) (1997) ...................................................................................................... 152 VFA/Sauer.............................................................................................................................................. 309 VW-MAN [1983] OJ L 376/11 ..................................................................................................... 308, 379 Vacuum Interrupters (No 1) [1977] OJ L 48/32 ................................................................................... 264 Vacuum Interrupters II [1980] OJ L 383/1 ............................................................................375, 379, 386 Visa Europe (COMP/39.398) (8 December 2010) ............................................................................... 466 Visa International (COMP/29.373) [2001] OJ L 293/24 (9 August 2001) ................................. 444, 464 Visa International (COMP/29.373) [2002] OJ L 318/17 (24 July 2002)............................. 444, 464–467 Warner-Lambert/Gillette [1993] OJ L 116/21 ...................................................................................... 494 Wild & Leitz [1972] OJ L 61/27 .............................................................................................402, 424, 439

Court of Justice and the General Court (former Court of First Instance of the EU) Alphabetical Aer Lingus v Commission (Case T–411/07) (GC) ........................................................................ 482, 487 Air France v Commission (Case T–2/93) (GC, 1994) ........................................................................... 149 Akzo Nobel NV et al v Comm (Case C–97/08) (CJEU, 2010) ...................................................... 102–103 Albany International BV v Stichting, Bedrijfs-pensioenfonds Textielindustrie and others (Case C–67/96) (21 September 1999)................................................................................................ 98 Arcelor Mittal Luxembourg v Commission and Commission v Arcelor Mittal Luxembourg and Others (Joined Cases C–201/09P and C–216/09 P) (2011) ..................................................... 102 Arkema v Comissão (Case C–520/09P) (29 September 2011) ....................................................... 98, 102 Avebe (Case T–314/01) (GC, 2006) ...................................................................................................... 104 BAT and Reynolds v Commission (Cases 142/84 and 156/84) ............................................................. 482 BMW v Commission (Cases 32/78 and 36–82/78) (CJEU, 1979)................................................ 100–101 Barry Brothers (Case C–209/07) .................................................................... 191, 195, 500, 503, 527, 531 Brentjens (Joined Cases C–115/97 and C–117/97) (CJEU) ................................................................ 533 Cementbouw v Commission (Case T–282/02) (GC, 2006) .................................................................. 146 Centrafarm (Cases 15/74 and 16/74) (CJEU, 1974) .................................................................... 100–101 Chalkor (Case C–386/10P) (CJEU, 2011) ............................................................................................ 535 Consten & Grundig (Cases 56/64 and 58/64) (CJEU, 1966)........................................................ 524–525 De Geus v Bosch (Case C–13/61) (6 April 1962) .................................................................................. 505 Delimitis (Stergios) v Henninger Bräu (Case C–234/89) ..................................................................... 458 Diego Cali v SEPG (Case C–343/95) (1997) .......................................................................................... 97 Dow Chemical Company and EI Du Pont de Nemours et al v Commission (Cases T–77/08 and T–76/08) (GC, 2 February 2012) ................................................................... 105 Drijvende Bokken (Case C–219/97) ...................................................................................................... 533

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Eurocontrol (Case C–364/92) (1994) ...................................................................................................... 97 European Night Services (Cases T–374/94, T–375/94, T–384/97 and T–388/94) (GC, 1998) .............................................57, 120, 195, 423, 455–459, 464, 500, 520, 527, 529–531, 534 Florimex and VGB v Commission (Cases T–70/92 and T–71/92) (1997) ................................... 414, 426 Fuji Electric v Commission (Case T–132/07) (GC, 12 July 2011) ................................................ 104–105 General Química and Others v Commission (Case C–90/09P) (CJEU, 2011) ..................................... 102 GlaxoSmithKline Services v Commission (Case T–168/01) (27 September 2006).................................................. 186, 191, 195, 273, 418, 500, 503, 527–528, 531 Göttrup-Klim v Dans Landbrugs Grovvare selskat AmbA (Case C–250/92) (CJEU, 1994) ............................................................................................................................. 480, 533 Höfner and Elser v Macroton GmbH (Case C–41/90) (23 April 1991) ......................................... 98, 103 Hydrotherm v Andreoli (Case 170/83) (1984) ........................................................................................ 99 KME (Cases C–389/10P and C–272/09P) (2011, CJEU) .................................................................... 535 Keck (Bernard) and Daniel Mithouard (Cases C–267/91 and C–268/91) .......................................... 506 Mastercard (Case T–111/08) (GC, 24 May 2012) ........................................................ 442, 447, 467–468 Mastercard (Case C–382/12P) [2012] OJ C 319/4 ............................................................................... 469 Matra Hachette v Commission (Case T–17/93) (GC, 1994) ...................................57, 273, 390, 393, 418 Meca-Medina (Case C–519/04P)...................................................................................191, 500, 527, 531 Métropole Television (M6) (Case T–112/99) (CFI).......................................191, 195, 389, 500, 529–534 Metsä Serla et al v Commission (Case C–294/98) (CJEU, 16 November 2000) .................................. 104 Nungesser (Case 258/78) (CJEU, 1982) ........................................................................................ 525, 533 O2 v Commission (Case T–328/03) .......................................................................191, 500, 503, 527, 531 Oude Luttikuis (Case C–399/93) .......................................................................................................... 458 Pavel Pavlov (Cases C–180/98 to C–184/98) (CJEU, 2000)................................................................. 533 Philip Morris (1987) .......................................................................................182, 482–483, 487, 492, 494 Poucet (Cases C–159/91 and C–160/91) (17 February 1993) ............................................................... 98 Remia BV v Commission (Case 42/84) ......................................................................................... 186, 533 Roquette Frères (Case C–94/00) (CJEU, 2002) ..................................................................................... 528 Ryanair (GC) ......................................................................................................................................... 182 SNCF and British Railways v Commission (Cases T–79/95 and T–80/95) (GC) ............................... 457 Shell v Commission (Case T–11/89) (GC, 1992) .................................................................................. 106 Slovak Telekom a.s. v European Commission (Joined Cases T–458/09 and T–171/10) (GC, 22 March 2012) .............................................. 507, 535 Société Téchnique Minière (Case 56/65) (CJEU, 1966) ........................................................................ 524 T-Mobile Netherlands BV v Raad van bestuur van de Nederlandse Mededingingsautoriteit (Case C–8/08) ..................................................................................... 195, 528 Telia Sonera (Case C–52/09) (CJEU, 17 February 2011)............................................. 507, 528, 534–535 ThyssenKrupp (Cases T–144/07, T–147/07, T–148/07, T–149/07, T–150/07 and T–154/07) (GC, 13 July 2011) ................................................................ 102 VBA v VGB and Florimex (Case C–266/97P) (2000) .................................................................. 414, 426 Van Ameyde v UCI (Case 90/76) .......................................................................................................... 462 Van den Bergh Foods v Commission (Case T–65/98) (GC, 2003) ........................................................ 532 Verband der Sacheversicherer (Case 45/86) .......................................................................................... 449 Vereeniging van Cementhandelaren (Case 8/72) (CJEU)..................................................................... 404 Viho v Commission (Case C–73/95P) (CJEU, 1996) .................................................................... 100–103 Visa Europe and Visa International v Commission (Case T–461/07) (GC, 14 April 2011) .................................................................................................................. 467–468 Visa Europe v Commission (Case T–447/12) [2012] OJ C379/26 ....................................................... 466 Walt Wilhelm (Case 14/68) (CJEU, 1969) ............................................................................................ 505 Wouters (Case C–309/99) ..................................................................................................... 191, 531–534

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Numerical 13/61 De Geus v Bosch (6 April 1962) .................................................................................................. 505 56/64 and 58/64 Consten & Grundig (CJEU, 1966) ..................................................................... 524–525 56/65 Société Téchnique Minière (CJEU, 1966) .................................................................................... 524 14/68 Walt Wilhelm (CJEU, 1969) ........................................................................................................ 505 8/72 Vereeniging van Cementhandelaren (CJEU) ................................................................................ 404 15/74 and 16/74 Centrafarm (CJEU, 1974).................................................................................. 100–101 90/76 Van Ameyde v UCI ...................................................................................................................... 462 32/78 and 36–82/78 BMW v Commission (CJEU, 1979) ............................................................. 100–101 258/78 Nungesser (CJEU, 1982) .................................................................................................... 525, 533 172/80 Züchner ...................................................................................................................................... 449 170/83 Hydrotherm v Andreoli (1984) .................................................................................................... 99 42/84 Remia BV v Commission ..................................................................................................... 186, 533 142/84 and 156/84 BAT and Reynolds v Commission .......................................................................... 482 45/86 Verband der Sacheversicherer ...................................................................................................... 449 T–11/89 Shell v Commission (GC, 1992) .............................................................................................. 106 C–234/89 Delimitis (Stergios) v Henninger Bräu ................................................................................. 458 C–41/90 Höfner and Elser v Macroton GmbH (23 April 1991) ..................................................... 98, 103 C–159/91 and C–160/91 Poucet (17 February 1993) ............................................................................ 98 C–267/91 and C–268/91 Bernard Keck and Daniel Mithouard ........................................................... 506 T–70/92 and T–71/92 Florimex and VGB v Commission (1997)) ............................................... 414, 426 C–250/92 Göttrup-Klim v Dans Landbrugs Grovvare selskat AmbA (CJEU, 1994) ............................................................................................................................. 480, 533 C–364/92 Eurocontrol (1994) ................................................................................................................. 97 T–2/93 Air France v Commission (GC, 1994)....................................................................................... 149 T–17/93 Matra Hachette v Commission (GC, 1994) ..............................................57, 273, 390, 393, 418 C–399/93 Oude Luttikuis ...................................................................................................................... 458 T–374/94, T–375/94, T–384/94 and T–388/94 European Night Services (GC, 1998) .............................................57, 120, 195, 423, 455–459, 464, 500, 520, 527, 529–531, 534 C–73/95P Viho v Commission (CJEU, 1996)................................................................................ 100–103 T–79/95 and T–80/95 SNCF and British Railways v Commission (GC) ............................................. 457 C–343/95 Diego Cali v SEPG (1997) ...................................................................................................... 97 C–67/96 Albany International BV v Stichting, Bedrijfs-pensioenfonds Textielindustrie and others (21 September 1999) ......................................................................................................... 98 C–115/97 and C–117/97 Brentjens (CJEU) ......................................................................................... 533 C–219/97 Drijvende Bokken.................................................................................................................. 533 C–266/97P VBA v VGB and Florimex (2000) .............................................................................. 414, 426 T–65/98 Van den Bergh Foods v Commission (2003, GC) ................................................................... 532 C–180/98 to C–184/98 Pavel Pavlov (CJEU, 2000) .............................................................................. 533 C–294/98 Metsä Serla et al v Commission (CJEU, 16 November 2000).............................................. 104 T–112/99 Métropole Television (M6) (CFI) ..................................................191, 195, 389, 500, 529–534 C–309/99 Wouters ................................................................................................................. 191, 531–534 C–94/00 Roquette Frères (CJEU, 2002)................................................................................................. 528 T–168/01 GlaxoSmithKline Services v Commission (27 September 2006).................................................. 186, 191, 195, 273, 418, 500, 503, 527–528, 531 T–314/01 Avebe (GC, 2006) .................................................................................................................. 104 T–282/02 Cementbouw v Commission (GC, 2006) .............................................................................. 146 T–328/03 O2 v Commission ...................................................................................191, 500, 503, 527, 531 C–519/04P Meca-Medina ..............................................................................................191, 500, 527, 531

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T–132/07 Fuji Electric v Commission (GC, 12 July 2011) ............................................................ 104–105 T–144/07, T–147/07, T–148/07, T–149/07, T–150/07 and T–154/07 ThyssenKrupp (GC, 13 July 2011) .................................................................................................... 102 C–209/07 Barry Brothers................................................................................ 191, 195, 500, 503, 527, 531 T–411/07 Aer Lingus v Commission (GC) .................................................................................... 482, 487 T–461/07 Visa Europe and Visa International v Commission (GC, 14 April 2011) .................... 467–468 C–8/08 T-Mobile Netherlands BV v Raad van bestuur van de Nederlandse Mededingingsautoriteit .............................................................................................................. 195, 528 T–77/08 and T–76/08 Dow Chemical Company and EI Du Pont de Nemours et al v Commission (GC, 2 February 2012) ....................................................................... 105 C–97/08 Akzo Nobel NV et al v Comm (CJEU, 2010) .................................................................. 102–103 T–111/08 Mastercard (GC, 24 May 2012) .................................................................... 442, 447, 467–468 C–52/09 Telia Sonera (CJEU, 17 February 2011) ........................................................ 507, 528, 534–535 C–90/09P General Química and Others v Commission (CJEU, 2011)................................................. 102 C–201/09P and C–216/09P Arcelor Mittal Luxembourg v Commission and Commission v Arcelor Mittal Luxembourg and Others (2011) .................................................. 102 T–458/09 and T–171/10 Slovak Telekom a.s. v European Commission (GC, 22 March 2012) ................................................................................................................ 507, 535 C–520/09P Arkema v Comissão (29 September 2011)................................................................... 98, 102 C–386/10P Chalkor (CJEU, 2011) ........................................................................................................ 535 C–389/10P and C–272/09P KME (2011, CJEU) ................................................................................. 535 C–382/12P Mastercard [2012] OJ C 319/4........................................................................................... 469 T–447/12 Visa Europe v Commission [2012] OJ C 379/26 .................................................................. 466 Philip Morris 1987 ..........................................................................................182, 482–483, 487, 492, 494 Ryanair (GC) ......................................................................................................................................... 182

France Competition Authority France Farine, Bach Mülhe (Décision No 12–D–09) (13 March 2012) .............................................. 460 Interbank Fees, overturned by the Paris Court of Appeal (20 September 2010) ........................ 441, 462

Germany Competition Authority (Bundeskartellamt) Allianz, Axa, R+V, Ergo (Decision B 4–31/05) (10 August 2007) ....................................................... 460 CPTN/Novell (2011) ............................................................................................................................. 481 Chemie-Vertrieb (2012)......................................................................................................................... 461 T-Mobile/Vodafone/O2 (Decisions B7–61/07 and B7–17/06) (29 October 2007) ............................. 399

Italy Rifornimenti Aeroportuali, Supreme Administrative Court (Consiglio di Stato), Cases No 5683/2007, 5844/2007 and 5845/2007 ............................................................................. 398 Competition Authority (Autorità Garante della Concorrenza e del Mercato) Rifornimenti Aeroportuali, Case No 9075/2006 ................................................................................... 398

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xxiii

United Kingdom LINK Interchange Network Ltd (CP/0642/00/S) (DGFT, 16 October 2001) ...................................... 410

United States of America Addamax Corp v Open Software Found Inc 888 F Supp 274 (D Mass 1995) ...................................... 471 Addamax Corp v Open Software Found Inc 152 F 3d 48 (1st Cir 1998) ...................................... 261, 301 American Needle, Inc v NFL 130 S Ct 2201 (2010) .............................................................................. 461 Arizona v Maricopa County Medical Society 457 US 332 (1982) ........................................................ 141 Armored Transp Alliance ....................................................................................................................... 436 Association of Indep Television Stations v College Football Ass’n 637 F Supp 1289 (WD Okla 1986) ....................................................................................................................... 423, 436 BMI ........................................................................................................................................................ 193 Berkeley Photo Inc v Eastman Kodak Co 603 F 2d 263 (2nd Cir 1979), cert denied 444 US 1093 (1980) ....................................................................................................... 250 Broadcast Music, Inc v CBS 441 US 1 (1979) ............................................................... 418, 436–437, 526 Brown Shoe Co v United States 370 US 294 (1962) .............................................................................. 498 California v ARC American Corp 490 US 93 (1989) ............................................................................ 262 California Dental Association v FTC 119 S Ct 1604 (1999), 526 US 756 (1999) .................................................................................................... 422–423, 520, 526 Compact v Metro Govt 594 F Supp 1567 (MD Tenn 1984) ..........................................136, 141, 161, 406 Dagher v Saudi Refining Co 369 F 3d 1108 (9th Cir 2004) .......................................................... 109, 141 Era v Cameron 112 Mont 159, 114 P 2d 1060 (1941) ............................................................................ 45 FTC v Indiana Federation of Dentists 476 US 447 (1986).................................................................... 520 Gamco Inc v Providence Fruit & Produce Bldg 194 F 2d 484 (1st Cir 1952), cert denied 344 US 817 ............................................................................................ 258 Instructional Sys Dev Corp v Aetna Cas & Sur Co 817 F 2d 639 (10th Cir 1987) ............................... 141 Marrese v American Academy of Orthopaedic Surgeons 692 Fed 1093 (7th Cir 1982)........................ 524 NCCA v Board of Regents of the Univ of Okla 468 US 85 (1984) .............................................................................................. 161, 193, 406, 423, 436, 526 National Bancard Corp (NaBanco) v VISA USA, Inc 596 F Supp 1231 (SD Fla 1984), aff ’d 779 F 2d 592 (11th Cir), cert denied 478 US 923 (1986) ................................................................................................. 441–443 Northwest Wholesale Stationers, Inc v Pacific Stationery & Printing Co 472 US 284 (1985) ............................................................................................................................ 471 Olympus Am Inc .................................................................................................................................... 436 Realcomp II Limited v FTC 635 F 3d 815 (6th Cir 2011), petition for cert filed (No 11–16) (US, 28 June 2011) .................................................................... 142 SCFC ILC, Inc v Visa USA, Inc 36 F 3d 958 (10th Cir 1994) ....................................................... 136, 436 SCFC ILC, Inc, d/b/a MountainWest Financial v VISA USA, Inc 819 F Supp 956 (D Utah 1993) aff ’d in part and ver’d in part, No 93–4105, 1994 US App LEXIS 26849 (10th Cir, 23 September 1994) ......................................................................................... 442–443, 446 Silver v New York Stock Exchange 373 US 341 (1963) .................................................................. 257–258 Texaco Inc v Dagher 547 US 1 (2006) ............................................................109, 141–142, 406, 422, 461 United States v American Smelting & Ref Co 182 F Supp 834 (SDNY 1960) ...................................... 498 United States v FCC (Satellite Business Systems) 72 100 F 2d 652 (DC Cir 1980) .............................. 384 United States v Imperial Chem Indus 100 F Supp 504 (SDNY 1951) .................................................. 229 United States v Penn-Olin Chemical Co 378 US 158 (1964) ................................................................ 220

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United States v Penn-Olin Chemical Co 246 F Supp 917 (D Del 1965) .............................................. 384 Virginia Excelsior Mills, Inc v FTC 256 F 2d 538 (4th Cir 1958) ......................................................... 409 Vogel v American Soc’y of Appraisers 744 F 2d 598 (7th Cir 1984) ...................................................... 476 White & White, Inc v American Hosp Supply Corp 723 F 2d 495 (6th Cir 1983)................................ 471 Yamaha Motor Co v FTC 657 F 2d 971 (8th Cir 1981) ................................................................ 384–385

Federal Trade Commission Time Warner/Turner (Time Warner Inc, 61 Fed Reg 5, 0301—25 September 1996).......................... 485 United States v American Radio Sys Corp 1997–1 Trade Cas (CCH) 71,147 (DDC 1997) ................ 423 United States v Automobile Manufacturers Ass’n Trade Cas (CCH) (CD Cal 1969) .......................... 250

Table of Legislation Australia Trade Practices Act 1974 ....................................................................................................................... 133 s 41 ..................................................................................................................................................... 133

European Union EC Treaty Art 3(1)(g) ......................................................................................................................................... 507 Art 4 ................................................................................................................................................... 506 Art 81 ..................................................................................................................119, 131, 489, 494, 529 Art 81(1) (now Art 101(1) TFEU) ............................................................................................. 16, 220 Art 81(3) (now Art 101(3) TFEU) ......................................................................................16, 119, 182 Art 82 ................................................................................................................................................. 119 ECSC Treaty Arts 65–66 (now Arts 101 and 102 TFEU) ...................................................................................... 435 EEC Treaty Art 85(now Art 101 TFEU) ......................... 7, 13–14, 17, 101, 107–108, 115, 130–131, 483, 494, 526 Art 85(1) (now Art 101(1) TFEU) .................................................... 7–8, 101, 108, 115, 121, 423, 533 Art 85(3) ............................................................................................. 7–8, 108, 121, 124, 306, 393, 404 Art 86 (now Art 102 TFEU) ............................................................................................................. 483 EU Charter of Fundamental Rights ..................................................................................................... 535 Treaty on European Union 1992 Art 3 ................................................................................................................................................... 535 Art 3(3) .............................................................................................................................................. 507 Treaty on the Functioning of the European Union ......................................................................... 6, 506 Art 7 ................................................................................................................................................... 535 Art 101 (formerly Art 85 EEC) and Art 81 EC) .............................6–7, 11–12, 16–17, 23–24, 28, 51, 57, 69–70, 73, 80, 82, 99–100, 103–105, 107–108, 111, 114–117, 119–120, 128–129, 131–132, 146, 148, 153–155, 157–158, 169–171, 173–179, 182–183, 187, 189, 197–198, 205, 215, 217, 220, 222, 224, 228, 231–234, 239, 241, 252, 256, 258–259, 265, 271–274, 276–279, 283, 288–290, 292–296, 310–311, 313, 316, 318–320, 328, 340, 356, 360, 365, 368–369, 380, 387, 392, 398–399, 402, 404–405, 414, 416, 422, 449, 456, 469–470, 472, 475, 482–484, 487–491, 493–495, 497– 501, 505, 508, 510, 512, 518, 521–528, 536 Art 101(1) .......................................7–8, 11–12, 101, 116, 132, 173, 176, 185–187, 189, 191–192, 194, 196–197, 200, 203–204, 208, 220, 222–223, 225, 228–229, 241, 243, 252, 254, 258–260, 265–273, 276, 280–283, 287–288, 290–292, 302– 304, 306, 309, 311, 314, 319–320, 324–325, 329, 331–336, 338–339, 350–351, 357–362, 364–366, 373–374, 384, 386¸ 388–391, 393, 395–399, 402, 404, 414–415, 418, 422–427, 431, 435, 439–440, 452, 454–459, 463–465, 471, 475–481, 494, 499–500, 503, 510, 513, 516, 523–536

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Art 101(2) .......................................................................................................................................... 195 Art 101(3) ...................................8, 11–12, 116, 131–132, 173, 176, 191–197, 204, 208, 223, 227–229, 241, 260, 267, 270–271, 273, 276, 280, 287–288, 290–292, 295, 302, 304, 311, 324–325, 329, 332–333, 335, 337, 339, 357, 360–361, 386, 389–393, 395, 397–399, 402, 404–407, 418, 425, 427, 432, 435, 439–440, 453, 455, 457, 465–467, 478–480, 499–500, 502–503, 510, 513, 516, 523–525, 527–532, 534–536 Art 102 (formerly Arts 81 and 82 EC) ........................................ 11, 189, 281, 449, 487–489, 494, 501 Art 106(2) ............................................................................................................................................ 97 Art 119(2) .......................................................................................................................................... 506 Art 120 ............................................................................................................................................... 506 Treaty of Lisbon 2007 ........................................................................................................... 506–507, 535 Protocol on Competition ................................................................................................................. 507 Commission Notices and Guidelines 1968 Notice on Cooperation Agreements [1968] OJ C 75/3, corrected by [1968] OJ C 84/14 ............................................................ 120–121, 153–154 para II(3) ........................................................................................................................................... 309 1990 Notice on the Distinction between Concentrative and Cooperative Operations [1989] OJ L 395/1 .............................................................................. 15, 127 1993 Notice on Cooperative Joint Ventures [1993] OJ C 43/02 ..................................... 123, 126–127, 153–154, 156, 179–180, 218, 258, 264, 292, 312–313, 404–405, 411, 459, 469–470, 472, 475, 522 para 1 ................................................................................................................................................. 154 para 9 ................................................................................................................................................. 154 para 13 ............................................................................................................................................... 154 para 17 ...................................................................................................................................... 258, 312 para 18 ............................................................................................................................................... 258 para 20 ............................................................................................................................................... 264 para 21 ............................................................................................................................................... 312 paras 23–25 ....................................................................................................................................... 314 paras 27–31 ....................................................................................................................................... 459 para 37 ............................................................................................................................................... 292 para 38 ....................................................................................................................................... 292, 404 paras 39–41 ....................................................................................................................................... 292 para 60 ................................................................................................................................218, 404, 411 para 61 ....................................................................................................................................... 469, 471 1994 Notice on the Distinction between Concentrative and Cooperative Joint Ventures [1994] OJ C 385/1 .................................................................................... 112–113, 132 1998 Notice on the Concept of Full-Function Joint Ventures [1998] OJ C 66/01 ......................................................................112–113, 116, 118, 132, 143–148, 150 para 3 ................................................................................................................................................. 144 para 9 ................................................................................................................................................. 145 para 11 ............................................................................................................................................... 145 para 12 ............................................................................................................................................... 146 para 15 ....................................................................................................................................... 147–148 paras 22–23 ....................................................................................................................................... 150 para 36 ............................................................................................................................................... 151 2000 Notice—Guidelines on Vertical Restraints [2000] OJ C 291/1 ...................................................... 9 2000 Notice on a simplified procedure for treatment of certain concentrations under Reg 4064/89/EEC [2000] OJ C 217/32 ............................................................................ 15, 175

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2001 Notice on De Minimis Guidelines [2001] OJ C 368/13 ................................................................ 189, 269–271, 273, 276, 280–282, 364, 424–425 para 7 ................................................................................................................................................. 269 para 8 ......................................................................................................................................... 271–272 para 11 ............................................................................................................................................... 424 2001 Notice on Horizontal Cooperation Guidelines [2001] OJ C 3/2 ........................................................... 9, 86, 120, 154–156, 179–181, 185–191, 193–194, 197, 199, 205, 207, 224–225, 227, 233–235, 238–241, 246, 251, 253–256, 258–259, 264, 266–269, 273–274, 276, 278, 284, 290–294, 298, 300, 304–305, 312, 319, 322–323, 340, 344, 351–352, 354, 357–358, 361–363, 366–367, 370, 387, 405–406, 412, 414, 424, 426, 428, 469, 471–472, 474–477, 514, 522 para 2 ................................................................................................................................................. 155 para 10 ....................................................................................................................................... 156, 233 para 12 ........................................................................................................................156, 179, 181, 240 para 13 ............................................................................................................................................... 179 paras 20ff ........................................................................................................................................... 186 para 24 ............................................................................................................................... 187–188, 192 para 25 ............................................................................................................................................... 195 paras 28 et seq ................................................................................................................................... 199 para 29 ................................................................................................................................199, 224, 320 para 30 ....................................................................................................................................... 227, 259 paras 39ff ........................................................................................................................................... 233 para 40 ............................................................................................................................................... 246 para 44 ............................................................................................................................................... 253 para 45 ................................................................................................................................253, 256, 300 paras 46–48 ............................................................................................................................... 253, 300 para 49 ................................................................................................................................253, 300, 328 para 50 ................................................................................................................................211, 246, 300 para 51 ............................................................................................................................................... 256 para 53 ....................................................................................................................................... 255, 322 para 54 ............................................................................................................................................... 322 para 56 ............................................................................................................................................... 266 para 57 ............................................................................................................................................... 268 para 58 ............................................................................................................................................... 253 para 59 ............................................................................................................................................... 274 para 65 ............................................................................................................................... 300, 304–305 para 66 ....................................................................................................................................... 300, 306 para 75 ....................................................................................................................................... 274, 286 para 77 ............................................................................................................................................... 298 para 78 ................................................................................................................................155, 210, 233 para 79 ............................................................................................................................................... 235 para 83 ............................................................................................................................................... 358 para 85 ............................................................................................................................................... 213 para 87 ............................................................................................................................................... 361 para 88 ............................................................................................................................................... 354 para 90 ............................................................................................................................................... 366 para 95 ....................................................................................................................................... 352, 370 para 96 ....................................................................................................................................... 199, 387 para 99 ............................................................................................................................................... 356

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para 101 ............................................................................................................................................. 355 paras 107–108 ................................................................................................................................... 155 para 110 ..................................................................................................................................... 155, 356 para 112 ............................................................................................................................................. 155 para 115 ..................................................................................................................................... 233, 470 paras 117ff ......................................................................................................................................... 472 para 119 ..................................................................................................................................... 294, 472 para 124 ............................................................................................................................................. 475 para 128 ............................................................................................................................................. 474 para 129 ..................................................................................................................................... 214, 475 para 130 ..............................................................................................................................284, 290, 477 para 135 ............................................................................................................................................. 199 para 137 ..................................................................................................................................... 293–294 para 139 ..............................................................................................................................122, 233, 400 para 140 ............................................................................................................................................. 400 para 149 ..............................................................................................................................284, 290, 293 para 150 ............................................................................................................................................. 155 para 152 ..................................................................................................................................... 406, 412 paras 155–156 ........................................................................................................................... 414, 426 para 157 ..............................................................................................................................155, 414, 426 2002 Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services [2002] OJ C 165/6 .................................................. 189–190 2004 Guidelines on the Application of Art 81(3) of the Treaty [2004] OJ C 101/97 .......................................195, 200, 228, 314, 360, 389, 393, 438, 529 para 11 ................................................................................................................................360, 389, 530 para 12 ............................................................................................................................................... 360 para 13 ............................................................................................................................................... 503 para 25 ............................................................................................................................................... 517 para 26 ............................................................................................................................................... 314 para 33 ............................................................................................................................................... 503 paras 48ff ........................................................................................................................................... 389 paras 72ff ........................................................................................................................................... 530 2004 Guidelines on Horizontal Concentrations ..................................190, 224–225, 265, 319, 328–329 paras 19ff ........................................................................................................................................... 225 2005 Notice on Restrictions Directly Related and Necessary to Concentrations [2005] OJ C 56/24) (Ancillary Restraints Notice)................................................................... 151–152 Section I ............................................................................................................................................. 152 2008 Consolidated Jurisdictional Notice [2008] OJ C 95/1 ........................................................ 106, 112, 118, 132, 144–150, 154, 164–165, 223 paras 19–20 ....................................................................................................................................... 149 para 23 ............................................................................................................................................... 149 para 64 ............................................................................................................................................... 149 paras 66–68 ....................................................................................................................................... 150 para 81 ............................................................................................................................................... 151 para 91 ............................................................................................................................................... 145 paras 93–95 ....................................................................................................................................... 146 para 103 ..................................................................................................................................... 147, 164 para 104 ..................................................................................................................................... 148, 164 para 105 ............................................................................................................................................. 164 Section B.II.3 ..................................................................................................................................... 148

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2008 Remedies Notice [2008] OJ C 267/01 ................................................................................. 152–153 para 32 ............................................................................................................................................... 153 para 58 ............................................................................................................................................... 152 2010 Guidelines on Vertical Restraints [2010] OJ C 130/1 ..............................................9, 202, 281, 341 2011 Horizontal Cooperation Guidelines [2011] OJ C 11/1 ..................................................... 10, 19, 86, 103–104, 154–156, 179–181, 185–197, 199–201, 205, 207, 224, 233–234, 238–241, 246, 252–256, 259, 264, 266, 269, 273–276, 278, 284, 290–294, 298, 300, 304, 306, 312, 322–323, 325, 340–341, 344, 351–352, 354, 357–358, 361, 363, 366–367, 370, 377, 387–388, 405–406, 412, 414, 424, 428, 469, 471–472, 474–477, 514, 522 para 5 ................................................................................................................................................. 233 para 6 ................................................................................................................................................. 155 para 13 ....................................................................................................................................... 179, 240 para 14 ....................................................................................................................................... 155, 179 para 20 ............................................................................................................................................... 195 para 21 ............................................................................................................................................... 366 paras 25ff ........................................................................................................................................... 186 para 30 ....................................................................................................................................... 187, 361 paras 43–44 ....................................................................................................................................... 200 para 46 ............................................................................................................................................... 322 para 50 ....................................................................................................................................... 210, 233 paras 55ff ........................................................................................................................................... 377 paras 71ff ........................................................................................................................................... 213 paras 80ff ........................................................................................................................................... 227 para 81 ............................................................................................................................................... 211 paras 87ff ........................................................................................................................................... 377 para 111 ............................................................................................................................................. 233 para 112 ..................................................................................................................................... 294, 300 para 114 ............................................................................................................................................. 300 para 118 ..................................................................................................................................... 300, 328 para 119 ......................................................................................................211, 246, 300, 304–305, 325 para 120 ..................................................................................................................................... 300, 325 para 121 ............................................................................................................................................. 300 para 123 ............................................................................................................................................. 322 para 124 ..................................................................................................................................... 300, 322 para 125 ............................................................................................................................................. 323 para 126 ............................................................................................................................. 300, 322–323 para 127 ............................................................................................................................................. 259 para 128 ............................................................................................................................................. 274 para 129 ............................................................................................................................................. 252 paras 130ff ......................................................................................................................................... 305 para 132 ..................................................................................................................................... 252–253 paras 136ff ......................................................................................................................................... 255 para 138 ..................................................................................................................................... 256, 300 para 139 ..................................................................................................................................... 300, 306 para 146 ............................................................................................................................................. 406 para 147 ..................................................................................................................................... 155, 286 para 149 ............................................................................................................................................. 155 paras 150ff ......................................................................................................................................... 233

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para 151 ............................................................................................................................................. 235 paras 152ff ................................................................................................................................. 210, 235 para 156 ..............................................................................................................................352, 359, 370 paras 159–160 ................................................................................................................................... 366 para 161 ..................................................................................................................................... 194, 366 para 162 ............................................................................................................................................. 194 para 163 ..................................................................................................................................... 361, 363 para 165 ............................................................................................................................................. 356 para 170 ............................................................................................................................................. 387 paras 176ff ......................................................................................................................................... 388 para 178 ............................................................................................................................................. 354 paras 187–188 ................................................................................................................................... 155 para 189 ..................................................................................................................................... 155, 356 para 190 ............................................................................................................................................. 355 para 191 ............................................................................................................................................. 155 para 194 ..................................................................................................................................... 233, 470 paras 195ff ......................................................................................................................................... 472 paras 197–99 ............................................................................................................................. 294, 472 para 205 ............................................................................................................................................. 475 paras 208ff ..................................................................................................................284, 290, 293, 477 para 209 ............................................................................................................................................. 477 para 214 ............................................................................................................................................. 474 paras 225–226 ................................................................................................................................... 400 para 240 ......................................................................................................................284, 290, 293, 426 para 247 ..................................................................................................................................... 406, 412 para 252 ..................................................................................................................................... 414, 426 para 253 ............................................................................................................................................. 414 para 255 ..................................................................................................................................... 155, 233

Regulations Reg (EEC) No 17/62 First Regulation implementing Arts 85 and 86 of the Treaty[1962] OJ L 13/204 ..................................................................................129, 182, 494 Reg (EEC) No 2779/72 First Block Exemption Regulation on Specialization Agreements [1972] OJ L 292/23 .............................................................................. 341 Reg (EEC) No 2349/84 on certain categories of patent licensing agreements [1984] OJ L 219/15 ........................................................................................ 125 Reg (EEC) No 417/85 Block Exemption Regulation on Specialization Agreements [1985] OJ L 53/1 ................................................................... 123–124, 342 Art 1(a)–(b)....................................................................................................................................... 124 Reg (EEC) No 418/85 Block Exemption Regulation on R&D Agreements [1985] OJ L 53/5 .......................................................... 123, 275, 289, 332, 337, 397 Reg (EEC) No 4064/89 First Merger Control Regulation [1989] OJ L 395/1 .........................................................6–7, 13–14, 16, 30–31, 82, 107–108, 110–114, 125–128, 130–131, 151, 170, 483–484, 487, 494, 499 Art 2(2) .............................................................................................................................................. 127 Art 3 ................................................................................................................................................... 126 Art 3(1) .............................................................................................................................................. 127 Art 3(1)(b)......................................................................................................................................... 126 Art 3(2) ........................................................................................................................ 14, 117, 126–128

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Reg (EEC) No 556/89 on certain categories of know–how licensing [1989] OJ L 61/1 ................... 125 Reg (EC) No 3385/94 on the form and content of notifications made for the purposes of Reg No 17/62 [1994] OJ L 377/28 ................................................. 129–132 Annex ........................................................................................................................................ 129–131 Reg (EC) No 240/96 Block Exemption Regulation on Technology Transfer Agreements [1996] OJ L 31/2 ............................................................................................ 125 Reg (EC) No 1310/97 amending Reg (EEC) No 4064/89 on the control of concentrations between undertakings [1997] OJ L 180/1 ......................................................... 16–17, 60, 82, 110, 112–119, 126, 128–130, 132, 143, 151, 171, 312, 405, 434, 456, 482, 484, 487, 512, 530 Art 2(4) .......................................................................................................................129, 137, 313, 434 Art 3(1)(b)......................................................................................................................................... 126 Art 3(2) .............................................................................................................................................. 126 Reg (EC) No 2236/97 amending Reg (EEC) No 417/85 and Reg (EEC) No 418/85 [1997] OJ L 306/12 .............................................................................. 289, 342 Reg (EC) No 2790/1999 Block Exemption Regulation on Vertical Agreements [1999] OJ L 336/21 ............................................................................9, 202, 280–281, 341 Reg (EC) No 2658/2000 Block Exemption Regulation on Specialization Agreements [2000] OJ L 304/3 ......................................................................9, 123–124, 241, 342, 389 Recital 8 ............................................................................................................................................. 345 Art 4 ........................................................................................................................................... 284, 293 Reg (EC) No 2659/2000 Block Exemption Regulation on Research and Development Agreements [2000] OJ L 304/7 .......................................9, 123, 241, 274–275, 397 Recital 7 ............................................................................................................................................. 275 Recital 20 ........................................................................................................................................... 260 Art 4 ........................................................................................................................................... 284, 293 Art 4(1)–(2)....................................................................................................................................... 318 Reg (EC) No 1/2003 on the implementation of the rules on competition laid down in Arts 81 and 82 of the Treaty [2003] OJ L 1/1 ............................................................8, 11–12, 17, 120, 129–130, 182, 223, 229, 295, 329, 484, 486–487, 494, 496, 507, 532, 536 Art 6 ................................................................................................................................................... 275 Art 9 ........................................................................................................................................... 466, 481 Art 10 ................................................................................................................................................. 524 Art 44 ......................................................................................................................................... 487–488 Reg (EC) No 139/2004 EC Merger Regulation [2004] OJ L 24/1 ..........................12, 15–18, 28, 60, 65, 69, 75, 94, 104–106, 108, 110–112, 114–119, 125–126, 128–129, 131–132, 143, 149, 152–154, 157, 159–160, 165, 170–172, 175–177, 181–182, 189, 216, 231, 256, 281, 293, 310, 312–313, 315, 328, 339, 344, 356, 366, 386–387, 456, 470, 487– 488, 491, 497, 500, 512, 518, 523 Art 2 ................................................................................................................................................... 175 Art 2(1) .............................................................................................................................................. 116 Art 2(2) .................................................................................................................18, 116, 132, 175–176 Art 2(3) ........................................................................................................................................ 18, 175 Art 2(4) ..........................................................18, 116–117, 129, 132, 171, 176, 312–313, 456, 510, 512 Art 2(5) .......................................................................................................129, 171, 176, 312–313, 510 Art 3 ........................................................................................................................... 126–127, 129, 154 Art 3(1) .............................................................................................................................................. 128 Art 3(2)–(3)............................................................................................................................... 128, 172 Art 3(4) ...................................................................................................................................... 126–128

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Reg (EC) No 772/2004 on the application of Art 81(3) of the Treaty to categories of technology transfer agreements [2004] OJ L 123/11 ................................................ 125 Reg (EC) No 773/2004 on the conduct of proceedings by the Commission pursuant to Arts 81 and 82 of the EC Treaty [2004] OJ L 123/18 .......................................... 129, 131 Reg (EU) No 330/2010 Block Exemption Regulation on Vertical Agreements [2010] OJ L 102/1 ......................................................................................9, 202, 281, 341 Recitals 8–9........................................................................................................................................ 281 Art 3 ................................................................................................................................................... 202 Art 3(1) .............................................................................................................................................. 281 Art 4 ................................................................................................................................................... 281 Reg (EU) No 1217/2010 Block Exemption Regulation on Research and Development Agreements [2010] OJ L 335/36 ................................................... 10, 86, 123, 186, 201, 241, 270, 274, 276, 283, 287–289, 318, 323, 397 Recital 6 ............................................................................................................................................. 243 Recital 18 ........................................................................................................................................... 260 Recitals................................................................................................................................................. 86 Art 1(1)(c) ......................................................................................................................................... 243 Art 3 ................................................................................................................................................... 288 Art 4 ........................................................................................................................... 284, 287, 293–294 Art 4(1) .............................................................................................................................................. 323 Art 5 ................................................................................................................................... 275–276, 288 Art 5(b)–(e) ....................................................................................................................................... 276 Art 7 ........................................................................................................................................... 289, 293 Art 7(e) .............................................................................................................................................. 289 Reg (EU) No 1218/2010 Block Exemption Regulation on Specialization Agreements [2010] OJ L 335/43 .................... 10, 86, 123–124, 186, 201, 241, 270,283, 289–290, 340–342, 345, 366, 369, 389 Recital 6 ............................................................................................................................................. 345 Recitals................................................................................................................................................. 86 Art 1(1)(d)................................................................................................................................. 124, 341 Art 1(1)(f) ......................................................................................................................................... 341 Art 2(3)(b)......................................................................................................................................... 124 Art 3 ........................................................................................................................................... 284, 293 Art 4(1) .............................................................................................................................................. 318 Art 4(b)(i)–(ii) .................................................................................................................................. 366 Art 5 ................................................................................................................................................... 293 Art 5(d)–(e) ....................................................................................................................................... 289 Block Exemption Regulation on R&D joint ventures ......................................................................... 284 Block Exemption Regulations on production joint ventures ............................................................. 284 Block Exemption Regulations ........................................................................................ 86, 123–125, 138 Recitals................................................................................................................................................. 86

France Law of 3 January 1994............................................................................................................................. 49

Germany Unternehmensrecht .................................................................................................................................... 2

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Italy Italian Civil Code .................................................................................................................................... 50 Arts 2602ff ........................................................................................................................................... 50

United Kingdom Limited Liability Partnerships Act 2000 ................................................................................................ 45

United States of America Clayton Act § 7 .............................................................................................................................................. 108–109 National Cooperative Research Act 1984 ..............................................................111, 134–135, 260, 262 National Cooperative Research and Production Act 1993 ...................................................................... 111, 134–140, 159, 260–262, 276–277, 363, 423 § 2(a)(6) ............................................................................................................................................ 135 § 2(b) ................................................................................................................................................. 135 § 4302(b) ........................................................................................................................................... 277 Robinson-Patman Act........................................................................................................................... 499 Sherman Act .................................................................................................................................... 11, 528 § I ................................................................................................................................108, 141, 252, 528 Standards Development Organization Advancement Act 2004 ................................................. 111, 134 Uniform Partnership Act ........................................................................................................................ 45 1982 Merger Guidelines ........................................................................................................................ 484 1988 Department of Justice Guidelines for International Operations....................................... 138–139 1992 Horizontal Merger Guidelines......................................................................................319, 328, 484 para 3.34(c) ....................................................................................................................................... 484 1995 Department of Justice and Federal Trade Commission Antitrust Enforcement Guidelines for International Operations .................................................................................................................. 138 1996 Statements of Antitrust Enforcement Policy in Health Care ..................................................... 138 Statement Two................................................................................................................................... 138 Statement Eight ................................................................................................................................. 138 2000 Antitrust Guidelines for Collaborations Among Competitors ................................. 109, 139–141, 143, 197–198, 207, 238–239, 284, 286, 291, 293, 315–317, 326–329, 362–363, 367–368, 371, 373, 375, 377, 420, 430–431, 434, 438–439, 471, 514, 521–522 para 1.1 .............................................................................................................................................. 239 para 1.2 .............................................................................................................................................. 193 para 3.31(a) ........................................................................................362–363, 367, 420–421, 434, 471 para 3.34 .............................................................................................................................315, 430, 439 para 3.34(a) ....................................................................................................................................... 431 para 3.34(c) ............................................................................................................................... 431, 439 para 3.34(d) ............................................................................................................................... 371, 431 para 3.34(e) ....................................................................................................................................... 377 para 3.34(f) ............................................................................................................................... 431, 438 para 3.35 .................................................................................................................................... 326–327 para 4.2 ...............................................................................................................................284, 293, 368 2000 Guidelines on joint ventures................................................................................................ 285–286 2010 Horizontal Merger Guidelines............................................................................................. 142, 484 s 13 ............................................................................................................................................. 484, 493

General Notes on the Text —

—

— —

—

For editorial reasons, in order to make the text as uniform as possible, I have in every case referred to the current articles 101 and 102 of the Treaty on the Functioning of the European Union (abbreviated to article 101 TFEU and article 102 TFEU), as resulting from the Treaty of Lisbon, even when discussing cases prior to this Treaty (given the full correspondence of this text with the text of articles 85 and 86 of the EEC Treaty and of articles 81 and 82 of the EC Treaty). Only exceptionally when referring to precedents dating from the period prior to the Treaty of Lisbon, and for very particular contextual reasons, have these provisions been referred by their former numbering in earlier versions of the European Treaties (and indicated as such in the text). For similar editorial reasons, I refer throughout the book to the Court of Justice of the European Union and the General Court (abbreviated to CJEU and GC, respectively), on the basis of the text of the Treaty of Lisbon even when discussing judicial precedents decided by these courts under their previous designations. Only exceptionally, and for reasons that should be apparent in the text do I refer to these courts by their previous designations. EU Notices or Guidelines, when abbreviated in the text, are referred to by the date of their publication in the OJ. For methodological reasons, I have limited doctrinal quotations to books and articles published in English, French, German and Italian (in the latter three cases, particularly when certain features of the legal systems of these three EU Member States are being considered, in the context of their appreciable but not full Europeanization, since doctrinal quotations to texts published in English are largely predominant). When, in very exceptional terms, other doctrinal references are considered, an English translation of the title is provided, for which I take sole responsibility. Legislative and case law developments are considered or updated throughout the book until 31 December 2012.

Introduction 1 Objectives of the Research in this Book 1.1 General Aspects of Joint Ventures in the Context of Cooperation between Undertakings Cooperation and concentration between undertakings are realities which have been gaining increasing relevance worldwide. In fact, the intense acceleration and globalization of economic activities,1 which have acted as catalysts for profound changes in entrepreneurial activity, require to some extent the development of cooperation and concentration relations of growing complexity. In this context, the entire logic of entrepreneurial growth appears transformed. Such transformation arises, inter alia, from a gradual replacement of entrepreneurial growth based on the expansion of individual corporations or based on the establishment of new corporations under full initial control by parent entities—which the so called ‘multinational enterprises’ have come to epitomize2—by models based on various forms of interplay between different groups of undertakings. Such interplay between groups of undertakings is typically structured around, either situations of cooperation between undertakings, in which each group or undertaking maintains its own individuality, or situations of concentration of undertakings, through which the participating undertakings lose their individuality and are diluted in a new entrepreneurial entity to be established ex novo.3

1 On the acceleration and globalization of economic activities with profound repercussions on the relations between undertakings, see J Rodgers Hollingsworth and Robert Boyer (eds), Contemporary Capitalism—the Embeddedness of Institutions (Cambridge, Cambridge University Press, 1997). See also for a European perspective on those transformations of the conditions of economic activity, Karel Cool, Damien Neven and Ingo Walter (eds), European Industrial Restructuring in the 1990s (London, Macmillan, 1992). 2 See, in general, on multinational enterprises and their influence in economic activities, as well as on their influence on the patterns of competition, Richard Caves, Multinational Enterprise and Economic Analysis (Cambridge, Cambridge University Press, 1996) esp 24ff and 83ff. 3 The distinction between processes of cooperation between undertakings in which the individuality of each undertaking or group of undertakings is maintained and processes of concentration will be dealt with extensively throughout this book, especially as regards the characterization of the various categories of joint ventures under EU competition law and also through a comparative perspective with other competition laws. For an initial approach in this domain and in a competition law perspective, see, inter alia, Louis Vogel, Droit de la Concurrence et de la Concentration Économique—Étude Comparative (Paris, Económica, 1988) esp 60ff and A Edward Safarian, ‘Trends in the Forms of International Business Organizations’ in Leonard Waverman, William S Comanor and Akira Goto-, Competition Policy in the Global Economy—Modalities for Cooperation (London and New York, Routledge, 1997) 40ff—‘During the 1980s there was increasing emphasis on international corporate alliances between independent firms’ (at 40).

2

INTRODUCTION

The interplay between undertakings or groups of undertakings may be developed through even more complex forms, as regards the variety and range of elements on the basis of which it is structured in the general field of legal transactions or in specific legal domains such as competition law. The alternative process frequently used for such more complex operations combines on a variable scale, on the one hand, elements of coordination or cooperation, and, on the other hand, elements of entrepreneurial integration or concentration and corresponds to the establishment of joint ventures (I shall provisionally use this qualification in these introductory remarks with the proviso that the legal foundations and the extent of the appropriate use of this nomen juris are issues which are themselves subject to considerable controversy in most legal systems).4 The central theme of this book is the study and analysis of the legal entity known as the joint venture and, in particular, of the main legal problems it gives rise to in the field of competition law. However, the elusive nature and relative vagueness of the concept of joint venture have led me, in a preliminary stage of analysis, to ascertain a broader legal categorization of such entities, as a peculiar system of contractual cooperation, taking into consideration the field of commercial law or, in even broader terms, of enterprise law.5 This goal of reaching a general legal understanding of the joint venture—on the basis of contracts known as enterprise contracts (or contracts of entrepreneurial organization)6— although somewhat secondary, is justified. This is not only because such general understanding has fundamental repercussions for the legal categorization of the joint venture in the field of competition law, which forms the bulk of this book, but also because that category has gradually come to represent the prevailing legal and economic process of expansion of entrepreneurial activity, replacing in that role the groups of undertakings based on full control or by reason simply of entrepreneurial concentration (which leads to the establishment of entrepreneurial structures controlled by a sole entity, either within a sole parent corporation, or within groups of undertakings functioning under full control of one entity or under less intense forms of control).

4 See, on the lack of clarity surrounding the concept of the joint venture in the context of competition law and also in connection with other areas of law in which this classification—albeit with non-entirely coincidental content—may be used, Charles Weller, ‘A new rule of reason from Justice Brandeis’s “concentric circles” and other changes in law’ (1999) AB 881ff. As suggested by Weller, ‘For over 100 years, antitrust joint venture law has been a morass of confusion and ambiguity’. For a more general perspective on such lack of clarity and the many interpretations of the concept of joint venture, see Daniele Bonvicini, Le ‘Joint Venture’: Tecnica Giuridica e Prassi Societária (Milano, A. Giuffrè, 1977). See also for a general discussion of the concept and the nomen juris of ‘joint venture’, Luiz O Baptista and Pascal Durand-Barthez, Les Associations d’Entreprises (Joint Ventures) dans le Commerce International (Paris, Librairie Générale de Droit et Jurisprudence, 1991). 5 In various legal systems of EU Member States the idea of a body of law that could be designated as enterprise law has been widely discussed, although many authors argue that it does not correspond to an autonomous body of law due to the heterogeneity of legal areas involved in it. In the context of German law, eg, the concept of ‘Unternehmensrecht’ has been the subject of academic debate since the beginning of the twentieth century and the more recent discussion in this area even raises the question of a possible integration of company law in a new and wider enterprise law. See specifically on this latter discussion, Thomas Raiser, ‘Die Zukunft des Unternehmensrechts’ in Festschrift for Robert Fischer (Berlin and New York, de Gruyter, 1979) 561 and, from the same author, ‘The Theory of Enterprise Law in the Federal Republic of Germany’ (1988) Am J Comp L 111ff. For the Italian position see, eg, Francesco Galgano, Diritto Comerciale—L’imprenditore (Bologna, Zanichelli, 2000–01) esp 9ff. 6 On this category of enterprise contracts (or contracts of entrepreneurial organization) and relating it with the discussion on the joint venture contract as a form or subtype of contract of cooperation between undertakings, see Giovanni di Rosa, L’Associazione Temporanea di Imprese—Il contratto di joint venture (Milan, Giuffrè Editore, 1998). In fact, the category of enterprise contracts has been especially developed by Italian law.

OBJECTIVES OF THE RESEARCH IN THIS BOOK

3

In fact, if it is widely acknowledged that the basic legal structuring of enterprises has been relying to a lesser extent on the individual entrepreneur or in the individual corporation, and has been comprehensively replaced by the category of the group of undertakings7—regardless of the legal relevance ‘de iure condito’ of such category in the various legal systems8—it can be seen that the profound changes to which the development of economic activities has been subject over recent years have determined the emergence of new, alternative ways of building the legal organization of enterprises. Such alternative options for the building of enterprises have consistently converged towards the adoption of hybrid structures of ever growing complexity, which combine, as mentioned above, situations of actual entrepreneurial integration, typically associated with the phenomenon of entrepreneurial concentration, with different forms or instruments of entrepreneurial cooperation (that permit, at least as regards certain areas of activity, the preservation of the legal individuality of the entrepreneurial groups involved in such transactions). In the economic field, the growing internationalization of entrepreneurial activities— which has reached a new qualitative stage following the enhanced liberalization of capital transactions and movements in the last decade of the twentieth century;9 the growing importance of access to information and of information technology, often requiring the convergence under innovative frameworks of different know-how techniques controlled by different players; the constant shortening of the life cycles of goods and services, and the consequent enhanced relevance of continual entrepreneurial innovation (with its associated costs) have, on the whole, been decisive factors for the expanding use of the joint venture.10 This category or instrument of entrepreneurial organization carries with it—as

7 For a general perspective of the alternative legal structuring of the reality of undertakings, see Karsten Schmidt, Handelsrecht 5. Aufl (Köln, Berlin, Bonn, München, Heymann, 1999) esp 63–87. This author is somewhat reticent on the feasibility of building a general legal concept of enterprise on the basis of the different concepts of enterprise in commercial law, corporate law and other bodies of law, but he does acknowledge the various areas of law such as eg competition law or the law of corporate groups which may to some extent point to the development of more general legal concepts of enterprise. For a discussion on the need to project the idea of enterprise in different legal structures—of which the corporate group represents a paradigmatic example in the current economic context—see Gunther Teubner, ‘Enterprise Corporatism: New Industrial Policy and the “Essence” of the Legal Person’ (1988) Am J Comp L 130ff, esp 146ff. 8 For a general perspective on various contours of the law on groups of corporations, within multiple legal systems, and for a critical analysis of the key questions that must be taken into consideration in this legal area, see,KJ Hopt, Legal issues and questions of policy in the comparative regulation of groups in I gruppi di società—Atti del Convegno internazionali di studi Venezia, November 1995 (Milano, Giuffrè, 1996) vol 1, 45ff. 9 On the absolutely decisive role of liberalization of financial services as a catalyst of the intense process of internationalization of economic activity, see, in general, Pierre Sauvé and Robert M Stern (eds), Gats 2000—new directions in services trade liberalization (Washington DC, Brookings Institution Press, 2000); see also Paul Hirst and Grahame Thompson, ‘Globalization in Question: International Economic Relations and Forms of Public Governance’ in Hollingsworth and Boyer Contemporary Capitalism—the Embeddedness of Institutions (n 1) 337ff. 10 On the combination of this type of economic factor and its influence in the recurrent use of the joint ventures, see Michael Hergert and Deigan Morris, ‘Trends in International Collaborative Agreements’ in Farok Contractor and Peter Lorange (eds), Cooperative Strategies in International Business (Lexington MA, Lexington Books, 1988) 99ff. See also, for an analysis of those factors, suggesting that the emergence of these new qualitative conditions for developing economic activities originates from the transition to new global models of entrepreneurial organization essentially oriented towards a matrix of cooperation between undertakings, Peter Drucker, ‘Peter Drucker on the New Business Realities’ (1999) AB 795ff. In this study, Drucker considers in a peremptory manner joint ventures as ‘the dominant form of economic integration in the world economy’ (although he uses the concept of joint venture in a relatively wide manner). In another study, the same author maintains in even more emphatic terms that ‘the greatest change in corporate structure and in the way business is being conducted may be the largely unreported growth of relationships that are not based on ownership but on partnership: joint ventures; minority investments cementing a joint-marketing agreement or an agreement to joint research; and

4

INTRODUCTION

I shall reiterate throughout this book—fundamental elements of flexibility and an inherent capacity of perennial adaptation to evolving entrepreneurial goals, which have made it a prevailing way of structuring the legal and economic relationship between different undertakings.

1.2 How to Define the Category of Joint Venture in the Field of Competition Law and in Other Areas of Law Although the possible conceptual autonomy, as such, of a legal category of joint venture, as regards the general legal structuring of enterprises (in the fields of commercial or enterprise law) is undeniably subject to controversy—with several authors maintaining that such entities may not be considered under a general legal type (even a non-normative type)—this category has clearly received autonomous treatment in the field of competition law (taking into consideration the pivotal competition law systems of the US and the EU).11 Conversely, this self evident body of legal reasoning, positive norms and legal praxis concerning the joint venture as an autonomous or individual category in the field of competition law does not mean that the concept of joint venture is a well established one in this area of law. On the contrary, defining the concept of joint venture for the purposes and in the context of the application of competition law corresponds to a first and fundamental legal problem as regards a proper understanding of such category in this area of law. It corresponds, in fact, a priori to a complex legal problem, which precedes the level of substantive assessment of joint ventures under competition law rules (meaning here the assessment of the effects of joint ventures on the conditions of effective competition). However, I admit that the high degree or intensity of legal analysis and categorization of joint ventures in the field of competition law—while associated with a particular area of law with its own teleology and legal methodology12—makes a fundamental contribution to a broader understanding of this category as regards the different processes of legal structuring and organizing entrepreneurial activities under commercial or enterprise law. Accordingly, without diminishing

semi-formal alliances of all sorts’ (see Peter Drucker, Managing in a Time of Great Change (New York, Truman Talley Books, 1995) 69. A good critical synthesis of the economic factors that have influenced the evolution of the models or patterns of entrepreneurial organization may be also found in K Byttebier and A Verroken, Structuring International Cooperation between Enterprises (London, Graham & Trotman, 1995). These authors confront the economic conditions that characterized the 1960s and 1970s—a period of great development of huge multinational enterprises—with the conditions prevailing in a subsequent period characterized by more uncertainty, more technical complexity of the production processes, to be developed in the course of more accelerated cycles and with greater reliance on elements of information of different origins. On the whole, these new conditions led gradually to the emergence of more flexible forms of entrepreneurial organization and integration, of which joint ventures are a paradigmatic manifestation. 11 On this view of US antitrust law and EU competition law as true fundamental systems and worldwide references, see Bruce Doern and Stephen Wilks (eds), Comparative Competition Policy—National Institutions in a Global Market (Oxford, Clarendon Press, 1996). The same conception is also shared by various studies of international organizations. See, especially, OECD, Twenty-five Years of Competition Policy: Achievements and Challenges (Paris, OECD, 1987). 12 The specific scope or reach of the characterization of the concept of undertaking in the field of competition law will be examined below in ch 1. In any case, the intensity of the legal discussion of the concept of undertaking in this domain and, on the basis of it, of the concept of joint venture allows us to indentify relevant corollaries to other areas of law.

OBJECTIVES OF THE RESEARCH IN THIS BOOK

5

the main focus of my analysis throughout this book—which is clearly directed towards the understanding and assessment of joint ventures under competition law—I shall also endeavour to ascertain how the fundamental legal reasoning on joint ventures under competition law may provide a key input to a broader understanding of a general concept and nomen juris of joint venture in a larger horizon of building legal relationships and different ties between undertakings.

1.3 The Treatment of Joint Ventures under EU Competition Law The analysis carried out throughout this book is essentially aimed at EU competition law (although occasionally bearing in mind certain aspects of national competition law of some EU Member States in the context of the wider soft harmonization procedure that these national systems of competition law have been undergoing). Furthermore, the core and the nature of my theme clearly demands a comparative law analysis, with its main focus lying in US antitrust law, not only for reasons which have to do with historic precedence of this legal system (at least in terms of positive law) and the worldwide reference it still provides, but also because the concept itself of joint venture may be deemed as having originated in the context of US law.13 As regards EU competition law, I shall identify some essential evolutionary stages in the treatment of joint ventures, while putting into perspective the broader evolution of this body of law, as one of the fundamental pillars for the gradual building of the European integration process and the current EU structures.14 Indeed, the core part of my study—namely, chapter two and, especially, chapter three, which cover the current competition law framework of joint ventures, both as regards the normative de iure condito dimension and an essential perspective of law in action concerned with the enforcement practice of the European Commission and the case law of the Court of Justice of the EU (henceforth CJEU) and of the General Court (henceforth GC)—allows us to verify that the specific legal features of joint ventures and the fundamental shifts that have taken place as regards their treatment under EU competition rules, have significantly influenced some major evolutions that this body of law has undergone in the course of recent years (as I shall illustrate in chapter four, the concluding chapter of this book).

13 On the origin of the concept and nomen juris of joint venture in the US antitrust system, see Edgar Herzfeld and Adam Wilson, Joint Ventures (Bristol, Jordans, 1996). These authors also underline that the development and characterization of this concept after the Second World War was very imprecise and had very fluid contours. Also on the origin of the concept of joint venture, see Bonvicini, Le ‘joint venture’: Tecnica giuridica e prassi societária (n 4). 14 On the idea of the EU (and before that, the EC) as a community of law of a complex nature, see JH Weiler, ‘The Transformation of Europe’ (1991) YLJ 2403ff. Also underlining the sui generis nature of this community of law in which the building of European integration is based, and its particularly complex nature, due to a dynamic interaction with the legal systems of the Member States—especially in the field of economic law, see Norbert Reich, ‘Competition between Legal Orders: A New Paradigm of EC Law’ (1992) CMLR 861ff. Other authors underline the deepening of such legal community that supports European integration as a basis for a process of constitutionalization (in terms to which we shall return below, ch 4). For that perspective, see Ernst-Ulrich Petersmann, ‘Proposals for a New Constitution for the European Union: Building-Blocks for a Constitutional Theory and Constitutional Law of the EU’ (1995) CMLR 1123ff. For a wider perspective of the development of the process of European integration based on a community of law, see Mauro Cappelletti, Monica Seccombe and Joseph Weiler (eds), Integration Through Law—Europe and the American Federal Experience (Berlin and New York, Walter de Gruyter, 1986–88) 4 vols, esp vol 1.

6

INTRODUCTION

In fact, it has been widely accepted that competition rules typically include—in its facti species—elements concerning the behaviour of undertakings and elements concerning market structures, on the assumption that these later ones imply effects upon the functioning of the competition process that may, to a certain extent, be predictable. It may be deemed as a kind of tertium genus the combination in the abuse of dominant position regime—or in the monopolization regime under US antitrust rules—of structural conditions, referring to the existence of a dominant position in the market, and behavioural conditions, referring to abusive actions by dominant undertakings (although in my view, the behavioural elements will still prevail in those cases, since they will determine the application of the relevant competition rules). That being so, one of the most striking features of joint ventures, which at the same time raises specific hurdles as regards the precise and stable definition of their framework under competition law, has to do with the fact that joint ventures combine behavioural and structural elements in a hybrid composition that does not easily allow an analytical distinction of such distinctive elements. Regardless of the precise categorization of the concept of joint venture under competition law—that I shall attempt to establish below in chapter one—and provided one sets apart excessively broad definitions that dilute its conceptual autonomy and its analytical relevance for competition law evaluation purposes,15 the legal category of joint venture encompasses, in its inner core, multiple and formally very diversified processes of entrepreneurial integration. At the same time, since such functional processes do not involve the termination of the individuality of the participating undertakings, they bring about, either in effective or potential terms, different forms of entrepreneurial coordination. As such, joint venture analysis—although it has been subject over time to fluctuations under EU competition rules as regards its coverage either by the regime of cooperation between undertakings (on the basis of article 101 TFEU, former article 81 EC Treaty)16 or by the concentration control regime—involves a unique and distinctive potential for the interaction of, on the one hand, legal criteria aimed at the evaluation of entrepreneurial coordination, which may induce negative effects for competition, and, on the other hand, of legal criteria aimed at the evaluation of particular changes in the structure of certain markets. One may even add that, due to the original lack of a direct concentration control regime under the former EEC competition rules and the consequent comprehensive submission of joint ventures to the normative discipline of the coordination of the behaviour of undertakings—during a first stage of the evolution of the rules before the first EC Regulation on concentration control was adopted in 1989—conditions were created for the initial development of analytical parameters of joint ventures focused on the understanding of

15 As I shall explain in ch 1, widely different definitions of joint venture have proliferated in the field of competition law (particularly of US antitrust law). In fact, as well as appreciably wide definitions one may find extremely wide definitions, which, as a result of their being so general, lose their analytical relevance. However, even some of the most influential authors in US antitrust doctrine, subscribe to such extremely wide definitions, as eg Herbert Hovenkamp. This author, in Federal Antitrust Policy—the Law of Competition and its Practice (St. Paul, Minn., West Publishing Co, 1994) defines the category of ‘joint venture’ as ‘any association of two or more firms for carrying on some activity that each firm might otherwise perform alone’ (at 185ff). 16 As regards this first quotation of articles from the Treaty on the Functioning of the European Union (TFEU), see the formal criteria and aspects stated above, in ‘General Notes on the Text’.

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coordination relationships (on the basis of the then article 85 EEC Treaty and current article 101 TFEU), which, at a later stage, were gradually subject to a structural analytical scrutiny, from the moment that some types of joint ventures have been submitted to the Regulation on concentration control (which fundamentally deals with the evaluation of repercussions of structural changes of the markets upon effective competition). In my view, this very particular building process of analytical parameters of joint ventures under competition law, originally focused in the discipline of entrepreneurial coordination and successively combined with a structural analysis framework, has had a significant impact on some fundamental changes of the legal methodology used in the enforcement of competition rules applicable to undertakings (particularly in the area of cooperation between undertakings). It is my assertion, therefore, that the treatment of joint ventures and the need to address the specific issues that arise as a result of the hybrid nature of the joint venture—with its unique combination of behavioural and structural aspects—has significantly influenced, as discussed throughout this book, a decisive change or evolution of the former methodology of almost per se prohibition of an appreciable part of cooperation processes between undertakings on the basis of the general prohibition rule of paragraph 1 of article 101 TFEU,17 which relied heavily on a prevailing formalistic legal logic that underestimated the substantive perception of the actual economic functioning of the markets (and of the effects, at that level, of entrepreneurial cooperation). This change involves, inter alia, the continuous introduction of key aspects of substantive evaluation of the markers, for the purposes of applying competition rules that discipline entrepreneurial cooperation, thus limiting or balancing in more economically reasonable terms the range of the general prohibition of cooperation processes that may restrict competition through a structural dimension of market analysis (traditionally observed in the context of US antitrust law, although with variable implications in different stages of evolution of those antitrust rules, but largely ignored or overlooked until more recently in the context of EU competition law). Such a limitation or containment of the general prohibition on cooperation between undertakings is of paramount importance in order to correct what one may consider as an original normative distortion of EEC competition law, which corresponded to an excessive degree of public intervention through the conditioning and scrutinizing of entrepreneurial cooperation. The excess arose from the fact that a significant part of the cooperation processes between undertakings were deemed as potential infractions under the general prohibition established by paragraph 1 of article 85 EEC Treaty (current article 101 TFEU), which could only be rendered legal under particular forms of public scrutiny based on the application of the exemption criteria established by paragraph 3 of this article (thus conditioning or even predetermining the multiple possibilities of entrepreneurial cooperation through the lens of administrative scrutiny, based on the criteria of paragraph 3, which, in

17 Such more formalistic methodology which implied a stricter reading of the general prohibition rule of article 101, para 1 TFEU, leading to the prohibition of an appreciable part of processes of cooperation between undertakings will be extensively discussed in the context of my in-depth analysis of joint ventures under article 101 TFEU, esp below, ch 3. For an initial view on that former approach that led to an almost per se prohibition of various forms of cooperation, see Margot Horspool and Valentine Korah, ‘Competition’ (1992) AB 337ff.

8

INTRODUCTION

a somewhat paradoxical way, took the place of the free functioning of the market that was alleged to be ultimately safeguarded).18

1.4 The Treatment of Joint Ventures and Changes in EU Competition Law 1.4.1 The Various Phases of Evolution of EU Competition Law This major shift of the legal methodology determining the interpretation and enforcement of competition regimes covering cooperation between undertakings, in part influenced by the specific requirements of joint venture analysis, has actually occurred in parallel with a fundamental transition of EU competition law to a new evolutionary stage. This transition—with multiple legal repercussions that are yet to be fully ascertained—is in itself significantly determined by the deepening of the EU process of economic integration after the consolidation of the internal market and in the context of the building of the economic and monetary union. In reality, the special emphasis originally put on an overriding category of EU competition law goals associated with the fulfilling of economic integration targets—which was a distinctive feature of this body of law—has gradually diminished with the actual attainment of such targets. Conversely, a set of goals essentially linked to criteria of economic efficiency has gradually gained prominence. However, this growing acceptance of a prevailing aim oriented towards economic efficiency does not translate into the elimination of extensive legal and economic divergence as regards the way the guiding parameters of economic efficiency are to be conceived (in combination with other goals of public interest). Substantial grounds of divergence subsist, therefore, in this field, opposing theses sustained by the new institutional economics, by the price theory analysis as influenced by the Chicago School, or even theses still partially relying on structural approaches or those oriented towards the safeguard of goals of social utility in terms of economic equity (apparently overcome, but that may resurface to a certain extent following the systemic economic crisis of 2008–09).19 In any case, if, as I shall assess in the final chapter of this book—putting into perspective changes in some way associated with joint venture analysis—in teleological terms this

18 It should be emphasized that such prevailing formal legal logic of systematic interpretation of paras 1 and 3 of article 85 EEC Treaty (current article 101 TFEU) was from an early stage criticized by some authors, although such criticism was not, at that time, reflected in the actual process of enforcement of EU competition rules. Conversely, the elimination of the mandatory notification procedure under article 101, para 3 TFEU, after the adoption of Regulation (EC) No 1/2003 (on implementation of the rules on competition laid down in Articles 81 and 82—OJ L1, 4.1.2003), did not eliminate, as such, the potential imbalances arising from an excessive reliance on the general prohibition rule of article 101, para 1 TFEU (as I shall emphasize throughout this book). 19 For a global and succint perspective about different ways of conceiving the guiding parameters of economic efficiency in the context of competition law (a characterization to which I shall return in ch 4), envisaging new critical syntheses that may, to some extent, overcome those divergences, see Wenhard Möschel, ‘The Goals of Antitrust Revisited’ (1991) JITE 7ff. On the different perspectives on the contours of economic efficiency relevant for the purposes of competition law and policy, see also Massimo Motta, Competition Policy—Theory and Practice (Cambridge, Cambridge University Press, 2004) esp 40ff. Furthermore, in ch 4, I shall also attempt to balance the way in which goals of public interest, conceived in terms of economic equity that were apparently overcome after the Commission had embraced a new economic, effects based approach, may be resurfacing to a certain extent, following the systemic economic crisis of 2008–09 and the subsequent economic and financial crises, leading to a new mixed approach of combination with still pivotal goals of economic efficiency.

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evolution of EU competition law brings it closer to the prevailing monist model based on an overriding goal of economic efficiency that has long characterized US antitrust law, I believe that, to a certain extent, a set of particular features of EU competition law may still be retained at such teleological level. As regards the specific contribution of joint venture analysis to that evolution, attention should be paid to the fact that joint ventures have recurrently been associated with the production of various types of effects of economic efficiency, which typically represent a factor to justify those entities and their compatibility with competition rules in different situations, counterbalancing certain effects of restriction of competition arising from the same entities.20 Accordingly, the consolidation of the dogmatic treatment of joint ventures is bound to produce repercussions in the process of gradual consolidation—still open to some uncertainty—of a new teleological model of EU competition law especially based on chief goals of economic efficiency (the legal reasoning about economic efficiency parameters for the purposes of evaluation of competitive effects of joint ventures therefore also plays a role in the clarification of efficiency models which may be put to a more general use in the context of the enforcement of multiple regimes of competition law). In short, my central topic of study and analysis—the competition law framework of joint ventures—bears a twofold mark. On the one hand, it significantly illustrates a vast array of transformations of EU competition law, involving the emergence of a renewed method of legal and economic analysis; on the other hand, it represents a catalyst element for such a process of transformation of the legal methodology of EU competition law, which tends to imply the transition to an entirely new evolutionary stage of this body of law (while it has to be recognized that the shift in the legal methodology somehow started with the reform of vertical restraints in 1999,21 and largely corroborated or consolidated with the new reform of the framework of vertical restraints at EU level in 2010,22 joint venture analysis particularly in the broader context of horizontal agreements has undoubtedly been a major factor in this line of evolution).23

20 On the recurrent justification of creation of joint ventures as compatible under competition rules on the basis of positive effects arising from it, that distinguish this category from other forms of cooperation, particularly developed in the US antitrust doctrine, see especially Gregory Werden, ‘Antitrust Analysis of Joint Ventures. An Overview’ (1998) ALJ 701ff. As Werden puts it, ‘joint ventures are an important and distinct category for antitrust analysis because of their potential to bring about an efficiency-enhancing integration of economic activity. Many different forms of economic integration may be effected by joint ventures, and each may enhance efficiency in more than one way’ (at 702). 21 I refer here to the broad 1999 reform of the framework of vertical restraints framework through the adoption of Regulation (EC) No 2790/1999 (vertical agreements Block Exemption Regulation—OJ L 336/21, 29.12.1999) and of the 2000 Guidelines on Vertical Restraints (OJ C 291/1, 13.10.2000), in the wake of the 1996 Green Book on Vertical Restraints in EU Competition Policy—COM (96) 721 final. 22 By this, I mean the second major reform of the EU framework of vertical restraints, which translated into the adoption of Regulation (EU) No 330/2010, on the application of Article 101(3) of TFEU to categories of vertical agreements and concerted practices, of 20 April 2010, OJ L 102/1, 23.4.2010, and of the 2010 Guidelines on Vertical Restraints, OJ C 130/1, 19.5.2010. 23 The broader context of reform of the framework of horizontal restraints in 2000 and 2001 and of the subsequent reform in 2010 and 2011 played a significant role in the evolution of the treatment and assessment of joint ventures, as will be examined in detail below in chs 2 and 3. I refer here to the successive reforms developed through the adoption of Regulation (EC) No 2658/2000, Block Exemption Regulation on specialization agreements, of 29 November 2000, OJ L 304/3, 5.12.2000, of Regulation (EC) No 2659/2000, Block Exemption Regulation on research and development agreements, of 29 November 2000, OJ L 304/7, 5.12.2000, and of the 2001 Guidelines on the applicability of Article 81 of the EC Treaty to horizontal co-operation agreements—OJ C3/2, 6.1.2001 (henceforth, the 2001 Horizontal Cooperation Guidelines); subsequently, I refer to the adoption

10

INTRODUCTION

This transition to what certain authors have termed a more mature evolutionary stage of EU competition law24 also involves, under a different analytical perspective, a complex legal process at a dual level. It corresponds both to a consequence of entering a new, deeper phase of economic integration in the EU and to a response to this new legal and economic context (with the EU competition law system being construed accordingly, on the basis of its underlying systemic context of economic integration, taking a part in its building process and at the same time involving an active interplay with its content). I refer here in particular to a logic of normative understanding and reasoning that takes into account particularly the systemic context of the rules in place at each given moment, which can be translated in the idea of law in context as formulated by Francis Snyder and others.25 In fact, I believe that this idea of law in context will be especially meaningful and adequate to the development of legal analysis in the field of EU competition law, provided it is properly contained within the specific boundaries of legal reasoning. By this proviso, I mean that the justifiable relevance given to political, institutional and economic aspects to an interactive building process of legal values and categories of competition law should not make us underestimate the truly central role—as emphasized by Dieter Schmidtchen26—of normative evaluations and reasoning (and it is a fact that some perspectives of economic analysis of law and of law in context may result in methodological distortions, whenever they fail to recognize that central position of normative evaluations based on specific legal values that cannot be ascertained or depicted through merely economic considerations). As a now consolidated area of law, EU competition law may have its teleological and normative programme periodically reviewed in light of its changing context without running the risk of becoming too unstable or facing some sort of dilution. In fact, as rightly

of Regulation EU No 1217/2010, of 14 December 2010, Block Exemption Regulation on research and development agreements (OJ L 335/36, 18.12.2010) of Commission Regulation EU No 1218/2010, of 14 December 2010, Block Exemption Regulation on specialization agreements (OJ L 335/43,18.12.2010) and of the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, adopted in December 2010, OJ, C 11/1, 14.1.2011 (henceforth, the 2011 Horizontal Cooperation Guidelines). 24 On this idea of transition to a new phase of consolidation of EU competition law corresponding to a more mature stadium, see, inter alia, Jonathan Faull, ‘The Enforcement of Competition Policy in the European Community: A Mature System’ in Annual Proceedings of the Fordham Corporate Law Institute—EC and US Competition Law and Policy—1991 (Barry Hawk (ed), Fordham Corporate Law Institute, Transnational Juris Publications, Inc, Kluwer Law & Taxation Publishers, 1992) 139ff. As underlined by Faull with an absolute emphasis on the dimension of economic integration that even I deem somewhat excessive, ‘the role of competition policy in the pre-1992 period has been to open national markets within the EC and ensure that competition be the principal driving force in the EC’s. Thus competition policy has underpinned the drive towards the EC’s single market’ (at 140). 25 On this logic of normative understanding of law in accordance with its systemic context, embodied in the idea of ‘law in context’ as envisaged by Francis Snyder and others, see Francis Snyder, New Directions in European Community Law (London, Weidenfeld Nicholson, 1990). 26 See on this Dieter Schmidtchen, arguing for the central role of a dimension of normativity even in an area of law largely dependent on elements of economic analysis as is the case of competition law, ‘The Goals of Antitrust Revisited—Comment’ (1991) JITE 31ff. As this author notes, the possibility of economic criteria or propositions establishing normative rulings or defining the notion of competition relevant for the purposes of application of competition rules should be ruled out. Specifically it should be ruled out ‘by the (meta-)rules of the economic rethorics game that are almost generally accepted and according to which economics cannot make any value judgments. The determination of the protective purposes of antitrust is a normative question. It can only be answered by a judgment that reflects the fundamental values of a society’ (at 32).

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emphasized by Wernhard Möschel,27 the usual indeterminate nature of the key framework concepts of competition law, upon which this body of law is largely construed, is essentially connected with the dynamic nature of its object, corresponding to an economic process of market functioning in constant change. It is thus understandable that even the competition law system which represents the most consolidated legal model internationally, with enforcement experience of more than one hundred years—US antitrust law—has not generated consensus about its chief goals or even about some of its key legal parameters.28 On the contrary, the last three decades have been characterized by deep controversies—not satisfactorily resolved until now—on the underlying goals of US antitrust law, which have led to the challenging of assumptions that could be seen as a basic legal acquis of this body of law (starting from the critical movement originating with the Chicago School, involving reactions from the Harvard School and leading to many intermediate theoretical trends in the context of what has sometimes been termed a post-Chicago critical synthesis or review).29 In this process, joint venture analysis has frequently been a key area for the re-evaluation of some of the essential legal parameters of US competition law. One may, therefore, expect that the degree of consolidation already attained by EU competition law may provide the ground for a comparable process of critical re-evaluation of its core goals and for the qualitative renewal of its enforcement process (involving, in turn, a lesser degree of public, administrative intervention for purposes of antitrust scrutiny). Such a comprehensive renewal of EU competition law—also influencing the dynamics of Member States competition laws in the context of their soft harmonization with EU law—has, inter alia, two intertwined pillars. These are, on the one hand, the decentralization of the enforcement of articles 101 and 102 TFEU (formerly articles 81 and 82 EC Treaty), following the adoption of Regulation EC No 1/2003 (in the wake of the 1999 White Paper on Modernization of EC Competition Law);30 on the other hand, I refer here to a new legal reasoning as regards the reach and significance of the prohibition rule of article 101, paragraph 1 TFEU (and its interplay with paragraph 3 of the same article). The decentralization process paves the way for a gradual reinforcement of the judicial pillar for the development of EU competition law, through a greater involvement of national courts (henceforth called to apply paragraph 3 vis a vis paragraph 1 of article 101 TFEU), although the somehow disappointing recent Report on the Functioning of Regulation

27 As submitted by Wernhard Möschel, ‘antitrust law is based on vague legal concepts such as restraint of competition, unfair competition, monopolization, abuse of a dominant market position, unreasonable restraints and so on. This is no coincidence. This fact is closely tied to the dynamics of the object being regulated here—an economy that is in a constant state of change … The decisive element for clarifying these vague legal concepts for application in the real world is the protective purpose which underlies each piece of legislation in this area’ (quoted in ibid 7). 28 Something which has been underlined by several authors, as eg, Eric Furubotn and Rudolf Richter, ‘The New Institutional Economics—New Views on Antitrust’, Editorial Preface, Symposium June 1990—Walerfangen/Saar (1991) JITE 1ff. They note that, taking into consideration more than 100 years’ application of the Sherman Act in US law, ‘despite relatively lengthy experience with antitrust legislation, experts continue to disagree over such bedrock issues as the goals of the program. Serious questions also exist about the ‘rules’ that should be followed in antitrust cases and about the overall effectiveness of antitrust enforcement’ (at 3). 29 For an overview of the critical contribution of the Chicago School to the definition of teleological models of antitrust law, see Richard Posner, ‘The Chicago School of Antitrust Analysis’ (1979) U Pa L Rev 925ff. We shall focus later on various contributions to a post-Chicago critical synthesis or review, see esp ch 4. 30 See 1999 White Paper on Modernization of the Rules Implementing Articles 81 and 82 of the EC Treaty, adopted on 28 April 1999 (Commission Program No 99/027—Brussels, 28.4.1999).

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INTRODUCTION

1/2003 still does not allow a comprehensive balance of the repercussions of this process.31 The new legal methodology applied to the interplay of paragraphs 1 and 3 of article 101 TFEU, incorporating an effects-based analysis dependent on economic evaluations— whose development has been significantly influenced by joint venture analysis—carries with it risks to legal security and predictability. While these risks associated with a more economic analysis of the prohibition rules applied to certain types of cooperation between undertakings have been effectively counterbalanced over the years in the US legal system, through a dense legal elaboration around the key categories of the prohibition per se and the rule of reason—with several intermediate categories progressively arising from the case law and enforcement practice—and through a greater use of econometric models, in the EU system the normative structure of article 101 TFEU and the first stages of its interpretation (at least in the first three decades of evolution of EU competition law) have not provided room for a rule of reason reasoning (although its possible transposition, with some adjustments, to the EU system has been periodically discussed by several authors).32 Accordingly, the shift to a new legal methodology of interpretation and enforcement of article 101 TFEU—in the context also of a greater involvement of national entities (courts and competition authorities)—requires a very sensitive hermeneutical equilibrium, so that the previously prevailing legal formalism is not replaced by an entirely casuistic analysis with an economic basis and devoid of acceptable patterns of legal security or predictability. I believe that the particular features underlying the competition law analysis of joint ventures—as identified and studied throughout this book—have significantly contributed to reach that sort of hermeneutic equilibrium, leading to a more flexible hermeneutical reading of article 101 TFEU which, in turn, is not based on an any kind of transposition of the rule of reason (since the evaluation of efficiency elements is somehow intrinsically incorporated in such analysis).

1.4.2 The Treatment of Joint Ventures Before and After the Adoption of the EU Merger Control Regulation The analysis of joint ventures developed in this book, although essentially focused on the current state of EU competition law and its evolutionary prospects, is also anchored in an historic perspective of the treatment of these entities in the wider context of the evolution of that body of law (and of the interaction between that global evolution and the treatment of joint ventures).33 In fact, knowledge about the successive, different stages of treatment of joint ventures is relevant for a proper competition law understanding of these entities and,

31 I refer here to the Report on the Functioning of Regulation 1/2003—Communication from the Commission to the European Parliament and the Council, Brussels, 29.4.2009, COM (2009) 206 final. 32 I shall frequently return to these reference categories of per se prohibition and the rule of reason in the context of the analysis of joint ventures, and, especially, discussing their hypothetic application, even with adaptations, in EU competition law (that I shall, on the whole, reject). For an initial general approach to those categories and for a useful description of various intermediate categories between per se prohibition and rule of reason that have been contemplated more recently within US antitrust law, see Geert Wils, ‘“Rule of Reason”: Une Règle Raisonnable en Droit Communautaire?’ (1990) CDE 19ff. An overall critical balance on the applicability or not of rule of reason in EU competition law will be delineated below in ch 4. 33 I refer here to an historic perspective on the process of formation of competition law rules, relevant for a proper overall understanding of certain categories and to reevaluate some of the essential normative coordinates of this body of law (in this case, of EU competition law), in a manner comparable to the perspective adopted by

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in turn, it sheds light on the repercussions of such treatment for the significant changes the EU competition law system has undergone in recent years. That perspective will lead to an identification of original stages of treatment of joint ventures in some ways characterized by a normative distortion in terms of EU competition law (at the time, EEC competition law). I refer here to a first stage of understanding and legal analysis of joint venture in the period of evolution of this body of law prior to the adoption of the first Regulation on concentration control in 1989.34 In this period, the lack of rules on direct control of concentrations led to a competition law scrutiny of joint ventures exclusively based on the then article 85 EEC Treaty. This initial absence of a normative programme specifically addressing competition issues of a structural nature has led to profound distortions in the conception and treatment of joint ventures, which, though mitigated, have not been entirely eliminated up to the present date. Thus, faced with this omission of rules on direct control of concentrations, the European Commission had frequently adopted a normative pre-understanding of joint ventures which overvalued the entrepreneurial cooperation elements that were identifiable in connection with the establishment and functioning of joint ventures (thus ensuring conditions for submitting those joint ventures to the discipline of then article 85 EEC Treaty, since a greater emphasis on structural elements associated with such entities, leading to their qualification as concentration phenomena, would ultimately correspond to an absence of competition law scrutiny of those entities). The consequences of this type of normative distortion, originating in the lack of a body of rules of direct concentration control until 1989, were twofold. On the one hand, it prevented the development of a unitary body of analysis of joint ventures, comparable to the one which globally prevailed in the context of US antitrust law, thus reflecting the composite nature of these entities.35 On the other hand, the legal categorization of joint ventures, required to determine their submission or not to then article 85 EEC Treaty, resulted in frequent overvaluation of the entrepreneurial cooperation elements of these entities (that justified such treatment of joint ventures under article 85). Essentially, the Commission then built a thesis that justified the submission, in general, to article 85 of joint ventures established by parent undertakings that would act as actual or potential competitors, except in two types of situations that required a different framework. These would correspond, first, to cases in which the parent undertakings had transferred all their assets to certain joint ventures, maintaining their individuality only for limited purposes of monitoring the activities of the joint ventures (almost as holding companies would do). It would correspond, secondly, to situations then qualified by the Commission as partial

Robert Bork in The Antitrust Paradox—A Policy at War with Itself (New York, Oxford, Singapore, Sidney, The Free Press, 1993) esp 15, 50ff. 34 On the context of adoption of EC Regulation No 4064/89, of 21 December 1989 (first Council Regulation on the control of concentrations between undertakings—OJ L 395/1, 30.12.1989) and on the approach followed on joint ventures prior to the adoption of this Regulation, see, inter alia, James Venit, ‘Oedipus Rex. Recent Developments in the Structural Approach to Joint Ventures under EEC Competition Law’ (1991) W Comp 14ff. 35 On the essentially unitary treatment of joint ventures that has prevailed under US antitrust law (although this body of law still has some areas of distinction between particular categories of joint ventures), see Barry Hawk, ‘Joint Ventures under EC Law’ in Annual Proceedings of the Fordham Corporate Law Institute—EC and US Competition Law and Policy—1991 (n 24) 557ff.

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INTRODUCTION

concentrations.36 In these situations parent undertakings would transfer a significant part of their assets to a joint venture and would entirely withdraw, in irreversible terms, from the joint venture market (provided no collateral coordinating effects would arise in the markets in which such parent undertakings would remain active). In both cases, these types of situations would not be subject to any particular form of competition law scrutiny, due to the absence, at that time, of rules on direct control of concentrations. The approval of the first competition regime of direct control of concentrations— through Regulation EEC No 4064/89—marked the transition to a new stage in the treatment of joint ventures under EEC competition rules. Somewhat paradoxically, at a time in which the initial absence of rules on direct control of concentrations was overcome, the normative distortion in the treatment of joint ventures, associated with that lacuna, was not corrected. In fact, quite the contrary succeeded as the systematic division of joint ventures in two different sub-categories was maintained, if not reinforced, in the context of the new regime on direct control of concentrations. That happened because only certain types of joint ventures were included in the perimeter of concentration control. According to the initial text of paragraph 2 of article 3 of Regulation EEC No 4064/89, the joint ventures to be treated as concentrations and accordingly submitted to the Regulation were the ones that performed on a lasting basis all the functions of an autonomous economic entity and which did not give rise to coordination of the competitive behaviour of the parties amongst themselves or between them and the joint ventures at stake. Thus a new problem of legal qualification of joint ventures was raised which would take precedence over all issues of competition law evaluation of these entities. I refer to the requirement, whenever the establishment of a joint venture was at stake, that the joint venture qualified as a concentrative entity (subject to concentration control regime) or as a cooperative entity (subject to the regime of then article 85 EEC Treaty).37 As correctly noted by Barry Hawk, a concentrative-cooperative distinction of joint venture was established that was woefully inadequate.38 In fact, that distinction served a mainly jurisdictional function, assigning certain joint ventures to different substantive and procedural systems. However, drawing such a distinction did not provide quick and predictable outcomes that require to be associated with jurisdictional rules. It involved an appreciable degree of legal conceptualism and the application of legal and economic tests whose outcome was rather uncertain. Furthermore, the adoption of an expedited regime for the evaluation of concentrations almost led to an inversion of the methodological assumptions of analysis of joint ventures. Contrary to what happened before the adoption of Regulation EEC No 4064/89, the Commission was now interested in facilitating the qualification of joint ventures as

36 On this type of entity, see Karen Banks, ‘Mergers and Partial Mergers’ in Barry Hawk (ed) Annual Proceedings of the Fordham Corporate Law Institute—North American and Common Market Antitrust and Trade Laws—1987 (New York, Matthew Bender, 1988), 404ff. 37 For criticism of the requirement of prior qualification of joint ventures and on the normative distortions it induced, see Venit, ‘Oedipus Rex. Recent Developments in the Structural Approach to Joint Ventures under EEC Competition Law’ (n 34) 14ff. 38 See Barry Hawk, ‘Joint Ventures under EC Law’ in Annual Proceedings of the Fordham Corporate Law Institute—EC and US Competition Law and Policy—1991 (n 24). As Hawk notes, ‘The concentrative-cooperative distinction serves a mainly jurisdictional function. It assigns a particular joint venture to different substantive and procedural systems. As a jurisdictional rule, the distinction is woefully inadequate. Jurisdictional rules must provide quick and predictable outcomes. In this respect the cooperative-concentrative distinction remains deeply flawed’ (at 575).

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concentrative entities, thus paving the way to their submission to the concentration control regime. In fact, the legal criteria for the qualification of joint ventures delineated by the Commission in its 1990 Interpretative Notice on the distinction between concentrative and cooperative operations39 were gradually subject to an evolutionary interpretation that underplayed the factors preventing their qualification as concentrative entities.40 I refer here, in particular, to the negative condition for such qualification which corresponded to the absence of coordination between the parent undertakings and between these undertakings and the joint venture. The Commission, in its enforcement practice, gradually downplayed the factors that would prevent the verifying of this negative condition (eg, as regards the factor corresponding to the presence of one of the parent undertakings in the joint venture market, which could be deemed as almost irrelevant under a de minimis criterion, provided that continued presence was not very significant, or also developing the rather contradictory industrial leadership criteria, according to which the continued presence of a parent undertaking would not translate in behavioural coordination issues provided the undertaking assumed a leading strategic role in the joint venture).41 These hermeneutical trends in the qualification of joint ventures represented rather conceptualist answers on the part of the Commission to excessively formal legal parameters of qualification of joint ventures and also attempts to bring the evaluation of a larger group of joint ventures into the more straightforward and not so uncertain procedural regime of direct control of concentrations. The Commission tried, in the meantime, to eliminate this type of conceptualism and this contradiction between the qualification parameters established in its own 1990 Interpretative Communication and the ones actually developed through its enforcement practice. It did so through its 1994 Interpretative Notice on the distinction between concentrative and cooperative joint ventures.42 In fact, in this 1994 Notice the Commission developed a new orientation through which it considered not relevant the behavioural coordination between one or more than one of the parent undertakings and the joint venture established by such undertakings, except if that brought about any form of cooperation between the parent undertakings themselves. These hermeneutical changes globally reinforced the probabilities of qualifying joint ventures as concentrative entities subject to the concentration control regime. This step was later reinforced through the

39 I refer to the first (1990) Interpretative Notice on the distinction between concentrative and cooperative operations, OJ L 395/1, 30.12.1989. 40 See, on this topic, referring to an evolution of the criteria of qualification of joint ventures initially delineated in the 1990 Guidelines, in order to ensure that a more significant part of these entities was covered by the MCR, James Venit, ‘The Treatment of Joint Ventures under the EC Merger Regulation—Almost through the Ticket’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1999 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 2000) 465ff. 41 The Commission decision of 1991 ‘Pilkington/Thomson’ (JOCE No C 279/19, 1991) marked the beginning of this most debatable hermeneutical construction based on the idea of industrial leadership. 42 Interpretative Notice on the distinction between concentrative and cooperative joint ventures, OJ C 385/1, 31.12.1994. In fact, from 1994 onwards a growing number of joint ventures qualified as concentrations with the corresponding submission to the regime of the MCR. For a quantitative perception of that trend, see Robert Snelders, ‘Developments in EC Merger Control in 1995’ (1996) EL Rev 21, ‘Competition Law Survey—1996’ CC 66ff. And from the same author, ‘Developments in EC Merger Control in 1996’ (1997) EL Rev 22, ‘Competition Law Survey—1997’ CC 75ff.

16

INTRODUCTION

amendments introduced in 1997 to the then EC Regulation on concentration control.43 This first adjustment to the Regulation basically eliminated the negative condition for qualification of joint ventures as concentrative entities related to the lack of any form of behavioural coordination between the entities involved in the establishment of a joint venture. It accordingly expanded the domain of joint ventures submitted to scrutiny under the concentration control regime and, additionally, it involved an adjustment of the legal tests established in that regime. In fact, the submission to the concentration control Regulation of the category of joint ventures performing on a lasting basis all the functions of an autonomous economic entity—even when giving rise to coordination of competition behaviour between the parties—led to the cumulative establishment in that Regulation of two legal tests: (i) on the one hand, the core structural test specifically applied for the purpose of direct control of concentrations, corresponding until the 2004 reform of the MCR to an appraisal of creation or strengthening of a dominant position through the concentration operations (and, after such reform, to the still prevailing structural test of a significant impediment to effective competition in particular as a result of the creation or strengthening of a dominant position);44 (ii) on the other hand, a legal test related to the behavioural coordinating effects arising from the joint ventures at stake, to be appraised on the basis of the criteria set under paragraphs 1 and 3 of article 81 EC Treaty (now paragraphs 1 and 3 of article 101 TFEU). These 1997 and 2004 reforms of the concentration control regimes led to a new normative framework of evaluation of joint ventures that, in rather innovative terms under EU competition rules, combines analytical criteria predominantly related to structural elements with analytical criteria essentially connected with behavioural elements (leading to a possible interaction of such analytical criteria that may spill over to the scrutiny of joint ventures under article 101 TFEU, which, in turn, may gradually influence the comprehensive scrutiny of cooperation practices between undertakings under such regime). That kind of evolution of the successive stages in the treatment of joint ventures— culminating in the 1997 and 2004 reforms and also in the resulting scrutiny practices under article 101 TFEU as well—is therefore relevant for the analysis developed throughout this book. While the core of my in-depth analysis of joint ventures—particularly throughout chapters two and three—is the scrutiny of joint ventures under article 101 TFEU, it also encompasses the contradictions introduced in the different stages of treatment of joint ventures in the context of the evolution of EU competition law (which thus represent a factor that has to be taken into account in the hermeneutical process).

43 I refer here to the first reform the 1989 MCR which was adopted through Council Regulation (CE) No 1310/97, of 30 June 2007 (OJ L 180/1, 9.7.1997), which was preceded by the set of analyses contained in the Green Paper on the Reform of the Merger Regulation, Brussels, 31 January 1996 (COM(96) 19 final). 44 On the adjustment of the core (structural) test specifically applied to concentrations, arising from the 2004 reform and the adoption of Regulation EC No 139/2004 (OJ L 24/1, 29.1.2004) see, inter alia, Alistair Lindsay and Alison Berridge, EU Merger Regulation—Substantive Issues (London, Sweet and Maxwell, 2012); Peter Christensen, Kyriakos Fountoukakos and Dan Sjöblom, ‘Mergers’ in Jonathan Faull and Ali Nikpay (eds), The EC Law of Competition (New York, Oxford, Oxford University Press, 2007) 421ff, Götz Drauz and Christopher Jones (eds), EU Competition Law, Vol II, Mergers and Acquisitions (A. V. Deventer, Claeys & Casteels, 2006) esp 245ff (key aspects of the substantive structural test on which concentration control is based that we shall not develop further in this book, since I shall focus my attention on joint ventures assessed under article 101 TFEU and, in that context, to the assessment of cooperation between undertakings in general, covered by such regime, although attention will be given incidentally throughout the book to the interplay between this test and the substantive regime applied to cooperation arrangements in general).

OBJECTIVES OF THE RESEARCH IN THIS BOOK

17

1.4.3 Treatment of Joint Ventures Focused on Article 101 TFEU The critical analysis of joint ventures in chapters two and three—with global repercussions in terms of possible new trends of EU competition law discussed in chapter four—has its main focus on the chief subcategories of joint ventures that are most readily identifiable under article 101 TFEU and which still represent globally a larger share of the joint ventures potentially submitted to EU competition rules. In fact, several commentators agree that before the 1997 reform of the concentration control regime ‘only a small percentage of joint ventures were reviewed under the merger Regulation’,45 and while that percentage has changed quite significantly since the reforms took place, there are reasons to believe that a majority of joint ventures still require to be scrutinized under article 101 TFEU (despite the fact that precise estimates of relevant shares of joint ventures potentially to be scrutinized under article 101 TFEU or under the merger control regime of Regulation No 139/2004 are difficult to establish, since only a tiny fraction of joint ventures which do not qualify for notification under this Regulation are the object of formal decisions of the Commission or of national competition authorities of the Member States or, indeed, are even brought to the attention and examination of these authorities).46

1.5 The Building of a General Model of Evaluation of Joint Ventures under Competition Law Rules and the Transition to a New Stage of EU Competition Law While focusing my attention on the treatment of joint ventures submitted to the article 101 TFEU regime, I shall endeavour to anticipate, on a prospective basis, further steps towards a growing unitary analysis of joint ventures (thus overcoming the historic distortion in the treatment of these entities under EU competition rules, arising from the initial lack of rules on direct concentration control and also from the lack of an effective structural dimension for the analysis of hybrid processes of entrepreneurial cooperation, including elements of integration between undertakings and elements of behavioural coordination). Accordingly, I shall critically analyse the evaluation of joint ventures submitted to article 101 TFEU, taking into consideration where relevant elements of evaluation of full

45 See, on this point, John Anthony Chavez, ‘Joint Ventures in the European Union and the US’ (1999) AB 959ff. As this author notes, ‘Before the expansion of the merger regulation [1997 reform], only a small percentage of joint ventures were reviewed under the merger regulation. In 1997, one commentator estimated that 95% of the joint ventures subject to the European Community’s competition law were governed by article 85’ (at 966). Despite the undeniable growth of joint ventures covered by the MCR after the 1997 reform, I consider that, on the whole, a still larger proportion of joint ventures continue to be covered by article 101 TFEU. Nevertheless, I have to acknowledge the difficulty in establishing an exact or even close estimate of the precise numbers, since only an extremely limited number of such entities of those joint ventures that do not qualify as concentrations have been object of formal decisions of the Commission or even been made known to the Commission. In this domain, as in others, the ‘decentralization’ process in enforcement of EU competition law developed through Regulation (CE) No 1/2003 should have created adequate conditions for the Commission to scrutinize ex officio a larger number of joint ventures raising potentially significant repercussions to competition in terms of application of article 101 TFEU. However, as I shall explain later, this did not actually happen since the Commission has pursued an extremely limited number of cases in the field of article 101 TFEU, apart from those concerning cartels (with negative consequences in my view for the hermeneutical clarification of that legal regime). 46 See on this the latest Reports on Competition Policy of the European Commission (eg in the period between 2001 and 2012).

18

INTRODUCTION

function joint ventures leading to behavioural coordination (treated under the framework of Regulation No 139/2004, in particular under the dual structural and coordination tests of, respectively, paragraphs 2, 3 and 4 of article 2 of the Regulation). This critical analysis will be aimed towards building and identifying stable legal and economic appraisal criteria which, together, may form a general analytical model of evaluation of joint ventures (that may lead to acceptable levels of predictability as regards the outcome of these analyses). The identification of suck key appraisal criteria will be structured on the basis of a proper understanding and evaluation of the prevailing economic goals or functions carried out through different joint ventures.47 Regardless of their legal form or organization, I shall then assess some typical economic functions of different joint ventures, in light of the effects arising from these on the competition process and as perceived through the lens of competition law. This methodological approach will lead to the identification of four basic subcategories of joint ventures that will be the object of my in-depth analysis, namely (i) research and development joint ventures, (ii) production joint ventures, (iii) commercialization joint ventures and (iv) purchasing joint ventures (with a particular emphasis on the first two categories from which certain essential corollaries may be established for the other two). The global analytical model of joint ventures presented in this book—and initially described in general in chapter two—will be fundamentally anchored in the interplay of three reference parameters (which may, in turn, interact with complementary and variable criteria of a more complex nature). Such parameters will correspond to (a) the type of economic relationship between the participating undertakings in the joint venture, (b) the type of relationship between the markets in which the parent undertakings operate and the joint venture market, and (c) the effects arising from the establishment and functioning of a joint venture on third parties (particularly effects that may lead to the foreclosure of certain markets to third parties). Building such a global analytical model of joint ventures, fundamentally based on the chief economic effects arising from the establishment and functioning of these entities is undoubtedly a complex task. That complexity is highlighted, due to the interdependence between the three key parameters at stake (as identified above, (a), (b) and (c)). Furthermore, each of those parameters may encompass variable situations, which, in turn, multiply the relevant analytical levels (to take into consideration). I shall apply the analytical model presented in chapter two throughout chapter three— which represents the core of the book—to the four subcategories of joint ventures identified above that are to be associated with particulars risks of distortion of competition. My purpose is to establish a set of quasi-presumptions or, at least, indicative criteria leading to the identification, on a fairly predictable basis, of the probable occurrence of unacceptable situations of competition distortion. This will allow me to build an analytical methodology particularly tailored to joint venture evaluation. Such methodology will ideally lead to an

47 I consider here effects of joint ventures on the competition process from a standpoint that is shared by other commentators such as John Temple Lang in his study, ‘International Joint Ventures under Community Law’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1999 (n 40) 381ff, esp 395. To some extent, what is at stake is to build a typology of standard economic goals of different subcategories of joint ventures as a basic matrix for the competition law assessment of those joint ventures. As suggested by Temple Lang, ‘the nature of the effects which a joint venture may have on the behaviour of the parents depends on what the joint venture will do’ (at 395). It must be noted, however, that starting from this common assumption aimed at economic functions carried out through different types or subcategories of joint ventures, different analytical models of joint ventures may be conceived.

OBJECTIVES OF THE RESEARCH IN THIS BOOK

19

identification—at a first stage of analysis—of standard situations of predictable restriction of competition in connection with each subcategory of joint ventures (always dependent, however, on specific factors that may arise from casuistic analysis of the market situations at stake). Going on to a second stage of analysis, one may evaluate elements of adjustment of the content and functioning of the joint ventures at stake, which, without affecting the efficiency factors underlying those joint ventures, may neutralize those risks to a certain extent (therefore introducing in the analytical equation of these situations incentive modifying remedies that may conciliate the efficiency effects of some joint ventures with the prevention of distortions of competition,48 in line mutatis mutandis with some analytical paradigms developed in the context of US antitrust law, but not yet actually explored in the field of EU competition law). In building this analytical model, I shall take into consideration the EU (Commission) ‘Guidelines on the Applicability of article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-Operation Agreements’, fully revised and updated in 2010.49 In fact, if these Guidelines develop a broader perspective on the general horizontal cooperation between undertakings, factors which are particularly relevant for joint venture analysis may arise from it (while also attracting, in my view, some criticism in the context of the comprehensive analytical parameters I am designing in this book).

1.6 Particular Features of Joint Ventures in the Financial Sector In the context of my analysis of joint ventures systematically aligned with their prevailing economic functions and effects (to be developed in chapter three), I refer to some particular issues that may arise in the field of joint ventures—or comparable entities—established in the financial sector.50 Accordingly, this segment of specific analysis of joint ventures in the financial sector will be included in the section of Chapter 3 dealing with the type of the commercialization joint ventures.

48 On incentive modifying remedies see, in particular, the analytical model designed by Joseph Brodley in his seminal work, ‘Joint Ventures and Antitrust Policy’ (1982) Harv L Rev 1523ff. I purport to adapt and develop in the context of EU competition law Brodley’s analysis of those incentive-modifying remedies, suggesting several paradigmatic forms of adjustment of the structures of joint ventures that may prevent the occurrence of some of the more common anticompetitive effects of certain joint ventures (see Brodley, 1544ff). 49 See Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-Operation Agreements, fully revised and updated in 2010, replacing the former 2001 Horizontal Cooperation Guidelines. 50 I refer here to the financial sector in rather broad terms. Multiple problems of potential distortion of competition, including of course those related to the establishment and functioning of joint ventures, assume specific features in this sector. See for a general perspective on some of those particularities that should be taken into consideration for the purposes of establishing a coherent competition policy addressing the financial sector, Luc Gyselen, ‘EU Antitrust Law in the Area of Financial Services—Capita Selecta for the Cautious Shaping of a Policy’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1996 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 1997) 329ff. Furthermore, in the current operating conditions of the more developed financial sectors, the establishment of joint ventures, combining in an innovative way fundamental specialized know how and expertise of financial institutions and of entities operating in other economic sectors has become an important element of the growth and diversification strategy of financial groups. See, in that sense, the analysis of Peter Drucker, underlining the importance of ‘banking joint ventures that gain access to new investment markets by going into partnership with small independent asset managers’ (Drucker, Managing in a Time of Great Change (n 10) 70ff).

20

INTRODUCTION

The option underlying this focus given to joint ventures in the financial sector has to do with some peculiar factors to be found in this sector. First, I am interested in an implicit dimension of entrepreneurial cooperation that is somehow required by the functioning of the financial sector (at least, as regards some of its constituent parts). In particular, I shall address analytical issues raised by certain areas of the financial sector that require the organization and operation of network systems, as it characteristically happens in the payment cards area. Secondly, attention will be focused on the especially dynamic nature of the financial sector (and, in particular, of certain of its segments). In fact, considering that joint ventures competition law analysis combines, in a perhaps unique way, structural elements—to be assessed through prospective evaluations, related to the perception of market dynamics generated by the establishment of these entities—and behavioural elements (related to the potential coordination of behaviours), it may be safely assumed that such analytical interplay will produce some of its most interesting results in particularly dynamic markets and those dependent on a high degree of innovation (as it is clearly the case with the financial sector and in particular, the area of payment cards within that sector). Further, in response to the huge changes in the financial sector, following the introduction of the Euro in the various EU Member States, financial undertakings have frequently used the joint venture as an important instrument for their readjustments and changing strategic alliances (due, in part, to its considerable flexibility). This also raises new issues of relevance for the treatment of (commercialization) joint ventures. These joint ventures—or comparable entities—in the financial sector also correspond, in some cases, to innovative combinations between several areas of the financial sector (banking, insurance and securities) and other areas of economic activity (integration of financial and non-financial activities gradually brought about by new information technologies that imply new parameters of organization and functioning for activities traditionally forming the core of financial intermediation).51 This recent proliferation of joint ventures in the financial sector calls for a global rethinking, in various segments of the sector, of the acceptable frontiers—in terms of competition law analysis—for the implicit dimension of entrepreneurial cooperation that is inherent to financial activity. Accordingly, I shall pay particular attention to the network cooperation issues related to the functioning of payment cards systems—as an area that epitomizes the cooperation dimension inherent to various areas of financial activity—taking into consideration the latest developments in this field, both at US and EU level (which involve entities and forms of organization that have significant elements in common with joint ventures).

2 Methodology This book is clearly based on an interdisciplinary—legal and economic—research methodology, which is characteristic of competition law analysis. Economic analysis is, therefore, a necessary component of my research, although the book is intentionally

51 See, in general, on these developments, M Bettzüge and T Hens, ‘An Evolutionary Approach to Financial Innovation’ Discussion Paper, University of Bonn, 1997; Günter Franke, ‘Transformation of Banks and Bank Services’ (1998) JITE 109ff.

METHODOLOGY

21

anchored in a predominantly legal methodology. My purpose is to develop a comprehensive legal study oriented towards the application of rules and key principles of competition law—chiefly EU competition law—to the establishment and functioning of joint ventures. Taking into consideration the peculiar features of joint ventures, involving to a certain extent an evaluation of market structures and its prospective evolutions in the context of situations of entrepreneurial integration and cooperation, the research presented throughout the book will also call for a dimension of modern industrial organization (which is a relevant part, nowadays, of competition law analysis).52 In general, competition law—in light of its more recent developments both in the US and the EU—relies heavily on the use of economic concepts and economic evaluations and I shall not evade that necessity throughout the book. From a different standpoint, I purport to extract from prospective economic evaluations encompassed by competition law evaluations of joint ventures and in the comprehensive analytical model that I devise, certain repercussions in terms of global evolutionary trends of EU competition law, that are to be presented in chapter four. However, this interdisciplinary component (relying on economics) of the legal methodology to be used in competition law analysis of joint ventures should not cause us to overlook the fact that my core body of analysis has a fundamentally normative nature to which apply the specific elements of logic and discourse related to what Habermas defines as ‘Rechtsinstitutionem’ (involving a particular ‘normative intention’ and ‘normative form’ normally related to mechanisms for applying sanctions).53 In fact, regardless of the degree and the extent to which it relies on economic concepts and evaluations—a degree that may be debated—competition law and its treatment of joint ventures are based on normative judgements containing an inner core that precedes economic analysis and assumptions and may not be reduced to it.54 To a large extent, competition law involves the legal assimilation of economic or social concepts and their subsequent application in the context of the enforcement of normative regimes that require the apprehension of factual data (‘realdaten’), as it tends to happen in all legal constructions according to the Theory of Law Structuring (‘Strukturierende Rechtslehre’) developed by Friedrich Müller (to which I largely subscribe).55 This normative process is found at its fullest expression in the field of competition law, which particularly requires the definition of legal rules as a dynamic process of individualization of normative commands on the basis of casuistic situations. In this context, the legal rules at stake generally correspond to a reference model that is factually conditioned (‘sachbestimmtes Ordnungsmodell’);56 in other words, a normative model that has to be fully determined or established through its application to the economic reality that such model is supposed to ordain.

52 For a general perspective on the content and global reach of industrial economics for the purposes of developing competition rules, see, inter alia, Dennis Carlton and Jeffrey Perloff, Modern Industrial Organization (New York, HarperCollins College Publishers, 1994). 53 See Jürgen Habermas, Theorie des Kommunikativen Handelns (Frankfurt, Suhrkamp, 1981). 54 I refer here, once more, to the irreplaceable requirements of the development of normative judgements, as asserted by Dieter Schmidtchen in terms that I generally follow. See Schmidtchen, ‘The Goals of Antitrust Revisited—Comment’ (n 26) 31ff. 55 See, on that point, Friedrich Müller, Strukturierende Rechtslehre (Berlin, Duncker and Humblot, 1994) 17ff. 56 See ibid. See also Ralph Christensen, ‘Das Problem des Richterrechts aus der Sicht der Strukturienden Rechtslehre’ (1987) Archif für Rechts und Sozialphilosophie, pp. 73 ff., esp 75ff.

22

INTRODUCTION

The peculiarity that may be found at the level of competition law has to do with the special intensity of the factual data (‘realdaten’) or economic elements contribution to the structuring of the normative programme of its rules. In turn, that peculiar feature of competition law requires a specialized analysis supported by economic science or, at least, an empirical evaluation of certain economic data to fully establish the normative programme of certain regimes and its legal effects when applied to certain situations and entities. Notwithstanding this peculiarity, one must not lose sight—as may be the case with certain analysis more heavily indebted to economics and to economic analytical models, in recent years—of the basic notion that enforcing competition law requires normative judgements that do not arise from pure economic criteria. Those judgements depend on value structures and on a correspondent normative reasoning that may not be simply circumscribed to economic notions or elements pertaining to economic reality. On this basis, my methodological approach throughout the book has a predominantly legal nature, while recognizing the need to incorporate elements of economic analysis in the establishment of normative evaluations required in applying competition law rules. If, as has been observed, competition policy inhabits something of a no-man’s land between the territories of economics and law,57 my purpose throughout this book is to somehow bridge that gap while assuming at the same time as a starting point the criteria and elements of normative reasoning. Globally, my use of analytical tools of economics in the context of a predominantly legal analysis will not differ much from the characterization presented by the economist, Maureen Brunt, when evaluating the role of economics evaluations in antitrust court proceedings. As far as Maureen Brunt is concerned, while it would be ‘tempting for an economist’ to refer to competition law as a ‘blend of law and economics’, such a view would be ‘misleading’, since it should be recognized that ‘economic concepts are absorbed or assimilated by the law’ in an overall framework where ‘the law must be the dominant partner’.58 Therefore, my analysis, while permeated by economic factors or elements, will be anchored in an interdisciplinary perspective that will assume law and the corresponding normative reasoning to be the dominant partner (even if aiming towards a particular normative perspective of law in context,59 bearing in mind the economic and market environment that influence and condition the normative reasoning in the field of competition law). In fact, I consider that a pervasive use of economics and of economic analytical models, for the purposes of understanding competition law rules—under the influence of the Chicago School or even of post-Chicago schools of thought60—has led to certain excesses and to a lack of predictability in the enforcement of such rules (which does not, however, rule out the need for economic tools intermingled in the normative reasoning).

57 This observation is from Tim Frazer. As stated by this author, ‘competition policy inhabits something of a no-man’s land between the territories of economics and law. Lawyers trained in traditional legal scholarship are perhaps disquieted by the need to take account economic principles and economists are deterred by legal methodology’. See Tim Frazer, Monopoly, Competition and the Law (New York, London, Harvester, Wheatsheaf, 1992) xi. 58 See Maureen Brunt, ‘Antitrust in Courts: The Role of Economics and Economists’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1998 (Barry Hawk (ed), Juris Publishing, Inc, 1999) 356ff. 59 I refer here to the idea of law in context as characterized, inter alia, by Francis Snyder. See, on this point, Snyder, New Directions in European Community Law (n 25). 60 See, on those views of the Chicago School and of subsequent approaches that may be rather loosely be referred as post-Chicago theoretical approaches, inter alia, J Brodley, ‘Post-Chicago Economics and Workable Legal Policy’ (1995) ALJ 683ff; Lawrence Sullivan, ‘Post-Chicago Economics: Economists, Lawyers, Judges and Enforcement Officials in a Less Determinate Theoretical World’ (1995) ALJ 669ff.

STRUCTURE OF THE BOOK

23

Furthermore, taking into consideration the inescapable casuistic dimension of competition law analysis, my evaluation of joint ventures and of the competition law treatment of comparable entities will be largely based on a critical evaluation and review of relevant precedents (including selected decisions of the European Commission and case law from the CJEU and the GC (former Court of First Instance of the EU) and also, albeit on an exceptional basis, decisions of national competition authorities of EU Member States and of national courts). That methodology will be especially developed in one of the core chapters of the book—chapter three, incorporating an extensive analysis of the substantive assessment of different types of joint ventures under article 101 TFEU—but, on the whole, it heavily influences the remainder of my analysis. My purpose in this critical hermeneutical reading of competition law applied to joint ventures, through the casuistic lens of selected case law, is twofold. On the one hand, I aim to present readers with a comprehensive and updated statement of the actual treatment of different types of joint venture under EU competition law (and national competition law of Member States, due to the soft harmonization process that has occurred in recent decades). On the other hand, and more fundamentally, I aim through that critical review of selected case law to identify the essential guiding principles (‘Leitsätze’)61 that govern the normative options concerning the treatment of joint ventures under EU competition law. Although EU case law is sometimes conspicuous in its lack of enunciation of reasons of policy underlying certain judgments—compared for instance with the case law from the US Supreme Court and from German courts62—I purport to identify some of those reasons of policy and guiding principles underlying the treatment of joint ventures. It is in that context that I try to build a global analytical model of joint ventures offering some predictability to undertakings and allowing in principle the identification, on the basis of recurring analytical criteria, of (i) situations related to the establishment and functioning of joint ventures that do not usually generate appreciable negative effects for competition; (ii) situations that tend to produce unacceptable negative effects on competition; and (iii) situations whose actual impact on competition requires a more developed legal and economic analysis.

3 Structure of the Book As explained earlier in this Introduction, the object of my research in the field of joint ventures and my methodological approach, determine the plan and analytical sequence of the book. I begin with a chapter on the concept of joint venture in EU competition law (while also providing a comparative perspective with US antitrust law). In chapter one, while recognizing the inherent vagueness of the concept of joint venture in competition law I try to capture the basic elements which define this legal category (avoiding some of the

61

See, on the function of such ‘Leitsätze’, Müller, Strukturierende Rechtslehre (n 55). See for an incisive comparison in this area, Valentine Korah, ‘Future Competition Law—Community Courts and Commission Not Consistently Analytical in Competition and Intellectual Property Matters’ in Claus-Dieter Ehlermann and Laraine Laudati (eds), European Competition Law Annual 1997, the Objectives of Competition Policy (Oxford, Hart Publishing, 1998). 62

24

INTRODUCTION

uncertainty that has characterized the qualification of certain entities as joint ventures). This conceptual clarification addresses the competition law treatment of joint ventures, but I also, however briefly, revisit in chapter one, the different legal models of structuring cooperation links between undertakings that may be covered by the rather broad nomen juris of joint venture.63 In chapter two, I present the basis of a global analytical model for the assessment of joint ventures under EU competition law (especially focused on the assessment of joint ventures under article 101 TFEU), relying on the methodological approach previously described in this Introduction. Chapter three, which stands at the analytical core of the book, applies the global analytical model of assessment of joint ventures, as generally characterized in chapter two, to the substantive assessment of different types of joint ventures, individualized according to their prevailing economic function (and also bearing in mind the most common types of joint ventures in the entrepreneurial praxis). In chapter three, I examine in turn research and development (R&D) joint ventures, production joint ventures, commercialization joint ventures, and purchasing joint ventures. In so doing, I present a common analytical framework of joint ventures in action, while identifying how to adapt some of the key analytical criteria to the specific economic elements that tend to intervene in each of those types of joint ventures (offering as large a degree of predictability as possible both to competition law enforcers and to all the relevant stakeholders in this area, including of course the undertakings at stake). Building on the analysis developed in chapters two and three, the final, concluding chapter of the book (chapter four) is aimed at an evaluation of how competition law assessment of joint ventures has contributed to the major recent changes in EU competition law. I consider in this concluding chapter the redressing of the teleological priorities of EU competition law, the gradual renewal of its legal methodology and also, briefly, the transformation of the institutional model of organizing the EU competition law system.

63 To some extent, this attempt at identifying, under a general legal perspective that goes beyond competition law, different models for structuring cooperation links between undertakings, which may be covered by the rather broad nomen juris of joint venture, that is undertaken in ch 1 (esp at 2.4), while relevant to provide an overall understanding of the use of the legal category of joint venture in business and corporate law, may be skipped by readers more directly focused on competition law (although I also intend to construe a contribution of the more intensive use of the category of joint venture under competition law to build a general concept of joint venture under commercial or business law, as well as an interplay between the more general concept of joint venture used in certain areas of law, and the more specific notion of joint venture, pertaining to competition law, clearly at the core of this book).

1 The Concept of Joint Ventures in Competition Law 1 Introduction—The Inherent Vagueness of the Concept of Joint Venture in US Antitrust Law and EU Competition Law The first significant hurdle in joint venture analysis concerns its definition. No consensual definition of the concept of joint venture in the field of competition law has ever been provided. On the contrary, multiple definitions have been proposed, but despite such widespread discussion ambiguity reigns in this area. Even in the context of US antitrust law, in which the concept of joint venture has been longer debated and dealt with, this still represents a major conceptual problem. In US antitrust doctrine, Charles Weller has pointedly suggested that for over 100 years antitrust joint venture law has been a morass of confusion and ambiguity.1 Furthermore, as has also been pointed out in the US doctrine and in the context of comparisons with the EU, the legal qualification of joint venture is largely used to describe all ventures other than the ones engaged in naked per se violations of competition law (like price-fixing cartels), that represent a collaborative effort between companies to achieve particular ends (eg joint research and development, production of an individual product, or efficient joint purchasing).2 In fact, a critical review of the US and EU competition law doctrine may lead us to perceive either (i) an extremely broad definition of joint ventures; (ii) a broad definition; or (iii) a more restrictive definition of joint ventures.3 These definitions vary within a range that comprises all sorts of intermediate realities, in the field of entrepreneurial collaboration, between the situations corresponding, on the one hand, to cartels and, on the other hand, to mergers or concentrations. 1 See Charles Weller, ‘A New Rule of Reason from Justice Brandeis’s “Concentric Circles” and Other Changes in Law’ (1999) AB 880ff, whose views on the essential ambiguity of the concept of joint venture and the manifest gaps in its treatment under competition law have been noted above in the Introduction. 2 This characterization has been produced by John Anthony Chavez in his study comparing the analysis of joint ventures in US antitrust law and in EU competition law: ‘Joint Ventures in the European Union and the US’ (1999) AB 961–62. 3 In the US antitrust doctrine Edward Correia refers to multiple analytical levels of competition law definitions of joint ventures. See Edward Correia, ‘Joint Ventures: Issues in Enforcement Policy’ (1998) ALJ 737ff. He explains in general terms that the known definitions of joint ventures ‘sweep in a vast range of joint activity, from a highly integrated production joint venture, to a loosely integrated marketing network, to a set of ethical rules regarding advertising’ (at 738).

26

JOINT VENTURES IN COMPETITION LAW

In this context, (i) extremely broad definitions of joint ventures tend to result in the qualification as joint ventures of all forms of cooperation between undertakings that, while not reaching the boundaries of merger or concentration transactions (stricto sensu), bring together, as collaborative entities, actual or potential competitors in any given market.4 In my view, this extremely broad definition of joint ventures is almost analytically irrelevant and should not be retained. In fact, in covering the variety of horizontal arrangements that fall between the cartels and the mergers, it does not capture the particular nature of the joint venture that requires a specific analysis of competition effects of these entities. It refers too indiscriminately to multiple cooperation arrangements when in fact, what may truly mark out the joint venture as an autonomous legal category under competition law is, as noted in the Introduction, a particular combination of entrepreneurial cooperation and integration elements. Going beyond this type of extremely broad definition of joint ventures, some authors, such as Areeda, even go as far as denying any autonomy or relevance to a legal category of joint venture in the field of competition or antitrust law. In fact, according to Areeda, the joint venture is ‘an expansive notion without definite meaning or antitrust consequence’.5 With all due respect, I strongly disagree with that idea. The fact that the joint venture in the field of competition law analysis somehow corresponds to a hybrid notion, covering multiple realities, sometimes difficult to reconcile under a central, unifying concept, does not disqualify it from being a relevant and autonomous legal category. At a different level, the doctrinal analyses that I have identified above as leading to (ii) a broad definition of joint venture, such as the one proposed, for example, by Herbert Hovenkamp, maintain that joint ventures are ‘any of two or more firms for carrying on some activity that each firm might otherwise perform alone’. Hovenkamp also characterizes these realities ‘commonly referred to as joint ventures’ as ‘agreements among competitors that include some coordination of research, production, promotion or distribution’.6 Finally, (iii) a more restrictive definition of joint ventures underlies the analysis developed by other authors such as, for example, Barry Hawk or Joseph Brodley. Hawk, while recognizing that ‘the antitrust analysis of joint ventures is one of the most difficult issues in antitrust law’, since ‘the terms itself is loosely used and covers a wide variety of business arrangements’,7 envisages the joint venture as an intermediate reality between the extreme realities of the cartel and the merger, which combines elements pertaining to the behaviour of the participating undertakings and structural elements (within a very flexible

4 See, inter alia, the characterization proposed by Michael McFalls as a paradigmatic example of an extremely broad definition of joint ventures, in ‘The Role and Assessment of Classical Market Power in Joint Venture Analysis’ (1998) ALJ 651ff. However, McFalls also acknowledges the analytical problems arising from such a broad definition of the category of joint venture. Accordingly, he states that, ‘given the variety of horizontal arrangements that fall between the extremes of cartels and mergers, analysing market power in joint venture cases can be an extraordinary complex undertaking’ (at 653). 5 See P Areeda, Antitrust Analysis, 3rd edn (Boston, Little Brown, 1981) 471, para 360. In subsequent editions, this view is essentially maintained. 6 See Herbert Hovenkamp, Federal Antitrust Policy—The Law and Competition and its Practice (West Publishing Co, 1994) 185–86. 7 See Barry Hawk, ‘Joint Ventures under EC Law’ in Annual Proceedings of the Fordham Corporate Law Institute—EC and US Competition Law and Policy—1991 (Barry Hawk (ed), Fordham Corporate Law Institute, Transnational Juris Publications, Inc, Kluwer Law & Taxation Publishers, 1992) 557.

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framework that makes it a particularly suitable vehicle for performing various economic functions). Joseph Brodley takes this narrower definition of joint ventures even further. In his seminal study on joint ventures, he proposes the identification of a particular set of factors that ‘endow joint ventures with distinctive efficiency advantages and special anticompetitive risks’.8 Robert Pitofsky had the same intuition about a fundamental connection between the peculiarity of the anticompetitive risks or effects in competition arising from joint ventures and the legal categorization of this type of entities, recognizing that ‘the most serious difficulty associated with the law in this area stems from the sheer number of different types of joint ventures which may occur and the proliferation and complexity of relevant factors necessary to describe their competitive impact’.9 Taking into consideration the distinctive efficiency advantages and anticompetitive risks intrinsically underlying the establishment of joint ventures, Brodley sustains that a joint venture should be defined for antitrust purposes as ‘an integration of operations between two or more separate firms, in which the following conditions are present: (1) the enterprise is under the joint control of the parent firms, which are not under related control; (2) each parent makes a substantial contribution to the joint enterprise; (3) the enterprise exists as a business entity separate from its parents; and (4) the joint venture creates significant new enterprise capability in terms of new productive capacity, new technology, a new product, or entry into a new market.’10 Furthermore, Brodley intrinsically separates the joint venture from alternative forms of interfirm organization or collaboration on account of the fact that, in his view, the joint venture ‘involves the creation of a new business firm’.11

1.1 Relevant Definitions of the Concept of Joint Venture in Competition Law In my view, the broad definitions of joint venture, noted at point (ii) above, are also not satisfactory for the purposes of competition law analysis, and I tend to subscribe to a concept of joint venture which is closer to what I have qualified as (iii) more restrictive definitions of joint ventures. More precisely, I consider that there is room for an intermediate perspective of antitrust definition of joint ventures situated between those broad and more restrictive definitions of such entities. In fact, bearing in mind the specific elements inherent in the establishment and functioning of joint ventures in the context of competition law, my envisaged concept of joint venture is fairly close to the rather narrow definition proposed by Joseph Brodley, but with three major differences. In the first place, I consider that the concept of a joint venture as a new business firm is excessively narrow and does not depict with the necessary accuracy the degree of flexibility attached to the option of creating a joint venture. Although the idea of firm may be rather loosely used as a framework of entrepreneurial activity to be scrutinized

8

See Joseph F Brodley, ‘Joint Ventures and Antitrust Policy’ (1982) Harv L Rev 1526. See Robert Pitofsky, ‘Joint Ventures under the Antitrust Laws: Some Reflections on the Signification of PennOlin’ (1969) Harv LR 1007ff. 10 See Brodley, ‘Joint Ventures and Antitrust Policy’ (n 8) 1526. 11 See ibid 1527. 9

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under competition law,12 I consider it more accurate to use the more neutral term of business entity. The creation of a joint venture will, thus, entail the establishment of a new business entity that should be associated with stable and autonomous organizational forms (which, in turn, may be based on corporations, quasi-corporations, under very diverse legal forms, or mere contractual arrangements between the parent companies).13 Secondly, although I generally follow Brodley’s idea that a joint venture should imply the creation of some form of new enterprise capability, in terms of new productive capacity, new technology, a new product, or entry into a new market (or other relevant dimensions), I do not think that enterprise capability has to be significant. Empirical observation of cooperation between undertakings—which has been constantly assuming more complex and diversified forms—reveals that some joint ventures may add to the parent undertakings a certain complementary enterprise capability which may be comparatively small as regards the scale of business of those undertakings (or even in absolute terms). In any case, that relatively minor dimension of the new enterprise capability brought by a new business entity that may qualify as joint venture does not necessarily disqualify the entity as a joint venture (in more complex and widely interdependent production processes a relatively minor element obtained through a new business entity jointly established with another undertaking may represent a relevant part of the entrepreneurial organizations at stake). Thirdly, while I also subscribe to the idea put forward by Brodley of the joint venture as a new business firm separate from its parents, (preferring, as mentioned above, the more neutral and wider notion of business entity to the notion of business firm), I consider it to be of paramount importance that this legal category of joint venture covers the activities of new jointly established business entities that are not strictly separate from the parent undertakings (meaning here joint venture activities that may be instrumental or subsidiary to the core business activities of parent undertakings, as tends to happen in the case of the so called partial function joint ventures under EU competition law, which are not subject to the merger control rules and are scrutinized under article 101 TFEU, as will be analysed below).14 Accordingly, joint ventures should involve some degree of functional autonomy of a certain form of business organization newly established as regards the business organization and structures of its parent undertakings, but such autonomy should not be inaccurately taken to be a separate sphere of activity from the business conducted by those parent undertakings (since the output of the joint venture may form a part of the productive processes of the parent undertakings).

1.2 Distinctive Features of the Concept of Joint Venture—A Preliminary View Taking into consideration this idea of an intermediate perspective of antitrust definition of joint ventures situated between what I have referred to as broad and more restrictive 12 See on the theory of firms and its implications, Daniel Spulber, The Theory of the Firm: Microeconomics with Endogenous Entrepreneurs, Firms, Markets and Organizations (Cambridge, Cambridge University Press, 2009) esp 64–76. See also on the problems associated with ‘drawing the line between firms and non-firms’, Larry E Ribstein, The Rise of the Uncorporation (Oxford, Oxford University Press, 2010) 20ff. 13 These diverse forms will be further analysed and briefly discussed below at 1.4.2ff in this chapter. 14 See, on the distinction between those categories of joint ventures covered by article 101 TFEU or covered by the MCR (briefly touched on in the Introduction), below 4.2 in this chapter.

INTRODUCTION

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definitions of such entities, a preliminary view about the concept of joint venture in the field of competition law may, at this stage, be put forward. For the purposes of such preliminary definition, I consider it fundamental to identify a unifying substantive parameter on the basis of which the category of the joint venture may justify its autonomy in the field of competition law. In my view, such a unifying parameter arises from the need—experimented with by certain undertakings—to combine various productive resources on the basis of which the parent undertakings contribute to a new business entity, in a way that represents a major qualitative difference (a legal ‘maius’) when compared with the economic reality that could result from the mere aggregate activities or productive resources that would conceivably be developed individually by each parent undertaking on its own initiative. This combination of productive resources (lato sensu) involves the building of an organization that may be based on various legal instruments or vehicles (which, in turn, may be merely contractual and not involving the establishment of a corporation or of other new legal entities, through eg partnerships or comparable instruments). The relevant factor here has to do with the fact that such an organization, considering its building elements and functional programme, should be situated in an intermediate area (something of a middle ground between the entrepreneurial cooperation phenomena, on the one hand, and the entrepreneurial integration phenomena, on the other hand). This particular mix of cooperation and integration elements tends, in turn, to be connected with an intrinsic dimension of economic efficiency. These efficiency benefits—that may coexist with some anti-competitive effects, in a critical tension that has to be globally evaluated—include, inter alia, the conduct through joint ventures of activities that the parents could not perform individually and involving no serious restrictions on other competitive activities of the joint venturers or the development, under better conditions, of new products and services or the qualitative upgrade of such products or services. However, as noted by, for example, Valentine Korah, this type of potential efficiency dimension inherent to joint ventures—and representing a characteristic feature of these entities for purposes of its definition in the context of competition law—involves some specific analytical hurdles as regards the evaluation of its effects on competition.15 These have to do with the need to develop a rather complex prospective analysis, taking into consideration the dynamic elements and also—to a certain extent—the uncertainty factor that play a part in the process of competition. If, as Brodley rightly puts it, joint ventures tend to create new enterprise capability in terms of new productive capacity, new technology, new products or entry into new markets,16 conversely one has to evaluate ex ante, with the available data at the time of the establishment of a certain joint venture, whether comparable benefits—without the potential anticompetitive effects related with that joint

15 See, on this point, Valentine Korah, An Introductory Guide to EC Competition Law and Practice (Oxford, Hart Publishing, 2004) esp 323ff. From the same author and in the same area, see ‘Collaborative Joint Ventures for Research and Development Where Markets are Concentrated: The Competition Rules of the Common Market and the Invalidity of Contracts’ (1992) Ford Int LJ 248ff. 16 On that key element of the complex combination of elements of cooperation and integration between enterprises that lies at the core of the joint venture category, Joseph Brodely states that ‘the joint venture creates significant new enterprise capability in terms of new productive capacity, new technology, a new product, or entry into a new market’, ‘Joint Ventures and Antitrust Policy’ (n 8) 1526.

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venture—may be reasonably expected through the individual performance of certain activities by the parent undertakings or other undertakings (in the markets at stake). In any case, returning to the idea of the paramount importance of creating some form of new enterprise capability as a truly distinctive feature of joint ventures, another distinctive element of these entities, which has been briefly mentioned, should be emphasized here. I refer to the development of a joint activity that requires the intermediation of an organizational structure with some degree of autonomy from the entrepreneurial organizations of each parent undertaking (albeit limited, considering that such a structure is subject to joint control by those parent undertakings). As already noted, that type of new organizational structure may be based on multiple (alternative) legal instruments or vehicles but, in principle, it should, in itself, be close to corresponding to a new undertaking (bearing in mind the wide notion of undertaking which has been construed in the field of competition law and considering some peculiarities as well in that idea of undertaking, because in the case of joint ventures the new organizational structure established by the parties has a limited degree of autonomy).

1.3 Factors Underlying the Vagueness of the Concept of Joint Venture in Competition Law Given this preliminary definition of joint venture that I have situated between conceptual perspectives corresponding to broad and more restrictive definitions of such entities, one has to acknowledge that in the field of EU competition law the characterization of joint ventures has been tainted with a considerable degree of vagueness and uncertainty (which has been only slowly corrected in more recent evolutions of this body of law). In one of the first attempts to define joint ventures in the context of then EEC competition law, the European Commission rather simply depicted joint ventures, in its Fourth Report on Competition Policy, as undertakings under joint control by two or more undertakings that remain economically independent in their mutual relationship.17 This initial inherent vagueness in the characterization of joint ventures has indeed been gradually corrected in the course of the process of evolution of EU competition law. However, in a first stage of that evolutionary process the more precise attempts to build an accurate legal category of joint venture were especially anchored in the new normative concept of concentration operation that was brought about by the First Council Regulation on the control of concentrations between undertakings (MCR 1989). In fact, MCR 1989, while adopting a principle of dual treatment of joint ventures, has also required a distinction between concentrative joint ventures (or full function joint ventures) and cooperative joint ventures—the former being construed as operationally autonomous entities, a general trait that supports their characterization as actual concentrations subject to the concentration control regime. That, in turn, sowed the seeds of a first normative definition of joint ventures under EU competition law (however incomplete that definition may have been during that first phase of adoption and enforcement of the concentration control rules).

17 See Fourth Report on Competition Policy(Brussels, Luxembourg, April 1975), point 37. http://ec.europa.eu/ competition/publications/annual_report/ar_1974_en.pdf

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The emergence of this first normative definition of joint venture did not, however, resolve the more sensitive issues of specifically differentiating joint ventures, and in particular, cooperative joint ventures, from cooperation agreements in general.18 Regardless of this inherent vagueness of the concept of joint venture in the field of EU competition law—not immediately corrected with the adoption of MCR 1989—an important point which arises from the preliminary definition of joint venture that I am proposing at this stage of my analysis concerns the notion of undertaking. Considering that I am depicting, as a starting point, a joint venture as a (i) joint initiative to bring about some form of new enterprise capability; that such initiative is to be supported on a (ii) new organizational structure; and that, in turn, this organizational structure may be (iii) based on various legal instruments and globally correspond, to a certain extent, to (iv) a new undertaking (albeit with some sui generis features, due to its of dependence on the parent undertakings), it is essential to start a process of more precise and developed definition of joint ventures by an analysis of the concept of undertaking under EU competition law (which I shall briefly cover below at 2.1.1 in this chapter). Before starting on this analysis—which will then lead to a more consolidated definition of joint venture for the purposes of competition law analysis—an attempt should, however, be made to depict a broader view of different legal models of structuring cooperation links between undertakings—through joint ventures and other means—going beyond the competition law sphere (something which I purport to do in the following text at 1.4, and its various subsections, before returning to the specific notion of joint venture under competition law).

1.4 Different Legal Models of Structuring Cooperation Links between Undertakings—The Creation of Joint Ventures and their Underlying Goals 1.4.1 The Emergence of the ‘Joint Venture’ Nomen Juris in Various Legal Systems 1.4.1.1 Cooperation between Undertakings and the Legal Category of Enterprise In order to understand and put in perspective the category of joint venture in competition law (and EU competition law in particular, as the main focus of my analysis) it is undoubtedly relevant to analyse, within a broader framework, the processes of cooperation between undertakings (its key and paradigmatic goals and the different legal structures that may embody them, understood through the lens of commercial law or enterprise law).19 For that purpose, it makes sense to consider—also in a broader sense—a generic legal category of enterprise (or, in Romanistic and Germanic legal systems, ‘Unternehmen’,

18 See, also, on these difficulties and emphasizing this omission and its consequences, Frank Fine, Mergers and Joint Ventures in Europe—The Law and Policy of the EEC (London, Graham & Trotman/ Martinus Nijhoff, 1994) 286ff. 19 On the broad concept of enterprise law, considering the use of the legal category of enterprise in various areas of law beyond competition law, esp in commercial law, see, inter alia, Karsten Schmidt, Handelsrecht 5. Aufl (Köln, Berlin, Bonn, München, Heymann, 1999) and Gunther Teubner, ‘Enterprise Corporatism: New Industrial Policy and the “Essence” of the Legal Person’ (1988) Am J Comp L 130ff, esp 146ff.

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‘impresa’, ‘enterprise’).20 I should acknowledge at this point that the doctrinal debate about how a legal category of enterprise must be construed has not been characterized by the same level of intensity in common law (Anglo-American) systems as it has in Romanistic and Germanic systems. In fact, in common law legal systems the generic idea of enterprise has mainly been considered in connection with the comprehensive understanding of governance structures of business decisions or of decisions of cooperation between undertakings. As emphasized, for example, by Richard Caves, it may make sense to use the term ‘enterprise’, rather than ‘company’ or others, to direct attention to the top level of coordination in the hierarchy of business decisions.21 At this level, I can consider a generic, reference concept of enterprise—relevant in general for purposes of commercial or business law in both Romanistic and Germanic legal systems and common law systems—combining, in rather innovative terms, some more traditional aspects of enterprise, either as an institution either as an activity, that one may traditionally find in the former systems. According to this hybrid perspective, I would consider—in this broad sense—as an enterprise any structured idea or concept of a particular economic project or venture oriented towards obtaining a certain productive capability, to be managed through economic criteria (implying an economic return, but not necessarily a profit stricto sensu, that sustains the productive inputs which are involved in such entrepreneurial project), which is embodied through the carrying out of a certain type of economic activity (to be pursued under conditions of minimum stability through an organization which may functionally combine, on the basis of multiple legal instruments or vehicles, a set of productive resources). One key factor in this conceptual building is the existence of a stable organization of productive resources, including a group of assets legally interconnected and functionally aimed at a certain productive programme or project. Over the years, and considering the more structured and commonly used legal vehicles used to embody that kind of productive organization, the enterprise has come to be confused with the corporation, which has appeared at a certain time in the transition to the twentieth century as the dominant and recurrent form of pursuing entrepreneurial activities (particularly entrepreneurial activities at a more complex level that tend to involve a certain degree of cooperation between undertakings). That apparent overlap is no longer justified and, as more recent legal analyses have shown—particularly the one conducted by Larry Ribstein22—such structured and stably organized productive activities may currently be pursued through a variety of legal vehicles

20 The various concepts of enterprise have been developed with varying levels of enthusiasm in the legal systems of EU Member States which are paradigmatic of what we may designate, following K Zweigert and H Kötz, An Introduction to Comparative Law (Oxford, Clarendon Press, 1994) 63ff) as Romanistic, Germanic and AngloAmerican systems. In fact, while the conceptual discussion on the category of enterprise has not been so intense in these latter systems, it has not, however, been ignored. In parallel, the EU policy of harmonization of corporate law has also contributed to the development of a wider discussion of the notion of enterprise and related notions at EU level. See on these developments, HJ De Kluiver, ‘Disparities and Similarities in European and American Company Law. What about Living Apart Together’ in Jan Wouters and Hildegard Schneider (eds), Current Issues of Cross Border Establishment of Companies in the European Union (Antwerp, Maklu, 1995) 287ff, and Jan Wouters, ‘European Company Law: Quo Vadis?’ (2000) CMLR 257ff. 21 See Richard Caves, Multinational Enterprise and Economic Analysis (Cambridge, Cambridge University Press, 1996) 1. 22 See, in particular, the landmark analysis of Larry Ribstein in his book, The Rise of Uncorporation (Oxford, Oxford University Press, 2010).

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(even as regards larger organizations). Ribstein rightly points out, under the suggestive term of uncorporation, that a growing number of businesses have been adopting uncorporate forms (including, eg, general partnerships, limited liability partnerships or limited liability companies).23 He also emphasizes that a significant proportion of limited-purpose joint ventures between firms of all sizes is, in growing numbers, being organized on the basis of such uncorporations24 (legal vehicles embodying entrepreneurial organizations but different from the traditional and until recently, apparently dominant corporations). At the same time, an adequate balance should be observed in the theorization of the legal category of the enterprise and when employing it, in commercial law (and general contract law), as a generic conceptual framework for business activities of various kinds. In particular, exaggerated claims in this area by some German and Italian legal scholars should be avoided, precluding the temptation to build the whole framework of such business activities on the basis of the category of the enterprise and completely overshadowing the different legal entities that may embody entrepreneurial activities (either corporations or uncorporations). A good example of such exaggeration is, for example, the theory developed by Thomas Raiser who maintains that the enterprise (‘Unternehmen’) should increasingly be taken as the true centre of all kinds of rights and obligations related to business (entrepreneurial) activities, replacing in that role both corporations and uncorporations.25 It is my opinion that the legal category of enterprise does not have such reach and should be taken as a framework or reference category in order to systematically include business oriented, stable organizations of productive resources26 (that category is, furthermore, particularly suitable to cover cooperation links between those organizations). In any case, the enterprise (‘Unternhmen’, ‘Impresa’) category does not replace—in the field of commercial or general contractual law—the various, alternative legal structures of vehicles that may embody the performance of entrepreneurial activities. It is, incidentally, indicative of the importance of those legal vehicles supporting the stable organizations

23

See ibid 2ff. See ibid. As Ribstein states, ‘all types of firms and businesses employ uncorporate forms. General partnerships long have been used both for small firms among family and friends and much larger professional firms (usually as “limited liability partnerships”). Limited-purpose joint ventures between firms of all sizes often are organized as general partnerships and limited liability companies’ (at 3). 25 See, on this point, Thomas Raiser, Die Zukunft des Unternehmensrechts in Festschrift for Robert Fischer (Berlin and New York, de Gruyter, 1979) 561ff, and Thomas Raiser, ‘The Theory of Enterprise Law in the Federal Republic of Germany’ (1988) Am J Comp L 111ff). Raiser’s position should be considered with some caution, especially because it tends to confound the two different levels that we have been systematically distinguishing and which correspond, on the one hand, to the enterprise as a general concept around which certain legal relationships are ordained and, on the other hand, to diverse legal structures embodying the pursuit by a given enterprise or entrepreneurial project of normal legal or commercial transactions (among which the category of the corporation undoubtedly plays a significant role). In fact, in German legal doctrine these orientations sustained by Raiser have been the object of significant criticism, by authors such as Rittner and Flume. Such criticisms are amply referred to by Gunther Teubner although he also notes a great deal of criticism in the other direction as well (see Teubner, ‘Enterprise Corporatism: New Industrial Policy and the “Essence” of the Legal Person” (n 19) 146ff. As stated there: ‘Rittner, too, builds a self-referential construction whose compatibility with the presupposed logic would require some checking. When he maintains that the “enterprise in the broader sense” is the representative of the “enterprise in the narrower sense”. Furthermore, in the area of overlap between the “narrower” and “broader” enterprise he does just what he previously said was out of the question, namely, he declares “the enterprise to be the representative of the enterprise”’. 26 In fact such use of the category of enterprise as a framework or reference category was decisively influenced by normative developments in the twentieth century, particularly at the level of Romanistic Germanic systems, which, in turn, tended to rely more heavily in an economic understanding of business legal transactions. 24

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that conduct entrepreneurial activities that the distinction between, on the one hand, joint venture corporations and, on the other hand, unincorporated joint ventures remains so widely used in the field of entrepreneurial cooperation. That distinction originated in common law systems but it spilled over to Romanistic-Germanic systems, being used in several seminal studies about joint ventures produced in the context of these later systems (eg in the studies of Bonvicini).27 In common law systems—particularly in the US system and in US case law—there was even an analytical trend that identified joint ventures through the differences these entities presented in comparison with partnerships. Recently, however, several US authors have considered that this distinction has lost importance with the significant evolution of the category of the partnership (allowing it to have legal personality and to be established by collective entities).28 While I do not subscribe to such views about a diminished relevance of the distinction between joint ventures and partnerships, in common law systems, supposedly attributable to the wider notion of partnership that has been gradually accepted in these systems, I believe those theoretical discussions illustrate—in spite of the frequent and undue overlap of different legal levels—the existence of two fundamentally different pillars for understanding business and entrepreneurial activities (one corresponding to the framework or reference category of enterprise noted above, and the other to different legal vehicles that embody the organizations associated with the enterprise, be those corporations, partnerships or, using the term coined by Ribstein, uncorporations, thus covering also various legal vehicles that are not assimilated in the category of corporation). Furthermore, I should add as a final point on these considerations about the possible identification of a framework or reference category of enterprise—under a general perspective of commercial and contract law that is, in turn, useful to build a wider notion of joint venture not strictly circumscribed to the field of competition law—that in the current context of Europeanization of law, induced by EU integration,29 it makes sense to search for transversal concepts and legal categories that may be used in both common law systems and in Romanistic-Germanic systems, notwithstanding the differences that separate them (I refer here to legal strands of EU Member States’ private laws which have become gradually intertwined with the elaboration and development of EU law). 1.4.1.2 General Trends in Economic Goals of Enterprise Cooperation Having attempted to build a framework or reference category of enterprise, I now turn my attention to the most common economic goals of enterprise cooperation and, in the

27 See on this Daniele Bonvicini, Le ‘Joint Venture’: Tecnica Giuridica e Prassi Societária (Milano, A. Giuffrè, 1977) 74ff. As regards common law systems, see, inter alia, W Friedmann and G Kalmanoff, Joint International Business Ventures (New York, London, Columbia University Press, 1961) 17ff and 33ff. 28 See, in general, on these issues and the evolution at stake, Samuel Williston, A Treatise on the Law of Contracts, (New York, Jaeger, 1959) Vol II. The possibility of an alternative option for establishing joint ventures either through the creation of a partnership or the creation of a corporation is duly recognized, in the wake of the evolution that took place in US law, by authors like Herzfeld and Wilson, who also underline a growing use of the former category. As these authors. note, ‘the majority of States in the US now permit partnerships between corporations so, as under English law, there is no reason why a joint venture cannot be constituted as a partnership, although in practice another legal form is likely to be chosen, most probably a limited liability company’, Edgar Herzfeld and Adam Wilson, Joint Ventures (Bristol, Jordans, 1996) xv. 29 On the inexorable trend of Europeanization of law, see Francis Snyder (ed), The Europeanization of Law— The Legal Effects of European Integration (Oxford, Hart Publishing, 2000).

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context of such cooperation, to the goals underlying the establishment of joint ventures (legally relevant for a proper understanding of enterprise cooperation through joint ventures). As rightly emphasized by authors such as Contractor and Lorange,30 two somewhat diverging trends may be identified in relation to the relationship between enterprises and the development of entrepreneurial structures in the context of intensifying and more dynamic economic exchanges. These correspond, on the one hand, to the emergence of entrepreneurial groups (particularly groups of corporations), which are characterized by a centralized organization—that are epitomized by the so called multinational enterprises,31 and, on the other hand, to the development of networks of cooperation between enterprises of varying complexity. Some of those forms of entrepreneurial cooperation may extend to the point of involving, to a certain degree, a partial dimension of entrepreneurial integration (provided the participating enterprises do not lose the minimum basis of their own individuality). This second trend has been steadily growing in the course of the last quarter of the twentieth century and the first decade of the current century; and the development of legal and economic structures based on more intense levels of cooperation, that may generically qualify as joint ventures, is intrinsically related with this global trend. It must be acknowledged that, according to a widely held view, the current trend of economic globalization is associated with an inexorable and continued movement of entrepreneurial concentration (at national, regional and even, in certain economic sectors, worldwide level).32 That movement, in turn, arises from the growing demand of scale economies, which are required to keep pace with technological innovation and the investment requirements associated with production cycles which are constantly being shortened. However, I do not fully subscribe to that view. In fact, recent studies have consistently been showing—in particular in markets largely dependent on innovation factors—that traditionally dominant enterprises have been losing market share and, in that context, the concentration ratio of the markets at stake tends to become smaller.33 Numerous factors may contribute to that evolution, such as the easier access to capital in the context of greater capital mobility and proliferation of new financial instruments relevant for enterprise financing,34 the qualitative changes in public regulatory interventions 30 See Farok Contractor and Peter Lorange, ‘Why Should Firms Cooperate? The Strategy and Economics Basis for Cooperative Joint Ventures’ in Contractor and Lorange (eds), Cooperative Strategies in International Business (Lexington MA, Lexington Books, 1988) 3ff. 31 On the concept of multinational enterprise, see John H Dunning, Multinational Enterprises and the Global Economy (Wokingham, Addison-Wesley Publishing Company, 1993) esp 599ff. 32 See John Harbison and Peter Pekar, Cross-Border Alliances in the Age of Collaboration (New York, Booz-Allen and Hamilton, 1994). 33 In reality, in fundamental economic sectors, such as, eg, the computer industry, of ‘hardware’ and ‘software’, the automobile industry or services of long distance fixed telephony, it is estimated that the share of global sales values of the five larger groups worldwide should have declined between 15% to 30% in the last decade of the twentieth century (on these estimates see Pankaj Ghemawat, ‘The dubious logic of global megamergers’ (2000) in Harv BR 64ff, and Pankaj Ghemawat, Strategy and the Business Landscape (N Jersey, Prentice Hall, 2000). 34 On the extremely dynamic nature of new financial operations and instruments that have contributed to a global reduction in the cost of capital (until the recent financial crisis) and, concomitantly, to processes of development of enterprises that led to a reduction of the concentration levels in key economic sectors and to the consequent development of more complex and flexible market structures characterized by the preferential use of relationship of cooperation between various undertakings, see Robert Ferrandier and Vincent Koen, Marchés de Capitaux et Techniques Financières (Paris, Económica, 1988). On the prospects of new dynamic forces in the financial sector worldwide, at least until the global financial crisis of 2007–09 (and ongoing in new forms, leading to a negative spiral between the banking sector and sovereign debt markets), due to the liberalization of that sector,

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in several economic sectors (which tend to be less constraining as regards market access by enterprises of smaller dimension) and the reduction of organization costs related to the combination of productive resources of different sources (including multiple external sources and not generated by the same entity, which an entirely new pattern of electronic communications has been steadily channelling to enterprises of growing complexity and resulting in much lesser organizational costs for that reason than it would happen in the recent past).35 In this overall context, the links of entrepreneurial cooperation have acquired growing importance and have been generating legal structures of cooperation of greater complexity and diversity, combining in several cases the cooperation and the entrepreneurial integration elements. To a certain extent, as I shall discuss further below (at 1.4.3ff in this chapter), joint ventures represent the clearest example of these new forms of combination of cooperation and integration. These allow enterprise groups—even those of a comparatively smaller dimension—to combine in innovative ways differentiated productive resources and maintain a managerial and organizational flexibility that enhances the capacity of introducing structural readjustments that are more frequently required in very dynamic markets. Therefore, I largely subscribe to the idea put forward by Charles Weller according to which a truly structural change of the models of relationship and interaction between enterprises has been occurring36 (and even a change in the operating patterns and functioning of the main legal vehicles for entrepreneurial activities, either groups of corporations which until a recent date were thought to be the prevailing form of enterprise, or groups of uncorporations, including in particular partnerships with renewed legal contours). This structural change involves a gradually less important role of the ownership of entrepreneurial assets or of legal units of several types (corporations, submitted to a unitary direction, or other legal groupings of assets, corresponding to industrial or commercial sites under different legal status) as the basis of the structuring of enterprises and, above all, of relationship between enterprises. Instead, we are witnessing an enhanced role of the legal elements of cooperation and association between undertakings as the pivotal factor of entrepreneurial activities and interplay. Some authors, like Peter Drucker, take even further the corollaries of such evolution and refer it as the emergence of one of the greatest changes of legal and economic organization of entrepreneurial activity since the start of the industrial era.37 Drucker characterizes this change of the patterns of legal and economic organization of enterprises as one based on the replacement of ownership by partnership lato sensu (this latter idea referring to the idea of collaboration and not to the narrower legal notion of the legal vehicle of the partnership usually considered in parallel with the corporation).

and in terms that have created favourable conditions to intensify the processes of development of entrepreneurial structures characterized above, see Michael Trebilcock and Robert Howse, The Regulation of International Trade (London, New York, Routledge, 1999). 35 On this qualitative change of organizational models of the activity of enterprises that has spilled over from more technological sectors to other economic sectors, see, inter alia, Walter Powell, ‘Inter-Organizational Collaboration in the Biotechnology Industry’ (1996) JITE 197ff. 36 See Weller, ‘A new rule of reason from Justice Brandeis’s “concentric circles” and other changes in law’ (n 1) 889ff. 37 See Peter Drucker, Managing in a Time of Great Change (New York, Truman Talley Books, 1995) 69ff.

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Drucker’s characterization, however suggestive, is ultimately excessive (in my view). In fact, as he emphasizes the growing role of the various types of collaboration agreements between enterprises he goes as far as maintaining that such agreements will in time transform the legal vehicles or units that usually embody entrepreneurial activities—in particular the corporation of the industrial era—in predominantly formal legal entities. As Drucker puts it, those entities (corporations or others) ‘may be a reality for shareholders, for creditors, for employees and for tax collectors, … but economically’ will correspond to ‘fiction’.38 This idea of considering corporations or uncorporations (in the particular sense recently considered by Larry Ribstein)39 as economic fictions strikes me as excessive. These legal entities will predictably continue to play an appreciable role in the structuring of enterprises and their activities. Conversely, the new qualitative element, whose importance is duly emphasized by the suggestive theoretical construction of Drucker and other authors, corresponds to the growing relevance of the systems of cooperative relationship between enterprises for entrepreneurial activity considered as a whole. Cooperative links between enterprises—which expand to form networks of cooperation of growing complexity—tend, more and more to be a pivotal element in the organization of entrepreneurial activity (which, in turn, requires a systematic legal analysis of this new reality of groups of agreements between enterprises of multiple configuration, that has long been overdue). 1.4.1.3 Common Goals of Enterprise Cooperation In this particular context characterized by a trend towards a growing importance of cooperation between undertakings as a fundamental basis for the structuring and global organization of entrepreneurial activities (a new paradigm for entrepreneurial organization) it is of paramount importance to critically assess the essential and common goals underlying such cooperative links. The heterogeneous nature and the sheer complexity of the various processes of cooperation between enterprises make it difficult to build a systematic and comprehensive table of the main goals which may determine such cooperation. However, reviewing key experiences of cooperation between undertakings over the last two decades and taking into consideration, for inductive purposes, both a micro-economic and a legal perspective I may identify prima facie40 a group of fundamental and more common goals for that cooperation. The growing requirements of technical innovation at the level of production of certain goods or services frequently lead different groups of enterprises to combine complementary resources (which they separately control). As the life cycles of products are getting shorter and the principal sectors of the economy are characterized by a decisive role played by extremely dynamic productive factors which are related to different areas of specialized

38

See ibid 126ff. I refer again to the characterization drawn by Ribstein in The Rise of the Uncorporation (n 22). 40 I shall review more extensively these goals of entrepreneurial cooperation that I purport to identify prima facie, at this stage of our analysis, through an empiric evaluation of the development of cooperation processes over the last two decades, below ch 3, in the context of my analysis of the prevailing goals of the most important functional types of joint ventures (eg research and development joint ventures, production joint ventures, commercialization joint ventures, and others). 39

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knowledge,41 entrepreneurial cooperation oriented towards the development of innovation processes which are only feasible through the combination of different productive resources and various intellectual property rights or productive assets (with very diverse attributes) tends to be of paramount importance (as a means through which enterprises are able to keep their relevant market positions in several economic sectors or to penetrate into new markets). As well as standard or common requirements of permanent innovation that tend to be a common feature of most markets nowadays, in certain more dynamic economic sectors, enterprises are especially compelled to develop different forms of collaboration in order to meet the more demanding innovation requirements in those sectors without losing in the process their own individuality (through merger operations or similar transactions). This applies particularly to economic sectors whose recent development has been based in the combination, on a new qualitative basis, of activities and economic techniques which were traditionally kept apart. In recent years, economic sectors such as the electronic communications sector, the multimedia sector or even the financial sector (more and more intertwined with the electronic communications area and with a whole new range of intermediation activities) represent paradigmatic domains that epitomize these requirements of combination of multiple economic techniques that, in turn, act as a powerful incentive to the establishment of joint ventures and other forms of cooperation active in specialized fields (which are more efficient to obtain that kind of combination of various inputs than the traditional creation of entrepreneurial conglomerates). As authors such as Walter Powell emphasize, ‘a new logic of organizing has emerged to challenge mass production. The canonical large corporation, based on principles of vertical integration, dedicated machinery, a hierarchical structure of management, and a detailed division of work, is giving way to more flexible forms.’ The traditional vertical organization and in-house development of technical and productive inputs is, under this new logic, replaced by the search of those inputs from multiple external sources of a very diverse nature which is made possible through more intense forms of cooperation between enterprises. In this context of entrepreneurial organization largely based on cooperation, and as Powell also notes, ‘scholars are struggling to understand the etymology and consequences of those ostensible new modes of government’ (in which, I should add, joint ventures play a large part).42

41 See, on the growing importance of extremely dynamic production factors which are related to different areas of specialized knowledge, that have to be obtained through various sources and by the combination of multiple inputs, John Hagedoorn, ‘Strategic Technology Partnering During the 1980s. Trends, Networks and Corporate Partners in Non-Core Technologies’ (1995) Res P 207ff and Michael Hergbert and Deigan Morris, ‘Trends in International Collaborative Agreements’ in Contractor and Lorange (eds), Cooperative Strategies in International Business (n 30) 99ff. See also for an extensive empirical view on the proliferation of various forms of cooperation, particularly of joint ventures, James Banford, David Ernst and David Fubini, ‘Launching a World-Class Joint Venture’ (2004) Harv BR 91ff. As these authors note, ‘more than 5 000 Joint Ventures, and many more contractual alliances, have been launched worldwide in the past five years [2004]. The largest 100 JVs currently represent more than $ 350 billion in combined annual revenues. So it’s become clear to many companies that alliances—both equity JVs (where the partners contribute resources to create a new company) and contractual alliances (where the partners collaborate without creating a new company)—can be ideal for managing risk in uncertain markets, sharing the cost of large-scale capital investments, and injecting newfound entrepreneurial spirit into maturing businesses’. 42 See, on those aspects, Walter Powell, ‘Inter-Organizational Collaboration in the Biotechnology Industry’ (1996) JITE 197ff.

INTRODUCTION

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Another typical goal of cooperation between undertakings—particularly as regards its more intense and organized forms (as, eg, typically happens with joint ventures)— corresponds to the reduction of the level of financial risk inherent in certain transactions or investments. In fact, as underlined by Farok Contractor and Peter Lorange, entrepreneurial cooperation, and joint ventures in particular, may reduce a party’s risk in several financially relevant ways. For a start, those cooperative ventures contribute to spread the risk of large projects over more than one firm. Furthermore, they also enable faster entry and payback in those kinds of projects and lead to what these authors call ‘cost subbaddivity’ (meaning that ‘the cost of the partnership is less than the cost of investment undertaken by each firm alone’).43 This requirement to share the economic or financial risk through several forms of collaboration between enterprises may be especially intense in some productive sectors characterized by economies of scale of fundamental importance and where there is only room for a few competitors operating in each relevant geographic market.44 Furthermore, one may consider that recent changes in production structures have led to the proliferation of business areas that combine a potentially high economic rate of return with risk factors which are also extremely high. In those areas, the dissemination of risk between several enterprises in reasonably structured processes of cooperation will be even more important. Such cooperation also enables the participating enterprises to combine elements of economic dynamism and innovation with high levels of flexibility (in contrast with what tends to happen with concentration operations that imply a global transformation or extinction as such of the founding enterprises).45 Cooperation between undertakings has also represented an instrument of paramount importance to internationalisation projects (of ever growing relevance in a globalized context in which international economic transactions have intensified). That may happen within a double perspective. First, certain organized forms of cooperation may represent a means to facilitate the penetration into particular national or regional markets through links with local partners. Alternatively, those forms of cooperation may correspond to a means to achieve economies of scale or financial support when these factors prove necessary to launch entrepreneurial projects of a truly international dimension (which go beyond the operations commonly designated as foreign investment projects46 to include,

43 On these goals of reduction of risks underlying certain processes of cooperation between undertakings see Contractor and Lorange, ‘Why Should Firms Cooperate? The Strategy and Economics Basis for Cooperative Ventures’ (n 30) 4ff. As these authors submit, ‘cooperative ventures can reduce a partner’s risk by (1) spreading the risk of a large project over more than one firm (2) enabling diversification in a product portfolio sense, (3) enabling faster entry and payback, and (4) cost subbadditivity (the cost to the partnership is less than the cost of investment undertaken by each firm alone)’ (at 11). The three latter forms of risk reduction seem to me particularly important in a general business context characterized by extreme dynamism, by a drastic shortening of the life cycle of products and for the constant diversifying of consumer preferences. 44 This type of requirement being especially important in sectors like, eg, petrochemical production—an area where, non-coincidentally, joint ventures have flourished—or big public works. On the first case, see, inter alia, Giuseppina Gualtieri (ed), The Impact of Joint Ventures on Competition—the Case of the Petrochemical Industry in the EEC, Final Report, Commission of the European Communities, Brussels, Luxembourg, 1991. 45 I refer here to concentration operations within the stricto sensu concept delineated in competition law (especially EU competition law). 46 On this stricto sensu notion of foreign investment and also on the possible contribution of entrepreneurial cooperation—especially through joint ventures—to make it feasible or easier to achieve, see, inter alia, Lawrence Tuller, The McGraw-Hill Handbook of Global Trade and Investment Financing (New York, McGraw-Hill, 1992); Otfried Lieberknecht, ‘United States Companies in Foreign Joint Ventures’ (1985) ALJ 1051ff.

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for example, the launching of new products or services whose logic of commercialization is worldwide or is, at least, bound to cover extensive regional areas). Traditionally, the first perspective has been conceived as a prevailing motivation for enterprises to enter into cooperation agreements and, in particular, into joint venture agreements. In fact, historically the legal notion of joint venture, in itself, appears closely connected with the development of foreign investment projects by US enterprises in the period following the Second World War and to their entering into new geographic markets47 (although the autonomous legal concept of joint venture, as will be underlined below, at 1.4.1.4ff in this chapter, when commenting on the origin and the consolidation of the nomen juris of joint venture, quickly expanded beyond US law and the legal frameworks it provided to associations developed in connection with the penetration into new geographic markets). Notwithstanding its undeniable historic importance, this idea of a close interconnection between the joint venture—as a more organized, stable and structured form of cooperation—and the penetration into new geographic markets, overcoming in that process multiple market entry barriers,48 is now largely irrelevant. In fact, in the last two decades, at the turn of the century and the beginning of the new century, entrepreneurial cooperation through its more organized forms of joint ventures has increasingly become a pivotal form of organization of relationships between undertakings in broad contexts of economic growth or of development of new circuits of production and distribution of goods or services (regardless of the fact that such development directly implies the penetration into new markets previously closed to outside players). In short, the new pattern of growing internationalization of economic activity—in multiple areas—tends to imply an entirely new productive logic oriented towards wider transnational transactions,49 which, in turn, tend to require an organizational and financial support which is only possible to most of the entrepreneurial players through an active collaboration with other enterprises (a collaboration which allows them, at the same time, the degree of flexibility necessary to keep a strong domestic base and the capacity quickly

47 On this historic association in connection with the establishment of the legal concept of joint venture, in itself, and relating these aspects to competition law issues inherent in the establishment of joint ventures, see Joel Davidow, ‘Special Antitrust Issues Raised by International Joint Ventures’ (1985) ALJ 1031ff; see also Lieberknecht, ‘United States Companies in Foreign Joint Ventures’,(n 46) 1051ff. 48 On that particular perspective of joint ventures as instrumental to overcoming market entry barriers, eg, in traditionally more closed markets like the former Eastern European markets or the Japanese market, while also commenting on the changing patterns of cooperation between undertakings as a means to reduce those barriers see, inter alia, Peter Buckley and Mark Casson, ‘A Theory of Cooperation in International Business’ in Contractor and Lorange (eds), Cooperative Strategies in International Business (n 30) 31ff. Although this motivation for the establishment of joint ventures has become of rather secondary importance, with the development of a specific and complex logic of new processes of cooperation between undertakings, in a context of growing internationalization of economic activity that largely transcends those traditional goals of the model of economic growth and of international economic relationship of the decades that followed the Second World War, such goals may still be of considerable relevance today, eg (representing to some extent the most typical case) to investment processes in expanding national markets, as is the case today with China. See, in that sense, Ian Hewitt, Joint Ventures (London, FT Law & Tax, Sweet & Maxwell, 1997) esp 40ff and 377ff. Furthermore, on the use of joint ventures in the context of the development of Chinese markets, see, inter alia, James S Ang, Yingmei Cheng and Chaopeng Wu, Investing with Strangers: Do Business with Whom You Can Trust (8 March 2012), available at SSRN: http:// ssrn.com/abstract=2023709 or http://dx.doi.org/10.2139/ssrn.2023709. 49 On this new productive logic oriented towards wider transnational transactions and its corollaries including those in the area of cooperation between undertakings, see, inter alia, Alan Winters, International Economics (London, George Allen and Unwin, 1985); and Trebilcock and Howse, The Regulation of International Trade (n 34).

INTRODUCTION

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to adjust to the varying trends of transnational transactions, that may prove very volatile and, as such, demand a functional ability to constantly adapt to new market conditions, including to crises that may periodically occur).50 Cooperation between enterprises, including through the establishment of joint ventures, may also have as a principal goal the restructuring of certain areas of activity of groups of enterprises. As underlined by authors like Herzfeld and Adam Wilson, enterprises may opt for maintaining their presence in certain areas of activity while they simultaneously readjust their own structure in order to reduce their exposure to risk (through the closing or capacity reduction of their units operating in those areas).51 In this context, direct involvement in certain economic areas may be replaced through stable links of cooperation with third enterprises particularly skilled to pursue a permanent involvement in those areas. In parallel with these situations, other forms of restructuring of the organization of a given group of enterprises may lead to qualitative or functional changes of the relationship previously maintained between that group and third players. Accordingly, one multinational company may, for instance, when pursuing a global strategy of decentralization and towards more flexible operations, transform certain local subsidiary enterprises (previously under its exclusive control) in new, transformed enterprises, under joint control, to be shared—in a cooperation framework—either with local partners or with other big transnational groups which also purport to diversify their levels of intervention in various markets. It may also transform a previous commercial agency relationship with a local representative in a new form of collaboration through which this former representative is called to participate in a newly established joint venture. In these cases, as pointed out by Herzfeld and Wilson, multinational companies ‘may wish to provide incentives to its local representative by giving him a stake in its local company’. Besides that, ‘the parties may seek to find a basis on which the product can be manufactured locally rather than imported’ and ‘the joint venture may well offer a vehicle for a variety of business developments’ (all related to major restructuring of a previous entrepreneurial organization).52 Cooperation between enterprises, especially through the establishment of joint ventures, may represent ab initio an alternative strategy to the establishment of extensive networks

50 I refer here to an important and sometimes decisive flexibility allowed by entrepreneurial cooperation as an instrument to react to economic crisis, including possibly periodic crises of emerging markets and to wider crises such as the economic and financial crisis of 2007–10 (originating in the subprime mortgage crisis), leading to a fresh wave of joint ventures with new qualitative patterns—different from the ones which in the not too distant past largely led to an idea of joint ventures as instruments of ‘international market entry—a “necessary evil” to comply with restrictions on foreign ownership’ (as depicted, albeit with some over simplification by Mark Jelinek and Justin Pettit, The Joint Venture (JV) Handbook (HIS Consulting, September 2012) These authors acknowledge that ‘the nature of JVs has changed. Previously in decline, we have seen a new surge in collaborative deals in many sectors and countries, with the primary impetus being to gain access to positional assets (e.g. brands, oil and gas reserves, advantaged production sites, etc.), organizational capabilities and technologies, to gain scale, or to syndicate risk and capital.’ On this type of flexibility inherent to cooperation and its relevance in the wake of serious international economic crises, see, inter alia, Anke Hassel and Susanne Lütz, Balancing Competition and Cooperation: The State’s New Power in Crisis Management, London School of Economics (LSE) Europe in Question—Discussion Paper Series No 51/2012, July 2012; Gianluca Salvatori, La cooperazione ai tempi della crisi, Euricse (European Research Institute on Cooperative and Social Enterprises) Working Paper, No 037/2012; see also, for a broader prospective in this field and context, Corporate Governance and the Financial Crisis—Key Findings and Main Messages, OECD, June 2009. 51 See Herzfeld and Wilson, Joint Ventures (n 28) 12ff. 52 See ibid 12–13.

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of product distribution (instead of entering into a franchising relationship or other contractual relationship geared towards the distribution of products and services). In fact, it is common to have multiple joint ventures established in different geographic markets, in connection with local players or with other competing enterprises that may have comparable distribution and commercialization needs. In certain circumstances, these forms of cooperation (raising potential competition law concerns that have to be duly assessed) may present significant advantages for undertakings in terms of cost containment and flexibility in comparison with the option of establishing its own distribution network.53 Closely connected with several of the previously identified goals, but worth examining in their own right, entrepreneurial cooperation and joint ventures may represent an instrument of ‘vertical quasi integration’ (to use Contractor and Lorange’s terminology), through which each participating enterprise contributes one or more different elements in the production or distribution chains. In these cases, cooperation is based in the prospect of obtaining complementary inputs to more far-reaching entrepreneurial projects without incurring, at the same time, the fixed costs and correlated loss of flexibility that would arise from the establishment of vertically integrated entrepreneurial structures.54 This form of cooperation is particularly suitable to an entrepreneurial environment which demands, on a higher level, complementary and technically much diversified inputs, while simultaneously requiring the preservation of significant elements of flexibility of the entrepreneurial organizations. A typical goal of cooperation between enterprises may result from the development of a single individual project of a particularly big dimension. This applies, for example, in the case of big projects of public works (in the context of public procurement related to public investments of significant size). In these situations, more structured and organized forms of cooperation (through joint ventures) tend to be especially suitable to projects that are predicted to take a long time to complete and which require a fairly stable relationship between the public contractor and its partners (combining the interests of the partners to share risks, financial and productive resources and the interests of the public contractor in ensuring on a longer basis the fulfilment of the key goals of a certain public investment project; in fact, it is of paramount importance that those goals are not affected by extraordinary circumstances which may occur in connection with one of the contractors, but which are less likely where there is a group of different contractors).55 Cooperation between undertakings is also another way of diversifying economic activities, albeit carefully controlling or monitoring all the stages of such a process and avoiding an option of economic growth through the formation of a conglomerate group. Therefore,

53 On these possible alternative commercialization strategies see Roberto Baldi, I Contrati di Agencia. La Concessione di Vendita. Il Franchising (Milan, A Guiffrè, 1997); Vincenzo Roppo, ‘I Contratti della Distribuzione Integrata. Appunti’ (1994) Economia e Diritto del Terziario, No 1; Roberto Pardolesi, I Contratti di Distribuzione (Napoli, Jovene, 1979); Martin Ebneter, Der Franchise-Vertrag (Zürich, Schulthess, 1997; Paul Crahay, Les Contrats Internationaux d’Agence et de Concession de Vente (Paris, Librairie Générale de Droit et de Jurisprudence,1991. On contractual ties in the field of distribution of products and services and connecting those issues with competition law problems of cooperation between undertakings, see Valentine Korah and Warwick A Rothnie, Exclusive Distribution in the EEC Competition Rules (London, Sweet & Maxwell, 1992). 54 See, on this perspective of cooperation as an alternative to vertically integrated entrepreneurial structures, Contractor and Lorange, ‘Why should Firms Cooperate? The Strategy and Economics Basis for Cooperative Ventures’ (n 30) 4ff, esp 15. 55 On this type of goal see, inter alia, Michel Dubisson, Les Accords de Coopération dans le Commerce International (Paris, Lamy, 1989) esp 146ff.

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in a context of growing complexity and intensity of economic transactions, enterprises have a reliable option of drastically expanding their material range of activities, taking advantage of market opportunities which may present a very short term nature or even a volatile nature, without incurring organic growth based on conglomerate structures (which, on the one hand, tend to be considerably rigid and are difficult to undo or wind up where market circumstances change and, on the other hand, may present less competition law risks in comparison, eg with growth through merger transactions). The development of cooperative links of variable complexity and width may thus be an ideal way of responding to the dual and frequently contradictory challenge of diversifying activities and responding quickly to sudden changes in economic conditions.56 According to Lawrence Tuller (and others), purely financial reasons have, by and large, become the predominant motivation for the development of cooperative links between undertakings.57 While I consider such characterization to be grossly overstated, it is undeniable, however, that goals relating to financial support or obtaining financial resources may be an important motivation for numerous cooperation processes. Large transactions may, in fact, involve the intervention of joint ventures as special purpose vehicles for the financial structuring of such transactions (either through the channelling of financial resources by the financial system, or in connection with attribution, under special conditions, of public aid through state entities or international organizations, eg, as regards projects to be undertaken in developing countries).58 However, these predominantly financial reasons for cooperation tend only to justify more elaborate forms of collaboration as joint ventures when the financial goals at stake are connected with specific entrepreneurial projects which are in themselves consistent and viable (and should not be associated with mere instruments of current financing of general activities). As well as collaborations aimed at the development of production processes, enterprises may also cooperate with the purpose of furthering research in a field without an immediate or direct link to their respective production areas. Thus, the more structured forms of cooperation in this area, through the establishment of joint ventures, are frequently dissociated from the core of commercial activities of the parent enterprises (playing instead an instrumental role as providers of technology or holders of intellectual or industrial property rights arising from the research pursued through those joint ventures).59 Cooperation between enterprises also makes sense under a logic of specialization. In these cases, partners in the collaboration processes make essentially similar contributions, or, to put it more accurately, they make contributions at essentially the same level of the production or distribution chain. Cooperation may, in this context, be a valid response to

56 See, on these motivations for entrepreneurial cooperation, Contractor and Lorange, ‘Why should Firms Cooperate? The Strategy and Economics Basis for Cooperative Ventures’ (n 30) esp 12ff. See also Edward Safarian, ‘Trends in the Forms of International Business Organization’ in Leonard Waverman, William Comanor and Akira Goto (eds), Competition Policy in the Global Economy—Modalities for Cooperation (London, New York, Routledge, 1997) and J Hagedoorn, ‘Understanding the Rationale for Strategic Technology Partnering: Interorganizational Modes of Cooperation and Sectoral Differences’ (1993) Strategic Management Journal 371ff. 57 On this perspective, see Tuller, The McGraw-Hill Handbook of Global Trade and Investment Finance (n 46) esp 88ff. 58 As regards this latter type of situation see, inter alia, PW Beamish, Multinational Joint Ventures in Developing Countries (London, New York, Routledge, 1988). 59 I shall come back to this in relation to research and development joint ventures, below, ch 3. On these goals see, Werner Meissner and Rainer Markl, ‘International R&D Cooperations’ in Waverman, Comanor and Goto (eds), Competition Policy in the Global Economy—Modalities for Cooperation (n 56) 224ff.

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occasional difficulties or lack of particular resources that the participating undertakings may experiment in certain operational areas of their activity (as such, cooperation tends to function as an alternative to the acquisition of those complementary resources from other players on a basis of exchange of those resources between the enterprises involved in a given cooperation process).60 1.4.1.4 The Origin of the Nomen Juris of ‘Joint Venture’ Despite the persistent legal vagueness of the concept of joint venture—including when used in a broader context of legal relationship of cooperation between enterprises, under a general framework of commercial and contract law that goes beyond the particularities of the competition law-specific concept that I have considered above, at 1.1—it is widely recognized that the concept and the nomen juris of joint venture originated in Anglo-Saxon or common law legal systems (or, to be more, precise, in the US legal system in the aftermath of the Second World War. Historically, the first references to this nomen juris appeared in the context of Scottish law, being referred to by authors like George Joseph Bell.61 However, those first references to a concept of ‘joint venture’ and ‘joint adventure’ appear predominantly in the area of partnership, with comparisons being made with this latter concept, for example, as regards the limitation of its scope and duration). As such, I do not consider these first registered uses of the nomen juris as corresponding to the direct origin of the current legal entities generically defined as joint ventures. Conversely, I think it is unquestionable the historic priority of the US legal system in the development of the legal notion and concept of joint venture (in the context of which, earlier than under English law, a transformative expansion of the entity corresponding to the limited corporation took place in conjunction with the assimilation of some features of the ‘association en participation’ of French law). Shaw Livermore situates the establishment of the first entities denominated as joint ventures, and arising from that rather sui generis combination of diverse influences (having, however, as a key or central reference the legal category of the limited corporation), still in the nineteenth century and used then as a framework for the organization of certain real estate enterprises in the area of Philadelphia.62 Notwithstanding those earlier uses of the nomen juris of joint venture, its true development dates from the twentieth century (particularly, as noted above, from the aftermath of the Second World War) and is gradually built or consolidated, without precise legal definitions or characterizations, in the cooperation praxis of enterprises (being, as such, gradually accepted in the case law of US courts but without a stricto sensu normative recognition, which is understandable given the characteristics of the US legal system).

60 See on these goals, Contractor and Lorange, ‘Why should Firms Cooperate? The Strategy and Economics Basis for Cooperative Ventures’ (n 30) 3ff. These authors note goals related to ‘economies of scale and/or rationalization’ and with ‘technology exchanges’ (esp at 9ff). See also for a general perspective on those goals, Carl Shapiro, ‘On the Antitrust Treatment of Production Joint Ventures’ (1990) JEP 113ff. Shapiro rightly underlines in the context of US markets the growth of this type of joint venture involving some of the bigger operators in certain economic sectors and acting as direct competitors in those sectors. The same applies in most industrialized economies. 61 See George Joseph Bell, Principles of the Law of Scotland (Edinburgh, The Clark Law Bookseller, 1839) 146ff. This author essentially identified the category of joint venture with that of partnership. 62 See Shaw Livermore, Early American Land Companies: Their Influence on Corporate Development (New York, The Commonwealth Fund, 1939) esp 71ff.

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These US case law developments did not result, however, in a true clarification or stabilization of the concept of joint venture. In a first stage, the treatment of entities potentially characterized or designated as joint ventures by the courts had to do mainly with antitrust issues and this explains a particular historical contribution of antitrust legal reasoning in the formation of the concept of joint venture which is still present today.63 Nevertheless, even in the field of antitrust law with its rather peculiar contribution to the development and consolidation of the concept of joint venture, the US courts frequently recognized in the first half of the twentieth century the concept’s vagueness, stating in fundamental precedents like, for example, Era v Cameron that ‘the courts have not laid down an exact definition of the term joint adventure which can be used as general rule by means of which the ultimate question can be determined’.64 This lack of a precise definition of joint venture, particularly outside the specific field of antitrust law, persists today, although one may identify a trend in US jurisdictional case law to build a wider legal characterization of the joint venture taking the legal category of partnership as a key reference. The global reach of such interplay has, however, proven limited in the long run and, as a reaction to that sometimes fallacious juxtaposition, many US courts have, conversely, tried to circumscribe the legal notion of joint venture—widely used after the Second World War—through the identification of essential differences in comparison with the partnership.65 Among others differences, the courts have pointed out as differentiating elements between partnerships and joint ventures the relatively minor rule of the intuitu personae element (which tends to be essential in the traditional partnership), the more restricted powers of the participating enterprises to legally engage the common entity in the case of the joint venture or the rules or conditions applied to financial losses emerging from the activity of the common entity (the sharing of losses being presumed in the case of the traditional partnership which is not necessarily the case with the joint venture, depending on the particular arrangements adopted by the parties).66

63 See, on this contribution of antitrust legal reasoning to the formation and development of the concept of joint venture, GE Hale, ‘Joint Ventures: collaborative subsidiaries and the antitrust laws’ (1956) Virg LR 927ff. 64 See Era v Cameron (1941) 112 Mont 159, 168, 114 P. 2d 1060–64. 65 See on these attempts by US courts, W Jaeger, ‘Joint Ventures: Origin, Nature and Development’ (1960) American University Law Review 1ff. See also W Jaeger, ‘Partnership or Joint Venture’ (1962) Notre Dame Lawyer 138ff. 66 I refer here briefly to some of the key differences identified in the comparison of partnerships and joint ventures by US jurisprudence and doctrine, since I do not purport here to develop any in-depth study of the legal category of the partnership. It is relevant though to take into consideration, however briefly, some peculiarities of common law systems in this area. In fact, these systems contemplate beside the category of the ‘corporation’ in terms comparable to continental (Romanistic and Germanic) legal systems, the category of the ‘partnership’ that may, to some extent, be considered as bearing similarities with the so called ‘société de personnes’ (‘società di persone’) in these latter systems (although with the significant difference that in practice, under common law systems the ‘partnership’ is more widely used in the development of various business activities). On the development of various types or categories of corporations under Romanistic and Germanic systems including different forms and degrees of liability, that, in some cases may imply parallels with the category of the partnership under common law systems, see José Engrácia Antunes, Liability of Corporate Groups—Autonomy and Control in Parent Subsidiary Relationships in US, German and EU Law (Deventer, Boston, Kluwer Law, 1994) esp 52ff. It may be admitted that the ‘partnership’ has evolved in a way that almost converts it into a type of corporation lato sensu there are still several differences between the partnership and the core of corporation law within common law systems. Even the legal personality of partnerships has been disputed for a long time in US law, although that point has apparently been clarified (in a positive way) through the 1994 reform of the Uniform Partnership Act (UPA). Also, under English law, the legal personality of the partnership has been acknowledged by the Limited Liability Partnerships Act 2000. See, on that, John Lowry and Lorraine Watson, Company Law (UK, Butterworths, 2001) esp 3. As these authors say about this new normative solution, ‘unlike “normal” partnerships, limited

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In addition, some authors have maintained that the differentiation between the legal categories of partnership and joint venture has become less important with the changes gradually introduced or recognized in the former category (namely, the recognition of the legal personality of a partnership and the fact that partnerships may be established by legal persons).67 In contrast with that view, I believe that this evolution (very marked in the US legal system) enhances the relevance of the legal distinction between partnerships and joint ventures. These represent two qualitatively different levels of legal conceptualization, since the joint venture may be alternatively embodied through the use of partnerships and corporations (as distinct formal vehicles, with the latter vehicle gaining importance in the late-twentieth century). The distinction between those levels of legal categorization is emphasized by authors like Herzfeld and Wilson who state that ‘the majority of States in the US now permit partnerships between corporations’ and that, accordingly, ‘as under English law there is no reason why a joint venture cannot be constituted as a partnership, although in practice another legal form is likely to be chosen, most probably as a limited liability company’.68 In fact, the great expansion in the use of joint ventures which, as described above, took place in the US legal system after the Second World War, although based in a praxis of cooperation between enterprises characterized by a particularly imprecise employment of that nomen juris of ‘joint venture’ in connection with very diverse cases of entrepreneurial cooperation, has consistently evolved towards a growing use of the formal vehicle of the corporation (as conceived in several legal systems beyond the US system and, in time, beyond common law systems). This evolution has even led authors like Hale to restrict the concept of joint venture to situations corresponding to jointly owned corporations.69 Even in broader general characterizations70 of the category of joint venture developed by US authors in the 1960s and 1970s, which intentionally depict the category within a wider framework—as, for example, in the analytical model proposed by Young and Bradford71—some kind of implicit reference to the corporation as a model of engaging in entrepreneurial projects and activities is still present. In fact, in one of the more exhaustive definitions proposed in the context of US law, Young and Bradford define a joint venture

liability partnerships will be corporate bodies with separate personality, registered and have to disclose similar information to that which companies must disclose. While this form of business organization will be available to two or more persons carrying on a trade or profession, it was originally proposed as a means of protecting large professional partnerships from their vulnerability to major negligence claims’. See, on partnership law generally, Reuschlein and Gregory, The Law of Agency and Partnership (St Paul, Minn, West. Pub. Co.1990). As already mentioned, the relevance of the category of partnership in US law led to a general discussion in the US of the joint venture as a kind of subcategory of the partnership. See, on that, Jennings and Buxbaum, Corporations, Cases and Materials (St Paul, Minn, West. Pub. Co., 1979) and GW Miller, ‘Joint Venture: Problem Child of Partnership’ (1950) Cal LR 860ff. That kind of overlap between the joint venture and the partnership has, however, been questioned in the more recent academic debates, which tend to contrast, conversely, the categories of ‘joint venture corporations’ and of ‘unincorporated joint ventures’, as mentioned above (the former being naturally associated with the category of the corporation). 67

See Samuel Williston, A Treatise on the Law of Contracts Vol II (Jaeger (ed), New York, Mount Kisco, 1959). See Herzfeld and Wilson, Joint Ventures (n 28) xv. 69 See Hale, ‘Joint Ventures: collaborative subsidiaries and the antitrust laws’ (n 63) 927ff. 70 I refer here to general characterizations of the category of joint venture in the sense of analyses that go beyond the specific domain of antitrust law and that purport to identify that category in a broader legal context of cooperation links between different enterprises (from a commercial and general contract law perspective). 71 See on that very wide characterization put forward in the context of US law, GR Young and S Bradford, Joint Ventures: Planning and Action (New York, Financial Executives Research Foundation, 1977) esp 11ff. 68

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as any enterprise, corporation or partnership formed by two or more corporations, individuals or organizations of which at least one wants to expand its scope of activities in order to develop a new enterprise project with some degree of stability and being profit oriented.72 Largely resulting from this conception put forward by Young and Bradford is the requirement to create a legal centre of entrepreneurial interests and basis for an autonomous organization of a permanent or stable nature, presupposing the existence of different contributions by the participating entities, the whole organization and related processes functioning in accordance with a legal framework to be specifically convened by such participating entities (a legal framework for the relationship between the parties which is not predetermined as in the case of a partnership but has significant parallels with the internal system of relationship of the corporation). In English law, one of the first attempts at legal characterization of cooperative entities combining elements of entrepreneurial cooperation and integration in the sense developed in US law under the nomen juris (however imprecise) of joint venture—the analysis put forward by Boulton73—did not use immediately this nomen juris, recognizing only the category of the consortium (also in English law and before the Second World War, there were frequent references in the case law to ‘quasi-partnerships’, meaning entities that would typically correspond, according to today’s prevailing legal criteria, to joint ventures).74 Today (and unlike in US law), English law does not provide a true normative definition of the concept of joint venture, although the application of this concept and the corresponding legal characterization of certain forms of relationship between enterprises in the context of situations of entrepreneurial cooperation are widespread in the English legal system. As a way to overcome the difficulties inherent in a precise definition and characterization of the category of joint venture used in a vast array of cooperative situations, English authors have focused their attention in the typical formal vehicles employed to establish joint ventures. This has led to the identification of subcategories like the contractual joint venture, the partnership joint venture or the joint venture company.75 In fact, while several English authors acknowledge the fact that in a vast majority of cases the corporate form, despite its greater formality and potential cost, tends to be ‘the preferred structure for a

72

See ibid. See AH Boulton, Business Consortia (London, Sweet & Maxwell, 1961). 74 In fact, in English law in the first quarter of the twentieth century, frequent reference was made to categories such as as the ‘quasi-partnership’ for the purpose of identifying entities which, under the current analytical criteria, we would tend to qualify as joint ventures; see Dieter Schmitthoff, ‘How the English Discovered the Private Company’ in Quo Vadis Ius Societarum, Liber Amicorum Piet Sanders (Deventer, Kluwer Law, 1972) esp 183ff and Denis Fox and Michael Bowen, The Law of Private Companies (London, Sweet & Maxwell, 1991) esp 178ff. 75 See on this characterization of subcategories of joint ventures essentially differentiated on the basis of the legal vehicles used to establish such entities, Julian Ellison and Edward Kling (eds), Joint Ventures in Europe (London, Butterworths, 1997), esp the contribution by Julian Ellison, John Watson and Philip Vernon, ‘Joint Ventures in the United Kingdom’ (at 315ff). These authors identify various subcategories of joint ventures on the basis of the legal vehicles used. That kind of analysis in the context of English law does not invalidate my previous observation concerning a growing use of the corporation for the establishment of these entities. Furthermore, while these authors contemplate a wider set of subcategories of joint ventures than the one referred to in the text above, they ultimately acknowledge that ‘the jvc [joint venture company], notwithstanding the greater formality and potential cost attaching to its formation and operation, will in the vast majority of cases be the preferred structure for a joint venture between UK individuals or corporations whose commercial objectives contemplate the formation and operation of a jointly owned business’ (at 363). Still in English law, but from a perspective of competition law that also analyses various subcategories of joint ventures depending on the type of legal vehicle used, see Nicholas Green and Aidan Robertson, Commercial Agreements and Competition Law—Principles and Procedure in the UK and EC (London, The Hague, Boston, Kluwer Law International, 1997) 753ff. 73

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joint venture’, they do not necessarily identify the joint venture with this corporate form, envisaging other formal vehicles as alternative structures on the basis of which ‘the formation and operation of a jointly owned business’ may occur.76 1.4.1.5 The Wider Use of the Nomen Juris of ‘Joint Venture’ in the Context of the EU—The Case of French Law Turning our attention from common law systems, in which the joint venture category undoubtedly originated (and under this specific nomen juris), to some of the RomanisticGermanic legal systems of continental Europe that have more deeply influenced a sort of level playing field in terms of commercial law and corporate law in the context of the EU legal order,77 such as the German, French or Italian legal systems, one may clearly see a substantive acceptance or assimilation of the joint venture category (although this has remained patchy ). This may even be considered one of the very few cases in which a legal category originating in common law systems has acquired full acceptance in RomanisticGermanic systems. Under French law, there is widespread use of the concept of ‘enterprise commune’ which one may take as essentially corresponding, in general terms, to the originally Anglo-Saxon joint venture category (similarly, the use in French law of the nomen juris of ‘filiale commune’ may be taken to correspond to the so called corporate joint venture or joint venture company, meaning the subcategory of joint venture based on a corporate form).78 Besides the direct use of the concept of joint venture made by numerous authors such as, for example, Claude Reymond, the application in the context of French law of the concept of enterprise commune is not supported in any international, normative definition. Despite this legal vagueness—which is a common feature in other legal systems—the legal praxis in the field of entrepreneurial activities, the French doctrine and even case law have gradually built the contours of this category on the basis of fundamental constitutive elements that we may deem parallel to the ones we have been identifying (which I shall to try build into a global and systematically coherent construction bearing in mind analytical elements originating in both common law systems and in Romanistic-Germanic systems within the EU, see below at 1.4.2 and 1.4.3 in this chapter).79 Those characterizations are also focused in the various formal vehicles for the establishment of such joint entities. At this level, most authors accept as possible vehicles for the

76 See again Julian Ellison, John Watson and Philip Vernon, ‘Joint Ventures in the United Kingdom’ in Ellison and King (eds), Joint Ventures in Europe (n 75) 315ff. 77 See again Zweigert and Kötz, An Introduction to Comparative Law (n 20) 63ff, on this analytical distinction between Romanistic, Germanic and Anglo-American systems. 78 As regards the assimilation of the legal category of joint venture in French law, see Claude Reymond, ‘Le Contrat de “Joint Venture”’ in Innominatverträge’ Festgabe für W. R. Schluep’ (Schulhess, Zurich, 1988) 383ff and Thierry Jacomet and Bernard Buisson, ‘Joint Ventures in France’ in Ellison and Kling (eds), Joint Ventures in Europe (n 75) 59 et seq. See also from the same author, Reymond, ‘Le Contrat de “Joint Venture”’ (n 78) 383ff. See, also from the same author, Filiale Commune et Joint Venture. Quelques Problèmes Spécifiques, in Modes de Rapprochement Structurel des Entreprises, AA.VV., Commission Droit et Vie des Affaires de l’Université de Liège, 1988, 67ff. 79 Such as Thierry Jacomet and Bernard Buisson, although underlining the absence of a normative definition of general scope under French law or even of consistent normative elements that might support such a definition, also imply a gradual consolidation of constitutive elements of the entreprise commune or filiale commune (see Thierry Jacomet and Bernard Buisson, ‘Joint Ventures in France’ in Ellison and Kling (eds), Joint Ventures in Europe (n 75) 59ff).

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establishment and functioning of entreprises communes, the mere creation of organization structures of a purely contractual nature, or the creation of corporate entities within the alternative forms and of a distinct nature admitted under French law (namely, the so called ‘sociétés de personnes’ and ‘socitétés de capitaux’).80 1.4.1.6 The Wider Use of the Nomen Juris of ‘Joint Venture’ in the Context of the EU—The Case of German Law In German law, the nomen juris of joint venture is also directly employed to describe situations of entrepreneurial cooperation whose various organizational structures are more intensely knit together in a way that involves, to a certain extent, some elements of entrepreneurial integration (while maintaining the individuality of the participation enterprises).81 In the absence of a systematic normative framework for a general legal category encompassing all the various forms of cooperation between enterprises, susceptible of qualification under the widely used nomen juris of joint venture, German doctrine has developed relatively contrasting views about the best way to delineate a defining core basis for that type of cooperation. Thus, some German authors, like Wiedemann,82 characterize in more restrictive terms, a superior or more intense level of entrepreneurial cooperation, relating it in rather strict terms to the creation of a corporate entity (involving for that purpose the multiple categories that may be included in the general concept of ‘Gesellschaft’ in German law).83 Conversely, other authors accept a wider concept including within it mere contractual structures—not based on any corporate form—of organized and relatively stable links of cooperation between enterprises. The German legal definition that may be more rigorously associated with the nomen juris of joint venture (indeed directly known as such in the German legal context as I have mentioned) is ‘Gemeinschaftsunternehmen’84—a notion which seems to be more closely identified with the idea of a corporate joint entity (within the complexity and diversity of corporate forms present under German law).

80 See Thierry Jacomet and Bernard Buisson, ‘Joint Ventures in France’ in Ellison and Kling (eds), Joint Ventures in Europe (n 75) 59ff esp 71ff, noting the various types of entities that may be included in the general concept of sociétés de personnes, including the ‘société civile’, the ‘société en nom collectif ’, the ‘groupement d’interêt économique’, or the ‘groupement momentané d’entreprises’ (at 84ff) and also noting types of entities that may be included in the concept of sociétés de capitaux, underlining in particular the category of the ‘société par actions simplifiée’ (SAS), created through the Law of 3 January 1994, on the basis of the model of the ‘société anonyme’ (SA), but with important advantages to certain types of operations usually associated with joint ventures. 81 See, for a general characterization on the analytical delineation of this category in German law, Burkhard Bastuck, Ulrich Von Schönfled and Michael Schütte, ‘Joint Ventures in Germany’ in Ellison and Kling (eds), Joint Ventures in Europe (n 75) 109ff. 82 See on this G Wiedemann, Gemeinschaftsunternehmen im Deutschen Konzernrecht (Heidelberg, NZG, 1981). 83 I do not purport here to develop any comprehensive analysis of the complex set of various legal categories included in the general concept of Gesellschaft under German law. For an overall perspective on this, albeit of a very general nature, see Rüdiger Volhard, and Arndt Stengel (eds), German Limited Liability Company, (Chichester, John Wiley & Sons, 1997). 84 See on this possible correspondence of concepts Herzfeld and Wilson, Joint Ventures (n 51) 8. Burkhard Bastuck, Ulrich Von Schönfled and Michael Schütte also seem to admit the aforementioned approximation of the concepts at stake, although noting some doctrinal positions that admit wider concepts which might also be associated with the nomen juris of the joint venture, and including as such any ties of cooperation with some degree of formal framework between independent enterprises which would not be covered by the category of ‘Gemeinschaftsunternehmen’ (as would be the case, eg, with the views of Langefeld-Wirth, stated in Recht der Internationalem Wirtschaft, 1990).

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1.4.1.7 The Wider Use of the Nomen Juris of ‘Joint Venture’ in the Context of the EU—The Case of Italian Law The nomen juris of joint venture has been largely accepted in Italian law as well—with the Italian case probably representing the wider and more straightforward case of acceptance of that notion as originally conceived in common law systems within the group of national legal systems of EU Member States under the present analysis. In fact, Italian doctrine has been producing for some time an extensive theoretical construction of the contract of joint venture, considering it a subspecies among the contracts of collaboration between enterprises (‘contrato di collaborazione tra imprese’), which cannot be assimilated to any normative type established (‘de iure condito’) under civil or commercial law.85 Accordingly, it is to be considered a ‘contrato associativo atipico’ (an atypical contract of association of enterprises). This normative atypical nature has not prevented a growing autonomy of the category of joint venture as a true type of legal commerce, normally based in complex legal structures whose contents cover situations of union or colligations of contracts (or reuniting elements pertaining to several typical contracts, meaning here contracts which are normatively typified in explicit terms). It has also coexisted in Italian law with the use, in several normative rules, of notions that may be identified with the category of joint venture. Therefore, various notions such as the notion of ‘associazione temporanee di imprese’ or ‘imprese reunite’—that may be considered alternatives to entities which may be taken to correspond to the concept of joint venture86—are used in several areas of the Italian legal system and may be considered, to a certain extent, as partial normative forms of recognition—although not systematically integrated into the legal system—of an extra-normative type of joint venture. As I have observed in relation to other legal systems, the legal configuration of the joint venture in Italian law is based on the alternative use of several formal vehicles to structure organized and stable relationships of cooperation between enterprises. Among the most important, I should include the contract of ‘consorzio’ (consortium),87 the contract of 85 See, following that line, Luísa Vigone, Contratti Atipici—Nuovi Strumenti Commerciali e Finanziari, (Milano, Giuffrè, Cosa & Come Azienda, 1993). See also Adriano Propersi, Le Joint Ventures (Roma, Buffetti, 1989). 86 On these notions and their use in Italian law to articulate the concept of joint venture, taken as an atypical contract of cooperation between enterprises (contrato di colaborazione tra imprese), whose assimilation or approximation to certain types of contracts established under the Italian Civil Code might be discussed, see Bocchini, Associazioni Temporanee di Impresa, Intervento al convegno Nuove Topologie Contrattuali, Roma, 1990. 87 I should emphasize here that in Italian law (esp articles 2602ff of the Italian Civil Code, although it is also necessary to take into consideration complementary aspects arising from legislation approved between 1974 and 1976) an element of common organization lies at the core of the delimitation of the category of the consorzio, thereby making this category a particularly adequate one to develop more structured forms of cooperation between undertakings (the very fact that contrary to what happens in other Romanistic legal systems, this category is not confined to a specific entrepreneurial project or to a temporary activity enhances the possibilities of its use for cooperation processes which may take the form of true joint ventures). However, this cooperation is predominantly aimed at the pursuit of complementary or ancillary activities in connection with the key activities to be performed by the participating enterprises, such as, eg, the acquisition of raw materials or of various assets relevant for the productive process, or the development of research and development processes, or even the establishment of joint commercialization structures. Hence, the reference made by some authors, like Ferri, to the consorzio as a second degree joint organizational structure (see Ferri, ‘Consorzi e Società Consortili: Ancora una Modificazione Occulta del Codice Civile’ (1976) Riv D Comm 102ff). Nevertheless, that aspect does not affect the suitability of the category at stake to support the establishment of entities that may be qualified as joint ventures (I am thinking in particular here of the important subcategory of joint ventures which do not fulfill all the functions on an autonomous economic entity, autonomously treated under EU competition law as we have

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‘associazione in partecipazione’ (association in participation) and the contract of corporation (this latter one assuming a significant relevance in the praxis of cooperation between undertakings). In fact, the legal praxis has essentially determined in this area the formation of unions of contracts or of colligations of contracts, often including multiple and diverse elements pertaining to those contractual types (with a normative basis of their own). In that context, and notwithstanding the undisputed relevance of the corporate form for building a general reference category of joint venture in Italian law, authors like Propersi note that such close links between the two legal concepts do not justify a full inclusion of the general category of joint venture in any of the sub-types of corporate entities, because some significant differentiating elements subsist that must be taken into account. Propersi refers in particular to the fact that the members of a corporation, when pursuing a common activity, lose—under the contractual structure that binds them together—their individuality, which would not characteristically happen with a joint venture, which bears as a defining feature the preservation of the individuality of the participating enterprises).88

1.4.2 Structuring Cooperation through Joint Ventures as a Common Form of Innominate or Atypical Contract 1.4.2.1 Key Legal Criteria for the Characterization of Joint Ventures As I have already emphasized, the particular difficulties experienced in attempting to reach an autonomous legal category of global reach of joint venture—a category relevant in several legal fields including commercial and general contractual law, and in several legal systems—are twofold. On the one hand, those difficulties arise from the extreme proliferation in the use of the nomen juris of joint venture, a term that has been extensively used in recent decades in multiple or heterogeneous legal contexts of cooperation between undertakings, both in common law systems and Romanistic-Germanic systems (with the corresponding hurdles that have to be overcome in order harmonize or consolidate legal concepts that may be deemed as equivalent in various legal systems, eg, within the EU). On the other hand, those difficulties are also related to the extreme diversity of the types of contracts and of contractual relationship that may be used to organize and structure cooperative links between enterprises that may qualify as joint ventures. Therefore, having examined different contexts of use of the nomen juris of joint venture (above 1.4.1 in this chapter), it is important to identify some key criteria for connecting or

already observed for purposes of its coverage by the regime of article 101 TFEU, which incidentally corresponds to the core of my analysis, below in chs 2 and 3 of this book). Furthermore, the very limits of the adequacy of the consorzio to support new entrepreneurial activities may be critically confronted with the comparable adequacy for the same purpose of the category of the corporation, even more because Italian law contemplates the existence of the so called ‘società consortili’), which may be established on the basis of any type of corporation, while conversely its profit orientation is seldom questioned (see on this latter category, Luigi Paolucci, ‘Problemi Attuali della Disciplina dei Consorzi’ in Trattato di Diritto Privato, Org. Rescigno, Vol XXII (Torino, UTET, 1991). 88 See on this Propersi, Le Joint Ventures (n 85) 74. As this author notes, ‘mentre nel contratto di società i soci svolgono in comune un’attività económica perdendo cosi lelloro situazioni individuali, nel contratto di JV, le parti mantengono invece la loro individualità e la loro autonomia pur essendo indirizatti al perseguimento di un scopo comune’ [while in the corporation contract the partners jointly develop an economic activity losing accordingly their individual positions, in the joint venture contract the parties maintain their own individuality and autonomy although they commit themselves to a common goal. trans].

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interconnecting various types of contracts or of legal transactions, including both normative and regulated types of contracts and non-regulated ‘innominate’ contracts, that are used for establishment of enterprises and for the conduct of entrepreneurial activities. This analytical process will lead me, in the first place, to delineate legal classifications of contractual relationships that may qualify as joint ventures. As a second analytical step, I shall purport to ascertain whether it is possible to talk of the joint venture as a true autonomous type of contract (or type of legal transaction, albeit in most of the legal systems worldwide it will correspond to a non-normative type or innominate contract). That analysis will invlove a critical evaluation of its main legal constituent elements in order to evaluate if these may globally be construed as a general autonomous type of contract or type of legal transaction. These conceptual efforts aimed at a systematic legal classification of contractual relationship that may be defined as a joint venture (as a more intense and structured form of cooperation between enterprises) involve a particular difficulty, because in this field many of the bases retained for such classifications are predominantly economic (and have to be duly examined through a proper and specific legal reasoning). Representative of the purpose of attempting systematic classifications of cooperative relationship between enterprises that may be qualified as joint ventures on the basis of predominantly economic factors are the analyses developed, on the one hand, by Luiz Baptista and Pascal DurandBarthez,89 and, on the other hand, by Franklin Root.90 Luiz Baptista and Durand-Barthez propose a systematic understanding of joint ventures based on the nature of the activities pursued by these entities. They, therefore, make a distinction between (i) joint ventures established for the execution of specific or sporadic projects (providing several examples concerning various economic sectors); (ii) joint ventures of a cooperative type, which fundamentally involve activities assisting the parent undertakings and oriented towards the rationalization of costs; (iii) investment joint ventures, which combine complementary inputs of parent enterprises that originally develop differentiated activities (eg for foreign investment projects combining foreign investors and local partners); and (iv) concentrative joint ventures, as highly integrated forms of cooperation used as an alternative to traditional mergers or acquisitions. Franklin Root, in turn, suggests possible systematic distinctions between cooperative arrangements that, by and large, may be qualified as joint ventures on the basis of categories of joint ventures identified through key parameters, such as (i) the overriding objective of these arrangements or (ii) their geographic scope. These predominantly economic aspects taken into consideration in either classification, however relevant for a proper comprehensive understanding of joint ventures, do not allow, conversely, a legal systematic understanding of the legal structures of cooperation between enterprises and of the diverse categories of cooperation that may be autonomously considered (for the purposes of identifying a general category of joint venture as a particularly structured and intense form of cooperation that is, nonetheless, maintained beyond a level implying a process of integration between enterprises which lose their individuality). Such a legal construction involves, in my view, intrinsically legal criteria—albeit in active interplay with economic aspects that provide various contexts for entrepreneurial 89 See Luiz O Baptista and Pascal Durand-Barthez, Les Associations d’Entreprises (Joint Ventures) dans le Commerce International (Paris, Librairie Générale de Droit et Jurisprudence, 1991) 22ff. 90 See Franklin Root, ‘Some Taxonomies of International Cooperative Arrangements’ in Contractor and Lorange (eds), Cooperative Strategies in International Business (n 30) 69ff.

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cooperation—which, in turn, should lead to particular legal corollaries, of theoretical and also practical relevance, as regards the contractual logic and dynamic surrounding the functioning of joint ventures (when compared with less structured forms of entrepreneurial cooperation, as will be described below at 1.4.3.2(C) in this chapter, in the context of the characterization of the joint venture as a socially recurrent type of contract that I purport to establish in that section). I believe that, for the purposes of systematic understanding and characterization of joint ventures, those key legal criteria should be linked to aspects concerning, either the structure of formation of the contracts or legal transactions at stake to sustain a joint venture entity (involving, eg, more or less formal types of arrangements), or concerning the internal structure of the text of those contracts and legal transactions (building, eg, that internal structure on the basis of certain, differing functional or circumstantial elements pertaining to the different activities and contributions to which the parties may have engaged themselves), as I shall observe below at 1.4.4 in this chapter and in chapter three, in connection with particular or especially representative transactions leading to the operation of joint ventures).91 At a preliminary level, the attempts to delineate systematic classifications of cooperative relationships between enterprises, putting in evidence the nuclear legal dimensions of an autonomous joint venture category—on the basis of predominantly legal criteria—are built around two fundamental dichotomies (taking into consideration here analysis developed by authors such as Herzfeld and Wilson,92 Bonvicini93 or Friedmann and Kalmanoff).94 These are the dichotomy between the so called contractual joint ventures and incorporated joint ventures (or equity joint ventures) and the dichotomy between cooperation among enterprises limited to a specific project and cooperation among enterprises of a global nature or scope that transcends a specific project. There are other classifications of cooperative arrangements between enterprises relying on different dichotomies which are put forward by other authors, which tentatively purport to illustrate key dimensions for an autonomous, general category of joint venture, but that I do not consider as illustrative of such autonomy as those considered above. Again, those alternative classifications tend to be built around predominantly economic aspects (with the inherent limitations that have already been stressed). In fact, if, as emphasized by Bonvicini, economic realities are a key component for a possible unitary characterization of the joint venture as a cooperative entity to be identified under a general legal perspective (of commercial and general contractual law, going beyond the specific domain of competition law), they merely represent a starting and subsidiary point for legal analysis. Such economic realities or aspects have to be considered according to intrinsically legal criteria that are situated beyond that economic level of understanding of the cooperative links between enterprises, while keeping an active interplay with this latter level (also going beyond the extreme diversity of economic contexts of cooperation as rightly stressed by authors like Astolfi).95

91 See on these combinations of different elements, Detlef Leenen, Typus und Rechtsfindung (Berlin, Duncker and Humblot, 1971). 92 See Herzfeld and Wilson, Joint Ventures (n 28) 4ff. 93 See Bonvicini, Le ‘Joint Ventures’: Tecnica Giuridica e Prassi Societaria (n 27) 74ff. 94 See Friedmann and Kalmanoff, Joint International Business Ventures (n 27) 17ff. 95 See Astolfi, Il Contratto de Joint Venture. La Disciplina Giuridica dei Ragruppamenti Temporanei di Imprese (Milan, Giuffrè, 1981) esp 5ff.

