Japan: private practice perspective

Overview

The Japan Enforcement Agency

The substantive provisions of Japan’s competition rules are contained in the Antimonopoly Act of Japan (AMA). The Japan Fair Trade Commission (JFTC), composed of a chairman and four commissioners, is the principal enforcement agency set up as an independent administrative office with broad powers to enforce the AMA. The AMA comprises four major categories of regulations:

  • prohibition of unreasonable restraint of trade (for example, cartels and bid-rigging);
  • prohibition of private monopolisation;
  • prohibition of unfair trade practices; and
  • regulation of business combinations (for example, via mergers and acquisitions).

The JFTC is the sole enforcement agency except with respect to criminal investigations, in which case the JFTC will make a submission to the prosecutor general setting out its criminal accusation, whereupon the public prosecutor’s office takes charge of criminal prosecution matters.

Recent developments

Amendment to the AMA

The Act for Amendment of the Antimonopoly Act was enacted on 19 June 2019. This amendment will come into effect by the end of 2020, except for some provisions that came into effect earlier.

The amendment introduced a system to allow enterprises to reduce the amount of surcharges otherwise payable as penalties by cooperating with fact-finding in the JFTC's investigation. Under the new system, surcharges are reduced based on the degree of cooperation as well as any available immunity and fixed rate of surcharge reduction calculated with reference to the order of an application for leniency, if any. While the number of leniency applicants is limited to five under the current system, this limitation on the number of leniency applicants was abolished in the amendment. The amendment also revised the calculation methods for surcharges. The revisions include extension of the calculation period, expansion of the calculation basis and expansion of the scope of application of the increased calculation rate.

The Japanese legal system does not include the concept of attorney–client privilege, although attorneys are obligated to keep client information confidential. However, in order to bring the Japanese legal system closer to international standards, for the first time under the Japanese legal system, the JFTC will introduce a quasi attorney–client privilege at the time of implementing the amendment of the AMA. The privilege is only granted in relation to administrative investigation procedures regarding unreasonable restraint of trade. Pursuant to the quasi attorney–client privilege, the JFTC's investigators will not seek access to documents containing confidential communications between a company and its attorney regarding legal advice on unreasonable restraint of trade if certain conditions, such as appropriate custody, submission of an application and a log summarizing documents and data, are confirmed to be met pursuant to prescribed procedures.

New development on the JFTC's policy for digital platform business operators

On 15 June 2018, the government issued its growth policy entitled Future Investment Strategy 2018, which aims to implement full-fledged "society 5.0 (a human-centred society that balances economic advancement with the resolution of social problems by a system that highly integrates cyberspace and physical space)". This policy describes the need for rule-making corresponding to the rising digital platform businesses, and based on this policy, the government issued the Fundamental Principles for Improvement of Rules Corresponding to the Rise of Digital Platform Businesses (Principles) on 18 December 2018.

The Principles states that correct understanding of the status of digital platform businesses is a starting point to implement transparency and fairness in digital platform businesses. In accordance with the Principles, the JFTC conducted a fact-finding survey on transaction practices related to online retail platforms and app stores to publish its report entitled the Report regarding Fact-Finding Survey on Digital Platforms (Report) on 19 October 2019. In this Report, the JFTC analysed certain problematic unilateral conduct by operators of online retail platforms and app stores and categorised them into (i) business practices doing harm to digital platform users (sellers), which could be construed as abuse of superior bargaining position, (ii) business practices excluding other digital platform operators (competitors) in the same business, which could be construed as interference with such competitors' transactions, and (iii) business practices restricting business of digital platform users (sellers), which could be construed as restriction of a seller's business. This analysis could be the basis for guidance on future cases concerning conduct by digital platform business operators.

In addition, to ensure fair and free competition in digital markets, the Principles pointed out the need for the following policy considerations:

  • to consider review of business combinations taking into account data and innovation. This policy was reflected in the amendment of the Business Combination Guidelines in 2019, discussed later in this article; and
  • to consider the possible application of abuse of superior bargaining position to B to C transactions in digital platform businesses. This led to creation of the Platform ASBP Guidelines discuss later in this article under Abuse of Superior Bargaining Position and Digital Platform Operators.

Private monopolisation and unfair trade practices

In FY 2019, no orders were issued for private monopolisation, but two cease-and-desist orders were issued for unfair trade practices. In addition, two cases were closed by the commitment procedures, which came into force on 30 December 2018. One of those two relates to private monopolisation and unfair trade practices (interference with a competitor's transactions) conducted by a Japanese radiopharmaceutical manufacturer. The other relates to unfair trade practices (trading on restrictive terms) conducted by a Japanese e-commerce company that operates an online travel reservation service as one of its services (Rakuten, Inc), where Rakuten imposed MFN clauses on operating companies of accommodation and hotel facilities. The JFTC raided Rakuten as well as Expedia and Booking.com on 10 April 2019, but the cases against Expedia and Booking.com have not been closed yet.

