Japan: private practice perspective

Fair Trade Commission is the enforcement authority for Japan. Read their profile

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. In April 2022 the JFTC established the Economic Analysis Office to leverage its various activities such as case investigations, merger control examinations and surveys. 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

Advocacy

On 16 June 2022, the JFTC issued a statement entitled Toward the Active Promotion of Competition Policy in Response to Digitalization and Other Socioeconomic Changes: Linking and Strengthening Advocacy and Enforcement (the Statement).

The Statement consists of four pillars. The first pillar is to strengthen the effectiveness of advocacy through the use of fact-finding surveys. The Statement identifies the following four areas for fact-finding surveys.

• areas where competition is considered to be insufficient due to regulations, business practices, etc;
• areas where regulatory reform will expand opportunities for new entrants and is expected to increase competition in the future;
• areas where consumers and small and medium-sized businesses may be unfairly disadvantaged; and
• areas in which rapid market changes require a prompt grasp of the actual state of competition and the establishment of competition rules (eg, digital markets).

When the JFTC concludes its fact-finding survey, in addition to publishing the report and explaining its findings to the relevant government ministries and agencies and relevant businesses, the JFTC will also request them to take necessary actions such as reviewing systems and operations and making necessary corrections to business practices. Further, the JFTC will request relevant individual businesses in writing to check their practices and make necessary improvements and to report the details of the improvements.

The JFTC has actually conducted a number of fact-finding surveys utilising questionnaires and hearings, and issued reports on the surveys with recent major examples being the report on the Fact-Finding Survey on Initial Public Offering Offer Pricing Processes issued on 28 January 2022, the report on the Survey on Information System Procurement by Public Agencies issued on 8 February 2022, the report on Survey on the Actual Conditions of Credit Card Transactions issued on 8 April 2022, and the report on Survey on Transactions Related to Cloud Services issued on 28 June 2022.

The second pillar is promotion of linkage between advocacy and enforcement. The JFTC aims to seamlessly link the fact-finding surveys to enforcement of the AMA in individual cases. If the JFTC recognises conduct possibly violating the AMA during their fact-finding surveys, they will start inspection of individual cases for the suspected conduct. The JFTC also expects that the possibility of invoking enforcement against individual cases will increase the effectiveness of advocacy by encouraging the businesses subject to fact-finding surveys to voluntarily make improvements.

The third pillar is diversification of information gathering tools to strengthen enforcement. For example, the JFTC has clarified its policy of soliciting third-party opinions on matters related to the digital market more broadly and from earlier stages of individual cases than in the past. In addition, the JFTC states that it ordinarily uses voluntary methods to gather the information necessary to determine whether to initiate inspection of a case of alleged violation of the Antimonopoly Act, but it will utilise its compulsory authority for investigation provided in article 40 of the AMA to the extent necessary and reasonable when it is difficult to gather the information using voluntary methods. Furthermore, the JFTC states that it will request, in reviewing merger cases, the submission of internal documents, such as materials related to board meetings and materials related to internal competitive analysis. Further, with its new Office of Economic Analysis established on 1 April 2022, the JFTC aims to utilise more sophisticated economic analysis to ascertain the competitive impact of the alleged violation and the effectiveness of the measure.

As the fourth pillar, the JFTC will work to secure and enhance the necessary personnel and systems, including the expansion of its human resources base with expertise, to implement the initiatives set forth in the first three pillars.

G7 Enforcers Summit

JFTC aims to continuously enhance cooperation with enforcers in other jurisdictions. Particularly in November 2021, the JFTC participated in the G7 Enforcers Summit to jointly issue the Compendium for Strengthening Competition in the Digital Market.

Private monopolisation, unfair trade practices and abuse of superior bargaining position

In FY 2021, no cease-and desist order or surcharge payment order was issued.

However, as to private monopolisation, Apple Inc was subject to the JFTC’s investigation with regard to its policy of prohibiting inclusion of external links in apps that consumers purchase through non-in app billing. This case was closed by the JFTC, as it accepted the improvement measures voluntarily proposed by Apple.

As to unfair trade practices, two cases were closed by the JFTC approving commitment plans submitted by suspected violators, using the commitment procedure. One case concerns trading on restrictive terms (most favoured pricing clause) conducted by Booking.com BV, and another concerns interference with transaction (interference with parallel import) conducted by tennis rackets manufacturers. In addition, Rakuten's free-delivery policy at its online retail platform was subject to the JFTC's Investigation for suspicion of abuse of a superior bargaining position, which was closed by the JFTC, as it accepted the improvement measures voluntarily proposed by Rakuten Group, Inc.

In line with emphasis on advocacy by the JFTC, a Cabinet decision was made in June 2022 to enhance a market survey by the JFTC against supply chain schemes for distributing consumer goods, parts for finished products and service offerings, targeting 22 industries with one 100,000 companies, for the purpose of optimising transaction by identifying the cases involving abuse of a superior bargaining position.

Cartels

The JFTC issued cease-and-desist orders and surcharge payment orders in three bid-rigging cases in FY 2021, significantly lower than the previous year due to the covid-19 pandemic. All three cases pertain only to the Japanese domestic market. One of the three is a case where the JFTC filed a criminal accusation with the Public Prosecutor-General. Three pharmaceutical wholesalers and seven individuals were subject to the accusation of bid rigging in relation to comprehensive pharmaceutical procurement contracts for 57 hospitals, operated by the Japan Community Health Care Organization. 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.

The total amount of surcharges imposed in FY 2021 was ¥2.18 billion. 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 ten years (up to three years for infringement before 25 December 2020 when the 2019 amendment to the AMA came into force and up to ten years in total when infringement extends before and after the enforcement of the amendment) 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, 52 filings were made in FY 2021, still lower than previous years.

Mergers

A total of 337 merger notifications were made in FY 2021. The JFTC cleared 328 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 248 cases. Of the 328 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 companies that have no Japanese subsidiary or branch office in Japan, which may have a significant negative impact on competition in the Japanese market.

In response to the increasing necessity in recent years to properly deal with mergers in the digital and data markets, the JFTC amended its Guidelines on Application of the AMA Concerning Review of Business Combinations (Merger Guidelines) and Policies Concerning Procedures for Review of Business Combinations (Merger Review Policies) on 17 December 2019. The amended Merger Guidelines and Merger Review Policies clarify the approach to reviews of mergers in the digital sector based on the characteristics of digital services, and also recommend parties to make a voluntary consultation with the JFTC, even if the planned transaction does not meet the notification thresholds under the AMA, in cases where the total consideration for the acquisition exceeds a certain amount (¥40 billion) and it is likely to affect domestic consumers in Japan. In fact, the JFTC reviewed 14 merger cases in FY 2021 in which prior notifications were not required under the AMA (eg, Microsoft's acquisition of Nuance Communications Inc, Amazon's acquisition of MGM Holdings Inc and Google's acquisition of Pring). Also, the JFTC strengthened the system for merger reviews by establishing the Economic Analysis Office and increasing the officials involved, and also announced a policy to strengthen the enforcement of merger reviews by inviting more public opinions than before regardless of the transition to a Phase II review and requesting internal documents of the parties involved in the merger reviews, among other things.

In July 2021, the JFTC approved the proposed acquisition of Slack Technologies, Inc (a business chat service provider) by Salesforce, Inc, a global leader of Customer Relationship Management (CRM) software. The JFTC used economic analysis in its review in line with the recent policy announced by the JFTC, and also considered the data collected and preserved by the parties and availability of such data in this case. The JFTC exchanged information with the ACCC and US Department of Justice in this case.