STATUS AND EFFECT OF COOPERATIVE JOINT VENTURES UNDER INDIAN COMPETITION LAW

Sudipto Sircar1

I. INTRODUCTION

Cooperative Joint ventures (or Contractual Joint Ventures, as they are also known) are a

vexatious issue under competition law. They may and often do combine defining aspects of

both a regular combination (which can be analysed by a competition regulatory authority to

determine whether the combination would inhibit competition in the relevant market), as well

as an agreement (which would require the competition regulatory authority to determine

whether the agreement is anti-competitive or an abuse of dominant position under the

respective competition law of that particular jurisdiction).

This conflict and confusion is probably the reason why after much pendulous debates and

Orders, the European Commission finally decided to enact a separate regulation for

cooperative joint ventures. But as we shall see below, even the provisions of this regulation

are often criticised and dissected on a regular basis. Needless to say, the issue will in all

probability also arise before the Competition Commission of India (CCI) as Indian

competition jurisprudence begins to gradually develop overtime.

The aim of this paper is to elaborate in detail the competition law regarding cooperative joint

ventures and to present the measures and methods which may be adopted by the Commission

when it is finally called upon to handle such issues. Part I being the introduction, Part II shall

elaborate upon the concept of cooperative/contractual joint ventures (hereinafter referred to

as CJV’s). It shall provide a definition for the phrase and elaborate as to what exactly would

constitute a cooperative joint venture. Part III shall elaborate in detail the EU law regarding

cooperative joint ventures, including the important Orders and Judgements in EU competition 1 V Year, B.A. LLB. (Hons.), Amity Law School, Delhi (GGSIP University), India

law on the same. Part IV shall then focus on the competition law (or anti-trust law) in the

United States of America (U.S.A.) regarding such agreements. Part V shall deal with the

problem of cooperative joint ventures under the Competition Act, 20022 and suggest the

preferred method of analysis which may help the Commission best analyze such ventures or

agreements.

II. COOPERATIVE/CONTRACTUAL JOINT VENTURES: CONCEPT AND

SCOPE OF DEFINITION

To be fair, most competition law jurisdictions choose not to specifically define the term

“cooperative joint venture”. The definition is generally interpreted through the definition of a

“concentrative joint venture.” For example, the European Commission has defined the term

under Article 3(2) of the Regulation on the Control of Concentration between Undertakings”

of 19893 (herein after referred to as the ‘Merger Regulation’) which states that “an operation,

including of a joint venture, which has as its object or effect the coordination of the

competitive behaviour of undertakings which remain independent shall not constitute a

concentration within the meaning of paragraph 1(b)”.4 Similarly in the U.S., the Federal

Trade Commission (FTC) has defined such agreements under the term “competitor

collaboration” and defines such an agreement which “comprises a set of one or more

agreements, other than mergers agreements, between or among competitors to engage in

economic activity, and the economic activity resulting there from “Competitors”

encompasses both actual and potential competitors. Competitor collaborations involve one or

more business activities, such as research and development (“R&D”), production, marketing,

distribution, sales or purchasing. Information sharing and various trade association activities

also may take place through competitor collaborations.”5 Obviously, as per this definition,

2 The Competition Act, 2002 (12 of 2003)

3 Council Regulation (EEC) No. 4064/89 On The Control of Concentrations Between Undertakings [1989] OJ L395/1 

4 Id., Article 3(2)

5 Antitrust Guidelines for Collaboration Among Competitors, Issued by the F.T.C. and the Department of Justice (D.O.J.) [2000], available at <http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf>, (viewed on 15.11.2012)

“competitor collaborations” can be infinite in variety.6 Such agreements can range from

agreements for Research and Development (R & D) to, production agreements and

commercialisation agreements to even standardisation agreements. These definitions

however, as we shall see below, are sufficient for the purpose as the only requirement is to

differentiate between a concentrative and cooperative joint venture for the purpose of

evaluation by competition authorities. Once an agreement is established to be not a

concentrative joint venture, it is implied that the agreement between the companies is a

cooperative joint venture.

