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The parent companies of a joint venture cannot make side agreements not to compete with the joint venture, even with the goal of making the joint venture more successful, a federal appeals court in Washington, D.C., ruled Friday, upholding a Federal Trade Commission decision. The long-awaited “Three Tenors” decision grew out of the most popular compact disc release in classical music, and the follow-up recordings and releases. At issue was a joint venture formed by record companies PolyGram Holding Inc., and Warner Communications Inc. to distribute a recording of a July 1998 performance of opera greats Jos� Carreras, Pl�cido Domingo and Luciano Pavarotti. The parent companies made a side agreement, the court explained, “to suspend, for 10 weeks, advertising and discounting of two earlier Three Tenors concert albums, one distributed by PolyGram and the other by Warner.” It was that side agreement that the FTC found to be illegal. The U.S. Court of Appeals for the D.C. Circuit upheld the commission, and the process by which it had decided the matter. Though the FTC did not treat the agreement as a “per se” violation of antitrust law — illegal in all circumstances — it treated it as suspect and conducted an abbreviated investigation rather than an in-depth, so-called “rule of reason” analysis that would have weighed all the possible justifications. The appellate opinion was written by Chief Judge Douglas A. Ginsburg, who once ran the Justice Department’s Antitrust Division. “At bottom, the Sherman Act requires the court to ascertain whether the challenged restraint hinders competition,” Ginsburg wrote. “The Commission’s framework, at least as the Commission applied it in this case, does just that.” Timothy Muris, who chaired the FTC when it brought the Three Tenors case, called the opinion “gratifying, especially because it was written by an antitrust expert.” Copyright �2005 TDD, LLC. All rights reserved.

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