The JFTC issued official warnings in two cases of unfair trade practices in FY 2019, one of which relates to trading on restrictive terms and the other involves abuse of superior bargaining position. Further, the JFTC launched an investigation against Amazon Japan G.K. relating to abuse of superior bargaining position for requesting sellers that use Amazon's online marketplace to bear the costs of a reward program for purchases, which was closed without enforcement on 11 April 2019 after Amazon decided to withdraw such unilateral request. Furthermore, the JFTC filed a petition for an urgent injunction against Rakuten, Inc on 28 February 2020 with regard to Rakuten's new policy of preventing online retailers from receiving delivery fees from purchasers, but the JFTC withdrew the petition by 10 March 2020 following Rakuten's decision to give retailers the option of whether or not to go along with such policy due to covid-19, while the JFTC's investigation still continues.

Cartels

The JFTC issued cease-and-desist orders and surcharge payment orders in nine cartel or bid-rigging cases in FY 2019. All nine cases pertain only to the Japanese domestic market. The total amount of surcharges imposed in FY 2019 was ¥692.7 billion, significantly higher than ¥2.6 billion in FY 2018 and ¥18.9 billion in FY 2017. The amount of surcharges levied in cartel cases is calculated as a certain percentage of total sales of the relevant products or services during the period of infringement, extending retrospectively up to three years from the date when the conduct ceased (after the amendment of the AMA comes into effect, the period will be retrospectively up to 10 years from the date when the JFTC commenced its investigation). The percentage rate is usually levied at a base rate of 10 per cent, but will depend on the circumstances and may be increased to 15 per cent if repeated within 10 years under certain conditions.

As to leniency, 73 filings were made in FY 2019, and ranged between 72 and 124 in the past five years.

As to criminal accusations, the JFTC filed no new accusation in the past two years. The last criminal accusation was filed with the prosecutor general by the JFTC on 23 March 2018 against the four biggest construction companies in Japan on account of bid-rigging in relation to construction of terminal stations for the maglev railway that was put out for tender by Central Japan Railway Company. The JFTC’s policy is to proactively file criminal accusations in cases that are serious, malicious and likely to broadly affect people’s lives, or cases involving companies that have repeatedly breached the AMA or failed to comply with a cease-and-desist order if administrative orders alone are not sufficient to achieve the purpose of the AMA.

Abuse of superior bargaining position and digital platform operators

The JFTC published the Guidelines Concerning Abuse of a Superior Bargaining Position in Transactions between Digital Platform Operators and Consumers that Provide Personal Information Etc (Platform ASBP Guidelines) on 17 December 2019. Abuse of a superior bargaining position is one of the unfair trade practices prohibited under the AMA.

Aiming to improve clarity and predictability for digital platform operators as to enforcement of the AMA, the Platform ASBP Guidelines provide a non-exhaustive list of conduct by digital platform operators related to acquisition or use of personal information that can amount to an abuse of superior bargaining position. Such conducts include acquiring personal information without stating the purpose of use to consumers, acquiring personal information against consumers’ intention beyond the scope necessary to achieve the purpose of use, acquiring personal data without taking the precautions necessary and appropriate for safe management of personal information, causing consumers in continuous use of services to provide other economic interests such as personal information, in addition to the consideration provided in exchange for the use of services, using personal information against the intention of consumers beyond the scope necessary to achieve the purpose of use, using personal data without taking precautions necessary and appropriate for the safe management of personal information.

For the Platform ASBP Guidelines concerning issues regulated by the Act on the Protection of Personal Information of Japan, the Personal Information Protection Commission (PPC), the supervising agency for the APPI, issued a statement that it would cooperate with the JFTC when it finds facts that can be considered unfair acquisition or use of personal information by a digital platform operator which holds a superior bargaining position. In return, the JFTC issued a statement that it will cooperate with the PPC about abuse of a superior bargaining position between digital platform operators and consumers who provide personal information.

Mergers

A total of 310 merger notifications were made in FY 2019. The JFTC cleared 300 cases without a Phase II review and, of those, the 30-day waiting period, during which the notified transaction cannot be closed, was shortened in 217 cases. Of the 310 cases, only one transitioned to a Phase II review.

Mergers, business transfers, corporate splits (or demergers), joint share transfers and share acquisitions (including joint ventures) require prior notification under the AMA where they will exceed certain thresholds, even in some cases of foreign-to-foreign mergers between undertakings that have no Japanese subsidiary or branch office in Japan, which may have a significant negative impact on competition in the Japanese market.

The JFTC amended its Guidelines on Application of the Antimonopoly Act Concerning Review of Business Combinations (Business Combination Guidelines) and Policies Concerning Procedures for Review of Business Combinations (Business Combination Procedures Policies) on 17 December 2019 in response to the increasing necessity in recent years to properly deal with business combinations in the digital market.

The amended Business Combinations Guidelines (i) clarify the approach to reviews of business combinations in the digital sector where digital platform operators are involved, based on the characteristics of digital services, (ii) clarify the approach to cases involving acquisition of a start-up company that is still small in scale but has important assets for competition purposes such as data and intellectual property rights and (iii) describe in detail the way to analyse competition in vertical and conglomerate business combinations, based on recent reviews of business combinations.

The amended Business Combination Procedures Policies clearly state that a business combination review will be conducted when the total amount of consideration for the acquisition is large and the business combination plan is expected to affect domestic consumers even if it does not require prior notification under the AMA, and that it is recommended that companies planning such a business combination consult with the JFTC. It is also clarified that the JFTC may request such companies to submit internal documents (eg, materials and minutes used at board of directors’ meetings) to confirm the purpose, etc, of the business combination.

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