63. Are there any sectors that the competition authority is keeping a close eye on?
The Chairman of the JFTC stated in his message for 2020 that it is necessary for the JFTC to monitor the behaviour of digital platform operators, which could eventually lead to fair competition being impeded. This showed that the JFTC would continuously focus on the digital economy sectors, such as IoT, AI and the utilisation of big data.
In fact, the JFTC established the Digital Market Policy Making and Market Research Division in April 2020. In addition, the JFTC and the Ministry of Economy, Trade and Industry (METI) published a series of important reports regarding competition and digital economy. The JFTC published a report on a survey with respect to the issues for competition policy in the mobile phone market in August 2016 and analysed issues in the communication services market (subscriber identity module lock system, among other things), the mobile phone device market (restrictions on distribution of second-hand devices, among other things) and the application market (requirements not to pre-install competitors’ applications, among other things). After that, in February 2018, the JFTC decided to launch an additional survey with regard to the issues with competition policy in the mobile phone market, in order to follow-up on the progress in the improvement of the competitive situation in the mobile phone market. The JFTC has published a follow-up report, in June 2018, and the report indicates that conduct that may have an anticompetitive effect, such as setting a subscriber identity lock system, restrictions on the distribution of second-hand devices, and the two-year term locked-in contract, still exist, and four-year term locked-in contracts have been newly appeared, taking into account the results of the questionnaire to the consumers.
In addition, METI published a report regarding the Fourth Industrial Revolution and competition law and policy in September 2016. Specifically, the report reveals eight business practices used by platformers and pointed out that, among the eight practices, restrictions on certain forms of online payment and the non-transferability of transactions using virtual currencies may constitute violations of the AML. Furthermore, METI and the JFTC’s think-tank, the CPRC, both established a study group with respect to data and competition policy in parallel in January 2017. METI published a report with descriptions with regard to the actual data-related business models and provides analysis on possible effect on competition between undertakings that conduct data-related business by each type of business model. The CPRC also published a report that outlines the competitive concerns surrounding data related transactions in June 2017. In particular, it stated that based on its recognition that certain undertakings hold a large volume of data, if such a situation restricts competition and harms the interests of consumers, a prompt response would be required under the AML.
The Japanese government has continued to consider how the AML addresses issues relating to data and digital platform business, and the study group established under the JFTC, METI, and MIC published the fundamental principles for rule-making to address the rise in platform businesses on 18 December 2018, and it referred to the importance of ensuring transparency to achieve fairness between digital platform operators and their users and their business counterparts, and ensuring fair and free competition in digital markets. Moreover, the working group established under the study group has published specific options to achieve those principles, on 21 May 2019, and among them, called for the enactment of new legislation to ensure transparency and fairness on the side of online digital platforms, to an extent similar to the EU’s Regulation (EU) 2019/1150 of the European Parliament and of the Council of 20 June 2019 on promoting fairness and transparency for business users of online intermediation services, which was enacted on 12 July 2019. According to the Growth Plan of the Future Investment Strategy Conference and the Basic Policy on Economic and Fiscal Management and Reform 2019, which was adopted by the Cabinet Office, the Cabinet Office submitted the Digital Platform Transaction Transparency Bill to the ordinary Diet session in 2020, and then the Digital Platform Transaction Transparency Act was enacted on 27 May, 2020 and promulgated on 3 June 2020, although the effective date has not been determined yet.
In order to ensure the transparency and fairness on the side of digital platform operators and apply proper competition policies to the digital economy, the JFTC and the Digital Market Competition Council, which were newly established by the Cabinet Office to tackle a wide range of digital economy related issues, including competition policy, have conducted series of market research from 2019 to 2020. According to the interim report concerning future prospects on the digital market which was prepared by the Digital Market Competition Council on 16 June 2020, the Digital Market Competition Council will continue to conduct market research on digital economy.
