Antitrust Guidelines

AntitrustGuidelinesforCollaborationsAmongCompetitorsIssuedbytheFederalTradeCommissionandtheU.S.DepartmentofJusticeApril2000iANTITRUSTGUIDELINESFORCOLLABORATIONSAMONGCOMPETITORSTABLEOFCONTENTSPREAMBLE..1SECTION1:PURPOSE,DEFINITIONS,ANDOVERVIEW..21.1PurposeandDefinitions.21.2OverviewofAnalyticalFramework..31.3CompetitorCollaborationsDistinguishedfromMergers.5SECTION2:GENERALPRINCIPLESFOREVALUATINGAGREEMENTSAMONGCOMPETITORS.62.1PotentialProcompetitiveBenefits.62.2PotentialAnticompetitiveHarms62.3AnalysisoftheOverallCollaborationandtheAgreementsofWhichItConsists72.4CompetitiveEffectsAreAssessedasoftheTimeofPossibleHarmtoCompetition..7SECTION3:ANALYTICALFRAMEWORKFOREVALUATINGiiAGREEMENTSAMONGCOMPETITORS73.1Introduction.73.2AgreementsChallengedasPerSeIllegal83.3AgreementsAnalyzedundertheRuleofReason..103.31NatureoftheRelevantAgreement:BusinessPurpose,OperationintheMarketplaceandPossibleCompetitiveConcerns..123.31(a)RelevantAgreementsthatLimitIndependentDecisionMakingorCombineControlorFinancialInterests133.31(b)RelevantAgreementsthatMayFacilitateCollusion..153.32RelevantMarketsAffectedbytheCollaboration..163.32(a)GoodsMarkets..163.32(b)TechnologyMarkets163.32(c)ResearchandDevelopment:InnovationMarkets173.33MarketSharesandMarketConcentration173.34FactorsRelevanttotheAbilityandIncentiveoftheParticipantsandtheCollaborationtoCompete..183.34(a)Exclusivity.193.34(b)ControloverAssets.193.34(c)FinancialInterestsintheCollaborationorinOtherParticipants.203.34(d)ControloftheCollaboration’sCompetitivelySignificantDecisionMaking203.34(e)LikelihoodofAnticompetitiveInformationSharing21iii3.34(f)DurationoftheCollaboration.213.35Entry.223.36IdentifyingProcompetitiveBenefitsoftheCollaboration..233.36(a)CognizableEfficienciesMustBeVerifiableandPotentiallyProcompetitive243.36(b)ReasonableNecessityandLessRestrictiveAlternatives.243.37OverallCompetitiveEffect..25SECTION4:ANTITRUSTSAFETYZONES.254.1Overview254.2SafetyZoneforCompetitorCollaborationsinGeneral..264.3SafetyZoneforResearchandDevelopmentCompetitionAnalyzedinTermsofInnovationMarkets271CongresshasprotectedcertaincollaborationsfromfullantitrustliabilitybypassingtheNationalCooperativeResearchActof1984(“NCRA”)andtheNationalCooperativeResearchandProductionActof1993(“NCRPA”)(codifiedtogetherat15U.S.C.430106).2TheStatementsofAntitrustEnforcementPolicyinHealthCare(“HealthCareStatements”)outlinetheAgencies’approachtocertainhealthcarecollaborations,amongotherthings.TheAntitrustGuidelinesfortheLicensingofIntellectualProperty(“IntellectualPropertyGuidelines”)outlinetheAgencies’enforcementpolicywithrespecttointellectualpropertylicensingagreementsamongcompetitors,amongotherthings.The1992DOJFTCHorizontalMergerGuidelines,asamendedin1997(“HorizontalMergerGuidelines”),outlinetheAgencies’approachtohorizontalmergersandacquisitions,andcertaincompetitorcollaborations.1ANTITRUSTGUIDELINESFORCOLLABORATIONSAMONGCOMPETITORSPREAMBLEInordertocompeteinmodernmarkets,competitorssometimesneedtocollaborate.Competitiveforcesaredrivingfirmstowardcomplexcollaborationstoachievegoalssuchasexpandingintoforeignmarkets,fundingexpensiveinnovationefforts,andloweringproductionandothercosts.Suchcollaborationsoftenarenotonlybenignbutprocompetitive.Indeed,inthelasttwodecades,thefederalantitrustagencieshavebroughtrelativelyfewcivilcasesagainstcompetitorcollaborations.Nevertheless,aperceptionthatantitrustlawsareskepticalaboutagreementsamongactualorpotentialcompetitorsmaydeterthedevelopmentofprocompetitivecollaborations.1Toprovideguidancetobusinesspeople,theFederalTradeCommission(“FTC”)andtheU.S.DepartmentofJustice(“DOJ”)(collectively,“theAgencies”)previouslyissuedguidelinesaddressingseveralspecialcircumstancesinwhichantitrustissuesrelatedtocompetitorcollaborationsmayarise.2ButnoneoftheseGuidelinesrepresentsageneralstatementoftheAgencies’analyticalapproachtocompetitorcollaborations.Theincreasingvarietiesanduseofcompetitorcollaborationshaveyieldedrequestsforimprovedclarityregardingtheirtreatmentundertheantitrustlaws.ThenewAntitrustGuidelinesforCollaborationsamongCompetitors(“CompetitorCollaborationGuidelines”)areintendedtoexplainhowtheAgenciesanalyzecertainantitrustissuesraisedbycollaborationsamongcompetitors.Competitorcollaborationsandthemarketcircumstancesinwhichtheyoperatevarywidely.Nosetofguidelinescanprovidespecific3TheseGuidelinesneitherdescribehowtheAgencieslitigatecasesnorassignburdensofprooforproduction.4TheanalyticalframeworksetforthintheseGuidelinesisconsistentwiththeanalyticalframeworksintheHealthCareStatementsandtheIntellectualPropertyGuidelines,whichremainineffecttoaddressissuesintheirspecialcontexts.5TheseGuidelinestakeintoaccountneitherthepossibleeffectsofcompetitorcollaborationsinforeclosingorlimitingcompetitionbyrivalsnotparticipatinginacollaborationnorthepossibleanticompetitiveeffectsofstandardsettinginthecontextofcompetitorcollaborations.Nevertheless,theseeffectsmaybeofconcerntotheAgenciesandmaypromptenforcementactions.6Firmsalsomaybeinabuyersellerorotherrelationship,butthatdoesnoteliminatetheneedtoexaminethecompetitorrelationship,ifpresent.Afirmistreatedasapotentialcompetitorifthereisevidencethatentrybythatfirmisreasonablyprobableintheabsenceoftherelevantagreement,orthatcompetitivelysignificantdecisionsbyactualcompetitorsareconstrainedbyconcernsthatanticompetitiveconductlikelywouldinducethefirmtoenter.2answerstoeveryantitrustquestionthatmightarisefromacompetitorcollaboration.TheseGuidelinesdescribeananalyticalframeworktoassistbusinessesinassessingthelikelihoodofanantitrustchallengetoacollaborationwithoneormorecompetitors.Theyshouldenablebusinessestoevaluateproposedtransactionswithgreaterunderstandingofpossibleantitrustimplications,thusencouragingprocompetitivecollaborations,deterringcollaborationslikelytoharmcompetitionandconsumers,andfacilitatingtheAgencies’investigationsofcollaborations.SECTION1:PURPOSE,DEFINITIONS,ANDOVERVIEW1.1PurposeandDefinitionsTheseGuidelinesstatetheantitrustenforcementpolicyoftheAgencieswithrespecttocompetitorcollaborations.Bystatingtheirgeneralpolicy,theAgencieshopetoassistbusinessesinassessingwhethertheAgencieswillchallengeacompetitorcollaborationoranyoftheagreementsofwhichitiscomprised.3However,theseGuidelinescannotremovejudgmentanddiscretioninantitrustlawenforcement.TheAgenciesevaluateeachcaseinlightofitsownfactsandapplytheanalyticalframeworksetforthintheseGuidelinesreasonablyandflexibly.4A“competitorcollaboration”comprisesasetofoneormoreagreements,otherthanmergeragreements,betweenoramongcompetitorstoengageineconomicactivity,andtheeconomicactivityresultingtherefrom.5“Competitors”encompassesbothactualandpotentialcompetitors.6Competitorcollaborationsinvolveoneormorebusinessactivities,suchasresearchanddevelopment(“RD”),production,marketing,distribution,salesorpurchasing.Informationsharingandvarioustradeassociationactivitiesalsomaytakeplacethroughcompetitor7SeeNationalSoc’yofProf’l.Eng’rsv.UnitedStates,435U.S.679,692(1978).8SeeFTCv.SuperiorCourtTrialLawyersAss’n,493U.S.411,43236(1990).9SeeCaliforniaDentalAss’nv.FTC,119S.Ct.1604,161718(1999);FTCv.IndianaFed’nofDentists,476U.S.447,45961(1986);NationalCollegiateAthleticAss’nv.BoardofRegentsoftheUniv.ofOkla.,468U.S.85,10413(1984).3collaborations.TheseGuidelinesusetheterms“anticompetitiveharm,”“procompetitivebenefit,”and“overallcompetitiveeffect”inanalyzingthecompetitiveeffectsofagreementsamongcompetitors.Allofthesetermsincludeactualandlikelycompetitiveeffects.TheGuidelinesusetheterm“anticompetitiveharm”torefertoanagreement’sadversecompetitiveconsequences,withouttakingaccountofoffsettingprocompetitivebenefits.Conversely,theterm“procompetitivebenefit”referstoanagreement’sfavorablecompetitiveconsequences,withouttakingaccountofitsanticompetitiveharm.Theterms“overallcompetitiveeffect”or“competitiveeffect”areusedindiscussingthecombinationofanagreement’santicompetitiveharmandprocompetitivebenefit.1.2OverviewofAnalyticalFrameworkTwotypesofanalysisareusedbytheSupremeCourttodeterminethelawfulnessofanagreementamongcompetitors:perseandruleofreason.7Certaintypesofagreementsaresolikelytoharmcompetitionandtohavenosignificantprocompetitivebenefitthattheydonotwarrantthetimeandexpenserequiredforparticularizedinquiryintotheireffects.Onceidentified,suchagreementsarechallengedasperseunlawful.8Allotheragreementsareevaluatedundertheruleofreason,whichinvolvesafactualinquiryintoanagreement’soverallcompetitiveeffect.AstheSupremeCourthasexplained,ruleofreasonanalysisentailsaflexibleinquiryandvariesinfocusanddetaildependingonthenatureoftheagreementandmarketcircumstances.9ThisoverviewbrieflysetsforthquestionsandfactorsthattheAgenciesassessinanalyzinganagreementamongcompetitors.TherestoftheGuidelinesshouldbeconsultedforthedetaileddefinitionsanddiscussionthatunderliethisanalysis.AgreementsChallengedasPerSeIllegal.Agreementsofatypethatalwaysoralmostalwaystendstoraisepriceortoreduceoutputareperseillegal.TheAgencieschallengesuchagreements,onceidentified,asperseillegal.Typesofagreementsthathavebeenheldperseillegalincludeagreementsamongcompetitorstofixpricesoroutput,rigbids,orshareordividemarketsbyallocatingcustomers,suppliers,territories,orlinesofcommerce.Thecourtsconclusivelypresumesuchagreements,onceidentified,tobeillegal,withoutinquiringintotheirclaimedbusinesspurposes,anticompetitiveharms,procompetitivebenefits,oroverallcompetitiveeffects.TheDepartmentofJusticeprosecutesparticipantsinhardcorecartelagreementscriminally.4AgreementsAnalyzedundertheRuleofReason.Agreementsnotchallengedasperseillegalareanalyzedundertheruleofreasontodeterminetheiroverallcompetitiveeffect.Theseincludeagreementsofatypethatotherwisemightbeconsideredperseillegal,providedtheyarereasonablyrelatedto,andreasonablynecessarytoachieveprocompetitivebenefitsfrom,anefficiencyenhancingintegrationofeconomicactivity.Ruleofreasonanalysisfocusesonthestateofcompetitionwith,ascomparedtowithout,therelevantagreement