For years, the Japan Fair Trade Commission (JFTC) has been keen to properly apply the Antimonopoly Act (AMA) to e-commerce and digital businesses. In 2017, it amended its Guidelines Concerning Distribution Systems and Business Practices (the Distribution Guidelines) to modernise their overall structure and to apply them to e-commerce more easily. It has also investigated digital platform operators for anticompetitive behaviour. The commitment procedure, which was introduced at the end of December 2018, supports the JFTC in aggressively intervening in anticompetitive behaviour in the digital economy. The JFTC has also reviewed mergers involving digital and e-commerce companies carefully, often employing economic analysis.
The JFTC is also active in gathering information and studying further measures to enforce the AMA in the digital economy more effectively. It maintains a special task force to deal with IT-related matters within its investigation bureau. It conducted sector inquiries on e-commerce and digital platform operators. It held a study group and released a report on ‘Data and Competition Policy’ in June 2017, which discusses and analyses whether and how to apply the AMA to various competition issues concerning data. In November 2018, the JFTC released, jointly with other ministries, an interim study group report on ‘Trade Environment concerning Digital Platform Operators,’ which discusses possible issues concerning digital platforms and effective ways to keep markets involving digital platform operators in good condition. In May 2019, the JFTC, jointly with other ministries, also released two reports titled ‘Options for Ideal Approaches to Rulemaking for Securing Transparency and Fairness in Trading Environments’ and ‘Options for Ideal Approaches to Data Transfer and Disclosure’. These reports indicate some policy options that the Japanese government may take to ensure the transparency and fairness of the trade environment with respect to digital platform operators. Further, in December 2019, the JFTC released the ‘Guidelines Concerning Abuse of a Superior Bargaining Position under the Antimonopoly Act on the Transactions between Digital Platform Operators and Consumers that Provide Personal Information, etc.’ together with the amended ‘Guidelines and Policies regarding Merger Review’.
On 3 June 2020, the Act to Improve the Transparency and Fairness of Specified Digital Platforms’ was promulgated. Though the Act neither contains specific conduct regulations applied to digital platform operators nor is enforced solely by the JFTC as part of competition law in Japan, it will have a significant effect on the business practices of certain digital platform operators active in the Japanese market as it requires them to comply with some rules including disclosure of information such as terms and conditions of their transaction with counter parties (such as merchants operating online stores on the digital platforms) and submission of periodical reports on their business overview.
This chapter covers these recent developments in the regulations, enforcements and policies.
Recent developments in guidelines and procedures
Amendments of the Distribution Guidelines
An amendment of the Distribution Guidelines under the AMA that came into effect on 16 June 2016 is the first substantial change since its enactment in 1991. The amendment covers a wide range of topics, but the three main features are as follows: clarification of review processes for suspected conduct; outlining the JFTC’s policy regarding its attitude to online transactions; and increasing the number of references to administrative precedents and prior consultations that are relevant to vertical restraints. With respect to the clarification of review processes for suspected conduct, the amendment was accomplished in the light of similar guidelines in other jurisdictions; for instance, the European Commission’s Guidelines on Vertical Restraints. At the same time, the amended Distribution Guidelines categorise various vertical restraints by the scope of their anticompetitive effects. With respect to online transactions, the amended Distribution Guidelines emphasise the pro-competitiveness of online transactions based on the recognition that they generally broaden geographic and client-reach compared to real-site transactions and provide efficiencies both with suppliers and consumers.
The amended Distribution Guidelines demonstrate the JFTC’s position that online transactions should be reviewed under the same fundamental principles as real-site transactions. In the guidelines, the JFTC explains that a platform’s actions towards users of the platform are also to be reviewed under the same fundamental principles as real-site transactions. As for the details of the analysis of vertical restraints by platform businesses, the amended Distribution Guidelines point out that competition status among platform businesses and network effects should be taken into account in addition to relevant factors, which the JFTC considers in the course of its review of traditional businesses (e.g., inter-brand competition, intra-brand competition, relevant players’ market shares, competitive effects on counterparties, and the number and market position of counterparties).