The JFTC first published the market research on e-commerce and app stores on 31 October 2019, and identified various conduct which may have problems from the perspective of transparency and fairness as well as from the competition policy, such as acts that could do sellers harm (e., change in business terms due to contract revision, calculation methods and grounds for commission fees, tasks requested towards sellers, withholding sales proceeds, actions against damaged or lost products in the warehouse, handling consumers returns or refund requests, purchase requests for advertisement spots, penalty systems for violations of business terms), acts that could exclude competitors (eg, restrictions on using other app stores, direct sales using transaction data collected by each seller, varying treatment between seller and digital platform operators or their affiliated companies (self-preferencing)), acts which could restrict sellers’ business (eg MFN clause, restrictions on sales promotional activities, setting a commission on electronic payments through an app purchase and restrictions on payments outside of an app, setting of retail prices) and acts that could lack fairness or transparency (eg, arbitrary algorithms of search results, explanation and disclosure of information to sellers, unclear screening criteria and its application to sellers, consultation system or means of dispute resolution). Further to the market research on e-commerce and app stores, the JFTC also published the report on the consumer survey regarding the e-commerce on 29 January 2020. Then, the JFTC published a report of market research on how portal sites compare restaurants on 18 March 2020, and indicated various kinds of conduct that may be a problem from the perspective of transparency and fairness and the competition policy, such as unilateral changes in terms and conditions, unilateral or arbitrary changes in ranks in search results and refusal of access to reservation management service providers by certain restaurant. The report also refers to the issue where the general search engine provider may leverage its market power in the general search engine market to the relevant vertical service market, such as an online restaurant comparison portal site, and such leveraging of its own services may have anticompetitive effects. In addition, the JFTC published a report of market research on loyalty programmes for consumers (called the “point service” in Japan) on 12 June 2020. The report describes issues relating to restrictions on a competitor’s loyalty programme that may have an exclusionary effect, the abuse of a superior bargaining position toward member stores of the program and unduly data collection and utilisation that may constitute abuse of a superior bargaining position toward member stores of the programme and consumers who use the programme.
Moreover, the JFTC published an interim report regarding market research on digital advertising on 28 April 2020, such as the UK and Australia has done. The JFTC looked into the guaranteed type of advertisements and the programmatic type of advertisements (ie, search advertising and display advertising) by conducting extensive interviews and questionnaires to intermediaries, advertisers, publishers and consumers. While the JFTC plans to further examine the potential competitive issues in the digital advertising market, the JFTC found that there are advertisers and publishers who have been depending on transactions with a specific intermediary, the certain intermediary imposes restrictions on trading with third-parties on the advertisers or publishers, the certain intermediary does not disclose sufficient information which would enable advertisers or publishers to examine the advertising effectiveness and the impact of the ad-fraud, and the certain intermediary may collect and utilise personal information in an abusive manner. Therefore, the JFTC will investigate (i) whether digital platforms are inflicting unfair advantages on counterparties, for example, by changing the terms of contracts unilaterally, (ii) whether digital platforms are unjustly excluding advertising intermediaries (ie, competitors) when the digital platforms play the role of media and advertising intermediary, and (iii) whether digital platforms are unjustly restricting counterparties, for example, by prohibiting the counterparties from advertising other than via the digital platform. In addition to the JFTC’s survey, the Digital Market Competition Council also published an interim report regarding the competitive assessment of the digital advertising market on 16 June 2020. According to the interim report, the Digital Market Competition Council requires digital platform operators to ensure transparency and fairness for advertisers, publishers and users by listing the 10 issues for digital platform operators. For example, the interim report expresses publishers’ concerns that it is unclear to publishers to what extent payments from advertisers will be shared with publishers by digital platforms, and there is some doubt that publishers would receive appropriate revenue, which may result in publishers having less investment in content creation. Considering this concern, the interim report suggests that digital platforms should enable advertisers and publishers to check the status of ad-fraud and should also give publishers the right to access price information paid by advertisers to digital platforms. In addition, the interim report proposes introducing a mechanism to measure advertising effectiveness by a third party and enable advertisers to effectively compare the quality of digital ads services, as Cairncross Review in the UK suggested. The interim report further indicates there have been issues regarding conflicts of interest (ie, certain intermediaries are not only acting on behalf of advertisers but also behaving as publishers who have its own media), self-preferencing, unilateral changes in the bid system and/or rules which may violate the AML. The interim report also referred the concept of “data/information fiduciary.”
