Japan: private practice perspective

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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. 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.

The JFTC is also in charge of enforcement of the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (the Subcontract Act) [1]. The Subcontract Act aims to protect the interests of small and medium-sized subcontractors from abusive conduct by large subcontracting companies with capital exceeding a certain amount and only covers specific types of transactions (manufacturing contracts, repair contracts, information-based product creation contracts and service contracts). The Subcontract Act imposes on subcontracting companies obligations, for example, to timely pay subcontract fees and clearly state the contents of contracts in writing, and prohibits 11 types of conduct that can also constitute abuse of superior bargaining position (a type of unfair trade practice).

Recent developments

Enforcement and advocacy

In recent years, the JFTC has been working on "enforcement" to eliminate violations and restore competition through strict and appropriate enforcement of relevant laws and regulations such as the AMA and the Subcontract Act (see below) and "advocacy" to propose improvements in business practices and revisions of regulations and systems to improve the competitive environment. The JFTC refers to these two as the "two wheels of the competition policy". In detail, enforcement refers to investigations of violation cases of the relevant laws and regulations and business combination reviews. Advocacy refers to fact-finding surveys, proposals for regulatory reforms and improvements in business practices, and the formulation of various guidelines. The following are examples of the JFTC's simultaneous efforts of enforcement and advocacy.

On 31 March 2023, the JFTC published the ‘Guidelines Concerning the Activities of Enterprises, etc. Toward the Realization of a Green Society Under the Antimonopoly Act’ (the Green Guidelines) [2]. Behind the JFTC's establishment of these Green Guidelines is the JFTC's belief that the role of antitrust law and competition policy is to promote the efficient use of resources and encourage innovation, such as new technologies, through competition in order to realise a green society. The basic concept of the Green Guidelines is as follows. In many cases, activities of enterprises, etc, towards the realisation of a green society have pro-competitive effects such as promoting the creation of new technologies and excellent products, and are expected to contribute to the interests of general consumers, for example, through reduction of greenhouse gas emissions. However, if these activities have solely anticompetitive effects to restrain fair and free competition among enterprises by imposing restraints on prices or quantities, technology, etc, of individual enterprises, such activities pose problems under the AMA.[3]

The JFTC conducted a special survey as a part of cross-governmental efforts to facilitate the transfer of higher costs.[4] The purpose of this special survey is to confirm the status of transfer of higher costs from the standpoint of both the business outsourcer and the business contractor with respect to the following acts related to the transfer of higher costs:

When an enterprise whose bargaining position is superior to that of the counterparty unilaterally requests the counterparty to trade at a significantly lower price, this may be considered an abuse of a superior bargaining position, and specifically the following may be regarded as an abuse of a superior bargaining position:

  • To leave the transaction price unchanged without explicitly discussing the necessity of reflecting increases in labour costs, raw material prices, energy costs and other costs in the transaction price at the time of price negotiation.
  • Keeping the transaction price unchanged without providing the counterparty with a written or emailed response as to why the costs should not be transferred, despite the counterparty's request for an increase in the transaction price due to an increase in the cost of labour, raw material prices, energy costs or other costs.

The Act on the Improvement of Transactions, etc. Pertaining to Specified Entrusted Business Operators (the Freelancers Act) was passed on 28 April 2023 and promulgated on 12 May. In recent years, freelance work has become more widespread. However, fact-finding surveys, etc, have revealed that freelancers have experienced various problems and troubles (non-payment of remuneration, delayed payment, harassment, etc) in their relationships with business partners. The reason for this problem is that freelancers, as individuals, tend to be in a weaker position in terms of bargaining power and information gathering than their organisational counterparts.

The Freelancers Act imposes the following obligations on business outsourcers to clearly indicate to the Specified Entrusted Business Operators (ie, the freelancer), in writing or by electromagnetic means, the contents of the contract, including the contents and due date of the outsourced work, the amount of remuneration and the due date of payment. In addition, the Freelancers Act imposes the following obligations if the business outsourcer has an employee or officer:

  • Set a due date for payment of remuneration within 60 days of the day on which the business outsourcer receives the work from the Specified Entrusted Business Operator's benefits, and must pay the amount due.
  • Establish a necessary system for consultation and other necessary measures to deal with acts of harassment
  • In the case where the business outsourcer makes orders continuously, prohibit unreasonable refusal to accept, reduction of remuneration, return, compulsion to purchase, redo, setting unreasonably low remuneration, etc; require 30 days' notice in the case of early termination of the contract; consider balancing work with childcare and nursing care.

In the case of a violation, the JFTC, etc. may give advice, guidance, collect reports and on-site inspections, make recommendations, make public announcements, and issue orders with regard to violations. Fines of up to ¥500,000 for violation of orders, refusal to submit to inspections, etc.

The JFTC and the Small and Medium Enterprise Agency are mainly responsible for enforcing the provisions related to improvement of transactions, while the Ministry of Health, Labour and Welfare is mainly responsible for enforcing the provisions related to the improvement of the working environment.

The enforcement of the Freelancers Act is scheduled to begin on the date specified by a Cabinet Order within one year and six months from 12 May 2023 (the date of promulgation of the Act). It should be noted that the Freelancers Act also applies to foreign-affiliated companies with a local subsidiary in Japan that conduct transactions with freelancers, and that it applies regardless of the size of capital of the local subsidiary in Japan (in contrast, transactions covered by the Subcontract Act are limited based on the size of capital of the company).

