FTC Closes Investigation of Covisint B2B

(September 15, 2000.) The FTC sent letters to the founders of the Covisint automotive B2B, stating that it has closed its investigation of whether Covisint violates Section 7 of the Clayton Act, and that its has terminated the Hart-Scott-Rodino waiting period.

The Federal Trade Commissioner, which has concurrent antitrust enforcement authority in the U.S. with the the Department of Justice, sent letters to the participants in the proposed automotive venture named Covisint: GM, Ford, DaimlerChrysler, Renault, Nissan, CommerceOne, and Oracle.

Covisint is an electronic business to business (B2B) marketplace, which intends to allow manufacturers and suppliers in the auto industry to communicate regarding design, supply chain management, and procurement with an Internet based technology. The FTC's action is the first by a U.S. antitrust enforcement agency regarding an electronic B2B. The European Union has already acted in a proceeding concerning Myaircraft.com.

The FTC sent a letter to lawyers for GM, Ford and DaimlerChrysler that stated,

"The Commission has conducted an investigation to determine whether the formation of Covisint violates Section 7 of the Clayton Act. Upon further review of this matter, it now appears that no further action is warranted by the Commission at this time. Accordingly, the investigation has been closed."

The FTC also sent almost identical letters to the lawyers for Renault, Nissan, CommerceOne and Oracle.

However, the FTC has only completed its first look at Covisint. The B2B could be implemented in a way that the FTC could determine to be in violation of antitrust law. The FTC's letter went on to state that,

"This action is not to be construed as a determination that a violation may not have occurred, just as the pendency of an investigation should not be construed as a determination that a violation has occurred. Because Covisint is in the early stages of its development and has not yet adopted bylaws, operating rules, or terms for participant access, because it is not yet operational, and in particular because it represents such a large share of the automobile market, we cannot say that implementation of the Covisint venture will not cause competitive concerns."

	FTC Chairman Robert Pitofsky

The Chairman of the FTC, Robert Pitofsky, stated in an FTC press release that "B2B electronic marketplaces offer great promise as means through which significant cost savings can be achieved, business processes can be more efficiently organized, and competition may be enhanced. B2Bs have a great potential to benefit both businesses and consumers through increased productivity and lower prices."

Pitofsky added that "as is the case with any joint venture, whether in the traditional or new economy, B2Bs should be organized and implemented in ways that maintain competition. The antitrust analysis of an individual B2B will be specific to its mission, its structure, its particular market circumstances, procedures and rules for organization and operation, and actual operations and market performance."

Covisint also issued a release. "The completion of the FTC review represents a significant milestone in our efforts to establish a transformational business-to-business entity," said Alice Miles, of the Covisint Executive Planning Team. "The parties forming Covisint have always intended to operate in full compliance with the antitrust laws."

While electronic B2Bs, have the potential to increase efficiency, like any joint ventures, they also offer many opportunities for running afoul of antitrust regulators, such as colluding on prices, exclusionary practices, directors gaining access to competitively sensitive information of rivals, and harmful network effects.