Guidance

Joint Venture Business Advice

Published 12 April 2018

Strong competition between rival businesses drives innovation, productivity and economic growth.

The CMA supports collaboration between businesses which delivers innovation and more choice for customers.

However, certain forms of collaboration can break competition law and the consequences of getting caught breaking the law are serious. They include:

• Fines for a business of up to 10% of worldwide turnover
• Company directors can be disqualified from managing a company for up to 15 years;
• In the most serious cases, individuals who engage in cartel activity may be investigated for committing a criminal offence, prosecuted and sentenced for up to five years in prison
• Reputational damage can be significant and long lasting.

Recently the CMA fined two businesses £1.7 million for breaching competition law by market sharing (for example, agreeing not to compete in each other’s territory) under the umbrella of a joint venture. Don’t make similar mistakes – be clear on the legal line when you collaborate.

Below is a checklist of dos and don’ts to consider when entering into, setting up and managing joint ventures, alliances or other forms of collaboration.

Dos:

• Define the true purpose of the collaboration. Be precise about what it aims to achieve.
• Be clear, specific, and honest about your pro-competitive goals and the limits of your collaboration.
  • For example, in terms of the products, services and the geography covered as well as how long collaboration will last
• Be clear on how your proposed innovation will directly benefit your customers.
  • For example, if you are collaborating together in Brazil, you are unlikely to need a clause restricting you both from competing in Spain and Portugal. See the European Commission’s Portugal Telecom decision (PDF, 648KB) (and the subsequent Judgment of the General Court).
• Be clear that the proposed innovation could not be achieved by the collaborating businesses acting alone.
  • If it could, there may be issues – as the general starting point in competition law is that competitors should act independently of each other.
• Check whether the collaboration would reduce or get rid of existing competition between the collaborating businesses.
  • The greater any reduction in competition, the higher the legal risk (and the greater the need for legal advice).
• Make sure that any reduction in competition brought about by the collaboration is no more than is absolutely necessary to achieve its goals.
  • Ask yourself - could you achieve these goals in a way that involves a lesser reduction in competition between the collaborating parties?
• Regularly check your joint venture arrangements to ensure they are compliant with the law.
  • Keep an eye on any changes to your arrangements, the marketplace and the law – be particularly alert to changes in circumstances at key moments for a business (for example, a merger).
  • Think about setting up a competition law compliance programme. For more information see our guidance on how to run a compliance programme

Dont’s:

• Think that collaborative arrangements which try to mask what is otherwise price fixing, market sharing, output restriction or bid-rigging will escape detection and fines.
• Think that using an intellectual property licence as a framework for collaboration (or simply calling it a joint venture) will protect you from scrutiny.
  • Any sales restrictions agreed between competitors are likely to be seen as a market sharing arrangement and could attract significant fines.
• Share sensitive information that relates to business matters not covered by your joint venture.
  • For example, any discussions about pricing should only be those that are necessary for the collaboration, and limited to the specific scope of the relevant venture.

For more information on what anti-competitive behaviour looks like and what to do if you suspect it – see the ‘Cheating or Competing?’ website.

If you think that you or your business may have been involved in an anti-competitive agreement, you can notify the CMA, or contact us on 0203 738 6000. You may even benefit from lenient treatment by being the first to come forward to the CMA.

Always seek independent legal advice.