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1.4.2.2(A) The Dichotomy between Contractual Joint Ventures and Incorporated Joint Ventures As I have already discussed, when commenting on the historical origin and consolidation of the nomen juris of joint venture in the context of the US legal system, the characterization of this type of entity, particularly since it has been more widely used in the praxis of cooperation between enterprises, is clearly interconnected with the corporation or with related entities acting as autonomous legal persons. In fact, it has even been questioned whether the definition of joint venture can be applied to stable and organized relationships of cooperation between enterprises that fail to materialize in the establishment of a corporation under joint control of two or more participating enterprises. It is, therefore, pertinent to consider a fundamental dichotomy between incorporated joint ventures and joint ventures of a mere contractual nature as an analytical basis to ponder the comprehensive limits of the joint venture category itself (meaning here an analytical borderline between, on the one hand, real joint ventures and, on the other hand, intense or stable forms of cooperation between enterprises that, notwithstanding those features, do not justify being defined as joint ventures). In the context of Romanistic-Germanic legal systems, some authors tend to play down the general significance of this dichotomy, considering it largely dependent on specific legal categories of common law systems. In particular, such doctrinal currents consider that the incorporated joint venture-contractual venture dichotomy reproduces the traditional dichotomy between corporations and partnerships in those common law systems96 (whilst recognizing that the characterization of joint ventures under those dual lines had to a certain extent influenced the analysis and legal understanding of the category of joint venture in Romanistic-Germanic systems). However, I do not subscribe to that limited view and consider meaningful the incorporated joint venture-contractual joint venture distinction even in the context of those latter legal systems. I admit that the rather pre-ordained idea of circumscribing the incorporated joint venture–contractual joint venture distinction to common law systems may have arisen from an idea (already outdated) of building the category of joint venture essentially on the basis of the corporation and of the partnership and of attributing a greater role to the partnership as a paradigmatic source of inspiration of the defining features of the joint venture (some echoes of those kinds of conceptions may be found in the analyses developed, eg, by authors like Henn, Astolfi or Bonvicini).97 Such an idea is inaccurate, however, because, as observed earlier, in the US legal system the corporate vehicle has gradually emerged as a fundamental axis for the legal conformation of joint ventures (that situation being even more clear cut as regards subcategories of joint ventures especially developed in particular areas of law, as it happened, namely, with antitrust law).

96 Those authors also point out that the subcategory of the contractual joint venture would be imprecise in the context of Romanistic-Germanic systems in which corporation law encompasses both a contractual dimension and an institutional dimension as well of the relationship of economic collaboration (although I do not regard this objection as a decisive one). 97 See on those analysis and legal conceptions, H Henn, Cases and Materials on Corporations (St Paul, Minn, 1986) 35ff; Astolfi, Il Contratto de Joint Venture. La Disciplina Giuridica dei Ragruppamenti Temporanei di Imprese (n 95); Bonvicini, Le ‘Joint Ventures’: Tecnica Giuridica e Prassi Societaria, Milano, Giuffrè, (n 27) 503ff.

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Therefore, accepting (as I do) the general relevance of the incorporated joint venture– contractual joint venture distinction, the particular difficulties involved in drawing the frontiers of mere contractual joint ventures vis a vis other forms of entrepreneurial cooperation require an analytical exercise of paramount importance in order to identify the crucial elements that may separate the joint venture from those other forms of cooperation (as a superior level of cooperation that will include, in the context of a hybrid nature of the joint venture, a component of entrepreneurial integration, albeit of variable intensity). For the purposes of such analytical characterization, I consider that three decisive elements should be underlined. In fact, I regard as the basis for admitting, in any given situation, the existence of an autonomous category of joint venture of contractual nature—not supported in a corporation jointly controlled by the parties or other related legal entity—an element of (i) organization (organization of productive resources), established under (ii) a relatively autonomous logistical or functional framework (functional autonomy as regards the organizations set out and operated by each parent enterprise) and operating with (iii) some degree of stability, in order to develop a specific entrepreneurial project, even of a subsidiary nature in connection with the leading entrepreneurial projects carried out by the founding enterprises of the joint venture. It will not be decisive, therefore, for the characterization of a certain entity as joint venture that the entity is established and functions through a corporate vehicle or a legal person with comparable features (also bearing in mind that the dividing line between stricto sensu corporate entities and other comparable legal persons deprived of corporate personality has sometimes been blurred over the recent decades).98 It suffices for that purpose that a more elaborate and organized system of contractual ties is put together by the parent enterprises, embodying an autonomous functional structure and organization— whilst not supported by a new corporate person—that is intended to develop a specific entrepreneurial project.99 Furthermore, a closer comparison of different legal systems allows us to verify that the quest for the presence or, indeed, absence of corporate elements (involving a form of own legal personality of a new joint venture corporation), in connection with joint ventures, comes in the end to intersect the definition of an adequate contractual support for an autonomous functional organization that may be deemed to operate as a joint venture (this definition representing the decisive factor for the characterization of joint ventures). I may even observe that in certain legal systems—particularly those pertaining to the RomanisticGermanic model—organizational support for a new functional structure embodying a new joint venture may arise from collective entities deprived of their own legal (collective) personality, like the so called societétés de personnes mentioned above. It is relevant at this stage to call into play again the general concept of enterprise, which I have envisaged (above at 1.4.1.1 in this chapter) as providing a particular framework for certain dimensions of legal relationships and one that does not replace the function

98 See on this, and on the blurring of such dividing line, Ross Grantham and Charles Rickett (eds), Corporate Personality in the 20th Century, (Oxford, Hart Publishing, 1998). 99 Note that I am discussing here the grounds for an autonomous category of joint venture in the context of legal categories that may be justifiably be considered for the purposes of establishing legal classifications of different contracts of cooperation between enterprises and not for the purposes of differentiating various legal types of contracts (involving some form of typological reasoning and construction)—a matter which will be addressed below at 1.4.3 in this chapter.

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of other legal instruments used as formal centres of allocation or exercise of rights and interests in the context of the pursuit of various commercial activities (namely the multiple legal vehicles, with corporate personality or without it, that may embody an enterprise and its activities).100 The particular configuration of the joint venture is accordingly connected with that dimension of legal relationship corresponding to the enterprise and, at that level, it may be thought of, in the terms suggested by Claude Reymond, as some sort of ‘system of contract’101 that establishes multiple reciprocal ties between parent enterprises and from which derives an autonomous organization that is functionally able to pursue a certain form of entrepreneurial activity (even if that activity, by and large, is only intended to support the parent enterprises’ activities and does not involve a direct intervention in the market of the autonomous organization). In that sense, each joint venture may be conceived as an organized system of contractual relationships between the parent enterprises, with a varying degree of complexity (albeit normally with an appreciable degree of complexity required by the partial integration of activities of those enterprises), which combines—in multiple possible forms—several types of contracts, either normative types or entirely non-normative or ‘atypical’ forms of contracts, such as, for example, various types of corporations or other forms of legal association or collaboration admitted or envisaged in the multiple legal systems in which joint ventures may operate.102 On the basis of this notion of joint ventures as organized systems of contractual relationship between the parent enterprises, we may even think of more complex combinations in which personalized corporate vehicles may coexist with contractual structures for the organization of joint activities deprived of their own legal personality. Authors like Luiz Baptista and Durand-Barthez acknowledge these possible combinations of various legal structures, admitting that arbitral decisions, for example, may provide relevant examples of those kinds of situations103 (although I doubt that arbitral decisions, frequently not made public, can provide a sufficiently representative illustration of such situations, which are far better illustrated, as I shall observe below at 4.4 in this chapter, by the far-reaching experience of monitoring joint ventures for the purposes of competition law enforcement, both at the level of US antitrust law and EU competition law). These authors even admit that in such cases the corporate vehicles may frequently represent rather secondary elements in the comprehensive system of various contractual relationships associated with certain joint ventures. That is not, however, my view. On the 100 I consider here legal vehicles that may embody an enterprise (or part of an enterprise, as envisaged eg in competition law for purposes of merger control) and its activities like, eg, corporations (pertaining to several different types that may widely vary in the multiple legal systems; for a comparative perspective on the evolution of types of corporations of growing complexity in various legal systems, see José Engrácia Antunes, Liability of Corporate Groups—Autonomy and Control in Parent Subsidiary Relationships in US, German and EU Law (n 66) esp 52ff), ‘uncorporations’, in the new comprehensive sense suggested by the analysis of Larry Ribstein (The Rise of the Uncorporation (n 22)), commercial establishments as interrelated and organized groups of assets, although frequently deprived of legal personality in some legal systems (‘fonds de commerce’ in French law or in a different configuration, the category of the ‘azienda’ under Italian law; see on this category of Italian law, Vincenzo Buonocore (ed), Istituzioni di Diritto Commerciale (Turin, G Giappichelli Editore, 2000) esp 315ff), and other possible vehicles. 101 See on that characterization and its implications, Reymond, ‘Le Contrat de “Joint Venture”’ (n 78) 384ff. 102 Although my main focus in this book is on the US legal system and the legal systems of the various EU Member States. 103 See Baptista and Durand-Barthez, Les Associations d’Entreprises (Joint Ventures) dans le Commerce International (n 89) 49ff.

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contrary, without denying the possibility of building joint ventures based on such composite systems of contractual relationship between the parent enterprises, comprising one or more corporate vehicles jointly controlled by the parent enterprises in conjunction with other contractual (non-corporate) structures put in place by these enterprises, I admit— based on the observation of entrepreneurial praxis in this field104—that in such cases the corporate entities tend frequently to become the actual centre of the functioning of these joint ventures. Accordingly, and notwithstanding the possible and even frequent establishment of joint ventures as composite systems of contractual relationship (involving corporate and noncorporate elements), the dichotomy corporate joint ventures vis a vis contractual joint ventures remains, to a large extent, a relevant one for purposes of comprehensive characterization of these entities. The chief analytical aspect that tends to arise from this dichotomy, which emphasizes, on the one hand, a corporate dimension of an institutional type and, on the other hand, a purely contractual dimension, corresponds to the extreme variability of the legal configuration of joint ventures, provided a minimum common denominator may be found. That common denominator and unifying factor of the various subcategories of joint ventures—either supported on corporate elements, or on purely contractual elements or on miscellaneous elements—corresponds, in turn, to the establishment of some form of stable organization which embodies a joint entrepreneurial project (even if this is merely instrumental vis a vis the core and principal activities of the parent enterprises). In this light, the contracts involving the establishment and functioning of joint ventures tend recurrently to be characterized by the following core elements: (i) a joint goal pursued through such contracts by the participating enterprises; (ii) a minimum degree of stability of the entrepreneurial project jointly developed by those enterprises; (iii) some form of support of that project in an organizational structure with a minimum degree of consistency and functional ability to pursue on its own certain entrepreneurial functions. This latter element will usually introduce some aspects of entrepreneurial integration which will be combined with an underlying basic framework of relationships of cooperation between enterprises (that partial and limited dimension of entrepreneurial integration clearly representing a distinctive feature of joint ventures when compared with lesser forms of cooperation).

104 Again, I refer here to an observation of the entrepreneurial praxis that largely arises from the monitoring of joint ventures in the context of the enforcement of US antitrust law and of EU competition law (in this latter case, taking into consideration particularly the more intense scrutiny applied to merger control and involving concentrative joint ventures (see below at 4.4, in this chapter and also chs 2 and 3, although this book focuses mainly on cooperative joint ventures, covered by the article 101 TFEU regime). In spite of the particular relevance of the EU experience of merger control, due to its sheer volume and intensity and offering, as such, visible and representative examples—unlike decisions that are made at the level of joint ventures covered by article 101 TFEU, which frequently are not disclosed or widely known—one may find some paradigmatic cases at the level of this latter regime that have produced landmark decisions (illustrating the cumulative use of an institutional dimension, based on the vehicle of the corporation, and of a mere contractual dimension for the establishment of joint ventures). This happened, eg, in the case of Ford/Volkswagen (which ultimately led to Case T-17/93 Matra Hachette (GC, 1994), which I shall refer to below, in other parts of this book) or European Night Services (which ultimately led to Cases T-374/94, T-375/94, T-384/94, and T-388/94 European Night Services (GC, 1998), to which I shall also refer below, esp ch 3).

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On the whole, these recurring elements ((i), (ii) and (iii)) in composite systems of contractual relationships corresponding to joint ventures are arrived at through different contractual mechanisms, which are modelled on the basis of existing normative types of contracts or on the basis of non-normative (atypical) contracts that are combined in multiple contractual structures and that formally correspond to ‘unions of contracts’ or ‘colligated contracts’105 (within such contractual structures, either unions of contracts or colligated contracts, the corporation types tend to be particularly relevant in conjunction with various other types of contracts, admitted in several legal systems, and linked in various ways to the association or cooperation of different enterprises).106 1.4.2.2 (B) The Dichotomy between Cooperation Limited to a Specific Project and Cooperation between Enterprises of a Global Nature I referred above (at 1.4.2.1 in this chapter) to a second fundamental dichotomy between, on the one hand, cooperation between enterprises limited to a specific project and, on the other hand, cooperation between enterprises of a global nature or scope that transcends a specific project. Frequently, this dichotomy has been regarded as the basis for establishing a dividing line between the category of joint ventures and other forms of association between enterprises that will be closer to the category of concentration of enterprises (or, from a legal 105 These unions of contracts or colligated contracts tend to assume fairly complex formulations, combining either various corporation types or various contractual instruments (sometimes with and sometimes without an institutional dimension) or even entirely atypical elements, as underlined by Luisa Vigone or Propersi (see respectively, Contratti Atipici—Nuovi Strumenti Commerciali e Finanziari (n 85) 201ff, and Le Joint Ventures (n 85) 74ff). In particular, Vigone gives a controversial definition of the joint venture as a ‘contratto associativo atípico’ (atypical contract of association or collaboration), although, in my view, what truly characterizes this category of the joint venture is the building of complex contractual structures, combining both (i) certain stabilized types of contracts, (ii) contractual instruments or elements withdrawn from some types of contracts and also (iii) entirely atypical elements. The atypical nature and also the intrinsic peculiarity of the category of the joint venture arise from the contractual systems which are in toto delineated in this complex manner. 106 Within the field of what I have been designating in general as contracts of cooperation between undertakings, several types of contracts—normative types or non-normative types—may be considered. A possible overall systematic perspective on that is to differentiate two fundamental categories, namely the contracts of associative cooperation and the contracts of auxiliary or ancillary cooperation. The former category tends to have as an important reference the contractual type of the corporation, including besides such type, eg, the cooperative enterprise, the so called ‘groupement d’entreprises’ (in French law, or ‘raggruppamento’ in Italian law), the consortium (consorzio), or the associazione in participazione (of Italian law, although in this case the associated entity is not necessarily an enterprise), and various contractual elements modeled, to some extent, on the basis of partial aspects or dimensions of these contractual types (eg bodies for monitoring or coordinating certain joint activities which take as reference models bodies normally established in connection with corporations or with external consortia) or even purely atypical elements that may combine in very different ways to organize in a stable manner projects of cooperation between undertakings. The overall systematic perspective (or classification) is certainly pertinent within a general legal view of these matters. However, as I shall observe below, through the particular lens of competition law one may contemplate more complex classifications or systematic perspectives. On other possible classifications of contracts of cooperation between undertakings see, inter alia, Giovanni di Rosa, L’Associazione Temporanea di Imprese—Il contratto di joint venture (Milan, Giuffrè Editore, 1998) 49ff; K. Byttebier and A. Verroken, Structuring International Cooperation between Enterprises (GrahamTrotamn/Martinus Nijhoff, 1995) 45ff; and Dubisson, Les Accords de Coopération dans le Commerce International (n 55) (this latter author puts forward a threefold distinction between cooperation of a purely contractual nature, cooperation of a mixed nature and cooperation of a statutory type—‘coopération de type purement contractuel’, ‘coopération de type mixte’ and ‘coopération de type statutaire’ (see esp 47–115). However, I do not purport to analyse here the various typical elements that may embody these forms of cooperation. See on that, from a Romanistic-Germanic perspective, inter alia, Karsten Schmidt, Gesellschaftsrecht (Heymanns Verlag GmbH, 2002) esp 1836ff; F Galgano, Diritto Commerciale 2 (Bologna, Zanichelli, 1996/97) esp 20ff.

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perspective not centred on the enterprise but focused on the corporation, involving situations that somehow involve unified corporate groups). Accordingly, certain authors predominantly related the joint venture category to situations in which the entrepreneurial cooperation at stake is delineated for the purposes of developing a specific project with rather well defined contours (that characteristically only cover a part of the activity of the founding or parent enterprises). Conversely, on this view, the situations involving a comprehensive group of contractual ties of entrepreneurial cooperation, of an unlimited nature or a potentially expansive nature, or in any case not limited to a specific project and with the potential to encompass the whole activities of the parent enterprises, would correspond in principle to processes of entrepreneurial integration (and, as such, going beyond the joint venture category, whilst possibly being constituted through a very diverse range of legal vehicles or instruments). In my view, that is an oversimplification of cooperation ties, which does not accurately capture the actual substantive differences between different categories of cooperation and integration between enterprises. To begin with, I consider that in the first type of situations it is probable in most cases that the establishment of cooperative links between enterprises for the development of specific projects and of a limited duration will not induce the parties to put in place joint organizational structures. Accordingly, in those cases one will be confronted with less intense forms or categories of entrepreneurial cooperation that will not meet the fundamental attributes of the category of joint venture (as I have been depicting them). In addition, I do not regard as accurate—nor confirmed by entrepreneurial praxis in this area—the idea of normally associating processes of cooperation of a more expansive nature (and not limited to a specific project) with forms of entrepreneurial integration that would have to be systemically placed at an analytical level different from the category of the joint venture. In reality, the development of processes of cooperation between enterprises with increasingly expansive objects (and not limited a priori to specific areas of the parent enterprises’ activities) does not necessarily lead to the loss of individuality of those parent enterprises (and to a process of entrepreneurial integration).107 Therefore, I believe that the ever-growing complexity of the organization of cooperation processes between enterprises is not duly captured by a more linear dichotomy placing in opposition to each other cooperation between enterprises limited to a specific project and cooperation between enterprises of a global nature or scope that transcends a specific project (and, above all, by an idea of associating the category of joint ventures to the first type of situations and, conversely, of associating the second type of situations to entrepreneurial integration). The actual dividing line between ‘systems of contract’ that may be qualified as joint ventures and other categories of contractual relationship that will tend to produce ultimate effects of entrepreneurial integration lies in the fact that, notwithstanding the breadth of activities of the parent enterprises that may be covered by the cooperation

107 Once again the experience of EU competition law scrutiny of joint ventures (to which I shall return in more detail below at sections 3 and 4 in this chapter) provides revealing examples. The EU competition law practice on joint ventures—providing an appreciable insight into the realities of contractual structuring of joint ventures in business practice—shows that multiple joint ventures that cannot be qualified as concentrations have, conversely, a wider object which is not circumscribed in a linear fashion to a sole entrepreneurial project with strict or limited contours (without such wider object involving, at the same time, any loss of the autonomy or own individuality of the participating undertakings).

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processes, such processes do not dilute, on the whole, some areas of activity pursued by the parent enterprises on their own and, accordingly, do not dilute the individuality of those parent enterprises. Bearing in mind in this area some kind of conceptual interaction between a general legal understanding of joint ventures (for purposes of commercial law and general contractual law) and the kind of understanding of this category that is generated by specific areas of law in which the joint venture category is widely used (as typically happens with competition law and as acknowledged by authors like Robert Pitofsky),108 one may discern some possible subcategories of joint ventures involving significant components of entrepreneurial integration but which, allowing at the same time specific spheres of activity by the founding enterprises, still justify their qualification as joint ventures (that will typically happen, eg, in the field of EU competition law with subcategories of joint ventures delineated in the EU Merger Regulation that fulfil all the functions of an autonomous economic entity and that pursue a wide range of activities).109

1.4.3 The Basic Constituent Elements of Different Joint Venture Structures as a Socially Recurrent Type of Contract (Statutory Atypical) 1.4.3.1(A) Basic Criteria for the Possible Individualization of the Joint Venture as a (Statutory Atypical) Socially Recurrent Type of Contract I have so far been discussing the possible justification of an autonomous category of joint venture for the purposes of establishing legal classifications of different contracts of cooperation between enterprises. This analysis should now be taken to another level that will involve the differentiation of various legal types of contracts in the context of typological reasoning and construction. In this context, I purport to evaluate if the joint venture contract—or the systems of contracts in which joint ventures tend to be based, to employ once more the expression coined by Claude Reymond110—may be regarded as a socially recurrent type of contract although statutory atypical (at least in most legal systems that I shall be considering of Member States of the EU and even taking into consideration some degree of comparison with the US legal system). I may anticipate here that, notwithstanding the widely imprecise use of the legal characterization of various links of cooperation between enterprises as joint ventures, the identification of the joint venture as a socially recurrent type of contract (usually not explicitly established or recognized as such de iure condito in normative provisions of the law) is essentially justified.

108 See Robert Pitofsky, ‘A Framework for Antitrust Analysis of Joint Ventures’ (1985), Australian Law Journal, 893 ff; see also on this, J Pfeffer and J Nowak, ‘Patterns of Joint Venture Activity: Implications for Antitrust Policy’ (1976) AB 315ff. 109 I shall not anticipate at this point specific aspects of competition law analysis of joint ventures that will be covered below (sections 3 and 4 in this chapter and throughout chs 2 and 3). Anyway, on the fundamental traits of the sub-category of full function joint ventures, which after the first (1997) reform of the MCR qualifies as a concentration, regardless of the coordination effects it may generate, and for a general and predominantly descriptive perspective of the contours of this sub-category under EU competition law, see Geert Zonnekeyn, ‘The Treatment of Joint Ventures Under the Amended EC Merger Regulation’ (1998) ECLR 414ff. 110 See the characterization delineated by Reymond in Le Contrat de ‘Joint Venture’ (n 78).

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However, I admit that a significant part of the doctrine in several EU Member States diverges from this understanding.111 It is therefore, important to analyse briefly some of the key criteria that may influence such legal characterization. At the same time, it also important to acknowledge that, to a significant extent, the degree of imprecision that surrounds the category of the joint venture owes a lot to the contrast between an extremely wide use—in the legal and everyday praxis between enterprises—of the nomen juris of joint venture and the extremely scarce systematic legal analysis that has been devoted to that category. In my view, the criteria that may be used for purposes of identification of socially recurrent types of contract (although statutory atypical)112 are relatively fluid and are largely dependent on the variable intensity of those types of contract. In fact, on the basis of its intrinsic characteristics, the statutory atypical contract, to be recognized as a socially recurrent type of contracts, may present various degrees of intensity. In other words, the individualization of a specific statutory atypical contract, to be autonomously recognized as a socially recurrent type of contract, may be more straightforward in certain cases and, conversely, the grounds for its individualization may be weaker in other cases, in spite of relevant legal parameters that can favour it to some extent. Bearing in mind the essential characteristics of the contractual relationships that tend to lead to the establishment and functioning of joint ventures, I consider that the four most important legal criteria in order to ascertain the possible individualization of the joint venture as a (statutory atypical) socially recurrent type of contract are as follows: (i) the cause (or function) of the contracts at stake; (ii) the prevailing goals of the contracts; (iii) the actual correspondence between a business practice of use of the nomen juris of joint venture and its intentional use by the parties; and (iv) the structural plan of the contracts (which is usually designated by German authors as ‘Bauplan’).113 1.4.3.1(B) Relationship of Cooperation between Enterprises and Cause (Function) of the Contract The first of the four legal criteria noted above—the so called cause of contract—while more specifically associated with civil law systems (or Romanistic-Germanic systems), allows me to identify a core of aspects which are regularly present in joint venture contracts, although not necessarily in all contracts that are described by the parties as being joint ventures. 111 In the doctrines of Romanistic-Germanic systems there seems to be a prevalent position of rejection of the idea of the joint venture as a general socially recurrent type of contract (statutory atypical). However, even in common law systems, clearly less marked by conceptual concerns about the identification of general types of contracts, various authors seem also to reject that characterization of the joint venture, underlining on the contrary the heterogeneous nature of elements normally underlying the use of this nomen juris of joint venture. See Hewitt, Joint Ventures (n 48) esp xi ff and 2ff. 112 I refer here to socially recurrent types of contract (statutory atypical) that are, eg, referred to as social types of contracts accepted in certain legal systems by various authors in the doctrine of Romanistic-Germanic systems. See on that definition, that I deem less accurate and, accordingly, do not use throughout this book, inter alia, Rodolfo Sacco and Giorgio de Nova, Il Contrato (Turim, Tomo Segundo, UTET, 1996); Joachim Gernhuber, Das Schukdverhältnis (Tübingen, JCB, Mohr (Paul Siebeck), 1989) vol 8, Handbuch des Schuldrechts herausgegeben von Joachim Gernhuber. 113 The way certain key characteristics and elements of the contract may be structured corresponds to the types of contracts known in German law as ‘Bauplan’. I consider that the best designation and the one that most accurately reflects what is at stake is the ‘structural plan of the contract’. On the aspects involved in this kind of basic structuring of contracts, which tends to be a defining aspect of certain types of contracts (even the statutory atypical ones), see, inter alia, Enrico di Robilant, ‘Realtà e Figure nella Scienza Giuridica’ in La Teoria Generale del Diritto, Problemi e Tendenza Attuali, Studi Dedicati a Norberto Bobbio (Milan, Edizioni di Comunità, 1983) esp 67ff.

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In fact, as will be seen in the more developed analysis of joint ventures in the field of competition law, the parties frequently use the nomen juris of joint venture in the context of multiple cooperation agreements or understandings in order to avail themselves of the more positive connotation that joint ventures sometimes have for purposes of enforcement of competition law rules; even actual cartels, aimed at joint price or production fixing, may, for these reasons, be fallaciously described by the parties as joint ventures (thereby trying to turn in their favour the relatively imprecise contours of the category of joint venture). It is, therefore, not methodologically correct to try to find common aspects and patterns in all arrangements that the parties formally identify as joint ventures. On the contrary, the methodological effort that should be developed is one of critical selection in the extremely numerous cases of cooperation identified by the parties as joint ventures of a more limited group of situations in which the setting up and organization of a cooperation relationship between enterprises may justifiably reach an upper level of cooperation that is inherent to the joint venture (which must be dissociated from other situations of entrepreneurial cooperation of a different nature and that, more than any other, deserve a different and usually more negative assessment under competition law rules). In this context, I consider the cause of the contract in order to ascertain some core aspects that contribute to the basic configuration of the joint venture contract (as a possible autonomous socially recurrent type of contract, although statutory atypical), regarding it essentially as the economic and social function that may be distinct to some contracts. This conceptual elaboration is somehow historically originated in civil law systems and tends to be deemed by many authors as a specific trait of those systems and difficult to conciliate with the conceptual framework of common law systems. However, I submit that, up to a certain point, it may be transposed to these latter systems, also considering some points of contact, mutatis mutandis, with the idea of consideration in contracts, in the context of these systems (although there is no actual or full correspondence between those two concepts, the latter being essentially geared towards a more specific sense of ascertaining the equilibrium of the positions of the parties at stake).114

114 There is no room here for a developed analysis of the extremely complex concept of ‘cause’ of contracts. On this topic see, GB Ferri, Causa e Tipo nella Teoria del Negozio Giuridico (Milan, Giuffré, 1966) (Ferri’s analysis has the significant advantage of comparing in this area French, German and Italian law within the RomanisticGermanic legal systems); see also Judith Rochfeld, Cause et Type de Contrat, Paris, Librairie Générale de Droit et Jurisprudence, 1999). It should be stressed, in any case, that when considering the cause of contracts as a relevant legal criterion in order to ascertain the possible individualization of the joint venture as a (statutory atypical) socially recurrent type of contract, one tends to delineate this concept fundamentally as it is retained under Italian law, which corresponds to an idea of a typical social and economic function of contracts, in detriment of an extremely abstract concept of cause as the basis for the juridical content and nature of any given contract (that is somewhat privileged by some German doctrine). Without prejudice for this perspective that I favour, I have to acknowledge that the theory of the cause of contracts has no systematic unity, even within the universe of Romanistic-Germanic legal systems, originating very different formulations in various legal systems. Given this theoretical diversity, it is to a large extent pertinent, in my view, to consider the concept which in common law systems bears more resemblance, mutatis mutandis (and with natural limitations) with the concept of cause of contract in Romanistic-Germanic systems—the concept of consideration. See, on this, Basil S Markesinis, ‘La notion de consideration dans la common law: vieux problèmes; nouvelles théories’ (1983) RID Comp 735ff; see also J-P Walton, ‘Cause et “Consideration” dans le Droit Anglais des Obligations’ (1919) RTDCiv (trans H Capitant) 469ff; Alpa Bessone, Causa e Consideration (Bologna, 1985); Atiyah, Consideration in Contracts: A Fundamental Restatement (Canberra, Australian National University Press , 1971); GH Treitel, Doctrine and Discussion in the Law of Contract (Oxford, Clarendon Press, 1981).

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On the basis of such starting point of viewing the cause of contracts as the economic and social function of those contracts, one may look for an essentially identical content of that function in a certain segment of contracts of cooperation between enterprises that are susceptible of characterization as joint ventures. I refer here to an essential content aimed at the development of relationships of cooperation of an especially intense nature and being such cooperation, in turn, directed towards the development of a new entrepreneurial project or at least of an important segment of that entrepreneurial project, which is supported through a joint organization that may, or may not, have its own legal personality. Typically, what is stake is, therefore, the development of entrepreneurial functions similar or very close to the ones underlying the integration of different entrepreneurial units, while not going beyond the threshold that would imply the loss or dissolution of the separate individuality of the founding or parent enterprises that are forming a joint venture. Conversely, and provided the cooperation relationship between the founding enterprises does not move beyond such threshold (the contrary implying a situation of pure entrepreneurial integration), joint ventures, which are normally characterized by a significant degree of functional complexity, tend to incorporate, albeit on a widely variable scale, a limited component of entrepreneurial integration. 1.4.3.1(C) Relationship of Cooperation between Enterprises and the Prevailing Goals of the Contracts The parameter corresponding to the prevailing goals of the contracts is also conducive to the proper justification of an autonomous socially recurrent type of contract of joint venture (although of a non-statutory type). Considering the prevailing goals pursued through certain contracts as a projection at a subjective level of the function performed by those contracts, and also bearing in mind the typical functions underlying joint ventures (as noted above), one may identify in various cooperation agreements between enterprises certain recurrent goals associated with those joint ventures. Chiefly, one may consider here the goal of undertaking a joint entrepreneurial project, either one that is pursued with a significant degree of autonomy in connection with other activities pursued on their own by the parent enterprises, or one that has an instrumental role in connection with those activities that are retained by the parent enterprises. That goal, which intrinsically corresponds to a certain idea of enterprise115— more or less structured, depending on the cases at stake—is actually pursued by the parties through the establishment of a joint organization, whose institutional and legal format may vary widely and to which both participating enterprises provide relevant contributions in the

115 As should be clear, this kind of delineation of the prevailing goal of the contract as a possible parameter of an autonomous socially recurrent type of contract (although of a non-statutory type) to which the joint venture will correspond should rely, in the case of the joint venture, on the acknowledgement of a general relevance of the legal category of enterprise (something that, as I have observed, is not unanimously accepted in the doctrine in various legal systems of EU Member States). In my view, the idea of enterprise at stake, to be taken as a true foundation of the joint venture contract, may involve either entirely new entrepreneurial projects to be developed through the joint venture or simply auxiliary or complementary aspects—provided these are clearly delineated—in connection with the entrepreneurial project of each parent enterprise. On the relevance of a general legal category of enterprise in various legal systems see, inter alia, multiple studies included in Le Droit de l’Entreprise dans ses Relations Externes à la Fin du XXe Siècle—Mélanges en l’Honneur de Claude Champaud (Paris, Dalloz, 1997).

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form of multiple assets (or transferring to the joint organization the ownership or management of certain rights, eg, intellectual or industrial property rights). In addition, the permanent development of an interaction between the spheres of activity retained by the parent enterprises—which is at the core of the more intense cooperation relationship susceptible of characterization as joint venture—also implies, in most cases, a contractual discipline of the links between those parent enterprises, that relies on their stable willingness to make new contributions to the common project or to readjust or complement previous contributions to such project. In this context, if from an analytical perspective that considers prevailing goals underlying certain contracts—as one among other criteria to justify an autonomous type of contract—one may identify two large categories of contracts, namely (i) contracts for the pursuit of a common goal and (ii) commutative contracts116 and, in that process, include the typical corporation contract in the first group (in reality as a paradigmatic example of such category of contract), the same should be applied to contracts susceptible of characterization as joint ventures (albeit with significant differences in their teleological programme in comparison with the paradigmatic case of the corporation). One of those key differences lies in the following: while in the typical corporation (at least in the limited liability corporation that corresponds to the archetypal form of corporation in current business practice), the programme of contributions of the participating entities tends to take place in a single moment (at the time of the establishment of the corporation, ensuring a legal sphere of performance of the corporation clearly distinct from the participants), in the joint venture contracts the ongoing materialization of the cooperation between the parent enterprises will normally lead to regular contributions on the part of those parent enterprises. It is true, however, that depending on the level of economic integration underlying each joint venture—which may vary considerably given the complexity of joint ventures and their ability to perform widely different economic goals— one may consider some particular subcategories of joint ventures structured in a way that allows their organizations a superior degree of autonomy vis a vis the parent enterprises (based on initial significant asset contributions by those parent entities and not providing for a regular flux of new contributions by those same entities). Bearing in mind the analysis that I shall develop below on the characterization of joint ventures under EU competition law, I shall show that this body of law actually assimilates full function joint ventures, with a superior degree of autonomy vis a vis parent enterprises, to concentration operations (and that in those cases the parallels between the systems of

116 The dichotomy between (i) contracts for the pursuit of a common goal and (ii) commutative contracts is also delineated in the doctrine (eg in Italian or German doctrines) as a dichotomy between, on the one hand, associative, plurilateral or cooperation contracts and, on the other hand, bilateral or swap contracts. The legal terminology which separates the associative contracts from the bilateral or swap contracts seems to be widely used in the Italian doctrine. In fact, I have already mentioned those doctrinal trends in connection with the application of the notion of associative contract to joint venture contracts, as noted, eg, by Luisa Vigone, who considers the joint venture as a ‘contratto associativo atípico’ (atypical associative contract); see Vigone, Contratti Atipici—Nuovi Strumenti Commerciali e Finanziari (n 85) 201. We should also mention that within the global domain envisaged in the sphere of contracts for the pursuit of a common goal some German doctrine has identified a possible subcategory of organization contracts, essentially related with contracts of cooperation between undertakings. See on this the position taken by authors like Raiser or Lüderitz, respectively, in ‘Vertragsfunktion und Vertragsfreiheit’ in Festschrift zum hundertjährigen Bestehen des Deutschen Juristentages (Karlsruhe, C.F. Müller, Bd I, 1960) 109ff, and in Auslegung von Rechtsgeschäften. Vergleichende Untersuchung anglo-amerikanischen und deutschen (Karlsruhe, C.F. Müller, 1966) 97ff.

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contracts on which such ventures are based and the corporations are more significant; indeed, those full function joint ventures, characterized under EU competition rules as concentrations frequently take the form of corporation vehicles).117 Understandably, in these latter types of situations the programme of contributions of the participating entities for the contractual structure of the joint venture, as a subcategory of contract for the pursuit of a common goal, will tend to materialize to a significant extent in the initial act of establishment of the joint venture (henceforth the more significant similarities with the corporation). Notwithstanding that parallel, even in those specific cases of structuring of more autonomous joint ventures it is common to find that the parties somehow contractually provide for continuous or renewed contributions by the parties to the joint venture in terms that fundamentally differ from the typical framework of corporation. 1.4.3.1(D) Relationship of Cooperation between Enterprises and Correspondence between a Business Practice of Use of the Joint Venture Nomen Juris and its Intentional Use by the Parties As mentioned above, a common business practice of entering into contracts in the field of cooperation between enterprises that are formally qualified by the parties as joint ventures, and understood by the parties as being identical as regards their chief goals and the types of relationship that such contracts discipline, may, within certain limits, correspond to a parameter to characterize these contracts of joint venture as a (statutory atypical) socially recurrent type of contract. However, I consider that the lack of precision that is frequently associated with the nomen juris of joint venture—used in the context of very diverse situations of entrepreneurial cooperation—limits the relevance of such a parameter for the purposes of identifying a specific type of contract (statutory atypical). Essentially, I admit that the formal use of the nomen juris of joint venture, intentionally chosen by the parties, and the corresponding business perception by those parties of building a composite contractual framework (under that formal designation) of an organized system of cooperation between enterprises that can be characterized as relatively intense, may be taken as a complementary parameter that may, in any given context, corroborate the individualization of the joint venture as an autonomous socially recurrent type of contract (although by itself, that parameter would be insufficient to lead to such legal characterization).118

117 The fact that, in the field of full function joint ventures—to qualify under EU competition rules as concentrations—it has already been admitted the establishment of that type of entities on the basis of lighter contractual structures, aimed at the creation of a minimum level of joint organization and without involving the creation of any corporation jointly controlled by the founding undertakings, as happened, eg, in Case JV.19 Alitalia/KLM (European Commission, 11 August 1999),—adopted in the context of the enforcement of the MCR), does not invalidate the fact that the most significant part of those entities (full function joint ventures of a concentrative type and therefore covered by the MCR regime) is based in the establishment of corporations jointly controlled by the founding or mother undertakings of the joint venture. 118 Although the legal qualification of the contract that the parties purport to use in any given case is not irrelevant, this corresponds, nonetheless, to a parameter of the existence of a socially recurrent type of contract that should not be considered on its ownand that bears scarce relevance if not supported or corroborated by other legal parameters in this domain. In the specific field of joint ventures, scrutiny of these entities in the context of enforcement of competition rules has produced evidence of very disparate uses of the nomen juris of joint ventures by the parties involved in cooperation relationships. Thus, it has already been observed that arrangements of cooperation limited to the joint commercialization of goods without giving rise to any structures or forms of joint

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1.4.3.1(E) Relationship of Cooperation between Enterprises and the Structural Plan of the Contracts (Bauplan) The fourth parameter that I have referred to above as a possible basis for the individualization of the joint venture as an autonomous socially recurrent type of contract—the parameter which corresponds to a recurrent definition of a certain structural plan of these contracts—tends to be a very significant one for the typological characterization of such contracts. In fact, it has to be recognized that even contracts that present basically identical social and economic functions or that are used to pursue essentially the same goals by the involved parties may have their constitutive elements structured in very different ways. Accordingly, the identity of function (or cause) and identity of goals pursued through the contracts do not necessarily ensure the individualization of a specific and unitary socially recurrent type of contract (statutory atypical). The structuring and interaction of the various contractual engagements established by the parties may in those cases be modelled under rather diverse plans (corresponding to what the German doctrine has consistently characterized as Bauplan).119 Nevertheless, when applying prima facie this analytical parameter to cooperation contracts between enterprises that are either directly designated by the parties as joint ventures or that organize especially intense forms of entrepreneurial cooperation (regardless of the formal designations used by the parties), a particular risk has to be considered. I refer here to the risk of overvaluing the diversity of the contractual structures that may be alternatively used to build joint venture relationships (given the flexibility of this category). That, in turn, may lead to a rather aprioristic and superficial perspective of rejecting, on such

organization, as well as cooperation agreements aimed at specialization or market partitioning between the parties, without involving either that critical threshold of creation of minimum functional basis of joint organization but corresponding merely to forms of behavioural coordination between the parties, have not infrequently been described by the participating undertakings as joint ventures. In fact, such widespread use of the formal definition of joint venture may be influenced precisely by competition law considerations, in order to reap potential benefits from the more favourable treatment in principle given to joint ventures as entities which typically promote some form or other of efficiency. Accordingly in US antitrust doctrine, authors like Thomas Pirainno refer to a propensity of undertakings to use very widely the description of joint venture in connection with a very diversified set of cooperation agreements, some of them involving coordination of prices or quantitative output which are intrinsically restrictive of competition and only carrying with it rather apparent dimensions of partial integration of the participants’ operations in order to benefit from a less strict enforcement of the competition rules applicable to processes of cooperation (see Thomas Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (1991) Minn LR 1ff). Furthermore, it is also common in the context of relationships of cooperation regulated by more or less complex systems of colligated or inter-connected contracts, the designation as a joint venture contract of the Framework Agreement or of the central Heads of Agreement within those systems,—something that has often happened, eg, as regards cooperation relationships in the field of joint promotion strategies or commercialization policies developed through the very imprecise category of the so called ‘strategic alliance’ (which is in many cases less accurately described as a joint venture). On the use of the growing and very legally imprecise use of this category of strategic alliance in the business practice of cooperation between undertakings, see, Sabine Urban (ed), From Alliance Practices to Alliance Capitalism—New Strategies for Management and Partnership (Wiesbaden, Gabler, Verlag, 1998). 119 This dimension corresponds to what I have designated above as structural plan of the contract. In fact, as emphasized in the German doctrine, eg by Larenz, what is at stake here is to include in the structuring a certain number of core elements of the contracts, certain aspects which are frequently or regularly structured in the same manner. As Larenz points out ‘what is common to various types [of contracts] and allows its identification as such here is the structure, that is to say the meaningful connection of a certain discipline of the contracts forming an overall “harmony” in its constitutive elements’ (see Larenz, Methodenlehre der Rechtswissenschaft (Berlin, Heidleberg, Springer Verlag, 1983) (my translation of the German text)).

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grounds, a justification due to the individualization of the joint venture as a unitary socially recurrent type of contract (statutory atypical).120 In my view, such an analytical perspective would not be accurate and would largely ignore the specific or sui generis nature of the joint ventures ‘systems of contracts’ which lies precisely in a complex combination of elements of various contractual types (leading to composite contractual structures that may be situated between the unions of contracts and the so called mixed types of contracts).121 What is relevant, therefore, starting from that assumption of composite contractual structures (integrating elements originally developed in the context of other contractual types), is to ascertain the possibility of identifying certain recurrent aspects or dimensions in the combination of such elements. I consider that this question may have an affirmative answer in the case of the joint venture. In fact, a systematic analysis of the various contractual frameworks that are used for the purpose of developing economic cooperation links between different enterprises of a more intense nature and incorporating some aspects of entrepreneurial integration—and for that reason in the threshold of an area of cooperation that may be potentially characterized as involving the establishment of joint ventures—allows us to identify certain recurrent aspects (albeit in a general context of diversity of contractual provisions employed by the parties). Those recurring aspects may, accordingly, form the basis of a common structural plan of the joint venture contract or system of contracts (Bauplan) (although subject to multiple variations). Considering the theoretical developments related to the so called unions of contracts and the so called mixed types of contracts122 (which are especially developed in

120 Some doctrinal orientations that deny the possibility of considering the joint venture as a socially recurrent type of contract (although statutory atypical in most legal systems) run the risk of overvaluing the diversity of contractual structures. Conversely, I admit that the relative importance of the structural plan of the contract as a parameter of the existence or not of a socially recurrent type of contract varies according to the particularities of different potential types of contracts at stake. And precisely what confers a particularity or sui generic nature to the joint venture is the relative diversity of the structures of contractual discipline that may constitute joint ventures, without prejudice to the prevalence of a certain system of contractual connections aimed at an essentially identical function and goal at the level of relationships of cooperation between undertakings. 121 It is the indubitable complexity of the various structures of contractual discipline of the joint venture that leads me to admit that the category tends to involve a potential combination of the levels of unions of contracts and of mixed types of contracts. What is known about the business practice of relationships of cooperation between undertakings reveals that in certain situations the object of contractual discipline at stake is based on more than one stabilized type of contract (these types being combined), in terms that, in spite of the nexus binding those types together in such concrete situations, would allow their subsistence as separate contracts (one may consider, eg, the case of a joint venture established through a corporate vehicle and aimed at the commercial distribution, in a certain manner, of the products of the parent undertakings, comprising a contract of corporation and a distribution contract), while in other situations the object of contractual discipline at stake is covered by various elements withdrawn from different types of contracts, which in themselves could not subsist on their own (one may consider, eg, the case of a central agreement in pursuit of a certain joint activity without establishing any new entity endowed with legal personality, on the basis of an organization whose contractual bodies include combined attributes of bodies normally established in corporations or in external consortia; such central agreement may, in turn, be connected with a set of satellite agreements concerning periodic contributions of parent undertakings to the joint organization they established, while deprived of own legal personality). 122 On these distinctions between unions of contracts and mixed types of contracts, which are especially developed in civil law or Romanistic-Germanic systems, although touching on aspects that tend also to be relevant to the structuring of various typical or atypical contracts under common law systems under different terminologies, see, inter alia, Denis Tallon and Donald Harris, Le Contrat Aujourd’hui: Comparaisons Franco-Anglaises (Paris, Librairie Générale de Droit et de Jurisprudence, 1987). Although the essential distinction between typical and atypical contracts does not have the same relevance under common law systems, in such systems reference is sometimes made to ‘particular contracts’; at another level, other contracts may combine various elements of

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civil law or Romanistic-Germanic systems),123 and notwithstanding divergent doctrinal positions in this field, we may admit that the joint venture contract (or system of contracts) should be understood as existing in a sort of intermediate area between those two conceptual categories. In fact, in some cases, the joint venture project may be set up through a statutory typical contract combined with some accessory contractual engagements whose individuality may still be discerned in the global mix of contractual provisions that embodies such venture (in those types of situations frequently the nuclear statutory typical contract employed will be the corporation contract, leading, eg. to the ex novo establishment of a corporation under joint control of two founding or parent enterprises). Taking this analysis further, it is important to discern if, in this potential confluence of the realities of unions of contracts and of mixed types of contracts,124 one of these may be regarded as prevailing over the other for purposes of building the joint venture’s systems of contract. Bearing in mind the core of more common stipulations that better characterize the paradigmatic contractual model of joint venture, I submit that the prevailing dimension at stake will be the one corresponding to the mixed type of contract. More than a combination of contractual types that maintain their individuality—although in some cases, as mentioned above, the joint venture may be predominantly structured on the basis of a certain statutory typical contract—the joint venture’s systems of contracts

such particular contracts. See on this P James, Introduction to English Law (London, Butterworths, 1979); in any case, some doctrinal approaches under common law systems, although employing a different overall perspective not aimed at comprehensive and systemic classifications of contracts around the segments of typical or atypical contracts or unions of contracts and mixed types of contracts, seem to employ terminologies that bear some resemblance to Romanistic-Germanic approaches in this area. See, as a paradigmatic case of this relative proximity, P Atiyah, An Introduction to the Law of Contract (Oxford, Oxford University Press, 1981). See also Guido Alpa, Contratto e Common Law (Padova, Cedam, 1987). 123 As I have been emphasizing throughout this chapter and, eg, in the previous footnote, these types of systematic analyses and classifications of contracts are made particularly difficult due to the fact that, for the purposes of devising a general reference concept of the category of joint venture and of the joint venture contract or system of contracts that may support it, involving cooperation relationships of an international nature or cooperation relationships between enterprises related with the various EU Member States, I have to deal with several national legal systems, that congregate multiple ‘legal families’ (to use here, once again, the expression frequently used by Zweigert and Kötz in An Introduction to Comparative Law (n 20). In particular, dealing with the legal systems involved in the process of legal building of the EU—as I purport to do for the purposes of ascertaining a general reference concept of joint venture—I have to conciliate legal categories and coordinates of common law systems (eg the treatment of joint ventures in the UK system compared with the US system) and Romanistic-Germanic systems (eg the French, German, Italian, Spanish or Portuguese legal systems). On the importance of these national legal systems, representing different legal families but increasingly intertwined due to the constraints and dynamic of European legal and economic integration, see, inter alia, Giannantonio Benacchio, Diritto Privato della Comunità Europea—Fonti, modelli, Regole (Padova, Cedam, 2001); Heinz Kötz and Exel Flessner, European Contract Law, Vol 1 (Oxford, Clarendon Press, 1997); Michael H Whincup, Contract Law and Practice—The English System and Continental Comparisons (Deventer–Boston, Kluwer Law, 1992). 124 It should be underlined here that in the context of a general conceptualization of the categories at stake there has been acknowledged, particularly in German doctrine, a rather fluid nature in the transition or the boundaries between such conceptual realities of, on the one hand, the union of contracts and, on the other hand, the mixed types of contracts. See, eg, Joseph Esser and Eike Schmidt, Schuldrecht (Heidelberg, I, Allgemeiner Teil 6 Aufl., Müller, 1984) 184ff); Joachim Gernhuber, Bürgerliches Recht (Munich, C.H. Beck Verlag1983) esp §7 V, 157ff. On the extreme difficulty of any general theorization of the union of contracts and of the mixed types of contracts, see also Di Nanni, ‘Collegamento Negoziale e Funzione Complessa’ (1977) RD Comm 297ff, esp 318ff; G Schizzerotto, Il Collegamento Negoziale (Napoli, 1983) esp 3ff; Gilda Ferrando, ‘Recenti Orientamenti in Tema di Collegamento Negoziale’ (1997) NGCC II 233ff, esp 234, and, also from the same author., ‘I Contratti Collegati: Principi della Tradizione e Tendenze Innovative’ (2000) CI I 127ff.

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tend to incorporate in a global mix several parts of distinct contracts (and of distinct contractual types). Also as regards that category of mixed types of contracts, and considering a frequent doctrinal distinction between, on the one hand, mixed types of contracts predominantly delineated on the basis of a key reference type of contract (subject to some adjustments) and, on the other hand, mixed types of contracts built on the basis of a plurality of different types of contracts, I submit that cooperation agreements, susceptible of being characterized as joint ventures, tend to be situated in an intermediate area between those two realities. In fact, in the combination of multiple contractual elements arising from various types of contracts (statutory typical and statutory atypical) and leading to the joint venture contract built around a certain idea of joint entrepreneurial project as a common goal of the parties, certain types of contract are found more frequently than others. Nevertheless, the configuration of that nuclear typical element is normally diluted in a global framework of aggregation of other various typical elements (in a way that affects the characterization as such of that central typical element). In this context, empirical and critical observation of the contractual praxis of economic cooperation between enterprises and of its evolution over recent years125 shows that the central element that tends to be used most often amongst the vast number of multiple and heterogeneous contractual engagements leading to joint ventures, is the corporation type (although with a growing use of alternative organizational structures that do not necessarily involve the establishment of autonomous legal persons, designated by Larry Ribstein as uncorporations).126 Going on to develop further the parameter corresponding to the structural plan of contracts (Bauplan) as one of the relevant analytical criteria to individualize the joint venture as a unitary socially recurrent type of contract (statutory atypical), there are three key aspects of a basic structural plan that tend to be recurrent in joint ventures (although this basic configuration may have certain variations in light of a more or less close cooperation

125 I maintain in this regard that the best and most significant evidence of the prevailing realities, at any given moment, in the business practice of relationships of cooperation between enterprises is the one that results from the systemic scrutiny of those relationships at the level of enforcement of competition law (particularly in the context of US antitrust law and EU competition law), while arbitration may also provide a relevant window for ascertaining or identifying key realities in terms of business practice (albeit in this case with the difficulty arising from the confidential or non-public nature of many arbitral awards). Bearing in mind the information or data collected at the level of competition law enforcement and focusing our attention in particular on the data arising from application of EU competition rules, there is clearly a growing predominance of a typical central element in the building of many joint ventures, which corresponds to the type of the corporation (although taken lato sensu), without prejudice to the complexity of the various ways of combining multiple supplementary elements which are withdrawn and adapted from other types of contracts or delineated in an entirely original fashion by the parties in joint ventures. This paramount importance of the elements associated with the type of the corporation is particularly striking, in the context of the EU competition law framework of joint ventures, as regards the subcategory of full function joint ventures (briefly described above), which correspond under current law to concentrations (covered by the MCR), although it also occurs to an appreciable extent at the level of the subcategory of joint ventures covered by article 101 TFEU. In reality, having been acknowledged for the first time, in 1999, the qualification of an entirely contractual joint venture (entirely deprived of any corporation element whatsoever) as a concentrative joint venture covered by the MCR, this clearly corresponds in terms of EU competition law enforcement to a rather isolated case in the dense practice of scrutiny of concentrative joint ventures assessed under the MCR (see on this the Commission’s Twenty Ninth Report on Competition Policy, specifically the points related to merger control (I am referring here to the Commission decision of Alitalia/KLM of 11 August 1999 (n 117)). 126 See on this, Ribstein, The Rise of the Uncorporation (n 22).

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relationship between the participating enterprises which, in turn, leads to a variable degree of economic integration or proximity to the category known under competition law as concentration operation). The multiple contractual engagements of these types of cooperation contracts tend to be structured around (i) a core of contractual provisions that discipline and establish some form of organization, relatively stable, corresponding or not to an autonomous legal person, which will (ii) functionally centralize and coordinate (iii) a joint activity generally guided by economic patterns (that do not correspond necessarily to a goal of pursuing profit stricto sensu).127 This joint activity may be alternatively pursued as merely instrumental in connection with the principal activities of the parent enterprises or as an activity with its own autonomy in connection with the sphere of activities of those parent enterprises. In this context, and considering the extreme diversity of functional missions with which the joint ventures may be entrusted I strongly disagree with certain analytical views according to which the joint ventures would be in general placed in a position of organizational and economic dependence on their founding or parent enterprises (according to these views the joint ventures would, in themselves, be dependent on a wider associative or collaborative relationship between those parent enterprises).128

127 I should emphasize in the context of a general characterization of the legal category of enterprise—that I have purported to establish above at 1.4.1.1 in this chapter, especially from a commercial law perspective— that the goals associated with the pursuit of an economic activity, with economic patterns, do not necessarily correspond to a goal of achieving profit stricto sensu. In fact, it is almost self-evident that many categories or subcategories of joint ventures that may be autonomously considered under EU competition law do not present a strictly profit oriented goal. I shall examine this in more detail through my analysis of the main subcategories of joint ventures covered by article 101 TFEU (to be developed in ch 2 and, in particular, ch 3). It is sufficient for the moment to consider, eg, the paradigmatic cases of non-full function joint ventures to which the parent undertakings entrust R&D functions, of an auxiliary nature in relation to the main activities (profit-oriented) of such parent undertakings. 128 In fact, according to some doctrinal orientations, the supposed dominant configuration of the independent joint venture would be characterized by an organizational dependency of this venture on its parents and on the wider associative relationship maintained between those parent entities. Such dependency, in turn, would translate into the co-existence of two organizations—(i) the organization of the global joint coordination established between the parties through a framework agreement or central agreement and the (ii) organization exploring or managing the joint venture, stricto sensu (with this second organization subordinated to the former organization). As regards those doctrinal orientations, see Sergio Carbone and Andrea d’Angelo, Cooperazione tra Imprese e Appalto Internazionali (Joint Ventures e Consortium Agreements) (Milan, Giuffrè, 1991); Alberto Malatesta, ‘Rapporti tra Fonti Normative negli Accordi di Joint Venture con Particolare Riferimento ai Paesi Europei (già) Socialisti’ (1991) Rivista di Diritto Intenazionale Privato e Processuale 27, 925ff. Some of these authors purport to find evidence for those overall conceptions that supposedly place the joint venture as a relatively minor entity dependent on a global structure of joint coordination established between the parties that, in itself, would largely surpass the joint venture, in cases observed at the level of arbitral jurisprudence, as eg in the widely known arbitral award in the case of Sapphire International Petroleums Ltd v National Iranian Oil Company (ad hoc, 1963). This case concerned a situation of co-existence between a jointly owned corporation and a remaining coordination organizational structure not endowed with legal personality (in the context of what was designated in the contracts concluded by the parties as a ‘joint structure relationship’). Conversely, in my view, this relatively frequent co-existence—under more complex joint venture agreements—between a jointly owned corporation and a remaining coordination organizational structure not endowed with legal personality, but supported in various atypical contractual coordination committees (that may even bear some resemblance, in certain cases, with typical bodies of corporations) does not mean that the joint venture corresponds to a secondary element in an overall and wider coordination structure. The category of the joint venture, in the cases in which it assumes more complexity, encompasses in my view all the coordination structures put in place by the parties (and congregating multiple contractual elements).

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My conception of joint venture is an entirely different one. In my view, the category of joint venture encompasses not only an organizational core of the cooperation process— frequently, albeit not necessarily, through a corporate vehicle jointly controlled by the founding enterprises (as mentioned above)—but a mix of contractual relationship of cooperation between those enterprises, that may be either essentially limited or connected to an organizational core or that may be built as a more complex and wider network of cooperative engagements around such an organizational core and in permanent interplay with it. Furthermore, in this analytical attempt at understanding recurrent structural modelling of contractual engagements in more intense forms of entrepreneurial cooperation that are susceptible of being characterized as joint ventures and may—as such—justify the individualization of a unitary socially recurrent type of contract (statutory atypical) some attention should also be paid to the subjective elements (in these cooperative arrangements). As regards these elements, and although joint ventures may typically involve a variable number of participating enterprises, it should be stressed that, in principle, the requirements of building a common organizational structure and of establishing institutional mechanisms for its functioning and to ensure its effective functional operation for the development of an economic activity, are not easily met by a significant number of participants. It is, therefore, to be expected that the structural modelling of contractual engagements of cooperation leading to a joint venture will typically involve a limited number of participating enterprises (cooperative links and processes reuniting a wider number of participating enterprises tend to correspond to an area of collaboration between enterprises of a somewhat different nature that, while bearing in some situations some resemblance to joint ventures, are situated outside the basic and reference structural plan of joint ventures contracts).129 In the field of competition law enforcement—which will be dealt with below at section 3 in this chapter, and chapters two and three, at the very core of my analysis— some competition authorities, when they try to attenuate possible effects of distortion of competition predictably arising from certain joint ventures operating in a given market context, obtain commitments form the participating enterprises in order to expand the number of enterprises involved in the joint entrepreneurial project;130 and, in fact, I

129 I refer here to the basic and reference structural plan that regularly tends to be produced (in spite of various formal dissimilarities) in the building of systems of contracts leading to the establishment of joint ventures. That does not prevent certain joint ventures in some cases involving a somewhat larger number of participating enterprises. Furthermore, as I shall ascertain below (esp ch 3), at the level of application of EU competition rules to joint entities which on account of the high number of participating enterprises may not be defined as joint ventures, these entities may, in any case, raise potential issues of distortion of competition very similar to the ones specifically associated with the competition law category of the joint venture (see esp at 4.4.3.6 of ch 3, in which I refer to situations concerning collective entities that manage payment cards systems). 130 See on this Brodley, ‘Joint Ventures and Antitrust Policy’ (n 8) esp 1544. In fact, at antitrust level, Brodley and other authors, echoing solutions adopted by various antitrust authorities, admit that potential effects of restriction of competition inherent to certain joint ventures with a certain mix of participating enterprises may be attenuated or even prevented in a satisfactory manner through the enlargement of the number of participating enterprises. I merely acknowledge that beyond a certain critical threshold—which may vary from case to case depending on each situation—an especially high number of participating enterprises tends to disqualify the relationships kept between those entities as ties integrated in a joint venture, since the qualitative nature of the ties of joint control underlying by definition those joint venture relations is somehow diluted in those cases.

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believe that, beyond a certain threshold of involvement of a significant wider number of participating enterprises, the structure of cooperation may no longer be characterized as an actual joint venture (with all the requirements of institutional organization that should be regarded as intrinsic features of this category and influencing, as such, a recurrent structural modelling of the various contractual engagements at stake to establish and operate a joint venture). 1.4.3.2(A) The Core of the Contractual Regime of Joint Ventures—Central Aspects for the Establishment and Functioning of a Joint Venture As I have purported to discern recurrent features of structural modelling of contractual engagements in a collaborative arrangement susceptible of being characterized as a joint venture—translated into a recurrent structural plan (Bauplan) of the joint venture—I have verified that it normally presents at its core a stable organization (frequently, albeit not necessarily, corresponding to a corporate vehicle) which centralizes and coordinates the entrepreneurial activities jointly developed by two or more founding enterprises. According to a more formal perspective—the same one that leads to doctrinal distinctions between external unions of contracts and internal unions of contracts—such an organizational core may be supported by a single agreement entered into between the parties or may itself be based on a set of interconnected agreements, that are frequently regulated by a comprehensive framework agreement. It is therefore important to perceive—through a critical analysis of business practice in this field—the key aspects of contractual discipline that will typically be part of that functional core of the joint venture, providing a basis of minimum requirements for the functioning of the joint venture131 (and on the basis of which a whole range of variable complementary contractual engagements may be established, under very different configurations, in accordance with each comprehensive of entrepreneurial cooperation underlying each venture). Undoubtedly one of the key aspects at stake will involve contractual provisions that set and circumscribe the substantive object of the entrepreneurial cooperation that is to be developed by the parties and which, in that process, establish the chief goals of the joint project. That will imply the definition or characterization of the entrepreneurial activities that are to be pursued by the joint venture as regards certain goods or services or partial

131 The sources for that critical analysis relying on the actual business practice of cooperation through joint ventures are multiple. For that purpose, we can rely on information arising (i) from enforcement practice of competition authorities (largely relevant as I have been emphasizing to perceive in general the various possible configurations of joint ventures); (ii) from arbitration procedures involving larger groups of undertakings (see in general on that potential relevance of arbitration in this domain, eg, Alan Redfern, The Law and Practice of International Commercial Arbitration (London, Thomson, Sweet & Maxwell, 2004); as a useful source of multiple relevant arbitration precedents, see Emmanuel Gaillard, La Jurisprudence du CIRDI—Centre International pour le Règlement des Différends Relatifs aux Investissements (Paris, Editions, Pedone, 2004); and (iii) from various analytical contributions which purport to identify recurrent and somewhat paradigmatic precedents on the basis of a close observation and analysis of business practice (see, as representative of those contributions providing relevant paradigmatic examples, strongly anchored in the business reality, Richard Christou, Drafting Commercial Agreements (London, Sweet and Maxwell, 2004), William F Fox, Jr International Commercial Agreements—A Primer on Drafting, Negotiating and Resolving Disputes, 4th edn (Austin, Wolters Kluwer, 2009); Ronald Charles Wold, A Guide to International Joint Ventures: With Sample Clauses, 3rd edn (The Hague, London, Boston, Kluwer Law International, 1995)).

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aspects of its production or commercialization and the geographic scope of such activities as well (in other words, what is at stake is the definition of the business mission of the joint venture). On the basis of such delineation of the object of the joint entrepreneurial project, the level to which entrepreneurial integration between the parties is taken through the joint venture should be made clear. Typically, two fundamental levels of integration may be considered here. One of those levels corresponds to positions of relative autonomy of the joint venture vis a vis the parent enterprises, due to the fact that the joint venture is entrusted with the pursuit of all the functions required for a complete cycle of production and commercialization of certain goods or services (although even in those cases the degree of autonomy of the joint venture vis a vis parent enterprises may vary widely). At another fundamentally distinct level, the joint venture is conceived and established only for the purposes of pursuing a part of the economic functions normally associated with a complete cycle of production and commercialization of certain goods or services, thereby playing a fundamentally instrumental role vis a vis the productive and commercialization cycle performed by the parent enterprises. The instrumental functions to be performed by joint ventures in these cases may concern either the area of production (or even limited functions that contribute to it, eg, pure research activities that may lead to an upgrade of the productive process) or the area of commercialization.132 As I shall observe in more detail below at section 4 of this chapter, this delineation of qualitatively different objects of the cooperation programs of various joint ventures in the context of a general characterization of the typical structural plan (Bauplan) of joint ventures finds somehow its correspondence in conceptual categories and subcategories of joint ventures delineated under EU competition law. I refer here, in particular, to the distinction between full function joint ventures (assimilated to concentrations under EU competition rules) and to partial function joint ventures (treated as cooperation agreements on the basis of article 101 TFEU under EU competition law).133 Furthermore, as regards this part of the core contractual discipline of joint ventures, concerning the precise delimitation of the object of the joint entrepreneurial activity to be carried out by the parties—which assumes fundamental importance to discern the relative stand and interplay of the spheres of activity pursued by the joint venture and pursued directly by the founding parties—attention should be paid to dynamic factors that influence all economic activity (and that the parties may want to see reflected in the way their cooperative arrangements are structured). In fact, the initial precise delimitation of the object of economic activity to be pursued by the joint venture is not incompatible with contractual provisions with a prospective content, determining, for example, the adaptation of an original object in the face of new circumstances or economic conditions that may be anticipated by the parties or containing engagements concerning the mandatory renegotiation of several specified issues, provided certain circumstances occur (again, competition law scrutiny of joint ventures provides us with a vantage point that allows us to identify such types of situations, involving a dynamic

132 On the various instrumental functions to be performed by joint ventures, I will describe and critically analyse these below in ch 3 in the context of my in-depth competition law analysis of the main functional subcategories of joint ventures covered by the article 101 TFEU regime. 133 This distinction, which has already been noted in the Introduction, will be developed in section 4 of this chapter and examined again throughout chs 2 and 3.

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contractual structure that makes room to adjustments or qualitative transformations of the object of cooperation in the framework of the same joint venture).134 Another of the key aspects involved at the core contractual discipline of joint ventures involves the definition of specific rights and obligations of the founding parties aimed at the actual fulfilment of the object established for the joint entrepreneurial programme of cooperation. Chief among those aspects are the provisions concerning the contributions of each parent enterprise for the establishment and functioning of a certain joint venture.135 As mentioned above, the establishment of an organizational structure (implying or not an autonomous legal person) for pursuing a permanent process of cooperation oriented towards certain projects under a global contractual framework of joint venture normally involves the establishment of permanent links of the parent enterprises to the joint venture. Those links, in turn, tend to take the form of a potential continuous availability of those parent undertakings to provide new contributions to the joint venture in later stages of its functioning (a type of availability that is qualitatively diverse, as I have already emphasized, from the one that occurs in the corporation contract in the context of which the participating entities, after initially contributing with assets or cash to the corporation, tend to separate more rigorously their patrimonial sphere and their sphere of activities from the ones pertaining to the corporation). Naturally, the contractual framework for these contributions of the parent enterprises to the joint venture will largely depend on the particular legal configuration of the permanent organizational structures that somehow centralize the activity of the joint venture (although more complex joint ventures may involve several and interconnected organizational structures, eg in the form of more than one, interconnected, corporations or contractual committees). Accordingly, as regards an appreciable part of joint ventures based on corporate vehicles, the contributions of the parent enterprises will involve providing funds to the joint venture, either in the form of share capital or debt finance or a combination of the two.136 However, considering the typical features of a joint venture it is also common in many situations that, beside establishing a certain share capital (as is the case with a mere corporation dissociated from a wider entrepreneurial project in connection with a joint venture), the parent enterprises agree other contractual provisions establishing the way future finance for the

134 I shall come back to such examples below in ch 3. See, in any case, the Commission’s decision in Asahi/ Saint Gobain [1994] OJ L354/87. In this case, the contractual programme agreed between the parties clearly contemplated two phases of cooperation that would occur successively—the first concerning an R&D project and the creation of a pilot–industrial unit with no commercial goals and the second phase corresponding to the establishment of a second pilot–industrial unit already geared to the production of contractual goods (envisaged by the joint venture agreement) and its respective commercialization. The agreements concluded between the parties contemplated the possibility of a renegotiation of the initial undertakings with the purpose of allowing each of the parties to move forward separately to build the second industrial unit outside the reach of the joint project even if the first was on the whole maintained. 135 Other aspects of this area of specific rights and obligations of the parties besides provisions that specifically regulate the contributions of each parent enterprise will be referred to in the context of my competition law analysis of joint ventures, below ch 3 but see, on typical clauses of joint venture contracts (or complex systems of contracts) concerning both the organization and coordination of inputs of the parent undertakings to the joint ventures and the organization and coordination of outputs of the joint ventures to which parent undertakings are entitled, Christou, Drafting Commercial Agreements (n 131) ch 12 on joint ventures and the various precedents described there. 136 See on this point Herzfeld and Wilson, Joint Ventures (n 51) esp 47ff and 61ff.

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joint venture will be raised (either by new equity to be directly provided by the parent enterprises, within certain pre-established limits or through borrowing) or establishing the particular conditions under which new finance is to be provided in the future as well (taking into consideration certain developments of the joint venture project or certain calls by its management team). Beside strictly financial contributions—which are an essential starting point for example in corporate joint ventures—the parent undertakings may agree other contractual provisions establishing the transfer of other types of resources from the parents to the joint venture. In turn, that may involve, depending on the particular situation, agreements or clauses concerning share sales, for example, in case the project is based on a pre-existing corporation or business transfer agreements, implying the transfer to a given organization jointly controlled by the parties of certain groups of assets and rights137 (those parent contributions may also involve, inter alia, the provision of certain, specified services by the parent enterprises, the right to use, under different legal titles and conditions, certain premises owned by the parent enterprises, or even the granting of certain industrial property rights). In fact, authors like Herzfeld and Wilson go as far as submitting, with a large degree of probability, that most joint ventures depend, on a continuous basis, on regular contributions of the parent enterprises, that may be regulated by a ‘series of contracts to be entered into between one or more of the participants and the joint venture … in such a way that they cannot be altered without the consent of the joint venturers’138 (in turn, the core joint venture arrangements, as a central part of the comprehensive contractual plan of the joint venture, should delineate and recite the set of agreements concerning the provision of those contributions of the parent enterprises to the joint venture). From the vantage point of competition law scrutiny of joint ventures (especially under EU competition law), I consider the assumptions of Herzfeld and Wilson to be highly debatable. Quite on the contrary, I submit that an appreciable part of joint ventures are established as autonomous and full function entities (disciplined as a subcategory of concentration operations under EU competition law) and do not depend for their regular functioning on continuous contributions by the parent enterprises139 (which does not exclude, even in those cases, the relevance of certain new contributions of those parent undertakings to autonomous joint ventures originally put together with all the necessary resources for the entrepreneurial project which has been assigned to them).

137 See, again, on those alternatives in light of known business practice, Christou, Drafting Commercial Agreements (n 131), and the precedents this author identifies in connection with joint ventures. Situations may differ widely, extending from the isolated transfer of specific assets to the joint organization to the transfer of whole complexes or groups of assets or rights, including industrial or commercial facilities, rights and contracts, eg, employment contracts or IP rights, which correspond to actual business units, even if deprived of legal personality (eg, the kind of unit designated in Italian law, as noted above, as ‘azienda’). 138 See Herzfeld and Wilson, Joint Ventures (n 28) 63ff. As noted above, I seriously question, in light of the experience acquired in the context of EU competition law scrutiny of joint ventures, whether it may be maintained, as Herzfeld and Wilson do, that the majority of joint ventures depend on regular contributions of the parent enterprises. Conversely, this view does not negate the fact that such clauses or engagements, regulating regular or subsequent contributions of the parent enterprises after the establishment of joint ventures, are relatively frequent in the contractual structuring of joint ventures. 139 See above at 1.1–1.3 and below section 4 of this chapter, on full function joint ventures, scrutinized under the MCR.

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The core contractual discipline of joint venture arrangements involving the definition of specific rights and obligations of the founding parties will also normally include the distribution of profits and other funds or economic output generated by the joint venture’s activities. Again the aspects to be regulated in this field may be diverse and may include, besides the distribution of profits (stricto sensu), the transfer to the legal sphere of each parent enterprise of other types of economic results generated by joint ventures, which, in many cases, are not profit oriented (that will happen, eg, with the transfer to the benefit of the parent enterprises of a certain periodic output of research and development activities pursued by joint ventures). Once more, EU competition law scrutiny of joint ventures provides good examples of rather complex contractual arrangements of this kind, aimed at the sharing of economic output generated by joint ventures. Among other cases,140 we can take as examples the situations dealt with in the European Commission cases of BBC/Brown Boveri or Beecham/ Parke Davis, that concerned respectively contractual provisions with the purpose of reciprocal granting of exclusive licences to the parent enterprises to explore, at a later stage, the results of the research and development project conducted by the joint venture or obligations by one of the parties of granting to the other subsequent licences in order to introduce product upgrades arising from the joint research and development project.141 Other key aspects of the core contractual discipline of joint ventures and that tend, as such, to conform a certain typical structural plan (Bauplan) of joint ventures include the direct discipline of the procedures used to coordinate certain activities of the parent enterprises, namely through the establishment of contractual provisions, of a general content, that directly address the issues pertaining to the basic legal framework of the permanent organization that the parties will institute in order to support joint venture activities. On the whole, this involves contractual engagements geared towards a fundamental planning and implementation of a limited process of integration between the parent undertakings (which in multiple cases are compatible with the preservation, to a large extent, of the diverse business cultures of those parents given the inherent flexibility of the joint venture and the fact that it does not involve full integration). As regards the frequent cases in which joint ventures are predominantly based on the establishment of one or more corporations under joint control of the parent enterprises, the contractual discipline will comprise general rules about the project of establishing such corporations, on the relative dimension of the shareholdings of each founding or parent enterprises in the same corporations and on the way those shareholdings will be materialized by each partner. That contractual discipline tends to be included in a preliminary agreement between the parent enterprises leading to the establishment of a joint venture based on one or more corporate vehicles (corporate joint venture). Often, also, the relevant contractual

140 I shall not cite here all the relevant case law, since the various types of functional cooperation through joint ventures—especially research and development joint ventures, production joint ventures or commercialization joint ventures—will be extensively covered in ch 3, but note here BBC/Brown Boveri [1998] OJ L301/68 and Beecham/Parke Davis [1979] OJ L70/11. 141 There are multiple cases of joint ventures whose core contractual discipline includes engagements— of a more or less complex nature depending on the various cases at issue—on the sharing of results of research and development activities developed through joint ventures. In addition to BBC/Brown Boveri and Beecham/Parke Davis, ibid, I may refer here, for a good illustration of the ways of disciplining the sharing of non-strictly financial outputs of joint ventures—eg, ways of allocating to the parties the production of certain elements of goods or services—to the Ford/Volkswagen Commission decision [1993] JOCE L20/14, which will be analysed in ch 3, in my examination of the functional subcategory of production joint ventures.

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engagements for the establishment and functioning of the joint venture are not limited to the actual establishment of the jointly owned corporation at stake and to the corresponding corporation contract, but will imply maintaining a general framework agreement side by side with the corporation contract (ruling the multiple relationships and ties between the parent undertakings under a broader perspective). Also, the comprehensive contract system put in place for the working of such corporate joint ventures may include, observing the limits prescribed by each relevant legal system, shareholding agreements between the parent undertakings that share control in a given corporation (corresponding to the central pillar of a corporate joint venture).142 Regardless of the use or not of a corporate form, these types of rules concerning the planning and implementation of a given integration plan may also involve a phased approach to develop a joint organization, for example, providing, in the course of a first stage of the process, for the establishment, under certain conditions, of teams set up by the participating entities to achieve the combination of businesses or business elements that will be shared by the parties.143

142 In fact, the ways of structuring of the contractual rules applicable to the relationships between the parties of joint ventures that have at its core some form of corporation—beside the rules immediately arising from the corporation contract or by-laws of the corporation at stake—may vary considerably depending on the limits of legal admissibility of shareholder agreements to be concluded between the parties. Within Romanistic-Germanic systems, Italian doctrine—see, inter alia, Giuseppe Santoni, Patti Parasociali (Napoli, 1985; Giorgio Oppo, ‘Le Convenzioni Parasociali tra Diritto delle Obbligazioni e Diritto delle Società’ (1987) Riv Dir Civ 517ff, and, corresponding in fact to his landmark contribution in this area, Contratti Parasociali (Milan, F Vallardi, 1942); Luigi Farenga, I Contratti Parasociali, (Milan, xxx, 1987)—largely focused on these types of agreements, includes approaches which distinguish between ‘collateral’ and ‘complementary’ shareholder agreements (in that sense see, in particular, Santoni, Patti Parasociali, above). The former concern predominantly acts of disposition of rights that arise for shareholders from the constitutive acts of the corporation; the latter concern predominantly the establishment of particular undertakings or commitments vis a vis the other shareholders or the corporation itself (although not arising directly from the corporation contract). Any of these modalities may be employed in the global contractual structuring of a joint venture to be established on the basis of a core corporate vehicle, beside other modalities of shareholder agreements not covered by this classification proposed by Santoni. In fact, I believe it is precisely in this area of contractual structuring of corporate joint ventures, that a paradigmatic area of development of the contractual type of shareholder agreements (Convenzioni Parasociali)—admitted as such in multiple legal systems—has flourished. At the level of comparative law, legal doctrine—especially German doctrine—has identified in special terms a modality of coordination shareholder agreements (‘Konsortialverträge’ or ‘Stimmenpoolverträge’), through which two or more shareholders coordinate in a stable manner the exercise of their voting powers within a certain corporate enterprise. These agreements are, in my view, particularly related to the contractual building and functioning of joint ventures (on this kind of connection, see, eg, Mestmäcker, Blaise and Donaldson, Gemeinschaftsunternehmen (Joint Venture/Filiale Commune) im Konzern und Kartellrecht (Frankfurt, Metzner, 1979). Also in common law systems, the special connection between certain kinds of shareholders’ agreements and the building of corporate joint ventures has been highly emphasized (see, on that, Graham Stedman and Janet Jones, Shareholders’ Agreements (London, Sweet & Maxwell, 1998) esp 210ff and Thomas Joyce, ‘Shareholders Agreements: A US Perspective’ in Sindicati di Voto e Sindicati di Bloco (Milan, Org., Franco Bonelli, Pier Giusto Jaeger, 1993) 353ff). The category of the shareholder agreement, within the limits imposed on it in the various legal systems—and bearing in mind certain peculiarities of this type of contract in those systems, since, eg, under German law this kind of contract may be taken as a constitutive contract of a civil law society—may present considerable flexibility. Such flexibility is especially appropriate to encompass the multiple dimensions of contractual discipline of a corporate joint venture, that go widely beyond the ones arising from the corporation contract itself (namely, aspects of non-financial contributions of the parent enterprises, rules on various commercial relationships between the joint venture and the parent enterprises, in terms that, on the whole, may lead to situations in which shareholders’ agreements establish or list sets of complementary agreements between the parties, ruling on various aspects of their relationships, eg, supply of certain goods by the joint venture on behalf of parents, or transfer of IP rights from the joint venture to the parents or others). 143 See on the contractual discipline providing for that type of approach, Christou, Drafting Commercial Agreements (n 131), and the precedents this author identifies in connection with joint ventures.

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Conversely, in the cases in which the permanent organization established for the functioning of a joint venture has a mere contractual basis, and does not involve a jointly controlled corporation, the core of the contractual rule-making between the parties will have to do with formal proceedings of an institutional nature (corresponding to the axis of coordination of their joint activities). Those formal and institutional proceedings may be based on certain pre-established types of contracts admitted in particular legal systems for purposes of organization of entrepreneurial activities (eg, the consortium, or others, such as the associazione in partecipazione or association in participation under RomanisticGermanic systems). Alternatively, they may be based on absolutely atypical institutional procedures (not pertaining to pre-established types of contracts), involving in numerous cases the establishment of joint committees formed by representatives, at various levels, of the parent undertakings, entrusted with decision power in a set of pre-established topics or performing a certain role of operational coordination in given areas of joint activity.144 In any case, either the permanent organization established for the functioning of a joint venture has a corporate basis or a mere contractual basis, or in this second case, either such organization is based on certain pre-established types of contracts or on entirely atypical contractual engagements. This core group of contractual rules will always involve—in multiple legal formats—a framework for decision-making processes by the entities participating in joint ventures. Finally, other key aspects of the core contractual discipline of joint ventures will often relate to the establishment of rules addressing potential conflicts or differing views between the parties in a joint venture (rules that should be closely connected with the contractual discipline of the institutional mechanisms in which the permanent organization of a joint venture is founded, discussed above). Particularly as regards transnational joint ventures, or joint ventures connected with foreign direct investment operations, it may be important to include in the basic understandings between the parties a set of rules for the purposes of determining the law applicable to the functioning of the joint venture or to certain specific aspects of its activity. Furthermore, this body of rules on potential conflicts and differing views—regardless of the institutional level of the permanent legal organization established between the parties (one or more corporations or other non-corporate forms of organization)—may include rules addressing in particular potential deadlock situations that may occur as regards matters essential for the proper functioning of the joint venture or as regards the existence of the joint venture as a whole.145 Such rules may also include those concerning

144 A good example of this kind of entirely atypical procedure for establishing an organizational core of a noncorporate nature may be found in Alitalia/KLM (cited earlier), concerning enforcement of EU competition law. Luiz O Baptista and Pascal Durand-Barthez refer in this context to the establishment of ‘organes ad hoc’ (ad hoc bodies) that may be the object of widely varying legal qualifications, such as direction committees, coordination committees, steering committees, executive committees, or others, whose rules of organization and functioning may be very limited or widely developed through a very detailed discipline (see Baptista and Durand-Barthez, Les Associations d’Entreprises (Joint Ventures) dans le Commerce International (n 89) 74ff). 145 On the possible framework of potential deadlock situations concerning key matters for the functioning of a corporate joint venture, bearing in mind that this contractual framework may involve an appreciably developed contractual discipline of various instruments of the joint venture or mere ad hoc dispositions, as, eg, atypical forms of resolution of deadlock situations, arbitration mechanisms, contractual penalties, the establishment of the so called balancing votes through an additional director unconnected with the parent enterprises, or even specific clauses on termination of the contract or on buy and sell options, see Giuseppe Dano, ‘Tecniche di Soluzione

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the termination and break up of joint ventures or even, particularly in corporate joint ventures, rules concerning the protection of rights of minority shareholders and participants (in certain given situations in which the position of the participating entities in the joint project is to some extent uneven, but which allow for the compensation of such unequal positions through various elements of protection of the minority part in terms that ultimately imply joint control of the organization at stake).146 1.4.3.2(B) The Core of the Contractual Regime of Joint Ventures and Complementary Contractual Engagements Beside a core of nuclear elements of paramount importance for the establishment and functioning of any given joint venture, and forming (i) a general legal status of the entrepreneurial association between the two parent undertakings at stake, other (ii) complementary contractual engagements may be established between the parties (thus originating a more complex ‘system of contract’147 that is bound to reflect a further deepening of the organized and stable structure of cooperation between the aforementioned parent undertakings). Those complementary contractual engagements may come to represent, either (a) further developments of the basic organization for entrepreneurial cooperation established between the parties, or (b) the development of supplementary dimensions of cooperation that go beyond the basic and general legal status of the entrepreneurial association between the two parent undertakings. In formal terms, this deepening of the system of contractual ties that comprehensively sustain the joint venture may involve not only interconnected agreements between the parent undertakings themselves, but also agreements between some of those parent undertakings and the legal vehicles established to support the common organization (namely as regards jointly controlled corporations at the centre of this cooperation process). As regards the first category of situations ((a) above), particular attention should be paid to complementary engagements which translate into a further deepening of the common

del “Deadlock”: La Disciplina Contrattuale del Disacordo tra Soci nelle Joint Ventures Paritarie’ (1988) D Comm Int 151ff; Stedman and Jones, Shareholders’ Agreements (n 142) 242ff. The option for more or less developed or sophisticated contractual provisions to deal with potential deadlock situations may largely depend on the wider context and even external constraints influencing the operation of a given joint venture. For instance, in a simpler joint venture established to develop a single entrepreneurial project within a certain limited timeframe (eg for jointly building a certain infra-structure by a given deadline), it is conceivable not to establish explicit contractual provisions for handling deadlock situations, assuming that normally neither party will be interest in initiating a deadlock situation. Conversely, in other cases, external constraints may require very elaborate forms of dealing with deadlock situations. This occurs in paradigmatic terms, eg in the case of complex joint ventures in the financial sector between financial institutions, on which Financial Supervisory Authorities may require the establishment of highly developed mechanisms to deal with deadlock situations between the venturers, that would have serious consequences in terms of prudential control, leading in certain cases to the impossibility of adopting financing measures or other measures required for financial supervisory reasons with an impact on the financial system as a whole. 146 See, on the importance of those rules concerning the protection of rights of minority shareholders and participants, Christou, Drafting Commercial Agreements (n 131) and the precedents this author identifies in connection with joint ventures. 147 I refer here to more complex forms of structuring of groups of contractual relationships that globally embody certain joint ventures, bearing in mind the characterization put forward by Claude Reymond—and that I endorse—of joint ventures as a system of contracts (see Reymond, ‘Reflexions sur la Nature Juridique du Contrat de “Joint Venture”’Journal des Tribunaux, Lausanne, (1975), 2ff and ‘Le Contrat de “Joint Venture”’ (n 78) 383ff).

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organization that may have been put in place (especially in the case of a newly established corporation under common control). Although not an exhaustive list, there may be at stake here engagements concerning the governing and audit bodies of the jointly owned corporation, engagements establishing joint decision processes in certain key areas for the functioning of that corporation or even rules determining a possible exit route for any of the participants in the joint venture (determining possible conditions of sale of shareholdings to third parties or other alternative solutions). As regards the second category of situations ((b) above), particular relevance may be attached to, for example, agreements entered into between jointly owned corporations and one or some of its parent undertakings (especially in the numerous cases in which the autonomy of the joint venture is limited vis a vis the parent undertakings and the former depends largely on permanent or regular inputs provided by the latter ones). I consider here, for instance, agreements concerning the licensing of industrial or intellectual property rights to the joint venture or agreements for the provisions of particular goods or services to the joint venture (which may also come to represent an indirect way of financing joint venture activities, in case those goods or services are provided under particularly favourable financial terms). Also at stake may be agreements concerning the commercialization in certain geographic markets of goods or services produced by the joint venture.148 Anticipating here aspects of the competition law categorization of joint ventures (to be developed below at section 4 in this chapter), it is important to acknowledge from the start that these types of complementary contractual engagements, concerning the provision of some fundamental inputs to the joint venture activities by the parent undertakings, are not incompatible with a high degree of functional autonomy of the joint venture (that may justify its characterization, for EU competition law purposes, as a full function joint venture, to be submitted to the EU merger control rules). As observed, for example, in the Commission decision, Elf Attochem/Shell Chimie, stable contractual commitments by the parent undertakings to provide the larger part of the joint venture requirements in terms of raw material do not necessarily preclude the finding of a large degree of autonomy of the joint venture and, accordingly, its qualification as a full function joint venture.149

148 It may be thought prima facie that the normal kind of complementary relationships between joint ventures and their respective parent undertakings would correspond to the opposite situations (comparatively to the ones mentioned above), in which these venturers would use joint ventures they control to ensure the commercialization of their own products (something that frequently happens, in fact, through joint ventures with auxiliary functions in connection with parent undertakings, that one may identify, in the context of competition law assessment of partial-function joint ventures covered by article 101 TFEU, as a functional subcategory of commercialization joint ventures). However, it is not inconceivable or even exceptional that some full function joint ventures, fulfilling all the functions of an autonomous economic entity—including the commercialization of goods through a direct relationship or channel with a certain market of final goods or services—may, in view of periodic increases in their own activity and depending on certain evolutions of the markets, have contractually ensured the recourse to certain sets of relationships with the parent undertakings so that these latter ones provide for the commercialization of the joint venture’s products in certain geographic markets in which these parent entities hold a more significant position. Furthermore, at a different level, while also corresponding to supplementary dimensions of contractual discipline, the ‘system of contract’ in which a given joint venture is founded, may also encompass confidentiality agreements or agreements concerning certain limitations on the circulation of information between parent undertakings and between these undertakings and their respective joint ventures arising from commitments assumed with competition authorities in order to attenuate or prevent potential effects of restriction of competition hypothetically associated with those joint ventures. 149 See Commission decision Elf Attochem/Shell Chimie 1994, Case IV/M475.

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On the other hand, it also has to be acknowledged that beyond a certain level of complexity of the system of multiple agreements and complementary contractual engagements— aimed at the stable cooperation between two or more parent undertakings—a level may have been reached that implies the establishment of not only one joint venture but of what John Temple Lang has described as multiple joint ventures. These may involve a series of joint ventures between the same two (or more) parent undertakings or networks of joint ventures connecting different parent undertakings (through various entrepreneurial projects which are somehow interconnected).150 In practice, it may not be easy in certain cases to distinguish between one particularly complex joint venture, involving a central framework agreement and several satellite (interconnected) agreements and these multiple joint ventures (involving a series of different, if deeply connected and interdependent joint ventures). In the first case, as per my previous analysis, those particularly complex joint ventures tend to correspond to composite contractual structures that may be situated between the unions of contracts and the so called mixed types of contracts. However, if those systems of contract aimed at stable cooperation between a set of parent undertakings seem prima facie similar, in terms of business practice, quite different legal effects may arise from the two categories of cases at stake (particularly complex joint ventures and multiple joint ventures). 1.4.3.2(C) Distinctive Elements of the Joint Venture as a Socially Recurrent Type of Contract (Statutory Atypical) The preceding analysis, focused on the four legal criteria that I have selected as crucial for determining the possible individualization of the joint venture as a (statutory atypical) socially recurrent type of contract—particularly the parameter corresponding to the structural plan of the contracts (Bauplan)—has allowed me to identify a significant number of

150 The structuring of satellite contracts and of the engagements that are part of it may assume great complexity—particularly in cases in which the joint venture has at its core the creation of a personalized central entity—which involve in certain cases various groups of contracts entered into between the joint venture and only one or some of the respective parent undertakings. In this context, the connections between a central framework agreement (or heads of agreement) and those multiple satellite agreements, with various intervening parties, may operate in multiple ways. To take a hypothetical situation—albeit one envisaged on the basis of concrete situations taken from the known business practice in this area (through competition law enforcement and the data arising from arbitration)—one may consider a situation concerning a given joint venture established by the parent undertakings A and B, in the context of which some supply and distribution agreements are concluded either involving only the joint venture and the parent undertaking A or involving only the joint venture and the parent undertaking B. And, the overall system of contractual discipline of this joint venture may contemplate that such satellite agreements, provided these are listed and contemplated in the central framework agreement, can only be changed through the consent of both parent undertakings, even if these are not directly part of some of those agreements specifically considered. The complexity of these systems of contract associated with certain more elaborate joint ventures requires a particularly demanding level of legal conceptualization in order to ascertain and delineate, in an accurate manner, each joint venture that may be at stake as a particular autonomous socially recurrent type of contract. In reality, as one may gather at the level of competition law enforcement applied to joint ventures, in certain cases we may be confronted with the creation of true networks of joint ventures. In those cases, it will be of paramount importance, in spite of the context of complex and interconnected contractual structuring of multiple engagements, to determine the boundaries of each joint venture that may be at stake, regardless of the more or less intense ties between those distinct joint ventures. On the assessment and identification of this reality of series of joint ventures between the same two (or more) parent undertakings or networks of joint ventures connecting different parent undertakings, see John Temple Lang, ‘International Joint Ventures under Community Law’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1999 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 2000) esp 409ff.

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recurrent aspects in connection with contractual ties aimed at entrepreneurial cooperation of a more intense nature (although those aspects are not always clearly perceptible given the extreme diversity of formal contractual ties that may be used in the business practice). In short, I acknowledge that a correct understanding of those four legal criteria (see 1.4.3.1(A)ff above in this chapter) and its application to the more relevant data that may be observed in the dense and extremely variable praxis of cooperation between enterprises justify a proper characterization of the joint venture as a (statutory atypical) socially recurrent type of contract.151 In this type of contract, there is an effective convergence of very diverse elements pertaining to several normative types of contracts and other atypical elements from the combination of which arises a dense system of contracts whose boundaries are in most of the cases rather imprecise (and require a particular hermeneutical effort towards a proper conceptualization of this reality). Furthermore, I should emphasize, at this stage of the analysis, that this purported characterization of the joint venture as a socially recurrent type of contract (albeit, statutory atypical) does not correspond merely to a formal issue, to be considered particularly in the theoretical context of Romanistic-Germanic systems. What is relevant is to ascertain, regardless of the existence or not of one omnibus agreement (which formally does not happen in many cases, in which the parties enter into various intertwined formal agreements), a particular global logic of the joint venture contract. This comprehensive legal logic of the joint venture contract implies a certain core of recurrent aspects of contractual discipline—as envisaged above—which are interlinked and part of a contractual dynamic that must be understood as a whole, with practical implications arising from that global interplay (in terms of reach and corollaries of multiple clauses or engagements, since formally autonomous agreements must not be viewed separately, but as part of an ongoing business relationship characterized by a relative convergence of interests of the parties that requires, in turn, an overall contractual equilibrium not compatible with giving too great a commercial advantage to one of the participants or venturers over the other). Given what has been stated above, two further dimensions of the (statutory atypical) socially recurrent type of contract of the joint venture need to be highlighted. On the one hand, a general legal dimension related to the category of enterprise (which may be construed in a broad legal sense for purposes of commercial and civil law); on the other hand, a dimension of a predominantly formal nature, comprising several legal entities, endowed or not with personality, to which certain legal rights, obligations or relevant expectations may be attributed and which embody, in various alternative forms, the enterprise that is established and the joint entrepreneurial activity carried out (through, eg, corporations,

151 As regards empirical data on the legal praxis of development of contractual relationships of cooperation between undertakings, leading in certain situations to the establishment of joint ventures, I consider that the significant case law corresponding to the merger control decisions adopted by the Commission since the adoption of the MCR in 1989 until the present, especially after the first reform (in 1997) of the MCR which involved the criteria for qualifying certain subcategories of joint ventures as concentrations—in which the issues of distinction between this latter category of concentrative joint ventures and cooperative joint ventures covered by article 101 TFEU have been an important and highly sensitive dimension of that overall enforcement practice, provides an extensive set of essential data of the alternative legal configuration of these entities and of other processes of cooperation. See on those data Gerwin Van Gerven and Stephen Kinsella (eds), EC Merger Control Reporter (The Hague, London, Boston, Kluwer Law International 1990 (and subsequent supplements (looseleaf)).

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partnerships, with the peculiar legal features these entities may have in common law systems, consortia, or others). Considering the mostly uncertain boundaries of these complex systems of contracts (to be characterized or not as joint ventures, depending on the intensity of the entrepreneurial cooperation at stake), it is useful to compare systematically those same contracts with other categories of contracts aimed at cooperation or collaboration between enterprises. Accordingly, a broader and comprehensive systemic perspective in this field should lead us to a first and basic distinction within the vast universe of contracts aimed at cooperation between enterprises. I refer here to cooperation contracts of a common goal and to collaborative contracts through which the parties exchange different inputs or elements in order to pursue different entrepreneurial agendas. In light of this dual distinction, the contractual type of the joint venture is clearly situated in the first category. However, the particular complexity and legal dexterity of the joint venture contracts tend to blur the traditional distinction between cooperation contracts of a common goal and collaborative contracts through which the parties pursue different entrepreneurial agendas. That distinction, which has been theoretically developed mostly in Romanistic-Germanic legal systems,152 is fairly clear as regards contracts that belong to the first category of cooperation contracts of a common goal, as is undoubtedly the case with the corporation contract (and regardless here of doctrinal orientations that question the contractual nature of the corporation, initiating a theoretical discussion that I shall not develop here; suffice is to add that we accept the contractual nature of the corporation).153 What particularly contributes to blur the traditional distinction at stake in the case of the joint venture is the very special functional interaction between the parent undertakings. In a very broad sense, each of the founding undertakings engages itself in the venture project

152 In fact, in those systems the assessment of the legal contours and implications of the interplay between statements of will produced by the various parties in so called contracts of a common goal has even been the object of some degree of controversy; actually, some commentators question if that type of interplay would in certain cases be compatible with the existence of a true contractual relations. These is no room to develop critically that doctrinal debate here, but in any case, I do not regard a dialectic element of counteraction of different interests of distinct parties to be an essential dimension of all structuring of contracts. On the contrary, it is my understanding that the contract, as a plurilateral form of business, encompassing statements of will of the parties aimed at the production of different categories of legal interests should, on account of the multifunctionality associated with it, encompass too realities in which those parties undertake obligations of an essentially similar content and aimed at a common interest project. See for a discussion in the German doctrine on the boundaries of the idea of contract in these kind of situations, inter alia, Tasche, ‘Vertragsverhältnis nach nichtigen Vertragschluss?’ (1943) Jherings Jahrbücher für die Dogmatik des bürgerlichen Rechts (JhJb) 90 101 and S Simitis, Die faktischen Vertragsverhältnisse als Ausdruck der gewandelten sozialen Funktion der Rechtsinstitute des Privatrechts (Frankfurt a. M., V. Klostermann,1957). 153 To a large extent, the discussion on the contractual nature (proprio sensu) of the contract of corporation arises from the general legal discussion, referred to above—about the essential character of a dialectic element of counteraction of different interests of distinct parties for the building of true contractual relations. The majority of doctrine in the French, Italian and Portuguese systems has evolved in a sense that rejects the theses that question the contractual nature of the corporation. This problem has been kept alive in the doctrinal debate especially within the German legal system, due to the distinction this system contemplates between the so called contracts of obligations and contracts of organization. Nevertheless, in spite of the peculiarities of some conceptual constructions of the corporation, within the general category of contracts of organization, the association of the category of corporation with a true contractual framework seems also to be accepted nowadays by the majority of German doctrine. See on the essential elements of that debate, Werner Flume, Allgemeiner Teil des Bürgerlichen Rechts, vol 1, t1—Die Personengesellschaft, Berlin, Springer-Verlag, 1983, 315ff; Herbert Wiedemann, Gesellschaftsrecht, vol 1 (Munich, Grundlagen, 1980) 159ff; Karsten Schmidt, Gesellschaftsrecht (Köln, Heymanns Verlag GmbH, 2002) 67ff.

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and provides a given input to it because it expects the other to provide another functional input that will be combined with the first one, according to a joint programme delineated for the purposes of developing together a certain entrepreneurial activity (the key features of which have been identified and planned together as well). However, that kind of functional counter-input (lato sensu) of each party does not translate itself in elements that are immediately or directly transferred from the legal sphere of one of the parties to the other and vice versa, through a kind of swap relationship (a ‘synalagma’), as typically happens in the category of collaborative contracts through which the parties exchange different inputs or elements in order to pursue different entrepreneurial agendas (differently, in this case of the joint venture, the aggregate functional counter-inputs provided by each party vis a vis the other are intended to sustain a joint project of a durable nature). I mean by this that joint venture contracts tend to involve some kind of interaction between cooperative elements and elements of ‘synalagma’—somehow exchanged by the parties—which, on the whole, may generate particular contractual dynamics and legal effects (without undermining a basic characterization of the joint venture as a cooperation contracts of a common goal). To a certain extent, the cooperative elements intrinsically present in that cooperation contracts of a common goal category are adapted as required by the sui generis contours of the joint venture relationship. Accordingly, if those cooperation contracts of a common goal—of which the corporation represents a good illustration—tend to be characterized by a solidarity of interests through which common advantages absolutely prevail over own advantages of each party, that idea is differently manifested in the joint venture contract. In this latter case, as clearly evidenced in the context of competition law analysis of joint ventures, the various interactions between the joint venture and the parent undertakings— especially if these operate in the same market or in neighbouring or interconnecting markets—may lead to outcomes in which those parent undertakings obtain for themselves different advantages from the joint venture activities (or from results that are to be obtained after the termination of the joint venture). This has significant repercussions that are far from being merely theoretical or reflected in the legal characterization of these contracts. It may actually explain particular contractual provisions in joint venture contracts combining the production of common advantages with particular outputs that are relevant and also determined by the entrepreneurial project of each of the parent undertakings and its specific goals (something that has to be considered in the interpretation and enforcement of these joint venture contracts, even in cases in which the complex system of contracts of a given joint venture involves a jointly controlled corporate vehicle combined with other contractual elements).154 154 These particularities abound even in corporate joint ventures, which have at their core a corporation (a contractual type in which supposedly the common nature of the interests pursued would prevail), albeit integrated in a wider and more complex system of contract, as happens, eg, with contractual provisions in joint venture agreements (and collateral agreements in connection with the corporation agreement), concerning, inter alia, (i) the use by the joint venture of IP rights owned by one of the parties in certain, limited conditions related to specific interests of each party within the joint entrepreneurial project developed (the nature of licences granted in this context may vary widely in accordance with those specific interests of each party); (ii) the secondment of employees to the joint venture, balancing sometimes contradictory interests concerning the coordination and direction of those employees or the limitation of information that may be shared between the venturers through these employees who may have access to sensitive information not to be shared within the joint venture; (iii) the transfer or letting of assets and other premises to the venture by the venturers in accordance with the requirements of the joint project but safeguarding the specific interests of each of the venturers concerned in connection

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Therefore, as suggested by Bruce Kogut, as joint ventures are often created by competitive motives between the parties or relative to other firms, the competitive conditions that motivate the creation of a joint venture may also be responsible for its termination.155 Also, I would add that in various joint ventures the starting point of a considerable convergence of common interests co-exists with a variable dialectic or tension of different interests of each party that influences, along with the lifecycle of the joint venture, the contractual relationship between the parties and the way this determines the joint activity carried out by the joint venture. 1.4.3.2(D) Distinctive Elements of the Joint Venture and Further Qualifications in the Context of Contracts of Cooperation between Undertakings Having established that the joint venture contract and the socially recurrent type of contract (statutory atypical) to which it corresponds is included within a general category of cooperation contracts of a common goal—albeit with some particular features, as discussed above—a complete understanding of the truly distinctive features of the joint venture requires an examination of additional features of this category. Following various doctrinal currents developed in multiple legal systems of Member States of the EU,156 these additional features imply the autonomous consideration of a

with those assets, or also contractual provisions (this list is far from exhaustive) that (iv) balance joint vs particular interest of the parties in the context of the special dynamic nature of the contractual relation established, providing that, in case some collateral agreements (on transfer of goods, services or assets to the joint venture) are maintained after the venturer concerned ceases to participate in the project, new conditions are established for those supply terms to ensure that the joint venture will operate on arm’s length terms after the venturer at stake abandons the projects or changes the parameters of its involvement in the project. 155 See on this Bruce Kogut, ‘A Study of the Life Cycle of Joint Ventures’ in Contractor and Lorange, Cooperative Strategies in International Business (n 30) 169ff. 156 These additional features within the general category of cooperation contracts of a common goal have been admitted or delineated in various doctrinal classification of these contracts in various legal systems of EU Member States (albeit such classifications have been more developed in Romanistic-Germanic systems). See generally Michel Dubisson, ‘Les Caractères Juridiques du Contrat de Coopération en Matière Industriale et Commerciale’ (1984) Droit et Pratique du Commerce International 297ff and MB Mercadal and MP Janin, Les Contrats de Coopération Inter-Entreprises (Paris, Éditions Juridiques Lefebvre, 1974). Specifically on the general identification of a category of contracts of economic cooperation and sub-categories associated with it, on the basis of various legal criteria, see Dubisson, Les Accords de Coopération dans le Commerce International,(n 55) 5ff and 47ff. Dubisson rightly stresses the relative scarcity of doctrinal work dedicated to the analysis and comprehensive legal understanding of this important category of contracts of economic cooperation, something that he attributes to the essentially economic component on the basis of the identification of such category and to the correlated economic dimension of those same contracts. In reality, these contracts cover typically functional contents of a highly sensitive nature to the parties, frequently of a confidential nature, which implies such content is not widely known, only seldom being the cause of disputes decided by courts (and leading more frequently to arbitration procedures that do not presuppose a wider dissemination of basic information on the content of the contracts. See also Byttebier and A Verroken, Structuring International Cooperation between Entreprises (n 106) and Simon Deakin and Jonathan Michie (eds), Contracts, Co-Operation and Competition—Studies in Economics, Management and Law (Oxford, Oxford University Press, 1997). For my part, while I acknowledge the difficulties in accessing and discussing on a systemic basis key information on these contracts and the relative importance of international arbitration for that knowledge and discussion, I regard the antitrust scrutiny of these contracts (either at the level of US antitrust law, or EU competition law or national competition laws of EU Member States) as the most important source of information on these contracts. The analytical and information gaps on these contracts of economic cooperation and on their systematic classification is also emphasized by the Economic Commission for Europe created by the Economic and Social Council of the United Nations, that has produced various guides to the drafting of international contracts (especially the drafting of international contracts of industrial cooperation (see, eg Guide for the Drafting of International Contracts of Industrial Cooperation, ECE/

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category of contracts of economic cooperation, which, in turn, may be still sub-divided in subcategories of contracts of cooperation between enterprises (inter-enterprise cooperation) and of economic cooperation in general. Along the lines of this analytical grid, joint venture agreements should clearly be included in the former subcategory. Furthermore, I consider that even the broader category of contracts of economic cooperation should be construed in fairly strict terms that allow us to separate it from other categories of contracts—identified in several legal systems of Member States of the EU—that involve alternative forms of collaboration between enterprises. As I see it, those contracts of economic cooperation, as well as involving the participation of the counterparts in a common economic project (the latitude of which will depend on the areas of entrepreneurial intervention that such counterparts keep for themselves), require a variable set of elements related to the establishment of a functional organization (able to develop some form of economic activity). As such, contracts establishing some kind of associative bond between enterprises, but dissociated from any common functional organization to be put in place by those parties, do not qualify, stricto sensu, as contracts of economic cooperation (having in its core the joint venture). This applies, for example, to the so called association contracts (‘contratti associativi), as conceived in the Italian doctrine.157 It also applies to the so called contracts of auxiliary cooperation or to contracts of economic integration between enterprises (although the combination of multiple atypical contractual elements may, once again, blur the boundaries between such categories). In the first case (association contracts—contratti associativi), I refer to contracts that provide for some kind of concerted activities between the parties determined by a common goal which is, conversely, related to the prevailing interests of one of the parties at stake. Besides that, the concerted activities are not functionally aimed at obtaining an output to be incorporated qua tale in the activities of both parties. In this category of contracts—of which agency agreements are a good illustration158—basically one of the parties exchanges an input against a proper fee or other compensation, that input being aimed at supporting the prevailing interests of one of the parties at stake. In the latter case (contracts of economic integration), and although the terminology applied to various specific cases is often imprecise, what is at stake is essentially the integration of enterprises or elements provided by those enterprises in a larger entrepreneurial

TRADE/124). At the level of EU competition law a general category of cooperation agreements between undertakings is clearly at the core of multiple Block Exemption Regulations (eg Block Exemption Regulations on R&D and Specialization Agreements, and others, in whose recitals are noted various types of cooperation of agreements in the functional areas which they cover). In any case, the legal terminology in these Block Exemption Regulations and their recitals will be carefully considered when I purport to establish a wider legal classification of contracts of economic cooperation (relevant for commercial and civil law purposes) due to the particularities of legal categories of competition law, starting with the category or concept of agreement. These Regulations and also the fundamental 2001 and 2011 Horizontal Cooperation Guidelines that deal extensively with the notion of cooperation agreements will be the object of our in-depth analysis in the context of our more developed study of competition law issues related to joint ventures, below at section 4 of this chapter and chs 2 and 3. 157 On the recurrent use in Italian doctrine of this concept of association contracts (contratto associativo), see, Francesco Messineo, Contratto Plurilaterale e Contratto Associativo, Enciclopedia del Diritto, X (Milano, Giuffrè, 1962) esp 165ff and Giovanni B Ferri, Causa e Tipo nella Teoria del Negozio Giuridico (Milano, Giuffrè, 1968) esp 386ff. 158 See on agency agreements, from a competition law perspective, but with wider corollaries, Valentine Korah and Denis O’Sullivan, Distribution Agreements under the EC Competition Rules (Oxford, Hart Publishing, 2002).

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organization controlled by another undertaking (accordingly, the element of economic integration absolutely prevails here over any elements of economic cooperation). It has to be acknowledged, however, that several authors (eg in the Italian doctrine) admit a broader definition of these contracts that may, in some cases, include the joint venture (mainly for the purposes of establishing an economic network controlled by one undertaking).159 In my opinion, those views fail to capture some of the truly distinctive features of the joint venture contract. In fact, even if in the context of its complex and hybrid nature the joint venture may involve, to a certain extent, elements of economic or entrepreneurial integration, the structural and functional plan of the system of contracts of joint ventures presupposes contributions of equal or comparable importance by each of the parent undertakings to the joint entrepreneurial program they have agreed. It also presupposes such programme is under an effective dual control by those parties (and not unilaterally controlled by one of the parties), thus generating an output that is basically shared by those parties (and is not predominantly supporting the global entrepreneurial organization of one of these parties). At a different—if interconnected—level the feasibility of developing a relationship of cooperation between undertakings which is not supported in contractual instruments, is sometimes debated. However, the reality of the joint venture, as can be seen from my analysis above, is that the nature, the level and intensity of entrepreneurial cooperation at stake—which partially intersects the realities of economic integration as well—are not compatible with merely building entrepreneurial practices not supported in contractual instruments. However atypical or hybrid these may be, as is the case with what I have been characterizing as the socially recurrent type of contract (statutory atypical) of the joint venture, the contractual framework is an indispensable basis for the establishment and functioning of joint ventures. In particular, the necessary organizational support of the joint venture may not be conceived without the convergence of statements of the parties, ruling on certain engagements and provisions, which is intrinsically characteristic of contractual ties. Conversely, the enforcement of competition rules, which offers an extensive basis for the critical analysis of joint ventures, provides us with multiple examples of forms of coordination of commercial behaviour by undertakings or even of rather loose forms of cooperation between undertakings that do not reach the decisive threshold of establishing a minimum joint functional and entrepreneurial organization—supported by the mutual consensus which is inevitably connected with the concluding of a contract between the parties—that is inherently related with the establishment of a joint venture.

159 On that wider perspective on contracts of economic integration, see Vigone, Contratti Atipici—Nuovi Strumenti Commerciali e Finanziari (n 85) 205. As noted by this author, ‘indubbiamente il contratto di Franchising rappresenta un tipo particolare di collaborazione tra distinti soggetti che bem può rientrare “lato sensu” nello schema della joint-venture’[“undoubtedly the contract of Franchising corresponds to a particular type of collaboration between different parties which may well be associated ‘lato sensu’ with the basic scheme of the joint venture”. trans]. However, it is my understanding that in these contracts of economic integration the most significant factor is, in fact, that of entrepreneurial integration, as is typically the case in situations in which certain entities—eg franchisee or concessionary—are integrated in a wider enterprise controlled by a third party. Furthermore, in the context of that economic integration, the elements of swap are also largely prevalent, translating into retribution or compensation allocated to those same entities (franchisee or others), which are not co-authors or co-promoters in the launching and leadership of a particular integrated entrepreneurial project.

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That enforcement practice in the field of competition law also offers us good illustrations of some of the key factors required to attain this threshold. For instance, in the European Commission’s decision in Gec Weir Sodium Circulators, although it was recognized that the agreement at stake did not lead to the establishment of any new entity with its own legal personality, under joint control of the parties, it was underlined, on the other hand, that the contractual dispositions made the parties in that case had ‘all the most essential characteristics of a joint venture’, in that ‘they provided for the unified joint and equal control by the parties of all their activities relating to sodium circulators [in which they had established a joint entrepreneurial programme], including planning, financing, research, development, construction and sale’.160 Also, in the European Commission’s decision in De Laval-Stork, the same or comparable engagements by the parties were taken into consideration to confirm the establishment of stable forms of joint functional organization for the pursuit of certain parts of the activity of the parent undertakings and to characterize it as implying the establishment of a joint venture (even if, as happened in Gec Weir Sodium Circulators, there was no establishment of a new entity with its own legal personality jointly controlled by the parties).161 My initial view on an indispensable basis of contractual ties between the parties arises from my conception of joint venture, diverging from certain views that, searching for a common denominator between the sometimes imprecise use of the notion of ‘joint venture’ in several legal systems, propose two different concepts (in order to encompass the different forms of cooperation between undertakings). According to such doctrinal views, a distinction should be made between, on the one hand, a broader concept of cooperation between undertakings towards common entrepreneurial projects and, on the other hand, a stricto sensu concept of joint venture162 (assuming also that the characterization initially developed in common law legal systems of the concept of joint venture could not allegedly be applied for the purposes of characterization of a general concept of joint venture, for purposes of commercial and civil law, in multiple legal systems, including Romanistic-Germanic systems). Accordingly, the reality of cooperation between undertakings towards common entrepreneurial projects—that could supposedly be applied in the context of various legal systems of EU Member States—would include the narrower notion of joint venture but would not be limited to it. Following this perspective, the joint venture as a joint entrepreneurial organization (frequently based on a corporate vehicle) would merely correspond to one of the various forms of developing cooperation between undertakings towards common entrepreneurial projects. Further, according to this view, the joint venture (stricto sensu) could merely correspond, in certain cases, to a rather secondary or subsidiary element in a more complex web of contractual engagements that, together, would embody a process of cooperation between undertakings towards common entrepreneurial projects.

160

See Gec Weir Sodium Circulators (OJ [1977] L327/26). See De Laval-Stork (OJ No L 215/11, 1977). 162 That is the position of, eg (in Portuguese doctrine) Luis de Lima Pinheiro, Joint Venture—Contrato de Empreendimento Comum em Direito Internacional Privado (Joint Venture—Contract of Joint Entrepreneurial Project in Private International Law (my own translation of the Portuguese title) (Almedina, Coimbra, 2009) esp 265ff. This type of doctrinal distinction—to which I do not subscribe—is also touched upon by, eg, Wolgang Friedmann and George Kalmanoff (eds), Joint International Business Ventures (New York and London, Columbia University Press, 1961). 161

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I do not subscribe to that concept and characterization, which clearly underplays the complex and hybrid nature of the joint venture (combining, as we have been emphasizing, elements of cooperation and integration between undertakings). My own view may be summarized as follows: In my view, as described above, the process of cooperation between undertakings towards common entrepreneurial projects corresponds to (i) a web of rather intense contractual engagements between the participating enterprises aimed at (ii) permanent or stable cooperation between such enterprises which (iii) may or may not be, complemented by the establishment of a joint organization in various institutional forms (in most cases through a jointly owned corporation), this latter one being then qualified ‘stricto sensu’ as a joint venture (the focus lying clearly with the web of contractual engagements between the founding undertakings). According to the view I am proposing, the very basis of a general concept of joint venture (that may be built for wider purposes of commercial and civil law in a context that comprises both common law and Romanistic-Germanic legal systems, while being largely influenced by the intensive use of the concept of joint venture in the field of competition law) lies in the establishment of (i) a joint organization in various institutional forms (corporation or other; personalized entity or any contractual organization that does not correspond to a legal person). That joint organization may in several cases be largely autonomous from the parent undertakings—and, as such, not supposing a permanent web of active engagements between them. It is aimed at (ii) a common entrepreneurial activity (which, functionally, may be pursued without a constant interplay between the parent undertakings) and it may be (iii) complemented with a rather variable web of contractual engagements between the founding undertakings and between such undertakings and the joint venture itself (giving rise to multiple agreements that go beyond the core agreement which sustains the initial joint organization embodying the joint venture and thus originating, in certain cases, more complex systems of contracts encompassing more elaborated forms of joint venture).163 This perspective is, therefore, fairly close to a concept of joint venture developed in a different doctrinal context—and addressing prima facie competition law issues—while I am here purporting to develop a broader concept of joint venture, relying heavily on its use in the field of competition law but moving further to a larger context of civil and commercial law. I refer here to the concept of joint venture put forward by Joseph Brodley (already mentioned at the beginning of this chapter).164 In fact, I largely subscribe to Brodley’s idea of associating the concept of joint venture to specific forms of cooperation that bring about new enterprise capability in terms of new productive capacity, new technology, new products or entry into new markets. Furthermore, as I see it, this process of creating new enterprise capability is dependent on the intermediation of an organizational structure with some degree of autonomy from the entrepreneurial organizations of each parent

163 While it will be necessary in these cases to distinguish between, on the other hand, particularly elaborated or complex forms of joint ventures and, on the other hand, multiple joint ventures or even networks of joint ventures, which I have already mentioned above, at 1.4.3.2(B) (and that I shall cover again, below at 1.4.4.1 and 1.4.4.2 in this chapter. 164 See the references, above at section 1 of this chapter, to the definition and characterization put forward by Joseph Brodley in his seminal study, ‘Joint Ventures and Antitrust Policy’ (n 8).

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undertaking (while, at the same time, I consider that Brodley’s proposed concept of joint venture for competition law purposes is too narrow).165 This latter element of joint organization, based on various inputs provided by the parent undertakings—which may take very diverse legal forms—is deeply connected with a fundamental dimension of entrepreneurial integration (albeit of a very limited nature in some cases) that is a distinctive feature of the joint venture (while combined with elements of entrepreneurial cooperation). In fact, there is an almost infinite combination of forms of cooperation between undertakings, but this large and complex field should be streamlined for analytical purposes on the basis of two overriding ideas or concepts. One of those corresponds to mere forms of coordination of competitive or commercial behaviour of undertakings (which may, however, assume rather elaborate forms). The other one corresponds to entities that may justifiably be qualified as joint ventures. Although, in between we may find very diverse forms of entrepreneurial cooperation and legal definitions used by the parties may be very imprecise,166 the key qualitative element for meeting a boundary that implies the actual existence of a joint venture establishment lies in the introduction of certain—albeit rather limited in some cases—elements of entrepreneurial integration (through the establishment of some form of joint function organization, however loose this may be). These latter situations carry with it rather distinctive features—although not always easy to perceive as such in the complex business praxis of cooperation between undertakings— and create joint ventures, which are to be understood as realities on their own. These realities are not mere secondary or accessory elements of supposedly prevailing and broader legal categories of cooperation between undertakings towards common entrepreneurial projects. Also, as such, these distinctive realities of joint ventures may not be merely sustained in various elements of factual coordination of commercial behaviour between the participating undertakings and require a complex web of contractual ties between those undertakings. A practical example may underline the differences at stake. In a given case, a group of undertakings may cooperate and enter into a cooperation agreement with the purpose of participating in a privatization process and acquiring a previously state-owned undertaking or a significant part of its assets. The cooperation agreement may be structured either towards acquiring and immediately dividing the assets at stake or towards the joint acquisition and management of those assets (in the context of a joint entrepreneurial project and of a certain functional organization to which those assets would be transferred). As I see it, only in this second case would an actual joint venture be at stake. In contrast, in the 165 See above at 2.1 of this chapter, where I put forward my own (generic) characterization of the concept of joint venture (for antitrust law purposes), that I regard as fairly close to the narrow definition proposed by Joseph Brodley, with three major differences (and where I explain those differences which lead me to consider Brodley’s definition an excessively narrow one). 166 The imprecise use of legal definitions or characterizations is not exclusive to the parties involved in cooperation processes. Regulatory authorities may incur the same problem. If we take, for instance, the area of competition law enforcement that I have been deeming a decisive one for the characterization of a general concept of joint venture (more important than international arbitration, although this field tends also to be largely relevant to empirical knowledge about joint ventures), it may be observed that in certain decisions the European Commission has, in the course of the same evaluation, either characterized certain cooperation processes between undertakings as cooperation agreements or as joint ventures (see, eg, for a representative example of that, the Commission decision of BBC/Brown Boveri (OJ [1988] L301/68).

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first case there would be a cooperation agreement, that could be fairly elaborate (in legal terms) and construed as a form of cooperation between undertakings towards common entrepreneurial projects, as per the alternative doctrinal view that I have been characterizing (and refuting). However, there would be no real joint venture with the distinctive features this implies. Under a different perspective—and considering how often in terms of business praxis, either in common law systems or Romanistic-Germanic ones, the joint organization put together for establishing a joint venture is based on a corporate vehicle—it may be questioned whether the normative type of contract of corporation as adopted in various legal systems of EU Member States is well suited in every case to the establishment of joint ventures (corporate joint ventures). Consideration should be given here to the fact that the normative type of contract of corporation may be broader in certain legal systems (for instance the traditional perspective in Germany is aimed at a very broad concept of corporation, which does not regard the element of common organization as a decisive one, while I have been considering it of paramount importance for the establishment of joint ventures).167 Besides that, in legal systems which seem to adopt narrower concepts of corporation (and of the corporation contract), requiring, for example, a profit oriented nature for these entities,168 it could be questioned whether that corporation type fits with categories of corporate joint ventures through which multiple goals are pursued in the best interest of the parent undertakings (generating various economic inputs that will basically be transferred to the parent undertakings or channelled, to a large extent, to their sphere of activities, regardless of the pursuit of any form of own profit at the level of the corporate joint venture).

167 This traditional perspective in Germany employing a very broad concept of corporation—that I have already, however briefly, touched upon—has even led to some doctrinal orientations in German doctrine that dispute the contractual nature of corporate relations (although, as I have also observed above in this chapter, the majority of German doctrine nowadays does not follow this perspective). On this broad concept of corporation under German law, see Karsten Schmidt, Gesellschaftsrecht (n 106) esp 14ff; see also Volhard and Stengel (eds), German Limited Liability Company (n 83). It should be underlined, in this regard, that in some legal systems of EU Member States a certain fluctuation of the criteria for delimitation of corporate entities sometimes occurs on the basis of ascertaining a requirement of a profit oriented goal (strict sensu) for such qualification. That happens, eg, in the context of Italian law; see, in this regard, Franco di Sabato, Manuale delle Società (Torino, UTET, 1990). 168 Legal systems of EU Member States vary in the relative intensity or relevance attributed to the profit oriented goal of entities susceptible of being qualified as true corporations, but in some cases that goal is almost universally recognized as an absolutely essential element of the contractual type of corporation, as happens, eg, with the Portuguese legal system. In other cases, eg, the Italian legal system, that requisite element does not bear the same strength or absolute relevance. There is no room here for a comparative analysis of national legal systems of EU Member States, comparing the ones with wider concepts of corporation, as is the case in German law and, to a certain extent, English law, with others that adopt narrower concepts of corporation. For that systematic comparison, see, inter alia, De Kluiver, ‘Disparities and Similarities in European and American Company Law. What about Living Apart Together’ in Wouters and Schneider (eds), Current Issues of Cross Border Establishment of Companies in the European Union (Antwerp, Maklu, 1995) 287ff; John Murray, ‘New Concepts in Corporate Law’ in Corporate Law—The European Dimension (London, Dublin, Edinburgh, Munich, Butterworths, 1991) 17ff; José Engrácia Antunes, Liability of Corporate Groups—Autonomy and Control in Parent Subsidiary Relationships in US, German and EU Law (Deventer, Kluwer Law, 1994) esp 52ff. Also relevant for an overall view in this area is the Report of High Level Group of Company Law Experts on Modern Regulatory Framework for Company Law in Europe, Brussels, 4 November 2002. Furthermore, at a different level, some doctrinal views advocate that the concept of profit may be capable of bearing multiple definitions for corporate law analysis purposes. Regardless of that, we nonetheless understand that the concept of profit in this legal context cannot be diluted through the use of excessively broad notions or classifications.

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In my view, provided the normative type of corporation involves the establishment of some kind of joint organization, there should be in general no fundamental problems of compatibility between such normative type and the establishment of a joint venture largely based in a corporation jointly controlled by the parent undertakings. That is so because in most cases, even if the joint venture is largely based on a jointly held corporation, complementary contractual engagements tend to be enacted between the parties (which may provide the proper basis for the broader goals of the joint venture in connection with the business activities of the parent undertakings). However, I acknowledge that, theoretically, in certain cases, the goals assigned to a particular corporate joint venture (essentially connected with the parents’ business interests) may not be regarded as compatible with the specific goals assigned to each corporation in some legal systems (that adopt a narrower normative concept of corporation). In those cases, the use of a corporate vehicle could somehow imply defrauding or misusing the contours and object of the normative type of corporation control. Nevertheless, I consider that such theoretical possibility will very seldom occur in terms of business practice (even when dealing with corporate joint ventures established in the context of legal systems that adopt the narrowest normative concepts of corporation).169

1.4.4 The Joint Venture Category in the Context of Cooperation between Undertakings—Comprehensive Overview 1.4.4.1 Comprehensive Systemic Perspective On the basis of the analysis above, it is possible to take a global overview of the various processes of cooperation between undertakings in the context of which the joint venture should be placed, that we have been construing here as a socially recurrent type of contract (statutory atypical, because it is not included in the catalogue of normative types of contracts in most legal systems of EU Member States). Also identifiable—given the extreme variability of the contours and entrepreneurial programmes underlying the establishment of joint ventures in terms of business praxis— are some more recurring subcategories of joint ventures (under a general legal perspective oriented towards civil and commercial law, while also bearing in mind some contributions of competition law, since the legal category of joint venture has been particularly used and developed in such body of law).170,171

169 I totally disagree, therefore, with doctrinal orientations which are prevalent in legal systems of EU Member States adopting a narrower concept of corporation, that the requirements delineated in such systems on the strict profit goal and on the common nature of the activities pursued would prevent the use of corporate structures to establish joint ventures or joint entrepreneurship projects. This issue has to be evaluated in a more flexible manner. 170 Note that throughout this chapter, I have purported to establish a general concept or category of joint venture, going beyond the boundaries of competition law. I shall return to the specific field of competition law in the remaining sections of this chapter, below at section 3 onwards. 171 As stated in the Introduction, competition law, particularly EU competition law, is at the core of this book, but it is not for that reason that I have methodologically opted to search in that body of law and withdraw from it some key elements or relevant parallels for building a general reference concept of joint venture (and of the complex system of contract this legal category normally embodies) at the level of private law (globally considered). That methodological option, regardless of the fact that it relies on the core normative area to which my analysis throughout the book is dedicated (competition law and the understanding and assessment of the category of joint ventures under this body of law), is based in the particular development of the normative treatment of the

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Accordingly, I consider that, at a first analytical level, a distinction should be made between, on the one hand, cooperation between undertakings of a less intense nature and not institutionally based and, on the other hand, cooperation through the establishment of joint ventures. In this latter area, it makes sense to consider as three possible autonomous subcategories, the single joint venture, the multilevel joint venture and the plural joint venture. 1.4.4.2(A) Different Levels of Complexity in the Establishment of Joint Ventures—General Perspective In short, I delineate the first group of situations—cooperation between undertakings of a less intense nature and not institutionally based—taking into consideration the fact that the processes of cooperation at stake do not establish any kind of new organizational structure that will embody the joint entrepreneurial project (something that I have been considering as a distinctive feature of actual joint ventures, regardless of the legal qualifications that the parties may use, which may even be influenced by competition law considerations, for instance on account of assumptions of a more lenient treatment of joint venture entities). In any case, I acknowledge that even this first level of entrepreneurial cooperation is far from having an homogeneous nature. On the contrary, very diverse situations may be encompassed by this category. In other words, this area may include very loose forms of cooperation but also fairly stable and intense forms of cooperation (that are almost on the borderline of true associative links between the participating undertakings).172 The basic feature these situations may have in common has to do with the fact that the combination of entrepreneurial activities of the parties is in principle pursued through

joint venture in competition law—arising from normative requirements and parameters which are intrinsically connected with this area of law but allowing, nonetheless, fundamental indications or corollaries to a general conceptualization of the category of joint venture under private law (at least, under the legal systems of EU Member States which have been submitted to an appreciable process of Europeanization). 172 In reality, taking into consideration once more the track record of the competition law monitoring of contractual structures of cooperation between enterprises, it should be noted that some relations of cooperation of an entirely contractual nature and not bearing a true institutional dimension of a joint organizational support, may, nonetheless reach quite intense levels of joint programming of activities coordinated between themselves on the part of the participating enterprises (that are based on a highly developed web of interconnected obligations assumed by the parties). These types of situations, containing an intense associative component, can be very close to the category of joint venture without crossing the decisive threshold of the emergence of an ‘organizational surplus value’ inherent to that category of the joint venture, in the terms put forward by Gunther Teubner; see, from this author, ‘Enterprise Corporatism: New Industrial Policy and the “Essence” of the Legal Person’ (1988) Am J Comp L 130 et seq, esp 146ff. This article discusses modalities of cooperation exclusively supported on a contractual basis—which may present flexibility advantages in certain entrepreneurial contexts—with institutionalized forms of cooperation that may come to be identified as joint ventures. As Teubner puts it, emphasizing the relative advantages of the more institutionalized forms of cooperation, ‘the drawback … is that contractual solutions cannot exhaust the organizational surplus value’ (at 154ff). In a corresponding manner, certain cooperation structures also involve highly developed associative forms or structures but, conversely, do not provide a functional organization for a jointly pursued activity, limiting themselves to ‘organizing’ or closely coordinating activities that the participating enterprises continue to pursue as their own, as happens, eg, with some associative models used for the management of payment cards systems (some of those situations correspond to ‘quasi-joint ventures’ that will be analysed below, ch 3 in connection with the subcategory of commercialization joint ventures). Also, this type of contractual structuring of cooperation relations may be developed, eg in the pursuit of research activities—and their subsequent application in a specific product—carried out in close articulation by various participating enterprises, but that do not involve a true institutionalization of a joint organization, being limited instead to the coordination of own activities of the parties aimed at the production of a certain output of common interest (situations of this kind occur frequently in the pharmaceutical sector).

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activities or transactions directly pursued by each of the participating undertakings and not intermediated by a newly established organizational structure jointly held by those parties. It is, therefore, a more flexible process of cooperation relying on a variable web of inter-connected engagements by each of the parties involved in such cooperation. As such, it is particularly suited for sporadic transactions—for example, cooperation for buying certain productive inputs to be immediately split between the parties, or agreements to jointly buy certain assets to be shared by the parties. It may also be suited to some forms of coordinated activity that involve certain types of regular inputs or activities by each of the involved parties (eg contributions that are to be coordinated between the parties in order to build an infra-structure over a limited period of time), but not a true joint entrepreneurial activity over a longer or indefinite period of time. 1.4.4.2(B) The Distinction between Single Joint Ventures, Multilevel Joint Ventures and Plural Joint Ventures Setting aside this first level of cooperation between undertakings of a less intense nature and not institutionally based, I shall focus my attention on the second level of cooperation through the establishment of joint ventures and in the three possible autonomous subcategories this may encompass. This further distinction concerning the potential universe of joint ventures is basically guided by the driving factor for considering joint ventures as a truly autonomous category (I refer, of course, to the establishment of a jointly held organizational structure, corresponding or not to a legal person, that should either coordinate or directly pursue the joint entrepreneurial activity that is envisaged through the joint venture). On the basis of that fundamental factor, I consider that a first subcategory of joint ventures—that I shall designate here as (i) single joint ventures—may be identified. In these cases I refer to joint ventures with one sole and core organizational structure (of a corporate or non-corporate nature). Also, in these situations this organizational structure tends to embody the essential part of the web of legal engagements between the participating undertakings (rendering non-essential or of secondary importance any complementary contractual engagements besides the ones through which the same organizational structure is established). I admit that this kind of single joint venture will most often be related to joint ventures functioning with a greater degree of autonomy as regards parent undertakings and involving a more intense degree of entrepreneurial integration.173 These joint ventures will be particularly suited to develop very specific entrepreneurial projects in certain niche areas. Curiously, and bearing in mind factors pertaining to competition law enforcement, the establishment of single joint ventures may arise from a combination of business goals of the parties with regulatory interventions. In fact, in certain market contexts some concerns of competition authorities as regards the possible spillover of the joint activity to be

173 Within the systematic parallels we establish with the legal development of the category of joint venture in terms of competition law, this type of situation considered above will frequently correspond to the subcategory of joint ventures that fulfil all the functions of an autonomous economic entity and that qualify for purposes of EU competition law as concentrations (being covered, therefore, by the MCR under the terms that I shall develop further below at 4.2 of this chapter).

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developed through the joint venture to the competitive relationship between the parent undertakings may lead to regulatory interventions aimed at enhancing the autonomy of the joint venture (and reducing the communication or interplay channels between the joint venture, frequently a sole corporate joint venture—and the parent undertakings, in a way which will reduce any potential influence of the joint activity at stake on the activities kept by those parent undertakings leading, eg, to their coordination and to the inherent effects of restriction of competition).174 The second subcategory that I shall designate here as (ii) multilevel joint ventures covers situations in which a stable organizational structure supporting the establishment of a joint venture is combined with an appreciable web of complementary contractual engagements of a diverse nature (including elements pertaining to certain normative types of contracts, adapted or not, to build the complex structure of the joint venture, or truly atypical contractual elements). To a certain extent, this subcategory involves a dual contractual ruling. On the one hand, there are contractual rules that apply to the establishment and functioning of the organizational structure supporting the joint venture (a corporation, a consortium, any kind of atypical joint committee, etc). On the other hand, there is a second level of contractual rules that will take the form of a series of interconnected contracts entered into between the parent undertakings or between any of those parent undertakings and the joint venture. The comprehensive structuring of such interconnected contractual engagements—leading to a complex system of contracts that globally embodies the joint venture—may have a very diverse content (involving, eg, a framework agreement complemented with multiple and fairly simple satellite agreements or, in other cases, involving various and rather dense chains of contractual engagements between the parties, giving rise to what has been called a multi-hierarchy system of contracts).175 Finally, the third subcategory that I shall designate here as (iii) plural joint ventures corresponds to situations in which the joint entrepreneurial project to be developed between the parties is supported on several organizational poles, jointly controlled by the same parent undertakings and interconnected. If the frequent cases of use of corporate vehicles for the establishment of joint ventures are to be considered here, in such situations these more complex joint ventures may lead to the establishment of a new corporate group

174 Besides other relevant examples of the situations described above, arising from interventions of the Commission in its capacity of competition authority at EU level, a particularly relevant precedent is NC/Canal+/ CDPOQ/Bank America (Case IV/M.1327), in the context of merger control, in which the Commission has accepted commitments from the parties to separate the sphere of activity of the joint venture from the parents’ activities and also ensuring that in a neighbouring geographic market to that of the joint venture, one of the parent undertakings did not behave in a way that would imply discrimination in favour of an entity controlled by the other parent undertaking. 175 See on this the characterization developed by Baptista and Durand-Barthez, Les Associations d’Entreprises (Joint Ventures) dans le Commerce International (n 89) 114ff. Within this particular configuration, it will also often be the case that the essential contractual discipline on the establishment and functioning of the organizational core of these multilevel joint ventures is integrated in a central, framework agreement, although other types of structuring of the contractual relations may be possible. In reality, I have already considered the hypothesis that in these multilevel joint ventures, based on an organizational core which is embodied in a corporation, a possible central, framework agreement may in certain cases merely contain very generic rules on that corporation, while the essential part of the rules to discipline the relations between the parties in order to create the corporation and work together within that corporation are, eg, integrated in a shareholders agreement.

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whose corporate units are under joint control of the same parent undertakings.176 The structuring of these plural joint ventures may also be very diverse. Considering, in first place, the so called corporate joint ventures, one may regard as a paradigmatic structure the establishment of a central jointly controlled corporation that will, in turn, coordinate the activities of a remaining group of other jointly controlled corporations. Alternatively, this subcategory of joint ventures may be structured through the establishment of a group of several corporations under joint control by the same parent undertakings, none of which will play a central role in the coordination of such group. A further point of clarification should be made here. This third subcategory, the plural joint ventures, should be clearly distinguished from a different reality of networks of joint ventures. In this latter case, various joint ventures, with several points of connection between them and controlled by some identical parent undertakings may affect, in various ways, the competitive relationship between the involved parties. I shall come back to the antitrust scrutiny of possible anticompetitive effects arising from such situations in chapter three,177 but it is important to bear in mind that there is a fundamental qualitative difference between plural joint ventures and networks of joint ventures. In the first case, notwithstanding the particular complexity of the structure of the joint ventures at stake, one same joint venture is to be considered. In the second case, more than one joint venture exists and these various entities interact with each other. However, given the sheer complexity and the very dynamic nature of these situations, the dividing line between those situations is not always easy to grasp.

2 The Concept of Joint Venture and the Concept of Undertaking in EU Competition Law 2.1 General Perspective 2.1.1 The Key Elements of the Concept of Undertaking in Competition Law and the Joint Venture Category 2.1.1.1 Essential Elements of the Concept of Undertaking Returning now to the attempt to build a more structured or developed notion of joint venture for the purposes of competition law analysis and enforcement, and as underlined

176 The creation of a new group of corporations in the context of a plural joint venture may even imply a more complex structuring. One may consider, eg a web of contractual relations between the parent undertakings, leading to the formation of a plural joint venture within which a new group of corporations is established, to be globally controlled by those parent undertakings but through a mixed structure in which some of the corporations of the group are directly controlled by one of the parent undertakings and other corporations of the group are controlled by the other parent undertaking (in terms of direct shareholding held in those corporations), with the corollary that the unitary configuration of the group arises predominantly from the various complementary contractual ties established between the parent undertakings. On the global complexity of some of these alternative configurations of certain groups of corporations and the widely varying degrees of transparency that these webs of crossed-shareholdings combined with global contractual engagements of the parent undertakings may assume, see Michael Adams, ‘Cross Holdings in Germany’ (1999) JITE 80ff. 177 On the formation of series of plural joint ventures or of networks of joint ventures see Temple Lang, ‘International Joint Ventures Under Community Law’ (n 150) 409ff.

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above at 1.3, that process should begin with an analysis of the concept of undertaking under EU competition law. In fact, although—as acknowledged above at 1.2 and 1.3—a crucial element of uncertainty still persists in EU competition law as regards the proper limits of the category of joint venture vis a vis a set of looser cooperation agreements, it seems clear that one of the basic elements underlying this category has to do with the creation of new enterprise capability and, concomitantly, with the establishment of a new undertaking (although this latter aspect has to be understood in rather broad terms, since, depending on the variable degree of autonomy of the joint venture, this entity may correspond to a separate economic unit or form a single economic unit with its parents or certain of its parents, thereby corresponding in these cases to new extensions of the undertakings formed by the parents).178 There is currently a wide consensus—relying on an important body of case law—that the concept of undertaking under EU competition law (and, mutatis mutandis under national competition rules of Member States deeply influenced by the EU rules) should be very broadly defined (and in terms that are quite different from the ones envisaged under other areas of law, eg, under rules of commercial law).179 As frequently considered both in the praxis of the European Commission and in a string of important rulings of the CJEU and of the GC, the concept of undertaking under EU competition rules refers to any combination of productive resources or assets that is aimed at pursuing an economic activity.180 As such, the key aspects for the establishment of an

178 This is still a sensitive aspect in EU competition law and, above all, an area still in flux, since the traditional view of the Commission until 2007 was one that essentially advocated as a corollary of joint control exercised by the parent undertakings the independence of most joint ventures (except in residual situations in which joint ventures had a clear accessory role vis a vis the parents), and, on account of that, the refusal of liability of those parents for possible infringements of competition law committed by joint ventures. This general orientation began to change with various decisions adopted by the Commission in 2007 (and onwards) contemplating the attribution of liability to parent undertakings for competition law infringements of joint ventures, thereby envisaging joint ventures, to some extent, as new extensions of the undertakings formed by the parents (as mentioned above). I shall return in this section to this crucial conceptual point. See on these hermeneutical fluctuations, Jolling de Pree and Stefan CH Molin, ‘Shareholder Liability for Joint Venture Infringements’ in 37th Annual International Antitrust Law & Policy Conference 2010 (Barry Hawk (ed), NY, Juris Publishing, 2011). 179 I refer here to commercial law in a sense that is predominantly retained under Romanistic-Germanic systems (that would correspond in a looser sense to business and corporate law under common law systems). 180 This implies a very careful consideration of the nature of the activity pursued in order to ascertain the existence of such economic activity (proprio sensu), which has to be distinguished from activities of a different nature, especially activities related to the pursuit of functions of public interest, functions of regulation or others. In this area various rulings of the CJEU have examined borderline cases of particular importance to establish that distinction, including, inter alia, Case C-364/92 Eurocontrol (1994) or the Case C-343/95, Col I-1547 Diego Cali v SEPG (1997). In the first of these rulings the CJEU emphasized the functions of air traffic control and supervision of the international organization at stake, considering that these were decisive to rule out its qualification as an undertaking for the purposes of competition law, although there were various elements of an economic nature present in the activity of such organization (manifested, eg, in the imposition of certain duties to be paid by air traffic operators). In the second ruling, the CJEU also underplayed the economic component of the activities at stake—which also took the form of payment of certain compensation by operators due to the pursuit of activities of public interest. Therefore, the apparent economic nature of the activities of those entities—on account of the economic patterns followed by it—would ultimately play a secondary role in the global characterization of it on account of the public interest nature of the activities of prevention and elimination of pollution in the port of Genoa, which corresponded to actual State functions or tasks committed, under particular conditions, to certain entities. Without prejudice to this case law, it may be questioned, to a certain extent, if the recent evolution towards the inclusion—in innovative terms—of a growing number of these activities of public interest in the category of services of general economic interest (article 106, para 2 TFEU) to be performed by private entities that combine them with other activities, will not lead to an overall review of these understandings on the nature of the activities pursued in order to ascertain the existence of a true undertaking for competition law purposes.

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undertaking correspond, in my view, to the putting together of an organized structure whose function it is to pursue any given activity (the level of development of which may be extremely variable) and to a truly economic pattern of the activity carried out.181 Conversely, legal aspects of a more formal nature are clearly of secondary importance for this competition law definition of the concept of undertaking. This may be established through much diversified forms and legal instruments, including, for example, the corporation, the partnership, the consortium or even mere individual persons pursuing an economic activity within a minimum framework of organization of certain assets or productive resources. The two key substantive elements of the concept of undertaking mentioned above are, furthermore, envisaged in a very broad manner in EU case law. The requirement concerning the actual observance of economic patterns in the pursuit of a certain activity does not involve the pursuit of profit (unlike what happens in connection with the concept of undertaking delineated in other areas of law). It suffices that an activity is generally carried on under normal patterns of economic efficiency, pursuing a relevant economic output. This understanding was confirmed, for example, in the Hofner ruling of the CJEU.182 In this case, the CJEU considered that a German public body, which ensured the professional placement of unemployed workers, although not charging fees for such services and not envisaging, in any form, profits arising from the same services, should still be construed as an undertaking for the purposes of EU competition law enforcement. The CJEU placed particular significance on the fact that the public body at stake should be regarded as pursuing a true economic activity—identifying and selecting professional placements for workers—in the context of which it enjoyed a considerable amount of autonomy in projecting and obtaining certain economic results. However, in other cases (eg in the Poucet ruling),183 the CJEU ruled out the qualification of certain entities as undertakings for the purposes of competition law enforcement even if such entities were pursuing activities of an apparently economic nature, whenever these did not have any true margin for deciding on different courses of action leading to different economic outputs. In its Albany ruling the CJEU took a step further the clarification of the aspects relevant to ascertaining a true economic pattern of the management and pursuit of certain activities in connection with the ability to adopt different economic options, which must not be confused with full economic autonomy.184 In fact, several degrees of economic dependence as regards third controlling entities are not incompatible with a minimum ability to adopt, in the daily activity, different options leading to different economic outputs which intrinsically characterizes a true economic pattern of any given activity. In this ruling the 181 I shall not dwell on these two elements of the concept of undertaking for the purposes of competition law, considering the significant body of doctrine developed in this area and on those elements (see, inter alia, Wouter Wils, ‘The Undertaking as Subject of EC Competition Law and the Imputation of Infringements to Natural or Legal Persons’ (2000) ELR 102ff; Bellamy & Child, European Community Law of Competition (Oxford, Oxford University Press, 2008) esp ch 2, Vivien Rose and Peter Roth, ‘Article 81(1)’ (at 91ff); and also considering the very important body of jurisprudence in this area, culminating in the recent CJEU ruling Case C-520/09 P Arkema c. Comissão (29 September 2011). 182 See the CJEU ruling, Case C-41/90 Höfner and Elser v Macroton GmbH (23 April 1991) (hereinafter referred as Höfner). 183 See Cases C-159 and C-160/91 Poucet (17 February 1993). 184 See Case C-67/96 Albany International BV v Stichting, Bedrijfs-pensioenfonds Textielindustrie and others (21 September 1999) (hereinafter referred to as Albany).

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CJEU held that, for the purposes of EU competition law enforcement, a sectoral pension fund which determined, according to criteria it also established by itself, the amount of contributions for the fund on the basis of the financial outcome of previous investments, did qualify as an undertaking. As regards the requirement of establishing an organized structure for the pursuit of any given activity through the combination of various productive resources, this is also construed in a very broad manner. In fact, it has been widely accepted that individual persons, pursuing in an organized manner a certain professional activity or economically benefiting from any previous act pertaining to their intellectual creation, can constitute undertakings.185 In strictly formal terms, the requirements concerning the elements necessary to support the establishment of an organizational structure functionally oriented towards the pursuit of an economic activity can be described as minimal. Legally, an autonomous structure of corporation, partnership or something else, is not required. An individual person, exploring in an organized manner a set of rights or assets gives rise to such a structure (as required for the existence of an undertaking under EU competition law). 2.1.1.2 A Third Essential Element of the Concept of Undertaking At a different level, and in addition to the two key substantive elements that I have been regarding as decisive for construing the concept of undertaking, there is a a third element to consider. This has to do with the ability to effectively determine the business conduct of any given entity when pursuing an economic activity. An undertaking, as a relevant entity to whose conduct and positioning in the market competition rules should be applied, must be, to a certain extent, an autonomous entity (that is to say, an entity able to make its own key business decisions). In accordance with that, competition rules—specifically article 101 TFEU on cooperation between different and independent undertakings—do not apply to agreements or understandings between entities that operate under a fundamentally unitary direction. Thus, according to established case law of the courts of the EU, these rules in principle do not apply, for example, to agreements between corporations that belong to the same corporate group (assuming these do not represent different undertakings but are part of the same undertaking under any form of unitary control).186 However, there is no clear consensus about the legal criteria to be taken into account in ascertaining the extent to which certain forms of coordination of business behaviour between various entities must be ruled out as agreements to be scrutinized under article 101 TFEU,187 because the entities involved are not actually different undertakings. We are talking about situations characterized by complete and actual dependence of one entity on the other (as typically happens in the context of a group of companies between the parent company and the subsidiary company that the former controls).

185 That type of characterization was admitted, eg, in a situation in which an inventor developed activities to exploit his invention, as acknowledged in the analysis developed in the Commission decision in Reuter/BASF, (26 July 1976) OJ L254/40. 186 On the legal reality of groups of corporations see the various references made above at 1.4 of this chapter. On the substantive perspective, as discussed above, of a concept of undertaking in EU competition law applied to groups of corporations, see the analysis developed by the CJEU in Case 170/83 Hydrotherm v Andreoli,(1984) esp para 11. 187 Or, for that purpose, under rules in national competition laws of the Member States that are similar to article 101 TFEU.

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Louis Vogel suggested that such dependence determining the integration of the two entities at stake in the same undertaking (for competition law purposes) should be built on two key conditions—a structural and a behavioural condition.188 On the one hand, a structural condition should be met, in the form of a given structure of legal and economic relationship from which would arise a situation of exclusive and dependency of one entity towards the other (controlling) entity. A behavioural condition would also require to be met, namely that there should be effective use of the powers of control of the controlling entity towards the other. Typically this behavioural condition is not met, as illustrated in some landmark cases, when, for example, the business behaviour of a subsidiary company, regardless of the group ties with a parent company, does not meet the guidelines laid down by the parent company.189 In my opinion, the former (structural) condition is the decisive one in ascertaining whether one entity belongs to a larger undertaking or not. The second (behavioural) condition should be understood and assessed in a more flexible way. In order to have fulfil this condition, it will not be necessary to demonstrate the absence of a continuous intervention of one theoretically controlling entity on the activity of other entity. Conversely, the behavioural condition for verifying a nexus of dependence of one entity towards the other may be met where the business practice and any agreements entered into by the former entity fit into the general commercial policy or guidelines established by the latter. Furthermore, at one point it seemed that the European case law arising from the Centrafarm ruling190 might be requiring another (supplementary) condition to disregard agreements between entities in principle included within the same enterprise group as agreements potentially covered by the prohibition rule of article 101 TFEU (such disregard, when duly confirmed, translating in principle into the integration of the entities involved in the same undertaking for purposes of competition law enforcement). Apparently, on the basis of the Centrafarm ruling any agreements between entities belonging to the same group (on the basis of several structural criteria of legal dependence) would only be out of the reach of the prohibition of article 101, paragraph 1, if those agreements addressed issues of sharing of tasks or assignments within the group. This conceptual distinction proposed by the Centrafarm ruling led to a considerable controversy in hermeneutical terms and as regards EU competition law.191 In my view, such a hypothetical distinction between, on the one hand, a sphere of action exclusively aimed at internal burden sharing between enterprises of a potentially unitary group and, on the other hand, a different sphere of action in the context of which relevant (external) effects for third parties may be produced is largely artificial (and hard to reconcile with the actual practice of business relationships between undertakings in any given market). The internal organization models, or systems, of any given group of enterprises is, in principle,

188 See Louis Vogel, Droit de la Concurrence et Concentration Économique—Étude Comparative (Paris, Económica, 1988) esp 74–75. 189 These situations are not merely theoretical and can actually occur in everyday business praxis, as illustrated, eg, in Cases 32 and 36-82/78 BMW v Commission (CJEU, 1979) esp para 24. See also Case C-73/95P Viho v Commission (CJEU, 1996). 190 I refer here to Cases 15 and 16/74 Centrafarm (CJEU, 1974). 191 For a discussion of the supplementary condition introduced by Centrafarm, see Laurence Idot, Le Controle des Pratiques Restrictives dans les Échanges Internationales (Thèse de Doctorat, Université de Paris II, 1981) and A Lyon-Caen, Le Controle de la Croissance des Entreprises par les Autorités Publiques (Thèse de Doctorat, Université de Lyon, 1975).

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delineated on the basis of a global strategy of the relationship of that group towards other market players. Accordingly, the internal web of ties between entities structurally belonging to the group is inevitably interwoven with the (external) competitive interplay between the group and third operators in the market. In short the apparent supplementary condition for delineating an independent undertaking raised, in my view, insuperable problems. I, therefore, consider as entirely justified the new approach adopted by the CJEU—apparently rejecting the requirements of the Centrafarm precedent and in line with previous analysis of the Commission and the GC—arising from the Viho ruling.192 Under this new approach, the agreements entered into between entities belonging to the same group of enterprises (on the basis of a set of structural indicators of dependence) will not in principle be covered by the prohibition rule of article 101, paragraph 1 TFEU, regardless of whether those agreements imply or not any given distribution of tasks within the group. The consolidation of this approach led to the so called single economic unit theory as the basis for delineating and defining the boundaries of the category of undertaking under EU competition law. As the CJEU emphasized in Viho, ‘it is apparent from its very terms that article 85(1) [currently, article 101(1) TFEU] does not apply to conduct which is in reality performed by an economic unit’.193 In summary, this evolution of the case law determines that the requirement of exclusion of intra-group agreements from the application of the prohibition rule of article 101, paragraph 1—and, at the same time, requirements for integrating the various entities at stake in these groups into the same undertaking as an autonomous entity (while such autonomy is lacking in its constituent elements, eg, the various subsidiary corporations within a corporation group)—will actually be limited to the structural and behavioural conditions that I have already identified. At the most, the latter (behavioural) condition may be negatively assessed—in more innovative terms—on the basis of the actual behaviour of the controlled entity (and not only on the basis of the performance of the parent entity, namely when this provides general guidelines as regards business conduct). This typically happens, as seen in BMW v Commission (discussed above), when the supposedly controlled entity incurs infringements to competition rules and does so de facto in a context of disregard for general guidelines from the supposedly controlling (parent) undertaking (thus assuming an autonomous behaviour which makes it, for the purposes of specifically scrutinizing such behaviour under competition rules, an independent undertaking). In spite of this acknowledgment by the EU courts of the relevance of legal–economic or substantive criteria (prevailing over legal–formal criteria, as the ones that determine,

192

Viho v Commission (1996) (n 189). This understanding that, in my view, rejected the rather artificial and fallacious condition apparently considered in preceding case law but which never generated doctrinal consensus, results clearly from paras 52 and 54 of Viho v Commission (1996) (n 189). As referred in the latter para of the ruling, ‘it does not … avail the applicant to argue that the agreements at issue infringe Article 85(1) on the ground that they exceed an internal allocation of tasks within the group. It is apparent from its very terms that Article 85(1) does not apply to conduct which is in reality performed by an economic unit. It is not for the Court, on the pretext that certain conduct, such as that to which the applicant objects, may fall outside the competition rules, to apply Article 85 to circumstances for which it is not intended in order to fill a gap which may exist in the system of review laid down by the Treaty’. 193

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eg, the configuration of a given group of corporations in terms of corporate law),194 I admit that the situations in which entities subject to formal ties of control towards other (parent) entities de facto disregard guidelines form these latter entities will be relatively rare. 2.1.1.3 A Second Level of Manifestation of the Concept of Undertaking and its Importance for the Characterization of the Joint Venture in Competition Law However, I understand that this single economic theory or model—developed not only on the basis of the Viho ruling but also on the basis of the landmark and more recent Akzo Nobel ruling of the CJEU195 and of the even more recent (2011) Arkema ruling196—and its consequent association of the category of undertaking with the comprehensive reality of the economic group (implying a group of entities that substantively or economically behave as a single entity beyond the formal legal ties between them), should not prevent us from acknowledging a second level of manifestation of the concept of undertaking for the purposes of competition law. I refer here to organizational units functionally pursuing certain economic functions within a given group, that may maintain regular commercial ties with entities which are outside the group perimeter (eg certain corporations within a group of corporations, that maintain relationship with other corporations that do not belong to such group). Although, the competitive behaviour of those organizational units must essentially be attributed to the controlling entities within the group or to the group itself, these latter realities corresponding to the full category of undertaking for purposes of competition law, the former entities do represent, in fact, a second level of materialization of the concept of undertaking (which lacks the requirement of autonomy to be a full or proprio sensu undertaking, but reunites the two paramount elements of the category of undertaking, as I have been envisaging it, namely (i) the existence of an organized structure based on various assets and functionally oriented towards (ii) pursuing a certain activity under truly economic patterns). This important or relevant level of manifestation of the concept of undertaking (although not corresponding in its entirety to the full concept of undertaking) is intrinsically present in the process of formation of joint ventures and is a distinctive feature of such entities

194 Those criteria in the context of corporate law and of corporate groups law were, however briefly, touched on above at 1.4 in this chapter. As noted there, there is greater doctrinal discussion in that area in Romanistic-Germanic systems of EU Member States, but attention to those issues is also growing in common law systems in a context of growing convergence between these systems. See on this latter perspective, inter alia, CM Schmittoff and F Woolbridge (eds), Groups of Companies (London, Sweet & Maxwell, 1991); JC Coffee Jr, ‘The Future as History: The Prospects for Global Convergence in Corporate Governance and its Implications’ (1999) Northwestern University Law Review 641ff; and H Hansmann and R Kraakman, ‘The End of History to Corporate Law’ (Yale Law School, Law and Economics Working Paper No 013, January 2000). 195 See Case C-97/08 Akzo Nobel NV et al v Comm (CJEU, 2010). 196 See Arkema (29 September 2011) (n 181) (esp paras 37–41), in which the Court of Justice—quoting in addition to Akzo Nobel NV et al v Comm, Case C-90/09 P General Química and Others v Commission (CJEU, 2011) (paras 34 and 35) and Joined cases C-201/09 P and C-216/09 P ArcelorMittal Luxembourg v Commission and Commission v ArcelorMittal Luxembourg and Others (2011) para 95—considers presumptions of existence of a single economic unit to be rebuttable when autonomous behaviour on the part of its constitutive units is actually ascertained and demonstrated. Also on the idea of parental liability presumption—albeit rebuttable by the concerned parties—in cases in which a parent company owns 100% or close to 100% of a subsidiary, see Cases T-144, 147, 148, 149, 150 and 154/07ThyssenKrupp (GC, 13 July 2011).

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(regardless of the level of autonomy these may have vis a vis their parent undertakings). It has to do, namely, with an essential aspect of the configuration of the joint venture that decisively contributes to establish perceivable and coherent boundaries for this category vis a vis looser cooperation agreements. That essential aspect corresponds to the ability of creating an appreciable new enterprise capability (as I have considered above in section 1 of this chapter, following there, with various adjustments, Joseph Brodley’s reasoning in this field). By and large, this involves the assessment of the two requirements that we have deemed essential for establishing the competition law concept of undertaking, while admitting in several cases, depending on the level of autonomy of the joint venture vis a vis its parent undertakings, that the third requirement, concerning autonomy and full ability to determine its own behaviour in the market, may be lacking as regards certain joint ventures. This analytical understanding of the competition law concept of undertaking in connection with joint ventures—involving an awareness of its various components of different relative importance (in my view)—does not affect a unitary concept of undertaking for the whole purposes of competition law enforcement (the importance of which for the internal coherence of EU competition law has been frequently asserted by the CJEU and GC, for example, in Akzo Nobel and Höfner).197 I am merely pointing here to a particular level of manifestation of such unitary concept of undertaking, that I regard as having paramount importance for the delineation of this legal category, and associating it closely with some of the basic distinctive features of joint ventures (that differentiate these entities from other cooperation agreements).

2.1.2 Clarification of the Concept of Single Economic Unit When Applied to Joint Ventures Conversely, the theorization of the category of undertaking and the characterization of different undertakings’ competitive interplay under competition law, on the basis of the case law conceiving the single economic unit theory (developed since the Viho ruling), does not seem to be completely consolidated in the EU competition law praxis on joint ventures (particularly as regards recent decisions and analysis on the part of the European Commission and in spite of recent case law arising from it). In fact, the Commission has recently considered in the context of the public discussion related to the adoption of the new 2011 Horizontal Cooperation Guidelines,198 the possibility of developing a reasoning according to which agreements between a joint venture and each of its parents would not be submitted to the prohibition regime of article 101 TFEU, in case those parents jointly exercised a decisive influence on the joint venture and

197 See Case C-41/90 Höfner and Elser v Macroton (CJEU, 1991) esp para. 21 and Akzo Nobel (2010) (n 195) esp paras 54–55. 198 I refer here to the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, adopted in December 2010, OJ C11/1, 14.1.2011 (referred to as the 2011 Horizontal Cooperation Guidelines, also, in some contexts, as simply the 2011 Guidelines). I also refer to the Draft Communication from the Commission—Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, Brussels SEC (2010) 528/2, submitted for public consultation by the Commission (DGCOMP) between 4 May 2010 and 25 June 2010 (available on the DGCOMP/Commission’s website, together with criticisms from various specialists and stakeholders).

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had effective control over the joint venture199 (with the Commission quoting the GC’s Avebe ruling).200 The rationale for such an understanding and for this kind of legal presumption that the Commission put forward in the 2010 Draft Guidelines on Horizontal Cooperation was that in the situations at stake each parent entity and the joint venture would be part of the same single economic unit. This understanding was ultimately not followed in the 2011 Horizontal Cooperation Guidelines, an approach I endorse wholeheartedly, considering that, on the one hand, issues of control have to be carefully scrutinized on the basis of the specific facts of each case and, on the other, the fact that the nature and the issues relevant for the assessment of joint control and its consequences are not the same as those relevant for the appreciation of sole control201 (a point to which I shall return in more detail below in chapters two and three, when examining a comprehensive analytical model for joint ventures to be assessed under article 101 TFEU and the type of hypothetical anticompetitive effects that may arise from the establishment and functioning of such joint ventures). However, the Commission’s inclination towards considering a legal presumption of non-applicability of article 101 TFEU to the agreements between each parent entity in a joint venture and the joint venture (even if ultimately not followed in the 2011 Horizontal Cooperation Guidelines) is apparently related to a string of new decisions adopted by the Commission since 2007 through which the Commission has attributed liability to parent entities of joint ventures for infringements of competition law by those joint ventures (without distinguishing between joint ventures that are full function and, as such, subject to the Merger Control Regulation, as mentioned above, and to be discussed again in the next section, and joint ventures that are not full function). This post-2007 case law clearly contradicts the Commission’s previous practice in this area which normally did not attribute liability for infringements of competition law committed by joint ventures to their parent entities (except in exceptional conditions as those considered in Avebe and Metsä Serla),202 because it tended to consider that those joint ventures did not form a single economic unit or entity with any of their parent entities. Specifically, as regards full function joint ventures in a case that was paradigmatic of its pre-2007 practice (the Gosme/Martell decision),203 the Commission clearly determined that the joint venture at stake did not form a single economic unit with any of its parent entities but was actually an independent undertaking. Accordingly, the Commission admitted that article 101 TFEU was to be applied to the agreements between the joint venture and one of its parent entities. The methodological and hermeneutical turnaround to which I refer results inter alia from the Gas Insulated Switchgear (Gis) and Chloroprene Rubber decisions adopted by the Commission in 2007—essentially confirmed by the GC, respectively, in the Fuji ruling of

199

See 2010 Draft Communication from the Commission, ibid para 11. See Case T-314/01 Avebe (GC, 2006) esp paras 138–39. 201 Although it may be reasonable to admit that in most cases, parents will not compete with joint ventures they jointly control and that, accordingly, there would be no restrictive effects concerning the relationship between each parent and the joint venture, other factors may come into play in each specific market context (as further elaborated in my in-depth assessment of joint ventures covered by article 101 TFEU regime, below, chs 2 and 3). 202 See Avebe (n 200), and Case C-294/98 Metsä Serla et al v Commission (CJEU, ruling of 16 November 2000). 203 See Case IV/32.186 Gosme/Martell (Commission, 15 May 1991). 200

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12 July 2011 and in the Dow Chemical Company and EI du Pont de Nemours and others v Commission rulings, both of 2 February 2012, although in this latter case with an appealed lodged to the CJEU in June 2012).204 In Chloroprene Rubber the Commission attributed liability for infringements of competition law by a full function joint venture to two of its parent entities. This new type of assessment was confirmed and even taken further in the Candle Waxes decision of 2008,205 in which the Commission, regardless of the fact that the joint venture at stake was regarded as full function, stated that it was possible to identify situations characterized by lack of independent decision-making on its conduct by the joint venture (determining, therefore, the existence of an economic unit between the joint venture and the parents for purposes of applying article 101 TFEU). In the Gis decision the Commission evaluated a non-full-function joint venture and considered that their parent companies had the ability to exercise decisive influence on the joint venture and had effectively done so. However, the Commission focused its attention on a series of allegedly objective factors that illustrated the ability of the parents to exercise decisive influence over the joint venture (as, eg, the supervisory and management role of the parents in the joint venture or the overlapping position of senior employees in the joint venture and the parent companies). Conversely, it did not assess the factual conditions through which the parents would or would not exercise decisive influence over several concrete conducts of the joint venture (apparently the Commission acted on the assumption that the parents were aware of the joint venture’s infringement of competition law and had not prevented it on the basis of their joint control, thus being also liable for that infringement and forming a single economic unit with the joint venture). In my view, these decisions adopted by the Commission since 2007—although largely confirmed by subsequent case law—clearly show a lack of consensus on the concept of single economic unit when applied to joint ventures and to the web of relationships between joint ventures and their parent entities. This fluctuation in the criteria for assessing the boundaries of single economic units and, in that context, of the possible limits of the liability of parent entities for infringements committed by joint ventures (including even full function joint ventures with a higher degree of autonomy), could call into question the unitary concept of undertaking for purposes of competition law enforcement in the context of evaluation of joint ventures within the spheres of application of article 101 TFEU and of the Merger Control Regulation (completely at odds with the requirement of such a unitary concept stated by the European case law). Accordingly, it is of paramount importance for the hermeneutical consistency of this area of EU competition law, involving the proper definition of joint ventures and of the nature of the competitive relationship between them and their parent entities, that there is a further refinement of the concept of single economic unit when applied to joint ventures (and to the relationship of these entities with their parents). This refinement or clarification may result from future case law resulting from the Chloroprene Rubber case or from

204 See Case COMP/38.899 Gas Insulated Switchgear (Gis) (Commission, 24 January 2007) and Case COMP/38.629 Chloroprene Rubber (Commission, 5 December 2007). As regards the latest GC case law referred to above, see Case T-132/07 Fuji Electric v Commission (Fuji) (GC, 12 July 2011) (involving a joint venture in which parents held participations of 30% and 50%) and Cases T-77/08 and T-76/08 Dow Chemical Company and EI Du Pont de Nemours et al v Commission (Du Pont) (GC, 2 February 2012) (involving a 50–50% joint venture). 205 See Case COMP/39.181 Candle Waxes (Commission, 1 October 2008).

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other future cases). For that purpose, it is also essential to grasp the qualitative differences of nature between sole control and joint control (related to joint ventures). In fact, and, curiously, as emphasized by the Commission in several of its Guidelines applied to joint ventures,206 joint control is in essence defined by the negative control or power that two or more parent entities hold, which gives them the ability to block strategic decisions but, conversely, does not allow either of them, acting alone, the capacity to determine the joint venture’s behaviour in the market. Clearly in a full function joint venture, subject to the Merger Control Regulation—as referred to above at 1.3 in this chapter and to be further characterized below in the next section of this chapter—none of the parent entities, by definition, enjoys sole control and the joint venture enjoys operational autonomy that makes it an autonomous economic entity (which, in strict terms, does not form a single economic entity with any of its parents). Even in the case of non-full function joint ventures—structurally with less autonomy towards its parent entities—it is possible, on the basis of the specific factual background of each case, to differentiate between situations involving different degrees of autonomy of those joint ventures towards parents (as in some cases the joint ventures will have some operational capacity to operate by themselves, whereas in other cases the joint ventures may only act through the parent entities, therefore forming an actual single economic unit with each of those parents, but not in any case implying that those parent entities form a single economic unit with each other). In this context, and given the considerable variability of the level of operational control to be exerted by the parent entities over joint ventures—within the framework of joint control that cannot be assimilated to sole control and is intrinsically different from this latter form of control—the susceptibility of each parent forming a single economic unit with the joint venture is not a truly defining element of joint ventures. Without calling into question the unitary concept of undertaking under EU competition law, the undertaking dimension underlying joint ventures is essentially related, as I have suggested above at 2.3 and 2.4, to establishing some form of new undertaking with some sui generis features, due to its (relative and varying) dependence on the parent undertakings. What essentially counts for that207 undertaking dimension that underlies the establishment of joint ventures (albeit a sui generis and limited one), are the two key elements of the category of undertaking in competition law, involving an organizational structure and the economic parameters that functionally determine its activity; or, as referred to by the GC in Shell v Commission, a unitary organization of personal, tangible and intangible elements which specific economic aims (setting aside here the other element of that general category of undertaking under EU competition law that has to do with the autonomy or capacity to determine its own competitive behaviour in the market, since this element may take diverse forms in different joint ventures). Other inferences based on the concept of single economic unit to be systematically applied to joint ventures and transposed from the characterization of the unitary category of undertaking under EU competition law tend to be misguided and also to distort the

206 See, for instance, the Commission’s 2008 Consolidated Jurisdictional Notice under Council Regulation EC No 139/2004 (adopted by the Commission on 10 July 2007) OJ [2008] C95/1 (‘Consolidated Jurisdictional Notice’) esp paras 62ff. 207 See Case T-11/89 Shell v Commission (GC, 1992) esp paras 311ff.

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proper understanding of the effects of joint ventures in competition and of the competitive interplay between joint ventures and their parents, and also of their repercussions on the competitive relationship between those parent entities (as I shall examine in greater detail below in chapters two and three).

3 The Dual Treatment of Joint Ventures in EU Competition Law 3.1 Systemic Approaches to Joint Ventures in US Antitrust Law and EU Competition Law 3.1.1 General Perspective 3.1.1.1 The Origins of the Dual Treatment of Joint Ventures under EU Competition Law If, one the one hand, it has come to be widely accepted at the level of EU competition law that one of the fundamental elements of the category of joint venture concerns the establishment, when a joint venture is created, of a new form of enterprise capability, involving a dimension of undertaking (albeit, as I observed, a sui generis and limited one in several cases, whenever it lacks the element of autonomy that characterizes a unitary concept of undertaking in competition law), the recognition of this key element has not prevented the emergence of a dual treatment of various subcategories of joint ventures (as has been observed above in the Introduction, and at 1.3 of this chapter). This dual perspective of the competition law treatment of joint ventures is essentially connected with the adoption in 1989 of the first EC Merger Control Regulation, which established a distinction between concentrative joint ventures, subject to the proceedings and the specific appraisal criteria of concentration operations provided for in that Regulation, and cooperative joint ventures, generally submitted to the article 101 TFEU regime (although the lack of unitary treatment of joint ventures pre-dates the first EC Merger Control Regulation, with the delineation by the European Commission of the subcategory of partial concentrations vis a vis other joint ventures, see above in the Introduction). In fact, before the 1989 Merger Control Regulation, the Commission developed a distinction between a general type of joint ventures, to be submitted to the then article 85 EEC Treaty (currently article 101 TFEU), and joint ventures at the time qualified as partial concentrations.208 Due to the historical lacuna of EEC competition law in the field of direct concentration control (with no specific legal instrument for that kind of control), the joint

208 On the idea that certain joint ventures may qualify as partial mergers that was developed before the adoption of the MCR in 1989—already briefly touched upon above in the Introduction—see Enzo Moavero Milanesi, ‘Concorrenza e Concentrazioni tra Imprese’ (1988) Riv Soc 499ff; Karen Banks, ‘Mergers and Partial Mergers’ in Annual Proceedings of the Fordham Corporate Law Institute—North American and Common Market Antitrust and Trade Laws—1987 (Barry Hawk (ed), Fordham Corporate Law Institute, Transnational Juris Publications, Inc, Kluwer Law & Taxation Publishers, 1988) 404ff.

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ventures then qualified as partial concentrations were essentially not scrutinized under EEC competition rules. In turn, this led—as emphasized in the EU legal doctrine209—to an hermeneutical trend that favoured very strict tests for joint ventures to qualify as partial concentrations, in order to ensure that the greatest number of joint ventures would effectively be submitted to some kind of competition law scrutiny under article 85 EEC Treaty (article 101 TFEU). Curiously, in the not too distant past, representatives of the Commission have maintained that before the emergence of EU merger control rules, joint ventures were dealt with in a very systematic and straightforward way, since (supposedly) they were all treated as falling under what was then article 85(1), and usually exempted under article 85(3) (with something close to a rule of reason applying, focused on whether a joint venture eliminated competition to a substantial degree and on whether it offered efficiencies in production or distribution that could not be realized by less restrictive means).210 While I consider this to be an oversimplified view of the legal context that preceded the adoption in 1989 of the first EEC Merger Control Regulation, because various joint ventures received an assessment under article 85 EEC Treaty that was too formalistic and also because there was a kind of hermeneutical distortion towards avoiding the qualification of joint ventures as partial concentrations, I do, however, accept that there is some truth in the idea that the systemic divisions in the treatment of joint ventures, and some normative distortions associated with these divisions, were reinforced or aggravated after the adoption of the Merger Control Regulation. The fact is that this historical divide under EU competition rules between different systemic subcategories of joint ventures has, before and after the adoption of the Merger Control Regulation, led to normative distortions both in the way the Commission and the courts characterized joint ventures and in the way undertakings were almost induced to adapt their agreements with a view to ensuring their submission to a particular legal regime rather than another. 3.1.1.2 Peculiarities of US Antitrust Systematic Framework of Joint Ventures Furthermore, this dual treatment of joint ventures contrasts somewhat with the legal discipline of these entities under US antitrust law. In reality, under US antitrust rules the normative areas covering elements of cooperation and concentration developed between multiple undertakings are cumulatively applicable to joint ventures.211 Therefore, the antitrust substantive discipline of joint ventures is not essentially dependent on a previous qualification of these entities (that could introduce a supplementary element of complexity in the assessment of those entities as tends to happen under EU competition rules). In fact, both the rules pertaining to section I of the Sherman Act—the normative area that corresponds mutatis mutandis to the regime of article 101 TFEU in EU competition law—and the rules pertaining to section 7 of the Clayton Act—an area that could be construed as having some overlap with direct concentration control rules included in the EU Merger Control Regulation—are applicable to joint ventures, through the intervention of

209 See James Venit, ‘Oedipus Rex. Recent Developments in the Structural Approach to Joint Ventures under EEC Competition Law’ (1991) W Comp 14ff. 210 See OECD, Policy Roundtables—Competition Issues in Joint Ventures (2000) 146ff. 211 See, inter alia, Hawk, ‘Joint Ventures under EC Law’ (n 7) 559.

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essentially the same public entities at the administrative and judicial levels.212 Although the effective application of the latter body of law (section 7 of the Clayton Act) to joint ventures is relatively less intense and frequent, US Federal antitrust authorities have basically developed unitary patterns of assessment of joint ventures that combine the legal criteria delineated in these two bodies of law. Therefore, although the building of consistent parameters of antitrust assessment of joint ventures has been far from satisfactory in the US antitrust system213—in spite of very recent developments, for example, those resulting from the Dagher cases, culminating in the US Supreme Court ‘Dagher ruling214—that does not arise in particular from any complementary legal issues of previous qualification of joint ventures as either concentration operations or forms of cooperation between undertakings (which leads to rather intractable legal problems because that kind of legal characterization and systematic segmentation of joint ventures in various subcategories is difficult to reconcile with general solutions as, in essence, the category of joint venture is a hybrid reality, involving in various degrees elements of cooperation and concentration, making it extremely difficult to separate it into subcategories on the basis of a hypothetical prevalence of one of those elements). However, I also have to acknowledge that this hermeneutical trend towards an essentially unitary analysis of joint ventures in US antitrust law has certain limited deviations (although these do not ultimately lead to a complete segmentation of two distinct normative blocks for the competition law assessment of joint ventures, as is the case with EU competition law). I refer here, in particular, to doctrinal perspectives such as that held by Gregory Werden, who maintains that substantive appraisal criteria not entirely convergent could be applied in connection with two relatively distinct categories of joint ventures.215 At one level, Werden considers a category of joint ventures including parent undertakings that are actual or potential competitors. Such relative segmentation of this category would be justified according to Werden, provided that, on the one hand, the formation of

212 See ibid 558ff. As Hawk categorically states, underlining the differences in systematic treatment of joint ventures in comparison with the EU, ‘the issue in the United States, unlike the EEC, has not been whether a joint venture should be treated as a merger or cartel; both statutes apply. Moreover, both statutes are applied by the same administrative and judicial bodies’. 213 See, on the unsatisfactory state of US antitrust as regards joint ventures, Thomas Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 118) esp 12ff. As Pirainno notes, ‘the federal courts have largely failed to recognize that joint ventures have distinctive competitive characteristics that require a unified antitrust analysis. The courts have subjected joint ventures to the inconsistent standards of merger, cartel, and rule of reason analyses. Indeed, federal policy toward joint ventures has been termed “one of the darkest corners of antitrust law”’. Conversely, as I shall emphasize below in ch 3, the more recent adoption of the 2000 Antitrust Guidelines for Collaborations Among Competitors, by the Antitrust Division of the Department of Justice and the Federal Trade Commission, largely covering issues pertinent to the antitrust assessment of joint ventures, has provided some clarification in this area. 214 I refer to the Ninth Circuit ruling Dagher v Saudi Ref Co 369 F.3d 1108, 1110 (9th Cir 2004) and to the Supreme Court ruling that reversed the Ninth Circuit ruling (Texaco Inc v Dagher (2006) 547 US 1). The case concerned a joint venture created by two big competitors in refining oil and marketing gasoline in the US, to which those parent entities contributed all of their US refining and marketing operations. The US Supreme Court reversed the first judicial decision, determining that a per se prohibition rule should not apply to internal decisions of a legitimate joint venture, even the ones concerning gasoline price arrangements. I shall come back to this landmark case, below in ch 3, in the context of my assessment of commercialization joint ventures. See, on these cases, that have led to considerable academic debate, inter alia, Bruce Sokler, Wee Wah Chin, Kathryn E Walsh, ‘A Consideration of Dagher and the Antitrust Standard for Joint Ventures’ (2004) NYU Journal of Law and Business 307ff; Thomas Pirainno, ‘The Antitrust Analysis of Joint Ventures after the Supreme Court’s Dagher Decision’ (2008) Emory Law Journal 735ff. 215 See Gregory Werden, ‘Antitrust Analysis of Joint Ventures. An Overview’ (1998) ALJ 712ff.

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the joint venture—including possible ancillary restrictions to competition—eliminates in a given area all the competitive interplay between the participating undertakings and that, on the other hand, the participating undertakings do not compete with the joint venture and this entity does not have a limited duration. This category of joint ventures should in principle be submitted to the same appraisal criteria as those used for the purposes of antitrust analysis of horizontal mergers.216 At a second level, Werden considers all the joint ventures which do not present the three distinctive features noted above. These would, in turn, generate a specific type of risk of adversely affecting the competition process, not coincident with the ones typically arising from mere cooperation agreements nor with the risks normally associated with concentrations or mergers (stricto sensu). As I shall observe (below, chapter two) in the context of a possible comprehensive analytical model of the effects of joint ventures in the competition process, this kind of methodological approach starting from a fundamentally unitary analysis of joint ventures, but recognizing, at the same time, the possible specificities of some substantive appraisal criteria as regards certain categories of joint ventures, may be gradually converging with the legal methodology for treatment of joint ventures under EU competition law (at least with the kind of legal methodology that I favour and that will be put forward in the context of the comprehensive analytical model that I propose, below, chapter two). That may tend to happen in particular if steps are taken towards thinning the division between the two different subcategories of joint ventures normally established on the basis of these corresponding, or not, to concentration operations (a division that has already been somewhat mitigated with legislative reforms subsequent to the adoption of 1989 of the EU Merger Control Regulation and that could still be changed with new developments in this field, although the 2004 reform of the MCR did not go as as far as might have been expected on that). A bigger contribution to that largely convergent outcome may still result in case of a further and desirable reinforcement of the growing trend—particularly visible after the 1997 reform of the EU merger control rules—for a more active interplay between the legal tests for substantive appraisal of the potential restrictive effects on competition217 (arising from joint ventures); I mean here an interplay or interaction between the legal tests of such

216 As Werden puts it, ‘if two corporations form a third in which they each transfer all of their assets, the transaction creates a joint venture within the meaning of that term here, but it is analytically equivalent to one in which either corporation acquired all of the stock or assets of the other, and it would be analysed as a merger. Many transactions reasonably termed joint ventures by their participants have been treated as mergers under the antitrust laws’ (ibid 715–16). To some extent, this subcategory of joint ventures that, in the context of US antitrust law, Werden considers to be closer to horizontal type concentrations, in terms of antitrust assessment, may present, in turn, some parallels with the subcategory of joint ventures susceptible of qualification as concentrations, for purposes of application of the MCR, under EU competition rules. 217 This possible—and, in my view, desirable—trend for a growing interplay between the substantive legal tests concerning possible effects of restriction of competition established in article 101 TFEU and in the MCR—to which I have already briefly alluded in the Introduction—is, in fact, more visible since the first, 1997, reform of the MCR. This reform determined the cumulative application to joint ventures that perform all the functions of an autonomous economic entity—henceforth defined as concentrations regardless of other effects these may generate—and which originate in parallel effects of coordination of behaviour between the parent undertakings, of the test of market dominion (or the test concerning the creation of significant impediment to effective competition, in the wake of the second reform, in 2004, of EU merger rules) and of the test of restrictions of competition emerging from situations of cooperation. In my view, this cumulative application of the two tests is likely to have an appreciable contribution to a growing substantive convergence of legal tests.

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effects in competition established in the regimes of the EU Merger Control Regulation and of article 101 TFEU. Besides that, in the context of US antitrust law, a specific treatment is still considered as regards certain categories of joint ventures that do not perform all the function of an autonomous economic entity, namely joint ventures with a field of action restricted to research and development or to production activities (ultimately also, to some extent, standards development organizations came to be contemplated in this special area). This category of joint ventures is subject to a special normative regime under the National Cooperative Research and Production Act (NCRPA) 1993 (which reformed the National Cooperative Research Act 1984, at that time covering only research and development joint ventures, and further reformed, more recently, in 2004, to include standards development).218 Although this special legislation is aimed towards a clarification of the antitrust framework of certain types of joint ventures acting essentially in the research and development and production areas, that are singled out as particularly important to the global competitiveness of the US economy, this special regime did not initiate a true division between fundamentally different categories of joint ventures subject to a diverse antitrust framework in terms that may be comparable with what happens at EU level. Furthermore, while this special legislation of the NCRPA is undeniably important, even if only on account of the fact that it has produced one of the very rare normative contributions to the definition of the category of joint venture itself (as I shall comment on below at 4.5.2 in this chapter), in practice, it has not been very significant in the global context of US antitrust law. Therefore, neither for its content (although the NCRPA encapsulates an attempt to reduce the risk of prohibition of joint ventures that may produce appreciable efficiency), nor for the legal praxis developed in the US, is there a real possibility that NCRPA could seriously endanger the essentially unitary treatment of joint ventures under US antitrust law.

3.2 The Two Fundamental Categories of Joint Ventures in EU Competition Law 3.2.1 The Systematic Divide Arising from the Adoption of the MCR The essential divide between two chief categories of joint ventures, subject to different procedural rules and different appraisal criteria, that was formalized through the adoption of the Merger Control Regulation in 1989 was based on two fundamental conditions. Originally, the delineation of the category of joint ventures subject to the MCR and, accordingly, those characterized as concentration operations, vis a vis joint ventures of a cooperative (non-concentrative) nature, was based on a positive condition—a joint venture performing all the functions of an autonomous economic entity—and on a negative condition—the absence of elements of coordination underlying the joint venture.

218 I refer here to the Standards Development Organization Advancement Act 2004, which explicitly included standards development organizations within the NCRPA’s coverage. Despite this very specific and slight adjustment of the scope of the NCRPA, this regime, in my view, continues to be essentially relevant in terms of antitrust treatment of joint ventures for the purposes of assessment of R&D or production joint ventures (or to mixedtype joint ventures that combine those two functions), and it is from this perspective that the NCRPA regime is examined in this section. On this expansion of the scope of the NCRPA, see Kathryn M Fenton, ‘The US Congress Adopts Significant Antitrust Amendments within the Protection of the National Cooperative Research and Protective Act’ (June 2004) e-Competitions, No 33851.

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To meet the first (positive) condition it is necessary that the joint venture range of action is a broad one and is not limited to specific economic functions in particular (eg, functions related to research and development or production, or others); on the contrary, the joint venture should have a scope and economic reach and means at its disposal that make it able to perform all the functions that normally characterize the intervention and market positioning of an autonomous undertaking. On the other hand, it is also required that joint ventures have a lasting form—an element that would rule out the qualification as concentrations of joint ventures based on rather precarious structures or basically entrusted with the pursuit of very short terms goals (eg, inputs by two or more parent entities through the joint venture in order to ensure the fulfilment of a contract of limited duration).219 The key idea underlying this requirement has to do, in short, with ascertaining that a certain joint venture leads to some sort of actual transformation of the structure of the markets at stake (which, in turn, requires a minimum degree of stability of the elements or forms of joint organization established by the parties). According to the second (negative) condition, it is required that a joint venture will not give rise to any kind of coordination of competitive behaviour, either between the founding undertakings, or between those undertakings and the joint venture itself. On the basis of these elements, the Commission endeavoured to put forward predictable parameters for detecting and assessing coordinating effects arising from the establishment of joint ventures—namely through the adoption of successive Guidelines in this field220— taking as a key reference the relationship between the markets in which the parent undertakings remain active and the market in which the joint venture operates. Within that framework, the Commission identified paradigmatic situations corresponding, inter alia, to (i) cases in which both founding undertakings would remain in the joint venture’s market (thus inducing coordination effects); (ii) situations in which both founding undertakings retained activities in the EU market with a realistic probability that they would re-enter the joint venture’s market (the hypothetical coordination effect would thus depend on the degree of probability of such market re-entering); and also to (iii) situations characterized by the continued presence of the founding undertakings in markets related to the joint venture’s market or, alternatively, cases in which the founding undertakings would only keep their own activities in markets situated outside the EU (the production of coordination effects being in principle ruled out in these latter cases). However, that objective of the Commission of clarifying in a comprehensive manner the typical factors for the emergence of coordination effects was not satisfactorily met. In reality, the assessment criteria used by the Commission in its praxis of enforcing the

219 Following a perspective of general legal analysis of joint ventures—not specifically focused on antitrust— authors like Herzfeld and Wilson offer multiple examples of joint ventures supported in more precarious structures and fundamentally oriented towards the fulfillment of short term objectives (see Herzfeld and Wilson, Joint Ventures (n 51) esp 10ff). I also considered those examples above at 1.4.2, 1.4.3 and 1.4.4, in this chapter. 220 In fact, the Commission has successively moulded and changed the criteria it put forward to detect and assess coordinating effects arising from the establishment of joint ventures, starting from the Guidelines initially adopted at the time of the approval of MCR 1989, going through to the significant adjustments considered in the 1994 Commission Notice on the Distinction between Concentrative and Cooperative Joint Ventures (OJ [1994] C385/1), until it finally changed the Merger Regulation in this area in 1997 (then leading to the adoption of the 1998 Commission Notice on the Concept of Full-Function Joint Ventures—OJ [1998] C66/01, more recently replaced by the Consolidated Jurisdictional Notice after the adoption of MCR 2004).

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Merger Regulation in the first years after its adoption have oscillated considerably. The Commission gradually mitigated its initial strictness (of a largely formal nature) as regards the detection of risks of behavioural coordination. In turn, that growing (and unstable) hermeneutical flexibility on the part of the Commission led, in general, to a trend towards qualifying a growing number of joint ventures as concentrative ones. This led to a true normative pre-understanding generally guided towards an easier qualification of joint ventures as concentrative operations (which benefited from a clear and efficient framework of competence sharing between the EU and national jurisdictions of the Member States and of an EU assessment procedure that was relatively quick and efficient). On the whole, it favoured a rather conceptualist vision (not without serious contradictions) of the positive and negative conditions that were retained for the purposes of characterizing joint ventures as operations of a cooperative or concentrative nature. Such legal and formal conceptualism even led in certain cases to somehow artificially overcome the negative condition for qualifying joint ventures as concentrations (the absence of behavioural coordination) through the development, at a certain stage, in the first years of enforcement of the 1989 Merger Control Regulation of the so called industrial leadership criteria.221 According to these criteria developed by the Commission, it was admitted that the risks of behavioural coordination potentially associated with certain joint ventures could, to a certain extent, be ruled out or dismissed if one of the parent undertakings got into a dominant position as far as the general conduct of the business of the joint venture was concerned (ultimately, that would support an assumption, for competition law purposes, of an integration of the joint venture in the group of the leading parent undertaking thereby setting aside the risk of coordination of behaviours). In my view, these industrial leadership criteria embodied a true distortion of the normative framework that was induced by the rigidity of the analysis originating from the legal and formal parameters then adopted for distinguishing subcategories of joint ventures of a concentrative nature and of a cooperative nature (making it easier for certain joint ventures to qualify as concentrations). In fact, those industrial leadership criteria were based on assumptions difficult to reconcile with the intrinsic and distinctive nature of the relationship between parent undertakings of a joint venture and with the key aspects underlying joint control of a given entity which forms the pivotal element for any joint venture. In time, the Commission recognized these difficulties and contradictions and, in the process, it came to adopt more flexible views in its delineation of the positive and negative conditions for joint ventures to qualify as concentrations (mainly through the Guidelines adopted in 1994),222 thereby abandoning the industrial leadership criteria. Ultimately, the enduring difficulties in the classification of subcategories of joint ventures and some perception of the lack of coherence in the differentiated treatment of various joint ventures that produced identical repercussions for the competitive structures of certain markets led in 1997 to a first (partial) reform of the Merger Control Regulation, involving the elimination

221 These so called industrial leadership criteria have been touched upon briefly above, in the Introduction. See James Venit, ‘The Treatment of Joint Ventures under the EC Merger Regulation—Almost through the Ticket’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1999 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 2000) esp 473ff. 222 I refer here particularly to the 1994 Commission Notice on the Distinction between Concentrative and Cooperative Joint Ventures (n 220), replaced by the 1998 Commission Notice on the Concept of Full-Function Joint Ventures (n 220), after the 1997 reform of the MCR.

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of the negative condition (the absence of behavioural coordination) as a requirement for joint ventures to qualify as concentrations (and their submission to the regime of the Merger Control Regulation). Anyway, this significant change of the conditions to be met for subcategories of joint ventures to qualify as concentrations) arising from the 1997 reform of the first EU Merger Control Regulation, and confirmed in the Merger Control Regulation 2004 (139/2004),223 did not eliminate all the analytical problems underlying that fundamental divide between joint ventures of a concentrative nature (subject to the Merger Control Regulation) and the other joint ventures of an essentially cooperative nature (subject to the regime of article 101 TFEU). Curiously, the conceptual misunderstandings about the true intrinsic nature of joint control (in essence different from sole control) that were associated with the industrial leadership criteria (adopted by the Commission at a certain stage of enforcement of the first EU Merger Control Regulation) seem to have been revived, in a new form, in the post 2007 praxis of the Commission related to the application of the concept of single economic unit to joint ventures and their relations with respective parent undertakings (critically referred to above at 2.1.2 in this chapter, as contradicting previous Commission practice in this domain).224

3.2.2 The Limits of Convergence in the Systematic Treatment of Joint Ventures in EU Competition Law In general, it should be acknowledged that the fundamental distinction of the EU competition law system between subcategories of joint ventures qualifying either as concentrations or cooperation agreements—contrasting, as noted above at 3.1.1.2 in this chapter, with the essentially unitary analysis of the category of the joint venture in the US antitrust law system—has never provided, in spite of the undeniable hermeneutical progress in this area, a truly satisfactory level of legal safety (something which is particularly negative, since that distinction has an essentially jurisdictional function, determining the application of either the EU Merger Control Regulation or the article 101 TFEU regime, or even of national competition laws, and, as such, it should be a clear-cut or straightforward distinction dissociated from high levels of legal controversy). Whilst, on the one hand, this distinction between the two fundamental subcategories of joint ventures (to be submitted or not to the Merger Control Regulation) has led to considerable legal debate—albeit frequently determined by rather formal criteria that should be of secondary importance in the context of competition law—on the other, there is a considerable lack of discussion on the analysis that should be regarded as decisive to the conceptual delineation of the global category of the joint venture (for competition law purposes). I refer here to the analysis that may lead us to differentiate mere cooperation agreements from joint ventures of a predominantly cooperative nature (to be submitted to the regime of article 101 TFEU).

223 In fact, the new Regulation EC 139/2004 has essentially maintained or confirmed the legal criteria for qualification of joint ventures as concentrations or non-concentrative transactions. 224 As I have underlined above at 2.1.2 of this chapter, the possible application of the concept of single economic unit to joint ventures and to their relations with respective parent undertakings is an area that requires further hermeneutical clarification and consolidation in the wake of the 2007 Commission decisions referred to in that section (and subsequent enforcement practice and jurisprudence).

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In fact, it is clearly in the context of the characterization of these joint ventures that a consistent analytical threshold has to be found in order to identify true joint ventures— with a legal qualitative plus implying some kind of structural effects in the market—as a separate reality not to be confounded with looser cooperation agreements. However, as regards this key analytical threshold—which should allow a comprehensive competition law understanding of the category of the joint venture—the rather dense, and predominantly formal, discussion on criteria on which joint ventures may qualify as concentrations (or not) has not made a major contribution to the building on a consistent basis of the global category of joint venture as an autonomous reality to be differentiated from the various array of looser cooperation agreements (subject to the regime of article 101 TFEU). In spite of these limitations, one should, on the other hand, acknowledge that the negative consequences of a dual (and non-unitary) analysis of joint ventures under two fundamental subcategories (concentrative and cooperative joint ventures) have been attenuated through the changes introduced in the Merger Control Regulation in 1997 (and confirmed in the comprehensive reform of those merger control rules in 2004). That does not exclude, in my view, the possibility of supplementary steps towards the development (in itself desirable) of a fundamentally unitary area of assessment of joint ventures under EU competition law. The 1997 changes to the initial Merger Control Regulation may, in fact, be construed as the possible start of such a movement and I should underline in the context of the enforcement of merger control rules after that first reform of 1997 and after the adoption of the new 2004 EU Merger Regulation two key areas of convergence of the appraisal criteria of joint ventures. On the one hand, and as very briefly mentioned in previous sections, a gradual interconnection may be observed between the structural test referring to a significant impediment to effective competition and the creation or strengthening of a dominant position and the coordination of competitive behaviour of undertakings. On the other hand, the notion of joint control has been largely confirmed as a key element in the legal definition of any category of joint venture (regardless of the fact that such an entity is to be assessed under the Merger Control Regulation or under the article 101 TFEU regime). In reality, as has been underlined, in the previous Commission enforcement practice, specific analysis of joint control in article 85, paragraph 1 (currently article 101, paragraph 1 TFEU) joint venture cases was traditionally absent or limited since, for that regime to apply, it was only necessary to ascertain the existence of an agreement between undertakings. It is, in any case, to be acknowledged that this gradual recognition of the key importance of the notion of joint control for the characterisation of all joint ventures (even those which may not qualify as concentrations) did not arise in particular from the 1997 reform of the Merger Control Regulation. It had actually developed in Commission case law preceding this reform and through decisions adopted on the basis of article 85 EEC, as happened, for example, in Exxon/Shell and BT/MCI.225 In this context, the previous (traditional) perspective concerning a secondary function attributed to the notion of joint control for the characterization of joint ventures assessed under the article 101 TFEU regime has seriously contributed to the particular hardship involved in the establishment

225 See Exxon/Shell [1994] OJ L144/20, esp paras 44–49, and BT/MCI [1994] OJ L223/36, esp para 22, in which the Commission included the verification of situations of joint control in any attempts to ascertain the existence of joint ventures. In any case, it is true that this approach was already in place in the Framework of the MCR 1997.

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of consistent and predictable boundaries for purposes of EU competition law enforcement between the conceptual realities of mere cooperation agreements and true joint ventures (of a predominantly cooperative nature). Furthermore, it should be also acknowledged that this gradual and consistent recognition of the joint control element—to be held by the founding undertakings—in terms of the delineation of the category of joint venture (also for the purposes of article 101 TFEU enforcement) has largely implied an assimilation of the notion of joint control developed in the context of the Merger Control Regulation enforcement (thereby involving, even at the level of the basic definition of the constituent elements of a general category of joint venture, a significant convergence between the two traditional normative areas that cover joint ventures under EU competition law). A cornerstone of this process of gradual and relative convergence of the treatment of joint ventures has undoubtedly been this first (1997) reform of the Merger Control Regulation. As mentioned, this reform has significantly expanded the coverage of joint ventures by the Merger Regulation, since on the basis of it, every joint venture performing all the functions of an autonomous economic entity (relying for that on various tests for assessing functional autonomy)226 is henceforth subject to merger control rules. Besides that, the same reform has established a specific proceeding for the assessment of possible coordination effects arising from those joint ventures (a proceeding provided for in the merger control regime but involving the application for that purpose of the criteria established under paragraphs 1 and 3 of article 101 TFEU). This proceeding—which has been maintained under article 2(4) in the Merger Control Regulation 2004 (along the lines established in the 1997 reform)—is the consequence of the elimination of the former negative condition for the qualification of joint ventures as concentration operations. Accordingly, the coordination effects arising from joint ventures have ceased to represent an element of qualification of subcategories of joint ventures with procedural or jurisdictional goals (that had generated considerable analytical distortions) and have come to represent an element of the substantive assessment of joint ventures under a unitary procedure but following a dual substantive test (the test concerning the verification of any significant impediment to effective competition that largely relies on the historical test of creation and strengthening of dominant position and the test concerning the cooperation between the two parent undertakings, based on the criteria established in paragraphs 1 and 3 of article 101 TFEU, to be applied under article 2(4) of the Merger Control Regulation 2004). Although, as I shall observe below in chapters two and three, there is still a certain analytical deficit in terms of enforcement of the regime of article 2(4) of the 2004 Merger Control Regulation, some form of active interplay seems to have been induced between the two legal tests, meaning that the effects assessed under article 2(4) of the Merger Regulation and article 101 TFEU are progressively submitted to a more serious economic perspective, bearing much more in mind, under the influence of the article 2(1) and (2) test (of the

226 On these tests for assessing functional autonomy after the 1997 reform of the MCR, see, in particular, the 1998 Commission Notice on the Concept of Full-Function Joint Ventures (n 220) esp paras 11ff, emphasizing the ‘structural change of the undertakings’ involved it normally implies (carrying with it the requirement that the joint venture ‘has a management dedicated to its day-today operations and access to sufficient resources, including finance, staff and assets (tangible and intangible) in order to conduct on a lasting basis its business activities within the area provided for in the joint-venture agreement’).

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same MCR), the actual existence of market power227 (thus positively influencing in general the assessment of joint ventures under article 101 TFEU). Notwithstanding this movement towards some convergence in the treatment of joint ventures under EU competition law, the first (1997) reform of the merger control rules largely overtaken by the comprehensive 2004 reform, with the adoption of the Merger Regulation 2004, have followed the path of a more limited option for convergence. In fact, as envisaged in the 1996 Green Paper on Reform of the Merger Regulation,228 two options could be contemplated in this area. A more ambitious option would theoretically involve the establishment of a truly unitary normative treatment of all joint ventures, that would then be comprehensively subject to a global framework provided for in the Merger Regulation (although with the possible establishment of some specific rules addressing some particular aspects of the assessment of certain joint ventures). That would imply establishing a comprehensive coverage of joint ventures in the MCR, instead of delineating such MCR coverage on the basis of the full functionality test. Accordingly, that would mean reaching, through the MCR, all non-sham joint ventures (meaning joint ventures involving an appreciable level of integration of their parent’s economic resources even if failing the full functionality test). From this perspective what would be at stake would be a de iure condendo extension of the current regime of article 2(4) of the Merger Regulation 2004—the content of which, in fact, originated in the 1997 reform—in order to cover other subcategories of joint ventures failing to meet the full functionality test, to which would somehow be cumulatively applied, albeit with some adaptations, the structural test of the impediment to effective competition and the coordination test of article 101 TFEU. A more limited option envisaged in the 1996 Green Paper would merely imply the inclusion in the regime of the Merger Control Regulation all the joint ventures fulfilling the test of functional autonomy (regardless of originating or not coordination of competitive behaviours). To be accurate, if the first theoretical option was followed, an exclusive submission to article 101 TFEU would only occur in the case of entities formally presented by the parties as joint ventures but that would actually correspond to cartels or dissimulated cooperation agreements oriented towards price-fixing or market sharing without involving true entrepreneurial integration through which some level of supplementary efficiency could be obtained (that I have referred to above, as sham joint ventures). However, as I have already observed, in the 1997 reform of the merger control rules the second and more moderate option prevailed (that option also being followed subsequently in the Merger Control Regulation 2004). As such, previous analytical or normative distortions underlying the non-unitary treatment of joint ventures under EU competition law were attenuated, but the problems inherent in that segmentation of different subcategories of joint ventures were not eliminated. Legal conceptualism and formalism related to the qualification of joint ventures under the former text of article 3(2) of the first Merger Control Regulation was significantly reduced and the analytical process of qualification of

227 See also on this, Venit, ‘The Treatment of Joint Ventures Under the EC Merger Regulation—Almost Through the Ticket’ (n 221) 479. 228 I refer here to the Green Paper on the Reform of the Merger Regulation, Brussels, 31 January 1996 (COM(96) 19 final). There is no room here to discuss the content of this Green Paper as regards the treatment of joint ventures. See on that point, Barry Hawk and Henry Huser, European Community Merger Control: A Practitioner’s Guide (The Hague, London, Boston, Kluwer Law International, 1996) 66.

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joint ventures has thus been rendered more predictable and, therefore, more in line with the jurisdictional function underlying the application of the criteria of qualification of joint ventures. At the same time, the legal parameters for meeting the full functionality test were gradually clarified and consolidated (notably through the 1998 Guidelines on the Concept of Full-Function Joint Ventures),229 which does not mean that the Commission has definitively overcome all relevant ambiguities and misunderstandings concerning the full functionality standard and its interconnection with a proper understanding of the concept and parameters of single economic entity, as I have observed in my critical remarks about the post-2007 case law of the Commission regarding joint ventures (discussed above at 2.1.2ff in this chapter). All things considered, I still think that the post-1997 and -2004 evolution of EU competition law (after the first, partial reform of the Merger Control Regulation and after its second, comprehensive reform) have not yet led to a more coherent normative solution that would consistently ensure the submission to identical substantive assessment criteria of transactions leading to the establishment of joint ventures and bearing, as such, similar economic characteristics. In my view, from a de iure condendo perspective and in the context that led to the second (2004) reform of merger control rules (debated and prepared over a considerable period of time), complementary steps could have been taken towards a quasi unitary treatment of joint ventures under EU competition law (through the inclusion of new subcategories of joint ventures to be covered by the Merger Regulation). It must be recalled here that such a possibility was seriously considered in the 1999 White Paper.230 That would happen through the inclusion of joint ventures not satisfactorily meeting the full functionality test, but leading anyway to significant structural change of the parent undertakings, in the ambit of the Merger Regulation—something that would typically occur, for example, in various production joint ventures. That solution, however, was no longer clearly envisaged in the 2001 Green Book on the Review of the Council Regulation (EEC) No 4064/89231 and that seems to have decisively influenced the final solutions adopted in the Merger Control Regulation 2004 which basically maintained the dual systematic treatment of joint ventures along the lines established in the first (1997) reform of merger control rules.232

229 More precisely I refer here to the 1998 Commission Notice on the Concept of Full-Function Joint Ventures (n 220), which was more recently replaced by the Consolidated Jurisdictional Notice after the adoption of MCR 2004. 230 See on that possibility 1999 White Paper on Modernization of the rules implementing Articles 81 and 82 of the EC Treaty, adopted on 28 April 1999 (Commission Programme No 99/027—Brussels, 28.4.1999, paras 79ff. 231 See Green Paper on the Review of the Council Regulation (EEC) No 4064/89, 11 December 2001 (COM (2001) 745 final). 232 In fact, as regards the possibility contemplated in the 1999 Paper of submitting production joint ventures to the MCR, the Green Paper on the Review of the Council Regulation, ibid, already raised appreciable objections or doubts. Actually, the proposal for the second reform of the MCR presented by the Commission in 2002 (Project of 11.12.2002—COM (2002)) did not consider any longer any enlargement of the scope of subcategories of joint ventures to be covered by the MCR in coherence with the stance adopted in the 2001 Green Paper. In reality, various comments made on that 2001 Green Paper—as, inter alia, the German Bundeskartellamt comment (of 21 March 2002), raised considerable doubts as to the adequacy of including production joint ventures in the ambit of the MCR, notably due to the difficulties of qualification of joint ventures comprised in this subcategory. In any case, in its 2003 synthesis on the comments received on the Green Paper (‘Green Paper on the Review of the Council Regulation (EEC) No 4064/89—Summary of the replies Received’), the Commission still noted that

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Although I think this may have been a missed opportunity towards construing a more consistent and unitary treatment of joint ventures under EU competition law, I admit that fundamental steps towards a growing unitary treatment of joint ventures may still result from the gradual convergence of the legal tests for the substantive assessment of the effects arising from joint ventures (following a path that was essentially opened by the first, 1997 reform of the Merger Control Regulation and on which new hermeneutical ground may be covered in the coming years, as I shall observe below in chapters two and three).

4 The Basic Elements of a Legal Definition of Joint Venture in EU Competition Law 4.1 Introductory Remarks The preceding analysis, through which I purported to establish a possible legal definition of the category of joint venture under competition law rules (particularly, but not only, EU competition rules), shows the degree to which this category is elusive and hard to reconcile with a consistent systemic framework. I have also observed that, especially in the field of EU competition law, the identification and characterization of the key components of that category of joint venture is made even more difficult due to the normative option of evaluating the effects arising from joint ventures on the level of effective competition under two different sets of rules (namely, the article 101 TFEU regime and to the regime of direct control of concentrations through the EU Merger Control Regulation). Therefore, as a normative or formal category the joint venture is a considerably indefinite one. In the most representative competition laws we do not find general normative definitions of joint ventures and even the formal elements that may be discerned from normative rules and which may prove relevant for a general legal characterization of joint ventures tend to be very scarce.233 In any case, in order tentatively to identify the possible elements on the basis of which a category of joint venture under EU competition law should be built, it is enough to proceed to a comprehensive review of all the formal references to such category in this body of law and of all direct or indirect forms of characterization of the same category in European

‘some respondents pointed out that partial function production JVs can bring about structural changes in an undertaking and often involve large investments. It was often stressed that there is a need for legal certainty and some respondents expressed concern that the abandonment of a notification system under Art. 81(3) in the modernization process might have a chilling effect on investments. It was therefore suggested that optional notification under the Merger Regulation should be allowed. An obligatory notification for all partial function production JVs was often regarded as unnecessary and burdensome, since those JVs often neither infringe Art 81 or 82 nor create or strengthen a dominant position’ (at point 68). 233 See, in that sense and for a systematic reference to the framework of joint ventures in a very diversified group of competition law systems worldwide, beside the EU competition law system, OECD, Competition Issues in Joint Ventures (n 210). As I shall show below in the remaining part of this chapter, normative solutions such as the one adopted by Australian competition law, that include general definitions of joint ventures, are truly exceptional.

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Commission Guidelines as well.234 In fact, the inherent vagueness and the special fluidity of the concept of joint venture justifies this comprehensive search of relevant elements under a formal perspective (and reviewing in an exhaustive manner normative regimes and guidelines or soft law in the field of EU competition law, but also extending this search, to some extent, to the field of US competition law). This incursion in more formal areas is also justified bearing in mind that in the area of delimitation of the concept of joint venture that I deem more complex—the one that involves a differentiation between mere cooperation agreements subject to the article 101 TFEU regime and cooperative joint ventures subject to the same regime—the case law contributions to the characterization of joint ventures are also extremely scarce. In fact, until 1998 and the landmark GC (then, the Court of First Instance) ruling in European Night Services, neither this court nor the Court of Justice of the EU had been truly called to rule, with any kind of latitude, on substantive issues concerning the application of article 101 TFEU to joint ventures.235

4.2 Initial References to the Concept of Joint Venture in Guidelines and Reports on Competition Policy 4.2.1 First Formal References to Joint Ventures It may be assumed that the first attempt at a comprehensive and systematic understanding of the effects arising from multiple forms of cooperation between undertakings at EU level resulted from the Communication on agreements, decisions of associations and concerted practices in the field of cooperation between undertakings, adopted by the European Commission in 1968.236 In this Communication the Commission purported to identify paradigmatic categories of cooperation agreements or joint ventures that, on the basis of its contents, should not in principle lead to effects of restriction of competition. However, the Commission merely considered in that Communication a set of relatively minor forms of cooperation, without establishing any true distinction in that context between legal situations susceptible of qualifying as joint ventures or as cooperation agreements. In fact, the less developed nature of the forms of cooperation envisaged by the Commission in that Communication and the less structured nature of the cooperative

234 I take into consideration here interventions of the Commission in the field of EU competition law, in its capacity as EU competition authority in spite of the decentralization process initiated through Regulation (EC) No 1/2003 (in fact, regardless of such process the Commission retains a pivotal position in the evolution of EU competition law system, namely through soft law interventions). 235 In reality, such jurisdictional intervention addressing substantive issues concerning the application of article 101 TFEU to joint ventures only occurred in a significant manner with the GC ruling of 1998 European Night Services (n 104), which will be object of special attention below in ch 3. It is unquestionable that after this landmark ruling, other rulings have, either in a direct or indirect fashion, covered the treatment of joint ventures in EU competition law (some of those cases are referred to above, in this chapter and others to be dealt with below, in ch 3). Nevertheless, jurisprudential treatment of joint ventures—particularly as regards the general competition law characterization of this category—remains on the whole scarce. 236 This 1968 Communication on agreements, decisions of associations and concerted practices in the field of cooperation between undertakings remained applicable for a very long time, which is unusual in the context of the EU system of application of competition rules. Only with the adoption of the 2001 Horizontal Guidelines did the Commission fully acknowledge the replacement of those 1968 Guidelines by the new 2001 Guidelines.

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links between the undertakings involved in such cooperation somewhat undermined the ability of the Communication to cover and characterize true joint ventures.237 The Commission case law in the period subsequent to the adoption of the 1968 Communication also seems to confirm that joint ventures were only very superficially touched by the same Communication. That Commission praxis in the period at stake shows a tendency to submit a significant number of cases of joint ventures to the prohibition rule of the then paragraph 1 of article 85 EEC Treaty (now paragraph 1, article 101 TFEU). Conversely, in most of those cases the evaluation of such situations concerning the establishment and functioning of joint ventures led to their being exempt under paragraph 3 of article 85 EEC Treaty. What seems clear in that context is that the most paradigmatic forms of joint ventures did not benefit from the sort of presumption of compatibility with paragraph 1 of article 85 EEC Treaty that was delineated by the 1968 Communication in connection with certain processes of cooperation between undertakings. In short, and contrary to what could prima facie be expected, the 1968 Communication has proven from the start to be of scarce relevance and interest for a global understanding of joint ventures under EU competition law.

4.2.2 Elements of Characterization of Joint Ventures in Reports on Competition Policy It was only with the Sixth Report on Competition Policy that the Commission at last delineated its first, albeit very broad, Guidelines addressing directly the evaluation of joint ventures, particularly as regards the application of the exemption criteria established under paragraph 3 of the then article 85 EEC Treaty.238 I shall address below (chapters two and three) the substantive issues taken into consideration for the evaluation of joint ventures by the Commission in that context. Specifically as regards the issues we are discussing here, pertaining to definition of the fundamental elements relevant for the characterization of a distinct legal category of joint venture, the broad Guidelines included in the Sixth Report on Competition Policy, and even in subsequent Commission Reports on competition policy, do not provide a particularly important contribution for such characterization. However, even if the considerations made by the Commission in that Report do not provide a legal definition of the joint venture category for competition law purposes, they are not entirely irrelevant in this domain. The Commission focused its attention on the functions committed to joint ventures in the context of the various types of these entities that may be at stake. Accordingly, such functional analysis of joint ventures has given us an understanding of an essential and defining feature of these entities, which is its extreme malleability. As emphasized by the Commission in the Report (and in subsequent Reports), joint ventures in the context of competition law enforcement tend to correspond

237 Thus, the 1968 Communication, ibid, covers, inter alia, in particular, cooperation agreements concerning the preparation of comparative studies of undertakings and industries, of joint preparation of statistics, of joint execution of R&D projects or joint use of productive infrastructures or transport or storage facilities. In this range of topics essentially covered by the 1968 Communication only the ones concerning R&D or the joint use of productive infra-structures (which does not correspond necessarily to actual processes of joint production, involving two or more undertakings) tend to be more frequently associated with more structured and integrated forms of cooperation (typically involving a layout based on the creation of joint ventures). 238 See Sixth Report on Competition Policy, 1976.