In the amended Distribution Guidelines, the JFTC inserted an example of passive sales in the context of geographic restrictions. Like the European Commission’s Guidelines on Vertical Restraints, the amended guidelines state that a passive sale is created when a customer gets to know a product on a website of a distributor and places an order with the distributor; or when a customer who has chosen to continuously receive information such as mail magazines from a distributor places an order with the distributor based upon the information, and the order leads to a sale. When a manufacturer imposes strict geographic restrictions on its distributors and prohibits them from entering transactions with a customer outside the distributor’s territory, the manufacturer’s conduct is prohibited under the AMA as an unfair trade practice (Paragraph 12 of the Unfair Trade Practices, Article 2, Paragraph 9 of the AMA).
Release of the Guidelines and Policies regarding Merger Review
On 17 December 2019, the JFTC announced amendments to its ‘Guidelines on the Application of the Antimonopoly Act Concerning the Review of Business Combinations’ (the Business Combination Guidelines, published on 31 May 2004;) and ‘Policies Concerning Procedures for the Review of Business Combinations’ (the Business Combination Procedures Policies, published on 14 June 2011). The amendments are being made in accordance with the entire policy of the Japanese government as shown in the ‘Action Plan for Growth Strategy (21 June 2019 Cabinet Decision)’ and address various new issues relevant to merger reviews in the digital market. At the same time, amendments to the Business Combination Guidelines provide detailed explanations about the JFTC’s merger review policies on vertical and conglomerate business combinations. Furthermore, amendments to the Business Combination Procedures Policies revealed the JFTC’s policy to review non-reportable transactions that meet certain thresholds focusing mainly on size of transaction and to encourage the parties to voluntarily consult with the JFTC. This can be understood as the introduction of something close to a size-of-transaction test for non-reportable transactions.
Release of the Guidelines Concerning Abuse of a Superior Bargaining Position in Transactions between Digital Platform Operators and Consumers that Provide Personal Information, etc.
On 17 December 2019, the JFTC introduced the Guidelines Concerning Abuse of a Superior Bargaining Position in Transactions between Digital Platform Operators and Consumers that Provide Personal Information, etc. (Guidelines). The Guidelines were made in accordance with a proposal made under the ‘Fundamental Principles for Rule Making to Address the Rise of Platform Businesses Formulated’ (published on 18 December 2018). The proposal stated that ‘the application of rules on abuse of a superior bargaining position with respect to relationships with consumers who provide data related to themselves as a consideration for the services will be considered’. The Guidelines note the JFTC’s general view that a digital platform operator has a superior bargaining position over consumers who provide personal information when the consumers, even though suffering detrimental treatment from the digital platform operator, are compelled to accept this treatment in order to use the services provided by the digital platform operator.
The Guidelines also show various types of abuses of a superior bargaining position including the following; (a) a digital platform operator causes consumers to provide personal information without stating the purposes of use, such as on its webpage or by other means; (b) a digital platform operator acquires or uses personal information contrary to consumers’ intentions beyond the scope necessary to achieve the purpose of use, for example, by providing consumers’ personal information to third parties without their consent; (c) a digital platform operator acquires and uses consumers’ personal information without taking precautions necessary and appropriate to ensure the safe management of personal information; and (d) a digital platform operator causes consumers who continuously use its services to provide economic interests, such as unnecessary personal information, in addition to the compensation provided in exchange for the use of services.
Recent enforcement actions
Amazon: parity clauses imposed by a platform company
On 8 August 2016, the JFTC conducted a dawn raid on Amazon Japan GK (Amazon Japan). The JFTC suspected that Amazon Japan’s conduct, which included imposing certain parity clauses on sellers regarding its online sales platform (Amazon Marketplace), could be evaluated as restrictive trading prohibited by Paragraph 12 of the Designation of Unfair Trade Practices and a violation of the AMA. The JFTC was concerned that such parity clauses may exert the following negative effects on competition: restricting sellers’ business activities by limiting price reduction and the range of goods that they sell via other sales channels; distorting competition among online shopping platforms by allowing a platform to impose parity clauses to achieve the lowest price sold on its platform without making any competitive effort; reducing online shopping platforms’ incentives for innovation; and hindering new entrants.
On 1 June 2017, the JFTC announced that it had terminated its investigation on the grounds that voluntary measures proposed by Amazon Japan could be sufficient to eliminate its concerns. It announced on 15 August 2017 that it had received a report from Amazon Services International, Inc (ASII), a company that engages in the e-books delivery business on the Amazon.co.jp website. The report mentioned that ASII would take voluntary measures on the parity clauses contained in the agreements with publishers or distributors of e-books delivered from the website. According to the JFTC’s announcement, it recognised that the voluntary measures proposed by ASII would basically eliminate the JFTC’s concerns regarding the e-books delivery business on the Amazon.co.jp website.
