Partnership Law and the Single Entity Defense
40 Pages Posted: 29 Jan 2012 Last revised: 28 May 2013
Date Written: January 27, 2012
The Supreme Court has held that a single business entity (such as a parent and its wholly owned subsidiary) cannot conspire with each other to restrain trade in violation of the antitrust laws. But this single entity defense raises two closely related questions. First, can conspirators escape liability by the simple expedient of forming a corporation or other entity? Second, can competitors or potential competitors be held liable if they enter into a legitimate joint venture but fail to incorporate or form some other entity to conduct the venture? The latter question is particularly acute if the venture is challenged as a per se violation of the antitrust laws since the defendants cannot argue that such an arrangement is reasonable or even pro-competitive. The Supreme Court has recently addressed these issues in American Needle, Inc. v. National Football League, which involved an antitrust challenge to a corporation formed by the 32 NFL teams for purposes of marketing logowear. In holding that the arrangement could be challenged as a conspiracy (albeit under the rule of reason), the Court focused on whether the corporation is in fact an entity separate from the 32 teams that own it. In focusing exclusively on the ultimate issue of whether the entity is separate and independent from its owners, the Court effectively adopts a know-it-when-you-see-it approach that offers no real guidance for future cases, particularly those involving partnerships without formal written agreements. Although the Court denies that the issue is whether an arrangement 'seem[s] like one firm or multiple firms in any metaphysical sense,' I argue here that whether the arrangement is a firm is precisely the question. Moreover and more important, the answer depends on whether the parties to the arrangement have assumed a fiduciary duty to the firm. In short, it is not necessary or even helpful to ask whether the arrangement is truly separate and independent from its owners. Rather, one can distinguish a true firm from a conspiracy with relative ease by asking whether the participants in the arrangement would have assumed a fiduciary duty thereto if it had been organized as a partnership.
Keywords: antitrust, concerted action, co-owners for profit, incomplete contract, combination, command and control, conspiracy, corporation, dissolution, duty of loyalty, efficient breach, employee, fiduciary duty, independent center of decision-making, joint venture, make or buy, missing terms, partnership
JEL Classification: K21, K22
Suggested Citation: Suggested Citation