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to entrepreneurial organizations that may either ensure the pursuit of a specific function of a very limited scope or the pursuit of most of the functions that the respective parent undertakings pursued in any given markets. Furthermore, besides those two extreme situations, one may envisage multiple intermediary structures set up by the parent undertakings—including a variable number of entrepreneurial functions pursued with very different levels of intensity239—in accordance with various combination of scopes that determine the market positions of the parent undertakings. Therefore, on the whole, this ability to provide a flexible centre—of an extremely variable latitude—for the pursuit of specific entrepreneurial functions that are transferred from the sphere of the parent undertakings240 and involving a minimum level of organization and structuring of certain assets which reproduces, even if in a partial manner, certain dimensions of the entrepreneurial structure of the parent undertakings, has somehow been identified in the Commission’s Reports as a fundamental element for the substantive characterization of the category of joint venture. As such, this functional understanding of joint ventures considered in the Sixth Report on Competition Policy and in the Commission’s subsequent Reports, provides some relevant clues for a competition law definition of these entities and, above all, it diverges form alternative perspectives that especially focus on the form of cooperation between undertakings. In fact, in some analysis the focus, when considering the qualification of joint venture applied to separate business entities under common control, is entirely placed in ‘the form that the collaboration takes rather than its subject matter’.241 On the contrary, I consider that legal form is not a decisive element in this area. The legal form of cooperation pursued through the establishment of one or more joint ventures may vary considerably. The essential and unifying element for the characterization of the joint venture under competition law should be found—as implied in the Commission Reports on competition policy—in the entrepreneurial functions with which the joint venture is entrusted. Beyond a certain level, those functions entrusted to the joint venture involve the reproduction in a new organizational structure—combining a variable set of assets and regardless of its legal form—of the key elements that sustain an undertaking, as this is understood under EU competition law even if deprived, in some subcategories of joint

239 I shall have the opportunity in chs 2 and 3, through the reference to joint ventures that perform all the functions of an autonomous economic entity and particularly through the in-depth analysis of joint ventures that only perform a part of those functions, to identify in a more precise manner the type of entrepreneurial functions that parent undertakings may confer to joint ventures. 240 It should be stressed, at this point, that the process of entrusting certain functions to joint ventures may involve not only the transfer of certain existing functions of the parent undertakings, in order to have them pursued through the joint entity, but also, in certain situations, the creation or devising from scratch of certain groups or silos of enterprise functions to be committed ab initio to joint ventures. That tends to happen, eg, with full function joint ventures that are created by the respective parent undertakings with the goal of entering into new markets, or even with joint ventures entrusted with more limited functions, but which are, anyway, essential to ensure the penetration of the parent undertakings in certain markets, through the devising of new functions which are from the start committed to those joint ventures (situations of this latter type may occur in particular, as we shall see in ch 3, in connection with commercialization joint ventures or even, in certain cases, with production joint ventures). 241 This perspective was, eg, followed in Christopher Bellamy and Graham Child, Common Market Law of Competition, 3rd edn (London, Sweet & Maxwell, 1987) esp 194. However, and perhaps significantly, this emphasis on the form of the collaboration, as regards joint ventures, is somewhat abandoned in subsequent editions of the book (see, eg, the fifth edition of this book, under the new title European Community Law of Competition (London, Sweet & Maxwell, 2001).

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ventures, of the level of autonomy and ability to determine its market behaviour that is an intrinsic feature of the general category of undertaking for purposes of competition law (as noted above).

4.3 The Concept of Joint Venture Arising from Various Regulations in the Field of EU Competition Law 4.3.1 Joint Ventures and Block Exemption Regulations In strictly formal and normative terms the first explicit references to the category of joint venture in the context of EU competition law—and formerly EEC competition law—are to be found in various Block Exemption Regulations. Particular relevance in this area is to be historically attributed to the former block exemption on specialization agreements and on research and development agreements (of 1985).242 Although those 1985 Block Exemption Regulations did not provide explicit normative definitions of joint ventures, they typified and regulated to a certain extent relevant situations of cooperation between undertakings that, to a significant degree, included some of the more recurring types of joint ventures. By and large, cooperation processes oriented towards common R&D involve the establishment of a minimum organizational basis to pursue those research and development activities and sometimes to explore the output of such activities (that frequently leads to the establishment of true joint ventures). Accordingly, to a significant extent and regardless of the explicit mention of joint ventures in the initial R&D Block Exemption Regulations, these normative regimes could be construed as initial attempts at providing a normative framework for cooperation between undertakings developed through joint ventures. This association is not so straightforward as regards specialization agreements, as these also comprised agreements for reciprocal specialization or even for unilateral specialization, but, conversely, one of the types of specialization agreements covered, involving joint production of certain products will most

242 Regulation (EEC) No 417/85, Block Exemption Regulation concerning specialization agreements [1985] OJ L53/1, successively replaced by Regulation (EC) No 2658/2000, 29 November 2000, and by Regulation (EU) No 1218/2010, 14 December 2010. The Block Exemption Regulation 1985 was preceded by previous Block Exemption Regulations, which did not, however, have a comparable breadth of scope (that has led me to single out Regulation No 417/85 at this level of identification of explicit normative references to the category of joint ventures). Regulation (EEC) No 418/85, Block Exemption Regulation concerning R&D agreements [1985] OJ L53/5, successively replaced by Regulation (EC) No 2659/2000, 29 November 2000, and by Regulation EU No 1217/2010, 14 December 2010. Unlike what happened with the block exemption on specialization agreements, this Regulation (EEC) No 418/85, on research and development agreements, was not preceded by previous Block Exemption Regulations. As regards the particular relevance of the 1985 generation of Block Exemption Regulations on specialization and R&D agreements for purposes of definition and characterization of joint ventures, that is due to the fact that these corresponded to the Regulations which took further a substantive coverage of this functional area, using a methodology of enumeration of allowed clauses (white-list clauses), that was abandoned in the 2000 Regulations (thus permitting a better understanding of the typical or more common content of certain agreements including joint venture agreements outlining the functions at stake). The explicit admission that the relevant situations of cooperation between undertakings covered by such Block Exemption Regulations included potentially some of the most recurrent forms of joint ventures was made by the Commission in its 1993 Notice concerning the assessment of cooperative joint ventures pursuant to article 85 of the EEC Treaty (OJ 93/C 43/02).

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frequently be the establishment of joint ventures243 (covered by the block exemption at stake). Furthermore, as regards the subcategory of joint production agreements taken as an embryonic form of joint venture (even if not explicitly referred to as such in the Block Exemption Regulation) the Block Exemption Regulations which preceded the 2000 reform—particularly Regulation (EEC) No 417/85 that I have already mentioned—used a legal technique based on the extensive delineation of admitted clauses in the agreements at stake (the so called white-listed clauses) that, as regards joint production agreements in particular, somehow allowed the inclusion of terms most commonly found in production joint ventures (while this category was not explicitly mentioned as such nor normatively defined or recognized in the 1985 Block Exemption Regulation). However, even when that approach was taken—until 2000 as regards research and development and specialization block exemptions—I do not consider justified the interpretation of these Block Exemption Regulations as inherently associated with certain functional types of joint ventures.244 The idea of enhanced cooperation in certain areas of research and development and of specialization may have been underlying the Regulations at stake but these did not provide normative definitions as such of joint ventures. The preceding generations of Block Exemption Regulations in these fields may also have implicitly influenced the delineation of particular research and development and specialization joint ventures, since the threshold for the exemption was related to the attribution of functions of joint commercialization of goods and services. In fact, at that time the attribution of such functions to those joint ventures prevented the application of the exemption and that led to numerous cases of production joint ventures (susceptible of qualification as specialization agreements) being submitted to casuistic evaluation by the Commission leading to various individual exemption decisions based on paragraph 3 of the then article 85 EEC Treaty.245 That feature has changed with the 2000 Block Exemption Regulations (in turn reformed at the end of 2010) which came to admit, to a certain extent, the possibility of some level of joint distribution of the products arising from specialization agreements without implying necessarily the loss of the benefit of the specialization block exemption (a possibility that has been reiterated in article 2(3)(b) of the current specialization regulation, Regulation EU No 1218/2010).

4.3.2 Elements Relevant to Establishing a Legal Concept of Joint Venture as Dealt with in other EU Regulations In this context, the first legislative initiatives at EU level to adopt a normative framework in the field of competition law addressed to areas of entrepreneurial activity closely related 243 The distinction between joint production agreements and other forms of specialization agreements— namely reciprocal and unilateral specialization agreements—was originally considered in the provisions included in article 1(a) and (b) of Regulation (EEC) No 417/85 and is still retained in the current Regulation EU No 1218/2010 (which replaced Regulation EC No 2658/2000; this latter Regulation introduced the subcategory of the unilateral specialization agreements); see, in particular, article 1(1) (d) of Regulation EU No 1218/2010. 244 Such an idea was argued by several authors and commentators—see, eg, DG Goyder, EC Competition Law (Oxford, Oxford University Press) (see, particularly on this, the 1998 edn) 459ff—from which, for the reasons explained above, I diverge on that point. 245 As noted by several commentators; see, in particular, Lennart Ritter, David Braun, Francis Rawlinson, EEC Competition Law—A Practitioner’s Guide, (Deventer, Kluwer Law and Taxation, 1993) esp 136ff (in this edition of the book).

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with some the most paradigmatic functional types of joint ventures did not translate into real normative definitions of joint ventures. The first generations of Block Exemption Regulations (namely in the field of research and development and of specialization activities) did address elements relevant for a proper delineation of the level and intensity of cooperation underlying the establishment of joint ventures, but the explicit use in those normative regimes of the formal concept of joint venture was apparently avoided. However, the legal effects normally related to competition law enforcement purposes with joint ventures were also covered in other areas disciplined by Block Exemption Regulations applicable to activities not so closely or prima facie connected with joint ventures (as is the case with specialization or research and development). These other EU legislative initiatives, therefore, provide a second (if rather indirect) admission to EU competition law of the category of joint venture. Curiously, in some of those legislative initiatives, explicit references to the formal concept of joint venture are made, however incidentally (and never in a systematic manner). I refer here, in particular, to the first generation of Block Exemption Regulations related to various forms of technology transfer or licensing of industrial property rights (that preceded the current regulation on technology transfer, Regulation (EC) No 772/2004).246 In fact, both Regulation (EC) No 2349/84, on certain categories of licensing of patent rights, and Regulation (EEC) No 556/89, on certain categories of licensing of know-how, included negative delimitation rules on the applicability of the block exemptions at stake that explicitly referred to the formal concept of joint venture.247 However, those explicit references to the formal concept of joint venture disappeared in the 1996 reform that led to the adoption of a comprehensive block exemption regulation on technology transfer agreements (Regulation EC No 240/96) and that omission persisted in the reformed regulation on technology transfer (Regulation EC No 772/2004).248

4.4 Elements of a Legal Definition of Joint Venture in the EU Merger Control Regulation 4.4.1 The Adoption of the EU Merger Control Regulation Setting the Basis for a First Legal Definition of the Joint Venture Category in EU Competition Law Undoubtedly, and as I have already underlined, the adoption of the first EC Merger Control Regulation in 1989 heralded an entirely new stage in the comprehensive framework of joint ventures under EU competition law. Beside aspects already covered (above at 3.1.1.1 and 3.2 in this chapter) concerning a normative option for the dual treatment of joint ventures

246 See Regulation (EC) No 772/2004, of 7 April 2004, on the application of article 81(3) of the Treaty [currently article 101(3) TFEU] to categories of technology transfer agreements, OJ [2004] L123/11. 247 This aspect was emphasized by authors like Barry Hawk, analysing these issues in connection with the Draft Project that would become Regulation EEC No 2349/84 (see Barry Hawk, United States, Common Market and International Antitrust: A Comparative Guide (Englewood Cliffs, NJ, Prentice Hall, 1993)). 248 See, for a comparison between various key aspects of Regulation EC No 240/96 and Regulation EC No 772/2004, Valentine Korah, Intellectual Property Rights and the EC Competition Rules (Oxford, Hart Publishing, 2006) esp 45ff.

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and aspects related to the substantive assessment of effects arising from joint ventures in effective competition (that I shall address below, in chapters two and three), the Merger Control Regulation includes—albeit with some limitations—the first normative definition of joint ventures formally adopted under EU competition law rules (that was adopted after tentative references to this category in normative texts and Competition Law Reports reviewed in the preceding sections of this chapter). However, and diverging from other views in this area (held, namely, by the Commission),249 I consider that the normative definition of joint venture delineated in article 3(2) of MCR 1989, adjusted in the first and partial reform (1997) of the Regulation and essentially reiterated, after the 1997 text, in article 3(4) of the current Merger Control Regulation (MCR 2004),250 does not reflect the true picture. It merely deals with a partial characterization of certain constitutive elements of the category of joint venture under EU competition law. On the whole, I consider that the normative definition included in article 3 of the MCR deals mainly with functional aspects inherent to the category of joint venture that are pre-determined by the prevailing requirements of a proper delimitation of the concept of concentration (and by the assumptions underlying such delimitation). As previously noted, these assumptions involve the formal rejection of a possibility of unitary treatment of joint ventures under EU competition law. Accordingly, the partial and functional characterization of joint ventures in the MCR (both in MCR 1989 and in MCR 2004) is construed with the purpose of normatively supporting the scope of direct control of concentrations at EU competition law level. Within this scope of control of concentrations, the overriding goal is to establish a dividing line between two essential subcategories of joint ventures (under the dual form of treatment, already noted, of concentrative and cooperative joint ventures). Therefore, in my opinion, a true comprehensive characterization and definition of joint ventures—which would, in turn, decisively allow for a proper differentiation of this normative category from the residual category of mere cooperation agreements between undertakings—cannot be extracted from the criteria delineated for purposes of distinction between the two subcategories. The problem here lies in the fact that—as I have been emphasizing in the preceding analysis—the key conceptual issues for consistently building an autonomous and comprehensive category of joint venture under EU competition law

249 I refer, eg, to the understanding conveyed by the Commission in its 1993 Notice (n 242) esp para 9, where it apparently suggests that a general definition or concept of joint venture for competition law purposes [cooperative joint venture, going beyond the concentrative joint ventures contemplated in the MCR] ‘can be derived from Regulation (EEC) N.º 4064/89’ (namely, from its article 3). 250 The crucial importance of this rule justifies quoting it directly here, as established in several stages of the evolution of the MCR. Thus, according to the second para of article 3(2) MCR 1989, ‘the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity, which does not give rise to the coordination of the competitive behavior of the parties amongst themselves or between them and the joint venture, shall constitute a concentration within the meaning of paragraph 1(b)[of such article 3].’ According to this latter rule, an operation of concentration is deemed to arise where ‘one or more persons already controlling at least one undertaking, or one or more undertakings acquire, whether by purchase of securities or assets, by contract or by any other means, direct or indirect control of the whole or parts of one or more other undertakings’. With the first (1997) reform of the MCR, this second para of article 3(2) was changed and it was ruled instead that ‘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)’, thus eliminating the requirement concerning absence of coordination of competitive behaviours. Finally, with the second reform (2004) of the MCR, the rule at stake, as established in 1997, was included in article 3(4) in the new Regulation (EC) No 139/2004.

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concern the differentiation between, on the one hand, joint ventures and, on the other hand, looser forms of cooperation agreements between undertakings. Nevertheless, a systematic interpretation of the normative definition of joint venture in article 3 of the MCR may decisively contribute to a global characterization and definition of the general category of joint venture under EU competition law. I refer here to a hybrid process of hermeneutical building of the category of joint venture involving a dual level of legal analysis. At one level, one should purport to identify the central constitutive elements of the joint venture category, to be gleaned through an indirect definition methodology (since those elements are to be perceived from the general concept of concentration to which article 3(4) MCR 2004 implicitly refers (corresponding to article 3(2) MCR 1989). At a second level, one should combine those elements with the specific parameters for qualification of each of the subcategories of joint ventures (concentrative and cooperative joint ventures) established in article 3(4) MCR 2004 (article 2(2) MCR 1989).251 In fact, the elements that may be gleaned through this proposed first level of analysis (and its underlying process of indirect definition) correspond basically to the existence of an entrepreneurial organization (an entity that should be close to the concept of undertaking under EU competition law)252 and to the existence of a situation of joint control of such entity by two or more founding undertakings. The fundamental contribution of the normative content of article 3 of the MCR, taken as a whole, for the understanding of those constitutive elements of the joint venture lies in the delineation of substantive criteria that may be used to identify relevant legal situations of control which may be exerted by one or more undertakings over another undertaking (or part of an undertaking). On the basis of such criteria and through a complementary process of hermeneutical construction, one may discern forms of assessing situations of joint control of an entrepreneurial organization by two or more parent undertakings (which, in turn, are essential to identifying the establishment of true joint ventures). The Commission has tried to develop such complementary hermeneutical construction—with uneven success depending on the specific issues covered—through multiple Guidelines that it successively adopted after the approval of the MCR 1989, which have corresponded to formal elements of undeniable relevance for the characterization of a general concept or category of joint venture under EU competition law (starting, eg, with the 1990 Notice on Concentrative and Cooperative Operations under Council Regulation EEC No 4064/89, that was followed by numerous Guidelines related to the MCR and also by other Guidelines that were indirectly determined by the segmentation between concentrative and cooperative joint ventures introduced by the MCR, such as the 1993 Notice on Cooperative Joint Ventures (noted above); this important body of soft law will be covered in more detail below at 4.6 in this chapter).

251 In para 9 of its 1993 Notice (n 242), the Commission ultimately assumes to some extent—at least implicitly—the need to develop that kind of legal reasoning, on the basis of article 3(1) and (2) (combined) MCR 1989, but it does acknowledge that form of hermeneutical building. I shall return to these issues, below at 4.6 in this chapter, when analysing the contribution of various Guidelines in characterizing and consolidating a general concept of joint venture in EU competition law. 252 Although, in certain cases, it may be not exactly the same as the concept of undertaking as regards its general defining features of autonomy, that are not to be observed in the same manner in connection with joint ventures. See above at 2.1.1 and 2.1.2 in this chapter.

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Besides this first level of hermeneutical building of the category of joint venture— having at its core the concepts of undertaking and of joint control—a second level will imply a combination of the first level elements with the specific conditions of legal qualification or characterization of each of the two fundamental subcategories of joint ventures delineated in the MCR. In fact, without denying its fundamental importance, the content of the general category of joint venture under EU competition law is not to be understood through a mere aggregation of the concepts of undertaking and joint control, taken on their own. There is a legal qualitative plus which arises from a sui generis combination of those elements in the context of the establishment of joint ventures (that has to be understood in order to characterize the category of joint venture). The conditions of legal qualification of joint ventures are directly characterized under article 3(2) MCR 1989 (currently article 3(4) MCR 2004) with the purpose of circumscribing the subcategory of concentrative joint ventures (to be subject to the regime of the MCR). However, flowing from those conditions, is a set of parameters for the legal qualification of cooperative joint ventures to be subject to the article 101 TFEU regime (in contrast to concentrative joint ventures). Conversely, what may not be entirely extracted from such conditions is a conclusive basis for delineating the subcategory of cooperative joint ventures vis a vis the various cooperation agreements between undertakings that may be potentially covered by the regime of article 101 TFEU. It is for this reason that I have been stating that the approval of the MCR, although making a major contribution to the normative characterization of joint ventures under EU competition law—thus representing a major qualitative transition in this area—has not, as yet, led, either under its initial rules of MCR 1989 or after the 2004 reform, to a true normative definition of joint ventures with a general scope.

4.4.2 The Reforms of the EU Merger Control Regulation; its Impact on the Legal Definition of Joint Ventures; and Parallel Developments 4.4.2.1 Definition of Joint Venture and Reforms of the MCR The fist (1997) reform of the MCR—largely retained as regards the characterization of joint ventures in the MCR 2004—did not actually lead to a general normative definition of joint ventures.253 It effectively expanded the scope of application of the MCR in the field of joint ventures, thus coming closer—as discussed above—to a unitary framework for the category of joint venture under EU competition law, but without taking that last step towards a unitary regime of joint ventures. This 1997 reform of the MCR eliminated a more linear normative duality between the subcategories of concentrative and cooperative joint ventures as initially delineated in the MCR 1989. The change that was then introduced at this level was twofold.

253 The first reform of the MCR, arising from Regulation (EC) No 1310/97, had, in any case, a significant (and, on the whole, positive) impact on the treatment of joint ventures. Conversely, the second reform (2004), which culminated in the adoption of Regulation (EC) No 139/2004, did not change substantively the regime applicable to joint ventures, merely renumbering article 3(1)–(4) of the MCR, such that the initial provision of article 3(2), concerning these entities, was transferred to article 3(4) (as noted above). All references to the relevant provisions of the MCR will be to their revised numbering (except when referring specifically to the relevant provisions as enforced between 1997 and 2004).

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On the one hand, the 1997 reform eliminated the former negative condition for the qualification of joint ventures as concentration operations, namely, the absence of coordination of the competitive behaviour of the parent undertakings. On the other hand, such reform not only extended in this way the scope of application of the MCR to joint ventures but it also introduced in the normative body of the MCR a specific proceeding for the appraisal of elements of coordination of the competitive behaviour of parent undertakings, involving the application of the parameters and regime established in article 101 TFEU (through article 2(4) and (5) of the MCR).254 However, even if the 1997 reform (essentially confirmed as regards joint ventures by the adoption of the MCR 2004) mitigated the distinction between two subcategories of joint ventures and its substantive implications, representing a step towards a prospective unitary treatment of joint ventures, it did not eliminate that normative distinction as such. After the 1997 and 2004 reforms an important sphere of joint ventures not susceptible of qualification as concentrations subsists, representing possibly the bulk of joint venture activity and, accordingly, being at the core of the analysis developed in this book.255 As I shall emphasize in the concluding section of this chapter—below at section 5, especially 5.4 in this chapter—in which I attempt to describe the main features of a general category of joint ventures under EU competition law and its possible normative basis (albeit an insufficient one)—the characterization of a general category of joint ventures may incorporate normative elements arising from article 3 of the MCR but will require an hermeneutical construction that goes significantly beyond those elements. 4.4.2.2 Other Normative Developments in Parallel with the Adoption and Evolution of the MCR In parallel with the adoption of the MCR—that undeniably represents the crucial step towards a normative characterization of the joint venture—EU legislation retained once more the formal concept of joint venture in Regulation EC No 3385/94, on the form and content of notifications made for the purposes of Regulation No 17/62 on the application of article 85 of the Rome Treaty (a Regulation revoked after the adoption of Regulation No 1/2003 that put an end to the notification and authorization system that had been established under Regulation No 17/62, being replaced by Regulation EC No 773/2004 on the conduct of proceedings by the Commission pursuant to articles 81 and 82 EC, currently articles 101 and 102 TFEU).256 In strict terms, the formal concept of joint venture was not mentioned in the normative part of Regulation EC No 3385/94, but in the text of Form A/B included in the Annex to

254

I refer here to article 2(4) and (5) MCR 2004, which corresponded to article 2(4) MCR 1997. I have noted in several parts of this book, eg, above in the Introduction, and sections 1 and 3 of this chapter, that the greater proportion of joint ventures should in principle continue to be covered by article 101 TFEU (even after the 1997 reform of the MCR). I have also been acknowledging the difficulty in establishing an exact or even close estimate of that actual proportion, since only an extremely limited of such entities of those joint ventures that do not qualify as concentrations have been object of formal decisions of the Commission. On this, see Chavez, ‘Joint Ventures in the European Union and the US’ (n 2). 256 I refer here to Regulation (EC) No 3385/94 (OJ [1994] L377/28). After the adoption of Regulation (EC) No 1/2003, this Regulation was replaced by Regulation EC No 773/2004, on the conduct of proceedings by the Commission pursuant to articles 81 and 82 EC (OJ [2004] L123/18). Also underlining the importance of the 1994 Regulation as a normative expression of the concept of joint venture, see, inter alia, Goyder, EC Competition Law (n 244) 425ff. 255

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such Regulation (which provided a framework to the formal procedure of notification). Point D of that Form A/B comprised a specific provision on an accelerated process for the assessment of cooperative joint ventures of a structural nature. In fact, such an accelerated procedure was introduced on the basis of an atypical and informal commitment of the Commission—of a non-binding nature—assumed in 1992 and through which the Commission purported to ensure a speedy form of assessment of the subcategory of joint ventures then qualified as cooperative joint ventures of a structural nature257 (in order to mitigate the contrast between the quick process of assessment of concentrative joint ventures under the MCR and the delay normally associated with the assessment of joint ventures under article 85 of the Treaty of Rome). The Commission was in principle committed to ensure a first assessment of any project of establishment of cooperative joint ventures that could be regarded as having a ‘structural nature’ within two month from the date of notification of such project. What was actually at stake then, was a true new hybrid subcategory of joint venture, within the larger number of cooperative joint ventures, which, at least indirectly, received some form of normative recognition in Regulation EC No 3385/94 (disappearing as such after the elimination of the system of prior notification that resulted from the adoption of Regulation No 1/2003). That hybrid subcategory relied excessively in legal conceptualism and was, therefore, a negative consequence of the margin of uncertainty that arose from the fundamental divide between two categories of joint ventures as it was then construed under the MCR. According to Form A/B in the Annex to Regulation EC No 3385/94 the so called cooperative joint venture of structural nature involved an important change in the structure and organization of the assets of the parent undertakings. That change could occur either on account of the fact that the joint venture would assume already existing activities of the parent undertakings as well as complementary elements to those activities, or due to the fact that new entrepreneurial functions would be entrusted to the new entity on behalf or in the interest of the parent undertakings. Also, that kind of transfer of entrepreneurial functions to the joint venture would involve the provision, in the medium or long term, of various financial, corporeal or incorporeal assets to the joint venture. The Commission also specified at that time that such hybrid subcategory of cooperative joint ventures of a structural nature should include not only full function joint ventures leading to effects of coordination of competitive behaviours of parent undertakings (qualified as cooperative joint ventures before the 1997 reform of the MCR), but also certain partial function joint ventures. These latter cases would occur when the specific entrepreneurial functions at stake—of a partial reach and not involving direct access to the market—were fully transferred to the joint ventures (thereby leading to a reallocation of assets dedicated to the fulfilment of those functions between the parent undertakings and the newly established joint venture). Finally, these types of situations of a more intense transfer of entrepreneurial functions to be pursued by joint ventures were considered more probable in connection with research and development and production joint ventures. This characterization of the global reach of the so called cooperative joint ventures of a structural nature meant that, in principle, even after the 1997 reform of the MCR,

257 I refer here to the speedier process of assessment of cooperative joint ventures of a structural nature, on the basis of the undertaking of the Commission stated in the Press Notice—IP (92) 1111, 4 (1993) CMLR 238.

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that hybrid subcategory was not entirely deprived of object. In fact, although full function joint ventures leading to effects of coordination of competitive behaviours of parent undertakings were newly qualified after such 1997 reform as concentrative joint ventures, there remained the specific subcategory of partial function joint ventures leading to a more intense transfer of entrepreneurial functions to those joint ventures. Following the assumptions of the Commission—underlying the Annex to Regulation EC No 3385/94—a significant number of research and development and production joint ventures would still justify being qualified as cooperative joint ventures of a structural nature and benefit from a special, accelerated process of assessment under article 101 TFEU (at the time article 81). 4.4.2.3 Alternative Approaches to the Definition and Characterization of Joint Ventures in EU Competition Law The reasons for this subcategorization of joint ventures were chiefly procedural and were fundamentally removed after the 2003 reform leading to the end of the prior notification procedure and to the adoption of a system of direct exception (under paragraph 3 of article 101 TFEU)—that explains the reason why Regulation EC No 773/2004 on the conduct of proceedings by the Commission pursuant to articles 81 and 82 EC, which replaced Regulation EC No 3385/94, did not retain the subcategory of cooperative joint ventures of a structural nature. What was then at stake was to ensure a quick process of assessment of certain joint ventures covered by article 85 (currently article 101 TFEU) that could be somehow comparable to the assessment procedure of concentrative joint ventures under the MCR. In that context, I do not regard favourably this type of proliferation of subcategories of joint ventures—mainly determined for procedural reasons—even if the subcategory of cooperative joint ventures of a structural nature was essentially abandoned after the 2003 reform of the enforcement system of EU competition rules. On the contrary, and as I have argued consistently thus far, I consider that the best methodological approach is one which endeavours to build, as far as possible, a unitary treatment of joint ventures under EU competition law. However, although being critical of the past autonomous treatment of the hybrid subcategory of cooperative joint ventures of a structural nature and recognizing that that subcategory has been surpassed by subsequent normative developments, I admit that the analytical reasoning underlying the subcategory may have some intrinsic merits and could be applied mutatis mutandis to all the joint ventures that remain outside the scope of the MCR 2004 (and subject to the article 101 TFEU regime). In fact, as far as I am concerned, what chiefly contributes to distinguish cooperative joint ventures from mere and looser cooperation agreements under article 101 TFEU is the kind of structural repercussion— however limited this may be, depending on the various situations at stake—arising from joint ventures (bearing in mind that these entities tend to be based to some extent on a reallocation of entrepreneurial assets between the parent undertakings and the joint ventures). On the whole, the development of this analytical approach could serve well the dogmatic goal (that I uphold) of building a growing unitary treatment of joint ventures, or, at least, a normative framework for joint ventures in which the systematic division between subcategories of joint ventures is attenuated and based on more consistent criteria enhancing the degree of legal certainty to which undertakings are entitled.

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As I have described, the first (1997) reform of the MCR was essentially positive, in the sense that it removed the negative condition (absence of coordination) for joint ventures to qualify as concentrations, thereby taking a step towards a more unitary treatment of joint ventures (in a context in which the positive condition for such qualification, related to the full function nature of joint ventures, has been gradually consolidated in hermeneutical terms in the praxis of the European Commission and its Guidelines).258 Nevertheless, since a non-unitary normative treatment of joint ventures was maintained after the 1997 reform and even after the 2004 comprehensive reform of the MCR, we are still a step away from a more coherent normative solution that would ensure the application of identical substantive criteria of assessment to all joint ventures with similar economic characteristics. The adoption of Regulation EC No 139/2004—after a long process of preparation— could have represented a more ambitious step towards an almost unitary competition law regime of joint ventures through the inclusion of new categories of joint ventures in the ambit of the MCR,259 (even if certain effects arising from such joint ventures were to be assessed under article 101 TFEU, but in the context of the proceeding of the MCR, as happens already in the situations considered in article 2(4) of Regulation EC No 139/2004). In fact, that possibility was envisaged, to an extent, in the 1999 White Paper on Modernisation of EC Antitrust Law.260 The Commission considered in this document the possibility of submitting to the MCR regime joint ventures not performing on a lasting basis all the functions of an autonomous economic entity but which led to significant structural changes in the parent undertakings (particularly as regards production joint ventures, but clearly echoing on that point the analytical reasoning underlying the subcategory that had been formally recognized in Regulation EC No 3385/94 of cooperative joint ventures of a structural nature).261 However, this possibility was not retained in the subsequent 2001 Green Paper on the Reform of the Merger Control Regulation262 and that, in turn, must have decisively influenced the final solution adopted in Regulation EC No 139/2004 which maintained the systematic treatment of joint ventures already established after the first (1997) reform of the MCR. In spite of these limitations, I still admit that some fundamental steps towards a more unitary treatment of joint ventures under EU competition law may, on the whole, result from a gradual convergence of the legal tests for substantive assessment of the effects of joint ventures in the competition process (meaning here the tests concerning the compatibility with the common market and concerning the criteria set in articles 101, paragraphs 1 and 3 TFEU in terms of cooperation, which are respectively established under article 2(2) and (4) of Regulation EC No 139/2004). This, however, has less to do with formal or

258 This consolidation being reflected in the successive Guidelines adopted by the Commission with relevance for the characterization of full function joint ventures, as was the case in the 1994 and 1998 Commission Notices (n 220) and, finally, of the Consolidated Jurisdictional Notice (n 206), after the adoption of MCR 2004 (replacing the 1998 Notice). 259 As I have already emphasized above at 3.2.2, the MCR 2004 may have been a missed opportunity for having a more unitary form of treatment of joint ventures under EU competition law. 260 I refer to the White Paper on Modernization of the rules implementing Articles 81 and 82 of the EC Treaty (n 230). 261 See ibid paras 79ff. These issues considering the possible extension of the MCR regime in order to cover other subcategories of joint ventures beside the ones submitted ex novo to the MCR in the wake of the 1997 reform, have already been partially dealt with above at 3.2.2 in this chapter. 262 Green Paper on the Review of the Council Regulation (EEC) No 4064/89, of 11 December 2001, considered above at 3.2.2 in this chapter.

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normative definitions of joint ventures and, rather, is chiefly related to the critical analysis of the substantive criteria for assessment of joint ventures, that will be dealt with below in chapters two and three).

4.5 The Legal Definition of Joint Venture in the Competition Law of other Jurisdictions 4.5.1 General Overview Having tried to identify a possible normative basis for a general legal definition of joint ventures under EU competition law, and before looking into other formal aspects aimed at such definition or characterization of joint ventures at soft law level, it is also relevant to pay attention to possible normative characterizations of joint ventures in other competition law systems. I have already emphasized that, as a rule, no general definitions of joint ventures are to be found in the various competition law systems worldwide.263 This contrasts with what happens with other legal categories in terms of competition law, which, although lacking the substantive relevance of joint ventures, are largely defined and characterized de iure condito in those competition law systems.264 In spite of that lacuna, it is interesting to review the relatively rare instances of normative definition or express treatment of joint ventures, at least as regards the more developed or mature competition law systems worldwide (thus tentatively shedding some light on an entity which apparently defies legal or dogmatic characterization). Among the few normative solutions that de iure condito include some forms of characterization of joint ventures, those adopted in the competition law systems of Australia and the US should be highlighted (with a natural pre-eminence given to this latter legal system). As regards Australian competition law, the Trade Practices Act 1974 included an express definition of joint venture, albeit one made in very general terms. According to section 41 of that Act, joint ventures are defined as ‘an activity in trade or commerce … carried on jointly by two or more persons, whether or not in partnership, or … carried on by a body corporate formed by two or more persons for the purposes of enabling those persons to carry on that activity jointly by means of their joint control or by means of their ownership of shares in the capital of that body corporate’. What stands out in this definition as the main constitutive element of the legal category of joint venture is the idea of a commercial activity jointly carried out by two or more entities. This notion of joint venture built on the basis of a reference concept—inherently vague—of joint commercial activity is fairly close to what I have characterized earlier

263 See the observations above at 1 and 1.1 in this chapter. For an exhaustive account of this normative gap in various competition law systems worldwide, see OECD, Competition Issues in Joint Ventures (n 210). In general terms, the OECD notes a significant contrast between the type of situations which tend to occur concerning the normative framework of, on the one hand, joint ventures and of, on the other hand, concentration operations strict sensu. As noted, ‘while few OECD Member’ competition statutes provide definitions and special regimes for joint ventures, most do contain clear definitions of mergers and extensive merger review processes’ (at 11). 264 That is what happens, eg, in various competition law systems with multiple specific legal categories in the field of distributions and vertical relations between undertakings.

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in this chapter as extremely broad definitions of joint ventures (in terms of doctrinal definitions). Furthermore, the Australian legal definition bears a remarkable resemblance, as regards the use of the reference concept or idea of joint entrepreneurial activity, to the definition that has been attempted, albeit under a rather specific framework, in terms of US antitrust law (which I shall cover below at, 4.5.2 in this chapter).

4.5.2 The Legal Definition of Joint Venture in US Antitrust Law 4.5.2.1 US Antitrust Law and the National Cooperative Research Act Although US antitrust law may be also characterized by the absence of general normative definitions of joint ventures,265 a specific legislative development is relevant in this field. It concerns the already mentioned (above at 3.1.1.2 in this chapter) adoption of the National Cooperative Research and Production Act (NCRPA) 1993 (slightly amended in 2003),266 which significantly changed the previous regime established by the National Cooperative Research Act (NCRA) 1984.267 Through this legal regime, an attempt was made to clarify antitrust law constraints on certain joint ventures pursuing functions of research and development and of production. The assumption underlying this legislative initiative was that some significant advantages normally associated with these common goals pursued by joint ventures would be jeopardized on account of the legal uncertainty arising from the assessment of possible effects of restriction of competition resulting from the establishment of such joint ventures. It was even considered that a strict application of measures aimed at safeguarding effective competition in these sensitive areas of particular importance for the development of processes of innovation could undermine the international competitiveness of US undertakings vis a vis third countries’ undertakings that were not faced with comparable requirements in their respective competition law systems. I do not purport to develop here any analysis of the NCRPA. Suffice it to note that it establishes a specific limit of application of the rule of reason to the categories of joint ventures covered by the Act.268 The scope of application implies in principle taking into consideration relevant situations that may occur in certain markets worldwide, thus limiting the potential negative assessment of elements of restriction of competition prima facie related to the joint ventures at stake. Regardless of those specific goals of the NCRPA what matters here is that it promoted a general normative notion of joint venture. Although this normative notion has received relatively scarce attention from US courts and even at doctrinal level, we may consider it as an important reference for the general characterization of the category of joint venture under US antitrust law (notwithstanding its undeniable limitations and flaws).

265 On the NCRPA 1993 (Pub L No 103–42, 107 Stat 117), see, Veronica Dougherty, ‘Antitrust Advantages to Joint Ventures under the National Cooperative Research and Production Act’ (1999) AB 1007ff. 266 The NCRPA was slightly reformed in 2003, but changes were minor. Such reform, arising from the adoption of the Standards Development Organization Advancement Act, merely ensured that the behaviour of standards development organizations, involved in standards developments activity would be covered by the rule of reason, in a manner that does not interfere with the normative definition of joint venture of the NCRPA described above. 267 NCRA 1984 (Pub L No 98–462, 98 Stat 1815). On this first, 1984, initiative see DL Foster, ‘The National Cooperative Research Act of 1984 as a Shield from the Antitrust Laws’ (1985) JL & Comm 347ff. 268 For a comprehensive discussion of the NCRPA, see Dougherty, ‘Antitrust Advantages to Joint Ventures under the National Cooperative Research and Production Act’ (n 265) 1012ff.

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The normative notion put forward in the NCRPA is developed on the basis of the central concept of activity—aimed at the pursuit of certain goals in particular—and not on the basis of any legal forms associated with any kind of idea of entrepreneurial structure. Furthermore, the normative definition used in the NCRPA builds on the overlaying of various elements, whose combination is not always clear. In fact, the section of the NCRPA that includes the normative definition requires any interpreter to combine four distinct levels of regulation (thus using a legal technique that deserves the criticism it receives). A first level corresponds to the enumeration of seven goals that may be pursued through the entrepreneurial activities that the joint ventures at stake must carry on.269 Those goals essentially cover research and development and production purposes. At a second level, the NCRPA specifies three types of activities covered by the normative definition of joint venture at stake, including the establishment and operation of facilities for the conduct of the venture, the conducting of the venture on a protected and proprietary basis and the processing of applications for patents and the granting of licences for the results of the venture. At a third level, as per an autonomous subsection of the rule at stake of the NCRPA, eight types of situations are excluded from the scope of the definition of joint venture (for the purposes of the NCRPA). Finally, some exceptions are considered, thus causing excessive technical complexity in this normative definition of joint venture. 4.5.2.2 Shortcomings of the National Cooperative Research Act However, from this normative construction that is fundamentally shaped around the first level of regulation, concerning the development of any group of activities by two or more persons for the specific purposes set out in the relevant rule of the NCRPA, two important aspects may be underlined. On the one hand, no specific legal form is required for the establishment and functioning of joint ventures as a recognized legal category under US antitrust law. On the other hand, and even more significantly, no specific requirements are made as regards any given economic integration of assets for the establishment of any joint venture. Conversely, this corresponds to a rather loose definition of joint venture dissociated from any structural elements (something that may affect its relevance for purposes of substantive competition law analysis of the effects arising from joint ventures). Accordingly, the normative definition of joint venture in the NCRPA is too flexible and somehow

269 Because of its importance I quote here in full the first level of normative regulation of a concept of joint venture, based on the enumeration of seven goals that may be pursued through the entrepreneurial activities to be carried out by such entities, in accordance with the NCRPA: ‘§ 2(a) (6). The term “joint venture” means any group of activities, including attempting to make, making, or performing a contract, by two or more persons for the purpose of—(A) theoretical analysis, experimentation, or systematic study of phenomena or observable facts, (B) the development of testing of basic engineering techniques, (C) the extension of investigative findings or theory of a scientific or technological nature into practical application for experimental and demonstration purposes, including the experimental production and testing of models, prototypes, equipment, materials and processes, (D) the production of a product, process or service, (E) the testing in connection with the production of a product, process or service by such venture, (F) the collection, exchange, and analysis of research or production information, or (G) any combination of the purposes specified in subparagraphs (A), (B), (C), (D), (E) and (F), and may include the establishment and operation of facilities for the conduction of such venture, the conducting of such venture on a protected and proprietary basis, and the prosecuting of applications for patents and the granting of licenses for the results of such venture, but does not include any activity specified in subsection (b).’

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fails to capture the distinctive elements that should allow us to identify particular effects on the competition process arising from joint ventures. I may even contrast it with the restrictive notion of joint venture put forward in US doctrine by Joseph Brodley (and emphasizing, as I have commented above at section 1 and 1.1 to 1.3 of this chapter, the structural element in the antitrust characterization of joint ventures). If we look for a parallel in terms of doctrinal characterizations of joint ventures in the context of the US antitrust law system, it will probably be found in the broad definition of joint venture proposed by Herbert Hovenkamp (also anchored in the idea of entrepreneurial activity, as discussed above in section 1 in this chapter).270 There is, in fact, a clear contrast between the doctrinal perspectives of Joseph Brodley and Hovenkamp (being close to some of the principal assumptions underlying the normative definition of joint venture of the NCRPA). If the four key elements on the basis of which Brodley builds the category of joint venture are recalled here, namely (i) an enterprise under the joint control of the parent firms, which are not under related control; (ii) a substantial contribution by each parent to the joint enterprise; (iii) the establishment of a business entity separate from its parents; and (iv) the pursuit of a goal involving the creation of significant new enterprise capability in terms of new productive capacity, new technology, a new product, or entry into a new market,271 only the fourth element is present in the normative definition of the NCRPA272 (with its focus on the delineation of activities and entrepreneurial goals typically pursued through joint ventures). Given the hybrid and rather elusive nature of the joint venture, with its unique combination of elements of entrepreneurial cooperation and integration, the lack of a true structural dimension in the definition and characterization of joint venture advocated by Hovenkamp and adopted by the NCRPA—a dimension supported by substantial contributions from the parent undertakings, in the form of various assets, to a new entrepreneurial organization jointly controlled—is a major limitation of such definition (something that I shall further emphasize, commenting on the fundamental relevance of the structural dimension in my final conclusions on the competition law definition and characterization of joint ventures, below at section 5 in this chapter). However, in spite of the excessive latitude of the normative definition of joint venture in the NCRPA, I should also acknowledge that such vagueness is somehow mitigated by the prevision of exclusions in the relevant norm of the NCRPA. The enumeration of situations excluded from the general characterization as joint venture allows us—albeit in an indirect and imperfect way—to identify a core of entrepreneurial activities which is distinctive of the joint venture category (and justifying specific parameters of assessment

270 Besides the very loose definition proposed by this author in his Federal Antitrust Policy—the Law of Competition and its Practice (n 6), see also the essentially identical concept put forward by this author in ‘Exclusive Joint Ventures and Antitrust Policy’ (1995) Col Bus L Rev 1ff. Apparently, the analysis of Hovenkamp is not addressed to any structural dimension but to the behaviours of the participating undertakings in joint ventures. 271 In spite of the importance that I attach to the structural elements in the definition of the category of joint venture in competition law, I have also emphasized the relevance of the fourth element of definition proposed by Brodley, concerning the creation of significant new enterprise capability. 272 I am referring here to what I have qualified as restrictive definition of joint venture proposed by Joseph Brodley, that I uphold to a certain extent (although with some relevant provisos and analytical differences). It is important to take into consideration that Brodley’s restrictive definition has been upheld by several US courts. See, as well as other relevant cases in such jurisprudence, SCFC ILC, Inc v Visa USA, Inc 36 F.3d 958 (10th Circuit 1994); Compact v Metropolitan Government of Nashville & Davidson County, TN, 594 F Supp 1567, 1574 (MD Tenn 1984).

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of substantive effects arising from those entities in effective competition). Within those exclusions, I would highlight various situations that may have a global effect of coordination of competitive behaviour between parent undertakings or a spillover effect of the coordination related to a particular common project, duly individualized, to the remaining areas of activity of the parent undertakings.273 In a non-exhaustive manner, I may refer here, to situations involving information exchange between competing undertakings—on costs, price levels or productivity and providing that information is not necessary for the development of the joint project—or to those involving general engagements concerning the commercialization or distribution of goods or services, with the exception of a relationship concerning distribution of goods or services produced by the joint venture or a relationship concerning the licensing or sale of intellectual property rights developed on the basis of the activity of the joint venture (to these exceptions, it is ultimately acknowledged the benefit of the more favourable treatment that the NCRPA establishes to activities included in the sphere of joint ventures). Other relevant situations excluded—for the purposes of preventing joint ventures from benefiting from the more favourable treatment established by the NCRPA—are those involving engagements related to any form of market sharing between competing undertakings or the gradual or isolated transfer of other assets, facilities or even certain areas of production from the parent undertakings to the joint venture. The rationale behind this latter type of exclusion is not immediately obvious. However, all things considered, it must be regarded as an indirect form of compensating the omission produced by the general normative definition of joint venture (according to the constitutive elements outlined in the NCRPA). In fact, as I have already observed, the NCRPA omits a structural basis of legal organization of the joint venture (in contrast with the doctrinal characterization offered by Joseph Brodley). In an indirect manner, through this exclusion, the NCRPA recognizes in the end the need to circumscribe—at a structural level—a certain sphere or group of entrepreneurial assets allocated to the organization of the joint venture and that identify it, as a specific entity vis a vis a sphere of own activities kept by the parent undertakings.

4.5.3 The Legal Definition of Joint Venture Arising from Guidelines Adopted in the Context of US Antitrust Law 4.5.3.1 General Perspective on Various US Antitrust Guidelines The alternative definitions of the category of joint venture put forward by US Federal antitrust authorities in various Guidelines have not clarified this concept much. In most

273 What is at stake here, therefore, is a spillover effect arising from the coordination manifest in a joint entrepreneurial project (limited in its functional components) to the remaining areas of activity of parent undertakings, which, although under a different analytical framework, has also been identified and studied at the level of EU competition law. There may, in fact, be some parallels between that effect (considered here) and what I shall designate below as spillover effects, in a narrow sense (on competition), that are caused by certain joint ventures and which translate into generalized effects of coordination of the general behaviour of parent undertakings (effects also assessed, in connection with certain joint ventures qualified as concentrations, under the terms of article 2, para 4 MCR resulting from the 1997 reform; these effects should not be confounded with effects that, at this level of EU competition law, may be qualified as spillover effects, in a broad sense, which occur in the context of partial function joint ventures and that affect actual or potential competition between parent undertakings (see, for a developed characterization of these latter effects, below ch 3, esp at 2.3.2–2.3.5).

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of cases, the characterization of joint ventures through that kind of soft law instrument has led to definitions with a degree of vagueness or latitude comparable to that underlying the normative definition included in the NCRPA (briefly analysed in the preceding section). In fact, the 1988 US Department of Justice Guidelines for International Operations characterized joint ventures in extremely vague terms as any initiative of collaboration between undertakings that did not reach the threshold of a merger operation and concerning activities of research and development, production and distribution or commercialization of goods or services (curiously, the subsequent version of these Guidelines, through the 1995 Department of Justice and Federal Trade Commission antitrust enforcement, Guidelines for International Operations, no longer included any express definition of joint ventures).274 This definition of joint ventures, essentially delineated through a contrast with mergers, is even more limited and uncertain then the normative definition of the NCRPA.275 Another step in this process of the gradual building of the concept of joint venture, for antitrust law purposes, through Guidelines resulted from the 1996 Statements of Antitrust Enforcement Policy in Health Care of the Department of Justice and the Federal Trade Commission.276 Although the Guidelines contained in those 1996 Statements do not include stricto sensu a general definition of joint venture, through them some sort of delimitation of areas of more favourable treatment of joint ventures was attempted (based on specific forms of application of the rule of reason). In doing so, these Guidelines identified certain joint ventures—as potential beneficiaries of such more favourable treatment—on the basis of a requirement of entrepreneurial integration (meaning here the sharing of some assets, financial resources and the inherent sharing of some financial risk). Accordingly, those requirements involve a structural dimension in the characterization of joint ventures—which I deem to be essential—and that was entirely lacking in the normative definition of the NCRPA. Finally, I admit that an essential step towards a characterization of joint ventures in the field of antitrust law could have been taken with the adoption in 2000—following

274 ‘Department of Justice International Guidelines’ 1988. Curiously, the subsequent Guidelines in this area— ‘Department of Justice and Federal trade Commission Antitrust Enforcement Guidelines for International Operations’ 1995—no longer included a definition of joint venture. Comparable situations occur in terms of relevant legal instruments of EU competition law. In fact, as I have already noted, certain Block Exemption Regulations which historically included some of the very first normative attempts of dealing with the elusive concept of joint venture—and to which I have dedicated, for that reason, considerable attention, even to those normative instruments which are no longer applicable—were revoked by more recent Regulations which ceased to make the same explicit mentions to the concept of joint venture. Similarly, where certain interpretative Guidelines of the Commission have been replaced by more recent Guidelines, these no longer include references as explicit or conclusive to joint ventures as those contained in initial Guidelines. 275 In reality, as I have observed, in spite of its complex and deficient legal technique, the definition of joint venture of the NCRPA includes other elements besides the mere enumeration of activities that may be jointly pursued and is not delineated on the basis of a negative comparison with the reality of concentration operations. Conversely, the subsequent 1995 Guidelines (‘Department of Justice and Federal Trade Commission Antitrust Enforcement Guidelines for International Operations’), which ceased to include any definition of joint venture, include several references to the elements of economic integration as a fundamental dimension to obtain a more favorable antitrust treatment. 276 Statements of Antitrust Enforcement Policy in Health Care—Department of Justice, Federal Trade Commission, 1996; see, in particular, Statement Two, concerning ‘hospital joint ventures involving high-technology’ and Statement Eight, concerning ‘physician network joint ventures’.

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a protracted preparation process—of the Department of Justice and Federal Trade Commission’s Antitrust Guidelines for Collaboration among Competitors.277 However, although multiple preparatory analyses of these 2000 Guidelines were directly focused on joint ventures—as were the hearings held by the Federal Trade Commission in its 1997 Joint Venture Project (from which arose some extremely relevant analytical contributions)278—the final text of the April 2000 Antitrust Guidelines for Collaboration among Competitors had two significant shortcomings. First, it only covered processes of cooperation between competing undertakings leaving outside its scope other important forms of collaboration and in particular other types of joint ventures; second, although the type of entrepreneurial cooperation envisaged in the Guidelines was clearly that with potentially pro-competitive aspects and efficiency elements—thus justifying a comprehensive interplay of both elements favourable to, and restrictive of competition—the explicit use of the concept of joint venture is avoided in the Guidelines. In short, the area of entrepreneurial cooperation referred to in the 2000 Guidelines is undoubtedly the one normally identified with the complex effects on competition that are, as a rule, produced by joint ventures, but nowhere in the Guidelines is there a formal recognition that the analytical criteria designed in the Guidelines to deal with such complex effects are specifically addressed to the category of joint ventures. In spite of that formal limitation, it may be reasonably assumed that the general characterization of processes of competitor collaboration made in the Guidelines will largely correspond to the functioning of joint ventures. On that assumption,279 it may be verified that such characterization of joint ventures has flaws comparable to the ones I have identified in the normative definition of the NCRPA. Again, the main flaw, in my view, is the absence of a true structural dimension in such characterization of joint ventures. In fact, using literal terms that largely resemble the ones employed in the 1988 Guidelines for International Operations, the 2000 Guidelines characterized the processes of entrepreneurial cooperation at stake through a contrast with merger transactions. According to the 2000 Guidelines, those processes of cooperation include a ‘set of one or more agreements’ between competing undertakings ‘other than merger agreements’ aimed at the joint development of certain entrepreneurial activities.

277 Antitrust Guidelines for Collaboration among Competitors, issued by the Federal Trade Commission, and the US Department of Justice, April 2000. 278 Within the various preparatory analyses that led to the adoption of the 2000 Guidelines, the importance of the set of Hearings promoted by the Federal Trade Commission in the context of the so called Joint Venture Project, of 1997 must be emphasized. From that process (Hearings on the Joint Venture Project—1997), arose analytical contributions of the greatest importance for the global understanding of competition law problems associated with joint ventures, but, conversely, no comparable analytical progress was made in defining this category in competition law. Thus, some of the definitions proposed during the discussion between members of the Federal Trade Commission relied on rather loose conceptions of the category of joint venture, which appears characterized, eg, as including ‘all collaborations, short of a merger, between or among entities that would have been actual or likely potential competitor in a relevant market absent that collaboration’ (see FTC staff discussion draft, October 1997). 279 Based on that same assumption, I shall pay some heed to the contribution of those 2000 Guidelines for the assessment of joint ventures in the framework of my substantive analysis of the effects of these entities on competition (see below, ch 2 and, esp ch 3). Furthermore, it should be acknowledged that the convenience or feasibility of adoption of Guidelines on the assessment of joint ventures that went beyond joint ventures involving direct competitors was discussed in the context of the so called Joint Venture Project, 1997, which significantly influenced the Guidelines finally adopted in 2000.

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In parallel, the 2000 Guidelines state that such joint entrepreneurial activities may cover one or more business areas, for example, research and development, production, commercialization and distribution or the buying of assets (a list of business activities potentially covered by joint operations which is larger than the one included in the normative definition of joint venture of the NCRPA). The only element which may imply the existence of a structural dimension—albeit in a very indirect way—is the mention of sets of agreements between competing undertakings. This seems to imply that the cooperation processes at stake are associated with more complex realities which, in turn, combine various legal instruments (as happens when a given legal organization is autonomously built). 4.5.3.2 US Antitrust Guidelines versus Case Law and other Developments However, this general characterization of joint ventures, based on a comparison between such entities and merger transactions involves a certain amount of contradiction with the acknowledgment made in the first section of the 2000 Guidelines (concerning ‘definitions’) of a potential area of overlap between the processes of cooperation covered by the Guidelines and the area of horizontal mergers. That will tend to happen particularly in cases in which the cooperation at stake involves some degree of entrepreneurial integration in a given relevant market and a more prolonged duration. In my view, building on the multiple analytical contributions of the 1997 Joint Venture Project,280 the 2000 Guidelines should ideally have stated in explicit terms the relevance of the category of joint venture (while this remains largely coincidental to the area of collaboration covered by the Guidelines). Furthermore, in building that explicit joint venture category, the 2000 Guidelines should have taken, as a starting point, situations of cooperation involving a degree of entrepreneurial integration, combined with other aspects of the competitive behaviour of undertakings (that would have prevented or mitigated any potential contradiction).

280 The Joint Venture Project, 1997, developed by the FTC in the context of the US antitrust system (the full contents of which may be found on the FTC website), actually provided an invaluable set of high level analytical contributions which have not yet been fully developed. As the then FTC Chairman R Pitofsky emphasized, when opening the Hearings of the Joint Venture Project, joint ventures have been rightly perceived as one of the areas of antitrust leading to a greater degree of uncertainty: ‘In a sense the hearings that we initiate today grew out of efforts that began in 1995. In the process of examining new issues impacted by global and high-tech competition, we asked participants at the hearings what portion of antitrust law and enforcement seemed least clear and arguably most out of date, and a substantial majority of the participants cited antitrust law as it applies to joint ventures.’ Furthermore, while some of the experts who gave statements in these Hearings, such as Joseph Kattan, underlined the difficulty of establishing general guidelines in this field, due to the hybrid nature and extreme variability of joint ventures, I think the resulting 2000 Guidelines could have gone further both in attempting a general definition and characterization and in coming up with an explicit treatment of the joint venture category (see the statement of Joseph Kattan, in which he notes, ‘I do see a problem in any kind of effort to come up with some overarching global set of guidelines that has bright line standards because of the richness of the variations of all the different forms of competitor collaborations that exist out there. I think it is impossible to have a one-sizefits-all approach’). That general definition and explicit autonomous treatment of the joint venture category would be especially important in light of the distinctive and more pro-competitive elements that the joint venture may carry with it in comparison with full mergers, and despite some areas of potential overlap, as rightly underlined in the statement of H Goldschmid, when he stressed that ‘less well understood, but important, is the fact that joint ventures may be a less anticompetitive alternative to mergers’. Other fundamental analytical contributions to this Joint Venutre Project, 1997 deserve to be highlighted, eg, those provided by E Gellhorn, Lloyd Constantine and Steven Salop.

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However, it must be acknowledged that despite this prevailing vagueness in the definition and characterization of joint ventures as an autonomous antitrust law category, US case law has, in certain cases, been somewhat more precise than the 2000 Guidelines (or other soft law and normative definitions), underlining the importance of the integration factor and the structural dimension in that category. See, for example, important precedents like Instructional Sys Dev Corp v Aetna Cas & Sur Co,281 which puts forward a definition of joint venture very similar to the one proposed by Joseph Brodley (discussed above), or COMPACT v Metro Govt282 which emphasizes that the joint venture is a ‘separate enterprise characterized by an integration of operations between and subject to control by its parent firms’. The highly sensitive topic of collaboration involving elements of price fixing has been of the greatest importance in order to identify a threshold between mere cooperative arrangements and entities justifying a qualification as joint venture and thus normally benefiting from a more favourable antitrust treatment. Among other cases, Arizona v Maricopa County Medical Society is typical in this area, with its focus on the idea of pooling assets and entrepreneurial resources and thus generating through a new form of organization of enterprise capability integrative efficiencies as a distinctive factor of the joint venture category283 (and a fundamental threshold to distinguish between per se illegal price fixing in the context of a mere cooperative arrangement, as the Court found to exist in Arizona v Maricopa County Medical Society, and forms of price arrangements in the context of a joint venture, to be assessed differently and bearing in mind some potential for efficiencyenhancing integration of the parties’ resources through their joint venture). However, in very recent developments, particularly those surrounding the landmark Dagher case, which reached the Supreme Court (discussed above at 3.1.1.2 in this chapter), the topic of price fixing in threshold situations where entities may or may not have qualified as joint ventures, has apparently been treated in a less straightforward manner. This case involved a joint venture between two of the major US competitors in refining oil and marketing gasoline, Shell and Texaco, which contributed all their US refining and marketing operations to their joint venture (under a price arrangement that implied unifying the pricing of Shell-branded and Texaco-branded gasoline sold by the joint venture and which, in turn, was challenged by a group of gasoline station owners alleging the parent undertakings were violating section 1 of the Sherman Act by unifying their prices). While the Ninth Circuit Court considered that such pricing arrangement was per se illegal because it was not necessary for the effective operation of the joint venture,284 the Supreme Court reversed that ruling, considering that the per se prohibition rule should not apply to internal decisions of a legitimate joint venture such as the gasoline pricing arrangement at stake.285

281

See Instructional Sys Dev Corp v Aetna Cas & Sur Co 817 F.2d 639, 643 n.2 (10th Cir 1987). See COMPACT v Metro Govt 594 F. Supp, 1567, 1574 (MD Tenn 1984) 283 See Arizona v Maricopa County Medical Society 457 US 332 (1982), where the Court concluded that ‘the foundations [in the case] are not analogous to partnerships or other prior joint arrangements in which persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit’. 284 See Dagher v Saudi Refining Co 369 F3.d 1108 (9th Cir 2004). 285 See Texaco Inc v Dagher 547 US, 8. 282

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Therefore, the Supreme Court considered that the pricing arrangement in the context of the joint venture at stake should have been evaluated under the rule of reason, requiring an extensive factual analysis and the evaluation of all relevant market circumstances in order to determine the hypothetical existence of an illegal restraint of competition. Accordingly, the Supreme Court ruling in Dagher greatly enhances the relevance of the qualification of any collaboration between competitors as a joint venture and means that price arrangements may be part of comprehensive joint venture arrangements, and thus they do not qualify automatically as a per se restraint. This means that the finding of a certain level of integration and pooling of assets and of corresponding integrative efficiencies, regardless of the specific commitments at stake and their isolated potential of restriction of competition, represents an aspect of growing importance in the antitrust definition and characterization of joint ventures (something that also arises from the broad dicta of the Supreme Court in Dagher, implying a new standard of legality for joint ventures under US antitrust laws, something to which I shall return below in chapter three, especially in the context of my substantive analysis of the effects of joint ventures).286 Lastly a brief reference should also be made to the US 2010 Horizontal Merger Guidelines287 These revised Guidelines make an important analytical contribution in terms of antitrust assessment of mergers, with potential relevance for joint ventures with a more significant structural component. I refer, inter alia, to the increase of the Herfindhal Hirshman Index (HHI) thresholds for presumptions or quasi-presumptions of anticompetitive concern (thereby signalling a more permissive approach towards certain levels of concentration); to adjustments in the methodology of analysis of possible unilateral effects conferring more discretion to the antitrust authorities to block mergers on the basis of certain economic models or to the relative downplay of the requirement of market definition (which may pave the way to greater uncertainty in the assessment of various mergers). However, the 2010 revised Guidelines do not appear to bring anything new to clarify the definition of joint ventures and its proper characterization vis a vis mergers. On the whole, it seems clear that in the context of US antitrust law with its different treatment of joint ventures (not involving the systematic duality of treatment of EU competition law) there is, to a significant extent, some convergence between the analytic evaluation of mergers and joint ventures. Conversely, as underlined by authors like William Nye,288 there are some specific repercussions on the competition process of those realities

286 For more on Dagher, see Pirainno, ‘The Antitrust Analysis of Joint Ventures after the Supreme Court’s Dagher Decision’ (n 214) esp 737, in which the author emphasizes that the ‘influence’ of this Supreme Court case ‘is likely to extend beyond its denial of a per se approach to joint venture price-fixing arrangements’. Also relevant to joint venture characterization, see the ruling of the Sixth Circuit Court in Realcomp II (Realcomp II Limited v FTC 635 F.3d 815 (6th Cir 2011), petition for cert. filed (US, 28 June 2011) (No 11–16)). On the Realcomp II ruling see David Meyer, ‘The Sixth Circuit ‘s Application of the Rule of Reason in Realcomp II—Less About the Rule’s Reasonableness than the Reason for the Rule’ (August 2011) The Antitrust Source 1ff. 287 I refer here to the new or revised Horizontal Merger Guidelines, released by the Federal Trade Commission and by the US Department of Justice (Antitrust Division) in August 2010 (henceforth ‘US 2010 Horizontal Merger Guidelines’). On these revised Guidelines see, inter alia, Kevin Arquit, ‘Unilateral Effects Analysis in the 2010 Horizontal Merger Guidelines: The Beginning of the End of the Age of Restraint’ in 37th Annual Fordham Competition Law Institute, International Antitrust Law and Policy—2010 (Barry Hawk (ed), Fordham Corporate Law Institute, Transnational Juris Publications, Inc, Kluwer Law & Taxation Publishers, 2011). See also L Fullerton, ‘Revisions to the Horizontal Merger Guidelines’ (2009) Antitrust 7, 24ff. 288 See William Nye, ‘Can a Joint Venture Lessen Competition More than a Merger?’ (1992) Economic Letters 487.

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and it would be better to make a clear conceptual distinction between pure entrepreneurial cooperation, joint ventures and mergers at the outset (something that has not been completely achieved in the 2000 Guidelines for collaboration among competitors).

4.6 The Legal Definition of Joint Venture Arising from Guidelines Adopted in the Context of EU Competition Law 4.6.1 General Overview—The Guidelines on the Concept of Full Function Joint Ventures 4.6.1.1 General Perspective Returning to the EU competition law system, I have purported to identify and critically review all the relevant elements for a general definition and characterization of the joint venture category that may be derived from the normative framework established in multiple EU Regulations. Those elements of normative origin have been briefly compared with the applicable framework to joint ventures in other competition law systems, particularly the US antitrust system. In order to complete my characterization and tentative general definition of joint ventures it is still relevant to go beyond these normative elements and, still in the context of the EU competition law system, to search for other significant elements that may be found at soft law level. My purpose here, however, is not to review all Commission Guidelines that bear some relevance to the substantive assessment of competition effects of joint ventures— such analysis being developed below in chapter three—but merely to review the key Commission Guidelines that, in the course of successive evolutionary stages of treatment of joint ventures under EU competition law, have explicitly or otherwise characterized the formal concept of joint venture.289 Considering the paramount importance of the introduction of a normative concept of joint venture by the MCR and its inherent normative distinction between concentrative joint ventures and cooperative joint ventures (discussed above at 3.2 in this chapter) in the EU competition law system, there is good reason to start this analytical review of relevant Commission Guidelines with those that have addressed the concept of joint ventures performing on a lasting basis all the functions of an autonomous economic entity. Such Guidelines contain, in my view, the most significant elements, at soft law level, for a general characterization of joint ventures. In this field, it is particularly relevant to take into consideration the 1998 Commission Notice on the concept of full-function joint ventures,290 since it directly resulted from the 1997 reform of the MCR with fundamental repercussions for the systematic qualification of joint ventures that are still relevant today (as commented on above at 3.2.2 in this chapter), while bearing in mind the amendments resulting from

289 A review of Guidelines that, in the course of successive stages of treatment of joint ventures in EU competition law, have explicitly mentioned or dealt with the category of joint venture is, in my view, relevant, regardless of the fact that some of the Commission Guidelines that we shall take into consideration may have, in the meantime, been replaced by more recent Guidelines which, in some cases, do not explicitly uses the concept of joint venture or deal with it in a more indirect manner. 290 1998 Commission Notice on the concept of full-function joint ventures (OJ [1998] C66) 1.

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the replacement of the 1998 Notice with the more comprehensive 2008 Consolidated Jurisdictional Notice under Council Regulation EC No 139/2004.291 4.6.1.2 The 1998 Notice on Full-Function Joint Ventures and the 2008 Consolidated Jurisdictional Notice In the 1998 Notice on the concept of full-function joint ventures and in the corresponding section of the 2008 Consolidated Jurisdictional Notice, which replaced it, there is a general definition of joint venture (whose relevance is not confined to the subcategory of full function joint ventures, qualified as concentrative joint ventures). Whilst, on the one hand, this represents a positive feature of these Notices, the description of joint ventures is still too perfunctory (although it does address the most relevant legal elements). According to the Notices, joint ventures are any undertakings which are jointly controlled by two or more undertakings. The 1998 Notice went on to specify that such category encompassed a broad range of operations from merger-like operations to cooperation for particular functions such as research and development, production or distribution.292 This definition does include the decisive aspects required for the characterization of a general category of joint venture in EU competition law. However, a proper understanding of the interaction of those two elements would require a more developed treatment which is completely absent from the Notices. Those two elements are, namely, the concept of undertaking and the concept of joint control. As I have already noted and as I shall emphasize further in my conclusion to this chapter (below section 5 in this chapter), the complex reality of the joint venture under EU competition law is actually based on these two paramount elements. Nevertheless, it should not be defined, in an over simplistic manner, as a mere combination of those elements, whose global content could supposedly be understood through an autonomous characterization and at different levels of each of the concepts at stake (undertaking and joint control). In fact, I consider that a simple multi-step analytical procedure that would, first, establish the relevant concept of undertaking for competition law purposes and would, secondly, define the concept of joint control (assuming that the mere combination of those two autonomous definitions would on their own provide the basis for defining the content of the legal category of the joint venture) is not enough for a proper general characterization of the category of joint venture. As regards the understanding of those two key reference concepts (especially the concept of joint control), the 1998 Notice on the concept of fullfunction joint ventures redirected the reader to the 1998 Notice on the concept of concentration293 (whereas in the 2008 Consolidated Jurisdictional Notice that characterization may be found in its Section B, II. ‘Acquisition of control’). Although the Commission Notices omit relevant aspects of a general definition of joint venture, it should, however, be acknowledged that the most important aspects of the characterization of the subcategory of joint ventures covered by the MCR regime—namely the

291 See 2008 Consolidated Jurisdictional Notice under Council Regulation EC No 139/2004 (adopted by the Commission on 10 July 2007) (OJ [2008] C95/1). In this latter Notice the aspects concerning the characterization of full function joint ventures previously dealt with in the 1998 Notice (ibid), are covered in Section B (‘The concept of concentration’), point IV (‘Joint ventures—the concept of full-functionality’). 292 See the 1998 Commission Notice on the concept of full-function joint ventures, para 3. 293 I refer here to the 1998 Notice on the concept of concentration under Council Regulation (EEC) No 4064/89 (OJ [1998] C66/02).

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existence of joint control and a structural change to the participating undertakings (and to the markets at stake) are also highly relevant, if not decisive, to gain a full understanding of the basic constitutive elements of the category of joint venture, globally considered.294 Both the 1998 and the 2008 Notices are somewhat ambiguous in their references to the element of joint control, either as an element of characterization of the general category of joint venture or of the subcategory of full function joint ventures (while I consider that the first type of characterization should analytically be the prevailing one). In parallel, I admit that the second element, structural changes to the participating undertakings (and to the markets at stake) may also be deemed relevant for the characterization of a general category of joint venture (which seems to be further acknowledged by the 2008 Consolidated Jurisdictional Notice in comparison with the 1998 Notice).295 In fact, this element is related to a key factor that I have been consistently identifying in the general definition and characterization of the category of joint venture. I refer to what I have been calling the structural dimension of the general category of joint venture which is delivered through a certain degree, however limited it may be in some cases, of entrepreneurial integration. Such entrepreneurial integration, in turn, depends on the establishment of an organization established with a minimum of autonomy vis a vis the structures of the parent undertakings (which may be of a mere contractual nature and not embodying any new legal entity, translating into a system of contracts that may be very diversified and implies specific contributions from the parent undertakings which transfer some of their assets to the joint organization). In this type of processe of establishment and functioning of joint ventures, an element of structural change will inevitably occur, even if it does not affect the whole or even the greatest part of the functioning structures of parent undertakings. Taking my analysis further on this point, I may distinguish between, on the one hand, structural changes proprio sensu—of an external type—of a global reach and which affect the way the parent undertakings, as a whole, present themselves to the market and, on the other hand, structural changes of an internal type. In the first case, we are dealing with situations related to the criteria of full functionality and involving the qualification of the joint venture as a concentration. In the second case (internal structural changes of the parent undertakings) we are dealing with a specific variation of the criteria outlined in the Notices for the purposes of qualification of the subcategory of full function joint ventures (adapting the content of such Notices for the hermeneutical purposes of building a general category of joint venture). In those situations the envisaged changes in the parent undertakings have to do with the way specific entrepreneurial functions of such undertakings are structured without reaching a threshold that would imply comprehensive changes of certain areas of activity of the same undertakings, thus affecting the manner in which they directly access the market. Accordingly, those processes involve, as a rule, auxiliary entrepreneurial functions, for example, functions of research and development or production that represent a contribution to the global activity of the parent undertakings. This auxiliary dimension, which is

294 These aspects are explicitly considered in the 1998 Notice on the concept of full-function joint ventures, paras 9 and 11 whereas they are not developed to the same degree or with the same emphasis in the 2008 Consolidated Jurisdictional Notice. This latter Notice, however, continues to be based on these elements and also takes into consideration that ‘the acquisition of joint control will lead to a structural change in the market’ (at para 91). 295 See ibid para 91.

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indeed vital to circumscribe the situations we are qualifying as internal structural changes of the parent undertakings (a minimum basis required for the establishment of joint ventures, although the subcategory of concentrative joint ventures goes beyond such stadium), is emphasized in the 2008 Consolidated Jurisdictional Notice. In fact, this Notice states that ‘a joint venture is not full-function if it only takes over one specific function within the parent companies’ business activities without its own access or presence on the market’. Also, taking as relevant examples joint ventures ‘limited to R&D or production’, the Notice states that ‘such joint ventures are auxiliary to their parent companies’ business activities’.296 This means that the way the parent undertakings present themselves to the markets is not visibly changed but, conversely, in their internal sphere relevant changes in the way their assets, resources and entrepreneurial functions are organized do occur. Following this line of reasoning, it is my understanding that some of the elements described in the Notices as aspects pertaining to structural changes inherent to full functionality of certain joint ventures are mutatis mutandis relevant to identify the existence of internal structural changes of the parent undertakings perceived as a minimum requirement to establish any type of joint venture (including the subcategory of joint ventures submitted to the article 101 TFEU regime). In my view, that applies, inter alia, to the provision of assets dedicated to the day-to-day operations of the venture with access to sufficient resources, including finance, staff and assets (tangible and intangible).297 Furthermore, one may also deem as relevant elements, although less so as regards cooperative joint ventures, the existence of some elements of own management in order to use the resources allocated to the venture. In these cases, as a minimum level playing field to all joint ventures (regardless of their concentrative or cooperative nature), those elements—concerning a form of management dedicated to the operations of the venture—should be construed as a mere limited form of functional autonomy in the context of the fulfilment of certain auxiliary functions (supporting the global activity of parent undertakings). That limited form of functional autonomy should be perceived as different from more intense forms of functional autonomy which result in the joint venture being ‘economically autonomous’ from parent undertakings as is typically the case with full function joint ventures.298 In any case, even with this latter category of joint ventures, their position as economically autonomous from parent undertakings does not imply that such entities are autonomous as regards the adoption of their strategic decisions (a third level of commercial autonomy or autonomy proprio sensu that would be difficult to reconcile with the requirement of joint control of the parents over full function joint ventures, as underlined by the GC in Cementbouw v Commission).299 4.6.1.3 Entities Operating on a Lasting Basis—the Durability of Joint Ventures Beside the two elements identified in the Notices at stake as essential criteria for the qualification of full function joint ventures (provision of sufficient own resources and 296

See the 2008 Consolidated Jurisdictional Notice, para 95. See the 1998 Notice on the concept of full-function joint ventures, para 12 and the 2008 Consolidated Jurisdictional Notice, para 94. 298 See on this idea of full function joint ventures being economically autonomous from parent undertakings, the 2008 Consolidated Jurisdictional Notice, para 93. 299 See Case T-282/02 Cementbouw v Commission (GC, 2006) para 62. See also ibid. 297

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some level of functional autonomy of the venture)—that I deem partially applicable with some adaptations to all joint ventures regardless of their nature—these Notices also refer to the operation of the venture on a lasting basis as a relevant element for such qualification.300 This aspect is rightly considered as a consequence of the structural changes introduced in the parent undertakings by the establishment of the joint venture. In fact, when a reorganization of the assets of those parent undertakings is set in motion, through their allocation under certain pre-ordained conditions to a new organization entrusted with a joint entrepreneurial project, it is to be expected that some durability will be ensured for that organizational structure. Furthermore, I agree with the assessment made in the Notices that the enduring character of the joint venture will not be affected by the inclusion in the constitutive agreements of the venture of provisions for the eventual dissolution of that entity or the possibility for one or more parent companies to withdraw from the joint venture. That may result from various pre-established contingencies concerning the entrepreneurial activity of the participating undertakings or from fundamental disagreements between those undertakings.301 I even admit that these latter circumstances—to be anticipated in some provisions of the joint venture agreement—will tend to be typical in ventures operating in certain economic sectors subject to particular regulatory constraints. As I shall observe below in chapter three, at 4.4.3.6, that may occur, for example, with joint ventures operating in the financial sector, subject to particular regulatory requirements that demand the permanent existence of effective structures of control. As is widely known, legal situations of joint entrepreneurial control are, by their very nature, associated with a certain amount of instability. However, as regards joint ventures operating in the financial sector a certain minimum level of stability in the exercise of the joint control must be preserved (since sectoral regulation of this area is typically aimed at avoiding levels of greater instability, leading to potential deadlock situations that inherently affect the interests to be safeguarded by that regulation). Therefore, in that context it is quite natural to include in the constitutive agreements of such joint ventures from the outset detailed contractual provisions for the dissolution of the same ventures (regardless of the period of duration that is foreseen for those ventures).302 The mere fact that, on account of those special provisions, potential situations of very limited duration of the joint ventures are envisaged should not affect, in any way, the legal qualification of such ventures. Conversely, it is stated in the Notices that the condition of lasting duration of the joint venture will not be adequately met in cases where the entity is established for a short, finite duration. It is even specified that this type of situation

300 On that aspect see the 1998 Notice on the concept of full-function joint ventures, para 15 and the 2008 Consolidated Jurisdictional Notice, para 103. 301 See again on these factors the 2008 Consolidated Jurisdictional Notice, para 103. 302 As regards particular conditioning factors influencing the exercise of forms of joint control over undertakings that operate in the financial sector, on account of public interest reasons underlying the prudential supervision of the financial system, despite not affecting necessarily, that nature of joint control in certain situations, see Guido Ferrarini, ‘I Gruppi nella Regolazione Finanziaria’ in I Gruppi di Società (Milan, Giuffrè, 1996) 1233ff. On aspects of regulation of the financial sector that may interfere in the application of normative frameworks of competition law to undertakings in this sector, see Martin Tomasi, La Concurrence sur les Marches Financiers—Aspects Juridiques (Paris, Librairie Générale de Droit et Jurisprudence, 2002) esp 95ff.

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will predictably occur where a joint venture is established in order to develop a specific project (eg the construction of a power plant).303 Bearing these aspects in mind, it is important to assess in what way and to what extent the requirement of minimum durability may be also observed as regards joint ventures that only partially fulfil the functions of an autonomous economic entity. In short, it is to be ascertained if, in parallel with the limited applicability (with the due adaptations) of the other elements of qualification of the subcategory of full function joint ventures to all joint ventures, this accessory stability requirement304 may also be construed as a general requirement for the identification of the category of joint venture (taken as a whole). In my view, this question should be answered positively. That evaluation results fundamentally from the existing connection between the latter stability requirement and the requirement of structural changes in the parent undertakings. If, as I have been assuming, this requirement should also be met in the field of cooperative joint ventures subject to the article 101 TFEU regime—although in a special and less intense form than that given to internal structural changes—then it follows from it that, even in some mitigated form, this stability requirement should also be observed in the same field. It should be noted, however, that just as the element of structural changes of the parent undertakings is to be observed less strictly when applied to the subcategory of cooperative joint ventures, the stability requirement should also be assessed in less demanding terms in connection with the same subcategory. In reality, any form of reorganization of entrepreneurial assets, even when limited to an internal sphere of the undertakings in connection with a redistribution of auxiliary functions, presupposes a minimum of durability. And that requirement of minimum durability is compatible with initial provisions in joint venture agreements establishing relatively limited periods of duration of the joint structure created by the parent undertakings (particularly when such structure is associated with specific entrepreneurial projects the duration of which may be immediately foreseen). That limited duration has to be distinguished from other situations of entrepreneurial cooperation characterized by a mere alignment of competitive behaviour which, even if they come to be prolonged for more extensive periods, are not based on a definite programme scheduled for a certain minimum time period and connected with forms of joint allocation (within a certain time frame) of entrepreneurial assets of the participating undertakings. 4.6.1.4 Elements of Joint Control As mentioned above, one of the key aspects that was considered by the Commission for the purposes of defining joint ventures—the concept of joint control—was previously dealt with in the 1998 Notice on the concept of concentration (to which the 1998 Notice on the Concept of Full Function Joint Ventures referred) and is currently to be found in section B.II.3 of the 2008 Consolidated Jurisdictional Notice.305

303 On that aspect see the 1998 Notice on the concept of full-function joint ventures, para 15 and the 2008 Consolidated Jurisdictional Notice, para 104. 304 I refer to the requirement of minimum stability or durability of the venture structures as an accessory requirement, since it is a corollary of the requirement of structural change in the parent undertakings. 305 See the 2008 Consolidated Jurisdictional Notice, section B (‘The concept of concentration’), II. (‘Acquisition of control’), 3. (‘Joint Control’).

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Accordingly, those parts of the Notices are also of some relevance for the characterization of the general category of joint venture in EU competition law, although they seldom include explicit references to that category. Those parts of the Notices focus, in the first place, the concept of control in competition law (a topic that analytically precedes the characterization of the concept of joint control). I shall not go into the details of such analysis here. Suffice it to mention that the Notices emphasize, as per the relevant provisions of the MCR, that the concept of control is anchored in the possibility of exercising decisive influence on an undertaking (without it being necessary to show that such influence is or will be actually exercised). What is relevant is the effective possibility of exercising that control, which may arise from ‘purely economic circumstances’ leading to ‘a control on a de facto basis’ although the terminology used here by the Commission may be misleading or lacking in accuracy, since what is at stake is always a legal assessment which incorporates factual conditions and not an evaluation based on predominantly economic or factual aspects.306,307 The key point is that, as underlined by the Commission, the concept of control under the MCR—and, I may add, the corresponding concept of control under EU competition law—tends in various cases to be different from that applied in other normative areas of EU and national legislation.308 As regards specifically the characterization of joint control, which is the focus of my attention, the Notices underline three fundamental ideas with which I agree. First, relevant situations of joint control do not require equality between the parent undertakings involved in a joint entrepreneurial project. Secondly, in situations in which the rights held by each party in the structure or organization that embodies the joint entrepreneurial project are relatively unbalanced, the decisive factor for identifying possible circumstances of joint control lies in the possibility that one of those parties will keep some additional rights— regardless of the precise legal nature of such rights which may vary considerably—allowing it an actual veto power over decisions which are essential for the strategic commercial behaviour of the joint venture (as acknowledged by the GC in Air France v Commission, explicitly taken into consideration by the Commission).309 In the third place, the paramount factor for a proper legal characterization of certain situations as involving joint control lies in some kind of legal qualification of the rights held by the party which is placed in an apparently lesser position in the joint organization or structure at stake. These rights should be sufficiently important in order to impose a true rule of consensus as to the fundamental aspects of the definition of the competitive behaviour of the joint venture. These types of rights associated with a rule of consensus

306

See ibid paras 19 and 20. On the consideration in competition law systems of certain legal rights and instruments through functional connections with economic criteria, which are, nonetheless especially conformed by the specific systems of normative distinctions of such normative systems, see Karl-Heinz Ladeur, The Theory of Autopoiesis as an Approach to a Better Understanding of Postmodern Law—From the Hierarchy of Norms to the Heterarchy of Changing Patterns of legal Inter-relationships, EUI Working Paper Law No 99/3 (Badia Fiesolana, San Domenico, 1999). As noted there on the legal system and legal methodology, but in terms that are particularly pertinent in terms of competition law systems, ‘the legal system has to observe the economic system but only on the basis of its own distinctions, e.g. The legal system has to adapt properly to a pre-structured “reality” created by the economic system and vice-versa’. 308 See the Consolidated Jurisdictional Notice, para 23. 309 See Case T2/93 Air France v Commission (GC, 1994), quoted in the Consolidated Jurisdictional Notice, para 64. 307

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on strategic decisions concerning the business policy of the joint venture should be clearly distinguished from veto rights conferred to the minority partner merely in order to protect its financial interest as investor in the joint project.310 The 2008 Consolidated Jurisdictional Notice offers illustrations of the most common situations (related, in particular, to corporate joint ventures), involving special rights or veto rights which do not lead to a true rule of consensus on key strategic decisions. This normal protection of the position of minority shareholders includes, for example, rights related to decisions on changes in statutes, increase or decrease in the capital, liquidation, or even preventing the sale of the joint venture. The special rights or veto rights associated with a rule of consensus covering strategic business decisions—conferring joint control—typically include decisions on issues such as, inter alia, the budget, the business plan, major investments or the appointment of senior management.311 I am basically in agreement with the Commission’s position, as set out in the Notices, on this with the proviso that a casuistic approach will inevitably be required. As a rule, it will not be necessary for the minority partner to have all the veto rights mentioned above (this much is also acknowledged by the Commission). In my view, the casuistic assessment of the relevant rights for the purpose of obtaining joint control will depend on the characteristics of the joint entrepreneurial project at stake (or, as the Commission puts it in rather loose terms, it will depend upon the importance of the veto rights at stake ‘in the context of the specific business of the joint venture’).312 Also, as already mentioned in general terms, when considering the specific veto or special rights of the minority partner at stake it is not necessary to establish that such partner will actually make use of the decisive influence conferred by those rights. The possibility of exercising those rights and the corresponding influence and, hence, the mere existence of those rights is sufficient to establish joint control.313 I would also add that, depending on the special characteristics of joint ventures operating in certain economic sectors, the existence of joint control may still be established even if there are specific mechanisms to overrule—in relatively exceptional conditions—the requirement for consensus on a set of strategic matters, in order to address particular problems that may occur in those sectors. I am thinking here, for example, of mechanisms to overcome potential deadlock situations and their protracted duration (as happens typically in the case of joint ventures operating in the financial sector that are normally subject to the special requirement of public supervision in order to prevent prolonged deadlock situations in the management of those ventures). In these rather particular cases, the fact that the need for consensus may be overruled in exceptional conditions is compatible with a finding of joint control (based on such consensus criteria). 4.6.1.5 Joint Control and Uneven Positions of the Parent Undertakings Finally, it is also important to take into consideration the possible unequal role of the parent undertakings in the joint venture project (as admitted by the Commission in the Notices). In fact, according to the Commission joint control is not incompatible with

310 311 312 313

See on this aspect the 2008 Consolidated Jurisdictional Notice, para 66. See the 1998 Notice on the concept of concentration, paras 22 and 23, and ibid paras 67 and 68. See the 2008 Consolidated Jurisdictional Notice, para 68. See ibid para 67.

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the fact that one of the parent undertakings enjoys specific knowledge of and experience in the business of the joint venture.314 The Commission admits that in such cases the other parent undertaking may play a modest or even non-existing role in the daily management of the venture where its presence is motivated by considerations of a financial, long-term strategy, brand image or general policy nature. In my opinion, the approach of the Commission to this kind of situation is a residual consequence of the industrial leadership criteria that the Commission developed in the first years of enforcement of the MCR (particularly before the 1997 reform of the MCR, when coordination links between parent undertakings and joint ventures could preclude the qualification of such entities as concentrative joint ventures and when the industrial leadership criteria, admitting the strategic command of the venture by one of the parents, would allow it still to qualify as a concentrative joint venture).315 However, it also has to be acknowledged that the Commission mitigated this admission of a certain degree of command or dominant role of one of the parent undertakings in the joint venture. In fact, in order to maintain a situation of joint control it is necessary that the party with a more secondary role in the venture retains the real possibility of contesting the decisions taken by the other parent undertaking on the basis of equality in voting rights or rights of appointment to decision making bodies or of veto rights related to strategic issues. In spite of this relevant prevention on the part of the Commission, I consider less clear the threshold between those situations (involving a secondary role of one of the parties, but an alleged possibility of contesting the decisions taken by the dominant party). At the most, I consider that some analytical relevance—albeit a limited one—may be attributed to hypothetical situations, basically induced by factual circumstances, in which one of the parties may regularly assume a more intervening position in the strategic decisions at the core of the joint entrepreneurial project at stake (particularly if such project covers one of the main areas of specialization of that party). In my view, if the capacity of one of the parent undertakings to intervene in the strategic decisions of the venture has any form of effective legal basis—reflected in the contractual system that provides a framework to the dealings between the parties—then I consider a finding of joint control to be no longer possible. In other words, I consider that it is hard to reconcile, on the one hand, positions of giving up the strategic command of the joint entrepreneurial project (to the other party) and, on the other hand, positions allegedly reflecting a rule of consensus on the main decisions on the commercial policy of the venture.

4.6.2 Other Relevant Guidelines in the Field of Concentration Control 4.6.2.1 The Ancillary Restraints Notice In the context of the various Guidelines developed by the Commission for clarification of aspects of control of concentrations and related areas, reference should still be made to the 2005 Notice on Restrictions Directly Related and Necessary to Concentrations and to the

314

See ibid para 36 and the 2008 Consolidated Jurisdictional Notice, para 81. On this controversial industrial leadership criteria developed by the Commission between 1990 and 1997 in the existing normative context at that time, see, inter alia, Venit, ‘The Treatment of Joint Ventures under the EC Merger Regulation—Almost through the Ticket’ (n 221) 473ff. 315

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2008 Notice on Remedies Acceptable under Council Regulation (EC) No 139/2004 and Council Regulation (EC) No 802/2004.316 In fact, these two Notices include explicit references to the category of joint venture that may have indirect relevance for its general characterization in EU competition law. In the 2005 Notice attention should be paid to the principles established for the assessment of commonly encountered restrictions in the case of full function joint ventures.317 Such restrictions refer principally to non-compete obligations between the parent undertakings and joint ventures and to licence agreements (licences for intellectual or industrial property rights granted to joint ventures that may be considered directly related and necessary to the implementation of a concentration). The key areas safeguarded as potentially acceptable restrictions (as ancillary restrictions) relate to enabling the joint ventures to hold, assimilate and effectively use know-how, goodwill or assets provided by the parent undertakings. That kind of safeguarding of positions or rights transferred to the joint venture (assets or know-how), as explicitly contemplated in the 2005 Notice, illustrates the importance of one of the requirements for the establishment of joint ventures (that I have been considering as a defining factor). I refer to the development of a process of integration of various assets or rights, combined in a new structure that should be able to support certain economic activities. Furthermore, I believe that this process—as evidenced in the Notice—should occur in any subcategory of joint ventures (even in non-full function joint ventures outside the scope of the MCR), although the degree of such integration will be higher in the case of full function joint ventures directly envisaged in the Notice. 4.6.2.2 The Remedies Notice Lastly, as regards the 2008 Notice on Remedies, the category of joint venture is explicitly mentioned and taken into consideration in the context of possible structural remedies concerning divestiture of businesses (aimed at maintaining effective competition in the face of proposed concentrations that apparently threaten to impede competition in certain markets). More specifically, the category of joint venture is considered in the context of possible divestiture of minority shareholdings in joint ventures in order to sever a structural link with a major competitor (with the Commission taking account of its own decision in VEBA/Degussa).318 In my view, it is significant that the Commission in its 2008 Notice on Remedies has not made any distinction between subcategories of joint ventures (that may be partially divested). More precisely, and following an analytical line that I deem to be correct, the Commission has not limited the production of effects of severance of structural links—relevant for the purposes of attenuation of negative consequences for competition in certain markets arising from particular operations of concentration—to the subcategory of full function joint ventures (or to divestiture of shareholdings in that subcategory of joint ventures).

316 See the 2005 Notice on Restrictions Directly Related and Necessary to Concentrations (OJ [2005] C56/24) (‘Ancillary Restraints Notice’) and the 2008 Notice on Remedies Acceptable under Council Regulation (EC) No 139/2004 and Council Regulation (EC) No 802/2004 (OJ [2008] C267/01) (‘Remedies Notice’). 317 See section I of the 2005 Guidelines, paras 36ff. 318 See the 2008 Notice on Remedies, para 58, and Case IV/M.942 VEBA/Degussa (Commission, 1997).

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The underlying aspect of such analysis concerns some form of acknowledgment of a special structural dimension that characterizes the general category of joint ventures, regardless of the fact that these entities are susceptible of qualification as concentrative joint ventures subject to the MCR or not. In fact, the links created by the establishment and functioning of joint ventures determine the development of structural ties between the parent undertakings, which tend to take place through the reallocation of multiple assets of those undertakings and their transfer to a joint organization of varying complexity and legal format (depending also on the intensity of the process of entrepreneurial integration associated with each joint venture). These structural ties will inevitably be of a different nature to that associated with any set of cooperation agreements that merely involve a convergence of competitive behaviours (thus not reaching the integration threshold that implies qualification as a joint venture). Furthermore, the idea of the joint venture as an autonomous organization entrusted with elements and assets that allow it some degree of stand-alone activity—as a defining aspect of the joint venture—is also implied by the references made in the 2008 Notice on Remedies to the requirements of the activities or the business areas that are to be divested in the context of remedies considered for purposes of conditional authorization of concentrations. In fact, the Commission specifies in the Notice that the activities to be divested should correspond to a business that can operate on a stand-alone-basis—which means independently of the merging parties as regards the supply of input materials or other forms of cooperation other than during a transition period.319 Significantly, since structural remedies to sever structural links with major competitors may involve the divestiture of joint ventures, that also means such divested joint ventures should, in principle, have a functional basis of autonomy from the parent undertakings (with a minimum provision of organizational elements able to support some level of stand-alone activity even if deeply connected to the parent undertakings).

4.6.3 Commission Guidelines on the Assessment of Cooperative Joint Ventures 4.6.3.1 The 1993 Notice on Assessment of Cooperative Joint Ventures The 1993 Notice of the Commission concerning the assessment of cooperative joint ventures also has some relevance to the characterization of joint ventures under EU competition law in spite of the developments that have occurred since the Notice was adopted.320 Also, this Notice, which replaced the 1968 Notice concerning agreements, decisions and concerted practices in the field of cooperation between enterprises,321 is still a relevant text for the purposes of building a comprehensive methodology of substantive analysis of joint ventures under article 101 TFEU (in spite of the subsequent adoption, in 2001 and by the end of 2010, of new Guidelines on the applicability of article 101 TFEU to horizontal

319

See the 2008 Notice on Remedies, para 32. Commission, ‘Notice concerning the assessment of cooperative joint ventures pursuant to Article 85 of the EEC Treaty’ (OJ [1993] C43/3). 321 Commission, ‘Notice concerning agreements, decisions and concerted practices in the field of cooperation between enterprises’ (OJ [1968] C75) 3, corrected by OJ [1968] C84, 14. 320

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cooperation agreements, largely covering joint ventures).322 Therefore, I shall consider these 1993 Guidelines below in chapters two and three, in the context of my critical analysis and attempt to build a comprehensive model for the assessment of the effects of joint venture on competition under article 101 TFEU (together with the 2011 Guidelines on horizontal cooperation). At this point, I shall essentially refer to the possible elements of characterization and general definition of joint ventures that may be extracted from the 1993 Notice. As regards the definition of a general category of joint ventures in EU competition law, the 1993 Notice contains some formal elements for that definition (but does not take that characterization much further). It initially characterizes the joint venture as a ‘special, institutionally fixed form of cooperation between undertakings’.323 Starting from that very generic basis, it fundamentally states—as I have already noted in my brief analysis of the 2008 Jurisdictional Notice (above at 4.6.1.2ff in this chapter) but following there a more ambitious or broader hermeneutical perspective—that the concept of cooperative joint ventures can be derived from the MCR. However, as I have pointed out, the aim is to build a general concept of joint venture—with clearly distinctive features vis a vis mere cooperation agreements— and to build a concept of cooperative joint venture is in itself a limited goal. Following that rather narrow perspective the 1993 Notice goes on to derive from the MCR a concept of cooperative joint venture as ‘an undertaking under the joint control of other undertakings, the parents’ (deriving, in turn, the concept of control from article 3 of the MCR).324 Somewhat more important are the considerations produced in the same 1993 Notice in order to differentiate between joint ventures established ab initio by two or more parent undertakings and joint ventures that may arise from ex post ‘acquisition of a joint controlling interest in an existing company’. While, as regards the first case the Commission emphasizes that the creation of the joint venture will be based ‘on an agreement between undertakings’, which will govern the ‘exercise of control as well as the management of the business’, in the second case the Commission underlines some specific factors on which will ‘depend on the continued existence of the joint venture’. Such factors have to do with the parent undertakings’ ‘policy towards the joint venture and their manner of controlling it’.325 This note, which prima facie appears to be of secondary importance, actually emphasizes the existence of an organizational structure. In order to have a functioning joint venture it is not enough to acquire a controlling interest in an existing undertaking. In other words, and contrary to the more simplistic characterization offered in the first points of the 1993 Notice, the mere combination of the elements corresponding to an undertaking and to its joint control by two or more undertakings does not thereby lead

322 I refer here to the Guidelines on the applicability of Article 81 of the EC Treaty to horizontal co-operation agreements (2001 Horizontal Cooperation Guidelines) and to the Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, adopted in December 2010, but published in OJ [2011] C11/1, and generally referred to as the 2011 Horizontal Cooperation Guidelines. Unlike the 1968 Notice, the 1993 Notice made a significant contribution to the substantive assessment of joint ventures and it is for that reason that I consider it to be still relevant—to some extent—even after the successive adoption of the 2001 and 2011 Horizontal Cooperation Guidelines. On the importance of the 1993 Notice generally, see Michel Charles, ‘Les Entreprises Communes à Caractère Coopératif face à l’Article 85 du Traité CEE—Communication de la Commission CEE du 16 février 1993, sur les Entreprises Communes Coopératives’ (1994) CDE 327ff. 323 See the 1993 Notice, para 1. 324 See ibid para 9. 325 See ibid para 13.

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to a joint venture. A kind of legal qualitative plus or specific element is required, which concerns a permanent and jointly governed organizational structure to conduct the business undertaken through the joint venture (although that organizational structure may lack some of the elements required in a more demanding definition of undertaking in EU competition law, because it may consist of an auxiliary structure in connection with the activities of the parent undertakings and have no direct access to the market). 4.6.3.2 The 2001 and 2011 Horizontal Cooperation Guidelines The 2001 and 2011 Horizontal Cooperation Guidelines, follow a different approach in formal terms. In fact, these Guidelines omit an explicit treatment or characterization of the joint venture category (and, accordingly, do not outline in any comprehensive manner the specific elements of assessment of joint ventures in comparison with other forms of cooperation between undertakings). However, the Guidelines do include some incidental explicit references to joint ventures (especially as regards production agreements)326 and it may also be noted that they include implicit references to the subcategory of joint ventures subject to the regime of article 101 TFEU.327 In reality, for purposes of characterization and assessment of cooperation agreements these Guidelines refer at certain points to ‘the degree of integration of the different functions which are being combined’.328 These references to the integration of entrepreneurial functions is clearly connected with one distinctive feature of the joint venture category. Furthermore, although the 2011 Guidelines specify that they are applicable to the ‘the most common types of horizontal cooperation agreements irrespective of the level of integration they entail’,329 this latter proviso does not invalid the fact that the analytical methodology envisaged in the Guidelines emphasizes pro-competitive elements for the assessment of cooperation between undertakings that are typically associated with the element of entrepreneurial integration—and the corresponding dimension of economic efficiency— underlying joint ventures. The 2001 Guidelines even stated that they were ‘only concerned

326 See on this, eg the 2001 Horizontal Cooperation Guidelines, para 78. As stated there, ‘Production agreements may vary in form and scope. They may take the form of joint production through a joint venture, i.e. a jointly controlled company that runs one or several production facilities, or can be carried out by means of specialization or subcontracting agreements whereby one party agrees to carry out the production of a certain product’ (emphasis added); and (at para 150): ‘Production agreements vary in form and scope. They can provide that production is carried out by only one party or by two or more parties. Companies can produce jointly by way of a joint venture, that is to say, a jointly controlled company operating one or several production facilities or by looser forms of co-operation in production such as subcontracting agreements where one party (the “contractor”) entrusts to another party (the “subcontractor”) the production of a good’ (emphasis added). The 2011 Guidelines, using a formulation close to the one adopted in 2001, incidentally referring to joint ventures, go a slight step further in contrasting the category of joint venture to a diffuse category of ‘looser forms of co-operation’, albeit without specifically characterizing in what manner joint ventures are to be deemed as more structured forms of cooperation in comparison with such looser forms of cooperation (emphasis added). 327 This assumption on various implicit references or inclusion of joint ventures in the 2001 and 2011 Guidelines is also, to some extent, validated by the various literal references to joint ventures in the examples provided in various sections of those Guidelines concerning, eg, R&D joint ventures, production joint ventures and ‘sales joint ventures’ (that I prefer to call commercialization joint ventures); see, eg, paras 107, 108, 110, 112, 157 of the 2001 Guidelines and paras 147, 149, 187, 188, 189, 191, 255 of the 2011 Guidelines. 328 See the 2001 Horizontal Cooperation Guidelines, para 2 and the 2011 Horizontal Cooperation Guidelines, para 14. 329 See the 2011 Horizontal Cooperation Guidelines, para 6.

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with those types of cooperation that potentially generate efficiency gains’.330 While the same emphasis is not explicitly assumed in the 2011 Guidelines, it is safe to assume that a significant part of the analysis and of the systematic grid put forward in such Guidelines for the assessment of the effects of cooperation on the competition process—identifying some key functional types of cooperation—largely addresses the category of joint ventures. However, those aspects will be covered below in chapters two and three, concerning the legal methodology for the assessment of effects of joint ventures on competition and— strictly for the purposes of a general definition and characterization of the category of joint venture which is the focus of my attention in this chapter—it should be acknowledged that the 2001 and 2011 Guidelines essentially omit the key elements for such a definition or characterization (the omission on that point being even greater than the one which occurred in the 1993 Guidelines on cooperative joint ventures).331

5 The Definition of Joint Venture in EU Competition Law—Conclusion 5.1 Overview On the basis of my review of the relevant elements for a general definition of the category of joint venture under EU competition law, taking into consideration elements derived from (i) doctrinal analysis, from various (ii) EU Regulations and (iii) Commission Guidelines as well (in the field of concentration control and cooperation between undertakings), and also (iv) aspects related to a comparative analysis of legal systems (particularly with US antitrust law), I have pari passu established the key defining features of this legal category. At this point, I may produce a final characterization of the legal elements that I deem to be essential for building in a consistent manner the category of joint venture under EU competition law, putting into perspective the various aspects discussed above. My overriding goal in this final characterization is to identify, at some adequate level, a set of distinctive features of the joint venture which may support its comprehensive differentiation vis a vis the multiple forms that cooperation processes between undertakings may take. It should be noted that for this characterization, I have not focused on particular

330

See the 2001 Horizontal Cooperation Guidelines, para 10. The idea of some more complex structures of cooperation, involving more intense levels of cooperation which is explicitly raised in the 2001 Guidelines, para 12 (and to some extent in a less explicit manner in the 2011 Guidelines), in order to exclude them from the Guidelines’ remit, could, to a large extent, have been framed taking as a reference the category of the joint venture, and some variations of it involving special further complexity (as, eg, the cases of multiple joint ventures or networks of joint ventures noted above), bearing in mind that this category may include systems of contract of appreciable complexity. That kind of qualification, which would take advantage of flexibility and structural diversity of the category of joint venture, would, in my view, have been largely preferable to the use in those Guidelines—in connection with more intense forms of cooperation not specifically covered by them—of the concept, rather imprecise and scarcely ascertained in terms of legal analysis, of ‘strategic alliance’ (emphasis added). See, on strategic alliance and its possible reach, Peter Killing, ‘Understanding Alliances: The Role and Task of Organizational Complexity’, in Contractor and Lorange (eds), Cooperative Strategies in International Business (n 30) 55. 331

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requirements for the qualification or characterization of certain subcategories of joint ventures (thus determining their submission or not to the regime of the MCR).

5.2 The Ratio Underlining the Autonomy of the Joint Venture Category in a Middle Ground between Cooperation and Concentration of Undertakings Considering my preliminary characterization (above at section 1, 1.1 and 1.2 in this chapter) of the various analytical perspectives for defining the joint venture category— encompassing what I have referred to as (a) broad and (b) more restrictive definitions and also (c) an intermediate perspective of antitrust definition of joint ventures situated between those two more extreme perspectives—it is my firm conclusion that the specific aspects justifying the autonomous treatment of this category under EU competition law are only properly addressed through this third perspective (above, (c)). As I have been emphasizing, the category of joint venture is a complex one which is situated between the cartel, the mere cooperation agreement and the operation of concentration (some interplay existing with this latter category). Accordingly, it has a hybrid nature which gives it a particular flexibility as a tool for developing various relationships between undertakings but that, on the other hand, makes a proper qualification and legal systematization of this entity in the context of EU competition law (as in other competition law systems worldwide) extremely difficult. I have also observed that the difficulties inherent to the category of the joint venture are further aggravated in terms of EU competition law on account of its dual treatment of joint ventures, which was formally established with the adoption of the MCR (requiring a supplementary analytical effort to identify truly distinctive elements of the category that are common to all subcategories of joint ventures and allow its differentiation vis a vis the body of various cooperation agreements between undertakings). As an intermediate legal entity between the two extreme conceptual realities of the cooperation agreement and of the concentration operations (stricto sensu), the joint venture inherently contains a combination—in various forms and degrees—of elements related to the competitive behaviour of undertakings and elements of a structural nature. As regards the assessment of substantive effects from the creation and functioning of joint ventures on effective competition, such combination tends to lead to a tension between procompetitive elements of economic efficiency—normally associated with the dimension of entrepreneurial integration—and elements restricting or distorting competition. Accordingly, a comprehensive assessment of the effects of any given joint venture on competition requires, in principle—and with the exception of certain paradigmatic situations that I shall explain below in chapter three332—a very delicate evaluation of the

332 I refer here to the exception involving situations normally permitted or non-prohibited under competition law, leading to quasi-presumptions (which will be extensively dealt with below in ch 3, in connection with the main functional subcategories of joint ventures covered by article 101 TFEU). Conversely, I also refer here to opposite situations involving aspects of the establishment of joint ventures that are to be normally deemed to be prohibited and intrinsically restrictive of competition. The comprehensive analytical model that I propose for the assessment of joint ventures under article 101 TFEU—below, ch 2—relies precisely in the identification of those types of situations, which tend to be perceived favourably or unfavourably in competition law, in order to

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interplay of such different sets of contradictory effects (pro-competitive and distorting competition).333 However, any attempt to get to grips this intermediate reality in the field of EU competition law (that the joint venture embodies) requires the proper identification of a qualitative threshold beyond which such distinctive combination and interplay of elements of entrepreneurial cooperation and integration is produced (which, in turn, is associated with the special tension between pro-competitive elements and elements distorting competition). In the context of my preceding analysis I have maintained that such a decisive qualitative threshold is to be found in the establishment of a new entrepreneurial unity, largely following the criteria that allow us to characterize the concept of undertaking under EU competition law, but involving, in the process, a certain degree of adaptation of those criteria (considering its application under a very specific perspective). That possible adaptation has to do with the fact that the joint activity of two or more parent undertakings, embodying the establishment and functioning of a joint venture, may be limited to the internal sphere of organization of those parents (not being present in such cases in a sphere of activity involving a direct and autonomous relationship with the market). Thus, the category of joint venture relies, to some extent, on the concept of undertaking, in the broad terms under which this concept is delineated for purposes of competition law. As I have underlined, it corresponds to a substantive concept that can be manifested through various legal vehicles, including (in addition to the frequent use of the category of the corporation in the praxis of undertakings), multiple other vehicles whose legal contours may vary considerably in the context of the national legal systems that interact with EU competition law. Besides that, the general concept at stake of undertaking is predominantly based on a structural condition. Furthermore, after some initial hesitation in this area, in EU competition law, the idea of joint entrepreneurial control was also integrated into the concept of joint venture as one of its essential constitutive elements. In spite of that, I do not accept a more simplistic characterization of the category of joint venture as a mere combination of, on the one hand, the concept of undertaking, and, on the other hand, the concept of joint control (on the basis of the respective content of these concepts, already consolidated in the context of EU competition law). I shall return to this idea of a legal qualitative plus that has to be identified for the purposes of building the category of joint venture and that interacts with the reference concepts of undertaking and joint control.

circumscribe, by opposition, situations that require more developed analysis (in accordance with pre-ordained and interconnected parameters). 333 This paradigmatic requirement of the consideration of contradictory effects—pro-competitive and distorting competition—is in itself to a distinctive feature of the category of the joint venture in competition law. One consequence of this need to establish and develop such complex consideration of different effects generated by joint ventures is that it leads to high levels of uncertainty or unpredictability of the competition law assessment of these entities, unless comprehensive, stable analytical models are developed for that very purpose, such as that outlined in ch 2 and that I apply, through in-depth analysis of the key functional subcategories of joint ventures to be treated under article 101 TFEU, throughout ch 3. Those unpredictability risks, affecting legal safety, are highlighted in US antitrust doctrine, by authors like Thomas Pirainno in his study, ‘Beyond Per Se, Rule of Reason, or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 118) 1ff, esp 13. As he states, ‘analysis of all joint ventures on such a structural basis would make the legality of cooperative arrangements among competitors highly uncertain’.

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I have also underlined that the establishment of a new entrepreneurial unity (inherent to the joint venture) is legally satisfied in a minimum level of organization that is bound to reproduce, albeit in a limited way (in several cases) certain dimensions of the entrepreneurial structure of the founding undertakings. The specific trait of this new entrepreneurial structure lies, however, in the fact that, in certain cases, it may involve merely the exercise of functions corresponding to partial areas of entrepreneurial activity (without including direct forms of access to the market through the commercialization of certain goods and services to particular target clients). That organisation will provide a flexible centre for the pursuit of specific entrepreneurial functions that are transferred from the structures of the parent undertakings to the joint venture. The decisive aspect for the characterization of joint ventures will lie, then, in the type of entrepreneurial functions that such entities will absorb, which, in turn, will require a certain functional organization of a given set of assets for the pursuit of those functions. In this context, the particular legal form of vehicle that is chosen for such joint activity of pursuit of certain entrepreneurial functions will be, to a considerable extent, a secondary factor, since the organizational structure to be established may be governed by extremely variable contractual arrangements.

5.3 Proposed Approach for the Definition of Joint Venture 5.3.1 The Key Elements of the Proposed Concept of Joint Venture in the Context of EU Competition Law 5.3.1.1 General Perspective To some extent, the concept of joint venture that I outline, following an intermediate perspective situated between what I have referred to as broad and more restrictive definitions of the joint venture has several points in common with the definition proposed by Joseph Brodley.334 In fact, I have found in the course of the preceding analysis a recurring contrast between, on the one hand, notions of joint venture built upon the identification of a structural dimension of the joint entrepreneurial activity to be pursued through the joint venture and, on the other hand, notions built upon the identification of certain types of entrepreneurial activity that may be jointly pursued (by two or more undertakings).335 The notion proposed by Brodley, in a manner that I consider to be methodologically correct, confers a predominant role on the structural dimension for purposes of characterization of the distinctive elements of the joint venture. Following to a certain extent the constitute elements of that definition—although with some significant changes or adaptations—I identify on two different levels, (i) a set of three elements that embody the

334 I refer here to the notion of joint venture proposed by Joseph Brodley in his seminal study, ‘Joint Ventures and Antitrust Policy’ (n 8) 1524ff. 335 Brodley’s conception is paradigmatic of the first orientation, largely relying on an essential structural dimension and the second type of orientation has clearly influenced, eg, the definition of joint venture established in the NCRPA, in the context of US antitrust law (see above at 4.5.2 in this chapter). The concepts underlying the normative regime of the MCR and multiple Commission Guidelines (especially Guidelines directly or indirectly related to the enforcement of the MCR—see above at 4.4 and 4.6 in this chapter), come closer to the structural perspective, but, in my view, do not evidence that with sufficient clarity or even consistency.

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structural basis conferring a distinctive nature on the category of joint venture under EU competition law and (ii) a fourth element of a distinctive nature which is related to the type of entrepreneurial goals pursued through the joint venture. 5.3.1.2 The Four Essential Elements of the Proposed Notion of Joint Venture The structural basis of the joint venture should be clear in any form of functional organization endowed with a minimum level of autonomy vis a vis the parent undertakings. In spite of the recurrent use in the entrepreneurial praxis of the corporation, that organization may be based in purely or largely atypical contractual arrangements (involving, or not, as the case may be, the creation of personalized entities). I even admit that the increasing use of the category of the joint venture in the current economic context—largely characterized, as I have noted, by the short lifecycles of goods and services, by innovation and an intense combination of different productive skills and information pertaining to several entrepreneurial areas336—may be associated with a more intense use of various atypical arrangements for building the organizational support of the functioning of joint ventures. If I develop further my analytical perspective on this decisive structural level of definition of the category of joint venture, three essential elements may be identified, namely (i) the joint ownership of a new structure by two or more parent undertakings that remain reciprocally independent;337 (ii) the making of significant contributions to that structure by each parent undertaking—through the transfer to the venture of various entrepreneurial assets; and, finally, (iii) the establishment of a legal entity distinct from those parent undertakings, whether personalized or not (which should be fundamentally understood as a business centre to which are transferred certain rights and interests). The second level in this definition of joint venture that I propose, including (iv) a fourth constitutive element of the venture, with a different legal nature, is not in itself a decisive one for the identification of the structural dimension, which is on the basis or at the very core of the delimitation of this category vis a vis the other agreements of cooperation between undertakings. Accordingly, I think that its relevance should not be overvalued, contrary to the position apparently taken by Joseph Brodley in his general characterization.338

336 I have already underlined generally the conditions in which the prevailing patterns of development of economic activity in the last decade (or two decades) have not only contributed to an increased use of models of cooperation between undertakings gradually more geared towards the creation of joint ventures, but also to joint ventures with more diversified and complex structures (above at 1.4.1.2ff in this chapter). Those general considerations are naturally relevant also in terms of analysis of the category of joint venture in the field of competition law for the purposes described above. 337 As regards this first element which I identify above, what is predominantly at stake is the existence of situations of joint control of certain legal structures. This notion of joint control has been particularly developed in the field of direct control of concentrations covered by the MCR. The factors determining the existence of joint control that have been ascertained in that area may usually be used in general for determining the content of such notion as a constitutive element of the category of joint venture. 338 I refer again to the delimitation of the concept of joint venture in the field of competition law proposed by Joseph Brodley, ‘Joint Ventures and Antitrust Policy’ (n 8), based on essential assumptions which this author seems to have maintained in his more recent studies, as, eg, ‘Proof of Efficiencies in Mergers and Joint Ventures’ (1996) ALJ 575ff. I admit, in any case, that the importance of a fourth element in the antitrust definition of joint venture—related to the type of entrepreneurial goals pursued through these entities—may have been somewhat overvalued by Brodley. However, I understand, to some extent, that the analytical perspective developed by this author has been especially influenced by the concern of electing analytical criteria of delimitation of the category of joint venture which could be distinctive enough vis a vis a vast array of cooperation arrangements, bearing in

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However, this fourth constitutive element in the definition of joint venture should be regarded as especially important for purposes of legal qualification of subcategories of joint ventures. Such complementary legal qualification of joint ventures is, by its very nature, related to the assessment of a specific component of entrepreneurial efficiency normally associated with the global category of the joint venture and that should be contrasted with a body of more or less predictable effects of distortion of competition arising from the creation and functioning of joint ventures. That fourth element may be characterized in general terms as a process of creation of significant new enterprise capability that is to be added to the one previously generated by the parent undertakings. In other words, the joint entrepreneurial project underlying any joint venture should have as a driving force a specific goal aimed at the introduction of any new element of enterprise capability in the context of the activities developed by the parent undertakings. This element may developed in various forms, including, inter alia, the introduction of a new productive process, the introduction of a new technology, entering a new market or merely an upgrade or adjustment in productive processes previously maintained by the parent undertakings, provided it generates some kind of improvement in efficiency.339

5.3.2 The Praxis of Identifying and Assessing the Key Elements of the Definition of Joint Venture 5.3.2.1 Global Perspective Considering the inherent flexibility of the category of joint venture and the various contractual functions (or causes for concluding joint venture contracts)340 underlying the types of entrepreneurial activity that joint ventures may usually perform, the constitutive elements of such category that we have noted—namely, the establishment of a legal entity distinct from those parent undertakings and the process of creation of significant new enterprise capability—should not be interpreted too strictly.

mind the proliferation in US antitrust doctrine of alternative definitions of joint venture of an excessively wide nature and that Brodley justly considers ‘analytically useless’ (and therefore incapable of providing a true distinction between joint ventures and looser cooperative arrangements). However, while understanding his analytical concern, I consider that it has ultimately led Brodley, at least as regards some aspects of his analysis of the concept of joint venture, to draw excessively rigid characterizations of the distinctive elements of this antitrust category. 339 In the context of my in-depth analysis of the substantive assessment of effects of joint ventures on competition (below, ch 2 and esp ch 3), I will develop further that idea of a distinctive plus of efficiency intrinsically associated with these entities and representing, as such, a distinctive elements of this antitrust category. See, on this point, Edmund W Kitch, ‘The Antitrust Economics of Joint Ventures’ (1985) ALJ 957ff. Such plus of economic efficiency may be achieved in different ways, including any process of economy of scale, elimination of certain duplications in the productive process, access to new types of resources and new forms of application of those resources. Possibly influenced by Brodley’s analysis, some US antitrust jurisprudence of the latest two decades has emphasized as a distinctive antitrust trait of the category of the joint venture its ‘capability in terms of new productive capacity, new technology, a new product, or entry into a new market’ (see, in that sense, in particular, Compact v Metropolitan Govt 594 F. Supp. 1567, 1574 (MD Tenn 1984), in which Brodley’s 1982 study is explicitly quoted). The Supreme Court has also underlined this distinctive element of joint ventures, stating that these entities may render possible ‘a new product by reaping otherwise unattainable efficiencies’; see NCCA v Board of regents of the Univ of Okla 468, US, 85, 113 (1984). However, this idea of a maius of economic efficiency has not been explored to the same degree in the context of the EU competition law system (at least up till now). 340 On the idea of cause of contracts, particularly in Romanistic-Germanic systems, but also dealing with possible corresponding concepts in common law systems see my observations, above at 1.4.3.1(B)ff in this chapter.

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In fact, I consider that the characterization drawn by Joseph Brodley is excessively rigid as regards aspects comparable to those referred to above (something that leads us to diverge appreciably from his characterization on those points). In particular, I find Brodley’s analysis too limiting when it builds on an idea of establishment of a business entity separate from the parent undertakings through the creation of a corporation jointly controlled by these latter entities (such characterization being implicit in references to elements of corporate ownership and corporate control).341 However, as I have been underlining, the constitutive element of the joint venture corresponding to the establishment of an organizational support with a minimum degree of autonomy to which some assets are transferred by the parent undertakings may be structured through various legal forms or vehicles besides the corporation (regardless of the practical relevance that this corporate vehicle undeniably assumes in this field, but which is far from encompassing all the relevant situations of cooperation through joint ventures that, increasingly, may also be supported by uncorporations and various atypical contractual arrangements).342 In the context of my substantive analysis of the effects on competition of various types of joint ventures (below in chapter three)—relying on a critical analysis of the case law of the CJEU and the GC and on the enforcement practice of the Commission as well343—I shall be able to observe in a concrete manner the very diverse alternative contractual arrangements—dissociated from the establishment of corporations or even of personalized entities—that may involve crossing a reference qualitative threshold for the establishment of forms of entrepreneurial organisation with a minimum degree of autonomy vis a vis the structures of the parent undertakings and supporting the joint activity pursued in the context of entrepreneurial projects underlying any given joint venture. It is curious, in any case, that Brodley, while seeming to maintain a more restrictive position as regards the type of autonomous legal support or vehicle for the joint entrepreneurial activity—from which I diverge—also seems to admit, at the same time, that the joint venture need not be operated as a separate profit centre (acknowledging that the economic benefits available from joint operations may be shared directly through profit sharing or indirectly through membership).344 5.3.2.2 The Requirement to Create New Enterprise Capability As regards the requirement or constitutive element corresponding to the creation of significant new enterprise capability through the joint venture, I also take a flexible view. Thus, I consider this requirement to be met by a mere reallocation of entrepreneurial assets of the founding undertakings, limited to the internal sphere of their structure of activity

341 Such a restrictive definition implicit in references to the idea of ‘corporate ownership’ or ‘corporate control’ when characterizing the category of joint venture may be mitigated somewhat if the concept of corporation is interpreted broadly, as it is in the common law systems (see 1.4.2.2ff in this chapter). 342 I refer here to the notion of uncorporation that I have mentioned above at 1.4.1.1ff in this chapter, as put forward by Larry Ribstein (in his book, The Rise of Uncorporation (n 22) and to atypical contractual arrangements, also referred to above (esp at 1.4.3.2ff in this chapter). 343 With the focus clearly placed on the Commission case law due to the limited jurisdictional case law specifically covering the category of joint ventures (while also taking into consideration when relevant the case law of Member States’ Competition Authorities applying EU competition rules in the field of joint ventures). 344 See Brodley, ‘Joint Ventures and Antitrust Policy’ (n 8) 1525.

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and without involving any direct relationship between the joint structure established by the parent undertakings and the relevant markets of any given final products or services. Therefore, taking as a starting point the typical reality that I consider inevitably related to the establishment of joint ventures—which is a minimum degree of entrepreneurial integration, the extent of which may vary widely depending on the specific contours and subcategories of joint ventures at stake—and the resulting structural change of the parent undertakings, I have purported to establish a basic distinction at this level. It is a distinction between what I have qualified as, on the one hand, structural changes proprio sensu—of an external type—and, on the other hand, structural changes of an internal type. Structural changes of an external type are typically associated with the creation and functioning of joint ventures performing all the functions of an autonomous economic entity, thus including in their sphere of activity direct access to certain markets which tends to take the form of the direct commercialization of goods and services produced through the joint venture or its inputs. However, in the case of structural changes of an internal type, these are normally related to the creation of joint ventures to which auxiliary functions are entrusted (non-full function joint ventures that assist and provide some relevant contributions to the global activities of the founding undertakings). As I have discussed, in this type of situation, some reallocation or reorganization of the assets of the founding undertakings take place, which are merely concluded within the spheres of internal organization of those undertakings and that, in principle, will not generally affect, in a visible way, the form in which those undertakings present themselves to the markets where they operate. In spite of that limitation, it is undeniable that the restructuring of entrepreneurial assets and of the way of organizing certain entrepreneurial functions, embodied for example, in new joint activities to be developed by a research and development or a production joint venture, constitute true structural changes of the founding undertakings. In fact, this also represents an important point of characterization of the category of joint ventures in which I diverge from the definition put forward by Joseph Brodley (although I do agree with other aspects of his definition). Brodley seems to require as a necessary constitutive element of joint ventures the introduction, through these entities, of a significant new enterprise capability, at least of any new productive capacity to be created ex novo. Taking a slightly different perspective, I believe that, under certain conditions, a mere reallocation or reorganization of preexisting entrepreneurial structures of the founding undertakings, provided it generates a qualitative element of efficiency in the pursuit of the global entrepreneurial goals and programme of those undertakings, meets the requirement at stake (in order for certain cooperation relationships between undertakings to qualify as true joint ventures under EU competition law).

5.3.3 The Time Horizon of Cooperation of Undertakings and its Relevance for the Definition of Joint Venture My analysis of the relevant aspects for the general characterization of the category of joint venture, taking account of both normative and soft law levels, has also led me to consider another element which carries particular weight in the building of that concept, namely, the timeframe of the processes of cooperation between undertakings. This element is related to something that may be construed as the operation of the joint venture on a relatively lasting basis. I consider that there is a true causal link between the

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timeframe of activity of the joint venture and the substantive aspect that I deem to be decisive for the characterization of joint ventures and that is the existence of structural changes in the founding undertakings of the joint venture (along the lines already described). In fact, a minimum degree of stability over time of the operation of joint ventures may be regarded as a direct consequence of the structural changes introduced in the parent undertakings through the establishment of any given joint venture.345 I even admit that such causal link is almost automatic. Accordingly, any situation in which a process of reallocation or reorganization of assets of the founding undertakings takes place, involving their transfer to a new entrepreneurial organization absorbing some specific functions in the pursuit of which those undertakings are interested, will inherently create a situation of cooperation under conditions of relative stability (although that minimum degree of stability is compatible in various circumstances with joint entrepreneurial projects with a fixed term or a relatively limited duration).346 Also, considering this close connection or causal link between the effect of structural change induced in the parent undertakings by the joint venture and the stability or operation on a lasting basis of the joint venture, I should add that, in my view, the particular kind of adjustment of those parents that I have characterized as internal structural changes in connection with non-full function joint ventures will normally determine a specific duration for joint ventures.

345 This causal link is also identified in the 2008 Consolidated Jurisdictional Notice, whose contents I have critically discussed above at 4.6.1.2ff in this chapter, which states at para103 that ‘the joint venture must be intended to operate on a lasting basis. The fact that the parent companies commit to the joint venture the resources described above [preceding points of the Notice] normally demonstrates that this is the case’. However, and following a somewhat different line from the Commission in these Guidelines, I consider that this type of causal link is not limited to the subcategory of full function joint ventures but to all joint ventures in general. 346 See on this aspect, the 2008 Consolidated Jurisdictional Notice, paras 103–105 which illustrate, by comparing paradigmatic cases, the extent to which the minimum degree of stability is compatible, in various circumstances, with joint entrepreneurial projects with a fixed term or a relatively limited duration. Hence, para 103 refers to agreements setting up a joint venture often providing ‘for certain contingencies, for example, the failure of the joint venture or fundamental disagreement as between the parent companies [I would also include here the possibility of contemplating, in an upfront manner in the joint venture agreement, possible fundamental changes of circumstances, especially at a time of economic instability like that experienced in the wake of the 2007–09 international financial crisis]. This may be achieved by the incorporation of provisions for the eventual dissolution of the joint venture 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, or where the agreement provides for the possible continuation of the joint venture beyond this period’ (emphasis added). Again here business practice evidences that in a time of economic instability the parties may prefer to establish joint ventures for projects involving an appreciable period of time and requiring some durable reorganization of the assets of the parents, without committing themselves beyond the time horizon of such projects, but, conversely, leaving clearly open the hypothetical future continuation of the venture, given the impact of the organizational changes on the internal structures of those parent undertakings. In contrast, paras 104 and 105 of these Guidelines refer to cases in which a joint venture ‘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’; and also to cases ‘where there are decisions of third parties outstanding that are of an essential core importance for starting the joint venture’s business activity. Only decisions that go beyond mere formalities and the award of which is typically uncertain qualify for these scenarios. Examples are the award of a contract (e.g., in public tenders), licenses (e.g., in the telecoms sector) or access rights to property (e.g., exploration rights for oil and gas). Pending the decision on such factors, it is unclear whether the joint venture will become operational at all [and, I would add, accordingly, the basis for the existence of sufficient operations on a lasting basis is missing]’ (emphasis added).

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Since those non-full function joint ventures that remain outside the scope of the MCR are globally characterized by an effect of structural change of parent undertakings of a less intense nature than that occurring in the case of full function joint ventures, it is to be expected that the element of durability in the former cases should also be assessed in less demanding terms. Therefore, I admit that in multiple cases of creation of non-full function joint ventures it is possible to discern from the start relatively limited periods of duration of such joint ventures and of the joint structures these entities create, specifically in situations related to the development of specific projects which, on account of their object, will have a limited duration that it is feasible to estimate or determine from the beginning.347 Even in this type of case a relevant element of durability will be present—albeit of a less intense degree— that should be contrasted with the timeframe of other situations of cooperation between undertakings (which do not qualify as joint ventures), characterized by an absence of any structural dimension and by a consequent failure to meet requirements of minimum duration. In fact, the mere existence of a casuistic bundle of cooperative actions, involving two or more undertakings, even if it happens to be prolonged for a considerable period of time, does not necessarily mean that the requirement of a minimum timeframe for the development of the cooperation will be met. On the other hand, any reallocation of assets between the founding undertakings of a joint entrepreneurial project requires, for its very feasibility and in order to generate the expected results for those parent undertakings, that kind of minimum timeframe (along which the cooperation process will be developed). However, as observed above, this idea of a minimum timeframe should not be understood to involve necessarily a period reasonably long of duration of the joint venture.

5.4 Final Conclusion Finally, it is important to underline a key aspect to a proper understanding of the content of the category of joint venture under EU competition law (to which I have already made various references but that now requires to be put into perspective). While I consider that the complex and hybrid entity which is the joint venture is undoubtedly based on the

347 Beside the aspects referred to above, and going beyond more linear cases mentioned in the preceding footnote in connection with the 2008 Consolidated Jurisdictional Notice, I have also underlined throughout this chapter that legal mechanisms to avoid deadlock situations and contemplating in certain cases the winding-up of joint structures—which may then occur a very short period after the initial establishment of the joint ventures— may be used in very particular situations, eg, in connection with joint ventures in the financial sector due to specific prudential supervision concerns, and do not question necessarily the requirement of durability of the joint ventures. Significantly, some decisions of the Commission—albeit adopted at the level of concentrative joint ventures in relation to which this requirement of durability seems to be comparatively more demanding—seem to evidence that such durability may be understood differently according to the particular features of each given sector of economic activity (admitting that in sectors which are characterized by more instability or dynamism, relatively short periods envisaged for the functioning of joint structures established by the parent undertakings may, nonetheless, be deemed sufficient to meet the requirement of minimum durability; see, inter alia, the Commission decision, British Airways/TAT (IV.M 259), adopted in the context of the enforcement of the MCR). On that assumption, it is reasonable to admit, a fortiori, that a joint venture not fulfilling all the functions of an autonomous economic entity—and thus involving a less intense degree of entrepreneurial integration—may exist for a considerably shorter time in various cases (eg, the case of an estimated period to complete a specific entrepreneurial project).

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concepts of undertaking and of joint control—within the meaning of these terms in the context of EU competition law—I also submit that the joint venture cannot be perceived in an over simplistic way as a mere combination of those two concepts. More precisely, one should not purport to grasp the constitutive elements of the joint venture through a mere individual characterization of each of those two concepts (on the assumption, which would be erroneous, that a linear combination of the elements arising from that characterization would provide an accurate description of the category of the joint venture). The insufficiency of such an analytical process of legal definition and characterization of the joint venture arises, in my view, from the fact that the entrepreneurial basis of the joint venture has some specific characteristics. This specificity, in turn, concerns the existence of a joint entrepreneurial activity involving two or more undertakings that maintain their own individuality and often encompassing the exercise of auxiliary entrepreneurial functions that are somewhat dependent on the principal activities of the founding undertakings (or even conditioned by these activities). In fact, the joint organization of certain activities that may be limited to the pursuit of auxiliary or secondary functions, without direct access to the market although relevant for the global pursuit of the general goals of the founding undertakings, leads to a rather sui generis nature of the enterprise comprised within the joint venture. As I have highlighted throughout this chapter, various subcategories of joint ventures absorb entrepreneurial functions that are merely justified as elements partially supporting the general entrepreneurial project of the parent undertakings. Those joint ventures are, therefore, incorporated in the internal organization of their parent undertakings, although in an atypical manner since they are interconnected with at least two distinct entrepreneurial groups that remain mutually independent (if that independence is not maintained the operation at stake is converted in a concentration stricto sensu without the characteristics of a true joint venture). This atypical form of integration in spheres of internal organization of the founding undertakings leads to a problem in identifying a true entrepreneurial element—for purposes of legal qualification of certain relationships of cooperation between undertakings as joint ventures—since the legal characterization of the concept of undertaking under EU competition law involves, among other aspects, certain structural conditions related to the assessment of links of independence or dependence between several entities. It has already been pointed out that if a structural condition related to actual links of dependency between two entities occurs, that would prevent a characterization of those entities for purposes of application of competition rules as two distinct undertakings that could cooperate between themselves. The point here lies in the fact that this structural condition for the delimitation of distinct undertakings under EU competition law—the lack of links of dependency between two or more entities at stake—is not met in the case of significant number of joint ventures (at least, it is not met as regards the subcategory of non-full function joint ventures). It is, in fact, almost axiomatic that these latter joint ventures which are integrated in the structures of internal organization of the parent undertakings—because, as observed above, they do not have direct access to the market and pursue entrepreneurial functions of an auxiliary nature—do not involve the structural condition of no links of dependency. That, in turn, raises a key question of identification of a qualitative threshold upon which we may justifiably consider that a true entrepreneurial component—supporting the joint venture—has been established.

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In these cases what is at stake is an entrepreneurial component inherent to the joint venture that should be construed in a specific or sui generis manner in comparison with the notion of entrepreneurial activity inherent in the general concept of undertaking in EU competition law. That specificity—that somehow differentiates such entrepreneurial component of the joint venture vis a vis the general concept of undertaking—derives essentially from two key aspects: a secondary or comparatively minor role of the structural condition concerning the lack of dependency links (a condition which, on the contrary, is a decisive feature for the general delimitation of the concept of undertaking in EU competition law); and a more intense role that is to be conferred, in the context of building the category of joint venture, to the other elements upon which the legal characterization of the concept of undertaking is built. These latter elements, whilst still structural, are of a different nature. I refer here to the substantive elements (analysed above) of the establishment of an organized structure whose function is the pursuit of a certain activity and to the economic nature of the management developed for pursuing that activity. Also, I have emphasized throughout this chapter that the first of these elements (organized structure) may be developed in various ways and based upon very different contractual arrangements (combining elements of typical contracts and of statutory atypical contracts).348 As is to be expected, this need for amendment of the constitutive elements of the general concept of undertaking under EU competition law, on account of the sui generis framework of the joint venture—conferring in particular a minor role on the condition related to the lack of links of dependency—greatly enhances the level of difficulty inherent in the analytical process of identification of a specific entrepreneurial component as a basis for the characterization of the joint venture. It also largely explains the inherently high level of difficulty involved in providing a precise definition of joint venture for purposes of EU competition law, as highlighted at the beginning of this chapter.

348 In reality, this organizational dimension frequently associated with the use of corporate instruments may take the form of a host of different legal instruments. The restriction that we have been considering for the purpose of ascertaining this organizational dimension—considered, eg, in the context of the characterization of a category of joint venture that we have purported to establish under a general legal perspective, but also relevant for determining or defining a competition law category of joint venture—concerns the necessary (in my view) contractual nature of the legal processes used to achieve in a concrete manner that organizational basis (of the joint venture). While assuming this necessary contractual nature of the relations which provide an organizational support for joint ventures, these may combine typical contractual instruments and atypical contractual instruments (as I observed in the first part of this chapter).

2 An Analytical Model for the Assessment of Joint Ventures in EU Competition Law 1 The Substantive Assessment of Competitive Effects of Joint Ventures—General Perspective 1.1 Introductory Remarks—Reasons for Privileging the Assessment of Joint Ventures under Article 101 TFEU Having defined and characterized the category of joint venture, both in competition law, in general, and specifically in EU competition law, and having outlined the systematic understanding of this category within the existing legal framework of the EU legal system, I shall now proceed to a general analysis of the substantial impact of joint ventures on competition (and the competition process). This substantial assessment of joint ventures in the realm of EU competition law is, unequivocally, the core of this study, being of paramount importance to the overall understanding of this normative area and of the joint venture category in particular. As has been emphasized, legal reasoning concerning the impact of joint ventures and the setting up of a sufficiently stable regulatory framework to address their effects, are faced with extreme difficulties, resulting primarily from the lack of definition of the concept of joint venture in competition law,1 and moreover, from the absence of a unitary concept of joint ventures in EU law.2 Insofar as this is a core area of competition law, and one which brings with it specific problems, there has been a scattering of the normative procedures in 1 This fundamental issue of the lack of definition of the concept of joint venture in the context of competition law has been addressed in greater detail in the preceding chapter. It should be noted that this issue affects my whole competition law analysis of joint ventures, both in EU law, on which this book is focused, and in the US legal system. Taking into account the previous analysis, the doctrinal assumptions of my study on the treatment of joint ventures in EU competition law (and, indirectly, for a number of reasons already given, in the legal systems of EU Member States) rely on a rather restrictive concept of the category of joint venture, as previously noted, an understanding that not all scholars share. 2 Unlike the first conceptual issue identified, this one, relating to the absence of a unitary normative treatment of the joint venture in EU competition law, is a specific shortcoming of this legal system. Indeed, as I have had the opportunity to observe, this issue is not at all present in the US legal system—or at least with the same intensity. This systematic and normative dual, or even plural, framing of joint ventures within EU law has been also analysed in ch 1.

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EU law aimed at regulating joint ventures, which have overlapped—sometimes in a rather uncertain way—the legal provisions concerning agreements and concerted practices among undertakings, on the one hand, and control of concentration operations on the other. In this scenario of conceptual vagueness and of systematic dispersion, the goal of my analysis is to discern and describe, as accurately as possible, the essential legal reasoning tests to which the assessment of competition hampering effects resulting from the creation and operation of joint ventures should be subject, under the EU competition law regime currently in force. Additionally, it is essential to identify and to develop sufficiently stable legal and economic criteria serving as the foundation for such tests. This analysis will be drawn from a general perspective, comprising both the categories of joint ventures subject to the provisions contained in the MCR, and the ones that remain subject only to the legal regime set out in article 101 TFEU. This distinction among these two basic subcategories of joint ventures that still lingers in EU competition law—already the object of a fair deal of attention in the preceding chapter—naturally mandates taking into account some differences in the specific treatment of the subcategories at stake. However, in my opinion, this should not preclude a critical legal analysis comprehensively focused on the various types of competition hampering effects that may stem from the joint venture in all its diversity. On the contrary, I consider that the setting of generic guidelines on the analysis of the competition law category of the joint venture creates the conditions to progress towards a growing unitary treatment of the latter in the realm of EU competition law. Taking into account both the legal provisions contained in the MCR and the legal regime set out in article 101 TFEU, two distinct legal tests are to be identified as essential for assessing the effects of joint ventures on competition. These comprise a structural test of compatibility with the common market—in particular, albeit not exclusively, considering the hypothetical creation or strengthening of dominant positions in certain markets— and a test concerning the coordination of competitive behaviour between undertakings (involved in processes of cooperation).3 Despite these two main tests having generally been considered to be of a somewhat opposing nature, their application depending on the degree of integration that underlies each joint venture, I do not consider that each one excludes the other and vice versa.

3 On this confrontation of legal substantive tests for assessing joint ventures under competition law, see, inter alia, Frank Fine, Mergers and Joint Ventures in Europe—The Law and Policy of the EEC (London, Graham & Trotman/ Martinus Nijhoff, 1994). As previously noted and, as I shall observe in greater detail in the analysis to be developed below, in this chapter and in ch 3, the first test—recently reformulated within the context of the second reform and amendment to the RCC (dated 2004)—reveals an essentially structural nature, the second being originally further apart from that structural dimension and aimed at the detection of constraints to the free economic behaviour of enterprises, the major area of legal concern. In particular, the treatment of the joint venture category in the frameworks resulting from these two tests has, in my opinion, triggered a progressive convergence of the competition restrictive coordination test towards a structural dimension which takes into account the consequences of the existence and the actual exercise of market power by the relevant enterprises. I also intend to analyse the extensive discussion on the scope of the structural components of the substantial test set out in the RCC, weighing its combination with other elements less akin to strict structuralist perspectives of the competition process. Such discussions have involved certain comparisons between that test—originally relating to the creation or reinforcement of a dominant position—and the test adopted in the US antitrust system in the field of merger control, regarding the substantial lessening of competition (SLC), during the process that culminated in the 2004 reform of the MCR, aiming at a possible replacement of the test adopted in MCR 1989. On the comparison between such tests, see Vijay Selvam, ‘The EC Merger Control Impasse. Is There a Solution to This Predicament?’ (2004) ECLR 52ff.

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In terms of the legal regime currently in force,4 one is forced to assert that, in some extreme cases of joint venture creation, only one of the tests shall be deemed applicable, namely in the event the entity concerned is a joint venture qualified as a concentration operation in which no behavioural coordination elements exist among the parent enterprises involved, or, conversely, concerning a joint venture that does not qualify as a concentration under the MCR. In any case, a systematic scrutiny and analysis on the contractual praxis of creation of joint ventures demonstrates that, in a vast array of situations, these entities lie in border areas of the major normative blocks at stake, concerning strict cooperation or strict concentration of enterprises.5 Moreover, the gradual qualitative changes in the methodology of assessment of the cooperation agreements for the purposes of application of article 101 TFEU6 and the introduction in the framework of assessment established by the MCR of aspects concerning the coordination of enterprise behaviour, have created the conditions for the tests to mingle, to an extent that is not yet clear. That juxtaposition or combination of tests may appear in various possible forms, some of which are obvious, others requiring a critical reasoning method aimed at the systematic understanding of the means of legal application of these tests. The most evident signs of such intermingling occur, naturally, in the cases of cumulative use of the tests of compatibility with the common market and of competitive behavioural coordination for purposes of comprehensive assessment of some joint ventures (namely, as regards the situations provided for in article 2, paragraphs 4 and 5 MCR 2004). However, the legal materialization of each of the above tests—amounting to normative models based on recognizable and foreseeable parameters designed for assessing the effects of joint ventures—considered in isolation, allows us, in my view, to ascertain a reciprocal influence of criteria originally tailor made for each test on the criteria typically associated with the other test. Alongside the same lines, a perspective of global analysis of joint ventures’ effects allows us, at the doctrinal level, to remove rigid and unjustifiable barriers between the assessment of joint ventures of a predominantly cooperative nature and joint ventures in which the concentration element is dominant. Thus, it will be possible to develop an area of common analysis of the most recurring effects of joint ventures combining—in a fair balance—structural elements and components pertaining to

4 I refer to the dual normative treatment of the category of joint venture in the framework of the law currently in force, considering, above all, in the terms already stated, the systematic framing resulting from the first reform and amendment of the MCR in 1997 (insofar as the second reform of the MCR, quite on the contrary to all remarks that were formulated on 1999 White Paper and in the 2001 Green Paper on the reform of the MCR, has not introduced any changes on the delimitation of the subcategories of the joint ventures subject to the regime set out in the MCR and in article 101 TFEU). 5 It should be noted, in this respect, that even pursuant to the first reform of the MCR in 1997, subjecting a new subcategory of joint ventures to the legal regime set out in the MCR (being the joint ventures which perform all the functions of an autonomous economic entity regardless of whether coordination effects originate among the founding enterprises), a relevant set of joint ventures—possibly including a majority of such entities—still remains subject to the regime set out in article 101 TFEU. 6 Qualitative change in the method of assessment of cooperation between undertakings already brought about in connection with my characterization of the different consolidation stages of the EU competition legal system and on which I propose to seek an overall critical understanding taking into consideration the contribution of the analysis of joint ventures for its development. This change, as will be shown, involves a component of legal methodology, however, in parallel, it interacts with a process of transformation of the core function of the competition law provisions applicable to enterprises.

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competitive behaviour of coordination guided by an efficiency perspective aimed at reducing the so called transaction costs.7 In the realm of such an analysis, some advantage may be had from the (historical) delay in incorporating structural-natured elements in the legal construing of EU competition rules, as compared to the same process within the US antitrust system. In fact, some of the excesses stemming from the existence of far too rigid assumptions in structuralist analytical models—which lingered in the US legal system until the early 1970s—may thus be avoided and also, converse excesses, which tend to systematically downplay the structural dimension of competition law analysis, evidencing a rather superficial or aprioristic reaction to the bygone reign of the so called structuralist school, may be avoided too.8

1.2 The Key Legal Tests for the Substantive Assessment of Anticompetitive Effects of Joint Ventures As will be further explained, the two fundamental legal tests designed to assess the effects of joint ventures on competition—the test of compatibility with the common market and the test concerning the coordination of competitive behaviour—may be subject to some specific nuances. Thus, the first test may be used to assess the creation of a significant impediment to actual competition, in particular as a result of the creation or strengthening of an individual dominant position or of a collective dominant position;9 the second test may,

7 To summarize, that involves a combination of a largely structural level of analysis with a level of analysis of behaviour of undertakings aimed at the reduction of transaction costs and the maximization of efficiencies, to some extent in line with the perspective upheld by the Chicago School. Such a combination shall contribute not only to mitigate traditionally restrictive views of agreements among enterprises constraining their economic freedom (over-reaching the scope of prohibition of cooperation restrictive of competition), but also to the development and consolidation of renewed patterns of safeguarding effective competition which are compatible with certain desirable levels of efficiency, to the detriment of more ordoliberal concerns aimed at safeguarding the position of competitors (thereby diminishing the relevance of preserving in itself certain levels of deconcentration of markets which were especially valued, in a deterministic way, by structuralist orientations). In any case, I acknowledge that a greater tolerance towards situations in which appreciable constraints on the economic freedom of undertakings occur, provided these are associated with obtaining certain levels of efficiency—typically argued by the Chicago School and further refined through critical post-Chicago thinking—must also be contained within reasonable limits. On the various concepts of ‘transaction costs’ referred to above, see Oliver Williamson, Transaction Cost Economics: How it Works; Where is it Headed, Working Paper No BPP—67 (October 1997), Institute of Management, Innovation & Organization, Berkeley, University of California. 8 As regards the relevance of structuralist type analytical models in the US antitrust system, the systematic criticism to which they have been subject since the late-1970s and the attainment of a new equilibrium, combining structural dimensions and other economic factors relevant for the functioning of markets, see James Meehan, Robert J Larner, ‘The Structural School, its Critics and its Progeny: An Assessment’ in J Meehan and RJ Larner (eds) Economics & Antitrust Policy (Chicago, Quorum Books, 1989) 179ff. On the contrary, the EU competition legal framework has, throughout most of its evolutionary process, been characterized by an appreciable lack of structural analysis, which I deem to be historically linked to the original lack in that legal system of rules concerning direct control of concentrations. 9 I refer specifically to the application and legal materialization of the parameter used to assess concentrative joint ventures which concerns the creation or reinforcement of market domination positions, taking into account the initial formulation of the provisions set out in article 3, paras 2 and 3 of the MCR—a parameter which was used for more than a decade of enforcement of the MCR until 2004. Pursuant to the second amendment of the MCR, this parameter has been incorporated within a substantive test of broader scope, namely, the emergence of significant impediments to effective competition in the common market, an amendment that aims to address negative structural effects on competition, stemming from certain concentrations in an oligopolistic market context. On the scope of the re-working of the common market compatibility test, within the second amendment to the MCR see, inter alia, Gunnar Niels, ‘Collective Dominance: More Than Just Oligopolistic Interdependence’ (2001) ECLR 168ff.

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typically, address three distinct categories of recurring situations, namely, the production of adverse effects in the existing competitive relationship between the parent undertakings of a given joint venture; adverse effects on the potential competition between those parent undertakings; and also effects of market foreclosure in relation to third parties.10 Taking these two tests as a starting point, from the standpoint of existing law, and analysing them from a general perspective—notwithstanding a specialized analysis of the different subcategories of joint ventures in the course of this study—I purport to establish reasonably stable and generally applicable assessment criteria concerning each of them (particularly as regards joint ventures subject to the article 101 TFEU regime). This legal reasoning incorporates the most ambitious doctrinal and analytical goal which may be pursued in the field of competition law assessment of joint ventures. On the one hand, one must recognize the inevitable casuistic-natured approach of an analysis in this field,11 but, on the other hand, such constraints must be overcome through the establishment of general assessment criteria in order to create flexible, yet predictable, analytical models. The establishing of such general assessment criteria of the effects of joint ventures on competition implies carrying out a rather complex task of rendering compatible the required concrete market analysis—which should not excessively rely on formalistic legal elements which are present in any cooperative or concentrative arrangements12—with pre-ordained criteria designed to allow the assessment of such competition effects.13 As will be observed in the context of my analysis of the various functional types of joint ventures—in accordance with a line of thought which will be further explained—these analytical models should not be excessively rigid, to the extent that they have to be fitted to the circumstances of each particular situation (thereby involving an inescapable casuistic analysis). However, in my opinion, this flexibility may well abide with a reasonable

10 I refer here to three categories of situations where there are effects of distortion of competition at the level of behavioural coordination which correspond to a systemic perspective that I put forward in order to capture the most common situations in terms of market functioning. As I shall observe further, other (alternative) systemic perspectives on those restrictive effects or even qualifications of such effects at the level of coordination of competitive behaviours have been proposed. 11 Such a casuistic approach is, in fact, typical of competition law, in particular in relation to the legal theorization of joint ventures, which appears to be less prone to cater for analysis guided by per se or almost per se prohibition criteria, except in what concerns some parts of the contractual systems embodying certain joint ventures which may comprise clauses with an intrinsically competition hampering content, eg, concerning direct joint price fixing or the joint allocation of markets (although, ultimately, in these latter types of situations, the alleged joint venture may be a mere concealment of cartel practices, thus justifying being disqualified as a ‘joint venture’ proprio sensu, in terms of competition law assessment). 12 This exercise of legal interpretation clearly departs from the approach which has prevailed until recently concerning the application of article 101 TFEU, by relying largely on a formalistic analytical approach, aimed at the prohibition almost of a per se nature of a significant part of the restrictions on freedom of economic activity of undertakings, irrespective of the actual consequences of such restrictions associated with the market power of enterprises involved. That, on the whole, corresponds to a hermeneutical approach to article 101 TFEU typical of the first stages of evolution of EU competition law that I shall not cover here in any detail. For a critical view of the traditional approach—now largely overtaken, but with some possible repercussions still existing in the way in which the interplay of paras 1 and 3 of article 101 TFEU is construed by the Commission—see, inter alia, Ian Forrester and Christopher Norall, ‘The Laicization of Community Law—Self Help and the Rule of Reason. How Competition Law Is and Could Be Applied’ in Annual Proceedings of the Fordham Corporate Law Institute—1983 (Barry Hawk (ed), Fordham Corporate Law Institute, NY, Matthew Bender, 1984) 305ff. 13 The development of pre-ordained criteria leading to global analytical models is something that should also be attempted with regard to looser forms of cooperation in general—see on this wider perspective, covering in particular horizontal cooperation agreements, Luis Silva Morais, ‘Horizontal Cooperation Agreements’ in D Geradin and I Lianos (eds), Research Handbook on EU Competition Law (Cheltenham, Edward Elgar, 2013) ch 2.

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degree of predictability and legal certainty, these latter aspects representing, in my view, fundamental values of the application of competition rules to joint ventures.14 In fact, the rebuttal of strict criteria of almost per se prohibition or of essentially formalistic criteria in the area of competition law assessment of the effects of joint ventures, should not lead to the opposite state of affairs, that would translate into the formulation of quasi unpredictable, or even haphazard, assertions concerning the effects of such entities on competition. Such a state of affairs would tend to arise if, before any particular case, different market assessment criteria could be adopted, depending on the specificities of the market in question. On the other hand, the general legal and economic criteria for the substantive assessment of those effects which I have sought to identify and consolidate, notwithstanding being rooted in some fundamental theoretical assertions, are open-natured15 and allow for its continuous adjustment through a permanent interaction between themselves and the casuistic level of application of competition rules applicable to joint ventures. My analysis of this type of assessment models of joint ventures will, therefore, be necessarily associated with a comprehensive study of that casuistic level of application of competition rules stemming from both the European Commission enforcement practice (and also enforcement of EU competition rules by Member States’ competition authorities) as well as from the CJEU and GC jurisprudence.16

1.3 The First Fundamental Dimension of Assessment of Joint Ventures Notwithstanding the fact that I have adopted a global perspective as regards the general criteria employed for the assessment of the most common effects of joint ventures on competition, its proper understanding is to be carried out—in light of the existing legal framework—through two fundamental dimensions of assessment of joint ventures, corresponding to the two legal tests that I have already previously identified (with my focus being entirely on one of those tests, more directly related with article 101 TFEU). 14 As I have already observed, wider margins of unpredictability and legal uncertainty in the application of competition law rules imply added transaction costs for enterprises, somewhat paradoxically generating the obstacles and competition distortions which this body of rules aims to avoid, by creating conditions for the free functioning of markets. On methodological problems arising from the interplay of legal and economic elements, referring to critical thresholds in terms of degrees or levels of legal vagueness or uncertainty, which, in turn, generate ‘inefficient’ legal provisions which may even distort enterprise behaviour, see, inter alia, Nicholas Mercuro and Steven G Medema, Economics and the Law—From Posner to Post-Modernism (Princeton, New Jersey, Princeton University Press, 1997) esp 59ff. 15 I refer to general legal requirements which aim to convey an organized code of understanding of certain realities—and render them to some extent predictable—but with an open content, subject to the actual study and analysis of certain economic realities, in the sense conveyed by Karl-Heinz-Ladeur, in his work, ‘The Theory of Autopoiesis as an Approach to a Better Understanding of Postmodern Law—From the Hierarchy of Norms to the Heterarchy of Changing Patterns of legal Inter-relationships’ EUI Working Paper Law No 99/3 (Badia Fiesolana, San Domenico, 1999). (see, especially, in this study, the part in which the author refers to legal systems as a ‘kind of self-creating network of relationships which designs itself on the basis of linkages which have already been operated successfully…. The closure of the system does not mean isolation from external influences—on the contrary, the system is operationally closed which means that it is open to coupling, but only on the basis of its own operational and semantic possibilities’ (at 13)). 16 Occasionally, the case law of national courts and of national competition authorities regarding the application of EU competition law may also be at stake.

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As regards the first test—of compatibility with the common market—I consider that two core areas deserve special attention, taking into account their importance for the understanding of the relevant assessment criteria (although I shall not develop that analysis, referring to it only incidentally and in the context of my study of article 101 TFEU, while also highlighting the interplay between the legal test formulated in this regime and that provided by the MCR 2004). As regards joint ventures construed as concentration operations, under the terms set out in the MCR, and lacking any significant behavioural coordination elements, particular attention should be paid to joint ventures that raise serious doubts as to their compatibility with the common market (on the basis of the legal test set out in article 2 MCR 2004). In fact, a significant number of concentrative joint ventures do not pose specific problems as to the maintenance of effective competition17 and the bulk of any analysis in this area should be aimed at competitive situations raising potential objections on the grounds of the article 2, paragraphs 2 and 3 MCR 2004 legal test, which may only be achieved through an in-depth analysis, guided by predetermined reference benchmarks. The second area relevant to concentrative joint ventures (lacking significant behavioural coordination elements), which I deem to be most important for the understanding of the essentially structural common market compatibility test, is the treatment of joint ventures that which may, in principle, lead to the creation or strengthening of collective dominant positions,18 or of joint ventures that, in the context of oligopolistic market situations, generate other types of impediment of effective competition,19 especially unilateral or noncoordinated effects associated with specified changes in market structures. Still at the level of the test pertaining to the compatibility with the common market, but considering its possible interaction with the test of coordination of competitive

17 What is at stake here is the establishment of general analytical models, which, without prejudice to the substantive or empirical economic analysis of markets, allow, as a rule, the identification of types of cooperation or integration between undertakings that, in theory, do not pose any appreciable competition law problems, in line with the ‘safe harbours’ rationale in the US antitrust system. This is the legal reasoning that has been, eg, underlying from the outset the Commission Guidelines on simplified procedure for certain concentrations. See, eg, the Commission, ‘Notice on simplified procedure for treatment of certain concentrations under Regulation 4064/89 EEC of 29 July 2000’,(OJ [2000] C217/32) under which the Commission, taking into account the ‘terms under which the Commission, “in the light of the experience gained with the application …” of the Regulation, identifies certain “concentration categories” which, “in the absence of special circumstances … are usually authorized without raising substantial issues’. On the rationale for the identification of ‘safe-harbours’ in general guidelines enhancing the predictability of competition law rules, see, inter alia, Mark Leddy, ‘The 1992 US Horizontal Merger Guidelines and Some Comparisons with EC Enforcement Policy’ (1993) ECLR 15ff. 18 I have already mentioned the concept of collective dominance as established by the enforcement practice of the Commission and corroborated by EU jurisprudence. As I shall explain further, this concept refers essentially to the addressing of oligopolistic market situations, and to the manner in which certain concentration operations carried out in such circumstances ought to be addressed. 19 In fact, notwithstanding the recasting of the common market compatibility test carried out by the second amendment to the MCR in 2004, I would argue that the core basis of the test is still the requirement relating to the creation or reinforcement of a dominant position, addressed in the enforcement of the MCR during the first decade of its application. Consequently, I do think that it is still justifiable to centre the legal discussion of this test on the application and proper understanding of the market domination requirement. The recasting of the elements pertaining to the common market compatibility test, leading to the adoption of the element of significant impediment to effective competition as the main part of such test—while that element was already comprised in the initial formulation of the common market compatibility test, although frequently overlooked or neglected— has as its specific goal to allow the clear or undisputable coverage of certain specific changes to market structures in oligopolistic contexts (bearing in mind that the effective coverage of those situations by the concept of joint dominance was highly debated).

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behaviour, special attention should also be given to the subcategory of joint ventures akin to concentrations which simultaneously have as their object or effect such coordination of behaviour of parent undertakings (under the terms of article 2, paragraphs 4 and 5 MCR 2004). As I have observed, this subcategory of joint ventures has been subject to the assessment procedure set out in the MCR in the wake of the first amendment to this regime in 1997 (on the basis of a cumulative application of the legal tests concerning the compatibility with the common market and behavioural coordination in accordance with the criteria of article 101, paragraphs 1 and 3 TFEU). I consider that the actual experience of combining those two legal tests—through the relevant case law in this field—may be of great importance in establishing an interaction between a dimension of structural analysis and a dimension of analysis of behaviour coordination in the field of EU competition law. This convergence may not only pave the way for an in-depth unitary treatment—which I deem desirable—of the joint venture category in this legal system, but also foster a new balance between structural factors, various factors pertaining to the sphere of competitive behaviour, or other new intermediate factors, to be construed as composite analytical elements for the purposes of an overall assessment of agreements between undertakings. In this regard, it is justifiable to emphasize, once more, that this balance has long been sought—although without satisfactory results—in the US antitrust system, which pioneered the introduction of structural factors as an essential component of competition law assessments and rulings. As I shall observe further below, the lack of an extensive body of case law on the cumulative application of article 2, paragraphs 2 and 4 MCR 2004, poses further difficulties in the formulation of consistent guidelines in this area, but that should not preclude us from trying to anticipate some types of paradigmatic situations, as well as some general analytical models in the field. My coverage of this type of situation will, in any case, be incidental, since my attention will be chiefly focused on joint ventures subject to the article 101 TFEU regime (with some references to analytical problems posed by coordination of competitive behaviour brought about by full function joint ventures).

1.4 The Second Fundamental Dimension of Assessment of Joint Ventures and the Focus of My Analysis A fundamental dimension of assessment of joint ventures is the study of joint ventures which do not perform all the functions of an autonomous legal entity and that, accordingly, are only subject to the legal regime set out in article 101 TFEU. Clearly, this is the area upon which I shall centre my attention,20 not only because I acknowledge that in the contractual praxis of cooperation between undertakings, this subcategory of joint ventures is still the most prevalent, but also because I deem this area

20 This special focus on the systematization of joint ventures subject to the regime set out by article 101 TFEU, for all the reasons stated above, is combined with some attention—albeit not as much—being paid to the subcategory of joint ventures which perform all functions of an autonomous economic entity, but which generate coordination effects among founding entities.

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to be a truly paradigmatic one21 for the development, ex novo, of a new methodology of analysis in the context of EU competition law which combines—in variable degrees— structural factors and other kinds of factors predominantly relating to the competitive behaviour of undertakings. The analysis to be carried out in this respect must necessarily take as a starting point a certain general perception on the main risks of distortion of competition which may stem from those joint ventures that only partially perform the functions of an autonomous legal entity. As I shall further explain in the course of my in-depth analysis of this subcategory of joint ventures, I consider that four main types of risks may be identified as regards maintaining an adequate level of effective competition. The first relevant risk (i) is associated with an effect directly stemming from certain joint ventures, in the sense of distorting or limiting effective or potential competition between the parties in the market where the cooperation relationship between them takes place.22

21 As I see it, the relevance of this category of joint ventures subject to the regime of article 101 TFEU is not made more significant simply because of the relative normative distortion arising from the dual treatment of joint ventures under EU competition law, to the extent that many undertakings are somehow ‘induced’ into fostering a joint venture appearance in order for them to qualify as concentrations, in order to benefit from the legal certainty stemming from the swift assessment procedure under the MCR. However, bearing in mind the economic realities which influence integration and cooperation processes—analyzed above in ch 1 at 1.4.1.2ff, whilst seeking to identify the motivations and the so called legal ‘cause’ for contractualizing cooperation between undertakings and for establishing joint ventures—the most pressing needs which lead undertakings to use the instrument of the joint venture are frequently associated with the effective performance of ancillary functions and high costs, and, subject to high innovation and updating rhythms, concerning the overall main activity of founding undertakings. And it is precisely this type of need that is generally met through the use of joint ventures subject to the regime set out in article 101 TFEU. 22 To understand the risks relating to restriction of competition, the particular features of joint ventures covered by article 101 TFEU should be considered. In fact, since these entities do not perform all the functions of an autonomous economic entity, they do not, as a rule, have direct access to final consumer markets—those where their founding entities operate—or, whenever granted such access (eg, in the case of commercialization joint ventures) they use it exclusively to pursue competitive positions which effectively belong to their parent undertakings. Accordingly, there is a spillover effect—in a broad sense—of the organized activity of cooperation in the limited functional areas covered by the operation of this type of joint venture towards final consumer markets in which the founding undertakings maintain actual or potential competition relationships. This type of effect on competition among founding undertakings, although not assuming directly and qua tale a structural nature, should, in my opinion, be subject to an assessment influenced by structural elements (especially concerning the market power of the founders, to be perceived, among other relevant factors, by the market shares they hold in the relevant final consumer markets). As regards the effects that I call here spillover effects in a broad sense, arising from the operation of the joint venture operation and having repercussions in terms of restriction of competition between founding undertakings in markets in connection with which partial function joint ventures are created, see E Gonzalez Diaz, Dan Kirk, Francisco Perez Flores and Cécile Verkleij ‘Joint Ventures—Horizontal Agreements’ in Jonathan Faull and Ali Nikpay (eds), The EC Law of Competition (New York, Oxford, Oxford University Press, 2007) 348ff, esp 360ff. These authors refer to certain effects akin to ‘spillovers on the same market as a joint venture’ (something that should be understood in the sense I describe above; the joint venture that does not perform all the functions of an autonomous economic entity does not hold its own position in a given market, and for that reason, reference to the same market as the joint venture should be understood as referring to the market or markets of final consumer goods or services in which parent undertakings operate and for the benefit of which those joint ventures may provide partial functional contributions). This type of effect of restriction of effective or potential competition between the relevant parties will be comprehensively studied in ch 3, esp at 2.3.5.2 (E) (since the general characterization of this type of effect of restriction of competition which is developed therein in connection with the subcategory of research and development joint ventures is applicable to other functional subcategories which are subject to in-depth analysis throughout ch 3). As will also highlighted in ch 3 (and esp 2.3.5.2(E) of that chapter), this spillover effect in a broad sense should not be confused with spillover effects in a narrow sense, which concern or affect markets somehow related to the markets of one or more of the founding undertakings (corresponding, by and large, to the second type of effects of restriction on competition identified below (ii)).

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The second type of risk (ii) corresponds to the production of the so called spillover effect of the elements distorting or limiting competition in markets located upstream or downstream from the market in which the cooperation process at stake directly takes place, or even in markets related to the latter in some other way (which I shall describe throughout this book as spillover effects in a narrow sense (or stricto sensu) to be differentiated from spillover effects in a broad sense).23 Also, at this level the elements of distortion may concern either effective or potential competition. The possible production of effects akin to the virtual foreclosure of certain market sectors to third parties is itself a third type of risk of restriction of competition (iii) associated with this subcategory of joint ventures and, lastly, on a higher complexity level of certain contractual systems of cooperation between certain undertakings, we may additionally identify a fourth risk (iv), related to the production of general interlocking effects in different markets, of various joint ventures somehow inter-related between themselves.24 Bearing in mind these different types of risks of distortion of competition, the building of an analytical model for the purposes of assessing the most common effects arising from this subcategory of joint ventures should rely on various elements and must not be focused upon a sole criterion (which would be over simplistic and restrictive). To the extent that my study is mainly aimed at designing such a comprehensive and general analytical model, this will be developed on the basis of successive specific analysis of some functional types of cooperative joint ventures. In reality, there is a certain degree of autonomy in considering this subcategory of joint ventures, precisely due to the fact that it encompasses entities performing solely, in a

23 This conception of spillover effects of elements of restriction of competition towards markets situated upstream or downstream from the one on which the cooperation process (through the involvement of a partial function joint venture) directly occurs, or even towards markets somehow related to this latter market, is effectively to what I have defined in the previous footnote as spillover effects in a narrow sense (or stricto sensu). The market where the cooperation process through a partial function joint venture directly takes place can only be designated with a significant oversimplification as the market of the joint venture at stake, considering that this entity has no access whatsoever to final goods or services markets. On this particular kind of possible effect of restriction of competition arising from the creation and operation of partial function joint ventures subject to the regime of article 101 TFEU, see, inter alia, Nicholas Green and Aidan Robertson, Commercial Agreements and Competition Law—Principles and Procedure in the UK and EC (London, The Hague, Boston, Kluwer Law International, 1997) esp 742ff. These authors mention what they call ‘spill over or group effects’, noting two kinds of effects at this level, comprising ‘the possibility of spill over of cooperation either up or down stream of the permitted cooperation’ and ‘the possibility of spill over into adjacent markets’. This kind of effect is contrasted by these same authors with what, at a different level, they designate as ‘restriction of actual or potential competition’ (a category of effects of restriction of competition that comes closer to the first subcategory we have identified above as spillover effects in a broad sense), differentiating also, at this same level, between ‘foreclosure effects on third parties’ and ‘network effects’ (at 743–45ff). 24 On the third category of effects of restriction of competition, regarding the exclusion of third parties, see the references to ‘foreclosure effects on third parties’ made by Green and Robertson, ibid 744. Also concerning this type of effect of restriction of competition but in the US antitrust doctrine, see Joseph Brodley, ‘Joint Ventures and Antitrust Policy’ (1982) Harv L Rev 1526, esp 1532ff. Brodley mentions ‘market exclusion and access discrimination’, alongside two other categories of ‘anticompetitive risks’ associated with joint ventures and corresponding to ‘collusion’ and ‘loss of potential competition’ situations. As regards the fourth category of effects of restriction of competition (iv) that we have identified above, it addresses forms of distortion of competition associated with the creation of series of joint ventures by one or several identical founding undertakings, thereby maximizing the possible distortion of competition conditions in various markets (generating, in particular, market sharing effects). On those situations regarding networks of joint ventures which typically create such restrictive or distortive effects (‘network effects’) see John Temple Lang, ‘International Joint Ventures Under Community Law’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1999 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 2000) esp. 409ff.

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partial manner, some entrepreneurial functions––to the exclusion of the other functions that characterize an autonomous economic entity. Therefore, I deem it acceptable, as a supporting criterion of study, to analyse in depth those which may be considered the key or paramount functional types of joint ventures subject to the legal regime set out in article 101 TFEU. However, the goal of such a study is to identify a mainstream or guiding line in the assessment of these various functional types––or subcategories––of joint ventures. For the identification of the various functional types of joint ventures which do not perform all the functions of an autonomous economic entity, I essentially follow the two criteria proposed in the European Commission’s 2001 and 2011 Notices establishing Guidelines on the applicability of article 81 EC (and article 101 TFEU) to horizontal cooperation agreements,25 albeit introducing some adjustments in that methodology for qualification of functional types of cooperation. Thus, while recognizing that these joint venture subcategories may combine different stages or elements of cooperation—therefore combining distinct entrepreneurial functions—I also acknowledge, in accordance with the Guidelines delineated by the Commission (in the 2001 and 2011 Notices on horizontal cooperation mentioned above) and adapting them to joint ventures, that the qualification of the various functional types of joint ventures should rely on two chief criteria. These are, first, the starting point of the cooperation, and second, the degree of integration of the different functions which are combined (these criteria leading to the determination of what the Commission has accurately called the ‘centre of gravity of integrated co-operation’, which, in turn, leads to the identification of various distinct functional types of cooperation agreements or, more specifically, for the purposes of my analysis, of distinct functional types of joint ventures).26 However, I disagree with the Commission’s apparent view that these qualification criteria are of equal importance. On the contrary, I submit that these criteria must be ranked and, in that context, greater importance—in the global weight to be given to each— must be placed on the degree of integration of the various entrepreneurial functions brought together under the joint venture framework. It should be noted, though, that the Commission analysis in the 2001 and 2011 Horizontal Cooperation Guidelines deals, in general, with cooperation agreements—which may not necessarily take the form of a joint venture—a reason that may well explain the absence of a ranking of such criteria (which makes particular sense for the specific case of joint ventures).27

25 These interpretative Commission Notices—the latter (adopted in December 2010 and published in 2011 replacing the former)—shall be referred to as the 2001 Horizontal Cooperation Guidelines and 2011 Horizontal Cooperation Guidelines. As I have previously mentioned, although these Guidelines, unlike the 1993 Notice on Cooperative Joint Ventures, generally address cooperative arrangements between competing undertakings and not solely joint ventures, they are still of great importance for the analysis of the subcategory of joint ventures covered by the regime of article 101 TFEU. On these Guidelines as an analytical framework for cooperation agreements in general see my ‘Horizontal Cooperation Agreements’ (n 13) ch 2, where I also emphasize the analytical crosscurrents between the assessment of cooperative joint ventures and looser cooperation agreements (for the purposes of delineating new global methodological approaches in the general field of cooperation covered by the regime of article 101 TFEU). 26 See on this the 2001 Horizontal Cooperation Guidelines, paras 12 and 13 and the 2011 Horizontal Cooperation Guidelines, paras 13 and 14. 27 In any case, comparing the definition of the ‘centre of gravity’ requirement in the 2001 and the 2011 Guidelines, it seems that the latter Guidelines place greater emphasis on the criterion of the degree of integration of the different functions which are combined.

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In fact, it should be recalled that the joint venture category stands alone in comparison to cooperation agreements generally precisely by virtue of its higher degree of integration of various entrepreneurial functions, thus justifying the predominance of a functional qualification criterion of joint ventures relying on the assessment of the degree or relative intensity of integration at the level of each and every function comprised in the cooperation project. Taking into account the complexity and the dynamic nature of the various cooperation processes developed throughout the creation of joint ventures, one may easily envisage cases of joint venture projects which are dedicated, in the initial stages, to a certain entrepreneurial function—for example, research and development—and that, at a later stage, lead to an almost complete integration of the production function determining, accordingly, a new functional qualification of the joint venture. Consequently, I argue that in the event joint venture activity comprises more than a single entrepreneurial function—despite not reaching the threshold allowing its characterization as an entity performing on a lasting basis all functions of an autonomous economic entity (or full function joint venture)—the qualification criteria based on the comparison of the intensity of integration of the various entrepreneurial functions underlying the joint venture project will always take precedence over the cooperation starting point criterion. Additionally, I submit that these two criteria may advantageously be combined with a third concerning the prevailing entrepreneurial goal which lies at the basis of each joint venture’s creation. This criterion is specially valued among US scholars, in particular by Thomas Pirainno, (although in my view this author confers excessive importance on it, to the extent that he proposes its use not only for identifying different categories of joint ventures, but also as a decisive element for the global assessment of the effects arising from such distinct categories of joint ventures, typically linking certain entrepreneurial goals with a particular economic efficiency outcome, which, may, in itself, justify their creation).28 Taking into account these qualification criteria, as well as the practical relevance of the different entrepreneurial functions which may be combined in cooperative joint ventures,29 I have selected for an in-depth analysis four functional types of joint ventures, namely: — — — —

Research and development (R&D) joint ventures; Production joint ventures; Commercialization joint ventures; Purchasing joint ventures.30

28 In effect, this author judges the criterion of the chief enterpreneurial goal as the main requirement in the overall legal assessment of joint ventures—as an alternative both to the rule of reason and to ‘per se’ prohibition rule in the US antitrust system—rather than as a criterion of qualification of joint ventures, a view which I consider too far-reaching. In my view, even at the pure analytical level of mere qualification of subcategories of joint ventures, the criterion of the chief entrepreneurial goal should only amount to a complementary criterion to the main requirements identified above—the starting point of cooperation processes and the degree of integration of different entrepreneurial functions which are combined. See Thomas Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis. A New Antitrust Standard for Joint Ventures’ (1991) Minn LR 2ff. 29 For a general perspective on the various partial enterprise functions which may be combined in the context of cooperative joint ventures, see, inter alia, Gonzalez Diaz, Kirk, Perez Flores and Verkleij, ‘Joint Ventures— Horizontal Agreements’ (n 22) 348ff. For a similar perspective in US antitrust doctrine see Richard Pogue, ‘Antitrust Considerations in Forming a Joint Venture’ (1985) ALJ 925ff. 30 In relation to any of these subcategories selected for the purposes of such an in-depth study, I am dealing with functional types of joint ventures which are addressed both in the Commission analysis developed in the 2001 and 2011 Horizontal Cooperation Guidelines, and also in the 1993 Notice on Cooperative Joint Ventures

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The close monitoring of the contractual praxis of cooperation between undertakings has also led me to devote some attention to cooperative joint ventures which are rather more complex due to the combination of different, yet parallel, entrepreneurial functions (no predominant function being easily identifiable, causing them to be mixed type joint ventures). In the absence of stable or consolidated conceptual categories in this area of competition law analysis of the various types of joint ventures, some authors identify these more complex situations of cooperation between undertakings—which do not, however, reach the threshold implying their qualification as concentrative joint ventures—as ‘strategic alliances’ between undertakings.31 This qualification strikes me, though, as lacking precision for the purposes of this competition law analysis.32 As will be discussed in greater detail later, I have chosen to identify such entities as complex type or mixed type joint ventures, which are prone to raise some particular problems as regards the application of competition law rules, due to the possible combination of very diverse effects on competition arising from the various entrepreneurial functions which the parent undertakings may have decided to integrate between themselves. It should be noted that the significant intensification of entrepreneurial cooperation that has been taking place in the economic arena has led undertakings to ground their joint venture projects in increasingly complex contractual schemes, leading to a proliferation of these complex-type joint ventures, something which, in turn, makes the assessment of their effects on competition increasingly difficult.

(which the 2001 Guidelines replaced). The specific characterization of each of those four subcategories shall be expanded below, ch 3 (esp in sections 2 to 5). I should emphasize that, ultimately, my more detailed analysis throughout ch 3 is essentially focused on the first three subcategories of joint ventures mentioned—research and development joint ventures, production joint ventures, and commercialization joint ventures—addressing in a very succinct manner (almost residually) the subcategory of purchasing joint ventures. This approach results from the idea that this latter subcategory ranks somewhat below the others in relative importance, both as regards the frequency and comparative economic importance of its use in the praxis of cooperation between undertakings, and also as regards the complexity of the problems of restriction of competition it is prone to originate. 31 This concept of ‘strategic alliance’ is explicitly used in the 2001 Horizontal Cooperation Guidelines, para 12 (although not in the 2011 Guidelines). Its use has indeed been increasingly frequent—including in contractual jargon relating to cooperation processes—ever since the adoption of the MCR. The situations usually recognized or designated as strategic alliances correspond to systems of cooperation agreements which do not imply a transfer of control over undertakings—that would imply submission to the MCR regime—and involving the establishment of various nexus of relations of cooperation between the undertakings at stake. Such situations tend to occur most frequently among competing undertakings and in recently liberalized markets which steadily progress into a greater degree of international integration. In my view, a significant number of the situations thus qualified would be better analysed and perceived under the more rigorous conceptual framework of the competition law category of joint venture. 32 For purposes of legal analysis of the effects of joint ventures on the competition process, based on foreseeable parameters, the various qualifications of the subcategories of joint ventures, and the characterization of the global joint venture category itself, should carry with them an accurate analytical function, contributing to the identification of factors which confer a certain degree of specificity to those entities for purposes of competition law analysis (as regards the types of risks of restriction of competition associated with them and the general assessment criteria to be taken into account). In that light, the alleged category of strategic alliances does not, in my opinion, carry with it any precise analytical function, operating as a mere formal label frequently used in negotiations of cooperation between undertakings of economic nature and largely devoid of legal content or accuracy (something that may explain the lack of explicit reference to it in the 2011 Horizontal Cooperation Guidelines, although the Commission continues to use it in various decisions). Moreover, my general definition and characterization of the category of joint venture is endowed with sufficient flexibility—as a contractual system with a myriad of degrees of complexity—to cater for hybrid processes of integration and cooperation between undertakings, covering various aspects of the relationships between these undertakings.

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1.5 The Treatment of Joint Ownership of Undertakings Without Joint Control Beside the essential dimension of assessment of joint ventures on which the larger part of my analysis is focused—concerning the effects on competition of joint ventures that do not perform all the functions of an autonomous economic entity, while referring incidentally in the context of my analysis of the four key functional types of joint ventures, to the interaction with the structural test of the MCR 2004 for assessment of concentrative joint ventures—my study also covers, albeit in a very ancillary manner, another category of cooperation between undertakings, which bears some important similarities with joint venture analysis. In fact, the joint ownership of undertakings without joint control but allowing the reciprocal development of ties between the involved undertakings that translate into the possibility of exerting significant influence in the respective management may generate effects on competition to some extent comparable to those generated by cooperative joint ventures, in certain cases. The acquisition of a significant shareholding in a given undertaking (minority shareholdings) may, in several cases, endow the acquiring undertaking with significant influence on the management of the participating undertaking, and, thus, provoke risks of distortion of competition fairly similar to those stemming from the creation and operation of cooperative joint ventures. Furthermore, those risks may be increased due to the historical lack of attention paid to those situations by the Commission and the consequent lack of an important or consolidated body of case law from the CJEU and the GC in this field. Several reasons may explain that omission, including the fact that these type of acquisitions of significant shareholdings, short of joint control, were not usually notified to the Commission (then article 81 EC, paragraph 3, prior to the 2003 reform of the system of enforcement of EU competition rules),33 as well as the fact that the Commission has experienced serious difficulties in delineating an adequate analytical framework for those situations for the purposes of enforcement of article 101 TFEU, having focused its scrutiny on other areas of potential cooperation between undertakings. However, I consider that the consolidation of a more systematic competition law assessment of the various relevant subcategories of joint ventures, and the introduction of a greater degree of decentralization in the process of application of EU competition law following the 2003 reform, should create the proper conditions for a new focus by the Commission on situations which could cause a serious distortion of competition, that have been relatively less scrutinized and analysed up till now (after the landmark Philip Morris case, although interest in this area seems to have been revived by the Ryanair judgment of the GC and the Commission’s stated intention of further investing in the study of these cases of minority shareholdings involving some kind of interplay between the MCR and the article 101 TFEU regimes).34

33

I refer here to the reform undertaken by Regulation (EC) No 1/2003. Understandably, this type of situation was not normally subject to the previous Regulation No 17/62, and the Commission has not shown itself willing to scrutinize them ex officio. Therefore, I acknowledge that situations of this kind, with a potentially adverse effect on competition, may have proliferated, justifying a new focus at EU level and also by the Commission in the context of its wider freedom of action arising from the decentralization process. Such new focus seems to be on the horizon given the study undertaken by the Commission (DGComp) ‘on the Economic Importance of Minority Shareholdings’ (COMP/2011/016). See on these potential 34

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Those factors should progressively allow for an increasingly accurate and systematic characterization of the situations of acquisition of significant shareholdings short of joint control (minority shareholdings). Nonetheless, I shall purport to put forward briefly some basic grounds for this competition law assessment of the cases of joint ownership short of joint control insofar as they bear resemblances with the treatment of some cooperative joint ventures. The analysis of this particular subcategory of situations will be developed, alongside the specific attention granted to joint ventures in the financial sector (especially concerning commercialization joint ventures through which cooperation processes intrinsically connected with network activities or operations may be carried out).35 In reality, besides some specific problems that should be considered in the context of creation and operation of joint ventures in the financial sector (to which I shall refer incidentally below, chapter three at 4.4.3.6ff), relevant forms of joint ownership short of joint control, capable of giving rise to reciprocal ties of significant influence over the management of the undertakings at stake, tend to occur rather frequently in that same sector and are worth discussing here.36

1.6 General Overview of the Analysis to be Developed In short, I purport in the core of this book, namely the rest of this chapter and in chapter three, to carry out a comprehensive and systematic assessment of the most common and significant effects of joint ventures on effective competition. In that sense, my critical analysis will rely, to the extent possible, on a unitary perspective concerning the treatment of joint ventures under EU competition law, irrespective of the distinctions between the various subcategories of joint ventures resulting from existing legal provisions. This analysis takes into account the two main legal tests used in the assessment of joint ventures—the test concerning compatibility with the common market and the test concerning behavioural coordination. In relation to each of these tests, I seek to adopt essentially stable yet flexible analytical parameters, allowing the reconciliation of economic and legal market analysis with a certain degree of legal predictability and certainty as concerns the treatment of joint ventures. However, the bulk of my analysis is entirely focused on the latter test and, accordingly, on the article 101 TFEU regime and its application to joint ventures on the basis of the comprehensive analytical model that I proposed. This doctrinal goal of building an analytical model, grounded in specific predefined legal and economic parameters—albeit based on the use of an inductive reasoning method relying on a critical evaluation of a fairly broad range of case law—is, therefore, aimed at developments, and referring to the case law that will be covered more extensively below, ch 3, section 6, Enrique González-Diaz, ‘Minority Shareholdings and Creeping Acquisitions: The European Union Approach’ in 2011 Fordham Competition Law Institute—International Antitrust Law & Policy (Barry Hawk (ed), Juris Publishing, 2012) 423ff. 35 As noted in the Introduction, several specific problems associated with joint ventures in the financial sector are addressed in the context of our analysis of commercialization joint ventures. In this context, I shall also carry out an analysis of the cooperation structures—eg aimed at the management of payment card systems—adopting features and results akin to joint ventures. 36 On the problems stemming from minority shareholdings in competing undertakings, connected with the participation or representation in their corporate bodies, and the frequency of those situations in the financial sector, see Enzo Moavero-Milanesi and Alexander Winterstein, ‘Minority Shareholdings, Interlocking Directorships and the EC Competition Rules—Recent Commission Practice’ Competition Policy Newsletter No 1, February 2002, 15ff.

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a proper understanding of the effects on the competition process arising from cooperative joint ventures, while also referring more incidentally in the context of such in-depth analysis, to the treatment of the subcategory of joint ventures which combines elements leading to their qualification as concentrations and the production of behavioural coordination effects between their parent undertakings. Within this core area of analysis, although my assessment of the relevant Commission case law and CJEU and GC case law is developed as much as possible through the in-depth study of the most significant functional types of cooperative joint ventures,37 the main scope pursued is to identify and consolidate a duly articulated set of legal and economic parameters which globally may be construed as a true comprehensive analytical model for joint ventures (under EU competition law). Therefore, it is essential to delineate and characterize at the outset—in very broad terms—some of the main elements on which such parameters for assessment of joint ventures should be based, and a coherent nexus of logic articulation between them should also be sought. This comprehensive analytical model should then be developed and explored in the context of a specialized analysis of the various functional types of cooperative joint ventures that I have selected for the purposes of this in-depth study. Accordingly, I start the treatment of the substantive assessment of joint ventures (particularly cooperative joint ventures)—in the following sections of this chapter by depicting a proposed assessment model, in broad terms, in light of some analytical guidelines and of already stabilized concepts developed in connection with some key EU competition legal regimes more directly related with the fields of cooperation and integration between undertakings, as well as through the already mentioned inductive reasoning process based in a body of case law and jurisprudence (and also on hypothetical market situations derived from the experience acquired through such case law). The actual development and characterization of my proposed comprehensive analytical model ultimately results from the specific and in-depth assessment of the four selected functional types of joint ventures to which I shall devote my attention in chapter three, especially in sections 2 to 5), thus proceeding to an effective application of this analytical model to empirical cases of joint ventures (and explaining, in that process, the main traits of the model).

2 The Main Elements of the Proposed Analytical Model for the Assessment of Joint Ventures 2.1 General Remarks I admit that, for the purposes of substantive assessment of cooperative joint ventures, account can be taken of some of the criteria set out by the Commission in its successive

37 I refer to R&D joint ventures, production joint ventures and commercialization joint ventures. Also at stake may be mixed type joint ventures, combining various functions, albeit in some cases none of them may be considered as predominant nor reaching the threshold of joint ventures which perform all functions of an autonomous economic entity. Furthermore, I shall also consider, at a different (minor) level of development, the subcategory of purchasing joint ventures.

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2001 and 2011 Horizontal Cooperation Guidelines (particularly in this latter version of those Horizontal Guidelines), concerning the assessment of the effects on competition arising from these agreements in general. However, if those elements are to be taken into account for the purposes of this study, and considering their underlying goal of delineating a general analytical model of cooperation agreements, I submit that such a goal has not been fully and successfully achieved. Therefore, and as I shall further note, the set of assessment criteria established by the Commission—even after the latest December 2010 review of the Horizontal Guidelines— strikes me as incomplete and, most importantly, too focused on the particularities of the various functional types of cooperation agreements, thus failing to provide true general assessment parameters in some areas. In any case, the methodological option taken in the 2001 Horizontal Cooperation Guidelines and apparently abandoned or at least adjusted (according to my understanding at least) in the 2011 Horizontal Cooperation Guidelines, aimed at seeking the establishment of a first level of analysis of cooperation agreements between undertakings through the use of a tripartite preliminary assessment model, comprising (i) agreements that in principle do not appreciably restrict competition under article 101, paragraph 1; (ii) agreements that almost always appreciably restrict competition under article 101, paragraph 1; and (iii) agreements that may appreciably restrict competition—seems to me to be adequate for the assessment of cooperative joint ventures (given their specific features). I do believe, however, that the analytical model to be employed in the assessment of joint ventures should contemplate a second stage of analysis of the effects of joint ventures—of a predominantly structural nature but with a general scope—prior to assessing the specific traits of each functional type of joint venture, as suggested in the Commission Guidelines (which contemplate at a second analytical level specific market share thresholds as varying structural criteria for the assessment of multiple functional types of cooperation agreements). As I see it, in a consistent and comprehensive analytical model of joint ventures it is only in a third (subsequent) level of analysis of joint ventures that specific parameters pertaining to each functional type of joint venture should be taken into consideration.

2.2 First Stage of Analysis of Joint Ventures—Types of Situations Not Usually Prohibited 2.2.1 Preliminary Considerations on the Delineation of a First Level of Analysis of Joint Ventures in Light of the 2001 and 2011 Horizontal Cooperation Guidelines 2.2.1.1 First Level of Analysis of Joint Ventures and Changes of Approach in the 2011 Review of the Horizontal Cooperation Guidelines As regards a first stage of analysis of joint ventures, in the context of the comprehensive analytical model envisaged here, I consider it essential to carry out a preliminary (or first stage) assessment of joint ventures for the purpose of potentially placing them—taking into account various relevant criterias—in one of three categories of situations that should be differently treated under EU competition law. This preliminary assessment involves, as noted above, the identification of types of situations not usually prohibited by competition rules; types of situations usually prohibited under such rules; and, finally, types of

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situations requiring a more developed or in-depth analysis, weighing inherent potential competition distortion elements against positive or pro-competitive elements which may compensate for the negative elements, namely as regards the degree of economic efficiency possibly generated by the joint ventures under review. However, before further developing this first level of analysis of joint ventures in the context of the analytical model I envisage in this area, it is necessary to put such characterization into perspective bearing in mind the amendments introduced by the Commission Horizontal Cooperation Guidelines in the December 2010 review, that apparently dismissed such an analytical approach (as regards cooperation agreements in general). In fact, as regards the potential submission of horizontal agreements to the article 101, paragraph 1, TFEU general prohibition, the revised 2011 Horizontal Guidelines have redirected their focus to the necessity of assessing whether the agreements at stake have as their object or effect an appreciable restriction or distortion of competition within the common market and if such restriction is likely to affect trade between Member States. Considering the fundamental assessment which is required—aimed at evaluating whether an agreement appreciably restricts competition—these revised 2011 Guidelines have formally abandoned the previous analytical grid established in the 2001 Guidelines, that divided those agreements into the three groups or categories that we have already described above. In my view, this tripartite analytical grid has been essentially justified by the need to ensure some degree of predictability in the substantive evaluation of cooperation agreements (although these have to be assessed in their economic context,38 which implies to a large extent a casuistic analysis of the different market situations, that, in turn, may leave undertakings in a position of considerable uncertainty about the legality of their understandings, with all the related drawbacks). On the whole, I therefore consider that establishing this tripartite analytical grid as the starting point of a comprehensive model of substantive assessment of cooperation agreements was, in fact, the correct methodological option. The fundamental underlying idea here was to delineate a preliminary level of analysis of horizontal cooperation agreements, in which—through a more succinct analysis—we would be able to identify types of situations that should be normally regarded as not prohibited under article 101, paragraph 1; types of situations that would normally be prohibited under that regime; and, finally, types of situations that would require a more developed evaluation of the market conditions at stake (which could hypothetically lead, in the end, to the conclusion that the agreements at stake should not be prohibited). Specifically on this third type of situation, the 2001 Guidelines, in conjunction with the Block Exemption Regulations on Research and Development and on Specialization Agreements, established subsequent and more elaborate levels of substantive analysis, comprising a second predominantly structural level of analysis (based in the market shares of the participating undertakings) and a third level of analysis taking into consideration potential risks of distortion of competition particularly related to each functional type of cooperation.

38 On that guiding principle of evaluating cooperation agreements taking into consideration their economic context, see both the 2011 Horizontal Cooperation Guidelines, paras 25ff, and also the 2001 Horizontal Cooperation Guidelines, paras 20ff), which follow overriding criteria set by consistent case law in this area, as eg, Case 42/84 Remia BV v Commission or Case T-168/01 GlaxoSmithKline Services v Commission (which I shall come back to later in this chapter).

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This tripartite analytical grid has been (formally) replaced in the revised 2011 Horizontal Cooperation Guidelines by a new analytical structure which, in connection with each functional type of agreement, aims to identify the main competition concerns or risks and, essentially, (i) the possible restrictions of competition by object and (ii) the possible restrictive effects on competition. It should be recognized, however, that this analytical structure has important parallels with the previous tripartite analytical grid of the 2001 Guidelines. In fact, the individualization of, on the one hand, possible restrictions by object and, on the other hand, possible restrictive effects should, to a large extent, correspond to the identification of situations that are normally prohibited under article 101 TFEU and of situations that usually require a more developed evaluation of the market conditions at stake. However, this new analytical grid has apparently eliminated the previous first category of paradigmatic situations that could be considered as covered by a preliminary presumption of lawfulness (situations that should be normally regarded as non-prohibited under article 101, paragraph 1 TFEU). I say ‘apparently eliminated’, since the revised 2011 Horizontal Guidelines, in the end, do specify that horizontal cooperation agreements between competitors that, on the basis of objective factors, would not be able to independently carry out the project or activity covered by the cooperation will normally not give rise to restrictive effects on competition within the meaning of article 101, paragraph 1 (with the proviso, based on a proportionality principle, that the parties could not have carried out the project with less stringent restrictions).39 2.2.1.2 Analytical Grid to be Derived from the 2011 Horizontal Cooperation Guidelines Accordingly, despite the fact that the 2011 Horizontal Guidelines do not comprehensively recognize it as an autonomous category, the main bifurcation between restrictions by object ((i) leading normally to prohibition) and by effect ((ii) normally requiring a more developed empirical analysis) is actually—albeit implicitly—complemented by the type of situation of cooperation agreements between competitors that, would not be able to independently carry out the project or activity covered by the cooperation, which, on the whole, should (iii) normally be regarded as non-prohibited under article 101, paragraph 1 (this corresponding to one of the principal cases which because ‘of their very nature’ did ‘not imply a coordination of the parties’ competitive behaviour in the market’ according to the 2001 Guidelines).40 I regard it as positive that the 2011 Horizontal Cooperation Guidelines maintain, on the basis of a preliminary and rather perfunctory analysis, a category of situations—however implicitly these may now be considered—that should be perceived as normally not prohibited under article 101 (for reasons of legal security and predictability). In any case, I consider this implicit third category of cooperative situations, normally permitted under EU competition law (consistent with the tripartite analytical grid established in the 2001 Guidelines as a first stage of analysis), is particularly suited for the assessment of joint ventures (regardless of the formal adjustments of the 2011 revised Guidelines which concern cooperation agreements in general and are not specifically addressed to the 39 40

See, on this, the 2011 Horizontal Cooperation Guidelines, para 30. See, on that understanding, the 2001 Horizontal Cooperation Guidelines, para 24.

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joint venture category). Accordingly, as regards joint ventures, I consider that the tripartite grid including that first level of analysis must be retained. However, I admit that the Commission could have gone further in the characterization of such situations (normally permitted under EU competition law). That would imply more reference examples of cases in which, by objective standards, the parties are not able to independently carry out a certain activity—besides the only example provided in the 2011 Horizontal Cooperation Guidelines concerning the ‘limited technical capability’ of the parties. It would also imply, in my opinion, a further contextualization of this type of situation in order to provide more clear and complete guidance about situations that may safely be regarded as normally non-prohibited. That would entail a complementary qualification of the situations at stake, in which competitors would not be able to independently carry out the activity covered by the cooperation agreement, linking it to two chief relevant contexts (that would be decisive in making a prima facie positive assessment as a kind of first level safe harbour for the participating undertakings). I refer here to contexts in which the impossibility of independent action applies to activities that are decisive to ensure the presence of a further competitor in any given market or, to activities which are instrumental to the provision of certain relevant goods or services that otherwise would not be provided to consumers. On the contrary, I am in favour of the elimination in the 2011 Horizontal Cooperation Guidelines of the previous preliminary indicators (established in the 2001 Guidelines) to ascertain situations normally not prohibited, which had to do with cooperation agreements concerning activities which allegedly did not influence the relevant parameters of competition.41 That indicator struck me as being too vague and not practical enough to indentify specific categories of situations normally not prohibited. 2.2.1.3 Analytical Grid to be Derived from the 2011 Horizontal Cooperation Guidelines—Further Issues With regard to another situation previously identified in the 2001 Guidelines—cooperation agreements between non-competitors—I admit that it may still be implicitly construed, on the basis of the express condition stated in the Horizontal Guidelines (concerning competitors that would not be able to independently carry out a certain activity), as a type of situation corresponding to cooperation agreements normally not prohibited (provided the participating undertakings do not hold an appreciable market share and that their cooperation will not give rise to factors which block or make especially difficult third parties’ access to the markets at stake). It would accordingly correspond to a second reference parameter to identify and circumscribe situations of normally not prohibited joint ventures (in parallel with the first parameter described above at 2.2.1.2) concerning situations in which competitors would not be able to independently carry out the activity covered by a joint venture agreement. However, if I favour this kind of analytical construction I must also then recognize that its practicality as a first level and overall safe harbour to undertakings has been affected by the lack of an express reference to it in the 2011 Horizontal Cooperation Guidelines

41

See also on that analytical factor, ibid paras 24ff.

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and, in that context, by the lack of an operative market share threshold that would apply in general to all types of horizontal cooperation and could be situated at an intermediate level between the de minimis threshold42 and the specific market shares thresholds contemplated in the Horizontal Guidelines and in the relevant Block Exemption Regulation for the various types of functional cooperation. Nevertheless, as regards the assessment of joint ventures in particular—for which I am considering specific criteria while taking as a reference, to some extent, the general criteria established for horizontal cooperation agreements in the 2001 Guidelines and in the revised 2011 Guidelines—I consider that the use of a third (complementary) requirement with distinct conditions may be justifiable, in order to conduct the preliminary evaluation of such cases (leading to the identification of normally permitted joint ventures under EU competition law). Thus, in some situations it may be possible to confirm instantly the feebleness or lack of market power of participating undertakings in a given joint venture.43 In the cases where such an absence of market power is blatant, due to a negligible size of the market shares of participating undertakings in the joint venture that is not compensated by other factors (enhancing somehow the market power of those undertakings), it may in principle be assumed that the creation of the joint venture does not generate relevant risks of distortion of competition (unless very particular situations occur or if non-competition obligations have been established—related to the establishment of the joint venture—that may be covered by per se prohibition rules). In this latter case, what would really be at stake would be those particular non-competition obligations or clauses and not the process of creation of the joint venture itself. It should, however, be acknowledged that in its 2001 Horizontal Cooperation Guidelines, the Commission brought up the criterion related to market power in this first stage of analysis of the effects of joint ventures, although conferring on it a different scope and function than those proposed here. The Commission considered that the situations of cooperation between undertakings normally not prohibited, defined on the basis of the three parameters it had set forth (in those 2001 Guidelines),44 might, ultimately, be caught within the prohibition in article 101, paragraph 1 TFEU, whenever the participant undertakings are entities with ‘significant market power’ (which should not be confused with a dominant position over a given market).45 Taking a rather different perspective, I believe

42 I refer here of course to the de minimis market share threshold contemplated in the ‘De Minimis Notice’ of the European Commission, OJ [2001] C368/13. 43 I refer to situations amounting to the absence of significant market power. 44 I refer to the three parameters noted above, notwithstanding my disagreement with the one corresponding to the identification of situations of cooperation involving activities which are not prone to influence the relevant patterns of competition—proposing, instead, a parameter corresponding to the evident feebleness or absence of market power concerning the undertakings participating in a given joint venture. 45 The legal and economic conceptualization of the notion of significant market power of undertakings should correspond to a legal minus in relation to the much debated concept in EU competition law of dominant position. In effect, within the application of article 101 TFEU, the assessment of market power of undertakings, relevant for assessing the intensity of a possible restriction of competition stemming from cooperation among them, should be carried out at a level below the level required for establishing a dominant position, in accordance with article 102 TFEU and with the regime set out in the MCR. However, in a manner I deem to be less than perfect, there has been a proliferation in EU economic law, namely in areas of ex ante sector regulation, whose application and understanding should be carried out through a proper combination with competition rules, of the use of the concept of significant market power or of similar concepts, as in, eg, the Directives on electronic communications and the Interpretative Notice pertaining to the same rules, containing ‘European Commission guidelines

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that the market power of the parties should not be considered solely as a criterion for exclusion of the safe harbour area (of agreements normally not prohibited), but may, on the contrary—when such market power is particularly flimsy—provide a third (complementary) positive criterion for the inclusion of joint ventures in this safe harbour area of lawful cooperation. It should be noted that the existence of flimsy or negligible market power of the participating undertakings in the joint venture requires to be verified as clearly recognizable on the various alternative scenarios of definition of the relevant markets at stake.46 Taking account of the three criteria concerning the delineation of a specific safe harbour area for joint ventures (normally not prohibited joint ventures), I maintain that they should still be counter-balanced with the negative criterion of the existence of an especially intense market power of the participating undertakings in the joint venture and—following on from this point, particularly as regards joint ventures, the analysis that was delineated in the 2001 Horizontal Guidelines—with a second negative criterion corresponding to the possibility that the cooperation developed through a given joint venture might cause the market to be closed to third parties.

2.2.2 Relevance and Shortcomings of the Revised 2011 Horizontal Cooperation Guidelines to My Analytical Model of Joint Ventures To sum up, on the whole, I consider that the previous tripartite basis of preliminary analysis of cooperation agreements (designed in the 2001 Guidelines) could have been retained, even if streamlined and amended for clarity, in the revised 2011 Horizontal Cooperation Guidelines. This change of the analytical structure of the various chapters of the Horizontal Guidelines removing—at least apparently—a first level presumption of lawfulness, while maintaining, albeit in a less systematic manner, some elements that provide the basis

on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications networks and services’ (JOCE No C165/6, of 11 July 2002). Furthermore, the use of this concept in close connection with the competition law concept of dominant position as in the Guidelines does not clarify matters at all. Curiously, the Commission has displayed a worrying tendency to use similar or parallel concepts to that of dominant position when considering situations involving some intensity of market power of undertakings, as happened, eg, with the concept of ‘paramount market position’—apparently broader in scope than the concept of dominant position—that was proposed in the initial Commission Proposal of Draft Notice on the appraisal of horizontal mergers under the Council Regulation on the control of concentrations between undertakings’—Brussels, 11 December 2002) and which, in what I consider a positive outcome, was not ultimately adopted in the final wording of the 2004 ‘Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings’. On the concept of ‘paramount market position’, corresponding to situations in which an undertaking resulting from a concentration holds a substantial market share and a considerable advantage in this respect as to their closest competitors, see Simon Bishop and Derek Ridyard, ‘Prometheus Unbound: Increasing the Scope for Intervention in EC Merger Control’ (2003) ECLR 257ff. 46 It is evident that the establishment of this ‘safe harbour’ through operational criteria not dependant on more developed or elaborate analysis requires a high level of efficiency of intermediate analytical processes, as occurs in particular with processes regarding the establishment of the relevant markets. In fact, these intermediate analyses are essential to determine, eg, whether the participating undertakings in a joint venture are actually competitors. In any case, it should be acknowledged that the nature of such intermediate or ancillary analytical tasks is completely different depending on whether one purports to identify relevant markets as a basis for a developed or in depth assessment of market power of undertakings and of the various conditions for its use, or one merely purports to identify alternative scenarios of market definition which allow a quick-look perception of situations akin to the absence of competition relationships among the participating entities or to manifest lack of significant market power of such entities.

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for a possible preliminary positive evaluation of cooperation agreements, may lead to unintended consequences in a context of decentralization (also bearing in mind that the less abundant case law on horizontal cooperation at national level, comparatively with vertical restraints, may lead to a fundamental lack of guidance in this field). In short, it would have been adequate to retain an autonomous analytical section (corresponding to a first level of analysis) that would allow for preliminary scrutiny of the agreements in search of possible compatibility presumptions, based on the type of competitive relationship between the participating undertakings and also on a general market share threshold, and in search of incompatibility presumptions as well. That first level of analysis is retained in the comprehensive analytical model that I propose, specifically, for the assessment of joint ventures. Furthermore, I consider that besides the essentially positive developments arising from the December 2010 review of the Horizontal Cooperation Guidelines—particularly focused on the introduction of new or expanded sections related to information exchange between competitor undertakings and with the category of standardization agreements47—the review could have gone further in terms of (i) designing a truly comprehensive analytical model for the assessment of horizontal agreements (not excessively focused on some particular requirements in connection with specific functional types of horizontal cooperation) and also in terms of (ii) incorporating the more economics based and flexible principles that have been developed recently by the CJEU and by the GC in cases such as GlaxoSmithKline, Barry Brothers, Meca-Medina and O2 v Commission48 (particularly as regards the analytical bifurcation between the rules in paragraphs 1 and 3 of article 101 TFEU in the field of ‘by effect’ restrictions of competition). In the context of this bifurcation between the paragraph 1 and 3 regimes, what is especially striking is the scarce (and in some cases completely absent) reference to this more innovative and economics based line of case law. In particular, I note that Métropole Television (M6)—explicitly referenced in the 2011 Horizontal Cooperation Guidelines49— with its more rigid division between assessments to be conducted under paragraph 1 or 3 of article 101 TFEU and with its strict limits on the weighting of the pro- and anticompetitive aspects of a restriction of competition (circumscribed to the specific framework of paragraph 3), should have been counterbalanced with explicit and more developed references to Barry Brothers, Meca-Medina and O2 v Commission (something that is especially relevant for purposes of joint venture assessment that, given its specificity, sometimes blurs the line between that too rigid or strict bifurcation between paragraphs 1 and 3 of article 101

47 Understandably this has led to the fact—acknowledged by the Commission in its ‘Overview of the Feedback Received from Stakeholders in the Public Consultation on the Draft Texts Published in 2010’ (concerning the public consultation on the revised rules for the assessment of horizontal agreements that took place between 4 May and 25 June 2010—that, in the course of that extensive consultation process on the review of the Block Exemption Regulations (R&D and specialization) and of the 2001 Horizontal Cooperation Guidelines, most of the analytical contributions to that discussion put a particular emphasis on the issues of information exchange and of standardization agreements. 48 I refer here to GlaxoSmithKline (n 38), Case C-209/07 Barry Brothers, Case C-519/04 P Meca-Medina and Case T-328/03 O2 v Commission. In this line of case law attention should also be paid to the widely known and debated Case C-309/99 Wouters, despite some peculiarities in this latest case specifically related to regulatory issues of public interest (a point which will be examined below). 49 See Case T-112/99 Métropole Television (M6) (CFI), which is explicitly referenced in fn 8 of the 2011 Horizontal Cooperation Guidelines (emphasizing the considerations developed by the Court in paras 69ff of its ruling).

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TFEU, allowing on the contrary, some consideration of pro-competitive elements at the level of the application of paragraph 1 of this article, as I shall observe in the course of my in-depth analysis of the four functional types of joint ventures that I have selected). In addition, and considering here matters which will be examined further in the context of my analysis of the various functional types of joint ventures (chapter three), I also believe that the 2011 Horizontal Cooperation Guidelines could have developed a more ambitious approach as regards the structural criteria it uses to assess market power of the participating undertakings (in the course of what may be regarded as a second stage of analysis, if, after a first and perfunctory evaluation of the agreements, a more detailed assessment of potential effects of restriction of competition is required).

2.3 First Stage of Joint Venture Analysis—Types of Situations Usually Prohibited under EU Competition Rules 2.3.1 First Stage of Joint Venture Analysis and Normally Prohibited Joint Ventures As previously mentioned, in a first stage of analysis of the effects of joint ventures in the competition process, one may identify categories of situations usually (or almost always) prohibited by competition rules. This concerns agreements of creation of joint ventures which have as their object the restriction or distortion of competition—a trait which must be assessed on the basis of essentially objective criteria. What is stake here is not any accurate definition, on a subjective level, of the parties’ intentions in each process of creation of joint ventures. What matters for the relevant competition law assessment is an understanding of the real function or goal of the agreements underlying the creation of the joint venture, in accordance with objective elements, something that is almost equivalent to ascertaining the likely effects of such agreements. Indeed, if it is possible to anticipate or to estimate some typical effects of certain agreements—that may be considered standard effects arising from a certain functional content of those agreements—then it will also be possible, on the same grounds, to ascertain a typical function of the agreements aimed at the restriction of distortion of competition (if that is the case). Ultimately, it may seem to be a rather artificial conceptual distinction between, on the one hand, the object of the agreement—understood in a subjective perspective related with the parties’ goals or intentions—and, on the other hand, the effects of the very same agreement.50 These usually prohibited situations in EU competition law take place in the cases where the creation and functioning of joint ventures lead to three paradigmatic forms of restriction or distortion of effective competition, namely, agreements concerning joint fixing of prices, the limitation of output or sales, and the allocation of markets or customers. These forms of restriction or distortion of competition are normally covered by an almost per se prohibition on the basis of article 101, paragraph 1 TFEU, and, in their basic content, match in an impressive manner the main per se prohibitions established in US antitrust law (although with the significant differences arising from the possibility of applying article 101,

50

See the 2001 Horizontal Cooperation Guidelines, para 24.

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paragraph 3 TFEU, even if practically remote in some cases, which intrinsically prevents the existence of true per se prohibitions in EU competition law).51 In fact, in the context of the US antitrust system, most academics, in line with higher courts case law—in particular from the Supreme Court—have been considering horizontal price fixing agreements, as well as agreements on the limitation of output or sales to be restrictions of competition that are per se prohibited (although authors such as Terry Calvani have highlighted the existence of recent jurisprudence that seems to cast some doubt over whether such forms of cooperation between undertakings should normally be deemed as prohibited).52 The element which stands out in this type of case of cooperation between undertakings is the agreement directly aimed at the distortion of the main pillars on which any actual competition process relies. Because of their paramount importance in the safeguarding of minimum levels of competition, these should, as a rule, be supremely protected, irrespective of any structural considerations (at this level and in these particular cases, the importance of the structural factors related to the market power of the undertakings participating in joint ventures should be set aside). The more complex contractual system frequently involved in the creation of joint ventures would ultimately present, in these particular situations, an ancillary character in connection with a central agreement aimed at the manipulation of core elements of competition, to a certain extent concealed by the joint venture itself. Obviously, the assessment of some of these complex situations of cooperation between undertakings cannot be made without further thought being given to the component that actually commands the entrepreneurial cooperation project at stake—either the integration component, related to the pooling together of some enterprise functions through the establishment of a joint venture, or the behavioural coordination component, aimed at the manipulation of certain core aspects of the competition process. Thus I consider the analysis carried out by the Commission in its 2001 Horizontal Cooperation Guidelines to be fundamentally correct, in the sense of exceptionally setting aside the application of an almost per se prohibition criterion in connection with certain agreements restricting competition (through, eg, joint decisions on output and, to some extent, on pricing if the joint venture also markets the jointly manufactured goods) included in global agreements of establishment of production joint ventures53 (in an understanding largely corroborated in the revised 2011 Horizontal Cooperation Guidelines

51 See the Antitrust Guidelines for Collaborations Among Competitors, issued by the Federal Trade Commission, and the US Department of Justice, April 2000, para 1.2. (‘Agreements challenged as per se illegal’). As stated there, ‘types of agreements that have been held per se illegal include agreements among competitors to fix prices or output, rig bids, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce’. 52 See Terry Calvani, ‘Some Thoughts on the Rule of Reason’ (2001) ECLR 201ff. Calvani refers in particular, in this respect, two relevant US Supreme Court precedents, namely BMI and NCAA. As he explains, ‘neither BMI nor NCAA fits the traditional paradigm. Both price fixing cases were assessed under the rule of reason. The practice in one was found reasonable and in the other condemned’ (at 203). 53 One should bear in mind in this respect, the defence permitted as regards joint decisions on pricing in the context of production joint ventures which also comprise some level of commercialization of products manufactured by those entities. See, on this, the 2001 Horizontal Cooperation Guidelines, fn 18.

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as regards production agreements and joint decisions on the output directly concerned by the production agreement or on the joint setting of the sales prices).54 In fact, as long as there is proof that the dominant scope of the established cooperation between two or more undertakings lies on the integration of a fraction of their productive function, through the creation of a joint venture, one may, in theory, accept, as a situation inherent to the operation of the joint venture, the inclusion in the agreements entered into by the participating undertakings of provisions concerning prices and output (particularly if its range of activities is extended to the joint commercialization of its own manufactured goods). In this case, the potential competition distorting elements stemming from these agreements on prices and output should be subject to an overall assessment concerning the effects of the joint venture upon the relevant market, for the purposes of determining the application or non-application of the prohibition set out in article 101, paragraph 1 TFEU. In my view, this exceptional admission of elements directly restrictive of competition (not to be treated, however, as almost per se prohibited) may assume a broader content than the one set forth by the Commission in its 2001 and 2011 Horizontal Guidelines. That may include some situations of creation and operation of commercialization joint ventures. However, I also think that the Commission has not sufficiently clarified the autonomous reasoning required in such situations. When assuming that the functional content of certain categories of joint ventures necessarily implies joint decision processes regarding elements of commercial behaviour decisive for maintaining effective competition (eg, on price and output), it is clearly not acceptable—as a kind of inevitable consequence of that assumption—that the restrictions of competition related to those processes would necessarily lead to an assessment which would negatively impact on the overall effects of the joint venture at stake. On the contrary, I consider that it is necessary to assess, through an appropriate critical understanding of the contractual system underlying the joint venture, whether the restrictions of competition (affecting elements which are normally at the very core of the competition process, such as price or output) constitute a merely ancillary component of the cooperation project or, whether these actually constitute its main component.

2.3.2 Normally Prohibited Joint Ventures vis a vis Restrictions of Competition by Object in General in the 2011 Horizontal Guidelines In summary then, the revised 2011 Guidelines seem to maintain the traditional analytical division between restrictions by object and restrictions by effect as the basic and paramount reference for the assessment of horizontal cooperation agreements (as noted above). Furthermore, the 2011 Guidelines also seem to combine this traditional division with an apparently rigid evaluation of the analysis to be conducted either under paragraph 1 or under paragraph 3 of article 101 TFEU (maintaining strict limits on the weighting of the pro- and anticompetitive aspects of a restriction of competition as aspects to be dealt only in the specific framework of paragraph 3, thus repeating the analytical construction

54 See the revised 2011 Horizontal Cooperation Guidelines, paras 161 and 162. In these cases such elements of the agreement are no longer evaluated as restrictions of competition by object and the assessment that is required is as to ‘whether the agreement gives rise to likely restrictive effects on competition’.