Airbnb: exclusive dealing
In the autumn of 2017, the JFTC conducted a dawn raid on Airbnb Japan (a Japanese subsidiary of Airbnb, Inc) on suspicion that its business, involving its parent, Airbnb Ireland UC, may violate the AMA by requiring exclusivity from its counterparties. Under the AMA, one party cannot trade with a counterparty on the condition that the counterparty does not trade with the party’s competitor, if that restriction tends to reduce trading opportunities for the party’s competitors (Paragraph 11 of the Designation of Unfair Trade Practices, Article 2, Paragraph 9 of the AMA). In this case, although the Airbnb spokesman announced that this was not the case, the JFTC was reportedly concerned that Airbnb asks its property management agencies not to list properties on rival home-sharing platforms by, among other means, forcing them to accept an agreement that contains a clause that the property management agencies may not use rival sites.
On 10 October 2018, the JFTC announced that it had terminated its investigation of Airbnb Japan and Airbnb Ireland UC based on the recognition that voluntary measures proposed by them could be evaluated as being sufficient to eliminate the JFTC’s concerns.
Minna no Pet online: exclusive dealing
On 27 February 2018, the JFTC conducted a dawn raid on Minna no Pet Online (Minna no Pet) on suspicion that its business may violate the AMA by requiring exclusivity from its counterparties. As mentioned above, one party cannot trade with a counterparty on the condition that the counterparty does not trade with the party’s competitor, if that restriction tends to reduce trading opportunities for the party’s competitors. In this case, Minna no Pet operates two websites to facilitate transactions with respect to dogs and cats between breeders and consumers. It is an influential enterprise operating a pet website, and the JFTC suspected that it was restricting breeders registering with Minna no Pet’s site from posting information about dogs and cats on other pet websites.
On 23 May 2018, the JFTC announced that it had terminated its investigation of Minna no Pet and that voluntary measures were sufficient to eliminate the JFTC’s concerns.
Online travel platform operators: anticompetitive behaviour
On 10 April 2019, the JFTC conducted dawn raids on certain large online travel platform operators, including Rakuten, Booking.com and Expedia. Although there was no official announcement by the JFTC regarding the dawn raids, news media explains that the JFTC’s concern is that the businesses may be violating the AMA by adopting anticompetitive behaviour, including the imposition of certain parity clauses on hotels and other accommodation providers. If the JFTC’s concerns are proved, the online travel platform operators’ conduct could be evaluated as restrictive trading, which is prohibited by Paragraph 12 of the Designation of Unfair Trade Practices and a violation of the AMA.
On 25 October 2019, the JFTC announced that it approved the commitment plan submitted by Rakuten regarding the suspected violation of Rakuten on the use of parity clause in its platform. According to the JFTC’s announcement, the contracts between Rakuten and accommodation operators that place information on accommodations on the website named ‘Rakuten Travel’ that Rakuten operates, contain conditions which require the operators to make the prices and number of rooms which they place on the website equal to or better than those placed through other distribution channels. In response to the JFTC’s scrutiny, Rakuten submitted a package of commitments. The major items included in the commitments are; (a) ceasing the activities which the JFTC suspected as violating the AMA; (b) passing a board of directors’ resolution approving the cessation of the suspected activities; (c) commitment not to conduct activities similar to the suspected activities for the next three years and (d) preparation of guidelines for compliance with the AMA and introduction of a regular training system in relation to the suspected activities. As of the end of January 2020, travel booking platform operators other than Rakuten have continued to discuss concerns expressed by the JFTC regarding their business.
Amazon: abuse of superior bargaining position
On 10 September 2020, the JFTC announced that it approved the commitment plan submitted by Amazon Japan regarding the suspected violation of Amazon Japan on the abuse of superior bargaining position. According to the JFTC’s announcement, Amazon Japan unreasonably decreased price of goods which Amazon has to pay for its suppliers, made the suppliers provide unreasonable monetary contributions, unreasonably made returns of goods to suppliers. In response to the JFTC’s scrutiny, Amazon Japan submitted a package of commitments. The major commitments were to (a) cease the activities the JFTC suspected violated the AMA; (b) make monetary compensation to the suppliers; (c) take the necessary measures to comply with the commitments at the decision making body of Amazon Japan; (d) notify the suppliers and its employees of this decision; and (e) commit not to conduct activities similar to the suspected activities for the next three years. According to the JFTC’s announcement, the amount of the monetary compensation that Amazon Japan must in addition to the commitments is approximately ¥2 billion for approximately 1,400 suppliers.