.Thecentralquestioniswhethertherelevantagreementlikelyharmscompetitionbyincreasingtheabilityorincentiveprofitablytoraisepriceaboveorreduceoutput,quality,service,orinnovationbelowwhatlikelywouldprevailintheabsenceoftherelevantagreement.Ruleofreasonanalysisentailsaflexibleinquiryandvariesinfocusanddetaildependingonthenatureoftheagreementandmarketcircumstances.TheAgenciesfocusononlythosefactors,andundertakeonlythatfactualinquiry,necessarytomakeasounddeterminationoftheoverallcompetitiveeffectoftherelevantagreement.Ordinarily,however,noonefactorisdispositiveintheanalysis.TheAgencies’analysisbeginswithanexaminationofthenatureoftherelevantagreement.Aspartofthisexamination,theAgenciesaskaboutthebusinesspurposeoftheagreementandexaminewhethertheagreement,ifalreadyinoperation,hascausedanticompetitiveharm.Insomecases,thenatureoftheagreementandtheabsenceofmarketpowertogethermaydemonstratetheabsenceofanticompetitiveharm.Insuchcases,theAgenciesdonotchallengetheagreement.Alternatively,wherethelikelihoodofanticompetitiveharmisevidentfromthenatureoftheagreement,oranticompetitiveharmhasresultedfromanagreementalreadyinoperation,then,absentoverridingbenefitsthatcouldoffsettheanticompetitiveharm,theAgencieschallengesuchagreementswithoutadetailedmarketanalysis.Iftheinitialexaminationofthenatureoftheagreementindicatespossiblecompetitiveconcerns,buttheagreementisnotonethatwouldbechallengedwithoutadetailedmarketanalysis,theAgenciesanalyzetheagreementingreaterdepth.TheAgenciestypicallydefinerelevantmarketsandcalculatemarketsharesandconcentrationasaninitialstepinassessingwhethertheagreementmaycreateorincreasemarketpowerorfacilitateitsexercise.TheAgenciesexaminetheextenttowhichtheparticipantsandthecollaborationhavetheabilityandincentivetocompeteindependently.TheAgenciesalsoevaluateothermarketcircumstances,e.g.entry,thatmayfosterorpreventanticompetitiveharms.Iftheexaminationofthesefactorsindicatesnopotentialforanticompetitiveharm,theAgenciesendtheinvestigationwithoutconsideringprocompetitivebenefits.Ifinvestigationindicatesanticompetitiveharm,theAgenciesexaminewhethertherelevantagreementisreasonablynecessarytoachieveprocompetitivebenefitsthatlikelywouldoffsetanticompetitiveharms.1.3CompetitorCollaborationsDistinguishedfromMergers10Ingeneral,theAgenciesusetenyearsasatermindicatingsufficientpermanencetojustifytreatmentofacompetitorcollaborationasanalogoustoamerger.Thelengthofthistermmayvary,however,dependingonindustryspecificcircumstances,suchastechnologylifecycles.11Thisdefinition,however,doesnotdetermineobligationsarisingundertheHartScottRodinoAntitrustImprovementsActof1976,15U.S.C.18a.12ExamplesillustratingthisandotherpointssetforthintheseGuidelinesareincludedintheAppendix.5Thecompetitiveeffectsfromcompetitorcollaborationsmaydifferfromthoseofmergersduetoanumberoffactors.Mostmergerscompletelyendcompetitionbetweenthemergingpartiesintherelevantmarket(s).Bycontrast,mostcompetitorcollaborationspreservesomeformofcompetitionamongtheparticipants.Thisremainingcompetitionmayreducecompetitiveconcerns,butalsomayraisequestionsaboutwhetherparticipantshaveagreedtoanticompetitiverestraintsontheremainingcompetition.Mergersaredesignedtobepermanent,whilecompetitorcollaborationsaremoretypicallyoflimitedduration.Thus,participantsinacollaborationtypicallyremainpotentialcompetitors,eveniftheyarenotactualcompetitorsforcertainpurposes(e.g.,RD)duringthecollaboration.Thepotentialforfuturecompetitionbetweenparticipantsinacollaborationrequiresantitrustscrutinydifferentfromthatrequiredformergers.Nonetheless,insomecases,competitorcollaborationshavecompetitiveeffectsidenticaltothosethatwouldariseiftheparticipantsmergedinwholeorinpart.TheAgenciestreatacompetitorcollaborationasahorizontalmergerinarelevantmarketandanalyzethecollaborationpursuanttotheHorizontalMergerGuidelinesifappropriate,whichordinarilyiswhen:(a)theparticipantsarecompetitorsinthatrelevantmarket;(b)theformationofthecollaborationinvolvesanefficiencyenhancingintegrationofeconomicactivityintherelevantmarket;(c)theintegrationeliminatesallcompetitionamongtheparticipantsintherelevantmarket;and(d)thecollaborationdoesnotterminatewithinasufficientlylimitedperiod10byitsownspecificandexpressterms.11EffectsofthecollaborationoncompetitioninothermarketsareanalyzedasappropriateundertheseGuidelinesorotherapplicableprecedent.SeeExample1.12SECTION2:GENERALPRINCIPLESFOREVALUATINGAGREEMENTSAMONGCOMPETITORS2.1PotentialProcompetitiveBenefits6TheAgenciesrecognizethatconsumersmaybenefitfromcompetitorcollaborationsinavarietyofways.Forexample,acompetitorcollaborationmayenableparticipantstooffergoodsorservicesthatarecheaper,morevaluabletoconsumers,orbroughttomarketfasterthanwouldbepossibleabsentthecollaboration.Acollaborationmayallowitsparticipantstobetteruseexistingassets,ormayprovideincentivesforthemtomakeoutputenhancinginvestmentsthatwouldnotoccurabsentthecollaboration.Thepotentialefficienciesfromcompetitorcollaborationsmaybeachievedthroughavarietyofcontractualarrangementsincludingjointventures,tradeorprofessionalassociations,licensingarrangements,orstrategicalliances.Efficiencygainsfromcompetitorcollaborationsoftenstemfromcombinationsofdifferentcapabilitiesorresources.Forexample,oneparticipantmayhavespecialtechnicalexpertisethatusefullycomplementsanotherparticipant’smanufacturingprocess,allowingthelatterparticipanttoloweritsproductioncostorimprovethequalityofitsproduct.Inotherinstances,acollaborationmayfacilitatetheattainmentofscaleorscopeeconomiesbeyondthereachofanysingleparticipant.Forexample,twofirmsmaybeabletocombinetheirresearchormarketingactivitiestolowertheircostofbringingtheirproductstomarket,orreducethetimeneededtodevelopandbegincommercialsalesofnewproducts.Consumersmaybenefitfromthesecollaborationsastheparticipantsareabletolowerprices,improvequality,orbringnewproductstomarketfaster.2.2PotentialAnticompetitiveHarmsCompetitorcollaborationsmayharmcompetitionandconsumersbyincreasingtheabilityorincentiveprofitablytoraisepriceaboveorreduceoutput,quality,service,orinnovationbelowwhatlikelywouldprevailintheabsenceoftherelevantagreement.Sucheffectsmayarisethroughavarietyofmechanisms.Amongotherthings,agreementsmaylimitindependentdecisionmakingorcombinethecontroloforfinancialinterestsinproduction,keyassets,ordecisionsregardingprice,output,orothercompetitivelysensitivevariables,ormayotherwisereducetheparticipants’abilityorincentivetocompeteindependently.Competitorcollaborationsalsomayfacilitateexplicitortacitcollusionthroughfacilitatingpracticessuchastheexchangeordisclosureofcompetitivelysensitiveinformationorthroughincreasedmarketconcentration.Suchcollusionmayinvolvetherelevantmarketinwhichthecollaborationoperatesoranothermarketinwhichtheparticipantsinthecollaborationareactualorpotentialcompetitors.2.3AnalysisoftheOverallCollaborationandtheAgreementsofWhichItConsistsAcompetitorcollaborationcomprisesasetofoneormoreagreements,otherthanmergeragreements,betweenoramongcompetitorstoengageineconomicactivity,andtheeconomicactivityresultingtherefrom.Ingeneral,theAgenciesassessthecompetitiveeffectsoftheoverall13SeeContinentalTV,Inc.v.GTESylvaniaInc.,433U.S.36,50n.16(1977).14SeeSuperiorCourtTrialLawyersAss’n,493U.S.at43236.7collaborationandanyindividualagreementorsetofagreementswithinthecollaborationthatmayharmcompetition.ForpurposesoftheseGuidelines,thephrase“relevantagreement”referstowhicheverofthesethree–theoverallcollaboration,anindividualagreement,orasetofagreements–theevaluatingAgencyisassessing.Twoormoreagreementsareassessedtogetheriftheirprocompetitivebenefitsoranticompetitiveharmsaresointertwinedthattheycannotmeaningfullybeisolatedandattributedtoanyindividualagreement.SeeExample2.2.4CompetitiveEffectsAreAssessedasoftheTimeofPossibleHarmtoCompetitionThecompetitiveeffectsofarelevantagreementmaychangeovertime,dependingonchangesincircumstancessuchasinternalreorganization,adoptionofnewagreementsaspartofthecollaboration,additionordepartureofparticipants,newmarketconditions,orchangesinmarketshare.TheAgenciesassessthecompetitiveeffectsofarelevantagreementasofthetimeofpossibleharmtocompetition,whetheratformationofthecollaborationoratalatertime,asappropriate.SeeExample3.However,anassessmentafteracollaborationhasbeenformedissensitivetothereasonableexpectationsofparticipantswhosesignificantsunkcostinvestmentsinrelianceontherelevantagreementweremadebeforeitbecameanticompetitive.SECTION3:ANALYTICALFRAMEWORKFOREVALUATINGAGREEMENTSAMONGCOMPETITORS3.1IntroductionSection3setsforththeanalyticalframeworkthattheAgenciesusetoevaluatethecompetitiveeffectsofacompetitorcollaborationandtheagreementsofwhichitconsists.Certaintypesofagreementsaresolikelytobeharmfultocompetitionandtohavenosignificantbenefitsthattheydonotwarrantthetimeandexpenserequiredforparticularizedinquiryintotheireffects.13Onceidentified,suchagreementsarechallengedasperseillegal.14Agreementsnotchallengedasperseillegalareanalyzedundertheruleofreason.Ruleofreasonanalysisfocusesonthestateofcompetitionwith,ascomparedtowithout,therelevantagreement.Undertheruleofreason,thecentralquestioniswhethertherelevantagreementlikelyharmscompetitionbyincreasingtheabilityorincentiveprofitablytoraisepriceaboveorreduceoutput,quality,service,orinnovationbelowwhatlikelywouldprevailintheabsenceoftherelevantagreement.Giventhegreatvarietyofcompetitorcollaborations,ruleofreasonanalysisentailsaflexibleinquiryandvariesinfocusanddetaildependingonthenatureoftheagreementandmarketcircumstances.Ruleofreasonanalysisfocusesononlythosefactors,andundertakesonlythedegreeoffactualinquiry,necessarytoassessaccuratelytheoverallcompetitiveeffectofthe15SeeCaliforniaDentalAss’n,119S.Ct.at161718;IndianaFed’nofDentists,476U.S.at45961;NCAA,468U.S.at10413.16SeeBroadcastMusic,Inc.v.ColumbiaBroadcastingSys.,441U.S.1,1920(1979).17See,e.g.,Palmerv.BRGofGeorgia,Inc.,498U.S.46(1990)(marketallocation);UnitedStatesv.TrentonPotteriesCo.,273U.S.392(1927)(pricefixi