Miran Legal

Attorney

10.01.2023

Joint Ventures

The concept of joint venture refers to a gathering of two or more undertakings for a specific economic purpose. Joint ventures may have a separate legal entity, or they may be established without having a legal entity. The concept of joint venture has a fairly broad economic meaning and purpose. Therefore, it is a concept that has been defined a lot in the doctrine. However, in the context of Competition Law, a joint venture deals with the economic relationship between its background and its effects on the competitive environment in the market, whether it is legally a legal entity or not. Therefore, the Competition Law, focusing on economic causes of a joint venture, does not take interest in whether the joint venture is a legal entity or not. The Law only accepts it as a subject of review within the framework of existing competititon in the market and its effects on relevant third parties.

 

A. Elements of a Joint Venture

1. Joint Control Power

            In order for there to be a joint control of its founders over the joint venture, it is generally required that at least two partners jointly take strategic decisions related to the joint venture and together have veto power over these decisions. These strategic decisions are issues such as the appointment of senior managers and annual budget control. Acceptance of the existence of joint control is also possible when the concept of joint possession of veto power does not exist. This situation can be recognized as arising from a common agreement and can be provided de facto as well.

 

            The Competition Board has accepted in a decision that only one of the founding partners being able to veto the decisions is an indication that there is no common control. Therefore, if an enterprise has a 51% share, there will be no joint control power. In the same way, in cases where there are ten founding undertakings, two undertakings having 51% share will automatically be considered as a rule as the existence of a joint control power.

 

2. Economic Purpose

            Joint ventures can occur for many purposes. Whether directly or indirectly, the ultimate reason for a joint ventures establishment is economic purposes. Therefore, a joint venture, no matter what purpose it is established for; will ultimately focus on making a profit.


3. Independence

            For the purpose for which the joint venture was established, it is necessary to have an entity independent of its founding partners. Economically, the joint venture must operate independently. In addition, the joint venture must have its own staff and the necessary facilities.

 

            In a decision about the element of independence, The Competition Board states that; given that a parent company and a 50% owned (by the parent company) joint venture which operates in the same market does not have a subsidiary company relationship, these companies will be viewed as independent undertakings in the context of Competition Law, thus, if they sign an agreement, it could be accepted as a competition-limiting agreement within the scope of LPC Article 4.

 

            The Competition Board examines whether a joint venture provides the element of independence or not within the framework of certain criteria. The joint venture must have separate accounting, personnel, management body, financial resources from the founders and have its own commercial policy. Therefore, taking into account these criteria sought by the Competition Board; research and development (R&D) established within an undertaking, as well as joint ventures limited only to production or joint ventures making only distribution activities will not be considered independent.

 

B. Legal Nature

            It is possible for a joint venture to be created as a commercial company. But it is also possible to establish it without attributing any legal entity at all.

 

            A joint venture consists of two separate stages. The first stage includes the basic joint venture agreement between the parties on the establishment of a joint venture. This agreement includes issues such as the obligations of the parties and the principles related to the activities of the joint venture. In doctrine, a joint venture agreement is considered a framework contract. The purpose of the framework contract is to determine the basic rules of legal relations that will be established between the parties and are expected to reoccur. At the second stage, the fulfillment of the provisions contained in the established agreement will be set forth. However, if a trading company is not established in the contract; the joint venture created is considered an ordinary company, and in the event of disputes arising, the provisions of the legislation in accordance with the legal outcome of the contract will be applied. However, if there are other contracts that must be concluded within the framework of the framework agreement; The rules of the Law of Contracts of the Turkish Commercial Code will be fully applied to these contracts. In doctrine, such contracts are called satellite contracts. The invalidities existing in these contracts or the difficulties arising from their execution do not affect the framework contract. In order to solve the problems that will arise in relation to satellite contracts, a solution should be taken based on the principles adopted in the framework agreement, the provisions of the Turkish Code of Obligations (TCO) and the wording of the framework agreement.

 

C. The Joint Venture Agreement Limiting the Competition

            Joint venture agreements may not always have a competition-limiting effect. However, when a joint venture is made for the purpose of limiting competition between undertakings, it will be considered a Competition-Limiting Agreement in accordance with Article 4 of LPC. According to Article 4; “Such concerted actions and associations of undertakings, which are intended to prevent, disrupt or restrict competition directly or indirectly in a particular market of goods or services, or which have or may have this effect, are unlawful and prohibited.” However, in the presence of the exemption conditions contained in Article 5, joint ventures that limit competition will be able to benefit from the exemption. An exemption will be raised in cases such as consumer benefit, competition not completely disappearing, and a state of necessity.

 

            A joint venture may also have been created to create a dominant position in the market or to strengthen the current dominant position. Since the situation that will arise in this case will have the same consequences as mergers and acquisitions; It will be evaluated within the scope of Articles 7, 10 and 11 of LPC.

 

D. Accepting a Joint Venture as a Competition-Limiting Agreement in Accordance with Article 4 of the LPC

            Agreements limiting competition are prohibited as a rule under Article 4 of the LPC. In order for a joint venture to be considered a competition-limiting agreement, firstly, the existence of a joint venture is required. Therefore, it must provide elements of joint venture. These elements are the elements of joint control power, economic purpose and independence. In addition, a joint venture must have a detrimental effect on competition to the extent that it affects competition between partners or other undertakings on the market.

 

            If the joint venture is controlled by only one partner or does not have an independent entity, this will be considered a merger. In cases where the elements are not provided, the existence of a joint venture cannot be mentioned. In the case of a joint venture, restrictions on competition between partners are usually more common in practice. In this regard, there is a joint venture in the form of an agreement limiting competition, especially in the following cases:

 

1. The Joint Venture Being in the Same Market with Parent Companies                   

            A joint venture and an undertaking that is a founder of the joint venture operating in the same goods and services market will lead to a conflict of interest. For this reason, the fact that the joint venture and the undertakings that make up the joint venture are not located in the same market is also important for the protection of the competition existing in the market. It is stated in a decision of the Competition Board that; a joint venture that will be established in the hypermarket market by two hypermarkets is allowed on the condition that one of the parties withdraws from the market.

2. Prohibition of Competition

            The Competition Board has decided that it is a reasonable side limitation to impose a decommissioning ban that will be in place for the duration of the existence of the joint venture between the undertakings that make up the joint venture. Therefore, if they compete with each other, the relevant joint venture will be a competition-limiting agreement.

3. The Parent Company's Withdrawal from the Market

            If the parent company is withdrawn from the market in which the joint venture operates, the Competition Board examines the possibility of a concentration towards the joint venture. The withdrawal of the parent company from the market in which it produces goods or services may be in order to dominate the joint venture. Therefore, the Competition Board will investigate whether the parent company's withdrawal from the market is for the purpose of limiting competition.

4. Vertical Relation with Parent Companies

            It is accepted by the Competition Board that competition is likely to be limited if there is an exchange between a joint venture and one of the main companies forming a joint venture. Therefore, if the existence of such a vertical relationship is determined, the joint venture will be considered as a competition-limiting agreement and will be prohibited under Article 4 of the LPC.

 

CONCLUSION

Although the concept of joint venture is not explicitly regulated in the Law on Protection of Competition; it can be considered as a competition-limiting agreement and prohibited within the framework of Article 4. Joint venture is established for economic purposes such as; two or more undertakings being successful in the competitive environment, enlarging the market place, making more profit and increasing the income in a short time. A joint venture may have its own legal entity, or it may be established without a legal entity as well. In this article, the concept and elements of a joint venture has been described.