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outlined in its 2004 Guidelines on the Application of Article 81(3) of the Treaty55 and corroborating the analytical line taken in Métropole Television (M6).56 As regards the treatment of restrictions by object, the 2011 Horizontal Guidelines emphasize as the three chief aspects for its assessment (i) the ‘content of the agreement’; (ii) the ‘objectives it seeks to attain’; and (iii) the ‘economic and legal context of which it forms part’. Conversely, following the reasoning developed by the Court of Justice in Barry Brothers,57 the Guidelines clearly underplay the relevance of the parties’ intention, stating that the Commission may take such aspect into account in its analysis but without considering it ‘a necessary factor in determining whether an agreement has an anti-competitive object’.58 This characterization of the treatment of restrictions by object in the context of horizontal cooperation between undertakings is undoubtedly in line with the general analytical framework developed in the more recent European case law. However, being too schematic, it provides very limited effective guidance to undertakings in this field. In fact, what seems to result from Barry Brothers—especially if compared with the reasoning used in previous rulings59—is that even in situations where the content and purpose of agreements look prima facie particularly pernicious to competition, a preliminary inquiry will be required (albeit conducted in a rather perfunctory manner) for the purposes of actually ascertaining its anticompetitive impact in a given economic and market context. That does not override the presumption of anticompetitive impact as regards certain prima facie more serious restrictions of competition. More accurately, it means these kinds of presumptions are not to be applied in a formalistic and almost automatic manner. Its application will involve, at a minimum, a brief evaluation of the market context in which the agreement will be inserted. It is uncontroversial that the case law thus far has led to the identification of certain restrains which are themselves a particularly serious risk to competition. Typically, and considering here horizontal cooperation situations, the case law has identified as such the agreements between competitors to fix prices, limit output or share markets (eg, in the landmark European Night Services ruling, which coincidentally deals with joint ventures)60 or cooperation involving information exchanges directly or indirectly creating the conditions to fix purchase or selling prices (eg, in T-Mobile Netherlands BV v Raad van beestuur van de Nederlandse Mededingingsautoriteit).61 However, and contrary to the more formalistic approach still followed in the 2004 Guidelines on the Application of Article 81(3) of the Treaty,62 the more recent case law clearly seems to imply that the substantive legal and economic context in which the

55

‘2004 Guidelines on the Application of Article 81(3) of the Treaty’ OJ [2004] C101/97. See, on this, the final part of para 20 of the 2011 Horizontal Cooperation Guidelines in which it is peremptorily stated that ‘the balancing of restrictive and pro-competitive effects is conducted exclusively within the framework laid down by Article 101(3). If the pro-competitive effects do not outweigh a restriction of competition, Article 101(2) stipulates that the agreement shall be automatically void’ (emphasis added). 57 I refer here to the Barry Brothers ruling (n 48), in which the Court clearly stated that ‘the parties’ intention [would not be] a necessary factor in determining whether an agreement has an anti-competitive effect’ (para 17). 58 See, on such understanding and characterization, the 2011 Horizontal Cooperation Guidelines, para 25 which, curiously, quotes the undoubtedly relevant ruling GlaxoSmithKline (n 38), but omits the fundamental Barry Brothers precedent (n 48). 59 Such as Cases T-374, 375, 384 and 388/94 European Night Services (CFI) (esp para 136). 60 Ibid. 61 See Case C-8/08 T-Mobile Netherlans BV v Raad van beestuur van de Nederlandse Mededingingsautoriteit. 62 See esp para 21. 56

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competitive restraint operates should somehow be assessed, albeit through a fleeting test (while full blown market analyses continue only to be justified in connection with restraints that, after such preliminary, routine tests, are not identified as particularly serious competition infringements whose possible ‘restrictive effects’ have to be assessed through that more developed analysis). Therefore, in light of these considerations, it may be argued that the 2011 Horizontal Cooperation Guidelines represent, somehow, a missed opportunity to provide specific guiding criteria for the confirmation of the more serious nature of competition infractions related to certain restraints established in horizontal agreements on the basis of perfunctory assessments of any given legal and economic context in which those restraints operate.

2.4 The Situations that May be Prohibited under Article 101, Paragraph 1 TFEU and the Successive Stages of Joint Venture Assessment in My Analytical Model 2.4.1 Preliminary Remarks Within a first preliminary stage of analysis of cooperative joint ventures, I have identified a third category of situations which may be either covered by the prohibition set out in article 101, paragraph 1 TFEU or not, thus raising doubts about their possible impact on competition and requiring a more comprehensive analysis. These are situations which may not be unequivocally qualified as generally allowed or prohibited forms or cooperation forms in light of the said provision, on the basis of the application of the assessment criteria discussed above at 2.2 and 2.3 of this chapter). Thus, the methodological effort in devising a fairly predictable analytical model for the assessment of various types of cooperative joint venture, comprising a sequence of preordained analytical stages, should be focused in particular upon such situations. I consider that the strict, methodological development of such a comprehensive analytical model—although inevitably flexible and dependent on elements of casuistic assessment63—may pave the way for a new analytical approach based on the multiple reasoning parameters on the assessment of forms of cooperation between undertakings64 will be predominantly developed on the basis of article 101, paragraph 1 TFEU, and not necessarily (or as least not as frequently as before) on paragraph 3 of the same legal provision.65 I believe this has two advantages. First, it reduces excessive intervention by competition authorities in the activity of undertakings and, second, it enhances legal predictability and certainty in the understanding and application of competition rules.

63 However, it should be borne in mind at this point that a fundamental difference exists as regards a legal analysis constrained by casuistic factors, as the one I refer to above (acknowledging to a certain extent its inevitability), and an analysis entirely determined by such factors (generating uncertainty and a ratchet effect in transactions costs imposed on undertakings). 64 My analysis focuses especially upon the cooperation among enterprises through the use of joint ventures, but the conclusion reached here may actually pave the way for other types of cooperation among enterprises. 65 It should be recalled that, as previously mentioned, the Commission has, until recently, tended to subject various joint ventures to the prohibition set out in article 101, para 1 TFEU, then gone on systematically to grant them exemptions under para 3 of the same article. The new global approach submitted above is therefore bound to bring about huge changes in the substantive treatment of joint ventures.

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This analytical model, capable of transferring the main focus of legality and admissibility of the various categories of joint ventures from article 101, paragraph 3 TFEU to its paragraph 1, involves the use of assessment parameters somewhat resembling, but not to be mistaken for, the US antitrust law rule of reason.66 In effect, not only does this latter methodology bear some specific traits associated with the US judicial system, but also, in the US, the traditional opposition between rule of reason based analysis and assessment on the basis of per se prohibition criteria has lately been increasingly challenged.67 Therefore, irrespective of any concern with possible parallels with the rule of reason methodology, the analytical model to be devised will rely on the delineation of what I think of as a sort of weighed or global effect that certain joint venture categories are bound to generate on competition. As previously explained, I reject the use, even in this particular context, of the rule of reason’s conceptual category as such (stricto sensu).68 This delineation of a sort of weighed or global effect on competition arising from certain cooperative joint ventures must, in turn, result from a sequential web of reasonings, influenced to a considerable extent by structural factors, which, on the one hand, assess and qualify elements of restriction or distortion of competition inherent to those joint ventures, and, on the other hand, assess possible pro-competitive elements underlying those entities, thus ultimately establishing an overall assessment of that combination of negative and positive effects. This analytical process is addressed, albeit with significant shortcomings and deficiencies in the Commission’s 2001 and 2011 Horizontal Cooperation Guidelines (in particular these latter revised Guidelines, as I have noted at 2.2.2 in this chapter, should have gone further in light of jurisprudential developments in this field) and, perhaps in more effective or accurate terms, it is also discussed in the US 2000 Antitrust Guidelines for Collaborations 66 I have already described the essential aspects of the US rule of reason. These aspects will be addressed in greater detail in the context of the in depth analysis of the various functional subcategories of joint ventures, which largely comprises a systematic comparison with the US antitrust framework. 67 In fact, as I shall further observe, the rule of reason is closely associated with the normative structure of legal rules disciplining cooperation between undertakings in the US antitrust system which is different from the normative layout and structure of article 101 TFEU. Moreover, due to recent developments in the case law and in US antitrust doctrine, the dichotomy between the analyses based on the rule of reason and on outright (per se) prohibitions has been increasingly challenged. See, inter alia, Calvani, ‘Some Thoughts on the Rule of Reason’ (n 52) 201ff; Geert Wils, ‘“Rule of Reason”: Une Regle Raisonnable en Droit Communautaire’ (1990) CDE 19ff; Charles Weller, ‘A new rule of reason from Justice Brandeis’s “concentric circles” and other changes in law’ (1999) AB 881ff. In particular, the need to devise intermediate parameters corresponding eg, to the per se rule involving intensified analysis or ‘quick-look’ analysis or to the extended analysis, or ‘quick look’ rule of reason. The main idea underlying such intermediate parameters corresponds to an assessment of the widely varying degrees of complexity of potential competition repercussions concerning various situations, not adequately framed in the traditional framework. In the context of antitrust analysis of joint ventures, the general analytical model set out by Joseph Brodley takes as a starting point the verification of a reductionist and oversimplified nature of dichotomy of outright ban and rule of reason and the excessive legal uncertainty stemming from a general and indistinct application of the rule of reason to all joint ventures which do not amount to concealed cartels. On the various factors inherent to the application of the rule of reason Brodley comments: ‘although these factors provide some narrowing of issues, the ultimate question remains of such broad scope and generality that little predictive guidance is possible. The ultimate legal result continues to turn on judicial characterization of a complex factual transaction, a situation that leads to uncertainty and costly proceedings’ (in ‘Joint Ventures and Antitrust Policy’ (n 24) 1536). 68 Some commentators even claim that the Commission 2001 Notice would actually have adopted a methodology tantamount to the US rule of reason, an opinion I do not share. Renewed consideration of some elements restrictive of competition and pro-competitive efficiency-inducing efficiencies, which may actually be perceived in certain parts of the reasoning developed in such 2001 Guidelines—albeit occasionally incomplete or inaccurate—is not necessarily identifiable with the rule of reason methodology.

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Among Competitors (which are, however, of rather limited scope, insofar as these only address forms of cooperation between competing undertakings excluding other categories of joint ventures).69 Unlike the traditional formulation of the US rule of reason, this assessment of a weighed global effect of joint ventures on competition (predominantly based on article 101, paragraph TFEU) that I envisage should rely on a standardized or pre-ordained set of assessment criteria—which may be adjusted in line with various factors influenced by the circumstances of each specific market situation. Furthermore, it should lead to a web of inter-connected partial considerations—some even bearing the form of quasi legal presumptions—allowing for the development of a swift and largely predictable process of joint venture assessment.70

2.4.2 The Second Stage of Analysis of Joint Ventures 2.4.2.1 General Perspective The assessment of categories of joint venture whose effects on competition raise appreciable doubts pursuant to a preliminary analysis should be developed in a second stage of analysis, of a predominantly structural nature, based on the market share jointly held by the participating undertakings. The essential goal underlying this second stage of analysis of the effects of cooperative joint ventures which I set out, will correspond to the ranking of the market power of the participating undertakings in a joint venture. In the cases where the market power of those participating undertakings is allegedly weak, and to the extent it is not significantly reinforced by the cooperation process agreed between them, it may be assumed, except as otherwise evidenced by specific circumstances inherent to the functioning of the relevant markets at stake, that the creation of the joint venture will not restrict competition.71 As should be expected, this kind of assessment also requires in itself other ancillary reasoning, including reasonably precise considerations such as the definition of the relevant markets at stake.72 Additionally, the criterion pertaining to the participant undertakings’ market 69 See n 51. The US federal competition authorities have even considered the adoption of a more ambitious project of adoption of Guidelines covering all forms of cooperation—and not only the one developed between competing undertakings. However, this project was abandoned due to its complexity, in the wake of the preliminary analysis arising from the so called Joint Venture Project, developed in 1997 by the Federal Trade Commission (involving an array of specialized entities and scholars representative of US antitrust doctrine—‘Hearings on the Joint Venture Project—Federal Trade Commission, 1997’). 70 This analytical model for assessing the global weighed effect of joint ventures should not be considered equivalent to the rule of reason methodology. Ultimately, if any parallels are to be drawn with the analytical methods used in the US antitrust system—within certain limits due to the normative structures of US and EU competition law—this should be established in connection with the intermediate parameters between the rule of reason and the outright bans that have been developed more recently in the context of the former system. 71 At least, one may assume that in the situations at stake the creation of joint ventures will not restrict competition in an appreciable manner—something that is at the core of the relevant competition law analysis in this area, irrespective of hypothetical formal restrictions of competition that may be identified. It should be emphasized that in this category of joint ventures whose repercussions on actual competition pursuant to their preliminary analysis raise appreciable doubts—therefore requiring a more in depth analysis—joint ventures involving usually prohibited core elements of cooperation will not, in principle, be included. 72 It should be acknowledged, anyway, that the need to identify the relevant markets may also arise in the first stage of analysis. However, this type of assessment at that stage may be limited to a rather linear appreciation, establishing alternative definitions of the relevant markets, consequently being less certain and less comprehensive (for the purposes of confirming, eg, that in none of those alternative scenarios do enterprises possess significant market power).

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share may advantageously be combined with that concerning the degree of concentration of the market affected by the operation of the joint venture. The 2001 and 2011 Horizontal Cooperation Guidelines have proven very important for the development of this stage of analysis of the effects of joint ventures and of the assessment criteria on which this stage should be based, especially addressing the use of the parent undertakings’ market share criteria and the degree of concentration of the affected market.73 Furthermore, the recognition in the Guidelines of the convenience of using econometric models, with a view to determining the degree of concentration of the markets (namely through the use of the Herfindhal Hirshman Index longstanding in the US antitrust system, especially as regards the assessment of concentration operations) assumes the greatest relevance.74 Such application of econometric analysis models constitutes a very positive innovation in the field of EU competition law analytical methodology and should, in my view, be used often,75 as long as it remains properly framed by other, inter-connected stable qualitative assessment criteria.76 However, I depart from the position adopted by the Commission in the 2001 and 2011 Horizontal Cooperation Guidelines as regards its assumption on the impossibility of establishing a generic market share threshold above which market power sufficient to cause effects of distortion or restriction of competition may be deemed to exist. Thus, in the Commission’s view, this criterion of market share of the participating undertakings in the joint venture should be construed in a specific manner according to each functional type of cooperative joint venture (or functional type of cooperative agreement, because the scope of these Guidelines is broader and covers in general these agreements between competitors). That is tantamount to acknowledging multiple guiding market share thresholds above which—and specifically in connection with each functional type of joint venture—effects of restriction or distortion of competition may likely arise. Although the Commission’s concern with the inevitable particularities of each functional type of cooperation between undertakings is, to a certain extent, understandable, I believe that this true scattering of market share indicative thresholds is detrimental for two main reasons. First, such an unevenness of assessment criteria renders the establishing of consistent joint venture assessment parameters difficult.

73

See the 2001 Horizontal Cooperation Notice, esp paras 28 et seq. This econometric technique (Herfindhal Hirshman Index (HHI)), largely developed in the context of US merger control, allows the assessment of the degree of market concentration, which is calculated by summing up the squares of the individual market shares of all competitors. As I shall observe further, also in the context of concentrative joint ventures, the Guidelines on the Assessment of Horizontal Concentrations, relying on important developments in the enforcement practice of the Commission involving the explicit recourse to the HHI in several merger cases, have duly acknowledged the relevance of this analytical process. 75 Curiously, the focus on econometric methods (such as HHI) for the consideration of the degree of concentration of markets has been retained in the 2001 Horizontal Cooperation Guidelines (see esp paras 29ff, 96 or 135) and practically omitted, at least in terms of explicit references, in the revised 2011 Horizontal Cooperation Guidelines. 76 The development of this type of econometric model is, in my opinion, rather belated in the context of EU competition law in comparison with the US antitrust system. However. the late blooming of these models should be framed by qualitative pre-ordained analytical models, in order to avoid a whole new type of analytical distortions in EU system. On the recent enhanced use of econometric processes of analysis and highlighting the blanks still left in context of the system of application of EU competition rules, especially as regards merger control regime, but with relevance for other areas, see Alistair Lindsay, Emanuela Lecchi and Geoffrey Williams, ‘Econometrics Study into European Commission Merger Decisions Since 2000’ (2003) ECLR 673ff. 74

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Secondly, this type of use of the market share criterion is not suitable to be applied to cooperative joint venture types which are endowed with significant de facto relevance in the business practice of cooperation between undertakings—the mixed type joint ventures, which may not be conclusively qualified as any of the functional types of cooperation more commonly identified (because they combine in a relatively equal degree several entrepreneurial functions although not reaching the threshold of the full function joint venture). In this context, it cannot be accepted that this fundamental analytical tool, based on the market share of the participating undertakings in a joint venture, may be deemed to be inapplicable for the purposes of assessing the subcategory of mixed type cooperative joint ventures. Considering, thus, the existence the fundamental importance and practical relevance of this subcategory of mixed type cooperative joint ventures, an analytical attemp should be made to build a common market share threshold, amounting to a measurement tool of the parties’ market power generally applicable to cooperative joint ventures. However, I do not argue, in any way, against the convenience of carrying out various adjustments as regards the preliminary indications or quasi-presumptions arising from the application of such a common index, taking into consideration specific elements related to each functional type of joint venture, whenever such functional type may be securely and accurately ascertained. However, I consider that these possible analytical adjustments in the assessment of joint ventures’ effects must represent a subsequent stage of the analytical process of comprehensive evaluation of those effects. 2.4.2.2 The Overall Approach Followed in the 2011 Revised Framework of Horizontal Cooperation To sum up and to put into perspective the analytical model I purport to build for the assessment of joint ventures in connection with the general framework of analysis outlined in the Horizontal Cooperation Guidelines, a more flexible approach and one more in line with the recent economic-based case law seems to have been followed in the revised 2011 Horizontal Guidelines as regards ‘by effect’ restrictions of competition (implying a qualitative hermeneutical progress in comparison with the 2004 Guidelines on the Application of Article 81(3) of the Treaty, although the new hermeneutical input in this field could have been clarified even further). In this field—which will be more extensively dealt with in chapter three, in the context of the application of my analytical model to specific functional types of joint ventures—the 2011 Horizontal Cooperation Guidelines, while considering, as in the case of ‘by object’ restrictions, the nature and content of the agreements, particularly stress the relevance of market power of the participating undertakings (in connection with other market characteristics). For that purpose, the Guidelines take into consideration as a ‘starting point’ the ‘position of the parties on the markets affected by the co-operation’, relying on the assumption that ‘if the parties have a low combined market share, the horizontal co-operation agreement is unlikely to give rise to restrictive effects on competition within the meaning of Article 101(1) and normally no further analysis will be required’.77

77

See 2011 Horizontal Cooperation Guidelines, paras 43 and 44.

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However, the Guidelines, after asserting this market share indicator as a general parameter for an intermediate stage of assessment of cooperation agreements (corresponding to what the second stage of assessment of joint ventures in my analytical model) go on to state that ‘it is not possible to give a general market share threshold above which sufficient market power for causing restrictive effects on competition can be assumed’ (since it would be necessary to take into consideration the different effects that various horizontal agreements may have in different market situations). Accordingly, the analytical methodology established in the Horizontal Guidelines relies on a segmented approach to the market share criteria, meaning that the relevant market share threshold established by the same Guidelines will vary depending on the specific type of functional cooperation at stake. On the whole, the 2011 Horizontal Cooperation Guidelines consider a first or preliminary stage of analysis—even if too vaguely defined as I have stressed above at 2.2.2 in this chapter—in order to identify, as the case may be, ‘by object’ restrictions (which in principle will be immediately ascertained as prohibited), or ‘by effects’ restrictions (that require a more in-depth assessment), which, globally and for the latter category of situations, will be followed by a second (general) fundamental stage of analysis, pondering the degree of market power of the parties. This second stage of the analytical model used for the assessment of horizontal agreements involves a market share threshold at least marginally higher then the one considered for the purposes of application of the de minimis criteria (that imply in principle an immediate judgement of non-prohibition of the agreements at stake), but the 2011 Horizontal Cooperation Guidelines contend that such market share threshold has to vary according to the functional type of horizontal cooperation (thereby refusing the concept of a general market share threshold that is marginally higher than the de minimis horizontal market share threshold). Accordingly, the comprehensive framework of horizontal agreements reviewed in December 2010—comprising the Guidelines and the Block Exemption Regulations on Research and Development and Specialization78—relies on a series of diverse market share thresholds varying from 15 per cent to 25 per cent of the markets at stake79 (depending on the type of functional cooperation pursued by the parties). For reasons of simplification, predictability and also bearing in mind a critical understanding of the acquis in terms of treatment of precedents, a single market share threshold could have been considered in the context of a revised global analytical model for the assessment of horizontal agreements (thereby creating a truly general second stage of assessment of those agreements). This general second stage of analysis—aimed at consideration of market power through market share criteria—would, in turn, be counterbalanced by complementary stages of analysis of the ‘by effects’ potential restrictions, involving factors or analytical tools specifically connected with each type of functional cooperation. Notwithstanding this view that I hold in general about the framework of the 2011 Guidelines and the whole group of horizontal cooperation agreements that it covers, in my own general analytical model for the assessment of joint ventures—which undeniably takes

78 See Commission Regulation EU No 1217/2010, of 14 December 2010, Block Exemption Regulation on research and development agreements, and Commission Regulation EU No 1218/2010, of 14 December 2010, Block Exemption Regulation on specialization agreements. 79 As will be described in more detail in the course of our analysis of the four selected functional types of joint ventures, ch 3.

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into consideration some aspects of these Guidelines but goes far beyond them—I argue for the application, in the course of the second stage of analysis of joint ventures that I have been characterizing, of a single market share threshold. 2.4.2.3 The Applicable Market Share Threshold Furthermore, for purposes of establishing such a single market share threshold in the context of a second stage of analysis of joint ventures in the analytical model that I propose, there is reason to highlight in this field a pertinent parallel with the EU framework applicable to vertical agreements and concerted practices. In this area, the Commission’s Block Exemption Regulation No 2790/9980 introduced ex novo an assessment criterion for vertical agreements, based on the market share of the undertakings involved in such situations (a market share threshold which was maintained or confirmed in the new Block Exemption Regulation No 330/2010).81 Pursuant to an extended process of discussion of the Guidelines and proposals leading to the adoption of the Regulation No 2790/99, the adopted criterion was a uniform market share threshold corresponding to 30 per cent of the market affected by agreements or practices at stake (this was kept unchanged by article 3 of the revised Regulation No 330/2010). The Commission has, within the normative process leading to the adoption of the general framework of vertical restraints (in 1999), rejected several proposals, addressing alternative criteria—based on differing market shares in accordance with the various types of competition restrictions. In this process of building an assessment model for vertical restraints a general line has, thus, prevailed in the sense that it would be more effective do adopt a uniform guiding criterion in order to rank the parties’ market power through a uniform market share threshold (avoiding additional complexity and uncertainty stemming from simultaneous use of various reference criteria for market power that would translate into various market share thresholds). Naturally, since this assessment model is using criteria (related to market share) concerning the foreseeable occurrence of noticeable effects of restriction of competition, it is the complementary analysis of the specific aspects related to certain specific modes of undertaking behaviour which may potentially impair competition, that should allow us, at another qualitative level, to draw conclusions on the possibility of such nefarious effects actually occurring. Accordingly, it is important to note that what is at stake with the determination of this market power criterion, is not so much the formulation of a conclusive reasoning on the repercussions of certain joint ventures in actual competition, but rather, the means to describe and circumscribe a number of situations which pose lesser risks of restriction of competition, thus not deserving an especially comprehensive complementary analysis. Within this analytical approach, I believe that a common threshold for preliminary market power evaluation should be adopted—relying on a sole quantitative market share criterion—and that, on this basis, two alternative analytical processes should be devised. Whenever the use of the sole quantitative market share criterion indicates a fairly reduced probability of relevant risks of distortion of competition, due to the absence of

80 This has replaced several previous Block Exemption Regulations focusing on different types of vertical agreements. 81 Complemented by the 2010 Guidelines on Vertical Restraints.

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significant or strong market power of the parties involved in a given joint venture, the complementary analysis of the joint venture at stake may be relatively simplified and less demanding. In that case, a favourable assumption may in principle be established, almost tantamount to a presumption of non-restriction of competition arising from the joint venture, which will only be rebuttable through conclusive evidence otherwise, stemming from such complementary analysis. Obviously, in the cases in which a mere simplified complementary analysis clearly indicates the presence of elements which may counteract the initial favourable assumption, the assessment of those additional elements should be carried out in greater depth. However, taking into account the relevance of the factor pertaining to the intensity of the power market of the participant undertakings in the joint venture, I believe that this type of situation in which some specific aspects—concerning the functioning of the affected market—may counteract a first favourable assessment of the joint venture, should be relatively rare.82 In a diverging sense, whenever the application of the quantitative criterion of the parties’ market share is not enough to set aside the probability of the occurrence of relevant risks of distortion of competition—this criterion only being capable of giving rise to such negative conclusion—subsequent stages of analysis should therefore be developed. In these complementary stages of analysis the quantitative market share criterion will be combined with other assessment parameters in a logical sequence consisting of a stable and pre-ordained reasoning process, in order to allow an overall evaluation of the effects of joint ventures on competition. It should be recalled that such an overall evaluation must comprise not only potential and hypothetical elements of restriction of competition, but also economic efficiency elements which may counteract the former even in the field of application of article 101, paragraph 1 TFEU (as I shall ascertain in my in-depth analysis of various function types of joint ventures in the course of chapter three). As far as this point is concerned, a possible parallel should be drawn with the new joint venture assessment methodologies in the US antitrust system, developed in reaction to the extreme traditional dichotomy in the analysis of such entities and also of other processes of cooperation between undertakings, based on the application of either per se prohibitions or the so called rule of reason.83 As mentioned above, the US Federal competition authorities have been considering the possibility of adopting an intermediate analytical perspective relying on a pre-ordained and sequential model of assessment of effects of joint ventures on competition. This perspective, approved by, among others, Joel Klein84 may, indeed, bear some similarities, as regards the overall analytical model applicable to joint ventures—influenced by structural elements, but, also incorporating other pre-ordained factors—which I purport to build in the context of the EU competition law framework,

82 Thus, since I believe these situations will be relatively exceptional that should not adversely affect the dimension of relative predictability which should be provided wherever possible to undertakings in this type of competition law assessment, through the use of general pre-determined analytical models, not disproportionately increasing transaction costs to which these undertakings may be subject. 83 As previously mentioned, the development of new analytical methodologies as a reaction to the traditional and extreme analytical dichotomy that was the rule of reason and the per se prohibitions did not occur solely in the area of assessment of joint ventures. However, I admit that it has been in this area that the building of intermediate or alternative parameters of analysis has achieved greater importance. 84 In accordance with this author, what would be at stake was the possibility of developing a middle ground between the per se prohibition and the rule of reason criteria. See Joel Klein, A Stepwise Approach to Antitrust Review of Horizontal Agreements (Dept of Justice, Washington DC, 1996).

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without confusing it with the rule of reason parameter, despite the unequivocal points of contact between the two. However, such comparisons have their limits, and I disagree with some assumptions underlying the intermediate analytical perspective set out by Joel Klein. Therefore, if I adopt, in broad terms, the idea of a first standard stage of analysis of the effects of joint ventures, with a view of assessing to what extent the potential restrictions of competition related to the establishment of joint ventures detected in a preliminary assessment, may be covered by almost per se prohibitions, I do not agree with the immediate moving on to a second stage of analysis—if such a prohibition is not applicable—concerned with ascertaining possible justifications for the existence of the joint venture due to efficiency reasons which are deemed to benefit competition.85 In my view, the analytical model to be developed in order to systematically perceive the effects of cooperative joint ventures on competition should in fact constitute a preliminary stage of assessment, for the purposes of circumscribing possible situations that are, in principle, to be regarded as prohibited or permitted (as the case may be) under EU competition law. As regards the category of situations of cooperation between undertakings which, pursuant to this preliminary stage of analysis, raise appreciable doubts concerning an the application of the prohibition set out in article 101, paragraph 1 TFEU, the subsequent analysis to be carried out shall provide for a new stage of assessment allowing the measurement of the joint venture participating undertakings’ market power, that may, in itself, justify a quasi-presumption of absence of relevant risks of distortion of competition. However, and in a sense departing from Joel Klein’s analytical model, I do not subscribe to the view that from this stage of analysis onwards, the complementary assessment of those joint ventures—excluded from the scope of application of the favourable presumption related to the participating undertakings’ market share—should be immediately aimed at verifying hypothetical efficiencies that may justify these cooperation processes. I consider that the participating undertakings’ market share criterion must be combined with other complementary analytical parameters, duly articulated between them, with a view to confirm (or not, as the case may be) the probability of verification of effects of restriction of competition. That, however, does not exclude the fact that such assessment may be carried out pari passu with the assessment of potential economic efficiency effects (in the context of an overall assessment still included within the context of the application of article 101, paragraph 1 TFEU, and not necessarily of paragraph 3 of the same article).

2.4.3 The Third Stage of Analysis of Joint Ventures 2.4.3.1 The Core Elements of the Third Stage of Analysis of Joint Ventures In the context of a more developed assessment of the effects of joint ventures whose compatibility with EU competition law raises doubts—on the basis of their preliminary assessment, under the terms I have already focused upon—I believe that a third stage of analysis should typically be undertaken.

85 This analytical sequence is outlined by Joel Klein in his study, ibid. There are, however, other types of proposed analytical sequences put forward in US antitrust doctrine.

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This stage of the analytical process requires taking into account the elements of potential restriction of competition especially related to each functional type of joint venture, whenever such qualification is possible.86 Exceptionally, this stage of analysis may lead to the revision of early analysis—resulting from the application of the quantitative general criterion of the market share of the participating undertakings in the joint venture—which might have led to a preliminary perception of absence of significant risks of distortion of competition. Thus, if on the one hand I maintain—in clear opposition to the Commission’s view on this matter—the convenience of identifying, in a second stage of analysis, a common parameter for measuring market power, with a negative function of identifying situations which are not prone to raise competition problems, on the other hand, I recognize that the initial assessments based upon this parameter must be adjusted in the subsequent stage of analysis, which is focused on the particular aspects related to each functional type of cooperative joint venture. Such an adjustment may lead to the detection of effects or risks of distortion of competition specifically related to a given type of cooperation between undertakings in particular, which had not been previously identified or measured in a proper manner in the preceding assessment of the participating undertakings’ market power. Ultimately, the quantitative criterion for the assessment of market power (based on a common market share threshold) may have its function of delimitation of situations that potentially do not lead to a high probability of generating effects of restriction of competition subject to correction factors resulting from the analysis of the functional type or of the particular layout of a given process of cooperation between undertakings regarding joint ventures of a complex nature (in a given market context of functioning of those joint ventures).87 As regards the situations which have not been identified as potentially neutral in terms of their repercussions on competition, this third stage of analysis, addressing the core aspects involved in the functioning of each functional type of joint venture, should allow a proper development of the assessment of possible effects of restriction of competition by the joint ventures at stake. Such a task requires the analysis of the specific impact of the market power associated with these entities upon the concrete conditions of the functioning of the market, as influenced by the content and aspects involved in the type of cooperation pursued through the joint venture schemes. Similarly, it is necessary to identify the elements of the competition process—prices, quantitative or qualitative levels of output, or others— that may be directly or indirectly affected by the relations of cooperation at stake.

86 I refer to the criteria of qualification of functional types of joint ventures covered by regime of article 101 TFEU, taking into account the parameters established in the 2001 and 2011 Horizontal Cooperation Guidelines, albeit departing from it on some essential issues. 87 Ultimately, those correction factors resulting from more advanced stages of analysis in the model of assessment of joint ventures that I propose may even involve a revision of preliminary assessments resulting from a first stage of analysis in which, eg, a form of cooperation in principle permitted might have been identified. In this regard, I may consider as an example a joint venture established by non-competing founding entities—to be deemed in principle as a form of permitted cooperation—but, which, by virtue of its functional type of cooperation and because of certain particular conditions of functioning of the affected markets at stake, would ultimately lead to appreciable restrictions of competition. It is to be acknowledged, however, that the probability of occurrence of this type of revision of the initial analysis, and of its tripartite selection and identification of situations usually allowed, situations usually prohibited, and those requiring further analysis, will not be very high, at least in general terms, and as regards the first two types of situations (to the extent these precisely justify limiting the relevant antitrust scrutiny to a very brief analysis of those same situations).

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The substantial core of the assessment of effects of cooperative joint ventures on competition lies unequivocally in this area. It is also certain that this core area of assessment itself still involves a complex analytical process, incorporating other sequential sub-stages in accordance with several relevant parameters evidencing diversified connections with the main elements of the competition process (sequential stages that I describe in an abbreviated manner in the following sections and that will be the object of in-depth treatment in chapter three). However, it is starting from the basic matrix compounded by each functional type of joint venture or from each specific modulation of the cooperation system—in the case of mixed type joint ventures—that I proceed to develop the fundamental part of the global assessment reasoning that is to be established on each given joint venture (to ascertain, in the end, an overall restrictive effect on competition arising from the venture, or not, and to decide whether it is positively counteracted by economic efficiencies or not). The actual content of the cooperation process underlying each joint venture—for example, focusing on research and development or on production activities—conditions, at this stage, the whole set of structural analytical elements which play, nonetheless, a fundamental role in the analytical model we have contrived. Furthermore, the identification of the material boundaries of such cooperation between undertakings will, in itself, interact with the very process of definition of the relevant markets in the context of the activity of each particular joint venture, on which the verification of the participating undertakings’ market power depends, as well as a proper understanding of other factors related with the structure of the markets at stake. Therefore, in composite or mixed type joint ventures, which may not be reduced to a single functional type of cooperation, the various functional elements of cooperation which make up the joint venture must be taken into account and, on that basis, the manner in which they might affect the key aspects of the competition process. 2.4.3.2 The Key Functional Types of Joint Ventures and Risks of Distortion of Competition Associated with Them As regards the situations which may be qualified by reference to a prevalent functional type of cooperation, my attention will be focused on those corresponding to research and development joint ventures, production joint ventures and commercialization joint ventures. I shall also cover, albeit in a more perfunctory manner, purchasing joint ventures (these being of less importance for the overall understanding of the repercussions on competition of the creation of cooperative joint ventures).88 This analytical selection of functional types of cooperation between undertakings relies, not just on their practical relevance on the relationships between undertakings and groups of undertakings, but also on the paradigmatic nature of the constraints in the competition process stemming from these types of cooperation. In the context of the analysis of each functional type of cooperation, I seek to identify, irrespective of the various shades and different aspects comprised in the contractual modelling of those ties of cooperation, some core elements which may be considered

88 For further justification of the assumption of the lesser relative importance of purchasing joint ventures, see below, ch 3, section 5.

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truly common to each type and, thus, able to characterize it. These elements will refer to the goals usually pursued through each type of cooperation and, also, to the usual means of making these functional types come to life, through more or less complex contractual arrangements. On the grounds of such characterization and understanding of the material content of each functional type of cooperation, I proceed to the detection and assessment of the main repercussions of such nexus of cooperative relationships on the existing body of effective competition in each market. Such repercussions may embody direct forms of behavioural coordination between the parties, influencing the prices, or the level or quality of output, as well as determining the exclusion of third parties, among other constraints to their operation in the market. Three main categories of risks of distortion of competition underlying, in various ways, the paradigmatic content of certain functional types of cooperation may be identified. These categories are: risk of price coordination; risk of coordination of the level or quality of output as regards certain goods or services; and risk of market foreclosure, leading to situations of exclusion of competitors which are not justified by economic efficiency reasons.89 In accordance with the methodological perspective on EU competition law that I adopt, this assessment of the categories of repercussions of the various functional types of joint ventures should be made, undoubtedly, within the particular economic context of creation and functioning of each joint venture. Such an assumption mandatorily implies the formulation of certain evaluations on variable economic premises within a context implying to some extent a casuistic approach. However, that does not preclude, in my view, the building of legal and economic analytical standards capable of allowing general assessments to be drawn on the basis of some key and pre-ordained parameters. Thus, bearing in mind the overall approach set out above on key risks of distortion of competition, it should be noted that, frequently, the enforcement of EU competition rules has been especially influenced by the two first categories of risks, to the detriment of the one concerning market foreclosure or unjustified competitor exclusion. In any case, one should also ultimately acknowledge that the lesser attention paid to this latter risk is not merely a feature of the EU competition law system: the same is true of US antitrust law. That helps to explain why, in the context of the adoption in the US of the 2000 Antitrust Guidelines for Collaboration Among Competitors, concerning horizontal cooperation and covering joint ventures specifically,90 the treatment of problems related to competitor exclusion was explicitly set aside. In my opinion, the continuous development of legal and economic parameters of competition law analysis of joint ventures should imply an ever increasing amount of attention being paid to competitor exclusion risks which may be associated with various functional types of cooperation between undertakings. The enhanced analytical focus on this category of risk of distortion of competition is of paramount importance not only to complete the

89 These three categories of risks of distortion of competition are addressed—even if not explicitly or systematically—in the 2001 Horizontal Cooperation Guidelines (and also, to some extent, in the revised 2011 Horizontal Cooperation Guidelines). 90 See, esp fn 5 of the Guidelines: ‘These Guidelines take into account neither the possible effects of competitor collaborations in foreclosing or limiting competition by rivals not participating in a collaboration nor the possible anticompetitive effects of standard setting in the context of competitor collaborations. Nevertheless, these effects may be of concern to the Agencies and may prompt enforcement actions.’

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overall framework of economic effects which should take place through competition law analysis of joint ventures, but also to increase the degree of predictability and certainty in the assessment of those effects. Some imbalances which are still currently felt in the process of application of EU competition rules must, therefore, be corrected, through a more moderate approach in the detection and sanctioning of alleged situations of competitive coordination in terms of price fixing, or on the level and quality of the output and, conversely, adopting a more rigorous scrutiny of possible situations of market foreclosure or competitor exclusion.91 As I shall further observe (in the in-depth analysis of the selected functional types of joint ventures developed throughout chapter three), the foreseeable occurrence of those categories of risks of distortion of competition may vary in accordance with the elements present in each functional type of cooperation between undertakings. In any case, the actual materialization of such risks, through the occurrence of certain restrictions of competition in these areas, may still depend on the way the elements present in each functional type of cooperation are conditioned or influenced by other complementary economic factors, relevant from the legal standpoint. Such complementary understanding of the influence of those factors must, in my view, be pursued in subsequent stages of analysis of cooperative joint ventures (which are to follow a first assessment of the set of elements present in each functional type of cooperation at stake, thus allowing a proper consideration of these other analytical criteria of the effects on competition that may arise from any given joint venture). Still at the level of a foreseeable association of certain risks of distortion of competition with certain elements pertaining to each functional type of cooperative joint venture, I accept as a general guiding principle that the category of risks concerning coordination on prices and level and quality of output shall be endowed with a relevance proportional to the degree of proximity of the cooperation relationships at stake as to the stage of commercialization of products or services to final consumers.92 Therefore, such aspects naturally justify special attention in the context of the assessment of the effects of that functional type of cooperation corresponding to commercialization joint ventures. The particular acuteness of problems of coordination, restrictive of competition, as regards price setting is, in fact, evident in connection with certain forms of this functional type of joint venture that directly involve processes of joint sale of goods or services. However, it is also felt in other joint commercialization arrangements limited to the sharing of distribution channels and networks, without involving, at least directly, joint price setting. Potentially problematic situations in this field have to do not only with cases leading directly to explicit price and output levels coordination, but also with other kinds of

91 The enforcement practice of the Commission has shown an excessively biased tendency to identify issues of concertation supposedly restrictive of competition, even if in a tacit manner—especially concerning the setting of prices. I consider it advisable—as evidenced by a more rigorous analysis of commercialization joint ventures (see ch 3)—to dismiss some assumptions relating to the application of the prohibition established in article 101, para 1 TFEU to elements of cooperation that may have an influence on prices (also bearing in mind that in various cases involving joint ventures the application of the prohibition rule in this area has been systematically followed by the granting or admission of exemptions under article 101, para 3 TFEU). 92 I refer to the commercialization of goods or services within a given market that, considering the joint ventures and the respective parent undertakings at stake, may be deemed to constitute the market for final consumer goods or services affected by the creation of such joint ventures.

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situations in the context of cooperative joint venture arrangements indirectly bolstering those kinds of coordination of competitive behaviour (which may also occur tacitly). Thus, either some subcategories of commercialization joint ventures which do not include any mechanisms designed to allow the adoption of joint decisions on prices and output levels, or other functional types of cooperative joint ventures not comprising prima facie marketing or commercialization functions, may, nonetheless, foster conditions rendering highly likely the concertation of the participant undertakings in those core areas at stake. Indeed, despite being situated further away from the commercialization stage, production joint ventures and purchasing joint ventures93 may typically cater for the creation of conditions favourable to coordination with repercussions for the commercialization stage. In theory, production joint ventures may decisively contribute to an alignment of the cost structures of their parent undertakings, thereby creating an objective ground for price convergence at the level of commercialization of goods and services produced by the joint venture. However, it has to be acknowledged that starting from this abstract identification of such a scope for price convergence and coordination, only subsequent assessment of these kinds of indirect effects in the context of the specific economic situation in which they occur may allow us to ascertain their actual relevance.94 In fact, in the course of the functioning of this type of production joint venture the harmonization of production costs may assume variable relevance in accordance with the production costs’ impact on the overall price of the relevant goods or services.95 From another standpoint, purchasing joint ventures may also create, albeit in different ways, a comparable effect of harmonization of the cost structures of parent undertakings, thus favouring final product price convergence. This potential coordination effect at the level of pricing will, in such cases, be somewhat easier to assess, since it will depend upon a quantification of the relative importance of the supply sources ensured through those

93 Of course, I am taking into account here for the purposes of this analysis, only functional types of joint ventures that I have specifically selected for in-depth analysis, namely research and development joint ventures, production joint ventures, commercialisation joint ventures—and at a more secondary level of analysis— purchasing joint ventures. Furthermore, one should take into account the existence of mixed type joint ventures which, although not going beyond the threshold associated with entities performing all functions of an autonomous legal entity (that would trigger their qualification as concentrations), combine, nonetheless, several of those more important entrepreneurial functions. 94 As previously emphasized, the competition law assessment at stake involves an inevitable level of casuistic analysis, comprising the specific conditions of each market affected by the creation of a given joint venture. However, that should not prevent us, in general, from selecting, identifying and valuing the types of economic factors that should, in principle, be considered in each particular situation. The difficulty of such an exercise of building general analytical models lies in combining some level of predictability resulting from such pre-ordained series of interconnected relevant factors with the alea stemming from an inevitable casuistic dimension of the analysis of each particular situation of creation and functioning of joint ventures. See for a perspective on those analytical difficulties, William Blumenthal, ‘Ambiguity and Discretion in the New Guidelines—Some Implications for Practitioners’ (1993) ALJ 471ff. 95 The consideration of these elements will depend on the specific operating conditions of the potentially affected final consumer markets at stake. Thus, in certain markets, the costs of promotion—inserted within marketing strategies that the founding undertakings continue to develop autonomously—may, eg, represent a decisive element in price formation, rendering then the potential influence of production joint ventures—in terms of price convergence between founding undertakings—a relatively minor factor. This consideration will be developed in greater detail throughout ch 3 in the context of our in-depth analysis of the main functional types of joint ventures.

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purchasing joint ventures by reference to the whole input elements channelled by parent undertakings to fuel their production process. Similarly, the concertation or coordination pertaining specifically to levels of output will tend to be more directly associated with subcategories of joint venture which, by virtue of their object, are closer to the commercialization stage. Therefore, the potential for behaviour coordination restrictive of competition in this area—particularly through market allocation arrangements—will be especially significant in the functioning of joint ventures ensuring stricto sensu the joint commercialization of goods and services. However, this link between coordination processes facilitating the joint setting of output levels and the degree of proximity between the joint ventures at stake and the commercialization stages in the global cycle of activity of the concerned entities should not be taken at face value. In fact, as will be evidenced in my in-depth analysis of the main functional types of joint ventures, such a category of concertation or coordination risks may ultimately become very relevant in respect of types of joint ventures without any intervention whatsoever in the commercialization of goods or services. That tends to happen, for example, in connection with certain production joint ventures, which may, in particular, give rise to market allocation risks (increased in the event such entities are associated with specialization phenomena also in relation to their parent undertakings).96 It should, in any case, be noted that even the functional types of joint ventures apparently more segregated from commercialization areas may, ultimately, generate significant concertation risks concerning output levels, as may happen, for example, in connection with certain forms of operation of research and development joint ventures. These may, in certain cases, heavily constrain their parent undertakings’ output levels and, therefore, lead or contribute in the end to the development of parallel strategies in this area (levels of output). In spite of that, this subcategory of joint ventures represents a good example of the analytical framework that I have been outlining. This is the case because, in itself, the most common functional content of research and development joint ventures presents, in principle, lesser potential for the verification of relevant risks of coordination as regards output levels (while, at the same time, that does not allow us necessarily to exclude the occurrence of coordination effects restrictive of competition). In the end, it is the analysis of the specific research and development programme of the cooperation at stake and, most importantly, the overall assessment of other economic and legally relevant factors interfering in the development of that programme that will be decisive in assessing in practice the verification or not of such coordination effects. That should involve, as emphasized, an inevitable component of casuistic analysis of each joint venture, within its own economic context. However, the casuistic dimension in the analytical process to which joint ventures are submitted should not be construed as preventing attempts to establish a systematic understanding—and to the extent possible, a pre-ordained one—of the various economic factors, pertaining to each market (in which joint ventures and respective parent undertakings operate), that may be deemed

96 In reality, in the context of various possible subcategories of production joint venture, some may be predominantly associated with specialization agreements, carrying significant risks of market allocation. On those cases or situations of specialization in the context of production agreements, see the 2001 Horizontal Cooperation Guidelines, paras 78ff and the 2011 Horizontal Cooperation Guidelines, paras 50 and esp 152ff.

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complementary in connection with assessment criteria related to the functional type of cooperation at stake. Regarding the second category of risk of competitive coordination (involving the quality of output), the functional type of research and development joint ventures may, as a rule, potentially raise more significant issues. In fact, in certain more dynamic economic sectors, characterized by extremely demanding requirements for continuous innovation applied to certain products or services, the decrease in competition as regards innovation levels, due to the development of cooperation projects in the form of one or more R&D joint ventures may, almost inevitably, lead to a limited perception of the diversity and quality of the available products.97 Still in the field of these risks of anticompetitive coordination (regarding the quality of output), production joint ventures may also be a major source of concern. Indeed, it is easy to see that the development of processes of joint production of goods or services tends—at least within a reasonable degree of probability—to lower the importance of their respective differentiation features and quality as an active element or factor of competition between the participating undertakings. Naturally, the practical assessment of the particular manner in which such coordination risks—most likely to arise in the context of this functional type of joint venture—may arise and globally affect effective competition will depend on the importance of product differentiation features as elements of the competition process itself. 2.4.3.3 The Weighing of the Risks of Market Foreclosure As regards the third category of risks of distortion of competition—risks of market foreclosure or exclusion of competitors for reasons other than mere economic efficiency—their verification may in principle be deemed more likely to occur in the field of R&D joint ventures, production joint ventures and also purchasing joint ventures. However, we are dealing here with a category of risks of distortion of competition whose detection and assessment is considerably more complex in comparison with other areas. From this standpoint, it is of paramount importance to assess whether certain modes of cooperation between undertakings may endow them with specific competitive advantages that are concomitantly denied, in an unjustified manner, to other competing undertakings. Also, it is important to assess whether denying such advantages to competing entities may cause their exclusion from the relevant markets or else, significantly limit their ability to compete in those markets. The special difficulty in such an analysis lies in the fact that the competition process itself is generally conducted by each undertaking with a view to expand its presence in the market, to the disadvantage of its competitors’ position. The qualitative distinctive element which may justify public intervention, stemming from the application of competition rules, consists of the existence of a particular nexus between, on the one hand, a certain type of effect to be induced by the competition process and, on the other hand, the manner in which undertakings may induce such effects.

97 I shall address such matters, emphasizing the importance of the risks of limiting processes of innovation in certain market contexts, below, ch 3, esp at 2.3.2.2ff. See on that particular issue, the 2001 Horizontal Cooperation Guidelines, paras 50ff and the 2011 Horizontal Cooperation Guidelines, paras 81 and esp 119ff.

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In fact, through various forms of cooperation the undertakings involved in joint venture arrangements attain, jointly, certain competitive advantages otherwise not possible to attain whilst acting in isolation. They thus acquire, in certain cases, an unjustified benefit denied to other competing undertakings, excluded from this cooperation process and thus relegated to a limited or constrained market position. It is, therefore, necessary to assess, simultaneously, (i) whether the parent undertakings in a given joint venture would not have the slightest chance of obtaining certain commercial advantages through autonomous operation (albeit with different costs); (ii) whether there may be acceptable justifying reasons for excluding other undertakings from acquiring such advantages (eg because the extension of the cooperation process to such undertakings would be devoid of economic efficiency); and, finally, (iii) whether such exclusion qualitatively alters in a significant manner the conditions under which effective competition in the relevant market takes place. This triple analytical exercise is unequivocally a complex one and raises some questions about the proper limits to the normative intervention and scrutiny of competition law (with a disciplinary role over the open and effective functioning of markets).98 However, this especially high degree of difficulty underlying such analysis cannot justify the lack of attention paid to risks of market foreclosure and competitor exclusion as compared to the other types of risks of distortion of competition. Furthermore, these analytical difficulties may be somewhat mitigated if one considers as a guiding principle in this area that the conditions to be used for assessing and putting into perspective the access of the overall majority of undertakings potentially intervening in the market to the outcome of cooperation processes—this being inherently of a collective nature—should be more demanding than those concerning merely the access to be granted to third parties by a sole dominant undertaking to certain essential elements of the competition process (eg the access to certain networks or distribution systems controlled or held by such sole undertaking).99 The element pertaining to the manner in which certain commercial advantages are to be obtained—through joint action by certain undertakings

98 This type of analysis and reasoning reflect the problem of the paradox underlying most of the normative interventions arising from competition law. In fact, within certain limits, the activities aimed at excluding the participation of third entities in economic advantages obtained by the activity of various enterprises participating in a joint venture may be seen as part of the normal competition process. From that viewpoint, an excessive intervention upon application of competition rules may actually upset the competition process itself, so dear to competition law. On the core paradox which I refer to above, and on the difficulties posed by the establishment of essential equilibriums in competition law, see Robert Bork, The Antitrust Paradox—A Policy at War with Itself (New York, Oxford, Singapore, Sidney, The Free Press, 1993). Irrespective of the fragility of the equilibriums taken as a pre-assumption in this type of analysis, even authors such as Areeda and Turner acknowledge a nefarious and competition hampering character to be associated with joint operation (particularly through joint ventures) leading to the exclusion of competitor undertakings whenever no efficiency gains stem therefrom (as stated in the 1978 edition of their reference work, Antitrust Law (Boston, Aspen Law & Business, 1978) 273ff). 99 This represents a very complex issue, since, as previously emphasized, it implies a delicate fine tuning and overall assessment of the limits to corrective normative intervention based on competition law, and ascertaining whenever the imposition of constraints on the activity of undertakings concerns advantages obtained through their initiative and the use of their own means to achieve such results. In US antitrust doctrine, and even when access to essential assets for the participation in certain markets is at stake—the so called ‘essential facilities’, with the aforementioned characteristics—authors like Hovenkamp have raised significant doubts about the possible imposition of mandatory obligations of granting access to such assets for the purpose of avoiding exclusionary effects of competitors (See Herbert Hovenkamp, Federal Antitrust Policy—The Law and Competition and its Practice (St. Paul, Minn,West Publishing Co, 1994) esp 273ff).

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in the context of one or more joint ventures, if that is the case—is, in this context, of the utmost importance. As already mentioned, the probability of incidence of these risks of competitor exclusion is heightened in relation to some particular functional types of joint ventures. R&D joint ventures are prone in certain cases to such risks. Thus, in the context of the operation of such joint ventures situations of virtual foreclosure of markets to certain undertakings may occur at the level of exploitation of the results stemming from jointly developed research projects. Although, these situations are not that frequent in this type of joint venture,100 they may, nonetheless, occur in cases where the joint ventures at stake aggregate the main existing research centres and the involved parties do not consider opening up the research findings to third parties. In the context of the operation of production joint ventures, the probability—under certain market conditions—of the verification of effects of competitor exclusion is far more significant. That may happen, in particular, in situations of cooperation between parent undertakings which generate repercussions in a chain of vertical or complementary relationships (vis a vis the economic level of activity pursued by those undertakings).101 Thus, the problems of exclusion or market foreclosure will tend to arise in a particularly acute manner in connection with activities of joint production of an important component of the final product developed and commercialized by parent undertakings. Purchasing joint ventures may carry risks of competitor exclusion very similar to those stemming from production joint ventures and, in some cases, they may even lead to more intense market foreclosure effects. Indeed, the joint exercise of significant buying power over the main suppliers of raw materials or other fundamental inputs for operating in a certain market, through the functioning of a purchasing joint venture, may really impair the access of other competing undertakings to the same suppliers. In other situations, such conduct may lead to an increase in the acquisition costs of such assets or inputs that are to be borne by the competing undertakings, ultimately leading to their exclusion from the market or to the serious constriction of their market positioning. In some situations a double effect of restriction of competition may even arise, leading to the exclusion or significant impairing of the market position of competing undertakings. This double effect results from (i) the obtaining of decisive competitive advantages by the participating undertakings in a joint venture—in the form of better commercial conditions obtained from the key suppliers of the undertakings at stake, and (ii) from a possible effect of compensation of the suppliers to be exercised towards the remaining competing undertakings—thus counteracting the less advantageous terms of negotiation with the participating entities in a given joint venture—through the imposition of

100 This assertion will be corroborated through my in-depth analysis of R&D joint ventures in ch 3. However, the lesser potential incidence of competitor exclusion risks must not lead to their being neglected absolutely in regard to this functional type of joint venture. As I shall further observe, such risks may be boosted in markets in which permanent innovation processes are either required on the part of existing competing undertakings or for purposes of entering into those same markets. 101 These situations relating to the nexus of vertical and complementary relationships are expressly addressed in the 2001 Horizontal Cooperation Guidelines, esp para 85, and also, to some extent, in the 2011 Horizontal Cooperation Guidelines, esp paras 71ff.

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increasingly demanding commercial conditions to be complied with by those other competing undertakings also requiring their supplies.102

2.4.4 Third and Complementary Stages of Analysis of Joint Ventures— The Analytical Parameter Based on the Relation of the Joint Venture to the Parents’ Markets 2.4.4.1 Types of Economic Relations between Joint Ventures and their Parent Undertakings In the context of the methodology of analysis applicable to cooperative joint ventures that I am seeking to devise here, involving the sequential use of various, intertwined, assessment parameters, I consider that the criterion associated with the consideration of the specific traits and cooperative programme underlying each functional type of joint venture (corresponding to a third level of analysis) must be combined with a fundamental complementary parameter. This latter parameter involves considering aspects relevant for the level of effective competition that may result from the types of relations of the joint venture to the parents’ markets. In a broader sense, it may be viewed as a specific form of assessment of the effects of joint ventures on competition in accordance with the type of economic relations existing between the former and their respective parent undertakings.103 This criterion, based on the relations between joint ventures’ and parent undertakings’ markets has been the object of great attention by various scholars in the field of competition law and policy. Of particular note is the leading role granted to this criterion by Joseph Brodley104 in the analytical model for assessment joint ventures’ effects that he has devised in the context of US antitrust law system. Notwithstanding some relevant differences that are to be found in the treatment of joint ventures under the US system and the EU competition law system,105 I submit that the analytical model devised by Brodley may, in broad terms, be taken into account in the assessment of the effects of joint ventures on competition in the context of the latter system. I have, nonetheless, conferred a slightly different role to the assessment criterion that Brodley has selected to form the axis of his own analysis of the issue. According to this US author, the analysis of joint ventures, guided by the criterion based on the relation of the joint venture to the parents’ markets should lead to the identification of five main categories of joint ventures and should, in turn, allow us to perceive a set of paradigmatic effects on competition which may, in principle, occur within each of

102 On this type of situation, with potential effects of exclusion of competitors, see, esp the 2001 Horizontal Cooperation Guidelines, para 129. 103 On that broader vision concerning an assessment of the economic relations among the parties, see, esp. Temple Lang, ‘International Joint Ventures Under Community Law’ (n 24) esp 395ff. 104 See Brodley, ‘Joint Ventures and Antitrust Policy’ (n 24). 105 I have already touched on this problem whilst mentioning that the parameter proposed by Brodley, concerning the relationship between the joint ventures’ and the parent undertakings’ markets, must necessarily be adapted, in the context of EU competition law, in order to cater for the situations of joint ventures not performing all functions of an autonomous economic entity, often deprived of direct access to a final consumer markets, merely maintaining relationships—of an ancillary nature—with their founders.

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these categories, notwithstanding the need specifically to assess the actual conditions of the functioning of the markets at stake.106 In other words, Brodely typically links to each joint venture category, identified in accordance with the guiding criterion of the relation of the joint venture to the parents’ markets, variable degrees of risks of distortion of competition. These variable degrees of risk would allow the setting of thresholds beyond which nefarious competition distortion issues may arise, justifying accordingly the need for an in-depth analysis and determining, in some cases, an intervention by the public authorities, applying competition law, in order to correct such a state of affairs. In Brodley’s view, five analytical types of joint ventures may be identified, namely (i) horizontal joint ventures (formed in the markets in which the parents operate); (ii) input joint ventures (which contribute in some way to the process of production of parent undertakings’ goods or services); (iii) output joint ventures (which market their parent undertakings’ goods or services; (iv) related market joint ventures (acting in markets related or connected with those of their parent undertakings)—a type within which three subcategories may additionally be found—and, last but not least, (v) interlocking joint venture (situations which are not limited to single joint ventures viewed in isolation but which involve a network of interlocking joint ventures). The fourth type encompasses, according to Brodley, three subcategories of joint ventures which may raise significant risks of distortion of competition. These subcategories are partially horizontal joint ventures—joint ventures which act on the market of one of their parent undertakings (the remaining parent being a potential entrant in the same market); market extension joint ventures—operating in a market geographically distinct from their parent undertakings’ markets but concerning the same products (designed for providing the extension of the geographical market); and, finally, product extension joint ventures— operating on a market closely related to the parent undertakings’ market (designed to ensure an extension to new product markets beside the initial product markets of the parent undertakings).107 I concur with this parameter of assessment of the effects of joint ventures based on the relation of the joint venture to the parents’ markets but as an element comprised in a broader and more complex analytical matrix than the one devised by Brodley, in accordance with the characterization I have been delineating. In this context, I consider that the use of this assessment criterion—in conjunction with the other parameters that we have already identified—should rely on a specific systematic perspective on the typology of relations between parent undertakings’ and joint ventures’ markets. Thus, I submit that both joint ventures which contribute some inputs to the productive process of parent undertakings and those which market their parent undertakings’ goods

106 Within this first description of an analytical sequence constituting an overall or general model of assessment of joint ventures—throughout this chapter—I merely refer in a rather perfunctory manner to some of the key elements of the analytical methodology proposed by Joseph Brodley, prior to more detailed mentions to such elements to be made throughout my in-depth analysis of the main functional types of joint ventures covered by article 101 TFEU (in ch 3). 107 In connection with each of the five types of joint ventures outlined by Brodley (see ‘Joint Ventures and Antitrust Policy’ (n 24) esp 1552–88ff), this author purports to ascertain, through a pre-determined combination of factors and signs (‘presumptive criteria’), the so called ‘threshold risk’ of restriction of competition, which may justify more comprehensive analysis of certain cases, leading ultimately either to the establishing of conditions for the adjustment of joint venture projects or to their outright prohibition (at 1540ff).

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or services, should be addressed as autonomous categories, taken as whole, due to the paradigmatic layout of the set of relations between undertakings (and their respective markets) that occurs in each if those cases. On a different level of analysis, it is in connection with production joint ventures that a specific subdivision should be undertaken (and studied in greater depth), guided by the distinction of different types of relations between the markets of the undertakings involved in the creation and operation of these entities. Such a subdivision will lead us to differentiate the various economic and legal situations pertaining to production joint ventures, whether they operate on the same market as their parent undertakings (production joint ventures of horizontal type), in one of the parent undertakings’ markets, in a geographically distinct market albeit in the same product market of the parent undertakings, or, finally, in a product market closely related with the parent undertakings’ product market.108 It should also be borne in mind that the criterion of assessment of the effects of joint ventures on competition based on the relations between markets of the involved enterprises— currently under examination—essentially addresses the analysis of cooperative joint ventures, not precluding some relevance of its use within the context of the application of the market domination test within the assessment of full function joint ventures. As it is currently addressed in EU competition law, this latter category constitutes, in itself, an overall form of typical relation between the markets of the various involved enterprises (parent undertakings and concentrative joint venture subject to assessment in accordance with the test of significant impediment to effective competition and the creation or reinforcement of dominant positions set out in the MCR). What I seek to emphasize here is that in the context of that global category, the relations between the market of the concentrative joint venture and the parent undertakings’ markets may also influence and condition the application of the main test pertaining to the significant impediment to effective competition and market domination. 2.4.4.2 Types of Relations between the Joint venture and the Parents’ Markets and the Variable Intensity of Risks of Distortion of Competition As regards cooperative joint ventures—which are the chief object of the overall analytical model I attempt to outline here—the parameter of assessment at stake may, indeed, exert some influence on the degree or intensity of the risks of distortion of competition arising from such joint ventures. However, one should avoid any reasoning of more linear association of certain paradigmatic forms of relations between the markets of parent

108 This analytical subdivision that I propose as regards production joint ventures, in my general assessment model of joint ventures, largely corresponds, albeit with several adaptations, to the three subcategories considered by Brodley in connection with the type of joint ventures which operate in markets related to or connected with those of their parent undertakings, plus situations relating to joint ventures operating in the same market as their founding undertakings. Furthermore, I have already emphasized that the idea concerning the existence of a market of the joint ventures, coincident with the market of the founding undertakings, should be taken in a specific sense as regards the joint ventures which, under EU competition law, are the main focus of my attention—the category of joint ventures that do not perform all the functions of an autonomous economic entity (as in these cases what is predominantly at stake are forms of operation of these joint ventures totally aimed at the channelling of various contributions towards the operation of their founding entities in their respective final consumer markets in which they compete between themselves). For a development of this pattern of assessment in the context of the analysis of effects of production joint ventures see ch 3 at 3.3.5.3(A)ff.

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undertakings and the markets of joint ventures with situations having a higher potential of distortion of competition or, on the contrary, with situations deemed somehow favourable to competition. In other terms, I consider unacceptable a presumption of the typical effects on competition of joint ventures—more or less restrictive of such competition, as the case may be—exclusively or predominantly on the basis of that criterion of relations between markets. This criterion should, in some way, function as an adjustment factor—in various senses—of previous assumptions of the analysis of effects of joint ventures. In short, its use corresponds to a complementary analytical stage of the effects of joint ventures in the context of the overall assessment model that I seek to devise. I only acknowledge the existence of a general principle—relatively open and dependant upon the application of a complex set of other factors and of the particular context of market analysis at stake—which establishes a higher likelihood of occurrence of risks of distortion of competition depending on the degree of proximity between the joint venture’s market and the market which corresponds the area of commercialization of goods and services provided by parent undertakings.109 However, I believe that this general principle fundamentally makes sense within the analysis of the subcategory of production joint ventures, when analysed in light of the criterion of relations between the markets of participating undertakings, in accordance with the terms noted above. In the context of that particular assessment—which led me to identifying four possible situations in connection with production joint ventures—I consider it acceptable to establish a quasi-presumption linking greater risks of distortion of competition with the greater closeness of the joint venture’s market and the parent undertakings’ markets (these latter markets corresponding to the relevant markets that may be identified at the level of commercialization of final goods or services by those undertakings). Furthermore, when mixed type cooperative joint ventures are at stake—combining various economic functions—I also consider that the inclusion in the joint venture project of functions closer to the stage of commercialization of final goods or services represents a factor that potentially raises the risks of distortion of competition.110 As regards cooperative situations which I have identified as true categories in their own right, due to a typical mix of relations between markets of the involved parties, joint ventures which contribute with some inputs for the productive process of parent undertakings and joint ventures which commercialize their parent undertakings’ goods or services— I consider too simplistic any attempt to associate this latter category with more significant

109 Proximity with the specific domain of commercialization of final goods and services or, ultimately, a full coincidence with that domain. That means, in the group of cooperative joint ventures covered by article 101 TFEU, the case of the functional type of commercialization joint ventures. 110 I assume here that the area of commercialization of goods and services is coincident with the main market where the founding undertakings operate, which is normally the case, under EU competition law, of joint ventures covered by article 101 TFEU. In principle, only in joint ventures performing all the functions of an autonomous economic entity may the specific area of commercialization of final goods or services involving such ventures be totally different from that of the parent undertakings (due to the autonomous nature of such joint ventures in relation to their parents). As regards joint ventures covered by the article 101 TFEU regime, the introduction in their business project of commercialization functions or of functions related to the commercialization or marketing stage is usually made in an ancillary perspective in relation to the founding entities, and, consequently, the commercialization dimension should correspond to the final goods or services market of these founding entities.

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risks of distortion of competition that could supposedly result from its bond with the stage of parent undertakings’ goods and services commercialization.111 Indeed, if, on the one hand, one may identify greater potential risks of coordination of behaviours regarding prices and output levels in connection with the latter category of joint ventures, on the other hand, the former category (input joint ventures) implies, under certain conditions, significant market foreclosure risks. Somehow, an overrating of the general risks of distortion of competition inherent to the second category (output or commercialization joint ventures) would tend to result in less attention being given to the problems related to market foreclosure or competitor exclusion risks—a position which I find deficient in various regards. It should additionally be noted that, a more linear or simplistic analytical perspective, associating joint ventures with direct access to the market—due to their commercial activity involving contact with consumers—with a high probability of verification of risks of distortion of competition, would have unacceptable consequences at a level of overall analysis of joint ventures. In fact, such a view would imply, in itself, a pre-ordained negative perspective on the whole category of concentrative joint ventures, which, by virtue of its very nature, involves a component of commercialization of goods or services involving consumer contact.112 That would lead to the conclusion that there is, on the whole, a high potential of distortion of competition inherent in the bulk of such entities performing all functions of an economic autonomous economic entity, a conclusion that is by no means accurate. Concerning this category of concentrative joint ventures, the efficiency generated by a greater degree and extension of entrepreneurial integration underlying these entities should still be weighed against the elements of distortion of competition that may be more directly associated with the entrepreneurial functions of commercialization of goods or services. From another standpoint, it is necessary to consider that this analytical parameter relating to the structure of relations between parent undertakings’ and joint ventures’ markets must be applied in the assessment of the effects of each and every joint venture on competition, not only in a relatively static perspective but also taking a dynamic approach to the functioning of the relevant markets at stake.113

111 It is important to bear in mind that some authors subscribe to that rather linear association. On that approach, see, inter alia, in the context of US antitrust doctrine, Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 28) and in the EU competition law context, Christopher Bellamy and Graham Child, European Community Law of Competition (Oxford, Oxford University Press, 2008) esp 242ff. As Pirainno emphatically remarks, ‘marketing joint ventures raise the greatest anti-competitive risk of all because they limit competition in the critical areas of pricing and output (at 52). Furthermore, the Commission’s analysis in its 1993 Notice on Cooperative Joint Ventures also seemed to adopt that understanding (at para 60). 112 A consequence of this type would seem to occur, eg, within the analytical framework set out by Pirainno (‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 28)). However, it is important to recall here that US antitrust law does not distinguish between joint ventures performing all the functions of an autonomous legal entity—akin to concentrations—and other joint ventures, deserving a different treatment. In any case, as previously explained, some currents in US jurisprudence and doctrine hold a predominantly structural approach—comparable to the one used for ‘mergers’—for addressing the antitrust issues raised by some joint ventures (such association is mostly visible in connection with joint ventures involving a greater degree of integration and effectively performing in the market all functions of an autonomous economic entity, even if that type of characterization is not explicitly acknowledged in the US antitrust system). 113 In any case, this analytical perspective would never become totally static in the context of the assessment of ex novo creation of joint ventures (involving a fair deal of prospective analysis).

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This latter approach should allow us to take into account various movements of market entry or exit, more or less related to the creation of joint ventures. Therefore, in the event one of the parent undertakings, for example, withdraws from the market in which the joint venture is expected to operate in a concomitant time frame, such an event—which may or may not be associated with the decision to establish the joint venture—will usually have consequences or justifications which must be critically assessed in the context of the comprehensive assessment of the joint venture.114 Furthermore, from a broader analytical perspective, concerning not just a typology of relations between the markets of parent undertakings and of joint ventures, but rather including the whole gamut of types of economic relations between the parties—which I acknowledge to be acceptable, although in close connection with the former perspective and taking it as a reference—it will also make sense to consider as a relevant parameter of analysis the set of links resulting from potential competition between the parties involved in a joint venture project. In this context, an assessment must be made on the possible impairment of relations of potential competition between the parent undertakings stemming from the creation and operation of the joint ventures. That, in turn, should pave the way for an overall judgement on the impact of the joint venture at stake on competition, taking into account such specific effects in terms of potential competition. I consider that level of analysis of economic relations between the parties should be taken as subsidiary to the basic analytical framework of the structure of relations between the markets of the undertakings involved in a given joint venture project. In reality, the dimension concerning any hypothetical distortion of potential competition between the parties will be especially relevant whenever parent undertakings operate in markets related to those of the joint venture115 (corresponding mainly to partially horizontal joint ventures, to joint ventures operating in a market geographically distinct from their parent undertakings’ markets but concerning the same products, designed for providing the extension of the geographical market, and joint ventures operating on a closely related product market to the parent undertakings’ market, designed for providing the extension of the product’s market as regards the initial product market of the parent undertakings). In other words, it may be said that the issues of potential distortion of competition arise mainly in those situations where the creation of a given joint venture ensures the entry into new markets. The hypothetical distortion of potential competition would, thus, result from 114 In this sense, and on this matter, with an analysis to which I essentially subscribe, see Temple Lang, ‘International Joint Ventures Under Community Law’ (n 24) 396–97. This author emphasizes precisely the need to distinguish the situations in which there is only a temporal proximity between the market exit of one parent undertaking and the decision to participate in a joint venture and other situations in which one of the parent undertakings exits the market on account of its participation in a joint venture. Temple Lang refers, as examples of the first type of situation, to the cases considered in SHV-Chevron [1975] JO L38/14, and in connection with the second type of situations, the cases dealt with in Bertelsmann/Kirch/Premiere [1999] IV/M993. I consider that where the exiting from the market by a parent undertaking is concomitant with the creation of the joint venture, a strong presumption of a connection between these two events is established (one which is rather difficult to rebut). Such a presumption, albeit with less intensity, may as well be established if the exit from the market by the founding entity occurs shortly after the creation of the joint venture or immediately prior to the establishment of such venture. 115 I maintain above that this distortion of potential competition between the founding undertakings is especially important as regards situations in which they operate in markets related to those of the joint venture but, ultimately, the relevant issues for the safeguarding of potential competition will not be exclusively limited to such situations.

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the possibility—that must be realistically assessed—of parent undertakings also entering the same markets autonomously (although, to be precise, this type of distortions may also occur in such cases where one of the parent undertakings exits one of its own markets, whilst if no joint venture existed it would probably not have done so).116 As John Temple Lang emphasizes,117 the distortion of potential competition between the parties involved in a joint venture project has not usually amounted to a determining factor, on its own, for the prohibition of a joint venture on the basis of article 101, paragraph 1 TFEU, something which I think is understandable and somehow adequate to the effects at stake in such situations. Indeed, I tend to consider excessive any findings of restriction of competition leading to prohibition of joint ventures based solely upon potential competition issues that would then, alone, prevail over economic efficiency elements normally present in any joint venture project. Potential competition should always be perceived as a complementary element on a composite matrix of assessment, comprising other nexus of economic effects stemming from the creation and operation of joint ventures. However, even if one sets aside, in principle, the possibility of the factor of potential competition being the only supporting element of an article 101 TFEU prohibition imposed on joint ventures, in itself the attribution of an appreciable importance to that same factor when globally assessing the effects arising from a given joint venture must, anyway, be approached with extreme caution. In fact, I do recognize that, within the context of the application EU competition rules, the elements of potential competition whenever taken into consideration have frequently been overrated to the detriment of an effective market economic assessment component, that may actually embody a consistent verification of the levels of potential competition (a verification which, to a great extent, should substantially correspond to a prognosis based on the analysis of actual economic data and not merely in formalistic presumptive criteria or speculative possibilities).118 Considering the fact that I tend to associate, in particular, an increased relevance of the issues of potential competition to situations of creation joint ventures, which, in some way ensure or support the expansion of the scope of intervention of their parent undertakings (eg, expansion to geographically neighbouring markets or to product markets closely

116

See Temple Lang, ‘International Joint Ventures Under Community Law’ (n 24) esp 400ff. See Temple Lang, ibid esp 401. Thus, as regards the risk of restriction of potential competition between the parties, this author peremptorily states that ‘this has never been the only reason for prohibiting a joint venture, however, and has in most cases been merely one of several arguments (sometimes the most important one) for saying that article 81(1) applies’. In my opinion, there are two elements to consider on this matter. Thus, I maintain that the assessment of issues of restriction of potential competition among founding entities should justify enhanced attention—especially in very dynamic markets where autonomous initiative should reasonably be expected from the parties, even if they have not combined their efforts under the form of joint ventures—but only to the extent realistic assessment criteria of these potential competition relations are properly developed and consolidated. 118 Such an excessively formalistic perspective which has characterized at various times the enforcement practice of the Commission in terms of assessment of the occurrence of relations of potential competition, justifies the proviso I have established ibid. However, under US antitrust law, a more realistic perception of these issues of potential competition has apparently prevailed. For a developed reference to issues related to potential competition in the context of the analysis of joint ventures under US antitrust law, highlighting the particular difficulties of such analysis, as also acknowledged by the US Supreme Court since United States v Penn-Olin Chemical Co (1964) 378 US 158, see Michael McFalls, ‘The Role and Assessment of Classical Market Power in Joint Venture Analysis’ (1998) ALJ 667ff. 117

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related with the markets of origin of parent undertakings),119 it will be fundamental, in those situations, to carefully and accurately weigh, on a reasonable basis, on the one hand, new elements gained in the competition process which stem from the immediate entry of a joint venture in a given market, and, on the other hand, foreseeable conditions of hypothetical autonomous entry in the relevant market at stake by parent undertakings. In short, the complementary parameter of analysis related to the relations between the markets of parent undertakings and of joint ventures should allow us to focus, in the context of certain structures and of certain dynamic trends of the markets, on the foreseeable effects of the creation of joint ventures, thus contributing to the formation of an overall reasoning about the effects of such entities and allowing—in that light—the adjustment of certain preliminary assessments of those effects which stem from the precedent application of other paradigmatic analytical criteria.

2.4.5 Other Complementary Analytical Elements 2.4.5.1 General Perspective If I acknowledge, in light of the three stages or levels of analysis that I sought to outline above, the possibility of carrying out some sort of analytical filtering—on a tripartite basis—of the situations related to the creation and operation of joint ventures, comprising usually prohibited situations, usually non-prohibited situations and situations which raise doubts as regards their compatibility with EU competition law, this latter area, in turn, justifies an exhaustive use of complementary factors of analysis whose scope and content must be fully understood. Thus, in the context of the analysis of joint ventures which raise particular concerns about possible restrictions of competition—identified and somewhat circumscribed in the course of a preliminary stage of analysis—the partial assessments which rely, in an intertwined manner, on (i) a criterion of joint market share held by the participating undertakings; (ii) aspects related to the particular content of the functional type of cooperation developed and with a closely connected parameter concerning the relations between the markets of the involved undertakings, should be further developed and finally take the form of an overall assessment, whose final construction will also comprise (iii) a last paradigmatic set of complementary factors of analysis.120 As I have already emphasized, this more complex and developed analysis of certain joint ventures—necessarily implying an economic understanding of the affected markets—

119 See, on this, my previous considerations, above, on corollaries to extract from certain relations between the markets of parent undertakings and of the joint venture. It is important to highlight here what, to some extent, corresponds to a relatively favourable pre-understanding which tends to benefit joint ventures which introduce their parent undertakings into new markets—thus fostering competition, irrespective of the potential competition nexus which could be developed in the sectors at stake—in the context of the enforcement of US antitrust rules (either by federal antitrust authorities or by the courts). See, on these matters in general, Gregory Werden, ‘Antitrust Analysis of Joint Ventures—An Overview’ (1998) ALJ esp 722ff. In my opinion, however, this apparently immediate effect of competition fostering must not be overrated, leading to the neglect of any forms of restriction of potential competition, irrespective of their intensity and of the relevance of the relations which may thus be affected. 120 This final overall assessment, integrated with the complementary analytical factors noted above may still involve, in itself, an adjustment or correction of partial and preliminary assessments carried out in the course of the first three stages of analysis in the context of the global model of assessment of joint ventures that I have been outlining.

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bears some similarity to the analytical methodology underlying the so called rule of reason. However, the complex analytical process that I am outlining for the purposes of assessing the effects of joint ventures on competition (particularly cooperative joint ventures), should certainly not be understood as a mere alternative enunciation of the rule of reason. The relevant parallel to be considered here is, in fact, limited to the integration in a sole comprehensive assessment of a very diversified set of factors and economic analyses—the characteristics and extension of which may vary in accordance with the affected markets. However, a fundamental difference must be acknowledged, in comparison with the analytical grid associated with the rule of reason, due to the inclusion of such factors in a systematic framework that comprises a set of stable and broad-reaching parameters, that are intertwined between themselves and which lead to several standardized and inter-related analytical levels (in the context of a comprehensive analytical model of assessment of joint ventures under article 101 TFEU that I purport to build). The goal of such a conceptual framework is clearly to endow the competition law assessment of joint ventures with minimum levels of legal certainty, as opposed to the randomness and uncertainty generated by a pure application of the rule of reason (in the US antitrust system).121 This analytical process, which may be referred to as an overall legal and economic assessment model of joint ventures seeks, thus, to reconcile the introduction of certain levels of economic and market analysis—with a strong emphasis on, but not limited to, the structural elements of analysis—with legal certainty and stability resulting from the use of conceptual legal models of a general scope. A fundamental difference occurs as to the legal and predominantly formalistic criteria which have, in the recent past, decisively influenced the application of the prohibition set out in article 101, paragraph 1 TFEU. This difference stems from the fact that the conceptual models of analysis are built on the basis of an inductive legal reasoning process, relying on multiple economic analysis assertions, and also, on their rather flexible manner of application, proceeding through a sequential adjustment of several preliminary evaluations, which, in turn, is supported by the weighing of multiple corrective economic factors.

121 The fairly high degree of uncertainty and the considerable haphazardness associated with the use of the rule of reason in the analysis of joint ventures have been criticized by the US antitrust authors who have been focusing on the antitrust treatment of joint ventures. Accordingly, the various doctrinal attempts to devise general analytical models applicable to joint ventures—of which the model devised by Joseph Brodley is probably the first comprehensive attempt to capture in a systematic fashion all relevant antitrust effects of joint ventures, having been followed by subsequent similar attempts at devising comprehensive models of assessment of joint ventures—take, precisely, as a crucial starting point the need to overcome the unacceptable margins of legal uncertainty stemming from the use of the rule of reason, in its stricter form, for the purpose of assessing joint ventures. See Brodley who categorically states that ‘an open-ended rule of reason approach is … unsatisfactory. Applied to transactions of the complexity typically present in a joint venture, the unstructured rule of reason leads to unfocused, protracted litigation’. He also adds significantly that ‘as an alternative to either per se rules or the rule of reason … antitrust analysis increasingly searches for intermediate rules that define the requirement of legal proof in terms of a limited set of relevant variables’ (see Brodley, ‘Joint Ventures and Antitrust Policy’ (n 24) 1523–24). Such a fundamental perception of the analytical limits of the use of a pure rule of reason to analyse especially complex structures, as joint ventures typically are, has been kept in more recent doctrinal studies on joint ventures in the US. These studies have, albeit in different terms, proposed the definition of a limited number of analytical variables representing intermediate assessment levels, located between the rule of reason and outright bans. See, inter alia, on such perspectives, McFalls, ‘The Role and Assessment of Classical Market Power in Joint Venture Analysis’ (n 118); Werden, ‘Antitrust Analysis of Joint Ventures—An Overview’ (n 119); Edward Correia, “Joint Ventures: Issues in Enforcement Policy” (1998) ALJ 737ff; Timothy Muris, ‘The Federal Trade Commission and the Rule of Reason: In Defence of Massachusetts Board’ (1998) ALJ 773ff.

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Nonetheless, I definitely envisage the use a pre-ordained sequence of indicative legal and economic parameters, and also of quasi presumptions concerning the verification of certain effects on competition, as long as these parameters and quasi presumptions may actually be adjusted by their submission to a realistic scrutiny in light of relevant economic factors (used in accordance with the market and economic context of each joint venture, in as predictable an order as possible). This legal and economic assessment model of joint ventures proves to be especially fit for identifying and assessing not only the set of effects of distortion of competition resulting from some of these entities, but also the benefits stemming from their use—especially in light of the economic efficiency generated by the dimension of enterprise integration associated with joint ventures, provided certain incentives to compete are not distorted or constrained beyond a certain level by such entities (I shall deal at a later stage of my analysis, below, chapter three, with various techniques for stimulating or preserving such incentives to compete, in order to reconcile the existence of certain joint ventures with the requirements of effective competition as opposed to stricter arguments supporting the prohibition of joint ventures). In general, I should add that it is this simultaneous detection of elements of restriction of competition and of efficiency boosting elements in joint ventures—and the inherent tension which underlies their interaction—which, in a sense, paves the way for transposing certain evaluations ensuring the compatibility of numerous joint ventures with EU competition law from the level of the exemption regime set out in paragraph 3 of article 101 TFEU to the level of paragraph 1 of the same article 101 TFEU (this being achieved through a legal methodology bearing some similarities to the rule of reason, but which differs from the latter for reasons discussed above).122 2.4.5.2 Complementary Analytical Factors of a Predominantly Structural Nature In the context of the comprehensive model of assessment of joint ventures that I have been outlining—and that I shall apply and examine in depth in connection with the four functional types of joint ventures analysed below, in chapter three—a last level of complementary analytical factors remains to be considered. This last level of analysis of joint ventures

122 This parallel is not really sustainable in absolute terms due to the differing normative structures of US antitrust and EU competition legal systems, as stated throughout this book. However, besides that bottom line argument, and considering qua tale the layout of the rule of reason in the US antitrust system, the only valid parallel in this area should, in my view, be the one to be established with doctrinal attempts to set out intermediate analytical parameters concerning joint ventures. These parameters represent a tertium genus between the extreme positioning of the rule of reason and of systems of prohibition per se. In light of this, I am disappointed by the Commission’s adoption in its interpretative Guidelines—associated with the modernization process resulting from Regulation (EC) No 1/2003, especially in the Guidelines concerning article 81, para 1 EC (current article 101 TFEU)—of a restrictive perspective on the breadth of the legal and economic assessments coming within the letter of article 101, para 1 TFEU. This perspective (limiting apparently all more in-depth and overall assessments of pro-competitive and restrictive issues to the application of para 3 of article 101 TFEU) may have been unduly influenced by the hermeneutic concern (that I deem inappropriate in itself) of discarding any parallels with the application of the rule of reason within the context of article 101, para 1 TFEU. This negative aspect is aggravated by the fact that the problems generated by an excessive interventionism and more intrusive monitoring allied to an excessive reliance on the regime set out in article 101, para 3 TFEU are not only associated with the pre-2003 exclusive competence of the Commission to apply it nor do they result only from the mandatory notification system which was abandoned with the 2003 modernization process (conversely these problems persist, albeit in a different form even after the adoption of Regulation (EC) No 1/2003).

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should, additionally, interact with the elements comprised in the three, intertwined, stages of joint venture assessment that I have identified above. These complementary analytical factors comprise to a large extent predominantly structural elements. I consider that in such a residual array of analytical factors, it is possible to identify a first level more closely related to the structural dimension and closer in kinship with the second stage of analysis which I sought to outline in my global analytical model for assessment of joint ventures in competition law (criterion of the market share jointly held by the undertakings participating in the joint venture).123 This first level of complementary analytical factors will take the form of an overall weighing of the positions held in the relevant markets by undertakings participating in the joint venture project as well an appreciation of the degrees of concentration in such markets. The use of these analytical factors obviously relies on the prior calculation (or, at least, estimation) of the market share held by such undertakings (an estimation that should essentially have taken place in the course of what I have termed as the second basic stage of assessment of joint ventures, in the context of my analytical model), as well as on a previous definition of the relevant markets at stake124—of paramount importance for an accurate assessment of the market positions of the joint venture’s participating undertakings. Thus, the issues regarding the definition of relevant markets—taking into account certain particularities of analysis in certain sectors or especially dynamic markets—deserve special attention (even if such a market definition is only approximate in certain cases depending on the requirements of each particular situation to be assessed).125 The overall weighing in question, combining, on the one hand, the position of each participating undertaking in the joint venture and the position arising from the adding up of their market shares, as well as, on the other hand, the position of the other undertakings operating in the affected markets, assessed on the basis of the degree of concentration estimated for such markets, may advantageously be partially attained by using econometric methods. I refer here, in particular, to the assessment of the degrees of concentration in certain markets through the use of the Herfindahl-Hirschmann Index (HHI), widely used in the US antitrust system in the field of merger control (although also used over a more recent period in the same field of concentration control under EU competition law rules).126

123 The second stage of analysis within my proposed global model of competition law assessment of joint ventures covered by article 101 TFEU described above at 2.4.2 in this chapter. 124 Notwithstanding the existence of several views in US antitrust doctrine arguing for the elimination of the process for delimitation of the relevant markets or minor relevance being given to these analytical processes for antitrust rules enforcement (a position that has had some influence on the 2010 review of the Merger Guidelines). As discussed above, I do not subscribe to those views, not even regarding markets of differentiated goods (merely acknowledging that in these latter cases the processes of delimitation of relevant markets should be especially complemented by other analytical perspectives). For an exhaustive analysis of these views in the context of US antitrust law, see Louis Kaplow, ‘Why (Ever) Define Markets?’ (2010) Harv L Rev 438ff. 125 It should be acknowledged here that very significant steps were taken in the context of EU competition law regarding the qualitative development of legal and economic methods on which the analytical processes for the delimitation of the relevant markets rely upon, especially pursuant to the Commission’s 1997 Notice. However, some gaps and flaws still persist in this area, eg, as regards the adequate use of econometric tools. 126 As mentioned earlier, the 2001 Horizontal Cooperation Guidelines have adopted the use of the HHI. (see para 29), albeit the same option was not explicitly followed in the 2011 Horizontal Cooperation Guidelines. Moreover, the 2004 Guidelines on Horizontal Concentrations have also established the use of the HHI in the context of merger control. As such, even if indirectly, its reference parameters should also be taken into account for the purposes of assessment of the degree of concentration of markets potentially affected by cooperative joint ventures subject to the regime set out in article 101 TFEU.

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As I have already observed, this econometric model is calculated by summing up the squares of the individual market shares of all undertakings in the market. The model relies on a set of fundamental indicators, assuming that given thresholds of the HHI levels of concentration represent either high, moderate or low degrees of concentration (the reference values for this purpose are, respectively, HHI values in excess of 2000, ranging from 1000 to 2000, and of less than 1000, although these values have normally to be combined with the value of the so called ‘delta’ which measures the change in HHI induced by a specific transaction, either full merger or joint venture).127 In my opinion, significant advantages may be extracted from this process of rendering the assessment of the degree of concentration in some markets more objective. To that extent, I consider as highly beneficial—albeit somewhat late in the day in comparison with the US system—the explicit recognition of the possibility of using such a model by the European Commission in its 2001 Horizontal Cooperation Guidelines (the recourse to this econometric model being quite naturally expanded in the field of concentration control under the later 2004 Guidelines on the Assessment of Horizontal Mergers).128 I believe no objections to the use of such an econometric model can be made on the grounds of a purported linearity of analysis, or an alleged rigidity of this method, since the final legal and economic overall assessment to be produced on certain situations of cooperation between undertakings (especially joint ventures) will not only require other analytical factors to assess the degree of concentration of the market at stake, but also, fairly obviously, relies predominantly on a host of other different analytical elements. In any case, it should be emphasized that the appropriateness of the application of the HHI method fully depends on the degree of accuracy of the previous definition of the relevant markets at stake. In short, the recourse to HHI involves an increased necessity of accurate and precise relevant market definitions, as opposed to more superficial or controversial assessments in this area which were rather frequent in the enforcement praxis of EU competition rules. 2.4.5.3 Remaining Analytical Elements The second level of complementary analytical factors which may be identified comprises elements still partly related to the market position of participating undertakings in a given joint ventures, but that, on the whole, are not as closely related to that structural dimension of analysis.129

127 Bearing in mind what was said in n 126 above, those thresholds should be analysed against those set out in the Commission’s 2004 Guidelines on Horizontal Concentrations (especially the thresholds set out in paras 19ff, establishing, namely that an HHI below 1000 will not normally justify concerns of restriction of competition). 128 Furthermore, significant advantages stem from the outright recognition of the use of the HHI and from the simultaneous and concomitant establishment of quantitative thresholds of reference therein, by means of interpretative Guidelines, due to reasons of transparency and predictability of competition law analysis. In reality, reiterating on this point the opinion held by various authors (eg Gerrit Schohe, in ‘Global Trade and US Competition Policy (“Discussion Panel”)’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1999 (Barry Hawk (ed), Juris Publishing, Inc, 2000) 495ff, we acknowledge that the Commission had already been using the HHI prior to 2004 to support some of its analytical assumptions, mostly in the field of merger control, even if not always explicitly referring to its application of the method. 129 I should underline here, as regards that structural dimension of analysis that this dimension, albeit having come at a later stage of evolution of EU competition law to fill a blank space in the application of article 101, para 1 TFEU, should not be mistakenly confused with the determinist structural models so criticized in the US antitrust system. What is at stake here, therefore, is conceiving a mixed analytical model, comprising structural

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I consider that this level of analysis—corresponding to a last and residual stage in the comprehensive assessment model of the effects of joint ventures that I have been outlining—should include elements such as the stability of market shares of participating undertakings in the joint venture throughout time, the existence of entry barriers in the relevant market, and—conversely—the likelihood of new entries in the same market. The dynamic analytical perspective underlying these latter factors should, in my opinion, be given increasing attention. Furthermore, I believe that the characteristics of the EU economic integration process even confer a particular prominence to that dynamic analytical perspective, relying on the prospective entry of new competitors in certain markets, the boundaries of which are gradually wider than national spaces.130 Besides that, in some sectors, the bolstered market dynamism should indeed lead to special forms of assessing market power in light of the competitive pressures associated with the prospective entry of new competitors.131 In this last level of analysis I also include factors which bring about various relevant traits of the competition process, following a more complex analytical perspective that is not restricted to the level of horizontal relations between competing undertakings. Thus, increased attention has been paid to the so called countervailing buying power effect,132 as well as—although with less relevance in my opinion—to the countervailing economic power of the suppliers.133 In reality, even what on the surface may amount to significant market power—assessed in light of the joint market shares of a joint venture’s participating undertakings and of the existing degree of concentration in the relevant markets—may well fail to translate into a market position that can be used by such undertakings to extract ill-gotten (anticompetitive) benefits, due to a particular structure of the web of relations between the undertakings at stake and their final clients (in the actual context of the prevailing concrete conditions of market functioning). A market analysis, in the situations concerning joint ventures that require a full, in-depth assessment, will not be complete, in the end, without an evaluation—the relevance of which will depend on the particular market context

elements to evaluate situations of cooperation between undertakings (especially when these are combined with elements of integration, as typically happens in the case of joint ventures), but used alongside other parameters. 130 Even in cases when the definition of geographical markets has still to be made on a mere national basis, the advances in market integration processes may determine the need to take into account the positions of undertakings operating in other national markets, especially for purposes of assessing issues of potential competition, in order to ascertain the market power of undertakings involved in the creation and operation of joint ventures. 131 See, inter alia, Dominique Pantz, ‘Les Politiques Communautaires d’Ajustement Structurel des Marchés: Concurrence, Competitivité et Contestabilité’ (1999) RMUE 103ff; Christian Ahlborn, David Evans and Jorge Padilla, ‘Competition Policy in the New Economy: Is European Competition Law Up to the Challenge?’ (2001) ECLR 156ff. 132 Despite the growing attention to this effect of countervailing buying power, I consider that this factor is still insufficiently considered in EU competition law. On the relevance of this factor for the assessment of possible effects of distortion of competition, see Joachim Lücking, ‘Retailer Power in EC Competition Law’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—2000 (Barry Hawk (ed), Juris Publishing Inc, 2001) 467ff and Patrick Rey, ‘Retailer Buying Power and Competition Policy’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—2000 (Barry Hawk (ed), Juris Publishing Inc, 2001) 487ff. On the lesser use of this analytical factor, that still occurs see Alistair Lindsay, Emanuela Lecchi and Geoffrey Williams, ‘Econometrics Study into European Commission Merger Decisions Since 2000’ (2003) ECLR 673ff. 133 On this matter, see, in general, OECD, Roundtable on Buying Power (Paris, 1998).

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at stake—of the nature of the products at stake (namely their degree of homogeneity or differentiation, as well as their degree of maturity).134

2.4.6 Conditions or Remedies Imposed on Undertakings Participating in Joint Ventures I should further note, as a relevant trait to the sequential development of paradigmatic (or pre-ordained) stages of the analysis of joint ventures—in the context of the assessment model I am putting forward—the paramount importance which certain conditions or obligations imposed upon certain participating undertakings in joint ventures may assume. In fact, as I have already emphasized, the global assessment of hypothetical negative repercussions on the process of effective competition, that may result from the creation and operation of joint ventures, relies not only on the analysis of elements which reveal themselves restrictive of competition, but also on the safeguarding—within certain boundaries—of the incentives to compete that tend to surface in the context of the normal functioning of markets135 (and which may prove helpful to counteract the traits of cooperation between undertakings most directly aimed at restriction of competition). In light of this, it must be acknowledged that certain limitations or constraints of the incentives to compete, triggered by the development of joint venture projects, may be effectively prevented or otherwise held within acceptable limits—in order to maintain an adequate level of competition—through various adjustments to the arrangement or operating mode of the joint ventures at stake. In these latter cases, the essential structure of such joint venture projects will not be deemed to be intrinsically restrictive of competition and the changing of some of their elements may well prove in itself decisive to allow the preservation of certain incentives to compete, involving participant undertakings or other undertakings either directly or indirectly related to them (even if not under their control). Therefore, in many cases one may simultaneously devise the assessment of the critical levels of risks of distortion of competition—variable in accordance with the typical analytical factors identified at every stage of joint venture assessment136—and the weighing of selective adjustments made to joint venture projects, deemed appropriate to counterbalance such risks (considering on the whole the pro-competitive elements underlying many joint ventures that justify a somewhat different analytical focus in comparison with the

134 On these latter levels of complementary analytical factors, see the 2001 Horizontal Cooperation Guidelines, esp para 30. See also the 2011 Horizontal Cooperation Guidelines, paras 80ff. 135 These incentives to compete may be diminished or affected—with varying degrees of intensity—by factors favourable to behaviour coordination stemming from certain joint venture arrangements in certain market contexts. In exchange, in various cases, certain changes to the arrangement of joint ventures may reset the incentives to compete in regard of the participating undertakings. On the decisive importance of the specific set-up of the cooperation programme underlying joint ventures and of factors akin to joint venture governance structure, acknowledging that some minimal adjustments may be essential to preserve key incentives to compete, see Werden, ‘Antitrust Analysis of Joint Ventures—An Overview’ (n 119) esp 725ff. Therefore, a greater receptiveness to such adjustments in the context of joint venture projects may assume essential importance in the context of enforcement of EU competition rules in order to avoid the systematic use of article 101, para 3 TFEU in the assessment of joint ventures. 136 These critical levels of risks of restriction of competition also vary in accordance with the subcategories of joint ventures being assessed.

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analysis of mere cooperation agreements to be undertaken in general under article 101 TFEU). To a large extent, in the context of EU competition law the consideration of special conditions or factors associated with certain situations of cooperation between undertakings has been mainly envisaged on the grounds of the granting of exemptions under the terms of article 101, paragraph 3 TFEU and, as such, on the basis of an initial reasoning that would determine in principle their submission to the prohibition established in paragraph 1 of the same article. However, I admit as a qualitative change in the analytical methodology in this area, that the weighing of selective adjustments to the joint venture project may still be carried out within the application of article 101, paragraph 1 TFEU, at least until a certain critical degree of intensity of the risks of distortion of competition is reached and up to a certain level of envisaged changes or conditional adjustments in the project initially designed by the parties. However, whenever changes to be taken into account regarding the original joint venture project (in order to overcome the perceived risks for competition) go beyond a certain qualitative threshold, then, in principle, it is the essential structure of the project that is itself challenged and the assessment should accordingly be guided by an idea of prohibition in principle of that project, under article 101, paragraph 1 TFEU, and by a possible consideration of special conditions for exemption under paragraph 3 of the same article. Among multiple adjustments in the layout and operation of joint ventures that may, in theory, exert influence on their compatibility with article 101, paragraph 1 TFEU,137 one may note, for example, a more limited duration of the joint venture, the introduction of changes in the structure of shareholdings owned by parent undertakings of by the joint venture itself in third competing undertakings, the separation of personal (which implies refraining from sharing certain elements of staff between the parent undertakings or the joint venture or from having certain persons participating in various bodies of the involved undertakings),138 or even—in certain cases—the participation of one or more third parties in a joint venture project originally designed for the participation of only two particular parent undertakings.139

137 Naturally, despite the particular importance that I have placed on focused adjustments in projects of creation of joint ventures, with a view to preventing the application of the prohibition in article 101, para 1 TFEU, such adjustments may also, mutatis mutandis, be weighed, in another level of analysis, in the context of an assessment based on the regime in article 101, para 3 TFEU, in order to apply in any given case the two positive conditions and the two negative conditions for the granting of exemptions, including the contribution for the production or distribution of goods or for the promotion of economic and technical development, (i) the allocation to consumers of a fair share of the resulting benefit; (ii) the essential character of the restrictions of competition at stake for attaining those goals; and (iii) the non-elimination of competition in relation to a substantial part of the relevant markets by virtue of the agreements entered into among certain undertakings. In particular, the consideration of certain specific adjustments to joint venture projects may prevent the occurrence of this latter negative condition. Nonetheless, as repeatedly noted, the analytical reasoning I have been seeking to develop in the field of assessment of joint ventures is aimed at an overall analytical thought process which may test the limits of the application of the prohibition set out in article 101, para 1 TFEU. On the four conditions for granting exemptions under article 101, para 3 TFEU—which are clearly not at the core of my analysis—see 2004 Guidelines on the Application of Paragraph 3 of Article 81 EC. 138 I consider here some of the most common situations of joint ventures participated in by founding undertakings of a corporate type. 139 On the possible impact of this type of solution of opening up joint venture projects to third entities, see Brodley, ‘Joint Ventures and Antitrust Policy’ (n 24) esp 1544ff. As this author highlights, in terms to which I essentially subscribe, the presence in the joint venture of a third entity, alien to the original core of founding entities, may discourage the use of the joint venture as an instrument for coordination of those founding entities,

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Consequently, I consider that in its enforcement practice of assessment of joint ventures the Commission (and also Member States’ competition authorities) should adopt a more proactive role or view, that could ab initio lead to alternative solutions or remedies in the construing of joint ventures, albeit this analytical stance for the assessment of joint ventures may prove to be a challenge at the level of application of article 101, paragraph 1 TFEU (given the traditional and apparently more rigid separation of areas of analysis between paragraphs 1 and 3 that seems to have been largely retained in terms of enforcement of EU competition rules but which could, advantageously, be changed).140 Furthermore, even in the context of the application of article 101, paragraph 3 TFEU, and concerning a certain degree of conditionality attached to some joint ventures to avoid its further investigation or outright prohibition—as will be observed in the course of my in-depth analysis of potential competition law problems of various functional types of cooperative joint ventures (below, chapter three)—the Commission and national competition authorities should also act with greater latitude whilst defining or considering possible adjustments to joint venture projects (able to work as remedies for the competition risks encountered). In this area, solutions or remedies to be considered could include the establishment of non-renewable time limits for the operation of joint ventures in the context of limited duration exemption granting decisions;141 or, more pertinently in the post-2003 direct exception system, the determination of such non-renewable time limits for the operation of joint ventures on the parties’ own initiative to ensure from the outset compatibility of the venture with competition law or as a result of commitments to deal with potential concerns on the part of the Commission or other competition authorities.

as evidenced in relevant US judicial precedents (see, inter alia, United States v Imperial Chem Indus 100 F Supp 504, 579–86 (SDNY 1951)). This type of solution has not really been experimented with in EU competition law, and would, in my opinion, amount to a creative way of attenuating (without major intervention by competition authorities) risks of restriction of competition. Furthermore, the formal framework applicable to commitments by the parties in the regime set out in Regulation (EC) No 1/2003 may reinforce the condition for the use of this type of approach in order to avoid at the outset the application of article 101, para 1 TFEU, avoiding recourse to the exemption provided for in para 3 of the same provision. On the new possibilities created in this area by Regulation (EC) No 1/2003, also taking into account the US experience, see Mark Furse, ‘The Decision to Commit. Some Pointers from the US’ (2004) ECLR 5ff. 140 However, as stated in n 139, the new regime of commitments in Regulation EC No 1/2003 has helped to ease the resolution of cases in the context of the application of article 101, para 1 TFEU. 141 As John Temple Lang remarked, the Commission, in its enforcement practice (at least before the adoption of Regulation No 1/2003), has not limited ab initio the duration of exemptions granted, through the exclusion of the possibilities of renewing them. Nor has it earnestly assessed such hypothesis in order to test its compatibility with the regime for the granting of exemptions. See Temple Lang, ‘International Joint Ventures Under Community Law’ (n 116) 448.

3 The Substantive Assessment of Different Types of Joint Ventures under Article 101 TFEU 1 General Overview 1.1 Envisaged Sequential Analysis In the preceding chapter I sought to outline, in very broad terms, the basic outlines of a global analytical model of the repercussions of joint ventures in the competition process under EU competition law. As previously stated, the construction of such a general analytical model is influenced by my doctrinal goal of unifying, to the extent possible, the competition law treatment of the category of joint venture category.1 Starting from this standpoint, however, the systematic framework of joint ventures under the existing European Union competition law must not be ignored. Consequently, analytical models aimed at assessing the repercussions of joint ventures in competition should, on the whole, take into consideration both the test relating to the compatibility with the common market—concerning joint ventures which perform all functions of an autonomous economic entity, subject to the MCR and the behavioural coordination test, applicable under article 101 TFEU, and, at the same time, pursue a quest for common elements to these tests. In this context, and as previously stated, I have chosen to focus my attention on a comprehensive and in-depth analysis of the treatment of joint ventures under the regime set out in article 101 TFEU (while building some analytical bridges to the application of the compatibility test to joint ventures under the MCR, and the respective case law, particularly as regards

1 My analysis is essentially oriented towards EU competition law treatment of joint ventures. However, taking into account the developments of the modernization programme of this body of law—and the consequent growing importance of the domestic procedures of enforcement of EU competition law of the EU Member States in connection with a foreseeable reinforcement or parallel processes of enforcement of domestic competition rules basically designed on the basis of the EU model—I acknowledge that the doctrinal and analytical treatment of the competition law problems triggered by joint ventures, that we purport to delineate and apply throughout this book, will also, as a rule, be relevant for the interpretation and application of domestic competition rules of those EU Member States (also, I shall incidentally bring to the analysis some relevant national precedents concerning joint ventures, beside Commission and CJEU and GC case law). Indeed, such a modernization of the system of application of EU competition law largely enhanced the process of substantial convergence of domestic rules with the EU competition law framework.

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the consideration of a structural perspective in the analysis of joint ventures in light of its dimension of entrepreneurial integration, to be combined with other analytical elements). In fact, this option of conferring a central place in this study to the category of joint ventures which do not perform all the functions of an autonomous economic entity (treated under article 101 TFEU) relies on my conviction that it is a ground of choice for the development of a new analytical methodology which combines, for many—sometimes complex—reasons, structural elements and other types of factors mainly related to the behaviour of undertakings. Such an analytical methodology will not only set aside the more traditional perspectives related to the almost per se prohibition criteria of any restrictions of competition formally subject to article 101 TFEU. Besides that, and at the same time, while introducing a key dimension of assessment of the market power of parties intervening in allegedly competition distorting agreements (when seen through the lens of a more formal understanding of article 101 TFEU), that methodology must also be dissociated from any deterministic trend which seeks to establish necessary causal links between certain market structures and certain models of competitive behaviour of undertakings.2 Furthermore, I have also already highlighted that the overall study of the category of cooperative joint ventures) must rely on an accurate identification of four types of risks regarding the safeguard of an appropriate level of actual competition which I generally consider as underlying that category of joint ventures.3 These four types of risks of distortion of competition are those between the participating undertakings in the market in which a given joint venture is created (or, more precisely, in the market towards which the activity of the joint venture is geared); risks of occurrence of a spillover effect of elements of restriction of competition to markets located upstream or downstream in relation to the market of a given joint venture (or somehow related to it); risks of foreclosure of certain market sectors to third undertakings; and, lastly, risks of occurrence of general adverse effects on competition arising from the interlinking of various joint ventures which are somehow connected between themselves.4

2 It is important to bear in mind, in this respect, the issues addressed above, ch 2 at 1.2ff, on the specific combination of the analysis of structural and behavioural elements which is especially fostered by the assessment of this category of joint ventures treated under article 101 TFEU. Besides this particular doctrinal relevance of the analysis of this category of joint ventures, I should also once more stress that, as noted throughout ch 1—this category (‘non-full function joint ventures’) still tends to be the overall prevailing form of joint venture collaboration (albeit the use of these joint ventures is not always as visible as the category of concentrative joint ventures, mainly because the former are not systematically notified to competition authorities for purposes of ex ante assessment). 3 Such identification of the four types of key risks of distortion of competition—considered separately for systematic reasons, above, ch 2 at 2.1ff—does not obviously preclude actual situations of joint venture creation leading to various combinations, and in highly variable degrees, of those categories of risks, or, to the occurrence of other risks of restriction of competition. 4 It should be acknowledged, conversely, that, taking into account the specific features of the category of joint ventures that do not perform all the functions of an autonomous economic entity—subject to the legal regime of article 101 TFEU—even what I have described as a risk of restriction of competition between founding undertakings in the market in which the joint venture is established must be perceived in a very particular manner. Such manner corresponds ultimately to ascertaining a type of spillover effect (restrictive of competition), stemming from the creation of the joint ventures at stake, since these entities do not maintain an autonomous presence in any market. What will invariably be at stake is a close and direct link of such joint ventures to certain markets in which their founding entities operate (in a context in which the consequences of cooperation limited to certain enterprise functions are extended—spillover—to the overall business behaviour of founding entities in those markets). I shall further characterize this possible risk of distortion of competition as spillover effect in broad sense, which is opposed to a spillover effect in narrow sense (which shall occur, eg, whenever effects of restriction of competition in markets related to the main markets in which the founding undertakings operate are at stake). See 1.4 of this chapter, for a detailed characterization of these issues.

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In the sphere of partial function joint ventures, I consider that the different subcategories of joint ventures identifiable by the specific entrepreneurial functions they perform, with exclusion of other functions, lead to some distinctive and paradigmatic instances of those four types of risks of distortion of competition, depending on how they interfere with certain key elements of the competition process.5 I have, thus, purported to analyze in depth such instances of risks of distortion of competition, in the context of a specialized study of some of the most important functional subcategories of joint ventures, notwithstanding the fundamental unity of the assessment model that I have sought to devise. Nonetheless, the specialized analysis of such functional subcategories of joint venture aims precisely—as I have underlined—at identifying and consolidating a common analytical matrix regarding the coordination test applicable to joint ventures subject to the regime set out in article 101 TFEU. As I have also mentioned, in order to circumscribe and identify these functional types of joint ventures I took into account, to a certain extent, the hermeneutical criteria set out by the Commission in its 2001 and 2011 Horizontal Cooperation Guidelines, although departing from the Commission’s view on the manner of application of such criteria. Indeed, for the purposes of such legal qualification of joint ventures, I confer a lead role to the criterion pertaining to the degree of integration of the various entrepreneurial functions within a new entity and view the criterion of the starting point of the process of cooperation between undertakings under appreciation as being secondary in nature. In short, it is the assessment of the intensity which the entrepreneurial integration assumes, at the level of each of the partial functions comprised in the cooperation process, paired with an assessment of the dominant entrepreneurial goal underlying each joint venture, that will determine the identification of a given functional subtype of joint venture, notwithstanding the fact that, in some situations, the pairing of various functions may present a degree of complexity that renders such legal qualification impossible. In those particular cases, one may well consider the existence of mixed type, or complex joint ventures, whose assessment must involve an analysis of the various entrepreneurial functions combined therewith. For the purposes of my in-depth analysis, I have selected three functional types of joint ventures, comprising research and development joint ventures, production joint ventures and commercialization joint ventures (also carrying out, albeit at a different level, a summarized analysis, of purchasing joint ventures). This delimitation of the scope and boundaries of my in-depth analysis of joint ventures under article 101 TFEU was based on an overall empirical evaluation of the contractual praxis in the field of cooperation between undertakings—taking into account the most common situations of cooperation limited to specific entrepreneurial functions—and through a ranking of the relative importance of the functions which may be carried out or combined within this category of joint ventures subject to the legal regime set out in article 101 TFEU. Additionally, within this analytical selection I have also taken into account the various types of cooperation between undertakings identified as autonomous in the 2001 and 2011 Horizontal Cooperation Guidelines,6 although these Guidelines do not only cater

5 As I have observed throughout ch 2, from an overall perspective, different layouts of functional subtypes of joint ventures lead, in turn, to diverse forms, some more typical than others, of interference in elements of the competition process, such as, eg, prices, or patterns of quality of products and services, among others. 6 See, especially, on the autonomous analysis of the various types of functional cooperation types in the 2001 Horizontal Cooperation Guidelines, paras 10, 39ff, 78ff, 115ff and 139ff. For a corresponding perspective, see the 2011 Horizontal Cooperation Guidelines, paras 5, 50, 111ff, 150ff, 194ff, 225ff.

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for situations related to the creation and functioning of joint ventures (and also include other functional types of cooperation in the fields of environment and standardization, respectively in the 2001 and the 2011 Guidelines, which I have deemed especially relevant to identifying joint ventures’ typical scopes of activity).

1.2 The Particular Relevance of Specific Types of Joint Ventures According to their Prevailing Economic Function It should be noted that my ranking of the importance of entrepreneurial functions, whilst individually considered, is based not only on (i) their specific contribution for pursuing autonomous and global enterprise strategies—in the context of an overall logic of business organization—but also on (ii) a preliminary assessment of the potential repercussions of cooperation links established in connection with such functions in terms of distortion of key elements of the competition process. Thus, concerning this first point in relation to the relative importance of entrepreneurial functions, I believe that the specific functions I have selected for in-depth analysis— without prejudice to the existence of various combinations between them which tend to occur in joint ventures subject to article 101 TFEU—are, in broad terms, the most important traits of any policy of cooperation between undertakings. In fact, if, pursuant to the view of authors like Ritter, Braun and Rawlinson, I seek to adopt an integrated understanding of the processes of cooperation between undertakings embodied through the existence of joint ventures that lack an autonomous presence in the market, I may identify two types of situations; first, internal type joint ventures—lacking direct access to the market—and, on the other hand, joint ventures directly related to the market, although dependent on their parent undertakings.7 And, within this framework of cooperative joint ventures, we are bound ultimately to deal, in essential terms, with the four entrepreneurial functions described above. Research and development and production functions correspond to paradigmatic scopes of activity of non-market related joint ventures, providing inputs or contribution to the production process—in its broadest sense—of their parent undertakings. Commercialization and purchasing functions appear as typical scopes of activity of joint ventures with direct access to the market, although in a subsidiary or auxiliary position as regards their parent undertakings’ position, either if they are aimed at ensuring to these latter ones the distribution and commercialization of final goods or services generated by such undertakings at the very end of the production chain in which they are located or, also, if they merely supply to those parents, at the level of upstream markets, essential inputs for their operation. As may be expected, if one closely examines the analytical perspective employed in the assessment of these phenomena of cooperation between undertakings, it is possible to divide the four entrepreneurial functions on other relevant subtypes, not only from the standpoint of the perception of their economic object, but also regarding the systems of

7 See Lennart Ritter, David Braun and Francis Rawlinson, EEC Competition Law—A Practitioner’s Guide (Deventer, Kluwer Law and Taxation, 1993) esp 533ff. As stated there, ‘the partial function [joint ventures] may be internal, without access to the market, such as R&D or production joint ventures, or market related, such as joint distribution or joint purchasing companies’.

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contractual relations which may be developed in order to set up cooperation processes as to some pre-determined functions. In that sense, it may be observed, for example, that production joint ventures may either be identified with entrepreneurial specialization phenomena—akin to the concept of specialization agreements, or even to the concept of subcontracting—or with production agreements for the purposes of allowing the entry of parent undertakings in new markets.8 Commercialization joint ventures, in turn, may ensure the organization of several commercial distribution systems with significantly different scopes of activity.9 In short, within each entrepreneurial function, a myriad of elements may coexist which may justify limited cooperation processes brought about by the creation of different subspecies of joint ventures. However, from a systematic analysis viewpoint, which allows us to sustain general hermeneutic understandings—in the context of the study of these various subcategories of joint ventures under competition law—it is of paramount importance to grasp the main functional dimensions underlying the actual situations of cooperation at stake, and not only their formal diversity. Therefore, the four entrepreneurial functions identified (research and development, production, commercialization and purchasing activities) make up, in my opinion, the primordial matrix of most of the cooperation processes which do not surpass the threshold involving the creation of autonomous economic entities in the form of joint ventures that may qualify as concentration operations. Taking into account the entrepreneurial functions not implying direct access to the market by the joint ventures specifically created in order to carry them out, microeconomic analysis of enterprises and the advances made in the area of the theory of enterprise organization in the last two decades,10 clearly allow us to consider the functions of research and development and of production—in a broad sense—as an essential vortex of cooperation at that level of activity of undertakings. The predominance of those two functions at this level of joint venture activity has actually been increasingly stressed, with the gradual transition to a new logic of organization of enterprises, striking a contrast with former mass production systems, heavily reliant on vertical integration and in a considerable specialization of tasks within one single enterprise structure.11 Indeed, in an entrepreneurial context where innovation processes are increasingly important and product life cycles are increasingly shortened, research and development and the ability to renew and replace products play a more important role in the planning

8 On this distinction between elements of production agreements, specialization agreements and subcontracting agreements, which do not exhaust all possible forms of cooperation in the field of production, see the 2001 Horizontal Cooperation Guidelines, esp para 79 and the 2011 Horizontal Cooperation Guidelines, paras 151–52ff. 9 As I shall observe further below, at 4.1.2 and 4.1.3 of this chapter, in the course of my in-depth analysis of the subcategory of commercialization joint ventures, the operation of such entities may assume very diverse organizational and functional formats, to the point of involving, or not, as the case may be, the joint sale of goods and services. 10 I refer to the enterprise or industrial organization theory which analyses alternative forms of organization of productive and commercialization processes. See, on this theoretical perspective and on the changes experienced in the last two decades, emphasizing the rise of more flexible and functional organizational models, Walter Powell, ‘Inter-Organizational Collaboration in the Biotechnology Industry’ (1996) JITE esp 197–98. 11 This gradual transition towards a new overall logic of business organizations and even of growth of enterprises has already been addressed in detail in the Introduction and in ch 1. On these changes, see John Hagedoorn, ‘Strategic Technology Partnering During the 1980s: Trends, Networks, and Corporate Patterns in Non-Core Technologies’ (1995) Res P 207ff.

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of enterprises’ activities. Alongside this broadening of the economic sectors which largely rely on intensive processes of research and development, or of research directly applied to production, there has occurred—to take the characterization suggested by Richard Nelson—what may be described as a constant diversification of the institutional sources of innovation, especially regarding the organization of production processes (hereby understood in a broad sense, that includes not only the design and manufacturing of certain products, but also the devising and preparations of certain programmes for provision of services).12 Such diversification of the sources of innovation—comprising entities other than undertakings, small undertakings operating in very particular niche activities and other entities—and the inherent scattering and distribution of the capacity to produce technological innovations, or substantive changes in the productive cycles, leading to a situation in which undertakings, individually considered, even undertakings which are part of a conglomerate or even larger undertakings, no longer as a rule retain the internal ability to follow those processes, ultimately spawn new forms of organization of business activities (to cope with this new situation). These factors have actually served as a powerful incentive to the creation of networks of cooperation between undertakings—especially through the use of joint ventures— regarding research, development and production functions. Either considered in isolation, or frequently combined in rather variable cooperation structures, these entrepreneurial functions are, therefore, typcial scopes of activity of joint ventures lacking direct access to the market and which do not perform all the functions of an autonomous economic entity. As regards cooperation pertaining to entrepreneurial functions involving direct access to the market, this context of qualitative transformation of the processes of organization of enterprises has also led to the reinforcement of the importance of commercialization and acquisition of goods and services as typical scopes of activity of joint ventures. In a remarkably internationalized economic environment of increasingly accelerated innovation cycles, the development of abilities of simultaneous entry in various markets and of continuous adaptation to the transformation of upstream or downstream markets (in relation to the position held at a given moment by certain undertakings) is of the utmost importance. Against this background, the development of such type of abilities, paired with the maintenance of some degree of flexibility—for example, as regards fixed costs structures and other factors—is undoubtedly facilitated by relatively stable forms of cooperation between undertakings, particularly through joint ventures, that may comprise both access to essential inputs for the productive process, as well as the organization of distribution channels for the products of services of the involved parent undertakings. As an alternative to the development of burdensome and rigid vertical integration processes within certain entrepreneurial structures—broadening, on the one hand, the means dedicated to gain access to raw materials or other resources and, on the other hand, the organizational structures aimed at the implementation of distribution channels of goods

12 In this regard, and describing a phenomenon of ‘increasing diversity of institutional sources of innovation’ see Richard Nelson, ‘US Technological Leadership: Where Did it Come From and Where Did it Go?’ (1990) Res P 119ff.

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and services provided to the market by some undertakings—the formation of permanent structures of cooperation between undertakings may appear as an optimal strategic means for pursuing purchasing and distribution or commercialization functions.13 The creation of joint ventures for purposes of commercialization or purchasing of goods or services thus represents an intermediate organizational procedure, located somewhere between the expansion of vertical structures within a sole undertaking and the precarious nature or multiplication of risks inherent to the establishment of relations with upstream and downstream markets through webs of individualized and loose contractual relations. This type of cooperation, concerning specific entrepreneurial functions which involve direct access to various markets by joint ventures created ex novo by the parties, is also, typically, a method for overcoming barriers to market entry or to gaining access to significant positions in certain markets. In any case, and irrespective of the view adopted concerning the relevance of these areas of cooperation between undertakings, it is very clear that as regards the creation and operation of joint ventures which do not perform all the functions of an autonomous economic entity, but, which do carry out a limited gamut of activities endowing them with direct access to the market, the functions of commercialization and purchasing of goods and services perform a central role (in particular the former). Essentially, I refer here to joint ventures which, as a rule, ensure functional needs, that were characterized by Joseph Brodley as corresponding to the contribution of necessary inputs to the productive process (lato sensu) and to the marketing of the output of the productive process.14

1.3 The Main Types of Risks of Anticompetitive Effects Arising from Joint Ventures As mentioned above, the autonomous pondering of the four entrepreneurial functions, with a view to identifying the four types of functional joint ventures that I purport to analyse in depth (although the analysis will be rather succinct as regards purchasing joint ventures),15 also relies on a particular perception of the potential adverse repercussions of the ties of cooperation established in connection with such functions on essential elements of the competition process. In reality, I consider that such functional cooperation matrixes are the ones which tend to significantly affect, in accordance with the particular conditions of the relevant market at stake, the main elements on which the safeguarding of effective competition processes

13 See Farok Contractor, Peter Lorange, ‘Why Should Firms Cooperate? The Strategy and Economics Basis for Cooperative Joint Ventures’ in Contractor and Lorange (eds), Cooperative Strategies in International Business (Lexington MA, Lexington Books, 1988) esp 8–9. 14 Joseph Brodley mentions, in this regard, in peremptory terms the essential contribution of the so called ‘input joint ventures’ and ‘output joint ventures’ for cooperation processes (see Joseph F Brodley, ‘Joint Ventures and Antitrust Policy’ (1982) Harv L Rev 1526, esp 1555ff and 1560ff). However, Brodley includes in such categories a wider range of situations than just commercialization joint ventures and purchasing joint ventures, with which we are specifically concerned here. 15 For the reasons for this more perfunctory treatment of purchasing joint ventures and for the choice of treating in greater detail research and development joint ventures, production joint ventures and commercialization joint ventures, see above, ch 2, 1.3–1.6.

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depends, including in particular, elements such as prices, output levels and quality of goods and services, among some others. I have even identified three main risks of distortion of competition typically associated with the main functional types of cooperation, comprising risks of coordination on price fixing or on output levels, risks of coordination as regards product quality and risks of market foreclosure or competitor exclusion not justified by economic efficiency reasons. That does not, of course, imply that other functional goals pursued through the creation and functioning of joint ventures are deprived of significance to the preservation of several basic elements upon which the competition process is dependent in any market whatsoever. What I am saying is that, within a perspective of systematic assimilation of acquired empirical information pertaining to the functioning of joint ventures, and subject to economic analysis parameters,16 the four functional types of joint ventures identified here—research and development, production and the commercialization or purchasing of goods and services—are the ones most prone to directly and strongly affect crucial elements connected with the safeguarding of effective competition.

1.4 The Fundamental Analytical Tools Applicable to Partial Function Joint Ventures on the Basis of the Prevailing Economic Function of Such Joint Ventures It should be acknowledged from the start that the assessment methodology which I seek to develop in connection with joint ventures that do not perform all the functions of an autonomous economic entity—taking as reference to some extent the 2001 and 2011 Horizontal Cooperation Guidelines, in spite of some key divergences with such Guidelines—is by no means exempt from relevant criticism. Indeed, some fundamental issues or objections have sometimes been raised as regards the analytical goal of identifying the prevailing dimensions of certain processes of cooperation between undertakings and of devising assessment parameters especially designed to address the corresponding predetermined specific functional types of cooperation. According to those critical views, such a form of competition law analysis, fragmented into various functional types of joint ventures, would herald a new approach akin to legal conceptualism, of dubious effectiveness in providing an accurate perception and evaluation of the effects of such entities in the functioning of the market. This critical approach is adopted, in particular, by some sectors of US antitrust doctrine, which have increasingly focused their attention on the praxis of assessment of undertakings under EU competition law. Additionally, I should also take into account that the Antitrust Guidelines for Collaboration among Competitors, adopted in 2000, in the US, by the Federal Trade Commission and by the US Department of Justicedo not adopt an analytical

16 The economic analytical parameters developed for the purpose of comprehending negative repercussions of cooperation on the competition process tend to converge on the confirmation of the significant interference of the functional types of joint ventures in the operation of the key elements of the competition process. On this type of parameter within the context of cooperation agreements and joint ventures, see Roger Van Den Bergh and Peter D Camesasca, European Competition Law and Economics—A Comparative Perspective (Oxford, Hart, 2001/Antwerp, Intersentia, 2001) esp 170ff. Additionally, see also WE Kovacic, ‘The Identification and Proof of Horizontal Agreements under the Antitrust Laws’ (1993) AB 38ff.

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methodology relying upon the autonomous treatment of certain major functional types of joint venture (as opposed to the 2001 and 2011 Horizontal Cooperation Guidelines). In fact, the US 2000 Guidelines provide a comprehensive and general model of analysis for the overall majority of the phenomena of cooperation between competing undertakings. In any case, that does not preclude those Guidelines from mentioning specific dimensions of the entrepreneurial activity on which cooperation procedures are usually reflected upon, often comprising activities of research and development, commercialization, distribution and purchasing or disposal of goods or services, thus emphasizing key areas of enterprise cooperation which ultimately correspond to the four functional types of joint ventures addressed in my in-depth analysis of cooperative joint ventures.17 Some criticism relating to the methodology of assessment of joint ventures based upon the identification of various functional types also concerns the difficulty, or even the frequent impossibility, of carrying out overall functional qualifications of joint ventures, for example, whenever the latter, despite not being autonomous economic entities (and, as such, concentrative joint ventures), combine various functions.18 In my opinion, such criticism is not entirely justified. In the first place, it should be stressed that the use of processes of functional qualification of joint ventures which are less complex and more objective than the ones devised by the Commission in its 2001 and 2011 Horizontal Cooperation Guidelines—in the manner I advocate—allows us to avoid some of the major analytical obstacles in identifying such functional types of joint venture. In reality, it is usually possible to render such functional qualification mainly by assessing the actual degree of integration of the various distinct functions combined—relegating other elements to a mere secondary role—through an analysis of the cooperation structures created by parent undertakings, thereby assessing whether a given entrepreneurial function is the only one to be carried out, or, if it stands out against other less significant ones attributable to a specific joint venture. Secondly, the actual existence of complex type joint ventures—with multiple functions—does not preclude, of itself, the use of any analytical method relying upon the consideration of functional types or dimensions involved in the activity of joint ventures. What I consider to be of the utmost importance is that this assessment lies integrated within a global model of competition law assessment of all joint ventures subject to the legal regime set out in article 101 TFEU. Quite naturally, in cases of creation of joint ventures in which it is not possible or adequate to identify a prevailing entrepreneurial function to be pursued by the new entity to be established, other parameters are to be applied in the context of such a global assessment framework, which does not even exclude in itself the relevance of some analytical elements pertaining to the nature of the cooperation agreements at stake resulting from the combination of the various entrepreneurial functions.

17 See the Antitrust Guidelines for Collaboration among Competitors, para 1.1: ‘competitor collaboration comprises a set of one or more agreements, other than merger agreements, between or among competitors to engage in economic activity resulting there from …. Competitor collaborations involve one or more business activities, such as research and development (R&D), production, marketing, distribution, sales or purchasing’. 18 In the context of this criticism of analytical methods which take as a reference the functional subtypes of joint ventures see, inter alia, the observations of the American Bar Association (ABA) concerning the Draft Notice on Horizontal Cooperation Agreements (that ultimately led to the adoption of the 2001 Horizontal Cooperation Guidelines), which represent the views of a significant part of US antitrust doctrine—‘Comments of the Section of Antitrust Law of the American Bar Association on the European Commission’s Draft Rules on Horizontal Cooperation Agreements’, (2000).

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Thus, I depart from the views that were adopted in the 2001 Horizontal Cooperation Guidelines (albeit, to an appreciable extent attenuated in the 2011 Guidelines), according to which the analytical model devised there would not be applied to more complex cooperation agreements that combined various entrepreneurial functions. These Guidelines only contemplated the application to certain areas of cooperation brought together under a complex type joint venture, and to be autonomously considered for that purpose, by different sections of the Guidelines which specifically refer to the functional dimensions juxtaposed in such joint ventures or in mixed type cooperation agreements.19 Such an analytic treatment would, in my view, be excessively formalistic and would hardly produce any results which would be useful to the assessment of the effects on competition arising from the creation of joint ventures. In short, the focus of my criticism is not so much the methodological choice of assessing, from a competition law perspective, the effects of joint ventures through the autonomous consideration of a set of key functional types, but rather the choice to exclude the use of any systematic model of analysis to those joint ventures which may not be classified precisely as to their prevailing function. Furthermore, I also address a second criticism to the methodology adopted by the Commission in the 2001 and 2011 Guidelines (and usually employed by it for purposes of enforcement in EU competition law rules). This criticism has to do with excessive reliance on certain pre-ordained assumptions and corollaries that tend to be associated with the analytical model of the different functional types of joint ventures which are not autonomous economic entities. The global model of joint venture assessment which I am seeking to devise,20 caters for a sequence of analytical parameters—to the extent possible applicable to the overall majority of joint ventures—merely comprising an analytical stage or parameter specifically related to the elements pertaining to some functional types of joint venture. In other words, besides the assessment of the analytical elements of the model directly related to the content of each functional type of joint venture, the other assessment parameters included in this overall assessment model must be essentially identical for each and every joint venture.

19 As regards the position that had been adopted by the Commission in the 2001 Horizontal Cooperation Guidelines, from which I disagree, see para 12 (with my emphasis): ‘more complex arrangements … that combine a number of different areas and instruments of cooperation in varying ways are not covered by the guidelines. The assessment of each individual area of cooperation within an alliance may be carried out with the help of the corresponding chapter in the guidelines. However, complex arrangements must also be analyzed in their totality. Due to the variety of areas an alliance may combine, it is impossible to give general guidance for such an overall assessment.’ As mentioned above, that position was modified, albeit not fully reversed, in the 2011 Horizontal Cooperation Guidelines, esp para 13, where it is stated that ‘Horizontal co-operation agreements may combine different stages of co-operation, for example research and development (“R&D”) and the production and/or commercialization of its results. Such agreements are generally also covered by these guidelines. When using these guidelines for the analysis of such integrated co-operation, as a general rule, all the chapters pertaining to the different parts of the co-operation will be relevant. However, where the relevant chapters of these guidelines contain graduated messages, for example with regard to safe harbors or whether certain conduct will normally be considered a restriction of competition by object or by effect, what is set out in the chapter pertaining to that part of an integrated co-operation which can be considered its “centre of gravity” prevails for the entire co-operation’ (emphasis added). 20 A model which presents several points of contact with the Commission-proposed analytical framework in the 2001 and 2011 Horizontal Cooperation Guidelines—notwithstanding various appreciable divergences—and which naturally takes into account the Commission enforcement practice, albeit purporting to develop further its central parameters.

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In particular, I reject a rigid separation of the main assessment criteria—especially of the market share criterion, aimed at assessing the market power of the participants in certain processes of creation of joint ventures—that rely on a strict distinction between the various functional types of joint ventures (or cooperation agreements). In effect, there will remain a certain degree of analytical distortion whenever one attempts to identify different market share thresholds, set out in relation to each functional joint venture type in order to identify—in the course of a first and almost presumptive level of analysis—situations of creation of joint ventures which may pose issues of distortion of competition. Therefore, irrespective of the market share thresholds set out de iure condito in the two Block Exemption Regulations most directly connected with the assessment of joint ventures—the Regulation on Research and Development Agreements and the Regulation on Specialization Agreements21—I maintain that a gradual development of a common factor for the assessment of the market share criterion should be sought.22 The quantitative criteria set out in this area by the Block Exemption Regulations fulfil a precise function in the specific context of the application of such rules, that circumscribe particular safe harbour areas established by article 101, paragraph 3 TFEU. However, that should not take away from the fact that, in the overall interpretation and application of article 101 TFEU, comprising its paragraph 1—and overcoming formalistic understandings of this latter norm as a normative regime approaching a per se prohibition rule in certain cases—an essentially unitary parameter for the consideration of the (structural) market share factor is envisaged within an overall joint venture assessment model. This path is, in my opinion, the best one for avoiding the application of a rigid analytical straightjacket concerning the competition law assessment of joint ventures. Thus, I am able to avoid a probable and serious normative distortion—to which the guiding principles of the 2001 and the 2011 Horizontal Cooperation Guidelines do not appear to be immune— that would result from the need to confer special features to all the relevant factors of assessment of joint ventures in the context of the analysis of each functional type of joint venture. Consequently, I adopt in this area an intermediate perspective, departing from both the opinion of those who reject any analytical validity whatsoever to the processes of competition law assessment based on the identification of the key functional types of such entities and from the opinion which proclaims the dependence of the use of a global model of assessment of joint ventures on a strictly fragmented analysis of each of the functional types of joint venture (an analytical fragmentation that would lead to the adoption of specific parameters for each of those functional types, namely as regards the assessment of their market power in accordance with the market share held by the participating undertakings in certain joint ventures).23

21 I refer here to Regulation (EC) No 2658/2000, Block Exemption Regulation on specialization agreements, of 29 November 2000, Regulation (EC) No 2659/2000, Block Exemption Regulation on research and development agreements, of 29 November 2000, replaced by Regulation EU No 1217/2010, of 14 December 2010, Block Exemption Regulation on research and development agreements, and by Regulation EU No 1218/2010, of 14 December 2010, Block Exemption Regulation on specialization agreements, applied in combination with the 2001 and 2011 Horizontal Cooperation Guidelines. 22 A position I have argued consistently since ch 2, 2.4.2. 23 In short, what is at stake is an intermediate perspective which is diverse both from the views held by some parts of the US antitrust doctrine, and from the Commission position, as reflected in the 2001 and 2011 Horizontal Cooperation Guidelines.

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I acknowledge the importance of an analytical process concerning the effects on competition arising from the creation of joint ventures that is addressed to an assessment of each of the key functional types of joint ventures—that I develop in the remaining part of this chapter, in the course of my in-depth study of the four subcategories of joint ventures mentioned above. Conversely, this analysis of each of the four main functional types of joint venture is designed taking into account a global model of analysis which I have sought to devise. This model comprises, among other features, two main analytical dimensions, corresponding to (i) the assessment and graduation of the market power of the parties involved in the creation of joint ventures—in accordance with the way in which it is signalled by the joint market share of such undertakings—and to (ii) the nature or content of the cooperation structures established by the parties,24 comprising elements which may, taken together, translate into the carrying out of a certain functional type of cooperation. As regards the first of these two aspects, I have sought to devise a general assessment criterion applicable to the various subcategories of joint ventures. Thus, in the context of the analysis of the subcategory of research and development joint ventures (below, at section 2 in this chapter)—through which I initiate my in-depth study of joint ventures which do not correspond to autonomous economic entities—my doctrinal goal is the establishment of a sole criterion relating to the market share of the parties, which is able to provide an analytical tool fit for the general assessment of the market power of various functional types of joint ventures,25 thus anticipating an analysis relevant to assess the effects on competition of those other subcategories of joint ventures (aiming ultimately for the identification of a common market share threshold that is to be used in the context of the assessment of all those subcategories).

2 Research and Development Joint Ventures 2.1 Introductory Remarks—How to Define and Qualify Research and Development Joint Ventures Research and development (R&D) joint ventures are cooperation entrepreneurial structures—incorporating that minimum degree of enterprise integration which represents, as per the analysis I have developed above, chapter one, the essential distinctive feature from mere looser cooperation agreements—through which the founding undertakings share, for a variety of reasons, the exercise of research and development

24 In the context of the various predetermined and sequential analytical stages which I propose to adopt in my overall model of competition law assessment of joint ventures, these two elements are key dimensions of the processes of assessment joint ventures. 25 The goal is to establish and most importantly, to justify the use of a single market share criterion to be taken into consideration in the assessment of the various functional types of joint ventures. Thus, the critical analysis initially carried out in connection with research and development joint ventures already caters for an overall matrix of competition law analysis of joint ventures—comprising the issues pertaining to a sole market share criterion—justifying, accordingly, in section 2 of this chapter, a more detailed study of the various relevant topics (within the global model of assessment of joint ventures that I purport to delineate).

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functions deemed as subsidiary or auxiliary to the carrying out of their core business activities. These entrepreneurial functions frequently cause confusion or are perceived as a shapeless bulk, but they should be understood autonomously and in more precise terms, both as regards their content and their normal impact on the overall activity of the parent undertakings. In that respect, I consider as open to criticism the definition of ‘research and development’ given in article 1, paragraph 1(c) of Commission Regulation (EU) No 1217/2010 (Block Exemption Regulation for research and development agreements).26 Under the terms of this provision, the concept of ‘research and development’ is defined as the ‘acquisition of know-how relating to products, technologies or processes and the carrying out of theoretical analysis, systematic study or experimentation, including experimental production, technical testing of products or processes, the establishment of the necessary facilities and the obtaining of intellectual property rights for the results’, leaving undistinguished precisely the research and the development components, whose autonomous understanding I deem to be essential. In addition, as shall be ascertained later, relevant substantial consequences stemming from that analytical distinction may be drawn from the Regulation, to the extent that the agreements between undertakings limited to the performance of joint research activities and that are not carried on until the ‘stage of industrial application’ are not, in principle, covered by the prohibition set in article 101, paragraph 1 TFEU.27 In this light, the research activities must be viewed as operations aimed at producing new information that is important for the development of certain technological processes or for attaining a certain technical conformity or shape of products or services provided by certain undertakings.28 Development activities are, as a rule, already carried out at a different level and achieved through application of the new information—generated by the research activities—in the manufacturing or designing of specific products or services. As regards the potential repercussions of these activities jointly carried out by one or more undertakings, it has been considered, as a rule, that strict research activities tend to generate positive technological ‘externalities’ and innovation surpluses, which may be shared to a higher extent than is usually possible in terms of development activities.29

26 Considering this is a relatively recent Block Exemption Regulation, benefiting from a relatively long experience of the application of previous Block Exemption Regulations in this area, more accuracy in the definition or characterization of the concept ‘research and development’ might have been expected. 27 See, on this, esp Recital 6 of Regulation (EU) No 1217/2010, according to which ‘agreements on the joint execution of research work or the joint development of the results of the research , up to but not including the stage of industrial application, generally do not fall within the scope of Article 101(1) of the Treaty’. 28 For the characterization of such research activities seen as aimed at the production of new information, especially in industries characterized by a significant technological component, see John Temple Lang, ‘European Community Antitrust Law: Innovation Markets and High Technology Industries’ in International Antitrust Law & Policy—Annual Proceedings of the Fordham Corporate Law Institute—1996 (Barry Hawk (ed), Juris Publishing Inc, 1997) 519ff. 29 On the diverse technological ‘externalities’ and on the various mechanisms of attaining and propagating technological benefits (‘technological spillovers’) in research and development activities that may reflect on the incentives for carrying out such activities, see PA Geroski, ‘Antitrust Policy Towards Co-Operative R&D Joint Ventures’ (1993) OREP 58ff. In general terms, Geroski takes into account the relevance of such factors on the greater or lesser impact of such activities in such a way that the creation of research and development joint ventures is justifiable as an essential manner of preserving incentives relating to the same activities. As he says, ‘co-operative R&D ventures are a way of internalizing these spillovers (eliminating the ability of rival firms to free

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As I have been seeking to highlight, the growing evolution of the majority of business areas has implied an increasing emphasis on dynamic innovation processes and has imposed on undertakings not only increased costs in generating the required flow and diversity of information, but also remarkable difficulties in capturing the myriad of sources of production of that relevant technical information. Thus, the proliferation of cooperation agreements having as their object research and development activities is easily explained. Also, that may explain the increasing need for such agreements to rely on sufficiently stable frameworks—susceptible of being qualified as joint ventures—under which the involved undertakings share assets and resources of various natures and origins. Furthermore, the complexity and intensity of the requirements with which undertakings are faced in this area of research and development have also led to the formation of joint ventures with increasingly complex functional structures. Undertakings thus tend to combine, not only activities of pure research, grounded on the sharing of research experience, information and of a limited pool of resources, but also, with increasing frequency, an extended range of activities connected with the development of new products and services— for example, production of prototypes of certain final products yet to be introduced in certain markets—and activities of joint exploitation of such applied research, through the development of joint production processes of final goods or otherwise, through licensing of certain industrial rights pertaining to specific manufacturing processes, thus broadening their cooperation programmes.30 In the context of this proliferation of cooperation aimed at a growing range of research and development activities and considering the variety of micro-functions that can be combined through the establishment and functioning of joint ventures, a growing difficulty for a proper functional qualification of these entities has to be acknowledged. That particular difficulty enhances the need (which I have already emphasized) for a major guiding criterion for such functional qualification, in particular the criterion that I have put forward of the degree of intensity in the actual integration of the various entrepreneurial functions (which can be advantageously combined with the identification of a prevailing entrepreneurial goal associated with the function that bears a higher degree of integration). Therefore, whenever confronted with situations of cooperation of a complex type that involve pursuing various functions, in my view, it is only justifiable to define a given entity as a research and development joint venture, with the inherent analytical consequences

ride on each other’s R&D), and can, therefore, be expected to increase total R&D activity’ (at 60). Concerning the relationship between research and development activities, he adds that ‘technological spillovers are likely to be large relative to negative pecuniary externalities arising from output markets in the case of research activities and relatively small in the case of development activities, suggesting that co-operative R. ventures are more likely to increase innovation than co-operative D. ventures are’. Negative pecuniary ‘externalities’ result from the fact that the cooperation in the realm of research or development is not primarily aimed at sharing fixed, non-recoverable costs (‘sunk costs’), or otherwise non-available assets. Such cooperation is, instead, aimed at ensuring that the involved undertakings are able to innovate before their competitors (above all if the market tends only to reward those who come first) or to preclude the competitor undertakings from manufacturing new types of goods which may generally provide a substitute for the ones commercialized at a given time. 30 Several relevant examples illustrating such situations of pure research, applied research or research applied to joint production are to be found in the Commission enforcement practice. Note the case of Carbon Gas Technologie ([1993] OJ L376/17)—a joint venture formed to develop an innovative process of obtaining gases from charcoal—or Alupower-Chloride ([1990] OJ C152/3)—a joint venture formed to develop a new type of battery, which also involved some exploitation of the new technology in view of the joint manufacturing of the new good.

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(in terms of competition law assessment) in the cases in which the integration at the level of pure activities of research and development—through the sharing of assets and resources in those areas and the implementation of a certain functional organization— clearly exceeds any combination of resources occurring at other levels (eg at the level of joint production of certain goods arising from the research activities at stake, and provided these latter activities are of a clear secondary and residual nature in the context of the cooperation process at stake).

2.2 Typical Goals Underlying the Creation of Research and Development Joint Ventures 2.2.1 The European Commission View For a systematic understanding of the key goals of research and development joint ventures, it is justifiable to take into account the various synthetic analyses or commentaries already produced by the European Commission in various contexts. Thus, in its ‘Fifteenth Report on Competition Policy’,31 the Commission has set out, in terms which I still acknowledge as essentially valid—only lacking a complementary and deeper characterization32—the following goals, among others, underlying the creation of such entities and bringing about, as a rule, significant economic advantages: — —

—

—

Scale economies concerning investments on research and development; Achieving more substantial budgets, in absolute terms, for the development of research projects and decrease in costs, in relative terms, of such projects due to the sharing of their costs, and also of their benefits, between various undertakings; The creation of conditions for the carrying out of research projects—both pure research and research applied to the industrial development of certain products—on a cross border basis, boosting productivity arising from expenses and investment on certain research processes and promoting achievement of research outcomes, in a manner not constrained by the traditional boundaries of national markets; The creation of conditions for the development of internationalization projects of groups of undertakings, comprising markets located outside the EU, through the provision to such projects of an appropriate degree of technological support, especially in sectors which are particularly dynamic or related with high technology.

From a different standpoint, the Commission has also emphasized as an important goal of research and development joint ventures the reinforcement of the competitive abilities of small and medium-sized enterprises, allowing them to gain access to markets characterized by high innovation patterns and intense requirements for technology investments, which would otherwise be unattainable. Furthermore, this subcategory of joint ventures may as well be considered as a privileged vehicle for the continuous adaptation of undertakings to certain structural changes occurring in the markets, thus representing an optimal

31

See esp point 282. A complementary and deeper characterization which I purport to establish in the subsequent points on these R&D joint ventures, albeit at a slightly different analytical level. 32

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strike point between reasonable industrial policy goals and generally accepted patterns of effective competition.33 More recently, in the 2001 and 2011 Horizontal Cooperation Guidelines, the Commission has rightly highlighted, as an economic advantage usually stemming from the subcategory of joint ventures, the overall increase of the activities in this area that tends to result from cooperation concerning research and development.34 In the same Guidelines, also mentioned as a typical goals of such joint ventures—usually with positive economic effects—is the impulse for competition in innovation, as it is described in the Guidelines.35 The Commission attempted, through the use of that concept, to take into account situations in which cooperation between undertakings is aimed at introducing new products or technologies in the market, not in order to replace existing products or technology, but to foster an entirely new demand. Although I have some objections to the use of this concept devised by the Commission (see further below) I do think that the fundamental idea underlying it accurately depicts some typical goals of certain research and development joint ventures, to the extent they do create conditions for the introducing of new products or services, thus motivating new surges of demand and therefore reinforcing, as a rule, the competition process (up to a degree that, according to some US antitrust doctrine, should generally justify the admissibility of those entities under competition law, due to their efficiency generating capacity).36

2.2.2 Critical and Systemic View of the Chief Aims Underlying the Creation of Research and Development Joint Ventures The identification and systematization of typical goals of research and development joint ventures which the Commission has been attempting in the context of its enforcement of EU competition rules is, in my opinion, substantially correct, although it could benefit from some further in-depth and critical study combining a more economic perspective with the necessary legal approach in this field. One of the chief goals pursued through this subcategory of joint ventures—which, in my view, requires special attention—concerns the counterbalancing of elements which tend to discourage research activities, thus limiting undertakings’ competing capacity and restricting, in global terms, the social and economic benefits usually arising from such activities. The elements which tend to inhibit research activities usually stem from a nefarious association between, on the one hand, the risky character of such ventures—since investment

33 See Manfred Caspari, ‘Joint Ventures—The Intersection of Antitrust and Industrial Policy in the EEC’ in Antitrust and Trade Policy in the United States and the European Community—Annual Proceedings of the Fordham Corporate Law Institute—1985 (Barry Hawk (ed), Matthew Bender, 1986) 449ff, esp 452ff. 34 See 2001 Horizontal Cooperation Guidelines, para 40. As stated there, ‘as a general rule, R & D cooperation tends to increase overall R & D activities’. The same position was essentially maintained in the 2011 Horizontal Cooperation Guidelines. 35 See 2001 Horizontal Cooperation Guidelines, esp paras 50 ff and 2011 Horizontal Cooperation Guidelines, esp paras 119ff. 36 See Thomas Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (1991) Minn LR, esp 43ff. As this author explicitly acknowledges, ‘under the standard proposed …, courts should almost always uphold joint ventures for the research and development of new products because they create significant efficiencies while causing minimal anticompetitive effects. In fact, in many cases a court should deem these ventures legal on their face’.

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in research frequently leads to considerably uncertain returns, seldom proportionate to the fixed costs underlying such investment—and, on the other hand, the difficulty in securing or appropriating the benefits generated by those activities. In reality, as regards this second factor, it is important to bear in mind that in many situations the results of research activities are not integrally kept by the undertakings which have generated them, notably in the cases in which, for any particular reason, it is not feasible to register them as rights of intellectual or industrial property, for example, patents or others.37 Consequently, externalities may arise in the context of the carrying out of research activities that may come to benefit competing undertakings other than the ones which have generated research results, ultimately reducing the incentives to innovation.38 Research and development joint ventures may compensate for such curbing factors of incentives to innovation, both by reducing the costs inherent in the development of research activities and by mitigating the risks of spillover effects of technological benefits arising from those activities to competing undertakings which have not borne the inherent costs. However, considerable analytical problems subsist for a proper assessment of these positive effects potentially stemming from research and development joint ventures, insofar as the situations in which the results of pure research activities are directly perceivable only seldom occur. In the most common business practice of cooperation between undertakings through the creation of joint ventures, research and development activities tend to go hand in hand, as well as to comprise different cooperation components connected with the production of certain goods.39 This combination of various components of cooperation, occurring in joint ventures that have as their main component research and development activities, leads to the production of economic effects—relevant from a competition law perspective—in multiple markets of final goods, posing difficulties to an individual assessment of the goals related to the counterbalancing of factors inhibiting innovation (to be desirably achieved through entrepreneurial research). Thus, pursuant to the economic analysis of authors like PA Geroski,40 it should be acknowledged that joint ventures tend to generate various types of externalities—with fairly different consequences in certain final goods markets—besides providing a framework for the effects of spillover of technological benefits, in the positive economic sense referred to above. In the group of positive externalities, generating economic benefits, and, as such, regarding the typical goals of this subcategory of joint ventures, it is justifiable to identify what

37 See Richard Nelson and Sidney Winter, ‘The Schumpeterian Tradeoff Revisited’ (1982) Am Econ Rev 114ff (these authors have developed a model evidencing that innovating undertakings are prone to incur losses towards undertakings which copy them). 38 See Leonard Waverman, William Comanor and Akira Goto (eds), Competition Policy in the Global Economy—Modalities for Cooperation (London, New York, Routledge, 1997) Editors’ Introduction, 11. In the view of these authors, ‘intuitively, R&D arrangements have … beneficial effects. First, they allow firms to overcome the well known free rider problem associated with R&D when patent protection is imperfect’. This issue has already been addressed, taking into account the analysis put forward by Geroski in the study, ‘Antitrust Policy Towards Co-Operative R&D Joint Ventures’ (n 29). 39 Such an assumption is valid, either considering the enforcement practice of competition law rules to research and development joint ventures, within the EU competition law system or within the US antitrust system. 40 See Geroski, ‘Antitrust Policy Towards Co-Operative R&D Joint Ventures’ (n 29) esp 59ff. On the same issue, see also P Dasgupta, ‘The Welfare Economics of Knowledge Production’ (1988) Oxford Review of Economic Policy 1ff.

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we may call positive pecuniary externalities. The latter are manifest through the sharing of fixed—and to a certain extent non-recoverable—costs, inherent in the initial investment in research projects, as well as in the consequent risk sharing, of particular importance in projects with uncertain outcomes.41 The occurrence of this type of positive pecuniary externality, in the context of the creation of joint ventures contributes, in global terms, to increase the incentives provided to research and development activities. This stimulus to such activities may, in turn, lead to what has been called the multiplier effect of industrial development.42 Furthermore, the positive pecuniary externalities relating to the sharing of costs as well as—it should be added—to the sharing of complementary assets belonging to the different participating undertakings in a joint venture, may still promote even higher levels of efficiency as regards the benefits of R&D activities through the exploitation of complementary resources. Indeed, joint R&D activities may well offer greater opportunities for positive synergies between assets and the different abilities of participating undertakings in cooperation projects in those areas.43 It is important to underline that the majority of economic studies on research and development joint ventures mention that, as a rule, positive externalities—of a pecuniary or technological nature—are more likely to occur in relation to cooperation arrangements made up of pure research activities and less likely to be significant as regards cooperation arrangements that extend to development activities or even production activities (as I have already considered in connection with the distinction between research and development activities).44 In this area of basic or pure research activities, the use of this subcategory of joint ventures has even counteracted the temporary decline in processes of research associated with the development of new technologies—such as the one that appeared to take place in several industrial sectors in the late-60s up until the 1980s—or counteracted the macroeconomic trends that cause such activities to be reduced during periods of economic recession.45 Thus, following the analyses developed by several US scholars—for example, by authors like Thomas Pirainno46—one may consider research and development joint ventures having as their main business pure research activities, or at least not engaging in the joint

41 The distinction between positive pecuniary externalities and negatives has already been addressed, taking into account the analysis of Geroski, ‘Antitrust Policy Towards Co-Operative R&D Joint Ventures’ (n 29) esp 60ff. 42 See Edmund Kitch, ‘The Nature and Function of the Patent System’ (1977) Journal of Law & Economics 265ff, esp 271. According to this author, ‘each innovation generates shifts in the matrix of technological possibilities and … may have a significance that dwarfs the original invention’. 43 This trait, which is especially favourable to joint research and development activities, is rightly highlighted by Alan S Gutterman, Innovation and Competition Policy—A Comparative Study of the Regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Community (London & Boston, Kluwer Law International, 1997) 106ff. 44 See earlier in this chapter, and see also the analysis of Geroski, ‘Antitrust Policy Towards Co-Operative R&D Joint Ventures’ (n 29) esp 60. 45 On the decline of theoretical research activities in the 1960s and 1970s, not fully compensated for in more recent years, see Edwin Mansfield, ‘Basic Research and Productivity Increase in Manufacturing’ (1980) Am Econ Rev 863ff. This author has analysed, through sampling methods, the most important industries, discovering that between 1967 and 1977—in a trend contrary to the most widely perceived view in this area—global spending on theoretical research and development activities has decreased. 46 See Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 36) esp 44ff.

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production of certain goods, as true mechanisms of pre-competitive cooperation. This mode of cooperation typically aims at creating conditions for the boosting or renewal of the quality of production, and is not directed towards limiting it in terms which significantly impact on the competition process and the main elements in which the latter relies upon. In this sense, such cooperation may be considered as pre-competitive, to the extent that it does not constrain or impose restrictions on the operation of final goods markets that may, in some way, be related to the relevant research activities at stake. One should acknowledge, however, that this effect of contribution for the increase or qualitative renewal of production—without generating elements restrictive of production and, as such, to some degree anticompetitive—is not automatically nor inevitably ensured in relation to all research and development joint ventures that pursue research as their predominant activity (irrespective of the form they may assume). This effect may be questioned in cases where the contractual framework on which a given joint venture is based, besides providing a stable ground of cooperation for the implementation of multiple joint research and development projects, precludes the parent undertakings from carrying out any other independent research and development activities. In reality, such type of covenants surpasses what may be considered a pre-competitive level that underlies pure covenants of joint implementation of multiple research projects— especially projects of pure research—and introduces an actual non-competition obligation between parent undertakings as regards any innovation processes, prone to influence in terms somewhat restrictive of competition the functioning of markers of final goods or services in which such undertakings operate. Such a potential restrictive influence tends to be increase in significance in accordance with the actual position of the undertakings at stake in the production cycle. Thus, if in a given production area, maintaining globally significant levels of research and development activities depends on the positioning of such undertakings, a commitment to refrain from engaging in independent research activities, whether or not in the context of a joint venture agreement, will predictably wipe out all competition elements in the particular field of entrepreneurial research at stake. Accordingly, in that kind of situation, the positive economic effects frequently associated with research and development joint ventures that are predominantly focused in the areas of basic or pure research, will tend to be negatively affected or constrained.47 Furthermore, even if certain R&D joint ventures do not rule out all parent undertakings’ independent research activities, and do not directly lead to the complete elimination of competition at the level of innovation processes, the typical effects of contributing to the increase or qualitative renewal of production may, in any case, lack significance or be overcome by other restrictive elements. Although exceptional, the actual content of some joint venture agreements may lead to such results. Thus, in the context of US antitrust jurisprudence one may find relevant precedents in which some concern was expressed as regards R&D joint ventures whose layout made them inadequate to increase production

47 Such analytical perspective, which allows potential antitrust objections (as noted above) to research and development joint ventures, even if these only perform in theoretical research areas, has long been acknowledged in the context of the application of US antitrust rules, as we may see in the analytical document of the Antitrust Division—‘Antitrust Guide Concerning Research Joint Ventures’ (1980) (see esp paras 11 and 12).

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or to facilitate the introduction of new products but, on the contrary, made them prone to constrain or even to delay the introduction of such products or technologies.48 This type of situation may be particularly common as regards joint ventures which comprise competing undertakings with significant positions in the relevant markets at stake and whose research and development activities, especially when aligned, may decisively constrain the introduction of certain products in those markets. However, in other situations, the creation of R&D joint ventures may be the only way for some undertakings to gain access to markets characterized by a high importance of technological factors, something that tends to represent an overall positive economic effect related to the entry of new competitors into certain markets of final goods or services. Indeed in some cases, in which participating undertakings were already able, as a general rule, to enter particular markets using their own means, the cooperation they may engage in in the areas of research and development can, nonetheless, represent a decisive factor for them to intervene on a more efficient scale in such markets, or to speed up their entry into the market, thus sparing themselves long or uncertain preparation stages.49 It is also important to take into account as a goal for this subcategory of joint ventures, obtaining what may be called transaction efficiencies in the pursuit of research and development cooperation projects. Thus, economists such as Coase and Williamson have outlined this efficiency concept in order to make it reflect relative economic advantages stemming from certain forms of transaction or from certain entrepreneurial activities’ organizational patterns, by reference to other alternative layouts.50 In a variety of situations, the creation of joint ventures may, in effect, generate significant transaction efficiencies as to the use of alternative forms of cooperation between undertakings also aimed at boosting technological innovation. Those efficiencies may, among other benefits, include a swifter solution to issues related to the determination of the contribution of each participant in research projects; the reduction of uncertainty in the management of such projects—through the operation of organizational structures that allow the involved parties to envisage various tried formulae of institutionally sharing such management—or the reinforcement in itself of the efficiency of the technology transfer and sharing processes.51 In overall terms, and to complete my systematic vision of the typical goals of research and development joint ventures, it would be correct to describe these entities as vehicles for

48 See Berkeley Photo Inc v Eastman Kodak Co 603 F.2d 263 (2nd Cir, 1979) cert denied, 444 US 1093 (1980). In this case, the court denigrated a joint venture in the context of which Kodak agreed with two potential competitors (Sylvania Electric Products, Inc and General Electric) to delay the development of certain photography apparel components until Kodak launched and marketed a compatible photographic device. A very similar position was adopted in another important case—United States v Automobile Manufacturers Ass’n Trade Cas (CCH) (CD Cal, 1969). In this case, the court refused to allow four automobile manufacturers and their respective trade association from agreeing among themselves the delay of the development of pollution control devices. 49 See, inter alia, Gutterman, Innovation and Competition Policy—A Comparative Study of the Regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Community (n 43) 107ff. 50 See Ronald Coase, ‘The Nature of the Firm’ (1937) Economica 386ff and Oliver Williamson, Markets and Hierarchies, Analysis and Antitrust Implications: A Study in the Economics of Internal Organization (New York, Free Press, 1975). 51 See Gutterman, Innovation and Competition Policy—A Comparative Study of the Regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Community (n 43) 109ff.

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the carrying out of innovation processes, in the sense used by Jorde and Teece,52 meaning entrepreneurial mechanisms aimed at the seeking, discovery, development, improvement, adoption and commercialization of new processes, new products, new organizational structures and procedures. Taking into account that the primary stages of these processes of innovation comprise, as a rule, a conceptual outline of products, the assessment of their technical feasibility, the development of products, the assessment of their market positioning, involving preliminary elements of production organization, the mass production of the goods at stake and support to their introduction in the markets, it is clear that the first four of these primary stages are usually part of research and development schemes. These activities may be advantageously carried out through joint ventures whenever it is necessary or convenient to combine distinct resources or capabilities belonging to different undertakings.

2.3 Analytical Model for the Antitrust Assessment of Research and Development Joint Ventures 2.3.1 The Analytical Model Proposed—Overview and First Stage of Analysis Having identified, in broad terms, the subcategory of the research and development joint venture and examined the goals typically pursued by such entities, it is now my aim, as an application of my global analytical model of joint ventures (outlined in the preceding chapter), to describe the essential parameters of a preliminary stage of competition law assessment of this subcategory, in order to identify types of situation usually permitted under competition rules, types of situations usually prohibited and, finally, types of situations whose repercussions on competition raise doubts and require a more in-depth analysis (which shall be my focus here). Such a preliminary stage of assessment also requires an identification of the main anticompetitive risks arising from research and development joint ventures and a critical analysis of the ways in which such risks usually arise. As regards the identification of the first type of situation—an area of lawful cooperation between undertakings—I take into account the three main analytical indexes outlined in my global assessment model. It should be recalled here that, in short, these indexes correspond to the creation of joint ventures between non-competing undertakings (ie, neither actually nor potentially competing); to joint ventures between competing undertakings which would not otherwise be able to independently carry out the projects comprised in the cooperation; and to joint ventures between undertakings whose market power is particularly feeble.53 As mentioned in chapter two, I reject the analytical index in the 2001 Horizontal Cooperation Guidelines for identifying usually permitted situations, namely, the ascertaining of situations of cooperation which focus upon activities not prone to exert influence on the relevant competition parameters. I consider that, realistically, the use of this criterion for the analytical purposes intended by the Commission is not feasible (notwithstanding

52 See Thomas Jorde and David Teece, ‘Innovation and Cooperation: Implications for Competition and Antitrust’ (1990) Journal of Economic Perspective, 75ff. 53 On these criteria for the identification of typically lawful (non-prohibited) situations of cooperation between undertakings, see above, ch 2, esp section 2.2.

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the fact that I acknowledge that the different activities in which cooperation projects may take part will have varying effects on the main elements on which the competition process is based). Thus, as I shall further explain, I consider that cooperation between undertakings carried out through research and development joint ventures will tend to comprise, as a rule, a wider set of permitted situations in light of article 101 TFEU. However, I cannot rule out that this functional type of cooperation may, in some cases, lead to appreciable effects of restriction of competition. As Lawrence Sullivan has argued in the context of the US antitrust system54—in terms I deem applicable to the enforcement of EU competition rules— although a significant part of research and development joint ventures does not generate significant repercussions of a restrictive nature on the competition process, that does not imply that a kind of per se lawfulness rule may be established concerning them. It would therefore be wrong, from a legal and economic viewpoint of application of competition rules, to say that the majority of research and development activities do not intrinsically affect the relevant competition rules. In my opinion, any attempt to circumscribe certain areas of research and development activities in particular, which in themselves, would not present any potential for competition distortion, is not correct. Even if it is certain, as I have previously acknowledged, that cooperation between undertakings limited to pure or basic research activities, that does not spillover to development stages directly related to the production technical process—in the context of the clear distinction between research and development established here—presents a fairly lower risk or potential of competition distortion, I do not believe that an actual per se lawfulness rule as to the creation and operation of such pure research joint ventures may be established. Whilst I have come to acknowledge that a substantial share of joint ventures that have as their predominant dimension pure research activities may actually amount to precompetitive cooperation55 arrangements, I consider that it would be overstating it to maintain that there is a general presumption of absence of effects of distortion of competition in this type of situation, based solely upon the type of activity to which a specific cooperation project is geared towards achieving. Consequently, I depart from the analytical perspective taken by the Commission in its 2011 Horizontal Cooperation Guidelines, according to which situations of cooperation between undertakings limited to ‘pure research and development agreements’—without any joint exploitation of results or ‘far removed from the exploitation of possible results’— would seldom be subject to the prohibition set out in article 101, paragraph 1 TFEU, seemingly amounting to a form of usually permitted cooperation.56 It should be emphasized that this favourable presumptive reasoning by the Commission is not even limited to processes

54 See Lawrence Sullivan, Handbook of the Law of Antitrust (St Paul, Minn, West Publishing Co, 1977 (reprinted 1996)) 303, ‘given that the public may be harmed by joint research in some instances, a rule of per se legality for such activity would be inappropriate. If joint research programs are challenged under section 1 [Sherman Act], courts must evaluate harms and benefits under the rule of reason, taking account of the implications of industry structure’. 55 This concept of pre-competitive cooperation which we adopt, albeit with some adaptations, based on US antitrust doctrine (and particularly on the position of Thomas Pirainno) does not exactly correspond to a view of absolute irrelevance of certain situations for the competition process, but rather to a view evidencing a flimsy connection between those situations of cooperation and the competition process. 56 See the 2011 Horizontal Cooperation Guidelines, paras 129 and 132.

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of cooperation circumscribed to the carrying out of pure or basic research activities, an opinion with which I cannot agree. In fact, I have already underlined that, even in the context of joint ventures exclusively devoted to pure or basic research activities, competition distortion effects may be triggered by specific elements of the cooperation processes which may be at stake. That may happen, for example, through elements like commitments or arrangements which preclude the carrying out of independent research activities by parent undertakings or through the establishment of joint research projects by undertakings with significant market power in overall conditions that allow them to absolutely constrain the timing and manner of introduction of new technologies. Apparently, the Commission sought to cater for those situations by acknowledging, in its 2001 and 2011 Horizontal Cooperation Guidelines, that even ‘R&D cooperation which does not include the joint exploration of possible results by means of licensing, producing or marketing’ were nonetheless able to ‘cause competition problems’—thereby departing from the area of usually permitted cooperation between undertaking—‘if competition with respect to innovation is appreciably reduced’.57 In my opinion, this disclaimer—if taken into account at all—should only apply to pure research activities, excluding all development activities. Furthermore, the legal terminology used by the Commission in this section of the Guidelines, identifying a purported ‘competition in innovation’ category, is not exempt from criticism. In reality, the Commission seems to strike an antinomy between the assessment of effects arising from research and development joint ventures acting (i) in existing markets, meaning markets for products which may be ameliorated through research and development projects or technologies related to the transformation and development of certain products; and (ii) in the realm of competition in innovation, as an actual innovation market (as opposed to existing markets).58 I consider this distinction lacking in accuracy, at least from a competition law analysis viewpoint, insofar as it qualifies such an innovation market as a competition process distinct from the ones otherwise taking place in existing markets (markets for already existing products). Innovation, including the entrepreneurial projects this comprises, should, on the contrary, be construed as an element, among others—namely price and product quality—of the competition process, whether the latter is carried out in the context of certain existing product markets or in especially dynamic sectors of activity (eg, information technologies or multimedia), in a context of introduction of wholly new product categories which come to replace previously existing products.59 Consequently, in the assessment of research and development joint ventures one should take into account their effects on innovation

57 See the 2001 Horizontal Cooperation Guidelines, para 58 and the 2011 Horizontal Cooperation Guidelines, para 132. 58 See the 2001 Horizontal Cooperation Guidelines, paras 44–50. 59 On this concept of competition for the introduction of wholly new product categories replacing existing products in especially dynamic sectors of activity, see Christian Ahlborn, David Evans and Jorge Padilla, ‘Competition Policy in the New Economy: Is European Competition Law Up to the Challenge?’ (2001) ECLR 156ff. In these authors’ view, the competition process may assume particular characteristics due to the periodical renewal of product cycles. Therefore, they argue that ‘in some new economy industries, competition often consists of a series of races. In the first race, firms invest heavily to develop a product that creates a new category …. Winners get huge market shares. In subsequent races, firms invest heavily to displace the leader by leapfrogging the leader’s technology.’

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processes—understood generally as an element of the competition process globally considered and dependent upon a dynamic and complex interplay of other common elements—and not purport to assess such effects in a supposedly autonomous domain of competition in innovation. Provided that it is readjusted in line with this analytical perspective outlined above, the Commission’s view—considering some types of R&D joint ventures as potentially prone to raise issues of distortion of competition, on account of their negative effects on innovation as an element of the competition process in a wider sense, even if those entities do not comprise any joint production activities—ultimately strikes me as acceptable (matching my own approach of recognizing negative effects in cooperation projects constraining the pace of innovation or excluding the autonomous ability of acquiring competitive advantages through the introduction of new technologies). I should underline at this point that my view, departing from that of the Commission in its 2001 and 2011 Guidelines—since I reject the argument that certain poles of joint activities of research and development do not intrinsically affect relevant competition parameters—is, however, compatible with a general methodological perspective on R&D joint ventures that assigns a significant part of this subcategory of entities to areas of usually permitted cooperation and thus not covered by the prohibition established by article 101, paragraph 1 TFEU (a view that is adopted here). What is at stake, however, is to obtain substantial outcomes of assessment of these joint ventures that, albeit being (almost) equally favourable about a set of situations covered by the quasi-presumption of the absence of effects of restriction of competition, as set out in the 2001 and 2011 Guidelines, are formulated on the basis of different analytical indexes (reliant on more accurate legal and economic assumptions endowed with a higher degree of legal certainty, within the framework of a global model of assessment of joint ventures devised here).60

2.3.2 Main Anticompetitive Risks Arising from Research and Development Joint Ventures 2.3.2.1 Risks Concerning Behaviour Coordination in Existing Product Markets As I have previously mentioned, an adequate understanding of the analytical indexes that allow us to systematically guage—in a preliminary stage of analysis—the species of R&D joint ventures usually not covered by the prohibition set out in article 101, paragraph 1 TFEU requires the identification of the main risks of distortion of competition underlying this subcategory of joint ventures. Therefore, without prejudice to the more in-depth assessment of the potential competition issues regarding research and development joint ventures whose compatibility with competition law raises appreciable doubts, which I carry out below, I shall at this stage

60 Contrastingly, as underlined in recent analyses like the one undertaken by Richard Ruble and Bruno Versaevel (in Market Shares, R&D Agreements and EU Competition Policy (Emlyon Business School, December 2011)) in the context of EU competition law R&D joint ventures, particularly if congregating parent undertakings with appreciable market power, are still subject to an excessive degree of uncertainty as regards its compatibility with competition rules (which is in itself undesirable). As these authors rightly highlight, ‘the obligation for large firms to conduct their own assessment of the legality of R&D cooperation agreements, in the light of the legislation in force, the Guidelines, and case-law, is a costly and uncertain process’.

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proceed to the identification of some of the chief effects of distortion of competition that may hypothetically be associated with this subcategory of joint ventures. One of the most serious risks of this nature is related to situations in which these entities—by virtue of the scope of their activities and in accordance with the actual market conditions in which they operate—lead to the coordination of behaviours between parent undertakings, in existing products markets, affecting fundamental elements of the competition process, such as price, output level or quality of the products offered by such undertakings in the markets at stake. The likelihood of this type of entity constituting a cause for behavioural coordination between their respective parent undertakings to the extent mentioned above is especially enhanced in situations where the cooperation projects appear to be directly linked to the stages of product development and to the production process itself. I refer specifically to joint research and development projects aiming at the improvement or upgrade of existing products, as envisaged in the 2001 and 2011 Horizontal Cooperation Guidelines.61 In this type of situations, certain conditions are combined that ultimately allow parent undertakings to use the results of the joint projects to decide among themselves matters such as the quality of the products at stake or even to coordinate their decisions concerning the level of supply (or level of output) of such products to the market. The chances of generating such behavioural coordination effects increase proportionately in connection with the relative importance of the actual results of the joint efforts of research and development for the production of the relevant final consumer goods. In more accurate terms, it should be emphasized that such a risk is only appreciable—and therefore relevant as a competition law assessment factor—above a minimum threshold of contribution of the research and development results to the production of final consumer goods. That risk of occurrence of coordination effects should be potentially even higher in cases where the results of joint research and development projects represent a significant share of the costs of production of certain final goods commercialized in markets where parent undertakings operate as competitors. In this situation, the likelihood of behavioural coordination between those undertakings will directly extend to the prices of the relevant goods, something that under certain conditions can seriously restrict competition in the markets of final goods at stake. Naturally, the assessment of such risks of distortion of competition must not be an abstract and formal process, but rather must be supported by the process of recasting the price formation mechanisms by parent undertakings and also taking as a starting point the assumption—which must be objectively confirmed—that research and development projects do contribute significantly for the overall costs of certain products. The weighing of the repercussions on the competition process of a propensity to coordinate behaviours originated by the participation in a research and development joint venture must be carried out on the basis of complementary factors, among them the share held by parent undertakings on the relevant final goods markets. It will be essentially the combination, on the one hand, of a propensity to coordinate behaviours concerning key elements of the competition process—induced by the scope of activity and operation patterns of certain research and development joint ventures—and, on the other hand, of a

61 See the 2001 Horizontal Cooperation Guidelines, para 53 and the 2011 Horizontal Cooperation Guidelines, paras 136ff.

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significant market power exercised by parent undertakings in certain markets of final goods that may ultimately cause material effects of distortion of competition to arise.62 2.3.2.2 Risks Concerning the Limitation of Innovation Another risk of distortion of competition potentially underlying this subcategory of joint ventures is the one regarding limitation of innovation processes in terms that lead to a coordination of the commercial strategies of undertakings as to the quality or even to the quantity of the supply of final goods to the market. I acknowledge this issue to be especially pressing in the area of joint research and development projects with the goal of fostering—in accordance with the 2001 and 2011 Horizontal Cooperation Guidelines—a new product replacing existing ones, or, also a change of an existing product.63 The assessment of this type of risk requires the development of particularly complex analysis, especially due to the enhanced prospective nature of the elements to be included. The issue here is to assess, bearing in mind the various poles of research and development which may likely lead to the transformation or replacement of categories of products in certain markets, if a given R&D joint venture operating in this area, may cause the level of differentiation of products offered by competitor undertakings to be imperilled. An essential assumption for the development of this analytical methodology—as implied in the 2001 and 2011 Horizontal Cooperation Guidelines64—is that the innovation process is structured in such a manner that it allows at an early stage the identification of R&D poles directed towards a certain new product or a new technology. We are dealing here with markets whose functioning relies on the regular and periodical introduction of new categories of products. In this regard, the 2001 Horizontal Cooperation Guidelines provided the pharmaceutical markets as an example, to which one could add as paradigmatic cases various information technology markets.65 In those types of markets, the reduction of the autonomous poles of innovation and the likely limitation of the intensity of the innovation processes resulting, ultimately impacts negatively on the operation of competition structures, in such terms that preclude the regular introduction, in appreciable quantity, of new categories of product sufficiently differentiated between themselves. I have already expressed my disagreement as regards the use of the concept of competition in innovation, as used in the 2001 and 2011 Horizontal Cooperation Guidelines, but, disregarding for now that conceptual issue—for the reasons provided above—it strikes me as important to ascertain that in especially dynamic markets,

62 Furthermore, the decisive weighing of such market power of the founding undertakings in final goods markets relies—as also evidenced in the field of assessment of concentrative joint ventures under the MCR and in the context of the active interplay between their assessment and the evaluation of cooperative joint ventures under article 101 TFEU—on increasingly complex economic analyses, which are not limited to naked or direct structural factors such as, eg, market shares of the undertakings at stake (particularly when differentiated product markets are involved). See on this kind of analysis, particularly where it assesses price effects over marginal growth of sales in markets for differentiated goods, using econometric tools, JA Hausman and GK Leonard, ‘Economic Analysis of Differentiated Products Mergers Using Real World Data’ (1997) George Mason Law Review 321ff. 63 See the 2001 Horizontal Cooperation Guidelines, para 45, and the 2011 Horizontal Cooperation Guidelines, paras 138ff. 64 See the 2001 Horizontal Cooperation Guidelines, para 51, and also, to some extent, the 2011 Horizontal Cooperation Guidelines, paras 138ff. 65 Information and technology markets are markets especially characterized by innovation and periodic replacement of products, as rightly emphasized by Ahlborn, Evans and Padilla, ‘Competition Policy in the New Economy: Is European Competition Law Up to the Challenge?’ (n 59).

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in which the competition process develops mainly through the periodic introduction of new categories of products, more or less directly related to needs fulfilled by existing products, the decrease beyond certain thresholds of autonomous poles of innovation may endanger the conditions for preserving adequate levels of effective competition. Indeed, in the markets under consideration, such conditions depend especially upon the ability of undertakings to compete among each other through the regular provision to consumers of sufficiently differentiated products, even if directed at the fulfilling of the same type of needs. This ability will obviously be limited if R&D poles happen to be significantly reduced, as well as the innovation centres associated with them. 2.3.2.3 Risks of Market Foreclosure A third main risk of distortion of competition may also be associated with the creation of R&D joint ventures. I refer to the risk of foreclosure of certain markets, meaning here the risk of exclusion of competing undertakings (non-participating in a given research and development joint venture) from those markets. The assessment of this particular type of risk implies that participating undertakings in a joint venture possess significant market power and that the joint project is closely related with the sharing of a technology deemed essential for remaining in the relevant market or with the joint use of intellectual or industrial property rights. As I previously observed, this competitor exclusion risk has been, as a rule, somewhat overlooked in the context of the application of EU competition rules. In fact, the focus of competition law analysis has been directed to the detection of behaviour coordination regarding fundamental elements of the competition process, frequently leading to an underassessment of indirect effects of cooperation between undertakings which lead to the emergence of barriers to the entry into the market or even to permanence on that market. Although I have also emphasized that this lesser degree of attention paid to competitor exclusion issues also occurs in the US antitrust system, I must acknowledge that in this latter jurisdiction it has been more adequately addressed. Therefore, the concept closely connected with problems of market foreclosure of essential facilities, originally devised in that US system to pertain to the realm of tangible assets or infra-structures,66 has gradually been extended in that system to comprise other strategic types of assets, particularly intellectual or industrial property rights resulting from research and development projects.67

66 See Gutterman, Innovation and Competition Policy—A Comparative Study of the Regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Community (n 43) esp 339–41. As this author states, ‘in situations where participation in a joint venture will confer a ‘significant competitive advantage’ and the venture itself hold a substantial position in the market, it may well be necessary for the courts to mandate that competitors must be allowed to participate in the joint venture or otherwise obtain the advantages or membership on reasonable and non-discriminatory terms. This rule sometimes referred as the “bottleneck” or “essential facility” rule, originated with joint ventures that controlled an essential physical facility, such as a railway terminal, the concept has been much more broadly applied to cover other strategic assets, such as patents and other forms of intellectual property’. It should be recalled too that the concept of essential facilities is subject to some relevant criticism by various US authors such as Hovenkamp (see Herbert Hovenkamp, Federal Antitrust Policy—The Law and Competition and its Practice (St. Paul, Minn, West Publishing Co, 1994) esp 273ff). 67 Several examples of situations of that type in which competitor exclusion risks arise are provided, even though they are frequently borderline cases not necessarily justifying in strict terms its treatment under the framework of the so called essential facilities or infrastructures, have been considered in the enforcement practice and in jurisprudence in the context of the US antitrust system. I may refer, inter alia, to Silver v New York Stock

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The assessment of this type of competitor exclusion risks in the context of the operation of R&D joint ventures requires a particularly complex analysis in order to assess, at various levels, the relevance of the results generated by research and development joint projects. What matters here is to assess, inter alia, the manner in which some of those results—for example, information on technologies or ‘know-how’ processes—are rendered essential for gaining or maintaining access, under reasonable and economically efficient conditions, to certain final goods markets. Additionally, it is also important to assess the way in which the exploitation of such results interplays with the market power held by parent undertakings, the ability of competitors (actual or potential) to obtain comparable results through the development of their own research and development projects and the degree or scope of the restrictions set out concerning exploitation of results in the context of research and development joint ventures.

2.3.3 First Level of Analysis of Research and Development Joint Ventures— Categories of Joint Ventures Normally Allowed (Not Falling Under Article 101, Paragraph 1 TFEU) 2.3.3.1 Research and Development Joint Ventures Between Non-Competitors Having sought to identify the main risks of distortion of competition which in theory and more frequently are prone to underlie the creation and operation of R&D joint ventures, I shall proceed to identify the types of situations normally permitted in this area of cooperation between undertakings (in the course of the development of my global assessment model devised for this subcategory of joint ventures).68 In that process of circumscribing normally non-prohibited situations of cooperation I have taken into account three main analytical indexes—already mentioned by reference to a global assessment model of joint ventures subject to the legal regime set out in article 101 TFEU—of which the first corresponds to the assessment of situations concerning the creation joint ventures between non-competing undertakings (it not actually or potentially competing).69 Even though the participation of non-competing undertakings in a certain joint venture generally amounts to an index of absence of distortion of competition for the purposes of

Exchange, 373 US 341 (1963), in which the court considered that the refusal of the New York State Exchange (NYSE) in granting to two non-members (‘over-the-counter securities brokers’) access to its communication network breached competition law, insofar as it deprived them of access to a ‘valuable business service which they needed in order to compete effectively as broker-dealers in the over-the-counter securities market’. See also, as a relevant precedent evidencing that this type of concern has been addressed from very early on in the application of US antitrust rules, Gamco Inc v Providence Fruit & Produce Bldg 194 F.2d 484 (1st Cir 1952) cert denied, 344 US 817. In the majority of the situations assessed by courts, what is usually at stake is not so much the freedom of access to joint ventures or to similar entities, as such, but rather the access under reasonable and non-discriminatory conditions to such entities when it is deemed of fundamental importance to ensure a continuous presence in the market. 68 On the general characterization of the type of usually allowed situations—corresponding to the US antitrust law ‘safe harbors’—to be identified at a preliminary stage of analysis in accordance with the general model of competition law assessment of joint ventures outlined here, see ch 2, at 2.2ff. 69 I refer to the index of non-application of the general prohibition rule article 101, para 1 TFEU concerning R&D joint ventures, foreseen in the 2001 Horizontal Cooperation Guidelines (as mentioned above), and also in the previous interpretative Notice on Cooperative Joint Ventures, of 1993 (see paras 17 and 18 of the 1993 Notice).

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article 101, paragraph 1 TFEU, I believe it is still the case that such an index is particularly relevant to research and development joint ventures. As also mentioned, all indexes concerning a sort of per se permission of certain processes of cooperation between undertakings may, in certain cases, be overruled by other complementary assessment criteria which evidence the existence of previously unforeseen competition distortion elements. In this context, what I largely perceive as a particularity of this subcategory of research and development joint ventures—bearing in mind the risks of distortion of competition potentially associated with such joint ventures, referred to above—has to do with a minimum degree of probability of verification of such complementary elements that preclude the quasipresumption of compatibility with the regime set out in article 101, paragraph 1 TFEU, insofar as those entities are fully composed of non-competing undertakings. Taking into account the possible scopes of activity to be adopted by research and development joint ventures, the ascertaining of the absence of an actual or potential competition relationship between parent undertakings—a decisive factor for the setting aside of the prohibition rule in article 101, paragraph 1 TFEU—must be made by reference to the market positions of such undertakings regarding certain existing products and also to the positions that such undertakings hold in the markets for other products which may further down the line be replaced by the categories of goods to be ex novo developed pursuant to the cooperation process under consideration. In my opinion, the particular relevance of the presumption of absence of effects of distortion of competition, that would justify any prohibition under article 101 TFEU, in relation to R&D joint ventures composed of undertakings which are not in a relationship of actual or potential competition justifies that such favourable presumptive reasoning regarding such entities may only be set aside in truly exceptional cases, in which the cooperation at stake may result in, directly and unequivocally, the impossibility of access to the market by third parties. However, I consider that this market foreclosure risk and the exclusion of third parties can hardly occur in such situations. The 2001 and 2011 Horizontal Cooperation Guidelines, in any case, expressly catered for this possibility in relation to R&D joint ventures which imply the exclusive exploitation of results, if they are entered into between undertakings of which one of them holds a significant market power concerning key technologies.70 Nevertheless, only very particular circumstances may lead to material market foreclosure effects in the context of the operation of R&D joint ventures composed of non-competing undertakings. A number of specific conditions must then occur, for example, the existence of a fairly significant contribution of a second participating entity in a joint venture in order to reinforce the market power regarding core technologies held by another participant undertaking, although both of them are not competitors among themselves. In the context of the enunciation of the essential elements of my global assessment model of joint ventures, I mentioned that the three general criteria for circumscribing areas of usually permitted cooperation, that I envisage in relation to the various subcategories of joint venture, may be counteracted by negative criteria corresponding to the existence of an

70 See the 2001 Horizontal Cooperation Guidelines, para 30 and the 2011 Horizontal Cooperation Guidelines, para 127.

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especially intense market power exercised by the joint venture’s participating undertakings and to the possibility of exclusion of third parties by virtue of the cooperation at stake.71 However, the lesser intensity evidenced by risks of distortion of competition potentially associated with research and development joint ventures leads me to acknowledge that such negative criteria are not as relevant in the field of this subcategory of joint ventures. Therefore, in cases in which these entities are fully composed of non-competing undertakings, even the existence of especially significant market shares held by those parent undertakings should not, as a rule, amount to a negative criterion capable of setting aside the presumptive assumption favourable to avoid the application of the prohibition in article 101, paragraph 1 TFEU. The only negative criterion to take into account—and this only under very exceptional circumstances—will then be that concerning the emergence of risks of market exclusion of third undertakings. It is the same material reasoning of assessment of the limited effects of restriction of competition usually inherent in research and development joint ventures and of positive valuation of economic efficiency results stemming there from that, in my opinion, underlies the positive assumption established through the wording of Recital 20 of Regulation (EC) No 2659/2000 and Recital 18 of the later Regulation (EU) No 1217/2010. In accordance with those Recitals, agreements between undertakings ‘which are not competing manufacturers of products, technologies or processes capable of being improved, substituted or replaced by the results of the research and development’ will benefit from the block exemption established by the Regulation on research and development agreements, ‘irrespective of market share’ of the involved undertakings (in a context in which any diverse and ‘exceptional cases’ should be addressed ‘by way of withdrawal’ of such benefit of the block exemption). However, in the positive assumption, a seminal difference concerning the analytical criteria I have set out in this regard remains. Such a difference mainly involves my complete disregard for the market shares of participating undertakings, even if they appear to be rather high—differently from what I propose in connection with other subcategories of joint ventures—in the context of R&D joint ventures formed by non-competing undertakings, as a parameter determining the non-submission on the whole of those entities to the prohibition in article 101, paragraph 1 TFEU (something that clearly represents a major qualitative difference compared with the consideration of such factors as a mere condition for the application of a block exemption in accordance with the Recital of Regulation (EU) No 1217/2010 and under article 101, paragraph 3 TFEU). In the context of US antitrust law, the subcategory of R&D joint ventures has also, as a rule, faced minor objections concerning possible distortions of competition—for example, as compared with production joint ventures—something that accounts for the somewhat sparse number of cases considered by the Department of Justice or the Federal Trade Commission concerning that type of entity. Furthermore, the adoption of the NCRA in 1984 (see above, chapter one) has reinforced that general favourable approach towards research and development joint ventures.72

71

See on this, once more, ch 2, at 2.2. On the adoption of the NCRA and of the NCRPA—which followed it––in the context of the US antitrust system, see Veronica Dougherty, ‘Antitrust Advantages to Joint Ventures under the National Cooperative Research and Production Act’ (1999) AB 1007ff. Irrespective of the repercussions of such a favourable regime regarding R&D joint ventures, the analysis of relevant judicial precedents and of the enforcement practice of 72

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Among other issues, that legislation explicitly established the application of the rule of reason to joint ventures carrying out pure or basic research activities, thus excluding the application of any per se prohibition and aiming at the reinforcement of the legal certainty with regard to undertakings entering into such joint projects, due to the economic efficiency benefits allegedly stemming therefrom. Additionally, the changes introduced in this framework applicable to research joint ventures by the adoption of the NCRPA in 1993 have reinforced and consolidated the favourable presumption73 (which relied upon an especially demanding requirement of evidence of effects of distortion of competition that might overcome, in a given market, the economic efficiency and competition stimulus benefits usually generated by such entities in order to subject them to any prohibition).74 The new definition of joint ventures set out in the NCRPA has allowed an extension of the more favourable regime consisting in a full application of the rule of reason and in the setting aside of any per se prohibitions to joint activities of development of new products—based on research results—and even to situations of joint production of goods, including, for example, activities based on patents or exclusive industrial rights jointly held or exercised that might have resulted from previous research and investigation activities. Such an extension of the favourable competition law regime of the NCRPA to the field of production activities, comprising not only research and development activities in a narrower sense—whose object surpasses the mere pursuit of pure research activities—but also, ultimately, various kinds of mixed type joint ventures—combining research, development and production75—has not, however, been exempt from controversy in the US antitrust environment. In fact, authors such as Joseph Brodley criticize the legal and economic motivations of such a de iure condito competition policy and regime, favourable to joint production activities and even to their intersection with certain forms of cooperation in the area of

federal competition authorities supports such a favourable approach towards that subcategory of joint ventures described above. Thus, within the relatively limited number of judicial precedents concerning R&D joint ventures, see Addamax Corp v Open Software Found Inc, 152 F.3d 48 (1st Cir 1998), in which the court ordered the application of the rule of reason regarding a joint venture among manufacturers of computers for the purposes of developing a new operating system. Several positions taken by the Department of Justice may equally be taken into account, such as, inter alia, the US Dept of Justice, ‘Business Review Letter to the American Heart Ass’n, 1998’, DOJBRL LEXIS 7 (20 March 1998), in which it is stated that ‘legitimate research joint ventures are not usually on balance anticompetitive, particularly in the case of joint ventures to perform basic, non-appropriable research’; the US Dept of Justice, ‘Business Review Letter to the Petroleum E&P Research Coop., 1997’, DOJBRL LEXIS 7 (23 April 1997), acknowledging the lack of grounds for questioning the creation of a research and development joint venture for the exploitation and production of oil because that particular entity would not be able to constrain ‘price, output or research competition’ among the participants; or even the US Dept of Justice, ‘Business Review Letter to Computer Aided Mfg. Int’l, Inc., 1985’, DOJBRL LEXIS 15 (25 June 1985) stating in broad terms that ‘joint research and development ventures generally are procompetitive, and are condemned by the antitrust laws when they have a net negative effect on competition. Generally R&D joint ventures rarely will raise competitive concerns’. 73 Specifically on the repercussions of the NCRPA, in 1993, in order to grant a more favourable treatment of research and development joint ventures, see above ch 2, at 5.5.2.1 and 5.5.2.2. 74 Actually, the NCRPA has precluded the courts from adopting condemnatory decisions concerning R&D joint ventures, unless rather stringent requirements were met in terms of proof of effects of restriction of competition overcoming the pre-competitive benefits usually attributed to this subcategory of joint ventures. Ultimately, the favourable presumption has resulted from those special requirements. 75 Ultimately, as already mentioned (above, ch 1) that combination of functions potentially contemplated under the NCRPA came to include standards development organizations in the context of the latest, 2004, reform of the NCRPA.

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commercialization of certain goods and services.76 Brodley has, nonetheless, on the one hand, recognized that the carrying out of joint innovation processes in the context of R&D joint ventures requires—in certain cases, for the purposes of maximizing the benefits and economic efficiency elements resulting from such joint ventures—the sharing of experiences related with their outcome within certain (complementary) production processes or even the sharing of information on the reaction of consumers to new categories of products. On the other hand, and conversely, Brodley has expressed his objections to any automatic submission of joint production activities to the same kind of favourable presumptions initially established for pure research activities. In my view, this kind of criticism is not devoid of merit, insofar as the maximization of the benefits stemming from innovation processes may often result from experiences acquired by parent undertakings in their own separate production and commercialization activities, without any a priori need for widening the research and development joint venture’s scope of activity to comprise these fields of activity. In other words, several and possibly diverse cooperation situations must be analytically distinguished, in accordance with the intrinsic features of the innovation processes carried out by the parties and with the existing nexus between the latter and the downstream markets for the commercialization of certain goods and services. In certain cases, a continuum between the stages of pure research and the development and production stages may occur, requiring, for purposes of maximization of the potential benefits of the innovation processes in which the parties have engaged, the creation of mixed type joint ventures, which are able to combine those areas of research, development and production. In some other cases, the benefits of innovation processes carried out through R&D joint ventures may be effectively pursued without any need for extending cooperation to the domains of production and commercialization of goods and services. In any case, apart from this kind of doctrinal criticism, the normative framework of the NCRA, and later of the NCRPA, have clearly favoured a significant positive environment to the assessment of pro-competitive effects underlying the subcategory of R&D joint ventures. It is, therefore, likely that such a pre-ordained favourable approach towards this type of entity, not only induced by a direct and strict application of the NCRPA—which, in reality, has only seldom materialized in explicit terms77—but, in overall terms, reinforced by such normative regime, has indeed contributed decisively to the small number of cases arising concerning the subcategory of R&D joint ventures. As regards specifically the treatment of R&D joint ventures exclusively composed of non-competing undertakings, such entities are also, under US antitrust law, in principle, considered as permitted or non-prohibited forms of cooperation (as is the case within the context of the application of EU competition rules).

76 See Joseph Brodley, ‘Antitrust Law and Innovation Cooperation’ in (1990) Journal of Economic Perspective, (n 52) 938ff. 77 The scarce application of the NCRPA, as well as of its predecessor, the NCRA in the context of US jurisprudence is generally acknowledged in US antitrust doctrine; see inter alia, Dougherty, ‘Antitrust Advantages to Joint Ventures Under the National Cooperative Research and Production Act’ (n 72) 1009. As stated there, ‘a search revealed no cases applying either the NCRPA or its predecessor, the NCRA. Only a handful of cases even mentioned the Act. See “California v. ARC American Corp., 490 US. 93, 101 n. 5 (1989)” (citing NCRA as indirect support …)’.

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As a rule, appreciable risks of distortion of competition are associated with the enforcement practice of US antitrust rules—going then beyond the overall favourable preordained position towards R&D joint ventures—with entities of this functional type that comprise parent undertakings competing between themselves in downstream markets in the areas of production and commercialization of final goods related with those specific research and development projects. It should also be borne in mind that even in situations of intense participation of competitor parent undertakings in R&D joint ventures, the latter may still be subject to rather favourable treatment. In fact, US competition authorities78 have in their enforcement practice even gone to the extent, in certain cases, of giving a fairly permissive treatment to R&D joint ventures that consisted of virtually all undertakings that operated in a given sector of activity, provided that the results generated by those joint ventures could actually be shared among other entities.79 Besides this latter aspect, pertaining to the access of third party entities to the results of the joint research and development projects, the main concerns around this kind of situation seem to concentrate, under the US antitrust regime, on the cases in which the creation of joint ventures results from its very outset in a scenario of absence or lack of relevance of competition regarding innovation processes, or, in cases where, besides parent undertakings at stake, no other undertakings—whether already present in the sector of activity at stake or interested in gaining access to it—exist that allocate resources to innovation processes. In these types of situations where an R&D joint venture combines all the entities actually or potentially interested in the use of innovation factors generated by such ventures—thus comprising as parent undertakings not only the majority of competing undertakings in a given market of final goods related to those research and development processes, but also the potential competitors that could, in a reasonable time frame, enter those markets, one may, on the whole, assume that the overall risks of distortion of competition are seriously aggravated. Furthermore, US antitrust authorities tend also to consider in a very broad manner their relatively favourable pre-ordained view on R&D joint ventures—even when they comprise competing parent undertakings—provided that they have been devised in order to include some structural safeguards which may adequately prevent the exchange of commercial sensitive information and, thus, avoid any incentive to behaviour coordination activities that may distort competition.80 This kind of favourable approach to R&D joint ventures which feature such safeguards even tends to be reinforced by the authorities, in the event that such mechanisms happen to be combined with systems allowing access to the results

78

I refer here predominantly to US antitrust authorities at the Federal level. See Wilbur Fugate, ‘The Department of Justice’s Antitrust Guide for International Operations’ (1977) Virginia Journal of International Law 645ff. 80 On this type of favourable analysis of R&D joint ventures, provided specific mechanisms are in place— particularly those of a structural nature—for the safeguarding of potential information flows, see the assessments carried out by the Department of Justice in several Business Review Letters’, namely, the US Dept of Justice, ‘Business Review Letter to Truckload Carriers Ass’n, 2001’, DOJBRL LEXIS 1 (27 March 2001), or the US Dept of Justice, ‘Business Review Letter to the Pump Research and Dev. Comm., 1985’ DOJBRL LEXIS 14 (1985), in which it was stated that the structural safeguards concerning exchange of sensitive commercial information in those given joint venture projects effectively prevented the use of such entities as a vehicle for anticompetitive behaviour coordination among the parties. 79

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generated by the joint venture to third parties—in terms described above—or even, with the observance of principles determining the opening up of the joint venture to all potentially interested parties wishing to participate in a given R&D project. In short, a remarkable confluence between the US and the EU competition law systems may be noted, in the sense that they both generally rule out the emergence of competition distortion problems associated with R&D joint ventures composed solely of non-competing undertakings. As mentioned above, in my opinion, the only negative criterion which may rebut the favourable presumption established in regard of joint ventures created in such a manner is the hypothetical occurrence of market foreclosure effects triggered by the existence of such entities. As I have already underlined, I consider the occurrence of such effects to be utterly exceptional. However, I do acknowledge that the foreseeable area of usually permitted cooperation in the field of R&D may be more limited on the basis of a broader characterization of potential competition situations (whenever these apply). In fact, in the event a broader concept or understanding of potential competition is used, seldom will parent undertakings, even if not actually competing between themselves at a given moment, benefit from some legal certainty in the creation of R&D joint ventures, due to the high likelihood of a potential competition relationship arising between them (thus rebutting the favourable presumption which would normally benefit a R&D joint venture wholly composed of non-competing undertakings). It is possibly at this particular level that some of the most significant differences in the treatment of this subcategory of joint ventures tend to occur when one compares the US and EU competition law systems. Indeed, in the application of EU competition rules, broader criteria for the depiction of alleged potential competition relationships have generally been adopted, as opposed to what happens in the US antitrust system (thus providing an explanation for the greater significance of the favourable presumption concerning R&D joint ventures in this latter system). It has to be acknowledged, nonetheless, that according to the Commission’s position evidenced in its 2001 and 2011 Horizontal Cooperation Guidelines, the issue of potential competition has to be assessed on a realistic basis. However, a comparable perspective of flexibility in the assessment of potential competition situations had already been put forward by the Commission in its previous 1993 ‘Notice on the Assessment of Cooperative Joint Ventures’,81 and subsequently failed to result in the establishment of consistent analytic criteria in the Commission’s enforcement practice in this domain. Thus, even though this 1993 Notice on Cooperative Joint Ventures expressly recognized as essential factors for the identification of potential competition relationships, inter alia, the possession of technology or ‘know-how’ required in order to produce a certain good, the possibility of acquiring such abilities in a specified time frame or else the possibility of developing a specified productive ability from existing product lines or even the absence of significant technical or financial risks associated with the development of a given product or entry into a certain market, the legal and economic analysis actually necessary to assess those factors has often proved to be flawed or even to lack the desirable balance.82

81

See esp para 20. The assessment of typical factors addressed above in the context of the analysis of eventual relationships of potential competition, assessing the extent and quality of previous research and development attempts by certain undertakings, has indeed been carried out in several Commission decisions, albeit not always in a consistent or coherent manner. Among other cases, see, eg, Vacuum Interrupters (No1) [1977] OJ L48/32 and Sopelem/Vickers [1978] OJ L70/47. 82

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This insufficient weighing of substantive economic factors that may objectively justify any forms of prospective reasoning concerning the likelihood of entry of certain undertakings in certain markets in a relatively short space of time, in order to allow the potential exercise of some competition pressure over undertakings already present in the market at stake, has often led to the detection of alleged potential competition relationships not duly justified or sustained on a basis of economic realism. Conversely, at this level the legal and economics analysis developed in the context of the application of US antitrust rules has, in general, relied upon a greater degree of economic realism, therefore avoiding excessive instances of market situations being characterized as cases of potential competition. Under EU competition law, I acknowledge that a more accurate economic evaluation of the relevant factors for the existence of potential competition nexus, within the assessment of joint ventures subject to the regime set out in article 101 TFEU, may result from the gradual transposition of analytical parameters of assessment of this type of nexus developed in the area of enforcement of merger control rules.83 In the event such a desirable evolution towards a more accurate assessment of potential competition relationships occurs, an increasing number of R&D joint ventures—composed of non-competing undertakings (either actually or potentially)—will tend to be included in a safe harbour area of usually permitted forms of cooperation, not subject ab initio to the general prohibition in article 101, paragraph 1 TFEU (thus enhancing legal certainty to the undertakings involved in such joint R&D projects). 2.3.3.2 Research and Development Joint Ventures between Competitors that Cannot Independently Carry Out the Activity Covered by the Joint Venture Proceeding with my analysis of the three main criteria used for circumscribing categories of situations usually permitted of creation and operation of R&D joint ventures, it is important to take into account the criterion concerning the establishment of joint ventures by competing undertakings otherwise not able to carry out independently the projects comprised in their existing cooperation. In fact, considering the typical goals of R&D joint ventures which have been analysed above, I admit that rather often, the innovation processes pose technical and financial requirements that can hardly be individually borne by undertakings, even those which are larger or have a superior financing capacity.

83 I consider here the transposition of criteria of analysis of potential competition set out in the context of merger control and based on parameters influenced by greater economic realism to the level of assessment of situations of potential competition in the field of joint ventures subject to the regime of article 101 TFEU. It should be borne in mind that the assessment elements of potential competition, influenced by a rationale of identification of barriers to entry in a given market were, as previously mentioned, set out in the 2004 Guidelines on Horizontal Concentrations, in terms allowing a rather more solid and clear benchmark for the competition law assessment of cooperative joint ventures. Rather surprisingly, the influence exerted by the application and systematization of potential competition assessment criteria concerning merger control in other areas pertaining to cooperation between undertakings, and which require an assessment of their market power, has also been ascertained in the US antitrust system (although potential competition assessment criteria had never assumed such a formal nature and attained such a degree of remoteness from the economic reality in the US system as the criteria taken into account for the purposes of application of article 101 TFEU in the context of EU competition law). See, in the sense of that interplay between the merger area and other areas of antitrust, Jonathan Baker, ‘Responding to Developments in Economics and Courts: Entry in the Merger Guidelines’, in 20th Anniversary of the 1982 Merger Guidelines: The Contribution of the Merger Guidelines to the Evolution of Antitrust Doctrine, Antitrust Division— Department of Justice, June 2002, esp 7. As stated there, ‘another indication of success of the entry framework [barriers to entry] established in 1992 is its spread to doctrinal areas beyond mergers’.

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Thus I believe that this criterion for the delimitation of cooperation areas usually not subject to the prohibition established by article 101, paragraph 1 TFEU will tend to be more rigorously applied as regards the subcategory of R&D joint ventures. Therefore, a greater number of entities of this kind should be regarded as permitted forms of cooperation—in comparison with other joint venture subcategories—by virtue of their particular ability to render technical innovation processes, otherwise not feasible, viable (particularly in markets evidencing increasing innovation requirements and subject to a faster and faster pace of innovation, or in sectors in which innovation is also increasingly dependent on the access to diversified sources of information of different types).84 Conversely, I believe that the Commission haphazardly confused different levels of analysis when it purported to identify in its 2001 Horizontal Cooperation Guidelines usually permitted forms of cooperation in the field of research and development (a general approach which, as I have already observed has been largely left behind in the new 2011 Horizontal Cooperation Guidelines, although I consider it still relevant in the context of joint venture analysis). In fact, whilst assessing the criteria pertaining to the creation of R&D joint ventures between non-competitors, the Commission noted in the 2001 Guidelines situations in which ‘the parties are not able to carry out the necessary R&D independently’ and in which context—allegedly for that reason—‘there is no competition to be restricted’.85 Apparently, the weighing of this type of situation, in accordance with the wording of the Guidelines, would concern the assessment of a potential competition relationship, and— under those terms—the application of the first index of delimitation of usually permitted forms of cooperation (cooperation relationships between non-competitors). However, I consider that this category of situations broadly described by the Commission—through this wording—actually corresponds to a different second index of delimitation of such usually permitted forms of cooperation. That corresponds precisely to the above described index concerning the creation of joint ventures by founding undertakings which would not otherwise be able to independently carry out the research and development projects which comprise the scope of their cooperation. In the event the parties are not able to carry out independently certain research and development projects, that does not exclude the possibility in my view—and differently from what the European Commission appeared to state in the 2001 Horizontal Cooperation Guidelines—that such undertakings may happen to compete between themselves in markets directly affected by their cooperation projects. The possibility of such an outcome would only be removed if, by default and in general, an extremely narrow concept of relevant markets for the assessment of the effects arising from R&D joint ventures were to be adopted, for example, strictly limiting them to markets of technologies on which those cooperation projects would directly impact.

84 On this favourable assessment of the ability to foster innovation processes otherwise not feasible regarding certain R&D joint ventures, see Richard Rapp, ‘The Misapplication of the Innovation Market Approach to Merger Analysis’ (1995) ALJ 20ff. I do not agree with some of the most extreme theoretical perspectives, to the extent that the special nature of innovation processes in some highly technology based industries would imply by nature a more flexible competition law framing. Authors such as, for instance, Thomas Jorde and David Teece adopt this position, which would ultimately imply special criteria of application of competition rules in such specific economic sectors (see Thomas Jorde and David Teece, ‘Innovation and Cooperation’ (1990) JEP 75ff; and ‘Innovation, Cooperation and Antitrust’ (1989) High Technology Law Journal 4ff). 85 See the 2001 Horizontal Cooperation Guidelines, para 56.

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If this latter assumption was to be assumed, the necessary implication would be that even if certain undertakings were competitors in a market of certain final goods, and provided they were not previously present in a specific segment of development of certain technologies representing an important component of the final goods they produced and commercialized, then such undertakings would be regarded as non-competitors in the context of the creation of a joint venture whose scope of activity concerned specifically those same technologies. However, in my view, this approach to the assessment of R&D joint ventures is not an accurate one. If it were to be adopted, a very significant share of R&D joint ventures should be considered as comprising non-competing undertakings, thus benefiting outright from the inherent favourable presumption. But what is more, it is ultimately the Commission itself that, in another section of the 2001 Horizontal Cooperation Guidelines, rejected an excessively restrictive perspective of the concept of relevant markets for the purposes of assessment of the effects arising from this subcategory of joint ventures. Thus, as mentioned in the Guidelines, if the research and development ‘concerns an important component of a final product, not only the market for this component may be relevant for the assessment, but the existing market for the final product as well’.86 In short, I believe that the Commission confused two indexes of delimitation of usually permitted forms of cooperation (that do not fall within article 101, paragraph 1 TFEU). Furthermore, contrary to the position apparently adopted by the Commission, the typical situations for the application of the second index are, as a rule, cooperation projects developed by competitor undertakings which, under reasonable terms, would not have the conditions to carry them out independently. In any case, I consider that the application of this second index of delimitation of situations of usually permitted cooperation must rely on clear and conclusive and economic factors. Otherwise, the criterion itself may lose its value or analytical relevance (in the context of the model of assessment of joint ventures set out in this book). The situations in which the application of that index may be relevant must involve various economic factors (objectively identifiable) that render highly unlikely the independent carrying out of certain research and development projects, namely due to cost escalation, to the comparative lack of benefits stemming from such costs, or even due to the need of combining in an innovative fashion different resources or technologies held by one or more founding undertakings.87 Furthermore, in especially dynamic and complex markets, characterized by the diversification of information sources, the unlikelihood of competing undertakings independently carrying out certain research and development projects may well result from the need to combine with third entities within a joint venture framework which are not present in the

86

See ibid para 46. Note, in relation to the impossibility for some undertakings to autonomously carry out certain R&D projects, US Dept of Justice, ‘Business Review Letter to the American Heart Ass’n, 1998’ DOJBRL LEXIS 7 (20 March 1998) in which the US Department of Justice confirmed its intention not to question any changes to an R&D joint venture among pharmaceutical producers, which proved essential for the development of research activities in very specific sectors of the cardiovascular area. Conversely, the European Commission has often revealed, in a not so distant past, recently, a remarkably excessive restrictive tendency to frame this type of situation within the application of article 101, para 3 TFEU (while I acknowledge, later in this chapter, that various situations with such features should, right from the start, be considered as not covered by the prohibition set out in article 101, para 1 TFEU). 87

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final goods markets produced using the technologies at stake, but which, however, hold some form of specific ‘know how’. This type of situations was addressed in the 2001 Horizontal Cooperation Guidelines solely as an illustration of forms of cooperation between non-competing entities, including also cases of ‘outsourcing of previously captive R&D ...’ by certain undertakings. The 2001 Guidelines especially addressed here the cases of cooperation involving ‘specialized companies, research institutes or academic bodies which are not active in the exploitation of the results’.88 In fact, such situations may create the need not only for joint ventures between non-competing undertakings—in which, as the 2001 Guidelines correctly pointed out, ‘the complementary nature of the cooperating parties in these scenarios’ leads to the non-application of article 101, paragraph 1 TFEU—but also a more complex type of joint venture, combining competitors in certain final goods markets and third entities as well (research institutes or higher education bodies), endowed with access to information or resources essential to the research project at stake, otherwise not available to the former entities.89 In these latter cases, it would also not be justified to apply article 101, paragraph 1 TFEU, due to the application of the second analytical criterion which we have been considering (concerning forms of cooperation between competing undertakings which could not otherwise carry out a given R&D project independently). It should also be emphasized that the use of this second criterion for the identification of the types of usually permitted R&D joint ventures may, under exceptional conditions, be set aside on the grounds of the application of a negative criterion corresponding to the occurrence of effects which result in the impossibility of accessing the relevant market by third parties. However, in similar terms to those I have observed as regards the first index for determining forms of cooperation that do not fall within article 101, paragraph 1 TFEU, I do acknowledge that the other negative criterion usually considered to counteract these indexes of permitted cooperation—the existence of an especially intense market power exercised by some of the participating undertakings a joint venture—will not, as a rule, apply to all the types of situations which we now address. In fact, quite often, a fairly significant market power held by potential founding partners of a research and development joint venture is associated with an autonomous ability of such undertakings to carry out projects in areas related to entrepreneurial innovation ab initio precluding the application of the analytical index at stake (impossibility of developing R&D autonomously). In the less frequent situations in which, for very specific reasons, the holding of such a high market power does not endow the involved undertakings with the ability to carry out autonomously R&D projects, then, that market power should not be considered, on its own, as a relevant factor to preclude the application of the second index at stake of permitted forms of cooperation.90

88

See the 2001 Horizontal Cooperation Guidelines, para 57. On the specific relevance of the information factor in certain markets and the diversification of the sources which may produce it, thus mandating the emergence of new processes of organization of undertakings, see, inter alia, Michael Porter, ‘Michael Porter on Competition’ (1999) AB 841ff and Walter W Powell, ‘Neither Market Nor Hierarchy: Network Forms of Organization’ in LL Cummings and B Shaw (eds), Research in Organizational Behavior, vol 12 (Greenwich CT, JAI Press, 1990) 295ff. 90 See the analysis developed above ch 2, 2.2—on the negative criteria counteracting the first index for circumscribing generally allowed situations (‘safe harbours’). 89

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Consequently, also in the light of the above, one may submit that the subcategory of research and development joint ventures generally tends to be assessed favourably from a competition law perspective—in the sense of considering it as not falling within the prohibition in article 101, paragraph 1 TFEU—by virtue of a higher likelihood of an intensive application of two of the core criteria of delimitation of situations of usually permitted cooperation,91 and of a lesser degree of exposure of these latter criteria to negative parameters which may counteract them. 2.3.3.3 Research and Development Joint Ventures between Competitors that Do Not Hold Appreciable Market Power As mentioned above, the third analytical index considered in my global assessment model of joint ventures for the purposes of delimitation of typically lawful forms of cooperation corresponds to the existence of a particularly feeble market power by the founding undertakings of a joint venture. Additionally, I submit that in relation to the majority of joint ventures—and not only those which carry out R&D projects—the index at stake must be predominantly applied through the assessment of the market shares held by the participating undertakings in the markets affected by such cooperation. From this perspective, I believe that on a more recurrent basis greater attention should be paid at this level to the parameters set out in the Commission’s Guidelines on Agreements of Minor Importance (De Minimis Guidelines).92 In reality, in overall terms, a greater systematic coordination should be achieved between the guidelines and analytical parameters set out in the De Minimis Guidelines and the 2001 and 2011 Horizontal Cooperation Guidelines.93 In my view, the criteria set out in the 2001 De Minimis Guidelines for the purpose of identifying agreements which are not prone to cause appreciable restrictions of competition and that rely exclusively on quantified market share thresholds, should also constitute a primary reference for the materialization of my third parameter of analysis in the field of joint ventures concerning the existence of a negligible market power. Thus, taking into account the two essential criteria set out in the De Minimis Guidelines concerning the existence of aggregate market shares held by the parties to a certain agreement not exceeding 10 or 15 per cent on any of the relevant markets affected by the agreement—depending on whether we are, respectively, talking about agreements entered into by actual or potential competing undertakings or between non-competing undertakings94—I maintain that a sole parameter of reference for the application of the third index of assessment of usually permitted joint ventures may be chosen. Although

91 I refer here to the criteria corresponding to the cooperation among non-competing undertakings and to the cooperation among competing undertakings which would not otherwise be able to carry out certain projects, that I have been critically addressing in the course of our analysis of R&D joint ventures. 92 I refer to the Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) of the Treaty establishing the European Community (de minimis), dated December 2001. 93 It should be taken into consideration that the de minimis Notice came after the adoption of the 2001 Horizontal Cooperation Guidelines. In any case, the fact that both Guidelines are close in time, and, most importantly, the nature of the previous de minimis Guidelines, that were in the process of being amended when the 2001 Horizontal Cooperation Guidelines were adopted, would have allowed far better coordination among themselves, and the convergence of their substantial criteria. 94 See the De Minimis Guidelines, para 7.

