In order to regulate joint ventures, the EU has put in place a two-tiered legal framework consisting of separate rules so that each joint venture can be evaluated accordingly based on its characteristics and economic impact. Joint ventures can be evaluated based on either Article 101 of the Treaty on the Functioning of the EU or the European Union Merger Regulations. The two types of legal tests available under these two frameworks differ significantly and lead to distinct enforcement agencies being responsible for enforcing compliance and different consequences if found to violate either of these laws.
Broadly speaking, a joint venture is a business collaboration involving two or more businesses who have agreed to create a new business entity or combine resources for a defined purpose while continuing to exist separately. Within EU Law, the emphasis is not on the legal structure (or “form”) of the joint venture, but rather on the competitive impact of the joint venture’s composition of businesses operating as one. Joint ventures can therefore be classified into two broad categories: (i) Full-Function Joint Ventures or (ii) Non-Full Function Joint Ventures, the primary difference between them being that a Full-Function Joint Venture provides through time the same functions as an independent business. I.e., a Full-Function Joint Venture operates with its own resources, management and market access and is capable of independent operation from its parent companies.
Joint Ventures under Article 101 TFEU
Applicability. An agreement between undertakings (companies) which has the object or effect of restricting, preventing, restricting or distorting competition within a market in the (European Union) will be prohibited under Article 101(1) TFEU. Joint ventures which are not full-functioning joint ventures will generally be assessed under this provision. Often, joint ventures may involve co-operation between competing companies, for example in relation to pricing, production or market splitting. Where a joint venture is only a vehicle to facilitate collusion, Article 101(1) will apply to the agreement. However, it is important to note that not all joint ventures are anti-competitive by their nature. There are many ways in which co-operative agreements can result in benefits to consumers in the form of joint efficiencies.
Ancillary Restraints and Efficient Justifications. The European Commission often considers whether a party’s restrictions are ‘ancillary’ to the objectives of the project, and if they are associated with the purpose of the joint venture, whether there are grounds for viewing the restriction as being ancillary to the project for which the joint venture was created. Where a joint venture has competition-limiting effects, Article 101(3) may still exempt that joint venture from restriction under Article 101(1) TFEU, where the joint venture contributes to the improvement of the production or distribution of a product, promotes technological or economic advances, provides to the purchasers of that product an equitable share of the benefit derived from the joint venture, and does not eliminate a significant part of the competition in a particular market. Full-Function Joint Ventures under EU Merger Control
- The EU Merger Regulation (Regulation (EC) No 139/2004) regulates concentrations that take place within the European Union, which includes the establishing of full-function joint companies.
- Article 3(4) of the EU Merger Regulation specifies that the establishment of a joint venture that carries out fully all activities of an independent business unit on a long-term basis is considered to be a concentration.
- The reason why such joint ventures are classified as concentrations is that they create a significant change in the competitive landscape, similar to what a merger or acquisition would do. Based on this, the European Commission reviews the joint venture before it is established, to decide whether it will negatively impact competition within the European Union’s internal market.
- The European Commission uses functional criteria to judge whether a joint venture has the full-function capability. Criteria include whether the joint venture acts independently from its parent companies, is able to access adequate necessary resources and, can operate in the market on a long-term basis.
- Once a joint venture is identified as having full-function capabilities it can only be covered by merger laws, although due to the parent companies’ coordination, Article 101 TFEU may apply to any coordination that surpasses the needs of the parent companies to create and operate the joint venture.
Relations between Competition Law and Merger Control
In the EU, one of the complexities of regulating joint ventures is how Article 101 TFEU and EUMR interact. Although Article 101 and EUMR are theoretically separate and distinct, they are not completely unrelated. The Court of Justice of the European Union (CJEU) stated in Austria Asphalt that only a full-function joint venture is considered a concentration under EUMR. Article 101 applies to all other forms of joint ventures. By determining the threshold for what constitutes a full-function joint venture, the CJEU created legal certainty, which eliminates the possibility of overlap between Article 101 and EUMR. On the flip side, if two parent companies utilize their new joint venture as a vehicle for collusion on their remaining operations, the co-ordination effects of their joint venture may be assessed under Article 101.
Judicial Precedents
EU courts have greatly influenced the development of the jurisprudence regarding joint ventures in Europe. In Göttrup-Klim, the CJEU ruled that cooperative arrangements (including joint ventures) may create efficiency gains for firms and can therefore create efficiencies that are justifiable even when the arrangement limits competition to some extent. By analyzing the European Commission’s case against Anic Partecipazioni, the CJEU highlighted the importance of considering the economic context in which agreements between firms take place. Collectively, these two cases illustrate the EU’s approach of finding a balance between legitimate co-operation and anti-competitive conduct. Under merger control, cases such as Kali und Salz highlight the Commission’s concern with market dominance resulting from structural changes brought about by joint ventures. The jurisprudence reflects a consistent effort to safeguard effective competition while allowing beneficial forms of economic cooperation.
Policy Considerations and Recent Developments
- The EU’s approach to joint ventures reflects broader policy objectives, including market integration, innovation, and consumer welfare. JVs in technology, energy, and sustainability-related sectors have gained prominence.
- The Commission has shown increasing sensitivity to the need for cooperation in achieving environmental and digital goals, while remaining cautious of potential competition risks.
- The introduction of updated Horizontal Cooperation Guidelines has further clarified the assessment of joint ventures, particularly in relation to sustainability agreements. These developments suggest a more flexible and effects-based approach, though legal certainty remains a key concern for businesses.
- Joint ventures involving data or digital ecosystems raise different issues access to data, interoperability, and network effects. Competition authorities are examining whether such ventures could entrench market power by combining datasets or excluding rivals.
- Cross-border joint ventures that impact EU markets continue to challenge the reach of the EUMR and Articles 101/102, particularly when non-EU entities and digital platforms are involved.
Joint ventures occupy a complex position within EU competition and merger control law. The regulatory framework seeks to strike a balance between preventing anti-competitive conduct and encouraging legitimate economic cooperation. The distinction between full-function and non-full-function joint ventures plays a central role in determining whether Article 101 TFEU or the EU Merger Regulation applies. While the existing legal framework is relatively well-developed, the evolving nature of markets and policy priorities continues to challenge regulators. For law students and practitioners alike, understanding the nuanced treatment of joint ventures is essential for appreciating the broader objectives of EU competition law.
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Assistant Director, Legallands
Global Trade & Investment Expert
Nicke Tuli is an Assistant Director at Legallands, specializing in international business setup, global trade laws, and cross-border investments. With extensive expertise in Comprehensive Economic Partnership Agreements (CEPA) and foreign dispute resolution, she provides strategic guidance to Indian investors expanding into international markets, particularly in the UAE and GCC region.
Her recent works include analytical pieces on:
Dispute Resolution and Recovery Mechanisms for Indian Investors in the UAE
Economic Impact of Relaxed Export Rules on Indian E-Commerce and MSMEs
Nicke is passionate about simplifying global business frameworks and helping Indian entrepreneurs navigate international legal ecosystems with confidence.