By considering these series of market research, the METI plans for the Digital Platform Transaction Transparency Act to be applied to the operators of e-commerce and app stores for the time being, although the other business areas, such as digital advertising, may be additionally designated as applicable business areas for the Digital Platform Transaction Transparency Act. The specified digital platform operators are required to comply with the information disclosure obligations. More specifically, the specified digital platform operators need to provide information regarding criteria for refusal of transactions, reasons for requests to use its own services, main parameters determining ranks in search results, conditions on the collection and utilisation of data, and the complaint handling system. In addition, the specified digital platform operators are obliged to provide advanced notice regarding requests not described in the terms and conditions, refusal of transactions and reasons for changes in the terms and conditions. Separately, the specified digital platform operators are required to disclose information regarding the main parameters that determine ranking in search results, conditions on the collection and utilisation of data, among other factors, unlike EU’s B to B platform regulation. The specified digital platform operators need to prepare annual reports describing its status of compliance with the Digital Platform Transaction Transparency Act and the METI will review the submitted report. Where the specified digital platform operators do not comply with these obligations, the METI will request the JFTC to take appropriate measures pursuant to the AML against the digital platform operators’ conduct that impedes transparency and fairness and violates the regulation on unfair trade practices. In a case where such violation is considered serious, the METI is obliged to make such request to the JFTC. With regard to the guidelines, in June 2017, the JFTC generally revised the Guidelines Concerning Distribution Systems and Business Practices to address the recent actual situation regarding distribution systems in Japan. This revision clarified the criteria used to determine the illegality of the conduct at issue, by assessing the scope of influence of the transactions, depending on certain factors, and the factors to be considered are
- the actual inter-brand competition conditions (such as market concentration, characteristics of the products in question, the degree of product differentiation, distribution channels, difficulty of new market entry, etc)
- the actual intra-brand competition conditions (such as the degree of dispersion in prices, and business types of distributors, etc, dealing in products in question, etc),
- the position in the market of an enterprise that imposes vertical restraints (in terms of a market share, ranking, brand value, etc),
- the impact of vertical restrictions on business activities carried out by the affected trading partners (such as the degree and manner of the restraint, etc) and
- the number of trading partners affected by the restraint, and their positions in the market.
When examining these factors, due consideration should be given to not only anticompetitive effects (such as the reduction or elimination of inter-brand or intra-brand competition), but also the pro-competitive effects that result from the vertical restraint, and the JFTC balances the anticompetitive effects against the pro-competitive effects to determine whether the conduct is likely to impede fair competition or not, such as the foreclosure effect and price maintenance effect. With respect to the foreclosure effect, it will be examined by taking into account the situation where such restraints make it difficult for the party to easily acquire alternative trading partners, and cause an increase of their expenses for conduct of business, or discouragement from entering the market or developing new products. For the price maintenance effect, it will be examined by assessing whether price competition for products included in the enterprise’s brand may be impeded, and whether the restrictions may have price maintenance effects. These examinations should be made also taking other enterprises’ actions into consideration. For example, if two or more enterprises impose vertical non-price restraints respectively and in parallel, those restraints are more likely to have a price maintenance effect on the market as a whole than in the case where a single enterprise imposes a vertical non-price restraint.
With respect to the specific type of conduct, while resale price maintenance and restrictions on distributors’ trading partners, such as a prohibition of sales to price-cutting retailers, are in principle illegal, as they usually tend to impede price competition, other non-price restrictions are assessed to determine whether they have a foreclosure effect or price maintenance effect, by balancing their anticompetitive effects against their pro-competitive effects, and considering case-specific factors. Further, while the revision introduced a new item, tying, the content of the regulation is almost the same as that set out in the Exclusionary Private Monopolisation Guidelines (as of 28 October 2009). It is noteworthy that the regulation on e-commerce transactions and platform businesses is newly incorporated into the guidelines, and these methods of assessment will be applied to e-commerce transactions and platform business as well. In relation to platform businesses, the Guidelines Concerning Distribution Systems and Business Practices state that the network effect could be an important factor in assessing competitive effects.
In addition, 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, on 17 December 2019. The JFTC confirmed that the regulation against the abuse of a superior bargaining position can be applied to not only B to B transactions but also B to C transactions, and also can be applied to the free transaction in exchange of receiving personal information of users. According to the Guidelines Concerning Abuse of a Superior Bargaining Position in Transactions between Digital Platform Operators and Consumers that Provide Personal Information, etc, a digital platform operator is normally in a superior bargaining position over the consumers; (i) when there is no other digital platform operator that provides services alternative to the said service for the consumers; (ii) when other digital platform operator providing the alternative service exists, it is practically difficult to stop using the said service; or (iii) when the digital platform operator providing the said services is in a position to control somewhat freely the trade terms, such as prices, qualities and quantities. Then, the digital platform operator may be found to be engaged in abusive conduct if the digital platform operator unjustifiably acquires personal information, etc such as 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 and causing consumers in continuous use of services to provide other economic interests like personal information, in addition to the consideration provided in exchange for the use of services, and unjustifiably use personal information, etc, such as using personal information against the intention of consumers beyond the scope necessary to achieve the purpose of use and using personal data without taking the precautions necessary and appropriate for the safe management of personal information.