Private monopolisation and unfair trade practices

In FY 2022, no cease-and-desist order or surcharge payment order was issued for private monopolisation and unfair trade practices. Instead, the JFTC used various other means for enforcement.

No private monopolisation case was subject to the JFTC’s investigation.

As to unfair trade practices, three cases were closed by the JFTC approving commitment plans submitted by suspected violators, using the commitment procedure. One case concerns resale price maintenance conducted by a popular Japanese ramen brand ICHIRAN, one case concerns trading on restrictive terms (most favoured pricing clause) conducted by Expedia, and another concerns interference with competitor’s transaction conducted by SCINEX and SMARTVALUE for bid for renewal of the website at municipalities.[5]

As for abuse of a superior bargaining position, which is one of the types of unfair trade practices, the JFTC issued 55 cautions against suspected abuses of superior bargaining position that are likely to lead to AMA violations. In addition, the JFTC published a case in which the JFTC’s request for information resulted in suspension of concerned conduct and elimination of concern of abuse of a superior bargaining position.

The JFTC is strengthening enforcement of the Subcontract Act. The Subcontract Act prohibits conduct that could also constitute abuse of superior bargaining position but the transactions covered by the Subcontract Act are limited based on the size of the capital of companies and the types of transactions. In FY 2022, the JFTC recognised 8,671 cases of violations or possible violations of the Subcontract Act. Among these, the JFTC issued recommendations in six cases (three cases of reduction of subcontract proceeds, two cases of returned goods, one case of unjustly setting subcontract proceeds at a level conspicuously lower than the price ordinarily paid for the same or similar content of work, and two cases of request for provision of unfair economic gains)[6], all of which were made public, and issued guidance in 8,655 cases.[7]

Cartels

The JFTC issued cease-and-desist orders and surcharge payment orders in eight cartels cases consisting of four bid-rigging cases, one price fixing case and three market division cases in FY 2022. All the cases pertain only to the Japanese domestic market.[8]

In the three market division cases, the JFTC imposed a total of over ¥101 billion surcharges on Chugoku Electric Power and other three former general electricity utilities for agreeing to mutually restrict their business activities to acquire users in the others’ supply areas.[9] Before the liberalisation of retail supply of electricity, then general electricity utilities had been approved of geographical monopolisation in retail supply of electricity in their respective supply areas under the Electricity Business Act. As retail prices of electricity declined after retail sales were liberalised, the former general electricity utilities colluded to avoid price-cutting race among themselves and secure their profits.

In relation to the 2020 Olympic and Paralympic Games, the JFTC filed a criminal accusation with the Prosecutor General against six advertising agencies and seven individuals for predetermining the companies to win outsourcing contracts concerning planning of test events with the organising committee. 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. Involving individuals with both prospective suppliers and the organising committee and concerning a large-scale national project, this bid rigging case was considered to be malicious and serious, with far-reaching effects on the people’s lives.

The total amount of surcharges imposed in the eight aforementioned cases was approximately ¥101.99 billion.[10] 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 10 years from the date when the JFTC commenced its investigation. The percentage rate is usually 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.

Under the leniency system, reduction in and exemption from surcharges were granted to a total of 22 companies in the eight aforementioned cases, among them four companies were granted reduction under the investigation cooperation reduction system, the new addition to the leniency system that came into force on 25 December 2020, which applies reduction rates based on the degrees of contribution made by leniency applicants’ cooperation to the JFTC’s fact-finding in addition to the reduction rates based on the sequential order and the timing of the leniency application.[11]

Mergers

A total of 306 merger notifications were made in FY 2022. The JFTC cleared 299 cases without a Phase II review and seven notifications were withdrawn by the filing parties during a Phase I review. No case proceeded to a Phase II review in FY 2022. [12]

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) in 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 15 merger cases in FY 2022 in which prior notifications were not required under the AMA. Also, the JFTC strengthened the system for utilising economic analysis 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.

In March 2023, the JFTC approved the proposed integration of Microsoft Corporation and Activision Blizzard, Inc, a US game developer and publisher. The JFTC utilised economic analysis in its review in line with its recent policy, invited public opinions, and also requested and scrutinise internal documents (eg, minutes of board meetings) in this case. The JFTC exchanged information with the Australian Competition and Consumer Commission, Competition and Markets Authority, European Commission, US Federal Trade Commission and Korea Fair Trade Commission in this case.


Notes

[1] https://www.jftc.go.jp/en/about_jftc/index_3_230607.html.

[2] https://www.jftc.go.jp/en/pressreleases/yearly-2023/March/230331.html.

[3] https://www.jftc.go.jp/file/230331ENGreenGuidelinesSummary.pdf.

[4] https://www.jftc.go.jp/en/about_jftc/index_3_230607.html.

[5] 2.1.3. of Annual Report of the Japan Fair Trade Commission (April 2022–March 2023) (Annual Report) at https://www.jftc.go.jp/file/230616EN.pdf.

[6] The total number of recommendations does not equal the total number of breakdowns of the types of violations, since there were cases where recommendations were made for multiple types of violations in a single recommendation case.

[7] See 2.2.3.1 of Annual Report.

[8] See 2.1.3. of Annual Report.

[9] https://www.jftc.go.jp/en/pressreleases/yearly-2023/March/230330.html.

[10]. See 2.1.3. of Annual Report.

[11]See 2.2.2.2.of full Annual Report (Fiscal Year 2022) (available only in Japanese) at https://www.jftc.go.jp/soshiki/nenpou/r4nenpou/r4nenpou_zentai.pdf.

[12] https://www.jftc.go.jp/file/230628EN.pdf.

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