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Joint Venture Could be Anti-Competitve

Joint ventures could infringe the First Conduct Rule¹ (“FCR”) if they have the object or effect of harming competition. This could be the effect of an application of the Competition Ordinance (Cap. 619) ("CO") that has come into full operation on 14 December 2015.

Joint ventures cover a wide spectrum of cooperative arrangements between undertakings. They come within the ambit of FCR as agreements. If European jurisprudence on Article 101(1) of the Treaty on the Functioning of the European Union, which provisions are similar to our FCR, may serve as a guide, “agreement” is not required to be legally binding. It would be sufficient that there is concurrence of wills².

Joint ventures are often horizontal agreements but could be vertical agreements. A horizontal agreement is an agreement made by two or more actual or potential competitors each operating at the same level of the production or distribution chain³. A vertical agreement is an agreement between undertakings that operate, for the purpose of the agreement, at different level of the production or distribution chain⁴. Joint production, joint tendering, joint selling, distribution and marketing are some examples of joint venture agreements.

A simple way to ensure that a joint venture would not be concerned with FRC is to effect the joint venture by way of a Merger⁵. Merger in the present context means the creation of a joint venture to perform, on a lasting basis, all the functions of an autonomous economic entity⁶. Even though a joint venture may harm competition, it may still be excluded from FCR if it enhances overall economic efficiency⁷. Hence, in planning a joint venture, there is one more aspect that must be considered.