With regard to specific cases, the JFTC has aggressively launched several investigations against foreign companies. For example, in the IT sector, the JFTC is said to have launched an investigation against several US internet and platform companies, including Amazon and Apple.
In August 2016, the JFTC reportedly launched an investigation of AJGK and the JFTC closed the investigation in June 2017, since AJGK voluntarily implemented proposed measures, such as removing parity clauses (as well as the most favoured nation clauses). Further, the JFTC publicly announced that AJGK voluntarily removed parity clauses in the e-book related agreements as well. However, recently, AJGK has been further investigated by the JFTC. Reportedly, in March 2018, the JFTC conducted a dawn raid against AJGK on the suspicion that AJGK unduly forces sellers in its marketplace to provide deposits under the guise of “cooperative money,” and such conduct may constitute the abuse of a superior bargaining position. Also, although AJGK planned to newly launch the loyalty programme (point programme) for users of its marketplace, and thus to impose the economic burden on sellers on the platform, it is reported that the JFTC showed interest in AJGK’s business plan and informally investigated them; thereafter, AJGK withdrew the plan in advance on 10 April 2019. The JFTC officially confirmed that it had closed the investigation on 11 April 2019.
In 2016, the JFTC investigated a standard essential patent case. The JFTC found that a patent pool called One-Blue LLC (One-Blue) violated the AML, by unjustly interfering with the transactions of a competitor, and excluded such competitors. In this case, One-Blue had declared that they would license the BD Standard Essential Patents on FRAND (fair, reasonable and non-discriminatory) terms, but One-Blue sent a notice to major customers of competitors, who were seeking to obtain licences from One-Blue, informing them that One-Blue had the right to seek an injunction against infringement. The court found that One-Blue was not allowed to exercise the right to seek an injunction, because this constituted an “abuse of rights”. The above JFTC’s announcement came after such court decision, and it announced that the JFTC had closed the investigation, as One-Blue had ceased the conduct at issue.
Further, the JFTC launched an investigation into an online platform business undertaking (Minna no Pet Online Co, Ltd), which was suspected of operating its online pet shop by dealing on exclusive terms, and announced that the JFTC had closed the investigation, as the online business had voluntarily ceased the suspect activity on 23 May 2018. The JFTC said that the online business operates two websites that intermediate transactions for dogs and cats between breeders and consumers, and is an influential enterprise operating a pet intermediation website, with a track record of intermediation through its own website. Also, the JFTC announced that the online business was suspected of restricting breeders registered on its site from posting information about dogs and cats on other pet intermediary websites, and that that might cause a reduction in the number of sales distributors using other intermediary websites, and reduce opportunities available to the other similar online businesses. In relation to this case, the JFTC has expressed that, in light of the network effect in the context of online platform businesses, early preventive enforcement would be required.
Moreover, on 11 July 2018, the JFTC publicly announced that the JFTC closed the investigation against Apple Japan G.K. and Apple Inc. (Apple), which has been ongoing since October 2016. Among the suspected contract terms in the supply contacts of iPhones (iPhone Agreements) with the major three mobile network operators, NTT DoCoMo, Softbank and KDDI (3 MNOs), the JFTC found that the mandatory minimum subsidies that 3 MNOs provide to end users purchasing iPhones could restrict the reduction of telecommunication fees and hinder the provision of low and diverse fee plans by telecommunication service providers, including 3MNOs and thus it likely violates AML. In this regard, as Apple modified the iPhone Agreements with 3MNOs and the modified term provides that 3MNOs provide end users with the plan with subsidies and the plan without subsidies (Alternate Plans) in a fair and clear manner with sufficient information provided to end users, the JFTC concluded that, as long as 3MNOs’ sales promotion activities of Alternate Plans are not hindered, this form of presentation will enable users to select the optimal service plans from a variety of service plans, promoting competition through users’ reasonable choice of telecommunication services. Therefore, the JFTC determined to close this investigation.
