Author: Steven Cernak
On March 24, 2020, the FTC and DOJ Antitrust Division issued a joint statement regarding their approach to coordination among competitors during the current health crisis. The agencies announced a streamlining of the usual lengthy Advisory Opinion or Business Review Letter processes for potentially problematic joint efforts of competitors. The statement also confirmed that the antitrust laws had not been suspended and, for instance, price fixing would still be prosecuted.
More importantly, however, the agencies reminded businesses that many kinds of joint ventures of competitors have long been allowed, even encouraged, under the antitrust laws. That message might have been lost in the blizzard of reports and client alerts focusing on the changes to the processes to judge only the riskiest joint efforts. Especially in economic crises, businesses should consider if certain joint ventures with others in their industry, including competitors, might be good for both the businesses and their customers. As explained below, the U.S. auto industry has been using such joint ventures for decades.
The term “joint venture” can cover any collaborative activity where separate firms pool resources to advance some common objective. When that joint activity among competitors is likely to lead to faster introduction of a new product, lower costs, or some other benefits to be passed on to customers, antitrust law will balance those benefits with any loss of competition. Two specific types of joint ventures—research & development and production—have received particular antitrust encouragement. Below, lessons from both types are explored using examples from the auto industry.
Research & Development Joint Ventures
The FTC and DOJ have described joint R&D as “efficiency-enhancing integration of economic activity” and, generally, pro-competitive. Getting scientists and engineers from competing firms to share data, test results, and best practices on basic areas that each company can then build on to create or improve competitive products can save money and reduce time to market.
GM, Ford and then-Chrysler started doing joint R&D on battery technology and other basic building blocks of motor vehicles in 1990. In 1992, all these efforts were put under the umbrella of the United States Council for Automotive Research or USCAR. Through USCAR and other joint efforts, these fierce competitors cooperate on technologies like advanced powertrains, manufacturing and materials, and various types of energy storage and then compete on their applications in their vehicles.
Similarly, GM and Ford shared design responsibilities for advanced 9- and 10-speed transmissions. After the cooperating on design, each company then manufactured the transmissions and competed on the vehicles that used them.
Production Joint Ventures
In 1983, GM and Toyota formed a production-only joint venture, NUMMI, to produce vehicles for each parent that were then marketed separately. In 1984, the FTC barely approved the joint venture and insisted on an Order imposing reporting requirements and limits on communication. By 1993, the FTC had grown comfortable with NUMMI’s operation and so unanimously voted to vacate the Order as no longer necessary given changed conditions.
NUMMI’s success in navigating through antitrust concerns led to other production joint ventures in the industry including a Ford-Mazda one for vehicles, a Chrysler-Mitsubishi-Hyundai joint venture on engines, and a GM-Chrysler joint venture on manual transmissions. None of them were as controversial or received the same level of antitrust scrutiny as NUMMI.
The National Cooperative Research and Production Act
At about that same time as NUMMI’s formation, Congress was clarifying the antitrust laws to ensure that certain cooperative efforts that could benefit consumers were not inappropriately stifled by the antitrust laws. In 1984, the National Cooperative Research Act confirmed that most R&D joint ventures would be judged under the rule of reason. To further encourage such pro-competitive cooperation, the law also allowed the parties to file a very short notice describing the joint venture with the FTC and DOJ. Once such a notice is published in the Federal Register, any antitrust liability for the joint venture and its parents is limited to actual, not treble, damages and attorney fees. In 1993, the law was expanded to cover certain joint production ventures and standard development organizations and retitled the National Cooperative Research and Production Act or NCRPA.
There are some limits to NCRPA’s protections. For instance, the facilities for the joint production must be located in the U.S. and there are strict limits on the joint marketing or distribution of the results of the joint R&D or production. Also, whether they fall under NCRPA or not, these joint ventures must be structured and implemented properly to minimize any unintended negative effects on competition. For instance, GM and Toyota had procedures in place, even after the lifting of the FTC order, to limit communication between the competitors not necessary to NUMMI’s production. Also, all the scientists and engineers participating in USCAR activities receive antitrust training.
Both in normal times and in a crisis, businesses should consider ways to work with other companies, including competitors, to improve both their bottom lines and the lives of their customers. Their counselors should be prepared to quickly work with them to evaluate the competitive effect of such joint ventures, structure and implement them properly, and determine the few (if any) that might require review by enforcers. Based on published reports, it appears that members of the auto industry still understand the potential benefits of working jointly with other companies for the good of their common customers.
Image by Gerd Altmann from Pixabay