III. CJV’S UNDER E.U. COMPETITION LAW

The European Union clearly distinguishes between concentrative joint ventures and

cooperative joint ventures, and has clear regulations to regulate both. In fact, much has been

discussed and laid down with regards the competition law on cooperative joint ventures in

Europe. It has been acknowledged by the Commission that competition laws simply cannot

prohibit all horizontal agreements and that the efficiency gains which follow from

cooperation are sufficient any restriction of competition that it might entail.7 The accepted

verdict among jurists is that while “the experience there (in the EU) has shown that while

some ‘bright line’ indicators can be developed in terms of the boundaries between

cooperative and concentrative arrangements, in some cases an element of pragmatism is

required.”8 However, it is important to clarify for context that there has been a difference in

the European Commission’s approach before and after the “Regulation on The

Implementation of the Rules on Competition Laid down in Articles 81 and 82 of the Treaty”

of 2003 came into force.9 Before this regulation, European competition law, including that

related to cooperative joint ventures, was governed under Article 81 to Article 85 of the

“Consolidated Version of The Treaty Establishing the European Community” (hereinafter

6 G. J. Werden, “Symposium: Antitrust Scrutiny of Joint Ventures: Antitrust Analysis of Joint Ventures: An Overview”, Antitrust Law Journal, Vol. 66, No. 3, 1998 , p.730

7 Richard Whish and David Bailey, Competition Law, 7th Edn. ,Oxford University Press, New York, 2012, p. 585

8 Suzanne Rab, Indian Competition law: An International Perspective, Wolters Kluwer (India) Pvt. Ltd., Gurgaon, 2012, p. 22

9 Council Regulation (EC) No. 1/2003 on The Implementation of The Rules on Competition Laid Down in Articles 81 and 82 of the Treaty [2002] OJ 1/1

known as the E.C. Treaty).10 However, after the enactment of the above mentioned

regulation, European competition law is administered under Articles 101 to 106 of the

“Treaty of the Functioning of the European Union” (hereinafter referred to as the T.F.E.U.). 11

As per the 2003 regulation, the Commission was allowed to formerly decide whether the

criteria under Article 101(3) were satisfied in the case of cooperative joint ventures only by

adopting a declaration of inapplicability under Article 10 of the Regulation.12 However, it has

till date declined to do so.13 Hence, all decisions of the Commission discussed below are

those decided under Article 85 of the E.E.C. Treaty.

Under European Competition law today, cooperative joint ventures are primarily evaluated

under Article 101 of the Treaty of the Functioning of the European Union (TFEU).14 Other

than the above, they are also partially regulated under the “Regulation on the Control of

Concentration between Undertakings” of 1989.15 These must be read together with three other

10 Consolidated Version of The Treaty Establishing the European Community [2006] OJ C321/E37

11 Consolidated Version of The treaty of the Functioning of the European Union [2008] OJ C115/47

12 Richard Whish and David Bailey, Competition Law, 7th Edn. ,Oxford University Press, New York, 2012, p. 587

13 Id.

14 Article 101 states as follows:

“1. The following shall be prohibited as incompatible with the internal market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the internal market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

2. Any agreements or decisions prohibited pursuant to this Article shall be automatically void.

3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:— any agreement or category of agreements between undertakings,— any decision or category of decisions by associations of undertakings,— any concerted practice or category of concerted practices,

which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”

15 Council Regulation (EEC) No. 4064/89 On The Control of Concentrations Between Undertakings [1989] OJ L395/1 

official documents which have been released by the European Commission on cooperative

joint ventures. Firstly, the Information Notice of the Commission “on the distinction between

concentrative and cooperative joint ventures” under the above mentioned 1989 Regulation.16

Secondly, the “Guidelines on The Applicability of Article 101 of the Treaty on the

Functioning of the European Union to Horizontal Co-operation Agreements”.17 Thirdly, the

Commission notice “Concerning the Assessment of Cooperative Joint Ventures Pursuant to