Besides, the JFTC publicly announced that the JFTC closed the investigation against Airbnb Japan Co. Ltd and Airbnb Ireland UC (collectively, Airbnb) on 10 October 2018. The JFTC launched the investigation to examine whether Airbnb unduly imposes restrictions on hosts for the usage of other competitors’ application programming interfaces (API), and it may constitute private monopolisation, trading on exclusive terms or trading on restrictive terms. As a consequence, Airbnb voluntarily waived its right to restrict hosts’ usage of other competitors’ API, and the JFTC determined to close this investigation.
Further, the JFTC conducted on-site investigation against Rakuten. under the suspicion that in the contracts between Rakuten and accommodation operators that place information about accommodations on the website named “Rakuten Travel” operated by Rakuten, Rakuten set the conditions to require that the operators provide the most favoured provisions, such as the prices and the numbers of rooms, compared to other distribution channels with the minimum number of rooms requirement, and the JFTC alleged that such MFN clauses may constitute one kind of unfair trade practice. In conclusion, the JFTC approved Rakuten’s commitment plan on 25 October 2019 which ceases the said MFN clauses and commits to not introduce similar types of clauses for three years, and closed its investigation. Also, the JFTC conducted onsite investigation against Rakuten again under the suspicion that Rakun unilaterally imposed shipping fees on sellers by uniformly introducing a campaign to set the shipping fee at no cost without giving a choice for sellers, which was suspected of violating the regulation against the abuse of its superior bargaining position to the sellers. The JFTC filed a petition to the court to temporarily stop Rakuten from engaging in the act on 28 February 2020, but, the JFTC withdrew its petition on 10 March 2020 as Rakuten voluntarily suspended the introduction of the campaign and is seeking to make changes in response to the concerns raised by the JFTC and sellers as necessary.
These behaviours show a strong interest in major internet platform companies, as described in the Chairman’s message for 2020.
In relation to a separate sector, the energy sector, in June 2016, the JFTC published a report regarding liquefied natural gas (LNG) transactions. In that report, the JFTC clearly indicates that certain types of destination clauses, destination restrictions, profit share clauses and take-or-pay clauses are likely to be in violation of the AML. With regard to FOB contracts, providing destination clauses is likely to be in violation of the AML, and restrictions on diversions, as well as providing destination clauses, are highly likely to be in violation of the AML. In addition, in terms of DES contracts, providing profit share clauses is not in itself problematic under the AML. However, (i) when such clauses contribute to unreasonable profit sharing with a seller, or (ii) when such clauses prevent a buyer from reselling due to a seller’s request to disclose the profit or cost structure, these are likely to be in violation of the AML. The JFTC has strongly expressed that in the future it will expect parties to renegotiate and amend existing contracts and new contracts, to remove anticompetitive clauses and trading customs, and it appears that this has been starting to successfully take place.
Also, the JFTC is continuously revising guidelines regarding the electric power and gas transaction markets, to facilitate liberalisation for their market. The JFTC has investigated Osaka Gas Co, Ltd (“Osaka Gas”) under the suspicion that Osaka Gas unjustly forced distributors to buy Osaka Gas branded fan heaters, and warned that such conduct may be in violation of the regulation against the abuse of a superior bargaining position on 24 January 2020. Also, the JFTC has investigated Osaka Gas under the suspicion that Osaka Gas has been unjustly excluding competitors in the relevant market, but the JFTC decided to close the investigation on 2 June 2020, as Osaka Gas voluntarily offered the JFTC revisions of the stipulations of the multipoint contract and gas supply contract to reduce customers' payment, accompanying a change of the gas supplier from Osaka Gas to a competitor.
As a separate matter, in February 2018, the CPRC published a report with regard to human resources and competition policy. The report indicates that, for example, a situation where an employer that has a superior bargaining position imposes non-compete obligations on its employees, and this has an unduly adverse effect on such employees, would constitute an abuse of a superior bargaining position. In addition, the JFTC published a statement with regard to the restrictions on the transfer of athletes in the field of sport businesses on 17 June 2019, and sounded an alarm on the fact that at least the excessively broad restrictions on the transfer of athletes would not have justifiable grounds, and thus such restrictions may violate the AML. The Japanese government further plan to establish guidelines concerning protection on freelances by the AML, Subcontract Act and labour laws.
Answer contributed by
Kojiro Fujii and