A Theory of Corporate Joint Ventures,
106 Calif. L. Rev. 1437
In a corporate joint venture, two corporations—often competitors—collaborate on a project. But how can corporations be partners and competitors at the same time? Though it sounds like a contradiction, such collaborations are commonplace. Many of the most familiar products come from corporate joint ventures, from high-technology like solid-state drives for laptops or rocket boosters for NASA’s Discovery program, to everyday items like Star Wars action figures and even Shredded Wheat cereal. Indeed, Meinhard v. Salmon, arguably the most celebrated case in all of business law, arose out of a dispute within a joint venture. Yet unlike more familiar business forms such as corporations or LLCs, neither case law nor statute provides a clear statement of what a joint venture is or even which laws apply. Given this confusion, it is not surprising that the literature has not produced a unified theory of the corporate joint venture: a coherent statement of both what it is as a matter of law and how it functions.
This Article offers a theory of the corporate joint venture. It traces the development of joint venture law and practice from its origins in 19th-century American case law to the present. The central claim is that at the heart of joint venture law and practice, there is a singular legal problem: the foundational fiduciary duty that applies to all business forms—the duty of loyalty—is inherently contradictory within the context of a joint venture. The contradiction arises because the law has effectively treated joint ventures as partnerships whose members happen to be corporations. This formulation is contradictory because partnership law requires each corporation to be loyal to the other, while corporate law requires each agent to be loyal only to her own corporation. Thus, joint venture law both requires and prohibits a division of loyalty.
The Article first shows how this inherent conflict was a latent motivation behind the path of early case law, as well as how case law subsequently obfuscated the conflict and left a legacy of confusion. It then uses economic theories of business organization and contract law to explain how the joint venture forms we observe today resolve this conflict through a hybrid corporate-contract form. Finally, it demonstrates empirically how the modern contractual solution has engendered a new set of fiduciary problems via networks of joint venture connections across corporations in an industry. The Article concludes by offering policy prescriptions to tackle these problems and clarify the law of joint ventures.