Article 85 of the EEC Treaty” (now Article 101 of the TFEU).18 Over and above these, the

European Union also provides Block Exemptions on applicability of Article 101 for certain

categories of vertical agreements19, R & D Agreements20, Specialisation Agreements21 and

Technology Transfer Agreements.22 The primary ground for such exemptions is efficiency

and indispensability and benefit to consumers.23 Faull24 has explained the indispensability test

well as cited below:

"...The indispensability test under Article 85(3) seems to call for a second

analysis of the possibility that the parents might have done alone what the

joint venture was set up to do. However, this is to misunderstand Article

85(3). The indispensability which must be shown is that of the agreement in

breach of Article 85(1) to the attainment of the objectives set out in Article

85(3). Therefore the joint venture must be the only way in which the parties

could have contributed so well or so much to improving the production or

16 Commission Notice on the Distinction Between Concentrative and Cooperative Joint Ventures under Council Regulation (EEC) No. 4064/89 On The Control of Concentrations Between Undertakings [1994] OJ C385/1

17 Commission Guidelines on the Applicability of Article 101 of the treaty of the Functioning of the European Union to Horizontal Cooperation Agreements [2011] OJ C11/1

18 Commission Notice Concerning the Assessment of Cooperative Joint Ventures Pursuant to Article 85 of the EEC Treaty [1993] OJ C43/2

19 Commission Regulation (EU) No. 330/2010 on The Application of Article 101(3) of the Treaty of the Functioning of the European Union to Categories of Vertical Agreements and Concerted Practices [2010] OJ L102/1

20 Commission Regulation (EU) No. 1217/2010 on The Application of Article 101(3) of the Treaty of the Functioning of the European Union to Categories of research and Development Agreements [2010] OJ L335/36

21 Commission Regulation (EU) No. 1218/2010 on The Application of Article 101(3) of the Treaty of the Functioning of the European Union to Categories of Specialisation Agreements [2010] OJ L335/43

22 Commission Regulation (EU) No. 1218/2010 on The Application of Article 101(3) of the Treaty of the Functioning of the European Union to Categories of Technology Transfer Agreements [2010] OJ L123/11

23 Supra, note 11 and Infra, note 23

24 Faull, “Joint Ventures Under the EEC Competition Rules”, E.C.L.R., 1984, p. 358.

distribution of goods or to promoting technical or economic progress, while

allowing consumers a fair share of the resulting benefit. Article 85(1) asks:

could they have done it separately? Article 85(3) asks, assuming a positive

answer to the first question: could they have achieved the benefits mentioned

in Article 85(3) in any less restrictive way?”25

The Commission has adopted a number of procedural and substantive distinctions in the

regulation and analysis of concentrative and cooperative joint ventures. Firstly, cooperative

joint ventures are classified into two categories: structural and non-structural ventures,

whereas there is no such distinction with concentrative ventures.26 J. P. Griffen has defined

Structural CJV’s as follows:

"A cooperative joint venture of a structural nature is one that involves an

important change in the structure and organization of the business assets of the

parent companies or because it undertakes new activities on their behalf. Such

operations are characterized by the commitment of significant financial,

material and/or non-tangible assets such as intellectual property rights and

know-how. Structural joint ventures are therefore normally intended to

operate on a medium- or long-term basis. This concept includes certain

‘partial function' joint ventures which take over one or several specific

functions within the parents' business activity without access to the market, in

particular research and development and/or production.”27

Non-structural joint ventures, on the other hand, are what we commonly consider to be

agreements of joint cooperation for efficiency, or research and development between

enterprises. Now other than the above, there are other procedural distinctions such as that a

decision on a concentrative venture must be given within a maximum period of five months

whereas a decision on a cooperative joint venture may be kept pending for upto eighteen

25 Id.

26J. P. Griffen, “Concentrative and Cooperative Joint Ventures”, available at <http://www.morgan lewis.com/pubs/6A3A8F88-3CAA-44C0-974B0CE51F4672F2_Publication.pdf>, (Viewed on 15.11.2012), p. 2