Merger review cases
Yahoo! Japan/eBOOK Initiative Japan
In the 2016 financial year, the JFTC reviewed the acquisition by Yahoo! Japan (a subsidiary of SoftBank Japan (SBJ)) of a minority interest in eBOOK Initiative Japan (EIJ). Both the SBJ group and the EIJ group operate businesses relevant to e-books. Although the case itself was not so challenging because the market shares in the relevant market were below the safe harbour thresholds, the case was important because the JFTC indicated its view on the market definition of the e-book business. The JFTC analysed the substitutability between regular books and e-books, and reached the conclusion that such substitutability is limited at least under current conditions.
Media Do/Digital Publishing Initiatives Japan
In the 2016 financial year, the JFTC reviewed Media Do’s (MD) acquisition of a majority of the shares of Digital Publishing Initiatives Japan (DPIJ). Both the MD group and the DPIJ group operate businesses relevant to e-books. In this case, the JFTC defined a two-sided relevant market in the e-book sector. The JFTC made a thorough analysis of the distribution system of e-books and defined the relevant market as ‘e-book brokerage’. Although the consolidated market shares of MD and DPIJ in e-book brokerage was approximately 60 per cent, the JFTC gave non-conditional clearance to the acquisition. Among other relevant factors, the JFTC placed importance on: competition from other e-book brokers; actual and potential new entrants; and direct transactions between e-book publishers and e-book retailers.
In the 2015 financial year, the JFTC reviewed the acquisition by Yahoo! Japan of all the shares of Ikyu Corporation (Ikyu). Yahoo! Japan operates a business relevant to internet advertising, while Ikyu operates businesses relevant to online reservations for travel and restaurants. Although the case itself was not so challenging because the market shares of most of the relevant markets were below safe harbour thresholds, the case is important because the JFTC revealed its views on two-sided markets. The JFTC stated that a two-sided market is a market that has different multiple users; a platform that provides brokerage functions among different multiple users; and indirect network effects. Based on this analysis, the JFTC defined the following as the relevant markets in this case: online travel reservation services; online restaurant reservation services; metasearch services for online travel reservations; and metasearch services for online restaurant reservations.
On 4 August 2020, the JFTC announced that it had approved a business combination plan between Z Holdings Corporation (a parent company of Yahoo (Z Holdings)) and LINE Corporation (LINE). Both parties had agreed to enter into a definitive agreement together with their respective companies on 23 December 2019. Since both parties are major platform operators in Japan (Z holdings operates various business including e-commerce platform, free news distribution service and digital advertisement service; and LINE operates various businesses including most popular messaging apps, free news distribution service and digital advertisement service), this case may be seen as a touchstone for the JFTC’s approach to the mega-merger in the digital market. In this merger review, the JFTC focuses on the following three markets: (1) code payment service, (2) free news distribution service and (3) certain digital advertisement services, and carried out an exhaustive review in these markets. The JFTC paid special attention to the code payment service market where PayPay (a subsidiary of Softbank (Yahoo’s parent company) and Yahoo) has a 55 per cent market share and LINE has a 5 per cent market share. Although the JFTC did not express immediate competition concern about the transaction, the JFTC pointed out that it cannot exclude the possibility that the parties may raise competition concern in the market in the future given the fluid situation. To address the JFTC’s suggestion, the parties proposed certain commitments. These include the removal of the exclusive clauses the parties had imposed on their customers (i.e., some shop owners who are using their code payment service) and submission of annual reports on the market. The JFTC issued clearance based on these commitments.
Sector inquiry for e-commerce sector
In January 2018, the JFTC launched a sector inquiry into the e-commerce sector. Like the sector inquiry into e-commerce conducted by the European Commission, the JFTC gathered information on sales conditions between manufacturers and distributors; sales measures of manufacturers and distributors via their websites; and carried out surveys on online market transactions. It also possibly gathered information on the use of algorithms in e-commerce. The JFTC announced that it was only focusing on transactions in goods (i.e., it did not include transactions in services or digital content) and explained that the number of the addressees of the inquiry was approximately 4,000. On 29 January 2019, the JFTC released the result of the sector inquiry in the form of the ‘Survey Report Regarding Transactions in B2C E-Commerce’. In the report, the JFTC summarises various facts of e-commerce transactions obtained through the survey, and provides its positions on certain typical but debatable trading customs (e.g., strict restrictions of online transactions, most favoured nation clauses) from the perspective of the AMA.
