This chapter provides an overview of developments relating to antitrust law in Japan and enforcements made by the Japan Fair Trade Commission (JFTC) from January 2020 to February 2021. While some activities, including dawn raids, may have been limited under covid-19 conditions, the JFTC continues to take enforcement action against cartel conduct and vertical restraints.
- Amendment to the Japanese antitrust law came into full force in December 2020;
- criminal accusations on bid rigging by pharmaceutical products wholesalers;
- the first case where the JFTC imposed administrative fines for an exclusionary type of private monopolisation; and
- new enforcement trends under the commitment procedures.
Referenced in this article
- JFTC – Japan Fair Trade Commission;
- Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA);
- JFTC’s criminal Accusation against Pharmaceutical Wholesalers over Coordination of Bids by Japan Community Health Care Organization;
- JFTC Issued a Surcharge Payment Order against Mainami Aviation Services Co, Ltd;
- Approval of the Commitment Plan submitted by Amazon Japan GK;
- Approval of the Commitment Plan submitted by Genky Stores, Inc;
- Approval of the Commitment Plan submitted by Cooper Vision Japan, Inc;
- Approval of the Commitment Plan submitted by SEED Co, Ltd; and
- Approval of the Commitment Plan submitted by Nihon Medi-Physics Co, Ltd.
The Japan Fair Trade Commission (JFTC) is the enforcement authority in Japan for anticompetitive conducts prohibited by Japanese antitrust law – the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA). The four main regulations of the AMA are:
- cartels and bid riggings;
- private monopolisation;
- unfair trade practices; and
- merger control.
The JFTC may issue a cease-and-desist order against a violation of the AMA and may impose surcharges (administrative fines) for certain conducts designated by the AMA.
Throughout 2020 and under covid-19 conditions, anti-cartel enforcement activities continued to be an important part of the JFTC’s enforcement efforts. The JFTC has also been taking proactive enforcement action in a number of non-cartel cases, including vertical restraints. The JFTC has expressed strong concerns about major companies in digital markets and has investigated them for their alleged anticompetitive conducts. Moreover, it was notable that anticompetitive conducts deemed private monopolisation were probed, as they do not often come to light.
The amendment to the AMA came into full force in December 2020, one-and-a-half years after it was enacted in June 2019. This amendment includes the revision of the surcharges scheme and leniency programme. In accordance with the amendment, ‘Japanese attorney–client privilege’ was introduced under the JFTC’s rules on investigation.
Amendment to the AMA
The amendment to the AMA came into force in December 2020, with the exception of some sections that were already in effect. The amendment introduced a new system for calculating the reduction rate of surcharges based on the degree of the applicant’s cooperation with the JFTC in its investigation as part of the Japanese leniency programme.
The surcharge system in Japan, introduced in 1977 as an administrative sanction, aims to prevent violations of the AMA by imposing financial penalties. While it has been amended several times since its introduction, increasing globalisation and complexity of business structures have led the JFTC to conduct a further review of the surcharge system.
In 2016, the JFTC established a Study Group on the AMA, with the objective of re-evaluating and addressing issues regarding the surcharge system, which issued its report  in April 2017. The inflexibility of surcharge calculation methods and the lack of sufficient incentives for businesses to cooperate in JFTC investigations were flagged as the main problems. By 2018, following a public consultation in mid-2017 on the issues raised in the report, the JFTC began to prepare a proposed bill to amend the AMA. The submission of the bill was, however, postponed after the governing political party, the Liberal Democratic Party (LDP), sought further discussions on the introduction of attorney–client privilege, a concept not previously recognised in Japanese law. After a year of discussions, the National Diet finally passed the bill amending the AMA on 19 June 2019,  which was promulgated on the 26th of the same month.
Under the new surcharge system, the JFTC extended the period of transactions to be included in the basis of the calculation of surcharges from three to 10 years. Moreover, the calculation basis of the surcharge now includes the total sales of companies that belong to the same company group as the violators and that receive instructions or information from the violators. The surcharge is calculated by multiplying the basis amount by the surcharge rate, which is 10 per cent in principle, and adjusted by adding any financial gain obtained from taking part in the cartel by not supplying and by making any applicable reductions under the leniency programme, which includes reductions based on cooperation. The JFTC publishes the guidelines  on this new system for calculating the reduction rate and shows the basic views on how the JFTC assesses the applicant’s cooperation and how the reduction rate is determined.
The newly established attorney–client privilege will apply to administrative investigation procedures against cartels and bid riggings. If conditions are met, JFTC investigators cannot access documents containing communications between a company and its external attorney (in some limited cases, a qualified in-house lawyer) regarding legal opinions on cartel or bid rigging conduct. The JFTC’s guidelines  explain the conditions for application, but Japanese attorney–client privilege is unlike that in other jurisdictions in many ways. In particular, documents or electronic data for which privilege is asserted must be stored appropriately in accordance with these conditions: appropriate labelling; suitable storage location; and limited number of persons who know the contents of the communications. As a condition for privileged emails, for example, the email must only be sent from and received on a designated email account, and the email account may not be used for any other purpose.
In 2020, the JFTC issued cease-and-desist orders for four cartel or bid rigging cases. The total amount of surcharges imposed was approximately ¥4.3 billion – rather low compared to the previous year (¥69.3 billion) but not strikingly low in view of the aggregate penalties in other years (¥2.2 billion in 2018 and ¥7.5 billion in 2017). Cease-and-desist and surcharge payment orders in cartel and bid rigging cases were issued only for conduct related to domestic markets in 2020. The authority, however, maintains a close relationship with competition agencies in other jurisdictions in respect of international cartels.
