A Theory of Corporate Joint Ventures

Abstract

How can corporations be competitors and partners at the same time? This is the dilemma of the corporate joint venture. I argue that the key legal challenge facing corporate co-venturers is to construct a coherent set of fiduciary duties among the corporate partners. This paper makes three contributions.First, the paper shows that the default fiduciary duties of corporate joint ventures conflict. This fact --- that the law itself creates a conflict --- has not been previously recognized by the literature. The paper then presents a theory of how corporations respond to this fiduciary conflict: Corporations (1) alter the default loyalty duties through a covenant not to compete (CNC) and then (2) avoid conflicts by operating the venture through a separate entity. This theory thus offers a new role for both CNCs and entities.Second, this contractual response is actually quite fragile because states vary considerably to the extent they (1) are willing to enforce covenants not to compete and (2) permit partners to alter their fiduciary duties. The paper offers a policy recommendation in light of these enforcement problems: an internal affairs doctrine for corporate joint ventures.Finally, the paper details the existence of joint venture networks. These networks further compound fiduciary conflicts and require us to update both competition policy and the theory of the firm.