Survey of digital platform operators
In January 2019, the JFTC launched a survey of the trading conditions of digital platform operators. The JFTC issued an interim report of the survey on 17 April 2019. The interim report revealed that the JFTC conducted detailed fact findings of the trading conditions for business to business transactions (1) in internet malls and (2) in app stores. According to the JFTC’s announcement, companies that conduct business in internet malls and app stores are sometimes adversely affected by the platform operators’ conduct (e.g., the conduct made by the operators of the internet malls or app stores). In particular, the businesses conducting business in the platforms tend to be negatively affected by adverse changes to the terms and conditions of the platforms or the lack of explanation of the platform operators’ approval process for the goods, services or applications that can be distributed in the platform. The JFTC announced that it will continue its survey, including analysing the platform operators’ reasonings for such conduct, and will make further analysis on whether prohibition of the abuse of superior bargaining position can be applied to consumer transactions.
Study group report on data and competition policy
Big data is one of the most important competition factors in the e-commerce industry. A policy report discussing the interactive relationship between data and competition policy was released by the JFTC Study Group on Data and Competition Policy. The study group consisted of academic professionals and practitioners in competition law, IP and data protection. Their report, released on 6 June 2017, discusses how Japan’s AMA may address issues caused by today’s data-driven society. The report clearly endorses the notion that the accumulation and utilisation of data promotes competition and creates innovation. On the other hand, it also mentions that some situations justify intervention under the AMA, and explores the possible application of the Act in each situation.
The report provides some suggestions for analysing competition concerns when a business combination is accompanied by significant data accumulation, including the fact that free services such as social networking can be recognised as a relevant market for the purpose of market definition. With respect to competition analysis, the report suggests whether a proposed business combination that results in data accumulation harms competition should be examined from the following perspectives: competition for artificial intelligence techniques and goods and services related to data; or competition in the ‘data market’ in a situation where similar data is bought and sold in a data market.
On data collection, the report says that it may be an abuse of superior bargaining position when a company, A (with a superior bargaining position), unilaterally demands that the other company, B, provide data to it when B wants to enter an alliance with A. In addition, the report points out that a digital platform operator’s collection of personal information that is not in accord with relevant laws in Japan may be an issue for antitrust law if its service ‘locks in’ customers, although such conduct is primarily addressed by the Act on the Protection of Personal Information.
Regarding data hoarding, the report suggests that refusal of access to data by competitors and customers may be a violation of the AMA if the data is essential for a competitors’ business in certain conditions, such as: the refusal of disclosure has no reasonable grounds other than exclusion of the competitor based on the fact that the data has been disclosed to the competitor; or the refusal of access may result in the exclusion of a competitor based on the fact that the company is obliged to allow customers to access the data. The report also suggests that it may be a violation of the AMA in certain conditions if a company ties data provision and data analysis services together or demands that its customer not trade with its competitors on condition of providing data or analysis techniques. While the report indicates that joint collection and joint use of data generally fosters competition, it notes that businesses should pay attention to joint data collection that would allow businesses in the market to conjecture competitors’ prices and quantities. The media covering the release of the report has been rather sensational at times.
The report does not aim to provide a brand new approach or a new way of regulating competition in a data-driven society. As mentioned above, the report generally emphasises the positive effects on competition associated with the accumulation and utilisation of data. In addition, while the report mentions some circumstances in which competition law issues may arise with regard to data accumulation or utilisation and tries to provide some suggestions on how to approach those issues, the suggestions provided in the report are essentially based on the ordinary interpretation of the AMA. Since the Act has no exemption for accumulation or utilisation of data, it is natural that standard interpretations are applied to them. In this regard, the report may not contain anything greatly unexpected for antitrust law practice in Japan. Nonetheless, however, the report provides some suggestions based on the meticulous observation of the latest discussion in international arenas, such as the OECD and various jurisdictions.
For example, the report clearly indicates that free services are to be recognised as relevant markets. Although the JFTC had previously defined a service-for-free business as a relevant market (e.g., ‘non-paid video provision service’ was defined in the Kadokawa/Dwango joint share transfer case), it is still remarkable that the report keeps an eye on multisided markets and provides a clear view of the market definition in such markets as a general matter. In the process of defining a service-for-free market, the report discusses that demand substitutability shall be evaluated based on the result of the review of the customers’ recognition of the target service – although the ‘small but significant and non-transitory increase in price’ test is difficult to apply in defining a service-for-free market.