27 Id., p. 2

months.28 Furthermore, structural ventures require only a “comfort Letter” for their validity.29

Also, importantly, whereas an approval for a concentrative venture is permanent once

granted, approval for a cooperative venture is granted only for a fixed time period and can be

revoked or modified in case the Commission later feels that it is resulting in a competition

abuse in the market.30

A look at some decisions of the Commission helps us to better understand the EU position on

cooperative joint ventures. In ECR 900 Konsortium31 it was held that an agreement for joint

development, manufacture and distribution of pan-European digital cellular mobile telephone

system would not be caught by Article 85(1) as "development and manufacture by individual

companies would not take place because of the high cost involved."32 In Screensport/EBU33,

where the venture was disqualified as anti-competitive, the court observed that "any incentive

for Sky to offer substantive competition to Eurosport was eliminated and that any potential

competition between the two parents in the form of rival transnational satellite television

channels dedicated to sport ceased as a consequence of their agreement to establish Eurosport

together."34 Furtheremore, in International Private Satellite Partners35, where certain

companies proposed to create a limited partnership under U.S. law to provide international

business telecommunications services to businesses in Europe and North America, the

Commission held that the creation of the partnership was outside the scope of Article 85(1)

because none of the partners were actual or potential competitors in the relevant market.

There are very high barriers to entry and none of the partners could reasonably be expected to

assume the financial burden and risk to enter the market alone. Similar was the reasoning in

Iridium.36 Also, the Commission has looked into both express restrictions37 and implied

28 Id., p. 2

29 Id., p. 3

30 Id., p. 3

31 O.J. [1990] L228/31; [1992] 4 C.M.L.R. 54

32 Id.

33 O.J. [1992] L63/32; [1992] 5 C.M.L.R. 273

34 Id. 35 O.J. [1994] L354/75; [1995] 4 C.M.L.R. 306

36 O.J. [1997] L16/87; [1997] 4 C.M.L.R. 1065

37 For example, in Mitchell Cotts/Sofiltra, O.J. [1987] L41/31; [1988] 4 C.M.L.R. 111

restrictions38 during its assessments. Lastly, in Elopak/Metal Box - Odin39, the Commission

concluded that the venture between the undertakings to design a new kind of carton did not

violate Article 101(1) since they were not actual or potential competitors.

Other than the Commission, the E.U. Courts have had little opportunity to adjudicate on

cooperative joint ventures. There are notable judgements of the General Court on the subject.

The first is European Night Services v. Commission40 where an appeal against the decision of

the Commission, wherein it has attached certain obligations and conditions to the approval

was successful. The Court observed that the Commission had failed to demonstrate that the

agreement would appreciably restrict competition, and the decision of the Commission was

declared null and void. The second is that of O2 (Germany) GmbH & Co. OHG v.

Commission41 wherein the petitioners successfully persuaded the Court that national roaming

agreements in the mobile telephony sector did not restrict competition under Article 101(1),

and therefore did not need authorisation under Article 101(3).

However, despite this robust jurisprudence on cooperative ventures, a number of jurists and

commentators are of the opinion that “the distinction between concentrative and co-operative

joint ventures continues to cause difficulties and uncertainty. While many joint ventures

clearly fall into one or other category, the classification remains far from straightforward in a

significant number of cases.”42

IV. CJV’S UNDER UNITED STATES ANTITRUST LAW

38 For example, in GEC Weir Sodium Circulators, O.J. [1977] L327/26, 31; [1978] 1 C.M.L.R. D42

39 O.J. [1991] L209/15; [1991] 4 C.M.L.R. 832

40 Cases T-374/94 etc. [1998] ECR II-3141, [1998] 5 C.M.L.R. 718

41 Case T-328/03 [2006] ECR II-1231, [2006] 5 C.M.L.R. 258 42 Adrian Brown, “Distinguishing Between Concentrative and Cooperative Joint Ventures: Is it Getting Any Easier?”, E.C.L.R., 1996, p. 249. Also see Anand S. Pathak, “The EC Commission's Approach to Joint Ventures: A Policy of Contradictions”, E.C.L.R., 1991 and Horst Peter Gotting and Werner Nikowitz, “ECC Merger Control: Distinguishing Concentrative Joint Ventures From Cooperative Joint Ventures”, Fordham International Law Journal, Vol. 13, No. 2, 1989

