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June 17, 1990
"Little Change from Fiddling with Antitrust"
San Jose Mercury News
By Timothy Taylor
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ECONOMIC competition can be the enemy of innovation and increased productivity. That is the premise behind the National Cooperative Production Amendments of 1990, which were approved by the House of Representatives two weeks ago.

This idea may seem out of step with the times. After all, one could probably wallpaper the USSR with recent articles pointing out how the Soviets need to learn that market competition stimulates new inventions and products.

But when competition is intense, firms may have reason to shy away from investment in some new technologies. After all, if they invest heavily and fail to make a discovery, their competitors may eat them up. If they succeed, their competitors may be able to copy the innovation without the need to invest their own money, and the original innovator might still end up behind.

A joint venture can reduce these risks of competition. In addition, firms may be able to pool their different skills to attempt projects that no individual firm would be able to try on its own.

Thus, the issue is striking a balance between cooperation and competition. Back in 1984, these concerns led to the passage of the National Cooperative Research Act. The act specified that cooperative research efforts should not automatically be held illegal under antitrust law, but instead will be judged on a case-by-case basis for their effect on competition.

In addition, the NCRA allows companies to register their joint-research efforts with the federal government. If a registered venture is later found to have violated antitrust laws, it will be subject only to paying actual damages. Companies that violate antitrust laws and are not covered by this exemption can be required to pay treble damages.

The National Cooperative Production Amendments simply extend the legal standards and registration procedure of the NCRA to cover joint production ventures, as well as joint research.

Politically speaking, the cooperative production amendments are big-time. The Bush administration has put a high priority on pushing this sort of antitrust reform. Silicon Valley's own Norman Mineta, D-San Jose, called the amendments "a large step toward helping United States high-tech industries resume their leadership."

Although the bill had bipartisan support in the House, a battle may be brewing in the Senate, where some senators apparently feel that cooperative production may tip the balance too far away from competition. The Judiciary Subcommittee on Antitrust, Monopolies and Business Rights is scheduled to hold hearings on the bill in July.

But the cooperative production amendments are generating much more action in Washington then they are likely to in the business world. You see, production joint ventures are already legal and fairly common; all the recent bill does is to codify into law the standard already being applied by the courts.

In fact, more than 150 joint production ventures have been announced in the last three years, even without the registration procedure.

It is tempting to wish, along with Mineta and many others, that the cooperative production amendments will be "a large step" toward triggering a surge of American productivity growth. After all, tinkering a bit with antitrust laws is so much easier than trying to train more scientists and engineers, increase the rate of saving and investment, raise research and development spending, or persuade American management and investors to take a long-term perspective.

America's competitive problems go far, far deeper than companies misperceiving the legal boundaries between cooperation and an antitrust violation, but that's really the only problem the National Cooperative Production Amendments addresses.

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