The report also provides an interesting discussion on merger review thresholds in Japan, which are currently defined primarily by the relevant companies’ domestic turnover in Japan. Although non-notifiable M&A transactions may also be subject to merger review under the existing system, the report suggests that the revision of the thresholds should be on the agenda to allow the JFTC to make an appropriate assessment in the early stages of a deal that may create significant market power in relevant markets. This remark in the report may be an indication of the JFTC’s concern about M&A transactions that likely result in considerable data accumulation.
As for specific conduct that may cause antitrust concerns with respect to accumulation and utilisation of data, the report discusses possible applications of the AMA to each type of conduct. For regulating anticompetitive practices, the Act has two primary legal tools in addition to the prohibitions on cartels and bid-rigging. One is the prohibition on abuse of dominance, or private monopolisation, as defined in Article 2, Paragraph (5) and Article 3 of the AMA; and the other is the prohibition on unfair trade practices as defined in Article 2, Paragraph (9) and Article 19 of the AMA. Considering that unfair trade practices include various types of conduct, some of which are not usually prohibited in other jurisdictions (e.g., an abuse of superior bargaining position) and usually require fact-specific and elaborate analysis, the report may increase predictability and legal stability for businesses by showing examples of the AMA’s application for each situation where it matters. Unlike the European Commission’s active application of Article 102 of the Treaty on the Functioning of the European Union against platform businesses such as Google, the JFTC takes a conservative view towards making a case under the clause prohibiting private monopolisation. In this regard, the possible applications of that clause suggested in the report look relatively theoretical compared to those on the prohibition of unfair trade practices.
In addition to discussions of possible applications of the relevant clauses of the AMA, the report provides some suggestions. It discusses a situation where a platform operator with market power can form, maintain or strengthen its market power by changing its data policy for customers – the situation is similar to the investigation by Germany’s Federal Cartel Office against Facebook for alleged abuse of a dominant position in the social networking market. The report suggests that the Act on the Protection of Personal Information or other consumer protection laws are the primary choices to handle such situations. But it also argues that the AMA may be an option to address the issue when an anticompetitive effect arises, and identifies legal issues to consider when applying the prohibition on private monopolisation as well as the prohibition on abuse of superior bargaining position.
Study group report on competition policies
The competition enhancement office of the Ministry of Economics, Trade and Industry (METI) set up a ‘Study Group for Ideal Approaches to Competition Policies for the Fourth Industrial Revolution’, which released its report dated 28 June 2017. Compared with the JFTC study group, the METI study group paid more attention to encouraging growth in data-related industries in Japan through maintaining a fair competition environment. It may be evaluated as a reflection of the METI’s industrial policy mission. In the report, the METI study group categorises data-related businesses into the following four different models in accordance with the level of the utilisation of data: the independent growth model, where data is accumulated and utilised for the improvement of products and services; the concomitant provision model, where data gained from products and services is utilised for incidental services; the other field utilisation model, where data gained from products and services is utilised in a different market; and the multi-fields interlocking model, where data gained from many markets is mutually accumulated and utilised. The report also presents factors to be considered together with the following three steps to be examined to analyse competition law issues in each model: the impact of data; the possibilities of accumulation; and the possibilities of utilisation. Although the JFTC is the sole enforcer of the AMA, given that the METI is involved in the enhancement of a sound competition environment in Japan, conducting further analysis on the report by the METI study group is also important to predict coming antitrust law and policy trends for data-related businesses including e-commerce.
Study group interim report: digital platform operators
In July 2018, three government agencies, the METI, the JFTC and the Ministry of International Affairs and Communications (MIC), set up a study group discussing the business environment for digital platform operators. On 12 December 2018, the study group released an interim report. The interim report identifies the following major discussion points: roles and features of digital platforms; perspective of legal evaluation of digital platform operators; designing responsibilities of digital platform operators as innovation leaders (the way of industry-specific regulation, etc.); ensuring transparency to achieve fairness; ensuring fair and free competition in digital markets; considering rules on data transfer and open data and international point of view. Although the interim report admits that digital platform operators provide various positive effects and efficiencies for customers including SMEs and consumers, it may recommend imposing new rules on world-renowned digital platform operators, such as Google, Apple, Facebook and Amazon.