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this third index mainly focuses on situations concerning joint ventures between competing founding undertakings—since the cases of joint ventures established by non-competing undertakings should be, as a rule, duly covered by the first index of delimitation of usually permitted joint ventures—I do not subscribe, in this context of joint venture assessment, to the adoption of the more stringent 10 per cent market share threshold set out in the De Minimis Guidelines as regards situations of cooperation between competing entities. From another standpoint, I recommend the adoption of a sole reference threshold ranging between 10 and 15 per cent of the founding undertakings’ aggregate market share on the markets purportedly affected by the creation of a given joint venture.95 Actually, taking into account the economic efficiency elements usually associated with the dimension of entrepreneurial integration inherent in joint ventures—even in subcategories that may not qualify as concentrations—I consider that a more flexible market share threshold than the one adopted for mere cooperation agreements should be set, in order to allow the delimitation of situations which should as a rule be permitted and should not fall within article 101, paragraph 1 TFEU. It should be clarified from the start that this reference market share threshold set out for the purposes of applying the third analytical index in the context of my general assessment model for joint ventures, must not, in any way, be confused with the market share thresholds established as conditions for the application of block exemptions concerning R&D or specialization agreements, comprising joint ventures operating in such functional areas (requirements established namely in Regulation (EU) No 1217/2010 and in Regulation (EU) No 1218/2010, on those functional types of agreement).96 These latter conditions refer to the application of block exemptions unnder article 101, paragraph 3 TFEU and, differently, the aggregate market share reference threshold of the joint ventures now considered is aimed at the delimitation of situations of cooperation between undertakings that do not fall within article 101, paragraph 1 TFEU.

95 I should underline once more the importance in the post-2003 reformed framework of application of EU competition rules, resulting from the decentralization process, of self-responsibility and, to some extent, selfencumbrances incurred by the relevant parties as regards the analysis of their own situations of cooperation, since they are no longer subject to prior notification requirements. In this context, the assessment made prima facie by undertakings concerning the relevant markets that might be at stake and, at a second stage, the possible construing of their agreements as areas of usually allowed cooperation (safe harbours) now assumes a paramount role. On the issues concerning the definition of relevant markets, its technical progress but also its persisting shortcomings not addressed here in detail, see, inter alia, Camesasca and Van den Bergh, ‘Achilles Uncovered: Revisiting the European Commission’s 1997 Market Definition Notice’ (2002) AB 143ff, where these authors comment on the limitations of the economic approach to market definition, noting that ‘the explicit adoption of the “hypothetical monopolist” test should thus imply that the Commission intends to put more weight to the market delineation endeavour’s economic analysis. The passage to the realms of economic foundations was not entirely completed, however, as the old-style definition based on product characteristics clearly remains a prominent feature in the notice’s textual build-up. Such functionable interchangeability does not carry as its central aim the ultimate task of identifying market power’ (at 158); Richard Markovits, ‘On the Inevitable Arbitrariness of Market Definitions’ (2002) AB 571ff; Simon Baker and Lawrence Wu, ‘Applying the Market Definition Guidelines of the European Commission’ (1998) ECLR 273ff. On the reformed legal ‘environment’ in which undertakings operate, pursuant to the abolition of the prior notification requirement, in terms which may lead to some desirable ‘deterrence’ of forms of cooperation potentially restrictive of competition, demanding increased ‘knowledge and predictability of substantive rule’ on the part of the involved undertakings, see Wouter Wils, The Optimal Enforcement of EC Antitrust Law—Essays in Law and Economics (The Hague, Kluwer Law International, 2002) esp 113ff and 116ff. 96 As stated previously, the Block Exemption Regulation on Specialization Agreements is of particular relevance to the assessment of production joint ventures, which is to be developed in the following section of this chapter.

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It should be acknowledged at this point that often a key analytical trend experimented with in the context of enforcement of EU competition rules involves the identification of typical areas of legal safety as regards processes of cooperation between undertakings with those situations covered by the conditions for the application of block exemption Regulations under article 101, paragraph 3 TFEU. However, I think this analytical methodology results from a traditional and narrow construing of the prohibition in article 101, paragraph 1 TFEU. It is essentially because a relatively broad prohibition is still envisaged at the level of article 101, paragraph 1 TFEU that the search for a certain degree of legal safety on joint ventures is still predominantly aimed at their submission to one of the block exemption regimes (or even to any exemption based on article 101, paragraph 3 TFEU), underrating the fact that such submission somehow assumes those joint ventures could actually cause risks of distortion of competition, covered by the prohibition in article 101, paragraph 1 TFEU. The progressive or gradual adjustment that must take place in the hermeneutical processes of legal construing of the article 101 TFEU regime—initiated some years ago now, but far from being completed in my view—should curb an excessively broad reach of the general prohibition set out in paragraph 1 of that legal provision. From another viewpoint, the market share threshold considered here must also not be mistaken with the undertakings’ market power assessment criterion, operating through the weighing of the market shares held by them, that I have devised as a second fundamental stage of analysis in my overall joint venture assessment model, as regards situations that, due to their particular traits, require a more detailed analysis (above, chapter two, especially, at 2.4.2). This other analytical criterion—that I shall analyse below, at 2.3.5.1 of this chapter, in connection with R&D joint ventures97—is, in conjunction with other interrelated parameters, aimed at an overall assessment of the repercussions on the competition process of joint ventures whose layout and market positioning prevent their straightforward characterization—in a sole and preliminary stage of analysis—as permitted forms of cooperation under article 101 TFEU (requiring, on the contrary, an in-depth analysis using the full range of analytical resources contemplated in the comprehensive assessment model of joint ventures that I have presented in general terms in the course of chapter two). Finally, it is important to take into account within this enhanced systematic coordination with the parameters set out in the De Minimis Guidelines, the proviso that has been made in those Guidelines as regards special effects of distortion of competition resulting from the existence of parallel networks of cooperation agreements between undertakings, having similar effects on the market. Situations of this kind may also occur in the field of the creation and operation of joint ventures, whenever we witness the creation of parallel networks of joint venture—creating a potential cumulative foreclosure effect—participated in by several undertakings or even characterized by the participation of certain founding undertakings in several of those entities.98 In accordance with the De Minimis Guidelines, the particular repercussions of these situations of cooperation between undertakings motivate the application of a more stringent

97

These references may be found more precisely above, ch 2 at 2.4.2.3 and below, 2.3.5.1(B) of this chapter. See the De Minimis Guidelines, para 8, mentioning the possibility of a situation in which ‘competition is restricted by the cumulative effect of agreements for the sale of goods or services entered into by different suppliers or distributors (cumulative foreclosure effect of parallel networks of agreements having similar effects on the market). 98

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and demanding analytical criterion, based on a 5 per cent aggregate market share of the participated undertakings on the affected markets, irrespective of the fact that the agreements at stake involve or not competitor undertakings. In my own view, this type of effect, when specifically arising from the creation of joint ventures in complex situations— characterized by the existence of networks overlapping joint ventures—deserve a separate assessment. This need for a separate assessment naturally excludes a straightforward characterization of the joint ventures operating in the conditions noted above as forms of cooperation that generally do not fall under the prohibition in article 101, paragraph 1 TFEU, which, in turn, could be based on analytical criteria relying upon market shares thresholds of the participating undertakings.99 In addition, the application of either one of the three analytical indexes under consideration here—aimed at identifying situations which are not as a rule covered by the prohibition in article101, paragraph 1 TFEU—will, inevitably, be called into question in the event that its underlying assumptions are concurrent with other conditions or traits prone to raise especially nefarious restrictions of competition.100 In fact, the competition law assessment of joint ventures is increasingly based on the weighing of the participating undertakings’ market power and on the economic consequences of its exercise or even on its variations, but with the particularity of such a task possibly being carried out through more complex economic analysis (not limited to the indications or elements grasped through the mere analysis of the joint market shares of participating undertakings).101

99 The De Minimis Guidelines propose in para 8, the weighing of specific market shares in order to assess hypothetical cumulative exclusion effects stemming from parallel networks of agreements among the same undertakings. In my opinion, and especially regarding R&D joint ventures, created in a context of networks of joint ventures involving the same participants, I believe that it is not worth taking into account specific market shares of the involved undertakings. As mentioned above, the corollary to be extracted from such situations is the need to submit those joint ventures to more developed or extensive analytical processes and to set aside their inclusion in areas of cooperation usually allowed (‘safe harbours’). Specifically, as regards networks of joint ventures, see John Temple Lang, ‘International Joint Ventures Under Community Law’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1999 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 2000) 381 et seq, esp 409ff, in which he addresses ‘multiple joint ventures’ or ‘networks of joint ventures’. 100 I take into consideration here, namely, more complex contractual systems developed for the creation of certain joint ventures and within which, besides an essential functional core—eg aimed at R&D activities—I also find a web of complementary obligations related to the control of certain parts of the production or of decisive factors to the setting of prices in relation to certain transactions associated with the parent undertakings’ activity, amounting to ancillary competition restrictions with a rather broad meaning. On ancillary competition restraints (‘ancillary restraints’) in the context of the creation of joint ventures, an area which I shall analyse in depth in the course of this book, and commenting on several decisions in this regard, see Valentine Korah, ‘Collaborative Joint Ventures for Research and Development Where Markets are Concentrated: The Competition Rules of the Common Market and the Invalidity of Contracts’ (1992) Ford Int L J 248ff. 101 This main axis of competition law analysis of joint ventures subject to the legal regime set out in article 101 TFEU, relying upon the assessment of the involved undertakings’ market power and the economic consequences of the exercise of such power or its variations, has been exercising a significant influence on other areas of the analysis of cooperation between undertakings in general. The paramount importance of the critical assessment of market power—as an acquired assumption in all successive stages of analysis of joint ventures, in accordance with the general assessment model devised here, is thus progressively incorporated into all analytical processes for the purposes of the interpretation and application of article 101 TFEU and, even more broadly, it has been incorporated into the very teleological matrix of EU competition law (as I shall further discuss in a systematic and conclusive manner, drawing from the assumptions stemming from the analysis of joint ventures in the final chapter of this book). Furthermore the ascertaining and assessment of market power using other complementary parameters besides the market shares of the involved undertakings—which the analysis of joint ventures under article 101 TFEU has boosted, due to its combination of structural and behavioural dimensions—paves the way to the overcoming of the analytical limitations associated with what authors like Camesasca and Van Den Bergh

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2.3.4 First Level of Analysis of Research and Development Joint Ventures— Categories of Joint Ventures Normally Prohibited (Almost Always Falling under Article 101, Paragraph 1 TFEU) In the context of the overall model of assessment of joint ventures devised here, the first stage of analysis of such entities is also aimed at the detection, if that should be the case, of normally prohibited forms of cooperation under the article 101 TFEU regime.102 I refer here to the identification of situations of cooperation which, due to their specific functional content, are prone to cause restrictions of competition usually falling under prohibition parameters of an almost per se nature (although not strictly per se, considering the normative structure and context of article 101 TFEU).103 This should also apply to situations that, only on rather exceptional conditions, could be hypothetically justified under article 101, paragraph 3 TFEU (restrictions of competition more or less closely related with certain processes of cooperation that by and large constitute per se prohibitions under US antitrust law).104 Such situations of cooperation that are to be deemed as normally prohibited under EU competition law occur in cases in which the creation of joint ventures leads to three typical forms of distortion of competition, namely agreements on the fixing of prices; on limitation of the output or sales; and on the allocation of markets or customers. Besides that, and from a systematic perspective which I consider coherent, a remarkable coincidence occurs in the identification of these three types of normally prohibited agreements (almost in a per se fashion) under the 2001 and 2011 Horizontal Cooperation Guidelines and the De Minimis Guidelines.105 In general terms, I consider that no specificity in this area of analysis exists regarding R&D joint ventures. In other words, there is no equivalent recognition that, if in the context of the creation and operation of this subcategory of joint ventures any engagements

have called the ‘indirect structuralist approach’. Such an approach tended to rely on the recognition of the importance of the assessment of market power of undertakings, albeit in a manner which owes perhaps too much to the consideration of the strict structural element of market shares of the undertaking; see Camesasca and Van Den Bergh, ‘Achilles Uncovered: Revisiting the European Commission’s 1997 Market Definition Notice’ (n 95) 147. In a more complex and wider set of analytical elements used to assess market power and its consequences, one may find, eg, empirical models of assessment of the conditions of entry into the markets, as well as factors impacting on the likely strategic behaviour of undertakings in accordance with assumptions developed by the so called ‘game theory’. 102 On this specific level or dimension of analysis, in the context of the general model of assessment of joint ventures devised here, see above ch 2 at 2.3. 103 This specific trait of EU competition law, implying that hardcore restrictions of competition will very seldom be justified under article 101, para 3 TFEU, while admitting that, in principle, there are no anticompetitive agreements which could never satisfy the four conditions set in this provision, was established by the General Court in some key precedents, such as, eg, Case T-17/93 Matra-Hachette v Commission [ruling 15 July 1994] (n 103) and, more recently, Case T-168/01 GlaxoSmithKline Services v Commission) [ruling 27 September 2006]. In short, EU competition law here fundamentally differs from the strict per se prohibition logic of US antitrust law. 104 On this relative parallelism with the normative logic of the per se prohibition of the US antitrust system— while bearing in mind certain essential limits of the same parallelism, due to differences between EU and US competition law systems, as per n 105 above—and in order to avoid unnecessary repetition, I refer again here to ch 2 above at 2.3. 105 An aspect which is important to emphasize, particularly because, as previously noted, this desirable systematic coherence between both Guidelines—as well as with other general interpretative Guidelines—has sometimes been overlooked, to the serious detriment of the creation of stable and consistent hermeneutic patterns.

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leading to the appearance of any of those three paradigmatic restrictions of competition exist, then the joint ventures at stake should as a rule be prohibited under article 101 TFEU. However, what clearly makes the difference in the treatment of this subcategory of joint ventures as compared to other joint ventures is the fact that the functional content often associated with the former will only very seldom cause those three competition restriction events which are subject to almost per se prohibitions. Thus, I submit that—unlike what happens with other joint ventures—only exceptionally will an R&D joint venture amount to a type of prohibition normally prohibited under article 101 TFEU. As rightly ascertained in the 2001 and the 2011 Horizontal Cooperation Guidelines, this type of situation will only tend to occur if the true object of an agreement is not research and development but the creation of a ‘disguised cartel’.106 Thus, regarding joint ventures formally construed as entities aiming at the pursuit of R&D projects, but the real goal of coordinating behaviours of parent undertakings on fundamental elements of the competition process—for example, price, supply and patterns of quality of production—the presence of an element of simulation may ultimately cause them to be subject to an almost per se prohibition. In any case, the likelihood of the introduction of such elements of simulation is higher in connection with complex type joint ventures, combining research and development activities with certain forms of joint exploitation of the results generated by that research (in a scenario in which R&D is supposedly the dominant trait of the joint activity at stake). In my view, it would be difficult to use pure or basic research and development joint ventures for the purposes of coordinating parent undertakings’ behaviours on core aspects of their commercial policy on the final goods market in which they operate. I merely acknowledge that this may exceptionally occur in the context of joint ventures which comprise competing undertakings with a fairly significant market power and whose permanent structures only apparently cater for a contractual research and development programme, and actually support intense information exchange processes on sensitive issues for the market positioning of such undertakings in the final goods markets in which they operate.107 The Block Exemption Regulation on R&D Agreements—which naturally applies to joint ventures with that scope—lists several particularly serious restrictions of competition (hardcore restrictions), whose occurrence precludes the application of the exemption. This list, in my opinion, amounts to an important reference for the identification of types of research and development joint ventures which should be considered as normally prohibited (or covered by almost per se prohibition parameters). As generally acknowledged, Regulation (EU) No 1217/2010 and the preceding R&D Block Exemption Regulation of 2000 have changed the methodology concerning the application of the block exemption

106 See the 2001 Horizontal Cooperation Guidelines, para 59 and the 2011 Horizontal Cooperation Guidelines, para 128. 107 Adapting one of the examples of reference situations mentioned in the 2001 Horizontal Cooperation Guidelines, paras 75ff, we can identify one of those rather exceptional cases in which joint ventures involving pure R&D activities generate predictable effects of behavioural coordination restrictive of competition at the level of their parent undertakings’ commercial policy and in the final goods markets where these operate. For that purpose, consider, eg, a joint venture formed by two pharmaceutical undertakings with a high degree of market power, aiming the introduction of constant improvements and renewals in pharmaceutical substances for which the parent undertakings had obtained patents and which would be on the basis of principal pharmaceutical products commercialized by those same undertakings.

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in this specific cooperation area, as compared to the previous Regulation No 418/85,108 ceasing to mention usually permitted clauses, in the context of the exemption, and mainly limiting itself to the establishing of general criteria of application of the exemption relying on an economics based approach, which, as indicated in Recital 7 of the 2000 Regulation, marking then the departure from the preceding methodology, is aimed at the ‘assessment of the impact of the agreement in the relevant market’. Such an assessment is, on the one hand, established on the basis of the market power of the involved parties and, on the other hand, in the detailing of types of restrictions and obligations which may not be part of those agreements, irrespective of the market share of the undertakings at stake, due to their especially negative impact on the competition process. That specification is basically carried out in article 5 of Regulation EU No 1217/2010, a provision in which certain elements in R&D agreements are specified which ‘directly or indirectly, in isolation or in conjunction with other factors under the control of the parties have as their object and which have as object’ a set of hardcore competition restrictions referred to within the Regulation. Complementarily, and new to this Regulation in comparison with the preceding 2000 Block Exemption Regulation on R&D, its article 6 specifies particular obligations in R&D agreements that cannot benefit from the block exemption (while not preventing in overall terms the application of the exemption to the agreement in which they appear), concerning, in particular, obligations that would prevent parties from granting licences to third parties to manufacture products benefiting from the R&D process at stake or from challenging, after the completion of that process, the validity of intellectual property rights held by the parties. Two remarks must be made to ensure appropriate weight is given to such provisions (in particular article 5), aimed at identifying—in the context of my assessment of joint ventures—typical R&D joint ventures that should be classed as normally prohibited. In first place, as stressed above, I do not give much credence to the idea that the hardcore or especially severe restrictions must have as their object certain cooperation programmes restrictive of competition. In fact, I consider that, particularly in the field of joint ventures, the idea that the object of certain agreements—from the perspective of the parties’ goals as a straightforward programme inherently restrictive of competition—and the effects of the same agreements are diametrically opposite, is to some extent an artificial one.109 What really seems to matter is the identification of certain typical functions of some agreements aimed at the introduction of particularly severe restrictions of competition. Secondly, I do not consider that all the elements mentioned in the various paragraphs of article 5 of Regulation EU No 1217/2010 should be assessed in the same way, for the purposes of identifying (in the context of my analysis) normally prohibited forms of cooperation concerning aspects connected with R&D programmes carried out through joint ventures. In fact, the function underlying the provision of such elements in that rule is mainly the setting aside of the benefit of the block exemption, irrespective of the level

108 On some of the key substantive changes underlying the transition from the regime set out in Regulation (EEC) No 418/85 to the new regime of Regulation (EC) No 2659/2000, see Christopher Bellamy and Graham Child, European Community Law of Competition (Oxford, Oxford University Press, 2008) 321ff. 109 I have already emphasized that such schematic or linear contrasting between the object and the effects of certain agreements or forms of cooperation—on which, curiously, the 2011 Horizontal Cooperation Guidelines seem to place such a strong focus—may, to a certain extent or beyond a certain threshold be an ‘artificial’ one. See, justifying that critical perspective, ch 2 (esp 2.1–2.4).

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of market power evidenced by certain aggregate market share thresholds of the involved undertakings. However, this setting aside of the application of a block exemption, based on article 101, paragraph 3 TFEU, does not automatically trigger the prohibition set out in article 101, paragraph 1 TFEU. Conversely, the situations I have sought to identify concern cases which almost necessarily determine a prohibition, virtually precluding the application of any exemption whatsoever. Nonetheless, a certain core group of situations of hardcore restrictions expressly stated in the 2010 R&D Regulation as not coming within the block exemption, may certainly illustrate some particular forms of cooperation connected with R&D programmes that should be deemed as usually prohibited. Considering the analytical experience resulting from Commission enforcement practice, EU jurisdictional case law (and even Member States’ case law concerning the application of EU competition rules), as well as the one arising from the parameters established in the 2001 and 2011 Horizontal Cooperation Guidelines and in the De Minimis Guidelines, I admit that such a core group of situations that can be taken as usually prohibited essentially comprises the aspects noted in paragraphs (b), (c), (d) and (e) of article 5 of the 2010 R&D Block Exemption Regulation (disregarding the exceptions stated in those provisions). Consequently, one should, as a rule, include in the situations connected with R&D programmes to be taken as usually prohibited under article 101 TFEU the agreements that cannot be dissociated from the contractual system of research and development joint ventures, and that, as such, lead to some form of almost naked ‘limitation of output or of sales’ (while tolerating certain limitations related to the functional requirements of joint exploitation programmes of the R&D programme or to complementary specialization programmes); to ‘the fixing of prices setting when selling the contract product’; to the ‘restriction of the territory in which or of customers to whom the parties may passively sell the contract product’; or to the ‘requirement not to make any or to limit active sales of the contract products in territories or to customers which have exclusively allocated to one of the parties’.110 It should be stressed that the mere enunciation of the content of these typical hardcore restrictions leading to almost certain prohibitions in a way evidences that these tend to relate to aspects which are not inherently part of the functional core of R&D programmes, but to particular extensions of those programmes to related areas. I must also underline that there seems to be some overlap between these types of situations and those that, under US antitrust law, are specifically mentioned in the NCRPA as forms of cooperation which may not benefit from the favourable regime set out in that Act. In fact, those exclusions concern, for example, situations of information exchange involving competitor undertakings relating to costs, sales and profit margins, as well as to commercial or distribution policies concerning any products or processes or services and which, on a reasonable basis, are not required for the carrying out of a given research and development project that is within the scope of a given joint venture (in implicit terms

110 I consider that the situations listed above should, as a rule, be associated with an area of normally prohibited cooperation, while bearing in mind that other circumstances, and in particular the connection of these situations to wider cooperation programmes with other global implications, may lead to less negative repercussions to the competition process. Furthermore, several of the relevant paragraphs of article 5 of Regulation (EU) No 1217/2010 explicitly include considerations of withdrawal or attenuation of the negative charge to be associated to certain situations included within wider cooperation programmes.

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what is ultimately at stake here is the creation of conditions for the fixing of prices or joint fixing of output). Such exclusions also include engagements designed to restrict or coordinate the production or the commercialization of goods and services, other than the assets or rights directly stemming from the joint venture’s research and development project (as is the case with patents or other intellectual or industrial property rights), as well as other agreements impacting on the commercialization or provision of assets or rights developed outside the cooperation project at stake.111 There is, accordingly, a significant convergence between the core of these types of situations, excluded from the more favourable treatment provided under the NCRPA, and the four definitive types—however variable they may appear to be—of severe restrictions of competition stemming from R&D joint ventures, which may determine, under EU competition law, the submission, albeit exceptional, of those entities to the almost per se prohibition. Besides, the formulation explicitly used in the NCRPA to carve out these exclusions emphasizes in revealing terms that such non-admissible situations in the context of research and development joint ventures constitute actual deviations or extensions of the core contractual programmes typically underlying that functional type of joint venture, which, in themselves, would really not be necessary for the pursuit of basic goals of research and development ventures.

2.3.5 Research and Development Joint Ventures that Require Further Analysis 2.3.5.1 Second Level of Analysis of Research and Development Joint Ventures 2.3.5.1(A) The Market Share Criterion—Overview In accordance with my global model of assessment of joint ventures under the regime set out in article 101 TFEU, I have sought to apply specifically to the subcategory of R&D joint ventures a first paradigmatic stage of analysis. This preliminary stage of analysis serves the purpose of identifying types of situations of cooperation normally permitted or almost always prohibited under competition law. As regards a third type of situation—those which may not be positively or negatively qualified at a glance—further, in-depth analysis is required with a view to determining their compatibility with article 101 TFEU. As stated above, that type of in-depth and comprehensive analysis encompasses some traits akin to the methodology of the US rule of reason—but which do not bear any linear association thereto, given the specificity of EU competition law and of the normative structure of article 101 TFEU—in order to determine the overall effects—what I have called a weighed or global effect (above chapter two at 2.4.1)—of joint ventures on competition. This more developed analysis should include, besides the preliminary assessment of the predictable effects of the creation of joint ventures, three typical stages of analysis with the general features I have already set out above.112

111

See the NCRPA 15 USC § 4302(b). For a general characterization and overview of these three typical stages of analysis, going beyond a first and preliminary stage of analysis in the context of the comprehensive model of assessment of joint ventures under EU competition law that I have outlined, see above, ch 2 at 2.1—2.4. 112

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As regards specifically the subcategory of R&D joint ventures currently under review, it is worth reiterating first, that only a small fraction of them will justify a more detailed and complex analysis,113 unlike the case of the remaining functional types of joint venture. Indeed, I have already had occasion to observe that it will be often be the case, regarding the various forms of research and development joint ventures, that a preliminary analysis will show the absence of appreciable effects of distortion of competition. Nonetheless, I seek to develop, henceforth, the remaining stages of analysis which, as a rule, must be carried out in relation to a narrower group of R&D joint ventures whose compatibility with competition rules may raise doubts in certain cases.114 The second stage of analysis that I have outlined in my global model of assessment of joint ventures, is an assessment of a predominantly structural nature of the market power of undertakings involved in processes of creation and functioning of such entities, which should, in turn, rely upon a criterion related to the market share jointly held by participating undertakings in those processes. As previously mentioned, and unlike the methodology adopted by the Commission in the 2001 and 2011 Horizontal Cooperation Guidelines, I advocate the adoption of a sole market share threshold, amounting to an index for the ranking or weighting of market power which is applicable to every joint venture evaluated under article 101 TFEU.115 Thus, the analytical effort I have been developing in this field aims to build a valid assessment parameter not only for the subcategory of R&D joint ventures, but also for the other subcategories which I shall subsequently deal with (for that reason, in the course of the analysis of the various functional types of joint venture which will be covered, whilst I shall systematically refer the treatment of this sole market share criterion to the analysis carried out in connection with research and development joint ventures, please note that it also applies to the other subcategories). One must not forget that this market share criterion may, to a certain extent, be flawed as a tool for assessing market power of undertakings and its effective application may raise some issues or uncertainties, especially with regard to the required definition of relevant markets at stake.116 However, I think that this criterion has a basic and inherent merit,

113 As I shall further observe—below section 3 of this chapter—dealing with the subcategory of production joint ventures, a comparatively greater share of such entities will justify a deeper analysis due to potential problems of restriction of competition (in any case, more than in the case of the subcategory of R&D joint ventures). 114 Therefore, and without prejudice of the above remark concerning the fact that only a significantly smaller part of R&D joint ventures tends to justify more detailed analysis of potential problems of restriction of competition, as regards specifically the R&D cases that do justify this type of analysis and thus require the effective development of the various stages of assessment devised in my global analytical model, the analytical treatment described at 2.3.5.1 may be regarded, to some extent and in various aspects, as a sort of overall substantive application of this analytical model in connection with the universe of joint ventures covered by article 101 TFEU (hence, the development of these points, bearing in mind their fundamental implications to the understanding of the remaining main functional subcategories of cooperative joint ventures and, accordingly, the fact that in subsequent sections on production, commercialization and purchasing joint ventures I shall frequently refer to these analytical developments focused on R&D joint ventures but with wider corollaries, including but not restricted to, the establishment of a sole market share criterion). 115 The reasons for such a methodological option were mentioned in ch 2 at 2.4.2. 116 Regarding the relatively fallible nature of analytical criterion of the market share, and, as already mentioned, this one may assume particularly critical aspects in connection with the operation of markets for differentiated products or services. Furthermore, the unquestionable economic power and ability to intervene in the market which in principle result from the holding of high market shares, may be effectively counteracted by certain other advantages held by third undertakings (actual or potential competitors), related to non-purely structural factors. This is the advantage of the global analytical model set out here, in which the structural market share criterion is necessarily combined with other competition law parameters of a different nature. Concerning the markets for

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namely simplicity, which translates into analytical guidance (of an indicative nature), and subject to adjustments on account of other complementary analytical parameters), obtained from objective quantitative thresholds. What really matters, therefore, in order to ensure a balanced use of this criterion, is its proper combination with other analytical parameters that will counterbalance it, in the context of a global and pre-ordained analytical process which endows economic agents with some legal predictability. Furthermore, any disadvantages related to the alleged inflexibility of this analytical criterion, which could stem, particularly, from the difficulties associated with the definition relevant markets, are, in my view, alleviated by the significant achievements of the legal and economic analysis on relevant market definition.117 Indeed, despite the unavoidable complexity of this analysis, what is certain is that it relies on a developed corpus of analytical guidance which allows the reinforcement of the level of legal and economic certainty to which the undertakings, faced with the need to ascertain some assumptions in this area, may reasonably aspire. Moreover, the acquis emerging from the recurrent and intensive practice of assessment, on the basis of stable criteria—which are apt to be efficiently used in decision making processes subject to strict time limits—of forms of delimitation of relevant markets, at the level of merger control enforcement under the MCR, including joint ventures which may be qualified as concentrations, has decisively contributed to consolidate general guidelines to be followed in this area of market definition, also for the purposes of application of article 101 TFEU (thus representing one more area of positive interplay between the application of the structural test of the MCR and of the behavioural coordination text of article 101 TFEU that we have been considering). It has to be conceded that my methodological option of considering a sole market share criterion which may be considered in the assessment of any functional types of joint venture—naturally including also mixed type joint ventures—poses some relevant issues in terms of its conciliation with the general hermeneutic patterns set out by the Commission, and, most importantly, with normative solutions adopted de iure condito in Block Exemption Regulations (particularly, in those which are more directly relevant for the assessment of joint ventures, such as, unquestionably, the ones on research and development and specialization

differentiated goods, and as I shall further observe in connection with other stages of assessment of joint ventures, alternative or complementary analytical criteria may be advantageously used, such as, eg, estimates concerning structural demand and their variations (‘structural demand estimation’), analysing through new econometric tools, predictable trends of patterns of reaction of consumer behaviour in response to variations in price of products that are similar from the consumers’ perspective (see, in general, on those analytical methodologies relying upon econometric processes particularly developed in the US antitrust system, Simon Baker and Andrea Coscelli, ‘The Role of Market Shares in Differentiated Product Markets’ (1999) ECLR 412ff). In any case, what strikes me as methodologically incorrect is not only a strict or too linear structural analytical viewpoint, but also extreme antagonistic positions questioning the unequivocal analytical relevance of the market share criterion, which provides objective and easily graspable guidance. 117 On the progress of legal and economic methodology used for identifying relevant markets, both in the US antitrust system, as well as, later on, in the EU system, see, inter alia, Filippo Amato, Ariane Charpin, Gildas de Muizon, Alex Sistia and Leah Brannon, ‘Market Definition: Is There a Need for New Guidance?’ (2012) 2 Concurrences 9ff. In fact, despite the need for consolidation of such methodological enhancements, the increasing use of econometric processes and, most importantly, its growing systematization in pre-determined models offering a fair amount of predictability, have contributed to the establishment of more solid and consistent grounds of delimitation of relevant market (to a point where an approach questioning such market share based methodologies no longer appears to be justifiable, due to the alleged overall fallible nature, or excessive uncertainty, of the market identification considerations that support market share calculation).

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agreements). However, I do not consider it an impossible challenge to reconcile the option of a sole market share threshold with the latter guidelines and solutions. Thus, it should be borne in mind that the sole market share threshold which I purport to establish as a general criterion for the assessment of joint ventures, constituting a second stage of analysis of such entities, is an element among others—however important it may be—in the process of assessing the effects of such entities to ascertain the possible application of the prohibition rule in article 101, paragraph 1 TFEU. As such, where that market share threshold is not exceeded, a favourable conclusion, of a mere indicative nature, concerning a given joint venture is possible. This conclusion may, however, be set aside on the basis of other factors stemming from a complementary analysis of any joint venture at stake, which should not be overlooked. Provided it was not possible to find, in a conclusive manner, the absence of any effects of distortion of competition, on the first preliminary stage of assessment of joint ventures above depicted, it will always be necessary to go through a complex analytical route which is by no means limited to the assessment of the market share of undertakings involved in the joint venture under appreciation, even if this latter criterion evidences a lesser probability of occurrence of negative effects on competition. At this level such precise analytical function performed by the market share criterion, in the context of the possible application of the prohibition in article 101, paragraph 1 TFEU, must not be confused with the use of parameters also reliant on market shares for the purpose of applying block exemptions possibly benefiting some joint ventures. Naturally, an important relationship exists between the market share threshold, as construed in my global assessment model of joint ventures, and the thresholds set out in the relevant Block Exemption Regulations. However, for the purposes of application of these latter regimes, the parameters related to market shares are used in the context of a basic assumption of possible verification of an unfavourable reasoning based on article 101, paragraph 1 TFEU, which might be counteracted by the setting aside of such prohibition on the grounds of the application of paragraph 3 of that same article. In light of the above, I do not consider that a sole market share criterion—as a relevant assessment element in order to determine, on a first-hand basis, the possible submission, or not, of certain situations of cooperation to the regime set out in article 101, paragraph 1 TFEU—which, as regards the various functional types of joint ventures, is not exactly the same as the thresholds set out in Block Exemption Regulations also applicable to them, is contradictory to the set of normative solutions adopted de iure condito in those Block Exemption Regulations. 2.3.5.1(B) Establishing a General Market Share Threshold As regards the definition itself of this sole market share threshold, I believe that it is important to take into account not only the parameters already agreed at the level of EU enforcement practice of competition rules and EU jurisprudence, concerning the characterization of situations of market power, but also, from a systematic perspective, the market share thresholds taken as relevant assessment factors under EU competition law in the De Minimis Guidelines, the Block Exemption Regulation concerning vertical agreements and the overall EU framework for horizontal cooperation.118 Additionally, it is worthwhile considering the

118 On the new perspective of assessment of market shares in the Block Exemption Regulation concerning vertical agreements, dated 1999 (and, in fact, pursued subsequently in its 2010 review), see Richard Whish, ‘Regulation 2790/99: The Commission’s New Style Block Exemption for Vertical Agreements’ (2000) CMLR 887ff.

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experience in terms of comparative law of the US antitrust system, in the context of the constant benchmarking that I have been considering by reference to such jurisdiction. Therefore, since what is at stake is the use of an easily graspable and objective criterion for the identification of situations of appreciable market power—justifying special attention to the effects potentially arising from the creation of certain joint ventures in those situations—I submit that that criterion should be associated with a market share threshold below the reference levels usually taken into account for ascertaining dominance. Accordingly, I believe that this general market share criterion must be set considerably below the threshold of 40 per cent of the market, a threshold amounting to a fundamental reference for the assessment of possible dominant positions.119 At a different level, this criterion, to be used in a second stage of analysis of joint ventures whose compatibility with competition law raises doubts, must undoubtedly rely on a market share threshold higher than the one considered as the third type index of usually permitted situations of cooperation in the context of the application of article 101, paragraph 1 TFEU. It may be recalled here that, in a systemic association I established with market share parameters set out in the De Minimis Guidelines, although with some adjustments to fit the nature of joint ventures, I have defined that index through a sole reference parameter corresponding to a threshold ranging between 10 and 15 per cent of the aggregate market share of the joint venture’s founding undertakings.120 In the EU legal framework on vertical agreements—comprising not only the 2010 Block Exemption Regulation on Vertical Agreements, but also the Guidelines on Vertical Restraints adopted in 2010, a general market share criterion amounting to 30 per cent was adopted (the same as the threshold adopted in the 2000 EU framework on vertical restraints, then following a very extensive discussion of the alternative options in this area).121 The adoption of this market share threshold has been a core trait of the very profound transformation of the methodology of assessment of vertical restraints, 119 It should be noted that, despite the importance of a critical threshold for ascertaining dominance, associated with market thresholds of around 40% or more—pursuant to the application of article 102 TFEU (and also taking into consideration other reference thresholds for assessing hypothetical dominance in the context of the test of compatibility with the common market, applicable to concentrative joint ventures under the MCR)—this same threshold must not be taken as unequivocal, since the assessment of dominance positions assumes a much more complex nature, even as regards specifically the weighing of the market share criterion (rendering necessary the consideration of other reference thresholds gradually evidenced in the enforcement practice related to the MCR). In any case, the very idea of assessment or ‘quantification’ of situations of dominance on the basis of market share–related criteria is not as simple as one may initially assume. See, on these issues, João Pearce de Azevedo and Mike Walker, ‘Market Dominance: Measurement Problems and Mistakes’ (2003) ECLR 640ff. 120 It should be made clear that in that delineation of a third type of index for identifying situations of cooperation usually allowed (involving joint ventures), reliant upon the market share of involved undertakings, I have taken as systemic reference in the De Minimis Guidelines—without prejudice to the adaptation of the respective criteria to our overall model of assessment of joint ventures—the market share threshold concerning cooperation among competing undertakings. I have done so mainly because the situations of creation of joint ventures among non-competing enterprises are already covered by another analytic index, that supports in general their inclusion in areas of cooperation normally permitted or safe harbours (without prejudice to the possible application of negative criteria that may preclude such safe harbours, that we have also analyzed). 121 As Recitals 8 and 9 of the 2010 Block Exemption Regulation on Vertical Restraints explicitly point out, it is implied that in the event the market share of both the supplier or the acquirer in the relevant vertical relationships ranks 30% below the affected markets, an improvement of the production or the distribution benefiting consumers is usually verified, unless specific provisions or particularly restrictive competition situations (foreseen in article 4 of the Regulation) exist. It should be noted that, as per article 3, para 1 of the 2010 Regulation, and unlike the 2000 Block Exemption Regulation which was more focused on the supplier’s market share, the reference parameter of the market share threshold constitutes, a ‘condition that the market share held by the supplier does not exceed 30% of the relevant market on which it sells the contract goods or services and the market share held by the buyer does not exceed 30% of the market on which it purchases the contract goods or services’.

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characterized by the setting aside of a formalistic focus on potentially restrictive elements of some contractual provisions and by a new delimitation of the relevant issues of competition distortion, in accordance with the market power of the undertakings at stake.122 Bearing this key threshold in mind, and considering the consensual understanding that vertical agreements raise in principle smaller concerns, as regards the safeguarding of the competition process, than the agreements entered into in the context of horizontal type relationships, there are major consequences of construing a reference threshold aimed at the assessment of joint ventures (as we purport to do). In fact, the assumption, concerning the different levels of negative impact associated with horizontal or vertical restrictions, has been formally stated, at least since the 1997 amendment of the De Minimis Guidelines, pursuant to which different market share criteria have been adopted as regards each of these types of restrictions. The logical inevitable corollary to be drawn from this assumption is that the general market share criterion to be established for the assessment of joint ventures should also be based on a quantitative threshold below the 30 per cent threshold adopted in connection with vertical restraints and, as such, more demanding than the latter. In reality, it should be once again stressed, that as a rule, joint ventures formed by non-competing undertakings should in principle be regarded as almost always permitted under article 101, paragraph 1 TFEU. That means that the situations raising doubts of compatibility with EU competition law and requiring more developed analysis will predominantly be those involving joint ventures formed by competing undertakings, or situations akin to the latter. I should also highlight the fact that, at the level of vertical agreements, the adoption of an analytical parameter specifically targeted at the weighing of market power was based on a single reference market share threshold of undertakings involved in situations of cooperation. This trait is particularly significant in light of an historical hermeneutical element, since, in the context of the preparation of the great reform of the EU framework on vertical restraints which took place between 1999 and 2000, the setting of two market share thresholds had still been considered, for some time, as a way of ranking the market power of undertakings (although ultimately it was not retained). As is well known, following the adoption of the Green Paper on Vertical Restraints,123 the Commission had considered the possibility of basing its new legal and economic analytical approach—aimed at the screening of appreciable restrictions of competition on the basis of the market power of undertakings involved in situations of cooperation—on a double threshold corresponding to 40 per cent and 20 per cent of the markets at stake.

122 On the significant scope of the global reform of the competition law framework of restrictions of vertical competition, whose importance for the overall evolution of EU competition law has also been emphasized, see, inter alia, Whish, ‘Regulation 2790/99: The Commission’s New Style Block Exemption for Vertical Agreements’ (n 118) 887ff; Romano Subiotto and Filippo Amato, ‘Preliminary Analysis of the Commission’s Reform Concerning Vertical Restraints’ (2000) W Comp 5ff; Steven Salop, ‘Analysis of Foreclosure in the EC Guidelines on Vertical Restraints’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—2000 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 2001) 177ff, esp 198ff; Alexander Schaub, ‘Vertical Restraints: Key Points and Issues Under the New EC Block Exemption Regulation’, in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—2000 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 2001) 201ff. 123 ‘Green Paper on Vertical Restraints’, COM (96) 721Final. On the economics based discussion associated with the reform of the framework of vertical restraints in the wake of the Green Paper, see Peepkorn ‘The Economics of Verticals’, EC Competition Policy Newsletter, June 1998. Also on the same reform, see Julie Nazerali and David Cowan, ‘Reforming EU Distribution Rules—Has the Commission Found Vertical Reality?’ (1999) ECLR 159ff; Jeremy Lever and Silke Neubauer, ‘Vertical Restraints, Their Motivation and Justification’ (2000) ECLR 7ff.

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In fact, taking into account the potentially less serious nature of vertical agreements for the safeguarding of effective competition, the Commission was envisaging, thus, a market share threshold which somehow limited appreciable distortions of competition in that field to those created by undertakings holding dominant positions (or quasi-dominant positions), therefore ultimately limiting the reach of the regime set out in article 101, paragraph 1 TFEU in this area of vertical restraints.124 However, the Commission was then contemplating a second threshold of 20 per cent of the market share, which should be applied in general to those situations that could justify, on account of certain additional factors, some concerns as regards their effects on competition—particularly due to the adoption of any forms of exclusivity, such as exclusive supply, exclusive customer allocation, or non-competition obligations. Nevertheless, application of the more lenient threshold of 40 per cent market share, in relation to the some types of exclusivity agreements, for example, exclusive distribution agreements and exclusive purchasing agreements, which were deemed not to impair directly or in a serious manner intra-brand competition,125 was still contemplated. It is, therefore, quite significant that, in the end, in this area of vertical agreements, the advantage associated with the greater clarity and simplicity of an analytical criterion based upon a sole market share threshold has been especially valued and has prevailed in the final normative options that were adopted and in the general guidelines on the subject, to the detriment of an alleged economically grounded ranking in the treatment of vertical restraints that would have reflected the different effects stemming from various types of agreements, associated with a double market share threshold envisaged in the 1996 Green Paper.126 As the 40 per cent market share threshold was ultimately deemed too lenient— namely for all the reasons stated above that would associate market power generating appreciable effects with situations close to dominant positions—a compromise solution of setting a sole market share threshold in an intermediate level, corresponding to 30 per cent of the markets at stake, came to be adopted. Bearing in mind this analytical evolution in the field of vertical restraints, I believe that this legal simplifying rationale, reinforcing the worth of analytical parameters which may ensure undertakings have some level of predictability, should have been considered at the level of the assessment of horizontal agreements, including, in particular, joint ventures involving competing entities. On the contrary, a considerable fluctuation of criteria was retained at the level of horizontal agreements, based on different market share thresholds—namely thresholds (i) of 25 per cent and (ii) 20 per cent, established in the Block Exemption Regulations concerning, respectively, R&D agreements and specialization agreements (that include cooperation in the field of production) and, also, (iii) a 15 per cent

124 This highly significant limit to the overall scope of application of article 101 TFEU in the field of vertical restraints that would have arisen in the event such a high threshold had been retained was emphasized by authors such as, eg, Whish, ‘Regulation 2790/99: The Commission’s New Style Block Exemption for Vertical Agreements’ (n 118) esp 908. 125 See in that regard, para 3 (Section V) of the ‘Communication from the Commission on the application of the Community competition rules to vertical restraints—Follow-up to the Green Paper on vertical restraints’. 126 Those references to the increased clarity and simplicity of an analytical criterion relying on a sole market share criterion, to the detriment of an alleged ‘economically grounded ranking in the treatment of vertical restraints’ are made in the ‘Communication from the Commission on the application of the Community competition rules to vertical restraints—Follow-up to the Green Paper on vertical restraints’, Section V, para 2.

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threshold, set out, albeit with a somewhat different function, in the 2001 and 2011 Horizontal Cooperation Guidelines as regards commercialization agreements and agreements for the purchasing of goods and services.127 Evidently, the analytical criterion based on a sole market share threshold which I purport to devise here—as the basis for a second stage of my overall model of assessment of joint ventures—performs a wholly different function, for the reasons mentioned above, to the one attributed to the market share thresholds set out in the Block Exemption Regulations. However, and despite this clear possibility of reconciling the sole criterion devised here with the normative solutions adopted de iure condito in those Regulations, concerning the parameters for their application based on market shares, I am critical of this option adopted in EU competition law of a framework of divergent references in such a sensitive issue of assessment market power of undertakings. Coming back to my systematic critical comparative perspective with the US antitrust system, it should be stressed that in the 2000 Antitrust Guidelines for Collaborations Among Competitors Guidelines, and largely concerning joint ventures formed by competing undertakings,128 a criterion of assessment of market power based on a sole market share threshold is set forth (and not relying upon multiple thresholds on account of the functional joint venture type concerned). Hence, in accordance with these Guidelines, and in the absence of exceptional conditions or circumstances, the US competition authorities (at Federal level) will not, as a rule, raise any objections to joint ventures formed by competing founding entities in the event their aggregate market share does not exceed 20 per cent of each relevant market affected by the creation of such an entity.129 It should be noted that such a market share threshold aims at circumscribing the forms of cooperation between undertakings which are normally permitted and that, as such, do not require—unless certain very specific complementary factors are present—further analysis, combining various legal and economic parameters of a rather complex nature. Such a criterion, therefore, ensures true safe harbour areas to undertakings engaged in cooperation processes through the creation of joint ventures, in terms comparable to the relative certainty provided through the application of Block Exemptions under EU competition law (with the significant difference, however, that in the US antitrust system, no complex process of public intervention or scrutiny is required, relying on a somewhat conceptualist solution of combining a broad prohibition with an ex post reasoning of justification of agreements in principle prohibited with the burden of proof on the involved undertakings).

127 Within all those categories of agreements are also included joint ventures corresponding to the functional types of cooperation described above and which are covered by Block Exemption Regulations—in the case of R&D joint ventures and of production joint ventures—or covered by the interpretative guidelines set out in the 2001 and in 2011 Horizontal Cooperation Guidelines, as with commercialization and purchasing joint ventures. As regards the market share thresholds considered in connection with that set of joint venture subcategories, see, respectively, article 4 of Regulation (EC) No 2659/2000, and article 4 of Regulation (EU) No1217/2010 (market share amounting to 25%), article 4 of Regulation (EC) No 2658/2000, and article 3 of Regulation (EU) No 1218/2010 (market share amounting to 20%), 2001 Guidelines, paras 130 and 149, and 2011 Horizontal Cooperation Guidelines, paras 208 and 240 (market share amounting to 15 per cent). 128 I refer to the Antitrust Guidelines for Collaborations Among Competitors, dated April 2000. 129 See the Antitrust Guidelines for Collaborations Among Competitors, para 4.2: ‘Absent extraordinary circumstances, the Agencies do not challenge a competitor collaboration when 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’.

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2.3.5.1(C) Evaluation of the Proposed Market Share Threshold Considering these various references on the weighing of market shares as an indication of market power, collected both in a systematic perspective of application of EU competition rules to vertical and horizontal agreements and in a comparative perspective, focusing particularly on the solutions adopted in the US antitrust system, I admit that the use of a sole market share threshold of 25 per cent of any of the relevant markets affected by the creation of a given joint venture, irrespective of its functional type, may be considered. It is a slightly lower threshold—and hence less lenient—that the 30 per cent threshold which applies to vertical agreements. In my opinion, there is no justification for an overly stringent market share criterion (compared to that applied to vertical relationships between undertakings) for the assessment of situations of cooperation between competing undertakings—which would include the vast majority of cases of joint ventures whose compatibility with EU competition law raises doubts after a preliminary assessment—. This sole market share threshold that I propose—as an essential parameter to use in a second stage of analysis of each functional type of joint venture in the context of the comprehensive assessment model we are using here—is, in turn, slightly more lenient than the 20 per cent threshold of the markets affected by cooperation established in the 2000 Guidelines on joint ventures adopted in the US antitrust system. Such a difference is explained, in my view, by the different methodological context of the consideration of the market share criterion within the model of assessment of joint ventures devised here. Indeed, at this latter level, that criterion is used as one of the parameters for assessing joint ventures requiring a more in-depth analysis and of a more or less complex nature. The assumption here is that in situations when the market share threshold—of 25 per cent of the markets affected by the cooperation—is not exceeded, a first relatively favourable presumption is triggered concerning the joint ventures at stake. However, this presumption may be set aside pursuant to the subsequent weighing of other complementary analytical factors (which must always be carried out, even if it may be somewhat truncated in the event the favourable presumption resulting from the market share criterion proves to be particularly significant). Differently, in the context of the US 2000 Guidelines, the favourable presumption concerning a given joint venture and resulting from the application of the market share criterion (of that joint venture and of its founding entities) will not, as a rule, be set aside— unless exceptional circumstances occur—since the underlying hermeneutical assumption here is that such a presumption allows the assessment process to be closed without any further detailed analytical processes concerning that joint venture. In light of the above, it is fairly understandable that the market share threshold envisaged in such US Guidelines (20 per cent) is a little more stringent than the one I propose here (25 per cent) since it is the main reference element in the context of the second stage of assessment of joint ventures comprising my global model of assessment of such entities. It should also be mentioned that the US 2000 Guidelines consider another favourable presumption specifically devised for R&D joint ventures—besides the one based on the market share of involved undertakings—with a view to circumscribing types of usually permitted agreements which require no further in-depth analysis. Such a presumption applies to situations in which beside the project developed by the joint venture at stake, it is possible to ascertain the existence of three or more autonomous R&D poles which hold the specialized assets, as well as the appropriate abilities and incentives to carry out activities

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deemed comparable to, or which can substitute those carried out in the context of that specific joint venture project. In accordance with the model of assessment I have been devising for the analysis of joint ventures under EU competition law, that other criterion related to different autonomous R&D poles stated in the US 2000 Guidelines is not used—at least as a main criterion—in order to identify usually permitted forms of cooperation. In any case, I submit that such a criterion may be relevant for that kind of analysis at two different levels. First, as regards the application of the first index of usually permitted situations—concerning the creation of joint ventures by non-competing undertakings—I deem pertinent to use the aforesaid criterion of the existence of alternative R&D poles as a possible negative parameter which may exceptionally counteract such an index of compatibility with the competition legal framework. In fact, as already mentioned, I have considered that in the context of the assessment of R&D joint ventures such a favourable index (cooperation between entities which are not competitors) could only be exceptionally counteracted on the basis of a negative criterion, correspondent to the possibility that the joint ventures would result in market foreclosure for third parties (or exclusion risks). Conversely, in this context I admit that the existence of three—or even two—autonomous R&D poles, involving third entities, nonparticipating in a given joint venture, carrying out comparable projects to those underlying the joint venture at stake, sets aside, by definition, that kind of risk of exclusion of third undertakings.130 Secondly, considering the situations of creation of R&D joint venture which require a more in-depth analysis, the second stage of analysis devised here—concerning the weighing of market power in accordance with the market shares of participating entities—may, advantageously, incorporate the criterion of autonomous R&D poles as an eventual complementary element. Thus, the consequences of identifying aggregate market shares of the participants in a given R&D joint venture that exceed the reference market share threshold that I have been advocating (25 per cent)131 are somehow mitigated where the existence of three other autonomous R&D poles is ascertained, as above discussed. Such a mitigation of the potential risks of distortion of competition inherent in holding more appreciable market shares is justified, I believe, to the extent that the assured existence of alternative research and development centres contributes to the curbing of the market power which would otherwise be reinforced or exercised through the creation and operation of a certain joint venture operating in a given research and development area.132

130 Thus, the combination of the basic index considered above—concerning the creation of R&D joint ventures by non-competing undertakings—and of the complementary criterion concerning the existence of three or even two comparable autonomous R&D poles—such as allowed for in the US Antitrust Guidelines for Collaborations Among Competitors—renders almost certain and unchallengeable the inclusion of the concerned R&D joint ventures within a usually allowed cooperation area (safe harbour). 131 Sole reference threshold concerning the market share of the involved undertakings which—as I should emphasize once more—assumes a different function in our global analytical model than the one attributed thereto in the Block Exemption Regulations. 132 Adapting again the reference cases mentioned as examples in the Commission Guidelines, in particular, both Example 1 from the 2001 Horizontal Cooperation Guidelines, para 75 and Example 1 from the 2011 Horizontal Cooperation Guidelines, para 147, one may consider, for instance, a hypothetical situation in which two major undertakings in the European market for manufacturing of electrical components each hold market shares amounting to 40% of the market and having carried out relevant investments in R&D activities required for

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2.3.5.1(D) Market Share Threshold and its Function as an Analytical Tool In short, the sole market share threshold I propose as relevant parameter—25 per cent—is, on the one hand, different, meaning here less lenient, from the criterion adopted under EU competition law as regards vertical type agreements, and, on the other hand, it allows us to strike a balance and find a common denominator among the various criteria contemplated under EU law, not only from the standpoint of the existing law and normative solutions, but also in terms of soft law, for the purpose of assessing the most common functional types of horizontal cooperation between undertakings. The overlap between this sole parameter of analysis, based on the market share, which I put forward in the context of my global model of analysis of joint ventures, and the criterion set out as the ground for application of a Block Exemption regarding R&D agreements in Regulation (EU) No 1217/2010, may undoubtedly raise some questions. In reality, if the existence of an aggregate market share of 25 per cent of the entities involved in a given R&D joint venture ensures, as a rule and outright, under article 4 of that Regulation, the conformity of that joint venture with EU competition law, the ground for applying an identical market share criterion—and not a more favourable or lenient one—may as a matter of principle be questioned as the reference parameter for the assessment of this type of joint venture, concerning situations where it is not relevant immediately to determine their compatibility with competition law. That objection is not, in my view, grounded, and its own formulation is based on the fact that, for some types of joint ventures—especially those relating to R&D activities—the EU enforcement practice is often aimed at an analysis heavily relying upon the application of article 101, paragraph 3 TFEU (with the corresponding burden of proof on the involved undertakings), and thereby relegating to a subordinate level the assessment concerning any issues of firsthand submission to the prohibition regime of article 101, paragraph 1 TFEU. As regards research and development joint ventures, a worrying trend may, in fact, be identified—albeit attenuated recently and after the 2003 reform that put an end to the prior notification system—towards the use of processes of assessment immediately aiming at the application of article 101, paragraph 3 TFEU and of the relevant Block Exemption Regulation, without appropriately considering the situations corresponding to the nonapplication to these entities, in first place, of the general prohibition set out in article 101,

creating such electronic components. In that case, the creation of a joint venture among those two undertakings for jointly carrying out their respective research activities, supplying prototypes of those electronic components for exclusive resale to the parent undertakings themselves, which would subsequently ensure the mass production of such components and their autonomous commercialization, could, taking into account the high market shares of such undertakings (aggregate market share of 80%) and the fact of the technology at stake being crucial for ensuring access and presence in the relevant market, ultimately raise sensitive issues of distortion of competition. Conversely, if it was possible to demonstrate that in such a market context and despite the small market shares of other undertakings in the market, at least three autonomous R&D poles still remained and could supply prototypes comparable to those used in the electrical components, that would soften or even set aside any objections to the creation of the joint venture. The assessment of the actual conditions for subsistence of those autonomous poles of comparable research activities must rely upon an objective and realistic analysis of the market, taking into account the availability of financial support, eventual required intellectual property rights, assets and specialized staff or other relevant elements. However, the actual availability of those elements may be ensured by other entities external to the market (eg, determining that third undertakings, despite holding small market shares, could actually develop relevant research processes in association with external entities such as universities or independent research centres in possession of the required information and technological resources).

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paragraph 1 TFEU (as situations to be taken as usually permitted in light of that provision, which, as I have observed, may often occur in relation to this subcategory joint ventures). Thus, a very broad area of cooperation through the creation of R&D joint ventures not subject to the general prohibition set out in article 101, paragraph 1 should be taken into consideration. In this context, I submit that the fact that the 25 per cent market share threshold has been established de jure condito for the application of the R&D block exemption does not preclude, in absolute terms, the relevance of that same quantitative threshold proposed here as the basis of a criterion for weighing market power, and for the preliminary consideration of the application in terms of the prohibition established by article 101, paragraph 1 TFEU. In fact, even in situations where this 25 per cent market share threshold is not exceeded, both the absence of other conditions for the application of the block exemption—set out in article 3 of Regulation (EU) No 1217/2010—and the occurrence of potentially more severe restrictions of competition in the terms set out in article 5 of the Regulation—may preclude the possibility of benefiting from this block exemption. In this type of situation, in which, from the very outset, any prospect of application of the block exemption is set aside, the criterion of the 25 per cent market share will be autonomously relevant in the context of what we have described as a second stage of analysis of joint ventures under article 101 TFEU, in order to assess beforehand the possible submission or not of these entities to the prohibition set out in paragraph 1 of this article, or even, hypothetically, to determine the possible appropriateness of applying for an individual exemption under paragraph 3 of that provision. This separate consideration of the criterion of the 25 per cent market share threshold— not overlapping with an identical quantitative criterion set out in Regulation (EU) No 1217/2010—and as a factor that may decisively influence a ruling of non-submission of a particular R&D joint venture to the prohibition established in article 101, paragraph 1 TFEU, should in particular apply to situations in which some or any of the other additional conditions for the application of the block exemption are missing (in accordance with article 3 of the Regulation). Thus, it is more unlikely that assessments leading to the nonapplication of article 101, paragraph 1 TFEU are made in cases that are associated with any one of the more severe restrictions of competition identified in the same Regulation.133 I, therefore, take into consideration here as regards situations possibly lacking the other additional conditions for the application of the block exemption pursuant to article 3 of the Regulation, especially cases (i) in which—regardless of market share—access to the results of research and development is not provided to all participants in a particular joint venture, for purposes of further investigation or for the exploitation of such results, or even cases (ii) of joint ventures between competitors, confined to research and development activities, and in the context of which either party is not allowed independently to develop other areas of research or to conduct research in the area covered by the joint programme after its end.134

133 I consider here particularly serious restrictions of competition (hardcore restrictions, in the terminology of the US antitrust system) set out in article 5 of the Regulation. 134 There are paradigmatic situations of absence of conditions for the application of the block exemption— apart from the condition relating to the market share as set out in article 3 of the Regulation. Other particularly serious restrictions to competition may also lead to the non-application of the block exemption, including, inter alia, and in accordance with the framework outlined in article 5 of the R&D Block Exemption Regulation, the

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Moreover, the apparent overlap between the threshold of 25 per cent of the market share established de jure condito as the basis for applying the block exemption set out in Regulation (EU) No 1217/2010 and the similar threshold that I propose as a parameter for weighing the overall market power of participating undertakings as part of a global assessment regarding the eventual application of the regime set out in article 101 TFEU is also mitigated by another factor. I refer to the margin of tolerance present in article 7 of the R&D Regulation, under which it is assumed that this threshold can temporarily fluctuate, up to a 30 per cent market share. It is accordingly assumed that the block exemption continues to apply in situations in which an initial market share of 25 per cent is exceeded by the concerned undertakings, although not exceeding the upper limit of 30 per cent, and for a period of two consecutive years following the year in which the 25 per cent threshold was first exceeded.135 This element of flexibility in the application of the block exemption was, moreover, already contemplated prior to the 2000 reform of the R&D regime, namely in Regulation (EEC) No 418/85,136 but, symptomatically, it was reinforced with the 2000 reform and kept as such in the latest 2010 reform, since the tolerance margin in question rose from 2 per cent to 5 per cent. It should also be underlined in this regard that Regulation (EU) No 1218/2010—which establishes and defines the block exemption concerning specialization agreements—and applicable as such to production joint ventures,137 sets, as will be further discussed below at 3.3.5.1 of this chapter, a 20 per cent market share threshold as an essential condition of that exemption and also includes a tolerance margin of 5 per cent, in terms comparable to those catered for in the R&D Regulation.138 Thus, and albeit the sole market share criterion (25 per cent of the relevant market at stake) that I propose for the assessment

ones concerning imposition of output or sales limits or the setting of prices when selling contractual goods to third parties, the restriction of the territory in which, or of the clients to whom the parties may passively sell the contractual products or license the contract technologies (some of these situations, which in turn also constitute possible exceptions that I shall describe here, concerning joint ventures evidencing mixed components and not exclusively limited to a web of obligations related to basic R&D activities; furthermore, if this mixed component element appears to be particularly significant, the overall rationale of possible economic and competition law justification of the joint programme at stake may have to be readjusted). 135 Article 7(e) of the Regulation goes even further and allows the exceptional overriding of the 30% threshold for one calendar year, whenever the initial market share of the involved undertakings upon the creation of a joint venture did not exceed 25% (such exceptional overriding of the 30% threshold is only allowed in the calendar year immediately after the first overriding of the 30% threshold). 136 Regulation (EEC) No 418/85, amended by Regulation No 2236/97, and whose application was extended until 31 December 2000. On that former block exemption Regulation regarding research and development agreements, see Valentine Korah, EEC Competition Rules: Regulation 418/85 (Oxford, ESC Publishing, 1986). 137 Production joint ventures that I shall deal with in general below, section 3 of this chapter, but the analysis of which I anticipate here specifically as regards the criterion of market share—whose use corresponds to the second stage of analysis devised in my overall analytical model—and in accordance with my idea regarding the application of a common market share criterion for all subcategories of joint venture subject to the regime set out in article 101 TFEU. Accordingly, some other relevant aspects of the Block Exemption Regulation applicable to specialization agreements and to the extent to which it contributes to the definition of the overall framework applicable to those production joint ventures, will also be addressed below in section 3 of this chapter. 138 See in that sense, the regime set out in article 5(d) of the 2010 Block Exemption Regulation on specialization agreements. This concerns the continued application of the block exemption for two consecutive calendar years if the initial market share threshold of 20% rises above that level and provided it does not exceed 25% (furthermore, article 5(e) takes the degree of temporary flexibility in the weighing of market shares even further and allows for the possibility of the market share threshold to rise above 25%, but only for one calendar year).

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of all joint ventures which do not qualify as concentrations—including the subcategory of joint production activities—is not coincident with the basic market share criterion established in the Block Exemption Regulation applicable to this type of production joint ventures, it is possible to ascertain that where certain additional conditions are met, such market share threshold (25 per cent) may still represent a crucial reference for immediately ensuring the benefit of a block exemption.139 As regards the remaining two subcategories of joint ventures—commercialization joint ventures and purchasing joint ventures140—the reference market share threshold set out in the 2001 and the 2011 Horizontal Cooperation Guidelines—15 per cent of the relevant markets at stake, as mentioned—is no longer a criterion of the application for an exemption under article 101, paragraph 3 TFEU, but rather a parameter for assessing in general the market power of undertakings involved in the creation and operation of these types of entities. In those Guidelines, the Commission, risking a systematic overlapping between the levels applied in the regimes set forth in article 101, paragraphs 1 and 3 TFEU, also considered explicitly that with such level of market share, it would still be likely that the conditions of Article 101, paragraph 3 TFEU would be met.141 I am critical of the Commission’s perspective in this regard and of the corresponding wording of the Guidelines. Indeed, such an approach not only confuses the above levels of analysis (referring to paragraphs 1 and 3 of article 101), but also contributes—in that general context of absence of clear-cut distinction between prohibition reasonings and possible justification reasonings (through the application of exemptions)—to the proliferation of reference market share thresholds to be taken into account for the analysis of the various functional types of joint ventures.142 I believe, therefore, that it is adequate and balanced to consider a sole market share criterion—being a threshold of 25 per cent of the relevant market at stake—as an essentially flexible element in the assessment of the market power of undertaking to be used in conjunction with other complementary parameters of analysis in the context of more developed and in-depth assessments of certain joint ventures. This flexible benchmark may, in a more or less direct manner, depending on the precise situation, present some points of contact with market share thresholds which have been established—under the existing law—as criteria for the application of block exemptions in Regulations applicable to certain functional types of joint ventures.143 However, notwithstanding the fact that

139 Thus, albeit under different circumstances, both in the block exemption regime concerning R&D activities and in the regime applicable to specialization agreements (including joint production) some areas of convergence are to be found regarding market share thresholds employed for different analytical purposes. 140 I take into consideration here the set of the four main subcategories of joint ventures subject to the regime of article 101 TFEU which I have selected for in-depth analysis (although addressing only briefly the functional type of purchasing joint ventures). 141 See the 2001 Horizontal Cooperation Guidelines, para 130, concerning purchasing agreements and para 149 of the same Guidelines on commercialization agreements; and, in corresponding terms, see for purchasing agreements and for commercialization agreements, respectively, the 2011 Horizontal Cooperation Guidelines, paras 208 and 240. 142 The various market share criteria set out in the 2001 and 2011 Horizontal Cooperation Guidelines are generally considered, in connection with functional types of cooperation agreements, but, as I have been emphasizing, such criteria are to be deemed applicable to each correspondent functional type of joint venture. 143 These points of contact between the sole reference criterion of the market share that I uphold as a general element in the assessment of market power of undertakings, corresponding to a second stage of analysis of joint ventures in my global assessment model, and market share criteria as thresholds for the granting of exemptions, assume a more or less direct nature, depending on the fact that such coincidence occurs either with the basic

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I consider objectionable—de iure condendo—the variety of market share criteria set out in Block Exemption Regulations,144 I do not consider that this normative framework collides, decisively, with the methodological approach proposed here, or even that it proves somehow contradictory to it. Indeed, the market share threshold proposed here as a reference criterion in the context of my comprehensive model for assessing joint ventures, assumes a rather different analytical function from the one underlying the criteria established as a condition—to be necessarily combined with complementary conditions—for the application of block exemptions, which may cover R&D or production joint ventures. Such a threshold may present, as noted, points of convergence with parameters for application of the block exemption regimes—constituting a true reference element with the general ability to circumscribe areas of business cooperation potentially less likely to raise competition law issues145—but must, in any case, be considered independently, according to a legal logic of its own, within the context of the application of article 101, paragraph 1 TFEU. Contrastingly, as regards other functional types of joint venture specifically addressed here which may not be slotted into any given Block Exemption regime—commercialization and purchasing joint ventures—the sole market share threshold (amounting to 25 per cent) that I propose, most blatantly diverges from the market share criteria proposed by the Commission for the assessment of such entities (amounting to 15 per cent of their market share, as provided for in the 2001 and 2011 Horizontal Cooperation Guidelines). Notwithstanding the fact that my sole market share criterion appears to be a much more permissive assessment parameter than that which underlies the criteria proposed by the Commission in connection with these two functional types of joint ventures, it should be borne in mind that it must—as part of my model—interact with other analytical parameters which may significantly correct or adjust it. Thus, even assuming that these types of joint ventures may present, under certain conditions, a qualitatively higher potential of

threshold criteria for granting an exemption under applicable Block Exemption Regulations or with extensions of those basic criteria construed as flexibility margins—especially the temporary increases of 5% beyond the basic market share threshold set out in those Regulations, under the above terms and conditions. 144 My view is particularly critical in this regard, insofar as the relevant Block Exemption Regulations have recently been subject to a comprehensive review (at the end of 2010) and that would have allowed—in parallel with the layout of Horizontal Cooperation Guidelines fully reviewed at the same time—the adoption of common analytical criteria concerning market share assessments, even if necessarily complemented by other factors connected to the particularities of the various functional types of cooperation (as happened with vertical restraints and in accordance with an analytical perspective based on a sole market share criterion which was, as noted, adopted in the US 2000 Antitrust Guidelines for Collaborations among Competitors). 145 Actually, as I have already remarked on R&D and production joint ventures, a significant convergence occurs between the sole market share reference threshold that I am proposing in my model for purposes of consideration of the application of article 101, para 1 TFEU and the criteria taken into account in the respective block exemption regimes (basic 25% threshold for R&D situations and 20%, but with margins of flexibility established around the 25% threshold, as regards production agreements). That convergence with the sole market share criterion (25%) proposed here, evidences, from the outset, at least in connection with these two functional categories, the fact that it is a truly critical threshold—although it has to be acknowledged that in the context of block exemptions it is applied under a specific normative rationale and being associated with other specific conditions (whereas, as per the critical view I have been expressing, one should actually refrain from immediately assessing such situations in connection with possible exemptions based upon the application of article 101, para 3 TFEU before fully assessing the relevance of such situations in the context of the application of article 101, para 1 TFEU).

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distortion of competition,146 the other relevant parameters of analysis will, in general,147 will allow a proper adjustment—in order to apprehend eventual aspects of distortion of competition—of a first more favourable assessment, resulting from the application of this sole market share criterion. Ultimately, one may consider, in theory, that an eventually greater potential of distortion of competition associated with these subcategories of joint venture, may justify, particularly as regards some specific situations, the application of a more stringent market share criterion (below the 25 per cent market share threshold) for the purpose of individual exemptions, based on the application of article 101, paragraph 3 TFEU. Indeed, as regards hypothetical situations of cooperation, involving undertakings with market shares below the sole 25 per cent threshold, but which may fall within the prohibition set out in article 101, paragraph 1 TFEU, on the basis of an unfavourable result evidenced by other complementary parameters of analysis—thus counterbalancing the favourable elements arising from a market share below the critical market share threshold of 25 per cent—their final assessment, dependent on the eventual application of an individual exemption under article 101, paragraph 3 TFEU, may justify a stricter criterion in terms of value of the market share at stake. This stricter criterion may imply that the application of the eventual individual exemption, if the case may be, will ultimately be dependent on the existence of a market share significantly below the 25 per cent threshold (in addition to other potentially relevant factors). It should in any case be emphasized that the 2001 and 2011 Horizontal Cooperation Guidelines clearly departed from this view when they envisaged the more stringent threshold of 15 per cent of the market share for commercialization and purchasing joint ventures. As already observed, although the Commission confuses the two levels of analysis somewhat, this threshold is not specifically associated, in the Guidelines, with the application of exemptions, but rather is endowed with a broader scope of application for the purposes of assessment of these types of joint ventures (in terms of their submission or not to the general prohibition rule of article 101 TFEU). 2.3.5.1(E) How to Evaluate Relevant Market Shares for the Purposes of Joint Ventures Antitrust Assessment A fundamental aspect to be considered for the purposes of the application of this market power assessment criterion, based on the application of a given reference market share threshold, concerns the method of calculation used for determining the parties’ market share. Block Exemption Regulations on R&D and specialization agreements (covering the production joint ventures which are of more direct interest to my analysis) set out some

146 The notion that there is more significant potential for restriction of competition associated with the subcategories of commercialization and purchasing joint ventures is certainly questionable (as will be seen in the context of our sequential analysis of the various functional joint venture types throughout this chapter). In any case, the general guidance underlying the Notice on Cooperative Joint Ventures 1993 was still heavily influenced by this approach (see paras 37–41). As regards US antitrust law, as previously mentioned, some doctrinal approaches emphasize the risks of distortion of competition associated with joint ventures that involve an important component of commercialization activities (see, eg, Thomas Pirainno’s views in ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 36) 1ff). 147 On those other parameters, see the overall presentation of intertwined criteria devised around the various stages of assessment of joint ventures in the global analytical model outlined in ch 2, esp 2.1–2.4.5) which will, in this chapter, be applied to specific functional subcategories of cooperative joint ventures.

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relevant parameters for calculating market shares, which are applicable in the context of the assessment of the majority of the various functional joint venture types. Therefore, and confirming what may be regarded as some form of general guidance for the application of EU competition rules—also followed as a rule in the field of control of concentrations under the MCR—these Regulations set out as the main element for the calculation of market shares the whole set of data concerning the values of sales in the markets at stake by the undertakings at stake.148 Only in subsidiary terms, and to the extent that this type of commercial information is not available, may other reliable market information sources be used, such as, especially, the sales volumes achieved by the undertakings at stake. Notwithstanding this methodology being, in my opinion, applicable in general to situations of cooperation between undertakings, I do acknowledge however, that, outside the strict area of application of the Block Exemption Regulations, a complementary use of the two essential market share calculation methods may be envisaged (though with a greater emphasis on the method relating to the amount of sales). Along the same lines, in both the two Block Exemption Regulations under appreciation and in the guidance provided in the 2001 and 2011 Horizontal Cooperation Guidelines, only the aggregate market share of the participant undertakings in joint ventures is explicitly addressed.149 Differently, in the US antitrust system, the aggregate market share of participant undertakings is weighed alongside that of the joint venture itself in the relevant 2000 Antitrust Guidelines for Collaborations among Competitors.150 I consider the methodology used in those US Guidelines to be more accurate. Indeed, I believe that the aggregate market share to be taken into account, in order to assess the market power of undertakings involved in the creation and operation of a given joint venture, must not only include the market shares held by parent undertakings, but also, cumulatively, the market shares resulting from the joint operation of those undertakings within the joint venture. It is true that the subcategories of joint venture under appreciation for the purposes of article 101 TFEU correspond to joint ventures which do not perform all the functions of an autonomous economic entity, thus rendering questionable the direct attribution of market shares to such entities. In that sense, the absence of explicit reference in the Block Exemption Regulations and in the Horizontal Cooperation Guidelines to market shares held by joint ventures could somehow be explained. Despite that, I consider that it would be more accurate, from a legal standpoint, to consider, in an explicit manner, the market

148 See the regimes set out in article 7 of the R&D Block Exemption Regulation and in article 5 of the Specialization Block Exemption Regulation. As regards the parallel with the methodology used for merger control under the MCR, see Barry Hawk and Henry Huser, European Community Merger Control: A Practitioner’s Guide (The Hague, London, Boston, Kluwer Law International, 1996) esp 78ff. These authors rightly point out the predominant use, at the level of merger control and for calculation of market shares, of parameters relying on sales values of the concerned undertakings in parallel with an essentially subsidiary and limited use of market share calculation criteria relying upon sales volumes by undertakings. 149 Both the Regulations and the 2001 and 2011 Horizontal Cooperation Guidelines refer to market shares of undertakings participating in various types of cooperation agreements—article 4 of (EC) Regulation No 2659/2000 and (EC) Regulation No 2658/2000, article 4 of Regulation (EU) No 1217/2010 and article 3 of Regulation (EU) No 1218/2010 and also the 2001 Horizontal Cooperation Guidelines, paras 137 and 149 and the 2011 Horizontal Cooperation Guidelines, paras 208 and 240. Naturally, I am here taking into consideration the agreements resulting from the creation of joint ventures covered by the regime set forth in article 101 TFEU. 150 See the Antitrust Guidelines for Collaborations among Competitors, para 4.2 and fn 54: ‘For purposes of the safety zone, the Agencies consider the combined market shares of the participants and the collaboration’.

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share specifically stemming from the joint activity carried out by parent undertakings through the joint venture. Furthermore, in the weighing of this criterion, it is also necessary to identify the relevant markets in which we should calculate the aggregate market share of the participating undertakings, including the component of the latter associated with the joint venture’s own activity. Such identification must, in short, comprise all markets which may be affected by the cooperation process at stake.151 Even identifying the markets affected by cooperation may itself be particularly difficult in the case of R&D joint ventures and of purchasing joint ventures. As regards the first subcategory, the affected markets to be taken into account tend to be the markets for the products which may be improved (existing products) or replaced (meaning here entirely new products), pursuant to the research and development projects carried out through the joint venture. That includes in the second case elements of the process or technology arising out of R&D efforts and leading to innovation (as results from article 4 of (EU) Regulation No 1217/2010, referring to these aspects as comprised in an idea of technology markets). In any case, as the 2011 Horizontal Cooperation Guidelines acknowledge, albeit in terms which are not particularly precise, ‘many cases concern situations in between those two extremes, that is to say, situations in which innovation efforts may create products (or technology) which, over time, replace existing ones… A careful examination of those situations may have to cover both existing markets and the impact of the agreement in innovation’.152 As regards the second subcategory of joint ventures mentioned above, usually, the markets affected by the cooperation process are considered to be the selling and the purchasing markets. In accordance with the the 2001 and 2011 Horizontal Cooperation Guidelines—with which I agree on this particular point153—the relevant purchasing markets are the markets with which the cooperation carried out through joint ventures for the acquisition of goods and services is directly concerned and most directly impacts on, concerning precisely the products and services whose acquisition has determined the creation of such joint ventures. The selling markets are the downstream markets where the participants of the joint purchasing arrangement are active as sellers of goods and services to final consumers. It should be noted that the particular relevance attributed to the market share criterion— in its role as the second main stage of the process of analysis of joint ventures, as devised here—creates a material encumbrance for the undertakings involved in the creation and operation of the various subcategories of joint ventures. In effect, the adoption of certain assumptions, more or less favourable to the probability of occurrence of some kind of effects of distortion of competition, likely to be challenged in light of

151 Considering the aspects already discussed on the possible categories of effects on the competition process stemming from the creation of joint ventures which do not perform all the functions of an autonomous entity (correspondingly covered by article 101 TFEU), and namely the aspects related to what I have designated as spillover effects in a broad sense—see above ch 2 at 1.4, and to which I shall return in greater detail below, 2.3.5.2(E) in this chapter—the chiefly affected markets in the context of which a market share calculation must be carried out, should usually correspond to the markets of final goods or services commercialized by parent undertakings. 152 See the 2011 Horizontal Cooperation Guidelines, paras 112ff. 153 See the 2001 Horizontal Cooperation Guidelines, paras 119 and 137 and the 2011 Horizontal Cooperation Guidelines, paras 197–99.

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article 101 TFEU, depends upon the accuracy of the analysis or estimates carried out by the undertakings themselves for the purpose of determining their own aggregate market share and, instrumentally, to identify the relevant markets in which they operate. Furthermore, such an encumbrance is to some extent reinforced by the decentralization process in the enforcement of EU competition law and by the replacement of the prior notification system by a system of directly applicable exemptions (under article 101, paragraph 3 TFEU), set forth with the adoption of (EC) Regulation No 1/2003. However, I do not consider this analytical encumbrance to be necessarily associated with situations of legal uncertainty or unpredictability or even to any hypothetical rise in transaction costs for undertakings involved in the creation of joint ventures.154 What is at stake here is, on the one hand, a greater responsibility placed upon undertakings in their own preliminary assessments of their market positioning, and, on the other hand, the delineation of actual stable analytical parameters for the identification of relevant markets and the concomitant calculation of market shares, that, on the whole, should result from periodically reviewed guidelines issued by the Commission, from a track-record of coherent decision-making by the latter and from the GC and CJEU jurisprudence.155 Lastly, I should restate that this analysis concerning the use of a market share criterion is applicable to all the four functional types of joint ventures addressed here—and not only to R&D joint ventures—and I shall in my subsequent analysis of those other subcategories of joint ventures recurrently refer to this section as regards all the relevant aspects related to the weighing of the market share of undertakings involved in joint ventures. 2.3.5.2 Third Level of Analysis of Research and Development Joint Ventures 2.3.5.2(A) The Fundamental Analytical Tools to be Used in the Third Level of Analysis of Research and Development Joint Ventures In the context of what I have identified as the third stage of assessment of joint ventures, in accordance with the overall analytical model devised here,156 it is important to take into account the elements of potential distortion of competition specifically inherent in the subcategory of R&D joint ventures. As I have been emphasizing, this stage of analysis may fulfil a dual role. It may either function as an eventual corrective factor of an initially favourable assessment of certain joint ventures, due to the existence of market shares not surpassing the general reference thresholds and, also—in situations that are from the start prone to raise some concerns due to the weighing of such criterion of market share—it allows for a proper assessment of possible effects of distortion of competition. In this context, an inductive analysis is required, weighing the main categories of risks of distortion of competition which as a rule may be deemed to underlie the functional type of R&D joint ventures and evaluating the various patterns of actual occurrence or avoidance

154 This is not the position apparently assumed by some other authors, such as, eg, Roger Van Den Bergh, (see this author’s analysis in ‘Modern Industrial Organization and European Competition Law’ (1996) ECLR 81ff). 155 On the questions associated with the identification or delimitation of relevant markets and the main issues underlying such analytical procedures, see the aspects considered above, at 2.3.3.3 of this chapter. 156 On the general features of the third stage of assessment of joint ventures in the context of my global analytical model of these entities, see above ch 2 at 2.4.3.

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of such risks—with different features and significance in multiple relevant situations—in accordance with the contents of the most common programmes of cooperation pursued through these joint ventures. This inductive analysis is inevitably rendered difficult by the need to assess each situation of cooperation on the basis of its particular market context. However, this casuistic dimension should not, in my view, preclude the use of general analytical parameters—albeit flexible ones—in order to detect possible effects of restriction of competition. It should be recalled, at this stage, that I have already outlined the main categories of risks of distortion of competition underlying the creation and functioning of R&D joint ventures, which will, accordingly, form the basis of the legal and economic characterization and analysis henceforth carried out.157 Therefore, I have addressed risks of distortion of competition corresponding to (i) the occurrence of behavioural coordination between parent undertakings in existing product markets, affecting, for example, elements of the competition process such as price, quantity of supply or quality of the products offered by such undertakings, or (ii) the limitation of innovation processes in a manner leading to the coordination of the commercial strategies of the participating undertakings as to quality or quantity of the supply of final consumer goods. Additionally, a third category of risk has been identified, namely (iii) risks concerning the foreclosure of certain markets (also including here the foreclosure to potential competitors). Moreover, in the general characterization of my overall model of analysis of joint ventures under the regime of article 101 TFEU,158 I have also highlighted that even mere R&D joint ventures which do not present composite cooperation programmes—and excluding, as such, the spillover of such cooperation to the fields of production and commercialization—may still generate significant risks of coordination involving the levels of production of participating undertakings. However, I also underlined that, taking into account the most common functional contents of this subcategory of joint ventures,159 the likelihood of a negative impact on competition resulting from the creation of these entities will, as a rule, be higher as regards coordination aimed at the restriction of competition between the participating undertakings at the level of quality of products (especially in highly dynamic sectors that are characterized by special innovation requirements). Furthermore, despite the particular complexity of the analysis aimed at identifying potential effects of market exclusion of third undertakings—akin to foreclosure of certain markets—I pointed out that, under certain conditions, R&D joint ventures may appreciably contribute to the verification of such type of effects of distortion of competition.

157 On the main categories of risks of distortion of competition underlying R&D joint ventures, see 2.3.2 of this chapter. I then deferred a proper understanding of the specific ways such risks of distortion of competition may materialize to the stage of in-depth analysis of joint ventures which justify competition concerns, in connection with each functional subcategory of joint venture—such stage corresponding precisely to the third stage of analysis within the model of assessment of joint ventures, as I have outlined (pursued in this section as regards the subcategory of R&D joint ventures). 158 See the list of the risks of distortion of competition above, ch 2 at 1.4. and 2.4.3. 159 In my general analytical overview of my global model of assessment of joint ventures (ch 2 at 2.4.3), I have also highlighted that, besides the potential for distortion of competition intrinsically associated with certain core elements of the functional type of R&D, other economic factors must also be take into account, such as the ones interfering with the development of the functional cooperation programme at stake in the context of certain specific markets.

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2.3.5.2(B) Joint Ventures Covering Research and Development Programmes Directed at the Improvement or Upgrade of Existing Products or Technology In the quest for a coherent and systematic view of these different categories of risks of distortion of competition in accordance with the multiple particularities underlying R&D projects, a characterization of the latter may be undertaken on the basis of the scope of activity of joint ventures in this field.160 Thus, it is pertinent to consider at a first level corresponding to the joint carrying out of research and development programmes aimed at the improvement of existing products, a potential occurrence of behavioural coordination effects concerning essential elements of the competition process such as price setting and the adoption of decisions or strategies concerning the amount or quality if products offered in a given market. These potential coordination effects should be felt, if the case may be, in the downstream product markets in which parent undertakings operate and where the enhancements or improvements of final goods generated by those joint ventures will directly impact. In my opinion, the likelihood of such joint ventures leading to behavioural coordination on pricing will, as a rule—barring exceptional conditions—be lesser than the likelihood of their leading to the occurrence of such negative effects on the level of output and, most importantly, on the quality of the final products supplied to the market.161 Furthermore, such a distortion of potential competition—affecting in particular the two latter elements—must be ranked in accordance with various factors, comprising namely (i) the position of parent undertakings in the final goods market at stake; (ii) the existence and relative importance of other autonomous research and development poles, with goals comparable to those of the programme carried out through a certain joint venture, and— most importantly—(iii) the contribution of the research and development programme to the production and overall characteristics of the final goods at stake. In fact, the larger the contribution of the results of the joint research and development programme to the production of the final goods or services, for example, representing an appreciable part of their respective production costs, or amounting to a factor on which the ability to produce above certain levels of output or to provide to the market certain very specific quality parameters absolutely depends—then the more significant will be the ability of the joint venture, carrying out such a programme, to create more intense behavioural coordination phenomena between parent undertakings. It strikes me as obvious that the potential for distortion of competition underlying certain functional contents of R&D programmes and the different substantive factors which may condition those contents in certain markets interact in a complex manner, thus requiring, as much as possible, the adoption of an overall analytical perspective.

160 Such characterization must, therefore, take in to account the possible areas of activity of such joint ventures, as mentioned above (esp 2.2 of this chapter). 161 I refer to final products in a very broad sense, comprising goods and services (see, regarding this concept from a general economic perspective, Dennis Carlton and Jeffrey Perloff, Modern Industrial Organization (New York, HarperCollins College Publishers, 1994) esp 50ff and 283ff and John C Panzar, ‘Determinants of Firm and Industry Structure’ in Richard Schmalensee and Robert Willig (eds), Handbook of Industrial Organization (Amsterdam, North Holland, Elsevier, 1989). Along the same lines, the market referred to here, is essentially the downstream market for final goods in which parent undertakings operate, without prejudice of spillover effects in a narrow sense (as characterized above), which may occur in some markets related or connected with the key or principal markets in which parent undertakings operate.

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Consequently, different combinations of the three key factors conditioning the basic potential for distortion of competition of these joint ventures, may lead to rather variable assessments of the repercussions of such entities in the competition process. Therefore, one may envisage hypothetical situations in which the aggregate market share of the participant undertakings in an R&D joint venture barely exceeds the 25 per cent threshold in the relevant downstream market, evidencing a lesser potential of distortion of competition. Conversely, one may envisage in the same situation that the output of the joint venture will represent a particularly high contribution to the production of final goods and a virtual absence or relative minor importance of autonomous alternative poles of research and development. On the whole, such a combination of factors would ultimately lead, in certain conditions, to a high probability of identification of appreciable effects of restriction of competition.162 On the contrary, in certain circumstances undertakings participating in a given R&D joint venture may hold considerable market power—for example, evidenced by an aggregate market share significantly exceeding the reference general threshold delineated in my assessment model, of 25 per cent—and, not withstanding this fact, the negligible contribution of the joint venture to the production of final goods, as well as the ascertained existence of several alternative poles of research, may ultimately amount to determinant factors for a favourable assessment of the joint venture, due to its inability to cause appreciable effects of restriction of competition.163 As emphasized throughout my analysis, the different analytical elements identified in the course of the various stages of assessment comprised in the proposed global analytical model of joint ventures must be combined among themselves. In more substantive terms,

162 Again making use of the critical adaptation of reference examples devised by the Commission in the 2001 and 2011 Horizontal Cooperation Guidelines—a technique which could, advantageously, have been even further exploited by the Commission in these Guidelines, particularly in the latest December 2010 comprehensive review (which lacks, eg, more enlightening examples of R&D efforts aimed at existing products)—we may consider an adaptation of Example 3 in para 77 of the 2001 Guidelines, to illustrate the particular combination of factors leading to a final conclusion of existence of substantive effects of restriction of competition. Consider a situation in which two undertakings manufacturing vehicle parts agree to create a joint venture in order to combine their R&D efforts for improving their production and the results of existing vehicle parts, however keeping their production activities separate. Imagine that these undertakings hold market shares of 15% each, in the European market of manufacturers of such components. Bear in mind a context in which R&D activities carried out through the joint venture represent a very substantial share of the total production costs of vehicle parts commercialized by the parent undertakings, and also that in such a market, due to the holding of certain essential technological licensing requirements by those same undertakings, the rise of comparable R&D programmes on the part of third entities is not expected in the mid-term. In such a situation, even if parent undertakings involved in the creation of a given R&D joint venture do not possess a remarkably high aggregate market share (holding an aggregate market share that only slightly exceeds the 25% reference threshold), the factors corresponding to the significant economic impact of the results of R&D programmes at stake in the global costs of final products, as well as the absence of a significant number of comparable R&D poles, would cause significant risks of restriction of competition to arise. 163 Slightly changing certain elements of the reference example in n 166, consider a hypothetical situation in which the same undertakings would hold market shares of 20% each, but in which, conversely, the results generated by the R&D joint venture created by those undertakings would only represent a limited fraction of the total costs associated with the final goods commercialized by those same undertakings and in connection with which it would be possible to prove the existence of two or more R&D poles with comparable features and efficiency. In a situation with those characteristics, and despite the greater market power suggested by the aggregate market share at stake—around the critical threshold of 40%—it could be contemplated that such a risk factor could be counteracted by factors related to the relatively minor economic importance of the results of the joint R&D programme and with the existence of a significant number of rival poles of R&D (in terms that would globally allow any probability of occurrence or materialization of serious risks of restriction of competition to be set aside).

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the hypothetical situations that I have envisaged above as regards R&D joint ventures illustrate the general point that I have been making, according to which initial favourable assessments of certain joint ventures, based on the application of the criterion of aggregate market share of participating undertakings, may be corrected or adjusted through the weighing of other analytical elements (in the context of subsequent stages of assessment of those joint ventures). The aforementioned specific factor—corresponding to the relative contribution of R&D programmes to the production of final goods of parent undertakings—which is proportionately of greater importance at this level of analysis of potential effects stemming from R&D joint ventures aimed at the improvement of existing final goods, may, in certain more extreme cases, lead to less predictable repercussions on the competition process. Therefore, I attribute to it a decisive importance for the purpose of assessing the possibility—however remote—of this type of joint ventures creating forms of behavioural coordination as regards price setting in downstream markets. In fact, as types of cooperation that are less close to the commercialization stages of goods and services, R&D joint ventures are not especially prone to create coordination processes affecting the prices practiced by participating undertakings, even if the latter hold a considerable amount of market power. However, such a general assumption may be set aside especially in those situations, albeit to some extent exceptional, in which the results of the joint R&D programme constitute the major part of the total production costs of the final products at stake. In such cases, even if joint ventures do not involve in themselves mechanisms or instruments enabling the exchange of commercial information on matters outside the scope of the joint R&D project, or organizational elements indirectly providing incentives for the coordination of decision processes in other areas, the mere reciprocal awareness of an essential share of the overall production costs of the final goods commercialized by participant undertakings—stemming from the costs of the joint R&D programme—may, provided certain market conditions are present, generate a key incentive for coordination on the setting of prices. Such an incentive is reinforced, in my opinion, if the relevant parent undertakings hold significant market shares and additionally carry out all their research and development activities through the joint venture. Conversely, the probability of occurrence of coordination effects which include price setting practices may decrease in the event that, although the results of research and development programme represent a fundamental share of the total production costs of final products, the downstream market on which such products are commercialized is somehow characterized by highly variable marketing margins or by a significant relevance of other types of costs (eg, promotion or advertising costs which may vary considerably in accordance with the commercial strategies of undertakings).164

164 One may consider, eg, the functioning of markets of differentiated goods within which a significant share of the costs borne by undertakings in the joint venture correspond to costs of promoting the image of the products with final consumers, seeking to associate certain distinctive features with such goods. In that context, even if the results of joint R&D programmes carried out through a given joint venture would represent a material share of the total production costs of the parent undertakings, that should not necessarily lead to the existence of an essential incentive to coordination regarding price setting by such parent undertakings.

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2.3.5.2(C) Joint Ventures Covering Research and Development Programmes Directed at an Entirely New Product or Technology Pursuing further my goal of achieving a coherent systematization of the various categories of risks of distortion of competition in accordance with the specificity of the cooperation programmes that may be at stake in the field of R&D, I may identify behavioural coordination effects especially associated with a possible second level of implementation of these programmes. I refer to the level corresponding to situations in which R&D joint ventures are aimed at the launching of new products that will replace existing products (or intermediary situations in which the partners pursue goals concerning the development of new technology or of innovation processes which will materially alter existing products, or else, if not actually replacing them, foster a whole new demand).165 In this context, the creation and operation of R&D joint ventures may give rise to coordination effects that affect, in particular, elements of the competition process related to the quantitative level of output and quality of final goods to be introduced and commercialized in certain given markets. Actually, these forms of cooperation that may reduce innovation processes tend, under certain conditions, to negatively impact on the levels of product differentiation—with adverse repercussions on the intensity of competition based on the quality patterns of the products at stake—and may even affect the quantitative output of certain final goods that are to be commercialized in any given markets. As the Commission rightly assumes in the 2001 and 2011 Horizontal Cooperation Guidelines,166 in this type of situation of R&D cooperation directed at an entirely new product (or technology), which creates its own market, price and output effects (restrictive of competition) on existing markets, is rather unlikely. I believe that this will only occur, in a significant manner, in connection with R&D joint ventures which combine programmes designed, on the one hand, to improve existing products, and, on the other hand, to introduce in the future new products through the fostering of new trends or needs of demand. In those situations, the eventual effects generated by the latter circumstances may interact with the repercussions stemming from the former circumstances. This trait, which unequivocally renders more complex the analysis to be developed, must be assessed in a systematic fashion, insofar as experience evidences that a significant number of R&D joint ventures actually combine the two elements, rendering them prone to generate repercussions of variable intensity both in existing markets and in wholly or partially new markets resulting from innovation processes.167

165 On these issues, the 2001 Horizontal Cooperation Guidelines, paras 45, 47 and 50, and the 2011 Horizontal Cooperation Guidelines, paras 112, 114, 118–21, 124 and 126. See also above, 2.2.1 and 2.2.2 of this chapter, on the processes of creation of R&D joint ventures and the main goals underlying them. 166 See the 2001 Horizontal Cooperation Guidelines, para 65 and the 2011 Horizontal Cooperation Guidelines, para 138. 167 The Commission apparently reached a similar conclusion regarding the majority of research and development cooperation agreements. See the 2001 Horizontal Cooperation Guidelines, para 66. As stated there, ‘most R & D agreements will lie somewhere in between the two situations described above. They may therefore have effects on innovation as well as repercussions on existing markets. Consequently, both the existing market and the effect on innovation may be of relevance’; while the 2011 Horizontal Cooperation Guidelines seemed to subscribe in its para 139 to a more nuanced view, stating that ‘many R&D agreements will lie somewhere in between the two situations described… They may therefore have effects on innovation as well as repercussions on existing markets’ (emphasis added).

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As regards the second level at stake, the competition law analysis required in order to identify potential effects of distortion of competition raises particular difficulties. This is so because it requires particularly sensitive prognosis evaluations about the quantitative output and diversity of future products—arising from deep transformations of existing products or from newly introduced ones—and on the pace and foreseeable evolutions of innovation processes. Furthermore, this analysis must also rely on a complex weighing of aspects prone to restrict competition and of eventual positive effects on competition associated with cooperation processes aiming at the introduction of entirely new products. The introduction of new technologies, the reinforcement of product diversity or the creation of new qualities or functionalities in these products goods, corresponding to more efficient manners of meeting multiple demands of consumers, often have positive repercussions stemming from cooperation projects designed to boost innovation in various ways (positive repercussions which may be directly experienced by consumers or which may rather result in the short and medium term in a greater degree of competition, due to the higher number of choices provided to those consumers).168 In this regard, I admit that the recurrent use of the so called ‘rule of reason’ in the context of the assessment of research and development joint ventures in the US antitrust system tends to allow more easily this complex evaluation of possible competition distortion effects and of positive elements for the competition process, in order to determine the global risk for effective competition that may be sufficiently important to justify the corrective intervention of competition authorities. In fact, that type of reasoning tends to allow the development of legal and economic analytical processes determined by substantive parameters—aiming at the assessment of the global, weighed, effects of joint ventures—and duly balancing eventual partial elements of formal restriction of competition in a way that effectively limits such elements to a secondary role—a role that prevents its use as grounds for final evaluations ascertaining hypothetical distortions of competition and the corresponding consequences (that would involve, in turn, the intervention of public authorities, even when limited to the verification of alleged generic infringements of competition rules and their subsequent justification and exemption from prohibition). The enforcement practice and jurisdictional precedents in the US antitrust system—significantly involving a rather sparse case law, as already mentioned, in the field of R&D joint ventures—seem to confirm it. An especially paradigmatic case is, in my opinion, the 1998 case of Addamax Corp v Open Software Foundation, Inc.169 In this case it was held that a joint venture aimed at the introduction of a new software product presented an important opportunity for a significant contribution to the economy

168 The weighing of this type of aspect in the context of the assessment of joint ventures necessarily brings about the teleological basis of competition law and of the materialization of its rules and principles to specific market situations. Thus, such weighing will assume different contents depending on whether an ordoliberal perspective of safeguarding of a certain degree of competition prevails, protecting the position of undertakings that are present in certain markets or which intend to enter into those existing markets or into markets yet to develop or—differently—a perspective which privileges the safeguarding of the widest spectrum possible of different choices of consumers, which may take multiple forms in various market situations. The analysis of joint ventures, namely of R&D joint ventures, with their typical contribution to innovation processes and to the diversification of goods and services made available to consumers, has influenced the gradual development under EU competition law of the second teleological perspective referred to above (in terms that will allow me to extract some key corollaries for the global evolution of the teleological model of this legal system, below, ch 4, esp 2.1). 169 See Addamax Corp v Open Software Foundation, Inc 152 F.3d 48 (1st Cir. 1998).

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and to the welfare of consumers. Accordingly, it was also held that, in that context, certain elements which would limit the freedom of action of participant undertakings—for example, through joint decision-making mechanisms concerning prices of assets that the joint venture would need in order to carry out its activities—and which could function as strictly ancillary aspects in connection with the overall productive effort of such an entity, should be considered as secondary traits, that could not justify, as such, an unfavourable ruling of distortion of competition. Differently, the assessment of R&D joint ventures under EU competition law has often placed too much emphasis on formalistic elements which may be identified as forms of limitation of the freedom to act of participating undertakings. In fact, such elements often prevail over global reasoning which might incorporate, from the outset and in an integrated manner, the positive economic repercussions also stemming from those entities (although, apparently, the most recent enforcement practice and jurisprudence may contribute to a new overall trend that could adjust such an excessively restrictive and interventionist approach).170 In my view, in the context of the overall analytical model that I purport to delineate here, an effort should be made for identifying what I have designated as weighed or global effect of certain joint ventures on competition (incorporating some aspects comparable to a certain extent with the methodology inherent in the rule of reason, although without establishing a direct parallel with the latter, on account of the relevant differences between the US antitrust and the EU competition law systems, which may not be set aside by a mere hermeneutic construction).171 This type of analysis should lead to a deeper joint consideration of eventual effects of distortion of competition and of positive economic effects—favourable to the competition process—that, in global terms, might prevail over the former, particularly in this area of R&D joint ventures aimed at the introduction of new products (or towards stimulating innovation processes).

170 Considering the enforcement practice of the Commission in a not very distant past this prevailing formalistic perspective—not completely outmoded even in the context of a more effects based analysis developed recently—has often led to situations of application of the overall prohibition set forth in article 101, para 1 TFEU, usually coupled with the granting of exemptions under para 3 of that provision in the context of major intervention by competition authorities), to R&D joint ventures. On that perspective, and regarding the analytical shortcomings it involves, see, inter alia, Korah, R&D and EEC Competition Rules: Regulation 418/85 (n 136). For a wholly different approach on antitrust assessment of R&D joint ventures within the US antitrust system, see Gene Grossman and Carl Shapiro, ‘Research Joint Ventures: An Antitrust Analysis’ (1986) JL & Econ 2ff. 171 I have already emphasized the shortcomings of a qua tale transposition of the so called rule of reason to the EU competition law system. In fact, as I view it, both in the context of the analysis of R&D joint ventures which probably raise in a more straightforward manner and more frequently the need for a joint weighing of competition distortion elements and of efficiencies (especially generated at the level of innovation), and in the context of the analysis of other subcategories of joint venture (addressed in sections 3, 4 and 5 of this chapter), there are conditions for a more flexible hermeneutic understanding of the overall scope of prohibition set out in article 101, para 1 TFEU. However, I also maintain that the proper understanding of such a complex area of global consideration of elements restrictive of competition vis a vis elements in some manner pro-competitive within the range of application of article 101, para 1 TFEU has been to some extent called into question—even at the level of the more recent Commission Guidelines and of the increasingly scarce Commission case law—by an inappropriate controversy concerning the possible application of the rule of reason in this domain. Seeking to test the limits and scope for such a new type of more flexible hermeneutic understanding (within the boundaries of the application of such provision and not necessarily involving the application of article 101, para 3 TFEU) in the context of my critical assessment of the main functional subcategories of joint ventures, I ultimately purport systematically to draw key corollaries from my comprehensive assessment of those joint ventures, below, ch 4 (esp 2.2, where I characterize a possible and in itself desirable contribution of the analysis of joint ventures to the overall understanding of the legal regimes of article 101, paras 1 and 3 TFEU and of their respective interplay.

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Somewhat paradigmatic—in an opposite direction from the US case mentioned above—and illustrative of the restrictive approach often adopted at EU level, and of some aspects which may be treated in a more flexible manner in the context of a new methodology, is the Commission decision in BP/MW Kellog.172 In that case, two companies created a joint venture for the purpose of developing certain types of industrial infrastructures, combining on the one hand the experience of one of the participating undertakings in the planning and design of infrastructures of a certain dimension with given required features, and, on the other hand, the knowledge held by the other participating undertaking concerning certain catalysers that were to be used in the production processes that the parties intended jointly to devise. In the agreement concerning the creation of that joint venture, it had been established that each of the parent undertakings would continue to own the various forms of ‘knowhow’ whose use was permitted to the joint venture, and also, that each undertaking would be irrevocably endowed with the non-exclusive licence to use, and permission to grant internationally sub-licences concerning, any patents which could arise from the joint venture’s activity. Additionally, it was also set out that, in the event the main industrial process envisaged with the creation of the joint venture was successfully achieved, its exploitation would be attributed to one of the parent undertakings, provided it licensed such process for the benefit of interested third parties and it transferred a share of the profits stemming from it to the other parent undertaking. Furthermore, the agreement also comprised several ancillary restraints, impending over both parties, in order to ensure the effective pursuit of the joint venture’s main object. Among other things, there was an imposition on one of the participating undertakings of non facere obligations, in the sense that it should not convey to third parties any information about the catalysers employed in the new industrial process to be developed and nor should it supply them to third parties without the consent of the other participant undertaking. As regards the other parent undertaking, whose contribution for the joint venture was essentially the specialized know-how of planning and devising certain types of industrial infrastructures, some obligations were imposed ensuring that it would not carry out other entrepreneurial projects related to the final goods whose conception and production were precisely the core object of that joint venture.173 According to the analysis of the Commission in this case, the creation of this joint venture would fall under the general prohibition set out in article 101, paragraph 1 TFEU, taking in account the fact that the freedom for making commercial decisions of each of the parent undertakings was substantially constrained, due to the set of obligations underlying

172

See BP/MW Kellogg [1985] OJ L369/6. The ancillary restrictions to competition inherent in agreements concerning the creation and operation of that joint venture were not limited to the issues mentioned above, also comprising, inter alia, the covenant of not carrying out any research projects concerning the development of catalysers, which were the object to the joint venture, either independently or jointly with third parties. I have previously mentioned, in broad terms, the main features of ancillary competition restraints and the inherent dimension of flexibility in terms of competition law analysis these involve (if properly understood). Going a step further, there is reason to emphasize that such flexibility dimension associated with the concept of ancillary restraints was largely propelled by merger and joint venture analysis. See, in that respect, Donald Holley, ‘Ancillary Restrictions in Mergers and Joint Ventures’ in International Mergers and Joint Ventures—Annual Proceedings of the Fordham Corporate Law Institute—1990 (Barry Hawk (ed), Transnational Juris Publications Inc, 1991) 423ff. For a perspective on the analysis of an equivalent type of restrictions in terms associated with the assessment of joint ventures in the US antitrust system, see M Salem Katsch, ‘Collateral Restraints in Joint Ventures’ (1985) ALJ 1003ff. 173

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such entity (eg, and in particular, the obligations that precluded the development and commercialization addressed to third parties of industrial projects comparable to the ones that would be developed through the joint venture, or that precluded one of the parties of commercializing one of the key assets—a certain type of catalyser—used in the joint venture’s project). Conversely, the Commission granted an exemption to this joint venture, under article 101, paragraph 3 TFEU, based on the recognition of the fact that the latter would allow a considerable degree of technical progress in its area of activity, likely to generate substantial benefits for consumers, such as efficiencies stemming from the saving of energy in the industrial processes at stake and price reductions of the main final consumer goods resulting there from. Furthermore, taking into account the existing market conditions, the Commission considered it highly unlikely that the parent undertakings would act as competitors for the development of the new type of industrial processes at stake, insofar as it only became feasible through the combination of their own differentiated resources. In this context, I think the Commission has overvalued a formalistic approach concerning the actual restrictions to the freedom of action of the parties—leading to the application of the regime set out in article 101, paragarph 1 TFEU—without having duly considered, in a comprehensive manner, the overall positive effects for the competition process that could not have been achieved by the parties in isolation. Such an appreciation could justify an outright favourable assessment of the joint venture, at the level of application of article 101, paragraph 1 TFEU, without implying the need for a public intervention or scrutiny at the level of an exemption (under article 101, paragraph 3 TFEU with all the implications it carries with it even in the post-2003 system of direct exceptions). In a different sense, I have to acknowledge that the Commission seems to have adopted a more flexible approach in its 2001 and 2011 Horizontal Cooperation Guidelines, by recognizing that in general (albeit with some key provisos in the 2011 Guidelines), R&D cooperation concerning entirely new products is pro-competitive, while also admitting that this principle does not change significantly if the joint exploitation of the results, even joint commercialization, is involved.174 It is of paramount importance, nevertheless, that this apparently more flexible approach is fully consolidated in all its substantive corollaries, at the level of interaction of paragraphs 1 and 3 of article 101 TFEU and also that it translates in a consistent manner in the Commission enforcement practice (or in the enforcement practice of Member States’ competition authorities, as influenced by some kind of guidance of the Commission within the European Competition Network). However, such a new approach in this area, giving rise to fundamentally less formalistic assessments than the ones applied in BP/MW Kellog, and such hermeneutical perspective is still far from being consolidated. As is also acknowledged in the 2001 and 2011 Horizontal Cooperation Guidelines, in situations concerning the creation of joint ventures aimed at the conception of new products, eventual problems inherent in the joint exploitation of results will only become truly relevant if that exploitation is prone to introduce significant obstacles to access by other undertakings to the key technology developed by the joint venture. Even though, these problems may be attenuated or set aside if the contractual system underlying the joint venture

174 See the 2001 Horizontal Cooperation Guidelines, para 65, and for a similar, albeit more nuanced view, the 2011 Horizontal Cooperation Guidelines, paras 119ff.

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contemplates the granting of licences to third parties as regards the new technologies at stake. Such an attenuation might also take place if—in the context of a parameter frequently used in the enforcement of US antitrust rules and as underlined by Joseph Brodley175—the joint venture project is, in principle, open to the participation of new entities (or if it is immediately accessible to those new participating entities). It should be considered, in any case, that the specific factors which, as a rule, rank—in the terms described above—the risks of distortion of competition underlying joint ventures that operate at the level of introduction of new products, may, in certain cases, reinforce, in particular and beyond the limited level of concern usually associated with these R&D situations, the potential for restriction of competition stemming from those same joint ventures. That may happen, for instance, if the joint venture—as often observed— combines activities impacting on downstream markets of existing products and activities related with pure processes of future innovation (leading to new technologies or entirely new products). In this type of situation, the combination of a strong position of parent undertakings in an existing market and of a decisive contribution of the joint venture for the launching of new final goods closely related with that market, may globally lead to significant restrictions of competition, even if the joint ventures at stake are committed to pure research activities. Such negative repercussions will be particularly intense in the event the joint venture comprises participant undertakings which, in the absence of this new entity, would likely be able to launch a new product autonomously,176 or else, if the joint venture involves the association of an undertaking with significant market power in an existing product market with a potential competitor who would likely enter the market with a new product capable of affecting the former undertaking’s position in that market.

175 See the analysis developed in the context of US antitrust doctrine by Joseph Brodley concerning the possibility of introducing adjustments in certain projects of creation of joint ventures in order to avoid, ab initio, potential issues of hypothetical restriction of competition, through the reinforcement of incentives to competition stemming from the requirements imposed on some joint ventures to open up to participation by third entities (see Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) esp 1544ff). Brodley develops his concept of ‘incentivemodifying remedies’, in order to render certain efficiency generating joint ventures compatible with competition law. As he states, ‘these remedies are intended not to prevent particular corporate acts, but to alter the internal dynamics of joint ventures through changes in organizational structure’. Among those ‘remedies’ we could find ‘outside ownership interests’. As Brodley mentions, the ‘creation of an additional equity ownership interest in the joint venture could discourage the use of the joint enterprise as an instrument of parent collusion’. 176 This situation is addressed, eg, in the 2001 Horizontal Cooperation Guidelines, para 65. Furthermore, one may find paradigmatic cases of assessment of situations with identical or similar features, as in, eg, Konsortium ECR 900 [1990] OJ L228/3. In that decision, the Commission took into account the fact that none of the parent undertakings could reasonably and autonomously carry out a given research project. Notwithstanding this and other precedents no consistent enforcement practice was truly consolidated in the sense of the actual assessment of such ability to autonomously carry out R&D projects based on realistic economic market analysis. Moreover, in my view, the question should not only focus around the absolute ability of autonomously developing certain projects and launching certain products, but rather the ability to undertake these tasks in comparable efficiency levels. The 2011 Horizontal Cooperation Guidelines, in turn, emphasize the ‘nature of the innovative process’— aimed at the introduction of new products—which can vary widely from industry to industry, since in certain sectors innovation and the corresponding emergence of new products tend typically to require the formation of R&D poles, based on join ventures, the key issue being, in these cases, to ascertain the existence or not of ‘credible competing poles of R&D’ (see the 2011 Guidelines, paras 119ff, but also paras 130ff, focusing on the ability of undertakings to carry out R&D efforts independently or not).

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This latter hypothesis is expressly mentioned in the Horizontal Cooperation Guidelines as an example of a significant risk of distortion of competition.177 However, I think the Commission’s approach is excessively narrow in this matter, because, even in such conditions, other relevant factors should be considered, such as the existence of remaining autonomous poles of R&D that might ensure an adequate competition pressure over the undertaking operating in a given existing product market. In the absence of these latter potentially favourable aspects, and in market situations akin to oligopoly which may be somehow replicated in the context of the launching of new products, or of substantially upgraded or transformed goods—on the basis of various processes of innovation—the creation of R&D joint ventures envisaging essential elements of innovation in order to gain a given competitive advantage that might alter the existing oligopolistic balance, can lead to particularly negative effects of distortion of competition, even if those entities merely carry out pure research activities. A situation of this kind was considered in the Commission’s decision in Henkel/ Colgate,178 concerning the creation of a joint venture by two undertakings, forming a wider group of four leading undertakings in the EU market for detergents, that had as its object pure research activities for the purpose of obtaining certain specific technical advantages (the advertising of which would be a key way of gaining competitive advantages over third competitors). The Commission concluded that the joint venture would fall under the general prohibition of article 101, paragraph 1 TFEU, on account of the strong market power of the parent undertakings in an existing product market with an oligopolistic structure, whose evolutionary prospects were dependent on research and innovation projects, such as the one embodied by the joint venture itself. Furthermore, the fact that the parent undertakings had already carried out major investments in the field of research covered by the joint venture, and that they had already undertaken to transfer to that entity all the skills and know-how in that particular area that they possessed or would acquire in the meantime, almost precluded the possibility that they would in the future acquire by themselves competitive advantages able to modify the existing oligopolistic balance (considering that the R&D activity at stake was decisive for obtaining such type of advantages).179

177 See the 2001 Horizontal Cooperation Guidelines, para 66. See also the 2011 Horizontal Cooperation Guidelines, which emphasize the possible combination of market power effects aimed at existing markets or at building innovation in products or technologies yet to be developed but ‘just about to emerge’, para 139 (esp at the end, identifying the same kind of situations that had been referred in para 66 of the 2001 Guidelines). 178 See Henkel/Colgate [1972] OJ L14/14, which despite dating back to 1972 is still a valid reference, even if reassessed in light of new analytical perspectives. 179 Considering the assessment carried out by the Commission in Henkel/Colgate, in the context of the application of para 3 of the former article 85 EC (now article 101 TFEU), which led to the granting of an individual exemption, some issues must be raised concerning a possible understanding that would envisage the establishment of that kind of consideration still within the range of application of article 101, para 1. In effect, if the Commission considered as decisive factors to set aside the negative competition law consequences of the joint venture the mere fact that it contributed to economic and technological progress, leading to the improvement of products to the benefit of consumers, it should have been questioned whether parent undertakings would have been capable, on their own, of obtaining comparably efficient results (moreover, bearing in mind that the agreements related to the joint venture did not lead in this case to the allocation of markets between parent undertakings, nor to the introduction of elements restrictive of competition at the level of the production process of the parties). Furthermore, what should also have been ascertained, in accordance with the objective conditions of the market, was the ability of competing undertakings to develop, as a response to the joint venture, comparable rival projects, in a perspective akin to the ones envisaged under the so called game theory—in accordance with

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2.3.5.2(D) Market Foreclosure Issues As regards risks of exclusion of third undertakings and the consequent market foreclosure, I submit that these may occur as an effect stemming from the existence of R&D joint ventures, either in connection to this type of entity when operating at a level of improvement of already existing products, or also in connection with these entities when operating at a level of building innovation and of introduction of new products in the market. Those risks of market closure may result from various relevant aspects in the legal and economic delineation of the joint ventures and of various substantive market conditions. However, as a rule, such risks tend to be connected with situations of a fairly significant share of market power held by parent undertakings and characterized by the special importance of the innovation and technological processes developed by those undertakings for the functioning of certain existing product markets, or the emergence of new markets related with the latter, whose creation is foreseeable in the short or medium term. In especially dynamic sectors characterized by significant technological innovation, the development of new markets resulting from the combination of several processes—for example, to consider only some of the most typical situations, markets which combine in an entirely innovative fashion, telecommunications, information technologies and the internet—may be constrained by the combination of technological resources of dominant undertakings in pre-existing sectors and by a resulting mimesis of the market power situations that characterized those sectors, thus excluding new market operators.180 Among other aspects, the rise of more significant market foreclosure risks may happen to be associated with situations in which the participants in a given R&D joint venture have devised—in various forms—restrictions regarding the conditions of use of the results generated by the joint venture. However, as happens in other areas, I believe that the mere

which it is purported to overcome the perspective of static equilibrium associated with several economic models for the analysis of oligopolistic markets, such as the Cournot or Bertrand models, and seeking to grasp in a dynamic manner, the repeated game of strategic interaction among companies, involving their chain reactions to the positions of their competitors at each moment. In a case such as Henkel/Colgate—although this ex post reevaluation of the antitrust reasoning adequate to the case may be problematic, considering the timelag verified as to the moment at which the real and dynamic conditions of functioning of the relevant market could have been accurately assessed—the game theory approach could have been advantageously used, such as in other situations involving joint ventures (which typically require the combination of a certain consideration of the efficiency elements intrinsically associated with such entities with the evaluation of the capabilities of competing undertakings to generate identical efficiencies through other joint ventures or through other objectively available strategic options. For a description of analytical models influenced by the game theory, see Stephen Martin, Advanced Industrial Economics (Oxford, Blackwell, 2002) esp 70ff. For an overview of the main assumptions underlying game theory models, see Shaun Hargreaves Heap and Yanis Varoufakis, Game Theory—A Critical Text (London and New York, Routledge, 2004). As these authors note, ‘a theory of games promises to apply to almost any social interaction where individuals have some understanding of how the outcome for one is affected not only by his or her own actions but also by the actions of the others’ (at 3). I shall address later relevant traits of the eventual development of the application of game theory in the context of the competition law assessment of the various subcategories of joint ventures, drawing overall assumptions concerning essential changes of the legal and economic analytical methodology of EU competition law (below, ch 4). 180 On this type of virtual market foreclosure effect through positions of substantial market power of certain enterprises in their traditional operating sectors (‘gatekeeper effects’), somewhat paradoxically developed in particularly dynamic markets and regularly generating the emergence of new related markets, see the analysis by Commission officers on the various relevant Commission and Member State authorities’ decisions concerning the use of internet and its combination with various types of electronic communications—Hans Peter Nehl, Kay Parplies, ‘Internet Joint Ventures and the Quest for Exclusive Content—The T-Online Cases’ Competition Policy Newsletter, no 2, June 2002, 57ff.

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formal occurrence of this type of restriction, or even of prohibitions of access to the results of programmes carried out through joint ventures, should not be considered, as a rule, as sufficing for the emergence of appreciable effects of exclusion of third parties. I think that, in certain situations, the use of particularly stringent requirements for the assessment of this type of effects, combining the three main factors that we have identified as regards the evaluation of joint ventures operating at the level of introduction of new final goods, which are: the position of parent undertakings in existing product markets affected by the cooperation (or related to new markets which may come to develop); the existence of other autonomous poles of research in the relevant areas; and the importance of the relative contribution of the joint venture for the production of certain final consumer goods or the launching of new products, should be considered. In any case, situations in which participant undertakings have prohibited the licensing of the use by third parties of results of the R&D programmes, carried out through joint ventures, or the dissemination of know-how processes to third parties—as occurred, for example, in various ways, with the joint ventures which were covered by the KSB/Goulds/ Lowara/ITT or Mitchell Cotts/Sofiltra Commission decisions181—present a significant potential for generating third party exclusion effects (provided other complementary conditions are met). Other situations which may present a comparable potential for generating this type of effect, in light of the experience acquired through the recurrent use of particular contractual wording in agreements for the creation of joint ventures, are the ones in which the possibility of licensing the exploitation of the joint venture’s results depends on the consent of all participating undertakings, or on their prior consultation. This restrictive potential may even be further intensified in cases where the access of third parties to the research results is restricted not only during the joint venture operation period, but also during a specified period after the end of the joint project.182 Actually, if the constraining of the access by third parties to the results obtained, at any given moment, by a working joint venture may, under certain circumstances, be justified by the concern of not affecting the operations performed by that entity, for example, in the terms set out by the participants in the joint venture dealt with in Siemens/Fanuc183— the fact that such a constraint is kept in place after the end of the project is prone to cause the occurrence of competition restrictions which are much harder to account for. Although there may be reasonable investor protection concerns in a joint R&D project, which remain past its completion, it will be much harder to strike a balance of interests which allows those concerns to overcome the negative consequences emerging from the

181 See KSB/Goulds/Lowara/ITT [1991] OJ L19/25 and Mitchell Cotts/Sofiltra [1987] OJ L41/31, whose content will be addressed again later for other reasons. 182 As regards other precedents in which the risk of competitor exclusion was associated with constraints or restraints other than the licensing to third parties of the results of R&D programmes—eg, whenever that possibility remained dependent upon the consent of all participating entities or of their prior consultation, see VW-MAN [1983] OJ L376/11, or Siemens/Fanuc [1985] OJ L376/29). Regarding a situation in which the access of third parties to research results was restricted for a period after the existence of a joint venture, see BBC Brown Boveri [1988] JOCE L301/86. 183 See Siemens/Fanuc (n 182) (where the parties had agreed to consult with each other prior to the completion of any agreements concerning the licensing of the cooperation results to third parties, in order not to impair the functioning of the cooperation process among them).

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element of restriction of competition associated with any constraints of third party access to the results of the joint venture. Likewise, covenants in agreements establishing the creation of joint ventures in which the parties might preclude or constrain licensing of the outcomes of their activity for use of third parties in areas of activity different from the ones in which those joint ventures operate are also prone to raise some questions. However, I depart from the view—taken in some decisions of the Commission—that the adoption of restraints of this kind amount almost by themselves to a breach of the general prohibition of article 101, paragraph 1 TFEU. I merely acknowledge that these covenants may evidence the existence of elements of possible market foreclosure. Nonetheless, these latter elements should be systematically subject to a complementary assessment in light of the three main factors noted above (market power of parent undertakings in markets directly affected by the cooperation; existence of alternative research poles; and the eventual contribution of research projects for the production and introduction into the market of certain final consumer goods).184 Conversely, the various types of constraints on the use of results generated by the joint venture must not be mistaken for certain limitations on such use imposed on the parties in accordance with their relative contribution to the joint venture and in a proportionate manner. This assessment may nevertheless be, in practice, of a rather complex nature, to the extent that an undue restrictive dimension must already be acknowledged whenever the limitations imposed on one of the parties are not proportionate to the relative importance of its contribution to the joint venture project.185 2.3.5.2(E) General Overview of Anticompetitive Effects that May Arise from Research and Development Joint Ventures and from Other Types of Joint Ventures At any of the relevant levels of analysis which I have been considering here—effects concerning existing product markets, effects on the quality and quantitative output of products to be offered in markets yet to be developed, or effects of exclusion of third parties— I do not find that the effects on competition, stemming from R&D joint ventures are predominantly and, qua tale of a structural nature. This can also be seen with regard to the various functional types of joint venture to which I devote a more in-depth study in the course of this chapter.

184 As regards situations in which the Commission has assessed agreements between undertakings involving prohibitions or constraints on the licensing of results of joint ventures for use by third parties in different areas of activity than the ones of the joint ventures, in a manner which tended then to lead almost automatically to the application to those covenants of the general prohibition set out in article 101, para 1 TFEU, see Emi Electronics/ Jungheinrich (1978) CMLR 398/1. Moreover, the Commission has also acknowledged that R&D joint ventures involving purchase or exclusive supply agreements among parent undertakings and the joint venture may cause markets to close (see, eg, ACEC/Berliet [1968] OJ L201/7 or VFA/Sauer, mentioned in the ‘Fifteenth Report on Competition Policy’, point 78). In my opinion, however, the effects of market closure will, as a rule, tend to lack significance in those market situations related with issues of access to supplies in the context of the operation of R&D joint ventures. 185 See the Notice on cooperation agreements, 1968, para II(3), still relevant as to this issue. As stated there, ‘it is of the essence of joint research that the results should be exploited by the participating enterprises in proportion to their participation. If the participation of certain enterprises is confined to a specific sector of the joint research project or to the provision of only limited financial assistance, there is no restraint of competition—in so far as there has been no joint research at all—if the results of research are made available to these enterprises only in relation with the degree of their participation’.

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It is, therefore, important to anticipate in the context of this first subcategory of joint ventures (R&D)—but in terms that are applicable to all the other functional types or corresponding subcategories of joint ventures analysed in the following sections of this chapter—a general overview of anticompetitive effects that may arise from all those joint ventures (putting into perspective in a comprehensive manner those kinds of effects on the competition process, in comparison with the strictly structural effects that are to be associated with concentrative joint ventures, falling within the MCR).186 The structural effect, construed as the result of the application of a test of market dominance or of a related test, tends to be of little significance—at least directly—for the analysis of joint ventures which do not perform all the functions attributable to an autonomous economic entity187 (subject to the regime set out in article 101 TFEU).188 The influence of the structural elements underlying the analysis of joint ventures subject to the MCR at the level of the assessment of cooperative joint ventures—that I have noted is unfolding on the basis of the intensive merger control enforcement practice—will not correspond basically to any transposition qua tale of the market dominance test or of comparable tests to assessments developed under the article 101 TFEU regime. Rather, it will involve the qualitative incorporation of such elements in the legal and economic assessment of the effects of joint ventures subject to article 101 TFEU on effective and potential competition between participant undertakings. The development of this structural approach—not a linear one but taking into account other related aspects—of the process of assessment of this kind of effects means that, apart from a limited number of especially severe restrictions, only really appreciable and substantive effects should be taken into consideration, bearing in mind, for that purpose, the market power of the participating undertakings or other relevant features of the market (eg, among others, as I shall note below, the degree of market concentration). In accordance with this overall perspective, one should reject the assumption— frequently adopted in the Commission’s past enforcement practice—on the basis of which the creation of a joint venture by competitor undertakings and with potential to induce behavioural coordination of these parent undertakings would imply almost by itself

186 Accordingly, in the context of the particular in-depth analysis of the other functional types of joint ventures, in the following sections of this Chapter, I shall often refer an overall understanding of the types of effects on the competition process, and of the of types of competitive relationship that may be at stake, to 2.3.5.2(E) (included within my treatment of R&D joint ventures but actually concerning all functional types of joint ventures falling under article 101 TFEU). 187 It should be noted that authors such as, eg, Bellamy and Child seem to consider, in overall terms, a category of eventual essentially structural competition distortion effects stemming from the creation and operation of joint ventures. See Bellamy and Child, European Community Law of Competition (n 108) 296ff. In effect, those authors state that ‘it must be established whether the JV itself will have a dominant position on a particular market and whether either the JV itself or any specific provisions in the agreements: are likely to restrict or distort competition between the parents themselves or between the JV and one or more of its parents; have a restrictive effect on third parties’. However, in that point of their analysis they seem to be referring in broad terms to all joint ventures without making a distinction between those which perform all the functions of an autonomous economic entity and which qualify as concentrations, and those which only partially perform such functions (while, in my view, ascertaining in any given case a direct structural effect implies a direct and autonomous position in a certain market of final goods, that only occurs in the case of joint ventures that are to be qualified as concentrations). 188 In this context, I should recall here the general aspects, already highlighted, as regards the types of effects which in theory may result from joint ventures covered by the regime set out in article 101 TFEU, above, ch 2 (esp 1.4 and 2.4.3) and in this chapter (1.2 and 1.3).

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the production of effects of distortion of competition, not admissible under article 101, paragraph 1 TFEU. In fact, this assumption has no outright validity, because it is still necessary to rank the possible distortive effects on competition at stake, in accordance with the parties’ market power and the structure of the affected markets. Actually, in this context elements that restrain in a merely formal manner the competition process but without constraining, effectively and substantively, the functioning of the markets at stake should not be materially construed as relevant forms of restriction of competition under article 101, paragraph 1 TFEU (without need of recourse to article 101, paragraph 3). As regards the effects on effective or potential competition between participating undertakings in any given joint venture, these may be in general construed or apprehended as a (i) spillover effect, in a broad sense, corresponding to the occurrence of repercussions triggered at a level of cooperation limited to certain entrepreneurial functions and which extend to the competitive behaviour, globally considered, of parent undertakings in the markets of final goods in which they operate and within which the specific functions pursued through the joint venture are projected to impact or to be performed. This kind of spillover effect, in a broad sense, typical of joint ventures which do not perform all the functions of an autonomous economic entity must be duly distinguished from (ii) a spillover effect, in a narrow sense, as an effect of behavioural coordination between parent undertakings in third markets somehow related to the markets of final goods where, on a firsthand basis, joint venture activities will directly impact.189 Given the way I envisage this analytical framework, I consider that the typical effects stemming from R&D joint ventures are essentially effects on the effective or potential competition between parent undertakings, that are to be perceived as spillover effects in broad sense (in the sense (i), mentioned above). In fact, within the context of functioning of this subcategory of joint ventures I believe that such a spillover component in terms of possible repercussions on the competition process (spillover effects in a broad sense) tends to occur in a particularly enhanced manner. As regards R&D joint ventures the potential for any restrictions of competition that may be at stake is, in effect, systematically brought about through a paradigmatic spillover 189 On this type of spillover effects in a narrow sense restrictive of competition, see the analysis undertaken by E Gonzalez Diaz, Dan Kirk, Francisco Perez Flores and Cécile Verkleij, ‘Horizontal Agreements—Joint Ventures’ in Jonathan Faull and Ali Nikpay (eds), The EC Law of Competition (New York, Oxford, Oxford University Press, 2007) 361ff. As the authors state, regarding the spillover effects in a narrow sense, ‘the second question to answer is whether the JV may provide a means for coordination of the parties’ behaviour on an adjacent product or geographic market. Typically these markets will be upstream or downstream of the cooperation’. On the other hand, the concept of spillover effects in a broad sense must comprise all the economic effects on the behaviour of parent undertakings, especially in the joint venture’s market (which, in connection with joint ventures which do not perform all the functions of an autonomous economic entity, should be necessarily understood as the final goods market of parent undertakings, to which ancillary and subsidiarily that subcategory of joint ventures contributes through the exercise of its partial functions). As the same authors note, ‘if the parents are present on the same market as the JV [and in the above characterized terms, joint ventures performing ancillary or partial functions are located, as a rule, in their parent undertakings’ market, since they operate in the final goods’ markets of such undertakings or in view of the functioning of such markets] the first question to address is whether the JV will lead to a co-ordination of the behavior of the parents’ interests on that market. The likelihood of co-ordination will depend other than on the structural characteristics of the relevant market upon the economic importance of the JV to the parents’ (at 360). It must be acknowledged that this effect in a broad sense of joint ventures subject to the regime of article 101 TFEU indirectly comprises a structural element, insofar as this effect must be ranked taking into account the market power of involved undertakings. On the distinction between these two categories of effects stemming from the creation of cooperative joint ventures see above, ch 2, esp 1.4, 2.3 and 2.4).

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mechanism (in a higher degree compared to other subcategories of cooperative joint ventures). This mechanism invariably implies an extension or a spillover to downstream markets, either of existing products or products or technologies yet to be created, where parent undertakings purport to commercialize final goods, of effects originated upstream in a pre-production stage (except for the situation in which joint ventures are of a composite nature, combining for example R&D elements and other goals, namely of joint production of final goods, or goals of acquisition of essential inputs for the production process).190 It should be highlighted that the competition law scrutiny—at the level considered here—of effects on effective or potential competition between parent undertakings must not, in my view, extend to hypothetical effects on the relations between each of those undertakings and the joint venture. This understanding has been explicitly adopted by the Commission, at least since the adoption, in 1993, of the Guidelines on the Assessment of Cooperative Joint Ventures (which, despite being replaced by the 2001 and subsequently by the 2011 Horizontal Cooperation Guidelines, are still relevant to an extent for ascertaining the competition law framework of joint ventures).191 In reality, the Commission asserted there that ‘the relationship of the parents to the JV requires a separate legal assessment only if the JV is full-function undertaking’ (even so, the Guidelines went even further with regard to concentrative joint ventures falling within the MCR and stated that, ‘however, even here the assessment must always take into account the relationship of the parents to each other and to third parties’).192 This understanding is completely justified by the ratio in itself inherent to the aforementioned spillover effect in a broad sense—which is one of the major potential repercussions on the competition process stemming from the creation of joint ventures that do not perform the functions of an autonomous economic entity. Thus, this effect typically arises through a variable extension of the interplay kept at a level of performance of limited entrepreneurial functions (on the basis of the joint venture), to the wider level of global competitive behaviour of parent undertakings, excluding, by nature, any competition law relevance of the existing relationship between each of these undertakings and the joint venture (in first place, because the latter, not ensuring an autonomous presence in the market, is merely an ancillary element that contributes to the overall activities of the respective founding undertakings).

190 In any case, even in those situations the spillover effects in a broad sense will be involved, but in a context in which, the extensive or spillover component will not be so great as in pure R&D joint ventures. In fact, those situations referred to above involve a spillover component that arises from a wider set of combined enterprise functions and already directly aimed at the overall competitive behaviour of parent undertakings in certain markets of final goods. 191 See the 1993 Guidelines on Cooperative Joint Ventures. As I have been arguing, the fact that unlike the 2001 and 2011 Horizontal Cooperation Guidelines, those 1993 Guidelines exclusively addressed the competition law traits of joint ventures, justifies still bearing in mind its contents at least as regards aspects contemplated there which have not been specifically or globally overruled by the 2001 and 2011 Guidelines. 192 See the 1993 Guidelines on Cooperative Joint Ventures, paras 17 and 21. Considering the first reform of the MCR, in 1997, more recent than the 1993 Guidelines, I may ultimately admit the relevance, as I shall observe below, of the relationships between joint ventures and founding undertakings concerning joint ventures to be qualified as concentrations and, in particular, as regards the coordination effects potentially associated to such entities, which are to be assessed—since the 1997 reform of the MCR and also under the MCR 2004—under article 2, paras 4 and 5 MCR.

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Furthermore, I consider that it is justifiable to go further with in ‘disregarding’ the relationship between each of the founding undertakings and the joint venture than the Commission did in the 1993 Guidelines (concerning cooperative joint ventures falling under article 101 TFEU). That is so because the subcategory of joint ventures which perform all the functions of an autonomous economic entity is nowadays—unlike what happened when the 1993 Guidelines were adopted—subject to the MCR, even if potential cooperation effects between founding undertakings are at stake. In this context, the assessment of this latter type of joint venture should typically include the analysis of structural effects (in a narrow sense) underlying them (as concentration operations) and of cooperation aspects between founding undertakings, under the terms established in article 2, paragraph 4 MCR 2004 (provided those elements of a cooperative nature appear likely, on account of several relevant factors).193 And although this latter provision may ultimately cater for elements of potential cooperation between each of the founding undertakings and the joint venture at stake, I have already emphasized that the most significant issues that this type of entity tends to raise correspond to aspects of possible cooperation between the founding undertakings (taken by themselves as relevant autonomous players in the market). Hence, from an overall legal perspective, this type of joint venture (falling under the MCR), characterized by a predominance of an entrepreneurial integration element—and by an autonomous and direct presence in the market—must, for those reasons, have material repercussions at two different levels, with very limited scope for an intermediate level area that would correspond to the sphere of cooperation relations between each of the participating undertakings and the joint venture. On the one hand, I refer to the level corresponding to a concentration dimension, in which the prevailing considerations have to do with a direct assessment of the market power of the new entity subject to joint control, and, on the other hand to the level corresponding to possible behavioural coordination of parent undertakings in their own respective areas of activity. The choice, by any of the founding undertakings, of creating a joint venture ensuring an autonomous and direct presence in a given market, only with great difficulty may be reconciled—and always in a very residual manner—with a relevant commercial strategy of coordination of competitive behaviour between each of those founding undertakings and the joint venture (somehow, the preponderance of the integration element, determining the creation of a joint venture which performs all the functions of an autonomous economic entity, tends to consume, by and large, the potentially relevant aspects of behavioural coordination between each of the founding enterprises and the joint venture). In short, and taking up again the analysis of R&D joint ventures as a subcategory subject to the regime set out in article 101 TFEU, at the fundamental levels in which I have identified

193 This readjustment of the systematic legal framework applicable to joint ventures has definitely circumscribed the universe of joint ventures subject to article 101 TFEU only to those which do not perform all the functions of an autonomous economic entity (‘partial function joint ventures’), which, in turn, given the nature of such entities, has helped to clarify that in connection with that category of joint ventures, only the relationships among founding undertakings should be deemed relevant for purposes of competition law assessment. The second reform of the MCR (the 2004 comprehensive reform of this regime), as mentioned above, has not introduced material changes to the treatment of joint ventures, merely proceeding to the systematic apportionment of the legal regime originally introduced in 1997, under the new para 4 of article 2 MCR, by two paras—4 and 5—of the same provision of the MCR.

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possible repercussions of their creation and operation—the levels corresponding to the production of effects in existing markets and in the quantitative output and quality of products to be made available in markets yet to be developed—one is often confronted with cooperation elements concerning the relationship between the founding undertakings (and not covering in principle the relations between those founding undertakings and the joint venture itself). From another viewpoint, besides those two types of effects, one may—in terms that have already been described—identify possible market foreclosure effects. This category of repercussions on the competition process—which must be construed autonomously— involves both the sphere of relationship between founding undertakings and the sphere of relationship of those entities with third parties. This dual perspective on the categories of effects on competition is, incidentally, reinstated in the 2004 Commission Guidelines ‘on the applicability of paragraph 3 of Article 81 of the Treaty’, in which one finds distinctions between, on the one hand, restrictions of competition between the parties to the agreement, and, on the other, restrictions of competition between any one of the parties and third parties, for example, because the agreement leads to foreclosure of competitors—the 2004 Guidelines associating, correctly, these later restrictions with issues of excessive accumulation of market power and its undue exercise (albeit without extracting all necessary corollaries from this intermingling of a structural element with certain forms of cooperation as regards the scope or latitude of the legal and economic consideration that may be comprised within the range of application of article 101, paragraph 1 TFEU).194 At a subsidiary level, the analysis of potential exclusionary effects that affect third parties stemming from the creation of joint ventures may involve the consideration of certain relations between each of the founding undertakings and the joint venture. However, what is at stake then is not to assess those relations in order to ascertain hypothetical restrictions of competition between the founding undertakings and the joint venture—which are deprived of autonomous relevance in the analytical perspective devised here. Rather, it will be a matter of assessing the contribution of such relations to the eventual disruption or change of the relations previously kept by the founding entities with third undertakings (eg, supplier undertakings which the founding undertakings cease to contact or work with as from the moment of attribution of certain ancillary entrepreneurial functions to a given joint venture, or other situations).195 I shall also seek to proceed to a complementary characterization of the specific risks of distortion of competition inherent in certain elements of the functional type of R&D joint ventures—that I have been describing here in broad terms—through the analysis of some

194 See, in this regard the 2004 Guidelines on the application of Article 81(3) of the Treaty, para 26. Conversely, the characterization in these 2004 Guidelines, of the various more common types of possible effects of restriction of competition on each of the levels at stake—restrictions of competition among parties to the agreement and effects of exclusion of third parties—strikes me as insufficient (mostly as regards the differentiation of the various forms of restriction of competition among the parties). Furthermore, the right approach towards a mixed analytical methodology incorporating structural elements and involving the consideration of market power of undertakings, is not ultimately, as I shall emphasize further below, given an adequate level of conceptual clarity and consistency in the 2004 Guidelines, as that would require a greater margin for balancing multiple elements within the range of application of article 101, para 1 TFEU. 195 See the 1993 Guidelines on Cooperative Joint Ventures, paras 23–25.

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landmark case law concerning the application of EU competition rules to this subcategory of joint ventures (which is undertaken below, 2.3.5.4 in this chapter). 2.3.5.2(F) The Evaluation of Specific Factors Inherent in the Particular Content of the Cooperation Programme In global terms, I consider that the analysis of the various elements of potential distortion of competition specifically inherent in this subcategory of R&D joint ventures—in the terms above mentioned—may, advantageously and from a systematic perspective, be understood on the basis of a set of six main factors identified in the US Department of Justice 2000 Guidelines for Collaboration among Competitors.196 Thus, when grasping the actual layout of the contractual system of each joint venture that may be considered to match the functional type of R&D joint ventures, it makes sense to screen its relevant elements against those six factors (while those six factors are of uneven relevance for purposes of the competition law analysis to be carried out in this area). In effect, the relevance of each one of those factors may vary in accordance with the functional type of joint venture under appreciation; and some of these same factors must be adapted, for they have been set out in the 2000 US Guidelines (and, as such, in accordance with an analytical perspective that comprises the category of joint ventures that perform all the functions of an autonomous economic entity, which, as previously mentioned, in the context of EU competition law is subject to the regime of the MCR). The six main factors are: (i) the existence or absence of an exclusive collaboration through the joint venture in the functional areas covered by the cooperation project; (ii) the relative importance of the assets transferred by the participants to the joint venture; (iii) the size of the financial interest of the participants involved in the joint venture; (iv) the manner in which the joint venture is organized and governed; (v) the likelihood of sharing sensitive information among the participants; and (vi) the duration of the joint venture. The first factor corresponds to an aspect systematically considered in the EU Commission enforcement practice. It addresses the issue of assessing whether de iure (in accordance with the adopted contractual covenants), or in practice (in accordance with the factual circumstances underlying the operation of the joint venture), participant undertakings continue or not to maintain an area of independent activity in the field of R&D. Clearly, the risk of distortion of competition is potentially reinforced in the event all the R&D activities are concentrated in the joint venture. However, as I have observed, that situation should not, of itself, trigger the adoption of a negative reasoning concerning the occurrence of inadmissible restrictions of competition, in the context of the assessment of what we have been calling the weighed or global effect of the creation of joint ventures. The second factor considered above should not, in my view, assume particular relevance in relation to R&D joint ventures. What is fundamentally underlying it is an assessment of the autonomous ability to compete in a given market. More precisely, that involves assessing if such autonomous ability is maintained or not by each participant undertaking in the wake of the transfer of certain specialized assets—that may not be replaced in the short term—to the joint venture. It should be acknowledged that as regards R&D joint ventures

196 I refer to the 2000 Antitrust Guidelines for Collaborations among Competitors, and, specifically, to its para 3.34—‘Factors relevant to the ability and incentive of the participants and the collaboration to compete’.

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not comprising any joint activity areas in the field of production, such an aspect should, as a rule, largely depend on the first factor identified above. The analysis of the relative importance of the assets transferred to the joint venture will constitute an integral part of the process of assessment of the preservation (or not) of autonomous areas of research by each participating undertaking (especially in the cases in which, due to the lack of explicit covenants concerning exclusivity of the collaboration in the functional area at stake, it is all the more important to assess the retention of substantive conditions for autonomous activity by participating undertakings). The third factor—the size of the financial interest of the participants, underlying their involvement in the joint venture—should also take, in my view, a somewhat secondary role in the context of the analysis of R&D joint ventures. In general, it is to be acknowledged that the higher the level of that financial interest of the participants in the joint venture’s operation, the more significant should be the likelihood of occurrence of effects of restriction of competition stemming from involvement in such an entity. Such a probability is also increased, in principle, if the importance of the financial interest in the joint venture exceeds the levels of investment of founding undertakings in their own areas of activity that are kept separate in relation to the markets affected by the cooperation at stake. However, the carrying out of R&D functions tends to be ancillary or secondary to the main areas of activity of founding undertakings. Accordingly, this factor will hardly become a decisive element for the detection of negative effects of the joint venture on the competition process.197 However, the manner in which an R&D joint venture is organized and governed may assume a great importance for the assessment of risks of distortion of inherent in this functional type of cooperation and to the actual structure of each particular joint venture. Hence, if the organization established with the joint venture somehow allows joint decision-making processes of founding undertakings concerning several sensitive issues for the competition process, the risks of distortion of competition tend to increase (such issues may include, eg, the overall investment levels of the founding undertakings in research programmes, the scope of those programmes—even if some of them are not directly carried out by the joint venture—or the joint setting of guidelines on the use of the results of those programmes in the production of certain final consumer goods). Moreover, in cases where the founding undertakings, in the context of framework agreements (or central heads of agreements) entered into for the purpose of creating and operating R&D joint ventures, immediately establish the extent of their contribution, from time to time, to the joint venture, the potential for distortions of competition associated with that will, as a rule, be smaller (because, having settled those contributions from the start, that tends to prevent the need for ongoing joint decisions to be adopted quickly on commercially sensitive matters).198

197 Furthermore, in the US Antitrust Guidelines for Collaborations among Competitors, that factor is also considered from the perspective of the competition relationships between the joint venture and the participating entities. As I have also previously mentioned, the latter will not be considered, under EU competition law, for the purposes of assessing effects of joint ventures subject to the regime of article 101 TFEU (joint ventures not performing all the functions of an autonomous economic entity). 198 Actually, in the event the extent of the contributions of each founding entity to an R&D joint venture is not somehow pre-fixed or regulated in the central framework agreement or in side agreements entered into for the initial creation and operation of the joint venture at the outset, then the need for adopting joint decisions from time to time concerning those contributions to the joint venture project, likely to be influenced at each stage

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Likewise, the fifth factor will assume a paramount importance in the analysis of the specific spillover effect of restrictions of competition between founding undertakings199 eventually triggered by the creation of R&D joint ventures. This factor, namely the sharing of sensitive information between founding undertakings is, in fact, closely associated with the organization and governance of joint ventures (the analytical factor that we have previously mentioned). Actually, the composition and modus operandi of the governance structure of R&D joint ventures may decisively impact on the flow of commercially sensitive information between founding undertakings, including information concerning elements associated with other entrepreneurial functions not strictly connected with the R&D activities pursued by these joint ventures. In the US 2000 Guidelines, it is rightly emphasized that the potential for information sharing may be effectively counteracted by the adoption of specific safeguard mechanisms aimed at preventing or minimizing the flow of relevant information. These mechanisms may assume many different forms, including the non-allocation of staff of the founding undertakings—involved in production and commercialization activities—to the structure created for the operation of R&D joint ventures, the establishment of strict rules concerning the flow of information, banning any conveying of elements on certain areas of activity; or even by ensuring the intervention of third parties—independent from the founding undertakings—on governance structures of the joint venture, in a position that enables them to coordinate the admissible information flows within the joint venture.200 At this last level, it is important to acknowledge that, following preceding stages of a greater degree of legal formalism in the assessment of joint ventures, the Commission enforcement practice has been evolving—in a direction tending to converge with that of the US antitrust system—towards an increasing openness to the favourable weighing of multiple safeguard mechanisms, devised ex novo for the purpose of limiting information exchange risks, whose sharing by the founding undertakings could affect essential elements of the competition process (although this more flexible position still lacks a true and consistent consolidation in the EU competition law system). Finally, the duration envisaged for the operation of R&D joint ventures also constitutes a relevant factor in the detection of potential effects of distortion of competition. Thus, and

by the evolution of the main activities of founding entities, tends to generate a stronger bond between the joint venture and those activities and, in that process, tends to favour an overall articulation of competitive behaviours between the parent undertakings. In particular, if this type of situation occurs in connection with joint ventures operating in markets where concentrated structures are more prevalent, such a direct and intense bond between R&D joint ventures and the main activities of the founding entities, manifested in a greater reciprocal knowledge of the strategic decisions adopted from time to time by the partners at stake, will favour, from a game theory perspective, the global coordination of competitive behaviours, because, on the whole, the parties will tend to be in a position to anticipate the main strategic moves of the other competing undertaking. 199 I refer here to the so called spillover effect in a broad sense in R&D joint ventures (depicted in global terms above, 2.3.5.2(E) of this chapter, and also referred to in ch 2). 200 In reality, the composition and operating mode of the governance structure of R&D joint ventures may, as seen above, be intentionally devised with a view to creating barriers to the flow of information between the parties which is not deemed absolutely essential for the carrying out of specific R&D programs within a given joint venture. I even acknowledge that the more limited scope, by nature, of this subcategory of joint ventures reinforces the effectiveness and efficacy of the establishment of such barriers to the flow of information. In parallel, and as I have previously observed, the openness of the joint venture to third participating entities may also foster conditions for the limitation of the flow of commercially sensitive information.

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as a general rule, the longer a joint R&D project is intended to last, the greater will be, in principle, the risk of restriction of competition inherent in such a project.201 2.3.5.3 Complementary Levels of Analysis of Research and Development Joint Ventures 2.3.5.3(A) The Criteria Relating to Different Types of Economic Links between the Joint Ventures and the Parent Undertakings In the context of the comprehensive model of assessment of joint ventures under article 101 TFEU outlined here, one should consider as a complementary parameter of the criterion based on the consideration of specific elements of each functional type of joint venture, the characteristics inherent in the type of relations between the markets of the parent undertakings and of the joint ventures at stake (or, in a wider sense, aspects related to the typology of economic relations between those parties, as envisaged and described in chapter two). Lastly, I have identified—at a last stage of assessment of joint ventures—a set of complementary and residual analytical factors that should interact with the various parameters employed in the other stages of assessment of joint ventures (in the context of my general analytical model). Within this last stage I have identified a first level of factors of a more direct structural nature and another level comprising factors less dependent on a pure structural dimension of competition law analysis (as described above, ch 2 at 2.4.5(B) and 2.4.5(C)). I should, accordingly, apply those stages of assessment to the specific area of competition law analysis of the functional type of R&D joint ventures. As regards the consideration of the set of relations between the markets at stake, and in accordance with analytical typology that I have already delineated, R&D joint ventures are part of the category that I have designated as joint ventures which contribute some inputs to the productive process of parent undertakings. The consideration of those types of economic relations should allow us to understand the particular features and manifestation of the spillover effect, in a broad sense that, most often, characterizes R&D joint ventures. I have also admitted—although as a general principle, open and dependent on its application on the substantive context of market analysis that may be at stake in each case—a greater likelihood of significant risks of distortion of competition as a function of the degree of proximity between the area of market in which a given joint venture operates and the market corresponding to the key areas of commercialization of final goods or services by parent undertakings.202 Thus, I may admit in principle that the more direct and closer the connection between the pursuit of certain functions of R&D by a given joint venture and the area of commercialization of final goods in downstream markets in which the respective founding undertakings operate, then the greater will be, theoretically, the potential of restriction of

201 It should be borne in mind that in the EU Block Exemption Regulations on R&D agreements, the duration of such agreements is a factor to be considered—eg as regards possible dimensions of joint exploitation of R&D results involved in those agreements, which will be admissible for a period of seven years after the introduction tothe market of certain contractual products or contract technologies at stake (see, on that, article 4, paras 1 and 2 of Regulation (EC) No 2659/2000 and article 4, para 1 of Regulation (EU) No 1217/2010). 202 See above, ch 2 at 2.4.4.

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competition of that joint venture (of course, such potential will have to be confirmed or not through other analytical parameters). It is important to underline at this point that this type of close connection does not depend strictly on the combination of research and development activities, nor on the relative importance that this latter dimension of development may assume. In fact, one may think of situations concerning joint ventures having as their sole scope pure research activities that ultimately have closer ties with the activity of commercialization of final goods by the founding undertakings in downstream markets in which these operate (that will actually depend on the specific characteristics of those final goods markets). This was the case in Henkel/Colgate,203 since the joint venture at stake here, although pursuing pure or basic research activities, was aimed at obtaining through those activities specific technical advantages, whose dissemination at the level of consumers gave the founding undertakings a decisive means of obtaining competitive advantages, allowing them to differentiate their product from products provided by other competing undertakings. 2.3.5.3(B) Complementary Analytical Criteria As regards the last set of complementary and residual analytical factors, I should underline the importance for the assessment of R&D joint ventures—at a first level concerning elements more directly connected with a structural dimension of analysis—of the overall degrees of concentration in certain markets that will be affected by the joint ventures at stake. At a second level, attention should be paid to factors related to the relative stability of market shares of the founding undertakings and with the eventual existence and significance of barriers to entry in certain markets. The first factor corresponding to the degrees of concentration in markets affected by R&D joint ventures should be weighed in close connection with the criterion referring to the aggregate market share of the founding undertakings and with an assessment of the market shares of the main competitors that are not part of the joint R&D project at stake. As I have already mentioned, the use of the criterion of degree of concentration of the market may advantageously be based on an econometric model which enhances the predictability that should be associated with this kind of analysis—namely through the application of the Herfindahl-Hirschman Index (HHI) developed in the US antitrust system and more recently applied in the EU context by the European Commission (and several EU Member States competition authorities).204 203 See Henkel/Colgate (n 178), although, as I have previously observed, I believe the Commission did not fully explore, as it should have done, all the possible analytical considerations and balancing that could be developed within the range of application of the regime of article 101, para 1 TFEU. 204 For a general reference to the adoption of the HHI in terms of EU competition law enforcement, see above, ch 2 at 2.4.5(B). As explained there, the introduction of this econometric process took place predominantly at the level of EU merger control and in the context of a fundamental influence of the parameters that had been set by the US 1992 Horizontal Merger Guidelines. HHI was, in the wake of its practical use in merger control explicitly considered in the 2001 Horizontal Cooperation Guidelines and, at the level of merger control, such recourse to HHI was confirmed and duly systematized in the 2004 Guidelines on Horizontal Concentrations. This convergence in the use of HHI at the levels of merger control and of enforcement of article 101 TFEU—particularly suited to the assessment of those joint ventures which raise particular problems concerning the combination of the market power of its participating undertakings—is somewhat paradigmatic of the methodological mutation that I have identified in the sense of the establishment of analytical models of a mixed type or nature, which derives from the incorporation in a balanced manner of a structural dimension, applicable to situations of cooperation between undertakings (assessed under article 101 TFEU). I should also underline here that, following this perspective of development of techniques for considering the degree of concentration of markets, the use of

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Thus, a high degree of concentration in a certain market—resulting from HHI above a threshold value of 1800—can enhance the risks of distortion of competition associated with a given joint venture, particularly if the aggregate market share of the founding undertakings is also high (eg a market share clearly exceeding the reference threshold of 25 per cent and especially if it exceeds significantly a threshold of 40 per cent of the relevant market at stake). The combined weighing of the aggregate market share of the participating undertakings and of the degree of concentration may, in my view, assume special importance for the assessment of R&D joint ventures. As I have already underlined, a significant number of these joint ventures will tend to be regarded as compatible with the article 101 TFEU regime, even if the participating undertakings hold relatively high market shares. The complementary verification of a particularly high degree of concentration may, therefore, under certain circumstances, represent a decisive factor for ascertaining appreciable risks of distortion of competition (which may imply an unfavourable ruling in terms of application of article 101, paragraph 1 TFEU). I admit, by the way, that some intrinsic aspects of the functioning of R&D joint ventures and underlying their typical form of intervention in the market may explain the importance of that complementary analytical factor of the degree of concentration (for purposes of global assessment of repercussions of those joint ventures in the competition process). In fact, one of the key aspects to confirm the possible relevance of risks of distortion of competition associated to this type of joint ventures corresponds—as I have already mentioned—to the lack or scarcity of alternative autonomous poles of research. As such, I understand that the weighing of this aspect should preferably focus on existing poles of research in the market at stake. However, it may also include an analysis focused on the ability to develop those autonomous research poles (provided that analysis is based on objective factors and is aimed at ascertaining a capacity to build such poles that may be implemented in a reasonably short time). Precisely for this second analytical dimension, the consideration of the degree of concentration in the market at stake may be of a decisive relevance. In reality, if the market presents considerably high concentration levels that may, under certain conditions, determine a reduction of the possibility of establishment of a sufficiently high number of alternative research poles. In turn, if that proves to be the case, that weakens even more the possibility of smaller competitor undertakings somehow improving their market position through new competitive advantages (that could be gained on the basis of active research). A final assessment of the possible repercussions inherent in higher levels of concentration of the market structures at stake will always ultimately depend not only on that particular degree of concentration (considered by itself), but on the actual structure and other characteristics of those markets. Thus, it is widely acknowledged that markets with high degrees of concentration and oligopolistic structures may be characterized, under certain conditions, by a fairly intense degree of competition.205 In this type of situation,

alternative techniques (as explored in the field of merger control) may also be contemplated, as is the case with the Concentration Ratio or the Lerner Index, although such techniques do not present, in my view, an analytical efficacy comparable to the HHI (the Concentration Ratio being, by the way, explicitly, however briefly, mentioned in the 2001 Horizontal Cooperation Guidelines, para 29). 205 On the intense degree of competition that may characterize some oligopolistic markets see, inter alia, Massimo Motta, Competition Policy—Theory and Practice (Cambridge, Cambridge University Press, 2004) 551ff.

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the fact that two or three larger undertakings remain in the market and are not a part of a joint R&D project developed by some of their bigger competitors in such market may imply that the former entities will have the ability to develop, in turn, alternative research poles.206 In fact, there may be instances where special attention is required to be paid to the combination of elements related to the degree of concentration (as ascertained through the HHI) with the so called Leading Firm Concentration Ratio which takes into consideration the percentage of total industry sales contributed by the largest firms, ranked in order of individual market shares (eg, the most common variant in US antitrust studies involving the percentage of sales of the leading four firms, referred to as ‘four-firm sales concentration ratio—CR4’).207 It should be acknowledged that the use of such hybrid methodology, combining the identification of the aggregate market share of the participating undertakings in a given joint venture, of degree of the concentration of the markets at stake and of the values arising from the Leading Firm Concentration Ratio, may face some hurdles. Particular difficulties will be met as regards some situations of establishment of R&D joint ventures in which the calculation of the individual market shares of all the involved undertakings is not straightforward. In fact, as I have already underlined, this functional type of joint venture may direct its activities towards a sphere of upgrading of existing products or towards the replacement or comprehensive transformation of those products through an entirely new line of products based on new technologies. As such, this distinction between markets or market areas potentially affected by the operation of R&D joint ventures also has consequences for purposes of market share calculation. The estimate or calculation of those market shares will undoubtedly be more straightforward if the R&D joint venture at stake merely purports to upgrade already existing products. In those cases, the market directly affected by the joint R&D project will correspond to the relevant market of those existing products directly envisaged in the joint venture activity, which may still include other existing products that may be regarded as substitutes of the former (bearing in mind the set of stabilized criteria for definition of relevant product markets currently accepted at the level of EU competition law).208

206 One may envisage hypothetical examples, such as a case in which two major undertakings in the European market of chemical products with certain characteristics and intended for specific uses, would establish an R&D joint venture aimed at the upgrade of certain essential components of those products. In a context in which those founding undertakings would hold individual market shares of 20%, with each of the other three more important undertakings in the same market also holding individual market shares of 20% (assuming here that the market positions of third parties were of mere residual importance), one could admit that in such market, of a relatively high degree of concentration, there would be conditions of economic power to allow the undertakings that did not participate in the joint venture the ability to develop alternative R&D poles (provided that did not fundamentally depend on industrial or IP rights exclusively held by the two founding undertakings of the joint venture). 207 On this analytical technique of the Concentration Ratio, see, inter alia, Frederic Scherer and David Ross, Industrial Market Structure and Economic Performance (Boston, Houghton Mifflin Academic, 1990) esp 423ff. As stated there, one of the main forms of application of this technique—‘CR4’ (measuring the total market share held by the four largest undertakings of the market)—only presents results truly indicating the relevance of the degree of concentration for the market power of the undertakings at stake and the formation of prices when values above 50% are reached. 208 As I have noted throughout this book, I do not deal here in any detail with the particular analytical issues of definition of relevant markets. However, for references both to the analytical hurdles at stake in those market definition processes and to the analytical progress that has undeniably occurred in this area within the EU competition law system, see the considerations produced at 2.3.3.3. in this chapter.

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Therefore, once the relevant market is defined on the basis of an analysis that, as mentioned above, is not limited to the identification of existing products directly envisaged by the cooperation project, relevant market shares may be calculated either on the basis of sales values of such products or, under certain circumstances, on the basis of physical or quantitative output of those same products.209 However, that kind of estimate will be more complex in those situations in which a given R&D joint venture is aimed at the replacement of existing products by an entirely new line of products (to be introduced in the market). In any case, considering that the new products which may result from the R&D cooperation project will predictably replace an identifiable set of existing products, these latter ones may, to a certain extent, be regarded as the bulk of the relevant market directly affected by the cooperation and, accordingly, as providing the basis for calculation of the market shares which are relevant for purposes of competition law assessment of the joint venture. Notwithstanding this reference scenario, I admit—in terms not fully coincident with the ones the Commission seems to envisage in the 2001 and 2011 Horizontal Cooperation Guidelines—that in this type of situation, the calculation of market shares is much more difficult. Therefore, while accepting the idea that one should have as a starting point for market share calculation, the set of existing products already commercialized by the participating undertakings—which will be replaced by a new generation of products arising from the joint R&D project—I consider that, under certain circumstances, it may be pertinent to include in that perimeter delimitating the relevant market affected by cooperation, other existing products which, according to the characteristics envisaged or programmed for the new goods, may also in the foreseeable future be replaced by these new generation products. That means the development and introduction of new final products may ultimately impact on a wider array of substitutability relations, including not only existing products already commercialized by the founding undertakings themselves, but also other existing products commercialized by third undertakings (provided the basic characteristics and functionalities of the generation products can be immediately anticipated). The level of complexity of such an analysis may be even further enhanced if the R&D joint venture aims at developing a product which will create a completely new demand. In these cases, it is fairly obvious that market shares of participating undertakings based on sales of existing products (even if predictably upgraded or somehow replaced by products arising from the cooperation process at stake) cannot be calculated.210 That cooperation will, therefore, lead to repercussions in innovation processes, which, in turn, will condition the shape and conditions of development of future markets of final products. In this context, the market share factor should in principle, and in quite exceptional terms, be disregarded, since its direct application and weighing is not feasible. As such, the competition law analysis, based on the remaining parameters that I have been considering,

209 See the 2001 Horizontal Cooperation Guidelines, para 53. In that point only the calculation of market shares on the basis of sales values is referred to, but, as I have already stated, that calculation may also be based on volumes of goods supplied by the various undertakings. See also the 2011 Horizontal Cooperation Guidelines, paras 46, 123 and 124 (also referring to sales values). 210 This type of situation is explicitly envisaged in the 2001 and the 2011 Horizontal Cooperation Guidelines. See respectively the 2001 Horizontal Cooperation Guidelines, para 54 and the 2011 Horizontal Cooperation Guidelines, para 126 where it is peremptorily stated that ‘If the R&D aims at developing a product which will create a completely new demand, market shares based on sales cannot be calculated. Only an analysis of the effects of the agreement on competition in innovation is possible’.

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will be focused on the repercussions in innovation processes and in the way these may condition the functioning of new markets to be developed, leading sometimes to the virtual foreclosure of such markets to third undertakings. This is the hermeneutical ratio underlying Block Exemption Regulation EU No 1217/2010 (on R&D agreements)—in accordance with the ruling contained under its article 4(1)—and which is also subscribed to in general by the Commission in the 2001 and 2011 Horizontal Cooperation Guidelines.211 On the basis of this rule of the R&D Block Exemption Regulation, those agreements (including of course joint ventures that are the main focus of my attention) that create an entirely new demand are to be treated as agreements between non-competitors, which may be exempted irrespective of market share (the calculation of which is not really feasible) for the duration of the R&D joint venture and for an additional period of seven years after the new products are first put on the market. Nevertheless, the benefit of the block exemption may be withdrawn if the joint venture eliminated effective competition in innovation (something that would be particularly associated with the situations that I have considered above of R&D joint ventures contributing to a virtual foreclosure of new product markets to be developed, thereby excluding third undertakings that do not participate in such joint ventures).212 In any case, and in terms not fully coincident with the 2011 Horizontal Cooperation Guidelines, I admit, to some extent, the possibility of weighing, at least in an indirect manner, market shares of already existing products, even in these latter situations of R&D joint ventures aiming at developing a product which will create an entirely new demand (indirect analytical processes that the Commission envisages in the 2011 Horizontal Cooperation Guidelines in connection with the so called technology markets213 but not with situations involving entirely new products). In my view, that may happen in connection with existing products that, albeit not in a strict substitutability relation with new final products to be introduced in the market, may nevertheless, due to their relative proximity to these latter ones, be affected by the creation of a new product market. Besides that, such proximity relations—although not strictly corresponding to substitutability—may also imply, under certain circumstances, that the R&D cooperation for the development of new final products creates some level of information sharing on sensitive commercial areas connected with existing products provided by the participating undertakings, thus immediately affecting the market for those products (and thus conferring some relevance to the weighing of the market shares of the participating undertakings in that market). Bearing in mind what is revealed about the praxis of R&D cooperation through the enforcement experience in this area (of the Commission and also of national competition authorities involved in the enforcement of EU competition rules), I admit that a significant number of R&D joint ventures will tend to combine—in different degrees and levels of complexity—the various dimensions that I have been considering (R&D efforts at the level of upgrade and full or partial replacement of existing products or aimed at the creation of

211

See again, in particular, the 2011 Horizontal Cooperation Guidelines, para 126. These kinds of situations are—as regards horizontal cooperation agreements in general—especially envisaged in ibid, although I tend to associate them in the specific context of R&D joint ventures with the problems of virtual foreclosure of new product markets, mentioned above. 213 See on those indirect analytical processes involving market shares as regards the assessment of repercussions of R&D agreements on technology markets, the 2011 Horizontal Cooperation Guidelines, para 125. 212

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entirely new demand). On that assumption, I consider that there is every justification for the extensive use—for purposes of assessment of R&D joint ventures—of all the various analytical parameters which rely on a calculation or estimate of aggregate market share of the participating undertakings. Furthermore, in that context one should, in general, assume as a starting point for such analytical processes a delimitation of relevant markets addressing existing products at any given moment, which may be upgraded and replaced by new products. 2.3.5.3(C) Complementary Analytical Criteria and Concentration Levels Concentration levels and the possible reinforcement of these levels in the wake of the establishment of R&D joint ventures have been rightly considered in various cases on Commission enforcement practice. Thus, in Henkel/Colgate,214 mentioned above, the Commission took into consideration the specific consequences of restriction of competition inherent in cooperation at the level of innovation that was to be developed through a joint venture created by manufacturers holding the second and fourth largest market shares in a European market of detergents which already had a high level of concentration. The Commission especially valued in its analysis the fact that effective competition in that market of oligopolistic structure depended to a large extent on intense R&D efforts in order to gain marginal competitive advantages over competitors. For that reason, cooperation in that area, particularly if it led to the elimination of all independent research activities of the founding undertakings of a joint venture—something that the Commission considered probable in the situation at stake—might lead to an effect of restriction of competition proportionally much higher than the one which would in principle correspond to the functional area in which the joint venture operated and in connection with the whole set of activities of those founding undertakings. In this case, the Commission admitted relevant concerns of potential restriction of competition but considered these should not lead ultimately to a prohibition of the agreement. It, therefore, adopted a final decision determining that the joint venture fell within the general prohibition of article 101, paragraph 1 TFEU, but with the benefit of an individual exemption under paragraph 3 of the same article. This exemption was however characterized by a relatively short duration (five years) and by the imposition of specific obligations, namely, a duty to inform the Commission about subsequent acts of acquisition of shareholdings in other undertakings or about other complementary ties that might come to be established in the future between the two participating undertakings at stake. The interesting point to note on these conditions is that, on balance, the Commission regarded as admissible the repercussions on competition that were to be expected in the context of a market presenting an already high concentration level with the proviso that it would scrutinize the future reinforcement of such concentration level (thereby implicitly acknowledging that it could negatively interfere with the way the R&D cooperation at stake might condition the functioning of that market, an assumption that I consider valid and that should be taken into account in certain market contexts). In fact, the Commission came to consider in explicit terms concentration levels in its subsequent evaluation of an extension of the exemption (sought by the parties upon the expiration of the individual exemption at stake, although under different contractual conditions 214

See Henkel/Colgate (n 178).

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for their cooperation). Although the parties effectively terminated their cooperation agreement before a decision was reached on the extension of the exemption, the Commission in that case contemplated a negative ruling, taking particular account of the high concentration level of the market affected by the operation of the joint venture. In such a context (‘oligopolistic market surrounded by high barriers to entry’),215 the potential elements of distortion of competition would be magnified by the contractual covenant according to which the two parties had to agree before a licence concerning the results of the joint R&D could be issued to a third party (thereby ‘making it unreasonably difficult for third parties to penetrate the market’).216 The degree of concentration seems also to have been of particular significance in Continental/Michelin, in which the Commission assessed an agreement related to the development and subsequent use of a new system that would upgrade the products offered by the participating undertakings. The Commission considered that such an agreement would fall under the prohibition set out in article 101, paragraph 1 TFEU, although it could benefit from an exemption based on paragraph 3 of the same article. However, it did not subscribe to the analysis put forward by the parties, according to which they would need an exemption with a minimum duration of five years, and only agreed an exemption for a period of two years (taking into consideration the strong market position of the participating undertakings and the oligopolistic structure of the market affected by that cooperation process).217 The degree of concentration of the markets that are affected by the creation of joint ventures has not always been considered in an unequivocal or consistent manner by the Commission. Thus, illustrating my previous considerations on the possible coexistence of oligopolistic structures with appreciable levels of effective competition, of particular note is the assessment carried out by the Commission in Beecham/Parke Davis.218 In this decision the Commission considered unlikely that a joint R&D programme agreed between medium-sized pharmaceutical undertakings would eliminate effective competition, although such an agreement would generate repercussions in a highly concentrated market in which the results of that kind of R&D programme would prove decisive for obtaining any relevant competitive advantages. For that favourable assessment it was of particular importance that the specific structure, highly concentrated, of the market at stake was characterized by the presence of other pharmaceutical undertakings also of considerable size and with extensive R&D programmes and productive skills of their own. Accordingly that type of highly concentrated market structure was compatible with the existence of significant alternative poles of R&D.219

215

See on that characterization, the Commission’s ‘Eighth Report on Competition Policy’, esp point 90. See ibid. 217 See Continental/Michelin [1988] OJ L305/33, esp para 29. On the whole, the Commission took into consideration for the purposes of weighing the admissible duration of the exemption the high market power of the parties in the context of a highly concentrated market. 218 See Beecham/Parke Davis [1979] OJ L70/11, esp paras 46ff. 219 These kinds of considerations have also been taken into account in the 2011 Horizontal Cooperation Guidelines, in which the Commission envisaged specific examples in the pharmaceutical sector—typically a highly concentrated area—admitting the viability of intensive and not especially distorted competition, in spite of the degree of concentration, if other significant and equally viable poles of R&D subsisted and were clearly discernible on the base of objective market factors. As stated in paras 119 and 120 of those 2011 Guidelines, ‘R&D co-operation may not only affect competition in existing markets, but also competition in innovation and new product markets. This is the case where R&D co-operation concerns the development of new products or 216

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2.3.5.3(D) The Likelihood of Entry in Markets Affected by the Creation of R&D Joint Ventures As regards a second level of factors—that I have considered above, chapter two, 2.4.5.3—in the context of a last stage of complementary and residual analytical factors within my proposed model of assessment of joint ventures, I should underline the special importance, for purposes of competition law analysis of R&D joint ventures, of the factor corresponding to the existence and relative weight of eventual barriers to entry in the markets at stake. In fact, depending on their scope—leading to the introduction of new products generating an entirely new demand or to the upgrade of existing products—R&D joint ventures may, under certain conditions, cause the emergence of new markets virtually foreclosed to third undertakings or represent, in themselves, a barrier to entry by third undertakings in already existing markets (particularly if an active presence in those markets requires a previous significant investment in those types of research activities). When using this analytical factor, some consideration should be given to the whole gamut of repercussions that may be associated with it. As rightly stressed in the US 2000 Antitrust Guidelines for Collaboration among Competitors, the fact that in certain types of joint ventures the collaboration is limited to certain functions tends to render more complex the assessment of market barriers (and of the way these will influence the competitive interplay in any given market). As stated in those Guidelines, ‘unlike mergers, competitor collaborations [which should be here understood as cooperative joint ventures for purposes of EU competition law] often restrict only certain business activities, while preserving competition among the participants in other respects and they may be designed to terminate after a limited duration. Consequently, the extent to which an agreement creates and enables identification of opportunities that would induce entry and the conditions under which ease of entry may deter or counteract anticompetitive harms may be more complex and less direct than for mergers and will vary somewhat according to the nature of the relevant agreement’.220 In reality, the creation of this type of joint venture may interfere with the conditions for entry of new undertakings in certain markets. Besides that, the way in which those entities may condition the degree of likelihood of entry of new competitors varies widely. As regards specifically R&D joint ventures these may contribute to enhance barriers to entry in certain markets or, in other circumstances, they may represent an element inducing market entry of new competitors. The first (negative) effect has already been addressed and may correspond to a supplementary element that—in combination with other factors—leads to the confirmation of a reasoning identifying anticompetitive repercussions and involving the prohibition of the agreement. This effect tends to occur, typically, in markets characterized by a special importance of investments in new technologies and by high costs associated with it, particularly

technology which either may—if emerging—one day replace existing ones or which are being developed for a new intended use and will therefore not replace existing products but create a completely new demand. The effects on competition in innovation are important in these situations, but can in some cases not be sufficiently assessed by analyzing actual or potential competition in existing product/technology markets. In this respect, two scenarios can be distinguished, depending on the nature of the innovative process in a given industry. … In the first scenario, which is, for instance, present in the pharmaceutical industry, the process of innovation is structured in such a way that it is possible at an early stage to identify competing R&D poles’ (emphasis added). 220

See the US 2000 Antitrust Guidelines for Collaboration among Competitors, point 3.35.

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if the cooperation project at stake reduces, in an appreciable manner, the remaining resources that may be channelled in the short term to other R&D projects of comparable relevance. The second (positive) type of effects also occurs with some frequency in the context of creation of R&D joint ventures. In markets that do not offer reasonable prospects of economic return or profitability in the short or medium term—in line with the high levels of initial investment costs in certain technologies and R&D activities—R&D joint ventures allowing a split of those costs and of the necessary inputs may represent a decisive aspect for some particular undertakings envisaging entry in those same markets.221 From another perspective, the conditions for market entry may represent not an aspect directly affected by the constitution of R&D joint ventures—as considered above—but merely an autonomous and pre-existing factor that, in itself, may limit potential repercussions of elements restrictive of competition inherent in some of those joint ventures. In fact, even if various analytical parameters—especially parameters included within what I have construed as the second and third stages of my global model of assessment of joint ventures—indicate possible effects of restriction of competition,222 in principle these should not be considered significant if there is a high degree of likelihood of entry in the markets at stake, which is not affected or diminished by the process of creation of the joint venture. However, this consideration of conditions determining the likelihood of entry and the relevance of potential competition must be casuistic and cannot rely on general presumptions. Therefore, if, on the one hand, I concur with the US 2000 Antitrust Guidelines for Collaboration among Competitors as regards the importance they attributed to this analytical factor—which has not always consistently been taken into consideration in the enforcement practice of the Commission—on the other hand, I consider excessive the assumption made about the same factor in those Guidelines in connection with R&D agreements. In fact, the 2000 Guidelines establish a favourable quasi-presumption in this area which is, in my view, debatable. The Guidelines consider that ‘in the context of research and development collaborations, widespread availability of R&D capabilities and the large gains that may accrue to successful innovators often suggest a high likelihood that entry will deter or counteract anticompetitive reductions of R&D efforts’.223 I think these kinds of probabilities have to be substantively assessed in each case and cannot be taken for granted.

221 I have already mentioned some views in US antitrust doctrine according to which joint ventures whose fundamental object is to allow certain undertakings to enter into some markets which rely heavily on technological resources, should be the object of an upfront favourable assessment without the need for any global or integrated consideration of such advantages with possible effects of restriction of competition (see, eg, on this the position of Thomas Pirainno in ‘Beyond Per Se, Rule of Reason, or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 36) esp 43). I do not subscribe to such extreme views, but I admit that the existence of objective conditions to demonstrate, with a reasonable degree of certainty, that a given R&D joint venture represents the only possible means for the respective founding undertakings to penetrate ex novo into a certain market should create an important quasi-presumption favourable to the competition law assessment of such a joint venture. Such a situation was, eg, assessed by the Commission in Elopak/Metal Box-Odin [1991] OJ L209/15, a case that I shall critically comment on in the closing point of this section on R&D joint ventures (below, 2.3.5.4(C) of this chapter). 222 I refer here to effects of restriction of competition at the levels that I have been considering, namely the ones related to price, quantitative output and quality of products. 223 See the US 2000 Antitrust Guidelines for Collaboration among Competitors, point 3.35.

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They will depend, among other things, on ascertaining the effective existence of technical capabilities for R&D projects that the potential interested parties may bring forward through investments compatible with the expectations of economic return arising from such research projects. Furthermore, eventual negative repercussions on existing technology markets—related to technological processes arising from R&D projects and that initiate commercialization processes through the licensing of intellectual or industrial property rights—may also be contained due to the pressure of potential competition (provided the actual relevance of this factor is duly ascertained).224 The relevant aspect to take into consideration in the context of the assessment of this type of situation will not necessarily involve ascertaining if there are third undertakings that, at any given moment, license certain types of technologies that they control. Rather, the relevant inquiry should be focused on ascertaining if those technological capabilities are held by third undertakings or not, which would predictably commercialize them (through licensing processes), in cases where the participating undertakings in a certain R&D joint venture would try to take advantage of their position to raise the prices in their own licensing of IP rights above certain critical levels. Nevertheless, I should emphasize once more that this consideration of potential competition has to rely on an empirical analysis of the existing market conditions. In fact, one may not automatically infer from the existence of third undertakings controlling certain essential technologies that they will correspond to potential competitors in the market for those technologies. It will be important to assess, on the contrary, if, on the basis of the prevailing conditions of functioning of certain downstream markets of final products— and considering the track record of those markets—these third undertakings will not, for example, be led to channel exclusively the use of such technologies to their own productive processes. Lastly, I should underline that the consideration of the possibilities of market entry by new undertakings will depend on a general evaluation of the various conditions of market entry in the market at stake. That means, on the whole, evaluating on the basis of objective factors the degree of probability of market entry by new undertakings, the competitive relevance of these new prospective players, and the time frame in which predictably new market entry may occur (entry of new competitors will have to happen in a sufficiently short time frame in order to represent an effective element for constraining the market power of the participating undertakings in a given R&D joint venture). The analysis of those types of conditions largely relies on the set of parameters developed in the context of concentration control in the framework of the MCR.225 Understandably,

224 See the 2001 Horizontal Cooperation Guidelines, para 49 and the 2011 Horizontal Cooperation Guidelines, para 118. See also Rapp, ‘The Misapplication of the Innovation Market Approach to Merger Analysis’ (n 84) and Richard Gilbert and Steven Sunshine, ‘Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets’ (1995) ALJ 569ff. 225 As I noted above, in a manner comparable to that which may be observed in the context of US antitrust law, in which the 2000 Antitrust Guidelines for Collaborations among Competitors, note the criteria to be considered concerning the degree of openness of markets to entry of new competitors and the existence of barriers to market entry to the 1992 Horizontal Merger Guidelines (since globally reviewed in 2010), also at the level of EU competition law it is pertinent, for purposes of assessment of joint ventures under article 101 TFEU, to consider the criteria outlined in the 2004 Guidelines on Horizontal Concentrations in connection with the treatment and identification of barriers to new market entry.

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the appropriate time period for new market entry is of paramount importance to assess the relevance of potential competition. At that level, one may consider in rather consistent terms, on the basis of the Commission enforcement practice of concentration control a criterion—influenced by the presumption established in the US Merger Guidelines— according to which new market entry is normally considered timely if it occurs within two years. Furthermore, the 2004 Guidelines on the Assessment of Horizontal Mergers have duly confirmed the adoption of this criterion.226 2.3.5.4 Critical Analysis of Some Relevant Case Law 2.3.5.4(A) General Approach Followed as Regards Critical Precedents Having dealt extensively in the preceding sections with the application of the general model of assessment of joint ventures that I have put forward to the subcategory of R&D joint ventures, it is pertinent now to consider some cases involving such joint ventures, that may be of particular importance in critically assessing the competition law treatment of this functional type of joint venture (albeit that I have made various references in the course of my analysis to numerous precedents in this field). However, it is important to bear in mind that the recent developments in the system of enforcement of EU competition law—following the adoption of Regulation 1/2003— combined with what may possibly represent an overemphasis on cartel cases has led to a scarcity of cases, translating into formal decisions (especially more recent cases). Also, in this context explicit decisions of the Commission concerning the application of article 101, paragraph 3 TFEU to joint ventures, and evidencing the adequate interplay in this field with the prohibition rule of paragraph 1, tend to be even more rare. On the whole, that may justify maintaining a focus on not so recent landmark decisions covering the various functional types of joint ventures in combination, whenever possible, with decisions from EU Member States competition authorities enforcing EU competition rules, and with court rulings (building on this casuistic analysis to envisage, for analytical purposes, possible paradigmatic cases and also relying incidentally on US antitrust case law).227

226 This analytical development arising from the 2004 Guidelines on Horizontal Concentrations is in accordance with developments occurred at the level of the Commission enforcement practice in the field of merger control (evidenced, inter alia, in Case M.398 Procter & Gamble/V. P. Schickedanz), which seemed also to tend towards, albeit in more indefinite terms, a time frame of two to three years. I should also add that the important development in more recent years of empirical models of analysis of the conditions of market entry of new competitors has gradually conferred a greater consistency on the use of this type of time frame of probable entry of undertakings in any given market. 227 The modernization process initiated in 2003 led, in fact, to a scarcity of formal decisions by the Commission and also to a corresponding scarcity of judicial decisions, including by national courts of EU Member States— acknowledged to some extent but not in sufficient terms by the Commission in the Staff Working Paper accompanying the Report on the Functioning of Regulation 1/2003 (Brussels, 29.4.2009, COM(2009)206 final) point 41—translating into overall terms in a lack of formal guidance on the basis of specific case law or precedents. See on these issues, inter alia, KJ Cseres, ‘The Impact of Regulation 1/2003 in the New Member States’ (2010) Competition Law Review 145ff; Francisco Marcos and Alberto Graells, ‘A Missing Step in the Modernization Stairway of EU Competition Law—Any Role for Block Exemption Regulations in the Realm of Regulation 1/2003’ (2010) Competition Law Review 183ff; O Essens, A Gerbrandy and S Lavrijssen (eds), National Courts and the Standard of Review in Competition Law and Economic Regulation (Groningen, Europa Law Publishing, 2009). See also, in general, on the relative intensity of judicial review, Ian Forrester, ‘A Bush in Need of Pruning: The Luxuriant Growth of Light Judicial Review’, in CD Ehlermann and Mel Marquis (eds), European Competition Law Annual 2009—The Evaluation of Evidence and Its Judicial Review in Competition Cases (Oxford, Hart Publishing, 2011) 407ff.

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2.3.5.4(B) KSB/Goulds/Lowara/ITT The situation analysed by the Commission in KSB/Goulds/Lowara/ITT is undoubtedly one of those important precedents, although it combines relevant aspects concerning the assessment of joint ventures and mere cooperation agreements.228 In this decision the Commission dealt with the creation of a joint venture by various water pump manufacturers in order to develop a new high-performance component, intended to withstand the greatest possible internal pressure with the thinnest possible casing (and that could serve requirements of mass production). This basic understanding was subsequently complemented by a set of cooperation agreements through which the parties looked for technical solutions that the founding undertakings (KSB and Lowara) were unable to solve.229 On this basis, the participating undertakings developed a joint programme of R&D aimed at the conception of such components. That programme envisaged, to a large extent, the individual pursuit of various tasks by each participating undertaking. These undertakings would coordinate among themselves the process of division of tasks through joint meetings, which, although not supported in a true formal and permanent structure, resembled in their nature and regularity an ad hoc committee, typical of the contractual structure of cooperative joint ventures. The cooperation model that was outlined also determined that the IP rights arising from the R&D programme would be owned by the developing party (meaning the party directly responsible for the know-how processes leading to its conception). However, each party would be entitled to a perpetual, royalty free, non-exclusive licence to such IP rights upon the termination of the agreement or such party’s withdrawal from it. In the Commission analysis of this joint R&D programme230 special importance was given to the characterization of existing relations between the participating undertakings in several markets. Considering the various relevant markets more or less directly affected by the cooperation programme, it was somehow assumed that the parties should be regarded as effective competitors in the market of conventional water pumps. That corresponded to an already existing market of a product that, in certain specific segments, could be upgraded by the new product that the parties purported to develop through their joint R&D project. However, the main repercussions of this project would be felt at the level of innovation that corresponded to a new product—a component with specific features that was to be introduced in the water pumps. At this latter level, the Commission considered the participating undertakings as potential competitors although, in my view, it did not sufficiently ground such characterization through an economic analysis of the market (even a brief one). Precisely that analytical gap may have led to unintended consequences, since the assumption concerning the existence of relations of potential competition between the participating undertakings was decisive

228 KSB/Goulds/Lowara/ITT [1991] OJ L19/25. The fact that this case also involved cooperation agreements does not invalidate the fact that the analysis pursued in the decision is paradigmatic of the evaluation of core problems of restriction of cooperation that tend to be associated with R&D joint ventures. 229 See para 9 of the decision. Thus, the initial agreement of creation of a joint venture considered in that decision was replaced by two agreements—joint research, development agreement and production agreement— although under conditions essentially resembling the operation of a joint venture. 230 The cooperation programme at stake also included a production component but, on the whole, the prevailing aspects of the collaboration were the ones related to R&D and, accordingly, that justifies a general characterization of this agreement as corresponding essentially to the functional type of R&D agreements.

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for the ruling of the Commission, determining the existence of restrictions of competition that arose from the cooperation process and falling, as such, within the general prohibition set in article 101, paragraph 1 TFEU. Thus, although acknowledging that only one of the participating undertakings (Lowara) had the basic technology necessary for the development of the new product, the Commission considered that the other parties would not be deprived of pursuing by themselves projects aimed at the conception of such a product, since they had the financial capability to obtain the necessary technological resources from other undertakings besides Lowara. In this way, the Commission seemed almost to presume that financial capability may, in itself, allow undertakings to overcome any technological limitations they may have, provided the basic technology at stake is held by more than one third undertaking. However, this should not be automatically presumed to be the case and should, at least be supported by economic analysis. I refer here to an analysis that, on the one hand, compares the technological resources held by third undertakings and, on the other hand, assesses on a realistic basis the incentives these undertakings may or may not have to provide access to the same resources. The hypothetical relation of potential competition between the parties was also a key element for the Commission analysis, according to which—and under too formalistic an approach—the participating undertakings having privileged cooperation at R&D level for developing the new product (wet end components), rather than pursuing the development of this component independently, had been involved in a ‘restriction of their freedom of action’231 (thus supposedly infringing article 101, paragraph 1 TFEU). Besides that, the Commission also based its ruling of infringement of article 101, paragraph 1 TFEU on hypothetical effects of market foreclosure. In reality, the cooperation programme, having a composite nature—although the R&D component could be regarded as the prevailing one—also contemplated aspects concerning the production of the new product that the parties purported to develop. These aspects determined that, notwithstanding the IP rights concerning the new inventions arising from the programme were owned by the party responsible for its conception (as I have already observed), that party could not freely exploit it. For the duration of the agreements the right to manufacture the new product to be developed was exclusively allocated to one of the participating undertakings, which, in turn, would provide it to the other participating undertakings. Furthermore, the agreements denied access of third parties to such new product and to the related wet end new technology arising from the R&D project, thus leading the Commission to identify effects of foreclosure of the market. However, in my view, this consideration of probable effects of third party exclusion— envisaged as a non-admissible restriction of competition—did not match in an entirely consistent manner the findings of the Commission on issues pertaining to potential competition. Thus, as I have noted above, the Commission based its findings concerning relations of potential competition between the parties on a supposed availability of basic technological resources for any undertaking interested in the research and development of the new product. On this assumption, if this availability really occurred, third undertakings interested in the development of the product would then—provided they were endowed with adequate financial capability—have the means to do it and it would not be the

231

See KSB/Goulds/Lowara/ITT (n 228) para 17.

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cooperation programme at stake that would stop them accessing innovation processes relevant for launching the product. Once more, in connection with the assessment of other possible type of effects of restriction of competition—at a level of innovation aimed at the introduction of new products and, at the same time, associated with the eventual upgrade of existing products—the Commission seems to have overvalued formal parameters when it emphasized the relevance of contractual covenants that prevented the licensing of know-how to third parties. Conversely, the Commission may have undervalued the analysis of substantive elements related to the existence of technological resources ensuring some basic conditions for the eventual success of alternative R&D programmes. In the end, it was this relative gap in economic analysis of the functioning of the market that decisively influenced the assessment concerning the two types of hypothetical effects of restriction of competition that the Commission envisaged, namely, the restriction of the freedom of action of undertakings that were supposedly potential competitors and the foreclosure of the market to third undertakings. On the whole, I consider that the Commission did not explore all the relevant angles of evaluation of the joint R&D programme for purposes of application of article 101, paragraph 1 TFEU and, as such, it precipitated somewhat an intervention based on paragraph 3 of the same article. Since the application of the Block Exemption Regulation on R&D agreements then in force (Regulation No 418/85) could not be considered, because in one of the relevant markets affected by the joint R&D programme the parties had an aggregate market share of more than 20 per cent, the Commission closed the case with an individual exemption. The decision of individual exemption for a period of six years was fundamentally based on the contribution of the R&D project at stake for improving production and for the promotion of technical progress in terms that were also passed on to consumers (this foreseeable attribution of economic advantages to consumers would result both from the fact that they would have access to an improved type of water pumps, and also from the fact that consumer access to this upgraded product was given at prices comparable to the prices set for conventional water pumps). In addition, the Commission considered that the need to develop a joint project would be justified by the purpose of full recoupment of R&D costs, while still retaining competitive prices in comparison with conventional water pumps, something that would only be feasible through the development and production of a high volume of pumps.232

232 See ibid paras 20 and 27. See also, in particular, the conclusion stated in para 29, according to which ‘Given this situation, it was logical that KSB and Lowara should take the view that the expected research and development costs could be recovered only with a high minimum volume of units, put, in the joint agreement, at 150 000 to 180 000 pumps a year. Moreover, the competitors are also of the opinion that the production costs can be recovered only with an annual production of 200 000 pumps or 50 000 identical parts. According to its own figures, KSB was able to sell in the period 1985 to 1988 an annual average of only some . . . pumps falling within the market definition. Lowara was not able to provide any figures on the number of units sold, but the value of the average sales of such pumps in the period 1985 to 1988 amounted to only some . . . % of KSB’s turnover. The Commission therefore gives credence to the assurances of KSB and Lowara that they together would not have pursued the development of wet end components as far as readiness for production, because the financial risk was too great. Thus, without the extension of the cooperation, the chrome nickel steel pump would not have reached the market. The fact that a not inconsiderable economic risk was involved is now evident following the introduction of the block I pumps on to the market, which is proceeding more hesitantly than the parties had hoped. It must therefore be assumed that, as the market leader tried to spread the risk associated with the investment among several participants, most other undertakings would have done exactly the same. Consequently, at least during an

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The Commission also assessed whether the situation created by the cooperation project gave the parties the opportunity to eliminate competition. That outcome, which would prevent the application of an exemption (under article 101, paragraph 3 TFEU), was set aside due to the pressure of competition from conventional pumps and to the uncertainty concerning the future commercialization of the new upgraded types of water pumps. In any case, considering the set of assumptions on which the exemption decision was based, the Commission required the presentation of periodic reports by the parties, through which it basically purported to check the technical progress actually obtained through the cooperation process and the market acceptance gradually obtained by the new water pumps that came to be developed (through information on sales values of pumps upgraded with the new components). However, the aspects of this decision that I deem have to do with precisely this kind of public interventionism and these related requirements of special scrutiny of the relevant market situation, which arose from the initial ruling of the Commission, concerning a supposed breach of general prohibition set out in article 101, paragraph 1 TFEU. As I observed above, a different type of analysis of the markets affected by this cooperation process—with a less formalistic approach—might eventually have led to a different conclusion determining the inexistence of a competition law infringement.233 2.3.5.4(C) Elopak/Metal Box-Odin Conversely, the Elopak/Metal Box-Odin decision seemed to signal a more flexible approach on the part of the Commission. In this case the Commission was able to conclude that the joint venture at stake did not infringe the general prohibition in article 101, paragraph 1 TFEU (without the need to apply the exemption regime of paragraph 3 of the same article).234 However, this greater openness to realistic economic analysis—that allowed a decisive ruling in this case of inexistence of any relevant potential competition relations between the participating undertakings in the joint venture at stake—was not consistently assimilated in the subsequent enforcement practice of the Commission and still cannot be taken as the consolidated approach of the Commission. The joint venture analysed in this case involved a Norwegian group (Elopak) conducting business in the manufacture and commercialization of cartons and filling machines for fresh milk, and a British group (Metal Box) which manufactured and commercialized a broad range of packages for foods, beverages and other products. The joint venture (Odin Developments, Ltd) established by those two groups was aimed at an R&D project that

appropriate introductory period, it is understandable that KSB and Lowara preferred cooperation with Goulds and ITT to other arrangements, despite the abovementioned effects on competition. The arrangement they opted for has the advantage of combining the benefits of technical cooperation in research and development and an assured volume of the wet end components. In view of the above, the Commission considers that the cooperation between the participants in the development of the new pump was indispensable’. 233 In fact, cases with comparable characteristics would most probably be the object of a rather straightforward favourable assessment in the context of the US antitrust system (through the application of rule of reason criteria. On the development of this type of analysis concerning R&D joint ventures with certain characteristics in the context of the US antitrust system, see, eg Gutterman, Innovation and Competition Policy: A Comparative Study of the Regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Community (n 43) esp 364ff. 234 See Elopak/Metal Box-Odin (n 221).

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would develop a new form of cardboard packaging with a separate, laminated lid to be filled aseptically with shelf-stable, UHT-treated sold foods. It would also develop filling machinery for the new packaging. According to the conditions set for the operation of the joint venture, IP rights held by founding undertakings that were relevant for the purposes of the agreement would be licensed to the joint venture. The venture would also be the owner of any IP rights related to improvements arising from the R&D programme.235 It was also agreed that participating undertakings would keep their freedom to conduct R&D independently, or with third parties, in the field of packaging for shelf-stable foods, provided they did not use in such processes the know-how of the other party in the venture, which was licensed to Odin. They could use in such alternative processes of R&D with third parties any of Odin’s improvements, except as otherwise determined in the agreement. It was also established that upon dissolution of the joint venture, the subsequent sale of shares by one party to the other or the winding-up of the venture, and for five years thereafter, neither party could share the know-how of the other party or generated by Odin with any competitors.236 As briefly touched upon above, the key aspect in this case for the favourable assessment in the context of application of article 101, paragraph 1 TFEU had to do with the assessment of eventual relations of potential competition between the founding undertakings. Thus, the Commission, stepping back from the more formalistic approach followed in other cases, reached the conclusion that the founding undertakings would not be potential competitors as regards the products to be developed on the basis of the R&D activities of the joint venture. In that sense, the Commission placed great value on the fact that neither of those undertakings, by itself, controlled the technology or know-how necessary for the aseptic filling of cardboard cartons for the packaging of solid or liquid foods. Each of those undertakings only partially controlled some of the relevant elements for the development of the new product, but, in objective terms, neither of them could enter the market separately, introducing the product at stake, because such market entry would require knowing the technology of the other party, something that could not be achieved ‘without significant and time-consuming investment’.237 Following an analytical line that I consider correct, but to some extent in an opposite sense to the analytical methodology adopted in multiple other decisions or investigations, the Commission did not presume here, in abstract terms, any ability for the individual development of the necessary technology, supposedly based on the financial capacity of the involved undertakings and on a theoretical possibility—not tested on economically realistic terms—of obtaining the necessary resources from third undertakings. On the contrary, the Commission took into consideration substantive aspects—in the context of the market at stake—related to the experience and resources actually available for the founding undertakings at the time of establishment of the joint venture and the intensity of the technical and commercial risks related to the development of the new product,

235 See ibid paras 7ff. Furthermore, the parties would have the possibility of obtaining non-exclusive licenses (without the ability to license third parties) in order to explore upgrades obtained in the field by the JV Odin Developments Ltd, provided that such explorations would occur outside the area covered by the agreement or in case the joint venture decided not to explore the technology at stake in some particular Member States. 236 See ibid para12. 237 See ibid para 25.

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which would eliminate in practice any possibility of any of the partners developing on its own the R&D at stake. The qualitative change of the analytical methodology underlying this important decision in Elopak/Metal Box-Odin was, therefore, anchored in employing probability estimates supported at some level of economic analysis that relied on pre-existing substantive elements (instead of delineating mere abstract or speculative hypothesis of penetration of the founding undertakings in certain markets).238 This methodological shift, if duly consolidated, would enhance legal safety for undertakings involved in R&D joint ventures, rendering less frequent the identification of relations of potential competition between founding undertakings of joint ventures (which, in turn, would allow undertakings to expect favourable assessments of a more significant number of these situations for purposes of application of article 101, paragraph 1 TFEU, without having to rely on paragraph 3 and the corresponding burden of proof). Of course, the scarcity of formal decisions of the Commission since the 2003 reforms also played a role in the lack of a widespread consolidation of the methodological shift indicated by Elopak/Metal Box-Odin. In this decision the Commission also considered that outside the scope of the joint venture, the participating undertakings were not in upstream, downstream or neighbouring markets, that could realistically lead to any spillover effects, restrictive of competition (meaning here spillover effect, in a narrow sense in accordance with the legal terminology that I have outlined above, 2.3.5.2(E) of this chapter). Lastly, the Commission did not omit an assessment of possible market foreclosure effects that could hypothetically arise from the fact that the know-how generated by the joint venture would not, in principle, be shared with other undertakings. The assessment conducted by the Commission led it to conclude that various undertakings operating in markets related to the markets of the founding undertakings controlled diversified technological resources—even superior to those individually held by the founding undertakings—thus rendering improbable any effect of market foreclosure. Accordingly, bearing in mind either the inexistence of effects of restriction of competition—at a level of innovation leading to the introduction of new products—because the founding undertakings did not act as potential competitors, or the inexistence of market foreclosure effects, the Commission was able to conclude that the joint venture at stake did not infringe article 101, paragraph 1 TFEU.239

238 In reality, assessments to establish degrees of probability based on merely formal elements—of which are to some extent representative and paradigmatic, eg, the references made in KSB/Goulds/Lowara/ITT, considered above, to foreseeable relations of potential competition between the parties involved in the case, that looked plausible—are, by definition, contradictory, since such assessments should always be based on substantive or empirical elements. On the necessity of a realistic economic analysis of factors which may consistently support the consideration of relations of potential competition and on the ability of undertakings to comprehend certain strategic initiatives in any given markets, see David Besanko, David Dranove and Mark Shanley, Economics of Strategy (Chichester & New York, John Wiley & Sons Inc, 2000). This approach has been predominantly developed in the context of US antitrust law through empirical analytical models of the conditions of market entry, as, eg, those which rely on criteria of ‘minimum viable scale’, which imply evaluations, in substantive terms, of fixed cost of market entry that represent, in certain market conditions, to a large extent, actual sunk costs, not fully recoverable (which comprise typically, at least in certain markets that rely on a fundamental technological component, costs associated with R&D programmes). 239 The Commission concluded that the agreement did not contain any unnecessary restrictions of competition—beside the basic features and arrangement of the joint venture—that would fall within article 101, para 1 TFEU. See Elopak/Metal Box-Odin (n 221) para 35.

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2.3.5.4(D) Reference to More Recent Case Law In this section on relevant precedents specifically concerning R&D joint ventures some brief mention should still be made of Continental/Michelin and Pasteur Mérieux-Merckl (and even briefer, concluding references to certain more recent cases).240 Both decisions dealt with joint ventures created in markets of oligopolistic structure and incorporating important elements of R&D. Particularly in the case of Continental/Michelin, the entity at stake could, in fact, be construed as an R&D joint venture whilst in Pasteur Mérieux-Merckl, the entity under evaluation was a joint venture of a more complex type, combining various entrepreneurial functions, but in the context of which R&D functions could be considered of paramount importance. In Continental/Michelin, the Commission analysed the creation of a joint venture between two of the greatest manufacturers of tyres in the EU market which was aimed at the development of a new type of tyre (that could be used over longer distances even if they were flat).241 The development of this new type of product, beside involving technical problems that would be hard to solve, would also imply—in order to ensure its effective introduction in the market—certain changes in manufacturing patterns of the automobile industry. Although each of the participating undertakings had developed autonomous research programmes in order to devise the best technological solutions, and one of those undertakings happened to be at a more advanced stage in the conception of the new product, the parties acknowledged that it would be mutually advantageous to share the results of their previous research and, on that basis, to build up a joint research project. In reality, the complexity of the technical problems at stake raised doubts about the ability of each of the parties to find separately adequate solutions (at least in a reasonable time frame). Beside the cooperation strictly connected with the R&D necessary for the launching of the new product, the parties should still cooperate for purposes of developing the initial stages of commercialization of that product, notwithstanding the fact that it would be introduced in the market autonomously by each of the participating undertakings under their own trademarks and in a context of competitive relationship between those same parties (also the new products to be commercialized by each of the participating undertakings, under their own trademark, would not be entirely identical, although based on an identical system resulting from the joint R&D project). Furthermore, the IP rights associated with technological basis of development of the new product would be owned by the joint venture. This exclusive attribution of IP rights to the joint venture, in fact, deprived the founding undertakings of the freedom to separately license the IP rights to third parties. The Commission considered that the joint venture at stake and the cooperation system on which it was based involved restrictions of competition falling within the prohibition set out in article 101, paragraph 1 TFEU.242 It essentially identified three restrictions of competition. In the first place, according to the Commission, the parties would have abdicated the possibility of independently developing a new product. In fact, although there were no explicit contractual covenants that precluded independent initiatives related to the

240 241 242

See Continental/Michelin (n 217) and Pasteur Mérieux-Merckl [1994] OJ L309/1. See Continental/Michelin (n 217) para 4. See on the characterization of those restrictions of competition, ibid paras 13–17.

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introduction of the new product, the cooperation system that was established would predictably eliminate any incentives to those independent activities. In practice, the participant undertakings would concentrate their efforts—in the context of the joint project—in view of developing the new product and, in the process, they would give up their own initiatives which would, in turn, entail—in a wording employed in various decisions of the Commission—a ‘restriction of their freedom of action’.243 In the second place, the Commission underlined that the joint exploration of any IP rights related to the know-how emerging in the course of the joint R&D programme, through the exclusive attribution of such rights to the joint venture, effectively deprived the participating undertakings of any ability of separately licensing third parties. Although under the terms of the agreements at stake the joint venture could, upon request by one of the parties and following consultation with the other, grant to third manufacturers licences concerning IP rights associated with the new product, the Commission reached the conclusion that the layout of the joint venture would imply that any licensing of third manufacturers would depend in practice on a common agreement of the parties. Accordingly, on the whole, the joint exploration of patents and know-how through the joint venture would also correspond to a restriction of competition. Lastly, the Commission took into consideration the restrictions to the freedom of action of the parties as regards the initial stage of commercialization of the new product. In fact, the parties had been engaged in a process of mutual information six months before the introduction of the new product in the market, as well as in concerted behaviour for the purposes of presentation of the new product to public authorities and of its technical presentation to manufacturers of automobiles. In spite of identifying these three supposed restrictions of competition, the Commission granted an individual exemption (on the basis of article 101, paragraph 3 TFEU), thus allowing the creation of the joint venture and the functioning of the cooperation system associated with it.244 For that purpose, the Commission conferred particular importance on the fact that the scope of the cooperation process at stake was relatively narrow— basically limited to a pre-industrial stage of development of the new product—and allowing, therefore, considerable room for the differentiation of the products provided by the participating undertakings (thus allowing these undertakings actively to compete in the commercialization of the new products). The Commission also positively valued the stated intention of the parties of licensing elements of the new technologies to be developed in the framework of the R&D project to any interested competing entities. In general terms, the Commission also considered that there was evidence of the contribution of the R&D project to the upgrade of the production and the promotion of technical progress. That would result from the innovative features and the manifest benefit to consumers of the new product (which would significantly enhance the safety conditions for end users). At a different level, the need to cooperate in order to create conditions for the introduction of the product in the market—in spite of the strong market position held by the parties—resulted from the fact that such a product

243

See ibid para 13. In this case, the fact that the parties held an aggregate market share far beyond the 20% threshold contemplated in the R&D Block Exemption Regulation then applicable prevented the application of a block exemption (see ibid para 21). 244

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required changes in the manufacture of vehicles that the respective manufacturers would not be willing to consider if the new type of tyres was offered by only one undertaking. On these grounds, and adopting a rather original formulation for its decision, the Commission ultimately granted three specific individual exemptions of different duration, in connection with each of the types of restrictions of competition that it had previously identified. Although such grounds considered for the individual exemptions were not fundamentally questionable, I submit that the Commission did not take its analysis concerning the application to the case of the general prohibition rule of article 101, paragraph 1 TFEU to the fullest (and desirable) extent possible. In reality, the restrictions to the freedom of action of the parties that were identified should not, in my view, have been immediately and individually construed, within a formalistic perspective, as restrictions of competition falling under that general prohibition rule. Furthermore, since those supposed restrictions of the freedom of action of the parties took place in the context of the introduction of a new product of manifest interest to consumers, the feasibility of each was not a straightforward conclusion in the absence of the cooperation process. One of the key factors to justify any characterization of the supposed limitations of the ability of the parties for carrying out autonomous activities as an appreciable restriction of competition should involve an adequate weighing of the high market power of those parties, considering their market shares and the high concentration levels of the market. However, there was a clear gap in the Commission’s assessment at that point. Although the Commission identified aggregate market shares of the parties in the relevant markets affected by the cooperation that appreciably exceeded the 20 per cent threshold, and also stressed that such cooperation allowed the participating undertakings a temporary advance that the other manufacturers would have difficulty in meeting, it failed to assess—in an economically grounded fashion—the actual repercussions of the limitations of the freedom of action of the parties deriving from their market power and from the concentrated structure of the markets in which they operated. In Pasteur Mérieux-Merckl, as I have already noted, the Commission dealt with the creation of a joint venture of a complex type, combining several functions in view of organizing the activities of the parties in the field of human vaccines and other related activities.245 In spite of that complex nature, the R&D functions assumed considerable importance and there is good reason for focusing attention on the way the Commission assessed certain repercussions of the joint pursuit of those functions on the competition process. Thus, as regards R&D activities the Commission underlined that, while the parties had kept their autonomy concerning decisions in that matter, especially in connection with initial stages of clinical work and basic research, that were clearly far away from a commercialization stage, the establishment of a development committee of the joint venture, in the context of which those R&D activities of the founding undertakings would henceforth be discussed, could lead to a coordination of basic research activity between those entities

245 See Pasteur Mérieux-Merckl (n 240) paras 36ff. The functions to be pursued through the joint venture at stake, of a complex or composite type, included, namely, the creation and development of new multiuse vaccines from which considerable benefits to public health could be obtained, the distribution of existing and new products in countries in which these were not yet commercialized, or in which the products would not actually be commercialized without the establishment of the joint venture, and also future research in the field of new vaccines oriented to specific European requirements and of new related technologies.

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(furthermore, the Commission also took into consideration the probability that this type of coordination had already occurred in the context of another joint venture that the same parties had established in the US).246 Against this background, the Commission, bearing in mind the important position of the parties in the market of vaccines (they had an important presence worldwide and their budget for R&D was significant), admitted that such coordination was bound to provoke a substantial effect on R&D concerning the initial stage of development of the products in the EU market. As with the analysis developed in Continental/Michelin—also concerning a market with an oligopolistic structure—this assessment of possible appreciable effects of restriction of competition, arising from limitations of freedom of action in the area of R&D, already comprises a more specific and grounded weighing of the market power of the parties and of the degree of concentration of the affected markets. Also at the level of R&D, the Commission took equally into consideration the probability of a continuous and wide flux of information exchange between the parties that could induce restrictions of competition as well (particularly in connection with the quantitative output and quality of the products provided by the participating undertakings, which relied extensively in the basic research at stake). In general terms, the Commission considered that the joint venture would lead to restrictions of competition affecting products at an initial stage of development in the course of R&D processes, also underlining negative effects upon third parties, since the venture would also contribute to limit the access of competing undertakings to the technology related to certain vaccines. The continuous cooperation between the parties in these areas of basic research would also, in all probability, lead to negative effects on potential competition between the parties, in connection with various groups of vaccines to be introduced in the market. This distortion of potential competition between the parties—involving relations of potential competition duly assessed through an economic analysis of the market (that was notably absent in other decisions of the Commission)—would have far reaching consequences for the competition process in general, given the significant position of the parties in the various relevant markets of vaccines that were at stake. Other more recent cases illustrate that various R&D joint ventures or similar arrangements continue, perhaps too frequently, to give rise to the application of article 101, paragraph 3 TFEU (instead of being admitted, with an entirely different burden of proof on the involved undertakings, on the basis of a weighed or global effect ascertained at the level of article 101, paragraph 1 TFEU). The burdensome submission of undertakings to paragraph 3 of article 101 in the context of R&D joint ventures of intrinsic merit for the competition process may either lead the involved parties to abandon potentially interesting R&D projects, as happened, for example, in the 2004 Microsoft/Time Warner/ContentGuard/JV case (related to a project which, although defined as a merger notified under the MCR, largely corresponded to an actual R&D joint venture),247 or subject certain joint R&D projects to rather strict or heavy conditions, even when such projects would be of undeniable benefit in coping with uncertain demand or to developing a new market (as happened, eg, to some extent, in General Electric/Pratt & Witney).248

246 247 248

See ibid para 64. See Microsoft/Time Warner/ContentGuard/JV (2004) COMP/M.3445. See General Electric/Pratt & Witney [2000] OJ L58/16.

