This is a six-part series on the antitrust analysis of joint ventures, which will cover why and how antitrust law applies to joint ventures and how to properly structure them to avoid antitrust liability.
Joint Venture Series
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Antitrust Analysis of Joint Ventures: An Introduction
Joint ventures (“JVs”) can require navigation of a potential minefield of antitrust issues, which we’ll explore in a series of six blog posts beginning with this introductory post. Not all of the law in this area is entirely settled, and there remain ongoing debates about some aspects of the antitrust treatment of JVs. Indeed, arriving at a coherent and unified view of JV law is like putting together a jigsaw puzzle with missing and damaged pieces.
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Antitrust Analysis of Joint Ventures: Structural Considerations
In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In this installment, we will unpack some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. In particular, we will first try to separate the analyses of, on the one hand, JV formation, and on the other, JV operation and structure. Then we will consider whether a JV (i) constitutes a “naked” agreement between or among competitors which is per se unlawful, (ii) presents no significant antitrust issue because there is only a single, integrated entity performing the JV functions, or (iii) involves restraints within the scope of a legitimate collaboration that are virtually per se lawful.
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Antitrust Analysis of Joint Ventures: Ancillary Restraints
In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether or not a JV is a legitimate collaboration. This third post in the series discusses ancillary restraints—what they are and how they are analyzed. (more…)
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Antitrust Analysis of Joint Ventures: How Big Is Too Big?
In the first post in this series, we introduced the concept of joint ventures (“JVs”), outlined why antitrust law applies to their formation and operation, identified the major antitrust issues raised by JVs, and discussed why you should care about these issues. In the second installment, we unpacked some of the major antitrust issues surrounding the threshold question of whether a JV is a legitimate collaboration. The third post in the series discussed ancillary restraints–what they are and how they are analyzed. (more…)
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Not Subject to Per Se Analysis – Sixth Circuit on Plausibly Procompetitive Activity in Connection with a Joint Venture
In The Medical Center at Elizabeth Place, LLC v. Atrium Health System, Case No. 17-3863 (6th Cir. Apr. 25, 2019), the Sixth Circuit held that activity in connection with a joint venture that is plausibly procompetitive is not subject to per se analysis or condemnation. In doing so, it aligned itself with the Second, Seventh, Eighth and Ninth Circuits, and against the minority approach taken by the Eleventh Circuit.
The Medical Center at Elizabeth Place (MCEP) was a physician-owned, for-profit hospital in Dayton, Ohio. It failed as a physician-owned enterprise and was sold to Kettering Health Network. MCEP alleged that it failed because of the anticompetitive efforts of Premier Health (Premier), a dominant healthcare network in the Dayton area comprising four hospitals. In an earlier opinion, 817 F.3d 934 (6th Cir. 2016), the Court held that Premier comprised multiple competing entities and, therefore, could engage in concerted action.
On remand, the plaintiffs pursued only a per se claim and eschewed a Rule of Reason claim. The trial court granted the defendants’ motion for summary judgment, finding that the defendants’ behavior had plausible procompetitive effects and so was not subject to per se analysis.
The Sixth Circuit affirmed. “[A]t the summary judgment phase,” the court held, “the right question to ask regarding per se claims is whether the plaintiff has shown that the challenged restraint is so obviously anticompetitive that it should be condemned as per se illegal. If, in spite of the plaintiff’s efforts, the record indicates that the challenged restraint is plausibly procompetitive, then summary judgment for the defendants is appropriate.” Slip. Op. at 10.
Under Texaco Inc. v. Dagher, 547 U.S. 1 (2006), there are three types of joint venture restraints: (1) those core to the venture’s efficiency-enhancing purpose (such as setting prices for venture products); (2) those ancillary to the venture’s efficiency-enhancing purpose; and (3) restraints nakedly unrelated to the purpose of the venture. Only the last of these three justifies per se treatment. See id. at 7-8; see also Medical Center at Elizabeth Place, Slip. Op. at 11.
The Sixth Circuit held that, in the case of ancillary restraints, defendants need not show that the restraints are necessary to the venture’s efficiency-enhancing purposes. Instead, there only need be a plausible procompetitive rationale for the restraint. See id. at 12-13. “We follow the majority of Circuits and hold that a joint venture’s restraint is ancillary and therefore inappropriate for per se categorization when, viewed at the time it was adopted, the restraint ‘may contribute to the success of a cooperative venture.’” Id. at 14 (cit. omit.).
The Court also rejected MCEP’s argument that the defendants had the burden of proving that a challenged restraint is procompetitive and therefore ancillary. For a per se claim, whether challenged conduct belongs in the per se category is a question of law. See id. at 15.
The Court then reviewed the two kinds of conduct challenged by MCEP. First were “panel limitations,” wherein the hospital defendants stipulated to payers that if they added MCEP to their networks, the hospital defendants would be able to renegotiate prices. The Sixth Circuit held that these restraints supported procompetitive justifications (helping to ensure patient volume and reduced customer premiums). See id. at 16-17.
Second, MCEP challenged a letter by physicians affiliated with the defendants purportedly threatening a loss of patient referrals to doctors who invested in MCEP as well as terminations of leases of MCEP-affiliated doctors and non-compete agreements. But the letter, the Court held, was not a restraint itself but merely an expression of opinion, while the lease terminations arguably prevented free-riding by the doctors and the non-competes were subject to Rule of Reason review.
MCEP also alleged a conspiracy among payers and a conspiracy among physicians not to deal with it. But the Court held that these conspiracy allegations were new and untimely and therefore not properly before the district court.
The Sixth Circuit’s decision further clarifies the limited applicability of the per se rule in the context of joint ventures, and aligns the Sixth Circuit with the majority approach of the other circuits that have considered the issue. However, the Sixth Circuit’s first decision in the case, reported at 817 F.3d 934 (6th Cir. 2016) – where the Court found that the defendant hospitals could conspire with each other despite the existence of a well-crafted joint operating agreement and based on “intent” evidence – remains somewhat opaque and counsels in favor of careful review of joint venture structure and monitoring of joint venture operations.