Competition, Cooperation and Collusion under the New Competitor Collaboration Guidelines

Date: Aug 03, 2000

On April 7, 2000, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice issued their "Antitrust Guidelines for Collaboration Among Competitors." In a press release, the agencies described their work as "the first set of guidelines issued jointly by both federal antitrust agencies that address a broad range of horizontal agreements among competitors, including joint ventures, strategic alliances, and other competitor collaborations."2 The guidelines are intended to provide "an analytical framework" to assist businesses in assessing the likelihood of an antitrust challenge to collaborations among competitors. While the guidelines are intended to present a general statement of antitrust enforcement policy, they are not intended as a comprehensive set of answers to every competitor collaboration question.

Genesis and Context

The guidelines were issued in draft form in October 1999. From the outset, the guidelines were intended to present the agencies' views of the case law as applied by the government in analyzing the legitimacy of a wide variety of competitor collaborations.3

It may be helpful to place the Competitor Collaboration Guidelines in their overall context, particularly in relation to other guidelines to which the Competitor Collaboration Guidelines refer. They are (1) Statements of Enforcement Policy in Health Care, (2) Antitrust Guidelines for the Licensing of Intellectual Property, and (3) the 1992 Horizontal Merger Guidelines. In addition, there are non-horizontal merger guidelines, which were originally a part of the 1984 Merger Guidelines.

The new Competitor Collaboration Guidelines stem from an effort to rework an old set of guidelines on joint ventures initially issued in the 1980s. In their effort to do so, the antitrust enforcers realized that the variety of ventures had become so expansive that a traditional joint venture analysis would not provide adequate assistance.


There are several explicit limitations in the scope of the guidelines which warrant mention. The guidelines do not address "possible anti-competitive effects of standard-setting in the context of competitor collaborations."6Nor do the guidelines replace or supplant the earlier guidelines applicable to horizontal mergers, intellectual property, and health care situations.

A competitor collaboration will be treated as a merger if the term of the collaboration is indefinite or more than 10 years in duration and the integration eliminates all competition among the collaboration participants in the relevant market.7 Finally, the guidelines do not "take into account the possible effects of competitor collaborations in foreclosing or limiting competition by rivals not participating in a collaboration." This last qualification is not further elaborated. But, if we ask how inability to participate in a collaboration would foreclose or limit competition, one would tend to think of essential business facility situations represented such as by multi-list realty services cases.

Twenty Steps to Collaboration Analysis

Because the final version of the Guidelines differs in only minor respects from the draft, there are a number of helpful background materials available. Given all of these narrative discussions and analyses, it might be helpful to present a sequential flow chart or check list for analysis. 8

At the outset, we note that rather than undertaking a single line of analysis, the guidelines indicate that the agencies will first review a collaboration to determine whether agreements should be challenged as illegal per se and, if they pass that threshold level, a rule of reason analysis is applied. From the agencies' perspectives, the initial per se review may simply be a resource efficiency tool to obviate the need for any extended market or impact analysis when none is needed for initial decision-making.

Phase One: Per Se Analysis

    • Does the agreement contain per se elements? Does the agreement fix price, fix output, or allocate customers, suppliers, territories, or lines of business?

    • Is there efficiency enhancing integration, such as: production (expanded output); marketing (enhanced service or reduced distribution costs); joint purchasing (cost reduction for collaboration input (raw materials)); or research and development (R&D) (innovation efficiencies)?

    • Are these efficiency enhancements more than simple coordination?

      • Is the agreement simply an attempt to avoid competition? Cost savings without integration are per se illegal.

    • Are less restrictive alternatives available?

      • Restrictions are not reasonably "necessary" if less restrictive alternatives exist.9

      • A limited factual inquiry to evaluate merits of claim.

      • If not per se illegal, proceed to Phase Two analysis.

Phase Two: Rule of Reason Analysis

    • Define relevant markets.

    • Identify market participants and calculate market shares and concentration to assess market power.10

    • What is the business purpose of the agreement?

      • Is the business purpose pro-competitive?

      • What rationale is explicitly stated by the participants?

      • What is the "subjective intent" of the participants?

      • If the agreement is in effect, has it caused anti-competitive harm?

    • Does the agreement inappropriately limit independent decision making or combine control or financial interests?

      • Production collaborations. Does the collaboration control assets necessary for the participants to compete independently or that undermine incentives to compete independently? Does the agreement set the level of production, product price, or otherwise unnecessarily limit post-production competition?11

      • Marketing collaborations. Does the agreement restrict competitively significant variables, such as price production levels or competitive advertising?

      • Buying collaborations. Does the collaboration have monopsony power to purchase at sub-competitive prices? Does the buying collaboration facilitate collusion through standardizing costs and ability to monitor participants' production through knowledge of raw material (input) purchases?

      • Research and Development collaborations. Does the R&D agreement inappropriately limit independent decision-making or a participant's ability to conduct independent R&D?