As of now there does not exist any specific legislation or special law to govern cooperative

joint ventures in the United States. The Federal trade Commission regulates cooperative joint

ventures under the existing anti-trust laws in the United States, i.e., Section 1 and Section 2 of

the Sherman Antitrust Act43, Section 7 of the Clayton Act44 and Section 5 of the Federal

Trade Commission Act.45 There are also certain enforcement guidelines issued by the Justice

Department and the Federal trade Commission,46 the most important document of which is

the “Antitrust Guidelines for Collaboration Among Competitors” released by the Federal

Trade Commission (F.T.C.) in 2000.47 As a result, while concentrative joint ventures are

regulated under merger control, cooperative joint ventures (or contractual joint ventures, as

they are better known there) are often regulated and investigated under the provisions related

to anti-competitive agreements and abuse of dominant positions, including cartels. “When a

joint venture is not acting as a single economic entity, its actions are necessarily the product

of an agreement among competitors. This subjects those actions to Section 1 of the Sherman

Act.”48 However, cooperative joint ventures between government contractors are also subject

to government procurement laws.49 Also, despite their being no specific legislation, certain

authors are of the opinion that “current antitrust law in the United States needlessly inhibits

inter firm agreements designed to develop and commercialize new technology.”50 Thomas

Jorde believes this is so because the elements of rule of reason analysis are quite muddled

43 Sherman Antitrust Act, 1890 (15 U.S.C. §§ 1-7)

44 Clayton Act, 1914 (15 U.S.C. §§ 12-27)

45  Federal Trade Commission Act, 1914 (15 U.S.C §§ 41-58)

46 The Justice Department and the F.T.C. have issued merger guidelines that provide useful discussions of how the enforcement agencies will define relevant markets and measure market power in reviewing collaborative ventures. See Department of Justice, Merger Guidelines [1984]; Federal Trade Commission, Statement Concerning Horizontal Mergers [1982]. In addition, the Justice Department's guidelines concerning research and development joint ventures, non price vertical restraints, and international operations provide considerable insight into how the Department will evaluate collective endeavours by private firms. See Department of Justice, Antitrust Guide Concerning Research Joint Ventures [1980]; Department of Justice, Vertical Restraints Guidelines [1985]

47 Antitrust Guidelines for Collaboration Among Competitors, Issued by the F.T.C. and the Department of Justice (D.O.J.) [2000], available at <http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf>, (viewed on 15.11.2012) 48 G. J. Werden, “Symposium: Antitrust Scrutiny of Joint Ventures: Antitrust Analysis of Joint Ventures: An Overview”, Antitrust Law Journal, Vol. 66, No. 3, 1998 , p.705

49 W. E. kovacic, “Antitrust Analysis of Joint Ventures and Teaming Arrangements Involving Government Contractors”, Antitrust Law Journal, Vol. 58, No. 3, 1989, p. 1066

50 Thomas M. Jorde and David J. Teece, “Antitrust and International Competitiveness in the 1990’s: Acceptable Cooperation Among Competitors in the Face of Growing International Competition”, Antitrust Law Journal, Vol. 58, No. 2, 1989, p. 540. Also see Thomas M. Jorde and David J. Teece, “Innovation, Cooperation and Antitrust: Balancing Competition and Cooperation”, HIGH TECH. L.J. Vol. 4, (1989)

when it comes to such ventures.51 He is of the opinion that while some clarity exists for

vertical arrangements, horizontal and hybrid (elements of both vertical and horizontal)

cooperative arrangements face greater uncertainty because the economics literature has not

hitherto provided the courts with plausible theories of horizontal cooperation other than

cartels.52 He also believes that while simple "scale economy" or "risk reduction" theories are

often discussed, these notions do not capture but a fraction of the variety of the circumstances

where social benefit can arise from inter firm agreements.53 To try and address these

concerns, the Congress recently passed the National Cooperative Research Act, 1984.54