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3 Production Joint Ventures 3.1 General Overview—How to Define and Qualify Production Joint Ventures 3.1.1 The Concept of Production Joint Venture Production joint ventures are entrepreneurial structures aimed at the integration or creation of resources or production infrastructures which are often, though not necessarily, aimed at the manufacture of a new type of product or the improvement of certain categories of products.249 Furthermore, and as I have already mentioned in connection with joint ventures generally subject to the regime set out in article 101 TFEU, in order to treat these entities as an autonomous subcategory different from mere cooperation agreements, they are required to show a minimum degree of entrepreneurial integration.250 In this regard, it should be borne in mind that in the area of pursuit of entrepreneurial production functions in a narrow sense,251 cooperation agreements may assume a variety of formats, a great number of them not typically matching the pattern of joint venture creation. Therefore, taking into account the systematization adopted by the Commission in the 2001 and 2011 Horizontal Cooperation Guidelines, and also the Block Exemption Regulation on Specialization Agreements,252 we may distinguish between the so called unilateral specialization agreements, reciprocal specialization agreements and joint production agreements. Typically in the context of the first sub-type of agreements, one of the undertakings involved in the cooperation process undertakes to cease or reduce the manufacturing of certain products and to acquire them from a competitor, with the latter, in turn, undertaking to manufacture and supply such products. In the context of the second sub-type of agreement identified above, two or more undertakings establish with each other, reciprocally, the termination or reduction of manufacturing of various products and accept,

249 For several characterizations of this subcategory of production joint ventures—from a US and EU perspective—see, inter alia, Gutterman, Innovation and Competition Policy: A Comparative Study of the regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Union (n 43) esp 148ff and 327ff; Frank Fine, ‘EEC Antitrust Aspects of Production Joint Ventures’ in (1992) The International Lawyer 89ff, and Mergers and Joint Ventures in Europe—The Law and Policy of the EEC (London, Graham & Trotman/ Martinus Nijhoff, 1994) esp 384ff; Nicholas Green and Aidan Robertson, Commercial Agreements and Competition Law—Principles and Procedure in the UK and EC (London, The Hague, Boston, Kluwer Law International, 1997) esp 794ff; Joseph Brodley, ‘Antitrust Law and Innovation Cooperation’ (1999) JEP 97ff; Carl Shapiro and Robert Willig, ‘On the Antitrust Treatment of Production Joint Ventures’ (1990) JEP 113ff; David Mowery (ed), International Collaborative Joint Ventures in US Manufacturing (Cambridge, Ballinger Publishing Company, 1988). 250 Consider again here the points noted above, 2.1 of this chapter, in the context of the analysis of the subcategory of R&D joint ventures, and, more broadly, the aspects concerning the overall characterization of joint ventures under EU competition law, above ch 1, esp 1.2 and 5.2. 251 For a concept of production in a narrow sense, see Jean Tirole, The Theory of Industrial Organization, (London, MIT Press, 1988) and P Mariti and RM Smiley, ‘Cooperative Agreements and the Organization of the Industry’ (1983) J Ind Ec 31ff. 252 Regulation (EU) No 1218/2010, on the application of article 101, para 3 TFEU to certain categories of specialization agreements.

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within the scope of the cooperation, to mutually supply the types of products on which they have focused their activity. Hence, an essential element of such specialization agreements is the existence of cross obligations of supply and purchase, which correspond then to a requirement for the application of the Block Exemption Regulation. Those obligations may, naturally, have repercussions at various levels of the competition process, especially in various markets for intermediate products, required for manufacturing final consumer goods that are commercialized by participating entities in such cooperation agreements. Conversely, such obligations to supply and purchase must not be especially valued as such, and irrespective of the set of actual non facere obligations (obligations to refrain from developing a certain production activities), undertaken, by definition, by competitors which may be involved in these kinds of cooperation processes. In reality, without these latter covenants, implying a prior competitive relationship between those entities, the cooperation ties at stake would be reduced to mere subcontracting agreements, that would correspond, in that case, to vertical agreements (which would, accordingly, be subject to the EU regime applicable to vertical restraints)253 with two exceptions mentioned in the Horizontal Cooperation Guidelines and concerning subcontracting agreements between competitors and subcontracting agreements between non-competitors which involve transfer of know-how to the subcontractor. Lastly, the joint production agreements are, in accordance with the generic description given in subparagraph (d) of article 1, paragraph 1 of the Block Exemption Regulation, agreements ‘by virtue of which two or more parties agree to produce certain products jointly’. This sub-type of agreement may assume various forms, comprising namely, the manufacturing of certain products by the various undertakings involved in the cooperation, through the assignment of joint tasks and of specific tasks between those entities and their respective direct carrying out by the same undertakings, or, alternatively, through delegating the manufacturing process to a joint venture, participated in by the undertakings at stake.254 In this latter situation, and considering only the most common cases, the manufacturing of a given product may be exclusively attributed to the joint venture created for such purpose, or even attributed also, simultaneously, to parent undertakings. It should be emphasized that, since the adoption of the first Block Exemption Regulation on Specialization, back in 1972,255 there has been a progressive widening of the cooperation situations potentially covered by such an exemption. Ultimately, such normative evolution determined a more comprehensive coverage of situations involving the creation

253 Covered in that case by the EU regime on vertical agreements resulting from the Block Exemption Regulation (EU) No 330/2010, which replaced former Regulation (EC) No 2790/99, and the 2010 Guidelines on Vertical Restrictions, with the two exceptions mentioned above contemplated in the Horizontal Cooperation Guidelines. 254 I refer here mainly to the manufacturing of products in a broad sense (including final and intermediary goods), but it will also be possible to consider, for these purposes, certain situations regarding supplying entities as service providers, especially if these are somehow associated with or incorporate certain goods produced by the parties under the cooperation at stake. Regulation (EU) No 1218/2010, on specialization agreements and which is, as previously highlighted, of great relevance for the assessment of production joint ventures, covers situations concerning both the supply of goods and of services (with the exception in this latter case of ‘distribution or rental services’, as established in article 1, para 1(f) of Regulation (EU) No 1218/2010). 255 I refer hereto Regulation (EEC) No 2779/72, [1972] OJ L292/23.

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of production joint ventures. Actually, it was only with Regulation No 417/85256 that the block exemption came to include the agreements through which participating undertakings undertook the joint production of certain goods and excluding, at the same time, the autonomous manufacturing of such goods and, lastly, with the more recent Regulation (EC) No 2658/2000, those joint production agreements were placed within the scope of the exemption, irrespective of whether they were combined with autonomous production processes or not (an approach also taken by Regulation EU) No 1218/2010, currently in force).

3.1.2 General Characterization of Production Joint Ventures Notwithstanding the fact that in certain situations joint production processes may be developed—in accordance with the terms described above—through the apportionment of tasks among participating entities in the cooperation system, the business practice in this area evidences that, rather often, the complexity and the organization levels underlying the production process in any given situation, or the particular degree of difficulty underlying the introduction of new types of products or their entry ex novo into certain markets, require or at least render advisable, the carrying out of such projects through the creation of a joint venture. This need has become more intense—as noted—with the gradual transition towards a new enterprise organization logic, characterized by the setting aside of the previous mass production systems, relying upon vertical integration schemes and on considerable accumulation of tasks within the same entrepreneurial structures.257 In this context, even when groups of undertakings favour autonomous commercialization strategies or do not opt to pursue concentration policies, the entities that I have already qualified as internal type joint ventures (or joint ventures inducing changes of an internal type in their parents, referred to above, chapter one, especially 1.2)—due to the fact that they do not have direct access to the market—have grown increasingly important. In this category of internal type joint ventures, production joint ventures play a considerable role, not only—as one may assume—for small and medium-sized undertakings, in order to allow them to entry in certain markets, but also as an essential element of the global strategy of groups of larger undertakings. This need for or convenience of developing joint production processes typically tends to involve levels of complexity that require autonomous organizational structures—through the paradigmatic vehicle that joint ventures represent. These more complex situations of joint production that tend not to be compatible with mere contractual systems of looser cooperation, relying on a minimum degree of institutional coordination, occur, in particular, in entrepreneurial sectors predominantly relying on innovation processes and on a shortening of the products’ life cycles. Moreover, this type of dynamics is becoming 256 I refer to the block exemption regime established in Regulation (EC) No 417/85—as amended by Regulation (EC) No 2236/97—which preceded the legal regime set out in Regulation (EC) No 2658/2000. On the features of the 1985 regime, see Fine, Mergers and Joint Ventures in Europe (n 249) esp 485ff. 257 On the consequences and basic features of this new global logic of organization of undertakings and entrepreneurial activity, see, in general, above 1.2 and 2.1 of this chapter. This overall transformation of business organizations is also addressed and commented on above, in ch 1, esp 1.4.1.2 and 1.4.1.3, where I sought to identify the main reasons justifying the special importance in the current business environment of processes of cooperation processes between undertakings, particularly through the creation of joint ventures.

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increasingly important in the operation of a widening set of sectors, in a global framework that, following the characterization of Richard Nelson, I have already depicted as a progressive diversification of the institutional sources of innovation and know-how, directly impacting on the organization of production processes.258 Hence, even in more traditional sectors, usually characterized by high levels and high costs of gross fixed capital formation, and by a concomitant predominance of groups of larger undertakings, such as the automobile industry or the energy sector (eg the very capital intensive oil sector), production joint ventures have been proliferating, often involving some of the biggest manufacturers in those sectors.259 Besides that, the frequent option of organizing joint production processes through the creation of joint ventures, to the detriment of looser cooperation arrangements relying on apportionment of tasks among various undertakings, results not only from conditioning factors of an operational nature—on which the feasibility of specific production projects depends—but also, and increasingly, from overriding strategic approaches adopted by undertakings, favourable to their re-sizing and to a greater flexibility of their own structures.260 This approach of industrial decisions involving an active quest for structured and durable partnerships through joint ventures, may, at the level of the theory and praxis of industrial organization, come to be related with recent doctrinal debates—mostly in the context of the US legal system—around possible evolutions and new directions of antitrust. These would involve updating the foundations of antitrust setting forth productivity growth as the basic goal of antitrust policy and employing tools like industry structure analysis and locational analysis to evaluate potential impacts on competition (marking a shift from economic and legal analytical models aimed at static economic efficiency, towards dynamic economic models, aimed at productivity increase, although these considerations should, in my view, be considered in a balanced manner that does not presume to re-shape all the intellectual foundations of antitrust).261 Production joint ventures may, naturally, assume various legal forms. However, the need to endow them, on a permanent basis, with significant assets—namely factory facilities or

258 In this regard, I take into consideration, eg, the analysis of Richard Nelson in ‘US Technological Leadership: Where did it Come From and Where did it Go’ (n 12) 119ff. 259 On the growing importance of the creation of joint ventures in the oil sector, see ‘The Impact of Joint Ventures on Competition—The Case of Petrochemical Industry in the EEC’, Final Report, Commission of the European Communities, edited by Giuseppina Gualtieri, Brussels, Luxembourg, 1991, and M Adelman, The World Petroleum Market (Baltimore, The John Hopkins University Press,1972) esp 83ff. For a similar analysis in the automobile sector, see Mark Hogan, ‘The General Motors–Toyota Joint Venture: A General Motors Perspective’ (1999) AB 821ff. 260 In that respect, see ‘The Impact of Joint Ventures on Competition—The Case of Petrochemical Industry in the EEC’ (n 259) 19, where we find references to ‘a new approach of industrial decisions in which joint ventures are entered into as one of the firms’ key corporate strategy decisions, to cope with the competitive challenges of rapid technological change, increased interdependencies and global competition’. 261 On this doctrinal debate, see, eg, Michael Porter, ‘Competition and Antitrust Toward a Productivity-Based Approach to Evaluating Mergers and Joint Ventures’ (2001) AB 919ff. This author purports to ‘contribute thinking on how the intellectual foundations of antitrust might be updated, based on a large body of theoretical and empirical research on company strategy, competition, and economic development. The aim is to outline a new direction for antitrust that can be incorporated into governmental policy and legal practice and pursued in litigation and legislation…. This new thinking sets forth productivity growth as the basic goal of antitrust policy and employs tools like industry structure analysis and locational analysis to evaluate potential impacts on competition’; see also Charles Weller, ‘Harmonizing Antitrust Worldwide by Evolving to Michael Porter’s Dynamic Productivity Growth Analysis’ (2001) AB 879ff.

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others—often leads to the adoption of the corporate form (the creation of corporations under joint control of the participating undertakings). Still concerning the legal layout of cooperation contractual systems on which, as a rule, the functioning of this joint venture subcategory relies, it should be noted that in many situations, the basic agreements concerning the creation of the joint venture, the initial contributions of parent undertakings and the forms of exercising joint control by those parents are complemented, depending on the specific case at stake, by a more or less complex set of related agreements. Such agreements may refer, among other issues, to technology and know-how transfers in favour of the joint venture, to intertwined cooperation processes in R&D areas of paramount importance to the manufacturing of the product at stake, to forms of allocation of the joint venture’s production, or even to the carrying out of limited functions of commercialization of certain products. Conversely, the full development of commercialization functions, complementary to joint production functions will tend to approximate the ventures at stake to joint ventures performing all the functions of an autonomous economic entity covered, as such, by the regime of the MCR. Thus the existence of mixed or complex type joint ventures, in which production functions are associated with other relevant entrepreneurial functions is fairly common. In those cases, the eventual legal and economic qualification of such entities as production joint ventures mainly depends, as previously noted,262 on the application of a criterion of degree of integration of the various functions combined under the joint venture (as mentioned, I do not particularly value other cumulative criteria proposed by the Commission in the 2001 and 2011 Horizontal Cooperation Guidelines). Therefore, a complex type joint venture which carries out various functions, such as the joint production of goods, may be qualified as a production joint venture in the event the degree of integration observed as to this last function is qualitatively much higher than that of other functions. That would tend to happen, for example, in cases where the joint production project has been the one determining the transfer of organized production infrastructures to a new autonomous entity with its own corporate bodies, while the carrying out of other functions did not arise from the joint provision of assets directly related to it, but rather from mere secondary obligations to make other ancillary inputs to the joint project at stake. Without prejudice of the effectiveness of this analytical criterion, in order to identify real production joint ventures, it must be borne in mind—as will be observed through the analysis of the Commission enforcement practice—that the cases of a complex combination of R&D and production functions are by no means uncommon.

3.2 Typical Aims Underlying the Creation of Production Joint Ventures 3.2.1 The European Commission View The Commission has often enunciated the main goals commontly underlying the creation of entities that may be qualified as production joint ventures, and that must be taken into 262 On the criteria used to qualify joint ventures, classifying them under various functional types, see above ch 2, esp 1.3 and 1.4ff. As mentioned there, I only partially agree with the criteria proposed by the Commission in its 2001 and 2011 Horizontal Cooperation Guidelines in this respect.

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consideration for purposes of enforcement of EU competition rules. Although such analysis has, on the whole, accurately identified the main goals of these cooperation processes, I submit that, to a certain extent, a critical revision of its overall reach is justified, in light of the more recent evolution of industrial organization models.263 In fact, a gradual change in the motivations determining the creation of this sub-type of joint venture may be perceived, in the context of which, strategic medium and long term goals tend to override shorter term goals related to the size of undertakings or with certain of their own internal needs.264 In its Fifteenth Report on Competition Policy, and in later Reports,265 the Commission has set out as essential goals underlying the creation of production joint ventures, among others, the following: Integration of the internal market through cooperation processes; Creation of conditions for investing whilst undertaking greater risks; Promotion of innovation and of technology transfers; Development of new markets; Reinforcement of the competitive position of small and medium-sized enterprises; Elimination of excesses of structural capacities in certain sectors. The Commission also tended to mention goals concerning the improvement of competitiveness of the European industry, within an approach excessively influenced by more traditional industrial policy considerations—and, for that reason, currently almost set aside, in spite of a revival under an entirely new form of industrial policy (while also failing to reflect, at a micro-economic analytical level, the substantive motivations actually leading undertakings to the creation of this sub-type of joint ventures). More recently, the 2010 Block Exemption Regulation applicable to Specialization Agreements also explicitly, however broadly, addressed essential goals that tend to be associated with joint production agreements, including joint ventures with such an object (as well as other forms of cooperation in this production area). Thus, in Recital 6 of Regulation No 1218/2010, references are made to relevant goals in this area, such as ‘improvement of the production or distribution of goods’, through the ‘concentration’ of participating undertaking activities ‘on the manufacture of certain products’, in order to ‘operate more efficiently and supply the products more cheaply’.266

263 On the necessary connection and interaction between the normative building of competition law rules— especially concerning rules applicable to cooperation projects—and analysis developed within the industrial organization theory or, following a terminology frequently preferred by economic doctrine in Europe, industrial economy theory, see, Scherer and Ross, Industrial Market Structure and Economic Performance (n 207) esp 4ff. 264 On that change towards long-term strategic goals which tend to overlap short-term goals, see ‘The Impact of Joint Ventures on Competition—The Case of Petrochemical Industry in the EEC’ (n 259) 19 and Bennett Harrison, Lean and Mean: The Changing Landscape of Corporate Power in an Age of Flexibility (New York, Basic Books, 1994). Likewise, in the specific context of the restructuring of European industries, in which not only concentrations but also joint ventures tend to appear as an alternative to more drastic restructuring processes relying upon internal reorganization of corporate groups, see Roy Smith and Ingo Walter, ‘Economic Restructuring in Europe and the Market for Corporate Control’ and Paul Geroski, ‘Entry, Exit and Structural Adjustment in European Industry’ both in Karel Cool, Damien J Neven and Ingo Walter (eds), European Industrial Restructuring in the 1990s (Basingstoke, Macmillan, 1992) 77ff, and 139ff respectively. 265 That Commission Report is also directly relevant, as previously mentioned, as regards the goals of R&D joint ventures. Specifically concerning production joint ventures, see, in particular, point 26 of the Report. 266 A very similar wording on these relevant goals of joint production—that I think are especially applicable to production joint ventures—could already be found in Recital 8 of the previous Block Exemption Regulation on Specialization Agreements (Regulation EC No 2658/2000).

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These depictions of the goals underlying production joint ventures are also relevant for the development of this form of cooperation. However, in my opinion, they do omit some relevant traits and do not proceed to an appropriate systematization of the teleological programmes determining the operation of undertakings in this particular area.

3.2.2 Critical and Systemic View of the Chief Goals Underlying the Creation of Production Joint Ventures 3.2.2.1 Internal Goals of the Participating Undertakings I consider that the goals typically pursued through the creation of production joint ventures—or joint ventures in which the production function, stricto sensu, prevails— may, from a systematic perspective, be grouped into different categories. Such a critical systematization may rely upon several empirical studies on these cooperation processes (especially in the pioneering US economic doctrine, establishing connections among industrial organization analysis and the application of competition rules).267 It may also be construed on the basis of the practice of enforcement of competition rules, to the extent that the latter applies to the most common situations in the context of production activities. Thus, I believe that a distinction should be made between the categories of (i) internal goals of the participating undertakings in these cooperation processes; (ii) external and medium term goals; (iii) goals concerning the transformation or redressing of certain economic sectors, namely in connection with the evolution of mature industries; and, lastly, (iv) strictly sectoral goals (specific to particular economic sectors). As regards the first category of goals, this refers to a predominantly static standpoint of the cooperation processes in the field of production, that would tend to correspond to the main motivation of undertakings in the first stages of development of these kinds of cooperation phenomena.268 I refer, specifically, to goals essentially aimed at the immediate maximization of the results of parent undertakings—or, from another point of view, towards the reduction of costs—through scale economies, rationalization of productive resources, risk sharing, and even the raising of sufficient amounts of capital (most importantly in small and medium-sized undertakings). Besides that, these goals of internal type, connected with a stricter financial perspective of the parent undertakings’ operation—also corresponding to a rather narrower view of economic efficiency—still underlie the development of specific production projects that, without adversely affecting stability, are preordained to have a limited duration. It should, however, be acknowledged that, at this level, it is not only the rationalization of existing resources, in merely static terms, that matters,

267 On this type of analytical connection, see David Teece, ‘Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy’ (1986) Res P 785ff; A Jacquemin, The New Industrial Organization: Market Forces and Strategic Behaviour (Oxford, Clarendon Press, 1987); KR Harrigan, Strategies for Joint Ventures (Lexington, Lexingston Books, 1985) and A Jacquemin, ‘Joint Ventures and Competitive Strategy’ (1988) Strategic Management Journal, vol 9, 141ff. 268 Special consideration should be given here to the development of processes of cooperation between undertakings in the post-war period, in the 1950s and 1960s. On the development of cooperation in the relevant period and economic context, see Wolfgang Friedmann and G Kalmanoff, Joint International Business Ventures (New York, Columbia University Press, 1961). In this category of goals, the second and fifth goals set out by the Commission in its ‘Fifteenth Report on Competition Policy’ may be included, noted at 3.2.1 of this chapter.

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but also the expansion of productive capacity, through a balanced risk apportionment in the creation of new costly production infrastructures. 3.2.2.2 External and Medium Term Goals of Participating Undertakings The second category of goals, which has become increasingly important in recent times, is related to the change of the operating conditions of a significant number of economic sectors, in the manner described here. I refer to a fundamental change that has placed greater emphasis on the role of innovation elements, of diversifying information sources and also related to increased interdependencies between undertakings.269 In this context, the creation of production joint ventures tends to be associated with medium term strategic options, not only dictated by an internal financial logic of participating undertakings, but also by reasons related to the overall evolution of the sectors in which these undertakings operate and which impose on them the need for swift innovation and product diversification reactions (in response to various market trends in increasingly dynamic markets). Within these new market contexts, I have referred the emergence of the so called external goals of cooperation processes in the field of production, insofar as they correspond to a dynamic interaction with the external conditions which happen to prevail from time to time in the sectors of activity of parent undertakings. This category of goals of cooperation may, therefore, include the aims of fostering innovation, technology transfer or the development of new markets, all mentioned above. This latter goal may be analytically dissected into various other aims, such as that of the elimination of barriers to entry into certain markets, which resulted from, for example, the complexity of the technical issues associated with the manufacturing of new products or from the need to overcome the relative inertia of other economic actors holding market power and their resistance to the introduction of new intermediate goods in the productive chain.270 The same goal, when manifested through the introduction of a new product into the market, in conditions which would hardly be attainable through the individual or separate activities of parent undertakings, also tends to reinforce the economic efficiency—in a broad sense—of the functioning of certain markets. Besides that, in the context of dynamic change in the majority of economic sectors, requiring from undertakings—even from larger undertakings—a continuous need for change to keep pace with these developments, the creation of joint ventures may constitute a flexible response to these demands, and one strategically geared towards specific areas of activity of certain undertakings, without involving structural changes of a deeper impact and cost that would be associated with concentration operations, nor any other type of internal reorganization affecting the various functional units of those undertakings. Ultimately, the creation of a production joint venture aimed at the manufacturing

269 These aspects have been repeatedly addressed above throughout ch 1 and also in the initial part of this chapter, esp at 1.2, 2.1 and 2.2. See, on these changes to the conditions of exercise of the entrepreneurial activity in several areas, Teece, ‘Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy’ (n 267) and Gilbert and Sunshine, ‘Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets’ (n 224) esp 569–93. 270 The situation addressed in Continental/Michelin (n 217)—concerning agreements which combined research, development and production functions with a view to producing a new type of safety tyre, only possible through the cooperation among several manufacturers which could constrain the choices of car manufacturers— should be borne in mind.

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of a certain good and combining diversified production experiences of the participant undertakings, may be carried out through fairly minor forms of resource allocation—for example, through licensing of various rights, lease or infrastructure ‘leasing’, and others— without involving unnecessary or costly reallocation of assets belonging to those participant undertakings. Furthermore, taking into account the increasing importance of intangible assets for the activity of undertakings, related to the availability of specialized information and with more or less atypical know-how processes—even if these do not lead, in certain cases, to the entitlement to IP rights strict sensu—these types of assets are precisely the ones that seem to be more difficult to transfer, particularly if we consider the more traditional forms or vehicles for legal transactions. In fact, whenever truly atypical or diffuse know-how or information elements are at stake, the latter may not be licensed as IP rights. From another standpoint, various empirical studies have shown that, in the context of concentration operations, these elements—since they are closely associated with a certain, transient entrepreneurial structure—tend to dissipate, or at least to suffer significant changes in the course of the operations or transactions, affecting their overall effectiveness and impact on the productive process.271 Precisely because of these kinds of hurdles and difficulties, production joint ventures tend to appear as a privileged vehicle for such selective exchange of those very specific elements or diffuse assets, allowing the flexible combination of differentiated assets belonging to participant undertakings. That may, for example, occur in a context in which each undertaking develops very specialized skills in certain areas—which can be used in various business areas with only slight adjustments—and is willing to share them, on a continuous and long-lasting basis, through production joint ventures that allow the combination of these especially relevant skills in some niche activity areas. Furthermore, these various types of combinations allow, in accordance with new standards of economic efficiency— identified by authors such as DJ Teece272—the development, within a given sector, of diversified product lines which, on the one hand, appear as decisive for obtaining marginal competitive advantages and, on the other, amount to benefits for consumers who are offered more choice. This dynamic perspective of processes of cooperation implies the reinforcement of the autonomy of the involved joint ventures, as a condition of their effectiveness, and unequivocally raises the degree of complexity underlying them. Conversely, this dynamic approach to processes of fostering economic efficiency in the context of a continuous and demanding entrepreneurial change may—as I shall seek to emphasize—justify cooperation processes between undertakings with significant market power (evidenced through high market shares) in their sectors of activity, which, under a more traditional competition law

271 On this type of dissipation effect of elements of know-how, intrinsically associated with certain entrepreneurial structures, in the context of concentration operations that change those structures in a more radical fashion, and for an analysis on an empirical perspective, see, inter alia, Paul Healey, Krishna Palepu and Richard Ruback, ‘Does Corporate Performance Improve After Mergers?’ (1992) J Fin Ec 135ff. See also Anup Agrawal, Jeffrey Jaffe and Gersgon Mandelker, ‘The Post-Merger Performance of Acquiring Firms: A Re-examination of an Anomaly’ (1992) J Fin Ec 1605ff. 272 See DJ Teece on the role of joint ventures, especially production joint ventures, on the development of ‘multi-product industries’, as the author names them, with new efficiency patterns—Teece, ‘Towards an Economic Theory of Multiproduct Firm’ (1982) Journal of Economic Behaviour and Organization 3ff.

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perspective, would tend to be negatively assessed, leading to their prohibition or, at least, to the imposition of strict conditions.273 3.2.2.3 Aims Directed at Transforming Specific Sectors As regards the third category of goals mentioned (above 3.2.2.1)—goals concerning the transformation or redressing of certain economic sectors, namely those related to the evolution of mature industries—these involve, once more, the development of new types of economic efficiency on the basis of a combination of differentiated resources. The specificity justifying the autonomous consideration of this category of goals lies in the fact that this pursuit of economic efficiency is targeted in accordance with specific needs that arise in certain industrial sectors, particularly in mature industries. I refer, in particular, to the rationalization of mature industries or their adapting to new market conditions, through combinations, of a more or less original nature as the case may be, of assets, resources or know-how generated by new industries, with the infrastructures and more traditional assets belonging to industries that have experienced a longer life cycle. In the context of the economic developments of the last two decades several paradigmatic cases may be identified of these processes of rationalization of traditional industries through the creation of production joint ventures (or joint ventures of a more complex nature, but within which the joint production functions assume a significant role). One of the most obvious cases corresponded to the need, recently experienced by the pharmaceutical industry, to respond to the rise of biotechnology as a major new resource for further advances in its sector of activity through the creation of multiple production joint ventures in association with undertakings—as a rule much smaller—specializing in that field of biotechnology.274 Moreover, the acceleration of life cycles of products and that of the different industries leads to a widespread and increased need to respond to important qualitative changes with adjustments relying upon the creation of production joint ventures, in association with third undertakings acting on new industrial poles (even as regards economic sectors which do not appear to be mature industries). This occurred specifically in the field of information technology, in which the transition from the provision of basic resources and services in the area of computer technology towards the provision of diversified services and new support tools has resulted in the creation of many joint ventures between undertakings already established in the sector—and traditionally not prone to engage in this type of collaboration—and more recent undertakings,

273 A paradigmatic case in this regard—which will discuss further below—is the production joint venture between GM and Toyota, authorized by the US Federal competition authorities, albeit subject to constraints, in 1983 and reassessed in 1993. On this particular case, see Hogan, ‘The General Motors–Toyota Joint Venture: A General Motors Perspective’ (n 259) 821ff. In general, on the reasons determining the creation of efficiencies benefiting consumers, even when the joint ventures are formed by undertakings with significant market power, see Yves Doz, ‘The Role of partnerships and Alliances in the European Industrial Restructuring’ in K Cool, D Neven and I Walter (eds) European Industrial Restructuring in the 1990s (Basingstoke, Macmillan, 1992), 303ff. As this author states ‘the more each partner company focuses on a few core businesses, the greater the likelihood that a partnership will provide better longer-term access to critical skills than an acquisition. The current refocusing of corporate portfolios into core businesses is likely not only to ultimately reduce the number of acquisition candidates, but also to increase the advantage of partnerships over acquisitions’. 274 This was a real case. See Powell, ‘Inter-Organizational Collaboration in the Biotechnology Industry’ (n 10) 197ff, esp 200ff and 209ff.

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operating in various market niches in the information technology sector.275 Although with slightly different characteristics, it is also possible to detect, in certain cases, a reaction of the financial sector to phenomena of growing disintermediation through the creation of joint ventures aimed at establishing new networks or commercialization systems for financial products directly associated with the acquisition of consumer goods, for example, in association with major retail groups.276 3.2.2.4 Goals Directed at Transforming Specific Sectors—Stricto Sensu I have also identified a fourth category of goals (above 3.2.2.1)—somewhat residual— namely, strictly sectoral goals (specific to particular economic sectors), meaning goals directed at the redressing of specific sectors—stricto sensu (or in a narrow sense). These have to do with the establishment of production joint ventures that are directly related to the specific conditions of operation of certain economic sectors (and which are not associated with changes or adaptation of those sectors). In fact, cooperation projects in the field of production may either amount to a need or convenience felt in certain sectors due, for example, to constraints related to the sharing of limited natural resources, or with the requirement to carry out, on a regular basis, costly investments (the creation of multiple production joint ventures in the oil sector is something of a paradigmatic illustration of this type of goals).277

3.3 Analytical Model for the Antitrust Assessment of Production Joint Ventures 3.3.1 First Level of Analysis of Production Joint Ventures—Categories of Joint Ventures Normally Allowed (Not Falling under Article 101, Paragraph 1 TFEU) In accordance with the analytical sequence that we have previously observed in connection with the subcategory of R&D joint ventures, I will now proceed to descibe the main parameters of analysis to be used within a first stage of assessment of production joint ventures, whose scope and common gaols we have addressed above. In short, I intend to apply the general assessment model outlined in this book to production joint ventures. As previously stated, such an application of my general analytical

275 On this type of situation in the economic sector, see Doz, ‘The Role of Partnerships and Alliances in the European Industrial Restructuring’ in European Industrial Restructuring in the 1990s) (n 273) 301ff. As stated there, ‘the shift in value added in the information technology industry from hardware to services and “valueadding” solutions triggered many partnerships between traditional computer suppliers and software houses, specialized value-added resellers and value-added service providers, all of which contribute specific complementary skills. Even companies that traditionally shunned partnerships, such as IBM and DEC, are now heavily involved in these relationships’. 276 On these processes of growing disintermediation or adoption of new forms of financial intermediation, see Christian De Boissieu, ‘La Banalisation de l’Intermédiation Financière’ (1988) Problèmes Économiques 12ff. As regards reactions of the financial system to these phenomena through the creation of joint ventures with non-financial entities, we may consider, eg, several recent cases of cooperation aiming at the creation and use of systems for electronic payments, including credit facilities targeting retail marketing groups. 277 On the creation of production joint ventures in the oil sector, see ‘The Impact of Joint Ventures on Competition—The Case of Petrochemical Industry in the EEC’ (n 259).

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model of joint ventures requires the identification of usually permitted situations under competition law, of types of usually prohibited situations and of types of situations whose effects on competition raise appreciable doubts, and, as such, require a more in-depth analysis. Moreover, as already noted, the development of a first stage of assessment of joint ventures, in order to identify situations that tend to be favourably assessed, requires a preliminary identification of the main categories of risks of distortion of competition that may typically be associated with the creation and operation of such entities. Although the three main parameters of assessment which allow the identification of usually permitted situations of cooperation—in accordance with my model of assessment—are to be generally applied to the various functional types of joint venture,278 I also acknowledge that this may lead to some qualitative differences in the treatment and framework to be delineated for each of those functional types of joint ventures. Hence, I have noted as regards the first functional type addressed here, namely, R&D joint ventures, their ability to comprise a wider set of situations permitted under article 101, paragraph 1 TFEU. Conversely, as regards the subcategory of production joint ventures, I consider that the potential for inducing distortions of competition that is in theory associated with them should be considered to be qualitatively higher. As with the assessment of R&D joint ventures, I also reject in the field of production joint ventures an analytical index proposed by the Commission in its 2001 and 2011 Horizontal Cooperation Guidelines for the purpose of identifying usually permitted forms of cooperation. I refer to the index concerning the detection of situations of cooperation, which would supposedly focus on activities not likely to influence the relevant competition parameters. In fact, even as regards situations of creation of production joint ventures aimed at the manufacturing and introduction of a wholly new product, that tend to be favourably assessed in the US antitrust system,279 insofar as they contribute to extend the competition process into new areas and to increase consumer choice, I fully exclude any prior analytical assumption concerning the inability of such entities to affect the relevant competition parameters. Ultimately, even in these situations—which may undoubtedly benefit from a favourable pre-ordained view—the decisive criterion for a decision of no appreciable effects of distortion of competition will not correspond to any idea of hypothetical unsuitability of the cooperation process at stake to influence relevant parameters of competition. Rather, that favourable finding, if applicable to any given situation, would depend on an assumption that the participating undertakings would be unable separately to develop and produce the new type of product at stake (which precisely corresponds to one of three general criteria for the identification of usually permitted forms of cooperation, outlined above, and that should therefore be subject to empirical verification, however brief, through specific elements pertaining to the functioning of the market at stake).

278 See above, 2.3.1 of this chapter in which these three parameters are mentioned (as well as being discussed generally in ch 2). 279 See Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 36) 48ff.

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3.3.2 Chief Risks of Anticompetitive Effects Arising from Production Joint Ventures 3.3.2.1 Risks of Behaviour Coordination in the Markets of Final Goods or Services of the Parent Undertakings In my view, the main risks of distortion of competition that may, under certain circumstances, underlie the creation of production joint ventures tend to occur in markets of final goods commercialized by parent undertakings (although the relations between the markets—geographic and concerning the product—in which those parent undertakings operated and the particular productive sector or niche on which the joint venture pursues its activities may assume a variety of possible layouts that, as we shall observe later,280 generate distinct impacts on the competition process). Furthermore, as the Commission highlighted in the 2001 and 2011 Horizontal Cooperation Guidelines,281 in the event the parties’ joint market position is deemed to be very strong in upstream markets or markets closely related to that directly affected by the cooperation process, eventual effects of restriction of competition in those other markets must also be analysed. In this context, it is important to assess, in each particular situation, a first category of risks of distortion of competition, corresponding to the likelihood of production joint ventures inducing the behavioural coordination of parent undertakings in their respective markets of final consumer goods. This coordination may essentially impact on three dimensions of the competition process, comprising the level of prices set by parent undertakings in their dealings with final consumers; the quantitative level of output concerning the products supplied by such undertakings; and also, the various quality patterns of these products, which may evidence different levels of innovation. Considering, in the first place, the potential repercussions on prices of final consumer goods, whose negative interference in the competition process is, as a rule, more straightforward, it should be emphasized that its relevance tends to vary in accordance with the importance that the production of goods, by a given joint venture, assumes for the overall production of parent undertakings. Actually, if the goods manufactured by a production joint venture represent a significant share of the overall production of parent undertakings, then the existence of identical production costs borne by them, in the context of the operation of their joint venture, favours, in a particularly meaningful way, the alignment of prices, such as the Commission has duly noted in Olivetti/Canon and Exxon/Shell.282 Even if the joint venture’s exclusive object is the carrying out of production functions, in a narrow sense, and that does not include any covenants concerning commercialization systems of parent undertakings—to be kept fully autonomously by each party—the fact that these undertakings share absolutely identical production costs as regards the overall majority of their production creates conditions or incentives for the setting of similar prices by those entities.

280 On the assessment of relationships between the markets—geographical and concerning the product—in which parent enterprises operate and the production sector in which the joint venture carries out its activity, as a fundamental parameter of the competition law assessment of joint ventures, especially production joint ventures, see the general perspective outlined above in ch 1 (esp 1.4.4). 281 See the 2001 Horizontal Cooperation Guidelines, para 95, and the 2011 Horizontal Cooperation Guidelines, paras 156ff. 282 See Olivetti/Canon [1988] OJ L52/51 and Exxon/Shell [1994] OJ nº L 144/20, to whose content we shall return in the context of our study of production joint ventures.

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Likewise, the variable weight to be given to the output generated by the joint venture in the parent undertakings’ final products tends to influence decisively their commercialization choices concerning the level of output and quality of the final products made available to the market. In the event the output of a given joint venture, despite quantitatively representing an appreciable share of the parent undertakings’ production costs, merely corresponds to an intermediate good that must still be combined with several other goods and complementary manufacturing services, there is still ample room for those entities to attempt to differentiate the quality of their products, therefore retaining some level of uncertainty between the parties as to their results in connection with this important factor of competition. On this assumption, the risks of distortion of competition stemming from the operation of the production joint venture may turn out to be limited, at least concerning competitive interplay based upon the quality of products. From a quantitative perspective, and regardless of the fact that the output of the joint venture is merely an intermediary good of limited importance for the final products, or that it is already a final product to be commercialized by parent undertakings, the potential effects of alignment of commercial policies of these entities concerning the level at any given moment of their supply of goods to the market, will tend, in any case, to be reduced if those parent undertakings possess alternative sources for their own supply. The assessment of this type of correlation of potential effects should, in any case, rely upon an empirical analysis—even if a brief one, depending on the particular circumstances of the case—of the situations at stake, and should not be assessed simply from a static perspective on the existing quantitative supply relationships between the joint venture and its respective parent undertakings. Therefore, to illustrate the variables that must be weighed in each particular case, the fact that at a given time, the goods manufactured by a joint venture constitute virtually all the output commercialized by its parent undertakings, does not necessarily mean that all uncertainty regarding the volume of output that these undertakings will be able to place in the market is eliminated (and, accordingly, that a competitive relationship between the parties in terms of the levels of supply of final consumer goods offered to the market is precluded). In reality, provided such parent undertakings keep their own installed productive capabilities in such a condition that they are able to reactivate them immediately without incurring disproportionate costs, in order to increase, if desired, their levels of supply to the market, some uncertainty about this important competition factor still lingers (and, as such, the potential effects of distortion of competition associated with the joint venture at the level of quantitative supply of final consumer goods should be assessed with particular caution).283

283 This type of situation may actually occur, and perhaps more frequently than one might assume. The joint venture operational system may be organized so that it is advantageous to the parties, at certain times, to concentrate all of their production in the joint venture, while retaining the ability to use their own infrastructures, and even benefiting at that level from the experience acquired pari passu with the functioning of the joint venture, and, as such, resuming its own production at any given point in time, with a view, in light of changing market conditions, to developing commercialization strategies aimed at increasing supply. In this light, the most demanding test for measuring, in certain market contexts, the possible effects of restriction of competition arising from certain joint ventures would be not so much the fact that almost all goods commercialized by the founding entities at any given time are manufactured by the joint venture, but rather the fact that the joint venture may have led to a reduction in the founding entities’ own productive capacity or in their investments in that field (a line of assessment favoured to some extent in Bayer/BP Chemicals [1988] OJ L150/35).

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Another aspect that may impact on the dimensions of the competitive relationship between the parties concerning the prices and quality of final goods commercialized thereby, is—as highlighted by the Commission in its 2001 and 2011 Horizontal Cooperation Guidelines284—the eventual heterogeneous nature of these final goods. In fact, if the image of the product is presented through differentiated perspectives—thus conveying a fairly high degree of heterogeneity to these products—a remaining margin of competition between the parties may still be preserved, irrespective of whether, in quantitative terms, the joint venture’s production represents, or not, a major share of the total production of the parent undertakings.285 In other words, this amounts to acknowledging that the sharing of a significant portion of the total production costs between the parent undertakings—within their participation in a production joint venture—should not be appraised in a straightforward fashion, as an unavoidable factor of coordination of the commercial behaviour of these entities. This, element, undoubtedly prone to behavioural coordination, may be counteracted by the existence of considerable differentiated costs, pertaining to the commercialization of products and related to the incorporation into the final goods in question of other features, relevant to consumers—thus presenting them as heterogeneous products—even though this is achieved by introducing minimal changes to the goods supplied by the joint venture to its respective parent undertakings. It should be acknowledged, however, that despite the emphasis of the Commission in the 2001 Horizontal Cooperation Guidelines on the relevance of this factor, confirming it again in the reviewed version of the 2011 Guidelines, its enforcement practice has not always been entirely consistent with this position, as can be inferred from, among other cases, Electrolux/AEG.286 In this decision, the Commission, in fact, attributed very little importance to the degree of differentiation of final consumer goods commercialized by the undertakings involved in the cooperation process, thus overrating potential restrictions of competition associated with the agreements entered into by the parties in the field of production. On the contrary, in my view, this factor should be systematically checked in all situations related to production joint ventures, through a careful assessment of the degree of importance attributed to the remaining margin of product differentiation in the stages of the life cycle of the product leading up to its commercialization. 3.3.2.2 Risks of Market Sharing by the Parent Undertakings A second category of risks of distortion of competition to be taken into consideration in the analysis of production joint ventures concerns eventual situations of market partitioning between parent undertakings. Although the Commission, in its 2001 and 2011 Horizontal Cooperation Guidelines, has closely associated this type of repercussion to

284 See the 2001 Horizontal Cooperation Guidelines, para 88 and the 2011 Horizontal Cooperation Guidelines, para 178. 285 See on the concept of homogenous and heterogeneous goods and its relevance in several areas for the purposes of application of competition law rules, J Hausman, G Leonard and J Zonal, ‘Competitive Analysis with Differentiated Products’ (1994) Annales d’Economique et de Statistique 159ff and C Shapiro, ‘Mergers with Differentiated Products’ (1996) Antitrust 23ff. 286 See Electrolux/AEG [1993] OJ C-269/4.

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reciprocal specialization agreements,287 I think that those repercussions may also occur— although in a less straightforward manner—in the context of the functioning of production joint ventures, especially if the participating undertakings hold high market shares in the economic sectors in which they conduct business. It should be acknowledged, in the first place, that certain forms of organization and operation of production joint ventures—for example, determining the periodic review by the parties of the production levels of those entities—may, under certain conditions, somehow be aimed at a partitioning of markets between them. Indeed, if the parent undertakings control, as mentioned above, a very significant part of the markets most directly affected by the cooperation, the variation of the production flow of the joint venture programmed by those undertakings may lead to a final effect of market partitioning (particularly if it is possible to demonstrate a close link between the periodical variations in the joint venture’s production levels and the fluctuations of the market positions of participating undertakings). Moreover, this type of effect of distortion of competition may also result from ancillary arrangements in the context of the operation of certain production joint ventures. I refer here to covenants that, although not determining actual forms of joint commercialization of goods (which would imply the qualification of such joint ventures as concentrations), impose some constraints on the commercial policies of parent undertakings (particularly, imposing restrictions on sales to certain customers). In principle, I consider it difficult to justify such covenants as ancillary restraints to competition, essential to the operation of production joint ventures. Thus, if such covenants, when established, can actually incentivize the phenomenon of market partitioning, then they should not be allowed. The operation of some production joint ventures may well provoke, in more subtle and indirect ways than noted above, the partitioning of markets between the parties, and therefore, taking into account certain relevant analytical parameters, only an empirical assessment, however brief, of actual market conditions at stake, can ensure that all relevant repercussions of these cooperation processes are duly recognized. One of the chief analytical parameters to be taken into account for the purposes of checking the eventual need for a more thorough antitrust assessment of the operation of production joint ventures, is the identification of situations where all or the most significant share of certain categories of final goods sold by the parent undertakings is provided by a production joint venture. In this type of situation, the operation of the joint venture may actually lead to very indirect ways of market partitioning. In this context, we may think, for example, of agreements entered into between the joint venture and the parent undertakings, for the provision of final goods pursuant to which each of those entities obtains from the joint venture goods customized in accordance with complementary specifications specially targeted to the preferences of consumers in two different geographic markets. This system of operation of the production joint venture may be hence associated with a true partitioning of those two distinct geographic markets between the parent undertakings. 3.3.2.3 Risks of Competitors’ Market Exclusion Finally, a third category of risks typically associated with production joint ventures is the possible exclusion of third competitor undertakings. This risk of market foreclosure is 287 See the 2001 Horizontal Cooperation Guidelines, para 101 and the 2011 Horizontal Cooperation Guidelines, para 190—‘example 4—specialization agreement as market allocation’.

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closely linked to the market power of the joint venture’s participating undertakings (joint market power or at least significant market power held by one of those parent undertakings). Thus, in situations in which parent undertakings already hold a significant position in the market where the final goods produced by the joint venture are commercialized, eventual cost reductions of an appreciable nature, may endow such undertakings with a fundamental competitive advantage, that third competitor undertakings, in realistic terms, fail to match. The corresponding disadvantage for competitor undertakings may, under certain conditions, prove crucial to prevent their continued present in the relevant market.288 As will be observed in more detail below, for a substantive scrutiny of those market foreclosure risks, special importance should be given to the aggregate market share held by participating undertakings. However, this latter factor should, nonetheless, be complemented with an accurate market structure analysis, especially directed towards the assessment of its degree of concentration (where possible, using econometric models—including those based on the so called HHI—allowing some degree of objectivity in that analysis).289 Despite the relevance of this kind of market foreclosure risk, and its undeniable connection to the intensity of the market power of the parties, nevertheless, I believe that the application of a straightforward and linear structural analysis of the market should be avoided. Thus, even in the presence of two factors potentially leading to the occurrence of market foreclosure effects—significant market power held by the parent undertakings, associated with a high concentration level and significant cost reductions obtained by those undertakings due to the joint venture’s activity—I do not believe that a ruling of prohibition of the production joint venture at stake should be more or less automatically put forward, based on a presumption (or quasi-presumption) of exclusion of third operators. The attainment of certain economic efficiencies through the operation of production joint ventures may be of considerable importance to consumers, and it would, in my opinion, be wrong to disregard any possibility of attaining such benefits through the creation of these joint ventures involving undertakings holding significant market power. Therefore, I believe that in order to confirm any hypothetical unfavourable ruling on those joint ventures, based on a probable market foreclosure effect, it will be necessary to check whether the third undertakings operating in the market or other undertakings potentially interested in entering this market will have, on reasonable terms, alternative opportunities for obtaining efficiencies comparable to those attained by parent undertakings on account of their involvement in a production joint venture. Ultimately, this alternative scope for obtaining comparable efficiencies—in the form of a reduction in manufacturing costs—may result from the development of alternative processes of cooperation by third operators (it is obvious that this type of analysis should, conversely, be sufficiently accurate and broad in order to capture any other types of risks for effective competition associated

288 On the occurrence of exclusion effects, see the 2001 Horizontal Cooperation Guidelines, paras 99 and 110 (Example 3) and the 2011 Horizontal Cooperation Guidelines, para 159 (emphasizing the potential conditions for raising rivals’ costs downstream and thus expelling them from the market), 165 and 189 (Example 3). 289 I refer here to the Herfindhal Hirshman Index (HHI). On its use, whether in the context of the assessment of joint ventures subject to the provisions of article 101 TFEU or in the assessment of concentrative joint ventures subject to the MCR, see above, 2.3.5.3(C) of this chapter.

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with these situations, such as the emergence of global effects of distortion of competition due to the existence of parallel networks of production joint ventures).290 From another perspective, the potential effects of exclusion of third undertakings may occur not in markets for final goods for whose manufacturing certain production joint ventures contribute, but rather in markets for intermediate goods in which parent undertakings usually intervene as purchasers. In fact, the creation of a production joint venture for the purposes of providing a given fundamental contribution for the manufacturing of certain final goods may lead parent undertakings involved in this cooperation process to discontinue their acquisitions of intermediate goods from third undertakings, thus creating an effect of foreclosure of the market for such intermediate goods. This potential effect of restriction of competition— provided it attains a considerable degree of intensity—may in itself determine that the joint venture will fall within the prohibition set out in article 101, paragraph 1 TFEU, even though no effects of restriction of competition of a comparable nature occur in markets for final goods related to the operation of the joint venture. A competition law analysis along those lines was specifically carried out by the Commission in, among other cases, Philips/Osram.291 However, I believe that the weighing of this type of restrictive effect, for the purpose of determining a possible application of the prohibition rule of article 101, paragraph 1 TFEU must be carried out in a careful manner, particularly if certain production joint ventures generate important economic efficiencies likely to impact favourably upon consumers of final goods. In this context, it will be of the utmost importance to thoroughly assess the alternatives available to suppliers of intermediate goods affected by the establishment of the production joint venture. It will also be important, in parallel, to assess the disadvantages that the creation of the joint venture implies for those suppliers, weighing these against the advantages potentially gained by consumers of final goods. In principle, one could object that this kind of reasoning would fit the framework for the eventual application of article 101, paragraph 3 TFEU, for the purposes of granting an exemption to a process of cooperation which was supposedly covered by the general prohibition of paragraph 1. However, I do not share

290 In gauging, on a realistic economic basis, the alternative possibilities available to competitors of the founding entities of a given production joint venture, for obtaining efficiencies in their production processes comparable to those resulting from the joint venture, I believe that there is a systematic flaw in the Commission’s analysis that may lead to an improper verification of hypothetical competitor exclusion effects, purportedly associated with certain production joint ventures, through a rather fragile test, lacking thoroughness and merely aimed at formally detecting whether third undertakings, by virtue of the creation of a production joint venture, are potentially endowed with less market opportunities. This was the case, eg, in ACEC/Berliet (n 184). Even in relatively recent decisions, these gaps of the exclusion test, resulting from the failure to investigate the productive capabilities or comparable technology that third competitors may develop through alternative processes, have also influenced in an overly restrictive sense, several decisions such as, eg, Eirpage [1991] OJ L306/22. The fact that the Commission did not take the chance to fully clarify its position in this point, in either the 2001 or the 2011 Horizontal Cooperation Guidelines, as regards the proper formulation and application of an exclusion test concerning production joint ventures, based on more realistic economic assumptions and providing companies with some predictability regarding assessments in that matter, is, in my opinion, open to criticism. 291 See Philips/Osram [1994] OJ L378/37. In this decision, the Commission considered that no appreciable effects of distortion of competition existed in the market for final goods of the parent undertakings at stake (specifically because the intermediary good supplied by the joint venture to the parent undertakings, which would then be incorporated in the manufacturing process of the final goods that the latter commercialized, only accounted for 2 or 3% of the total cost of such goods). On the other hand, the Commission took into account in that decision, competition issues stemming from the fact that the intermediate goods manufactured by the joint venture were not available to third competitor undertakings in the market for final goods.

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that understanding, which I believe may lead to unnecessary administrative interventions from the competition authorities (and imply an excessive burden of proof for the involved undertakings). On the contrary, I think that in many cases such an assessment still lies within the field of application of article 101, paragraph 1 TFEU (provided this is construed in a sufficiently broad manner, as we have been discussing).

3.3.3 First Stage of Analysis of Production Joint Ventures—Categories of Joint Ventures Normally Permitted (Not Falling under Article 101, Paragraph 1 TFEU) 3.3.3.1 Production Joint Ventures between Non-Competitors Having sought to characterize the main risks of distortion of competition that may be associated with production joint ventures, it is also necessary to outline the types of usually permitted situations in this functional area of cooperation. In terms of my general model of assessment of joint ventures, I shall limit myself to a very brief consideration of some of the specific traits of the analytical criteria previously noted for the purposes of identifying such situations, applying them to the conditions of operation of production joint ventures (bearing in mind that these criteria have already been delineated, either in general terms,292 or discussed in more detail in the context of the analysis of the first functional type of joint ventures that has been covered by my in-depth, specialized study, in the field of R&D cooperation).293 Thus, the first criterion that I have been considering for the identification of usually permitted forms of cooperation—concerning the creation of joint ventures composed of undertakings which are neither actually nor potentially competing with each other294—is fully applicable to the subcategory of production joint ventures. Taking into account the manner in which production joint ventures might affect several markets, it is open to debate to what extent this kind of favourable presumption (or quasi-presumption) depends upon the absolute lack of any relation of competition whatsoever between the parties. In reality, given that the application of this criterion requires the absence of a competitive relationship in the market directly affected by cooperation—especially the market of final goods commercialized by parent undertakings based on the productive input provided by the joint venture—it may be debated whether the existence of competitive relations between those undertakings in related or somehow connected markets as to that main market prevents a favourable view in principle about such joint ventures (for purposes of application of article 101, paragraph 1 TFEU). The Commission in its 2001 and 2011 Horizontal Cooperation Guidelines seems to admit this latter hypothesis, although it does not elaborate on the problem in particularly

292

See above, ch 2 at 2.2. As regards the characterization and application of the criteria for defining the types of usually permitted situations in the context of the assessment of R&D joint ventures—which, although it should take into account some particularities of each functional subcategory of joint ventures, has involved, as has been pointed out, an overall analysis, with possible applications to the other functional subcategories of joint ventures—see above, 2.3.3 of this chapter. 294 See the 2001 Horizontal Cooperation Guidelines, paras 83ff. 293

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accurate terms.295 I believe a more flexible understanding may be adopted, considering, on the one hand, the type of repercussions normally resulting from the creation of production joint ventures, and, on the other hand, the substantial economic efficiencies that can be associated with these entities (particularly when the main goals underlying them correspond to the so called external and medium term goals).296 Thus, I think that one should be open to various alternative forms of construing, in different market conditions, the relevance that should be granted to eventual competition relations between the parties in certain markets connected (or neighbouring) with the main relevant market affected by the cooperation (especially in cases where mere potential competition relations are at stake). For that kind of assessment the market power held by the parent undertakings in those related or connected markets should also be taken into account. Ultimately, in the event such market power is relatively moderate or even negligible, I would argue that the set of competition relationships existing in the related markets at stake may even be disregarded. On this assumption, the situation arising from the creation of the joint venture may in those cases be assessed mainly on the basis of the existing relations between the parties in the market of final goods supplied by the joint venture (or to whose production this entity provides input) and most directly affected by the cooperation. If it transpires that no competitive relationship, actual and potential, is deemed to exist among the parties in this latest market, I then assume that this factor may, on its own, be decisive in order to produce an evaluation (in principle) of conformity of the production joint venture with the regime of article 101, paragraph 1 TFEU. Conversely, if I recognize that this first index of non-submission to the general prohibition rule—concerning the involvement of non-competitor undertakings in the joint venture—is fully applicable to cooperation in the field of production, I consider that the favourable presumption resulting from it does not have the same significance as in the case of R&D joint ventures. Indeed, as highlighted in the context of my study of that functional type of joint ventures, this favourable index would be of greatest consequence in connection with such R&D cooperation (since I submitted that in that area, such favourable reasoning could only be waived in very exceptional circumstances).297 These circumstances would only occur in cases where R&D cooperation could clearly and directly lead to market foreclosure. Conversely, high market shares held by participating undertakings would not intervene at this level as a complementary assessment criterion that would be likely to counteract the favourable presumption resulting from the absence of competition relationships between those undertakings. However, the same cannot be said of production joint ventures. In this latter field I believe that the relative weakness of the favourable presumption essentially means that it may be rebutted by either one of two additional negative criteria that I have generally identified in my global analytical model

295 See ibid para 83, in which the Commission’s analysis strikes me as too linear and schematic. See also the 2011 Horizontal Cooperation Guidelines, esp para 156, which are still largely written in that excessively schematic vein. 296 See above, 3.2.2.2 of this chapter, on the second category of goals of production joint ventures that I have identified and characterized. 297 See above, 2.3.3 of this chapter. As highlighted there, although the analytical models developed within the US antitrust law framework possess somewhat different features, and, in particular, do not rely upon differentiated matrixes of analysis depending on each functional type of joint ventures, it seems clear that the indicative criteria that lead to favourable assessments of these entities, reach their maximum extent or scope in connection with the R&D functional type.

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for joint ventures (occurrence of market foreclosure effects, or the holding of particularly significant market shares by parent undertakings). 3.3.3.2 Production Joint Ventures between Competitors that Cannot Independently Carry out the Activity Covered by the Joint Venture The second criterion that I have put forward for the identification of situations in principle not falling under prohibition in article 101, paragraph 1 TFEU is also of great importance in the field of production joint ventures. As mentioned earlier, this criterion relates to joint ventures formed by competitors that cannot independently carry out the activity covered by the joint venture.298 It should be taken into consideration that in my characterization of the most common goals of production joint ventures, I mentioned situations in which these entities prove necessary to enter into a new market, or to launch a new product or service. In these type of situations, the favourable outcome for the development of the competition process, through the entry of new competitors in certain markets, or making available new categories of products to consumers,299 tends to overcome the elements of formal restriction of competition underlying the creation of the joint venture and which feature a mutual restriction to the parent undertakings’ freedom of action. However, I have also been arguing that the application of this favourable criterion towards joint ventures, even if formed by competing undertakings, will depend upon duly checking specific and objective conditions in order to foresee, with a reasonable degree of certainty, that the cooperation process commenced by these undertakings is necessary to achieve the final goal of market entry of new competitors or of launching new products (especially in markets characterized by a high level of importance of technological innovation

298 For a parallel with the application of this specific criterion in the context of the assessment of R&D joint ventures, see above, 2.3.3.2 of this chapter. 299 This aspect tends, in fact, to assume an increasing importance in light of the evolution of the teleological programme of EU competition law (provided there are objective indicators that the introduction of a new product without the relevant cooperation project is economically unlikely). In reality, the goals of attribution of advantages or economic benefits to consumers progressively tend to override formal goals of maintaining strictly independent relationships between undertakings in the market and of preservation of market structures with a lesser degree of concentration or devoid of cooperation relationships. Here, the influence of US antitrust law has been considerable, even if within this system the relevant developments are not always convergent. Besides a wider acknowledgment of the decisive (positive) consequences of certain market situations for consumers in the field of application of structural rules (concentration control), the growing interplay between the structural tests and the tests concerning coordination of behaviours in the field of application of article 101 TFEU—to which joint venture analysis has significantly contributed—has also led in this latter field to a wider awareness of certain positive consequences of the conduct of undertakings, even if formally restrictive of competition, to the welfare of the consumers. Curiously, these aspects concerning a high focus on the positive consideration of the various types of efficiencies in the allocation of resources and its favourable repercussion on consumers were explicitly recognized by the Commission in its 2004 Guidelines on the application of paragraph 3 of Article 81 EC, for the purposes of overall application of para 1 of the current article 101 TFEU. However, these same Guidelines do not, conversely, draw all the consequences from this hermeneutic and teleological perspective, since they apparently refer all the legal and economic balancing assessments which may combine elements of distortion of competition with the consideration of advantages for consumers inherent in a greater efficiency in the allocation of resources to the field of application of article 101, para 3 TFEU, unduly restricting, in my opinion, the broadness of legal and economic assessments that may be produced under para 1 of that article (see esp paras 11 and 12 of the 2004 Guidelines). On developments in the US antitrust system, from a perspective leading to a favourable assessment of efficiency elements which may directly impact on consumers, see, inter alia, Neil Averitt and Robert Lande, ‘Consumer Sovereignty: A Unified Theory of Antitrust and Consumer Protection Law’ (1997) ALJ 713ff.

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factors, that require a combination of differentiated know-how resources or of multiple forms of expert knowledge).300 In other words, I believe it is necessary to ascertain the actual concurrence of conclusive factors that would justify, as regards economically reasonable and foreseeable choices, the idea that the parent undertakings at stake would not be able to, independently, enter a certain market or launch a new product. The Commission came to explicitly recognize, in its 2001 Horizontal Cooperation Guidelines, the relevance of this criterion in identifying situations of usually permitted cooperation in the field of production agreements, although in a way that does not seem very consistent with its previous enforcement practice (acknowledging the same thing, albeit in a manner which is even less straightforward, in the 2011 Horizontal Cooperation Guidelines, since these are not so focused on the identification of usually permitted situations of cooperation).301 In reality, in various decisions in this field, the Commission has tended to highlight particularly the formal constraints on freedom of action of competitors, within the context of production joint ventures, for the purposes of the application of article 101, paragraph 1 TFEU, often relegating the weighing of this criterion to an eventual justification of agreements qualified as restrictive of competition on the basis of paragraph 3 of that article. It is therefore important to ensure that it will be possible to steadily develop a new enforcement practice and hermeneutical approach consistent with the direction the Commission seemed to initiate in the 2001 Horizontal Cooperation Guidelines (and that I regard as essentially correct, although the 2011 review of the Guidelines has to some extent been a missed opportunity to further clarify these particular issues concerning an economically realistic or thorough assessment of the ability of parent undertakings in a production joint venture to independently enter a certain market or launch a new product). In any case, it seems somewhat peculiar that the Commission, whilst rendering apparently more flexible its own understanding in this matter—paving the way to an admission in principle that production joint ventures are not covered by the general prohibition of article 101, paragraph 1 TFEU, in the event an economic justification exists concerning the entry into new markets or launching new products302—has, however, neglected the

300 On the assessment of this type of favourable element in markets evidencing the features noted above (especially efficiencies generated by production joint ventures in markets with a high level of importance of innovation or technological factors), see, under an EU competition law perspective and a US antitrust perspective respectively, Temple Lang, ‘European Community Antitrust Law: Innovation Markets and High Technology Industries’ (n 28) 519ff and Joseph Kattan, ‘Antitrust Analysis of Technology Joint Ventures: Allocative Efficiency and the Rewards of Innovation’ (1993) ALJ 937ff. 301 See the 2001 Horizontal Cooperation Guidelines, para 87. The 2011 Horizontal Cooperation Guidelines, although less focused on a preliminary, tripartite analysis leading to the identification of usually permitted situations of cooperation (besides usually prohibited cases of cooperation and situations that require a more developed analysis), mention, nonetheless, in para 30 ‘objective factors’ on the basis of which it may be possible to confer if the parties involved in a cooperation project ‘would not be able to independently carry out the project or activity covered by the co-operation, for instance, due to the limited technical capabilities of the parties’, establishing that in such cases the cooperative arrangements at stake, ‘will normally not give rise to restrictive effects on competition within the meaning of Article 101(1) unless the parties could have carried out the project with less stringent restrictions’. See also as regards specifically production agreements, and also referring to these ‘objective factors’, para 163 of the 2011 Guidelines. It must be acknowledged, however, that a significant part of the preceding Commission enforcement practice seems to take into account this criterion at the level of application of article 101, para 3 TFEU, rather than at the level of para 1. 302 The position adopted on that point in the 2001 and 2011 Horizontal Cooperation Guidelines concerns, in principle, the whole set of cooperative arrangements but I consider it is justified to take it especially into consideration as regards joint ventures.

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actual analysis of the assumptions on which the application of this criterion of economic justification must rely. As previously observed about the first analytical criterion (for identifying usually permitted forms of cooperation), in terms of comparison of its application to the subcategories of R&D and production joint ventures, I also consider that the second criterion that I am now discussing at this level (situations involving competitors that cannot independently carry out the activity covered by the joint venture) should be differently applied in connection with those two subcategories of entities. Thus, I submitted that the favourable presumption stemming from this second criterion should not, in principle, be set aside in the field of R&D joint ventures due to the holding of significant market power by parent undertakings. Conversely, I consider justified the application of this negative and complementary parameter, pertaining to the market power of the parties, with respect to production joint ventures. Moreover, in situations where parent undertakings hold a high degree of market power, not only may the favourable presumption associated with the second analytical criterion be impaired, but also, the application of this criterion will, in itself, become harder to justify. Indeed, the higher the market power of parent undertakings, the more demanding should be the demonstration of their hypothetical inability to autonomously and independently enter into certain markets or launch new products in markets on which they already operate (such demonstration is not, however, absolutely impossible, even in cases of production joint ventures involving some of the biggest companies in a given market).303 It should be noted, in the context of the systematic comparative analysis carried out here, that the relevance of this second analytical criterion has been widely recognized in the context of enforcement of US antitrust rules. Indeed, it should be added that, long before the Commission came to recognize, in its 2001 Horizontal Cooperation Guidelines—although in terms not entirely satisfactory—that this criterion could determine the non-application of the prohibition in article 101, paragraph 1 TFEU to production joint ventures, the US antitrust authorities and courts had already been consistently arguing that such a criterion could justify outright favourable assessments of those joint ventures.304 The explicit reference to this criterion, as a legal and economically acceptable reason for the establishment of a production joint venture, in the US 2000 Antitrust Guidelines for Collaborations among Competitors,305 merely confirmed a previously existing hermeneutical trend. Some US antitrust doctrine has, by the way, established a few parallels in this area with the assessment of R&D joint ventures that are deemed necessary for launching new products. And, indeed, in certain markets, particularly those characterized by the importance of technological factors and which are subject to swift changes, the cooperation carried out through production joint ventures may prove as vital to the introduction of new products or for the entry into the market as that associated with R&D joint ventures.306

303 The Commission and the EU courts have accepted the possibility of such a demonstration in these cases; see, eg, Ford/Volkswagen [1993] OJ L20/14, which I shall discuss further below. 304 See Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 36) 48ff. 305 At para 3.31(a). As stated there ‘participants may combine complementary technologies, know-how or other assets to enable the collaboration to produce a good more efficiently or to produce a good that no one participant alone could produce’. 306 See, on the particularities of such markets especially relying or dependent on multiple technological resources and on the role of joint ventures, especially production joint ventures, Kattan, ‘Antitrust Analysis of Technology Joint Ventures: Allocative Efficiency and the Rewards of Innovation’ (n 300) 937ff.

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Conversely, US authors have also scrutinized the issue of the absence of conditions, in terms of economic reasonableness, for the separate or autonomous operation of undertakings that are seeking to enter into certain markets or to launch certain products. This type of more demanding economic analysis and the possible development of some tests, that may be swiftly applied for the verification of these conditions, are, in my view, essential for an effective implementation of the criterion at stake. In their absence, this criterion can acquire a rather formalistic character, rendering it meaningless. As such, I consider the Commission’s option in its 2001 Horizontal Cooperation Guidelines a less fortunate one, insofar as it merely states that criterion, without duly specifying the conditions for its application (an omission which was not corrected in the new, reviewed 2011 Guidelines).307 It is true that the same option was followed in the US 2000 Antitrust Guidelines for Collaborations among Competitors, in the context of the US antitrust system. However, as previously noted, the reference to this criterion in those Guidelines merely provides confirmation of an interpretative parameter already considerably assimilated in previous case law. By contrast, the Commission enforcement practice (or even the enforcement practice of EU competition rules by Member States’ competition authorities) did not follow, at least in a stable and consistent manner, such an interpretation, and that would have justified a more comprehensive examination of the conditions and relevant thresholds to be taken into account for application of such a criterion. In my view, this latter criterion may only be applied upon the verification of conclusive economic factors—through a brief analysis selectively focused on key indicators—that may evidence the impossibility, or extreme difficulty in obtaining a favourable outcome, not only concerning market entry of new competitors, but also the launching of new products, on the basis of separate activities of the individual undertakings at stake. It should be underlined, finally, as regards the treatment of production joint ventures in the US antitrust system, under the terms set forth in the 2000 Antitrust Guidelines for Collaborations among Competitors, and which stem either from the jurisprudence or from the enforcement practice of the Federal competition authorities, that these entities tend to be favourably assessed through the application of the so called ‘rule of reason’ (where production joint ventures are concerned, and provided these are not simply mechanisms for pursuing other types of anticompetitive arrangements).308 Provided that the creation of such entities will predictably result in an increase of production or production capabilities, and not just in a mere rationalization of previously installed capabilities already held by the parties, the likelihood of their favourable outright preliminary assessment is much greater.309 Differently, at EU level, although the prohibition 307 In fact, these 2011 Horizontal Cooperation Guidelines merely state the relevance of the criterion in order to identify cooperation processes in the field of production ‘that are not likely to have restrictive effects on competition’ but fail to elaborate on the objective conditions or parameters for the application of that criterion in specific market contexts. See, on this, the 2011 Horizontal Cooperation Guidelines, para 163. 308 Moreover, the application of that rule of reason also stems from the application of the NCRPA to the realm of production joint ventures, at least in relation to some of them. This aspect is explicitly acknowledged in the 2000 Antitrust Guidelines for Collaborations among Competitors, esp para 3.31(a), note (37), where it is mentioned that ‘The NCRPA accords rule of reason treatment to certain production collaborations. However, the statute permits per se challenges, in appropriate circumstances, to a variety of activities’. 309 Among other precedents following the same line, see US Dept of Justice, ‘Business Review Letter to United Techs Corp’ (BRL 83-21, 27 October 1983), in which the absence of objections as to a production joint venture allowing the introduction into the market of an innovative type of products was declared, to the extent that it

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of production joint ventures by the Commission has not been frequent—as will be observed below—these entities have in various cases been treated as forms of restriction of competition falling under the prohibition of article 101, paragraph 1 TFEU, requiring an exemption, sometimes also catering for associated conditions, without a due and balanced consideration of the positive contribution that these entities may have on the competition process (particularly in accordance with a proper weighing of this second assessment criterion addressed here). 3.3.3.3 Production Joint Ventures between Competitors that Do Not Hold Appreciable Market Power Finally, a third criterion may also be used to identify usually permitted production joint ventures. I refer to the criterion corresponding to the existence of a particularly feeble or barely significant market power of the joint venture’s founding entities. In that regard, the comments made in relation to the subcategory of R&D joint ventures310 are essentially valid. As mentioned above, this assessment parameter should take into account, with some adjustments, the criteria outlined in the so called De Minimis Guidelines. Hence, also in the case of production joint ventures consisting of founding undertakings whose aggregate market share in markets affected by that cooperation process does not exceed a threshold ranging from 10 to 15 per cent, these entities should, in principle, be regarded as permissible in light of article 101, paragraph 1 TFEU (unless, exceptionally, and because of other very specific factors, it is possible to identify particularly serious risks of distortion competition demanding further analysis). Furthermore, the use of this criterion concerning the market share, which in accordance with the overall analytical model I have proposed, must not be confused with the level of consideration of market share criteria set forth in the Block Exemption Regulations currently in force,311 should be excluded in complex situations of existence of more or less overlapping networks of several production joint ventures (or of joint ventures of another type, and involving the same parties).312

would be impossible for any participating undertaking to incur the costs and risks inherent in the development of such product autonomously. 310 In fact, this third criterion of identification of usually permitted situations was sufficiently clarified in the context of my analysis of the first subcategory of joint ventures—R&D joint ventures, analysed above, especially as regards the considerations outlined in 2.3.3.3 of this chapter—there being no idiosyncrasies of production joint ventures, that would justifying an in-depth autonomous treatment. 311 On the distinction of different analytical levels see above, 2.3.5.1 of this chapter. 312 In the context of the analysis undertaken in this chapter, I shall discuss further some of the effects stemming from the existence of joint venture networks (especially in markets characterized by dynamic changes with a combination of different technologies or production resources, as happens in the telecommunications sector and in related areas). Moreover, in this type of sector it has also been possible to observe the development of networks with various layouts, whose interest and value to their users increase with the number of users connected to them. In these situations, the assessment of market power assumes some specific traits—not always properly grasped in the context of the application of EU competition rules—ranging beyond the market shares held by major companies at any given time. See on these issues, C Shapiro and HR Varian, Information Rules—A Strategic Guide to the Network Economy (Harvard, Harvard Business School Press, 1998).

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3.3.4 First Level of Analysis of Production Joint Ventures—Categories of Joint Ventures Normally Prohibited (Almost Always Falling under Article 101, Paragraph 1 TFEU) In the context of the application of my global analytical model to the subcategory of production joint ventures, it is also important to depict the essential parameters which allow the identification, if that is the case, of usually prohibited forms of cooperation modes, under article 101 TFEU. As noted in regard to R&D joint ventures, such normally prohibited forms of cooperation occur in cases where the creation of joint ventures lead to three particularly negative forms of distortion competition, namely, agreements for the setting of prices, the limitation of productive output and partitioning of markets or clients. However, if, as should be acknowledged,313 the occurrence of such situations tends to be less frequent, or even exceptional, within the operation of R&D joint ventures, due to the functional content of these entities, the same does not apply (at least in comparable terms) to production joint ventures. Given their typical object and scope these entities may, in some situations, create particularly serious restrictions of competition, almost inevitably resulting in their final prohibition under article 101 TFEU. With even greater cause for concern, the most common functional content of these production joint ventures can turn them into vehicles to develop, surreptitiously, those types of practices of restriction of competition. In the context of the US antitrust system, special attention has been paid to such situations in practice, in order to avoid a situation where the favourable view generally adopted towards production joint ventures would be misused by the parties, through its intentional use to pursue other goals deemed particularly harmful to competition (that would then be concealed under general programmes of cooperation in the field of production, supposedly justified by the economic efficiencies that, as a rule, are linked to such efficiencies).314 Anyway, it is necessary to distinguish between (i) the emergence of particularly serious forms of restrictions of competition concerning pricing, limits to output or sales or partitioning of markets or clients that may be associated with the creation of production joint ventures and that affect the overall activity of the parent undertakings activities; and (ii) the existence of such ancillary arrangements on those matters, but dealing predominantly with aspects concerning the internal operation of the joint venture at stake. In reality, given the typical object and scope of these entities it is justifiable for the parties, within the operation of the joint venture, to enter into arrangements concerning the setting of the production conditions directly ensured by these joint ventures, or the setting

313

See above, 2.3.4 of this chapter. On this type of analysis under the US antitrust system, in detecting cartels concealed as joint ventures, see, inter alia, Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 36) esp 11. As this author states, ‘the joint venture may provide a mechanism to cloak conspiracies to fix prices, allocate territories, or engage in other anti-competitive activity in such other markets’. See also Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) esp 1525ff. In the context of the EU legal framework, see, eg, Solvay/Sisecam [1999] OJ C-272/14, concerning a production joint venture catering for a transfer price setting mechanism between the joint venture and the parent undertakings by reference to the sale prices of such goods by these latter undertakings to third parties. This legal regime applicable to the joint venture would thus tend to convert it into an instrument for the articulation of pricing options among parent undertakings (and that, in turn, determined the change of the price setting mechanism in order to ensure the necessary independence as to pricing policies both in the joint venture and in the founding entities). 314

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of sales prices of the products manufactured by these ventures, whenever the latter also undertake, to a limited extent, the distribution of processed or manufactured products (provided that price setting stems, in economic terms, from the carrying out of the specific functions integrated within the joint venture and does not encompass other components, aimed at the pursuit of other goals outside the area of the organization and economic operation of joint venture). In this regard it should also be acknowledged that, as the Commission points out in the Horizontal Cooperation Guidelines, the eventual accumulation of functions of production and commercial distribution (even if the latter has a narrower scope) is likely to lead to a qualification of the joint ventures as concentrations operations under the MCR.315 Nevertheless, I still agree with the relevant hypothesis of existence of arrangements between the parties with a view to set the prices to be charged by the joint venture in the sale of its production to the parent undertakings. Furthermore, intermediate situations may occur where, for example, joint ventures provide almost all their production to the parent undertakings, and market to third parties only a tiny and residual fraction. In such cases, that residual component of marketing to third parties would hardly lead to the qualification of joint ventures as autonomous economic entities, and, therefore, as concentration operations (those undertakings would not cease, in essence, to carry out ancillary functions in relation to the activities of parent undertakings which absorbed almost all of their production). In this type of situation, the operation of joint ventures may also lead to the setting of prices of sale of the products manufactured by these entities to third parties. The possibility of the agreements related to production joint ventures including arrangements among the parties related to pricing or the quantitative level of manufactured output, covering the production of these entities, while avoiding a characterization of those arrangements as serious forms of restriction of competition almost necessarily falling under the prohibition rule of article 101, paragraph 1 TFEU, is explicitly foreseen in the 2001 and 2011 Horizontal Cooperation Guidelines.316 In addition to that, the Block Exemption Regulation concerning specialization agreements also caters for such situations, pointing out that they are not covered by the rule on hardcore restrictions that precludes any possibility of granting an exemption.317

315 See, particularly, the 2001 Horizontal Cooperation Guidelines, note 41, para 90. Curiously although these Guidelines generally cover cooperation agreements, as regards the above hypothesis of the existence of arrangements aimed at the setting of prices, the Commission refers specifically to the category of joint venture, acknowledging that full function joint ventures may then be at stake. The 2011 Horizontal Cooperation Guidelines are not so straightforward on this point, because joint ventures seem not to be specifically considered there for this purpose. These Guidelines merely refer situations of ‘production agreement that also provides for the joint distribution of the jointly manufactured products envisages the joint setting of the sales prices for those products, and only those products, provided that that restriction is necessary for producing jointly, meaning that the parties would not otherwise have an incentive to enter into the production agreement in the first place’; the 2011 Guidelines go on to acknowledge that, when there is such functional interconnection between joint production and some contained degree of joint distribution or pricing, limited to the jointly produced goods, then this latest dimension involving distribution should ‘not be assessed separately, but in the light of the overall effects of the entire production agreement on the market’—see the 2011 Guidelines, paras 160–61. However, since, in para. 21 the 2011 Horizontal Cooperation Guidelines recognize in general that frequently there is ‘only a fine line’ separating full function and non-full function joint ventures, covered by the Guidelines and that, ‘hence their effects can be quite similar’, as regards these cases of joint production to some extent accumulated with a limited level of joint distribution, the particular situation of joint ventures (beside mere cooperation agreements) should have been more explicitly considered. 316 See the 2001 Horizontal Cooperation Guidelines, para 90 and the 2011 Horizontal Cooperation Guidelines, para 160. 317 See article 4(b), (i) and (ii) of EU Regulation No 1218/2010.

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Despite considering justified such types of arrangements within the context of the operation of production joint ventures, I believe that, in some situations, these should be subject to further, in-depth analysis. In fact, whilst the logic of introducing mechanisms for coordination on highly sensitive elements of the competition process (prices and level of output), whenever these are directly and closely related to the very core of the operation of the production joint ventures is understandable and acceptable, it must, however, be ascertained whether, in light of the particular existing conditions, any evidence of any larger spillover of these aspects of cooperation into the sphere of activity of the parent undertakings occurs, in a more or less indirect fashion. Interestingly, the 2000 Antitrust Guidelines for Collaborations among Competitors, largely covering joint ventures in the context of the US antitrust system, which generally cater for a more flexible treatment of most joint ventures than the existing one in the EU competition law system—and, in particular, an especially favourable treatment of production joint ventures—have not missed the possibility of occurrence of such restrictive effects (although contemplating that possibility in rather cautious terms). Thus, these Guidelines consider the possibility of the setting of prices of goods manufactured by the joint venture to their respective parent undertakings at supra-competitive levels, thus increasing the marginal costs of these undertakings and immediately incorporating within them, a minimum margin of proceeds which is then, consequently, imposed upon consumers, also generating an effect of alignment of prices by the parent undertakings, even if the latter maintain, at least apparently, their competitive relationship unaffected at the commercialization level (in spite of this apparent vigorous competition among participants in the output market, anticompetitive harm would then occur on account of the fact that all participants would have paid the same inflated transfer price). Furthermore, the US Guidelines also contemplate the possibility of the arrangements adopted in the context of the operation of a production joint venture leading to an artificial limitation of production levels, which may, in turn, induce coordination phenomena between parent undertakings through a global limitation of the output of goods the latter ensure, at any given time, in the markets at stake.318 Comparatively, the 2001 and 2011 Horizontal Cooperation Guidelines strike me as being rather incomplete in their treatment of these issues, only raising, in an excessively formalistic manner, the possibility of adoption of these types of understandings in the context of the operation of production joint ventures, without duly identifying the conditions for the verification of indirect restrictive effects that deserve an individual and more in-depth assessment.

3.3.5 Production Joint Ventures that Need Further Analysis 3.3.5.1 Second Level of Analysis of Production Joint Ventures 3.3.5.1(A) General Overview As I have previously submitted, in accordance with the general model of assessment of joint ventures that I have delineated, a preliminary stage of analysis allows the identification of certain types of joint ventures either almost invariably permitted or prohibited. A third type of situation—that cannot be reconciled with an immediate or straightforward

318 See the US 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.31(a), and, in particular, note 38.

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positive or negative competition law evaluation—should be the object of further analysis, considering in a systematic fashion many different factors, in various sequential stages of assessment that have already been characterized in general terms. Therefore, I purport to go on and ascertain how these sequential analytical stages should be followed as regards this subcategory of production joint ventures. For that purpose, I shall take into consideration the most common and potentially significant aspects in the assessment of situations whose repercussion in the competition process is bound to raise appreciable doubts. It is to be acknowledged at this point that, in the light of relevant aspects that have already been discussed, namely the typical goals of these production joint ventures and the risks of distortion of competition risks generally associated with them, a substantial number of these joint ventures may be regarded as not prone to raise serious competition law issues. Notwithstanding that fact, I also believe that, unlike what was observed on R&D joint ventures, a proportionately larger number of production joint ventures are bound to raise potential doubts concerning their compatibility with EU competition law.319 3.3.5.1(B) The Participating Undertakings’ Market Share Criterion The second stage of analysis sketched in my global assessment model is an appreciation of the market power of the joint venture’s founding undertakings, largely based on a criterion related to the aggregate market share of such undertakings. In addition, taking a step back from the Commission’s proposed approach, I hold that, for the purposes of such analysis, a sole market share threshold should be delineated, amounting to an index of market power ranking generally applicable to joint ventures assessed under article 101 TFEU.320 Consequently, also in relation to production joint ventures, the sole market share threshold that, in my view, should be taken into account as a general assessment criterion, is 25 per cent of any of the relevant markets affected by the formation of these joint ventures.321 In accordance with these terms, production joint ventures formed by founding undertakings whose aggregate market share exceeds the 25 per cent threshold in any such market directly affected by the cooperation process, will potentially raise appreciable risks of distortion of competition whose existence must, nevertheless, be confirmed on the basis of other complementary factors and through an assessment of the nature itself of the elements of restriction of competition that might be at stake. From another standpoint, the holding of

319 As regards this differentiation vis a vis R&D joint ventures, see above, 3.3.1 and 3.3.2 of this chapter. In the context of the US antitrust system, various authors take a largely favourable approach to production joint ventures—provided the latter lead to an overall increase of the productive capacity—in terms comparable to that which occurs with R&D joint ventures, on the basis of assumptions that with which I do not agree (see, on those opinions especially favourable to production joint ventures, Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 36) esp 50). 320 The reasons that determine this methodological option were already established above, in 1.4 and, esp 2.3.5.1(A) and 2.3.5.1(B) of this chapter, in which I have delineated a more detailed analysis of the ways in which the structural market share criterion may be employed as regards joint ventures in general. As previously noted, my fundamental assertion on this area, purportedly applying a sole market share criterion in the assessment under competition law of all functional subcategories of joint ventures is—mutatis mutandis—grounded in the American Antitrust Guidelines for Collaborations among Competitors (see, esp para 4.2). 321 On the various reasons that, irrespective of my position concerning the use of a sole market share criterion, lead me to put forward that general specific criterion of 25% of the markets affected by the formation of joint ventures, see the reasoning expounded above, in 2.3.5.1(B) and 2.3.5.1(C) of this chapter.

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a market share below the 25 per cent threshold does not allow us to presume the absence of negative repercussions for the competition process. Where an aggregate market share below the 25 per cent threshold is held, this will only allow us to form a preliminary and tentative understanding in favourable terms of a given production joint venture, which, however, and as previously stated, may well be set aside on the grounds of other analytical factors that must be taken into account in complementary stages of the analysis of such joint venture (that have to be undertaken in those cases of joint ventures requiring a more developed or in-depth analysis). This preliminary positive assessment is based on the assumption that the absence of significant market power attributable to the joint venture’s founding undertakings does not create, prima facie, an incentive for them to coordinate their behaviour—to the extent that they would not be able to influence the market operation conditions by acting in such a manner—nor does it allow any coordination that might still exist, despite all the aforesaid, to produce a material impact in that market. In fact, one should recall that, in respect of such joint ventures, which, in the context of a preliminary stage of analysis, were not granted a positive evaluation as a purportedly admissible form of cooperation, the development of a more complex process of analysis will always be required. The consideration of the market share is only the second stage of this complex process, and the eventually positive outcome of this stage—if the 25 per cent threshold has not been exceeded—may be either confirmed or refuted in light of the analytical criteria used in the subsequent assessment stages (including other structural criteria, such as the degree of concentration experienced in the markets at stake, and criteria of an entirely different nature as well). Additionally, one should also bear in mind that the 25 per cent market share threshold criterion fulfils, as previously noted, an analytical role in the context of my proposed assessment model, totally different from the one underlying the market share thresholds set forth in the various Block Exemption Regulations that are relevant for the purposes of assessing various types of joint ventures. Consequently, the fact that the Block Exemption Regulation concerning specialization agreements, establishes as a condition to benefit from the exemption the holding of a market share by the undertakings involved in a cooperation process under a 20 per cent threshold—lower that the sole threshold of 25 per cent proposed by me for the purpose of analysing the various types of joint ventures—does not involve any kind of contradiction in the weighing of this market share factor (since, as already explained, these concern different levels of analysis).322 The same Block Exemption Regulation also sets out, as a major element for calculating the relevant market shares, the data concerning the sales values. Nonetheless, I admit the possible complementary use for such purpose of other available market information, namely covering the volume of sales effectively carried out by the concerned undertakings. Finally, it should be also noted that the relevant markets in the context of which the market share of the undertakings involved in the formation and operation of a production joint venture should be calculated, will be those that will be deemed directly affected by the

322 See again the considerations above, in 2.3.5.1(B), 2.3.5.1(C), and also 2.3.5.1(D) of this chapter, where this issue concerning different analytical levels of considering market shares in terms of the hermeneutical reading and application of article 101 TFEU is directly addressed.

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cooperation process (typically, that should happen in relation to final goods manufactured by the joint venture and supplied to the parent undertakings for commercialization, or, to final goods directly commercialized by such undertakings and that have been manufactured using the intermediary goods supplied by the joint venture). Notwithstanding this fact, I admit, in accordance with the Commission understanding expressed in the 2001 and 2011 Horizontal Cooperation Guidelines,323 that the position of the parties in other markets related to the directly affected ones, may also be taken into consideration. However, in this eventual appreciation of other market positions, no precise market share thresholds should be used as reference. 3.3.5.2 Third Level of Analysis of Production Joint Ventures 3.3.5.2(A) The Fundamental Analytical Tools to be Used in the Third Level of Analysis of Production Joint Ventures Pursuing the detailed analysis of possible effects of production joint ventures on the competition process, I purport, within the framework of the so called third stage of assessment, in accordance with my global assessment model, to critically ascertain and assess the elements of distortion of competition specifically inherent in this functional type of joint venture. As regards situations which, by the nature of cooperation processes involved, and especially due to the significant market share of the undertakings involved—in accordance with the criteria set out above—raise serious concerns as to their compatibility with EU competition law, this third stage of analysis should allow us to discern whether the potential risks of distortion of competition materialize or not, depending on the actual contents of the cooperation programmes pursued through production joint ventures. As previously mentioned in the context of the preceding analysis of R&D joint ventures—that by and large already covered multiple aspects relevant for the application of my analytical model to various functional types of joint ventures—an inductive analysis should be undertaken, weighing the major categories of risks of distortion of competition underlying, as a rule, the subcategory of production joint ventures and assessing its possible characterization in light of the specific cooperation programme at stake and of the specific market context in which it occurs. Moreover, this analysis may, from an opposite perspective, act as a correction or adjustment factor of the initial evaluations favourable to certain production joint ventures, due to the non-overriding of the 25 per cent market share threshold. In fact, some elements of this functional type of joint venture, and the manner in which these interact with certain market contexts, may, in certain circumstances, prove to pose competition distortion issues not immediately predictable based on the mere evaluation of the participant undertakings’ market power. The main risks of distortion of competition that were identified regarding production joint ventures, were (i) risks of coordination of the parent undertakings within their respective markets for final goods, impacting upon price levels as well as on the quantity level of output and quality standards of these products; (ii) risks of partitioning of markets among parents enterprises; and (iii) risks of market foreclosure. It is on the basis of this

323 See the 2001 Horizontal Cooperation Guidelines, para 95 and the 2011 Horizontal Cooperation Guidelines, para 156.

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matrix that I shall seek to ascertain the foreseeable impact on the competition process of the more common functional contents of production joint ventures that specifically occur in business practice (notwithstanding significant variations in traits that actual cooperation programmes may display). For this analysis applied to specific cases, I shall systematically consider, with some adjustments, the six analytical factors set forth in the US 2000 Antitrust Guidelines for Collaborations among Competitors, as regards cooperation situations that require a higher degree of concern. As previously stated, that involves taking into consideration the existence or absence of an exclusive collaboration through the joint venture in the functional areas covered by the cooperation project; the relative importance of the assets transferred by the participants to the joint venture; the financial interest of the participants involved in the joint venture; the manner in which the joint venture is organized and governed;324 the likelihood of sharing sensitive information among the participants; and the duration of the joint venture. 3.3.5.2(B) Varying Conditions for Behavioural Coordination as Regards Prices, Quantity and Quality of Goods/Services Offered Considering, in the first place, the category of risks of distortion of competition that involve possible coordination of the parent undertakings on prices, on the quantity level of output and on the quality standards of products, it should be highlighted that—unlike R&D joint ventures—production joint ventures usually present a potential of restriction of competition which may impact on any of those isolated elements or over them as a whole (conversely, it should be acknowledged that R&D joint ventures would present an unevenly distributed potential of restriction of competition which focuses more heavily on product quality). The way in which this potential of restriction of competition associated with production joint ventures may actually present itself, and its variable degrees of intensity, depend on the assessment of complementary factors related to the particularities of cooperation programmes devised by the parties and with the system of actual relationship established among the joint venture’s operation and the markets affected by it. Thus, as regards eventual price alignments in the markets of final goods commercialized by parent undertakings, such potential of restriction of competition inherent in certain production joint ventures must be fundamentally ranked taking into account three factors set out below. As a first essential factor (a), and at a level strictly concerning production, it is important to assess whether—as an extreme possibility—the whole manufacturing process of goods that are to be commercialized independently by parent undertakings is entrusted to a joint venture. Where this exclusivity relationship does not exist, one must ascertain whether the joint production programme committed to the joint venture represents a more or less important share of the parent undertakings’ overall production, as well as a more or less relevant share of the whole amount of its production costs. Naturally, if the whole of the production function is entrusted to a joint venture, and the parties only maintain their

324 This fourth factor is an abridged version of the 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.34(d) which refers to a ‘manner in which a collaboration is organized and governed in assessing the extent to which participants and their collaborations have the ability and incentive to compete independently’.

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autonomy at the level of commercialization of final goods, or also, if a significant share of the total production of parent undertakings is ensured by a joint venture, the likelihood of a price alignment of those final goods between the parent undertakings is increased. In fact, whenever the total costs of production supported by parent enterprises are identical or very similar, an objective basis for such coordination of prices exists, unless the costs specifically associated with the commercialization of goods are highly variable and may assume certain significance. In those situations, the undertakings involved in the cooperation process are all fully reciprocally aware of the commercialization margins that they are able to obtain on the basis of the production costs which they incur. This almost inevitably encourages, provided commercialization costs at stake are not appreciable, coincident price setting practices, since the degree of unpredictability regarding the broadness of commercial policy options of each of those competing undertakings is considerably narrowed, if not even eliminated. As regards cooperation in the field of production, those more extreme situations of full transmission of the production function—or of significant parts of that function—to joint ventures, occur, in fact, more often than one would expect,325 and may even assume indirect forms. Thus, in some cases already examined by the Commission, for example, Rockweel/Iveco or United Reprocessors326—regardless of the share of production functions transferred at a given moment to joint production programmes, the parties had established restrictions on new investments outside the scope of such programmes, thus contributing to an increased sharing of joint production costs. Conversely, it is safe to assume that these potential effects of distortion of competition between parent undertakings may be attenuated, if the joint venture undoubtedly amounts to a necessary means for entering in a given market (as mentioned above, this aspect, in certain circumstances tends to allow for an immediate favourable reasoning concerning the creation of joint ventures). In opposite terms, if the joint production programmes are very specific and limited to a very particular and circumscribed area of the productive processes of participating undertakings—representing a small fraction of their total production costs—the risk of price alignment by these undertakings becomes negligible. As a second essential analytical factor (b), under the terms considered above, and going beyond a strict level of production, the risk of price coordination associated with the operation of a production joint venture may be ranked taking into account other elements, related to the nature of the relevant final goods and commercialization costs. As I have already observed, the heterogeneous nature of certain goods may determine the existence of significant and very distinct commercialization costs, comprising both differing presentation formats as well as differing promotional costs or costs related to the operation of distribution systems. In this type of situation, even if there is a significant convergence of the total production costs borne by the parent undertakings, due to the operation of a given production joint venture,

325 That tends to happen more often than one would prima facie suppose, because in many situations, parent enterprises are present in relevant markets for final goods and may choose to concentrate the whole of their production in a joint venture, maintaining in its sphere the production functions concerning other goods. 326 See Rockweel/Iveco [1983] OJ L224/19 and United Reprocessors [1976] OJ L51/7. As the Commission recognized in those cases, the adoption of rules regarding the operation of a joint venture and the conditions of participation of founding entities in the sense of the latter refraining from investing otherwise than in the context of the joint production programme, constitutes a ‘restriction of the independent competitive potential of the parties’.

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the risk of price coordination between those undertakings is substantially attenuated (the existence of various forms of presentation of the final product with differentiated specifications and possible widely distinct commercialization costs was mentioned, for example, in Ford/Volkswagen,327 although in a context where the Commission identified restrictions of competition restrictions relevant for purposes of application of article 101, paragraph 1 TFEU and only permitted the production joint venture at stake by granting an exemption). Moreover, as already emphasized,328 the heterogeneous nature of the products covered by joint cooperation programmes and the need to present them to consumers under differentiated images (eg through certain specifications autonomously introduced by each parent undertaking in products that were basically manufactured and supplied by the joint venture) may also contribute to maintain effective competition between the parties as regards the quality patterns of the products (even if the most significant portion of production which they commercialize stems from the joint venture’s activity). In short, provided the differences in commercialization costs represent a sufficiently important margin to keep a degree of uncertainty which is not trivial for each of the participating undertakings as regards the counterparties’ pricing policy options, the risk of price alignment may be deemed to be negligible or non-existing. Finally, and continuing to take into account the particular relevance in this area of price fixing of a set of three main analytical factors (as considered above), the risk of price coordination between parent undertakings may also be assessed in accordance with a third factor (c) concerning the likelihood of sharing commercially sensitive information in the context of the ordinary conditions of operation of a production joint venture. Even though this connection is not assumed in the US 2000 Antitrust Guidelines for Collaborations among Competitors, I think that this factor concerning the eventual sharing of information among competing undertakings is closely linked to other factors addressed in the Guidelines, namely, the form of organization and government of the joint ventures and to the decision-making process adopted within them. Indeed, production joint ventures may be organized in order to work, to the maximum possible extent, independently from their parent undertakings, through mechanisms or covenants designed to limit relevant contact points with those undertakings, not only as regards technical staff, senior officers, and members of their management bodies, but also as regards the flow of information related to any links between the business activities of the joint venture and its parent undertakings. Contrastingly, in other situations, the production programmes pursued through production joint ventures require the mutual awareness of certain essential conditions for the exercise of activity by the founding entities. Thus, the exchange of customer lists or of information on prices practised by participating undertakings in the context of those production programmes, as happened in BP Kemi/DDSF,329 or the disclosure of information

327 See Ford/Volkswagen (n 303), which will be examined in-depth below, at 3.3.5.4(B) of this chapter. Conversely, I have already pointed out—above, at 3.3.2.1 of this chapter—that in cases such as Electrolux/AEG (n 286), the Commission has been keen to downplay the importance of product differentiation elements in the context of their marketing (as well as differences concerning marketing costs). 328 See above, 3.3.2.1 of this chapter, where I analyze the risks of behavioural coordination between parent undertakings associated with production joint ventures. That first overall perspective of the various risks of distortion of competition inherent in production joint ventures is given in 3.3.2.1 above—and developed in accordance with the most common contents of cooperation programmes in the field of production. 329 See BP Kemi/DDSF [1979] OJ L286/32.

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on other supply agreements entered into by these undertakings, as was the case in Carlsberg,330 are forms of information sharing that tend to be problematic in light of article 101, paragraph 1 TFEU. Besides other issues that such kinds of arrangements involving information sharing potentially raise, these ones, on their own, already amount to factors that foster objective conditions for the development of price coordination practices by parent undertakings of a production joint venture. It may be acknowledged, however, that some mechanisms of information sharing may be formally set up as ancillary aspects to the operation of joint production programmes, for example, as references for the setting of periodical goals for the joint venture’s activity (we may consider, among other situations, the setting of goals concerning the supply of specified quantities of goods, and under certain conditions, to parent undertakings, depending on the variations of the requests of certain final customers of these firms which are taken as reference and notified, for those purposes, to the joint venture). Nevertheless, considering their impact on the possible behavioural coordination of parent undertakings, those forms of organization of the activity of production joint ventures should, in principle, be avoided. In general, the various factors set out here as possible elements inducing the alignment of prices by parent undertakings—especially on the basis of the similarity of the total production costs incurred by these undertakings—can also contribute to the coordination of behaviours of those undertakings as regards the level of quantitative output and the quality patterns of the final goods offered in certain markets. As with price fixing, the fact that participating undertakings depend, to a large extent, on the joint production programme developed within a given joint venture in order to obtain most of the final goods they supply to a certain market, increases the risks of behavioural coordination of those undertakings as regards those two other essential elements of the competition process—the quantitative output and the quality of products. Moreover, as regards specifically competition focused on the patterns of quality of products, the likelihood of its undue restriction varies in proportion to the proximity of the production joint venture’s area of activity in relation to the markets of final goods in which parent undertakings operate. Thus, if such relationship is less direct or close, and if the joint venture merely provides intermediary goods which parent undertakings must incorporate into their own production process, combined with multiple additional elements obtained from other sources, in order to manufacture final goods to be commercialized in certain markets, then the likelihood of occurrence of any restriction of competition at the level of the quality of products will clearly be diminished. As regards the quantitative output of products provided by parent undertakings to certain markets, I have already pointed out that the fact that, at a given time, such undertakings obtain most of the final goods they autonomously commercialize from a joint venture, does not necessarily preclude the possible adoption by those undertakings of different commercial policies at that level. As previously noted, one should avoid formal and static assessments of situations that occur at any given moment, as regards the flow of supply of existing goods taking place, on the one hand between a production joint venture and its parent undertakings, and, on the other, between these undertakings and their final customers. These undertakings may, in fact, still adopt divergent commercial policies, varying

330

See Carlsberg [1984] OJ L207/26.

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the number of products they offer to final consumers, provided they have access to other possible sources of supply of final products, particularly resulting from their own installed capacity, which may be easily reactivated in certain cases. However, in order to maintain these favourable conditions for the development of competition between participating undertakings at the level of quantitative output, it is also necessary to take into account other aspects, in particular one of the factors identified in the US 2000 Antitrust Guidelines for Collaborations among Competitors. I refer here to the second analytical factor identified in these Guidelines, being the relative importance of the assets transferred by the participants to the joint venture and, concurrently, to the extent to which those participants have kept independent control of specialized assets required for the production of certain goods covered by the joint production programme. Indeed, if those undertakings have transferred the most significant part of their productive assets to the joint venture, as a way of providing their contribution to its creation, and the degree of specialization of these assets, as well as their cost, hinders the possibility of their swift replacement, then these undertakings would not, reasonably, possess the ability to increase, by themselves, their own production levels. Under those conditions, the likelihood of situations of coordination between the parent undertakings with regard to quantitative level of output in a given market will have been considerably increased. Another aspect that must be addressed is the overall system of contractual covenants on which the operation of the production joint venture relies, particularly as regards acquisition obligations assumed by the parent undertakings in relation to that entity. Thus, arrangements concerning the obligation to purchase minimum quantities (periodically revised) of certain goods to the joint venture, such as those considered by the Commission in Olivetti/Canon,331 as well as engagements to acquire all of their needs in respect of certain goods from the joint venture, as was the case, for example, in Vacuum interrupters II,332 also tend to affect the ability of undertakings to maintain autonomous business strategies concerning this important element of the competition process (an element related to the variation of the quantitative output of final products supplied to the markets in which the parent undertakings operate). 3.3.5.2(C) The Content of the Joint Production Programmes and the Risks of Market Sharing As regards the second general category of risks of distortion of competition that I associated, in theory, with the creation of production joint ventures (as stated above, at 3.3.2 of this chapter), I have noted that the actual content of the joint production programmes at stake, as well as the systems of rules disciplining their operation in specific market contexts, may determine forms, more or less indirect (depending on the cases), of partitioning of customers or markets between the parent undertakings.333 Those situations may assume rather different features, rendering it difficult to grasp and to depict them in general terms. Anyway, considering the experience acquired through the enforcement practice in this area—both in the EU competition law system and in the US antitrust system, addressed here from time to time as a comparative reference—one may address,

331

See Olivetti/Canon (n 282). See Vacuum Interrupters II [1980] OJ L383/1. 333 On this mode of pondering and assessment of market apportionment risks of market partitioning inherent in production joint ventures, see, more specifically, above, 3.3.2.2 of this chapter. 332

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in an illustrative manner, certain paradigmatic aspects of these forms of cooperation, that can in principle be more prone to cause issues of distortion of competition. Thus, some agreements concerning the creation and operation of production joint ventures include commitments of the parent undertakings to refrain from manufacturing certain categories of products, or even, of abstention of competition with products covered by the joint production programme, as occurred in particular in the Commission case of GEC—Sodium Circulators Weir334 (these commitments often being justified by alleged reasons of efficiency and with a view to ensuring a stable base of activity to the joint ventures). Stipulations of this kind, which may be combined with provisions related to the production system of the joint venture, concerning the supply, by the latter, of the same categories of goods to each of the parent undertakings, albeit with somewhat differentiated specifications, evidence, in some situations, true arrangements towards a reciprocal specialization (that are more or less indirectly comprised in the organizational models of some production joint ventures). These may be devised so as to provide each parent undertaking with particular lines of products, specifically targeted, in accordance with their features, to reach a certain group of customers or certain geographic markets, the ultimate effect of these arrangements being the apportionment of those customers or geographical markets between the parent enterprises. Although, apparently, mere arrangements concerning the organization of production would be at stake in these situations, rather than aspects pertaining to the commercialization of products, such arrangements may pre-determine differentiated areas of commercialization by the parent undertakings and the consequent allocation of markets between them). In this context, contractual provisions regarding limitations on new investments of the parent undertakings—eventually justified by the apparent need of avoiding overlapping with the joint production programmes within the joint venture—may also constitute an incentive for market partitioning among those undertakings. Naturally, the analysis aimed at detecting possible effects of this type of allocation of markets or customers in the situations mentioned above, is of a rather complex nature. Typically, it should rely upon the matching of economic information relating, on the one hand to the supplies made by the joint venture to its parent undertakings, and, on the other, to the essential features of certain groups of customers or of markets which may be the target of the commercial strategies of these latter undertakings (it must be noted that, frequently, the Commission’s legal and economic analysis has evidenced appreciable flaws at this particular level of complexity, that requires a proper functional understanding of contractual systems of operation of joint ventures in the context of specific market relationships).335

334

See the Commission “GEC—Weir Sodium Circulators”, (1977), OJ nº L 327/26 This is, in fact, a typical case illustrating the need to address relevant legal situations in the context of the application of competition rules in accordance with the ‘law in context’ perspective described above. This methodological approach implies the development of legal and economic analyses, which do not limit themselves to a sphere of restrictions of freedom of action of undertakings, perceived through a formalistic approach. Typically, quite the opposite logic is at stake, imposing a greater degree of flexibility in the understanding of formal elements of apparent distortion of competition, in the sense of grasping, through a functional understanding of the interplay between the market context and the operation of certain contractual arrangements, restrictive elements which could, prima facie, remain unaccounted for. This type of functional understanding, requiring an adequate assessment of the actual market contexts has been gradually developed through the increasing use of empirical 335

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Other elements of the agreements concerning production joint ventures may also contribute to generate effects of allocation of markets or customers. We take into consideration here, namely, another of the analytical factors delineated in the US 2000 Antitrust Guidelines for Collaborations among Competitors, which is the assessment of the likelihood of commercially relevant information sharing between the parties.336 The assessment of this likelihood may either rely upon legal aspects of the joint venture’s contractual system—for example, provisions concerning the dissemination of information about customers or about conditions of sale practised by parent undertakings as a reference for the setting of goals to be achieved by the joint venture—or also upon facts concerning the nexus of relationships triggered by the joint venture’s operation (eg, among various aspects, the participation of parent undertakings’ managers in corporate bodies or in meetings held within the joint venture). Besides other repercussions on the competition process, that we have already addressed, this type of information flow may lead to situations of allocation of markets. Indeed, the reciprocal knowledge of elements of the counterparty’s core business or commercial strategy creates conditions or incentives for the parent undertakings’ coordination in order to apportion customers or markets, in accordance with a logic that allows them to extract for themselves the greatest economic benefit (thus setting aside some areas of uncertainty which, in normal market conditions, inhibit behaviours aimed at obtaining immediate supra-competitive advantages). It should also be borne in mind that the acuteness of the potential issues raised by the flow of information among the parties in view of the occurrence of risks of allocation of markets varies in accordance with the parties’ market power. The greater the market power of these undertakings, the most significant are, in the contexts described above, the risks of apportionment of customers and markets.337 Moreover, in situations in which the ex post assessment of joint ventures that are already in operation is at stake, it will be important to assess to what extent one may associate the existence of processes of information sharing among the parties to any effects of gradual diversion of the flows of sales of parent undertakings—identifiable over a certain period of time after the creation of the joint venture—in the sense that those parents specifically come to re-focus their activities upon certain customers or markets. In other situations, although parent undertakings retain essentially independent commercialization activities, not extending their cooperation in production into the area of distribution, the agreements concluded between the parties may include residual provisions on some elements of the commercial distribution of the products—included within the joint production programme—to be pursued separately by those parent enterprises.

analytical models of economic market analysis, including the weighing of developments in market contexts comparable to those assessed in a particular situation or new processes of systematized handling of diversified information on market operation conditions. On the development of these analytical processes, allowing the type of functional understanding mentioned above, see, inter alia, Van den Bergh and Camesasca, European Competition Law and Economics—A Comparative Perspective (n 16) esp 170ff. 336

See 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.34(e). On these and related aspects, and considering the enhanced focus, besides the more traditional functional types of cooperation arrangements, of the 2011 Horizontal Cooperation Guidelines on ‘information exchange’, covered in an autonomous section of these Guidelines (paras 55ff), see esp paras 87ff of these Guidelines, emphasizing that the greater the part of the relevant market covered, the potentially more significant the competition problems to be expected in these cases may be. 337

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Those provisions may even be formally construed as merely ancillary aspects, determined by reasons intrinsic to the production process developed within the joint venture, but tend, almost inevitably, to generate global effects of allocation of markets. Thus, the allocation between the parties of some areas of commercialization, even if limited—as happened, for example, in the situation addressed by the Commission in Feldmühle/Stora338—tends to hinder the development of truly autonomous global commercialization strategies by parent undertakings and creates conditions for coordination among the parties aimed at the allocation of markets. Conversely, the assessment made by the Commission in Olivetti/Canon339 strikes me as rather excessive. According to this Commission decision, a provision establishing best effort obligations of the parties of absorbing and channelling to the market all the goods produced by the joint venture they had created was deemed in itself restrictive of competition (in the Commission’s view, these commitments would reduce the degree of independence of these parties in conducting their commercial policies and also negatively impact on the likelihood of their competing against each other with products not manufactured by the joint venture). In fact, in certain very specific market conditions, provisions of this type may raise some issues, but I believe that it is rather unlikely for them, on their own, to support behaviours aimed at the effective partitioning of markets or customers. 3.3.5.2(D) Market Foreclosure Issues As regards risks of market foreclosure which may stem from the creation and operation of production joint ventures, an essential distinction has already been made between two perspectives on the basis of which such risks may be scrutinized. A first perspective is the weighing of the competition advantage that parent undertakings may obtain through cost reduction enabled by the existence of the joint venture, and through the correspondent inability of third competitor undertakings to match this advantage. The consequent consolidation of this fundamental disadvantage endured by competitor undertakings may, in certain cases, imply their exclusion from the markets at stake. Following a second perspective, eventual market foreclosure effects may occur in markets for intermediary products directly or indirectly affected by the operation of production joint ventures. As previously noted, the eventual occurrence of the first type of market foreclosure effects depends, mainly, on the market power held by the founding entities, as well as on the structure of the markets at stake. In fact, in the event such undertakings hold significant market power, comparatively much higher than that of third competitor undertakings, the new advantage, featuring a substantial cost reduction obtained through the creation of a production joint venture, may represent a decisive factor in order to ensure market dominance and its virtual foreclosure to other undertakings. Besides the consideration of market power held by the parties, the assessment of the possible occurrence of those adverse effects on competition must also be based upon an assessment of the relative weight that such cost reduction achieved through the production joint venture carries within the overall cost structures directly entrusted by parent undertakings to the areas of activity related with the object of the joint venture. If, in relative

338 339

See Feldmühle/Stora, reported in the Commission’s Twelfth Report on Competition Policy, points 73 and 74. See Olivetti/Canon (n 282).

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terms, the relevance of the savings generated by the joint venture is very significant, the likelihood of occurrence of market foreclosure effects will obviously increase. Ultimately, however—as I have emphasized elsewhere340—a final assessment concerning the occurrence of such effects of distortion of competition must also depend on the weighing of the availability of alternatives for competitors to strengthen, in turn, the effectiveness of their own production processes. These two factors are the essential parameters employed to ascertain the likelihood of occurrence of market foreclosure effects construed in accordance with the perspective of cost reduction of parent undertakings, regardless of the variable solutions which are adopted as the framework for the operation of joint ventures. An additional, relevant factor to be acknowledged, and one that is directly related to the content of the engagements assumed by parent undertakings in the context of joint ventures, is the eventual arrangements of the parties for the purpose of precluding licensing to third parties of IP rights arising from the joint production programme, except through mutual consent of those parties (such as were addressed, eg, by the Commission in VW-MAN,341 and tend to consolidate the advantages acquired by parent undertakings and to negatively affect a dynamic of competitive reaction by third undertakings). However, the evaluation of the likelihood of the second type of market foreclosure effects—which impact on markets for intermediary goods affected by the operation of the joint venture—depends largely on the characteristics of the nexus of various obligations that frame the organization and operation of certain production joint ventures. Looking at some of the more common situations, we may identify potential issues of market foreclosure stemming not only from the activity of parent undertakings as purchasers of goods from joint ventures, but also from their activity as suppliers of goods or assets to such ventures. At the first level, the issues at stake may, in particular, result from engagements by the joint venture of supplying, on an exclusive basis, its founding undertakings (as happened in Allied-Lyons/Carlsberg)342 thus fully covering their purchasing requirements concerning certain goods, or even from obligations assumed by those parent undertakings to purchase minimum quantities of the goods at stake from the joint venture.343 At the second level, one must take into consideration eventual problematic situations that might result, for example, from commitments assumed by the parent undertakings to provide, on an exclusive basis, to certain joint ventures controlled by them, raw materials or other essential elements to be used in the productive process (as occurred in Enichem/ ICI)344 or from obligations, in turn assumed by the joint venture, of acquiring from parent undertakings, on an exclusive or preferential basis, certain components necessary for their production (as was the case in Iveco/Ford).345 340 See above, 3.3.2.3 of this chapter, where I dealt generally with market exclusion risks of third competitors associated with production joint ventures. 341 See n 186. 342 See Allied-Lyons/Carlsberg—a joint venture combining interests in the beer production area pertaining to both enterprises—mentioned in Commission Press Release IP (92) 632, 28 July 1992. 343 As a typical situation of parent undertakings’ commitments to meet their need for certain goods through the joint venture’s supplies, see Vacuum Interrupters II (n 332), and as an example of the adoption of undertakings for the acquisition of minimum supplies of contracted-for goods from the joint venture, see Olivetti/Canon (n 282). 344 See Enichem/ICI [1988] OJ L50/18. 345 See Iveco/Ford [1988] OJ L230/39. In this case, the Commission considered as an eventual distortion of competition the commitment assumed by the corporate joint venture at stake of fulfilling all its demand for

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Notwithstanding the relevance of this type of situation for the assessment of possible market foreclosure effects—especially in cases where the parent undertakings, by virtue of their economic power, are significant purchasers or suppliers, in certain markets of intermediary goods—I believe that the enforcement practice of the Commission in this area has not yet allowed the development of stable parameters of analysis, thereby creating some uncertainty for undertakings pursuing cooperation processes in the field of production (especially if the latter hold significant market power). In particular, the Commission’s analysis has too often suffered from a lack of economic realism and from an excessive formal propensity to identify supposed market foreclosure effects. As noted earlier,346 it should not suffice, for identifying that type of effect, to verify that the creation of a given production joint venture reduces the margin or scope of operation of third undertakings as suppliers or purchasers of intermediary goods. It will be necessary to ascertain whether, from the perspective of economic reasonableness, and given the prevailing conditions in the markets at stake, these undertakings still possess relevant commercial alternatives. In that light and at least in some cases, the Commission has adopted a formalistic approach in the opposite sense and departing from such an advisable perspective347 (in ACEC/Berliet,348 eg, the Commission even went to the point of acknowledging that a joint venture created to develop some kind of electrical components could wrongfully eliminate the opportunity for other suppliers offering such intermediary goods without taking into account that in that specific market situation, no third party providers existed with the ability to produce those goods).349

components through supplies provided by the parent undertakings (‘to the detriment of other suppliers’ (para 28)); however, the Commission also acknowledged that in this particular situation, an effect of market foreclosure to third suppliers could fail to materialize provided the joint venture only granted preference to parent undertakings’ supplies whenever the latter offered them in competitive conditions and no less favourable than the ones third parties would offer. 346

See above, 3.3.2.2 and 3.3.2.3 of this chapter. This objection can also be raised, to a large extent, as regards the enforcement practice concerning production joint ventures by various EU Member States competition authorities, applying EU competition rules. 348 See ACEC/Berliet (n 184). 349 It is also important in closing this section on the possible forms of effects of distortion of competition concerning production joint ventures, to take into account the general characterization of these effects that I have outlined above, at 2.3.5.2(E) of this chapter in connection with the subcategory of R&D joint ventures, but—as previously stated—in terms that are essentially valid for the other subcategories of joint ventures covered by the regime of article 101 TFEU. Thus, it was emphasized that the essential effects on the competition process to be taken into account in the creation of these types of joint ventures are not, as a rule, structural effects, or at least, not effects directly perceivable as such, as is the case whenever this occurs in relation to merger or concentration operations. The effects concerned, triggered by undertakings subject to the provisions of article 101 TFEU, mainly relate to the so called spillover effects, in a broad sense, construed as the occurrence of repercussions generated at a level of cooperation limited to certain entrepreneurial functions and which extend to the overall competitive behaviour of the parent undertakings in the markets for final goods in which they operate and in the context of which the impact of particular functions pursued through cooperative joint ventures will be felt. This spillover in a broad sense, typical of joint ventures that do not perform all the functions of an autonomous economic entity, usually has an indirect structural component, to the extent that those repercussions are somehow measured and evaluated on the basis of the market power of the undertakings involved. Moreover, as observed, it must be distinguished from a spillover effect in a narrow sense, understood as the effect of behavioural coordination among parent undertakings in markets related to the markets for final goods in which the cooperation developed through partial function joint ventures is mainly felt (and which are typically the main markets of final goods and services where parent undertakings operate). 347

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3.3.5.3 Complementary Levels of Analysis of Production Joint Ventures 3.3.5.3(A) The Criteria Related to Different Types of Economic Links between the Joint Ventures and the Parent Companies The application of the criterion based on the consideration of specific elements of each functional type of joint venture may be supplemented, in accordance with the general model of assessment of these entities proposed here, with the use of an analytical parameter concerning the types of relations between the markets of parent undertakings and of joint ventures. From a broader perspective, what is at stake is the critical assessment of types of economic relations between these parties. As already mentioned, this parameter, widely used in US antitrust doctrine by Joseph Brodley as a way to streamline the methodology for antitrust analysis of joint ventures, may be transposed with some adjustments to the analytical framework used for assessing joint ventures under EU competition law.350 I have considered that this parameter should lead to the autonomous consideration of three categories of joint ventures able to induce specific effects on the competition process, in light of the typical nexus of economic relations between the parties associated with them. These are, at a first level, the joint ventures which make some contribution to the productive process of parent undertakings351 and the joint ventures which commercialize their parent undertakings’ goods or services; at a second and specific level, one should consider the category of production joint ventures. As regards this latter category, I acknowledge the possibility of a further analytical subdivision based on the distinction between various types of relationships between the markets of the undertakings involved in the creation and operation of production joint ventures. It is therefore important to understand the basis of this analytical subdivision and to grasp its potential contribution to the assessment of the typical repercussions of production joint ventures on the competition process. It must, however, be clarified in advance that in the context of the assessment of such production joint ventures, this criterion, based on different types of relationships between the markets of the participating undertakings and the markets with which the joint ventures at stake are related—even though they do not perform all the functions of an autonomous economic entity352—should essentially be understood in accordance with a very specific time perspective. The question to consider,

350 On this analytical parameter within the overall model of competition law assessment of joint ventures proposed here, I refer to the aspects stated above, ch 2 at 2.4.4. As mentioned there, this is a criterion influenced by the type of analysis outlined in US antitrust doctrine by Joseph Brodley (in ‘Joint Ventures and Antitrust Policy’ (n 14) 1524ff), although with several adjustments resulting from the fundamental conceptual distinction in EU competition law concerning joint ventures that perform all the functions of an autonomous economic entity and joint ventures that do not perform all of those functions (a distinction which has no parallel under US antitrust law). In accordance with EU competition law doctrine, as also noted, some authors set out a comparable analytical criterion, but on a wider perspective, namely the weighing of the types of economic relations between the parties (see, in this respect, the analysis of Temple Lang, ‘International Joint Ventures Under Community Law’ (n 97) 381ff). 351 On the framework of R&D joint ventures in light of the analytical parameter considered, see above, 2.3.5.3(A) of this chapter. 352 This feature determines that these undertakings fail to ensure an autonomous presence in certain markets. Furthermore, this subcategory of joint ventures does not even ensure, irrespective of this aspect of autonomy, direct access to the market as regards the commercialization of goods (these are, therefore, internal type joint ventures, as noted above). Thus, a considerable adjustment is required, in relation to the criteria outlined by Joseph Brodley, which are not constrained by the conceptual division between ‘full function’ and ‘partial function joint ventures’ under EU competition law (this applies particularly to the second conceptual area identified above).

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therefore, from an ex ante perspective, is the existing relationships between the markets of parent undertakings and the markets in relation to which the operation of the joint venture will be more directly associated with. That implies a scrutiny of the nexus of relationships, taking as a reference point for such analysis, the market positions held by parent undertakings in the period immediately prior to the creation of a given production joint venture. From this starting point, I purport to identify the subcategories of economic relations between the parties, in the context of the creation and operation of production joint ventures which are endowed with analytical relevance for the ascertaining and assessment of potential effects on the competition process. Accordingly, I shall address, in turn, these various subcategories, starting with those with a more serious potential for distortion of competition. It should be acknowledged, however, that such potential for disrupting competition in theory associated with each type of situations may not be confirmed in specific cases or may assume a wide variety of forms. This is the case because the analytical parameter considered is only indicative and amounts to a complementary element of assessment that is supposed to interact, in a complex manner, with other analytical criteria described here. A first subcategory of situations that we may identify is that of (i) production joint ventures active in the same market as their parent undertakings (which may also be qualified as purely horizontal production joint ventures). These are, in short, cooperation processes involving the establishment of joint ventures whose scope covers the production of final goods that are already commercialized by the parent undertakings and that are located within the same geographical market of these undertakings. Typically, this subcategory will involve greater risks of distortion of competition, although the actual materialization and weighing of those risks is dependent on other assessment factors (namely—and carrying with it the importance emphasized above as a screening element for most situations that affect the competition process—the market power of the parties as evidenced by their market shares).353 Another relevant subcategory of situations is (ii) cases of establishment of joint ventures in the product market of parent undertakings, but projected to support their activity in a separate geographic market, distinct from the one on which these firms had operated (before establishing the joint venture). In other words, this is the creation of production joint ventures aimed at the entry of their parent undertakings into a new geographical market. In such situations, two or more undertakings actively competing with each other in a particular product market and in a given area—which constitutes a distinct geographical market—aim to create a production joint venture in order to extend their business to

353 Regarding this higher degree of risk of restriction of competition risks inherent in joint ventures that have as their object the production of final goods that are already commercialized by the parent undertakings—the latter maintaining their prior competition relationships among themselves—and which are located within the same geographical market as those undertakings, especially if the entities involved hold considerable market shares, one may take into consideration, eg, Olivetti/Canon (n 282), involving undertakings which had a joint market share exceeding 30% in some market segments (in which the Commission, in the end, granted an exemption valid for a period of 12 years), or Bayer/Gist [1976] OJ L30/13, also involving also two competing undertakings holding sizeable market shares. It is important to clarify that when one refers to this specific type of joint venture whose object matches the production of final goods already commercialized by the parent undertakings located within the joint venture’s geographical market, one is taking into account production joint ventures aimed at supporting the operation of founding entities in those geographical markets in which they are already present, maintaining competition relationships among themselves.

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a another geographic market (in which previously no presence was maintained). They do so, whilst simultaneously ensuring, in autonomous terms, in that new geographical market, the commercialization of the goods produced by that joint venture. The potential for distortion of competition associated with these situations is clearly lower than that underlying the first subcategory identified ((i) above). However, it can still be considerable, particularly if the concerned undertakings hold significant market power in the sectors where they were originally present.354 Indeed, in such cases, the involved undertakings could have the ability independently to expand their business into a new geographical market (as noted above, the assessment of that eventual ability of the parent undertakings, pursued on the basis of a realistic economic analysis, will be a paramount element in the overall assessment of the effects on competition stemming from production joint ventures in this context of new market entry). If it is reasonable to assume—based on specific economic factors—that the undertakings concerned would be able to enter independently the new geographical market at stake, then this should prevail in the possible identification of an effect of restriction of competition—to be produced in the medium term. This effect is then bound to override any benefits to competition resulting, in the short term, from the entry of new competitors in a given geographic market. Moreover, these situations may even lead to the intersection of various negative effects on competition, evidenced, on the one hand, by affecting potential competition between the parties within a certain geographical market—the medium term effects noted above—and, on the other hand, by an eventual spillover effect of the cooperation developed through the joint venture to the geographical markets in which the parents were already active. Thus, understandably, many situations of this type have often been subject to objections by the Commission. In any case, notwithstanding the fact that as a matter of principle this somehow restrictive approach is justified, I consider that the Commission has not always relied on a realistic economic analysis. This omission tends to occur in its assessment of the ability of the participating undertakings to enter independently into new geographical markets, especially when these hold considerable market power.355 In comparative terms, it is acknowledged that, in the US antitrust system, both the enforcement practice of the federal competition authorities and the case law have evolved towards a more flexible analysis of these issues, even when large business groups are concerned. And, in fact, I believe that the

354 It is indeed symptomatic that the Commission has produced several unfavourable assessments of these situations even when the parent undertakings use the joint venture to enter a new geographical market. Among many situations of the latter type, one may consider, inter alia, Irish Distillers Group (attempted takeover of an existing business, being the sole producer of Irish whisky, by three of the largest producers of spirits, who would take joint control of the company—a case referred to in the ‘Eighteenth Report on Competition Policy’, point 80), Industrial Gases (creation of joint ventures to operate in the markets of France, Germany and Benelux involving some of the largest producers of industrial gases—a case referred to in the ‘Nineteenth Report on Competition Policy’, point 62); or BSN/St Gobain (referred to in the ‘Fifteenth Report on Competition Policy’, point 34). 355 The Commission’s restrictive approach applies not only in relation to cases of ex novo creation of joint ventures, but also to situations of ex post acquisition of joint control of existing businesses in order for them to function as true joint ventures. See Irish Distillers Group (n 354). I do not rule out that, in situations where it is likely that the conditions for the entry of two or more independent firms in a geographical market exist, their association in a joint venture for the purposes of making such entry tends to restrict competition. However, what I do seek to emphasize is that this aptitude for independent entry into new geographical markets should be subject to a realistic economic analysis, and may not be assumed without any supporting analysis, even when firms of considerable size are concerned.

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existence of economic power should not, in itself, support any pre-ordained assumptions regarding the ability of undertakings to enter new geographical markets without, at least, examining the specific economic conditions on which this entry depends.356 A third subcategory of situations includes (iii) cases concerning the creation of production joint ventures aimed at product markets closely related to the markets of the parent undertakings. In such situations, joint ventures do not ensure the production of final goods, which are subsequently commercialized qua tale by parent undertakings in markets where the latter already operate. They merely provide parent undertakings with intermediary goods, which the latter incorporate in their own productive process of final goods within the markets where they already operate. In this context, the greater the proximity of intermediary goods provided by the joint venture to the final products corresponding to the core object of the activity of the parent undertakings, then the more significant will be, in principle, the potential for disrupting competition of the production joint venture at stake. Once again, the negative effects on competition that may result from the creation of production joint ventures depends on the weighing of other factors. These include, in particular, the market power of the parent undertakings in the markets for final goods that they commercialize and the competitive structure of the markets for intermediary goods concerned (in which the parent undertakings are involved as purchasers).357 Lastly, we may identify a fourth subcategory of situations that, in theory, will present a relatively lower potential of distortion of competition. This is (iv) situations of joint ventures active in one of their parents’ market (and which may be qualified as partially horizontal joint ventures).358 One should consider in this respect, particularly, the cases of production joint ventures that have been established for developing their activity in the product and geographical market of one of the founding entities. Alternatively, one may also consider situations where the production joint venture is established in order to allow one of the parent undertakings to enter ex novo a given product market, while the other founding undertaking is also active in that same product market, but keeping its activity

356 Note, as an example of this analytical overall flexibility in the context of the application of US antitrust rules—evidencing rather demanding standards for the acceptance of elements indicating the high probability of certain enterprises holding an ability of independently entering a certain geographical market (as an alternative for entry through a joint venture)—United States v Penn-Olin Chem Co 246 F. Supp. 917 (D Del 1965). That does not prevent the likelihood of an independent entry to be effectively taken into consideration in some cases, as a decisive factor in determining the competitive constraints inherent in joint ventures which are deemed as ex novo tools for entry into certain markets, but basing such evaluations on a realistic economic analysis of these probabilities (see, eg, Yamaha Motor Co v FTC 657 F.2d 971 (8th Cir 1981). Moreover, it will not suffice to raise the possibility of an independent entry by the founding entities of a joint venture in a particular market, but also to effectively ascertain a rather short timeframe for this entry (see United States v FCC (Satellite Business Systems) 72 100 F.2d 652 (DC Cir 1 980). 357 Note the case of NUAB/Vallourec [1986] OJ C-113/4; CMLR (1986) 194, 2, in which the Commission took into account, in order to identify situations of distortion of competition which may be subject to the prohibition established in article 101, para 1 TFEU, the relative importance of certain intermediary goods, supplied by a given production joint venture, for the final goods of the founding entities, that were provided to the market by these entities operating as competitors (although one of the founding entities did not have, prior to the creation of the joint venture, the ability to produce the intermediary goods at stake). 358 This qualification is also inspired by the typology of relationships between markets of the undertakings involved in the creation and operation of joint ventures proposed by Joseph Brodley, but with multiple adjustments, since the global analytical model proposed here does not coincide with that typology and relies upon some different assumptions related to the distinction between full function and partial function joint ventures. See Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) esp 1573ff.

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limited to a different geographical market. In this context, the joint venture will provide final goods for commercialization by only one founding undertaking—the one operating in precisely the same geographical market to which the production joint venture is addressed. Concerning this type of situation, one may question the motivation of those founding entities which, while operating in the final product market covered by the joint production programme, remain in separate geographical markets and do not acquire, for their own commercialization activities of such final product, any portion of the joint venture’s production. I believe, however, that there may be various motivations for participating in production joint ventures under these conditions—an assumption which is fully confirmed by the business practice of cooperation in this field. Among others, the following motivations may prove relevant for parent undertakings which remain in separate geographical markets and do not absorb any portion of the joint venture’s production: the prospect of economic results to be generated through this joint venture; the eventual production of synergies with its own productive process—which may include access to information on new methods or productive processes, or on certain models of organization; and the acquisition of relevant experience that might create conditions, in the future, for entering into the geographical market at stake. Although in overall terms, these types of situations appear to create comparatively lesser risks of distortion of competition than previously considered subcategories, I submit, nonetheless, that, under certain conditions, these may still trigger important risks of restriction of potential competition. In particular, it may be questioned to what extent the actual creation of joint ventures in the above context does not further delay the entry into the geographical markets most directly affected by those ventures of the parent undertakings that have continued to operate in their geographical markets of origin.359 Moreover, if a simultaneous presence of the parent undertakings in any geographical market not supplied by the joint venture occurs, the operation of the latter may still induce restrictive spillover effects to that third market. 360

359 It might be considered that—following here to some extent the positions of some authors (eg Fine, Mergers and Joint Ventures in Europe (n 249) esp 458ff—the prohibition of a production joint venture under EU competition law would be of a rather exceptional nature if based exclusively on aspects of restriction of potential competition, in accordance with what has been said above. However, this hypothesis should not be ruled out in overall terms, in the context of certain situations where such negative repercussions on potential competition might prove more cumbersome. 360 Other variants may also occur, as in Yamaha Motor Co v FTC (n 356), in the context of the US antitrust system. Thus, in this case involving the creation of a production joint venture, the fact that one of the parent undertakings, choosing to remain outside the US market for the purposes of commercialization of the final product, had delivered to the joint venture all the production infrastructures that it already owned in that market, rendered an effective or significant entry or presence of a potential competitor in that market even more remote (a circumstance that was of particular relevance for the competition law assessment of the joint venture, given that the undertaking at stake was one of the most likely candidates for an ex novo entry in the US market, and possessed more objective conditions to accomplish that. Moreover, the oligopolistic structure of the market concerned was also taken into account, within which the effects arising from reduced potential competition would tend to be, for that reason, amplified. This case illustrates, therefore, in a paradigmatic manner, not only the importance of balancing the types of relationships between the markets for undertakings involved in the creation and operation of joint ventures, but also its interaction with other analytical factor, particularly of a structural nature, concerning the features of the markets concerned.

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One should also acknowledge the possibility of some variants in this type of situations concerning, for example, (a) cases in which the creation of a production joint venture corresponds to the entry of two (or more) founding entities into a new product market361— although only one of them will actually carry out the commercialization of the final good at stake within a given geographical market; or (b) cases of an even more complex nature in which the creation of a joint venture reflects the entry of one of the founding undertakings into a new product market and of another of those undertakings into a new geographical market. The first set of situations, namely, (a) the entry of the parent undertakings in new product markets, often through joint ventures combining R&D and production functions—as occurred in Vacuum Interrupters II, or GEC–Weir Sodium Circulators362 —should in principle be subject to a more favourable assessment, including, specifically for the purposes of the application of article 101, paragraph 1 TFEU (even if the concerned undertakings could be considered potential competitors). In reality, the assumption of a possible future development of an active competitive interplay, which underlies the qualification of two or more undertakings as potential competitors, is subject to a significant level of uncertainty which, in some cases, may be quite considerable. Conversely, business practice in this domain shows that, in many cases of creation of joint ventures aimed at the entry of their founders into a given product market, the latter tend, after a certain initial period of cooperation, to fully enter the market at stake in autonomous terms. Likewise, conditions for a favourable assessment of the second set of situations ((b) above) also frequently occur, regardless of the prior existence of potential competition relationships between the parties (I refer here to the entry of one of the founders into a new product market and the entry of another of those founders into a new geographical market). However, if the relations of potential competition in question assume a particular intensity, and considering that only the entry of a new undertaking into a given product market takes place, the chances of this type of situation falling under the prohibition set out in article 101, paragraph 1 TFEU are larger than in the category of cases previously considered (without prejudice, naturally, to the possibility of exemptions being granted under paragraph 3 of the same article). Moreover, it also often happens that some joint ventures performing a double instrumental role in the entry of each of the founding undertakings respectively into a new product market and into a new geographical market, imply the combination, in variable degrees of production and commercialization functions. Thus, some of those entities will tend to be qualified as entities that perform all the functions of an autonomous economic entity, and should then be qualified as concentrations subject to the MCR.

361 Included here are those situations of extension of the product market as a sub variant of the fourth category of situations to be considered within the use of criteria based on the relationships between the markets of the undertakings involved in cooperation processes (the fourth category corresponding to the situations of joint ventures active in one of the parent undertakings’ markets). This sub variant corresponds to the fourth category of relevant situations identified by Joseph Brodley, described by him as ‘joint ventures into related markets’, identifying two subcategories: ‘partially horizontal joint ventures’ and ‘market and product extension joint ventures’. See Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) esp 1573ff. As I have previously noted, although taking into account the analytical systematization proposed by Brodley, I have introduced several adjustments, in light of the particularities of the framework of joint ventures under EU competition law, as opposed to the corresponding framework under US antitrust law. 362 See Vacuum Interrupters II (n 332) or GEC–Weir Sodium Circulators (n 334).

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3.3.5.3(B) Complementary Analytical Tools The analytical model of joint ventures proposed involves considering at an autonomous level, in the context of a final stage of assessment of joint ventures, a set of complementary and residual analytical factors, which may still be combined with the essential parameters of analysis that have been mentioned so far. There are no major particularities in the application of such complementary parameters for the assessment of production joint ventures. This applies either to parameters of a more directly structural nature (especially the degree of concentration of the market affected by creation of the joint venture) or to factors less dependent on a structural logic, in the narrower sense of it (eg, factors concerning a dynamic assessment of barriers to entry and, hence, the assessment of the possibility of entry in the market of new competitors).363 As has been observed about R&D joint ventures, the cumulative weighing of the aggregate market share of parent undertakings and of the degree of concentration of the markets affected by joint ventures should also be regarded of paramount importance in the field of cooperation through joint production (although acknowledging that, comparatively, this integrated analysis may assume even greater importance as regards R&D joint ventures). Moreover, in the 2001 and 2011 Horizontal Cooperation Guidelines, the Commission expressly mentioned this analytical perspective concerning the treatment of production agreements.364 It did so in order to point out the possibility of occurrence of limited effects on the competition process, even if the market share threshold—evidencing appreciable market power held by the parties—is slightly exceeded, provided that, conversely, the level of concentration remains a ‘moderate’ one (‘HHI below 1800’, as stated in the 2001 Horizontal Cooperation Guidelines, bringing up an econometric instrument which may be used on the basis of objective criteria365 while the 2011 Guidelines privileged more flexibility through a more general qualitative reference to ‘moderate concentration’ of the market).366 I depart only slightly from the Commission’s view on this—in the terms that I have set out above, at 2.3.5.1(B) and 2.3.5.1(C)—concerning the index of market power that I have privileged. Thus, bearing in mind the sole market share threshold that I have advocated here, I argue for the possibility of a slight overriding of the aggregate market share reference threshold, of 25 per cent, with no major causes for concern in terms of possible negative impact on competition, provided the degree of concentration remains relatively moderate (within the HHI threshold mentioned above). Concerning complementary analytical factors related to the assessment of the possibility of market entry of new competitors, these have been addressed in the context of my

363 Note here ch 2, 2.4.5 and 2.3.5.3 of this chapter, in this latter case addressing the aspects considered here in connection with R&D joint ventures but in general terms nonetheless applicable, mutatis mutandis, to the remaining subcategories of joint ventures subject to the legal regime set out in article 101 TFEU (as is the case with production joint ventures considered in the present section). 364 See the 2001 Horizontal Cooperation Guidelines, para 96 and the 2011 Horizontal Cooperation Guidelines, para 170. 365 Concerning this econometric tool—the HHI—in particular, as regards the possible parallelism between its use mainly developed in the context of the assessment of concentrative joint ventures under the MCR and its use for purposes of assessment of cooperative joint ventures, that has been considered in connection with the preceding analysis of R&D joint ventures, see above, 2.3.5.3 of this chapter (a parallelism that is ultimately relevant for the majority of joint venture subcategories subject to the regime set out in article 101 TFEU). 366 See the 2011 Horizontal Cooperation Guidelines, paras 170ff.

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characterization of the remaining stages of competition law evaluation of this type of joint venture (especially for the purposes of assessing the possible effects of market foreclosure, induced by production joint ventures for production). Besides being able to influence the degree of openness to new competitors of markets for intermediary goods, in which, prior to the development of the cooperation, the parent undertakings acted as suppliers or, even more importantly, as purchasers, production joint ventures may also considerably strengthen the barriers to entry of new competitors into markets of final goods commercialized by those parent undertakings. That will occur, in particular, if the average level of production costs constitutes a significant factor for determining competitive position of undertakings in the market at stake and if the parent undertakings have obtained, through the joint venture, a significant reduction in these costs, which cannot realistically be counteracted by other undertakings.367 Also at the level of production costs, and following a perspective that I raised when outlining different angles of analysis of production joint ventures, the 2011 Horizontal Cooperation Guidelines also correctly emphasize that the probability of negative collusive outcomes is enhanced in cases where production agreements between parties with market power increase their ‘commonality of costs’ (meaning the proportion of variable costs that the parties have in common).368 3.3.5.4 Critical Analysis of Some Relevant Case Law 3.3.5.4(A) A Critical Perspective—In General Having sought to explain the main points concerning the competition law analysis of production joint ventures in the context of the global analytical model that I have delineated,369 it is pertinent also to focus some attention on some selected cases (which stand out from the Commission’s enforcement practice and from European jurisprudence). I shall consider here a small set of precedents relevant to illustrate major hermeneutical approaches followed in this area, bearing in mind that I have referred to many relevant precedents throughout my study of the various stages of competition law analysis of the subcategory of production joint ventures. In general, considering the enforcement practice of the Commission—although this has become more scarce since the 2003 reform of the overall enforcement system of EU competition law—and the 2011 Horizontal Cooperation Guidelines, I believe there is a set of production joint ventures that the Commission will tend to treat as falling within the general prohibition of article 101, paragraph 1 TFEU. I refer here to production joint ventures involving participating undertakings that may be deemed to be effective or potential competitors in the markets of final products manufactured by the joint ventures at stake. The Commission, when explicitly intervening in these situations has in most cases cleared cooperation processes in this field of joint production on the basis of exemptions.

367 On the assessment of the possibilities of market entry of new competitors in the context of eventual market closure effects induced by the creation of production joint ventures, see above, 3.3.2.3 of this chapter. 368 See the 2011 Horizontal Cooperation Guidelines, paras 176ff. 369 See the general model outlined in ch 2, and already applied and developed in the first section of this chapter concerning the subcategory of R&D joint ventures. Naturally, on the basis of such first developemnet of that analytical model, this current analysis of production joint ventures and the subsequent analysis of other major subcategories of joint ventures which comprise the subject of this study, rely upon increasingly brief assumptions, predominantly focusing on some core particularities of each functional type of joint venture type.

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Frequently, before the adoption of Regulation (EC) No 2658/2000, which significantly expanded the scope of the block exemption concerning specialization agreements (in terms also followed by the more recent Regulation (EU) No 1218/2010),370 the Commission acted in this area through the granting of individual exemptions, under article 101, paragraph 3 TFEU. This frequent exemption of joint production agreements goes some way to explaining the scarcity of case law in this area. I consider that the approach generally followed for submitting production joint ventures to the prohibition rule of article 101, paragraph 3 TFEU has, to some extent, been too strict and formalistic. Returning here briefly to a point that I have previously dealt with on the interplay between paragraphs 1 and 3 of article 101 TFEU, even if the General Court has raised doubts in Métropole Television (M6) about the margin for an integrated consideration of pro-competitive and anticompetitive elements at the level of article 101, paragraph 1 TFEU,371 I submit that the Commission has failed to develop a sufficiently broad hermeneutical reading of that rule in the field of production joint ventures. Instead, I believe that the Commission, in a somewhat contradictory manner, has combined this restrictive pre-ordained comprehension of article 101, paragraph 1 TFEU applied to production joint ventures with a not so accurate and rigorous application of the conditions for exemption under paragraph 3 of the same article. In particular, I believe that there has been no consistent practice of enunciation of the teleological grounds that must be considered as prevailing at that level, especially bearing in mind that the exemptions must be based fundamentally on strict competition law goals (notwithstanding the plurality of values which may nonetheless coexist in the formulation and consideration of these goals).372 That

370 It should be recalled here that after the 2000 reform of the block exemption applicable to specialization agreements (in terms basically followed in the more recent 2010 reform) any given production joint venture, even if its parent undertakings maintain their own independent production infrastructures, may benefit from the block exemption, hence increasing the possibility of engaging in selective cooperation in the field of production, specifically aimed at obtaining certain types of economic efficiency (namely, production efficiency or even dynamic efficiency). 371 I refer here to the General Court ruling in Métropole Télévision (M6) (2001) 112/99. Moreover, this precedent was also brought up in the Commission’s 2004 Guidelines on the application of paragraph 3 of Article 81 of the Treaty, in order to assert a hermeneutic reading—which I consider far too restrictive—and that appears to refer, almost exclusively, to the integrated assessment of procompetitive elements (especially the verification of efficiencies) and elements of restriction of competition to the regime set out in article 101, para 3 TFEU (see especially, in this respect, para 11, and paras 48ff of the 2004 Guidelines). However, when one takes into account relevant competition law categories of cooperation whose main distinctive feature is precisely a stable organization of cooperation processes, intrinsically aimed at the production of various types of efficiencies, as is typically the case with joint ventures, I consider that it is appropriate to acknowledge some area for wider legal and economic assessments incorporating certain efficiency elements, at the level of article 101, para 1 TFEU. Conversely, I reiterate the idea that this wider area for the concretization of the regime set out in article 101, para 1 must not be confused with any kind of reception qua tale of the rule of reason of the US antitrust system, corresponding instead to a specific normative logic of EU competition law—devised here—aimed at the consideration and assessment of an overall effect, weighed in the context of the aforesaid provision (which I have designated as a kind of weighed or global effect that certain joint venture categories are bound to generate on competition). On this perspective see above, the issues set out in overall terms in ch 2 and in the early part of this chapter, as well as below, the corollaries which are drawn, in systematic terms, in ch 4 (esp 2.2.2 and 2.2.3). On some theoretical mistakes often associated with the rule of reason under EU competition law, see Terry Calvani, ‘Some Thoughts on the Rule of Reason’ (2001) ECLR 201ff. 372 These goals are endowed with great complexity, covering various social and economic dimensions (eg, protection of the status and interests of consumers, safeguarding of opportunities for action of other competitors and their fairness, among many other aspects), although its understanding has varied considerably over time. For an historical and evolutionary perspective of these core goals and of the issues set out above, see the concluding part of this book, below, ch 4, esp section 2. For an overview of the complexity of such goals within the context of

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has led, in general—at least in the past—to an excessive administrative interventionism by the Commission, in the context of the application of article 101, paragraph 3 TFEU and to the emergence of a margin of uncertainty with regard to the weighing of values or relevant criteria, that may justify the granting of exemptions (and thereby counteract possible effects of distortion of competition identified in various situations). 3.3.5.4(B) Ford/Volkswagen and Matra Hachette The Commission’s decision in Ford/Volkswagen, dated 1992, and the subsequent court case Matra Hachette v Commission of 1994, concerning the same decision, undoubtedly constitute one of the most significant precedents in this field.373 In that decision, the Commission assessed the establishment of a production joint venture between two major car manufacturers. The joint venture assumed a corporate legal form, with the two founding entities holding identical stakes. This company had as its object the development, engineering and manufacture of a new minivan ‘multi-purpose’ vehicle, targeted to reach a specific consumer segment. The joint development and production programme relied upon the assumption of a life cycle for this product of around 10 years. Hence, the parties established a joint venture of identical duration. In the context of this joint programme, one of the parent companies would take the leadership in the design and development of the product, and the other would look after the industrial engineering component of the new factory to be created in order to carry out the project and the production. In accordance with that project, the joint venture was to supply to the founding entities different versions of the same type of vehicle—concerning the finishing options, design or certain technical engine specifications—which would then be autonomously commercialized by those undertakings under their own brands. In turn, those founding entities should provide the joint venture, in order for the latter to develop the programme of joint production, with engines and transmissions, all the other vehicle components being purchased from local external suppliers. Regarding the essential level of the relationship between the parent undertakings and the joint venture, the former would acquire from the joint venture those versions of the minivan, in principle for the same price. That price was to match exactly the cost of production of the vehicle, to which—for tax reasons—a small profit margin would accrue. In addition, however, each of the founders would also bear the additional costs of customization of its version of the vehicle (which would, ultimately, imply some differences in price between the two versions). Furthermore, in accordance with the project submitted to the Commission, both parent undertakings were supposed to, as a rule, place their orders to the joint venture, independently of one another. Only in case of inability of the joint venture to meet the demand of each of the participating undertakings would the available production capabilities be apportioned between those undertakings in proportion to the quantities ordered by each of them. The Commission considered this production joint venture and its underlying nexus of agreements to be covered by the prohibition set by article 101, paragraph 1 TFEU. In

the of the application of article 101, para 3 TFEU, and especially its articulation with para 1 of the same provision, see Doris Hildebrand, The Role of Economic Analysis in the EC Competition Rules (TheNetherlands, Kluwer Law International, 2009) esp 197ff and 253ff. 373 See Ford/Volkswagen (n 303) and the following General Court ruling in Case T-17/93 Matra Hachette v Commission (n 103).

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reaching this conclusion, a decisive factor was the fact that, although neither of the two founders had so far produced the type of vehicle in question, and such vehicle would be a part of a differentiated market, the participating undertakings would supposedly have the ability autonomously to develop this new product, in spite of the costs and difficulties associated with its launching. Hence, insofar as the development of new vehicles is an essential element of competition between car manufacturers—even when those vehicles, given their specific characteristics, are targeted towards a specific consumer segment which may be regarded as a differentiated market—the decision of the parties to cooperate, through the creation of a joint venture for the launching of the vehicle in question, would necessarily involve a serious restriction of competition between the parties. Moreover, the likely spillover effects to related or neighbouring markets (spillover effects, in a narrow sense, as per my characterization above, ch 2, 1.4 and 2.3.5.2(E) of this chapter) were also weighed in the global reasoning leading to the application of the prohibition rule of article 101, paragraph 1 TFEU. Those effects were considered on the basis of a likely flow of relevant technical information within the joint venture (from which negative effects could arise impacting on the markets for other types of vehicles such as minivans and others). In short, this joint venture would, at least, have restricted potential competition between founding entities in the market corresponding to the new type of vehicle and would also foster—through a spillover effect—the restriction of effective competition between the participating undertakings in the markets for other types of vehicles. Despite this overall assessment of the situation arising from the creation of the joint venture, the Commission acknowledged the existence of significant difficulties in entering the market at stake, due to the high costs of development and production of the new vehicle and to the fact that minimally efficient economies of scale for the production of the vehicle in question involved production volumes that exceeded the size of such product market back then. Despite having thus identified serious elements of restriction of competition—either at the level of effective or potential competition—the Commission came to adopt an individual exemption decision, under article 101, paragraph 3 TFEU, granted for a period of 13 years. In summary, the Commission acknowledged the concurrence in the case of a set of five categories of positive effects—under the terms of paragraph 3—that would counteract, in overall terms, the negative elements affecting competition that supposedly arose from the creation of the joint venture. First, the joint venture would allow the entry into the market of two new versions of multipurpose vehicles, positively impacting on a market that was dominated by one undertaking with a market share exceeding 50 per cent (in the then European Community market). Moreover, due to the combination of the parties’ resources and technological abilities, the two new products launched in the market would evidence comparatively higher features, both at the technical and environmental levels, than the products available in the market at the time. As a second favourable element, the Commission remarked that the joint venture would result in the building of a new and efficient industrial facility incorporating the latest developments in this area. However, I consider this separate consideration of the creation of a modern industrial facility as a positive factor to be worthy of criticism. On its own, this should not make up for serious restrictions of competition because, in theory, other projects of cooperation between competitors, provided they were also permitted in terms of antitrust assessment, could also cater for the creation of modern industrial units. The

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real issue, in my opinion, would be merely to assess whether the cooperation, which was restrictive of competition, was really necessary to achieve the positive outcome of setting up of a new modernised manufacturing facility. A third factor weighed by the Commission was the set of positive economic effects and of creation of undertakings resulting from the completion of the largest foreign investment project yet in Portugal (the Member State chosen to locate the new plant as part of a project that also determined the granting of State aid, whose analysis did not prove, however, directly relevant to the critical assessment concerning the application of article 101 TFEU).374 The Commission thus considered that the creation of the joint venture contributed to the attainment of one of the then European Community Treaty’s goals of reducing regional income differences, although stating—in a somewhat ambiguous manner, in regard to the actual relevance of this alleged favourable reason—that such a factor could not justify granting an exemption if the conditions set out in article 101, paragraph 3 TFEU were not met. Finally, the Commission also took into account two additional aspects in its decision to grant the exemption. On the one hand, it acknowledged the existence of alleged benefits for consumers as a result of increased competition that would occur in the market for multipurpose vehicles. This effect would result, not only from the fact that the founding entities intended to compete with each other for the distribution of the product, by autonomously commercializing their own versions of the new type of vehicle, but also from the fostering of a more balanced market structure pursuant to the creation of the joint venture (as compared to a previous situation where one of the manufacturers held a market share higher than 50 per cent in that European market for the product at stake). On the other hand, the Commission acknowledged that it would be unlikely for any of the parents undertakings in question—despite their significant technical and financial resources—to penetrate the market at stake without incurring losses, taking into account the existing expectations about the possible rate of return of the investments required in the context of the available information on sales and market share forecasts. In any event, to ensure that, on the whole, these positive effects outweighed the important factors restricting competition that supposedly resulted from the joint venture by a possible restraint of these latter ones, the Commission linked its decision to exempt the joint venture at stake to a number of conditions. In systemic terms, we may identify five relevant areas in which conditions were imposed. In an attempt to prevent eventual spillover effects—restrictive of competition—various safeguards were imposed regarding factors leading to flows of sensitive information among the parties. The concern to ensure sufficient degrees of product differentiation—that would prove essential in order for the formal existence of autonomous commercialization processes by the founding entities to ensure relationships of actual competition—led to conditions preventing one of these undertakings from using engines manufactured by other entity in a proportion exceeding 25 per cent of its vehicles over a three-year period. Still from a substantive perspective, focused on prevention or reduction of market sharing

374 The aspects concerning the granting of State aid were also critically debated in the decision, but are not addressed here. See, on these issues, Christof Swaak, ‘Case T-17/93, Matra Hachette SA v. Commission of the European Communities. Judgement of the Court of First Instance (Second Chamber) of 15 July 1994’ (1995) CMLR 1271ff.

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risks, the parties were required to ensure the availability of their respective versions of the vehicle in the entire European market. We should bear in mind, however, that, as noted in my earlier characterization of risks of distortion of competition inherent in production joint ventures, the setting of specifications for each product class to be supplied to each founding undertaking may take into account the features of the different target markets, and thus ultimately lead, in fact, to actual market sharing. This latter condition imposed by the Commission, consequently, strikes me as ineffective. At a logistical and instrumental level, the Commission imposed conditions on the adoption of procedures that could ensure an effective separation of business assets in case the exemption was not renewed and determined compliance with a set of periodic reporting and disclosure requirements in order to allow it to monitor the evolution of competition in the relevant market, during the period in which the joint venture remained in operation. Regardless of some doubts concerning the actual effectiveness of certain elements of these conditions, taken as a whole, they did present a coherent rationale, given the likelihood of risks of restriction of competition addressed by them. Therefore, what renders this decision—essentially corroborated by the General Court—to some extent objectionable, in my view, are other factors.375 In fact it is the overall analytical construction put together by the Commission in order to attempt to justify a global prevalence of positive effects— covered by the conditions set out in article 101, paragraph 3 TFEU376—over the material effects of restriction of competition that it had identified for purposes of application of paragraph 1 of the same article, that deserve, in my view, some criticism. In particular, I consider the Commission’s analysis aimed at sustaining the indispensability of the cooperation

375 Although the confirmation of the Commission decision by the General Court essentially resulted from the non-identification of manifest errors. See the General Court ruling on Matra Hachette v Commission (n 103) esp paras 137 and 140ff and 157. In this last paragraph, the GC (then CFI) mentions, in particular: ‘the Court considers that the allegation of a manifest error on the part of the Commission in its appraisal of the facts, in relation to each of the four conditions laid down by Article 85(3) of the Treaty, must be rejected’. 376 Those four cumulative conditions on which the application of exemptions under article 101, para 3 TFEU have been described briefly above (see, eg, ch 2). Such conditions—two positive and two negative—comprise, namely (i) the contribution to an improvement of production or distribution of goods or to the promotion of technical or economic progress; (ii) the attribution to consumers of a fair share of the resulting benefit; (iii) the indispensible role of restrictions to competition for the attainment of these objectives; and (iv) the impossibility of the concerned cooperation processes to grant the parties the ability to eliminate competition regarding a substantial part of the products concerned. As I have highlighted, too strict an interpretation of the prohibition in article 101, para 1 TFEU has, in the past Commission enforcement practice on joint ventures, contrasted with an excessively lenient view, or at least not very systematic or consistent, on those four conditions, with the inherent consequences in terms of distortion of the legal construing of competition rules and of uncertainty for enterprises dealing with its application (issues which, in my opinion, and despite the core of our critical assessment not being the understanding of article 101, para 3 TFEU, have been still maintained, by and large, in the 2004 Guidelines on the Application of Article 81(3) EC; see esp paras 34ff). On the analytical inconsistencies of the application of the four conditions of application of article 101, para 3 TFEU, see, inter alia, Valentine Korah, ‘Critical Comments on the Commission’s Recent Decisions Exempting Joint Ventures to Exploit Research that Needs Further Development’ (1987) EL Rev 18ff and M Waelbroeck, ‘Antitrust Analysis Under Article 85(1) and (3)’ in European/American Antitrust and Trade Law—Annual Proceedings of the Fordham Corporate Law Institute—1985 (Barry Hawk (ed), Matthew Bender, 1986) ch 28. In particular, concerning the first condition, on the contribution for the improvement of production or distribution or for the promotion of technical and economic progress, the Commission has taken into account rather different factors in the context of the assessment of joint ventures (comprising, eg, the need to satisfy certain customers’ needs and the contribution for safety standards or the prevention of excess capabilities; see on the diversity in this area, Temple Lang, European Community Antitrust Law and Joint Ventures Involving Transfer of Technology in B Hawk (ed) Annual Proceedings of the Fordham Corporate Law Institute—1982 (New York, Matthew Bender, 1983) 203ff, esp 224ff).

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at stake, based in a production joint venture—with its alleged harm to competition for achieving certain technical and economic progress goals less than consistent. In the same vein, the Commission’s assessment of the hypothetical indispensable nature of the joint venture for the founding undertakings to enter the market at stake also strikes me as rather incomplete.377 In my view, a mere convenience or business advantage in facilitating the entry conditions into a certain market must not be mistaken for insurmountable obstacles to market entry that render unlikely, in terms of reasonability, business decisions of autonomous entry in such market. The Commission did not quite focus in depth on this fundamental difference. And, if one acknowledges, following the parameters outlined above regarding types of economic relations between the parties, the possibility of a favourable assessment of joint ventures that are associated with the entry ex novo of its founder undertakings in a given product market, this assumption is only valid in relation to cases where there is evidence that joint ventures are to prove decisive for these founders to overcome obstacles to their entry into such markets. 3.3.5.4(C) Exxon/Shell Another important precedent for the assessment of production joint ventures was the Commission decision in Exxon/Shell.378 In this decision, the Commission focused upon a production joint venture formed by two French subsidiaries of two multinational companies operating in the petrochemical sector. The main purpose of this joint venture was the manufacturing of a chemical product, a specific thermoplastic (linear low density polyethylene), which was intended to fulfil several industrial purposes. The market for this product supplied by the joint venture evidenced oligopolistic features, and also displayed considerable price transparency. Under the agreements concerning the joint venture, the products manufactured by the joint venture were to be commercialized independently by the two founding entities, alongside similar or own-branded products. For the development of the joint production programme the required raw materials would essentially be supplied by the founding entities. A significant aspect of this programme of joint production, highlighted by the Commission, was the fact that a significant amount of the production of the goods at stake by the founding entities was to be entrusted to the joint venture (although these enterprises would nevertheless maintain their own autonomous production capabilities). The rather complex contractual system on which the cooperation programme was based determined the apportionment of time available for production by manufacturing facilities entrusted to the joint venture in a proportionate manner to the parties’ interests in that venture (in which they held an equal shareholding). In the agreements entered into among the parties, it was established that, in the event of non-use of the whole of the production rights allocated

377 See paras 29–33 of the Commission decision and paras 136ff of the GC ruling. In reality, among other aspects, the Commission acknowledged that the joint venture would be necessary in order to allow parent undertakings to penetrate the relevant market, although it was also ascertained that operators in wholly distinct and non-comparable positions had been able individually to enter the market. In my opinion, the Commission did not carry out sufficient research on similar situations—the relevance of empirical models of competition law analysis relying upon the weighing of various comparable situations of undertakings should be borne in mind in this area—nor has it analysed, in appropriate terms, the actual ability and interest of the founding undertakings to enter the market, even if incurring losses during an initial period. The CFI did not, however, criticize the Commission’s analytical flaws in that regard. 378 See the Commission decision in Exxon/Shell (n 282).

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to each party in a given period of time, a possible reallocation of production rights for this period would then be discussed among them. Considering the content of these agreements, as well as the operating conditions of the market affected by the joint venture, the Commission considered that its creation would trigger the prohibition established under article 101, paragraph 1 TFEU. In particular, it should be noted that in this assessment, the Commission did not exclusively take into account formalistic elements of restriction of competition—resulting from the fact that parties ceased independent action in relation to a significant share of their production capabilities—but also substantive traits of market analysis. In particular, the Commission took into account the homogeneous nature of the product in question, which excluded significant possibilities for its differentiation from a consumer perspective, as well as significant differences in the setting of prices, therefore shifting the grounds for developing an active competition towards production levels (meaning that active competition would be largely based on investment and production strategies). Thus, a process of cooperation focusing precisely on these core elements inevitably tended to impact negatively on competition.379 Furthermore, the Commission remarked that the flow of information between founding entities, originated by the operating conditions of the joint venture, would allow them to plan their production in accordance with the options that each of these undertakings was taking at any given moment. Considering, among other things, the limited market power of the parties and the benefits generated by the cooperation—and capable of being conveyed to consumers—in terms of reducing production costs, or of improving the technical features of the product, the Commission considered the granting of an individual exemption pursuant to article 101, paragraph 3 TFEU to be justified in this case.380 3.3.5.4(D) Asahi/Saint Gobain and Other More Recent Cases Another important precedent, justifying a mention here is the Commission decision in Asahi/Saint Gobain, notwithstanding the fact that this decision concerned a mixed type

379 See Exxon/Shell, (n 282) paras 62ff. This decision stands apart in a positive manner from other relevant precedents in the Commission enforcement practice by the fact that the Commission in this case carried out a more in-depth analysis of the incentives for competition hampering behavioural coordination among founding entities, emphasizing the assessment of the degree of relative economic importance of the joint venture for the activity of those undertakings (in marked contrast with a strict presumption, adopted in other cases, and determining a quasi-automatic application of the prohibition set out in article 101, para 1 TFEU concerning production joint ventures between competing undertakings with appreciable aggregate market shares). 380 See Exxon/Shell (n 282) paras 66ff. As regards the assessment of relevant factors for the granting of an exemption—under article 101, para 3 TFEU—and differently from what has been observed above concerning other analytical levels, I submit that the Commission’s analysis should have been more thorough—especially concerning the identification of advantages for consumers. In particular, I think the assumption set out in para 70 of the decision, namely that the ‘creation of the joint venture and the related agreements do not include any element precluding consumers from sharing the benefits resulting from low costs’ of the product manufactured by that entity, should have been subject to an objective test. On the other hand, the analysis performed concerning necessary restrictions for the technical and economic progress associated with the manufacturing conditions of a petrochemical product, enabling the first EU unit for its production through the use of a new technology is paradigmatic of the production efficiency and dynamic efficiency, intrinsically associated with production joint ventures. My remaining doubts or critical views on this, in line with my general line of analysis, have to do with the possibility of the assessment of all these efficiency elements not concentrating exclusively upon article 101, para 3 TFEU (a possibility that, to some extent and depending on the particular circumstances of each case, I consider feasible).

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joint venture, combining R&D and production functions.381 In that case, the Commission assessed a set of agreements for the creation of a joint venture and of licensing and technical assistance. The joint venture had been created by a corporate group carrying out its activities in the sector of flat glass and industrial ceramic materials and, by a second group which supplied products related with glass, as well as chemical and ceramic products. The joint venture at stake would allow R&D of a new type of products, the so-called bi-layer products (made of glass and plastic), whose application was mainly in the car industry sector, namely safety glasses of greater convenience than regular laminated or toughened glass. The main target of this new product would be car manufacturers (beside other applications in other areas). The cooperation project comprised two distinct stages. The first amounted to a joint R&D programme in the area of technology of bi-layer products and concerning the creation of a pilot factory in order to develop such a technology. The second stage would involve the setting up of a factory belonging to the joint venture, for the purpose of joint industrial exploitation of the results of the first stage (through the production in that factory unit of products based on the new technology and to be commercialized in the single market). In the context of this cooperation project, founding entities would grant licences to the joint venture, on an exclusivity basis, for all their available technology in the fields related to the new product. On the other hand, the joint venture would be entitled to all IP rights related to the technology developed within that particular research programme (and to license those rights on an exclusive basis), In accordance with the agreements entered into between the parties, they undertook not only to refrain from building other factories dedicated to the manufacturing of the new product, prior to the construction of two pilot factories belonging to the joint venture, but also not to expand their capacity in this area without prior consent from their counterparty. Considering the nature and content of the cooperation programme carried out through this complex type joint venture, as well as the conditions of the market deemed to be most directly affected by the creation of such joint venture—the market for safety glass for cars—the Commission considered that relevant agreements would breach the prohibition set out in article 101, paragraph 1 TFEU. For these purposes, the Commission took into account the fact that the founding entities were the two main competitors in the relevant market at stake—both holding significant market shares—and were endowed with financial, technological and research resources that allowed them independently to develop their own versions of that new product. The cooperation project would thus result in important restrictions of their freedom of activity. Indeed, although the agreements contemplated the fact that each of the participating undertakings would keep their own research activities, the system associated with the operation of the joint venture would necessarily mean that each partner had to be provided with information on the progress made by its counterparty, therefore leading to joint decisions on R&D issues. Moreover, as mentioned above, through the agreements entered into, founding entities would coordinate among themselves all possible widening of their own productive capabilities. In short, through a system of covenants directly related to the joint venture, each party had waived, for a considerable length of time, any possibility of exercising individual initiative, as well as the opportunity to acquire competitive advantages over

381

See Asahi/Saint-Gobain [1994] OJ L354/87.

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the other undertaking. This would, to a large extent, eliminate all uncertainty regarding the course of action taken by other parties—essential for preserving competition—even if the parent undertakings continued to commercialize their products independently. Despite having considered that the cooperation project in question fell within the prohibition regime of article 101, paragraph 1 TFEU,382 the Commission maintained that the conditions for granting an individual exemption under paragraph 3 of the same article were met (individual exemption insofar as the significant market shares held by the parties precluded the application of the relevant Block Exemption Regulations in force at that time). For this purpose, the Commission regarded as decisive the advantages created by the joint venture concerning the production of goods and the fostering of technical progress, these benefits positively impacting on the car industry—the sector in which the main consumers targeted by the new product (and accordingly receiving the corresponding benefits) would be located. As regards the assessment of the indispensable nature of the cooperation process at stake for the production of these economic benefits, the Commission provided, in this particular case, a more consistent reasoning than in some other comparable cases. In fact, it stressed that, although the founding entities had achieved comparable levels of technology in that area, their knowledge and resources were largely complementary. The Commission also remarked that the commercial viability of the new product was rather doubtful. Hence, in spite of the appreciable market power held by the two participating undertakings it would be highly likely that the risks inherent in the development of the new product would prevent its effective launching in the market, at least in the efficient and expedited manner that was predictably ensured by the joint venture. Furthermore, it should be observed that, unlike the situation in Ford/Volkswagen, the cooperation here did not involve a type of product already tested in the market. In short, although it would not be absolutely impossible for this new product—of great interest for the safety of the car industry and even for the final customers of such industry—to be, on a future date, introduced into the European market, it would certainly be reasonable to admit that, in the absence of such a cooperation process, a considerably longer period of time would be required in order to proceed to its effective launching. Despite the significant economic advantages identified in this cooperation project, the Commission considered that the period foreseen for its duration—30 years—would be excessive, particularly in connection with undertakings with high market power, as was the case with the founding entities in this particular case. Hence, the Commission imposed a maximum period of five years for the duration of the cooperation programme, as from the date of entry into functioning of the second pilot factory foreseen in the agreements at stake (for establishing such a period, the Commission took into account the term for the granting of exemptions set out in Regulation No 418/85, in force at that time,383 although this Regulation was not applicable due to the size of the market shares held by the parties). In my opinion, this type of limitation to the duration of joint ventures amounts, in many cases, to an effective mechanism for curbing the effects of distortion of competition. Accordingly, it may, advantageously, be considered in some cases, to prevent the

382

See Asahi/Saint-Gobain (n 381) esp paras 16–22. This was the Block Exemption Regulation on R&D agreements, in force at the time (replaced in 2000 by Regulation (EC) No 2659/2000, and subsequently in 2010, by the current Regulation (EU) No 1217/2010). 383

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application of the prohibition set out in article 101, paragraph 1 TFEU (and not exclusively for considering possible exemptions under paragraph 3 of that article). Likewise, the creative consideration of other variables, such as the introduction of other participating entities in certain joint ventures may, in some cases, be a sufficient element in order to allow the favourable assessment of such joint ventures, as has been consistently observed in the context of the US antitrust system.384 Turning our attention also to national case law involving the enforcement of EU competition rules, another relevant case, albeit rather controversial and therefore illustrative of potential misunderstandings in this area, is the 2007 case of Rifornimenti Aeroportuali.385 In this case, and following a prohibition decision of the Italian competition authority,386 the Italian Supreme Administrative Court ruled that a set of joint ventures among oil companies for the transport and storage of jet fuel for planes—largely corresponding, in terms of their functional layout, to production joint ventures—were instrumental to a finding of a practice of collusion of the main oil companies in the jet fuel market in violation of article 101 TFEU (although such joint ventures had been previously cleared by the competition authority). Collusion would supposedly arise because the functional layout and organization of the joint ventures would be conducive to the sharing of sensitive information (covering, inter alia, volumes distributed, in terms that would not be necessary for the operation of the joint ventures). However, there was no real in-depth examination of the actual governance structures and proceedings of the joint ventures, and it was more or less presumed that the information known by the boards of the joint ventures would be automatically known by the parent undertakings (excessive corollaries being extracted from a supposed lack of strict operational justification for having certain type of non-aggregate data circulated within the boards of the joint ventures). On the whole, these assumptions were excessive since the overall functional programme of the joint ventures—in the relevant market context—could well justify certain levels of information exchange (regardless of the details concerning certain flows of data in particular) and, furthermore, there was no real investigation on the actual transmission of certain volume of sensitive commercial information from the boards of the joint ventures to the parent undertakings. There was also the Commission case of General Motors/Fiat,387 involving two joint ventures between General Motors and Fiat in the areas of powertrains and joint purchase of car components (the first one largely amounting to a production joint venture and the second one to a purchasing joint venture). This case is paradigmatic of a combination of factors I have discussed—at a third level of analysis within the general assessment model proposed—comprising, on the one hand, potentially critical factors related to conditions of exclusivity and to the fact that the ventures represented an important part of the costs of new vehicles and, on the other hand, efforts of rationalization of production at the level of upstream activities, while maintaining differentiation and customization to final clients on the part of the parent undertakings (as an efficient alternative to a full merger that would

384 See, on the assessment of this type of creative and proactive solutions in US antitrust doctrine, Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14). 385 I refer to the 2007 ruling of the Italian Supreme Administrative Court (Consiglio di Stato), Cases No 5683/2007, 5844/2007 and 5845/2007. 386 I refer here to the decision of the Italian competition authority (Autorità Garante della Concorrenza e del Mercato) Rifornimenti Aeroportuali Case No 9075/2006. 387 Case COMP/33.653 General Motors/Fiat. Commission clearance 16 August 2000, IP/00/932.

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lead to a deeper adverse effect on competition). This combination of factors, in spite of the high market power of the parties, led the Commission to close the case on the basis of a comfort letter, admitting that all four conditions for the application of article 101, paragraph 3 TFEU were met in the case (while it was debatable whether at least a part of such consideration could not still be considered at the level of article 101, paragraph 1). Reference should also be made to the 2007 T-Mobile/Vodafone/O2 case of the Bundeskartellamt, which, although involving a full function joint venture cleared under merger control rules, raised coordination issues, for the purpose of application of article 101 TFEU (these having to do mainly with the functional dimensions of joint production and joint purchasing of the joint venture at stake).388 Critical factors detected in this case, besides the high market power of the participating undertakings, were the high degree of commonality of costs that would have arisen from the joint venture, thus decisively weakening price competition between the parties (while the authority dismissed the argument of the parties that the joint venture was essential to allow them to enter the market for mobile TV). However, on the basis of commitments offered by the parties and addressing inter alia conditions for package differentiation among programme providers, the German competition authority cleared the joint venture. This decision is, therefore, illustrative of a growing tendency of proactively looking for remedies in the sense I have been advocating as regards joint ventures, taking advantage of the inherent flexibility in the functional structure of joint ventures (while it is also convenient to avoid any opposite trend of overuse of commitments in cases of joint ventures raising some appreciable competition concerns).

4 Commercialization Joint Ventures 4.1 General Overview 4.1.1 How to Define and Qualify Commercialization Joint Ventures Joint ventures for the commercialization of goods and services are, similar to other functional types of joint ventures analysed in this book, cooperative entrepreneurial structures aimed at the integration of resources—or at the creation, in an integrated manner, of resources—predominantly aimed at the carrying out of certain functions related to the commercialization of goods or services and thus addressing the consumer public.389 In comparison with other functional types of joint venture, agreements on the joint commercialization of goods or services390 have a specific trait that has to do with the huge variety

388

See Decision B7-61/07 and Decision B7-17/06 of the Bundeskartellamt, 29 October 2007. See, for an understanding of the various different functions which may be involved in marketing or commercialization activities, Valentine Korah and Denis O’Sullivan, Distribution Agreements under the EC Competition Rules (Oxford, Hart Publishing, 2002) 3ff. 390 In this area, there is much inconsistency in the terminology used. Bearing in mind Anglo-Saxon doctrine, which has granted greater attention to the various processes of cooperation in this field, we may note the use of concepts, such as, eg, ‘joint selling arrangements’ (and ‘selling joint ventures’), ‘joint distribution arrangements’ (and ‘distribution joint ventures’), ‘commercialization arrangements’ (and ‘commercialization joint ventures’), ‘output joint ventures, and others. The broadest concept is, in my view, that of commercialization, which simultaneously tends to be predominantly materialized and developed under competition law. Accordingly, throughout 389

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of forms and different combinations of functions in the general area of commercialization activities that these entities may generate. In reality, although the pursuit of R&D and production functions may also take many different forms of cooperation between undertakings, as a rule, these types of cooperation are carried out in a comparatively more uniform manner. That means that all, or at least a significant number—depending on the individual case—of the operations comprising the core of R&D and production activities are, in themselves, the object of processes of cooperation that may vary in accordance with the type or degree of integration elements that make up the joint venture and, which may as well assume some significant variants as regards the models of institutional organization that they adopt. Conversely, as regards cooperation in the field of commercialization, the commercialization functions themselves may be developed in a variety of ways and may be split between multiple narrower functions (that, in turn, may lead to widely diverse potential repercussions on the competition process). Thus, the performance of commercialization functions, globally considered, may include functions of a narrower scope concerning the promotion or marketing of goods and services or the distribution of such goods and services, in either case without sales to final consumers, or, from a broader perspective, it may extend to true activities of joint sale of those goods or services, which, in turn, may also involve the joint setting of prices.391 Moreover, besides the fact that, analytically, several micro-functions comprised within the commercialization activity (lato sensu) may be the object of cooperation between undertakings—equally committed in placing their goods and services in the market—such activity also creates, as a rule, contractual systems for cooperation of a widely variable complexity (involving undertakings located in different stages of the production process). As is widely known, considering the growing complexity of the current commercialization processes or networks, the undertakings supplying goods and services often resort to systems of distribution of variable complexity, aggregating multiple entities whose activity will be limited to the distribution of such goods at the level of certain stages of those circuits, or at the level of certain geographical areas. In this context, of extreme complexity and transience of the commercialization processes, the resorting to such types of commercialization systems—going beyond the sphere of the internal organization of the supplying undertaking and involving third undertakings—tends to be, in many cases, the most

my analysis, in order to foster a consistent use of the relevant terminology and for systematic reasons as well, whenever referring to joint ventures or agreements within this functional area, I shall use the abbreviated terms ‘commercialization joint ventures’ or ‘commercialization agreements’. On the various concepts addressed above and their material scope, see, inter alia, Ritter, Braun and Rawlinson, EEC Competition Law—A Practitioner’s Guide (n 7) esp 542ff; Fine, Mergers and Joint Ventures in Europe (n 249) esp 320ff and Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) esp 555ff (this latter one, addressing in particular the concept, seldom used, of ‘output joint ventures’). 391 On these possible variations and functional splits (in the form of narrower activities) of activities that, in general terms may be qualified as commercialization of goods and services, with varying scope, see especially the 2001 Horizontal Cooperation Guidelines, paras 139 and 140 and the 2011 Horizontal Cooperation Guidelines, paras 225 and 226. As stated in para 225 of the 2011 Guidelines, ‘this type of agreement can have widely varying scope, depending on the commercialization functions which are covered by the co-operation. At one end of the spectrum, joint selling agreements may lead to a joint determination of all commercial aspects related to the sale of the product, including price. At the other end, there are more limited agreements that only address one specific commercialization function, such as distribution, after-sales service, or advertising.’

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cost-efficient way392 of ensuring the placement of final goods in the market (rendering them accessible to the consumer public). These different types of distribution systems refer, however, to a sphere of vertical relationships which sees entities located together at different stages of production or commercialization of goods and services and that will not, therefore, be object of special attention in the course of this study.393 Following a different approach, and as previously mentioned, my main focus will be on cooperation processes comprising a sufficiently relevant component or degree of entrepreneurial integration which allows the identification of forms of cooperation that can be qualified and treated as joint ventures (implying, accordingly, the integration of assets of the participating undertakings, such contributions being employed in the carrying out of certain functions in which both parties are jointly interested within their horizontal competitive interplay). Thus, my in-depth study of the assessment of effects on competition arising from commercialization joint ventures (throughout this section) will, on the whole, be aimed at situations of cooperation that present a predominantly horizontal component. It is a question of analysing situations in which various undertakings supplying goods or services and equally interested in placing them in a given market, are willing jointly to establish organized structures, with a minimum or more significant degree of integration—to which they contribute with various assets—in order to carry out one or more functions related to the commercialization of such goods and services.

4.1.2 The Distinction between Commercialization Joint Ventures and Several Forms of Joint Commercialization Agreements Besides the necessary distinction—considered above—from situations of cooperation in the field of commercialization that follow a predominantly vertical logic, an additional analytical clarification should be considered, concerning the level that will be focused

392 On these types of commercialization systems, which present cost-benefit advantages, see Oliver E Williamson, Markets and Hierarchies. Analysis and Antitrust Implications (New York, NY, Free Press, 1975). Economists tend to qualify distribution—a narrower concept than the umbrella concept of commercialization, which I favour—as a service acquired by the producer. Under competition law, agreements between undertakings focusing on distribution functions or, more broadly, commercialization, are predominantly addressed at the level of vertical relationships (as described above). In those cases, when the entities involved in distribution or commercialization functions are not competitors in relation to the producer seeking to market its products, the margins obtained by distributors constitute an additional cost to be borne by the producer. I have already noted the theoretical debate influenced by the Chicago School concerning the extent of efficiencies intrinsically related to vertical restraints to competition, in terms which could well justify a considerable portion of these restrictions (see also Michael Waelbroek, ‘Vertical Agreements: Is the Commission Right not to Follow the Current US Policy?’ (1985) Swiss Review of International Competition Law 45ff; FM Scherer, ‘The Economics of Vertical Restrictions’ (1983) ALJ 687ff; William Comanor, ‘Vertical Price Fixing and Market Restrictions and the New Antitrust Policy’ (1985) Harv LR 990ff. However, my main concern here relates to a less explored area, concerning cooperation between competitors in the field of commercialization functions, specifically through commercialization joint ventures (accordingly, I shall only address issues more directly related to vertical relationships very briefly). 393 See my comments on this in n 396. See for an explanation of distinct modes of interconnection between horizontal and vertical issues in these areas of commercialization and also in other areas, Juan Briones Alonso, ‘Vertical Aspects of Mergers, Joint Ventures and Strategic Alliances’; Bernard Amory, ‘Vertical Aspects of Mergers, Joint Ventures and Strategic Alliances’; and Michael Reynolds, ‘Mergers and Joint Ventures: The Vertical Dimension’, all in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1997 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 1998) 129ff, 147ff and 153ff respectively. For a US perspective on the subject, see Robert Pitofsky, Vertical Restraints and Vertical Aspects of Mergers—A US Perspective (1998) 111ff.

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on here, of relations between supplier undertakings guided by fundamentally identical purposes of commercialization of their goods and services (thus situating the eventual cooperation developed between them as mainly horizontal, in a broad sense, even when the products or services covered by that cooperation are not in a strict or narrower sense competing ones, but are merely located in related markets or in markets with a fair degree of proximity between themselves).394 This clarification involves a distinction between, on the one hand, situations corresponding to mere joint commercialization agreements, entered into between competing undertakings or undertakings located in connected markets, and, on the other hand, situations concerning true commercialization joint ventures. The first category of situations are common in the business practice of cooperation and assume, on their own account, a huge variety of forms, often leading scholars and even competition authorities to indistinctly classify all relevant cooperation situations in this field of commercialization under that category, while also frequently associating it with a negative competition law pre-understanding or judgement of these arrangements. That outright negative assessment, covering almost as a matter of principle a somewhat undifferentiated sphere of joint commercialization agreements results from the fact that these either directly involve price coordination between participating entities, or are very likely to foster indirect conditions for that to happen. Thus, and insofar as a key element of the competition process is bound to be immediately affected, these cases would tend to involve forms of restricting the freedom of operation of the participating undertakings that, by their very nature, would correspond to some of most negatively viewed situations under competition law (that lead in a large number of cases to prohibitions under competition rules). It is symptomatic that the Commission, in its first attempts to define joint commercialization agreements, does so in vague terms, and without considering an autonomous treatment of a specific subcategory of joint ventures in this field (even tending to bring these forms of cooperation closer to classic price cartels, which almost always fall under the prohibition rule of article 101 TFEU with very little scope for the weighing of the actual economic conditions under which such agreements are entered into).395 Hence, in its ‘First Report

394 Various relevant situations of joint commercialization of products located in related or closely located markets (‘complementary marketing’) may be envisaged in the business practice of cooperation in this field of commercialization. We may consider, eg, the situation in Wild & Leitz [1972] OJ L61/27, in which two manufacturers of microscopes agreed, reciprocally, the commercialization of sophisticated microscope equipment specifically targeted to certain end users in the field of research, tuition or industrial activities. The most common microscopes, in respect of which the involved undertakings kept direct relations of competition, were, however, excluded from these reciprocal commercialization covenants, a fact that was crucial to the Commission’s decision not to apply the prohibition set out in article 101, para 1 TFEU. I acknowledge that a substantial number of commercialization agreements, and, especially, of commercialization joint ventures concerning related products, albeit not strictly located on the same market, may be favourably assessed in the context of the application of article 101, para 1 TFEU (without the need for recourse to the exemption in para 3). However, eventual spillover effects in a narrow sense (see above, ch 2 at 1.4 and esp 2.3.5.2(E) of this chapter), must be assessed, and that did not happen in this decision. 395 On price cartels, as one of the most intrinsically anticompetitive forms of cooperation, and regarding the recent trends in the competition law analysis of this legal concept, see, in general, João Pearce de Azevedo, ‘Crime and Punishment in the Fight Against Cartels: The Gathering Storm’ (2003) ECLR 400ff; Massimo Motta and Michele Polo, ‘Leniency Programs and Cartel Prosecution’ (2003) International Journal of Industrial Organization 347ff; Scherer and Ross, Industrial Market Structure and Economic Performance (n 207) esp 317ff; Joel Davidow, ‘Cartels, Competition Laws and the Regulation of International Trade’ (1983) Journal of International Law and Politics 351ff.

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on Competition Policy’, the Commission attempted to define joint commercialization agreements without identifying any possible relevant situations of creation of joint ventures for the joint commercialization of goods and services.396 According to this characterization, joint commercialization agreements would be arrangements between suppliers of goods or services in order to grant their common agents the right to commercialize such goods or services in all markets or in some specifically considered markets. Still according to the same analysis, through this type of agreement, supplying undertakings would allocate among themselves, in predetermined proportions, the number of products to be sold and offer these goods in the market, through their joint system of agency ‘at uniform prices and sale conditions’. This commercialization system would, in some cases, be of an exclusive nature, with the parties committing themselves to carry out all their trading activities on certain goods through that scheme. Such situations would ultimately imply that the parties would have neither the incentive nor the ability to develop individually activities of sale of their products at freely determined prices. In this context, consumers would be deprived of a genuine choice between different sources of supply and would have no means to stimulate any real competition between the prices of different suppliers.397 It must be acknowledged that in subsequent Reports on Competition Policy and in the context of its subsequent enforcement practice the Commission came to identify, in a less inclusive manner, various forms of joint commercialization agreements with variable degrees of latitude. In particular, it focused its attention on associations of manufacturers with functions extending to the commercialization of their products and on a basic distinction concerning their operation. Therefore, and as per such distinction, in some cases, these associations of producers fully assumed the task of commercializing goods supplied by their members, at least in certain geographic markets, thus ensuring the sale of those goods and leading thereby to the setting, in a coordinated manner, of prices, general conditions of sale and quantities of goods offered in various markets. Differently, in other cases, associations of producers developed more limited activities in the field of commercialization. In these latter cases, such associations merely carried out certain specific micro-functions at the functional level of commercialization of goods and services, which did not comprise the actual sale of products to final consumers. Those more limited activities could include advertising, or, in a broader sense, the promotion or marketing of the members’ products, while leaving the actual conduct of sales of the same products to final consumers to those members. Moreover, the first specific cases considered by the Commission in the early stages of its enforcement practice in this field refer, as a rule, to joint commercialization arrangements involving this type of producer association, and not including true elements of business integration specifically aimed at the pursuit of the commercialization function globally considered. Thus, in Cobelaz (1968) and SEIFA (1969),398 the Commission analysed situations concerning the operation of domestic cooperatives of producers that ensured the commercialization of all the output of their members in the domestic markets at stake, but that did not involve, strictly speaking, the creation of any infrastructures or any integrated 396

See First Report on Competition Policy, points 11ff. Ibid. 398 See Cobelaz (No 1) [1968] OJ L276/13 and Cobelaz (No 2) [1968] OJ L276/19. See also Seifa [1969] OJ L173/8. 397

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organization based on members’ contributions aimed at the pursuit of entrepreneurial functions of sale and distribution. These cases simply involved systems of agreements aimed at the setting of prices and other terms and conditions of sale, since the concerned cooperatives, without introducing any plus level of integrated business activity, intervened in the sales processes, systematically coordinating those conditions. Interestingly, due to a narrow interpretation at the time of the requirement of effects on trade between Member States, although ascertaining in those cases the existence of cooperation agreements restrictive of competition in the sense considered in article 101, paragraph 1 TFEU, the Commission was not able to subject them to the prohibition set forth in that provision, to the extent that they referred to joint commercialization systems confined to domestic markets. However, following the CJEU ruling in Vereeniging van Cementhandelaren (1972), a broad interpretation of that requirement was subsequently developed, bringing such situations within the prohibition of article 101 TFEU.399 In any event, even though the Commission analysis has significantly evolved in the sense of identifying different forms of joint commercialization agreements, covering a greater or lesser number of micro-functions in the global field of commercialization, for a considerable period of time it continued not to confer, in substantive terms, autonomous treatment to situations that could be defined as commercialization joint ventures. Thus, in the 1993 Guidelines on the Treatment of Cooperative Joint Ventures, the Commission formally refers to the separate category of ‘sales joint venture’ but at a substantive level, defines it in a rather linear fashion as a form of cooperation in the commercialization, aiming at the concerted setting of prices.400 According to the analysis developed in the 1993 Guidelines, these so called sales joint ventures ‘belong to the category of classical horizontal cartels, ... having, as a rule, the object and effect of coordinating the sales policy of competing manufacturers’.401 They would not only ‘close off price competition between the parents but also restrict the volume of goods to be delivered by the participants within the framework of the system for allocating orders’. Accordingly, the Commission would tend, in principle, to ‘assess sales JVs negatively’.402 Also, according to the same too narrow reasoning on the framework and functional integration of commercialization joint ventures, the Commission recognized then that it would only take a positive view of the cases ‘where joint distribution of the contract products is part of a global cooperation project which merits favourable treatment pursuant to Article 85 (3) and for the success of which it is indispensable’. In other words, the Commission argued, then, that the forms of cooperation it qualified as ‘sales joint ventures’ would, in principle, only be granted a favourable treatment, through exemption under article 101, paragraph 3 TFEU—other than in very exceptional cases— when associated with cooperation in the fields of R&D and production (that the parties

399 See Case 8/72 Vereeniging van Cementhandelaren (CJEU). As the Court stated at para 29, ‘an agreement which extends to the whole of the territory of a Member State has, by its very nature, the effect of consolidating a national partitioning , thus hindering the economic interpenetration to which the treaty is directed and ensuring a protection for the national production’. 400 I refer to the concept of ‘sales JV’ employed in para 38, and in other sections of the 1993 Guidelines on the Treatment of Cooperative Joint Ventures. 401 See 1993 Guidelines on the Treatment of Cooperative Joint Ventures, para 60. 402 Ibid.

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wanted to extend to the commercialization stage). However, as will be remembered, after the 1997 reform of the MCR, these joint ventures, bringing together functions in the areas of R&D, production and also commercialization, will in principle qualify as merger or concentration operations and will therefore be subject to the regime set out in that MCR. Hence, if the restrictive logic of assessment adopted by the Commission in the 1993 Guidelines on Cooperative Joint Ventures was to be maintained for the treatment of joint ventures that remain subject to the provisions of article 101 TFEU after the 1997 reform of the MCR, the subcategory of commercialization joint ventures—independently considered—could hardly include entities deserving a favourable assessment (even one based on the application of article 101, paragraph 3 TFEU). That should not be the case, in my view, because I consider that the 1993 Guidelines competition law characterization of these entities as sales joint ventures was over simplistic (and in contrast, incidentally, with the more flexible and economically realistic analysis developed in the US antitrust system). It should also be acknowledged that since the 1993 Guidelines, the Commission’s general approach in this area has been evolving towards a more flexible application of article 101 TFEU in this field (the 2001 and 2011 Horizontal Cooperation Guidelines supporting this gradual change in the Commission’s assessment criteria). However, the Commission has not yet clarified, in a sufficiently conclusive manner, the specific conceptual framework of commercialization joint ventures vis a vis a more or less indistinct array of joint commercialization agreements. And, as will be observed further below, some negative consequences may arise from this conceptual vagueness for the substantive analysis of the effects on competition associated with this subcategory of joint ventures.

4.1.3 The Distinction between Commercialization Joint Ventures that Cover Joint Selling and Commercialization Joint Ventures with Narrower Functions In my view, and as noted above, it is important to overcome decisively a certain degree of conceptual ambiguity introduced by the Commission.403 This means finding a proper and operative distinction between the subcategory of commercialization joint ventures and a wide range of mere cooperation agreements for the joint commercialization of goods and services. In light of the preceding analysis of the general category of the joint venture under competition law,404 and applying the general assumptions of such conceptual characterization in the functional area of cooperation constituted by commercialization activities, the distinctive elements of the commercialization joint venture rely on the actual existence of an effective integration of resources and assets belonging to the parent undertakings, potentially generating some sort of economic efficiency. This integrated structure should amount to an organizational support, endowed with some individual resources, for the

403 The CJEU or the GC have not yet developed a consistent case law in this area of characterization of commercialization joint ventures which may be analyzed here, considering that the types of cooperation under investigation here have seldom been brought to the scrutiny of those courts. See, on the reason for this, Temple Lang, ‘International Joint Ventures Under Community Law’ (n 99). 404 See above, ch 1, esp 1.3, 1.4 and section 5, where I have identified the main elements which differentiate the competition law category of the joint venture from mere cooperation agreements.

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pursuit of certain commercialization activities (aimed at the commercialization, to a greater or lesser extent, of final goods of the participating undertakings). The creation of an organized structure, which combines various assets transferred by the founders, and adding new qualitative elements, in functional and organizational terms, to the pursuit of joint commercialization activities involving goods produced by those participating undertakings should clearly be the object of an autonomous process of assessment. In fact, this particular form of organization of commercialization activities may not be systematically assimilated to situations of mere direct coordination of commercialization activities, which continue to be developed by the participant undertakings themselves. Neither can it be assimilated to situations of indirect coordination of those activities whenever they are formally mediated by any entity participated by these undertakings, but that does not add any qualitative plus in terms of entrepreneurial integration, to the organization of such commercialization activities, limiting itself to operate as a formal platform for the joint exercise of market power (aimed at obtaining supra-competitive profits for the participants). In any event, regardless of the overall criticism that I have of the Commission in this area, it is important to recognize that, more recently, it has come to recognize elements of specificity in the analysis of forms of cooperation in the field of commercialization whenever these result from certain components of integration of economic activities that generate efficiencies. This recognition is already present to a certain extent in the analysis carried out in the 2001 and 2011 Horizontal Cooperation Guidelines concerning possible economic benefits relevant for purposes of application of article 101, paragraph 3 TFEU to commercialization agreements. However, it still strikes me as incomplete and insufficient for the conceptual clarification required in this area (such omissions in the Commission’s analysis are all the more visible if one compares these positions with the general approach taken in this area by US antitrust authorities and also by US courts, considering in particular, the recent landmark US Supreme Court ruling in Dagher).405

405 On the development of guidelines in the US antitrust system, which tends to treat elements of entrepreneurial integration generating efficiencies as decisive parameters for the layout of joint ventures, see, inter alia, Compact v Metropolitan Gov’t 594 F. Supp. 1567, 1574 (MD Tenn 1984), which points out among the distinctive features of the joint venture, ‘its capability in terms of new productive capacity, new technology, a new product or entry into a new market’. See also, regarding cooperation situations in the field of commercialization, NCCA v Board of Regents of the Univ of Okla 468 US 85, 113 (1984), in which it is stated that a given ‘joint selling arrangement’ may ‘make possible a new product by reaping otherwise unattainable efficiencies’. In the US Supreme Court Dagher ruling, involving a joint venture with a significant component of commercialization activities (Dagher, 547 US 8)—and therefore relevant as a comparative benchmark in terms of treatment of the subcategory of commercialization joint ventures under EU competition law (in spite of the absence of a distinction of full function and partial function joint ventures in the context of US antitrust law)—the Supreme Court determined that the pricing arrangement in the context of the joint venture at stake should have been evaluated under the rule of reason, requiring an extensive factual analysis and the evaluation of all relevant market circumstances; accordingly, this US Supreme Court precedent significantly enhanced the relevance of the qualification of any collaboration between competitors as a joint venture, with the integration dimension it carries with it and the corresponding efficiency component, for purposes of acknowledging that price arrangements, in spite of their inherent anticompetitive nature, when integrated in such comprehensive joint venture arrangements do not qualify automatically as a per se restraint. See, for more on this case, Thomas Pirainno, ‘The Antitrust Analysis of Joint Ventures after the Supreme Court’s Dagher Decision’ (2008) Emory Law Journal 735ff. As regards evolutions, however insufficient, of the Commission’s position in this regard, see the 2001 Horizontal Cooperation Guidelines, para 152 and the 2011 Horizontal Cooperation Guidelines, paras 146 and 247 where it is stated that ‘assessing whether a commercialization agreement fulfils the criteria of Article 101(3) will depend on the nature of the activity and the parties to the co-operation. Price fixing can generally not be justified, unless it is indispensable for the integration of

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To this general conceptual distinction of the subcategory of commercialization joint ventures, we should add a systematic approach that allows for a general characterization (that is as thorough as possible) of the different ways of organizing joint commercialization activities which may be included in that same subcategory. Thus, considering the experience of the business practice in this area and the situations that have been scrutinized by competition authorities and courts within the EU (including in the Member States whenever the application of EU competition rules is at stake),406 I acknowledge that some subtypes may be distinguished among the set of commercialization joint ventures. Moreover, as already pointed out, this effort of systematization and analytical distinction should not be a purely formalistic exercise and is in itself relevant to the substantive assessment of the potential for restriction of competition associated with these entities. At a first level, I believe that a distinction must be made between commercialization joint ventures that ensure the joint selling of goods and services of participating undertakings and joint ventures that provide only limited functions in the field of commercialization, not carrying out activities of joint selling of the contract goods and services at stake. This distinction is indeed crucial, since the overriding of the cooperation threshold corresponding to the carrying out of joint sales of goods and services depends, to a large extent, on the type of elements of the competition process that are potentially affected by the cooperation and the likely extension of such interference in the competition relationships among the parties (and between them and third parties).407 Within the first main subtype identified here—commercialization joint ventures involving the joint sale of goods and services—we may also distinguish between, on the one hand, joint ventures whose operation implies the joint setting of prices of the goods to be commercialized and, on the other hand, joint ventures not determining the joint setting of prices. As regards the second main subtype of joint ventures—those ensuring limited functions in the field of commercialization, hence not covering the joint sale of goods and services—I consider that, on account of its particular relevance, some autonomous subcategories may still be identified. These are, namely, subcategories of joint ventures which ensure the

other marketing functions, and this integration will generate substantial efficiencies. Joint distribution can generate significant efficiencies, stemming from economies of scale or scope, especially for smaller producers … the efficiency gains must not be savings which result only from the elimination of costs that are inherently part of competition, but must result from the integration of economic activities. A reduction of transport cost which is only a result of customer allocation without any integration of the logistical system can therefore not be regarded as an efficiency gain within the meaning of Article 101(3)’ (emphasis added). The Commission should, however, have gone further, namely contemplating explicitly an association between such relevant qualitative plus arising from ‘the integration of economic activities’ and the category of the joint venture (especially in this area of the subcategory of the commercialization joint venture), duly characterizing, for that purpose, the dimensions that should support such a component of true integration of activities. 406 I consider it useful again here to bear in mind the experience of the US antitrust system. Accordingly, for the purposes of characterization of the commercialization joint venture and its various subtypes, this methodological approach will be once more followed. 407 Furthermore, commercialization joint ventures involving the joint sale of participant undertakings’ goods and services are also more prone, in formal terms, to be used in order to conceal actual cartels of competing undertakings. For a broader legal perspective on this, going beyond the boundaries of competition law, see, on the various elements and economic and legal dimensions which may be part of the commercialization policy or activity of undertakings—which involve a number of acts much larger than strict legal acts concerning the sale of products, Gerardo Santini, Il Commercio—Saggio di Economia del Diritto (Bologna, Il Muligno, 1979) 73ff.

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mere distribution of goods and services produced by parent undertakings (without any formalization of sale transactions in relation to it), or joint ventures aiming at the joint promotion of such goods (although, in theory, this type of cooperation limited to micro-functions with ancillary nature in the field of marketing may assume a wide variety of forms).408 I therefore admit that these various subtypes of commercialization joint ventures, besides being the most common forms of cooperation in the context of this entrepreneurial function, also include—as will be observed in more detail below—those involving the most typical risks of distortion of competition in this functional area of cooperation.

4.1.4 Complementary Systemic Qualification of Subcategories of Commercialization Joint Ventures Moreover, it is appropriate to identify at the outset, in any general and systematic characterization of the subcategories of commercialisation joint ventures such as I purport to develop here—and which I consider essential to a comprehensive understanding of the relevant issues which may arise in this complex field of business cooperation—a distinction of another kind. I refer to the consideration in autonomous groups, in accordance with the specificities of competition distortion issues which they may generate and the distinct business logics underlying them, of commercialization joint ventures ensuring, in their field of activity, the whole gamut of their parent undertakings’ relevant activities and of joint ventures which do not assume that exclusive nature (joint ventures which parent undertakings have entrusted with the task of pursuing only a part of their own activities concerning the commercialization of goods and services).409 This latter element (exclusivity) has been downplayed in some cases in the enforcement practice of EU competition rules. In fact, as held by the Commission in Floral,410 even where commercialization joint ventures did not impose on participating undertakings any obligation of exclusively channelling their sales through its activity of joint sale, a tendency of these undertakings to align their prices with those practised in the context of the joint venture may occur.

408 Among the various possible layouts that joint ventures with limited commercialization functions, not including the joint sale of goods and services, may assume, I consider as paradigmatic the joint venture in Alliance de Constructeurs Français de Machines-Outils [1968] OJ L201/1, concerning an entity (‘alliance’) created by several French small manufacturers of machinery, as a vehicle for exporting the products of its members. However, the role attributed to such entity was essentially limited to advertising or promotional activities, its members continuing to enter into their own sale and purchase agreements and autonomously to set prices and other terms and conditions of sale. It is also possible to consider other types of joint ventures which, not engaging in joint selling activities, carry out broader functions than just advertising activities, eg, ensuring the required logistical means for distribution of participating entities’ products in certain geographical areas, the latter retaining the exclusive power to enter into sale and purchase agreements with final consumers. 409 It should be noted that even when joint ventures carrying out limited functions in the field of commercialization are concerned, the complementary systematic distinction set out above may be relevant. Consider, eg, joint ventures for promoting certain categories of goods and services provided by the parent undertakings and to whom the latter have entrusted all their relevant promotion activities. In the context of such a systematic distinction, the second subcategory identified above—joint ventures which do not assume exclusive nature (to which parent undertakings have entrusted the pursuit of only a part of their commercialization activities)—tends to be employed more often in order to allow parent undertakings to enter into certain geographic markets. 410 See Floral [1980] OJ L39/51.

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Whilst I recognize this possibility of the independent commercialization activities kept by the parent undertakings being influenced by the mechanisms of price setting in the context of commercialization joint ventures, even if these entities do not cover, on an exclusive basis, all the commercialization activities of their founding entities, it does, however, strike me as blatantly excessive to draw from this fact any such assertion of a supposed minor relevance of the distinction between situations of commercialization through joint ventures involving or not exclusivity vis a vis the products of the parent undertakings. On the contrary, I do not only consider this distinction to be of paramount importance, I also believe it should be further explored, considering some of the variable situations it may involve and its possible corollaries. Those variable situations have to do with the relative size of the areas of commercialization activity pursued independently by the parents and, also, the size of the areas assigned to one or more joint ventures controlled by those parent undertakings. Thus, one may admit that in the event the commercialization activity conducted through a joint venture represents only a small portion of global sales of the parent undertakings involved, the probability of the joint setting of prices in the context of the joint venture influencing decisively and quasi automatically the pricing policies of those undertakings will certainly be lower.411 Finally, in addition to the set of main types of commercialization joint ventures that I have identified above, it is also pertinent in this area, to take into account other subspecies of joint ventures or subspecies of cooperation arrangements comparable to joint ventures (eg entities that cannot be qualified, strictly speaking, as joint ventures, but which, however, present to a certain extent identical features and raise similar competition issues) in relation to specific situations of participation in markets whose operation is based on network organizations. I have in mind here particularly those situations corresponding to network commercialization systems associated with electronic payment systems (ie involving the financial sector and what can be rather loosely described as the industry of credit and debit cards), or situations concerning organized electronic markets, either involving only undertakings or connecting undertakings and consumers.412 In reality, in the light of analyses by authors like David Evans or Richard Schmalensee, I believe that the recent economic reality of technological development of forms of organization of markets based on the growing role of electronic systems requires a specific analysis

411 The relevance of the non-exclusive nature of commercialization activities carried out through joint ventures has been particularly emphasized in the US antitrust system. See, among other precedents which have contributed to highlight the greater potential for distortion of competition of commercialization joint ventures with an exclusive nature—especially if they do not clearly generate a high degree of efficiency—Virginia Excelsior Mills, Inc v FTC 256 F.2d 538 (4th Cir 1958), or United States v American Smelting & Ref Co 182 F. Supp. 834 (SDNY 1960). As will be further observed, at EU level, the Commission has increasingly valued the efficiencies relating to the decrease in costs, provided this favourable aspect is not combined with an exclusive nature of such commercialization joint ventures. 412 I refer here to situations designated in current business terminology and gradually incorporated into competition law analysis, as organized markets ‘Business to Business’ (‘B2B’) and ‘Business to Consumer’ (‘B2C’). On the operation of this type of market and the competition issues raised, see Joachim Lücking, ‘B2B E-Marketplaces and EC Competition Law—Where Do We Stand?’ Competition Newsletter, No 3, October 2001, 14ff. See, also on the subject, Cento Veljanovski, ‘EC Antitrust in the New Economy: Is the European Commission’s View of the Network Economy Right?’ (2001) ECLR 115ff.

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of these network commercialization models.413 From a competition law perspective, these may actually raise particular problems, due to a peculiar combination of elements of cooperation and competition which, by virtue of their own nature, such markets tend to involve. I shall, therefore, seek, at certain points of my analysis of commercialization joint ventures, to take into consideration these specific categories of situations, whenever these bring about relevant points of contact with certain elements of the assessment of those joint ventures. Furthermore, in my final analysis of relevant case law that may be considered paradigmatic of the assessment of this subcategory of commercialization joint ventures, I shall also pay some attention to these specific situations of organization of network commercialization systems (especially involving entities in the financial sector, through the creation of joint ventures or through cooperation arrangements with comparable features).414

4.1.5 The Organizational and Functional Diversity of Commercialization Joint Ventures and its Main Consequences It should also be emphasized, as a preliminary note, and following the general and systematic characterization of various subtypes of commercialization joint ventures outlined above, that these entities present, as a rule, another specificity. If, on the one hand, as I have had occasion to point out, the entrepreneurial functions of commercialization in themselves as an object of cooperation processes, may assume a variety of layouts and consequences, therefore leading to the emergence of very different kinds of joint ventures in which this component related to commercialization activities is prevalent, conversely, the assessment of such joint ventures tends to be more linear. In fact, regarding the vast majority of these joint ventures—especially if they involve activities of joint sale with joint setting of prices, or predictably influencing that setting of prices—there is a strong likelihood of an unfavourable evaluation of the impact of those activities on the competition process (this likelihood is, as mentioned, stronger in the context of the enforcement of EU competition rules than in the US antitrust system). In a way, this somewhat uniform negative presumption concerning commercialization joint ventures—in terms of its legal and economic negative traits from an EU competition law perspective—strikes a marked contrast with the diversity and complexity of combinations of micro-functions in the area of commercialization of goods and services which may be associated with those entities. Thus, as will be highlighted throughout the following analysis, I believe that this organizational and functional diversity of commercialization joint ventures may often justify a less linear and uniform assessment of their overall effects on the competition process.

413 See David Evans and Richard Schmalensee, ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (1995) ALJ 861ff; see also Dennis W Carlton and Alan S Frankel, ‘The Antitrust Economics of Credit Card Networks’ (1995) ALJ, 643ff. 414 Although the competition law treatment of these situations in the financial sector, and namely in the payment cards sector, has been more developed in the context of the US antitrust system. See, on these developments, Carlton and Frankel, ‘The Antitrust Economics of Credit Card Networks’ (n 413). Interestingly, there have also been recent developments in this area in the domestic legal systems of some Member States, eg, in the United Kingdom: see the decision of the DGFT (Director-General of Fair Trading) in the case of LINK (Case CP/0642/00/S LINK Interchange Network Ltd, 16 October 2001)—involving the operating conditions of an ATMS (automated teller machines) network.

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4.2 Typical Aims Underlying the Creation of Commercialization Joint Ventures 4.2.1 The European Commission View The systematic characterization of the key objectives usually underlying the creation of commercialization joint ventures—taking into account the diversity of situations of cooperation that they may create—has been less developed by the Commission, at least in comparison with the analysis produced regarding other functional types of joint ventures. The existence of an unfavourable hermeneutic pre-understanding in relation to this subcategory of joint ventures, which has prevailed in the Commission’s analysis, may, to some extent, explain this situation. In fact, since the Commission, despite showing increasing flexibility in its more recent positions, tends to assimilate commercialization joint ventures to mere cooperation agreements aimed at the concerted setting of prices—which remained the case under the 1993 Guidelines on Cooperative Joint Ventures—this also means that particular attention has been granted to negative goals of distortion of competition (in some ways similar to the goals of classic price cartels which in themselves are intrinsically condemned and negatively viewed in terms of competition law).415 However, the most common key goals associated with commercialization joint ventures, which it is important to understand, are, on the contrary, economic benefits arising from specific forms of efficiency related to certain forms of business integration in the context of these entities. Despite such omissions in the analysis of teleological programmes potentially associated with commercialization joint ventures, within the application of EU competition rules, some aspects indirectly addressed in assessments made by the Commission for the purposes of eventual granting of exemptions and, in particular, my own review and assessment—from a legal-economic perspective—of the business practice of cooperation in this functional area, provide sufficient grounds to attempt a general and systematic understanding of the features usually associated with these joint ventures.

4.2.2 Critical and Systemic View of the Chief Goals Underlying the Creation of Commercialization Joint Ventures 4.2.2.1 Internal Goals of the Participating Undertakings Thus, I believe that it is appropriate to identify (i) a category of internal type business goals—which, with some ease, may result in anticompetitive aims—and (ii) a category of external objectives, designed to foster economic benefits in the process of connection to the market, based on various forms of integration of economic activities of the participating undertakings. At a specific level, I still admit the possible autonomous consideration of (iii) goals inherent in certain economic sectors related to the particular needs of the relationship with consumers or final consumers, which occur in certain types of markets. These

415 This direct parallelism is explicitly made, as I have already observed, in the 1993 Guidelines on Cooperative Joint Ventures, esp in para 60 where it is stated, ‘sales joint ventures belong to the category of classical horizontal cartels’.

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particularities may occur either due to so called ‘market failures’ associated with certain specific features of such markets, or due to particular models of organization, which, according to the resources or means deployed in such markets have originated certain types of standard network relationships between entities active in those parties (I refer essentially, in the latter case, to specific features associated with certain markets that, by nature, operate in network conditions, such as in the cases of the credit and debit card industry, or in the organized markets based on electronic systems, connecting undertakings or consumers and undertakings, discussed above). As regards the first category considered above—internal type business goals—its relevance for the purposes of an eventual favourable assessment of commercialization joint ventures tends to be very limited. These goals mainly concern the rationalization of the conditions of sale of products—especially concerning homogeneous goods which do not require a distinctive image for marketing purposes—in order to enable them to reach consumers more easily and with the biggest possible compression of cost. I refer here to internal type business goals because they usually take the form of internal measures aimed at—in the words of authors such as Lester Telser416—reducing the cost of distribution services acquired by supplier undertakings (either because they reduce internal costs of distribution activities which were directly performed by a supplier undertaking and will now be shared with other suppliers under joint commercialization agreements, or because, through such sharing of distribution activities, costs relating to previously held vertical relationships with external distributors that may therefore be set aside, are eliminated). In any case, these goals of rationalization of the sales processes and respective conditions should not take the form of active measures, in a sphere external to the supplier groups, in the sense of creation of infrastructures aimed at the distribution and sale of products. Hence, my general qualification of such goals as internal type ones. It should also be emphasized that these goals are located on a critical threshold of acceptable teleological programmes in this field of commercialization, for they may, fairly easily in some circumstances, be confused with the mere intention to reduce costs inherent in competition in this area of commercialization.417 4.2.2.2 External Goals of Participating Undertakings The second category of goals identified above—external goals, aimed at the fostering of economic benefits in the process of connection with the market, based on various forms of business integration—can be subdivided at several relevant levels. By their very nature, and in contrast to the previous category, this type of goal—inextricably linked to external measures of business integration, promoted by supplier business groups—tend to lead to positive evaluations, albeit in widely varying degrees, which may, in theory, counteract the distortion of important elements of the competition process resulting from commercialization joint ventures.

416 See Lester Telser, ‘Why Should Manufacturers Want Fair Trade?’ (1960) JL & Econ 86ff. See, also by the same author and in a reworking of the analysis in the study just noted, ‘Why Should Manufacturers Want Fair Trade II?’, (1990) JL & Econ 409ff. 417 This connection is made in the 2001 and 2011 Horizontal Cooperation Guidelines. See paras 152 and 247 respectively.

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In the context of this second category of goals, what may be appropriately designated as the financial dimension (stricto sensu) of the relevant activities is naturally extremely important. I refer here to strict targets of reduction of commercialization costs, whether concerning actual sale structures, or structures that enable negotiations with external distributors or even in relation to the costs associated with the entrepreneurial functions of promotion or advertisement of the products. This approach of cost reduction should not be confused with the set of goals previously mentioned (above, 4.2.2.1 in this chapter) for, at the level I am now considering, this does not coincide with a mere negative approach towards the elimination of financial burdens, but rather implies an active positioning of investment in integrated structures, connected in various ways to functions of the commercialization of goods, which should—in the medium term—prove to be financially rewarding. At a second level, one may consider the existence of goals aimed at obtaining certain organizational and functional benefits. At this level, there is reason to differentiate between joint commercialization activities in relation to existing goods in a given market or in relation to new types of products which are to be launched in a given market. As regards the first type of situation, it is relevant to identify—naturally in a nonexhaustive manner—actions intended to reach consumers more directly, including a more proactive communication strategy, actions performed for the specific purpose of counteracting the buying power of certain intermediary structures of commercialization of products,418 goals of penetration into certain markets, which, due to various circumstances, would hardly be within reach of certain supplier entities, and, finally, actions designed to combine in a more efficient way different resources and experiences in new structures of information and communication with consumers. It should be underlined that the relevance of these various goals essentially depends on the particular conditions of each type of market at stake. Thus, for products of mass consumption, designed to meet the basic needs of individual consumers,419 the prevailing market scenarios in several industrialized economies tend to make the flow of goods to consumers dependent on the possibilities of placing such goods in large retail facilities, with high purchasing power, which may even constrain the behaviour of large supplier undertakings.420 In this context, the creation of commercialization joint ventures, bringing together several suppliers—including larger undertakings—may represent an effective way to limit or compensate particularly intense displays of buying power which, on their own account, may distort competition between suppliers. The weighing of such goals aimed at curbing

418 For an understanding of the needs, which may arise in certain market contexts, to counteract the buying power of large retail facilities, as well as of the conditions inherent in such buying power, see Joachim Lücking, ‘Retailer Power in EC Competition Law’ and Patrick Rey, ‘Retailer Buying Power and Competition Policy’ both in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—2000 (Barry Hawk (ed), Juris Publishing Inc, 2001) 467ff and 487ff respectively. 419 These are markets that comprise assets commonly known as ‘commodities’, being rather homogeneous goods. On the concept of homogeneous goods and concerning some particularities of the concept for the purpose of application of competition rules, see, in general, Philip Areeda, Herbert Hovenkamp and John Solow, Antitrust Law (The Hague, Kluwer Law International, 2007). 420 In some ways, these new market structures open up new perspectives on traditional competition law issues of access to the market and exercise of market power, which cannot however be addressed in any detail here. On those perspectives, see, inter alia, R Steiner, ‘How Manufacturers Deal with the Price-Cutting Retailer: When Are Vertical Restraints Efficient?’ (1997) ALJ 407ff.