Rule Making Options
On 21 May 2019, the METI, the JFTC and the MIC jointly released ‘Options for Ideal Approaches to Rulemaking for Securing Transparency and Fairness in Trading Environments’ (the Rule Making Options). The joint issuance identifies some policy options that the Japanese government may take to ensure the transparency and fairness of the trade environment with respect to digital platform operators. The major policy options discussed in the Rule Making Options are as follows:
- with regard to the AMA, to facilitate its prompt and appropriate enforcement with respect to platform operators, the following policy options are listed:
- to establish new policy guidelines;
- to announce specific designations or kinds of administrative guidelines;
- to utilise the commitment procedure;
- to establish industry associations; and
- to conduct continuous sector inquiries, including investigations under Article 40 of the AMA; and
- proposed new regulations that complement the AMA:
- to introduce certain disclosure and notification obligations from the perspectives of (1) regulations to prevent violations of the AMA; (2) regulations to encourage users’ reasonable choice; and (3) regulations to decrease users’ switching costs;
- to choose the nature of the regulations from the following options: voluntary regulations, statutes and common regulations;
- to introduce effective enforcement tools including administrative measures; and
- to discuss categories and size of the businesses that are subject to the new regulations.
Simultaneously with the announcement of the Rule Making Options, the METI, the JFTC and the MIC announced another policy report titled ‘Options for Ideal Approaches to Data Transfer and Disclosure’ (the Data Transfer Options), which discusses some policy agenda items regarding the introduction of new rules for the transfer and disclosure of data. The Rule Making Options and the Data Transfer Options are scheduled to be considered when the Japanese government establishes its rule-making policies in the digital market later in 2019.
The Competition Policy Research Centre
The Competition Policy Research Centre (CPRC) of the JFTC is a policy research institution sponsored by the JFTC and has the objective ‘to build and improve functional and sustainable cooperative platforms between intellectual resources of outside researchers and practitioners and staff members of the Fair Trade Commission in order to reinforce the theoretical foundation on which Antitrust Law operates, and to plan, propose, and evaluate competition policy from medium- and long-term perspectives as well as from the perspective of utilising the platform to enforce measures for current issues’. As for the e-commerce sector, the CPRC regularly holds seminars and symposiums focusing on, among other things, ‘Digital Economy and Competition Policy’ (December 2017) discussing competition policy and business strategy of Japanese companies in the digital economy era, ‘Emerging Matchmakers Economy and Competition Policy’ (December 2016) discussing changes in competition law and policy by emerging multisided platform operators, and ‘Vertical Restraints in E-Commerce: from the Competition Policy Perspective’ (June 2016) discussing issues of vertical restraints that are unique to e-commerce transactions. It also regularly issues discussion papers focusing on e-commerce, such as Jérôme Fabre and Masako Wakui, ‘Booking.com Case and Commitment Procedure, Restraint of Trade by the Court and Sector Regulations: Focusing on Parity Clause in Online Tourism Business’ (January 2018); Mitsuru Kikkawa, ‘Issues of Competition Policy in the Era of Sharing Economy’ (March 2017); and Hiroshi Ohashi, Naoki Okubo, Chizuru Ikeda and others, ‘Analysis of Characteristics of Platform Business and Issues of Merger Review’ (December 2015). Since the JFTC positioned the digital economy and e-commerce as one of the most important policy issues, it is likely that the CPRC will keep providing advanced academic and policy discussions relevant to the e-commerce sector with government officials and private practitioners in Japan and all over the world.
Though the JFTC has yet to conduct a large number of investigations in the e-commerce sector, it has already handled some cases both with respect to infringement investigations and merger reviews. At the same time, in addition to the substantive amendment of the Distribution Guidelines, the JFTC facilitates policy and academic discussions relevant to the sector and has conducted a sector inquiry on e-commerce. The JFTC has shown its interest in e-commerce on various occasions and is expected to continue to maintain considerable interest in the sector. E-commerce tends to be technically and economically more complicated than conventional business, but with the help of procedural reforms under the AMA, including the introduction of the commitment procedure, the JFTC may challenge possible violations in the sector more aggressively. Furthermore, the government is keen to establish a proper rule and procedure to maintain the competitive environment in markets where large digital platform operators play significant roles. The AMA and the JFTC are not the sole legal basis and enforcement agency to deal with this issue, and players in the sector should keep an eye on the progress of discussions within the government.
