Article by Allan W. Vestal
American business has discovered the joint venture. Especially in certain high-tech industries and sectors of the economy with a strong international potential, the joint venture is being touted as the answer to problems ranging from the need to minimize risk in high technology projects, to difficulties in capital formation, to excessive government regulation, to a need to bring new techniques into aging American industries, to a lack of competitiveness in international markets. As one writer put it, some American companies have “gone consortia-crazy.”
Well-publicized examples of recent high-tech joint ventures include the government-backed joint venture to protect the American semiconductor industry (Sematech), the partnership between HEM and Du Pont to develop the AIDS drug Ampligen, and the “independent partnership” of Delta Air Lines and American Airlines to consolidate their proprietary reservation systems. But it is not just the largest businesses that enter into joint ventures; small- and medium-sized high-tech businesses also participate. In the computer industry, for example, small- and medium-sized companies “are beginning to use strategic partnering agreements as a foundation of their strategic activities” because of the extraordinarily high cost of research and development and the difficulty in creating distribution channels into profitable international markets.
In the rapidly developing marketplace, the legal dimension of the joint venture phenomenon in some instances has been subordinated to the business dimension. For instance, the subordination of legal analysis has resulted in the imprecise use of terms among the business people and some of the lawyers involved. The terms “joint venture” and “partnership,” for example, are used to characterize both corporate and noncorporate entities. The consultants and public relations people have added new terms, such as “strategic partnership” and “independent partnership,” which have no intrinsic legal significance. The more creative investment banker community, meanwhile, has adopted, and misused, the Japanese term “zaibatsu.”
The imprecision in terminology, perhaps not critical standing alone, reflects the relatively underdeveloped state of some aspects of the legal analysis relevant to the new wave of high-tech joint ventures. Both the government and business people involved in joint ventures have addressed some of the legal problems, most notably the external antitrust aspects. But beyond the antitrust statutes, the participants in some cases appear to act as if they are free to establish the terms and conditions of the joint venture by contract, unconstrained by either statute or common law.
The first section of this Article illustrates some of the disclosure problems commonly encountered in high-tech joint ventures. The second and third sections of this Article examine the disclosure provisions of existing statutory law and common law relevant to the joint venture participants' disclosure obligations among themselves. Emphasis is placed on disclosure issues of special concern to high-tech joint ventures. The Article also notes those statutory and common-law provisions that are not subject to alteration by agreement of the parties and those which should be of particular concern to high-tech joint venturers.
The fourth section briefly addresses and rejects a proposed synthesis of the existing statutory and common-law disclosure requirements. This synthesis would significantly expand the disclosure obligations of the participants and would pose a substantial burden on high-tech joint venturers.
The fifth section of this Article traces the development of the proposed revision of the Uniform Partnership Act and outlines the revisions that would affect the high-tech joint venturers' disclosure obligations among themselves. Drawing on this discussion, the final section of the Article offers an alternative proposal for modification of the draft revisions of the Uniform Partnership Act, which, if adopted, would make the revised Act more responsive to the needs of high-tech joint ventures.
About the Author
Allan W. Vestal. Assistant Professor, Washington and Lee University School of Law. B.A.1976, Yale University; J.D.1979, Yale University.
Citation
65 Tul. L. Rev. 705 (1991)