As already stated above55, any two or more entities would enter into a cooperative or

contractual joint venture primarily only for the purposes efficiency or for research and

development. For example, the National Football League (NFL) is essentially a group of

competing team owners which acts collectively as a single entity in certain administrative

decisions regarding the game such as the designating an official league ball or establishing

the play-off system for determining a league champion. Therefore, while analysing such

venture agreements56, the Courts of the United States have evolved a unique test to determine

whether such an agreement would be anti-competitive or not. This is called the “test of

ancillarity”.57 The test was first introduced in the case of United States v. Addyston Pipe &

Steel Co.58 The Court in this case expressly observed as follows:

"...no conventional restraint of trade can be enforced unless the covenant

embodying it is merely ancillary to the main purpose of a lawful contract, and

necessary to protect the covenantee in the full enjoyment of the legitimate

51 Id.

52 Id.

53 Id.

54 For a detailed analysis of the same, see Thomas M. Jorde and David J. Teece, “Antitrust and International Competitiveness in the 1990’s: Acceptable Cooperation Among Competitors in the Face of Growing International Competition”, Antitrust Law Journal, Vol. 58, No. 2, 1989

55 Supra, p. 1

56 For a detailed discussion on analytical trends, see W. E. kovacic, “Antitrust Analysis of Joint Ventures and Teaming Arrangements Involving Government Contractors”, Antitrust Law Journal, Vol. 58, No. 3, 1989

57 Id.

58 85 F. 271 (6th Cir. 1898). The decision was later affirmed by the U. S. Supreme Court in Addyston Pipe & Steel Co. v. United States, 175 U.S. 211 (1899)

fruits of the contract, or to protect him from the dangers of an unjust use of

those fruits by the other party."59

In simple terms, “an ancillary restraint is one that is reasonably necessary to the

accomplishment of a venture's efficiency-enhancing purposes.”60 Therefore, any agreement

forming such a cooperative/contractual joint venture should be analyzed in terms of the

legality of the joint venture itself by understanding the ancillary consequences of it. The

F.T.C. or the courts are supposed to apply the rule of reason and to also analyse the pro-

competitive impact of such an agreement in the relevant market. Also, what is ancillary to the

purposes agreement would have to be purely determined on the basis of the facts and

circumstances of each particular case. For example, in Citizen Publishing Co. v. United

States,61 the owners of the two daily newspapers formulated a joint operating agreement,

under which the advertising, circulation, and production departments of the papers were

merged but editorial and news operations were not. The joint venture company controlled the

pricing of circulation and advertising of both papers, and profits were distributed according to

an agreed ratio. The Court observed that the "price fixing" and "profit pooling" were non-

ancillary to the joint venture, and ordered the cessation of price fixing and profit pooling

agreement.62

However, this is not to say that the per-se rule is not at all applicable in the U.S. while

evaluating such ventures. For example, in Blackburn v. Sweeny63, the per se rule was applied

in a case relating to the restraint on territories in which advertising was permissible, where

the court found that such provisions were not ancillary to the agreement to dissolve a law

partnership. Similarly, in General Leaseways, Inc. v. National Truck Leasing Ass'n64, the

contractual restraints were found to be per se anticompetitive as there was no "organic

59 Id., at 282

60 G. J. Werden, “Symposium: Antitrust Scrutiny of Joint Ventures: Antitrust Analysis of Joint Ventures: An Overview”, Antitrust Law Journal, Vol. 66, No. 3, 1998 , p.705

61 394 U.S. 131 (1969)

62 In 1970 Congress effectively reversed the decision by enacting the Newspaper Preservation Act, 1970 (15

U.S.C. §§ 1801-04).