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the effects of excessive buying power should, nevertheless, be approached with caution, since the prevailing teleological perspective, which I believe should influence the implementation, in that context, of competition rules, is the protection of the interests of final consumers of the goods at stake, rather than the safeguard of the own interests of several supplier undertakings, that strive to keep their positions in the market.421 As regards specifically these goals of ensuring penetration into certain markets, these may not only be relevant from (i) a perspective related to the size and economic power of the supplier undertakings at stake, but also from (ii) a perspective related to particular situations resulting from barriers to entry in certain geographic markets. At this latter level, the experience of EU market integration demonstrates the weight of the difficulties of entry into certain domestic markets, due to problems of access to effective marketing channels (problems which affect even the largest corporate groups).422 At the first level (i) considered above, it has to be acknowledged that one of the few areas where the Commission has expressed some openness to commercialization joint ventures, or joint commercialization agreements—either in the context of the application of article 101, paragraph 1 TFEU or, especially pursuant to paragraph 3 of this provision—corresponds precisely to the situations in which such activities of joint commercialization favour access to the market by small and medium-sized manufacturing enterprises, faced with the market power of larger business groups and market failures related to lack of economic power.423 This teleological perspective favourable to joint commercialization agreements, in these conditions, was also indirectly recognized in the 2001 and 2011 Horizontal Cooperation Guidelines.424 Coming back to the distinction I have proposed above in the field of the so-called organizational and functional advantages, the situations concerning the launching of new types of products into the market should also be considered. As regards these situations, I think that it is appropriate to identify, on the one hand, goals concerning the creation of commercialization channels for enabling the actual introduction into the market of new types of goods, and, on the other hand, although within a similar perspective, goals specifically associated with certain types of industrial customers, of creation of minimum levels of acceptance by the latter, enabling the formation of demand flows ensuring the necessary conditions for launching, ex novo, certain goods. In this latter type of situation, cooperation in the field of commercialization may appear as a corollary of other forms of functional cooperation in the areas of R&D or production, aiming at

421 However, both views may be connected, where the distortions provoked by the exercise of purchasing power of large retailers in relation to the operating conditions of supplier entities come, ultimately and in the medium term, to negatively affect final consumers’ interests. 422 In fact, effects of exclusion due to inability by some undertakings—including larger ones—to communicate with certain geographical areas may occur (particularly whenever the possibilities of reproduction or proliferation of local commercialization channels are limited or imply costs which may hardly be recovered in a reasonable time frame). These issues, implying the acknowledgement of the importance of local channels of commercialization circuits or of the access to commercialization centres, have received special attention in the context of merger control in the EU (thus evidencing another area of interplay between certain forms of analysis for purposes of application of merger control rules and of article 101 TFEU). See Case IV/M938 Guinness/Grand Metropolitan (1998) or Case IV/M1524 Airtours/First Choice (1999). 423 See, on the concept of market failures in that type of situation, and as ascertained in some relevant precedents, in which joint commercialization was considered an option in order to allow access to the market to several small and medium-sized producers, Florimex and VGB v Commission (case T-70 & 71/92, Col II- 693 (1997)) and VBA v VGB and Florimex (case C-266/97P, Col I—2135 (2000)). 424 See the 2001 Horizontal Cooperation Guidelines paras 155–157 and the 2011 Horizontal Cooperation Guidelines, paras 252 and 253.

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the introduction into the market of new types of products. In this respect the situation envisaged in Continental/Michelin, noted above, is to some extent a paradigmatic case.425 Also in the context of organizational and functional advantages, one may still, in a residual manner, enunciate relevant goals of joint commercialization activities related to the development of specific projects of limited duration, or with exceptional characteristics and which involve a necessary component of commercialization of goods or services.426 4.2.2.3 Goals Directed at Specific Economic Sectors Finally, it is pertinent to discuss the autonomous category of goals directed at specific economic sectors, closely related with the specific needs of the relationship with consumers or final customers, which occur in certain types of markets. Apart from special situations regarding the operation of certain markets organized in networks, I believe that such objectives are most important in the context of commercialization of intellectual property rights (particularly rights concerning audio or film recordings or broadcasting rights of sports events). In reality, the functioning of various markets whose economic dynamics depend mainly upon the transfer or licensing of IP rights, tends frequently to be constrained by some specific factors that may lead economic agents involved in those markets—including holders of such IP rights—to establish commercialization joint ventures or to enter into joint commercialization agreements. Among these constraining factors, motivating the use of joint commercialization activities, should be mentioned, for example, the recent concentration of the purchasing power of those types of rights, or the special risk of market failures in markets based on the use or exploration, in various forms, of IP rights, in the event some central mechanisms of coordination of sales conferring certain organizational patterns to such markets, are not introduced.427

4.3 Analytical Model for the Antitrust Assessment of Commercialization Joint Ventures 4.3.1 First Level of Analysis of Commercialization Joint Ventures—Categories of Joint Ventures Normally Allowed (Not Falling under Article 101, Paragraph 1 TFEU) In accordance with the analytical path already followed in relation to the other functional types of joint ventures, I propose—although considerably more briefly428—to apply 425

Continental/Michelin (n 217). See on this type of situation involving entities that involve some component of joint commercialization activity, Eurotunnel [1988] OJ L311/36 and Eurotunnel II, mentioned in the ‘Nineteenth Report on Competition Policy’, point 57. 427 These special risk of market failures in markets based on the use or exploration, in various ways, of IP rights—in terms that justify the adoption of several joint commercialization systems—often occur in relation to the marketing of rights over films or music or of broadcasting of sports events. For a discussion of such issues in these sectors of activity, potentially associated with market failures, see Ewelina D Sage, ‘Series of Film-Licensing Agreements and the Application of Article 81 EC’ (2003) ECLR 475ff, and Sebastian Graf Von Wallwitz, ‘Sports Between Politics and Competition Law—The Central Marketing of Television Rights to Sports Events in Light of German and European Competition Law’ (1998) Enterprise Law Review 216ff. 428 This considerably more abbreviated treatment of the subcategory of commercialization joint ventures occurs for a number of reasons. First, because a core set of analytical elements which may be used in relation to 426

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some key elements of my global model of assessment of these entities to the category of commercialization joint ventures. Following, therefore, this global analytical model—already tested in connection with R&D and production joint ventures—it is necessary, first, to delineate an initial stage of assessment allowing the identification of situations of cooperation usually permitted in this area of joint commercialization. This, in turn, implies the prior analysis of the major categories of risks of distortion of competition which may, as a rule, be associated with such functional type of joint ventures. In general terms, it may be acknowledged that commercialization joint ventures tend to raise some of the greatest risks of distortion of competition which are usually, in theory, associated with processes of cooperation between undertakings. Moreover, as noted above, their potential for distortion of competition will be especially enhanced in situations related to joint ventures that involve the joint sale of goods or services, including in that process the concerted setting of prices (as well as in situations of joint sale which, by their nature, and due to specific conditions underlying them, exert a decisive influence on the setting of prices by parent undertakings, even if the latter formally retain the power to decide on that matter). In schematic terms, and without failing to take into account that the incidence of risks for competition may vary considerably depending on the specific type of commercialization joint venture concerned, the nefarious effects of most of these joint ventures mainly tend to focus on two fundamental elements of the process of competition, namely, price setting, and the quantitative levels of the supply of certain goods. In reality, two essential levels may be identified, in systematic terms, for the gauging of these negative repercussions on competition. These are a first level corresponding to the development of coordination processes regarding price setting and the quantity of goods supplied to the market from time to time. Closely associated with these forms of collusion, one may also find processes aimed at the partitioning of markets, albeit in variable degrees. At a second level, we may identify eventual restrictive effects of market foreclosure, or of exclusion of third party competitors (although it should be acknowledged that the relative importance of these exclusion risks may eventually be higher in other functional types of cooperation, thus depriving some undertakings, in initial stages of the production process, from minimal support to operate in certain markets).429 These potential effects of exclusion in the context of the operation of commercialization joint ventures tend, as already noted, to be associated with situations characterized by very specific features, particularly in cases where the participating undertakings hold a very significant degree of market power, or cases related with the particular features of activities in markets organized in network conditions.430

the various subcategories of joint ventures subject to article 101 TFEU have already been addressed in ch 2 and, most importantly, in this chapter, in the sections devoted to R&D joint ventures and production joint ventures. Furthermore, the shorter treatment is also justified on the grounds that, as noted above, and notwithstanding some biases and distortions in the Commission’s analysis, identified here, the analysis of commercialization joint ventures is, to some extent, more straightforward as concerns the significance and likely occurrence of elements affecting competition associated with them. 429

Specifically on this issue, see above, ch 2, esp 2.4.3(B) and 2.4.3(C). See again on that type of exclusion effect in markets organized in networks, Carlton and Frankel, ‘The Antitrust Economics of Credit Card Networks’ (n 413). 430

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Conversely, I believe that commercialization joint ventures hardly induce another typical category of risk of distortion of competition which will, as a rule, remain associated with other functional types of cooperation. I refer here to coordination elements aiming at the restriction of competition in terms of quality of the products made available in the markets, which is undoubtedly an important variable of the competition process. In fact, these types of risks tend to result from forms of cooperation which happen to be more directly linked to the pursuit of productive functions, or related functions, as in the situations already discussed regarding R&D joint ventures, production joint ventures, or mixed type joint ventures that combine these functions in variable degrees.

4.3.2 Chief Risks of Anticompetitive Effects Arising From Commercialization Joint Ventures 4.3.2.1 Risks of Coordination Concerning Prices and Quantity of Goods/ Services Offered As has been highlighted, the essential category of risks of collusion concerning prices and quantitative level of output assumes greater importance depending on the degree of proximity of the cooperation relationships at stake with the stage of commercialization of goods or services to final consumers. Consequently, commercialization joint ventures, involving elements of cooperation which may cover, to a greater or lesser extent—depending on each case—that stage of commercialization, involving relations with final consumers, present, by their very nature, the greatest potential for restriction of competition in this field. Moreover, and further contributing to aggravate that anticompetitive potential of these entities, the two variables concerned (price and quantity of goods or services supplied)—more directly or intensely affected by this type of joint ventures—are precisely, both from an EU and US competition law perspective, the core elements of the competition process, which require, by definition, a more intense safeguard through the application of competition rules.431 The particular seriousness of this key risk of distortion of competition inherent in commercialization joint ventures, resulting from the fact that it interferes with the actual defining core of the competition process, also raises sensitive issues of analysis from various viewpoints. First, with a typical interference with the basic elements of the process of competition at issue—and whose suppression would constitute, as a rule, the very denial of any competitive interplay—the emergence of these restrictive effects associated with

431 On the paramount importance of those two elements—prices and quantitative level of output supplied— for the competition process and for the resulting consideration of such elements as a decisive factor in the application of competition rules, see, inter alia, Scherer and Ross, Industrial Market Structure and Economic Performance (n 207) 15ff. From another perspective, highlighting the combination of predominantly static models and dynamic analytical models of the competition conditions, see Simon Bishop and Mike Walker, The Economics of EC Competition Law: Concepts, Application and Measurement (London, Sweet & Maxwell, 2010) esp 36ff. These authors underline precisely the need to take into account a dynamic dimension essentially related to innovation processes, the importance of which has been continuously emphasized here (stressing, above all in the context of R&D joint ventures and even of production joint ventures, the importance of competition in the development of such innovation processes). As those authors state, ‘static models focus on prices and quantities and in particular tend to focus on price competition between firms. This may be inappropriate in a dynamic environment. In many dynamic environments firms compete not on prices but on innovation’. Despite the undeniable relevance of a dynamic dimension of analysis, the elements of price and quantitative level of output supplied continue, in my opinion, to constitute the essential core for the characterization of market power phenomena.

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commercialization joint ventures leads to an essential problem of legal qualification or characterization. This is a problem concerning the susceptibility of differentiating between (i) situations to be characterized as mere price cartels or as horizontal agreements mainly directed to such concerted setting of prices, and (ii) situations which, although evidencing this problematic component of price coordination, create a qualitative plus in terms of business integration, generating some economic efficiency, rendering them susceptible to other types of legal and economic qualification (not subject to a quasi-automatic prohibition in the context of application of competition rules).432 In fact, the various forms of commercialization joint ventures—especially those involving the joint sale of goods and services—are, by nature, located in a border zone between the forms of cooperation inherently restrictive of competition that are price cartels (or situations comparable to that) and other cooperation processes that, although potentially very restrictive of competition, include complementary factors that may allow, in any form or in any degree, some relevant incentives to compete on the part of participating undertakings. The analytical distinction of situations that are located in this often inaccurate border zone that separates (i) situations subject to a quasi-automatic prohibition from (ii) other situations that may justify an integrated weighing of anti and pro-competitive effects is of extreme complexity. However, these analytical difficulties cannot justify a linear and over-simplistic approach that tends to render more or less indistinguishable, all the various situations of cooperation in this field of anticompetitive horizontal agreements involving the setting of prices. Moreover, as also already mentioned in connection with the characterization of the most important types of commercialization joint ventures, such undeniable analytical hurdles may be attenuated through the weighing of a key assessment criterion, to which the Commission has not always granted due importance (at least in explicit terms and in a truly systematic manner). I refer here to the weighing of the eventual exclusive nature which cooperation processes in the area of commercialization may assume. Indeed, it seems certain that in situations in which commercialization joint ventures do not cover all the activities of commercialization of goods and services of participating undertakings (cooperation of a non-exclusive nature), there remains greater room for incentives to compete between those undertakings. The perception of the importance of this element for a preliminary assessment of commercialization joint ventures, in particular to determine whether they are potentially located outside an area of quasi-automatic prohibition, has long since been the case in the US antitrust system. Thus, in several cases in this area of analysis—such as, for example, the ruling in Broadcast Music, Inc v CBS433—the US Supreme Court has emphasized the

432 Although, strictly speaking, one should restate here that no automatic or per se prohibition exists under EU competition law—unlike what happens under US antitrust law—due to the particular normative structure of article 101, paras 1 and 3 TFEU. This specific trait of EU competition law, implying that hardcore restrictions of competition will very seldom be justified under article 101, para 3 TFEU, while admitting that, in principle, there are no anticompetitive agreements which could never satisfy the four conditions set in this provision was established by the General Court in some key precedents, such as, eg, Case T-17/93 Matra-Hachette v Commission and, more recently, Case T-168/01 GlaxoSmithKline Services v Commission. In short, EU competition law here fundamentally differs from the strict per se prohibition logic of US antitrust law. 433 See Broadcast Music, Inc v CBS 441 US I, 24 (1979).

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extreme importance of the allocation of commercialization functions with an exclusive nature for the assessment of the effects of this type of joint venture, even tending to consider this aspect as a possible dividing line among cases which may be analysed based on the so called rule of reason and cases almost automatically prohibited under competition rules. In a different sense—as will be observed further in the context of the subsequent considerations on commercialization joint ventures that require a more in-depth analysis434— the crucial importance of this analytical parameter has only gradually been recognized, in the context of the enforcement of EU competition rules. Furthermore, there is no true consolidation of this kind of hermeneutic guidance using this analytical parameter as a decisive element for the screening of commercialization joint ventures that should not be assimilated to mere horizontal agreements effecting the joint setting of prices. Still bearing in mind the preliminary analytical issues specifically raised by the severity of the competition distortion risks inherent in commercialization joint ventures, it is important to emphasize that the assumption, often taken for granted, of a supposed elimination of the incentives to compete at the level of the relationships between undertakings participating in these entities should not be construed in a linear manner. In fact, as regards situations where participating undertakings maintain autonomous activities of commercialization of products or services covered by the activities of a joint venture, those entities keep important economic incentives to compete between themselves. That will tend to happen since the profits obtained in their independent sphere of activities fully revert to participating undertakings engaged in that autonomous activity, whilst the results obtained through the operation of the joint venture must be shared by all involved parties. Obviously, the intensity of the economic incentives to compete, to be maintained, will depend on the relative size of the areas of independent commercialization activities retained by the parent undertakings. If these represent an appreciable or relevant part of the financial interests of each of the relevant parent undertakings, the incentives to compete will, accordingly, be more significant and—unless there are contractual commitments providing otherwise—such incentives may even, in the medium to long term, eventually cause an imbalance in the allocation of activities between the joint venture and the areas of independent activity of parent undertakings (thus, if a minimal sphere of the commercialization joint venture’s activity is not contractually devised from the outset, such a dynamic perspective of the relations between the concerned parent undertakings and joint ventures should be taken into consideration, in accordance with the specific conditions of the market).435

434

See below, 4.4 of this chapter. Joseph Brodley, in his study ‘Joint Ventures and Antitrust Policy’ (n 14), and other US authors (see, inter alia, Michael McFalls, ‘The Role and Assessment of Classical Market Power in Joint Venture Analysis’ (1998) ALJ esp 674–77, mentioning the possibility of maintenance of what he calls ‘insider competition’ between undertakings participating in a joint venture) seem to acknowledge this eventual dynamic perspective, in the sense mentioned above. However, it is necessary to counterbalance it in a realistic economic manner, with factors of ‘attraction’ towards the coordination process, resulting from the gradual elimination of uncertainty factors in the context of continuing relationships between competing undertakings within a joint venture and bearing in mind the structure and layout of the joint venture and of the type of relationships between parent undertakings that the venture may, accordingly, generate. See, emphasizing precisely some of these latter aspects, and advocating the need to distinguish between various analytical models, situated between per se and rule of reason criteria, Gregory Werden, ‘Antitrust Analysis of Joint Ventures’ (1998) ALJ esp 724ff. 435

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I believe that the intrinsic economic weight of the incentive to compete as above construed should be considered, even in situations where there is a de facto exclusivity ensured by a particular joint venture in the commercialization of certain categories of goods or services of participating undertakings, or a similar situation. However, at EU level, these cases tend to be assimilated, in terms of their adverse effects on competition, to situations where the commercialization on an exclusive basis of certain goods or services is contractually ensured by parent undertakings, which I deem excessive. On the contrary, I admit that in those cases, the market conditions—for example, the pressure of actual or potential competition436—may lead some of the participating undertakings to resume autonomous commercialization activities, then setting into operation the intrinsic incentive to compete, mentioned above. 4.3.2.2 Relevant Conditions for Coordination as Regards Prices and Quantity of Goods/Services Offered Returning to my general description of the categories of risks of distortion of competition inherent in commercialization joint ventures, and focusing on the questions—which are undeniably of paramount importance—relating to collusion on prices and quantity of goods supplied to the market, it is important to grasp the conditions on which such collusion may be relied upon (even in cases where the regulation of procedures for the centralized setting of prices, or the allocation of shares of commercialized goods to each participating undertaking do not explicitly result from contractual mechanisms of those joint ventures). Taking the approach, with some adaptations, adopted in the US 2000 Antitrust Guidelines for Collaborations Among Competitors, whose assumptions appear to be applicable at this level for the purposes of application of EU competition rules,437 three main elements may be identified on which collusion regarding prices and supply of goods can be based.

436 Thus, in a market characterized by frequent changes of techniques of commercialization of products, the pressure of the remaining effective competition may stimulate the incentives to compete by some participating undertakings, leading them to take up, once again, autonomous commercialization activities, provided they may do so under the contracts they have entered into. Accordingly, a methodology of analysis such as the one favoured by the Commission in various cases strikes me as faulty, to the extent that it tends to assimilate factual situations of exclusivity in commercialization through a given joint venture to contractually ensured exclusivity entrusted to commercialization joint ventures. Furthermore, from a realistic economic perspective of potential competition, the likelihood of new entities into the market, that are likely to implement innovative commercialization conditions—reintroducing some uncertainty factors into that market—may make it worthwhile for one participant in the joint venture to develop some autonomous commercialization activities. Indeed, if, in accordance with the analysis of Michael McFalls (in his study ‘The Role and Assessment of Classical Market Power in Joint Venture Analysis’ (n 435)), a set of five essential factors is considered for the maintenance of what the same author calls ‘insider competition’ (among participating undertakings), the aspects that I have considered above, concerning joint ventures which ensure only in a de facto manner exclusive commercialization activities, are to be deemed relevant. These five essential factors are, ‘(1) the ability of the partners to conduct independent business operations outside the joint venture, (2) the effect of ownership and control of the joint venture on the incentive to compete; (3) the duration of the collaboration; (4) the potential for the collaborators to exercise market power by eliminating insider competition; and (5) the exchange of information between the parents through the joint venture’ (at 677). And precisely the situations that I have considered in my analysis above may imply, in particular, the maintenance not only of the first of these factors—in the event participants are not precluded from retaking autonomous commercialization activities—but also of the fourth factor, in the event potential competition remains, from a realistic perspective, a relevant aspect. 437 See the Antitrust Guidelines for Collaborations Among Competitors 2000, para 3.31(a), referring to ‘marketing collaborations’.

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In the first place, joint ventures, by limiting—in variable degrees—the independent decision-making process concerning various aspects of the commercialization policies of the undertakings at stake, contribute to create or enhance the market power of these entities, or at least, to facilitate the exercise of such market power. Despite the intrinsic relevance of the incentive to compete, which I have sought to describe and whose maintenance is acknowledged here in the context of the operation of several commercialization joint ventures—especially in situations where the commercialization functions are not assigned on an exclusive basis to joint ventures—that same incentive may be diluted if the participating undertakings perceive an opportunity to obtain greater benefits by concentrating market power in the joint venture than through carrying out independent activities (although the gains obtained through this latter route need not be shared with the partners).438 Secondly, the very requirement necessary for the existence of true commercialization joint ventures—which do not amount to disguised price cartel arrangements—namely, the existence of any given entrepreneurial integration process, based on various contributions provided by parent undertakings, and eventually generating economic efficiency, may represent, conversely, an aspect that encourages coordination of the key variables of commercialization strategies. Thus, the transfer to the joint venture of control over certain assets necessary for carrying out commercialization activities—for example, assets that make up distribution networks or assets required for its operation—may, under certain circumstances, actually deprive participating undertakings from the means required in order to carry out a process of autonomous decision on variables of the commercialization policy.439 Finally, the size of the financial interests involved in the participation in a given commercialization joint venture may significantly weaken—and, in certain extreme situations, even eliminate—the incentive to compete through the maintenance of some autonomous decisions in this field of commercialization.440

438 The perception on the conditions of the joint exercise of market power corresponds to the fourth factor identified in US antitrust doctrine by Michael McFalls, being the ‘potential to exercise market power’. As this author states, ‘the potential for exercising collective market power through the joint venture also will have an impact on the likelihood of insider competition. For example, assume that five competing purchasers form a collective buying arrangement that permits members to continue purchasing outside the venture. If the venture is able to use market power to secure lower prices, it is less likely that the members will continue independent purchases in the relevant market’ (see McFalls, ‘The Role and Assessment of Classical Market Power in Joint Venture Analysis’ (n 435) 682). In my characterization of what I chose to call perception of the advantages of joint exercise of market power with an inhibiting effect on incentives to compete, I depart from Michael McFalls’ position only in one particular respect. I believe such a perception has a two aspects: what is at stake in not only the grasping of eventual advantages of the joint exercise of market power concerned, but also their weighing, globally, against the advantages inherent in the benefits stemming from independent activities, which must not be shared with any other partners. On the decisive importance of market power and of its exercise in the competition law assessment of joint ventures, and, consequently, in other forms of cooperation, see Mary Azcuenaga, ‘Market Power as a Screen in Evaluating Horizontal Restraints’ (1992) ALJ 935ff. In this study, it is correctly emphasized that market power must not be construed, in a restrictive manner, as the ability to raise prices, because, at a given time, undertakings holding market power may well have already provoked an excessive rise in prices (a factor which in US economic doctrine is designated as the ‘cellophane fallacy’, after a Supreme Court precedent). Furthermore, as previously noted, the classical approach to market power of undertakings must be combined with a dynamic analytical perspective. 439 Consider, eg, the creation of a commercialization joint venture for which participating enterprises have transferred contractual rights concerning distributors in several geographic areas. 440 On this criterion of the size of the financial interests involved, see the 2000 US Antitrust Guidelines for Collaborations Among Competitors, para 3(31)(a). In the part of the para that concerns ‘marketing collaborations’ the possible influence of this factor, corresponding to ‘combining financial interests in ways that undermine incentives to compete independently’, is stated.

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4.3.3 Commercialization Joint Ventures Normally Prohibited (Almost Always Falling under Article 101, Paragraph 1 TFEU) The potential for coordination on two main variables of the competition process, prices and quantities of goods offered in certain markets, inherent in commercialization joint ventures leads to the application of the prohibition set out in article 101, paragraph 1 TFEU to a significant number of such joint ventures (particularly in relation to commercialization joint ventures whose scope covers the joint sale of goods and services, in the terms outlined above). Characterizing this reality within the general model of assessment of joint ventures that I have outlined and considering, in accordance with this model, the first stage of preliminary assessment of these entities, a considerable number of forms of cooperation in this field should be regarded as normally or frequently prohibited situations, based on the application of article 101, paragraph 1 TFEU and only a very limited set of situations should be considered as usually permitted, benefiting from a favourable quasi-presumption for the purposes of that provision. The predictability of the competition law assessment of commercialization joint ventures, when compared to the analysis of the other functional types of joint ventures subject to the regime of article 101 TFEU, results mainly from the fact that a considerable number of situations, due to the particular nature of the functional elements of cooperation involved, and regardless of structural factors such as the market power of the parties, incorporate cooperation areas or forms which are usually prohibited (especially due to the elements intrinsically distorting competition which can hardly be compensated for by economic efficiency traits corresponding to the setting of prices and quantities of goods offered in the market). The main difficulty that underlies the assessment of commercialization joint ventures is, thus, to grasp—through a more in-depth market analysis than those that are often adopted by the Commission and focusing on the most relevant variables—elements that may, in certain cases, set aside a kind of quasi-automatic prohibition and justify the development of more comprehensive analysis (in the context of which the restrictive elements of competition and the favourable elements of economic efficiency that may offset the former are jointly weighed). Reaffirming some aspects already addressed, it should be stressed,441 that this analytical assumption, not to consider most of the commercialization joint ventures as belonging to an area of usually prohibited business cooperation is already established in the US antitrust law system. Thus, both in the view of federal competition authorities and of the US higher courts there is widespread recognition of the fact that many commercialization joint ventures justify an analysis based on the application of the rule of reason. Several positions adopted recently by the US Department of Justice, as well as decisions of the higher courts (particularly the recent Supreme Court Dagher ruling) clearly confirmed this hermeneutic approach, especially in relation to commercialization joint ventures that do not carry its functions on an exclusivity basis.442

441 See above, 4.3.1 and 4.3.2 of this chapter for various references on the more flexible treatment granted to commercialization joint ventures under US antitrust law, as compared with other legal systems (particularly the EU competition law system). 442 Besides Dagher, and for precedents in US antitrust law which evidence the fact that various commercialization joint ventures indeed justify the carrying out of analysis based on the rule of reason, see, inter alia, California

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Conversely, and although commercialization joint ventures not being as a rule so favourably assessed as R&D or production joint ventures, to the extent that they do not benefit from a treatment that ensures the application of the rule of reason in the manner set forth in the NCRPA,443 the application of a rule of per se prohibition is usually reserved for situations in which joint ventures are awarded a triple unfavourable characterization. Thus, as observed in United States v American Radio Sys Corp,444 it will, as a rule, be necessary for such unfavourable characterization that commercialization joint ventures are formed (i) on an exclusivity basis (meaning the participants will carry out all their commercialization activities through the venture) (ii) between competitors and do not (iii) evidence a specific component of inter-party integration, generating efficiencies. Resuming my parallel with EU competition law, and despite my position of outright rejection of any qua tale transposition of the rule of reason to this body of law, I believe the comparative experience of US antitrust law is valid in order to avoid a systematic qualification of commercialization joint ventures as forms of cooperation usually subject to quasiautomatic prohibitions and, accordingly, to include a greater part of these entities within an area of cooperation which justifies a more developed analysis (even if joint ventures incorporate some elements of collusion in the setting of prices).445

4.3.4 Commercialization Joint Ventures Normally Permitted (Not Falling under Article 101, Paragraph 1 TFEU) While it is true that the presence of elements of concerted setting of prices and of the quantities of goods supplied in some forms of commercialization joint ventures—particularly

Dental Ass’n v FTC 526 US 756, 757 (1999); NCAA v Board of Regents 468 US 85, 113 (1984); Association of Indep Television Stations v College Football Ass’n 637 F.Supp. 1289 (WD Okla 1986). More recently, and concerning interventions of the federal competition authorities, see US Dept of Justice, ‘Business Review Letter to Olympus Am Inc and CR Bard Inc, 2000’ DOJBRL LEXIS 26 (28 September 2000)—applying the rule of reason to a commercialization joint venture, taking into account the fact that it generates procompetitive advantages which participating undertakings would not have the conditions to generate independently—or US Dept of Justice, ‘Business Review Letter to the Heritage Alliance, 1998’ DOJBRL LEXIS 14 (15 September 1998)—also considering the application of the rule of reason to another commercialization joint venture. 443 On the NCRPA regime and its scope of reach under US antitrust law see above, ch 1, 4.5.2.1 and 2.3 of this chapter. See also generally on that regime, Gutterman, Innovation and Competition Policy: A Comparative Study of the Regulation of Patent Licensing and Collaborative Research & Development in the United States and the European Community (n 43) esp 390ff. 444 See United States v American Radio Sys Corp, 1997-1 Trade cas (CCH) 71,147 (DDC 1997). 445 In any case, it is important to acknowledge that even the EU case law developments relating to joint ventures that are characterized by a greater degree of flexibility—such as the landmark General Court ruling, European Night Services cases T-374/94, T-375/94, T-384/97, and T-388/94 (GC, 1998), (which will be analysed below, at 4.4.5.3 of this chapter)—still seem to accept that elements of commercialization joint ventures involving the joint setting of prices should be subject to a quasi-automatic prohibition criteria (see para 136 of that ruling, which states that ‘the assessment of an agreement under Article 85, paragraph 1, of the Treaty must take into account the specific context in which this Agreement produces its effects, and, in particular the economic context in which the undertakings concerned operate, the nature services covered by this Agreement and the actual conditions of the operation and structure of the relevant market ... unless it is an agreement containing obvious restrictions to competition such as the setting of prices, market sharing and apportionment or monitoring and control of sales’. However, I believe there are still grounds to reinforce the degree of flexibility in the treatment of joint ventures, beyond what is explicitly contemplated in this ruling, assessing in the context of the consideration what I have called the overall weighed or global effect of joint ventures—situations where the negative assumptions usually associated with the joint setting of prices may be corrected or offset by other procompetition factors.

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those involving joint sale of goods and services446 at prices directly or indirectly determined under the cooperation programme—creates an important factor connecting such ventures to typical forms of cooperation usually prohibited and thus reduces, in a negative manner, the potential area for identification of cooperation situations that may benefit from a favourable quasi-presumption as usually permitted situations, I believe, nonetheless, that in this area, the three general criteria for the identification of the latter type of situations outlined in my analytical model still apply. The particularity to be considered in relation to commercialization joint ventures, besides the above mentioned negative factor—which, it must be recalled, also works for the application of the de minimis criteria in connection generally with situations of cooperation between undertakings447—ill consist in a particularly restrictive application of those three criteria. As regards the first criterion for identifying usually permitted situations of cooperation— cooperation involving non-competitor undertakings—I acknowledge that, unless very specific circumstances occur, its application in the field of commercialization joint ventures should be accepted. Indeed, even in functional terms, such situations do not usually entice parties to the establish mechanisms for setting prices in a centralized manner. However, even if special market circumstances or certain functional conveniences of the relationship of the joint venture with consumers determine—albeit less frequently—some kinds of joint price setting in the context of commercialization joint ventures formed by non-competitors, I submit that the recognition of such cooperation processes as usually permitted processes should not be entirely ruled out.448 Indeed, in spite of its unfavourable view of commercialization joint ventures and commercialization agreements, the Commission itself seems to share this view, since, even prior to the adoption of the 2001 and 2011 Horizontal Cooperation Guidelines, in some relevant precedents such as, for example, Wild & Leitz,449 it has acknowledged that cooperative joint commercialization agreements concerning complementary products, albeit not competing ones, would not be likely to generate a material effect on competition and were, therefore, outside the scope of the prohibition set forth in article 101, paragraph 1 TFEU. Interestingly, and illustrating the lack of consistency which, from time to time, its enforcement practice has evidenced, whilst making a favourable assessment in relation to a commercialization agreement concerning non-competitor products (in the casenoted above), the Commission has not even explored the problems that could theoretically be raised in that case by virtue of the fact that somewhat complementary products were at stake (specifically that the situation could raise spillover effects in a narrow sense, restrictive of competition, stemming from the proximity of the markets at stake).

446 Joint ventures involving joint sale of goods and services which, it must be acknowledged, constitute a very significant number of commercialization joint ventures. 447 See the 2001 De Minimis Guidelines, and especially the three criteria used to identify more serious elements of distortion of competition (hardcore restrictions) set forth in para 11, determining the non-application of the favourable de minimis presumptions. 448 In this type of situation, which, incidentally, will not often arise in the business practice of cooperation between undertakings, the mechanisms for centralized price setting would in fact present an essentially formal reach, unless specific circumstances would justify concerns related to the flow of sensitive information on the processes of setting of commercial price policies with likely impact on related markets (spillover effects in a narrow sense), in which the participating undertakings would act as competitors. 449 See n 394.

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The principle that I have outlined above, of a particularly restrictive application of the parameters used for identification of usually permitted situations of cooperation, is especially valid for the second and third criteria in question, namely, the development of cooperation between competing undertakings which could not independently carry out the activity covered by such cooperation and the holding of a fairly small degree of market power by the participating undertakings. As regards this second criterion, Commission enforcement practice has proved extremely reluctant to take it into account in order to identify situations, in theory, not covered by the prohibition of article 101, paragraph 1 TFEU. The position generally held by the Commission in this area, for example, in BSN/St. Gobain, Floral, or Hudson’s Bay I450—is that, as a rule, undertakings do not experience an essential need to integrate their commercialization functions. This approach seems to me to be essentially correct. I would go so far as to acknowledge that, in the field of commercialization joint ventures, this second criterion tends to be fundamentally absorbed by the third criterion, concerning the degree of market power of the participating undertakings (as indicated by their market shares). This means, in my view, that, usually, only in cases involving small businesses with particularly weak market power, can it be argued that the development of joint commercialization processes is the only realistic alternative for a presence of such undertakings in the area of commercialization of their own goods and services. Apart from these specific situations involving small and medium-sized undertakings, I believe that only in truly exceptional circumstances can one argue, in connection to undertakings holding somewhat significant positions in certain markets (or holding, in general, some economic power) that these would have no access to any specific channels for commercialization of their products and services—in economically attractive terms—without establishing a commercialization joint venture for that purpose (as exceptional situations of that kind, I acknowledge, in theory, some cases in which the commercialization of certain types of products is utterly dependent on large retail facilities).451 Even in these cases, I submit that these exceptional factors may be viewed favourably within the context of the application of article 101, paragraph 3 TFEU (especially if the commercialization joint ventures at stake influence concerted procedures for the setting of prices). As regards the third criterion, related to the market power of participating undertakings, I think, in light of the above, that this criterion should be subject to a particularly strict and demanding application (especially in comparison with what happens in regard to other functional types of joint ventures).452 Thus, I would argue that, in general, this assessment criterion, applied to joint ventures, should take into account, with some adjustments, the criteria developed in the De Minimis Guidelines. This will, therefore, result in a favourable assessment of joint ventures created by competitor founding undertakings whose combined market share is at a threshold ranging between 10 and 15 per cent, although I acknowledge that, in relation to commercialization joint ventures, a greater reliance

450

See BSN/St Gobain (1977) CMLR 687; Floral (n 410): and Hudson’s Bay I [1988] OJ L316/43. These are very specific situations in which the suppliers of certain types of products are faced with a particularly significant buying power of some entities, namely large retail facilities, in terms previously described. 452 In particular, a comparative perspective with what happens in terms of assessment of market power with regard to the subcategories of R&D and production joint ventures (see the issues set out above, at 2.3.3.3 and 3.3.3.3 of this chapter). 451

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should be placed on situations closer to the lower end of the market share threshold should (meaning 10 per cent of the relevant market at stake). In the enforcement practice of the Commission we may, in fact, identify some openness to consider favourably, as situations normally not prohibited under article 101, paragraph 1 TFEU, the cases of commercialization joint ventures created by small or medium undertakings, particularly if these forms of cooperation represent an essential means for entering into a new geographic market (as happened, eg, in Machine Tools).453 Despite a more flexible approach that can be detected in the recent general approach of the Commission in this field, towards the acceptance of a favourable consideration of situations of participating undertakings with particularly weak market or economic power, regardless of their intentions to enter into new markets,454 this form of openness to a separate consideration of the parties’ market power still remains, by and large, to be developed in a systematic way. (The development of this approach, which I deem to be fully justified, would be important in order to provide greater legal certainty to smaller undertakings potentially interested in developing cooperation processes in this area and thus reduce transaction costs inherently associated with some degree of uncertainty regarding the competition law treatment of situations of cooperation.) In the context of this rather strict application of positive criteria which may circumscribe usually permitted situations of cooperation regarding commercialization joint ventures, I believe, conversely, and a fortiori, to be especially justified where there is an intensive use of the two negative criteria that set aside, in any case, ant presumption of a favourable assessment of such entities. I refer here, of course, to the criteria concerning the existence of a particularly intense market power pertaining to parent undertakings and to the possible emergence of market foreclosure effects.455

4.3.5 Specific Factors to be Taken into Consideration for the Assessment of Commercialization Joint Ventures In short, for a preliminary delimitation of usually permitted situations, usually prohibited situation, or cases that require a more developed analysis, it is pertinent in relation to commercialization joint ventures, to include in that assessment the consideration of the analytical criterion concerning the relationships between the parent undertakings’ markets and those of the joint ventures (or, more broadly, a criterion related to the type of economic relationships between the parties).456 In fact, in accordance with the types of typical economic relations between the parties set out here, the subcategory of joint ventures which market their parent undertakings’ goods or services—which include, of course,

453

See Machine Tools [1968] OJ L201/1. A more flexible approach that stems from the 2001 and 2011 Horizontal Cooperation Guidelines (see paras 155–57, and paras 240ff and 252 respectively), and the jurisprudence of the GC and the CJEU. It should be borne in mind, eg in this regard, the decisions that led to the GC ruling in Florimex and VGB v Commission (n 423) and to the ruling in VBA v VGB and Florimex (n 423). 455 It should be recalled that I have contemplated a more mitigated application of these criteria in relation to R&D joint ventures and even—although to a different degree—in relation to production joint ventures. In this regard, please refer to 2.3.3 and 3.3.3 of this chapter. 456 It should be recalled, at this stage, that this analytical criterion was based, with various amendments, on the analytical parameter set forth by Joseph Brodley (see Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14)) and whose use was considered above, ch 2, 2.4.4 (A) and at 3.3.5.3(A) of this chapter, in connection with production joint ventures. 454

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commercialization joint ventures—is itself an autonomous type of economic relationship between the parties, carrying with it a specific impact on the competition process (that I have identified above in chapter two, 2.4.4(A)). As previously noted, in relation to these various paradigmatic types of economic relations (underlying different joint ventures), I have put forward a general principle according to which the likelihood of occurrence of serious risks of distortion of competition increases with the degree of proximity between the specific area of activity of joint ventures and the market corresponding to the area of commercialization of final goods and services by the parent undertakings. Bearing that in mind, there is no doubt that such proximity is the maximum possible in the case of commercialization joint ventures, at least as regards those involving the joint sale of goods or services. Consequently, this contributes in a decisive manner to the general assumption that only a very limited set of commercialization joint ventures may be subject to favourable preliminary assessments, to be construed as identifying them as usually permitted forms of cooperation. However, I reject the possibility that that same analytical criterion, based on the type of economic relationships between the parties, can justify an outright or a linear association of these commercialization joint ventures with usually prohibited forms of cooperation.457

4.3.6 Reasons for Rejecting a Negative Pre-Established Hermeneutical Understanding of Commercialization Joint Ventures Considering, on a concluding note on the screening of usually permitted situations of cooperation, usually prohibited cases, or cases that justify a more developed analysis, it is important to highlight the need to develop and consolidate, at the level of EU competition law, an analytical methodology that sets aside any negative pre-established hermeneutical understanding of commercialization joint ventures. I have observed that this hermeneutic pre-understanding tends to manifest itself in a general approach prone to considering the majority of relevant situations of cooperation in this field as necessarily falling under the prohibition set forth in article 101, paragraph 1 TFEU, or even—in line with what appeared to be, at least until recently, the Commission’s prevailing view458—as situations very difficult to justify within the context of the application of paragraph 3 of the same article. In my view, this general approach tends to be over-simplistic and likely to cause significant distortions in the competition law framework and assessment of commercialization agreements (and, in particular, of commercialization joint ventures).

457 See on the position I have been taking on this point the analysis undertaken above, ch 1 at 1.4.3(B) and 1.4.4, and also 4.1 and 4.2 of this chapter—in the course of which I have insisted on the rejection of forms of negative preliminary assessment of commercialization joint ventures. Moreover, I have emphasized that, even in some of the most recent EU precedents, showing greater flexibility of analysis, a rather strict presumption which tends to associate commercialization joint ventures that involve some component of joint selling with prohibited price-setting situations tends to endure (a view from which I differ). 458 In reality, until recently, the Commission appeared to accept a too restrictive basic approach to commercialization joint ventures, involving the joint sale of goods or services, which proved averse even to the acceptance of justifications of such joint ventures in the context of the application of article 101, para 3 TFEU. This position contrasts, eg, with the trends evidenced in Commission enforcement practice concerning production joint ventures, which, though often declared to be falling under the prohibition of article 101, para 1 TFEU—in excessively strict terms, as discussed—were, in a considerable number of cases, subject to exemptions. As examples of this overly restrictive basic approach concerning commercialization joint ventures, see, inter alia, Feldmühle/Stora (referred to in the ‘Twelfth Report on Competition Policy’, para 73) and Hudson’s Bay I (n 450).

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Thus, considering that the assessment of the impact of joint ventures on the competition process should be based, at least in two key areas (namely, the nature and typical content of cooperation agreements and the market power of the parties involved), an eventual negative hermeneutic pre-understanding covering the majority of commercialization joint ventures—particularly those formed by competitors and involving, either directly or indirectly, the concerted setting of prices—would introduce a major substantive distortion in the analysis of this subcategory of joint ventures. This distortion would result in a high probability of almost automatic condemnation of such joint ventures, solely on the basis of the first analytical factor stated above, concerning the nature of the agreements—without a real consideration of the second factor, related to the assessment of the parties’ market power and (and also failing to consider the interaction of this latter factor with the structure and conditions of the markets mainly affected by the cooperation). On the contrary, I consider that except in very particular situations, involving true hardcore competition restrictions, commercialization joint ventures should also be subject to a developed analysis carried out on the basis of various inter-related parameters that I have delineated in my global model of assessment of such entities.

4.4 Commercialization Joint Ventures that Need Further Analysis 4.4.1 General Overview As has been stated, both in general terms and in the context of analysing the specific functional types of R&D and production joint ventures, the situations of cooperation which are not subject to an immediate favourable or unfavourable assessment, should be subject to a more developed analysis. Within this in-depth analysis a diversified set of factors in several subsequent stages of assessment is systematically taken into account. The same analytical procedure should, therefore, be adopted in relation to commercialization joint ventures whose compatibility with EU competition law is prone to raise appreciable doubts, which, in light of the considerations made in the preceding sections, is likely to happen in connection with a significant number of those entities.

4.4.2 The Participating Undertakings’ Market Share Criterion As regards what I have been characterizing as a second stage of assessment of joint ventures, I believe that the assessment of commercialization joint ventures, despite the real potential for restrictions of competition underlying them, does not present any major differences from the assessment of other functional types of joint ventures. Thus, unlike the position adopted by the Commission, I believe that for commercialization joint ventures, the sole 25 per cent market share threshold of any of the relevant markets affected by the creation of this type of entities should be retained as a general or reference indicator at this stage of analysis.459

459 It is important to underline again that, in the 2001 and 2011 Horizontal Cooperation Guidelines, the Commission proposed as an indicative criterion for the weighing of market power by entities involved in this kind of cooperation a threshold of 15% of the affected markets. I have earlier rejected the Commission’s analysis and proposed—in a different sense—a sole market share threshold. See above, 2.3.5.1 of this chapter.

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However, I do acknowledge that the analysis of commercialization joint ventures requires one different consideration at this level. This lies in the fact that, although I take into account the sole threshold of 25 per cent of the market share as a key indicator of the existence of market power that justifies, as a rule, some concern about appreciable negative repercussions on competition, I also recognize that commercialization joint ventures involving entities with aggregate market shares ranging between the 10 per cent and 25 per cent should still be object of some attention or scrutiny.460 This means that, in my view, commercialization joint ventures involving participants with aggregate market shares falling within these reference thresholds justify, in comparative terms, greater concern than, as a rule, should happen in that context with R&D or production joint ventures. Consequently, in these situations and in the presence of such market shares, greater attention should be paid, in proportional terms, to the potential for restriction of competition intrinsically associated with the essential elements that compound the functional type and programme of cooperation that are specifically at stake, in the context of what I have been designating as the third stage of assessment of joint ventures (following the second stage of consideration of market shares, in accordance with my global analytical model).

4.4.3 Third Level of Analysis of Commercialization Joint Ventures 4.4.3.1 The Fundamental Analytical Tools to be Used in the Third Level of Analysis of Commercialization Joint Ventures In the context of the third stage of assessment of joint ventures, in accordance with my global model of analysis, the elements of distortion of competition specifically arising from commercialization joint ventures must be evaluated. More precisely, what is at stake it to assess under what conditions, or in what manner, certain risks of distortion of competition which, in theory, underlie this subcategory of joint ventures,461 are present or not, given the particular layout of functional programmes of cooperation to be developed between the parties in each case. This analytical process also involves a critical assessment of the interaction between such functional programmes of cooperation and the market contexts in which these take place. This assessment, by its nature will inevitably have a casuistic basis—linked to a specific analysis of each of the markets at stake in any given situation of cooperation—but the natural margins of uncertainty inherent in that should be mitigated through the use of an inductive methodology of analysis. This methodology, in turn, is based on some general reference guidelines which have been gradually developed, on the one hand, as grounded on some basic principles and, on the other, on the accumulated acquis of experience in the analysis of relevant precedents. This type of analytical construction and the dogmatic development associated with it carry a fundamental advantage of construing a true general

460 In conjunction with the specific assessment devised above, I should recall that in my previous analysis (above, 2.3.3.3 of this chapter), I considered the threshold of 10–15% of the market share as a criterion for identifying usually permitted forms of cooperation (‘safe harbour’ in the terminology of US antitrust law) in this functional area, taking particularly into account the lower limit of such threshold. 461 Risks of distortion of competition that I have already identify and analysed from a general perspective as regards this subcategory of joint ventures, above, at 4.3.2. of this chapter.

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model for the assessment of joint ventures, which combines the needs and requirements of casuistic market analysis with some levels of predictability or legal certainty.462 As regards the subcategory of commercialization joint ventures, and in light of my foregoing analysis, this third stage of assessment assumes, therefore, particular importance due to the greater potential of restriction of competition associated with this subcategory. Thus, although in-depth scrutiny concerning specific restrictive effects inherent in certain functional elements of the operation of these commercialization joint ventures should be especially required in cases involving participating undertakings with aggregate market shares above the critical threshold benchmark of 25 per cent of the affected markets (as in the case of the other functional types of joint ventures), I submit that commercialization joint ventures, even in cases concerning market shares below this critical threshold, should still be subject to some degree of antitrust scrutiny. In other words, this means recognizing that some concerns with the examination of the various foreseeable repercussions on competition of specific elements of the operation of these joint ventures should, nevertheless, exist in relation to commercialization joint ventures whose founders hold aggregate market shares ranging from 10 per cent to 25 per cent of the affected markets (as has also been mentioned). Moreover, this more demanding type of analysis also assumes special importance due to the multiplicity of functional layouts that may be encountered in cooperation programmes aimed at the development of one or more aspects of commercialization activities. At this level, it is useful, from a systematic perspective, to take into consideration the six analytical factors delineated in the US 2000 Antitrust Guidelines for Collaborations among Competitors,463 that I have already highlighted in the context of the assessment of other functional types of joint ventures. Given my critical perception of the typical risks of distortion of competition underlying some of the main forms of cooperation in the field of commercialization, I think it is correct to attach particular importance to some of those analytical factors in this area. Accordingly, in order to assess the effects of commercialization joint ventures on the competition process, special importance should be attached to the analytical factors corresponding to the exclusive or non-exclusive nature of joint commercialization programmes;

462 It has probably not been a coincidence that in the context of the US antitrust system, which was earlier characterized by the development of casuistic economic analysis and a lesser degree of legal formalism in the delineation and enforcement of competition rules, there have been early doctrinal attempts of building global models of analysis of joint ventures, guided by the dogmatic purposes mentioned above. I am thinking particularly of the global analytical model proposed by Joseph Brodley (‘Joint Ventures and Antitrust Policy’ (n 14), or the analysis of authors such as Robert Pitofsky back in the 1980s (see Pitofsky, ‘A Framework for Antitrust Analysis of Joint Ventures’ (1985), Australian Law Journal 893ff). This author highlights the degree of uncertainty associated with the competition law assessment of joint ventures as one of the fundamental shortcomings to be overcome by a proper legal systematic reasoning in the area of antitrust. As he states, ‘business complaints about the inadequacy of antitrust policy seem particularly valid here [joint venture analysis], not so much because the enforcement agencies or the courts have made erroneous enforcement decisions, but because uncertainties in enforcement policy have almost certainly blocked, delayed or raised the cost of legitimate undertakings’ (at 893). In this context, the competition law assessment of joint ventures appears to be the perfect area of antitrust for developing original dogmatic attempts to find suitable global analytical models for combining the needs of casuistic analysis with typical and, to a certain extent, pre-ordained legal and economic reasoning, allowing some degree of predictability in order to ensure that economic agents may somehow reduce their transaction costs related to uncertainty factors (in the field of antitrust enforcement). 463 I refer here to the six analytical factors mentioned in the US 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.34.

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the nature and extent of financial interests in the collaboration or in other participants; the type of control or governance of the collaboration’s competitively significant decision making (meaning the type of functional organization of the joint ventures), and, finally, to the expected duration of these entities.464 4.4.3.2 The Exclusive Nature of Joint Commercialization Programmes As regards the first of these analytical factors, I have already emphasized the paramount importance attached to this in the assessment of commercialization joint ventures. Indeed, I have stressed the importance of this factor for avoiding linear and over-simplistic assessments of commercialization joint ventures as forms of cooperation almost always falling under a quasi-automatic prohibition (particularly in cases where these entities influence, in a more or less direct manner, the processes of coordination of prices charged by participating undertakings). However, this analytical factor is also a key element for the consideration of what I have called weighed or global effects of joint ventures on competition465 in cases which do not involve hardcore restrictions or especially severe restrictions of competition that are to be taken as almost always prohibited (in light of article 101, paragraph 1 TFEU). In fact, I consider that the importance of this factor concerning the exclusive, or only partial, nature of joint commercialization programmes—particularly when these involve the joint selling of goods or services—has not been duly recognized in the context of the enforcement of EU competition rules. Indeed, as previously noted on relevant precedents—in particular as regards Floral466—the Commission appeared to underrate the importance of aspects related to the absence of any express obligations of the participating undertakings towards the exclusive sale of their goods or services through the joint venture they had formed. Thus, in Floral, which focused on a joint venture, formed by three French manufacturers of fertilizer, for the joint distribution and selling of their products on the German market, the Commission held that the parties, although maintaining autonomous commercialization activities of these products, would, almost inevitably, tend to coordinate their prices with those charged under the joint venture. I completely disagree with this kind of analysis and submit that, not only should the absence of an exclusive nature of the commercialization activities undertaken through joint ventures be considered, but also that the scrutiny of such issues should be systematically addressed in greater detail, in order to grasp the many different situations that may occur. Thus, in cases where the permanence of autonomous commercialization by the participating undertakings is confirmed, it will also be important to assess the relative weight of such separate activities in light of the activities carried out through a joint venture. Naturally, the less significant the individual contributions to the overall results of the participating undertakings ensured through a given commercialization joint venture, the lower will also be the likelihood of induction of price coordination phenomena resulting

464 What is at stake, therefore, is to emphasize in particular the first, third, fourth and sixth analytical factors by the order in which they appear, respectively, in the 2000 Antitrust Guidelines for Collaborations among Competitors, in paras 3.34(a) (‘exclusivity’), 3.34(c) (‘financial interests in the collaboration or in other participants’), 3.34(d) (‘control of the collaboration’s competitively significant decision making’) and 3.34(f) (‘duration of the collaboration’) of these Guidelines. 465 See, on this characterization, the analysis developed above, ch 2 at 2.4.1. 466 See n 414.

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from trade policy options undertaken by the joint venture. Moreover, if we consider hypothetically possible cases of commercialization joint ventures between supplier entities holding significant positions in their domestic markets, but with a cooperation programme only directed to commercialization activities in another national market, it is reasonable to submit that those entities will keep—under such circumstances—an important incentive to compete in relation to autonomous activities that they carry out in their own domestic markets (although a definitive assessment of these situations will only be feasible through properly ascertaining the remaining actual operation conditions of the affected markets).467 It should be acknowledged that the Commission, albeit not consistently—and, above all, without adopting a truly general approach that may be predicted by concerned undertakings—ultimately recognized, in certain decisions, the importance of the nonstipulation of exclusivity commitments in relation to the joint sale activities carried out through commercialization joint ventures. Thus, in some significant precedents—for example, in UIP468—the Commission considered the granting of exemptions, under article 101, paragraph 3 TFEU, due to cost savings resulting from joint distribution systems, and symptomatically, made its approval of such situations dependant on the removal of any obligation of the participating undertakings of exclusively performing their commercialization activities through the joint venture. The Commission’s goal in this type of situation was clearly to safeguard a sphere of independent distribution and sale activities by participating undertakings, which means that this factor may prove decisive in the overall assessment of the significance of restrictions to competition determined by the commercialization joint ventures. It would, therefore, be important to recognize that factor, in general, as an essential analytical criterion for gauging the actual potential for distortion of competition associated with each given commercialization joint venture. 4.4.3.3 Relevant Features of Joint Commercialization Programmes Another element of the functional programmes of joint commercialization developed through joint ventures which should be granted systematic attention is, in my view, that related to the distinction between joint sales combined with mechanisms for the centralized setting of prices and joint sales which cater for the maintenance of participating undertakings’ own decision-making processes regarding the prices of their own goods and services. Indeed, in theory, one may think that the development of programmes of cooperation in the field of commercialization and, in particular, regarding the joint sale of goods and services would be intrinsically connected to centralized decision-making procedures regarding the prices of the involved goods and services. However, the actual business practice of

467 Comparable situations may also occur in the event commercialization joint ventures are created with a view to allowing the entry of founding entities in certain geographical areas of a given national market, in a context in which those undertakings keep their autonomy regarding their commercialization activities in other areas of the national market at stake (in certain conditions, material incentives for the founding entities maintaining their commercial autonomy may exist). We may also consider, eg, other situations in which commercialization joint ventures are aimed at targeting specific customers, more difficult to reach, while founding entities maintain full autonomy in their business relationships with the majority of their clients. 468 See UIP [1989] OJ L226/25.

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cooperation between undertakings in this field demonstrates otherwise. Hence, in several relevant precedents, for example, Ecomet, that involved the creation of a new legal entity by several national meteorological institutes in order to proceed with the joint selling of their data,469 it has been possible to identify situations where the participating undertakings chose to retain their own decision-making power for setting the prices of their goods, while proceeding with their joint selling in the context of joint ventures. It is therefore possible to reconcile, from a functional point of view, the transfer of operational responsibilities for conducting joint sales activities to joint ventures with parallel decision-making processes of the parent undertakings regarding the prices of their goods or services. Several contractual models of organization will certainly be possible for this purpose, although it can be assumed that, in such cases, the structure associated with joint ventures responsible for the joint selling of goods and services will tend to have some sort of liaison with certain categories of customers and ways of ensuring the circulation of goods and services concerned, through mechanisms of allocation of purchase orders received in the market. It is clear that the functional configuration of these latter mechanisms, even if treated separately in relation to parallel processes of price setting conducted on their own by the parent undertakings, may still lead to significant restrictions of competition resulting from the coordination of volumes of goods and services sold by each participating undertaking (especially if such mechanisms include predetermined criteria for the allocation between the various participating undertakings of production volumes to be traded). This risk of coordination concerning quantitative levels of output sold and potential market allocation may, however, be mitigated if the commercialization structure of the joint venture performs an essentially passive role of receiving purchase orders from customers in certain markets.470 In addition to these aspects of functional organization of series of sales transactions with consumers, other elements may also influence the eventual potential of distortion of competition of these joint ventures at the level of quantity of output supplied to the market by each participating undertaking. One of these elements will be the homogeneous or heterogeneous nature of the goods subject to such joint commercialization processes. Indeed, an eventual passive role of joint ventures in receiving purchase orders from consumers already addressed to specific goods of the several participating undertakings (as envisaged above), will be more likely in situations in which such goods have a predominantly heterogeneous nature, leading consumers to buy the different goods supplied by the various participating undertakings at stake for different reasons. The other element to which some significance must be attached is the possible overlap of the joint sales activities with other activities aimed at the marketing (lato sensu) and promotion of goods to be commercialized. If the cooperation developed through

469 See, on Ecomet, which was closed following the issue of a letter of comfort, the Twenty-Ninth Report on Competition Policy. 470 This mitigation of risks of coordination of the quantities sold and of the potential market sharing or partitioning may, in particular, result from a reduction in the volume of sensitive information that tends to occur in cases where the commercialization joint venture assumes an essentially passive role of receiving purchase orders from customers in certain markets. In addition, it is clear that it is also important, in certain cases not involving a direct setting of prices by a joint venture, to establish the extent to which the operating conditions of the joint venture can, or cannot, decisively influence such setting of prices.

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commercialization also extends to this level of promotion of the products, it will be more difficult, even in a formal context of autonomous setting of prices by the participating undertakings, to avoid negative coordination phenomena. That will be so since in those cases where consumers, deprived from information which would allow them to distinguish between the goods supplied by the various participating undertakings, will no longer take the initiative of requesting certain types of assets provided by a particular undertaking at stake (on the contrary, it will be the commercialization joint venture that will tend to assume such initiative in the allocation of various goods to general purchase orders from consumers). Thus, even in joint ventures that perform functions at the very core of commercialization activities and to a large extent determining commercial policy options—as happens in cases of joint selling—the greater or lesser extent to which cooperation programmes concerning other micro-functions in the field of commercialization, usually taken as ancillary or of a secondary nature—as, for example, in the case of promotion activities—may ultimately prove decisive in the overall assessment of the potential for distortion of competition of such joint ventures. Coincidentally, this importance of cooperation elements at the level of promotion and marketing (lato sensu) of products or services, in order to gauge the severity of restrictions to competition that may result from processes of cooperation concerning apparently more important elements of commercialization activities, is highlighted in the 2000 Antitrust Guidelines for Collaborations among Competitors, in the context of the US antitrust system.471 From another perspective, while also taking into account the various alternative contractual models of organization of activities of joint ventures that perform joint selling functions of goods or services without setting their prices, there are additional aspects that may, justifiably, be considered in assessing the potential for restriction of competition associated with these joint ventures. I have in mind, in particular, the adoption of different contractual operation mechanisms which may—despite the pursuit of joint sales activities by joint ventures—limit or constrain the flow of information on prices between the structure of these joint ventures and the structures of participating undertakings (these mechanisms may involve, eg, the complete separation between managers or directors allocated to these different structures, and the adoption of mechanisms for matching purchase orders and periodical decisions relating to prices, within certain ranges, which ensure some restraint of information that may be shared concerning each participating undertaking).472 Once again, it strikes me as

471 See the 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.31(a)—especially the issue noted under the heading ‘Marketing Collaborations’. As stated, ‘for example, joint promotion might reduce or eliminate comparative advertising, thus harming competition by restricting information to consumers on price and other competitively significant variables’. 472 On the possible definition of contractual settings of the operation of joint ventures specifically aimed at limiting the flow of information between undertakings and separating the different functional levels of activity, in order to reduce the incentives of behavioural coordination between the founding entities, and proposing a proactive (albeit flexible) position, of the competition authorities in this field, as an alternative to prohibition decisions or other forms of greater administrative intervention, see Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) esp 1544ff. This author, whose approach in this area has already been highlighted for discussion in connection with the possible limitation of other risks of distortion of competition, envisages such solutions as possible ‘incentivemodifying remedies’. From a perspective of convergence of analytical methodologies on joint ventures, regardless of whether these are to be qualified or not as concentrations, I may recall here the use of ad hoc solutions, pertaining to the type under analysis here, eg, in Case IV/JV15 BT/AT&T, adopted under the MCR, but involving the assessment coordination effects under article 2, para 4 MCR.

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important not to automatically associate certain functional dimensions of the cooperation developed through commercialization joint ventures with supposedly irredeemable forms of restriction of competition, without properly considering certain elements of the organization of the cooperation programmes that may mitigate potential elements of distortion of competition (while ensuring potential economic benefits stemming from some of these joint ventures). 4.4.3.4 Market Power of the Participating Undertakings and Market Conditions in Affected Areas Another important area for the materialization of risks of distortion of competition specifically related to the elements of the functional type of commercialization joint ventures is the analysis of the forms of interaction between market power (or general economic power) of the parties and the operating conditions of the various markets connected with the cooperation processes at stake (within this analytical dimension such structural elements are combined with the assessment criterion that I have considered separately, concerning the types of economic relationships between the parties’ markets). Thus, considering these factors, and especially certain market contexts, it will be possible to assess, in certain specific situations, to what extent some commercialization joint ventures—despite displaying aspects that in themselves represent restrictions of competition—may prove necessary for the entry of participating undertakings in new markets, or even essential to the permanence of these undertakings in markets in which they were already present. As I have noted, the Commission has already granted rather favourable treatment—even for the purposes of the application of article 101, paragraph 1 TFEU—to commercialization joint ventures formed by small and medium-sized undertakings and created in order to enter into new geographical markets, provided that, depending on the analysis of market power and entry conditions in these new markets, it could be estimated, within a framework of economic reasonableness, that those undertakings would not be able to expand their activity in this way on their own. Moreover, the Commission has not completely ruled out the possibility of accepting the compatibility with EU competition law—especially through exemptions on the basis of article 101, paragraph 3 TFEU—of commercialization joint ventures in the context of situations in which one cannot demonstrate the inability by participating undertakings independently to enter new geographical markets. Accordingly it has considered in some cases, it may be that the contribution of those joint ventures will merely accelerate such market entry and render more efficient the conditions under which participating undertakings enter the markets at stake (especially if they are faced with the presence in such markets of other undertakings holding significant positions which rely, at least partly, on the strength of their local commercialization networks). The decision of Röchling/Possehl, adopted within the framework of the then European and Coal Steel Community (ECSC) is, for example, representative of the Commission’s openness in this area,473 although it should also be noted that clear or more consistent illustrations of such analytical flexibility by the Commission regarding commercialization joint ventures involved in the joint selling

473 See Röchling/Possehl [1986] OJ L39/57, adopted in the context of the ECSC concerning the provisions of the ECSC Treaty (articles 65 and 66) that corresponded to the current articles 101 and 102 TFEU.

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of products and which may, directly or indirectly, influence the concerted fixing of prices, are scarce. In this regard, and coming back to a contrast that has already been observed,474 it must be emphasized that in the US antitrust system a greater degree of flexibility has in general been evidenced in terms of favourable assessment of commercialization joint ventures that prove to be particularly important—either as a real sine qua non-condition, or as a catalyst—to the entry of participating undertakings into new product or geographical markets. This position is clearly evidenced not only in the case law of the higher courts— with precedents such as NCAA—but also in decisions of the federal competition authorities (eg to name only a couple of more recent cases, Olympus Am Inc, or Armored Transp Alliance).475 However, what is important to underline, in particular, is that this flexibility is extended to situations where the creation of joint ventures increases the efficiency—at the specific level of the commercialization of goods or services—of the presence of certain undertakings in some markets, while involving at the same time the possibility of elimination of the pre-existing competition between those same undertakings in the markets at stake. So, taking into account both the market power of participating undertakings, and the market structures within which the activity of a given commercialization joint venture is carried out, it has been accepted, in various situations,476 that the creation of certain efficiencies, for example, at the level of the distribution or promotion of goods, which allow some smaller undertakings an accrued capacity to compete more effectively with third market players, even with the disadvantages inherent in the elimination of competition between those participating undertakings, may, on the whole, be worthwhile. Ultimately, even the forms of cooperation more inherently restrictive of competition— involving joint ventures that perform the joint sale of goods and services with concerted setting of prices—may allow competitors with less market power to significantly increase their economic efficiency and thus increase, in overall terms, their competitive pressure on firms with greater market power that operate in the sector concerned. Hence, it is not only the market power of participating undertakings, but also the existing market structure and the possible interactions of elements of economic efficiency generated by commercialization joint ventures with the functioning of that particular market structure that may lead to favourable assessments of such joint ventures (that prima facie presented a high potential for distortions of competition).477

474

See above, 4.1, 4.2, 4.3.1 and 4.3.2 of this chapter. See US Dept of Justice, ‘Business Review Letter to Olympus Am Inc and CR Bard Inc, 2000’ DOJBRL 26 (8 September, 2000) and US Dept of Justice, ‘Business Review Letter of the Armored Transp Alliance, 1998’ DOJBRL LEXIS 5 (12 March 1998). 476 Evidencing an approach described above, see NCAA 468 US, 103 and Broadcast Music 441 US 18–23; SFC ILC 36 F.3d 963 (where it was stated that ‘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 integrate to achieve efficiencies and increase output’) and Association of Indep Television Stations 637 F.Supp. 1296 (where it is stated that the exclusive licences in the television industry ‘hold … the potential to increase the number of available programs’). 477 Moreover, such cases have triggered in US antitrust doctrine the detection of some parallels with certain forms of competition law assessment of mergers. Especially at stake in those parallels are mergers of smaller competitors that oppose bigger competitors. In these situations, provided that such mergers do not generate oligopolistic market power (corresponding to what, for purposes of EU competition law, would be qualified as joint dominance), the overall effect resulting from such operations can actually be positive. That may also happen 475

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Besides an assessment of the overall impact of commercialization joint ventures, jointly considering the elements of distortion of competition inherent in them and the economic benefits stemming from them and evidenced either through the ex novo entry into certain markets (product or geographical markets), or through the creation of more intense competition process dynamics due to a greater balance in the operation of certain market structures, it is also important, under certain circumstances, to assess the economic justification for the material extension of cooperation processes. In fact, even if it is possible to identify significant efficiencies likely to result from the creation of certain commercialization joint ventures, it may be questioned whether, in certain situations, the proper balance has been found between a restrictive dimension (anticompetitive)—stemming from cooperation covering various functions in the field of commercialization—and the set of benefits obtained through these processes of cooperation. In the event this analysis allows us to ascertain that such benefits could have been obtained through commercialization joint ventures with a more limited scope of activity, it will be justified in some situations, to adopt unfavourable assessments of such joint ventures, or to envisage the imposition of certain conditions for their creation. This second level of analysis of the effects of joint ventures should be mainly focused, in my view, on the micro-functions in the field of commercialization that are more intrinsically restrictive of competition. Thus, considering that the establishment of centralized or coordinated setting of prices in a commercialization joint venture ensuring the joint sale of goods or services is, in principle, the most negative element for the safeguarding of effective competition, it strikes me as pertinent to question whether in some situations for an efficient functioning of a given cooperation process, it would really be necessary for it to cover this aspect of price setting (eg, in a situation in which a joint venture will prove essential for the entry of participating undertakings into certain markets). In some situations, several factors, such as the consumer’s perspective on his relationship with the entities that ensure the commercialization of goods and services, or the particular conditions of functioning of certain markets, may render the centralized setting of prices necessary in order to ensure the effective operation of commercialization joint ventures. In the event that does not occur—something that may only be established through an economic analysis of the markets at stake—the inclusion in the cooperation programme conducted by these joint ventures of price setting mechanisms may turn out to be excessive in itself (and determine, where such mechanisms are not eliminated, a prohibition of those joint ventures).478

in relation to joint ventures involving the component of commercialization of products or services, if there are no distortions in the oligopolistic functioning of the market, with the additional advantage of such situations of creation of joint ventures not representing the definitive elimination of competition between the parties, as is typically the case with mergers, in a narrow sense. See Pirainno, ‘Beyond Per Se, Rule of Reason or Merger Analysis: A New Antitrust Standard for Joint Ventures’ (n 37) 1ff; Shapiro and Willig, ‘On the Antitrust Treatment of Production Joint Ventures’ (n 249) 113ff. 478 In reality, as I have already observed in connection with US precedents, such as Broadcast Music (n 476) that, in certain market contexts, it may be absolutely necessary in order for commercialization joint ventures to operate effectively, to proceed with the joint setting of prices (see para 23 of this decision where it is stated that ‘the agreement on price is necessary to market the product at all’). Conversely, under EU competition law, the development of analysis specifically aimed at testing that need for mechanisms of joint price setting for the overall operation of certain commercialization joint ventures and for the materialization of the procompetition elements which they may generate in some cases, has been comparatively rare.

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Bearing in mind the complexity and functional diversity that generally characterize commercialization joint ventures—a trait I sought to emphasize in my introduction to this subcategory of joint ventures479—I submit that the above construed analytical perspective may be pursued at various levels. Besides considering if, on the basis of existing market conditions, an efficient cooperation programme in the field of commercialization would have to cover price setting, one may also wonder to what extent the goals of such cooperation could not be effectively pursued through mere joint distribution, without involving the actual joint selling of goods and services. Accordingly, the elements of cooperation processes in the field of commercialization which are more intrinsically restrictive of competition may, in a successive manner, be subject to scrutiny in order to determine whether a given commercialization joint venture represents an acceptable compromise between the elements affecting competition and the economic efficiency components.480 Another relevant dimension of analysis considered at this level, of positive interactions between the market power of participating enterprises and the possible rebalancing of certain market structures, is the envisaged timeframe for the cooperation. Thus, the positive overall competitive balance inherent in certain joint ventures, associated with the ex novo entry into certain markets or with the increase of competitive pressure on undertakings which hold high market power may be ensured or enhanced by setting more limited periods of duration of such joint ventures. This time factor is very adequately dealt with in the US 2000 Antitrust Guidelines for Collaborations among Competitors as one of six key analytical factors that should complement the weighing of market power of participating undertakings, and, in my opinion, it should be granted paramount importance.481 In fact, the prospect of the forthcoming termination of any system of agreements that rule the operation of certain joint ventures, in cases of limited duration of commercialization joint ventures, is necessarily assimilated by the parties in their own operation. As such, it may prove crucial for them to maintain—with some vigour—the incentive to compete,

479

See above, 4.1.2–4.1.5 of this chapter. On this complex analytical exercise, in order to determine at various levels, the extent to which certain dimensions and structures of cooperation more inherently restrictive of competition—price setting, conduction of joint sales, and in descending order of seriousness, other aspects of joint commercialization such as joint distribution without involving joint selling, joint promotion, etc—are actually necessary to obtain efficiencies that outweigh those competition downsides, see Frankel and Carlton, ‘The Antitrust Economics of Credit Card Networks’ (n 413) 643ff, esp 644: ‘In many cases, however, it is difficult to determine whether particular structures, rules and actions of a joint venture are essential to the existence or efficiency of the joint venture, or whether their impact is anticompetitive instead. Indeed, some joint venture activities may have both kinds of consequences’. However, the critical importance of competition law assessment of joint ventures for the overall legal reasoning in competition law is, in my view, that modelling of complex analytical paradigms in which the possible legal negative outlook is immediately perceived through the intersection of elements potentially restrictive of competition and procompetition elements—especially resulting from the verification of various relevant types of efficiency— thereby replacing a predominantly formalistic legal reasoning in which aspects of restriction of competition are individually identified, and are therefore not subject to substantive testing concerning the actual conditions of market operation, being, conversely, submitted to a successive and separate consideration of possible justifications for such competition restraints. In a manner that I consider to be excessively restrictive the Commission’s 2004 Guidelines on the application of paragraph 3 of Article 81 of the Treaty continued to be overly influenced by such more formalistic methodology of a necessary differentiation of the levels for considering restrictive and procompetitive elements. The progressive deepening of certain dimensions of analysis of joint ventures under EU competition law should, in my view, help to correct that methodological approach. 481 See the 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.34(f). As stated, ‘in general, the shorter the duration [of the collaboration], the more likely participants are to compete against each other and their collaboration’. 480

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especially if the cooperation processes at stake do not assume an exclusive nature. In close connection with this factor, I also consider another very important aspect outlined in those 2000 Guidelines,482 which is the relative size of the financial interests involved of each participating undertaking within the joint ventures they have created. As is to be expected, a shorter duration of a certain joint venture will also imply a greater limitation, on a medium term perspective, of the volume of financial interests that each founding undertaking will tend to associate with this joint venture.483 4.4.3.5 Different Functioning Levels Covered by Commercialization Joint Ventures between Competing Parent Undertakings As regards the variable layout of cooperation programmes developed through commercialization joint ventures, another relevant aspect to the assessment of the impact of these entities on the competition process should be analyzed in greater detail. I refer to the possibility of creating such ventures between competitors (either effective or potential competitors),484 but having as a goal, specifically, either the commercialization of complementary products supplied by these undertakings (products which are part of closely related markets or neighbouring markets, but which do not appear within very same product market), or solely performing the commercialization of products by one of the parent undertakings at stake. The first type of situation may be considered as not falling normally (or in a significant number of cases) under the prohibition set forth in article 101, paragraph 1 TFEU—as the Commission seems to acknowledge485—unless, depending on the actual operating conditions of the markets at stake, or on the high degree of market power of the parties, the occurrence of restrictive spillover effects in related or neighbouring markets may occur (spillover effects in a narrow sense, as per the definition outlined above).486,487 The second type of situation above described may, prima facie, appear to be a less probable form of cooperation in business practice, but experience shows that, in many cases,

482

See the 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.34(c). In my opinion, it is also important to add to the set of four analytical factors I have highlighted above (at 4.4.3.2 of this chapter—from the six factors originally listed in the 2000 Antitrust Guidelines for Collaborations among Competitors, para 3.34—the factor corresponding to the layout of organization, governance or operation of joint ventures. Actually, this factor underlies several of the analytical parameters I have been considering here, especially that regarding the scrutiny of the need to extend the cooperation developed through commercialization joint ventures to certain particular areas (most importantly concerning the inclusion, or not, in the notion of commercialization covered by the joint ventures of joint price setting mechanisms). 484 I have previously mentioned, at 4.1 and 4.2 of this chapter, that my analytical perspective of competition issues associated with joint commercialization processes through joint ventures is almost exclusively focused upon activities of competing undertakings or of entities which, from an horizontal perspective, are in a relatively comparable situation. 485 As precedents concerning situations which present some of the above features, regarding not only favourable decisions based on the application of article 101, para 1 TFEU, but also exemption decisions under para 3 of that provision, see, inter alia, Carbon Gas Technologie [1983] OJ L376/17, or BBC Brown Boveri (n 182). 486 Spillover effects in a narrow sense, as distinguished from spillover effects in a broad sense, along the lines I have described above, at 2.3.5.2(E) of this chapter. 487 It should be kept in mind, in this regard, the situation considered in Wild & Leitz (n 394), in which, curiously, the Commission, in a somehow flawed manner, failed to adequately weigh the possible spillover effects in the narrow sense considered above (in this situation the participating undertakings were competitors in the geographical market to which their joint commercialization agreements referred, but these arrangements concerned products related to the market products in which the undertakings at stake kept a direct competition relationship between themselves). 483

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joint ventures are indeed created in these conditions. Such cases are often associated with the entry of new undertakings in certain markets and may, in such contexts and under certain circumstances, result in serious restrictions to potential competition between the parties. I am thinking here, in particular—especially in the EU context—of situations concerning entry into new geographical markets of certain undertakings, which, for that purpose, conclude agreements for the creation of joint ventures with other undertakings already active in these markets and which are limited to the distribution of products supplied by the former entities. In reality, even if such undertakings were able to enter, independently, those new geographical markets, the commercialization joint ventures created in the context above described above might, on the one hand, represent a way to reduce uncertainty and costs associated with such entry, and, on the other hand and with different consequences, such entities might constitute an effective way for undertakings already established, to place conditions from the outset on the activity of a new competitor—thus limiting or containing, in predictable terms and under a foreseeable framework for its operation, the competitive pressure that would result from the entry of this new competitor into the geographical market at stake (that was going to happen in any case in the short or medium term).488 4.4.3.6 Joint Commercialization Programmes and the Functioning of Network Systems in the Financial Sector 4.4.3.6(A) Typical Situations in the Financial Sector—The Payment Cards Sector When considering how the specific layout of the essential elements that structure certain functional programmes of cooperation programmes in the field of commercialization tend to impact on competition, special attention should be paid to the particular features which are inherent in certain types of activities that, by definition, operate within network systems and which require, as such, a certain measure of cooperation.489 As I have already noted,490 some situations concerning the operation of the financial system491 illustrate, in terms that may be regarded as paradigmatic, this type of feature.

488 As regards situations with these or similar characteristics, see Langenscheidt/Hachette [1981] OJ L39/25 or Amersham Buchler [1982] OJ L314/34, in which the Commission recognized issues of distortion of competition in terms of the application of article 101, para 1 TFEU, whilst contemplating exemptions under para 3 of the same provision (in those cases, the Commission may have failed to sufficiently weigh the limited market power of the involved undertakings and the existence of conditions of reasonably strong competition in order to gauge the possibility of a favourable assessment of those situations within article 101, para 1 TFEU). 489 On the specific nature of the competition issues—especially regarding commercialization activities— inherent in these types of activities included in what some US authors tends to qualify as ‘network industries’, see William Baumol and Janusz Ordover, ‘Antitrust. Source of Dynamic and Static Inefficiencies?’ in Thomas Jorde and David Teece (eds), Antitrust, Innovation and Competitiveness (Oxford, Oxford Universiy Press, 1992) 82ff. See, also, for a general theoretical perspective on the so called ‘network effects’, the studies in ‘Symposium on Network Externalities’ (1994) JEP 8ff. 490 See above, 4.1 and 4.2 of this chapter (referring to commercialization joint ventures), where I stressed, from the outset, certain peculiarities of the network operation of the financial sector. See also the references to the specific nature of the functioning of the financial sector and its impact in terms of the competition law framework, above in the Introduction and in ch 2, section 1 and 2.4.3(B). 491 I refer here to the financial system in its broadest sense, including its various sub-sectors, particularly those relating to banking, insurance and pension funds, the operation of stock markets in general, and all processes of financial intermediation subject to specific regulation and supervision. On this broader concept of the financial system, see, inter alia, Colin Mayer and Damien Neven, ‘European Financial Regulation. A Framework for Policy Analysis’ in Alberto Giovannini and Colin Mayer (eds), European Financial Integration (Cambridge, Cambridge

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Moreover, in the context of the overall functioning of the financial system, the so called payment card systems,492 whose exponential development in recent times is closely linked to the proliferation of the use of electronic means of payment for carrying out financial transactions,493 constitute rather unusual cases, posing specific issues in terms of enforcement of competition rules, particularly in this area that I have been discussing on cooperation in the field of commercialization of goods and services (through joint ventures or very similar processes). This unique nature refers to the particular requirements of network operation of these payment cards systems, which depend on some degree of cooperation between the undertakings which are part of the networks at stake. Notwithstanding this intrinsic cooperation requirement, the major issues to be considered in this area concern the identification of the appropriate balances between these cooperation elements and the minimum requirements for preserving effective competition in the context of the operation of payment systems. This legal and economic debate, with the highest relevance for the treatment of commercialization joint ventures, has for some time, been largely developed by US antitrust doctrine in terms that are not yet totally matched under EU competition law (although enforcement of EU competition rules has been considerably focused on this area recently, producing new and important case law and foreseeable developments of paramount importance at EU level that are rapidly changing this comparative picture between the US and EU competition law systems).494 Moreover, in the context of the US antitrust system, this doctrinal discussion has been provoked by some judicial litigation that has given rise to some key precedents in this area, among which may be highlighted NaBanco and

University Press, 1991) 112ff. From a predominantly economic perspective, see Frederick Mishkin and Stanley Eakins, Financial Markets and Institutions (New Jersey, Prentice Hall, 2012) esp 8ff. 492 On the concept of payment card systems and on payment systems in general, see Bernard Shull and Lawrence White, ‘A Symposium on the Changes in Banking, with implications for Antitrust. Introduction’ (2000) AB 553ff, esp 573ff; Lawrence Radecki, ‘Bank’s Payments-Driven Revenue’ (1999) Economic Policy Review 53ff; Donald Baker, ‘Shared ATM Networks—The Antitrust Dimension’ (1996) AB 399ff; Maria Chiara Malaguti, The Payments System in the European Union—Law and Practice (London, Sweet & Maxwell, 1997). 493 On the importance of electronic communications in the transformation of this type of transaction, including its repercussions on the redefinition of boundaries of the various sub-sectors of the financial system, see, inter alia, Stephen Roades, ‘Competition and Bank Mergers: Directions for Analysis from Available Evidence’ (1996) AB 339ff; Brian Smith and Mark Ryan, ‘The Changing Nature of Antitrust Enforcement in Banking’s New Era’ (1996) AB 481ff. 494 The increase in the number of cases concerning the operation of payment card systems, as well as prospective new issues to be raised in this area by various economic entities, including by organizations representing retailers, and the current investigations launched by the Commission and several EU Member States’ competition authorities (as well as decisions at national level by these competition authorities—see, eg, the 20 September 2010 Interbank Fees decision of the French competition authority, overturned by the Paris Court of Appeal, as mentioned, inter alia, by Christophe Lemaire, ‘Object vs. Effect After the Modernization of EU Law: What Has (Or Should Have) Changed?’ (2012) Concurrences 2, Colloque NFA, 67ff, esp 70) is, anyway, rapidly closing this gap with the US antitrust system as regards the legal and economic evaluation of these issues. In spite of the relative doctrinal omission (quickly changing), and following a perspective predominantly influenced by the application of EU competition rules, with relevant cases over the latest decade, see, inter alia, Jean Tirole and JC Rochet, ‘Competition among Competitors: The Economics of Credit Card Networks’, CEPR Discussion Paper, 1999; Jean Tirole and JC Rochet, ‘Must Take Cards: Merchant Discounts and Avoided Costs’, Toulouse School of Economics, 2008; W Bolt and S Chakravorti, ‘Economics of Payment Cards: A Status Report’, De Nederlandsche Bank (DNB) Working Paper No 193, December 2008; M Bergman, Gabriela Guibourg and Björn Segendorf, ‘The Costs of Paying—Private and Social Costs of Cash and Card Payments’, Sveriges Riksbank Working Paper Series, No 212, September 2007.

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MountainWest,495 while in the EU, case law has developed more slowly, although there have been important recent cases likely to foster new developments, such as the GC ruling in Mastercard.496 In those US cases, various objections were raised regarding the inter-bank multilateral fees charged by banks issuing payment cards integrated in the Visa network (Visa International Service Association)—a company formed by a large number of members which are financial institutions established in various markets, that operates the card system network bearing the same name—as well as questions concerning the establishment of rules for access to this type of organization, operating card network systems, and the possible market foreclosure effects affecting third undertakings. As noted in my initial characterization of the various subtypes of commercialization joint ventures, some entities that, strictly speaking, do not always qualify as joint ventures, may raise similar problems,497 albeit with some specific issues related to the operation of markets based on network organizations. The entities which manage networks of payment systems within the financial system—such as, among others, the Visa company, involved in the litigation outlined above in the context of the US antitrust system—represent, perhaps, the most typical cases in these situations. The characterization of some of these collective legal entities as joint ventures under competition law may often prove problematic, especially due to the large number of companies that they include and which hardly fit into the definition of a structure of joint control, in a narrow sense, which is typical of joint ventures498 (something that does not, however, prevent several US authors, in a rather loose way, from generally qualifying those entities as joint ventures).499 However, the functioning of these structures often raises competition law issues similar to those associated with joint ventures in a strict or proper sense, and they also involve certain levels of entrepreneurial integration that justify this parallel with joint ventures. In fact, in multiple legal entities that manage payment card systems various relevant elements of integration concur, associated with the development of a common image vis a vis consumers of financial services and with the creation of some organizational infrastructures that perform some coordination functions within such systems (thus justifying the

495 See these fundamental precedents—National Bancard Corp (NaBanco) v VISA USA, Inc 596 F.Supp. 1231 (SD Fla 1984), aff ’d, 779 F.2d 592 (11th Cir), cert denied, 478 US 923 (1986) and SCFC ILC, Inc, d/b/a MountainWest Financial v VISA USA, Inc 819 F.Supp. 956 (D Utah 1993) aff ’d in part and ver’d in part, No 93-4105, 1994 US App LEXIS 26849 (10th Cir, 23 September 1994). 496 See Case T-111/08 Mastercard (GC, 24 May 2012) (under appeal to the CJEU, [2012] OJ C319/4 and thus likely to lead to new developments in this field). 497 On that parallelism, or even, in certain cases, on the similarity of the competition law issues at stake, see, above, 4.1 esp. 4.1.4, of this chapter. 498 See the considerations outlined above, ch 1, esp 1.1 and section 4, on the definition of joint ventures under competition law. It was emphasized that the essential element of such a definition is that it corresponds to a true joint control structure—with clearly defined co-owners of that control—in order to define the competition law category of joint ventures, in a manner which is difficult to reconcile with mass structures of hundreds of members holding a position in the capital of the legal entities considered above. 499 See, eg, Carlton and Frankel, ‘The Antitrust Economics of Credit Card Networks’ (n 413) 643ff. Other authors in the context of US antitrust doctrine, such as David Evans and Richard Schmalensee, have adopted more moderate positions, recognizing that they use the qualification of joint ventures in the broadest sense, and acknowledging that some of the entities at stake are not, strictly speaking, joint ventures (see Evans and Schmalensee, ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (n 413) esp 862, where it is stated that ‘strictly speaking, Visa and Mastercard are not joint ventures. As an economic matter, however, these associations raise the same sorts of antitrust issues as do joint ventures…. We will use the term “joint ventures” to include all entities that share this property’).

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parallel with joint venture structures). In particular, I consider that some of these collective entities—whether they qualify as joint ventures or (more probably) entities which are to some extent in a comparable legal position—illustrate, in a paradigmatic manner, some types of potential market foreclosure effects that may, in principle, be associated with commercialization joint ventures. In reality, although I attach a relatively lesser degree of importance to this type of risks, in general terms, in the context of commercialization joint ventures—and by comparison to what has been observed on other functional subcategories of joint ventures500—have also duly remarked that those risks could be found to be particularly associated with specific situations of commercialization arrangements, concerning markets organized in networks. Those situations correspond to a large extent, to the collective entities involved in the management of networks of payment cards. 4.4.3.6(B) Intrinsic Elements of Cooperation in the Functioning of Payment Cards Systems Typically, the main features of payment cards systems in the financial sectors of developed markets such as those of US and the EU are similar to those that were discussed in Nabanco and MountainWest. Such systems rely on the formation of collective entities made up of a large number of associated financial institutions (especially banking institutions), that provide a network service—which more or less corresponds to the provision of commercialization services— involving the assurance given to holders of payment cards issued by any of the participating institutions, that these cards will be accepted for making payments in multiple transactions by a significant number of commercial undertakings. These card holders, through the agreements entered into with such systems, are guaranteed payment from the financial members of that same payments system, as regards any expenses incurred through the use of the cards. These organized network systems require a complex interaction of various categories of economic agents, including, namely, card issuers, cardholders, commercial undertakings (merchant entities) accepting cards for payment of goods or services provided thereby, acquirer entities that ensure the completion of payments to such commercial undertakings and the system itself, which ensures some coordination functions.501 Among these 500

See above, 4.3.1 and 4.3.2 of this chapter. Some analyses suggest the involvement, as a rule, of four categories of participants in the most common payment cards systems. See Don Cruickshank, ‘Competition in UK Banking—A Report to the Chancellor of the Exchequer’ UK, 2000. As stated there, concerning some of the more significant payment card systems, ‘Visa, Switch and Mastercard all operate four party payment schemes. Any card transaction made through one of these schemes involver four main participants. These are: the customer, who makes a payment using the card; the card issuer, who supplies the card to the customer and operates the account from which payment is made; the retailer (or “merchant”) who exchanges goods or services for the customer’s card details and consent to make the payment; the merchant acquirer, who recruits retailers to the scheme, reimburses the retailer and obtains funds from the card issuer’ (at 251–52). There are, however, various other formulations for these systems, with a variable number of interdependent parts. The distinction which is perhaps the most relevant is the one established between ‘closed’ systems, consisting basically of a single entity that issues cards and processes transactions for merchants (eg, American Express) and systems that correspond to associations of financial institutions—especially banks— involving their participation in a more or less open fashion, such as, eg, Visa, MasterCard or regional networks of ATMs in the US (with these latter systems in which the associations do not directly seek profit, which is essentially pursued by the financial institutions that integrate them being the ones that raise the most relevant competition law issues). See, on these aspects, Howard Chang and David Evans, ‘The Competitive Effects of the Collective Setting of Intercharge Fees by Payment Card Systems’ (2000) AB 641ff, esp 645–647. 501

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general coordination functions affecting the positioning of the other four categories of entities that ‘integrate’ the system, are comprised functions of promotion of the image of the system—or of the brand itself, representing the system—through advertising and other means. The organization of this type of structure endows it with unique features, given the set of interconnections existing between the various participants operating in it. Hence, there is ground to consider within these schemes a joint demand for commercialization services, supported by the systems in question, on the part of various undertakings adhering to it and on the part of the holders of cards issued under the same systems. Furthermore, in connection with this joint demand there is a dynamic and reciprocal effect of expansion of the two levels in which that demand may be divided, according to the expansion of the network in itself. Thus, pursuant to that effect, the value of these commercialization services will increase, from the cardholders’ perspective, on account of the increase of commercial undertakings (merchants) joining the system and, in the latter’s view, that value will increase, in reciprocal terms, depending on the growing number of cardholders (this corresponds to what may be called, following the terminology used by authors such as Michael Katz and Carl Shapiro, as dynamic network effect).502 The existence of the type of joint demand, consisting of interdependent levels, as depicted above, as well as of significant network effects, creates complex coordination problems that have purportedly been addressed through certain rules and procedures of collaboration within the various payment card systems. I refer here to rules and collaboration procedures, which, with some variants, are common to the various competing systems, such as, for example, the obligation imposed on commercial participants of accepting all cards issued under each system, the coordination of positions and activities of commercial undertakings (merchants) and cardholders, which also includes, in the context of decentralized systems, the gauging of the positions of issuer and acquirer banks—through the coordinated setting of multilateral interchange fees503—or the setting of rules for access to the system by financial institutions.504 In this context, although these systems operate within a framework of competitive relationships—and being considered as such, particularly by the US and EU competition authorities—these are combined, within a delicate balance that must be established at any given moment, with a set of cooperation elements which intrinsically characterize the operation of such systems. These competitive elements actually unfold at two distinct levels. We may, in fact, identify (i) a first level of competition between systems—between

502

See Michael Katz and Carl Shapiro, ‘Systems Competition and Network Effects’ (Spring, 1994) JEP 93ff. As Howard Chang and David Evans mention, these fees or other charges determine the extent to which the card issuer and the acquirer entity share the joint costs and benefits resulting from decisions of cardholders to use it with any merchant entity that accepts the card. See Chang and Evans, ‘The Competitive Effects of the Collective Setting of Intercharge Fees by Payment Card Systems’ (n 501) 653. See also the characterization of these multilateral fees that was given in the Commission’s decisions Case COMP/29.373 Visa International [2001] OJ L293/24, para 2, fn 4, and in the more recent decision Case COMP/29.373 Visa International [2002] OJ L318/17. As stated there, ‘the multilateral bank fee is a fee charged per paid payment transaction, in accordance with the rules of the Visa network, among the two banks involved in the Visa payment card system. Currently, it is the merchant the bank responsible for making the payment to the cardholder’s bank’. 504 This listing of collaboration rules and procedures within the context of payment card systems is not exhaustive. For a further, and more specific, characterization of the subject, see William Baxter, ‘Bank Interchange of Transactional Paper: Legal and Economic Perspectives’ (1983) JL & Econ 541ff; Chang and Evans, ‘The Competitive Effects of the Collective Setting of Intercharge Fees by Payment Card Systems’ (n 501) 641ff. 503

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cards of different brands, supported by different legal entities (identical, or very similar, to commercialization joint ventures, as the case may be)—and (ii) a second level of intrasystem competition (competitive relationships that are developed within each system of payment cards, especially between the various financial institutions involved, whether as issuers of cards or as acquirer entities that liaise with commercial undertakings or merchant entities).505 Within these complex competition structures, it is therefore extremely difficult to identify the limits which should be imposed on the cooperation elements which are intrinsically present in payment card systems. As happens generally with commercialization joint ventures—although the inevitable specifics of the operation of these network organizations have to be taken into account— the elements of cooperation that prove more restrictive of competition should only be accepted on the basis of their proven need for the balanced operation of the systems at stake and in the face of a lack of alternative coordination elements deemed less restrictive of competition.506 4.4.3.6(C) Cooperation Levels Compatible with Safeguarding Effective Competition as Regards the Functioning of Structures of Undertakings which Manage Payment Cards Systems The two key judicial precedents in the US antitrust system referred to above, as well as subsequent case law developments, influenced the development of dissenting doctrinal trends, which have debated the critical levels at which some limits should be set as regards the presence of cooperation elements, in order to safeguard effective competition at the relevant levels that it takes place (along the lines already briefly mentioned). Simplifying the issue somewhat, two divergent background positions may be identified. One of these tends to view as excessive certain cooperation mechanisms recurrent in several collective entities (or, alternatively, actual joint ventures) which manage payment card systems, namely those pertaining to collective decisions setting multilateral inter-bank fees and determining the criteria for selection of the members of the system. According to this approach which is strongly averse to such cooperation elements, these may lead to inappropriate forms of exercise of a genuine collective market power by the entities that manage and coordinate such systems. Authors such as Dennis Carlton and Alan Frankel have upheld this perspective, which is strongly critical of the overall content of

505 These acquirer entities are also banks that enter into agreements with merchants for accepting the payment cards at stake and that—at least in a significant number of payment cards systems—pay to an issuer bank (which issues the cards for consumers) a reimbursement inter-bank fee for each transaction carried out using the card. Within the internal operation of each system, and as will be further observed, the existence of agreements for setting at a central level that inter-bank fee—then applicable to most intra-system transactions as a multilateral bank fee—raises potential issues of distortion of competition, whose justification must be assessed taking into consideration the general features of the network associated with a given payment card. 506 Also to be borne in mind is a fundamental dimension of the analysis of commercialization joint ventures, dealt with above, in the sense of repudiating in general within the layout and operation of these entities, the potentially more competition restrictive elements or components—price setting mechanisms, joint sale, and so on, in descending order of seriousness—in the event they do not appear indispensable to the attainment of efficiencies sought through these entities. It is such scrutiny that should allow the establishment of an acceptable compromise between the aspects negatively affecting the competition process and the components of economic efficiency (see the analysis above, at 4.4.3 of this chapter.

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rulings of US higher courts in the two cases identified above507 (which considered as justified or acceptable elements, the cooperation mechanisms of the type identified above). Another fundamental approach in US antitrust doctrine, also taking as its starting point the judicial precedents cited above, seems more favourable to the presence, under certain circumstances, of some elements of cooperation in the payment card systems. Authors such as David Evans, Richard Schmalensee or Howard Chang,508 have considered both the setting of multilateral inter-bank fees by true organizations of competitors— being companies or other entities that manage and coordinate some of these payment cards systems509—and the collective adoption of rules for the selection of members participating in the system to be economically justified in light of the characteristics of these systems. These authors base their favourable position regarding this type of cooperation element on a rejection of the idea of any form of exercise of collective market power by the joint ventures or collective entities that manage different payment card systems. They emphasize, in particular, that such hypothetical collective market power by those managing entities should not be assumed on the basis of the aggregate market shares of the members of these systems (within a supposed context in which those entities would allegedly be able to raise prices through the very restrictions to the entry of other members into the system).510 These authors agree with the position adopted by the Court of Appeal in MountainWest, according to which one should not presume any restrictive effects on competition arising as such or almost automatically from the non-acceptance of new members into the system and associated with a supposedly collective market power. On the contrary a realistic economic test should be applied in these cases. This test should be aimed at ascertaining whether the exclusion of certain members might create conditions for the collective entity at stake to raise prices or decrease the supply of services. Specifically, in MountainWest, the entity at stake (Dean Witter), that challenged Visa’s refusal to allow it to participate in the Visa payment cards system, was not able to demonstrate that its exclusion from the Visa network would produce substantial impacts sufficient to induce changes in the prices of credit cards (that would be reflected in an undue strengthening of the market power of the members of the Visa system).511

507

See Carlton and Frankel, ‘The Antitrust Economics of Credit Card Networks (n 413) 643ff. See Evans and Schmalensee, ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (n 413), and Evans and Chang, in a more recent study, ‘The Competitive Effects of Collective Setting of Interchange Fees by Payment Card Systems’ (2000) AB 641ff. 509 The legal format and status of these entities have evolved over time, starting frequently with business associations with extremely light governing bodies or structures and evolving, in time, to an involvement with coordinating collective entities, of corporations or other types of personalized corporate entities. See on these evolutions of governing structures of payment cards organizations, inter alia, Patrick Rey and Jean Tirole, ‘Alignment of Interests and the Governance of Joint Ventures’, February, 2001; Robert S Pindyck, Governance, Issuance Restrictions and Competition in Payment Card Networks (Cambridge, MA, Massachusetts Institute of Technology, 2007). 510 See again Evans and Schmalensee, ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (n 413), and Evans and Chang, ‘The Competitive Effects of Collective Setting of Interchange Fees by Payment Card Systems’ (n 508). See also, Cruickshank, ‘Competition in UK Banking—A Report to the Chancellor of the Exchequer’ (n 501). 511 This demonstration would always be complex in the context of the market at stake, given the existence of a large number of members in the system with a reasonable margin for setting prices and quantities of transactions carried out and, moreover, in this case, Dean Witter apparently did not produce empirical evidence of previous comparable situations of entry of other members, with an economic relevance comparable to Dean Witter itself, and which might have produced certain effects on prices. See, on these issues, Evans and Schmalemsee, ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (n 413) esp 872–73. 508

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Under EU competition law, only more recently has enforcement practice focused upon cooperation issues related to payment card systems, albeit, as mentioned above, with highly significant developments in the last few years (which may be due, among other reasons, to the fact that, in the context of such enforcement the judicial dimension lacks the significance it has under US antitrust law, characterized in this latter case by private litigation initiatives, which often have led to the clarification of important competition law issues).512 Over the latest 15 years, various situations related to the operation of payment cards have been brought before the Commission, in particular the 1996 analysis of complaints submitted by American Express (Amex) and Dean Witter, Discover (DWD), concerning some aspects of the operation of the Visa network.513 Since then, several other cases involving this type of system have been brought—especially through complaints to the Commission—contributing to the development of some general trends in the approach taken in this particular field. As part of my brief final review of some selected precedents concerning the treatment of commercialization joint ventures (or closely comparable situations), I will make a brief critical reference to some cases assessed by the Commission in this area.514 Notwithstanding the gradual development of this enforcement practice, which, in essence, has not yet been subject to an in-depth judicial review,515 the treatment of these particular situations of functional layout of cooperation programmes—developed by joint ventures or collective entities with comparable features—aimed at the commercialization of certain financial services (mainly related to payment cards), is still incomplete in the EU context. Specifically, these cases have not yet led to a legal and economic discussion comparable to that which has taken place in the US antitrust system—which was briefly referred to above—and that covers either the peculiarities of the development of sui generis cooperation mechanisms in the context of the activities within the financial sector, developed on the basis on network organizations, or the assessment of the market power that may, or may not, be exercised by collective entities bringing together a large number of financial institutions (as it happens in payment cards networks).516

512 However, it is certain this aspect will undergo changes—although these will be necessarily gradual, in my view—in the course of modernization and decentralization of the application of EU competition law. Moreover, situations concerning the operation of payment cards systems, which I have been mentioning in the context of the US antitrust system, were essentially associated with private litigation initiatives in the courts (in a context rather different from the EU competition law system, in spite of the recent although protracted efforts of the European Commission to foster private enforcement of competition law at EU level; on the issues pertaining to the interplay between private and public enforcement and on the prospects of development of private enforcement of competition law in the EU, see Luis Silva Morais, ‘Integrating Public and Private Enforcement of Competition Law— Implications for Courts and Agencies’ to appear in Philip Lowe and Mel Marquis (eds), European Competition Law Annual 2011 (Oxford, Hart Publishing, forthcoming 2013)). 513 See on these cases, as reviewed by the Commission, ‘Twenty-Sixth Report on Competition Policy’, esp point 140. 514 See below, 4.4.5 of this chapter, esp 4.4.5.4, in which some relevant precedents covering these problems are discussed. 515 A situation which is decisively changing, mainly as a result of the GC’s Mastercard ruling (n 496), which, as previously noted, is under appeal to the CJEU ([2012] OJ C-319/4). However, the prospect of a true and more thorough judicial clarification of these issues comparable to that existing under US antitrust law (and highlighted above) is still some way away. 516 This analysis of market power, whether associated or not with this type of collective entity, as well as of the market power as a rule associated with the operation of some types of joint ventures is, in fact, essential, and its absence in EU competition law doctrine is a serious shortcoming. On this type of analysis in the context of the US system, usually associated with the so called network effects, see, inter alia (besides the studies by

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4.4.3.6(D) General Perspective on the Critical Thresholds as Regards Cooperation of Undertakings Covering Commercialization Activities in the Financial Sector It is important, moreover, to recognize that this doctrinal gap or omission exists not only with regard to the treatment, at the level of EU competition law, of payment card systems—which, in my view, should be associated with the analysis of commercialization joint ventures—but also, in general, as regards the analysis of possible particular issues in applying competition rules to financial institutions.517 In fact, as is widely known, following the developments triggered by the financial crises experienced during the Great Depression, which led, both in the US and in Western Europe, to a profound regulatory intervention of an administrative nature—considerably averse to the application of competition principles in the financial area—and to a clear segmentation, at the geographical and substantive level (concerning types of financial products and services), of the activities of the various sub-sectors of the financial system, the last quarter of the twentieth century was characterized by a drastic transformation of the operation of this system.518 This transformation involved the gradual development of financial conglomerates, able to pursue multiple financial activities that intermingle with each other, a profound liberalization of the sector—characterized not only by the removal of restrictions on the exercise of activities in various segments according to strict specialization parameters, but also by the relaxation of prudential control mechanisms of an administrative nature—and, finally, the gradual de jure and de facto fostering of the application of competition law standards and principles in all areas of the financial sector519 (of course, this regulatory overhaul of the 1990s may be globally under review following the 2007–09 financial sector crisis).520

Carlton and Frankel, ‘The Antitrust Economics of Credit Card Networks’ (n 413) and Evans and Schmalensee, ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (n 413)), Michael Katz and Carl Shapiro, ‘Systems Competition and Network Effects’ (1994) JEP 93ff; Howard Chang et al, ‘Some Economic Principles for Guiding Antitrust Policy Towards Joint Ventures’ (1998) Col Bus L Rev 223ff; and Nicholas Economides and Steven Salop, ‘Competition and Integration among Complements and Network Market Structure’ (1992) J Ind Ec 105ff. 517 See, on this issue, Luc Gyselen, ‘EU Antitrust Law in the Area of Financial Services—Capita Selecta for the Cautious Shaping of a Policy’ in Annual Proceedings of the Fordham Corporate Law Institute—International Antitrust Law & Policy—1996 (Barry Hawk (ed), Fordham Corporate Law Institute, Juris Publishing, Inc, 1997) 329ff and Henri Piffaut and Charles Williams, ‘Financial Services’ in Jonathan Faull and Ali Nikpay (eds), The EC Law of Competition (New York, Oxford, Oxford University Press, 2007) 635ff. 518 On those considerable transformations of the financial sector operating conditions—with repercussions for the intensity of application of competition principles to the same sector—see, inter alia, Günther Franke, ‘Transformation of Banks and Bank Services’ (1998) JITE 109ff; Smith and Ryan, ‘The Changing Nature of Antitrust Enforcement in Banking’s New Era’ (n 493) 481ff; and Lawrence White, ‘Banking, Mergers and Antitrust: Historical Perspectives and the Research Tasks Ahead’ (1996) AB 323ff. 519 On that rather complex process see again, Franke, ‘Transformation of Banks and Bank Services (n 518). As this author states, ‘transformation of banks has gained much pace. The last two decades have witnessed a flood of innovations in financial instruments forcing banks to develop and learn new financial technologies …. Liberalization of markets has forced the universal banks into the new financial instruments in order to compete with foreign banks. The rapid progress in information technology has also intensified competition among banks’ (at 131–32). See also MO Bettzüge and T Hens, ‘An Evolutionary Approach to Financial Innovation’, Discussion Paper, University of Bonn, 1997; R Smith, and I Walter, Global Banking (Oxford, Oxford University Press, 1997). 520 See, in general on this financial crisis and on its repercussions in terms of regulatory reform of the financial sector, Rosa Lastra and Geoffrey Wood, ‘The Crisis of 2007–2009, Nature, Causes and Reactions’ (2010) Journal of Int Economic Law 531ff; Rosa Lastra and Luis Garicano, ‘Towards a New Architecture for Financial Stability’ (2010) Journal of Int Economic Law 597ff; Arnoud Boot and AV Thakor, ‘The Accelerating Integration of Banks

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As is known, even in terms of monetary policy, new market elements have gradually been introduced—to some extent justifying the application of competition rules—in order to ‘regulate’ the system’s liquidity levels.521 In the context of EU competition law, and following the landmark CJEU rulings in Züchner and Verband der Sacheversicherer—dealing, respectively, with the banking and insurance sectors522—clear jurisprudential guidance was established acknowledging the principle of full application of articles 101 and 102 TFEU to financial sector activities. In those cases, the CJEU rejected arguments concerning the alleged ‘destructive’ nature of competition—that would be prone to raise insolvency risks—for the operation of these sub-sectors of the financial system. It also rejected any arguments in favour of a supposed need for a special framework in this area, due to the systemic component of financial activity (which would rely on cooperation among participants in the financial system). This judicial recognition of the overall subjection of the sector to the competition legal framework was followed in next three decades by a gradual effective intervention by the competition authority (the Commission) in the financial sector (although this intervention has not always resulted in the consistency that would be desirable, nor has it yet fostered, in my view, the development of true hermeneutic general parameters that would ensure greater predictability in the Commission’s findings on the application of competition rules to the financial sector).523 Conversely, the theoretical analysis that has still largely to be made within the process of enforcement of EU competition law—and within a context of interaction with areas of EU economic law concerning the regulation for financial activity currently under reform524— has to do with ascertaining the very limits of the application of rules and principles of competition law to the functioning of the financial sector. The recognition of the subjection of this system to competition law cannot, however, preclude a critical perception of certain elements of cooperation intrinsically linked to

and Markets and Its Implications for Regulation’ in A Berger, P Molyneux and J Wilson (eds), The Oxford Handbook of Banking (Oxford, Oxford University Press, 2009) 58ff. 521 On this gradual introduction of market mechanisms which, as such, justify the application of competition rules in the area of monetary policy and its possible repercussions, see, inter alia, I Angeloni, A Kashyap, B Mojon and D Terlizesse, ‘Monetary Transmission in the Euro Area: Where do We Stand?’, ECB Working Paper No 114, 2002; B Mojon, ‘Financial Structure and the Interest Channel of the ECB Monetary Police’, ECB Working Paper No 40, 2000. 522 See Case 172/80 Züchner and Case 45/86 Verband der Sacheversicherer. We will not address this issue in any detail here but see on these issues, Piffaut and Williams, ‘Financial Services’ (n 517) 636ff. 523 See J Bikker and H Groeneveld, ‘Competition and Concentration in the EU Banking Industry’ (2000) Kredit-und-Kapital 62ff; Fernando Pombo, ‘EU Antitrust Law in the Area of Financial Services’ in International Antitrust Law & Policy—Annual Proceedings of the Fordham Corporate Law Institute—1996 (Barry Hawk (ed), Juris Publishing, 1997) 395ff. This author emphasizes the absence of relatively stable consolidated general parameters in this area. As he states, ‘since that judgment [Züchner], the European Commission has developed a doctrine on the assessment of banking agreements under competition law considerations which has given way to certain controversial discussions’ (at 395). 524 On this interaction of EU competition law rules and EU economic law relating to the financial system, see, inter alia, Maria Chiara Malaguti, ‘A New Approach to Interbanking Co-operation—The Application of EC Competition Rules to the Payments Market’, CEPS Research Report No 18 (1996) and Martin Tomasi, La Concurrence sur les Marchés Financiers—Aspects Juridiques (Paris, Librairie Générale de Droit et Jurisprudence, 2002). See also the study by the Bank of Italy, ‘La Tutela della Concorrenza nel Settore del Credito’, September 1992, in which it was expressly advocated that the implementation of the legal principle of competition in the banking sector should be guided by specific economic assumptions, different to many of those which are considered in relation to most markets.

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certain categories of activities in the financial sector. In various sub-sectors of the financial system, participant institutions inevitably develop between themselves—due to the features of their activities—processes that imply interaction between variable components of enterprise cooperation. The case of the operation of payment card systems—highlighted here, in the context of the assessment of commercialization joint ventures—is perhaps one of the most typical in this respect, but the complex issues of compatibility of cooperation elements with the essential foundations of the competition process that these systems pose are also present in other areas of financial activity (we may consider here, for example, the need (raised by certain financial transactions) to act through bank syndication agreements, or the development of organized markets between undertakings, based on electronic communications and relying upon cooperation arrangements between financial groups and other groups of undertakings, such as those in the areas of telecommunications or energy).525 However, the legal and economic discussion of the cooperation elements, which might be justifiable in the context of the operation of diverse activities in the various sub-sectors of the financial system—with emphasis on cooperation in the field of commercialization activities—and of the manner of combining such elements with the competition law monitoring of the exercise of certain forms of market power by financial institutions is still deeply flawed, both at the level of academic research and of intervention of competition authorities (unlike what we may observe in the US legal system). In my view, the gradual development of a critical analysis of aspects concerning the operation of payment cards systems (to which I shall refer, below, at 4.4.5, in the context of my assessment of some significant precedents related to commercialization joint ventures or comparable situations), together with other aspects, would make a major contribution towards a fundamental and necessary transition to a new stage of legal thinking in this sensitive area.

4.4.4 Complementary Levels of Analysis of Commercialization Joint Ventures The comprehensive analysis undertaken here concerning the assessment of the potential repercussions on the competition process specifically related to the particular functional layout of each cooperation programme in the various commercialization joint ventures has led (in the preceding sections) to complementary analytical elements—based on my global

525 On the first type of situation mentioned and its legal and economic context, see Youmna Zein, Les Pools Bancaires—Aspects Juridiques (Paris, Economica, 1998). On the development of organized markets among enterprises, based on electronic communications and on the experience gained in the competition law assessment in these situations, see Elodie Clerc, ‘Commission Clears the Creation of Three B2B Marketplaces: “Covisint”, “Eutilia” and “Endorsia”’ Competition Policy Newsletter, February 2002, 53ff. As stated there, ‘B2B marketplaces are Internet-based electronic fora designed to allow business-to-business communications and transactions. Participants can include suppliers, distributors, providers of business services, infrastructure providers and their customers.’ See also on the subject, Femi Alese, ‘B2B Exchanges and EC Competition Law: 2B or not 2B?’ (2001) ECLR 325ff. There have also been many cases involving financial institutions—within very diverse structures—in the operation of this type of organized market, considering their expertise and profile in intermediation activities (in these cases, joint ventures tend to be ideal vehicles for the organization of these forms of association of financial institutions with other entities in the context of true organized networks, whose efficiency increases with the growth in the number of members). In addition, the cooperation of financial institutions with entities from other sectors, eg, in the electronic communications sector, has responded to the development of new markets through the launching of new services by combining different types of know-how (we may consider, eg. in the context of many cases in the EU, the 2000 alliance between Banco Bilbao Vizcaya Argentaria and Telefonica in Spain, for the development of online banking and electronic commerce services).

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model for the assessment of joint ventures—which interact with the essential assessment parameters that I have been describing. Within this set of complementary analytical factors—to which reference can be made to the presentation of my global assessment model of joint ventures and to the assessment of the other functional types of joint ventures (already depicted above)526 one should highlight, first, the weighing of the concentration levels of the affected markets, and second, the degree of openness of these markets to the entry of potential competitors. One point regarding the relevance of these complementary analytical factors which may apply particularly to the assessment of commercialization joint ventures, is the especially important role that may be assigned to the weighing of the degree of concentration of markets. Indeed, a high level of concentration of the potentially affected markets may, in conjunction with the existence of significant aggregate market shares of participating undertakings, reinforce the negative repercussions of such joint ventures on the competition process—especially when cooperation elements deemed to be more intrinsically disruptive of competition, such as the coordinated setting of prices or joint sale of goods or services, might be at play. The combination of these elements with more direct structural factors—high market share of participating undertakings and high degree of concentration of the market—may under certain circumstances, render virtually impossible, in terms of overall balance, any justification for adverse effects on competition based on economic efficiency elements generated by joint ventures. From a rather different perspective, the weighing of the degree of concentration of the market can be particularly important in order to assess specific situations—that I have already taken into consideration—in which joint ventures, whilst eliminating or seriously limiting competition between the participating undertakings, may favourably change the structure of competition, increasing competitive pressure on larger operators in the markets at stake. In those kinds of contexts, the assessment of the degree of concentration of the market will tend to represent a decisive factor for an eventual favourable analysis of certain commercialization joint ventures; it must however be ensured that the strengthening of the position of competing undertakings with less market power in these cases is not made on the basis of the possible creation of any form of unduly collective market power.

4.4.5 Critical Analysis of Relevant Case Law in the Field of Commercialization Joint Ventures and Related Situations 4.4.5.1 Astra In the context of my specific assessment of the main competition issues raised by commercialization joint ventures, I have commented on several significant precedents in this area. However, it is pertinent again here to critically comment on a selected set of cases that may be especially representative of the hermeneutical approaches or trends in this area.527

526 See, on the consideration of such complementary analytical factors in the context of the assessment of other functional subcategories of joint ventures, above, 2.3.5.3(B) and 3.3.5.3 in this chapter. 527 The succinct commentary on these selected cases is justified by its purpose, which is merely to identify some key specific issues of the competition law assessment of commercialization joint ventures, without repeating matters already examined in relation to other functional types of cooperation.

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The Commission’s decision in Astra528 is clearly one of those cases. In that decision, the Commission analyzed the creation of a mixed type joint venture, but with a fundamental commercialization component between the British Telecom Group (BT), which operated mainly in the telecommunications sector, and SES, a Luxembourg company which employed satellites for communication services (including the provision of international television services). The prospective clients for the signals received and amplified through SES’s new satellite (‘Astra IA’), through the so called ‘transponders’, would be Englishspeaking television channels, so SES decided to establish a joint venture with BT, to which most of these ‘transponders’ would be attributed. The purpose of this joint venture would be to offer operators of television programmes, broadcasting from the United Kingdom, a global satellite transmission service, and to incentivize the direct domestic reception of television broadcasting signals transmitted by satellite. In accordance with the commercialization programme to be carried out through this joint venture, each party would focus predominantly on certain segments of trade (BT would act primarily in the commercialization of the facilities—finding prospective television customers for the service offered—and SES would concentrate on retail marketing, concerning the end user receiver equipment and the receiver equipment industry). The Commission held that this joint venture and the system of agreements that it comprised529 would fall within the prohibition set out in article 101, paragraph 1 TFEU, to the extent that it would determine a restriction of competition on the markets for the supply of satellite transponder capacity for the distribution of television channels and uplink services to satellites (in particular, in the first of those markets, in which the participating undertakings were competitors and held important positions). This competitor relationship, directly affected by the agreements, was essential to the Commission’s unfavourable opinion. Indeed, the Commission rejected the parties’ arguments that they would not be competitors (specifically, the Commission downplayed the claim by the parties that BT did not actually own any space segment capacity offered to customers, since, through various agreements concerning the operation of satellites, BT would then be providing more TV distribution services by satellite than any other European telecommunications organization). In its negative assessment of the agreements, the Commission emphasized in particular the facts that, first, through these agreements, SES had not independently entered the market segment concerning channels broadcasting from the United Kingdom, but rather had sought the cooperation of a direct competitor, and, second, that several provisions of the agreements in question would potentially determine the harmonization of the conditions of use of the new satellite’s transponder capabilities (exploited through the joint venture, and of all other satellites in which BT explored transmission capabilities). In fact, although SES would develop certain commercialization activities concerning some services associated with the Astra satellite, it would be required to consult with the other participating undertaking as to the setting of prices in these areas of activity. Moreover, in comparison with the other participating entity (BT), SES would not only undertake to offer more favourable terms and conditions than those of the Astra satellite in relation to all the satellites whose capabilities it was already exploring, but also in relation

528 529

See the Commission decision 93/50/CEE Astra (IV/32.745) [1993] OJ L020/23. Ibid paras 11ff.

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to any future satellite capabilities made available to it.530 Similar coordination mechanisms of conditions of use had also been agreed in connection with the so called uplink services provided by the parties to end users, on the basis of other satellite capabilities that they controlled.531 In this context, the Commission, in a clear display of its strict approach to on competition law issues related with commercialization joint ventures, also considered that the conditions for the granting of any exemption under paragraph 3 of article 101 had not been met. In particular, the Commission rejected the arguments set forth by the parties that any eventual restrictions to competition resulting from the agreements would be counteracted by the benefits generated thereby ‘in terms of economic progress in the provision of satellite television services and of the subsequent improve distribution thereof ’.532 Thus, although recognizing that the Astra satellite was the first private satellite to operate in the provision of international television services, the Commission found that this benefit resulted from the existence of the new satellite, and not from the system of agreements entered into by BT and SES (suggesting that the economic exploitation of that satellite did not depend on that kind of business cooperation nexus). In particular, the Commission agreed that SES was indeed able to bear, by itself, the costs inherent in entering into the market especially targeted at television channels broadcasting from the United Kingdom. Accordingly, while considering aspects related to the economic relations between the parties—in the same terms as those that I have critically reviewed in my assessment of the analytical methodology used for the competition law scrutiny of commercialization joint ventures—the Commission rejected any favourable elements of the assessment related to the use of the joint venture for the entry of a new competitor into the market. From this perspective, the crucial element leading to the unfavourable reasoning that prevailed— even under article 101, paragraph 3 TFEU—was the assessment made by the Commission that the joint venture was not essential for SES to enter into the market more directly related to television channels broadcasting from the United Kingdom. Although I consider this analysis to be correct in general terms, I do believe that the Commission should have conducted a more in-depth analysis of the real alternatives available to that founding undertaking in order to enter the market in question.533

530 Ibid paras 16ff. The Commission took a particularly dim view of the alignments resulting from the aspects noted above—which resulted from specific provisions provided for in terms of the main joint venture’s agreement. In accordance with the Commission’s analysis (para 16), ‘the seriousness of this alignment is all the greater if one considers that ... BT was also in itself a potential direct competitor of SES; given BT’s position in financial terms as well as its technical and commercial know-how in the satellite sector, BT would have no difficulty in independently entering the market for the operation of satellites; the mere fact that it did not want to do that until now, that BT claims to be an indication that it was not a potential competitor in that market, reflects a purely subjective appreciation, and cannot constitute grounds for determining the potential degree of competition.’ 531 Ibid paras 17ff. 532 Ibid para 19. 533 Indeed, the Commission’s negative assessment was such a strict and straightforward one that it underrated the aspects relating to the termination of the agreement on the creation of a joint venture by the parties whilst the Commission’s assessment was pending, taking into account the fact that, hypothetically, the effects associated with such a joint venture remained, due to the maintenance in force of the agreements which had been entered into through the joint venture; see ibid para 33.

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4.4.5.2 ANSAC Another decision which illustrates the particularly restrictive stance of the Commission on commercialization joint ventures (or comparable arrangements with a strong commercialization component) was ANSAC.534 In that decision, the Commission reviewed an agreement between US undertakings manufacturing sodium carbonate, or soda-ash, in view of its commercialization in the EU market. Participating undertakings would ensure an important part of their commercialization of soda-ash in the EU market through an association (American Natural Soda-Ash Corporation—ANSAC), keeping their own commercialization activities only in relation to certain customers that would correspond to a controlled undertaking or undertakings in which they would hold a given shareholding (in the former case, mere intra-group supplies were, therefore, concerned).535 Under these agreements, each participating undertaking was to provide a minimum quota of the estimated export needs for the EU market, and the association would be endowed with management autonomy to decide the amount of supplies to be provided to that market and their price. Although the agreements affected the elements more intrinsically disruptive of competition—since they included the joint sale of goods with joint setting of prices—the involved undertakings claimed that they could not be construed as a price cartel, and were instead a collective entity of commercialization with a procompetitive goal, because it concerned the entry, ex novo, of its affiliates in the EU market (comprising about 26 members interested in entering such a market).536 The Commission considered that these agreements would contravene the prohibition set forth in article 101, paragraph 1 TFEU since—according to its assessment—they had as their probable object and effect the restriction of competition within the EU in relation to prices and supply quantities of the product concerned. Of particular relevance to that negative assessment, was the facts that the commercialization of the goods at stake in the EU market would take place on an almost exclusive basis through the joint organization (since only the supplies to participants’ affiliated undertakings had been excluded from the joint commercialization system for that particular market); the economic power of participating undertakings; and also the fact that these undertakings already carried out significant autonomous commercialization activities in the EU market (which demonstrated that they did indeed have the ability to maintain an independent presence in this market ). Using an analytical methodology similar to the one that it would go on to develop in Astra, the Commission seems to have regarded as decisive for its final unfavourable assessment of that system of agreements, their alleged unnecessary nature—and of the undeniable elements of restriction of competition within those agreements, focused on joint sale and coordinated setting of prices and of supply quantities—for the entry of a new significant competitor into the EU market. However, without rejecting in an outright manner such an assessment, or the consequences drawn from it, I believe that the Commission failed to review in a sufficiently thorough manner the assumption that participating undertakings were able to enter the EU market autonomously.

534

See the Commission decision 91/301/CEE ANSAC (IV/33.016) [1991] OJ L152/54. As mentioned in ch 1, that type of intra-group relationship does not, as a rule, amount to an agreement between enterprises relevant for the purposes of the application of competition rules. 536 See on these issues, ibid paras 14ff. 535

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Moreover, another flaw of the Commission analysis in this case had to do with its apparent outright rejection of the parties’ argument that the collective entity they had created would have an ‘autonomous structure and organization’ and, therefore, would not amount to a mere instrument for coordinating the activities of its members. The Commission, possibly motivated by its systematic negative pre-ordained understanding of this type of joint sale arrangement (with coordinated price setting)—referred to above—was very quick to consider the legal entity in question, on account of the elements upon which it operated (prices and quantities of products commercialized by the parties in the EU market) as merely ‘a vehicle for eliminating competition between its members’.537 Although I acknowledge that, at least apparently, the elements of mere coordination would tend, in this case, to prevail over actual integration elements, I believe that the Commission should have specifically examined whether the structure created through the collective entity at stake did incorporate any relevant dimension of entrepreneurial integration able to generate economic efficiencies that could be considered alongside the undeniable elements of restriction of competition stemming from the agreements. This integration dimension could then allow the entity to be considered as similar to a joint venture, thus generating some economic benefits, in spite of its somewhat diffuse control structure (which was difficult to describe as joint control in a narrow sense). That could, in turn, have prevented a linear and possibly over-simplistic characterization by the Commission of the collective entity as part of a mere membership agreement and related arrangements, constituting an infringement of article 101, paragraph 1 TFEU.538 In the event that the element of integration had been considered, an exemption under paragraph 3 of article 101 TFEU could also have been considered, instead of the mere formal aspects assessed by the Commission, in this regard, in relation to improvements in production and promotion of technical progress (which led it to reject any possibility of granting an individual exemption).539 4.4.5.3 European Night Services Another situation of cooperation between undertakings with a commercialization component that is noteworthy is that which arose in the European Night Services case, which led to a Commission decision in 1994, and following a judicial appeal, to a truly landmark ruling of the GC, dated 1998 (whose continuing importance is due not only to the content of the arguments employed by the GC as regards the interpretation and application of article 101, paragraph 1 TFEU, but also to the fact that it is one of very few cases that actually addresses competition issues raised by joint ventures).540

537

See ibid paras 20ff. Actually, I acknowledge the possible existence of an intermediate area between mere associations of undertakings or cooperative arrangements and joint ventures, consisting of collective entities comprising several undertakings and involving some degree of entrepreneurial integration (involving assets channelled by participants to those entities), even if they do not fulfil the necessary requirements for the existence of joint control. In those cases, which must, however, be assessed from a narrow perspective, such entities may, under certain conditions, justify a substantive treatment similar to that granted to joint ventures through the weighing of certain efficiencies generated by them. 539 See ANSAC (n 534) paras 23ff. 540 European Night Services, cases T-374/94, T-375/94, T-384/97 and T-388/94 (GC, 1998) and Commission decision 94/663/CEE Night Services [1994] OJ L259/20. 538

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A prior remark should be made concerning the situation at stake, that concerned the creation of a joint venture between various railway companies, notified to the Commission in 1993 and the object of a decision by this institution in 1994. This entity would, in light of the current law—pursuant to the 1997 amendments to the MCR and to the 2004 MCR—be qualified as a joint venture performing all the functions of an autonomous economic entity, and as such, it should be treated under the concept of concentration, being therefore subject to the rules set forth in the MCR and not—at least on a principal or firsthand basis—to the regime set out in article 101 TFEU, which was however then applied in that case541 (the application of article 101 TFEU would then in be limited, in an ancillary manner, under article 2, para 4 MCR 2004, to the coordination elements that might have been induced in the relationships between the participating undertakings). In any case, the crucial importance of the issues scrutinized in the Commission decision—and, especially, in the GC ruling—as well as the fact that in the joint venture at stake, the component pertaining to commercialization services was clearly prominent, more than justify my attempt to establish some hermeneutical corollaries from this case for the purposes of assessment of commercialization joint ventures within the context of the application of article 101, paragraph 1 TFEU.542,543 Under the agreements that were scrutinized in this Commission decision, the four stateowned railway undertakings of UK, France, Netherlands and Germany created a joint venture aimed at the provision and commercialization of overnight passenger rail services between the UK and the European Continent through the Channel tunnel and via four specific routes. The Commission decision identified two relevant markets affected by this joint venture, namely, the market for the transport of business travellers (for whom scheduled air travel and high-speed rail travel are interchangeable modes of transport) and the market for the transport of leisure travellers (for whom substitute services may well include economy-class air travel, train, coach and possibly private motor car). In light of the applicable rules then in force it qualified the entity as a ‘cooperative joint venture’, considering it and the system of agreements related to it as being caught by the prohibition set out in article 101, paragraph 1 TFEU.544

541 See these issues concerning the legal qualification or dual characterization of joint ventures under competition law, above, ch 1 at 3.2. 542 The GC’s ruling in European Night Services has generated considerable debate. See, inter alia, Bellamy and Child, European Community Law of Competition (n 10) esp 86ff; Temple Lang, ‘International Joint Ventures under Community Law’ (n 99) esp 412ff; Enrique Gonzalez Diaz, Dan Kirk, Francisco Perez Flores and Cécille Verkleij, ‘Horizontal Agreements’ in Jonathan Faull and Ali Nikpay (eds), The EC Law of Competition (New York, Oxford, Oxford University Press, 2007) esp 361ff. 543 Curiously, competition law issues pertaining to rail services between the UK and the European Continent through the Channel tunnel came to the fore again more recently, but under different conditions, also involving a joint venture (New Eurostar), between the French incumbent railway operator (SNCF), a UK railway operator (London Continental Railways) and a Belgian railway operator (NMBS/SNCB) for the operation of the sole passenger rail service between London and Paris and London and Brussels. In this case, however, the new entity was undoubtedly a full function joint venture (while before its creation each of the participating entities was responsible, with its own assets, for the operation of the railway service at stake in its own territory). Through a decision adopted on 18 June 2010, under the MCR (case M 5655), the Commission conditionally cleared the creation of this New Eurostar joint venture, subject to commitments offered by the parties to address market foreclosure issues raised by the Commission (thereby ensuring better conditions for entry by potential competitors, eg, giving new entrants access to international station services or to light maintenance service depots along the track). 544 See European Night Services (n 540) paras 30–36.

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For this overall negative assessment, a decisive factor was the Commission’s view that the agreements would hamper or considerably narrow the scope for competition between the founding entities that had been opened or enhanced by EU Directives on the liberalization of certain aspects of rail transportation services. Some of these founding undertakings would, according to the Commission analysis, benefit from alternative possibilities hypothetically less restrictive of competition to explore international transport services on the routes in question, covering the crossing of the Channel.545 Moreover, the Commission additionally argued that, given the economic strength of the founding entities, the creation of the joint venture in question could hamper market access for third-party transport operators able to compete with this joint venture. It even argued that other operators interested in night traffic on the concerned routes would be at a competitive disadvantage whilst devising alternatives involving some kind of access to the acquisition of essential rail services, to be performed either by the joint venture or by one of its founding entities. Finally, the Commission argued, in support of its view on the application to such joint venture of the prohibition set out in article 101, paragraph 1 TFEU, that the restrictions on competition it had deemed inherent in that entity, would be reinforced or aggravated by fact that the joint venture was part of a network of joint ventures between the founding entities. Despite this unfavourable reasoning, the Commission decided to grant an individual exemption to the agreements in question, under paragraph 3 of article 101 TFEU, assuming these would foster economic progress, namely ensuring competition between different means of transportation in a framework in which users would benefit, directly, from these new services. It also acknowledged that, in order to obtain such benefits, the competition restrictions which had been identified showed themselves to be unavoidable, to the extent that entirely new services were at stake, involving financial risks that companies could hardly afford to bear on an individual basis. However, in order to ensure that competition would not be eliminated in the affected markets, the Commission imposed a condition on participating undertakings that they must make available to any entity wishing to operate night transport services, using the Channel, the rail services that they had agreed to provide to their own joint venture (in technical and financial conditions similar to those provided to this joint venture). Based on this condition, the Commission decided to grant an exemption for a period of eight years. However, this decision was overruled on appeal, by the GC on the basis of an analysis that identified and condemned the Commission’s excessively broad interpretation of the prohibition set forth in article 101, paragraph 1 TFEU. In my view, the GC was particularly critical of the negative pre-ordained understanding of the Commission of joint ventures that comprise a significant functional component of commercialization activities (a pre-ordained hermeneutic understanding that frequently

545 The analysis of these issues in this 1994 Commission decision (Night Services) must be taken into account in connection with the analysis undertaken in other Commission decisions concerning the Channel tunnel, namely, Eurotunnel III [1994] OJ L354/66, which was, however, negatively assessed by the GC, who considered the Commission reasoning to be based on an erroneous assessment of the facts (see Case T-79 & 80/95 SNCF and British Railways v Commission (GC)).

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leads to a formal and rather straightforward application of article 101, paragraph 1 TFEU), of which I have also been critical.546 Thus, the CJEU held, appropriately, that the market analysis conducted by the Commission had proved inadequate and devoid of a realistic economic basis. Such an analytical gap, accurately detected by the CJEU, derives, in my view, from the methodological error on the part of the Commission in identifying a certain kind of functional cooperation programmes—especially those involving joint commercialization, including the concerted setting of prices—as forms of restriction of competition subject to quasi-automatic prohibitions. This to some extent aprioristic approach tends to be construed without further devising—within a framework of interaction of the cooperation programmes at stake with the actual conditions of operation of the markets concerned—an overall review of such elements potentially disruptive of competition alongside the economic efficiencies that are only possible due to the components of entrepreneurial integration underlying certain joint ventures. The flawed nature of the market analysis conducted by the Commission resulted in an overrating of the market share held by the participating undertakings, and a similar overrating of the real possibilities of supply of hypothetical competing services through the Channel Tunnel. The GC has applied the CJEU jurisprudence in Delimitis and Oude Luttikuis,547 and, to some extent further enhancing the corollaries to be drawn from it, emphasized the need for the Commission’s studies to take into account ‘the actual conditions in which it [an agreement] functions, in particular the economic context in which the undertakings operate, the products or services covered by the agreements and the actual structure of the market concerned’.548 Besides pointing out the absence of actual economic factors that would have supported the idea of the viability of alternative night time transport services by participating undertakings, in another setting than that of the joint venture, or even by third party operators, the GC also highlighted the fact that no interested third parties had presented any claim during the proceedings of the case as potential competitors affected by the agreements in question. At another level, the GC downplayed the considerations of the Commission regarding the alleged negative effects stemming from networks of joint ventures between the founding undertakings, stressing that such effects should only be considered in situations of multiple joint ventures participated in by the same founding undertakings for complementary products, or for products commercialized by all those founding entities. However, in this

546

See, in particular, the critical remarks made above, at 4.2 and 4.3 of this chapter. See Case C-234/89 Delimitis (Stergios) v Henninger Bräu (Delimitis) and Case C-399/93 Oude Luttikuis. 548 See European Night Services (n 540) para 136. I would go even further then the GC in relation to this requirement for a comprehensive assessment of the cooperation situations in their respective legal and economic context. Indeed, the GC, at para 136 of its ruling, warns of the possibility of dispensing with analysis involving more complex assessments whenever ‘obvious restrictions of competition, such as price-fixing, market-sharing or the control of outlets’ are concerned. However, as I have previously highlighted concerning the characterization of risks of distortion of competition related to commercialization joint ventures, such entities may involve the joint setting of prices and yet, still not justify an almost automatic application of the prohibitions rule of article 101, para 1 TFEU, without proceeding to an integrated analysis of specific pro-competition factors (generated by the process of entrepreneurial integration underlying these joint ventures), which may overcome certain elements of distortion of competition (I refer to an integrated and more developed analysis aimed at ascertaining what I have designated as weighed or global effect that certain joint ventures are bound to generate on the competition process). 547

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case, the Commission had failed to demonstrate that there were other joint ventures also created by the founding entities and that would also be specializing in the commercialization of services of passenger transport (that is to say, commercializing the same type of services as the joint venture in European Night Services).549 Although it considered that the Commission reasoning concerning an infringement of the prohibition set out in article 101, paragraph 1 lacked grounds, the GC also addressed the condition imposed by the Commission for granting the exemption, considering that its underlying assumption was not adequately demonstrated in economic terms.550 It would not be plausible, in particular, according to the assessment made by the GC, that the input provided by those participating undertakings, in the light of their market positions and of the specific kind of elements at stake (eg, rolling stock, among other factors), could assume the essential nature that was envisaged in the Commission decision. Thus, the requirement imposed on the parties to provide services to competing undertakings interested in the same type of overnight transport services that the joint venture provided, and under conditions equivalent to those ensured to this joint venture, was considered excessive by the GC. Finally, the GC also considered that the period of eight years— established for the duration of the exemption—would be insufficient and would not allow an adequate return on investments made by participating undertakings.551 4.4.5.4 Other More Recent Cases Other more recent cases, including those on the enforcement practice of EU Member States competition authorities, evidence a more nuanced view of commercialization joint ventures, less reliant on an overall negative perspective about the competitive effects of these

549 See European Night Services (n 540) paras 155ff. The issue addressed in this para of the ruling is of paramount importance, in terms that I have already established, since in cases in which the phenomenon of cooperation between undertakings assumes greater complexity, effects of distortion of competition closely linked to joint venture networks may arise (‘network effects’). This specific type of effect was, incidentally, explicitly considered by the Commission in the 1993 Guidelines on Cooperative Joint Ventures (paras 27–31). Furthermore, the case that stands out as probably the most paradigmatic in terms of the weighing of these effects is Optical Fibers (1986) OJ nº L 236/30, in which the Commission analysed a set of joint venture agreements between Corning—a US producer of optic fibre cable—and a set of EU cable producers (joint ventures aiming to produce optic fibre cable for various European markets). Although neither Corning nor its European partners were actual competitors, the Commission took into account the competition relationships between the various joint ventures and the problems associated with Corning’s presence and influence on those entities. In order to mitigate the network effect, limiting competition, the Commission imposed as a condition for granting an exemption—among others—the reduction of Corning’s influence in each of the joint ventures. In comparable terms, in the situation considered in European Night Services, the Commission also raised issues related to the involvement of participant undertakings in other joint ventures aimed at the transportation of passengers and cargo in the Channel. However, it did not precisely identify which other joint ventures were participated in by the same founders of the joint venture concerned (ENS), as—irrespective of the clarification provided in the judicial proceedings—the third party joint ventures that were mentioned did not operate in ENS’s market, but only in related markets. For this reason, the GC considered that the Commission’s objections concerning a purported network effect lacked adequate grounds. Such an assessment, criticized by the GC, is somehow typical of the distortions which the Commission’s analysis, aimed at the detection of network effects or effects of distortion of competition associated with joint venture networks, often feature. In my opinion, there should be no predominantly formal and pre-ordained understandings that tend to value negatively the presence of certain founding entities in multiple joint ventures. It is necessary to analyze the specific existing relationships between the markets in which such joint ventures operate, as well as the relationship between eventual effects of distortion of competition occurring in those markets and procompetitive effects of efficiency, verified in some, or all, of those markets. 550 See European Night Services (n 540) paras 205ff. 551 See European Night Services (n 540) paras 229ff.

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entities (albeit one that remains highly demanding in terms of efficiency elements that may justify the creation of the joint ventures). A significant case, inter alia, is the German competition authority (Bundeskartellamt) 2007 decision (Allianz, Axa, R+V, Ergo).552 In this decision the Bundeskartellamt assessed a joint venture between four large insurance undertakings operating in the German market aimed at insuring liability risks of auditing firms. In spite of the various activities carried out by the joint venture, this one clearly presented a prevailing component of commercialization since this entity would pool, price and sell insurance contracts for auditors. The Bundeskartellamt decided to prohibit this joint venture, given the extensive market power of the parent undertakings and the anticompetitive elements inherent in the particular functional layout of the venture, which operated by splitting the insurance business with auditing firms on the basis of pre-assigned quotas. Conversely, given this level of anticompetitive elements the Bundeskartellamt set aside the supposed efficiency gains claimed by the parties as too general. However, and significantly, it did not extend the prohibition to insurance contracts with the so called ‘big four’ auditing firms, bearing in mind these hold sufficient countervailing purchasing power (thus illustrating the major relevance of complementary factors of analysis, pertaining to what I have designated as a second level of complementary analytical factors integrated in a last stage of analysis within the comprehensive assessment model that I propose, in order to avoid full prohibition decisions of commercialization joint ventures with an apparently strong anticompetitive potential). Another noteworthy case is the French competition authority’s 2012 decision, France Farine, Bach Mühle.553 This decision involved both a cartel between French and German millers limiting access and export to each other’s markets and the establishment of two joint ventures between the French millers for the marketing of their packaged flour production to food retailers and discount operators.554 As regards these commercialization joint ventures, the competition authority emphasized as a particularly negative anticompetitive trait of such entities the fact that they were to a large extent instrumental in establishing a single selling price and customer allocation between competitors. Accordingly, this case illustrates the situation in which a commercialization joint venture is not ultimately justified for efficiency considerations or requirements and, is, in fact an instrument for intrinsically anticompetitive elements aimed at price-fixing and market allocation (in a manner which is not functionally required for the effective rationalization of the latest stages of the distribution segment). As I have underlined, these cases should be systematically distinguished from those involving commercialization joint ventures that may involve apparently anticompetitive elements—even to the extent of including some joint pricing policies—but which are functionally geared towards rationalization.

552 See the Bundeskartellamt decision B 4-31/05 Allianz, Axa, R+V, Ergo (10 August 2007), and a succinct case commentary by Philip Kalmus, ‘The German Competition Authority Holds that Risk Pooling by Insurance Companies for Insuring Liability Risks of Auditing Firms Violates Article 81 EC but Excludes Insurance for the “Gig 4”’ e-Competitions No 16052 (www.concurrences.com). 553 Décision No 12–D–09 France Farine, Bach Mühle (French competition authority, 13 March 2012). 554 See for a brief comment on this decision ‘The French Competition Authority Fines French and German Millers for Several Anticompetitive Practices (France Farine, Bach Mühle)’ e-Competitions No 46696, March 2012.

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The case of TQ3 Travel Solutions GmbH/Opodo Limited, cleared by the Commission in 2003 through the provision of a letter of comfort,555 illustrates that even commercialization joint ventures whose parent undertakings have a high market power (evidenced through high market shares, as per the general criterion previously put forward) and with a functional layout which is prone to favour the sharing of commercially sensitive information and, thus, price collusion or market sharing (functional layout being considered in the context of the third stage of analysis in the analytical model that I propose), may be found compatible with competition law on the basis of specific or ad hoc remedies delineated by the parties (in the manner I have advocated and as especially held up in the US antitrust context by Joseph Brodley). I refer particularly in this case to governance remedies, ensuring that marketing agreements would be negotiated individually and confidentially between the joint venture (Opodo) and each of the participating airlines (plus other mechanisms or safeguards to ensure that such parent undertakings would not obtain commercially sensitive information about each other through their joint venture). A functional layout of a commercialization joint venture that allows a considerable flow of sensitive information between the parent undertakings—not restricted by specific remedies fit to ensure that the joint venture would operate in its specific functional area on an arms-length basis from its parents—combined with high market power from these parents tends to lead to prohibition of the joint venture, if no other redeeming or compensating factors occur (pertaining that what I have designated as complementary analytical factors in a last stage of analysis of joint ventures, within the general assessment model that I have conceived). An example of a case with just those characteristics was the noteworthy prohibition decision of the Bundeskartellamt (Chemie-Vertrieb (2012)) concerning a commercialization joint venture between two chemicals trading companies with market shares in some regions of around 70 per cent%.556 Finally, turning my attention briefly to relevant case law concerning joint ventures in the US antitrust system, in spite of the different systematic characterization of these entities in that system, a quick mention should be made to the 2006 and 2010 Supreme Court rulings, respectively, of Dagher and American Needle.557 Both cases concerned joint ventures that are, by and large, entities that would justify characterization as commercialization joint ventures in the context of the EU competition law system. And what is especially noteworthy in both these cases558 is the fact that the commercialization dimension (including elements of price fixing) is seen as compatible with a rule of reason approach that may ultimately lead to the justification of these kinds of cooperative arrangements, not envisaged as intrinsically anticompetitive (or even envisaged as compatible, in certain cases, following

555 I refer here to case COMP/A.38.321/D2 of the Commission, on which the Commission issued a negative clearance type comfort letter on 18 December 2002. See on this case, Christine Tomboy, ‘The European Commission Clears Joint Venture of Nine European Airline Companies Creating an Online Travel Agency (Opodo)’ e-Competitions No 36931, December 2002. 556 See ‘The German Competition Authority Prohibits Joint Venture in Chemicals Trading Sector (ChemieVertrieb)’ e-Competitions No 50241, November 2012. 557 See Texaco Inc v Dagher (n 405) and American Needle, Inc v NFL 130 SCt2201 (2010). 558 There is no room here for a more extensive commentary on these cases. See for such an in-depth analysis in the context of the US antitrust system, James Keyte, ‘Sorting Out the Analytical Mess: A Step-Wise Approach to Joint Venture Analysis after Dagher and American Needle’ in Nicolas Charbit and Elisa Ramundo (eds), William E Kovacic—An Antitrust Tribute—Liber Amicorum Vol 1 (Paris, Institute of Competition Law, 2012) 267ff.

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a more quick-look approach ascertaining the antitrust legality of certain elements of these arrangements). Contrastingly, these cases may have represented a missed opportunity for the US Supreme Court to delineate or evidence a structured multi-phased model for assessment of these joint ventures that could limit decisively the uncertainty to which these arrangements are traditionally subject. 4.4.5.5 Analysis of Case Law Related to the Functioning of the Payment Cards Systems 4.4.5.5(A) Commission’s Initial Analyses Regarding the Functioning of the Visa System I have referred in preceding sections of this chapter to some significant precedents in which the Commission antitrust scrutiny focused on situations relating to the operation of payment cards systems, while stressing that such enforcement practice—in spite of its recent far-reaching developments—has not yet reached the levels that may be observed in the context of the US antitrust system. Accordingly, it is important, due to the specific nature of the issues raised by this type of cooperation process—in which the commercialization component plays an important role—to briefly mention some cases that were submitted to the Commission in this field (bearing in mind that the assessment of the key problems at stake is very much in flux at the current stage of evolution of EU competition law). In general, it may be considered that the Commission has to some extent admitted the inclusion of intrinsic elements of cooperation in the operation of such systems and even in other types of financial transactions in the various sub-sectors of the financial system (which may involve, in certain ways, processes of joint commercialization of services).559 As I have already mentioned, what has been lacking in the analysis of the Commission and of some EU Member States’ competition authorities,560 is a truly systematic component, which may ensure some degree of predictability concerning the limits that should be observed in those processes of cooperation process of cooperation (and a consistent treatment of the combination of cooperation and competition elements in the financial area (enabling the development of assessment parameters with a global reach in this area).561 Concerning payment card systems, the first substantive analyses were undertaken by the Commission in 1996, pursuant to complaints filed about certain aspects of the operation in the EU market of the Visa network. Although these initial analyses did not result in the adoption of formal decisions, as some rules of the Visa system have since been changed as a result of the anticipation of objections on the part of the Commission, it is, nevertheless, possible to extract some important clues from the assessments developed in this case.562 The main point made in the Commission’s assessment—triggered by complaints from competing entities—concerned a rule proposed for the Visa network in the EU market, taking as its blueprint a similar rule adopted by the Visa network in the US market, according to which member banks of the network would be prohibited from issuing Discover or American Express cards, or ‘any other card deemed as a competitor’ (whilst the issuing

559 On precedents which confirm the Commission’s openness towards the operation of this type of system and their operations within the financial system, see, inter alia, Nuovo CEGAM [1984] OJ L99/29, Dutch Transport Insurers (‘Sixth Report on the Competition Policy’, para 120), or the case which motivated the ruling in Case 90/76 Van Ameyde v UCI. 560 As happened, inter alia, in Interbank Fees (n 494), subsequently overturned by the Paris Court of Appeal. 561 See 4.4.3.6(A)–4.4.3.6(D) of this chapter. 562 See Twenty First Report on the Competition Policy, point 140.

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of other cards not deemed as competitors of cards issued within the Visa network was admitted). In accordance with the Commission analysis, this rule would fall within the prohibition set out in article 101, paragraph 1 TFEU, since that would lead to a restriction of competition between payment card systems. It therefore amounted to an appreciable distortion of the first relevant level of competition that I have identified above in the context of the operation of such systems (competition between payment cards of different brands, managed by different collective entities, that may be qualified as joint ventures or, at least, displaying some comparable features). This assessment diverged, to some extent, from the analysis carried out by US courts on related matters related and which led—as already noted—to an important theoretical debate between antitrust specialists.563 In my view, the specific conditions of the market in the situations assessed in light of that legal system and in the situations considered by the Commission are not the same. The fundamental difference—among others—is the significantly more enhanced market position of the Visa network in the EU market. In fact, the majority of leading EU banks belonged to the Visa network, unlike the position with the relevant operators in the US banking market.564 Thus, in the specific context of the EU market, the imposition upon member banks of the Visa system of a ban on issuing cards regarded as competitors of Visa cards would tend to prevent the development of competing systems (to the extent that most EU banks, as members of the Visa network, would be subject to this rule and, predictably, would not run the risk of being excluded from the network, already present in the market, and be forced to move to new networks attempting ex novo to enter the EU market, with all the inherent risks and uncertainties that that would entail). This means that, in all probability, the analytical methodology set forth by some US courts and aimed at the assessment of this type of situation, not through the actual content of the rules concerning issuance of cards of other systems, but rather through the specific, predictable effects of such rules on the market, even if apparently divergent from those found in the Commission’s findings, could ultimately lead to similar final assessment results (thus, the weighing of the effects of these rules in the market would aim to establish, among other things, the extent to which this ability to preclude the entry of new banks, with more diversified products, into the system would confer on the collective entity coordinating the network greater control over prices of payment cards).565 I essentially agree with the Commission’s idea of a restrictive effect on competition arising from the Visa network rule described above, evidencing a potential foreclosure of the EU market for payment card systems to third party organizations managing systems directly competing with the Visa system. However, I consider as comparatively less important,

563 See on this issue and regarding the theoretical debates in the context of the US antitrust law framework, above, 4.4.3.6(B)–4.4.3.6(D) of this chapter. 564 On the market power analysis of the Visa network in the US market, see Evans and Schmalensee, ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (n 413) esp 865ff. 565 On the approach followed by some US jurisprudence that we have previously noted, see the excerpt of the judicial ruling cited by Evans and Schmalensee (in ‘Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures’ (n 413) 867) according to which ‘it is not the rule-making per se that should be the focus of the market power analysis, but the effect of those rules—whether they increase price, decrease output or otherwise capitalize on barriers to entry that potential rivals cannot overcome’. Although I acknowledge that this analytical methodology would tend to lead to the same assessment results that the Commission reached, the latter has not explicitly used such terms to ground its ratio decidendi.

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the eventual restriction of competition which, in the Commission’s view, could result from the same rule in the realm of competition between banks, by reducing the range of products they could offer to their customers. 4.4.5.5(B) Other Relevant Case Law Concerning Cooperative Structures Related to Payment Cards More recently, the Commission has analyzed other rules of the Visa system, having adopted its Visa International decision566 in 2001 (closely followed by its Visa International decision, dated 24 July 2002),567 acknowledging that an essential set of rules and proceedings operating in the Visa system were not covered by the prohibition set out in article 101, paragraph 1 TFEU. This decision resulted from a notification by Visa International itself and from elements raised by complaints presented by third parties already in the course of the assessment of that notification (which determined the reopening of that procedure). Among the rules favourably assessed by the Commission, was a non-discrimination rule, forbidding commercial operators adhering to the system from charging added fees to Visa cardholders using their cards to pay for acquired goods or services, and also precluding them from granting any discounts to consumers for using other payment methods (especially cash).568 Although the Commission acknowledged that the rule restricted ‘the freedom of commercial operators’, to the extent that it precluded them from charging additional fees for the use of the cards, it also stated that such effects would not be substantive or appreciable. Somewhat surprisingly, the Commission based its assessment on empirical data collected in Member States in which the rule had been set aside, hence evidencing that even in such conditions, only a very limited number of commercial operators actually resorted to that mechanism and charged fees to cardholders. Moreover, the same empirical studies also confirmed that the abolition of the rule in some Member States did not seem to have substantially affected competition on pricing between operators in those markets, nor was there greater transparency in pricing matters for the benefit of consumers. It is important to highlight at this point, in positive terms, the Commission’s initiative to hold market surveys that allowed for the collection of relevant empirical data on the impact of the rule, drawing on the experience of different situations in different Member States (an analytical methodology heavily relying upon market data, that, as was evidenced, for example, by the critical judgment of the GC in European Night Services, the Commission has failed to observe in multiple cases). Among other rules of the Visa system analysed in this decision, it is important to highlight the rule that determines that members of this system cannot enter into agreements with commercial operators before they have issued a fairly high volume of cards. The Commission maintained that this rule ‘restricted the commercial freedom of the participating banks’569 but acknowledged—in terms I agree with—that the same rule, by ensuring a large card base and encouraging the issuing of cards, would promote the development of the Visa system and would make it more attractive for merchants. In my opinion, the

566

See Visa International, dated 9 August 2001 (n 503). See Visa International, dated 24 July 2002 (n 503). 568 Curiously, some domestic competition authorities had decided to set aside that rule. See Visa International (2001) (n 503), para 11. 569 See Visa Internacional (2001) (n 503) paras 65ff. 567

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economic constraints of the network operation of such systems—with the consequences outlined above—justify the existence of this type of competition restraint (provided that, considering the level of stringency observed in their formulation, they do not themselves create significant barriers to the entry of banks in this market). At another level, the same kind of considerations relating to the requirements of efficient operation within a network, justify, in my view, another rule of the Visa system—also essentially approved by the Commission, despite the restrictive elements of competition it entailed—that concerns the obligation imposed on merchants or contracting banks to accept all valid cards bearing the Visa brand. In short, this decision epitomizes to some extent the balancing exercise required when considering various elements restrictive of competition intrinsically involved in the operation of a network system like a payment cards organization and justified by its comprehensive functional requirements (that bear some resemblance to commercialization joint ventures). At yet another different level, the Commission has also analysed the nature of the multilateral banking fees established in the context of the operation of the Visa system, having adopted, in July 2002, a decision on that matter, by granting an exemption, valid until 31 of December 2007,570 taking into account several engagements assumed by Visa International. Those engagements implied several amendments to the rules governing the setting of the initially proposed fees, thus mitigating the competition distortions inherent in their setting—however necessary for the system’s overall functioning571—and ensuring some transparency in relation to all participants concerning the costs of the system’s operation. Those amendments included, namely, a decrease in the amount of fees charged concerning the various types of cards, the introduction of certain fee caps relating to the actual costs of specific services rendered to participants, and the granting of consents to member banks in order for the latter to convey information on such fees to merchants.572 To a certain extent, this exemption decision also evidenced the more formalistic and less effects-based approach prevailing in the past in terms of Commission enforcement practice, leading, for example, in the case of commercialization joint ventures to an unfair condemnation of these entities, on the basis of article 101, paragraph 1 TFEU, contrasting frequently with a too ready exemption of the same entities based on assessments of principle, not always duly verified by empirical analysis applied to a given market context (the Commission considered, eg in Visa International (2002) that ‘an interchange fee agreement can in principle contribute to economic and technical progress within the meaning of article [101] (3) of Treaty’(emphasis added).573 The debate on core competition law issues related to the establishment of schemes within a payment card organization for determining fees associated with the use of cards

570

Visa International (2002) (n 503) esp paras 56ff. On the need for these commissions for the operation of the system, see Cruickshank, ‘Competition in UK Banking—A Report to the Chancellor of the Excehquer (n 501) esp 263ff. For an in-depth theoretical treatment of the issues associated with that element of the system’s operation, see Jean Tirole and JP Rochet, ‘Competition among Competitors: The Economics of Credit Card Networks’ CEPR Discussion Paper, 1999. See also Visa International (2002) (n 503), paras 74ff. 572 The situation assessed in the decision ibid referred to cross border payments. 573 See Visa International (2002) (n 503) para 81. See, also emphasizing this rather aprioristic view less reliant on actual market analysis and empirical evidence applied to a given market context, Damien MB Gerard, ‘The Effects Based Approach Under Article 101 TFEU and Its Paradoxes: Modernization at War with Itself ’ (University of Louvain, July 2012). 571

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was not closed with the July 2002 Visa International exemption decision, especially as regards multilateral interchange fees (MIF) set by the central organization of a given payment card network, to be paid by acquiring banks (the banks that contract merchants for acceptance of the payment card at stake) to the issuing banks (the banks that issue the payment card at stake to consumers), in the absence of bilateral agreements between those banks. As mentioned, that exemption expired in December 2007 and, subsequently, the Commission further pursued its analysis of the anticompetitive effects of the establishment of MIF and its possible economic justification, purporting to develop a new economic test in this area and abandoning its former view about the possibility of justifying in principle MIFs with a cost-based methodology. This new stance led to new proceedings opened against Visa Europe in March 2008 and ultimately to the adoption of a commitments decision in 2010 (on the basis of commitments offered by Visa in connection with debit cards, leading to a reduction and cap of interchange fees in this area, but not in connection with credit cards).574 As regards credit cards not covered by the 2010 commitments decision, the Commission pursued its investigation and targeted its analysis towards the so called ‘merchant indifference test’ or ‘tourist test’, which purports to ascertain on a case by case basis the acceptable charges to merchants for the transactional benefits that card use generates (these benefits being mainly construed as the avoidance of costs of accepting cash and other connected benefits—as more rapid payment). These developments led to fundamental jurisdictional clarifications with Visa Europe bringing an action in the GC, on October 2012, against another decision of the Commission, which had refused, in the meantime, to modify, at Visa’s request, the debit MIF cap imposed by the 2010 commitments decision.575 In parallel, the Commission, apparently taking a different approach from that underlying the 2002 Visa International exemption decision, and emphasizing the need to test in a demanding empirical manner any possible efficiencies associated with MIFs—not to be deemed in principle susceptible of justification nor as impossible to justify in light of the conditions of article 101, paragraph 3 TFEU—adopted its landmark Mastercard decision576 in 2007.577 In this decision the Commission concluded that there were restrictive effects on competition in the acquiring markets arising from MIFs set by the Mastercard payment organization (which would collectively exert market power vis-a-vis merchants and their customers). However, regarding the possible economic justification of MIFs, the Commission asserted that, unlike competition restrictions which are necessary for implementing a main operation, restrictions which are merely desirable with a view to the commercial success of that operation, or greater efficiency, can only be examined within the framework of article 101,

574 See Case COMP/39.398 Visa Europe (‘Commitments offered to the European Commission pursuant to article 9 of Council Regulation (EC) No 1/2003’), adopted on 8 December 2010. 575 See Case T-447/12 Visa Europe v Commission [2012] OJ C379/26. 576 Decision C(2007) 6474 final, case COMP/34.579, COMP/36.518 and COMP/38.580 Mastercard, adopted by the Commission on 19 December 2007. 577 For evidence of this new effects-based and more demanding stance, in terms of empirical demonstration of possible efficiencies to be balanced with the elements restrictive of competition, see ibid para 730, where the Commission underlines that there was ‘no presumption that MIF’s in general enhance the efficiency of card schemes as there is no presumption that they do not fulfill the conditions of Article [101] (3) of the Treaty and are therefore illegal’.

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paragraph 3 TFEU578 (while, as I have been arguing throughout my overall in-depth analysis of joint ventures, the boundaries between aspects that may be taken as necessary or desirable in terms of global efficiency of a given operation tend in practice to be more diffuse and, accordingly, particularly in connection with joint ventures whose very rationale is generating efficiencies, the boundaries between aspects to be considered at level or paragraph 1 or paragraph 3 of article 101 TFEU are not always as clear-cut as the Commission and the GC supposed in Mastercard). In terms of possible justification of MIFs under the conditions of paragraph 3 of article 101 TFEU, the Commission—essentially followed by the GC and its subsequent 2012 ruling on this case579—placed its essential focus on the scarcity of empirical proof adduced by Mastercard on the role of MIFs in the balancing of the Mastercard system and in the maximization of objective advantages allegedly arising from it (while the Commission, conversely, considered it had offered evidence to the contrary, concerning the considerable output of certain bank card systems operating without an MIF and the appreciable revenues that banks supposedly generated from their card issuing business). At a different level, but also contributing to a quickly changing EU landscape—reversing the initial deficit of analysis within the EU competition law system in comparison with US antitrust system in this field of payment cards—mention must also be made of the 2011 GC ruling in Visa Europe and Visa International v Commission580 (in the wake of the Commission decision in Morgan Stanley/Visa International and Visa Europe (2007)).581 Essentially the GC upheld the Commission analysis that Visa’s refusal to allow Morgan Stanley to join EU visa network between 2000 and 2006, on the alleged grounds that Mastercard owned a competing card network (Discover), amounted to either an anticompetitive agreement or an anticompetitive decision of an association of undertakings (not justified under article 101, paragraph 3 TFEU). Both the Commission and the GC found the arguments made by Visa that Morgan Stanley could have entered the European market through other means than the EU visa network to be theoretical and speculative, thus attributing an exclusionary effect to the anticompetitive arrangement and emphasizing the need for an empirical demonstration of certain foreseeable market development in the context of the prevailing market contexts at stake (again following here an effects-based approach, although one can argue that, conversely, that the Commission’s assessment of

578 See, on that assertion, ibid paras 524–31, which was basically corroborated in this point and others by the landmark GC ruling on that decision—Case T-111/08 Mastercard Inc, MasterCard Europe v Commission (GC, 24 May 2012) (Mastercard). 579 See, in particular, ibid para 233, in which, crucially, the GC underlines—corroborating the Commission analysis—that Mastercard had failed to demonstrate in a sufficiently accurate manner the extension of the benefits that could be construed as a justification for the financial charges imposed on merchants as well as an adequate correlation between the amount of interchange fees and the costs involved in the services rendered by banks (bearing in mind too the revenues obtained by issuing banks in the context of these services); see also ibid paras 234ff, in which the GC differentiates between the reasoning followed by the Commission in the 2002 Visa International exemption decision and that followed in the 2007 Mastercard decision, since in the first case the Commission had grounded its assessment on a calculation method that limited the acceptable amount of interchange fees to certain specific advantages to merchants, while in the Mastercard case no precise specific advantages had been duly ascertained (this representing again an emphasis on an effects-based approach supported by empirical analysis, although it may be argued that some change of approach occurred between the stance followed by the Commission in Visa (2002) and Mastercard (2007). 580 See Case T-461/07 Visa Europe and Visa International v Commission (GC, 14 April 2011). 581 Case COMP/D1/37860 Morgan Stanley/Visa International and Visa Europe (Commission, 3 October 2007).

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Morgan Stanley as a potential competitor in the relevant market context was somewhat flawed). Whilst I still believe that there is a lack of systematic analysis by the Commission in this area—in spite of recent developments, gradually tending towards an effects-based approach—and which, at times, may even have been aggravated in the course of some of those developments, due to legal and economic tests envisaged by the Commission on the matter of the admissibility of MIFs (eg, the ‘merchant indifference test’ which currently lacks the necessary consistency),582 one major positive outcome should be acknowledged: that is the contribution of the enforcement of EU competition rules over the last 15 years to some appreciable hermeneutical steps aimed at the pursuit of an extremely delicate balance between conflicting requirements that are at play within the operation of complex network systems as the payment cards systems. I refer here to a proper balance between, on the one hand, cooperation requirements inherent in the operation of these systems and, on the other hand, the limits which may never be crossed, in order to render them compatible with the safeguard of competition. In that balancing act, the greatest concern should be, in my view, the prevention of market foreclosure effects towards third parties—such as those addressed, for example, in the GC ruling in Visa Europe and Visa International v Commission (2011)—which may result from the application of rules on the access of new members to these systems (in any case, the analysis of foreseeable negative repercussions of these rules should take into account the actual prevailing market conditions). As regards the coordinated setting of charges, related to the interplay between the different operators within the system and the costs involved in such a process, I submit that any competition law interventions must be based on a realistic economic analysis of market conditions, ascertaining the actual cost structures of the different payment cards markets at stake and avoiding, as much as possible, an approach aimed at the regulated setting of certain charges or fees. In short, I refer to an approach aimed at striking a balance between the elements intrinsically limiting the freedom of action of those operators and the economic advantages that may arise from such elements to the same operators and to final consumers (and that should be empirically tested in any given market context). The jurisprudential developments in the EU context—namely the cases of Mastercard and others—should make an important, if not decisive, contribution to finding that kind of consistent legal and economic balance in this field.583 582 I refer here mainly to the so called ‘merchant indifference test’ or ‘tourist test’, as it is also called, which originated in analyses developed by Jean Tirole and JC Rochet in Must Take Cards: Merchant Discounts and Avoided Costs (n 494), but from which the Commission has purported to extract corollaries more significant than those envisaged by these authors. Among various technical and theoretical hurdles that the Commission may be downplaying, for the purposed of using this ‘merchant indifference test’, are, inter alia, the difficulties in establishing a harmonized cost of cash in various markets across the EU or the difficulties in considering, on the one hand, the range of different benefits cards may deliver in different markets and different societies and, on the other hand, the range of economically relevant costs (and not only banks’ costs of cash, that have been mainly focused on in the Central Bank studies on which the Commission is largely relying to construe its model of use of the ‘merchant indifference test’, such as, eg, Bolt and Chakravorti, ‘Economics of Payment Cards: A Status Report’ (n 494); M Bergman, Gabriela Guibourg and Björn Segendorf, ‘The Costs of Paying—Private and Social Costs of Cash and Card Payments’ Sveriges Riksbank Working Paper Series, No 212, September 2007). 583 I refer here to the 2007 Mastercard decision of the Commission, that was followed by the GC Mastercard ruling of 24 May 2012, which did not, however, close the case, since the Mastercard Group appealed against the GC ruling on 6 August 2012, submitting, inter alia, that the GC had ‘made an error of law and/or failed to provide adequate reasoning with regard to the assessment of the objective necessity of the alleged restriction of

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5 Purchasing Joint Ventures 5.1 General Overview As I have already noted, the functional type of joint ventures for the purchasing of goods and services clearly assumes less importance than the three major subcategories of joint ventures subject to the regime of article 101 TFEU that were discussed in the preceding sections of this chapter.584 Consequently, I shall deal here briefly with certain specific aspects of such purchasing joint ventures. In doing so, the application of the global model of analysis of joint ventures devised here, as highlighted in my previous study of R&D, production and commercialization joint ventures, is assumed. Thus, in relation to purchasing joint ventures I have merely sought to emphasize the typical goals of these entities, the most common types of risks of distortion of competition which usually underlie these entities and variable elements specifically inherent in such ventures which impact on the assessment of their repercussions on the competition process (elements that are to be considered in the context of what I have construed as a third stage of analysis of joint ventures within my global assessment model of these entities).585 In accordance with the characterization outlined by the Commission in its 1993 Guidelines on Cooperative Joint Ventures, purchasing joint ventures are a type of joint venture whose activity is intended to ‘contribute to the rationalization of ordering and to better use of transport and store facilities’ by participating undertakings.586 In general terms, these entities may be used by the participants as a vehicle for the acquisition of raw materials and various assets to be incorporated into the production process, or for the acquisition of final products with a view to their resale. The first of these two types tends to be the prevailing one. As with other forms of cooperation, activities of joint acquisition of goods and services may be developed not only through joint ventures, but also through other entities combining a large number of undertakings—and within the framework of which no joint control

competition’—Case C-382/12 P, see [2012] OJ C-319/4. On various issues raised by the GC Mastercard ruling of 24 May 2012, see, inter alia, Gerard, ‘The Effects Based Approach Under Article 101 TFEU and Its Paradoxes: Modernization at War with Itself ’ (n 573). 584 It should of course be highlighted once more that in the context of the critical analysis of joint ventures that may not be qualified as concentrations (and therefore fall within the legal regime set out in article 101 TFEU), the proper understanding of potential effects on competition inherent in mixed type joint ventures, which combine several entrepreneurial functions in terms that do not allow their overall qualification in accordance to a prevailing functional type (and in a context in which those entities do not perform all the functions attributable to an independent economic entity), is also of paramount importance. Fundamental aspects for the global understanding of these entities have, by and large, resulted from my preceding study of the main functional types joint venture, that has allowed me to underline some of the most common combinations of entrepreneurial functions in the business practice of cooperation (including, eg, the combination of R&D and production joint ventures; see the analysis undertaken above, sections 2 and 3 of this chapter, and ch 2, section 1 and 2.4.3(B)). 585 See, for the analytical stages of this model of assessment of joint ventures, above, ch 2 at 2.2–2.4.5. 586 See the 1993 Guidelines on Cooperative Joint Ventures, para 61. As noted, the 2001 Horizontal Cooperation Guidelines (and, subsequently, the 2011 Horizontal Cooperation Guidelines) fully replaced the 1993 Guidelines, but do not entirely preclude the relevance of various aspects addressed in these 1993 Guidelines.

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situations arise—or even, through more flexible and lighter cooperation agreements.587 Moreover, given the frequency with which these activities involve groups of small and medium-sized undertakings, seeking to compensate for their lack of purchasing power, the cases of pursuit of such activities through those alternative cooperation processes, without involving the creation of organized and permanent structures, tend to be the most common ones in practice. Therefore, I think that, unlike in other functional areas of cooperation, the use of the joint venture legal format for the purpose of developing coordinated activities of purchasing goods and services only occurs in a relatively limited set of cases. That is so because such activities may be efficiently developed with minimal planning and without much structural support. This then is another reason for the comparatively minor importance attached here to purchase joint ventures.588 The importance of obtaining specialized information from various sources in modern business organizations explains the special relevance of R&D joint ventures as a paradigmatic tool for that flow of information (those entities raising, as noted, potential problems of distortion of competition of a very specific nature). Likewise, cooperation in the field of production requires, as a rule, the creation of joint infrastructures for this purpose and is therefore often associated with joint ventures with a greater structural impact, assuming particular relevance for the understanding of the enterprise cooperation phenomenon.589 Lastly, the treatment of commercialization joint ventures is nowadays of paramount importance, given the especial acuteness of the issues of restriction of competition usually associated with it and the fact that the development of commercialization networks often requires the creation of stable structures for this purpose through joint ventures.590 None of these factors applies in respect of purchasing joint ventures, thus reinforcing the residual role and limited importance attached to them here. Moreover, I believe that the size or relative intensity of the effects of restriction of competition which, in theory, may be generated by those purchasing joint ventures was, at certain recent stages of the evolution of EU competition law, overvalued by the Commission. Thus, following an approach markedly different from the prevailing case law and enforcement practice of the federal competition authorities in the US antitrust system, the Commission acknowledged in the 1993 Guidelines on Cooperative Joint Ventures that in general

587 See on these alternative modes of organization of activities of joint purchasing of goods and services, the 2001 Horizontal Cooperation Guidelines, para 115, and the 2011 Horizontal Cooperation Guidelines, para 194. The second hypothesis, concerning the operation of true purchasing centres, combining a vast number of undertakings, without involving joint control situations, may raise potential issues of restriction of competition similar to those raised by joint ventures. 588 On the possibility of effectively developing cooperation processes limited to the purchasing of goods and services, without using the joint venture format, see inter alia, Sullivan, Handbook of the Law of Antitrust (n 54) esp 292ff (noting ‘joint agencies for buying’, which are situated beyond the integration threshold typical of ‘joint ventures’). In the EU several authors who have analyzed various functional types of joint ventures, within the set of entities falling under article 101 TFEU, do not even consider the subcategory of purchasing joint ventures to be worthy of separate study. See, eg, Bellamy and Child, European Community Law of Competition (n 108). 589 It should be recalled here that the special structural impact usually associated with the subcategory of production joint ventures led the Commission to consider in its 1999 White Paper the possible submission of this subcategory to the MCR (an hypothesis that was however set aside in the reform of merger control rules that led to the adoption of MCR 2004). 590 On the particular importance of competition issues associated with these commercialization joint ventures, see above, ch 2 (esp 2.4.3(B)) and 4.3.2ff of this chapter.

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‘the disadvantages [of purchasing JVs] often outweigh the possible benefits which can accompany purchasing JVs, particularly those between competing producers’.591 Based on this assumption, the Commission appeared to acknowledge that most of these joint ventures would fall within the prohibition set out in article 101, paragraph 1 TFEU and that ‘only in exceptional cases’ it would be prepared to grant exemptions (especially in cases of purchasing joint ventures between competing producers).592 This strict view was gradually abandoned and is no longer evidenced in comparable terms—as will be observed below—in the 2001 and 2011 Horizontal Cooperation Guidelines. Such strictness contrasted with the prevailing approach in the US antitrust system that contemplated in principle, a more benevolent treatment of this subcategory of joint ventures resulting from the application of the rule of reason (which would only be set aside in special situations characterized by the existence of a very high market power of participating undertakings or by their exclusive access to elements essential for effective competition through the joint venture).593 Considering the most common goals underlying the creation of purchasing joint ventures, we may identify two major categories of situations leading to the creation of such entities: In some cases, purchasing joint ventures represent a key tool for participating undertakings to achieve scale economies, whether in terms of the acquisition process itself or in terms of the storage and management of acquired assets that are a necessary input for the productive process of these undertakings.594 In other cases, these joint ventures are used to obtain assets that would otherwise be inaccessible to the participating undertakings,595 either because, for various reasons, their acquisition is generally difficult, or because these participating enterprises, due to their small or medium size, do not have the economic or negotiation capabilities to acquire the concerned assets in sufficient quantities for their productive process or in reasonable conditions.

Thus, in general terms, purchasing joint ventures typically constitute a way of combining the purchasing power of various participating undertakings in order to obtain larger

591

See the 1993 Guidelines, para 61. See ibid. Although in these Guidelines attention is paid to cases in which ‘by combining their demand power in a JV, the parents can obtain a position of excessive influence vis-à-vis the other side of the market and distort competition between suppliers’ (which are deemed to be especially problematic), there seems to be no autonomous treatment, at least one clearly evidenced as such, of the particular cases in which the participating undertakings hold a high degree of market power. 593 See, on that prevailing approach towards the application of the rule of reason to this type of entity, several key judicial precedents, such as Northwest Wholesale Stationers, Inc v Pacific Stationery & Printing Co 472 US 284 (1985) (a case, in which, besides the recognition of the rule of reason, the existence of significant efficiencies— scale economies in the acquisition and storage of essential supplies—was acknowledged); White & White, Inc v American Hosp Supply Corp 723 F.2d. 495 (6th Cir 1983) or Addamx Corp v Open Software Found, Inc 888 F.Supp. 274, 280–83 (D Mass 1995). On similar lines, see also the analysis in the 2000 Antitrust Guidelines for Collaborations among Competitors, esp para 3.31(a). As stated there, ‘many such agreements do not raise antitrust concerns and indeed may be procompetitive’. 594 See, on this type of goal pursued through purchasing joint ventures, the US 2000 Antitrust Guidelines for Collaborations among Competitors, para 3. 31(a). 595 This type of situation of difficult access to certain assets may occur even when purchasing entities, requiring these assets to carry out their production activities (in broad sense), are large undertakings in their activity sector. One may envisage, for instance, situations concerning costly assets used in various productive processes in several economic sectors and which are usually supplied on a preferential basis to undertakings operating in one of these industrial sectors. 592

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quantities of certain assets that these companies need in order to carry out their activities, or in order to benefit from more favourable business conditions—especially as regards prices—which may, in turn, impact favourably on consumers (in the markets where such participating undertakings commercialize their final consumer goods). In certain situations they may even represent an ideal instrument to counteract the significant market power of a certain restricted number of suppliers, which develop their activities upstream of the market in which the participating undertakings are present. This possibility should be acknowledged with the proviso that purchasing joint ventures at stake do not lead to a reverse situation of concentration of most of the purchasing capabilities in a manner that would place excessive limitations to the activity of such supplying entities. Therefore, I share the relatively favourable pre-understanding of the fundamental goals underlying this category of joint ventures supported by some US antitrust doctrine (dissenting, in this matter, from the approach adopted by the Commission its 1993 Guidelines on Cooperative Joint Ventures).596 In a number of situations, such joint ventures may even be contrasted with other forms of business cooperation on account of the fact that their action tends to be directed not towards the increase of the market prices of final goods, but towards reducing costs of essential elements for the production process which the participant undertakings individually incur (creating more favourable conditions for these undertakings, which, in general, may result in benefits for consumers of final goods). Obviously, the pertinence of the economic justifications associated with the combined purchasing power of participating undertakings will ultimately depend upon the actual situations which occur in the markets for the supply of certain goods purchased by these undertakings and in markets for final goods in which these entities operate (as well as upon the nexus of relationships established between those markets). In this context, the systems of agreements supporting the operation of purchasing joint ventures may be relevant not only at the level of horizontal relationships, but also regarding vertical relationships between undertakings.597 The assessment of the effects provoked by these joint ventures should, as a rule, commence with an assessment of the horizontal relationships, and, in subsidiary terms, if no relevant issues at that level are identified, it may as well focus upon the area of vertical relationships (my focus here, however, lies predominantly on horizontal relationships which may potentially occur in the relationships between participating undertakings). Bearing in mind this distinction, when analysing this type of joint ventures at least two different markets that will be directly affected by such cooperation should be considered. I refer, first, to

596 As already mentioned, this stricter perspective adopted by the Commission in the 1993 Notice, although apparently softened, has not been fully reformulated in clear terms, something which is not helped by the scarce number of decisions concerning this type of situation of cooperation. As regards a favourable pre-understanding of the goals typically underlying these purchasing joint ventures see, as a good illustration of that approach in US antitrust doctrine, Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) 1569ff. 597 That distinction between horizontal and vertical relationships which may be affected by the creation of purchasing joint ventures is clearly assumed by the Commission in its 2001 and 2011 Horizontal Cooperation Guidelines, in terms with which I substantially agree. See, respectively, the 2001 Guidelines, paras 117ff, and the 2011 Guidelines, paras 195ff. As stated in the 2011 Guidelines (at para 195), ‘Joint purchasing arrangements may involve both horizontal and vertical agreements. In these cases a two-step analysis is necessary. First, the horizontal agreements between the companies engaging in joint purchasing have to be assessed according to the principles described in these guidelines. If that assessment leads to the conclusion that the joint purchasing arrangement does not give rise to competition concerns, a further assessment will be necessary to examine the relevant vertical agreements.’

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the relevant purchasing markets and, second, to the relevant markets for commercialization of final goods by the participating undertakings (namely, the ‘downstream markets where the parties to the agreement of joint purchase operate as sellers’).598

5.2 Analytical Model for the Antitrust Assessment of Purchasing Joint Ventures 5.2.1 Risks of Anticompetitive Effects Arising from Purchasing Joint Ventures Considering the three main categories of risks of distortion of competition identified above in relation to joint ventures that do not perform all the functions of an autonomous economic entity,599 I submit that two of them are potentially more significant in connection with purchasing joint ventures. I refer here, in particular, to risks related to the possibility of the production of effects in the actual or potential competition relationships between participating undertakings in a certain joint venture (in the context of what we have been calling spillover effects in a broad sense, which involve nefarious consequences for competition triggered at a level of cooperation limited to certain entrepreneurial functions, but that will extend or spill over to the competitive behaviour of the parent undertakings, taken as whole).600 Those two main categories of risks of distortion of competition that are more significant in the field of purchasing joint ventures are, in my view, (i) risks of coordination concerning prices or quantity levels of production and (ii) risks of competitor exclusion. Contrastingly, I attribute a very secondary degree of importance in this functional area of cooperation, to the risk of collusion concerning the quality of the final goods supplied to the market. The possibility of occurrence of risks of coordination concerning prices and quantitative levels of production arises, fundamentally, from situations of progressive convergence of the parent undertakings’ cost structures. This convergence may, in turn, result, in certain

598 See the 2001 Horizontal Cooperation Guidelines, paras 119ff, and the 2011 Horizontal Cooperation Guidelines, paras 197ff. 599 See above, ch 2, where I highlighted that these potential issues of distortion of competition essentially impact upon the level of relationships between participating undertakings, or on relationships between those undertakings and third entities operating in the same market in which the final goods whose production or commercialization was somehow supported by the cooperation developed through joint ventures are commercialized (as highlighted, and in the terms also referred to in at 2.3.5.2(E) of this chapter, I exclude from the scope of my analysis any autonomous relevance of elements of distortion of competition at the level of the relationships between each joint venture and the controlling parent undertakings, only acknowledging the existence of an extremely residual importance of those relationships within the application of article 101 TFEU concerning joint ventures that perform all the functions of an autonomous legal entity—that are to be qualified as concentrations—and which generate, at the same time, behavioural coordination effects). 600 As I have been underlining, the in-depth analysis of the application of my general model of assessment of joint ventures, carried out in the context of R&D joint ventures—at 2.3.5.2(E) of this chapter 3—incorporates some aspects applicable in general to all functional types of joint ventures subject to the regime set out in article 101 TFEU. Among those general aspects, I count the basic characterization of the potential effects of distortion of competition associated with these joint ventures governed by article 101 TFEU. Thus, I have considered these effects to be mainly spillover effects in a broad sense—taking the form in the sphere of relationships of actual or potential competition between joint venture’s parent undertakings and, in subsidiary terms, of effects impacting on the relationships between such undertakings and third undertakings (on the whole, as regards these joint ventures falling under article 101 TFEU, structural effects, in a narrow sense, are only of secondary relevance).

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conditions, from their participation in a given purchasing joint venture. In fact, if the intermediary goods or various inputs to the productive process purchased through this type of joint venture represent a significant amount of the total costs that parent undertakings incur in order to place their final goods in the market, such joint ventures contribute, predictably, to a significant convergence of these cost structures, in turn fostering objective conditions for the convergence of prices charged by their parent undertakings. Likewise, if the assets acquired through a purchasing joint venture, due to their specific role in the production process, are deemed determinant for the quantitative level of production of final goods, there are also conditions for an alignment of behaviours of the parent undertakings at that level.601 In fact, as foreseen in the 2001 and 2011 Horizontal Cooperation Guidelines, whenever participating undertakings are able to concentrate a large proportion of their overall operating costs in purchases made through a joint venture, the negative effect on competition resulting from that may be very similar to that of a production joint venture. (I believe that this parallel will be reinforced where the joint venture at stake is used to channel into the productive process elements which are fundamental to the final layout of the goods or services supplied by the participating undertakings.)602 The occurrence of market exclusion effects induced by purchasing joint ventures may assume a variety of forms and, as I have already acknowledged, may also occur in very similar terms to those associated with production joint ventures (with the difference that, in certain cases, even more serious consequences than those resulting from these latter entities are prone to arise). First, in the event the participating undertakings in a purchasing joint venture obtain through it a significant buying power in upstream markets in which they acquire goods essential to their productive process, they may be able to achieve a considerable decrease in the prices of those goods. Under certain conditions, that economic advantage assumes a quantitative dimension or impact that may not be available to competitors with other elements relevant to the competition process, thus virtually precluding their continuing presence in the market. Moreover, in some cases the activity of the purchasing joint venture may even deprive competitors of access to efficient suppliers. At another level, the operation of purchasing joint ventures may trigger a true circular effect of competitor exclusion. This effect stems, on the one hand, from the economic advantage gained by the parent undertakings of the joint venture through better conditions they tend to obtain from key suppliers and, on the other hand, from a possible reaction of suppliers with an unfavourable impact on competitors. I refer here to a possible reaction of suppliers by imposing higher prices to the competitors of parent undertakings with a lower degree of buyer power. When this occurs, suppliers thus seek to recover commercialization margins that they had to let go in the context of the business relationship with a given

601 As explained earlier, we are considering these issues mainly from the viewpoint of horizontal relationships between a joint venture’s participating undertakings. Conversely, if a given purchasing joint ventures combines different categories of purchasers, operating in different markets for final goods, those potential effects of distortion of competition, concerning the alignment of prices and of the quantitative levels of output will be somewhat diluted, even if some of the participating entities compete between themselves (see on the relevance of the distinction of these types of situations, Green and Robertson, Commercial Agreements and Competition Law (n 249) 768ff). 602 See the 2001 and the 2011 Horizontal Cooperation Guidelines, respectively, para 128 and para 214. As previously mentioned, notwithstanding the fact that Guidelines address, in general, cooperation agreements, the analysis carried out there assumes paramount importance for the assessment of joint ventures.

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purchasing joint venture. Conversely, competitors, holding a comparatively smaller share of market power, are faced with a double disadvantage, for they cannot cope with the buyer power of the participants in the purchasing joint venture vis-a-vis key suppliers and, at the same time, they are constrained by the reaction of these suppliers to compensate their less favourable results arising from their relationship with a given purchasing joint venture. The probability of occurrence of this chain effect, damaging twice over the competitive position of other undertakings which compete with parent undertakings, depends on a number of structural conditions, concerning both the market for acquisitions and the market for the commercialization of final goods in which all these undertakings operate.603 In order for that to happen, an appreciable market power of parent undertakings in their respective market for final goods and in the market for the acquisition of intermediary goods will need to coexist with a relative market power of suppliers, endowing the latter with the ability to compensate for, at the level of the commercial relationships they will keep with third undertakings, the less advantageous conditions that were extracted from them by participating entities in a given purchasing joint venture. These different levels of market power, relating both to the market for the acquisition of intermediary goods and to the market for final goods commercialized by parent undertakings are, naturally, influenced by the market shares of the various intervening undertakings, as well as by the existing levels of concentration in the same markets. Thus, we may consider that structural factors are of particular importance in the analysis of purchasing joint ventures, as well as the relations of interdependence arising between the structures of the market for the acquisition of intermediary goods and of the market for the commercialization of final goods of parent undertakings.604 Considering, in accordance with the analytical model used here, the possible identification of usually permitted or usually prohibited situations of cooperation, on the basis of a first and preliminary stage of analysis, it strikes me as important to highlight in this context, a special feature of this subcategory of purchasing joint ventures. This special feature concerns the delimitation of usually prohibited situations, which should be exceptional. Indeed, on this issue, I agree with the analysis of the Commission in its 2001 and 2011 Horizontal Cooperation Guidelines, according to which ‘purchasing agreements only come under Article 101(1) by their nature if the cooperation does not truly concern joint buying, but serves as a tool to engage in a disguised cartel’. 605 This position is a significant development from the Commission’s rather strict view held in its previous 1993 Guidelines on Cooperative Joint Ventures, but, as observed above, it does not amount, yet, to an overall consolidation of a more far reaching approach in the sense of acknowledging the submission

603 This sui generis effect, which imposes a dual burden on undertakings competing with parent undertakings of a given purchasing joint venture was identified in the 2001 Horizontal Cooperation Guidelines (see para 129). However, in my opinion, the Commission did not draw all the consequences of the characterization of such effects of restriction of competition, particularly as regards the particular relevance of structural factors contributing to their occurrence (and, furthermore, these effects appear to be somehow downplayed in the 2011 Horizontal Cooperation Guidelines). 604 Although these structural factors represent a fundamental component of the analysis of the various functional types of joint ventures subject to the legal regime set forth in article 101 TFEU, in the context of the overall competition law analysis model proposed here (in the terms set out above in ch 2), I consider that their absolutely decisive role in the assessment of the likelihood of occurrence of effects of restriction of competition in connection with purchasing joint ventures amounts to a particularly distinctive trait of the analysis of these entities. 605 See the 2001 Horizontal Cooperation Guidelines, para 124 and the 2011 Horizontal Cooperation Guidelines, para 205.

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of a smaller number of purchasing joint ventures to the prohibition rule set out in article 101, paragraph 1 TFEU (such hermeneutical consolidation does not depend only on the recognition of a lesser scope of application of criteria leading to an almost automatic prohibition of certain types of situations, as is the case in the Horizontal Cooperation Guidelines, but generally implies the explicit and clear adoption of more flexible criteria in implementing the prohibition set out in article 101, paragraph 1 TFEU). In short, purchasing joint ventures should not, in principle, due to their nature, be subject to criteria of almost automatic prohibition. The application of these criteria should only occur in relation to situations of fraud or simulation, in the context of which the joint venture form is merely a formal instrument—a formula of legal qualification—employed to implement de facto agreements intrinsically restrictive of competition, aimed at the setting of prices, the limiting of production or market sharing. Under US antitrust law, the consolidation, which dates from a longer period, of an overall favourable view regarding this type of joint venture—contrary to the view that tended to prevail in EU law until recently—allowed the in-depth study of operative criteria for distinguishing between, on the one hand, the actual existence of purchasing joint ventures, subject to the rule of reason and, on the other hand, merely apparent situations of creation of such entities, that were, in fact, pure agreements between purchasers for collusion concerning the setting of prices and of amounts of supply of the intermediate goods they required. This latter type of situation, often designated under US antitrust law as ‘buyers’ cartels’, concealed through the use of an apparently legal format of joint venture is, in principle, subject under US antitrust law to per se prohibition criteria.606 In EU competition law, where a greater degree of flexibility in the application of assessment criteria to purchasing joint ventures is more recent, such operative distinctions should be further developed. Ultimately, the necessary establishment of such operative distinctions implies a proper characterization of the degree of integration achieved by any entity or cooperative arrangement constituted by the participating undertakings as a joint venture, in order to assess their actual correspondence, or not, with this legal status. If the degree of integration is either very limited or non-existing, it may be considered that, regardless of legal qualifications used by the parties, a joint venture, capable of generating certain efficiencies, does not actually exist. Accordingly, in such cases the cooperative arrangement between the parties will correspond to mere purchasing agreements which, under certain conditions, may be deemed as intrinsically restrictive of competition.607 However, the traditional analytical deficit in construing parameters for ascertaining, in a truly consistent manner, an accurate status of joint venture under EU competition law, on the basis of the degree of integration achieved, may hinder the establishment of the above distinctions.608 606 That view has been adopted by federal competition authorities and appears to be consolidated in the case law. In this regard see, among other cases, Vogel v American Soc’y of Appraisers 744 F.2d. 598, 601 (7th Cir 1984), in particular the obiter dictum according to which ‘buyer cartels, the object of which is to enforce the prices that suppliers charge the members of the cartel below the competitive level, are illegal per se’. 607 See on this analytical methodology in order to distinguish between mere purchasing agreements (‘naked buyers’ cartels’) and actual purchasing joint ventures (‘buying joint ventures’), Pirainno, ‘Beyond per se, rule of reason or merger analysis: a new antitrust standard for joint ventures’ (n 36) 46: ‘Cooperative buying arrangements which are not sufficiently integrated should not qualify for joint venture analysis at all. For example, the courts have appropriately applied a per se analysis to unintegrated buying groups whose purpose was to establish a uniform price for their partners’ products”. 608 See, on the gaps that I have identified in the process of legal characterization of joint ventures under EU competition law, above ch 1 (esp 1.3, sections 2 and 6).

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5.2.2 Purchasing Joint Ventures that Need Further Analysis As part of the global model of assessment of joint ventures outlined here, entities, which pursuant to a preliminary assessment may not prima facie be regarded as usually permitted situations, or, conversely, as prohibited situations, must be subject to a more developed analytical process, combining several interlinked parameters. At this point, I shall only focus upon what I designated as the third stage of assessment of joint ventures, which addresses the possible elements of restriction of competition associated with each particular functional type of cooperation. As regards the second stage of assessment, relating to the application of the analytical criterion of the aggregate market share of participating undertakings, I maintain that purchasing joint ventures should essentially be treated like other functional types of joint ventures. As previously mentioned, I depart here from the Commission view expressed in its 2001 and 2011 Horizontal Cooperation Guidelines. As such, I maintain the consideration, as an indicative factor, of a sole market share threshold, amounting to 25 per cent of any of the relevant markets affected by the creation of joint ventures, regardless of functional type of joint venture concerned.609 Thus, also in relation to purchasing joint ventures my understanding is that situations that do not exceed a threshold of an aggregate market share of 25 per cent of the relevant markets, in general, provides grounds for adopting a preliminary and indicative reasoning favourable to those entities in the context of the application of article 101, paragraph 1 TFEU (what is actually at stake at this level, as it has been observed in connection with other subcategories of joint ventures, is to establish an overall favourable consideration aimed at the non-application in principle of the prohibition set out in that provision). As I have also been acknowledging, this favorable consideration of a given joint venture may be set aside in the light of other factors arising from an additional analysis of that entity. The Commission, on the other hand, considers in its 2001 and 2011 Horizontal Cooperation Guidelines, the appropriate threshold to be an aggregate market share of participating enterprises corresponding to 15 per cent of the affected markets.610 Thus it admits that the creation of purchasing joint ventures involving participating enterprises holding a combined market share above that threshold of 15 per cent of the relevant markets involves the exercise of a certain degree of market power, rendering such entity prone to be covered by article 101, paragraph 1 TFEU (although that ‘does not automatically indicate that the joint purchasing arrangement is likely to give rise to restrictive effects on competition’ but merely that one is dealing then with an entity ‘which does not fall within that safe harbor’ and that, therefore, ‘requires a detailed assessment of its effects on the market’).611 The application of my sole analytical criterion, being the 25 per cent threshold of the relevant markets, a criterion less stringent than the one proposed by the Commission, does not seem overly permissive, not only because it does not intend to establish a basis for the granting of exemptions, but also because the necessary complementary use of other

609 See, on this criterion of a sole market share threshold the analysis developed above, ch 2, 2.4.2 and 2.3.5.1 of this chapter. 610 See the 2001 Horizontal Cooperation Guidelines, paras 130ff, and the 2011 Horizontal Cooperation Guidelines, paras 208ff. 611 See, the 2011 Horizontal Cooperation Guidelines, para 209.

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analytical parameters will allow the adjustment of the initial consideration on certain joint ventures arising from this market share criterion. (The Commission seems repeatedly to misunderstand the different levels for weighing of the market share criterion, since it considers, in relation to purchasing joint ventures that the existence of a market share below the 15 per cent threshold makes it likely for the conditions set out in article 101, paragraph 3 TFEU to be met).612 The only difference I acknowledge as regards the consideration of this market share analytical criterion in the context of the assessment of purchasing joint ventures relates to the type of affected markets that should be taken into account. Thus, the relevant market share threshold should be gauged by reference to the market for the acquisition of intermediary goods and by reference to the market in which participant undertakings’ final goods are commercialized. Moreover, as previously noted, this structural market share criterion, combined with other elements of a structural nature—namely the degree of concentration of the concerned markets—has, in my view, a special importance for assessing the effects of these joint ventures on the competition process (compared to other functional types of joint ventures). The combination of certain structural conditions concerning the market of acquisition of inputs and the market of commercialization of final goods increases, in a particular manner, the potential for distortion of such joint ventures. This potential will, in theory, reach its peak in the event the following elements are combined: a high market share of the parent undertakings in the market of commercialization of their final goods; a high buying power of these undertakings in the market for the acquisition of intermediary goods, due to the significant portion of acquisitions undertaken by these entities; and also a certain degree of appreciable market power of suppliers operating in that market for intermediary goods (which allows them to impose certain commercial conditions to third undertakings which act as competitors of participant undertakings in a given purchasing joint venture). As regards the layout of the functional programme of cooperation underlying each purchasing joint venture, this may reinforce or mitigate the potential for distortion of competition of these entities. At this level, which should be taken into account within a third stage of assessment of such joint ventures, it is particularly important to consider two main variables. The first is the exclusive nature, or otherwise, of the activity of joint purchasing of certain intermediary goods pursued by a particular joint venture (in case of exclusivity, the participating entities undertake to acquire all of the intermediary goods they require through the joint venture, refusing to carry out independent activities in order to purchase any such goods). The second variable concerns the relative weight and the proximity of the activity of joint purchasing of intermediary goods in relation to the main activities of production and commercialization of final goods by participating undertakings (in related terms,

612 As mentioned above, in the context of the assessment model for joint ventures devised here, the analytical criterion based on a sole market share threshold (amounting to 25% of the relevant market) performs a different analytical function from that associated with the market share thresholds set forth in the Block Exemption Regulations. In fact, the Commission appears to confuse two different levels when talking, in connection with purchasing joint ventures, of an aggregate market share criterion of 15%, both for the assessments for establishing the application of the prohibition set out article 101, para 1 TFEU, and for supporting the granting of exemptions under para 3 of the same provision. On the need to distinguish between those two levels when using the analytical criterion concerning the market share of participating undertakings, see above, 2.3.5.1(C)–2.3.5.1(E) of this chapter.

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the proportion that such purchasing activities represent in the overall cost structures of participating undertakings is also important). In general terms, the combination of the non-exclusive nature of a purchasing joint venture with a relatively small or limited impact of the activity carried out by this entity on the cost structure of its participating undertakings will mitigate the risks of restriction of competition inherent in that.613 On the contrary, the waiver by the parties of any independent activity of purchasing of intermediary goods will contribute to strengthen the potential for distortion of competition of this kind of joint venture (although the Commission has overrated this negative aspect somewhat in the recent past).614 In my opinion, these exclusivity situations, whilst potentially problematic, should always be considered in combination with the economic power of participating undertakings in the purchasing markets and in the markets of commercialization of final goods. As a rule, and save very particular cases, or in case of use of a joint venture to conceal actual buyers’ cartels—as construed under US antitrust law—only the combination of those two factors involving a high degree of market power and the exclusive nature of the activity of joint ventures, will lead to the occurrence of appreciable effects of restriction of competition. However, this rather flexible view is not yet truly established, nor even consolidated, in the Commission’s enforcement practice. Thus, among other relevant precedents, Orphe615 may be taken as representative of the overly strict approach adopted by the Commission in this respect. This case concerned the establishment of a European Economic Interest Grouping involving companies from different Member States devoted to the wholesale marketing of pharmaceutical products. Besides other functions, this Grouping aimed at developing joint purchasing activities on behalf and in the interest of its members. Even though the participating undertakings were medium-sized undertakings, and did not apparently hold a high degree of market power, and although those participating entities retained their ability to independently carry out acquisitions, the Commission considered, in the letter of comfort issued on the subject, that article 101, paragraph 1 TFEU had been infringed, although that would possibly be covered by an exemption granted under paragraph 3 of this provision. It should be acknowledged as regards this case that the cooperation agreements entered into by the entities at stake also concerned other matters, many of which could result in ancillary restraints to competition.616 Nevertheless, since the joint purchasing of goods

613 This favourable perspective of weighing of these two variables clearly stems from several of the Commission’s decisions, including in cases concerning cooperation agreements aimed at the development of joint purchasing activities which do not lead to the creation of joint ventures. See, inter alia, INTERGROUP [1975] OJ L212/23. 614 The importance attributed to this aspect can be seen in National Sulphuric Acid Association [1980] OJ L260/24. In that case, participating undertakings undertook to acquire at least 25% of their overall needs of a given raw material—essential for their main activity, which was the production of sulphuric acid—through the joint acquisition mechanism established among them. I do not reject the relevance of this factor; however, I refute that it may almost automatically lead to the application of the prohibition set out in article 101, para 1 TFEU (even if not precluding the granting of exemptions under para 3 of that same article). 615 I refer here to a letter of comfort issued by the Commission concerning an European Economic Interest Grouping composed of a set of pharmaceutical wholesale enterprises of average size (Press Release IP(90) 1991, 6 December 1990). 616 I refer here to arrangements concerning the packages of products distributed by participating entities, the creation of a database, and other matters. For more on this category of ancillary restraints to competition, see, inter alia, Donald Holley, ‘Ancillary Restrictions in Mergers and Joint Ventures’ in International Mergers and Joint Ventures—Annual Proceedings of the Fordham Corporate Law Institute—1990 (Barry Hawk (ed), Transnational Juris Publications, 1991) 423ff.

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was the essential component of those agreements, I believe that, in this particular case, an overall assessment of non-application of the prohibition set forth in article 101, paragraph 1 TFEU would have been appropriate. The non-exclusive nature of the purchasing agreements and the lack of a high degree market power of the participating undertakings should have been regarded, in my view, as key to such a favourable assessment, without any need to turn to the exemption criteria referred to in article 101, paragraph 3 TFEU. The CJEU has already adopted a considerably less strict view on this matter, going so far as to acknowledging the compatibility with article 101, paragraph 1 TFEU of entities formed for the joint purchasing of raw materials involving exclusivity engagements (according to which participating undertakings should not carry out purchasing activities in direct competition with the joint venture). Indeed, in Göttrup-Klim v Dans Landbrugs Grovvare selskat AmbA,617 the CJEU favourably assessed a situation of that kind, considering that an engagement of non-competition assumed by the participating entities in relation to the purchasing pursued by the joint venture in question did not subject that cooperation process to the prohibition set forth in article 101, paragraph 1 TFEU, provided that the commitment was strictly limited to ensuring the efficiency of the joint activity and the maintenance of some degree of contractual power of the joint venture vis-a-vis the suppliers. Furthermore, regardless of those elements of exclusivity, the CJEU has developed an overall assessment of the effects of the purchasing agreements, in light of the actual market situation concerned. In this sense, it took into account the fact that the entities participating in such agreements held a comparatively smaller degree of market power than that of third competing undertakings, and also inferior to the economic power of supplier undertakings (in the markets for the acquisition of raw materials). Therefore, in light of ‘workable competition’ flexible criteria, such agreements should not produce appreciable effects of restriction of competition that might trigger the application of article 101, paragraph 1 TFEU. The CJEU thus set aside any possible application of a criterion of almost automatic prohibition of exclusivity engagements associated with those agreements.618 This type of flexible assessment, limiting the importance granted to exclusivity undertakings and advocating their integrated assessment in conjunction with other elements, such as the parties’ market power and the relative importance of the joint acquisition activities in relation to the main activities of participating undertakings, should, in my view, be strengethened and consolidated (putting an end to the excessive use by the Commission of the granting of exemptions under article 101, paragraph 3 TFEU in this area or to a similar practice by Member State competition authorities when applying EU competition rules). In analyzing the specific layout of the cooperation programme underlying this functional type of purchasing joint venture and the manner in which it influences the impact of these entities on the competition process, I acknowledge that some aspects of the experience gained in the US antitrust law system could be taken into account at EU level. I refer,

617 See Case C-250/92 Göttrup-Klim v Dans Landbrugs Grovvare selskat AmbA (CJEU, 1994). See also in this case, the Opinion of Advocate General Tesauro, esp para 24. 618 On the concept of ‘workable competition’, under EU competition law, see in general ch 1. In Göttrup-Klim, the idea of an assessment of the impact of the purchasing agreements on the basis of ‘workable competition’ parameters was expressly raised by Advocate General Tesauro.

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in particular to the consideration of certain safeguards as regards the mode of operation of joint ventures in order to limit the flow of sensitive business information. Thus, the existence of completely independent organic structures, in relation to participating undertakings, and which do not incorporate staff or other ancillary elements somehow related with these undertakings,619 as well as the strict fulfilment of confidentiality engagements in communications between the joint venture and each participating undertaking,620 may amount to key elements, under certain circumstances, to reduce potential risks of distortion of competition. I believe that, as happens in the US antitrust system, the assessment of such joint ventures within the framework of EU competition law should include the weighing of variable solutions for the functional organization of these entities. That would involve the consideration of mechanisms which could prevent, specifically, certain effects of restriction of competition. Such weighing could enable a favourable assessment of several entities that generate economic efficiencies, in the context of the application of article 101, paragraph 1 TFEU, through, inter alia, various safeguards set out in decisions approving commitments made by participating undertakings (under the terms set forth in article 9 of Regulation (EC) No 1/2003). Also, those kinds of safeguards can in many cases be delineated by the parties on their own initiative, in order to prevent any future concerns that might hypothetically be raised by competition authorities applying EU competition rules (either the Commission or Member State authorities in the context of the decentralization in the enforcement of such rules). A good illustration of that proactive approach, taking into consideration once again EU Member States’ competition authorities, is the 2011 CPTN/Novell case decided by the Bundeskartellamt.621 Although this joint venture involved other functional dimensions that rendered it full functional, it included a fundamental purchasing dimension (the acquisition of hundreds of software patents). In the face of objections from competition authorities the parties revised the agreements at stake, contemplating various remedies to accommodate the competition concerns (eg, as regards selling back some of the patents or excluding some patents from the purchasing).

6 Joint Ownership of Undertakings Without Joint Control 6.1 General Overview In the context of my previous references to the various stages of treatment of joint ventures under EU competition law and to situations of cooperation between undertakings

619 See, regarding the treatment under US antitrust law of this kind of safeguard concerning the functional organization of purchasing joint ventures or cooperation agreements with comparable effects, US Dept of Justice, ‘Business Review Letter to Textile Energy Ass’n, 1998’ DOBJBRL 13 (14 September 1998). 620 See, on the adoption of undertakings or commitments of this type in the context of US antitrust law, in order to prevent risks associated with the flow of sensitive information, US Dept of Justice, ‘Business Review Letter to Armored Transp Alliance, 1998’ DOJBRL LEXIS 13 (12 March 1998). 621 See on CPTN/Novell, Peter L’Ecluse, ‘The German Competition Authority Clears Joint Venture in the Software Sector (CPTN/Novell)’ e-Competitions No 41139, April 2011.

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comparable to them, the possible relevance of coordination issues arising from shareholdings in certain undertakings which allow the exercise of some influence over the behaviour of those entities has been very briefly touched upon.622 These are situations of acquisition or holding by an undertaking of shareholdings in a third undertaking which, without exceeding the threshold required for the acquisition of control, whether jointly or individually, may, nevertheless, influence the competitive relationships between the concerned undertakings. This type of minority shareholding, due to the absence of any kind of control—as this concept has been perceived in EU competition law623—does not lead to the emergence of concentration operations, nor to the creation of joint ventures. However, its potential impact on the relationship between the involved undertakings may, under certain circumstances, raise issues of distortion of competition, to some extent comparable to those associated with certain joint ventures. It is therefore appropriate to make some brief remarks about these situations. This concern with the analysis of such situations is, in my view, particularly relevant, given the fairly high frequency with which they occur in the current context of business relationships in various economic sectors624 and considering that the potential impact on the competition process625 arising from them has not been appropriately dealt with in terms of enforcement of EU competition rules (hence evidencing a serious gap in this legal system). The insufficient attention granted to these situations of minority shareholdings may have resulted from some confusion between them and the situations relating to concentration operations in a given stage of evolution of EU competition law, prior to the adoption of the MCR. In this context, the assessment of a situation concerning the acquisition of a shareholding in a third undertaking without obtaining control, made by the CJEU in its landmark Philip Morris ruling,626 may have contributed to these rather grey areas (this judicial precedent being for a long time the only one dealing specifically with such matters until the recent ruling of the GC in Aer Lingus v Commission in 2010).627 As regards Philip Morris, and regardless of the contrasting readings of the case, it is not my understanding that the CJEU signalled the application of article 101 TFEU to

622

See, in particular, the brief references made to this type of situation above, ch 2 at 1.5. The concept of control over undertakings under EU competition law has already been extensively analyzed and so will not be further addressed here. See above, ch 1 at 2.1, 3.2, 4.6.1.4, 4.6.1.5, and 5.3.1.2. 624 In a worldwide context of relations between undertakings characterized by an increasingly complex set of interdependencies, even when these do not assume the more traditional forms of concentration between undertakings, one is confronted not only with the proliferation of more flexible processes of cooperation between undertakings carried out through joint ventures, (as generally noted above in the Introduction), but also of multiple cross-shareholding relationships. On the importance of these situations in modern industrialized economies, illustrating the most recent advances in this field, see David Gilo, ‘The Anticompetitive Effect of Passive Investment’ (2000) Mich LR 2ff. 625 The recent development in EU competition law of models of economic analysis of the functioning of markets in order to ensure a proper understanding and application of legal parameters for the assessment of various situations, has gradually led to a deeper understanding of this type of repercussions, depending on the circumstances, of these cases of acquisition of shareholdings in third undertakings which do not imply transfers of control. See, in general, on the new perspectives disclosed by the advances in theoretical economic analysis of certain relationship nexus between undertakings, Robin A Struijlaart, ‘Minority share acquisitions below the control threshold of the EC Merger Control Regulation: An economic and legal analysis’ (2002) W Comp 173ff. 626 I refer here to the 1987 ruling of the CJEU normally identified as Philip Morris—as it will also be referred to here and throughout this analysis of competition law problems related with minority shareholdings short of joint control—corresponding actually to the Cases 142/84, 156/84 BAT and Reynolds v Commission. 627 See Case T-411/07 Aer Lingus v Commission (GC). 623

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concentrations with this ruling.628 What strikes me is the terminological vagueness of the content of this ruling, that needs to be highlighted.629 Indeed, as far as I am concerned, this relative vagueness should be regarded, in itself, as the main source of the intense controversy among scholars concerning the reach of the precedent.630 Also, in the historic context in which the CJEU decided the case, the fluctuations in the terminology employed by the Court were, to a certain extent, exploited by the Commission in the long and troublesome process of negotiation of the Proposal for a then Community Regulation on concentration control, which had been on the table since 1973, in view of fostering the final adoption of the MCR. In fact, as the reach of that ruling was not completely clear, the Commission came to the point of considering, in that light, the possibility of reviewing the position it had initially adopted in its memorandum on the problem of concentration in the common market, dated 1 December 1965, where it had maintained in principle the non-applicability of article 101 TFEU (then article 85 EEC) to concentration operations631 thus paving the way, if that hypothetical reversal of hermeneutical reading was adopted, to a submission of certain categories of concentrations to the article 101 regime. Although the subsequent approval of the MCR, in circumstances already referred described,632 has set aside the particular significance

628 On the many contrasting hermeneutical readings proposed for the Philip Morris ruling following its adoption by the CJEU, see Willem Calkoen and J Feenstra, ‘Acquisition of Shares in other Companies and EEC Competition Policy—The Philip Morris Decision’ (1988) The International Business Lawyer 167ff; E-J Mestmäcker, ‘Fusionskontrolle im Gemeinsamen Markt zwischen Wettbewerspolitik und Industriepolitik’ (1988) EuR 349ff, with these authors arguing for a reading of the ruling as acknowledging the applicability of the then article 85 EEC, currently article 101 TFEU, to operations of concentration; taking the opposite view, albeit with not entirely coincident readings of the Philip Morris ruling, see, inter alia, V Korah and P Lasok, ‘Philip Morris and Its Aftermath—Merger Control?’ (1988) CMLR 333ff; Bellamy, ‘Mergers Outside the Scope of the New Merger Regulation—Implications of the Philip Morris Judgment’ in Annual Proceedings of the Fordham Corporate Law Institute—European/American Antitrust and Trade Law—1988 (Barry Hawk (ed), Fordham Corporate Law Institute, Matthew Bender, 1989) 22ff. 629 There is no room here to recount the complex situation in Philip Morris, nor the outline of the analysis carried out by the ECJ. This case involved the acquisition by Philip Morris of a non-controlling stake in a competitor (Rothmans International) with various related contractual engagements that might influence the structure of control of Rothmans International and its future development. However, there were some considerable ambiguities that could even be construed as conceptual flaws in the court’s analysis of the case, as regards the use in the ruling of essential categories for the interpretation and application of article 101 TFEU such as ‘undertaking’, ‘legal or de facto control’ on the activity of enterprises, ‘economic independence’, or ‘enterprise business behavior’. The not entirely clear use of these categories contributed to the ambiguity of the actual reach of the ruling in terms of contemplating the scrutiny under article 101 TFEU of mere acquisitions of significant holdings in another independent competitor undertaking, short of acquisition of effective control, including in that scrutiny acquisitions leading to effective control. 630 As referred to earlier, various authors submitted that the Philip Morris ruling would allow the application of article 85 EEC Treaty (current article 101 TFEU) for purposes of direct control of certain concentration operations, while other authors denied that this case law would have such a broad reach (as well as various other intermediate and composite views). 631 I refer here to the Memorandum of the Commission of 1 December 1965—‘Le Problème de la Concentration dans le Marché Commun’ Collection Etudes Serie Concurrence No 3, Bruxelles, 1966—constituting the first real analysis by the Commission of the issues related to direct control of concentrations. This 1965 Memorandum was adopted in the wake of a report prepared by independent experts, the majority of whom, curiously, had maintained the applicability of then article 85 EEC to some concentrations (while the Commission diverged from that position and only contemplated the applicability under certain conditions of then article 86 EEC—current article 102 TFEU—to some concentration operations). See, on that controversy, putting it into historical context in terms of EU competition law, Aurelio Pappalardo, ‘Le Règlement CEE sur le Controle des Concentrations’ (1990) Rev Int’l Dr Econ 3ff. 632 See above, ch 1 at 4.4.1.