1 Hideki Utsunomiya and Yusuke Takamiya are partners at Mori Hamada & Matsumoto.
4 The original version of the Distribution Guidelines was introduced on 11 July 1991.
5 The European Commission ‘Guidelines on Vertical Restraints’ (2010/C 130/01). Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:130:0001:0046:EN:PDF.
6 Part I, Section 1-1-(1) of the Distribution Guidelines.
9 In the amended Distribution Guidelines, the JFTC provides both direct network effects and indirect network effects (Note 3 of Section 1-3-(1)).
10 Part I, Section 1, 3-(1) of the Distribution Guidelines.
12 Part I, Sections 2, 3-(3) and (4) of the Distribution Guidelines.
16 The JFTC ‘Report on e-Books Agreements from Amazon Services International, Inc.’ 15 August 2017. Available at: http://www.jftc.go.jp/en/pressreleases/yearly-2017/August/170815.html.
19 The JFTC ‘Closing the Investigation on the Suspected Violation of the Antimonopoly Act by Airbnb Ireland UC and Airbnb Japan K.K.’ 10 October 2018. Available at: https://www.jftc.go.jp/en/pressreleases/yearly-2018/October/181010.html. According to the JFTC’s announcement, during the JFTC’s investigation, two Airbnb companies proposed to promptly take measures to waive their rights to enforce the provisions regarding the above-mentioned restriction in the contracts.
21 The JFTC ‘Closing the Investigation on the Suspected Violation of the Antimonopoly Act by Minna no Pet Online co, ltd.’ 23 May 2018. Available at: https://www.jftc.go.jp/en/pressreleases/yearly-2018/May/180523_1.html. According to the JFTC’s announcement, during the JFTC’s investigation, Minna no Pet proposed to promptly take voluntary measures.
25 Please refer to No.11 of ‘Major Business Combination Cases in FY 2016’ available at: https://www.jftc.go.jp/en/pressreleases/yearly-2017/June/170614files/MajorBusinessCombinationCasesFY2016.pdf.
26 In a course of the analysis, the JFTC referred to a report entitled ‘Demand Substitutability between Online Service and Offline Service.’ The report was issued by the Competition Policy Research Centre of the JFTC in 2015 and an English summary is available at: https://www.jftc.go.jp/en/cprc/reports_files/cr-0315abstract_english.pdf.
27 Please refer to No.12 of ‘Major Business Combination Cases in FY 2016’ available at: https://www.jftc.go.jp/en/pressreleases/yearly-2017/June/170614files/MajorBusinessCombinationCasesFY2016.pdf.
28 Please refer to No.8 of ‘Major Business Combination Cases in FY 2015’ available at: https://www.jftc.go.jp/en/policy_enforcement/mergers/index_files/171020.pdf.
31 As for the European Commission’s sector inquiry, please refer to: http://ec.europa.eu/competition/antitrust/sector_inquiries_e_commerce.html.
41 The METI announces that it aims to create a new type of industrial society called ‘Connected Industries’, as a policy concept through which a variety of industries are connected and create new added value. Please refer to: www.meti.go.jp/english/press/2017/0628_001.html.
42 The report explains the following data usage as an example: maintenance service utilising operation information gained from a product.
43 The report explains the following data usage as an example: setting insurance premiums by utilising driving records gained through driving support apps.
44 The report explains the following data usage as an example: mutual data utilisation among many different services, including matching, sharing and other online services, various apps and advertisements.
45 METI, JFTC and MOIA ‘Announcement of the Interim Report of the Study Group for the Improvement of the Trade Environment Involving Digital Platform Businesses (12 December 2018). Available at: www.meti.go.jp/english/press/2018/1212_004.html.
50 The relevant materials are available in Japanese at: www.jftc.go.jp/cprc/koukai/seminar/h29/45_notice.html.
51 The relevant materials are available in Japanese at: www.jftc.go.jp/cprc/koukai/seminar/h28/43_notice.html.
53 Available in Japanese at: www.jftc.go.jp/cprc/discussionpapers/h29/index_files/CPDP-67-J.pdf.
54 Available in Japanese at: www.jftc.go.jp/cprc/discussionpapers/h28/index_files/CPDP-65-J.pdf.
55 Available in Japanese at: www.jftc.go.jp/cprc/discussionpapers/h27/index_files/CPDP-62-J.pdf.
56 The commitment procedure was introduced on 30 December 2018.