63 53 F.3d 825

64 830 F.2d 716

connection between the restraint and the cooperative needs of the enterprise". Therefore, we

find that once a particular provision of the contractual joint venture is found to be “ancillary”,

the adjudicatory authorities apply the rule of reason to analyse the provisions’ anti-

competitiveness and in the case where the provision is found to be “non-ancillary”, the courts

may (and often tend to lean towards) apply the per se rule of competition. This is best

highlighted by the case of Sewell Plastics, Inc. v. Coca-Cola Co65, where certain Coca-Cola

bottlers decided to form a cooperative to supply their plastic bottle requirements. On a

challenge to this arrangement, the Court held that the arrangement was not the sort of conduct

which could be considered a per se unlawful group boycott and furthermore rejected several

rule of reason claims as the venture had not been shown to possess market power or to have

had an adverse impact on competition.

However, the rule is generally confined to cases where it is suspected that the cooperative

venture is leading to or is actually a cartel in disguise. The Supreme Court in Timken Roller

Bearing Co. v. United States66, expressly observed that:

“...Nor do we find any support in reason or authority for the proposition that

agreements between legally separate persons and companies to suppress

competition among themselves and others can be justified by labeling the

project a 'joint venture.' Perhaps every agreement and combination to restrain

trade could be so labelled."67

Before proceeding to the next section of this paper, it is pertinent to take note the concept of

“open market access” which has been developed under U.S. anti-trust law, particularly

regarding cooperative joint ventures. A landmark judgement for understanding this concept

and its relation with cooperative joint ventures is the case of United States v. Terminal R.R.

Ass'n of St. Louis.68 This concept would apply specifically to cases where there are enterprises

which choose not to become part of the cooperative but yet compete in the relevant market.

In the above mentioned case certain railroad companies formed an association for acquiring

65 912 F.2d 463

66 341 U.S. 593, 598 (1951)

67 Id.

68 224 U.S. 383 (1912)

various independent terminal facilities and bridges. Despite the association managing to gain

a monopoly, the court was of the opinion that the efficiency achieved through such control

would out weight the restraints provided that all railroads participated in the association.69

Consequently, it passed a decree for admission of other railroads to the association and non-

discriminatory treatment for other non-members.

V. THE COMPETITION ACT, 2002 AND COOPERATIVE JOINT

VENTURES

The Competition Commission of India (C.C.I.) has till date not come out with any guidelines

or regulations for either cooperative or concentrative joint ventures. In fact, it has until now

not had an opportunity to analyse or taken an opportunity suo moto to analyse the anti-

competitive effects, if any, of such ventures. Therefore, any discussion on cooperative joint

ventures under Indian competition law shall have to be limited to the Act itself.

A cooperative joint venture could be analysed under Section 3 of the Act. It could be

analysed under Section 3(1) of the Act which is a general and broad provisions on anti-

competitive agreements and reads as follows:

“[N]o enterprise or association of enterprises or person or association of

persons shall enter into any agreement in respect of production, supply,

distribution, storage, acquisition or control of goods or provision of services,

which causes or is likely to cause an appreciable adverse effect on competition

within India.”

Such a venture could also be analysed under the provisions of Section 3(3) of the Act which

reads as follows:

“[A]ny agreement entered into between enterprises or associations of

enterprises or persons or associations of persons or between any person and

69 Id. at 405-06.

enterprise or practice carried on, or decision taken by, any association of

enterprises or association of persons, including cartels, engaged in identical or

similar trade of goods or provision of services, which—

(a)....

(b) Limits or controls production, supply, markets, technical development,

investment or provision of services;

(c)....

(d)....

Shall be presumed to have an appreciable adverse effect on competition:

Provided that nothing contained in this sub-section shall apply to any

agreement entered into by way of joint ventures if such agreement increases

efficiency in production, supply, distribution, storage, acquisition or control of

goods or provision of services.”