    • Does the relevant agreement facilitate collusion?

    • Does the information-sharing aspect of the collaboration "increase the likelihood" of collusion on price, output or other competitively sensitive variables?

    • Is information shared on individual participant's current operations or future business plans?

    • What are the competitive effects in all of the relevant product and geographic markets?

      • The fundamental question compares the state of competition with and without the agreement in all relevant markets.12

      • What goods and services are affected by the collaboration?

    • What technology markets, consisting of the intellectual property that is licensed and its close substitutes, will be affected?

    • R&D and Innovation. Will agreements harm innovation or have innovation market power through control of specialized assets or industry resources?

    • Looking beyond the formal terms of the agreement, what are the competitive benefits and harms of the relevant agreement?

      • Exclusivity: can the participants continue to compete independently outside the collaboration? Is such independent competition likely?

      • Control over assets: does each participant retain independent control of assets necessary to compete?

      • What is the size and nature of each participant's financial interest in the collaboration? Will this financial interest adversely affect any participant's independent business operations and judgments?

      • How is the collaboration organized and governed? Can the collaboration act as an independent decision-maker?

      • Is information sharing likely to produce anti-competitive results?

      • What is the term of the collaboration? Within the market context, is the term short enough so that participants are likely to compete against each other and the collaboration?

      • Is the duration so long that the collaboration should be analyzed as if it were a merger?
    • Ease of entry: what are the barriers to market entry? What is the timeliness, likelihood and sufficiency of committed entry by potential competitors?

    • In buying collaborations, is it likely that the exercise of monopsony power be deterred or counteracted by the entry of new purchasers?

    • What are the pro-competitive benefits of the collaboration?

    • What are the efficiency-enhancing integrations in production, marketing, purchasing, R&D or other business activities?

      • Are the efficiencies "cognizable," meaning that the efficiencies do not arise from anti-competitive reductions in output or service and cannot be achieved through practical, significantly less restrictive means?

      • Can the cognizable efficiencies be verified and validated as potentially pro-competitive?

    • What is the overall competitive effect?

Antitrust Safety Zones

The guidelines conclude with two safety zones C one for competitor collaborations in general and one for R&D collaborations. The safety zone discussion does not apply to any agreements that would be considered per se illegal, challenged without a detailed market analysis, or treated like a merger.

For competitor collaborations in general, "absent extraordinary circumstances," the agencies do not intend to challenge the collaboration when the collective market shares of the collaboration and its participants account for no more than 20% of each relevant market. For example, if a joint venture controlled 3% of the market and each of the three participants controlled 6% of the same market, the combined market share would be 21% [3% + (3 x 6%)] and the collaboration would fall outside the safety zone. The guidelines stress, however, that competitor collaborations are not anti-competitive merely because they fall outside the safety zones. But, the agencies deemed it helpful to define a range in which questions typically would not arise.

The safety zone for research and development collaborations are not based on market shares. Rather, when three or more independently controlled research efforts exist in addition to the collaboration being reviewed, the agencies would not challenge the R&D collaboration absent extraordinary circumstances.

The guidelines explicitly state that the safety zones in the health care, intellectual property, and horizontal merger guidelines are controlling in each of those circumstances. For example, the health care statement has a safety zone of 35% of the relevant market as opposed to the 20% safety zone in the Competitor Collaboration Guidelines.

An Alternative Approach

If this 20-step modern dance seems daunting, you may wish to begin by applying a simpler three-step approach, articulated by Joel Klein in a 1996 presentation.13In this presentation, Mr. Klein indicated that the Antitrust Division employs a three-step analysis when reviewing any horizontal agreement that would directly limit competition on price or production that would have occurred but for the agreement. This three-step approach is as follows:

    • Does the agreement involve a recognized per se violation such as an unadorned agreement to fix prices, curtail output or divide markets?

    • If it is not per se illegal, is there a pro-competitive justification for the agreement?

    • Do the likely anti-competitive effects outweigh its pro-competitive benefits?

In his presentation, Mr. Klein presented this as an alternative to the dualistic per se and rule of reason approaches. Mr. Klein stated:

We reject the notion that there should only be two methods of analysis C per se or full-blown market analysis. As a matter of both sound and efficient antitrust analysis, we think this dichotomy is too stark and, frankly, that it leads to far too much of a front-end emphasis on which approach to apply, a choice that can sometimes be outcome-determinative. More to the point, adhering to such a dichotomy runs the risk of submerging thoughtful analysis in a battle over the selection of the proper mode of inquiry; and, consequently, either matters that are too complex for per se condemnation sometimes get shoehorned into that category, or some facially anti-competitive practices that have no demonstrable virtue escape condemnation because of insufficient evidence to satisfy the demanding requirements of the full-blown market analysis.

My suspicion is that the antitrust enforcement agencies are likely to use the three-step analysis at the outset to determine whether a more substantial analysis is warranted. That may involve either confirming that a per se concern is present, or that the rule of reason analysis at a level of detail or sophistication warranted by the particular collaboration is necessary to vigilantly protect market competition.


