When Does a Joint Venture Act as a Single Economic Entity?

Gregory Werden, Jan 07, 2011

The “Sherman Act contains a ‘basic distinction between concerted and independent action.'”  The concerted action of several competing firms could be unlawful under Section 1 of the Act, perhaps even unlawful per se, when the same action, if independently taken by a single firm, undoubtedly would be lawful under Section 2 of the Act. Hence, a joint venture and its participants defending a Section 1 claim are apt to assert the absence of the plurality of actors required for a contract, combination, or conspiracy under Section 1. Rather, they could argue, the challenged action was taken by a single economic entity–the venture itself, and its participants acted, if at all, in their roles as the venture’s directors.

In 1982 the Supreme Court invited joint ventures to make the single-entity argument by observing in Maricopa County that a “joint arrangement[] in which persons who would otherwise be competitors pool their capital and share risks of loss as well as the opportunities for profit” is “regarded as a single firm competing with the other sellers in the market.”  Later that year, Justice Rehnquist encouraged the NFL to make the argument by opining that the NFL teams “compete with one another for home game attendance and local broadcasting revenues. In all other respects the league competes as a unit against other forms of entertainment.”

After 1982, the NFL often made the single-entity argument unsuccessfully.  In American Needle, however, the NFL relied on the argument in obtaining summary judgment against a plaintiff asserting that an exclusive license for all the teams’ logos and trademarks was the product of a horizontal agreement among the teams.  The district court’s grant of summary judgment was affirmed by the court of appeals,  and the Supreme Court will soon decide whether the lower courts were right.