However, these provisions will in all probability raise certain obstacles in the analysis of

such ventures as well as hinder competitive business through such ventures in the future,

mostly due to the fact that such cooperative ventures were probably not seriously considered

when the act was first drafted. For example, any agreement which is considered to limit or

control technical development or investment shall be presumed to have an appreciable

adverse effect on competition, and hence void.70 But cooperative joint ventures inherently

tend to initially limit or control such technical development and investment as it requires two

or more enterprises in the particular market to coordinate to create long term benefit for both

the enterprises and the consumers through such cooperative development. This contradiction

has already been recognised by the European Commission.71 Section 3(3)(b) will

unfortunately ensure that such cooperative joint ventures remain inherently anti-competitive

and will consequently hinder innovation and growth in the market, which is the primary

objective of a competition law in the first place. The same issue would also arise under

Section 4(2)(b) which describes the abuse of dominant position.

70 Section 3(3)(b), The Competition Act, 2002 (12 of 3003)

71 Supra, note 6

Secondly, even though the proviso to Section 3(3) states that nothing in the sub-section shall

apply to an agreement entered into by way of a joint venture if such agreements increase

efficiency in production, supply, distribution, storage, etc., the term joint venture has not

been defined within the Act. The accepted legal definition of the term only includes

concentrative joint ventures and not cooperative joint ventures, hence the proviso is

ambiguous on the status of cooperative joint ventures under the Section. Furthermore, since

cooperative joint ventures generally tend to lead to the innovation of new products or

services, and consequently, new patents and trademarks, the status of such cooperative

ventures as against the exceptions listed under Section 3(5) would also need to be clarified.

There are two solutions available to the Competition Commission of India and the Central

Government. The Central Government may either bring about amendments to the Act or the

Commission may draft regulations to govern both concentrative and cooperative joint

ventures, including enunciating clear legal distinctions between the two. In the solution to be

engaged are amendments to the Act, then the Government should amend Section 3(3) of the

Act by adding a proviso on cooperative joint ventures which may state that such cooperative

agreements shall be analysed under Section 3(4) of the Act, hence ensuring that they are not

presumed to be anti-competitive. A similar amendment by way of the insertion of a proviso

would also be required under Section 4(2)(b) of the Act.

The author, however, believes that a more appropriate and less cumbersome method to tackle

the problem would be the framing of regulations under the Competition Act. If such

regulations were to be framed, they should be similar to and should take inspiration from the

“Guidelines on The Applicability of Article 101 of the Treaty on the Functioning of the

European Union to Horizontal Co-operation Agreements”72 drafted by the European

Commission and the “Antitrust Guidelines for Collaborations Among Competitors”73 drafted

by the Federal trade Commission in the U.S.A. Also, the author considers it advisable that

the Regulations lay down clear tests to be conducted to determine whether such an agreement

would be anti-competitive rather than only following the criteria as enumerated under

Section 19 of the Act. This is so because experience with the C.C.I. till date has shown that

72 Commission Guidelines on the Applicability of Article 101 of the treaty of the Functioning of the European Union to Horizontal Cooperation Agreements [2011] OJ C11/1

73 Antitrust Guidelines for Collaboration Among Competitors, Issued by the F.T.C. and the Department of Justice (D.O.J.) [2000], available at <http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf>, (viewed on 15.11.2012)

investigations by the Director General based on Section 19 as well as the final Order of the

Commission may result in a proportionately high amount of discretion in the members of the

C.C.I. while evaluating such agreements.

VI. CONCLUSION

Cooperative Joint Ventures play an important role in encouraging innovation in the market

and comparatively cheaper costs, thus resulting in a win – win situation for both consumers

and producers. Therefore, it is best not to discourage but rather only regulate them to ensure

that the benefits out of such ventures outweigh the costs to competition in the market. With

the gradual development of competition law jurisprudence over India, the C.C.I and

competition law practitioners will eventually have to learn to analyse and understand such

agreements. It is recommended that whenever the C.C.I. decides to draft regulation on the

subject, it takes inspiration from the foreign regulations and guidelines mentioned above and

take full advantage of the experience which has been gained over time by more mature

competition law jurisdictions.