JOINT OPERATING AGREEMENT
Any contract, agreement, JOINT VENTURE, or other arrangement entered into by two or more businesses in which the operations and the physical facilities of a failing business are merged, although each business retains its status as a separate entity in terms of profits and individual mission.
The purpose of a joint operating agreement
(JOA) is to protect a business from failure, yet
prevent monopolization within an industry by
allowing each party to retain some form of sep-
arate operation. JOAs are used in the newspaper,
HEALTH CARE, gas and oil, and other industries.
JOAs have been questioned as providing a
means of avoiding antitrust problems. With
International Shoe Co. v. FTC, 280 U.S. 291, 50
S. Ct. 89, 74 L. Ed. 431 (1930), the Supreme
Court created the “failing-company” defense, by
which mergers that would ordinarily violate
ANTITRUST LAWS are permitted where one of the
businesses faces certain failure if no other action
is taken. It was argued that a merger between
two competitors, one of which is failing, cannot
adversely affect competition because, either way,
the failing company will disappear as a compet-
itive entity.
In the newspaper business, JOAs are used so
that a failing newspaper can be paired with a
parent newspaper and still retain separate edito-
rial and reporting functions. In 1965 the JUS-
TICE DEPARTMENT questioned the legality of
JOAs by issuing charges of antitrust violations to
two publishers of daily newspapers operated
under a JOA in Tucson, Arizona. In Citizens
Publishing Co. v. United States, 394 U.S. 131, 89
S. Ct. 927, 22 L. Ed. 2d 148 (1969), even though
the newspapers used the failing-company
defense, the Supreme Court upheld findings of
antitrust violations. Its decision narrowed the
scope of the failing-company defense. The Court
set three strict conditions for claiming failing-
company IMMUNITY: (1) the failing company
must be about to liquidate, and the JOA must be
its last chance to survive; (2) the acquiring com-
pany must be the only available purchaser; and
(3) reorganization prospects in BANKRUPTCY
must be dim or nonexistent.
Congress responded to Citizens Publishing
by passing the Newspaper Preservation Act
(NPA) (15 U.S.C.A. § 1802 et seq.) in 1970. The
NPA lets newspapers form a JOA if they pass a
less strict test. Under the NPA the attorney gen-
eral may grant limited exemption from antitrust
laws by approving a JOA.
In the health care industry, hospitals may
form a JOA to provide a stronger financial
structure. The JOA, also known in this industry
as a virtual merger, allows the hospitals to retain
separate boards of directors but turns over
management to a separate company. The hospi-
tals coordinate services, construction needs,
and the purchase of major equipment, yet
maintain some of their own policies. Religious
hospitals gain the benefits of a hospital network
and still retain their religious affiliation. For
example, a Catholic hospital entering into a
JOA can maintain its stand against ABORTION
and continue its individual programs for treat-
ing people who are poor.
Two or more gas and oil operators can enter
into a JOA to share the risk and expense of gas
and oil exploration. One party is given responsi-
bility for day-to-day operations, often charging
back expenses to the other participants in the
JOA. The operator is able to keep costs down,
and the other participants still retain rights to
their share of the gas and oil, which they can use
at their own discretion. The parties are seldom
considered to be in a partnership unless the
agreement specifically states that they are.
In all JOAs the parties retain some aspect of
their original organization, whether it is edito-
rial voice, religious affiliation, mission state-
ment, or the ability to use the resources of the
business as they choose. All the parties share in
the financial risks of the joint operation and
gain the potential for an increased market pres-
