Joint venture (JV) 

An Overview

Joint venture (JV) is a general commercial term that encompasses a range of collaborative activity between businesses, often competitors. JVs may  be formal or informal, short- or long-term, and may involve two or more co-venturers.

Full-Function or non-Full-Function

In competition law, JVs fall into two broad categories to which different rules apply:

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Full-Function  JVs

The formation of a genuine full-function JV, in any sector other than the telecommunications  sector, will not be subject to regulation in Hong Kong. After it has been established, however, the  JV and its parent companies will each be subject to the conduct rules.

Non-Full-Function JVs and Horizontal cooperation agreements

Horizontal cooperation agreements merit special treatment under competition law because, although  they have the potential to restrict competition, especially where the agreement involves setting  prices or the level of output, sharing markets, exchanging information and consolidating market power etc., they are more often than not pro-competitive by object and nature.

Unless a horizontal cooperation agreement contains seriously anti-competitive restrictions, such as  the Cardinal Sins1, it will likely be permissible under competition law as long as it is  appropriately and carefully managed.

Before entering into a horizontal cooperation agreement, parties should satisfy themselves of the  following:

  • The agreement is for a legitimate, pro-competitive purpose and generates economic efficiencies.
  • Arrangements are properly structured in a manner least restrictive of competition. 
  • Effective compliance safeguards are in place to prevent or minimise any harmful effect on competition that may arise from the implementation and  operation of the cooperation agreement.