The guidelines are helpful in listing the factors that lawyers, economists, and other specialists may use in assessing the potential for governmental review and involvement. But the new competitor collaboration guidelines do not provide guidance to the business community because they require the application of judgment based on prevailing antitrust and competition law. From that perspective, Mr. Klein's 1996 3-step may be more useful than the 20 steps in the year 2000.

The collaboration guidelines discuss only horizontal restraints. Particularly in light of new Internet relationships, it is surprising that in the guidelines have little if any discussion of vertical restraints, other than the very general references to considering effects in all related markets. Even a more explicit recognition of the need to consider vertical effects would have been helpful.

The agencies have indicated that the competitor collaboration guidelines are intended to be evolving documents as more experience is gained. Perhaps as more experience is gained, more specificity can be incorporated. Indeed, given the general nature of the collaboration guidelines and its relationship with the other guidelines, it might be helpful to combine them all into a single, evolving document.

This paper was prepared in April 2000 for presentation at the 36th Annual Symposium on Associations and Antitrust, presented by the Trade Association and Association Law Committee of the Bar Association of the District of Columbia on May 17, 2000. 

1. 1. This paper was prepared in April 2000 for presentation at the 36th Annual Symposium on Associations and Antitrust, presented by the Trade Association and Association Law Committee of the Bar Association of the District of Columbia on May 17, 2000.

2. Federal Trade Commission press release, "FTC and DOJ Issue Antitrust Guidelines for Collaborations Among Competitors" (April 7, 2000).  (back)

3. Susan S. DeSanti, Director, Policy Planning, Federal Trade Commission, "Guideposts in the Analysis: The Federal Trade Commission and U.S. Department of Justice, Antitrust Division, Competitor Collaboration Guidelines"4, remarks before the Houston Bar Association, at. 3 (Dec. 7, 1999).5  (back)

4. US DOJ and FTC: Statements of Enforcement Policy and Analytical Principles Relation to Health Care and Antitrust (Sept. 27, 1994), Antitrust Guidelines for the Licensing of Intellectual Property (April 6, 1995), and the 1992 Horizontal Merger Guidelines. Section 4 of the 1992 Horizontal Merger Guidelines which relates to efficiencies, was revised in 1997. All of the Guidelines can be found on the US DOJ and FTC website: www.usdoj.gov/atr/ and www.ftc.gov  (back)

5. The non-horizontal merger guidelines can be found at http://www.usdoj.gov/atr/public/guidelines/2614.htm.   (back)

6. Collaboration Guidelines at footnote 5. (back)

7. Section 1.3 of the Guidelines. The other prerequisites for merger treatment are that the participants are competitors in the relevant market and that the formation of the collaboration involves "an efficiency-enhancing integration of economic activity in the relevant market." The latter criterion may seem unnecessary but was likely included to signal that any integration that is not efficiency-enhancing is likely a form of impermissible collusion and would be assessed by the agencies on non-merger criteria.  (back)

8. Among these are the course materials by the American Bar Association Section of Antitrust Law, "Joint Ventures and Strategic Alliances: The New Federal Antitrust Competitor Collaboration Guidelines" (Nov. 11 and 12, 1999)(ABA Publication No. PC#5030337). This compilation includes both government and private practice commentary. See also, Susan DeSanti, n. 3, supra, and FTC Chairman Robert Pitofsky's "Joint Venture Guidelines: Views from One of the Drafters," (Nov. 1999)(available on the FTC website: www.ftc.gov).  (back)

9. Compare Arizona v. Maricopa County Medical Society, 457 U.S. 332, 352-53, 356-57 (1982) with Broadcast Music, Inc. v. Columbia Broadcasting System, 441 U.S. 1, 20-21 (1979).  (back)

10. The guidelines define market power of a seller as the ability to profitably maintain prices above competitive levels for a significant period of time. A buyer has market power if it has the ability to profitably depress the price paid for a product below the competitive level for a significant period of time.  (back)

11. Joint ventures that will generate new products, services or production facilities are likely acceptable. See Broadcast Music, Inc. v. CBS, 441 U.S. 1 (1979), and in re General Motors Corporation, 103 F.T.C. 374 (April 11, 1984) (FTC clears a joint venture between General Motors and Toyota to manufacture vehicle types not then being manufactured in the United States).  (back)

12. An agreement among collaboration participants not to compete in markets outside the market in which the venture operates will likely be deemed illegal. See, e.g., Timkin Roller Bearing Co., v. United States, 341 U.S. 593, 597-98 (1951).   (back)

13. Joel I. Klein, Assistant Attorney General, Antitrust Division, U.S. Department of Justice, "A Stepwise Approach to Antitrust Review of Horizontal Agreements," an address before the American Bar Association Antitrust Section (Nov. 7, 1996).  (back)