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that was initially attached to the issue of a possible application to concentrations of the regime of article 101 TFEU, the confusion thus created between these operations of concentration and situations of acquisition of minority shareholdings without obtaining control has lingered beyond this precedent in the context of EU competition law. Moreover, during the first stages of enforcement of the MCR, the problems caused by the duality of treatment of joint ventures, depending on whether they were qualified, or not, as concentrations, and the procedural issues concerning the definition of criteria for distinguishing these two basic subcategories of joint ventures,633 continued somehow to downplay a consistent autonomous treatment of potential problems of distortion of competition arising from situations of acquisition of minority shareholding without gaining control (situations not fitting the category of concentration, nor the category of joint ventures). Also, the importance attached by the Commission to the organization of an efficient EU merger control procedure, pursuant to the adoption of the MCR, and the administrative burden of the prior notification procedures within the context of the application of article 101 TFEU (prior to the adoption of Regulation No 1/2003), further and decisively contributed to the relegating to relative oblivion of the issues of minority shareholdings which do not confer control.634 This relative gap in the system of enforcement of EU competition rules, although undoubtedly less serious than the lacuna in terms of direct control of concentrations has been in the past (until 1989), should not linger on. In fact, several reasons contribute, in

633 I have previously highlighted the disproportionate relevance of procedural issues concerning the distinction between concentrative joint ventures and cooperative joint ventures during the period whilst the MCR was in force prior to its first reform (1997 amendment to the MCR). See, on this, and on the competition law analytical distortions associated with this distinction, above, ch 1 at 3.2.1, 4.4.1 and 4.4.2. 634 In the US antitrust law system, a greater deal of attention has been, for some time now, devoted to these issues, eg, by such influential authors as Philip Areeda and Donald Turner in the classical study, Antitrust Law (1980). There, these authors maintained that the ‘non-controlling acquisition has no intrinsic threat to competition at all’ (at para 1203 d, 322). However, this understanding has been opposed by many US antitrust scholars, mostly after the adoption of the revised Merger Guidelines of 1982. See, in regard to the development of this perception of the potential of distortion of competition inherent in the acquisition of minority shareholdings not granting their acquirer the control of the participated entity, Daniel O’Brien and Steven Salop, ‘Competitive effects of partial ownership: financial interest and corporate control’ (2000) ALJ 559ff. Significantly, the importance attached to issues of distortion of competition that may be associated with this type of minority holdings has even led some scholars to propose adjustments to the traditional formula of the Herfindahl-Hirschman Index (HHI), in order to consider the variables pertaining to situations of holding of stakes in third undertakings without obtaining corporate control. I refer, namely, to the so called ‘modified HHI’ proposed by Timothy F Bresnaham and Steven Salop (see ‘Quantifying the competitive effects of production joint ventures’ (1986) International Journal of Industrial Organization 155ff). Furthermore, the US 1992 Horizontal Merger Guidelines (revised in 1997 and comprehensively reformed and replaced in 2010) contained a brief reference to issues associated with the ownership of holdings in the share capital of undertakings, although such reference seem to be made to cross-shareholdings in undertakings participating in joint ventures (see the 1992 Guidelines, para 3.34(c): ‘the Agencies also assess direct equity investments between or among the participants. Such investments may reduce the incentives of the participants to compete with each other’). In the new 2010 US Horizontal Merger Guidelines, section 13 on ‘Partial Acquisitions” covers specifically and more broadly these situations and acknowledges that such acquisition of minority shareholdings (or ‘partial acquisitions’) when ‘not resulting in effective control’ may in any case ‘present significant competitive concerns and may require a somehow distinct analysis from that applied to full mergers’ (if creating effective control, in my view, those cases should be deemed equivalent to concentration operations under EU competition law and will therefore not correspond to these particular situations that I am considering here and that justify autonomous treatment because they imply a change of competitive conditions short of control). The 2010 Guidelines, however, do not go as far as specifying, as regards such ‘distinct analysis’ of those minority acquisitions—that I consider to have significant parallels with the analysis of partial function joint ventures under EU competition law—a ‘modified HHI’ (in terms of structural analysis to be applied to such situations).

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my view, to the development of a new analytical treatment of that matter, to which I attach paramount importance (as confirmed by the recent cases of Aer Lingus v Commission and others).635 In first place, the proliferation of these situations of acquisition of shareholdings without obtaining control in various business sectors and the consequent relevance of such cases for the practical operation of these sectors will lead to a predictable increase of its effect of restriction of competition and should trigger reactions from affected undertakings. Thus, in this area, a circle of virtuous effects could occur, to the extent that the filing of complaints by affected enterprises will tend to strengthen and render more systematic the Commission scrutiny (or, as the case may be, from EU Member States’ competition authorities) concerning these situations. Complementarily, once this increased attention from the Commission is raised, the willingness of affected undertakings to react through the submission of complaints will also be greater. Also, a renewed attention of the Commission and on the part of other competition authorities may also arise from issues related to acquisition or holding of minority shareholdings that are raised in the context of concentration control proceedings or as side-effects of some concentrations. Such a proliferation of cases of acquisition of minority shareholdings occurs, in particular, as highlighted in the context of US antitrust law, in the most dynamic business sectors, namely telecommunications, electronic communications, in general, or other high-tech industries.636 The practice of acquiring and holding this type of shareholding in competing undertakings is also very common in the financial sector (especially in the banking and insurance sub-sectors). Moreover, I consider it symptomatic of the importance of those situations, that, in several decisions involving concentration operations in the financial sector, such as, inter alia, Allianz/Dresdner or Nordbanken/Postgirot,637 the Commission’s assessment has not only been focused upon the main aspects of the acquisition of corporate control itself, that encapsulated the concentrations at stake and constituted the direct object of the proceedings, but also on the repercussions stemming from the networks of minority shareholdings held by the undertakings involved in the concentrations in other undertakings.

635 See, in general, on these recent developments in this area, Enrique González-Diaz, ‘Minority Shareholdings and Creeping Acquisitions: The European Union Approach’ in Competition Law Institute—International Antitrust Law & Policy—2011 (Barry Hawk (ed), Fordham University School of Law, 2012) 423ff. Complementarily, on the renewed analytical attention given to situations of acquisition of shareholdings without obtaining control, see, inter alia, Laurent Flochel, ‘Les Effets Concurrentiels des Prises de Participation Minoritaires’ (2012) Concurrences No 1, 1ff; Nadine Mouy, ‘Participations Minoritaires et Contrôle des Concentrations’ (2012) Concurrences No 1, 10ff; David Spector, Jacques-Philippe Gunther, David Bosco, Peter Kalbfleisch, Bernaerd van de Walle de Ghelcke, Peter Freeman and Andreas Bardong, ‘Merger Control and Minority Shareholdings: Time for a Change?’ (2011) Concurrences No 3, 14–41. 636 Daniel O’Brien and Steven Salop refer to that fact in the context of the US antitrust law system, emphasizing, eg, among other cases, the Federal Trade Commission’s decision in Time Warner/Turner (Time Warner Inc, 61 Fed Reg 5, 0301—25 September 1996). See O’Brien and Salop, ‘Competitive effects of partial ownership: financial interest and corporate control’ (n 634) 560ff. 637 See Case M.2431 Allianz/Dresdner (19 July 2001) and Case M.2567 Nordbanken/Postgirot (8 November 2001). Symptomatically, it was the Commission itself who raised the relevance of this type of analysis concerning minority shareholdings in those decisions relating to concentrations in the financial sector, in analyses produced in the context of the Competition Policy Newsletter, February 2002. (See in that Newsletter, the paper of Enzo Moavero Milanesi and Alexander Winterstein, ‘Minority shareholdings, interlocking directorships and the EC competition rules—recent Commission practice’ (at 15ff)).

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I would go so far as to say that, at EU level, besides the traditional importance of such cross-shareholdings among financial institutions, as a general feature of several of the most developed financial systems,638 other factors have also accrued, contributing to a remarkable weight of these situations in the portfolio of several institutions. Such factors are related to the development of a complex integration process in the various sub-sectors of the financial system, leading to the gradual creation of EU-scale financial conglomerates, or groups with a significant position in certain areas of the EU that already exceed the thresholds of domestic markets. This process has involved some concentration operations between financial institutions, which have increased with the implementation of the EU single currency.639 However, due to the issues that such transactions tend to raise in the financial sector, either for prudential reasons, or by specific requirements of the domestic markets—particularly in the segments of retail activities—such integration process may involve, as intermediate stages, the acquisition of minority shareholdings in financial institutions of other EU Member States. Conversely, the consolidation of domestic markets, which is also a reaction to these background movements within the EU national financial systems, is subject to natural constraints, dictated by the application of competition rules and national prudential standards so that, often, financial institutions, unable to proceed further with certain concentration processes, choose to maintain various cross-shareholdings in other national entities.640 At another level, and in second place, the overcoming of this gap in the EU system of enforcement of competition rules concerning the scrutiny of acquisition of minority shareholdings, not subject to merger control, may also, in principle, result from the very process of ‘decentralization’ triggered by the adoption of Regulation (EC) No 1/2003. Indeed, as I have already highlighted, one of the main reasons for this option, with the undeniable risks that it entails, is the creation of conditions for the Commission to focus on the treatment of most serious situations of potential breach of EU competition rules, as well as on the analysis and clarification of legal issues that, until now, have not been adequately or sufficiently discussed.641 In my view, the competition law scrutiny of such

638 See on the frequent situations of minority cross-shareholding in financial institutions in the more developed financial sectors, Cruickshank, ‘Competition in UK Banking—A Report to the Chancellor of the Exchequer’ (n 501). For a more general outlook of the global changes in EU financial systems, in the context of which the acquisition of minority shareholdings has proliferated, see Vitor Gaspar, Philipp Hartmann and Olaf Sleijpen (eds), The transformation of the European financial system (Frankfurt, European Central Bank, 2003). 639 On the increase of the number of cross-border concentrations associated with the implementation of the Euro and with the completion of the last stages of the monetary union, see Ines Cabral, Franck Dierick and Jukka Vesala, ‘Banking Integration in the Euro Area’ European Central Bank, Occasional Paper Series, No 6, December 2002. 640 On these acquisitions and holdings of stakes in financial institutions incorporated in other EU Member States and in domestic financial institutions, for different reasons, but related to the same movement of integration of the financial sectors within the EU, evidencing yet unknown reach and boundaries, see, inter alia, ibid and Elena Carletti, Philip Hartmann and Giancarlo Spagnolo, ‘Bank Mergers, Competition and Liquidity’ European Central Bank, Occasional Paper Series, No 292, November 2003. 641 See various incidental references to these aspects related to the so called ‘modernization’ process of EU competition law, above, chs 1 and 2 (eg ch 2 at 1.1). The process of decentralization of application of EU competition law carries with it some unavoidable risks in terms of legal predictability and consistency, which, in spite of the undeniable practical success of the first stage of implementation of Regulation (EC) No 1/2003 that decisively contributed to set aside initial doubts about the overall feasibility and consistency of such model, may have remained up till now somewhat overlooked by the Commission (see for a review of this experience in the course of the first years of application of Regulation No 1/2003, albeit oversimplifying some critical issues in my view, Report of the European Commission to the Parliament and the Council—Report on the functioning of Regulation

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situations of acquisition of minority shareholdings, to which the Commission has not devoted systematic attention, despite this potential for disruption of competition in some situations, is precisely to one of these fundamental issues, deserving further clarification and new hermeneutical definitions. It should, however, be acknowledged that the issues of distortion of competition associated with such situations have not been completely ignored by the Commission in the wake of Philip Morris.642 In several cases, the Commission has even sought to address these problems through the adoption of commitments by the undertakings involved in certain transactions.643 It did so, however, in the context of analysis of notifications of projects of creation of joint ventures under article 101 TFEU and, above all, of notifications of concentrations within the context of the MCR, incidentally addressing these aspects as side issues in wider analytical processes. The additional developments that I believe possible and desirable in this regard, on the contrary, relate to the scrutiny and autonomous assessment of potential effects of restriction to competition associated with this type of acquisition of minority shareholdings (to be undertaken by the Commission on its own initiative or following complaints filed by affected entities).644 Such developments may, of course, benefit from the experience gained in the past in the context of analysis of notification procedures under article 101

1/2003, COM(2009) 206 final; Commission Staff Working Paper accompanying the Report on the functioning of Regulation 1/2003, SEC(2009) 574 final—their publication was mandated by article 44 of Regulation 1/2003). See, in general, on this modernization and decentralization process developed since 2003 considering its significant achievements but also the risks involved, Damien MB Gerard, ‘The ECN—Network Antitrust Enforcement in the European Union’ in D Geradin and I Lianos (eds), Research Handbook on EU Competition Law (Cheltenham, UK, Edward Elgar, 2013); F Cengiz, ‘Multilevel Governance in Competition Policy: the European Competition Network’ (2010) Eur L Rev 660ff; HF Koeck and MM Karollus (eds), FIDE XXIII Congress: The Modernization of European Competition Law—Initial Experiences with Regulation 1/2003 (Vienna, Nomos/facultas, 2008). Anyway, the chief reason for incurring such legal uncertainty risks—however transitory these may be—is the creation of the conditions for a more demanding application of EU competition rules by the Commission, extending not only to the more obvious situations, more often addressed, of control of cartels with a high potential of distortion of competition, but also focusing on types of problems less frequently addressed which need hermeneutical guidance and clarification, as in the case of enhanced scrutiny in the analysis of effects of restriction of competition inherent in certain situations of acquisition of minority shareholdings. 642 I will outline below some situations addressed by the Commission in this regard but, as noted, the key case up to now has been Philip Morris (n 626), recently supplemented by the GC ruling in Aer Lingus v Commission (n 627). 643 I refer both to commitments of a structural and behavioural nature, in particular concerning rules and procedures on the flow of information between undertakings holding cross-shareholdings, as referred to below. 644 I refer here to developments in the field of the interpretation and application of article 101 TFEU. It should, however, be noted that the Commission considered, in its 2001 Green Paper concerning the revision of the Merger Control Regulation, the possibility, in the wake of related doctrinal suggestions, of extending this system of merger control to the acquisition of minority shareholdings, irrespective of the acquisition of control, likewise happens in some jurisdictions (at para 108). Nevertheless the Commission came to consider as disproportionate the submission of all the acquisitions of minority shareholdings to the ex ante control set out in the MCR and— appropriately, in my opinion—such an option, mentioned in the 2001 Green Paper, was not enshrined in the second reform of the MCR. However, I do not subscribe to the positive view stated by the Commission in that 2001 Green Paper where it holds that only a very limited number of transactions (of the aforementioned type) prone to raise issues of distortion of competition would not be adequately dealt with within the framework of application of articles 101 and 102 TFEU (at para 109). In my view, while the normative programme enshrined in those provisions is indeed fit to cover the problems of restriction of competition usually generated by these situations of acquisitions of minority shareholdings (and cross-shareholdings or interlocking directorates or bodies of the entities involved in those transactions), no systematic hermeneutical framework has, however, been consolidated so far on the basis of those provisions and aimed at that purpose; and hence, a gap may be identified in the EU system of application of competition rules in this domain.

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TFEU and the MCR, but must be subject to a more developed and systematic analytical treatment. Such a treatment should, in turn, be largely influenced by the analytical parameters developed in connection with joint ventures subject to the regime set out in article 101 TFEU. 645

6.2 Analytical Criteria for Assessment of Effects on Competition Arising from Ownership of Undertakings Short of Individual or Joint Control 6.2.1 Identifying Relevant Situations which Inherently Lead to Potential Restrictions of Competition The key problems of restriction of competition that I consider to be potentially associated with situations of acquisition of minority holdings in third party undertakings, without obtaining control, essentially relate to the development of behavioural coordination processes between the undertakings involved in these situations (thus falling within the prohibition set out in article 101 TFEU). This applies especially to cases where such relationships are established between competitors. It may be considered that in such situations there are conditions for the occurrence of what I have designated as spillover effects in a broad sense, impacting on the competitive behaviour of undertakings bound by such participation relationships (spillover effects, restrictive of competition, with similar features to those depicted in connection with joint ventures that cannot be qualified as concentrations).646,647 Bearing in mind the potential relevance of these situations for the application of article 101 TFEU, it is appropriate, in my view, to identify in a more systematic manner some typical situations of holding of minority or joint shareholdings which do not involve the

645 I believe that minority shareholdings in third party undertakings—especially cross-shareholdings between two or more undertakings—may generate effects of distortion of competition very similar to those associated with some types of joint ventures subject to the legal regime set out in article 101 TFEU, which may be scrutinized in light of such legal regime, thus explaining my brief reference to this issue. The treatment of this subject does require, however, an in-depth analysis of these matters, which would deviate me from the core subject of my research. For that reason, I merely identify and briefly describe some of the most relevant issues which may arise in this field and which would justify a greater deal of attention from the Commission and, through the hermeneutical guidance of this institution, from EU Members States’ competition authorities. 646 See the general description of this type of effect of distortion of competition, above, 2.3.5.2(E) of this chapter and which I have repeatedly used in the context of the analysis of the various functional types of joint ventures selected for in-depth analysis. 647 Those situations of acquisition of minority shareholdings, whenever the acquirer possesses a high degree of market power may also raise issues of abuse of dominant position, which may be challenged in the context of the application of article 102 TFEU. However, these situations are very specific and not particularly relevant to the similarity I seek to emphasize here between the analysis of some types of joint ventures and these cases of acquisition of minority shareholdings which may give rise to anticompetitive behavioural coordination. This similarity obviously concerns the application of article101 TFEU—and accordingly my very brief foray in the field of minority shareholdings is limited to the article 101 regime (on the basis of the assumption that certain issues of anticompetitive behavioural coordination do not exclusively result from joint control situations, usually associated with joint ventures, but may also be caused by joint shareholdings, regardless of the existence of joint control). On issues pertaining to the application of article 102 TFEU related to that type of holdings, see, in general, Robin Struijlaart, ‘Minority Share Acquisitions Below the Control Threshold of the EC Merger Control Regulation: An Economic and Legal Analysis’ (n 625) 173ff.

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acquisition of control. I believe that at least four types of situations should be identified, namely:648 (i) situations in which joint shareholdings with some impact on a given entity result from an agreement between the undertakings owning those shareholdings; (ii) situations in which such shareholdings are the result of agreements established between these undertakings, holding the shareholdings at stake, or between several undertakings controlled by them; (iii) joint shareholdings resulting from an agreement between an acquirer undertaking and the undertaking which is the object of such partial acquisition (provided the acquisition does not involve the transfer of control over that acquired undertaking); (iv) joint shareholdings in a given undertaking, held by two other undertakings, which neither resulted from an agreement between these entities, nor from an agreement between any of such undertakings and the targeted undertaking. As regards the first three of these types of situations, I think that the application of article 101 TFEU is, in general, appropriate, as a means to prevent potential effects of restriction of competition, scrutinized in light of this provision, dependent upon several factors related to the actual conditions of operation of the markets at stake and with the variable layout of the involved undertakings, in a manner similar to that outlined in the framework of my study of the different functional types of joint ventures (that may not be qualified as concentrations). In this field of minority shareholdings, however, one particular factor may be of paramount importance in assessing the occurrence of adverse effects on competition and their expected intensity. I refer to the existence of representatives of undertakings holding shareholdings in third companies in the corporate bodies of these latter entities. Even more noteworthy and problematic at this level will be the combination of cross-shareholdings with reciprocal representation in the corporate bodies of the concerned undertakings.649 As regards the fourth type of situation, the possibility of these cases falling under the regime of article 101 TFEU has raised more controversy. Thus, authors such as John Temple Lang submit that the absence of an element of agreement between the involved undertakings would not really be compatible with the application of article 101 TFEU to those situations (merely acknowledging that, under certain circumstances, those cases may be subject to article 102 TFEU).650 However, I do not share this view. While I consider that this type of situation constitutes, in principle, legitimate acquisitions of shareholdings, given the absence of any initial

648 I take into consideration to some extent in this depiction of the most typical situations, the characterization set forth by Temple Lang (‘International Joint Ventures under Community Law’ (n 99) esp para V—Joint ownership and joint dominance—423ff). However, I do not fully agree with the systematization proposed by Temple Lang and I depart from some aspects of his analysis concerning the typical consequences of some of these situations in the context of the application of article 101 TFEU. 649 Notwithstanding the fact that I am giving the term ‘undertaking’ the very broad meaning that it has under EU competition law, undertakings using a corporate form deserve particular attention. It should be noted that the representation mentioned above may assume a variety of legal forms. See, with examples of such diversity, Moavero Milanesi and Winterstein, ‘Minority shareholdings, interlocking directorships and the EC competition rules—recent Commission practice’ (n 637) 15ff. 650 See Temple Lang, ‘International joint ventures under community law’ (n 99) 424: ‘If joint ownership of one company by two others comes about without any agreement between any two of them, Article 81 does not apply’.

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agreement between the involved undertakings—relevant for the purposes of application of article 101 TFEU—I believe, nonetheless, that the continued holding of such shareholdings may, under certain conditions, come to create restrictions of competition caught within the prohibition set out in that provision. Such situations of acquisition of significant shareholdings in certain undertakings, without involving any agreement between the acquirer and the existing shareholders are more common than one might suppose. These may result, inter alia, from the acquisition of shareholdings in securities markets or from the acquisition of control over another undertaking which, in turn, holds a minority shareholding in the concerned participated undertaking.651 Some authors also consider certain additional legal qualifications or characterizations as regards the set of situations of acquisition of minority interests involving an agreement between the concerned undertakings. Indeed, authors such as Thompson and Meadowcroft and, more recently, Moavero Miolanesi and Winterstein,652 acknowledge that, in some cases, minority interests in certain undertakings are acquired as an alternative to agreements with such undertakings that would be prima facie deemed as restrictive of competition (in other words, such purchasing agreements, under the conditions in which they occur, would have a similar effect to cooperation agreements, restrictive of competition, to be entered into with the participated entity—‘nichtangriffdenken’, in the qualification put forward by Moavero Milanesi and Winterstein).653 I have some reservations about that legal qualification. In the event elements of cooperative agreement exist between the parties, they prevail in the assessment of these situations and the aspects concerning minority interests which may occur, are ancillary elements in this process of cooperation between undertakings, to be perceived as a whole. I, therefore, reject in this area, an analytical logic comparable to the one that leads to the identification of dissimulated cartels, construed under an apparent joint venture format and essentially aimed at price-fixing by the participating undertakings.654 Indeed, in these latter cases there is ab initio a specific process of cooperation, explicitly undertaken between the participating undertakings, which can be used to serve other collusive non-specified purposes, of a serious anticompetitive nature. Conversely, in a significant proportion of cases of acquisition of minority shareholdings in third party undertakings, even in cases that involve an agreement between the involved undertakings, the parties do not assume any cooperation process to be developed beyond the mere acquisition acts in themselves. Such cooperation may, in particular, be induced by acquiring and keeping those shareholdings, but in that case, I submit that the analysis of these situations should be carried out in order to ascertain possible negative effects of behavioural coordination

651 These most blatant situations of joint shareholdings not resulting from agreements between the involved undertakings are, eg, mentioned by John Temple Lang, who draws competition law corollaries from these that I do not entirely agree with (see Temple Lang, ‘International joint ventures under community law’ (n 99) 424). 652 See S Meadowcroft and D Thompson, Minority share acquisition: the impact upon competition (Luxembourg, Office for official publications of the European Communities, 1986). See also Enzo Moavero Milanesi and A Winterstein, Minderheitsbeteiligungen und personelle Verflechtungen zwischen Wettberwerben—Zur Anwendung von Artikel 81 und 82 EG-Vertrag, in Handbuch der Europäischen Finanzdienstleistungsindustrie (Frankfurt, Rolfes, Fisher, Fritz Knapp Verlag, 2001). 653 See Moavero Milanesi and Winterstein, Minderheitsbeteiligungen und personelle Verflechtungen zwischen Wettberwerben—Zur Anwendung von Artikel 81 und 82 EG-Vertrag (n 652). 654 On these situations of use of the joint venture legal format to establish (dissimulated) cartels, aimed at the joint fixing of prices, see above, 4.1.2ff of this chapter. Also regarding purchasing joint ventures, briefly addressed above, I acknowledge their use for the formation of buyers’ cartels (see above, 5.2.1 of this chapter).

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between the involved undertakings and should not be aimed at the qualification or characterization of such situations as alternative options to the establishment of stricto sensu cooperation agreements between the parties (‘nichtangriffdenken’, as suggested by Moavero Milanesi and Winterstein). The mere identification of effects of behavioural coordination induced by keeping certain minority shareholdings will be sufficient to lead to a competition law scrutiny in the context of the application of article 101 TFEU, and any other complementary legal qualifications further complicate, unnecessarily, the proper analysis of these situations. Thus, I also do not agree with the analytical perspective of authors such as D Reittman, who claim to identify certain situations in which undertakings acquire minority interests for the sole purpose of strengthening their market power.655 This effect of strengthening the market power of the undertakings concerned may indeed occur, through incentives for coordination, and, where it interferes, beyond a certain degree, in the competition process in certain markets, it should actually be scrutinized (in terms of article 101 TFEU and, autonomously from the field of merger control covered by the MCR). However, the rationale for the scrutiny of these situations by the competition authorities lies, in my view, in the identification of such type of predictable effects (and should be focused on such effects), rather than on a negative assessment intrinsically associated with a supposed project for strengthening the market power on the part of undertakings holding joint shareholdings short of joint control. The potential anticompetitive effect at stake, of reinforcement of market power interfering with the due functioning of the competition process of certain markets may, inter alia, occur, as suggested by the analysis of O’Brien and Salop, through unilateral effects due to the ability to influence a competitor’s behaviour, which, in itself, will vary according to the degree of influence over the partially owned competitor (since these authors rightly emphasize the various possible degrees of influence, short of control stricto sensu, that an undertaking might exercise over its partially owned competitors and producing, accordingly, different corollaries, to be properly assessed, as regards its strengthening and correlative excessive projection or exercise of market power).656

6.2.2 Possible Anticompetitive Effects Arising from Minority Shareholdings in Particular Undertakings In general terms, I consider that the risks of distortion of competition associated with these situations of acquisition and holding of minority shareholdings correspond, to a large extent, to two of the categories of potential risks that I have identified in relation to joint ventures subject to the regime of article 101 TFEU. I refer to the risks of collusion concerning prices or quantitative output levels of goods or services and to risks of anticompetitive coordination at the level of the quality of those goods or services.

655 On this analytical perspective, see D Reitman, ‘Partial ownership arrangements and the potential for collusion’, (1994) J Ind Ec 313ff. 656 See on this enhanced perspective of an antitrust theory of harm associated with minority shareholdings, O’Brien and Salop, ‘Competitive effects of partial ownership: financial interest and corporate control’ (n 634) 559ff. See also A Ezrachi and D Gilo, ‘EC Competition Law and the Regulation of Passive Investments Among Competitors’ (2006) OJLS 327ff.

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In reality, such situations, particularly when sizeable holdings in third party undertakings are at stake, lead to the emergence of specific and substantive interests in the results of these undertakings, which, in turn, may induce or influence either concerted actions or tacit ‘non-aggression’ arrangements between the involved undertakings, with a view to maximizing the joint results of the same undertakings. Moreover, this incentive for the collusion of commercial behavioors or business ‘non-aggression’ arrangements may be especially heightened in situations of cross-shareholdings between competitors, coupled with reciprocal representation in the management of these undertakings. That results from the conditions that are thereby objectively created for the flow of commercially sensitive information between these undertakings and for the inherent reduction of the levels of uncertainty concerning the behaviour of competitors (this relative uncertainty of third party commercial behaviour, it should be noted, constitutes the foundation of the whole competition process).657 The probability of the occurrence of cases of collusion will also tend to be higher in cases in which an undertaking holds minority stakes in more than one competitor, as this broadens the horizon of converging business interests and creates conditions for an additional significant decrease of competition between involved undertakings. Although the criteria and models of economic analysis that may influence the competition law assessment of effects of restriction of competition arising from the acquisition and holding of minority stakes are still rather flawed or not duly consolidated,658 one may argue that the combination of cross-shareholdings, with a high level of concentration in the potentially affected markets,659 as well as the existence of significant barriers to entry in those markets, creates optimal conditions for the coordination of behaviours between undertakings (or even for the ‘cartelization’ of such behaviours).660 In fact, this set of factors significantly contributes to reduce the incentives of undertakings to depart, for their own benefit, from the converging business approaches in the

657 The manner in which this uncertainty may materialize, or not, or, conversely, the strategies or perspectives of anticipation of strategic behaviours of competing undertakings is—as I have been highlighting (eg, above, 2.3.5.2(C) of this chapter and several footnotes included there)—at the centre of the new analytical models proposed in the context of the so called game theory (overcoming the former theoretical clashes between structuralist trends and the criticism of the Chicago School). 658 These flaws of economic analysis will, in any case, be wider in the EU competition law framework than those in the US antitrust law context. On these shortcomings of economic analysis, albeit improved by developments in economic theory in the latest two decades, see Struijlaart, ‘Minority share acquisitions below the control threshold of the EC Merger Control Regulation: An economic and legal analysis’ (n 625) esp 183ff. As regards advances in economic theory in this area, see K Morasch, ‘Strategic alliances as stackelberg cartels— concept and equilibrium, alliance structure’ (2000) International Journal of Industrial Organization 257ff and Enrique González-Diaz, ‘Minority Shareholdings and Creeping Acquisitions: The European Union Approach’ in Competition Law Institute—International Antitrust Law & Policy—2011 (Barry Hawk (ed), Fordham University School of Law, 2012). Also referring to recent advances in this area, see, especially the Report commissioned by the OFT, ‘Minority Interests in Competitors’ 2010, and the highly relevant ‘OECD Policy Roundtable Concerning Minority Shareholdings’ 2008. Conversely, some recent proliferation of economic analytical models in this area strike me as overly theoretical and unfit to support an adequately foreseeable legal assessment. 659 The CJEU had already emphasized in Philip Morris that the competition authorities’ scrutiny of minority shareholding acquisitions should be particularly stringent in markets evidencing a high level of concentration or an oligopolistic structure. 660 Furthermore, these cross-shareholding situations in markets featuring a high level of concentration and involving enterprises with significant market power may, also, as briefly considered above, contribute to the creation of positions of collective dominance.

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context of cartels or of situations of business cooperation comparable to them.661 Such a reduction of the incentives to depart from convergent approaches reinforces, in turn, the viability and effectiveness of such anticompetitive coordination processes. Conversely, it is possible to consider as usually permitted situations, therefore not leading in principle to appreciable effects of restriction of competition, those in which minority stakes are held in markets with low degrees of concentration, involving undertakings with limited market shares and giving rise to forms of representation in the management bodies of participated undertakings. Other relevant factors for the assessment of possible effects of distortion of competition resulting from this type of minority shareholding are those concerning the nature and extent of the rights attached to such shareholdings.662 Hence, even when not conferring control on the participated undertakings, such shareholdings may, in certain circumstances, provide their owners with effective means to oppose certain major decisions, or an influence that, in proportional terms, ranks beyond the size of the same shareholdings (very diverse factors, such as the degree of dissemination of the remaining share capital of the participated entity or the existence of certain rights that are contractually enshrined, eg, in shareholders’ agreements in the case of corporate undertakings, may be taken into account in this context). Moreover, the association between these minority shareholdings and any cooperative agreements between the undertakings involved, even if these ones have a very limited scope or a very general nature, may also contribute to increase the power of the incentives for abstaining from competitive conduct (which may, in turn, affect the competitive position of any one of these undertakings inter-connected through those nexus). These incentives may work twofold in the relationships between participant and participated undertakings (the latter one being the one in which a given shareholding is held by the former). Indeed, not only may the undertaking holding an appreciable shareholding in a third party undertaking be induced to coordinate its behaviour with the latter, so as to safeguard the value of its investment—especially if both undertakings hold considerable market power—but also, the participated undertaking may be induced to avoid a more aggressive commercial interplay in relation to the participant undertaking in order to prevent any reactions from the latter that could significantly affect its activity (eg, reactions in the sense of increasing the degree of interference in the activity of the participated undertaking or, conversely, in the sense of disposing of the shareholding, thus creating conditions of instability for the activity of the participated undertaking). Moreover, in markets evidencing a significant degree of concentration and a substantial mutual interdependence of the undertakings involved, the acquisition of minority shareholdings, even if it appears to be of an extremely passive nature, may, in itself, trigger a movement towards the strengthening of this interdependence (with ability to influence, in

661 For a characterization of these mechanisms, termed in English doctrine as ‘incentive to cheat on cartel agreements’, see Brodley, ‘Joint Ventures and Antitrust Policy’ (n 14) esp 1544ff. 662 On whether these factors increase the possibility of partial acquisitions lessening competition, particularly by giving the acquiring undertaking the ability to influence the competitive conduct of the target undertaking, see the US 2010 Horizontal Merger Guidelines, section 13 on ‘Partial Acquisitions’ (thus providing in the context of the US antitrust system specific hermeneutical guidance in this area that is still lacking in terms of the EU competition law system, both as regards Commission Guidelines on merger control or relevant Guidelines related to the application of article 101 TFEU.

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a dual sense, the behaviours of both the participating and participated undertakings).663 Ultimately, however, all relevant factors of assessment referred to here—which should be gradually consolidated in a systematic and foreseeable way in the enforcement practice of the Commission and of EU Member States competition authorities—must be properly weighed in the specific market context concerned. I also acknowledge, in any case, that the assessment of these situations tends to be subject to a greater degree of unpredictability than the analysis of the impact of joint ventures on the competition process. As mentioned above, and likewise maintained in the context of the assessment of joint ventures, some of the potential issues of distortion of competition inherent in these types of situations of acquisition of minority shareholdings may be satisfactorily addressed through commitments from the undertakings involved.664 Among other commitments addressed in decisions adopted under notification procedures under article 101 TFEU or within the MCR,665 one may consider, for example, commitments to refrain from acquiring additional or supplementary shareholdings; to refrain from seeking representation on boards of directors of participated undertakings; or even to prevent the flow of commercially sensitive information by limiting the scope of action and the information available to non-executive directors.666 In some cases, characterized by a particular sensitivity of the flow of certain business information—especially in the financial sector—such commitments may even involve the termination of situations of representation in the management bodies of third party competitor undertakings.667

663 See, on the type of influence induced by shareholdings of an apparently passive nature, and providing several relevant examples, Gilo ‘The anticompetitive effect of passive investment’ (n 624) 2ff. 664 It should be borne in mind that, in relation to joint ventures I submit that the Commission should adopt a more creative and flexible approach, in order to consider certain commitments aimed at avoiding issues of distortion of competition in the context of the application of article 101, para 1 TFEU and without further intervening through the granting of exemptions (in line with what happens in the enforcement practice of assessment of joint ventures by federal US competition authorities). Moreover, EC Regulation No 1/2003, in terms that have been highlighted above, strengthened the normative support for the adoption of regulatory decisions that accept and make binding this type of commitment. 665 I refer here to the decisions adopted in the context of notification procedures under then article 85 EEC and article 81 EC (whilst Regulation No 17/62 was in force), or under the MCR, concerning situations in which, incidentally, the problems arising from shareholdings retained by firms involved in cooperation agreements or by companies participating in concentrations have been highlighted for discussion. 666 See, on this last type of situations, the arrangements accepted in the Commission’s Olivetti/Digital decision (IV/43.410; [1994] OJ L309/24). One of the concerned undertakings was represented in the other undertaking’s Board of Directors; however, the executive powers material for the management of the undertaking had already been delegated to the chairman of the Board of Directors. This decision strikes me as noteworthy, for it was already adopted under the MCR, with the Commission clearly acknowledging an interpretation of Philip Morris, allowing the application of article 101 TFEU to situations of acquisition of shareholdings which would not involve crossing the thresholds concerning a transfer of control, relevant for the purposes of application of the MCR. Equally important is the case of Warner-Lambert/Gillette [1993] OJ L116/21. However, in this case, the issues of distortion of competition addressed by the Commission mainly focused upon the application of article 102 TFEU. 667 See the Commission’s decisions in Generali/INA (2000) and Nordbanken/Postgirot (2001) (on concentration cases, respectively, COMP/M. 1712 and M.2567).

4 Concluding Remarks on Joint Ventures and Global Changes of EU Competition Law 1 General Overview On the basis of the in-depth study of joint ventures throughout this book, in this concluding chapter, I critically review and analyse some key changes to EU competition law that may be regarded as being influenced by the treatment of joint ventures (especially those joint ventures covered by the article 101 TFEU regime and identical or comparable entities as well, in the field of cooperation between undertakings). This leads to some brief concluding remarks on possible corollaries directly or even indirectly related to the treatment of joint ventures (corollaries impacting on general changes to the EU competition law system in recent years or other changes that may be foreseeable in the short or medium term or even desirable in terms of the comprehensive development of this system).1 In that context, I shall also emphasize some possible parallels with developments in the US antitrust law system (notwithstanding the limits of such transatlantic convergence).2 I have, in fact, throughout this book, underlined the existence of an important connection and interplay between the development of parameters of assessment of joint ventures and fundamental qualitative changes in EU competition law. Having completed a critical study of the category of joint ventures—essentially focusing on substantive aspects—I will now discuss some key ideas concerning essential transformations of EU competition law influenced by joint venture analysis. In other words, what I purport to do here is to revisit some essential normative foundations, of a teleological nature, and some methodological processes of EU competition law

1 Although my focus is undoubtedly on EU competition law, given the essential convergence of EU Member States with the model provided by EU law, most of these concluding remarks on corollaries of joint venture analysis for the transformation and evolution of competition law largely apply to national legal systems. On the convergence process, see J Rivas and M Horspool (eds), Modernisation and Decentralisation of EC Competition Law (The Hague, Kluwer Law International, 2000). 2 On this transatlantic convergence and also on its limitations, see Federico Ghezzi, ‘Verso un Dirittto Antitrust Comune? Il Processo di Convergenza delle Discipline Statunitense e Comunitária in Materia di Intese’ (2002) Riv Soc 499ff. See also Luis Silva Morais, ‘Evolutionary Trends of EU Competition Law—Convergence and Divergence with US Antitrust Law in a Context of Economic Crisis’ (2010) Revista de Concorrência e Regulação/Competition and Regulation Review 63ff.

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as a body of rules that discipline the functioning of the market, in the sense proposed by Ulrich Immenga.3 In my view, we are witnessing a transition to a new stage of consolidation of EU competition law, which began in the mid-1990s and which comprises three essential elements that I will briefly address in this final chapter (focusing on two of these in particular. These are: — —

—

a fundamental shift in the teleological priorities of EU competition law; a comprehensive renewal of the understanding of the main legal categories of cooperation between undertakings and of the legal methodology used for their competition law assessment; and, finally, the global transformation of the institutional model of organization of the EU system of competition towards a model of decentralization that reinforces the intervention of national competition authorities and courts at the level of the various Member States (following the 1999 White Book and the adoption of Regulation No 1/2003, establishing a framework with significant, and wide repercussions that have already been tentatively assessed, after the first period of enforcement of its rules).4

Without disputing the fundamental importance of this third element, my concluding remarks focus essentially, or almost exclusively, on the first two elements noted above, which are more directly connected with some of the fundamental corollaries of joint venture analysis. Furthermore, as regards each of those two elements of the transition of EU competition law to a new stage, I shall also purport to address separately—albeit briefly—issues closely connected with them which are, however, of a more general nature. Therefore, in connection with the first element, namely, the shift of teleological priorities of EU competition law, I will briefly note the possible development of a constitutional dimension of this element (in terms of what may be envisaged as the building of a substantive economic constitution of the EU). In connection with the second element, being the renewal of the legal methodology used for the assessment of processes of cooperation between undertakings, I will also briefly touch on some particular methodological problems raised by the interpretation and enforcement of competition rules (in general).

3 See Ulrich Immenga, Marktrecht (Berlin, Walter de Gruyter,1999) and by the same author, ‘Zivilrechtsdogmatik und Kartellrecht’ in Ulrich Immenga (ed), Rechtswissenschaft und Rechtsentwicklung (Berlin, Walter de Gruyter, 1980). 4 See, on this critical balance, ‘Communication from the Commission to the European Parliament and the Council—Report on the Functioning of Regulation 1/2003’ (COM/2009/0206 Final); see also ‘Commission Staff Working Paper Accompanying the Communication from the Commission to the European Parliament and the Council—Report on the Functioning of Regulation 1/2003’ (COM/2009/0206 Final)—SEC/2009/0574 Final. For a doctrinal perspective of the first years of implementation of the modernization and decentralization framework, see, inter alia, Eric Gippini-Fournier, ‘The Modernization of European Competition Law: First Experiences with the Regulation 1/2003—Community Report to the FIDE Congress’ 2008.

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2 The Changes in Teleological Priorities and the Renewal of Legal Methodology as Essential Dimensions of the Transition to a New Model of EU Competition Law More Closely Associated with Joint Venture Analysis 2.1 The Redressing of Teleological Priorities of EU Competition Law 2.1.1 Joint Venture Analysis and the Definition of Teleological Coordinates of Competition Law 2.1.1.1 General Perspective Historically, the teleological models of EU competition law and US antitrust law have often been challenged according to a perspective that underlines an idea of pluralism in the goals of the EU system and a more monist approach in terms of the US antitrust system (although this latter system has never been static either).5 In the case of the EU system the idea of pluralism has been related to the combination of various goals with a distinctively European goal of fostering economic integration within the EU. In this context, joint ventures have curiously contributed to a further clarification of the teleological programme of EU competition law since, due to their composite features and hybrid nature, these entities tend to raise complex forms of legal reasoning, involving consideration of, on the one hand, potential elements of restriction of competition and, on the other hand, possible procompetitive elements. Accordingly, joint venture assessment tends to require a proper definition of the limits for combining this integrated consideration of procompetitive and restrictive elements and, in turn, of the limits for a proper justification of this sui generis combination of elements within the teleological programme of EU competition law. Furthermore, some interplay between assessment criteria of full function joint ventures (as concentrations submitted to the MCR and involving an intensive enforcement process) and of joint ventures covered by article 101 TFEU has also contributed to the gradual clarification of teleological priorities of the EU competition law system (largely aimed at the assessment of consequences of the exercise of market power and requiring a proper materialization of this general concept of market power under competition law, contrasting

5 On these perspectives on the different teleological models of US and EU competition law systems, see, inter alia, Wenhard Möschel, ‘The Goals of Antitrust Revisited (1991) JITE 7ff; Massimo Motta, Competition Policy— Theory and Practice (Cambridge, Cambridge University Press, 2004) esp 40ff; Giorgio Monti, EC Competition Law (Cambridge, Cambridge University Press, 2007) esp 20ff; David Gerber, Law and Competition in the Twentieth Century Europe—Protecting Prometheus (Oxford, Clarendon Press, 1998); Damien Geradin, Anne Layne-Farrar and Nicolas Petit, EU Competition Law and Economics (Oxford, Oxford University Press, 2012) 19ff; Roger Van Den Bergh and Peter D Camesasca, European Competition Law and Economics—A Comparative Perspective (Oxford, Hart Publishing/Antwerp, Intersentia, 2001); L Parret, ‘Do we (Still) Know What We Are Protecting?’ Tilburg Law and Economics Center (TILEC) Discussion Paper No 2009-010, April 2009. On the relative convergence of teleological models of competition law systems worldwide, bearing in mind the references provided by the US and EU examples, and on the possible limits of that convergence see Maher Dabbah, International and Comparative Competition Law (Cambridge, Cambridge University Press, 2010) esp 13ff and 78ff. See also, for a general perspective on convergence of national competition laws of EU Member States in light of the teleological model of EU competition law, Michaela Drahos, Convergence of Competition Laws and Policies in the European Community (The Hague, Kluwer Law International, 2001).

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somewhat with the teleological ambiguity that has long characterized the application of article 101 TFEU to processes of cooperation between undertakings in general).6 This clarification of the teleological programme of EU competition law is not a mere theoretical issue. On the contrary, bearing in mind that, as emphasized by authors like Wernhard Möschel,7 the normative programme of competition law is built on very general and indeterminate concepts, a proper clarification of the essential goals that support those indeterminate concepts is of paramount importance to the enforcement of competition rules (and we are, therefore, dealing with issues that combine theoretical relevance with practical reach for day-to-day enforcement of competition rules). In the context of the intense doctrinal controversies concerning the definition of prevailing goals of competition law systems, and despite some recent convergence—to some extent—between US antitrust law and EU competition law, this latter system has been characterized by the relative predominance of a pluralist approach, involving the coexistence of goals of economic integration—as elements that represent a unique feature of this system—and goals of promotion of competition, related to notions of economic efficiency and with other non-strictly economic considerations. Conversely, in the US antitrust system the special influence that the Chicago School has exerted since the 1970s has led to some prevalence of monist views, based on a rather strict perspective of pursuit of objectives of economic efficiency (although considerable discussion persists around the notion and the prevailing dimensions of economic efficiency).8 However, even in this more mature system that is the US antitrust system, consolidated by more than a century of enforcement, there is no real consensus as to the objectives pursued. Furthermore, as emphasized by Hovenkamp,9 the current influence of the monist views, in the wake of works by Bork, Areeda or Turner,10 has reverted to previous stages of evolution of US antitrust law in which other goals were recognized besides those concerning the promotion of economic efficiency, including, for example. the protection of smaller undertakings from the more aggressive behaviour of bigger economic groups (this latitude and diversity of objectives of antitrust being epitomized in the US Supreme Court ruling in Brown Shoe).11 Even in the current Post-Chicago context of US antitrust law the special role conferred on the safeguarding of economic efficiency—in the various senses in which this may be

6 On that type of teleological ambiguity in the field of general application of article 101 TFEU, frequently involving the consideration of elements of alleged public interest difficult to reconcile with strict competition parameters (and not really focused on the economic consequences of the exercise of market power), see, inter alia, Rein Wessling, The Modernisation of EC Antitrust Law (Oxford, Hart Publishing, 2000) 39–40. 7 See Möschel, ‘The Goals of Antitrust Revisited (n 5) 7. 8 On that discussion on the various aspects of economic efficiency, referring namely to the consumer welfare and total welfare standards and to the question of ‘which of the two should be the appropriate objective for competition policy’, while acknowledging at the same time, that in principle ‘consumer and total welfare standards would not often imply very different decisions by anti-trust agencies and courts’, see Competition Policy—Theory and Practice (n 5) esp 20ff and 41ff. See also on the notions of efficiency in the context of goals of competition law systems, Geradin, Layne-Farrar and Petit, EU Competition Law and Economics (n 5) esp 21ff. 9 See Herbert Hovenkamp, ‘United States Antitrust Law: Implementation of its Varied Goals’ in Claus-Dieter Ehlermann and Laraine Laudati (eds), European Competition Law Annual, 1997, The Objectives of Competition Policy (Oxford, Hart Publishing, 1998) 417ff. 10 See Robert Bork, The Antitrust Paradox: A Policy at War with Itself (New York, Oxford, Singapore, Sidney, The Free Press, 1993); P Areeda and D Turner, Antitrust Law—An Analysis of Antitrust Principles and their Application (Boston, Little, Brown & Co, 1978). 11 See Brown Shoe Co v United States 370 US 294, 344 (1962).

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understood under economic theory with the corresponding repercussions in terms of antitrust rulings made in pursuit of efficiency—has not completely precluded other goals related to considerations of economic loyalty or redistributive functions (which may influence, eg, some conceptions of the essential facilities doctrine12 or certain applications of the Robinson-Patman Act,13 already under the influence of Chicago School conceptions, eg, as regards hypothetical practices of discriminatory prices to the detriment of smaller undertakings). As mentioned above, in contrast with US antitrust law, EU competition law has historically been characterized by the predominance of pluralist views in terms of its teleological programme, mainly as a consequence of what has already been described as an almost obsessive concern with economic integration.14 Although the focus on integration has been gradually lessening in significance,15 as we shall emphasize below, the fact that EU competition law has historically been characterized as pursuing one of the most plural set of goals—in terms of internationally leading systems of competition law—has not favoured the establishment of teleological priorities. This also contributed to an excessive public interventionism in terms of competition law enforcement that has been, to some extent, epitomized in the field of joint venture assessment before the adoption of the MCR. That led to an excessively broad interpretation of the prohibition rule of article 101, paragraph 1 TFEU which resulted, at that time, in the submission of a vast number, possibly even the majority of joint ventures to that general prohibition (even in cases of functional types of joint ventures that potentially implied lesser risks to competition as was the case with R&D joint ventures).16 However, a significant number of those joint ventures were covered by exemption rulings (under article 101, paragraph 3 TFEU), on the basis of extremely plural goals sometimes difficult to reconcile in a coherent manner with strictly economic competition considerations. However, as I have observed throughout my in-depth analysis of the main types of joint ventures potentially covered by the article 101 TFEU regime (especially in chapter three), it was also largely in this field of joint venture assessment that new assessment criteria gradually emerged, putting the effects of a broad interpretation of article 101, paragraph 1 TFEU at odds with the undeniable economic advantages arising from many joint ventures. In reality, as I have also observed, to a great extent in the field of joint venture assessment and

12 See again on this, underlining that the aforementioned doctrine has been materialised in very diverse forms in US jurisprudence, Hovenkamp, ‘United States Antitrust Law: Implementation of its Varied Goals’ (n 9). 13 See, inter alia, Lawrence Sullivan, Handbook of the Law of Antitrust (St Paul, Minn, West Publishing Co, 1977 (reprinted 1996)) 677ff. 14 See, on this characterization, Ian Forrester, ‘The Current Goals of EC Competition Policy’ in Claus-Dieter Ehlermann and Laraine Laudati (eds), European Competition Law Annual, 1997, The Objectives of Competition Policy (n 9). 15 On the weight of this objective of economic integration and its repercussions on the interpretation of EU competition rules, focusing in particular on hermeneutical distortions in the field of vertical distortions that, as far as I am concerned, also occurred in the field of horizontal restraints, see Margot Horspool and Valentine Korah, ‘Competition’ (1992) AB 337ff. See also Geradin, Layne-Farrar and Petit, EU Competition Law and Economics (n 5 cit) esp 25ff (while emphasizing, as I do in my analysis above, that several recent rulings ‘seem to downgrade the importance of market integration as a key objective of EU competition rules’). 16 I bear in mind here various precedents that I have referred to in the context of my analysis of R&D joint ventures—above, ch 3—characterized by excessively broad interpretation of the general prohibition rule, including among other paradigmatic cases mentioned there, Henkel/Colgate [1972] OJ L14/14 and KSB/Goulds/lowara/ ITT [1991] OJ L19/25.

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in some case law,17 the elements concerning possible limitations of the economic freedom of action of undertakings started to be downplayed and balanced with gains of economic efficiency with favourable repercussions for consumers, through the consideration of what we have designated as weighed or global effects of certain joint ventures on competition. Also at a jurisprudential level, and in spite of a relative scarcity of court cases concerning joint ventures, various rulings including, for example, European Night Services and Métropole Télévision (M6), beside more recent cases,18 have illustrated that hermeneutical issues raised by the assessment of joint ventures tend to involve a global consideration of procompetitive elements with elements of restriction of competition (decisively contributing to the development of a less formalistic view of limitations of economic freedom of undertakings as restrictions of competition). On the whole, this means that hermeneutical issues typically raised by joint venture assessment have contributed to the considering of some elements of economic efficiency at the level of article 101, paragraph 1 TFEU,19 thus setting aside the idea that the normative structure of article 101 would somehow be closer to an ordo-liberal conception of EU competition law and its goals. In fact, regardless of the initial weight of objectives of economic integration, combined with other social and economic goals, in the course of the first stages of evolution of European competition law, a profound change has gradually occurred in the teleological programme of this body of law. This change is connected with two essential aspects, both extrinsic and intrinsic to EU competition law. The first, proceeding from a dynamic in itself extrinsic to EU competition law (although interplaying with it), has to do with the deepening of the European process of economic integration which renders less pressing or constraining the goals or imperatives concerning market integration for purposes of interpretation and enforcement of competition rules.20 The second aspect—intrinsic to EU competition law and therefore more relevant to these concluding remarks—is based on a growing perception of the lack of consistency in the joint pursuit of, on the one hand, goals related to economic efficiency, and, on the other hand, broader social and economic goals. Precisely at this level, joint venture assessment, both in the context of article 101 TFEU—on which my analysis has been essentially focused throughout chapters two and three—and also in the context of application of the MCR (to full function joint ventures), with its emphasis on the distinctive element of these entities, related to the production of efficiencies, has contributed to a weighed or global consideration of effects arising from the same entities (meaning a global consideration of

17 See, among other precedents noted in ch 3, with repercussions for the teleological perspective adopted in the enforcement of competition rules to situations combining cooperation and integration between undertakings, involving limitations of economic freedom of undertakings counterbalanced by other procompetitive elements, Elopak/Metal Box-Odin [1991] OJ L209/15; Exxon/Shell [1994] OJ nº L 144/20; or Röchling/Possehl [1986] OJ L39/57. 18 See European Night Services and Métropole Télévision (M6), above, ch 3, fn 371, and to more recent rulings including cases not strictly related to joint venture assessment, such as Case T-168/01 GlaxoSmithKline Services v Commission, above, ch 3, fn 103; Barry Brothers, above, ch 2, fn 48; Meca-Medina” or O2 v Commission, above, ch 2, fn 48. 19 A point to which I shall return briefly below, in this final chapter, concerning the interplay of paras 1 and 3 of article 101 TFEU (above, ch 4 at 2.2.3). 20 See, inter alia, Gerber, Law and Competition in the Twentieth Century Europe—Protecting Prometheus (n 5) 382ff. See, also from the same author, ‘The Transformation of European Community Competition Law’ (1994) Harv Int’l L J 137ff.

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elements of efficiency together with certain elements conditioning the freedom of action of participating undertakings, but which are necessary to generate the positive economic effects at stake). This happens because the type of competition law analysis required for the assessment of joint ventures—with a necessary focus on elements of efficiency, intrinsically associated with these hybrid entities, that are not as a rule considered in such depth in connection with looser forms of cooperation—leads to an evaluation of the interplay between elements of restriction of the freedom of action of undertakings and positive economic effects of production of efficiency (considering the various forms or levels of economic efficiency that may be relevant). Such an evaluation, in turn, requires a new and more restricted understanding of wider social and economic goals supposedly underlying EU competition rules in light of the need to prioritize goals compatible with the maximization of economic efficiency (thereby influencing a reorientation of the teleological programme of EU competition law in the sense of lessening its initial pluralism). 2.1.1.2 The Shift to Economic Efficiency In my view, the systematic consideration of different factors largely aimed at some form of predominance of the elements of economic efficiency—induced by joint venture assessment together with other areas of enforcement of competition rules—has therefore influenced a progressive adaptation of the ways of combining different goals on the basis of EU competition law. This comprehensive adaptation, which still lacks a proper consolidation through new developments in the enforcement practice of the Commission and the jurisprudence of the CJEU and the GC (particularly in the field of article 101 enforcement), combined with my own theoretical view on the more adequate understanding of the teleological grounds of EU competition law, provides the ground to envisage a renewed matrix for the teleological programme of EU competition law. It is to be acknowledged, in any case, that the current post-2003 decentralization approach in terms of EU competition law enforcement, with its excessive focus on cartels and relative scarcity of Commission decisions related to joint ventures (at the level of article 101 TFEU) and the corresponding scarcity of jurisprudence of the CJEU and the GC in this field,21 may render more difficult the consolidation of this general teleological approach (also involving a more complex interplay in the enforcement of articles 101 TFEU and 102 TFEU with the active involvement of Member States’ competition authorities and courts). This new matrix for the teleological programme of EU competition law results from a true evolutionary interpretation of the fundamental normative basis of this system largely aimed at economic considerations related to the promotion or maximization of efficiency and a related discipline of the exercise of market power by undertakings. In that light, EU competition law has largely evolved in the sense of a greater focus on market power and on preventing that market power being exercised in ways that imply wasting or losing scarce economic resources in the short and the long term.

21 On this relative scarcity of Commission decisions on article 101 TFEU on issues beside cartels and the corresponding scarcity of jurisprudence of the CJEU and the GC see, inter alia, various observations of the Panel in ‘Anticompetitive Object v. Anticompetitive Effect: Does It Really Matter’; Nicholas Forwood, Christophe Lemaire, Andreas Mundt and Richard Wish, ‘New Frontiers of Antitrust—10 February of 2012’ Concurrences, No 2-2012, 59ff.

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In this context, the renewed matrix of the teleological programme of EU competition law is characterized by a complex interaction between a dimension of economic efficiency— placed in a position of some relative predominance22—and a set of other goals whose pursuit in each market situation is to some extent conditioned by criteria of a balanced safeguarding of that efficiency dimension. In my view, taking into consideration the evolution of the processes of enforcement of EU competition rules and considering in particular the aspects concerning the assessment of joint ventures, as well as bearing in mind the elements that have a minimum degree of literal adherence to the text of those rules (especially to the text of article 101, paragraph 3 TFEU), I submit that this set of other goals to be combined with a paramount objective of promotion of efficiency, should compris essentially three goals. These goals are: (i) the pursuit of economic integration (still relevant, albeit less pressing than in the stages preceding the completion and deepening of the internal market towards the end of the twentieth century and at the beginning of this one; (ii) the promotion of consumer welfare (in the context of a more direct and deep interaction with the fundamental dimension of economic efficiency); and (iii) the limitation of certain excessive forms of concentration of economic power that might eliminate any room for intervention of smaller economic operators. However, I consider that each of these complementary goals is characterized by different evolutionary dynamics. In short, and as already stated, the objective concerning economic integration is still relevant to some degree but is characterized by less significance on account of the consolidation of the progress made in terms of unity of the markets within the EU (in that light it should no longer prevail over key aspects of economic efficiency as happened in the recent past).23 The third objective, which still bears some association with ordo-liberal conceptions envisaging the safeguarding of the freedom of economic action, has tended to become less important. Finally, the second objective, concerning consumer welfare, and being more significantly expressed in the text of article 101, paragraph 3 TFEU, has tended to become more important, albeit remaining dependent on the overriding element of safeguarding economic efficiency. Considering the expanding role of the general concept and goal of EU competition law of consumer welfare, it is important to bear in mind that on the basis of economic theory of competition this should comprise three aspects, namely, value for money (obtaining

22 The acknowledgment of this position of relative predominance of the goal of promotion of economic efficiency is, however, far from consensual in the doctrinal debate. For a review of divergent positions in this field, although based in different perspectives of public interests underlying competition rules, see, inter alia, Giorgio Monti, ‘Article 81 and Public Policy; (2002) CMLR 1057ff, and RB Bouterse, Competition and Integration—What Goals Count? (Deventer, Boston, Kluwer, 1994). For a position clearly aimed, to some extent in an excessive or even overly simplistic manner, towards the predominance of the goal of economic efficiency in terms of EU competition law, see Van Den Bergh and Camesasca, European Competition Law and Economics—A Comparative Perspective (n 5) esp 6ff. Conversely, see also, Geradin, Layne-Farrar and Petit, EU Competition Law and Economics (n 5) esp 21ff, emphasizing that the view associating predominantly EU competition law to the promotion of economic efficiency ‘has no clear-cut support in the wording of the Treaty’ and ‘remains particularly controversial’, while recognizing at the same time, somehow inconclusively, that ‘the debate over the goals of EU competition law is far from settled’. On similar lines, see Damien Geradin, ‘Efficiency Claims in EC Competition Law’ in H Ullrich (ed), The Evolution of European Competition Law—Whose Regulation, Which Competition? (Cheltenham, Edward Elgar, 2006). 23 On that kind of prevalence over economic efficiency see the analysis of Wessling, The Modernization of EC Antitrust Law (n 6) esp 32ff and 80ff. For a critical view on this, see Valentine Korah, ‘EEC Competition Policy— Legal Form or Economic Efficiency’ (1986) Current Legal Problems 85ff.

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products at a lesser price or products of better quality with no price increase); the capacity for consumer choice (there is an increase in consumer welfare if they are able to choose from a wider set of products); and innovation (benefits will usually arise for consumers from the development of new products, with new functionalities).24 However, the approach that is put forward here, in the sense of a fundamental dependency of the idea of consumer welfare on the essential aspect of safeguarding economic efficiency as a general teleological matrix of EU competition law—especially evidenced through a basic consideration of elements of efficiency intrinsic in the global assessment of effects of joint ventures, as analysed in depth in chapter three (above)—requires a careful and sensitive balancing exercise when weighing consumer interests. That analytical balancing will, in fact, in my view at least, tend to require the consideration of consumer interests construed from a predominantly economic perspective, in order not to overvalue other aspects of those interests (such as, eg, safety, health, information rights or others, which should be predominantly safeguarded in other normative areas directly aimed at the protection of consumer rights). Nevertheless, my in-depth analysis of the evolution of assessment of joint ventures (in chapter three) has illustrated that this broader vision of consumer welfare has influenced some Commission decision on joint ventures (particularly in the field of the granting of exemptions). That apparently happened in Asahi/St Gobain (see chapter three at 3.3.5.4(D)), in which the Commission considered, inter alia, the introduction of a new technology that would reinforce the safety of the products. Given the evolution occurred in the understanding of basic EU competition law goals, it should, however, be acknowledged, that the Commission in its 2004 Guidelines on the Application of Article 81(3), seems to have come to recognize a close connection between ‘enhancing consumer welfare’ and ‘ensuring an efficient allocation of resources’,25 although failing to qualify this connection or further elaborate on it and also failing to acknowledge all its possible repercussions (since it continues, prima facie, to circumscribe all the consideration of elements of efficiency to the normative level of article 101, paragraph 3 TFEU,26 while my analysis above, in chapters two and three, aimed at the distinctive aspects of joint venture assessment, has led me to envisage what I have called a weighed or global effect that certain joint ventures are bound to generate on competition, and that may, to a certain extent, be considered at the normative level of article 101, paragraph 1 TFEU. My study also explored the degree of openness to such a weighed or global effect on competition admitted in more recent EU jurisprudence.27

24 See on the dimensions of this general concept within this normative context of competition law, Van Den Bergh and Camesasca, European Competition Law and Economics—A Comparative Perspective (n 5) esp 6ff. See also on this point, discussing the connection of this concept with the key goals of competition law, Joseph Brodley, ‘The Economic Goals of Antitrust: Efficiency, Consumer Welfare and Technological Progress’ (1987) NYUL Rev 1020ff. 25 See the 2004 Guidelines on the Application of Article 81(3), para 13. 26 See ibid para 33. 27 I refer here, inter alia, to relevant jurisprudential precedents mentioned in chs 2 and 3, above, especially GlaxoSmithKline; Barry Brothers; Meca-Medina; and O2 v Commission (already quoted above (n 18) and to which I shall make further reference later in this chapter).

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2.1.1.3 Adjustment of Teleological Priorities of EU Competition Law and Renewed Analytical Models This general adjustment of the teleological priorities of EU competition law that I have been envisaging—emphasizing the extent to which the distinctive features of joint venture assessment have contributed to it—should be considered with two important provisos. The first has to do with the fact that such adjustment of the teleological model of EU competition law results from a process of evolutionary interpretation that has yet to be consolidated (and is subject to some shifts given the dynamic nature associated with the normative structure of competition law, which does not preclude, conversely, a true substantive constitutional dimension of that structure within the whole body of EU law and the emergence of an economic constitution of the EU).28 The second proviso concerns the emergence of increased problems of legal vagueness or lack of legal safety as a result of this type of predominance conferred on normative propositions and goals that assimilate an essential economic content. To a large extent, I am at this level less optimistic than authors like Peter Camesasca and Roger Van Den Bergh on the ability of modern economic theory to respond, through a comprehensive toolkit of analytical instruments, to the requirements of economic analysis that may provide a substantive content to core normative principles of EU competition law, relying on paramount economic notions and considerations, namely those on economic efficiency.29 While acknowledging the relevance in this area of the use of new or enhanced econometric techniques and various models of economic analysis in the context of the enforcement of competition rules,30 I consider that these still suffer from considerable limitations and do not fundamentally solve the increased problems of legal safety arising from the new relevance attributed to central economic concepts (namely economic efficiency) to the materialization of key normative propositions of EU competition law. In my view, those limitations and shortcomings will only be mitigated by trying to build global analytical models of analysis—legal and economic and largely based on general criteria and parameters in many cases delineated as quasi-presumptions—specially tailored to certain normative areas within competition law. The area of assessment of joint ventures—as I have observed—somehow epitomized that approach, with comprehensive analytical models for the assessment of joint ventures delineated by Joseph Brodley and

28 There is no room here to elaborate specifically on the development of the normative structures of EU competition law as gaining constitutional relevance within an economic constitution of the EU. However, see further on this below, 2.1.1.4 in this chapter and the various references made there to the concept and emergence of the economic constitution of the EU. 29 See, on that more optimistic perspective, Van Den Bergh and Camesasca, European Competition Law and Economics—A Comparative Perspective (n 5) esp 7ff. For a critical discussion of the role of economic analysis in the application or materialization of competition rules in the context of the US antitrust system, see Thomas Rosch, ‘Antitrust Law Enforcement—What to Do About Current Economics Cacophony?’ in Nicolas Charbit and Elisa Ramundo (eds), William E Kovacic—An Antitrust Tribute—Liber Amicorum Vol 1 (Institute of Competition Law, 2012) 301ff. 30 See, on these techniques and models and on their possible reach, particularly to asses various dimensions of economic efficiency, inter alia, OE Williamson, ‘Allocative Efficiency and the Limits of Antitrust (1969) Am Econ Rev 105ff; S Martin, Industrial Economics: Economic Analysis and Public Policy (New York, Macmillan Press, 1994) 58ff. See also Van Den Bergh and Camesasca, European Competition Law and Economics—A Comparative Perspective (n 5) esp 7ff; Simon Bishop and Mike Walker, The Economics of EC Competition Law: Concepts, Application and Measurement (London, Sweet & Maxwell, 2010) esp 479ff; Ioannis Lianos, La Transformation du Droit de la Concurrence par le Recours à l’Analyse Économique (Bruxelles, Bruylant, 2007).

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other authors31 and with the global analytical model for such assessment that I have proposed in this book (basically delineated in chapter two and developed in chapter three). Coincidentally, the development of this type of comprehensive analytical model, comprising sequential and pre-ordained general parameters (although to be flexibly adapted to the empirical data on the particular market situations involved), which work in various cases as quasi-presumptions and assimilate some economic concepts and reasonings, is to be taken as a fundamental part of a global movement of renewal of the legal methodology in the field of EU competition law (especially in the area of cooperation between undertakings covered by article 101 TFEU in conjunction with certain normative corollaries of the enforcement of merger control rules). I am referring to the movement of renewal of legal methodology that I have identified (above, section 1 in this chapter) as one of the three key elements of a transition to a new stage of consolidation and evolution of EU competition law (envisaging it especially as a renewal of the legal methodology used for the assessment of processes of cooperation between undertakings). That corresponds, in turn, to the second in a set of three essential aspects of transformation of EU competition law (above, section 1, bullet points 1 and 2 in this chapter), which I explore in some detail in this chapter, since these are more directly inter-connected with essential corollaries of joint ventures analysis (as evidenced throughout the analysis developed in chapters two and three of this book). This particular driver of change is examined, below, at 2.2 of this chapter 4 (also referring briefly there to the development of particular goals of competition rules and their underlying normative logic leading to certain hermeneutical approaches). 2.1.1.4 Constitutional Dimension of EU Competition Law As is widely acknowledged, the development in general of EU law has led to a process of constitutionalization of the Treaties largely based on the jurisprudence of the CJEU. This jurisprudence has in fact from very early on been characterized by an overriding idea of ensuring the specificity of EU law as a new supranational normative body of law in a position of supremacy vis a vis the national laws of Member States.32 This jurisprudential trend towards the constitutionalization of fundamental areas of EU law—these comprising the normative areas regarded as fundamental for the fulfilment of the process of economic integration—has almost ab initio involved EU competition law, as can be seen from essential precedents in this area from an early stage of that integration process, for example, among the most representative the CJEU rulings in De Geus v Bosch and Walt Wilhelm).33 31 I refer here to the extremely important analytical model for joint venture assessment proposed by Joseph Brodley in his landmark study (‘Joint Ventures and Antitrust Policy’ (1982) Harv L Rev 1526)—that I have recurrently taken into consideration throughout the book—and to other analytical models on joint ventures put forward in the context of US antitrust law, such as—among other referred to throughout this book especially in chs 2 and 3—the one proposed by Joel Klein in A Stepwise Approach to Antitrust Review of Horizontal Agreements (Dept of Justice, Washington DC, 1996). 32 See in general on this process, Joseph Weiler, The Constitution of Europe (Cambridge, Cambridge University Press, 1999); Miguel Poiares Maduro, We The Court—The European Court of Justice & the European Economic Constitution (Oxford, Hart Publishing, 1998) 7ff. 33 Walt Wilhelm is still undoubtedly a landmark ruling in terms of ensuring the absolute supremacy or precedence of EU competition law (see Case 14/68 Walt Wilhelm (CJEU, 1969). See, inter alia, on this and on the case law following this landmark precedent, K. Stockmann, ‘EC Competition Law and Member State Competition Laws’ in Fordham Corporate Law Institute, (Barry Hawk (ed) 1987) 265ff; Christopher Kerse and Nicholas Khan, EC Antitrust Procedure (London, Sweet & Maxwell, 2005) para 5.56.

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This initial connection with the imperatives of economic integration did not prevent this progressive constitutionalization—in terms of an EU economic constitution—of competition rules being maintained and even reinforced after the gradual and relative differentiation (mentioned above at 2.1.1 in this chapter) of the teleological programme of EU competition law vis a vis the basic normative foundations of economic integration. In fact, articles 119, paragraph 2 and 120 TFEU, establishing a principle of an open market economy and free competition (corresponding to the principle recognized under former article 4 EC prior to the Treaty of Lisbon)—to be applied in connection with the essential competition rules of the TFEU—confirm this constitutional status of EU competition law (or, at least, of its guiding normative principles). These principles with a growing pivotal role in the overall organization and functioning of market economies within the EU—going well beyond the initial negative integration goals associated with competition law and policy—were also corroborated and expanded by the jurisprudence of the CJEU and of the GC. However, the advances in the fulfilment and deepening of the internal market programme have led to the questioning of some aspects and assumptions underlying what may be designated as a classic constitutionalist approach within EU law. This complex revaluation of the supranationality imperative with a truly constitutional dimension (in substantive, albeit not formal, terms) may be observed in some jurisprudence of the CJEU, to a certain extent more favourable to the safeguarding of Member States competences, which is epitomized by the landmark ruling in Keck.34 On the whole, it has led to the development of ‘neo-constitutionalist’ doctrines, advocated, for example, by authors like G Majone, M Jachtenfuchs and K-H Ladeur.35 These doctrines underline the limitations of the former assumptions of the classic constitutionalist vision aimed at imperatives of a legal and economic process of integration that would gradually be overruling the national legal systems of the Member States, but they diverge considerably as regards the various levels of interplay between several normative bodies of EU law and of national laws of the Member States (divergences which are aggravated by the growing functional and institutional complexity arising from the building of the EU on the basis of various pillars and of a progressive integration of new spheres of economic policies within the EU, albeit with different roles for the various Member States). There is no room here for this theoretical and doctrinal debate on the constitutionalization of EU law (especially EU economic law),36 but, regardless of this debate—and following

34 See Case C-267 & 268/91 Bernard Keck and Daniel Mithouard. On this jurisprudence see Norbert Reich, ‘The November Revolution of the European Court of Justice: Keck, Meng and Audi Revisited’ (1994) CMLR 459ff. 35 See G Majone, Regulating Europe (London, Routledge, 1997); M Jachtenfuchs, ‘Theoretical Perspectives on European Governance’ (1995) ELJ 115ff; K.-H Ladeur, ‘Towards a Theory of Supranationality—the Viability of the Network Concept’ (1997) ELJ 33ff. 36 See, for a broader perspective on that theoretical discussion, which requires an in-depth analysis, Julio Baquero Cruz, Between Competition and Free Movement—The Economic Constitutional Law of the European Community (Oxford, Hart Publishing, 2002) esp 10ff; Weiler, The Constitution of Europe (n 32; F Snyder, ‘General Course on Constitutional Law of the European Union’ in Collected Courses of the Academy of European Law (The Hague, Kluwer Law International, 1998) VI, Book I; J Gerkrath, L’Émergence d’un Droit Constitutionnel pour l’Europe (Brussels, Éditions de l’Université de Bruxelles, 1997); for a broad discussion of these issues in light of the concept of economic constitution (‘Wirtschaftsverfassung’)—originating in German ordoliberal thinking—see D Gerber, ‘Constitutionalizing the Economy: German Neo-liberalism, Competition Law and the “New” Europe’ (1994) Am J Comp L 25ff; W Sauter, ‘The Economic Constitution of the European Union’ (1998) Columbia Journal of European Law 27ff; J-V Louis, ‘Le Modèle Constitutionnel Européen: De la Communauté à l’Union’ in P Magnette and E Remacle (eds), Le Nouveau Modèle Européen, Vol 1 (Brussels, Éditions de l’Université de Bruxelles, 2000).

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the discussion concerning the Project of Constitutional Treaty,37 the adoption of the Treaty of Lisbon and the consolidated case law on EU competition law as well—I consider there is sufficient ground to maintain the current existence of a truly constitutional support (in terms of an economic constitution of the EU38 understood in a substantive sense) for the teleological and normative programme of EU competition law. Accordingly, I also submit that not even the elimination—arising from the Treaty of Lisbon—of the objective provided for in the previous provision established under article 3, paragraph 1(g) of the EC Treaty, concerning the existence of a system ensuring that competition in the internal market is not distorted, has not affected this constitutional dimension of the basic normative principles of EU competition law.39,40 In fact, at this stage of the evolution of the constitutionalization of EU law and principles—the emergence of an EU economic constitution in substantive terms, undoubtedly the result of an evolutionary and dynamic process—and differently from what occurs with other EU regimes and even with the fundamental freedoms of the internal market, the core normative requirements deriving from EU competition law seem not to be questioned, in spite of the gradual autonomy that its teleological programme has gained from the basic matrix of economic integration. On the contrary, the decentralization of the enforcement process of EU competition law embodied in Regulation EC No 1/2003 (and related initiatives) has, to some extent, translated into a reinforcement of the conforming and parametric power of EU competition rules over national competition rules, thereby making them closer to a truly constitutional dimension determining the normative production of EU Member States).41 Therefore, on the whole, and while it should be acknowledged with Joseph Weiler that the concept of constitution, when we move beyond a strict formal notion, has many

37 On the discussions related to the Project of Constitutional Treaty, see Jean Victor Louis, ‘Le Projet de Constitution—Continuité ou Rupture’ (2003) CDE 215ff. 38 On the idea of an economic constitution of the EU see again, inter alia, Baquero Cruz, Between Competition and Free Movement—The Economic Constitutional Law of the European Community (n 36) esp 10ff; KW Knörr, ‘Economic Constitution: On the Roots of a Legal Concept’ (1993) Journal of Law and Religion 343ff; Giuseppe Mancini, ‘The Making of a Constitution for Europe’ (1989) CMLR 595ff; Sauter, ‘The Economic Constitution of the European Union’ (n 36) 27ff. 39 We should acknowledge that such assessment is not consensual. See, inter alia, for a different view Alan Riley, ‘The EU Reform treaty & The Competition Protocol: Undermining EC Competition Law’ CEPS Policy Brief No 142, September 2007. Conversely, the more recent case law from both the GC and its predecessor, the CFI, seems to indicate clearly that these courts maintain their fundamental view on the interpretation of competition rules in light of the objective of establishing a system ensuring that competition is not distorted, which, in turn, is still regarded as being included within the scope of the article 3, para 3 TEU goal of establishing an internal market; see, eg., Joined Cases T-458/09 and T-171/10 Slovak Telekom a.s. v European Commission (GC, 22 March 2012) paras 36ff; and Case C-52/09 Telia Sonera (CJEU, 17 February 2011) paras 20ff. 40 It must be recalled that beside a fundamental acquis of core competition law principles resulting from the jurisprudence of the CJEU and the GC, a Protocol on Competition annexed to the Treaty of Lisbon included, in almost exactly the same terms, the wording of the previous article 3, para 1(g) of the EC Treaty on the safeguarding of competition. 41 On this conforming and parametric power that EU competition law seems to assume in the context of the decentralization process initiated with the 1999 White Book and largely enacted through Regulation (EC) No 1/2003, see, inter alia, Koen Lenaerts, ‘Modernization of the Application and Enforcement of European Competition Law—an Introductory Overview’ in Jules Stuyck and Hans Gilliams (eds), Modernisation of European Competition Law (Antwerp, Oxford, New York, Intersentia, 2002) 11ff and Ulrich Immenga, ‘Coherence: A Sacrifice of Decentralization?’ in Claus Dieter Ehlermann and L Atanasiu (eds), European Competition Law Annual 2000: The Modernization of EC Antitrust Policy (Oxford and Portland, Oregon, Hart Publishing, 2001).

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meanings,42 I believe that, at this stage of its evolution and consolidation, the core rules and principles of EU competition laws have gained a truly constitutional status—in the context of a gradually developed EU economic constitution. Among other fundamental aspects in favour of such a characterization I may note (i) the growing parametric and guiding role of EU competition rules and principles (endowed with particular authority and decisively influencing even national competition rules in the context of a soft harmonization process); (ii) the existence of specific judicial mechanisms to safeguard that normative body; or (iii) the existence of specific institutions entrusted with extensive public power for the enforcement of such rules.43 2.1.1.5 Joint Venture Analysis and the Multiple Dimensions of Efficiency in EU Competition Law In short, the new adjusted teleological programme of EU competition law—to which, as I have observed above, 2.1.1, joint venture analysis has contributed—has evolved to be a part of the EU economic constitution (or at least to influence it). Moreover, not only has joint venture analysis—as verified at length in my in-depth analysis of the key functional types of joint ventures falling under the 101 TFEU regime (above, chapter three)— contributed to evidence or even enhance goals of competition law related to the pursuit of economic efficiency, but it may also have influenced a redressing of the teleological matrix of efficiency as devised by the Chicago School (therefore contributing to the emergence of a new Post-Chicago synthesis of fundamental goals of competition law and policy). In fact, an important limitation evidenced by the teleological model of competition law influenced by the Chicago School—with negative repercussions on the analytical methodology used for the enforcement of its rules—was, in my view, an excessive focus on an idea of efficiency too strictly associated with the preservation in the short run of competitive prices. Such a strict perspective does not sufficiently take into account the potential negative effects for the competition process arising from business strategies designed to raise competitors’ costs in intermediate markets (eg, the raising of production costs in general in certain markets). The analysis of joint ventures—particularly of joint ventures that do not fulfil all the functions of an autonomous economic entity—may precisely illustrate that these entities can be used to raise, in relative terms, the costs of competing undertakings. These types of situations, even if not leading to an immediate increase in prices (or to price increases in the short run) on the markets of final goods apparently affected by the activities of joint ventures—which was the only relevant detrimental effect under a stricter Chicago view of efficiency in the competition process—may, however, lead to losses of productive efficiency and also to significant losses of dynamic efficiency, related to innovation processes.44 As regards these types of situations, and following the views of Joseph Brodley

42

See Weiler, The Constitution of Europe (n 32) viii. On these and other defining features, see, inter alia, O Greenberg et al (eds), Constitutionalism and Democracy (Oxford, Oxford University Press, 1993) 65ff; DJ Gerber, ‘Constitutionalizing the Economy: German Neo-Liberalism, Competition Law and the “New Europe”’ (1994) American Journal of Comparative Law 25ff; Poiares Maduro, We the Court: The European Court of Justice and the European Economic Constitution (n 32); Sauter, ‘The Economic Constitution of the European Union’ (n 36) 27ff, and by the same author, Competition Law and Industrial Policy in the EU (Oxford, Clarendon Press, 1997) 229ff. 44 On this critical view on the limitations of analysis and assumptions of the Chicago School, too focused on some particular dimensions of economic efficiency to the detriment of others, see Joseph Brodley, ‘Post-Chicago 43

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and others,45 joint venture analysis, given the hybrid nature and features of such entities, allows, as a rule, a type of analytical flexibility particularly well placed to test the interaction of the various repercussions of its creation on multiple dimensions of economic efficiency that may be at stake (not limiting that assessment to immediate or short term repercussions on prices in certain final consumer goods). In reality, one of the key hurdles for the consideration of efficiencies—which concerned its ex ante consideration in market contexts in which prospective judgments developed to demonstrate efficiency effects are not easy to produce—may be attenuated when assessing joint ventures. That may, in effect, result from the lesser degree of structural transformation created by various subcategories of joint ventures. The consequent reversibility of these entities, particularly of non-full function joint ventures—which differentiates them, as more flexible entities, from most concentration operations (in a strict sense)—is, therefore, in many situations more compatible with an ex post verification of the efficiency elements that may have been considered in an initial assessment of those same entities. Accordingly, this allows for wider possibilities of development of creative formulae of assessment of joint ventures—including a varying conditionality component (easier to implement and monitor when applied to reversible entities). That, in turn, allows a wider range of various efficiency elements to be considered, as it creates more propitious conditions to consider in an integrated manner the static and dynamic components of that efficiency (overcoming some important limitations of the Chicago School views on efficiency).46 This interplay between the hybrid nature of joint ventures and the wider possibilities of a flexible consideration of multiple dimensions of economic efficiency is something that will be particularly well evidenced in the second element of the overall transition of EU competition law to which I referred above, section 1 of this chapter) and that I return to below, 2.2 of this chapter (the element related to the renewal of the understanding of the main categories of cooperation between undertakings and of the legal methodology used for their competition law assessment).

2.2 The Renewal of the Understanding of the Main Categories of Cooperation between Undertakings and of the Legal Methodology of EU Competition Law 2.2.1 General Perspective 2.2.1.1 Key Fundamental Areas of Methodological Change As mentioned at the beginning of this chapter, a second fundamental element of transformation of EU competition law influenced by joint venture analysis concerns a comprehensive renewal of the understanding of the main categories of cooperation between undertakings

Economics and Workable Legal Policy’ (1995) ALJ 683ff, esp 687. As Brodley notes, ‘allocative efficiency increases social wealth only at the margin (by the welfare triangle), while productive efficiencies increase social wealth over the whole range of output, and innovation efficiencies not only achieve productive efficiencies within the market, but create beneficial spillover into other markets and industries’. 45

See ibid 690ff. See, on these possibilities, Robert Pitofsky, ‘Proposals for Revised United States Merger Enforcement in a Global Economy’ (1992) Geo L J 195ff. 46

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and of the legal methodology developed for their competition law assessment (with broader implications in terms of the legal methodology of EU competition law in general). This methodological change, in turn, may be seen in three fundamental areas (in which we may identify some important corollaries of joint venture analysis evidenced in the course of the preceding chapters). These areas may essentially be envisaged as follows: —

—

—

The building of a new analytical model in the context of EU competition law that now incorporates elements of economic analysis and a new balancing of structural type elements (even outside the specific field of direct control of concentrations); The possible development of general analytical models, particularly in the field of assessment of processes of cooperation between undertakings, conceived to find a balance between the inevitable casuistic elements inherent in a greater significance of economic analysis and empirical evaluation of each particular market situation and minimum requirements of predictability and legal safety in the enforcement of competition law; The possible development of more flexible criteria of analysis in connection with the interplay between paragraphs 1 and 3 of article 101 TFEU, avoiding at the same time an overly strict hermeneutical reading of the general prohibition rule of paragraph 1 and any kind of assimilation of an intermediate level of consideration of procompetitive elements within this paragraph 1 rule to the rule of reason of US antitrust law (a parallel that, since the remarkable comparative analysis developed by René Joliet, has misplaced a global hermeneutical understanding of the interplay between paragraphs 1 and 3 of article 101 TFEU and has also contributed to some misunderstandings as regards the corollaries of some key jurisprudential precedents in this field).

I shall mainly focus my attention—albeit in very succinct terms in this concluding chapter—on the first and third of these areas, since most of the relevant aspects of the second area are in one form or another underlying the considerations produced in connection with those two areas. 2.2.1.2 The Emergence of a New Methodological Approach as Regards Cooperation between Undertakings I believe, in fact, that, as particularly evidenced above in chapters two and three, the accumulated experience of dealing with joint ventures under EU competition law—leading to a frequent interplay between subtypes of joint ventures involving the enforcement of article 101 TFEU and subtypes of joint ventures involving the application of merger control rules (or a combination of both as it happens under article 2, paragraphs 4 and 5 MCR 2004)—has stimulated the development of an entirely new analytical methodology (although this also relies on other evolutionary factors). I refer to a new methodology characterized by the assimilation of new elements of economic analysis and by a systematic consideration of structural type factors—in the field of cooperation between undertakings—albeit within an innovative perspective of dynamic interaction between such elements and other behavioural elements. Furthermore, this renewed analytical matrix has a paramount reference or driving hermeneutical force in the proper assessment of market power of undertakings and of the conditions for its exercise in order to catch those that may lead to some form of economic inefficiency. I am actually referring to a new methodological balancing exercise of a qualitative type that involves the dual consideration of structural and behavioural elements in a renewed

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systemic context of evaluation of market power that largely surpasses the previous and historical divide between the Harvard and Chicago Schools, through the emergence of a post-Chicago reasoning, as theorized by various authors in the US antitrust system47 (reconciling and adjusting in the process some valuable elements of the Harvard and Chicago Schools). I also refer within the same context to the emergence of what has already been called a new European School in the field of EU competition law.48 On that new methodological approach Thomas Pirainno refers appropriately and suggestively to the development of a ‘more complex … market-based analysis’ taking as a key reference the market power of the undertakings concerned, which, if ascertained, should justify the consideration of more complex economic factors including elements usually conceived as predominantly structural or behavioural, but nowadays assessed under a new ‘antitrust continuum’. It is significant that when analysing the development of this new approach—going beyond the traditional divide between the Harvard and Chicago Schools—Thomas Pirainno Jr includes in the group of competitive conducts or situations that require a ‘prioritized market analysis’ under this new approach those related (inter alia) to horizontal joint ventures.49 Curiously, in the context of EU competition law, the relatively late development of a framework of direct control of concentrations and an historic downplay of the elements of entrepreneurial integration in the characterization and assessment of joint ventures—an analytical distortion that, as I explained above, was largely related to that initial normative gap in EU competition law—had created a traditional deficit of structural analysis (also associated with a previous deficit of economic analysis in this body of law). Hence, the relative absence in the course of various stages of evolution of EU competition law of a real conflicting treatment between structural elements of analysis and intrinsically anticompetitive elements of a behavioural nature has led to the fact that, in the context of this normative area, a true perception is frequently lacking of the reach or impact of the methodological equilibrium involved in the joint consideration of those two types of elements and of the analytical difficulties underlying it (unlike the acute perception of those difficulties in the context of US antitrust law). However, the late development of an in-depth treatment of problems of entrepreneurial integration related to changing market structures within EU competition law has—in this somewhat paradoxical way—contributed to a more flexible approach in the treatment of structural elements and has thus facilitated its balancing with behavioural elements under new analytical models (to the development of which joint venture assessment, with its combination of structural and behavioural aspects, has been an important factor). However, given the particularly acute perception under US antitrust law of the analytical hardship involved in a new combination of structural and behavioural elements it is pertinent to take into consideration the perspective of US doctrine in this field (while

47 See on this, inter alia, Thomas Pirainno, Jr, ‘Reconciling the Harvard and Chicago Schools: A New Antitrust Approach for the 21st Century’ (2007) Indiana Law Journal 345ff. 48 This characterization has been coined by Doris Hildebrand, in the various editions of her book, The Role of Economic Analysis in the EC Competition Rules. I refer here particularly to the third edition (Alphen aan den Rijn, Kluwer Law, 2009) of this book. 49 See Pirainno, Jr, ‘Reconciling the Harvard and Chicago Schools: A New Antitrust Approach for the 21st Century’ (n 47) esp 390ff and 399ff.

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emphasizing the role of joint venture assessment to the emergence of these qualitatively new and hybrid analytical models). In the context of this doctrine, George Hay underlines in an impressive manner that in preceding stages of the evolution of US antitrust law, it was not only the consideration of the nature of certain behaviours, for example, inter alia, joint price-fixing practices—that determined unfavourable views on those practices, regardless of structural factors or of the market power of the undertakings at stake, while, conversely, in the field of control of horizontal mergers, those structural factors practically amounted to the only relevant analytical parameter.50 Precisely what is at stake with the development of the new analytical methodology that I have been talking about—and for which joint venture assessment has largely acted as catalyst51—is the emergence of an analytical perspective intersecting these two extreme approaches. Furthermore, as regards EU competition law, as already underlined above, we may consider to a large extent the development ex novo of such methodology without intermediate stages comparable to the ones experienced in the evolution of US antitrust law. 2.2.1.3 The Development of a Mixed Analytical Model and its Characteristics This new methodological synthesis involves the adoption of what may be called a limited or mixed structural analytical model.52 This analytical model implies the acknowledgement of the important role of structural parameters in assessing the competitive behaviour of undertakings—especially within pre-ordained assessment models that comprise, as the one we delineated for the assessment of joint ventures, successive and interconnected stages of analysis53—but does not dispense with a proper consideration of various factors inherent in those behaviours in order to arrive at a final competition law reasoning. In fact, within an understanding of the assessment of market power which has also been renewed— a factor that has been acknowledged as essential in a more recent phase of evolution of EU competition law—the determination of the actual existence of such market power is no longer made exclusively on the basis of structural factors (particularly market shares of the undertakings at stake), but also through the historic track-record of behaviour of those undertakings and essential factors intrinsically connected with such behaviour and to foreseeable potential variations of it. In many cases it is absolutely vital to consider, regardless of any structural changes or of changes of behaviour apparently induced by that structural dimension, if certain

50 See George Hay, ‘The Interaction of Market Structure and Conduct’ in Donald Hay and John Vickers (eds), The Economics of Market Dominance (Oxford, Basil Blackwell, 1987) 105ff, esp 109ff. Hay’s analysis in this study addresses, prima facie, unilateral practices of undertakings, but many aspects of it—and this is not excluded by the author himself—are also applicable to various forms of cooperation between undertakings. 51 Joint venture analysis in general and also joint venture assessment that particularly combines elements pertaining to the evaluation of concentrations and evaluation of elements of cooperation, eg, full function joint ventures which generate effects of coordination between parent undertakings and doubly submitted to a fundamentally structural test under the MCR and a test regarding possible effects of restriction of competition arising from coordination of behaviours (under article 2, para 4 MCR as per the 1997 reform of the MCR in terms that were not basically changed by the 2004 reform leading to the adoption of MCR 2004). 52 I take into consideration here a characterization used by George Hay, although adapting it to the context of EU competition law that we are analysing. Hay refers in the context of US antitrust law to the emergence of a ‘limited version of the structural screen’ (see George Hay, ‘The Interaction of Market Structure and Conduct’ in Donald Hay and John Vickers (eds), The Economics of Market Dominance (n 50) 109ff). 53 I refer to the general assessment model delineated above, in ch 2 and further developed as regards its application to the key functional subtypes of joint ventures to be assessed under article 101 TFEU in ch 3.

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undertakings on the basis of preceding behavioural patterns (eg, the structure of their prices), already enjoyed considerable market power, even though this was not particularly evidenced through pre-existing structural elements (which will be less revealing on that account especially in markets of differentiated products).54 In short, within the new analytical methodology that I have been characterizing, the assessment of market power based on ‘adjusted’ structural elements (or complemented with behavioural elements), beside supporting the whole process of evaluation of undertakings’ actions, is also a key indicator in order to justify or not further analysis of the presence of certain risks of restriction or distortion of competition. As will be observed below, at 2.2.1.4 and 2.2.3 of this chapter, the development of this methodology based on a limited or mixed structural analytical model also contributed decisively to mitigate the former rigidity of the prohibition rule of article 101, paragraph 1 TFEU, leading to a desirable new systematic interplay of paragraphs 1 and 3 of this article. In parallel, given the importance within this new analytical methodology—more supported in economic analysis of the markets but, by its very nature, more uncertain—of finding guiding factors that may render more predictable and focused competition law assessment in any given case, a proper perception of market power and its projection in terms of a certain pattern of competitive behaviour tends to assume a paramount role to achieve such an outcome. Particularly under US antitrust law, the concern with excessive uncertainty arising from the recurrent full application of the rule of reason has led to the delineation of more predictable intermediate areas of analysis, lying between the rule of reason parameter and the per se prohibition rule. These intermediate criteria and analytical areas rely heavily on a proper assessment and understanding of market power of the undertakings at stake, as largely ascertained in the field of joint venture assessment that influenced this approach (as underlined, inter alia, by Joseph Brodley and Gregory Werden).55 The same concern was felt under EU competition law even if embodied in somehow different analytical terminologies (to a large extent due to the non-adoption of a rule of reason and per se prohibition divide, on which I shall elaborate further below, but within an analytical framework also influenced by joint venture assessment). As I have contemplated in the general assessment model that I have delineated, a linear verification of appreciable market power will justify a more developed analysis of various categories of relevant parameters for joint venture assessment. Conversely, the inexistence of appreciable market power may, in itself—in the absence of other exceptional circumstances—justify not proceeding to subsequent stages of analysis of joint ventures (since such lesser market power will not be compatible with

54 On the special conditions for considering structural factors in markets of differentiated products and on this latter concept also, see Simon Baker and Andrea Coscelli, ‘The Role of Market Shares in Differentiated Product Markets’ (1999) ECLR 412ff; see also Van Den Bergh and Camesasca, European Competition Law and Economics—A Comparative Perspective (n 5) 123–24. It should also be taken into consideration that the interpenetration of structural and behavioural elements, in light of the more recent evolutions of economic analysis, tends already to be underlying the application itself of the traditional structural parameter concerning market share, which depends on the previous definition of relevant markets through analytical processes also relying on various behavioural elements. 55 See specifically on this, commenting on the influence of joint venture assessment to the emergence of the intermediate criteria or areas of analysis lying between the rule of reason and the per se prohibition (and providing an intermediate area that allows a greater degree of predictability for competition law assessments), Brodley, ‘Joint Ventures and Antitrust Policy (n 31) esp 1534–52 and Gregory Werden, ‘Antitrust Analyis of Joint Ventures: An Overview’ (1998) ALJ esp 724ff.

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the occurrence of effective incentives to coordination of behaviours truly restrictive of competition). On the whole, the proposed model of assessment of joint ventures, as well as other models delineated for that purpose—such as the 2000 US Antitrust Guidelines for Collaboration among Competitors, or even the 2011 and 2001 Horizontal Cooperation Guidelines (although these latter Guidelines are not limited to joint venture analysis but also cover other forms of collaboration)—is largely based on that kind of systematic screening of situations that justify greater or lesser antitrust concern, within various intermediate levels of analysis, taking as an essential reference the market power of the undertakings at stake (and combining them, at least beyond a certain intermediate level of analysis that requires a more thorough assessment with other behavioural elements). 2.2.1.4 The Bulk of the New Mixed Analytical Model Applied to Joint Ventures The new analytical methodology to which I have been referring, induced by joint venture assessment and corresponding to the adoption of what I have characterized as a limited or mixed structural analytical model—embodied in the general assessment model that I have put forward—involves, in particular, an analytical stage more directly related to the central issue of interaction between structural elements and elements related to the behaviour of undertakings (and the nature of agreements entered into between such undertakings). I refer here to what I have designated, in the context of the proposed general assessment model of joint ventures, as a third stage of analysis (to be developed in connection with situations whose potential for distortion of competition—ascertained through the analytical approach mentioned above, largely aimed at the consideration of market power—justifies a more developed or thorough analysis). It is, in effect, a stage of analysis that involves scrutinizing the potential aspects of distortion of competition associated with each functional subtype of joint venture, as well as to the substantive layout of the contractual programme of cooperation that in each particular case is underlying such functional subtype. Furthermore, in my in-depth study of the application of this third stage of analysis— within the general assessment model proposed—to the main functional subtypes of joint ventures (above, chapter three), I have considered it relevant to confront the specific constitutive elements of the cooperation programme underlying each joint venture with the six factors delineated in the 2000 Antitrust Guidelines for Collaboration among Competitors, and covering various aspects of the organization of the activities of joint ventures and their respective parent undertakings able to influence their behaviour (although, diverging from the US Guidelines, I have considered that the relative weight of each of those six analytical factors will depend on the functional subtype of joint venture at stake). It is those six analytical factors—to be integrated as I have proposed in a global assessment model of joint ventures—that typically reflect the complex interaction of elements of different natures in the competition law assessment of these entities (elements of predominantly structural nature and behavioural elements). Its application also epitomizes the developments of legal and economic analytical instruments influenced by new economic models (as, eg, with game theory involving a certain economic understanding of strategic interaction between the various operators in a given market and raising, at the same time, appreciable problems of legal uncertainty that may, to some extent, be mitigated by the use of the six factors of analysis noted above in the way that I have contemplated for purposes of joint venture assessment).

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At another level, this process of methodological renewal significantly influenced by joint venture assessment and leading to a gradual incorporation of elements of economic analysis in the development of legal reasoning, combining structural and behavioural factors and relying largely on a proper consideration of market power, enhances the need to build global analytical models that may effectively compensate for the inevitable level of uncertainty brought about by such economic analysis. These models—as with the one I have developed here for the purposes of joint venture assessment, allowing for some degree of predictability in spite of casuistic analysis—should be based on a prior acknowledgment that competition law central propositions follow a normative logic build around a core of essential normative objectives of this body of law. However, these normative patterns rely to some extent on economic concepts and ideas that are assimilated within that body of law and aimed at central goals of maximization of welfare.56 Also at this level, competition law assessment of joint ventures—as envisaged in chapters two and three, above—is truly paradigmatic of this new normative process, as it evidences the need to establish balanced reflections informed by elements of economic analysis on the interplay of effects of restriction of competition and effects favourable to competition, bearing in mind that elements of efficiency generated by entrepreneurial integration may overrule elements of formal distortion of competition. Under this renewed normative process and perspective, economic elements are not merely introduced ex post to help the interpreter in a secondary or accessory manner to materialize the legal hypothesis delineated in any given competition rule, but as elements assimilated from the start in the very process of formulation of legal reasoning, assessing in a positive or negative sense certain competitive acts or market positioning. Nevertheless, as acknowledged by various authors who emphasize the importance of this renewed dimension of economic analysis (within a post-Chicago synthesis), the assimilation of these economic elements is not devoid of methodological concerns.57 I may, in any case, disagree as regards the extent and type of concerns at stake. In my view, what is required within this process of assimilation of economic concepts (such as the one epitomized by joint venture assessment) is a double methodological caution. On the one hand, when incorporating economic models in the normative process of building competition law reasoning, we should limit that to models that have already reached some minimum level of consolidation in the field of economic theory and which have at the same time been submitted to the test of some kind of empirical analysis on the basis of substantive market data (indeed, one of the gaps we may identify in the Chicago School is its frequent lack of recourse to actual empirical data). On the other hand, we should prioritize the economic models and aspects related to them which may more easily furnish analytical input to pre-ordained series of parameters or to tests able to be used easily (even if dependent on some econometric instruments), to be integrated in legal models of assessment of certain competitive behaviour or market situations (as happens, eg, with the six analytical factors that have been mentioned above, in connection with the third stage of analytical model of joint ventures or, more widely, with this analytical model in general).

56 On these goals, as understood in the context of a renewal of the teleological matrix of competition law and EU competition law in particular, see above, 2.1.1.1 and 2.1.1.2 of this chapter. 57 See on this, inter alia, the approaches of Hildebrand, The Role of Economic Analysis in the EC Competition Rules (n 48) 136ff, and Kiran Desai, ‘Limitations on the Use of Economic Analysis in EC Competition Law Proceedings—Part I (2002) ECLR 524ff.

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2.2.1.5 The Consideration of Different Levels of Market Power I have been emphasizing the essential role of the assessment of market power and the conditions for its exercise as a cornerstone of the methodological renewal of EU competition law to which joint venture assessment has contributed. I should also purport to ascertain some corollaries from this focus of a renewed competition law reasoning on market power. In fact, the main part of my study covering the delineation of a general model for the analysis of joint ventures—taking as a reference comparable analytical models developed under US antitrust law and recent elaboration in terms of Guidelines by the Commission— involved an analytical exercise largely developed around the idea of market power and its consequences (creating analytical tools that, with some adaptation, may also be taken into consideration for the assessment of other types of cooperation between undertakings). One may, in effect, find a driving force behind such a general analytical model of assessment of joint ventures, which corresponds to various levels of theorizing on the market power of parent undertakings and of the new entities that such parent undertakings have established. On the whole, in that general analytical model one may consider at least three distinct levels of thinking about market power. At a first level, the existence of an especially weak or non-significant market power of the undertakings at stake (ascertained through their market shares) is to be taken into consideration (together with other factors) to limit forms of cooperation that should be normally allowed and that, in the absence of other exceptional circumstances or conditions, should not raise objections in terms of competition law (without the need, in principle, of going beyond this initial stage of analysis to confirm that essential compatibility with competition rules, albeit the risks of distortion of competition to be dealt with at this stage may vary according with the functional type of joint ventures at stake). At a second level, the existence of a relatively limited market power on the part of the participating undertakings—once again ascertained through market shares—although not allowing other complementary analytical parameters to be dispensed with entirely, justifies in principle a more succinct assessment of joint ventures. In any case, some of the complementary factors noted above may contradict the initial signs of absence of incentives to distort competition that arise from the hypothetical limited market power supposedly associated with certain market share thresholds; and which would, therefore, call for a more limited analysis comparable to what Gregory Werden has called, in the context of US antitrust law assessment of joint ventures, a ‘quick look test’ in the intermediate area between the criteria of per se prohibition and the rule of reason criteria when fully applied.58 Finally, certain assumptions of principle on the market power of undertakings involved in the establishment of joint ventures, associated with various market shares thresholds— may in certain cases justify the application of exemptions under article 101, paragraph 3 TFEU (although, as has been observed and as shall be comment on in more detail below, at 2.2.3 in this chapter, the Commission tends to confuse systematically the levels of application of paragraphs 1 and 3 of article 101 and that does not contribute to a more balanced consideraton of market power).

58

See Werden, ‘Antitrust Analysis of Joint Ventures—An Overview (n 55) 701ff.

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From a different perspective, the special focus of competition law assessment of joint ventures on the market power of the undertakings at stake has also contributed, as emphasized by authors like Michael McFalls,59 to a further deepening of different fundamental types of market power that may be considered (something relevant in general in terms of competition law, but especially important in the context of EU competition law). I refer here, on the one hand, to what may be designated as original or ‘classical’ market power (the more traditional concept considered under competition law) and, on the other hand, to exclusionary market power. The first type of market power corresponds to the ability of an undertaking, by itself or in articulation with other competing undertakings (eg, in a context of tacit coordination) to keep prices significantly higher than what we may regard as the competitive level and for a considerable period of time.60 The second type of market power is essentially the capacity by a given undertaking to exclude other competitors from the market or, at least, to relegate them to a more residual position (thus allowing that undertaking, through a lesser degree of competition pressure, to reduce the global intrinsic value of output supplied to consumers in exchange for certain levels of prices that consumers pay or to potentially reduce the variety of products or services or the degree of innovation for a considerable period of time).61 In both of the two fundamental types considered here, the existence of market power gives rise to risks for the competition process that, beyond a certain level, may lead to failures in the efficient use of resources, the most visible ones perhaps being reflected in terms of allocative efficiency, but also with appreciable repercussions (depending on each given situation) on productive efficiency and dynamic efficiency (indeed my in-depth analysis of various functional types of joint ventures in chapter three, evidencing particularly as regards some of those functional types the significant relevance of dynamic efficiency, eg as regards R&D joint ventures, and of productive efficiency, eg, as regards production joint ventures, has led me to a critical view of the excessive focus, in fact an almost exclusive focus, of some currents of the Chicago School on the aspect of allocative efficiency). These problems tended to be largely perceived at the level of direct control of concentrations (of a predominantly structural nature), including the assessment of joint ventures that could be qualified as concentrations. In fact, this area of competition law assessment has always been focused on the identification of the emergence of forms of excessive market power and inefficiencies arising from it, either through the traditional text of market dominance or through the test of substantial lessening of competition (or the test of

59 See Michael McFalls, “The Role and Assessment of Classical Market Power in Joint Venture Analysis”, (1998) Antitrust Law Journal 652ff. See also Hay, ‘Market Power in Antitrust’ (1991–92) Antitrust Law Journal 807ff. 60 I largely subscribe here to the idea of Areeda, Hovenkamp and Sollow (Antitrust Law, cit, Vol II-A, para. 501), according to which although in terms of economic theory various degrees of market power may be considered, the relevant concept—in the sense of originary or ‘classical’ market power—is the one referring to such ability of practicing prices above the competitive level. A wider notion may be fundamentally considered in terms of economic theory considering the ability of any supplier of practicing prices above the marginal costs of the products. Those two notions are, in fact, discussed in the par. 25 of the 2004 Guidelines on the Application of Article 81(3). 61 Various economic models purport to establish a pondering of the levels of quantitative output, quality and intrinsic global value of products and services vies a vies what could be expected at a level of perfect competition or a level close to it. In fact, as duly acknowledged by Roger Van Den Bergh and Peter Camesasca, ‘definitions of market power which may be found in the literature on industrial organization are clearly influenced by the characteristics of the model of perfect competition’ (see, from these authors, European Competition Law and Economics—A Comparative Perspective (n 5) 75).

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significant impediment to effective competition adopted under the MCR 2004, as well). However, those same problems were not generally present in the area of assessment of different forms of cooperation between undertakings under article 101 TFEU. Given this traditional gap, the development of processes of assessment of joint ventures under article 101 TFEU, involving a structural dimension (albeit through a mixed approach that we have already characterized) and with inevitable crosscurrents with merger control (particularly as regards concentrative joint ventures), played a fundamental role in the evolution towards a new systemic incorporation of the consideration of market power within the area of assessment of forms of cooperation between undertakings. As I emphasized in my analysis of effects arising from joint ventures subject to the article 101 TFEU regime, that form of consideration of market power while scrutinizing such effects did not involve the assessment of structural effects stricto sensu, as happens while applying the test of compatibility with the common market in the context of the MCR 2004 (this test largely focused on the assessment of market dominance is not transposed qua tale to the field of enforcement of article 101 TFEU). What is actually at stake is that the assessment of these kinds of effects on the relationship of effective or potential competition between parent undertakings of joint ventures are conditioned by aspects concerning the presumed market power of the undertakings involved). Furthermore, these processes of assessment of joint ventures have also largely contributed to a greater and more systematic consideration of the second type of market power that we have considered above (exclusionary market power). In fact, as I underlined throughout chapter three, even the functional type of joint venture that in theory presents a lesser potential of distortion of competition, as in the case of R&D joint ventures, have frequently been scrutinized for the purpose of identifying the joint venture’s potential to exclude competing undertakings or the emergence of elements conditioning the operation of other undertakings and thus distorting market functioning. The focus on this type of market power greatly enhanced by joint venture analysis is doubly relevant. First, it reinforces antitrust treatment of that type of market power overcoming a traditional gap in the context of EU competition law; second, this renewed attention to that type of market power effectively—and rightly, in my view—calls into question doctrinal approaches that tended to downplay its relevance (even in the context of bodies of law characterized by an experience of more consolidated analysis and consideration of market power, as in the case of US antitrust law). In fact, Michael McFalls refers to various appraoches within this latter body of law according to which antitrust assessment should be based exclusively on the consideration of original (or classical) market power.62 While such restrictive views have been criticized by authors like Hovenkamp—significantly in the context of analysis of joint ventures63— the focus on exclusionary market power in connection with the consideration of dynamic efficiencies obtained through processes of innovation and related, for example, to R&D joint ventures has played a fundamental role in a more comprehensive and integrated assessment of market power (my in-depth study of various functional types of joint ventures contributed to evidence the importance of this type of exclusionary market power arising in many cases from the ability acquired through the establishment of joint ventures

62 63

See McFalls, ‘The Role of Assessment of Classical Market Power in Joint Venture Analysis’ (n 59) 652. See Herbert Hovenkamp, ‘Exclusive Joint Ventures and Antitrust Policy’ (1995) Col Bus L Ver 1ff.

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to raise the costs of competitors or to reduce the offering of goods and services of those competing undertakings). 2.2.1.6 Alternative Criteria for Assessing Market Power From another analytical perspective the assessment of joint ventures has also contributed to clarify the criteria for identifying significant market power of undertakings (evidencing, eg, that despite the undeniable importance at this level of structural criteria, other alternative elements may be contemplated for that evaluation of market power). In particular, joint venture assessment has to some extent shown that relevant parameters for evaluating market power may vary according to the types of behaviour potentially distortive of competition at stake and according to the categories of possible effects of distortion of competition associated with such behaviour. Therefore, although structural criteria—especially the aggregate market share of participating undertakings—are in general relevant to identify or evaluate market power, in certain market contexts, particularly those involving potential effects of restriction of competition related to competitor exclusion, the use of alternative criteria may be justified. This feature has been observed to a greater extent as regards, for example, the assessment of commercialization joint ventures or of commercialization agreements comparable to such ventures (especially as regards joint ventures or similar entities operating in the financial sector in the payment cards market, to which I have dedicated particular attention above, 4.4.3.6 and 4.4.5.4 in chapter three, in the context of the analysis of commercialization joint ventures, bearing in mind the network effects those entities may generate). It would be beneficial to recall at this point the preceding analysis of commercialization joint ventures or comparable entities operating in the field of payment cards and covering hypothetical exclusionary effects arising from such entities, evidencing that in the context of their activities the market power of that type of entity should not be predominantly established on the basis of aggregate market share of the participating entities but, preferably, on the basis of the turnover in such payment cards markets that was not covered by the operation of the joint ventures or comparable entities at stake.64

2.2.2 Complementary Observations on the Development of General Analytical Models in Competition Law I have referred to the possible development of general analytical models, particularly in the field of assessment of processes of cooperation between undertakings as a second driver of methodological change or renewal induced by joint venture assessment (above, 2.2.1.1 in this chapter). This second methodological corollary of joint venture analysis has already been largely covered in the preceding considerations, as those models correspond to a form of dealing with accrued economic analysis and the greater degree of uncertainty it involves. However, some succinct complementary observations may be made in order to better situate the emergence of such general analytical models in terms of competition law reasoning and enforcement and the contribution of joint venture assessment to that methodological evolution.

64 See above, ch 4 at 4.4.3.6. See also David Evans and Richard Schmalensee, ‘The Economic Aspects of Payment Card Systems and Antitrust Policy Towards Joint Ventures’ (1995) ALJ 867ff.

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In fact, the development of those models may be understood in the confluence of a double movement that, albeit with somewhat different formal contours, has characterized both US antitrust law and EU competition law. This double movement—underlined in the context of US law by authors like Joseph Kattan65—corresponds to the introduction of a greater dimension of economic analysis (noted above), together with a correlated reduction of the field of application of per se prohibition criteria (in EU competition law, a reduced application of prohibition of all limitations of economic freedom of undertakings) and, conversely, to the development of analytical structures which limit the extension of economic assessment of potential effects on competition (trying to frame it within agreed assessment formulae). This apparent paradox may be to some extent observed in the case law of the US higher courts (especially of the Supreme Court, with key precedents such as FTC v Indiana Federation of Dentists and California Dental Association v FTC),66 and also results, albeit in less clearly, from the Commission enforcement practice and the jurisprudence of the GC and the CJEU (specific mention being justified here, eg, in the field of assessment of joint ventures to Elopak/Metal Box Odin and European Night Services that we commented on in chapter three). The paradox here is apparent—as I ascertained in the course of my study of joint ventures—because the methodological renewal related to the introduction of a significant dimension of economic analysis combining structural and behavioural elements leads in itself to a delicate problem of conciliation of legal criteria that are, on the one hand, economically rational (in light of fundamental goals of competition law) and, on the other hand, clearly predictable (as suggested by Donald Turner in the context of US antitrust law but in terms applicable mutatis mutandis to EU competition law).67 Under both US and EU competition law—and regardless of the differences that remain between these bodies of law—the only way to solve satisfactorily the methodological problem at stake and to conciliate—with some equilibrium—the potentially contradictory demands of economic rationality and legal predictability is, therefore, the development of global analytical models to be used when enforcing competition rules, based on presumptions or quasi-presumptions or even in general assessment parameters, inter-related within pre-ordained logical structures, although to a large extent flexible ones (considering the economic market context which might be at stake in each case). In short, this methodological approach aimed at the development of these general preordained analytical models represents an effective way of dealing with what Frederick Rowe has termed the ‘Faustian pact’ between competition policy and economic models68 (meaning here a critical dependency for developing competition law reasoning on pure economic criteria of an extremely variable nature and application).

65 See Joseph Kattan, ‘From Indiana Dentists to California Dental: Presumptions and Competitive Effects in Antitrust Law’ (2001) ALJ 735ff, esp 739ff. 66 See FTC v Indiana Federation of Dentists 476 U.S 447 (1986) and California Dental Association v FTC 119 S Ct 1604 (1999). 67 See Donald Turner, ‘The Virtues and Problems of Antitrust Law’ (1990) AB 297ff, esp 300ff. 68 See Frederick Rowe, ‘The Decline of Antitrust and the Delusion of Models: The Faustian Pact Between Law and Economics’ (1984) Geo L J 1511ff. See also Lianos, La Transformation du Droit de la Concurrence par le Recours à l’Analyse Économique (n 30).

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Under US antitrust law, authors like Philip Areeda or Louis Kaplow have advocated the development of analytical models based on series of presumptions (and on the assumption of an equal sharing of the duty to demonstrate relevant factors supporting the various presumptions between the alleged infringing undertakings and the entities which purport to ascertain the existence of competition law infractions with all due consequences arising from it).69 I subscribe to this view to a great extent, merely diverging from it on a specific point. Bearing in mind the corollaries of my in-depth analysis and thorough review of joint ventures, I submit that this type of pre-ordained general analytical models in competition law is not exclusively or necessarily based on presumptions or quasi-presumptions, since these may be effectively combined with various general parameters of analysis and combined between themselves according to a certain internal logical of the model (as happens with the general analytical model that I have delineated for joint venture assessment under article 101 TFEU). The great analytical challenge here is to find a proper balance between the recourse to presumptions—frequently of a structural type even if not limited to market share criteria—and other general analytical parameters of a more open nature and character, without losing completely the advantages of stability and relative legal predictability normally inherent in such presumptions. Also, as authors like Paul Rice and Slade Cutter rightly point out in the context of US antitrust law, there frequently occurs a less rigorous or accurate use of the concept of presumption (which accordingly tends to be excessively used).70 Therefore, it is preferable to build general models of assessment—inducing some predictability on competition law reasoning—predominantly on the basis of general parameters of analysis of an indicative nature (logical inferences based on certain factors that may be effectively contradicted by other analytical criteria and less rigid than presumptions stricto sensu). Considering this new concern with a proper balance in building general analytical models between the use of presumptions and less strict parameters, again the category of the joint venture and the particular requirements of its competition law assessment—with its unique combination of structural and behavioural factors—has contributed significantly to an enhanced perception and a clarification of those analytical patterns. As I have observed in the context of US antitrust law, not only general analytical models of joint ventures conceived at doctrinal level—in particular the model delineated by Joseph Brodley—but also the model more recently devised by federal antitrust authorities for the analysis of joint ventures (arising from the 2000 Antitrust Guidelines for Collaboration among Competitors) have been characterized by a more balanced articulation between presumptions or stricter analytical patterns allowing some kind of quantification (normally of a structural nature) and other parameters of a more diverse nature which are compatible with higher margins for qualitative assessment of relevant situations or factors (although, as observed in some points of my preceding analysis of various functional types of joint ventures, the 2000 Guidelines may still have some gaps that make intermediate levels of analysis on the basis of a possible ‘truncated rule of reason’ or involving appropriate

69 See on this Philip Areeda, Antitrust Law (Boston, Little Brown & Company, 1986) ch 15. See also Philip Areeda and Louis Kaplow, Antitrust Analysis (Boston, Aspen Law & Business, 1997) esp ch 2. 70 See Paul Rice and Slade Cutter, ‘Problems with Presumptions. A Case Study of the Structural Presumption of Anticompetitiveness’ (2000) AB 557ff.

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standards that may trigger some forms of ‘quick look’ analysis ensuring a greater degree of predictability more difficult).71 In the context of EU competition law, as I have also observed throughout chapters two and three, the 2001 and 2011 Horizontal Cooperation Guidelines in particular also delineated a general model of assessment of cooperation between undertakings, that I have regarded as largely applicable to the relevant aspects of joint venture assessment (following the preceding 1993 Guidelines that concerned specifically joint ventures). However, I have diverged from this model as regards various key elements and, while taking it as a useful reference in some points, I have delineated at a doctrinal level an alternative general model for assessment of joint ventures (submitted to the article 101 TFEU regime). In it, I have retained as an important criterion the predominantly structural parameter of the aggregate market share of participating undertakings, but not segmenting its application for the various functional types of joint ventures nor using it as a pure or naked structural parameter but as a limited or mixed structural parameter (in the sense considered above, at 2.2.1.3 in this chapter). In fact, I have envisaged its use fundamentally as an intermediate stage of analysis (within my general model) whose indications may be ‘corrected’ or adjusted through the use of other pre-ordained complementary analytical criteria of a different nature. Accordingly, I am convinced that the delineation of general models of assessment of joint ventures building on the unique characteristics of this category—such as the one I have developed in this book—may to some extent epitomize paradigmatic general models of antitrust assessment in the field of cooperation between undertakings, with the characteristics that I have been reviewing (ie models adequate to compensate the inevitable margin of uncertainty brought about by the integration of a new enhanced dimension of economic analysis in competition law reasoning and by a new combination of structural factors and other factors that goes beyond the traditional Harvard-Chicago divide). Also, I submit that these renewed general analytical models, as a whole, may decisively contribute to overcome some limitations of traditional presumptions or criteria of a predominantly structural nature as is typically the case with the aggregate market share parameter. I diverge on this point, therefore, from authors like Michael McFalls who tend to reject the use of criteria based on market shares. In my view, what is important, while overcoming certain prior limitations of these criteria and at the same time keeping their relevant application, is to reform the analytical processes used for calculating market shares and, also, to ensure a dynamic interaction of the same criteria with other parameters (which must be ranked in accordance with the characteristics of the specific markets at stake, as well).72 Once more, joint ventures combining structural elements with elements of a different nature and elements of potential restriction of competition with potential precompetitive justifications correspond to a competition law category particularly well suited to

71 In addition to various points of my in-depth analysis of key functional types of joint ventures in ch 3, see on these possible failings of the US 2000 Antitrust Guidelines for Collaboration among Competitors, Kattan, ‘From Indiana Dentists to California Dental: Presumptions and Competitive Effects in Antitrust Law’ (n 65) esp 740ff and 751ff. 72 As I have observed, eg, in the context of differentiated markets, the relative weight of the market share parameter should be less significant, but there are other examples, depending on the variable characteristics of markets.

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evidence different criteria that may be combined in general pre-ordained analytical models, ensuring some degree of legal predictability and differentiating between various levels or extensions of analysis between clear-cut infringements of competition law and cases that require a full-blown analysis (with intermediate areas in between).73

2.2.3 Establishing a New Normative Logic in the Systematic Interpretation of Article 101, Paragraphs 1 and 3 TFEU 2.2.3.1 General Overview A third area of fundamental methodological change or renewal of EU competition law influenced by joint venture assessment or in which some important corollaries of it may be identified is—as noted above, at 2.2.1.1 in this chapter—the possible, and in my view desirable, development of a new normative logic of systematic interpretation of paragraphs 1 and 3 of article 101 TFEU (taking into consideration here the experience or track-record of assessment of various subcategories of joint ventures submitted to the regime of article 101 TFEU without prejudice to the growing interplay between hermeneutical patterns of that area of discipline of joint ventures and those arising from the enforcement of the normative discipline of subcategories of joint ventures covered by the MCR 2004 regime). Such new hermeneutical logic involves progressively setting aside stricter interpretations of the prohibition regime of article 101, paragraph 1 TFEU, admitting within its sphere of application intermediate areas of evaluation comprising elements potentially restrictive of competition and others of a procompetitive nature (although not assimilated to the development of any kind of rule of reason in the context of EU competition law). Throughout the study of joint ventures in this book and at the beginning of this chapter, I have underlined that the assessment of these entities, involving by its very nature complex evaluations of different types of elements provides an ideal area in which to test the limits of the hermeneutic margin for including such wider evaluations in the regime of article 101, paragraph 1 TFEU (thus allowing also the formulation of other corollaries to the application of this rule in other areas of cooperation between undertakings). The problem of distinguishing between (i) market situations that justify a strict prohibition on the basis of a quick analysis (almost per se, although this concept is not applicable under EU competition law because theoretically every situation could be justified under article 101, paragraph 3 TFEU); and (ii) situations that justify another type of more developed competition analysis is, to some extent, common to US antitrust law and EU competition law (although, as mentioned above, based on different normative premises). Traditionally, under the former body of law the delimitation between per se prohibition and rule of reason analytical criteria has been considered the true cornerstone of that

73 I have identified paradigmatic illustrations of that in terms of competition law assessment of joint ventures in the context of my analysis of the various functional types of joint ventures throughout ch 3 and that is also particularly well illustrated in doctrinal analysis of joint ventures in the context of US antitrust law such as the one developed by Edward Correia and identifying, through the contribution of joint venture assessment, eg, five categories of cases, namely: ‘I—traditional, “blatant” per se violations’; ‘II—agreements substantially equivalent to traditional per se violations’; ‘III—other restraints with no precompetitive justifications’; ‘IV—significant restraints with plausible, though not substantial precompetitive justifications’; and ‘V—significant restraints with more substantial justifications’. See Edward Correia, ‘Joint Ventures: Issues in Enforcement Policy’ (1998) ALJ esp 740ff.

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normative system.74 In the context of EU competition law the strict interpretation of the prohibition rule of article 101, paragraph 1 TFEU, turning it in practice an almost per se prohibition (covering any relevant limitation of economic freedom of undertakings)—that has prevailed until recently—or the alternative application of a sort of ‘rule of reason’ following an hermeneutical logic comparable to that adopted under US law has constituted one of the most controversial issues in dealing with situations of cooperation between undertakings (including in this area a significant number of joint ventures). This discussion concerning the possible application of some form of rule of reason in the context of article 101 TFEU was to a large extent launched by René Joliet’s fundamental comparative study of 1967 which, at that time, appeared to be supported in Société Téchnique Minière.75 Joliet’s theory, concerning a possible applicability of a sort of rule of reason in terms of interpretation of article 101, paragraph 1 TFEU, stirred up a considerable doctrinal controversy, gaining considerable support from some authors,76 but rejected overall by the Commission. It must, however, be acknowledged that the enforcement practice of the Commission has evolved towards a greater flexibility of the application of prohibition criteria to which, as we have observed, the assessment of joint ventures has largely contributed; nevertheless, and in less positive terms, this evolution is less visible in more recent times due to the significant decrease of the number of formal Commission individual decisions applying article 101, paragraph 1 and especially article 101, paragraph 3 TFEU, outside the field of cartels, and also to the lack of use of the instrument of decisions of inapplicability, under article 10 of Regulation No 1/2003 which, in the context of decentralization in the enforcement of EU competition policy, could be a useful tool for providing relevant precedents for general guidance. At a jurisprudential level, and until recently, there seemed to be no prevailing and consolidated approach in this area. In fact, the CJEU seemed to reject the application of the rule of reason in Consten & Grundig whilst, on the other hand, seeming to contemplate an appreciable margin of joint consideration of elements of restriction of competition and precompetitive elements (translated into incentives to a new product in a certain relevant market), in the context of a largely flexible interpretation of article 101, paragraph 1 TFEU in

74 See the characterization delineated by Judge Posner in the 1982 ruling in Marrese v American Academy of Orthopaedic Surgeons 692 Fed 1093 (7th Cir 1982), according to which ‘the great watershed of the [antitrust] law is the distinction between per se illegality and illegality under the Rule of Reason’. 75 I refer here to the classic study of René Joliet, The Rule of Reason in Antitrust Law, American, German and Common Market Law in Comparative Perspective (Liège, La Haye, Martinus Nijhoff, 1967). The case referred to above is Case 56/65 Société Téchnique Minière (CJEU, 1966). 76 As regards doctrinal positions contemplating the applicability of the rule of reason to article 101, para 1 TFEU see, inter alia, I Forrester and C Norall, ‘The Laicization of Community Law: Self-Help and the Rule of Reason: How Competition Law is and Could be Applied’, in Annual Proceedings of the Fordham Corporate Law Institute—1983 (Barry Hawk (ed), Fordham Corporate Law Institute, Matthew Bender, 1984) 11ff; E Steindorf, ‘Article 85 and the Rule of Reason’ (1984) CMLR 621ff. As regards positions rejecting such an extension of the rule of reason to EU competition law, see, inter alia, R Wish and B Suffrin, ‘Article 85 and the Rule of Reason’ (1987) YEL 1ff; G Wils, ‘Rule of Reason: Une Règle Raisonable en Droit Communautaire’ (1990) CDE 19ff; Pietro Manzini, ‘The European Rule of Reason: Crossing the Sea of Doubt’ (2002) ECLR 392ff. For an updated overall assessment of contrasting views on the applicability of the rule of reason, considering that the ‘wording of the treaty however erects a serious legal obstacle to the introduction of a system of rule of reason under under Article 101(1) TFEU’, although at the same time, acknowledging that ‘the introduction of a US-style rule of reason would have allegedly … advantages’, see Geradin, Layne-Farrar and Petit, EU Competition Law and Economics (n 5) 125ff.

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Nungesser.77 However, in this latest ruling the characterization of such flexible interpretation was too artificial to allow the identification of safe corollaries in terms of admission or not of criteria identical or comparable to the ones that sustain the rule of reason. There is no room in this final chapter for an extensive analysis of the complex jurisprudence in this area or of basic premises of the doctrinal controversy at stake. What is relevant for the purposes of such conclusive analysis is, on the basis of enforcement of article 101 when applied to joint ventures and also on the basis of my critical understanding and evaluation of this category under EU competition law, to ascertain globally the extent to which the assessment of joint ventures may have contributed to influence a more flexible interpretation of article 101, paragraph 1 TFEU (incorporating more elements of economic analysis of markets and a minimum level of consideration of various economic efficiency parameters, thereby determining a new systematic articulation between paragraphs 1 and 3 of article 101 TFEU). From that perspective, I consider that joint venture analysis tends, in fact, to induce this hermeneutical shift in terms of interpretation of article 101 TFEU. Furthermore, I believe that this hermeneutical shift—in connection with joint venture analysis—should be assessed independently and dealt with, and is in no way, dependent on any admission of the hypothetical applicability of the rule of reason for purposes of the article 101 TFEU regime. In reality, I find that the legal consideration of the extent of different parameters that may be taken into consideration within the rule of article 101, paragraph 1 and of its corresponding systematic articulation with paragraph 3 of the same article has been unduly mixed with the theoretical issues concerning a hypothetical reception of the rule of reason in terms of EU competition law. That means, in accordance with the overall hermeneutical perspective that I have expounded throughout this book, that the desirable outcome of a wider margin of some sort of integrated consideration of elements potentially restrictive of competition and precompetitive elements within the framework of article 101, paragraph 1 TFEU does not involve an application of the rule of reason. On the contrary, I consider that the experience and requirements of joint venture assessment, not only contribute to the greater flexibility of interpretation of the rule, but also pave the way to an intermediary conception of less strict enforcement of the same rule. I refer to a conception aimed at the identification of what we have designated as a weighed or global effect that certain joint venture categories are bound to generate on competition, on the basis of hermeneutical criteria specifically pertaining to EU competition law and not corresponding to any form of assimilation of the rule of reason of US antitrust law. 2.2.3.2 The Particular Contribution of Joint Venture Analysis to a New Systematic Interpretation of Article 101, Paragraphs 1 and 3 TFEU As I have observed throughout this book, joint venture analysis, specifically focused on the distinctive feature of these entities concerning their dimension of entrepreneurial integration that is bound to generate efficiencies, leads frequently to forms of integrated competition law assessment that overcome prohibition criteria normally associated with certain types or aspects of cooperation between undertakings.

77

See Case 56 & 58/64 Consten & Grundig (CJEU, 1966) and Case 258/78 Nungesser (CJEU, 1982).

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In that sense, certain functional types of joint ventures that I have studied here in-depth—particularly commercialization joint ventures—may be regarded as paradigmatic cases (illustrating this hermeneutical contribution of joint ventures to a more flexible interpretation of article 101 TFEU). In fact I have been able to observe—see above, at 4.3.5 and 4.3.6 of chapter three—that even elements of joint price fixing and joint fixing of quantitative output in the context of certain commercialization joint ventures may, under certain conditions, be justified on the basis of economic advantages that globally prevail over the component of restriction of competition inherent in those arrangements (and that traditionally lead to those same arrangements being considered as prohibited). This hermeneutical evolution is even starker in the context of US antitrust law, although in this case the analytical tools related to the rule of reason have from the start created more favourable conditions for such a flexible interpretation of the prohibition of cooperation restrictive of competition. Accordingly, what was at stake in terms of US antitrust law was not the introduction ex novo of more flexible interpretation criteria applied to cooperation between undertakings, but widening or adjusting the analytical patterns of the rule of reason to forms of cooperation between competing undertakings involving the joint fixing of prices that, traditionally, by its very nature, were not submitted to such analytical methodology. Two rulings of the Supreme Court—Broadcast Music Inc v CBS and NCAA v Board of Regents of the University of Oklahoma78—have marked, in particular, this rupture with the more traditional dichotomy of per se prohibition criteria and rule of reason criteria, paving the way to a wider use of these latter criteria, largely confirmed also in the context of assessment of commercialization joint ventures involving joint fixing of prices.79 This rupture also paved the way to conceiving intermediate analytical criteria of a more fluid nature than the traditional extreme categories of per se prohibition and rule of reason, although such intermediate criteria, as we can observe from the more recent case law of the US Supreme Court, for example, in the case of California Dental, noted above, are from consolidated or even stabilized. At the EU level, the analysis of joint ventures, highlighting the importance of efficiency inducing elements interplaying with some elements limiting the economic freedom of participating undertakings (potentially restrictive of competition), has played a special role in dispensing with pre-ordained negative understandings of certain forms or types of cooperation, thereby reducing the field of almost always prohibited situations of cooperation (creating conditions for a more developed and economically realistic analysis of multiple factors which dictate global repercussions for the competition process).80 Accordingly,

78 See Supreme Court cases, Broadcast Music Inc v CBS 441 US 1(1979) and NCAA v Board of Regents of the University of Oklahoma 468 US 85(1984). 79 See other cases in the context of US antitrust law involving commercialization joint ventures that comprised joint fixing of prices, to which no per se prohibition criteria were applied, above, ch 3 at 4.3.6 and 4.4. 80 A more developed, economically realistic and flexible analysis and interpretation of article 101, para 1 TFEU, which, besides giving more room to the joint consideration of precompetitive and anticompetitive elements, is also reflected in wider possibilities for acknowledging and admitting certain ancillary restrictions to competition. See James Venit, ‘Economic Analysis: Quick Looks and Article 85: A Way Forward’ in CD Ehlermann and L Laudati (eds), Robert Schuman Centre Annual on European Competition Law 1997 (Oxford, Hart Publishing, 1998). As Venit states, ‘the Commission’s practice in dealing with structural cases has also forced it to begin to move away from its older view that all restrictions on freedom must be dealt with under Article 85 … it has at least begun to take steps in the right direction by taking a flexible and pragmatic approach to restrictive provisions that are reasonably related, and thus ancillary, to transactions that do not raise any structural concerns’. These

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both in some Commission decisions which have been underlined above—as, for example, Elopak/Metal Box-Odin81—and in GC cases, as, for example, European Night Services,82 several steps were successively taken towards a greater flexibility in the interpretation of the general prohibition rule of article 101, paragraph 1 TFEU (the process not being more clear-cut due to the recent, post-2003, scarcity of Commission formal decisions and corresponding court cases resulting from judicial appeals of such decisions, although some more recent jurisprudence, not always strictly connected with joint ventures, seems to have been confirming this hermeneutical trend).83 Within this hermeneutical flexibilization context, I have referred in the course of the in-depth analysis of the key functional types or subcategories of joint ventures dealt with under the article 101 TFEU regime to the need to identify and ascertain what I have designated as weighed or global effect of certain joint ventures on the competition process. In order to critically review these types of effects we must examine in an integrated manner potentially restrictive effects of competition and precompetitive effects which may prevail over the former. That, in turn, implies undertaking more developed analysis within the level of application of article 101, paragraph 1 TFEU and setting aside more formal criteria tending to the almost inevitable prohibition of certain processes of cooperation, under such paragraph 1, which used to be observed by the Commission in its enforcement practice (limiting all possibilities of justification of those cooperation arrangements to the level of paragraph 3 application or rendering the final prohibition of the said arrangements in other cases almost inevitable). However, precisely this type of conception and legal qualification of weighed or global effects arising from certain joint ventures leads to an acknowledgement that its proper understanding, even if it incorporates some aspects comparable to the analytical methodology inherent in the rule of reason, does not involve a linear parallel with it. That is due to the differences between the normative structures of US antitrust law and EU competition law which cannot be overcome merely by hermeneutical processes. In fact, I consider that the rule of reason is intrinsically and indissolubly connected with the particular normative structure of US antitrust law, which establishes, in general, a prohibition regime of forms of cooperation between undertakings restrictive of competition, without contemplating any legal exception comparable to the exemption regime established under article 101, paragraph 3 TFEU. Therefore, on account of the normative structure of US law, the application of the general regime of prohibition of cooperation determines the direct consideration at the same normative level of all relevant elements, either elements of potential restriction of competition or procompetitive elements, or even hypothetical aspects of public interest not corresponding to a stricter notion or view of

structural cases referred by Venit are essentially joint ventures with important structural dimensions. However, as I have already noted, an adequate and overall understating of such ancillary restrictions would require an extensive analysis for which there is no room in this book. See, for an evaluation largely similar to Venit’s, Michael Waelbroek, ‘Do Not Give All Hope! Ye Who Enter’ in CD Ehlermann and L Laudati (eds), Robert Schuman Centre Annual on European Competition Law 1997 (Oxford, Hart Publishing, 1998). 81 See the analysis of Elopak/Metal Box-Odin, above, ch 3 at 2.3.5.4(C) in the context of the analysis of R&D joint ventures. 82 See the analysis of European Night Services, above, ch 3 at 4.4.5.3 in the context of the analysis of commercialization joint ventures. 83 I refer in particular, inter alia, to GlaxoSmithKline; Barry Brothers; Meca-Medina; and O2 v Commission (discussed above, ch 2 at 2.2.2, throughout ch 3, and to be referred to again below, at 2.2.3.3 in this chapter).

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competition law parameters. Although the acceptance of these latter aspects is becoming increasingly scarce in the context of US antitrust law, it should be noted, however, that such aspects, to which there seems to remain some level of acceptance by the CJEU or the GC—to some extent on an hermeneutical collision course with the Commission84—could never be considered at the level of any joint, global consideration, in terms of EU competition law, since those aspects would be exclusively dealt with under article 101, paragraph 3 TFEU. (I refer to aspects that go beyond a strict view of the function of competition rules as promoting economic consumer welfare, that seems to be perceived more recently by the Commission as an exclusive function of such rules, and involve in the somewhat definitive, albeit not entirely clear, formulation of the CJEU, a purpose of ‘preventing competition from being distorted to the detriment of the public interest, individual undertakings and consumers, thereby ensuring the well-being of the European Union’85 (emphasis added)). Conversely, the diverse normative structure of article 101, paragraphs 1 and 3 TFEU allows the consideration of diverse factors susceptible of compensating for certain elements of restriction of competition prima facie identified in connection with cases of cooperation at the level of a hypothetical application of the exemption regime of article 101, paragraph 3—a possibility which does not exist at all in terms of the relevant corresponding provision (section 1) of the Sherman Act (and which is therefore entirely absent from the normative logic underlying the rule of reason). However, while acknowledging this basic normative difference between US antitrust law and EU competition law, the actual possibility of considering compensatory elements justifying prima facie restrictions of competition at the level of article 101, paragraph 3 TFEU does not invalidate, in my view, that a part of the global consideration of elements of a different nature, relevant to ascertain negative repercussions to competition carrying with it an intensity that implies going beyond the threshold of the general prohibition rule, may take place at the level of application of article 101, paragraph 1 TFEU. It is that specific analytical level, still included within the regime of paragraph 1, that I purport to identify and characterize through the assessment of weighed or global effects arising from joint ventures (which, mutatis mutandis, may be considered also in connection with other types of cooperation between undertakings). On the whole, and to a certain extent, I admit that the discussion about a possible increased flexibility of the prohibition parameters established under article 101, paragraph 1

84 More recently, with the Commission more focused on an economic, effects-based analysis of article 101 TFEU, a possible gap may even be detected, to some extent, between the views of the Commission on the one hand, and those of the CJEU and the GC on the other. These courts seem, in fact, more receptive to considering in a general manner (that may ultimately be conducive to the non-prohibition of certain cooperation arrangements) relevant aspects of public interest and public policies which are not strictly competition and efficiency parameters (including other policy benefits that do not translate into economic gains in a narrow sense); see, as examples of that, Telia Sonera (n 39) or Case C-94/00 Roquette Frères (CJEU, 2002) esp para 42. Also relevant as evidencing this broader hermeneutical perspective of the CJEU, admitting the pertinence of considering elements fostering in a favourable manner various public policy objectives (in a way that compensates for certain elements of restriction of competition) and the overall identification of prevailing elements of anticompetitiveness arising from conduct and related market situations which are indirectly negative to consumers, somehow beyond a stricter economic notion of consumer harm, are, eg, GlaxoSmithKline, esp paras 63–64, (quoted at various points above) or Case C-8/08 T-Mobile Netherlands BV et al v Raad van bestuur van de Nederlandse Mededingingsautoriteit (2009) esp para 38). 85 This formulation, not entirely clear in all its constitutive elements, being used by the CJEU in Telia Sonera (n 39) para 22.

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TFEU has been negatively affected by an analytical distortion. This distortion has led over the years to the consideration of alternative extreme hypotheses for contemplating a global or integrated consideration of elements of restriction of competition and precompetitive elements. According to one of these alternative hypotheses—which seems to be adopted by the Commission in its Guidelines adopted in the context of the process of ‘modernization’ of EU competition law86—such global consideration of elements of a diverse nature could only occur at the level of application of article 101, paragraph 3 TFEU (otherwise this rule would be ‘superfluous’, which would not be easily accommodated with the general principles of legal interpretation). According to the alternative hermeneutical hypothesis, which seems to correspond to the doctrinal positions maintaining the application of the rule of reason to EU competition law, this kind of balancing of anticompetitive and procompetitive elements, provided legal criteria of competition are involved, should largely occur at the level of article 101, paragraph 1 TFEU. However, in my view, this strict dichotomy could be overcome by a double balancing exercise, both at the levels of paragraph 1 and of paragraph 3 of article 101º TFEU. This double balancing exercise is especially justified by the fact that more than one aspect of economic efficiency may be at stake (in accordance with the characterization I have developed above, 2.1.1 in this chapter, of the renewed teleological matrix of EU competition law as evidenced in particular in the context of assessment of joint ventures). 2.2.3.3 Case Law Developments on a New Systematic Interpretation of Article 101, Paragraphs 1 and 3 TFEU Furthermore, and despite the relative scarcity of formal decisions of the Commission and of court case law that could be generated by such enforcement practice of the Commission, I consider that this conception of a double balancing exercise for purposes of the application of article 101, paragraphs 1 and 3 TFEU, especially raised by the particularities of joint venture analysis, is the one that better conforms with recent jurisprudential developments concerning the margin of evaluation of anticompetitive effects under article 101, paragraph 1, after the landmark GC case of European Night Services (involving issues pertaining to joint ventures). This jurisprudence has been the object of conflicting interpretations which, in my view, are still heavily and unduly influenced by the controversy around the application of

86 See the position delineated by the Commission in its 2004 Guidelines on the Application of Article 81(3) esp paras 11ff, in which the Commission peremptorily states that ‘the assessment under Article 81 thus consists of two parts …. The second step which only becomes relevant when an agreement is found to be restrictive of competition, is to determine the pro-competitive benefits produced by that agreement and to assess whether these pro-competititive effects out-weight the anti-competitive effects. The balancing of anticompetitive and pro-competitive effects is conducted exclusively within the framework laid down by Article 81(3)’ (emphasis added) (thereby ascertaining what are, in my view, excessive corollaries from Métropole Télévision (M6) (n 18)). See also in the same Guidelines, paras 32ff. It should also be underlined on this point that even in the 1999 White Book the Commission already seemed to be maintaining the idea that the balancing of a wider range of different factors at the level of application of article 101, para 1 TFEU would contribute to render superfluous the rule of para 3 of that article (see esp paras 56 and 57 of the 1999 White Book, and see also on those paras, Wessling, ‘The Commission White Paper on Modernization of EC Antitrust Law: Unspoken Consequences and Incomplete Treatment of Alternative Options’ (1999) ECLR 420ff.

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some form of rule of reason under EU competition law (in the context of the analytical distortion that has been already identified above). Following European Night Services, the more recent Métropole Télévision (M6) ruling of 2001,87 also from the GC, and having also as its object a joint venture (concerning the development and broadcast through satellite of TV programmes)88 has explicitly considered the problem of a hypothetical application of the rule of reason and of the latitude of the margin of evaluation of situations of cooperation under article 101, paragraph 1 TFEU. According to some authors, the GC in this ruling has shown a firm jurisprudential preference for sustaining the non-applicability of the rule of reason.89 According to the same views, such an approach would be favourable to the development of any kind of analytical balancing exercise of anticompetitive and procompetitive elements exclusively on the basis of article 101, paragraph 3 TFEU. However, in spite of some elements of the ruling that seem to go some way in that direction,90 I do not consider that this is the correct conclusion to be drawn from the analyses carried out by the GC in this case. In the first place, I understand that what was fundamentally clarified by this jurisprudence was the non-admissibility of the theory according to which the global consideration of relevant elements of a competition law nature—which are distinct from elements of public interest of a very diverse social and economic nature, pertaining to article 101, paragraph 3—should exclusively or predominantly take place under article 101, paragraph 3 TFEU. However, this theory corresponds precisely to one of the two extreme hermeneutical hypotheses of systematic articulation of paragraphs 1 and 3 of article 101 that I have referred to above and with which I profoundly disagree. This means that the GC is, thus, rejecting any possibility of application of the rule of reason that would translate into the adoption of that kind of balancing exercise at the level of paragraph 1. Nevertheless, the adoption of the other alternative extreme hermeneutical hypothesis in the context of the dichotomy, that I have characterized and rejected above, does not follow from that understanding of the GC. In my view, one should not draw from the categorical rejection of the rule of reason—with the precise meaning and reach described above—the conclusion that the GC also absolutely rejects the possibility of any degree of balancing analytical exercise at the level of application of article 101, paragraph 1. Quite on the contrary, the GC corroborates the approach taken in previous cases in favour of a ‘more flexible interpretation of the prohibition’ established under article 101, paragraph 1

87 On (Métropole Télévision M6) and its repercussions, see, inter alia, Monti, ‘Article 81 and Public Policy’ (n 22) 1057ff.; Okeoghene Odudu, ‘A New Economic Approach to Article 81(1)?’ (2002) EL Rev 100ff; Manzini, ‘The European Rule of Reason: Crossing the Sea of Doubt’ (n 76) 392ff; José Rivas and Fay Stroud, ‘Developments in EC Competition Law in 2001: An Overview’ (2002) CMLR 1101ff, esp 1119. 88 There is no room in this concluding chapter to analyse the market situation dealt with in this case and concerning the establishment of a joint venture (Télévision par Satellite—TPS). In any case, it should be noted that the joint venture analysed in the initial decision of the Commission—that was appealed to the GC—would in all probability be qualified as a full function joint venture and, accordingly, as a concentration operation, it had been developed and notified after the 1997 changes to the MCR (see on those factual aspects concerning the characteristics of the joint venture and the context of its operation, paras 1–18 of the ruling). The establishment of the joint venture would in this case create the conditions for a new operator to have access to the market until then dominated by a single operator. 89 See Manzini, ‘The European Rule of Reason—Crossing the Sea of Doubt’ (n 76) esp 396ff. The Commission also seems to share that understanding, as I have observed above, taking into consideration the 2004 Guidelines on the Application of Article 81(3), para 11. 90 See in particular paras 72ff.

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TFEU, underlining precisely within that body of previous jurisprudence its own analysis in European Night Services, another case concerning a joint venture.91 The GC merely notes its concern that the previous jurisprudence ‘cannot … be interpreted as establishing the existence of a rule of reason in Community competition law’. Apart from that clarification, the GC confirms the fundamental approach underlying such jurisprudence in the sense of the need to analyse the specific situations in which cooperation processes take place, bearing in mind the ‘economic context in which the undertakings operate’. In other words, this acknowledgment of the need to develop legal and economic analyses for purposes of application of article 101, paragraph 1 TFEU—thereby ruling out any possibility of applying the prohibition established under such rule ‘wholly abstractly and without drawing any distinction’ in a manner that would comprehend ‘any agreement restricting the freedom of action of one or more of the parties’92—may only mean one thing. It has to mean that a part of the global economic and legal consideration required to ascertain the emergence of substantive effects on competition should, to a certain extent, be developed in the framework of the application of article 101, paragraph 1 TFEU. That, in turn, corresponds precisely to the idea that I have put forward in the context of the assessment of joint ventures, concerning the evaluation of what I have designated as weighed or global effects arising from the establishment and functioning of these entities for the purposes of the application of this rule. Therefore, the intermediate conception that I have developed, according to which a double analytical balancing exercise, of a diverse nature, should be made in the context of both paragraphs 1 and 3 of article 101 TFEU, will be, in short, the one that best fits these new jurisprudential developments (and also even more recent jurisprudence, subsequent to Métropole Télévision (M6), that has also been considered above at various points in this book, including, inter alia, GlaxoSmithKline; Barry Brothers; Meca-Medina and O2 v Commission).93 In fact, if one looks in more precise terms at the analysis conducted by the GC in Métropole Télévision (M6), support may be found for the proposition that the aspect of economic efficiency more directly at stake in potentially negative competition law evaluations—the allocative efficiency—can, to some extent, be the object of consideration under article 101, paragraph 1 TFEU. However, the aspects more directly related to the aspect of dynamic efficiency—namely those concerning elements of innovation94—and still involving competition legal criteria (in a stricter sense) should essentially be considered under article 101, paragraph 3 TFEU (corresponding to some extent to aspects intrinsically connected with the condition envisaged in the rule and concerning economic and technical progress).

91

See Métropole Télévision (M6) (n 18) para 75. See ibid para 76. 93 In this line of case law, attention should also be paid to the widely known and debated Case C-309/99 Wouters, despite some peculiarities in this latest case specifically related to regulatory issues of public interest. Accordingly, additional references will be made below to this case. These precedents have been considered above, ch 2 at 2.2.2, throughout ch 3, and at 2.2.3.2 in this chapter. 94 See, on these different dimensions of the general concept of economic efficiency at the core of the renewed teleological programme of EU competition law, my analysis on the key goals of this body of law, above at 2.1.1 in this chapter. 92

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As far as productive efficiency is concerned, I submit that some aspects pertaining to it and more intensely interconnected with allocative efficiency, may still be considered at the level of article 101, paragraph 1 TFEU. The remaining aspects pertaining to productive efficiency should, in turn, be assessed under article 101, paragraph 3. Therefore I disagree, up to a certain point, with some doctrinal positions that, while accepting—in accordance with the view I also hold—a double legal basis for the balancing of anticompetitive and procompetitive aspects of certain cooperation arrangements, circumscribe in a rather rigid manner the evaluation of allocative efficiency to paragraph 1 and the evaluation of productive efficiency to paragraph 3 of article 101 TFEU.95 Regardless of this understanding about the more recent jurisprudential developments in the field of joint venture assessment (or connected with it), and of my divergence with the positions that seem to associate the reach of Métropole Télévision (M6) with a supposed absolute rejection of any level of consideration of precompetitive factors at the level of article 101, paragraph 1 TFEU, I submit that further clarifications on the part of the CJEU or the GC in this field would be of paramount importance. I bear in mind here further clarifications that could lead to more precise delimitations and legal qualification of the levels of consideration of counterbalancing procompetitive factors compatible with each of the dual legal bases at stake (article 101, paragraphs 1 and 3 TFEU). In this respect, I consider that the analytical problems typically underlying the assessment of joint ventures should still, in the near future, contribute to that desirable clarification, in the same manner in which they have influenced the adoption of more flexible patterns of application of the general prohibition rule of article 101, paragraph 1 TFEU (due to their special and distinctive analytical focus on the consideration of various types of efficiency intrinsically connected with the competition law category of the joint venture). Once again, the post-2003 scarcity of formal decisions of the Commission or of other forms of formal guidance on the part of the Commission (contemplated in Regulation (EC) No 1/2003 plays a negative role here, preventing the development of a valuable and relevant body of case law in this area. In light of the analytical perspective delineated above, I do not consider that jurisprudential developments subsequent to Métropole Télévision (M6) and also involving the CJEU (mentioned above, footnote 83 above) constitute a true inversion of the basic understanding concerning the systematic articulation between paragraphs 1 and 3 of article 101 TFEU. In this particular, specific reference should be made to the Wouters ruling of 2002, although, unlike most of the precedents referred to so far, this case did not involve the establishment or functioning of joint ventures.96 In this ruling, the CJEU

95 See, on that type of doctrinal position and approach, Odudu, ‘A New Economic Approach to Article 81(1)’ (n 87) 100ff. 96 In the context of the Wouters ruling, see also the important Opinion of Advocate-General Léger, given in July of 2001. On this fundamental ruling see, inter alia, the commentary of Adrian Vossestein in ‘Case Law’ (2002) CMLR 841ff. It should be acknowledged that some jurisprudential developments subsequent to Wouters—and different from the other line of case law to which we have referred in n 83 (above)—eg, those related to Case T-65/98 Van den Bergh Foods v Commission (2003, GC), seem to come back to an idea of exclusive assessment of procompetitive factors at the level of article 101, para 3 TFEU (supposedly justified by the need to preserve the relevance and useful effect of that rule). However, departing from this view of the GC, the CJEU in Wouters and other rulings, followed an entirely different analytical line from the one adopted in Van den Bergh Foods v Commission. I submit that the GC in this case adopted an excessively linear hermeneutical reading of the normative structure of article 101 TFEU, to a large extent negatively influenced by the formal controversy about the terms of a possible reception in terms of EU competition law of the rule of reason (a possibility I have rejected above).

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seems to admit that procompetitive economic advantages may be considered at the level of article 101, paragraph 1 TFEU (in line with previous assessments, eg, in Brentjens and Drijvende Bokken, aimed at the consideration of public policy social aims compensating for, in a proportionate manner, elements of restriction of competition).97 Furthermore, the analysis developed by the CJEU in Wouters comprises various, intertwined assessment stages, in the course of which are successively considered factors illustrating apparent restrictions of competition and factors illustrating certain procompetitive economic advantages in a manner that has (mutatis mutandis) some points of contact or confluence with the global analytical model that I have delineated for the assessment of joint ventures. Although in its Wouters ruling, the CJEU has followed various aspects of the Opinion adopted by the Advocate-General Léger in the case, this latter Opinion had gone even further in terms of legal qualification, admitting explicitly that the CJEU had already made limited application of the rule of reason in previous rulings.98 Therefore, the Wouters ruling would apparently have reintroduced the question of the applicability of the rule of reason in the field of EU competition law and particularly for the purpose of interpreting article 101, paragraph 1 TFEU (involving a hypothetical contradiction with the approach followed in Métropole Télévision (M6) ruling that would imply a worrying jurisprudential fluctuation). That, however, is not my understanding. I consider that in the Wouters ruling, there is no peremptory adoption in a perspective of formal legal qualification of any kind of rule of reason qua tale. From a substantive perspective, the adoption in this ruling of a view sustaining the admissibility of an important level of assessment of counterbalancing procompetitive factors on the basis of article 101, paragraph 1 TFEU is fully compatible with

97 See Joined Cases C-115/97 and C-117/97 Brentjens (CJEU) esp para 61 and Case C-219/97 Drijvende Bokken (CJEU) esp para 51. However, although these cases seem to indicate an appreciable willingness of the CJEU to look favourably upon public policy objectives, especially those involving social policy and employment considerations as legitimate aims and rendering certain cooperative arrangements admissible, at the level of application of article 101, para 1 TFEU, provided a somehow proportionate and limited restriction of competition in pursuit of such aims is at stake, other cases, in particular, Cases C-180/98 to C-184/98 Pavel Pavlov (CJEU, 2000) seem to imply that this flexibility in considering favourably certain (limited) restrictions of competition under article 101, para 1 TFEU is ultimately not so wide and would cover only those situations related to the exercise lato sensu of some form of public powers or the adoption of rules or guidelines by entities that have the power to do so in connection with an indeterminate number of entities as addressees of such rules and not covering rules or guidelines established on the basis of social or employment considerations by ordinary market players (deprived of such public powers lato sensu). In spite of this latter ruling (Pavel Pavlov), I have serious reservations about such a restrictive view and doubt that one can construe in such a restrictive manner the global understanding of the case law in this area. 98 See the Opinion of Advocate-General Léger, esp paras 102ff. As Léger states at para 103, ‘the Court has made limited application of the “rule of reason” in some judgments. Confronted with certain classes of agreement, decision or concerted practice, it has drawn up a competition balance-sheet and, where the balance is positive, has held that the clauses necessary to perform the agreement fell outside the prohibition laid down by Article 85(1) of the Treaty’. He refers, as illustrations of that type of consideration, to the assessments developed, eg, in Nungesser (n 77); in Case 42/84 Remia Rec 2545 (1985); and in Case C-250/92 Göttrup-Klim v Dans Landbrugs Grovvare selskat AmbA (CJEU, 1994). Bearing in mind those assessments that he acknowledges as application— however limited—of the ‘rule of reason’, Léger concludes (at para 104) that ‘it follows from those judgments that, irrespective of any terminological dispute, the “rule of reason” in Community competition law is strictly confined to a purely competitive balance-sheet of the effects of the agreement. Where, taken as a whole, the agreement is capable of encouraging competition on the market, the clauses essential to its performance may escape the prohibition laid down in Article 85(1) of the Treaty. The only “legitimate” goal which may be pursued in accordance with that provision is therefore exclusively competitive in nature’.

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the hermeneutical reading that I have made of the corollaries of the Métropole Télévision (M6) ruling (and does not imply any major jurisprudential fluctuation). On the whole, I consider, therefore, that the Wouters jurisprudence—and other rulings subsequent to Métropole Télévision (M6), referred to above—has essentially confirmed the need to evaluate, through complex legal and economic analyses, comprising various interconnected assessment stages—what I have been characterizing as weighed or global effect arising from certain cooperation arrangements (in the context of conceptions largely developed in connection with the assessment of joint ventures, but whose corollaries we have considered applicable, under certain conditions, to other forms of cooperation between undertakings, as the ones evaluated in Wouters). According to this general perspective, I consider that the questions of legal qualification pertaining to the possibility of application of the rule of reason in the field of EU competition law should be abandoned once and for all. Accordingly, future case law developments and the hermeneutical developments to be construed on this basis should be focused on the clarification and proper delimitation of the different degrees or levels of consideration of anticompetitive and procompetitive elements that are admissible, respectively, on the basis of paragraph 1 and of paragraph 3 of article 101 TFEU. 2.2.3.4 Margin of Appreciation under Article 101, Paragraph 3 TFEU This general approach that I have been describing as regards the margin of appreciation that might be based on article 101, paragraph 1 TFEU and the systematic articulation of this rule with the rule of paragraph 3 of the same article—that I deem essentially compatible with the fundamental line followed in the CJEU and the GC jurisprudence in the wake of European Night Services—raises another crucial question. This has to do with the proper delimitation of the types or categories of rulings of exemption that may be construed on the basis of article 101, paragraph 3 TFEU. Bearing in mind the analysis developed throughout the book and the hermeneutical assumptions that I have put forward above, I consider that two basic categories of exemption rulings or assessments may, in principle, be based on article 101, paragraph 3 TFEU. A first category relates to exemption rulings established on the basis of a global consideration of elements of restriction of competition and specific economic advantages that may counterbalance the former elements (exemption rulings through which, all things considered and provided certain conditions are met, it is acknowledged that no final global effect of restriction of competition, or weighed or global effect, as I have been calling it in the context of joint venture assessment, prevails). A second category of exemptions relates to rulings predominantly based on public policy benefits or objectives which do not represent competition criteria stricto sensu (strictly related to a core idea of promotion of consumer welfare as maintained by the Commission, but not necessarily by the CJEU and the GC, in recent years). Although I submit that this second category of exemption rulings should be subject to a demanding hermeneutical reading of a considerable restrictive nature, I do not follow the more recent approach of the Commission (a stricter economic or efficiency approach) that tends to reject in this area all public policy considerations that are not related with the promotion of consumer welfare. In fact, both the CJEU and the GC, even in the more recent jurisprudence (eg, the Telia Sonera ruling of 2011), tend to accept a wider conception of

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competitive harm—to be addressed by competition law rules—in a manner that includes, as noted above, indirect negative effects on consumers arising from the impact of certain practices on the structure of the market itself or the distortion of competition to the detriment of the public interest, individual undertakings and consumers, thereby affecting the well-being of the European Union.99 In any case, as part of the demanding and restrictive hermeneutical reading that I refer to above, I submit that the second category of exemption rulings based on article 101, paragraph 3 TFEU, should observe a double requirement. On the one hand, only public policy objectives that can, to some extent, be rendered compatible with the core essential economic goals of competition law should be retained.100 That results, in my view, from the global reach of the principle of undistorted competition as one of the pillars of EU economic constitution, despite the fact that it was removed in literal terms from the body of the Treaties (in the new article 3 TEU) after the Treaty of Lisbon (the confirmation of this undisputed normative strength of the principle, even after the Treaty of Lisbon, results clearly from jurisprudence subsequent to the adoption of this Treaty).101 It also results from the general principle that requires consistency between EU policies and objectives (as per article 7 TFEU). Therefore, in spite of the relevance granted by the courts to multiple public policy objectives, particularly in more recent times those concerning employment or the environment, these have to be reconciled with the most essential economic goals of competition law. On the other hand, those other public policy objectives, although going beyond the threshold of a global, final effect of limitation or restriction of competition (hence the application of the prohibition rule of article 101, paragraph 1 TFEU), may not, on the whole, negatively affect the competition process beyond a certain critical degree (namely those aspects may not go beyond a critical degree of limitation of competition that would generate an effect equivalent to the elimination of competition in the market at stake).102

99 See on this wide characterization of competitive harm—at the core of competition law and policy—that seems to go beyond what the Commission has been considering over the latest decade in the context of its new orthodoxy of economic and efficiency based analysis (frequently understood in a rather narrow sense), Telia Sonera (n 39) esp paras 23–24. 100 On these core economic goals of EU competition law see above, 2.1.1 in this chapter. 101 See, on this hermeneutical reading, Slovak Telekom a.s. v European Commission (n 39) esp paras 36ff and Telia Sonera (n 39) esp paras 20ff. 102 On these different categories of exemption rulings that may be based on article 101, para 3 TFEU see, inter alia, Wessling, The Modernization of EC Antitrust Law (n 6) esp106ff, with whom I disagree on various aspects (particularly as regards the effective possibility, that I contemplate in the manner described above, of submitting the second category of exemption rulings to a rather demanding scrutiny (including at jurisdictional level), which is still based on a fundamental idea of ensuring no elimination of competition or the production of effects materially equivalent to that elimination of competition—a level of scrutiny that goes beyond the mere control of manifest errors of evaluation by the Commission. And, in fact, the most recent EU jurisprudence has upheld the feasibility of that kind of scrutiny, as eg, in Case C-386/10 P Chalkor (CJEU, 2011) and Cases C-389/10 P and C-272/09 P KME (2011, CJEU), in which the Court has made clear that the undeniable extensive margin of discretion of the Commission—and, I could add, of other national competition authorities following an administrative type system of enforcement—does not dispense, even in the most complex cases, with an in-depth judicial review of the law and the facts, thus ensuring full and effective judicial protection under the EU Charter of Fundamental Rights). On categories of exemption rulings based on article 101, para 3 TFEU, see also CD Ehlermann, ‘The Modernization of EC Antitrust Policy. A Legal and Cultural Revolution’ (2000) CML Rev 537ff, esp 548ff.

536

CONCLUDING REMARKS

2.2.3.5 New Systematic Interpretation of Article 101, Paragraphs 1 and 3 TFEU—Concluding Remarks In the context described above, it would be of paramount importance to consolidate a more predictable hermeneutical reading of the systematic interplay between paragraphs 1 and 3 of article 101 TFEU, overcoming certain inconsistencies between the Commission and the CJEU and the GC positions. That would imply, notably, (i) overcoming the reticence of the Commission to admit some kind of analytical balancing exercise at the level of article 101, paragraph 1 TFEU; (ii) clarifying the aspects of efficiency that may or may not be considered under paragraphs 1 and 3; and also (iii) clarifying the extent and degree of other public policy considerations that may be considered to counterbalance hypothetical elements of restriction of competition of a not strictly competitive nature, but that should be reconciled with the key economic goals of competition law, overcoming in this area the new economic orthodoxy of the Commission—apparently not followed by the GC and the CJEU—that tends to reject in absolute terms these other public policy considerations (thus entirely reversing the approach followed by the Commission in the 1970s and up until the 1980s). For this hermeneutical consolidation to take place, ensuring the completion of a renewal of the legal economic methodology applied to processes of cooperation between undertakings, already initiated, the analysis of joint ventures—with the particular features that have been emphasized throughout this book, and typically involving the balancing of a very wide and diverse range of positive and negative features of these hybrid processes of relationship between parent undertakings—should continue to play a fundamental role. However, to foster such developments a more activist approach would be required from the Commission with more formal decisions adopted in terms of enforcement of article 101 TFEU and more substantive guidance through other normative instruments provided for in Regulation (EC) No 1/2003, thus also providing room for relevant jurisdictional intervention in this area.

Index abuse of dominant position, 6–7, 175, 488n647, 489 Ahlborn, Christian, 253n59 allocative efficiency, 517, 531, 532 analytical methodology, 20–3 ancillary restraints: Commission Notice, 151–2 full-function joint ventures, 152 production JVs, 355, 365 purchasing JVs, 479–80 R&D JVs, 303 risks, 110 anticompetitive agreements (Article 101): block exemptions see block exemptions consumer welfare and, 502–3, 528, 534 De Minimis Guidelines, 269–70, 271–2, 273, 276, 282, 364, 425 definition of JVs dual treatment, 107–8, 111–19, 120, 128 Guidelines, 153–5 exceptions, 131 general prohibition, 7, 499 JVs see anticompetitiveness of JVs market sharing, 195 methodology, 12, 171 notification procedures, 287, 295, 484, 487–8, 494 objectives, 499–501 consistency, 500 shift to economic efficiency, 500, 501–3, 526, 531–3 output limits, 193, 194, 195 price-fixing agreements, 193, 194, 195, 208–9 scope, 99, 103, 104 teleological priorities, 497–8 anticompetitiveness of JVs: analytical model, 183–229 1st level analysis, 185–7 2nd level analysis, 198–200 3rd level analysis, 204–14 complementary analysis, 221–5 conditions/remedies, 227–9 developing new models, 519–23 elements, 184–229 links with parent undertakings, 214–21 market dynamism, 226 market share see market share mixed analytical model, 512–19 new normative logic, 523–36 non-full function JVs, 231–42 overview, 183–4 partial function JVs, 231–42 potential prohibitions, 196–229 recent case law, 529–34

related markets JVs, 216–21 situations usually prohibited, 192–6 usually allowed situations, 185–92 usually prohibited situations, 192–6 anticompetitive risks, 206–11, 216–21 commercialization JVs see commercialization JVs foreclosure see foreclosure risks minority shareholdings, 182, 485, 489, 491–4 price fixing see price fixing production JVs see production JVs purchasing JVs, 206, 209–10, 211, 213, 473–6 R&D see R&D JVs and Article 101 spillover see spillover effects categories of cooperation, 509–36 commercialization JVs see commercialization JVs Commission practice, 121 coordination of competitive behaviour general risks, 172, 176–81 production JVs, 352–4 R&D JVs, 254–6, 296 econometric models, 199, 224–5, 319–20 Guidelines see Horizontal Cooperation Guidelines joint ownership without joint control, 182–3, 481–94 key legal tests, 172–4 legal certainty, 222, 261, 536 margins of appreciation, 534–5 merger control and, 182, 518 minority shareholdings, 182–3, 481–94 new normative logic: establishing, 523–36 partial function JVs see functional JVs potential prohibitions, 196–229 2nd stage analysis, 198–200 3rd stage analysis, 204–14 anticompetitive risks, 206–11, 216–21, 309–18 complementary analysis, 223–5 conditions/remedies, 227–9 econometric models, 199, 224–5 foreclosure risks, 211–14 Guidelines, 197, 199–202 key functional JV types, 206–11 legal certainty, 222 links with parent undertakings, 214–16, 318–19, 381–6 market dynamism, 226 market share, 198–200, 201, 202–4, 226 related markets JVs, 216–21 survey, 196–229 privileging, 16–17, 24, 169–72 production JVs see production JVs purchasing JVs see purchasing JVs

538

INDEX

R&D JVs see R&D JVs rule of reason, 524–5, 530, 533 single market compatibility, 172, 174–6 situations usually not prohibited 1st level analysis, 185–7 2001 Guidelines, 186, 190 2011 Guidelines, 185–92 analytical grid, 187–90 case law, 191 low market share, 269–70 shortcomings, 190–2 survey, 185–92 situations usually prohibited, 192–6 1st stage analysis, 192–4 2001 Guidelines, 193–4 2011 Guidelines, 193–6 case law, 195 normally prohibited JVs, 194–6 survey, 192–6 spillover effects see spillover effects Areeda, Philip, 26, 498, 521 association contracts, 86, 87 Astolfi, Andrea, 53, 54 Australia: definition of joint ventures, 133–4 automobile industry, 343, 349n273, 373, 390–4, 398–9 Baptista, Luiz, 52, 56 Bauplans, 66–72, 73 behaviour coordination: categories of JVs, 218 Commission approach, 113 EU merger control, 176 legal tests, 176 output levels, 210 production JVs, 352–4, 370, 371–5 R&D JVs, 254–6, 263, 296 Bell, George Joseph, 44 biotechnology, 349 block exemptions: IPR licensing, 125 joint ventures and, 123–4, 125 production JVs, 124, 340–2, 364 R&D agreements analytical model, 186 definition, 243 historical relevance, 123, 124, 125 market share, 201, 241, 270, 283, 287–91, 292–4, 323, 332 non-competing undertakings, 260 prohibited situations, 274–6 specialization agreements anticompetitive risks, 366 definition, 123–4, 125, 340–1 goals, 345 law reform, 389 market share, 241, 270, 283, 289, 369 technology transfer, 125 vertical agreements, 202, 281 Bonvicini, Daniele, 34, 53, 54 Bork, Robert, 498 Boulton, AH, 47 Bradford, S, 46–7

Braun, David, 234 Brodley, Joseph: analytical model, 222n121, 504–5, 508–9, 513 autonomy of JVs, 162 definition of JVs, 26–7, 28, 136, 141, 159, 163 economic links between JVs and parent companies, 214–15, 381 incentive modifying remedies, 305 input and output JVs, 237n14 new enterprise capability of JVs, 29, 89–90, 103, 163 on R&D JVs, 261–2 Brunt, Maureen, 22 businesses: legal forms, 33 Calvani, Terry, 193 Camesasca, Peter, 504 capital mobility, 35–6 Carlton, Dennis, 438n480, 445–6 cartels: buyers’ cartels, 476, 479 commercialization JVs and, 402 Commission focus on, 501 minority shareholdings, 493 precedents, 329 price-fixing, 25, 62 Caves, Richard, 32 Chang, Howard, 446 Chicago School, 8, 11, 22, 492n657, 498, 499, 508–9, 511, 515, 517, 522 Comanor, William, 247n38 commercialization JVs: alternative forms of commercialization agreements, 401–5 Article 101 and see commercialization JVs and Article 101 definition, 399–401 direct market access, 234 exclusivity, 431–2 features, 432–5 goals, 411–15 Commission view, 411 external goals, 412–15 internal goals, 411–12 network markets, 409, 415 organizational diversity, 235, 410 price information, 434–5 types, 405–10 commercialization JVs and Article 101: 1st level analysis, 415–17 2nd level analysis, 428–9 3rd level analysis, 429–50 analytical tools, 429–31 analytical model, 415–28 anticompetitive risks, 206, 209, 416 foreclosure, 457 market power and market conditions, 435–9 price setting, 417–21, 431–2, 460 quantity setting, 417–21, 433 relevant features, 432–5 spillover effects, 424, 439 assessment, 399–469 Commission case law

INDEX Amersham Buchler, 440n488 ANSAC, 454–5 Astra, 451–3 BBC Brown Boveri, 76, 439 BSN/Saint Gobain, 425 Carbon Gas Technologie, 439 Cobelaz, 403–4 European Night Services, 455–9, 500, 520, 527 Foral, 408, 431 Hudson’s Bay I, 425 Langenscheidt/Hachette, 440n488 Market Tools, 426 payment card networks, 447, 462–8 Röchling/Possehl, 435–6 SEIFA, 403–4 survey, 451–68 TQ3 Travel Solutions/Opado, 461 UIP, 432 Visa International, 444n503 Wild/Leitz, 402n394, 424, 439n487 financial networks, 440–50 focus on, 18, 180 importance, 470 market share Guidelines, 290 low share, 424, 425–6 market conditions and, 435–9 threshold, 428–9, 430 new normative logic, 526 normally allowed, 415–17, 423–6 economic links, 426–7 low market share, 424, 425–6 non-competitor parent firms, 424–5 special factors, 426–7 normally prohibited, 422–3 potential issues, 428–68 3rd level analysis, 429–50 analytical tools, 429–31 complementary analysis, 450–1 different functioning levels, 439–40 exclusive programmes, 431–2 financial networks, 440–50 market share, 428–9, 430, 435–9 new geographical markets, 440 relevant features, 432–5 relevance of function, 234–7 restrictive approach, 427–8 communications sector, 38, 451–3, 485 competition law: European Union see EU competition law purpose of joint ventures, 62 relevant definitions of JVs, 27–8 US see US antitrust law concentrative (full function) JVs: alternative to mergers, 52 anticompetitive risks, 310 Article 101 assessment, 175–6, 218, 312, 399 autonomy, 80, 180 cooperative JVs and 1997 reform, 128–9, 132 convergence, 114–19 dual treatment, 73, 104–5, 111–19

539

EU merger control, 107, 111–19, 126–7, 129, 484 Interpretative Notice (1994), 15–16, 112n220, 113 EU Guidelines, 143–51, 152 EU teleological priorities, 497 legal forms, 65 merger control, 310, 312, 313, 500 concept of JVs see definition of joint ventures conflict resolution: contractual provisions, 78–9 consortia, 47, 50, 78, 83, 95, 98 constitution and EU competition law, 505–8 consumer welfare: commercialization JVs and, 403, 414, 434 EU competition law and, 502–3, 528, 534 joint ventures, 500 payment card networks, 464 production JVs and, 348, 351, 356, 357, 392, 395, 397, 503 purchasing JVs, 472 R&D JVs, 302, 304, 332, 337, 338 Contractor, Farok, 35, 39, 42 contracts: association contracts, 86 basic constituent elements core regime, 72–9 criteria, 60–1 distinctive elements, 81–92 functions of contracts, 61–3 goals of JVs, 63–5 satellite contracts, 79–81, 89 structural plans, 66–72, 73 survey, 60–92 Bauplans, 66–72, 73 commutative contracts, 64 conflict resolution, 78–9 contracts of economic integration, 86–7 contractual JVs, 47, 53, 54–8 contributions of parent enterprises, 74–5 distribution of profits, 76 licensing agreements, 76, 80 limited integration, 76–7 links of parent enterprises, 55, 56–7, 64, 74 multilevel JVs, 95 pursuit of common goal, 64 socially recurrent types, 60–1, 66, 81–5 control: EU concept, 149 cooperation: business practice, 65 contracts see contracts economic trends, 34–7 integration and, 29 legal categories, 31–4, 509–36 motivation see goals of JVs cooperative JVs: Article 101 TFEU and, 181 concentrative JVs and 1997 reform, 128–9, 132 convergence, 114–19 EU merger control, 107–8, 111–19, 126–7, 129, 484 Interpretative Notice (1994), 15–16, 112n220, 113

540

INDEX

EU Guidelines (1993), 127, 130–1, 153–6, 264, 312–13, 404–5, 411, 469, 472, 475 notification system, 130 credit cards see payment cards Cutter, Slade, 521 debit cards see payment cards definition of joint ventures: Australia, 133–4 autonomy, 28, 30, 55, 63, 73, 89 basic contractual elements business practice, 65 complementary contracts, 79–81, 89 core regime, 72–9 criteria, 60–1 distinctive elements, 81–92 functions of contracts, 61–3 goals, 63–5 structural plans, 66–72, 73 survey, 60–92 basic EU elements 1968 Communication, 120–1 block exemptions, 123–4, 125 Commission Competition Reports, 30, 121–3 competition law, 119–33 initial Commission guidelines, 120–3 common entrepreneurial activity, 89 common structures, 51–60 comparative law, 133–43 comprehensive systemic perspective, 92–3 concentration v cooperation convergence, 114–19 dual treatment, 13–16, 30, 107–19, 120, 128, 484 merger control regime, 107–8, 111–19 origins, 107–8 contractual-incorporation distinction, 53, 54–8 cooperation and integration, 29 creation of new entity, 27–8, 88, 89–90 EU competition law, 107, 158–9, 160 definitions relevant to competition law, 27–8 distinctive features, 28–30, 81–92 economic goals, 31–44 English categories, 47 EU competition law, 4–5 autonomy, 146, 153, 157–9, 160, 162 basic elements, 119–33 concentration v cooperation, 107–8, 111–19 concluding assessment, 156–67 Guidelines, 143–56 horizontal cooperation guidelines, 155–6, 233, 251–2 merger control, 11–19, 30–1, 107–8, 111–19, 125–33 new enterprise, 107, 158–9, 160 notification system, 129–31 proposed definition, 159–65 time horizon, 146–8, 163–5 undertaking concept, 96–107, 158 vagueness, 170 EU Guidelines 1968 Communication, 120–1 alternative approaches, 131–3

ancillary restraints, 151–2 cooperative JVs, 127, 130–1, 153–5 full function JVs, 143–51 horizontal cooperation, 155–6 initial Commission guidelines, 120–3 joint control, 144–5, 148–51 lasting basis, 146–8 partial function JVs, 233 Remedies Notice (2008), 152–3 Reports, 30, 121–3 survey, 143–56 EU merger control, 30–1, 125–9 1997 reform, 128–9, 132 alternative approaches, 131–3 dual treatment, 13–16, 30, 107–19, 157, 177n21, 484 MCR (1989), 125–8 MCR (2004), 129 Remedies Notice (2008), 152–3 full function JVs, 143–51 hybridity, 26, 32 industrial leadership criteria, 15, 113, 114, 151 key legal criteria, 51–3 legal category of enterprise, 31–4 levels of complexity, 93–4 multilevel JVs, 95 nature of activities, 52–3 partnerships and, 34, 45–6 plural JVs, 95–6 preliminary definition, 31 proposed definition approach, 159–65 assets transfer, 160 autonomy, 160, 162 four key elements, 160–5 new enterprise, 160, 161, 162–3 time horizon, 163–5 R&D JVs, 242–5, 251–2 single economic units, 97, 101, 103–7, 114 single JVs, 94–5 single-project v global activities, 58–60 United States see US antitrust law and JVs vagueness, 2, 25–7 EU law, 170 factors, 30–1 United States, 45 Drucker, Peter, 36–7 Durand-Barthez, Pacal, 52, 56 econometric models, 199, 224–5, 319–20 economic efficiency: analytical model, 223 Chicago School, 508–9 commercialization JVs, 421, 422, 436, 438, 451, 455, 458 distortion of competition and, 157, 186, 203, 204, 220, 238 EU Cooperation Guidelines, 155–6 EU shift to, 8–9, 500, 501–3, 504, 526, 531–3 JV objectives, 29, 180 JVs and competition law analysis, 508–9, 536 market foreclosure and, 207, 211, 212

INDEX new standards, 348, 349 production JVs, 346, 347, 348, 349, 356, 357, 359, 365 R&D JVs, 262, 270 static v dynamic, 343 US antitrust law, 261, 498–9 economics: methodology, 20–3 energy sector, 343 English law: origin of JVs, 47–8 enterprise contracts, 2 enterprises: concept, 32–3, 70n127 entry barriers: analytical models and, 226 commercialization JVs, 451 minority shareholdings, 492 new geographical markets, 40, 440 payment networks and, 463, 465 production JVs and, 347 R&D JVs, 257, 319, 325, 326–9 equity JVs: contractual JVs and, 53, 54–8 essential facilities doctrine, 212n99, 257, 499 EU Commission: 1st Report on Competition Policy, 402–3 15th Report on Competition Policy, 345 balancing exercise, 536 BT/MCI, 115 Candle Waxes, 105 Chloropene Rubber, 104–5 commercialization JVs and, 405–6 Amersham Buchler, 440n488 ANSAC, 454–5 Astra, 451–3 BBC Brown Boveri, 76, 439 BSN/St. Gobain, 425 Carbon Gas Technologie, 439 case law, 451–68 Cobelaz, 403–4 definition, 402–3 European Night Services, 195, 455–9, 500, 520, 527 Foral, 408, 431 goals, 411 Hudson’s Bay I, 425 Langenscheidt/Hachette, 440n488 market power, 435 Market Tools, 426 payment card networks, 447, 462–8 restrictive approach, 427 Röchling/Possehl, 435–6 SEIFA, 403–4 TQ3 Travel Solutions/Opado, 461 UIP, 432 Visa International, 444n503 Weild/Leitz, 402n394, 424, 439n487 critical precedents and, 329 De Laval-Stork, 88 definition of JVs, 30 1968 Communication, 120–1 cooperative JVs, 127, 130–1, 153–5 Elf Attochen/Shell Chimie, 80 Gas Insulated Switchgear (GIS), 104–5 Gosme/Martell, 104 Guidelines see EU Commission Guidelines industrial leadership criteria, 15, 113, 114, 151

541

JV case law, 501 legal formalism, 12, 302, 304, 317, 380 MCR negotiations, 483 minority shareholdings and Allianz/Dresdner, 485 approach, 485–8 Nordbanken/Postgirot, 485 modernization of competition law, 11, 118, 132, 529 production JVs and ACEC/Berliet, 380 Allied-Lyons/Carlsberg, 379 Asahi/Saint Gobain, 395–8, 503 BP Kemi/DDSF, 373 case law critique, 388–99 economic analysis, 383 Electrolux/AEG, 354, 373n327 Enichem/ICI, 379 Exxon/Shell, 115, 352, 394–5 Feldmühle/Stora, 378 Ford/Volkswagen, 373, 390–4 GEC/Sodium Circulators Weir, 88, 376, 386 General Motors/Fiat, 398–9 goals, 344–6 Iveco/Ford, 379 Matra Hachette, 390–4 NUAB/Vallourec, 384n337 Olivetti/Canon, 352, 375, 378 Philipps/Osram, 357 Rifornimenti Aeroportuali, 398 Rockweel/Iveco, 372 T-Mobile/Vodafone/O2, 399 United Reprocessors, 372 Vacuum interrupters II, 375, 386 VW-MAN, 379 purchasing JVs and, 470–1 National Sulphuric Acid Association, 479n614 Orphe, 479 R&D JVs and Beecham/Parke Davis, 76, 325 BP/MW Kellog, 303–4 case law critique, 329–39 Continental/Michelin, 325, 336–8, 339, 415 Elopak/Metal Box-Odin, 333–5, 520, 527 enforcement practice, 315, 317 formalism, 302, 304, 317 General Electric/Pratt & Witney, 339 goals, 245–6 Henkel/Colgate, 306, 319, 324–5 KSB/Goulds/Lowara/ITT, 308, 330–3 Microsoft/Time Warner/ContentGuard, 339 Pasteur Mérieux-Merckl, 338–9 Siemens/Fanuc, 308 rule of reason and, 524 undertaking: concept, 97 VEBA/Degussa, 152 on vertical restraints, 281, 282–3 EU Commission guidelines: Ancillary Restraints Notice (2005), 151–2 Application of Article 81(3) (2004), 195, 200, 314 Consolidated Jurisdictional Notice under Council Regulation EC 139/2004 (2008), 144–51, 164n345, 164n346

542

INDEX

Cooperative Joint Ventures (1993), 127, 153–5, 264, 312–13, 404–5, 411, 469, 472, 475 De Minimis Guidelines, 269–70, 271–2, 273, 276, 282, 364, 425 definition of JVs 1968 Communication, 120–1 ancillary restraints, 151–2 functional JVs, 233–4 initial references, 120–3 joint control, 148–51 lasting basis, 146–8 Remedies Notice (2008), 152–3 reports, 30, 121–3 survey, 143–56 Horizontal Co-operation Agreements (Draft, 2010), 19, 104 Horizontal Concentrations Guidelines (2004), 225, 329 horizontal cooperation see Horizontal Cooperation Guidelines Notice on Concentrative and Cooperative Operations under Council Regulation EEC 4064/89 (1990), 127 Notice on Concept of Full-Function Joint Ventures (1998), 118, 143–51 Notice on Cooperation Agreements (1968), 120–1, 309n185 Notice on Distinction between Concentrative and Cooperative Joint Ventures (1994), 15–16, 112n220, 113 Remedies Notice (2008), 152–3 Vertical Restraints (2010), 281, 282–3 EU competition law: 1999 White Paper, 11, 118, 132 abuse of dominance (Article 102), 6–7, 175, 488n647, 489 Article 101 TFEU see anticompetitive agreements changes, 497–536 fundamental qualitative changes, 495 institutional organization, 496 legal methodology, 496, 505, 509–36 modernization, 11, 118, 132, 529 New European School, 511 teleological priorities, 360n299, 496, 497–509 transition stage, 496 consolidation, 11 constitutional dimension, 505–8 control: concept, 149 decentralized enforcement, 11–12, 270n95, 486, 501, 507 joint ventures see EU competition law and JVs mergers see EU merger control minority shareholdings and, 481–94 objectives, 11, 500, 528 changing priorities, 497–509 consistency, 500 consumer welfare, 502–3, 528, 534 economic efficiency: shift to, 500, 501–3, 504, 508–9, 526, 531–3 economic integration, 502 limiting concentration, 502 pluralism, 497, 499

ordo-liberalism, 500, 502 rule of reason, 524–5, 530, 533 undertakings: concept, 96–107, 158 US antitrust law and: critique, 238 EU competition law and JVs: assessment see anticompetitiveness of JVs changes fundamental qualitative changes, 495 legal methodology, 496, 505, 509–36 merger control, 12–17 overview, 8–17 phases, 8–12 survey, 497–536 teleological priorities, 496, 497–509 changing legal methodology case law, 529–34 categories of cooperation, 496, 505, 509–36 developing analytical models, 519–23 different types of market power, 516–19 market power criteria, 519 mixed analytical model, 512–15 new normative logic, 523–36 changing teleological priorities, 496 analytical models, 504–5 constitutional dimension, 505–8 defining coordinates, 497–501 economic efficiency, 500, 501–3, 508–9, 526, 531–3 survey, 497–509 concentration v cooperation convergence, 114–19 dual treatment, 13–16, 30, 111–19, 120, 128, 157, 177n21, 484 merger control, 107–8, 111–19 origins, 107–8 definition, 4–5 see also definition of joint ventures basic elements, 119–33 dual treatment, 13–16, 30, 107–19, 120, 128, 157, 177n21 Guidelines, 143–56 merger control, 30–1, 107–19, 125–9 partial function JVs, 28 proposed definition, 159–65 global analytical model, 17–19 substantive assessment see anticompetitiveness of JVs treatment, 5–8 changes, 8–17 undertaking: concept, 96–107, 158 EU courts: reasoning, 23 EU merger control: 2003 MCR changes, 496 2004 Guidelines, 225, 329 concept of control, 149 decentralization of enforcement, 507 JVs see EU merger control and JVs MCR negotiations, 483 notification procedures, 494 teleological priorities, 497 EU merger control and JVs: Article 101 TFEU and, 182, 518 concentrative JVs, 310, 312, 313

INDEX concentrative v cooperative JVs 1997 reform, 128–9, 132 Commission Guidelines, 113, 127 convergence, 114–19 dual treatment, 13–16, 16, 30, 107–8, 111–19, 177n21, 484 definition of joint ventures, 125–9 1997 reform, 128–9, 132 alternative approaches, 131–3 concentration operations, 175–6 MCR (1989), 30–1, 125–8 MCR (2004), 129 goals: consistency, 500 Remedies Notice (2008), 152–3 Evans, David, 253n59, 409–10, 446 financial crisis (2007–9), 8, 41n50, 448 financial networks: commercialization JVs, 438n480, 440–50 Commission case law, 462–8 competitive cooperation levels, 445–7 critical thresholds, 448–50 dynamic network effect, 444 electronic payment systems, 409, 412 EU case law, 449 features, 19–20 intrinsic cooperation elements, 443–5 payment card paradigm, 440–3 financial services: innovation requirements, 38 JVs see financial networks minority shareholdings, 485–6 foreclosure risks: commercialization JVs, 457 partial function JVs, 232, 238 payment cards, 462–3 production JVs, 211, 213, 355–8, 370, 378–80 purchasing JVs, 211, 213, 473, 474–5 R&D JVs, 211, 213, 296 1st level analysis, 257–8 3rd level analysis, 307–9 Commission case law, 308, 331–2, 335 entry barriers, 326–9 presumption, 264 weighing, 211–14 formalism, 12, 303, 304, 317, 380 four-firm sales concentration ratio, 321 France: commercialization JVs: case law, 460 JV terminology, 48 origin of JVs, 44, 48–9 franchising, 42 Franke, Günther, 448n519 Frankel, S, 438n480, 445–6 Friedman, Wolfgang, 53 full function JVs see concentrative JVs functional JVs: Article 101 assessment analytical tools, 238–42 anticompetitive risks, 208–11, 232, 254–8, 309–18 Guidelines, 238–40, 241 main risks, 232, 237–8

543

market share, 241 relevance of function, 234–7 sequential analysis, 231–4 categories, 18, 180, 234 commercialization JVs see commercialization JVs full-function v partial function, 73, 111–19 internal types, 234 production JVs see production JVs purchasing JVs see purchasing JVs R&D see R&D JVs funding JVs, 74–5 Germany: Bauplans, 66–72, 73 commercialization JVs: case law, 460, 461 corporation: concept, 91 JV terminology, 49 origins of JVs, 49 purchasing JVs: case law, 481 Geroski, PA, 243n29, 247 globalization, 1, 35, 39 goals of JVs: alternative to mergers, 52 categories of JVs and, 52 causes of contract and, 61–3 commercialization JVs, 411–15 common goals v different inputs, 83 competition law enforcement, 62 competitive motives, 85 contracts, 63–5 definition of JVs and, 161 dissemination of risk, 39 distribution networks, 41–2 diversifying, 42–3 diversity, 70 financial resources, 43, 52 investment, 52 large single projects, 52 market access, 250 new geographic markets, 39–41, 382–4, 386, 426, 435, 440 production JVs, 344–50 purchasing JVs, 469, 471–2 R&D JVs, 43, 245–51 restructuring strategy, 41–2 single projects, 42 single projects v global activities, 58–60 special purpose vehicles, 43 strategic alliances, 20, 181 technical innovation, 37–8, 244, 250 trend, 37–44 vertical quasi integration, 42 Goto, Akira, 247n38 Great Depression, 448 groups of undertakings: trend, 3 Gutterman, Alan, 257n66 Habermas, Jürgen, 21 Harvard School, 11, 511, 522 Hawk, Barry, 14, 26–7, 109n212 Hay, George, 512, 512n50, 512n52 Henn, H, 54

544

INDEX

Herfindhal Hirshman Index, 199, 224–5, 319–20 Herzfeld, Edgar, 24n28, 41, 46, 53, 75 Horizontal Cooperation Guidelines (2001 and 2011): 1st level analysis, 185–92 2nd level analysis, 199, 200–2 2001 approach, 193 2011 change of approach, 185–92, 200–2 analytical model, 240, 241, 514, 522 commercialization JVs, 405, 414, 424 definition of JVs, 155–6, 233, 251–2 degree of integration, 344 econometric model, 225 flexibility, 264 functional JVs, 179, 238 market share, 199, 278, 284, 290, 292, 293, 294, 322, 322–3, 323, 370 normally prohibited JVs, 194–6, 273–4 production JVs, 351, 352, 354, 358–9, 361, 363, 366, 387, 388 purchasing JVs, 471, 474, 475–6, 477–8, 477–78 R&D JVs, 246, 251–4, 256, 259, 266–9, 267, 276, 300, 304–6 shortcomings, 190–2, 193, 197 single economic units, 103–4 specialization agreements, 355 specialization v production agreements, 340 horizontal JVs: meaning, 215 Hovenkamp, Herbert, 26, 136, 498, 518 incorporated JVs: contractual JVs and, 53, 54–8 industrial leadership criteria, 15, 113, 114, 151 information exchange: anticompetitive risks, 137 commercialization JVs, 398, 461 EU case law, 195 Horizontal Cooperation Guidelines, 191 joint venture feature, 160 minority shareholdings, 481, 492, 494 production JVs, 347, 348, 349–50, 371, 373–4, 376–7, 385, 391, 392, 395 R&D JVs, 244, 262–3, 267–8, 274, 276–7, 293, 299, 315, 317, 323, 337, 339, 470 US antitrust law, 480–1 information technology, 253, 256, 258, 307, 349–50 input JVs, 215, 218, 237n14 integration: contracts of economic integration, 86–7 contractual provisions, 76–7 cooperation and, 29 vertical quasi integrations, 42 intellectual property rights: ancillary restraints, 152 block exemptions, 125 commercialization JVs, 415 complementary contracts, 80 exclusive licences, 76 R&D and, 247, 303, 309, 328, 337 interdisciplinary methodology, 20–3 interlocking JVs: meaning, 215 Italy: association contracts, 86 contracts of economic integration, 87

JV terminology, 50–1 origins of JVs, 50–1 Jachtenfuchs, M, 506 joint control: EU Guidelines, 148–51 joint ownership without joint control see minority shareholdings joint ventures: assessment see anticompetitiveness of JVs contracts see contracts definition see definition of joint ventures EU competition law see EU competition law and JVs functional types see functional JVs funding, 74–5 legal models, 31–96 logic, 1–4 meaning see definition of joint ventures multiple joint ventures, 81 origins, 44–8 termination, 79 trend, 3 Joliet, René, 510, 524 Jorde, Thomas, 251 Kalmanoff, G, 53 Kaplow, Louis, 521 Kattan, Joseph, 140n280, 520 Katz, Michael, 444 Kitch, Edmund, 248n42 Klein, Joel, 203–4 know-how see also information exchange ancillary restraints, 152 Commission Guidelines, 264 foreclosure risks, 258 licensing: block exemptions, 125 production JVs, 341, 343, 344, 348, 349, 361 R&D JVs, 243, 303, 306, 308, 330, 332, 334, 335, 337 Kogut, Bruce, 85 Korah, Valentine, 29 Ladeur, K-H, 506 Lang, John Temple, 81, 220, 489 leading firm concentration ratio, 321 liberalization of financial services, 3 licensing see intellectual property rights Livermore, Shaw, 44 Lorange, Peter, 35, 39, 42 McFalls, Michael, 517, 518, 522 Majone, G, 506 market allocation: cartels, 117 commercialization JVs, 433, 460, 461 functional JVs, 210 normally prohibited JVs, 192 production JVs, 354–5, 365, 375–8 purchasing JVs, 476 R&D JVs, 283 US antitrust law, 137, 476

INDEX market failures, 412, 414, 415 market foreclosure see foreclosure risks market share: anticompetitive agreements and, 198–200, 201, 202–4, 226 calculation, 522 commercialization JVs Guidelines, 290 low market share, 424, 425 market conditions and power, 435–9 threshold, 428–9, 430 Commission focus on, 501 De Minimis Guidelines, 269–70, 270–1, 273, 276, 282, 364, 425 definition of markets complementary analysis, 224, 225 econometric models, 142 flaws, 278 functional JVs, 206 methodology, 190, 198–9 R&D JVs, 279, 280, 321–2 market power and, 512–14 alternative criteria, 519 different types of market power, 516–19 market conditions, 435–9 new analytical model, 512–15 partial function JVs, 241 production JVs, 348–9 2nd level analysis, 368–70 complementary analysis, 387 low market share, 364 purchasing JVs, 289, 290, 294, 475, 477–8 R&D JVs block exemptions, 201, 241, 270, 283, 287–91, 292–4, 332 complementary analysis, 319–25 definition of markets, 279, 280, 321–2 degrees of concentration and, 319–20 evaluation methodology, 292–5 evaluation of proposed threshold, 285–6 Guidelines, 278, 283–4 low market share, 269–72 potential prohibitions, 277–95 setting a general threshold, 280–4 threshold as analytical tool, 287–92 specialization agreements: block exemptions, 241, 270, 283, 289, 369 vertical agreements, 202 market sharing see market allocation Meadowcroft, S, 490 merchant indifference test, 466, 468 merger control see EU merger control Milanesi, Enzo Moavero, 490, 491 minority shareholdings: analytical criteria, 488–94 anticompetitive risks, 182, 485, 488, 489, 491–4 assessment, 481–94 Commission approach, 485–8 Commission case law, 485 overview, 481–8 Philip Morris, 482–3, 487

545

protection, 79, 150 Remedies Notice (2008), 152 rights of shareholders, 493 situations relevant to Article 101, 488–91 spillover effects, 488 Möschel, Wernhard, 11, 498 Müller, Friedrich, 21 multilevel JVs: contractual rules, 95 multimedia sector, 38, 253 multinational companies: motivation for JVs, 41 structures, 35 trend, 1 multiple joint ventures, 81 Nelson, Richard, 236, 343 neo-constitutionalism, 506 new geographical markets, 39–41, 382–4, 386, 426, 435, 440 non-compete obligations, 152, 249 Nye, William, 142 O’Brien, Daniel, 491 oil sector, 343 ordo-liberalism, 500, 502 origins of JVs: English law, 47–8 French law, 44, 48–9 Germany, 49 Italian law, 50–1 survey, 44–8 United States, 44–7 output JVs, 215, 237n14 output limits: anticompetitive agreements, 193, 194, 195 commercialization JVs, 417–21, 433 functional JVs, 238 minority shareholdings, 491 production JVs, 365, 374–5 purchasing JVs, 473–4 Padilla, Jorge, 253n59 parent enterprises: autonomy from, 28, 30, 55, 63, 73, 89 EU Guidelines, 146, 153 proposed definition, 160, 162 ratio, 157–9 contractual links to JVs, 55, 56–7, 64, 74 contributions, 74–5 dependence on, 70 economic links with JVs Article 101 analysis, 214–21 commercialization JVs, 426–7 production JVs, 381–6 R&D JVs, 318–19 types, 214–16, 215 entrepreneurial structure, 122 exclusive licences, 76 functional interactions, 83–4 joint control, 68 EU Guidelines, 144–5, 148–51 uneven positions, 150–1

546

INDEX

non-competitors commercialization JVs, 424–5 production JVs, 358–60 R&D JVs, 258–65 R&D JVs: research independent, 249–50 size of financial interests, 419, 421, 439 without independent capacity production JVs, 360–4 R&D JVs, 265–9 partnerships, 29, 33, 34, 36, 44, 45–7, 54, 98, 99, 349 patents, 125, 135, 247, 261, 277, 303, 337, 481 payment cards: commercialization JVs, 409, 412, 438n480, 440–50 merchant indifference test/tourist test, 466, 468 networks Commission case law, 462–8 competitive cooperation levels, 445–7 intrinsic cooperation elements, 443–5, 462 paradigm, 440–3 Visa, 442, 446, 462–8 pharmaceutical industry, 256, 325, 349, 479 Pirainno, Thomas, 66n118, 180, 246n36, 248–9, 365n314, 511 Pitofsky, Robert, 27, 60 plural JVs, 95–6 Porter, Michael, 343n261 Powell, Walter, 38 price fixing: agreements, 192, 193, 194, 195, 208–9 cartels, 25, 62 commercialization JVs, 417–21, 431–2, 460 minority shareholdings, 491 partial function JVs, 238 production JVs, 352, 365, 372–3 purchasing JVs, 473–4 R&D JVs, 276, 297, 299 price theory, 8 production JVs: Article 101 and see production JVs and Article 101 autonomy, 348 characteristics, 342–4 concept, 340–2 goals, 344–50 EU Commission’s view, 344–6 internal goals, 346–7 medium-term goals, 347–9 systemic view, 346–50 transformation of specific sectors, 349–50 identification, 235 internal type JVs, 234 market shares, 348–9, 364, 368–70, 387 productive efficiency, 517 proliferation, 342–3 specialization agreements and, 340–1 transfer of technology, 344 production JVs and Article 101: 1st level analysis, 350–1, 358–67 2nd level analysis, 367–70 3rd level analysis, 370–80 behaviour coordination in final markets, 371–5 market allocation, 375–8 market foreclosure risks, 378–80

ancillary restraints, 355, 365 anticompetitive risks, 206, 209, 217, 365, 370 behaviour coordination in final markets, 352–4, 370, 371–5 information exchange, 373–4, 377 market allocation, 354–5, 365, 370, 375–8 market foreclosure, 211, 213, 355–8, 370, 378–80 output limits, 365, 374–5 price setting, 352, 365, 372–4 spillover effects, 367, 383, 385, 391–2 survey, 352–8 assessment, 350–99 block exemptions, 124, 340–2, 364 Commission case law ACEC/Berliet, 380 Allied-Lyons/Carlsberg, 379 Asahi/Saint Gobain, 395–8, 503 BP Kemi/DDSF, 373 Electrolux/AEG, 354, 373n327 Enichem/ICI, 379 Exxon/Shell, 115, 352, 394–5 Feldmühle/Stora, 378 Ford/Volkswagen, 373, 390–4 GEC/Sodium Circulators Weir, 88, 376, 386 General Motors/Fiat, 398–9 Iveco/Ford, 379 Matra Hachette, 390–4 NUAB/Vallourec, 384n337 Olivetti/Canon, 352, 375, 378 Philipps/Osram, 357 Rifornimenti Aeroportuali, 398 Rockweel/Iveco, 372 survey, 388–99 T-Mobile/Vodafone/O2, 399 United Reprocessors, 372 Vacuum interrupters II, 375, 386 VW-MAN, 379 complementary analysis, 381–8 analytical tools, 387–8 degree of concentration, 387 links with parent firms, 381–6 consumer welfare, 348, 351, 356, 357, 392, 395, 397, 503 economic efficiencies, 356 focus on, 18, 180 links with parent undertakings, 216, 381–6 market share 2nd level analysis, 368–70 complementary analysis, 387 low market share, 364 non facere obligations, 341 normally allowed JVs 1st level analysis, 350–1, 358–64 JVs between non-competitors, 358–60 low market share, 364 no separate capacity, 360–4 normally prohibited JVs, 365–7 potential prohibition 2nd level analysis, 367–70 3rd level analysis, 370–80 complementary analysis, 381–8

INDEX links with parent undertakings, 381–6 market share, 368–70, 387 survey, 367–99 relevance of function, 234–7 vertical agreements, 341 productive efficiency, 508, 517, 532 profit distribution, 76 Project of Constitutional Treaty, 507 Propersi, Adriano, 51 public policy, 533, 534, 535, 536 purchasing JVs: alternative agreements, 469–70 Article 101 and see purchasing JVs and Article 101 direct market access, 234 goals, 469, 471–2 market share, 475 purchasing JVs and Article 101: 3rd level analysis, 477–81 analytical model, 469, 473–81 ancillary restraints, 479–80 anticompetitive risks, 206, 209–10, 473–6 foreclosure, 211, 213, 473, 474–5 market power, 475 output limits, 473–4 price setting, 473–4 proximity of other activities, 478–9 spillover effects, 473 assessment, 469–81 CJEU case law, 480 Commission case law, 479 Commission’s approach, 470–1 exclusivity agreements, 480 focus on, 18, 180 market share block exemptions, 289 evaluation, 294 Guidelines, 290 threshold, 477–8 overview, 469–73 potential issues, 477–81 relevance of function, 234–7 quantity limits see output limits railway companies, 455–9 Raiser, Thomas, 33 Rawlinson, Francis, 234 R&D: intellectual property rights, 247 JVs see R&D JVs temporary decline, 248 R&D JVs: Article 101 and see R&D JVs and Article 101 complex requirements, 244 definition, 242–5, 251–2 dynamic efficiency, 517 externalities, 243n29, 246–51 goals, 43, 245–51 EU Commission view, 245–6 systemic view, 246–51 internal type JVs, 234 paradigm, 470

547

research independent from parent undertakings, 249–50 transaction efficiencies, 250 trend, 244 R&D JVs and Article 101: 1st level analysis, 251–4, 258–72 2nd level analysis: market share, 277–95 3rd level analysis, 295–318 analytical tools, 295–6 anticompetitive risks, 309–18 foreclosure risks, 307–9 new products, 300–6 product upgrade, 297–9 analytical model, 251–339 ancillary restraints, 302 anticompetitive risks, 206, 211, 296 2nd level analysis, 277–95 3rd level analysis, 295–318, 309–18 analytical tools, 295–6 assets transfer, 315–16 behaviour coordination in existing product markets, 254–6, 263, 296 complementary analysis, 318–29 degrees of concentration, 319–25 duration of JVs, 315, 317–18 economic links to parent enterprises, 318–9 entry barriers, 326–9 exchange of information, 315, 317 exclusive collaboration, 315 foreclosure, 211, 213, 257–8, 264, 296, 307–9, 331–2 governance structures, 315, 316, 317 innovation restrictions, 256–7, 296 main risks, 254–8 market share, 277–95 size of financial interests, 315, 316 special factors, 315–18 spillover effects, 232, 247, 252, 296, 311–12, 317, 335 survey, 277–339 assessment practice, 518 block exemptions analytical model, 186 definition of R&D, 243 historical relevance, 123, 124, 125 market share, 201, 241, 270, 283, 287–91, 292–4, 323, 332 non-competing undertakings, 260 prohibited situations, 274–6 Commission case law, 303–4, 306 Beecham/Parke Davis, 76, 325 BP/MW Kellog, 303–4 Continental/Michelin, 325, 336–8, 339, 415 critique, 329–39 Elopak/Metal Box-Odin, 333–5, 520, 527 General Electric/Pratt & Witney, 339 Henkel/Colgate, 306, 319, 324–5 KSB/Goulds/Lowara/ITT, 308, 330–3 Microsoft/Time Warner/ContentGuard, 339 Pasteur Mérieux-Merckl, 338–9 Siemens/Fanuc, 308 Commission formalism, 302, 304, 317 Commission Guidelines, 251–4, 256

548

INDEX

complementary analysis, 318–29 criteria, 319–25 degrees of concentration, 319–25 economic links to parent firms, 315–18 entry barriers, 326–9 degrees of concentration alternative poles of research, 319 Commission case law, 324–5 complementary analysis, 319–25 definition of markets, 321–2 econometric models, 319–20 intense existing competition, 320–1 leading firm concentration ratio, 321 focus on, 18, 180 foreclosure risks, 211, 213, 296 1st level analysis, 257–8 3rd level analysis, 307–9 Commission case law, 308, 331–2 presumption, 264 IPR licensing, 303, 309, 328 market share 2nd level analysis, 277–95 block exemptions, 201, 241, 270, 283, 287–91, 292–4, 323, 332 complementary analysis, 319–25 evaluation methodology, 292–5 evaluation of proposed threshold, 285–6 Guidelines, 278, 283–4 low market share, 269–72 setting a general threshold, 280–4 threshold as analytical tool, 287–92 new products: 3rd level analysis, 300–6 non-compete agreements, 249 non facere obligations, 303 normally allowed Guidelines, 259, 264, 266–9 JVs between non-competitors, 258–65 low market share, 269–72 no separate capacity, 265–9, 362 survey, 258–72 US comparisons, 260–5 normally prohibited, 273–7 Guidelines, 273, 274, 276 price fixing, 276, 297, 299 US antitrust law compared, 276–7 overview, 251–4 product upgrade 3rd level analysis, 297–9 complementary analysis, 321–3 market share calculation, 321–3 relevance of function, 234–7 survey, 242–339 vertical agreements, 281–4 regional policy, 392 related markets JVs, 215, 216–21 research and development see R&D Reymond, Claude, 48, 56, 60 Ribstein, Larry, 32–3, 37, 69 Rice, Paul, 521 Ritter, Lennart, 234 Root, Franklin, 52 Rowe, Frederick, 520

rule of reason, 197–8, 301, 302n171, 513, 524–5, 526, 527–8, 530, 533 Salop, Steven, 491 satellites, 451–3 Schmalensee, Richard, 409–10, 446 Schmidtchen, Dieter, 10 Scottish law: origin of JVs, 44 Shapiro, Carl, 444 single economic units, 97, 101, 103–7, 114 Snyder, Francis, 10 special purpose vehicles, 43 specialization agreements: block exemptions anticompetitive risks, 366 definition, 123–4, 125, 340–2 goals, 345 law reform, 389 market share, 241, 270, 283, 289, 369 production agreements and, 340–1 unilateral v reciprocal, 340–1 spillover effects: commercialization JVs, 424, 439 functional JVs, 311–12 meaning, 94–5, 137 minority shareholdings, 488 production JVs, 367, 383, 385, 391–2 purchasing JVs, 473 R&D JVs, 232, 247, 252, 296, 311–12, 317, 318, 335 risks, 178, 232 strategic alliances, 20, 181 Sullivan, Lawrence, 252 technical innovation: economic efficiency and, 508 enterprise cooperation and, 37–8, 244 production JVs, 345, 347 R&D JVs: restrictions, 256–7, 296 technology transfer: block exemptions, 125 production JVs, 344, 345, 347 R&D JVs, 250 Teece, David, 251, 348 telecommunications, 38, 307, 451–3, 485 Telser, Lester, 412 termination of JVs: contracts, 79 Teubner, Gunther, 93n172 Thompson, D, 490 tourist test, 466, 468 transfer of technology see technology transfer transfer pricing, 365n314, 367 Tuller, Lawrence, 43 Turner, Donald, 498, 520 uncorporation, 33–4, 69 undertakings in EU competition law: autonomy, 98–102, 103 Centrafarm, 100–1 CJEU case law, 98–102 elements of concept, 96–102 joint ventures and, 96–107, 158 legal forms, 98

INDEX second level, 102–3 single economic units, 97, 101, 103–7, 114 true economic activity, 98 United States: antitrust law see US antitrust law contractual v incorporated JVs, 54 Great Depression, 448 origin of JVs, 44–7 partnerships and JVs, 45–6 post-war market development, 40 US antitrust law: analytical models, 511–12, 520–2 anticompetitive agreements, 193 Chicago School, 8, 11, 22, 492n657, 498, 499, 508–9, 511, 515, 517, 522 economic efficiency, 498–9 essential facilities doctrine, 499 EU competition law and, 238, 527 flexible economic analysis, 383–4 four-firm sales concentration ratio, 321 goals, 11, 497, 498–9 Herfindhal Hirshman Index, 199, 224–5, 319 industrial organization and competition rules, 346 JVs see US antitrust law and JVs market analysis, 7 market foreclosure, 257 market power and, 518 monism, 497, 498 post-Chicago School, 11, 22, 498–9, 508, 511, 515 rule of reason, 197–8, 301, 513, 526, 527–8 US antitrust law and JVs: 2000 Cooperation Guidelines analytical model, 514, 521–2 assets transfer, 375 commercialization JVs, 420, 434 competitor exclusion, 207 entry barriers, 326, 327, 329 information exchange, 317, 377 market share, 293 methodology, 238–9, 430, 438 parent firms’ financial interests, 439 production JVs, 363, 367, 371, 375, 377 R&D JVs, 285–6, 315, 326, 327, 329 rule of reason, 197–8 analytical model, 511–12 assessment methodology, 203–4 categories, 12 commercialization JVs, 405 case law, 418–19, 422–3, 436, 437n478, 461–2 financial networks, 441–2, 443, 445–6 flexibility, 436 Guidelines, 420, 434 controversies, 11 definition of JVs

case law, 140–2 Dagher case, 141–2, 406 Guidelines, 137–40 Horizontal Merger Guidelines, 142 National Cooperative Research Act, 134–7 partnerships and, 34 vagueness, 25, 136, 138, 141 framework: peculiarities, 108–11 information exchange, 480–1 Joint Venture Project, 140 links with parent undertakings, 214–15, 381 market power: quick look test, 516 market share, 284, 285–6 2000 Guidelines, 293 minority shareholdings, 485 model, 480–1, 516 origin of JVs, 5 production JVs 2000 Guidelines, 363, 367, 371, 375, 377 assets transfer, 375 debate, 343 favourable treatment, 351, 362–3, 367 GM/Toyota, 349n273 purchasing JVs, 470, 472, 476, 479 R&D JVs 2000 Guidelines, 285–6, 315, 326, 327, 329 case law, 301–3 entry barriers, 326, 327 favourable regime, 276–7 JVs between non-competitors, 260–5 normally allowed, 260–5 pharmaceuticals, 267n87 restrictive effect, 249–50 Van den Bergh, Roger, 504 vertical agreements: block exemptions, 202, 281 Green Paper (1996), 282–3 Guidelines, 281, 282–3 production JVs, 341 R&D JVs and, 281–4 reform, 9 Visa network, 442, 446, 462–8 Vogel, Louis, 100 Waverman, Leonard, 247n38 Weiler, Joseph, 507–8 Weller, Charles, 25, 36 Werden, Gregory, 109–10, 513, 516 Wiedemann, G, 49 Wilson, Adam, 24n28, 41, 46, 53, 75 Winterstein, A, 490, 491 Young, GR, 46–7

549