In addition, the JFTC has a policy to seek criminal penalties in cases that: (i) it considers as serious or having a widespread impact on consumer welfare; or (ii) involve firms or industries that are repeat offenders, or that have not complied with administrative measures issued by the JFTC.  In 2020, the JFTC filed criminal charges against the wholesalers of pharmaceutical products.
Bid rigging related to a magnetic-levitation train project
One of the four cases where the JFTC issued cease-and-desist orders for in 2020 involved four construction companies over alleged bid rigging related to a magnetic-levitation train project. This is the same case that the JFTC had filed criminal charges for in 2018. That year, the Tokyo District Court imposed criminal fines on two of the four construction companies that admitted to their involvement in the bid rigging (¥200 million on Obayashi Corporation and ¥180 million on Shimizu Corporation). The JFTC imposed surcharges of ¥3.118 billion and ¥1.203 billion on these two companies, respectively, on 12 December 2020.  The amount of surcharges was determined by subtracting half of the criminal fines from the base calculation of surcharges. Both companies also received the 30 per cent reduction applicable for leniency applicants.
The two other construction companies, Taisei Corporation and Kajima Corporation, as well as their former executives, denied their involvement in the conduct. However, the court ruled the companies and the executives guilty and imposed criminal fines of ¥250 million on the companies on 1 March 2021. The companies are considering to appeal the conviction. It is to be noted that the JFTC did not impose surcharges on these two companies because they did not win the bid in question and did not generate any sales as a result of the bid rigging.
Criminal accusation on bid rigging by pharmaceutical wholesalers
In December 2020, the JFTC filed criminal charges against three pharmaceutical wholesalers and their employees over their alleged bid rigging involving drugs purchased by the Japan Community Healthcare Organisation (JCHO). 
The case came to light because of the 28 November 2019 dawn raid by the JFTC against four wholesalers, and later the 13 October 2020 dawn raid that was jointly conducted by the JFTC and the special investigation unit of the Public Prosecutors’ Office. One of the four wholesalers is reported to have been the first applicant for leniency in the case, and the JFTC refrained from filing criminal charges against the company.
Through the investigations, the JFTC found that in June 2016, at a conference room in Tokyo, five of the seven accused employees set the bid success rate of each of the three companies for orders from the JCHO in relation to the 57 hospitals the organisation operates. To accomplish the set success rates, the employees agreed on the successful bidder in each category of the ordered drugs and conspired to tender at prices that would allow the chosen bidder to win the bids. The JCHO holds the same bid every two years, and in June 2018, six out of the seven accused employees agreed to a similar arrangement for the bids for the JCHO’s 57 hospitals.
The JFTC’s secretary general commented that bid rigging of necessities, such as drugs, has a serious and widespread impact on consumer welfare. The Ministry of Health, Labour and Welfare eliminated the sales data of the relevant purchases by the JCHO from their calculation basis of the market prices of drugs, which are used in the medical payment revision system once every two years. The media reported that the JCHO’s relevant purchases amount to approximately ¥73.9 billion, and each of the four pharmaceutical companies, including the leniency applicant, is said to have been successful in 20 per cent to 30 per cent of the bids. The criminal case at the Tokyo District Court and the JFTC’s administrative review will proceed in parallel to decide on the criminal penalties and the administrative sanctions against the three companies and their seven employees.
Private monopolisation is one of the four main regulations under the AMA, which has two types: an exclusionary type and a control type of private monopolisation. There are not many precedents that the JFTC found to be in violation of the regulation of private monopolisation, and there had been no cases where the JFTC imposed the surcharges for private monopolisation.
Mainami Aviation Services case
The JFTC issued a cease-and-desist order on 7 July 2020  and a surcharge payment order (¥6 million) on 19 February 2021  against Mainami Aviation Services Co Ltd on its anticompetitive conduct deemed an exclusionary type of private monopolisation. The last cease-and-desist order for an exclusionary type of private monopolisation was issued in 2009, and this is also the first case where the JFTC imposed surcharges for private monopolisation.
Mainami Aviation Services supplies aviation fuel at airports located in Japan. At Yao Airport in Osaka Prefecture, the company was the sole supplier until a new company entered the market in 2016. After the new supplier started offering fuel at Yao Airport, Mainami Aviation Services notified its customers that it would not provide fuel to those who purchased from the new supplier, and required them to sign a disclaimer absolving Mainami Aviation Services from any responsibility for accidents caused by mixing its fuel with the new entrant’s fuel.
The company filed a lawsuit in court in January 2021 to cancel the cease-and-desist order and is planning to file another lawsuit for the surcharge payment order, arguing that the alleged conduct was a result of safety and quality control and that it did not intend to exclude its competitors.
Since Mainami Aviation Services continued the alleged conducts when the JFTC issued the cease-and-desist order in 2020 and the JFTC could not determine the amount of surcharge, the JFTC was unable to issue a surcharge payment order at that time.
Unfair trade practices
The AMA prohibits unfair trade practices, which consist of 12 types of conduct:
- refusal to deal (concerted or other);
- discriminatory pricing and discriminatory treatment;
- unjust low price sales;
- deceptive customer inducement;
- unjust high price purchasing;
- tie-in sales;
- abuse of superior bargaining position;
- resale price restriction;
- dealing on exclusive terms;
- dealing on restrictive terms;
- interference with competitors’ transactions; and
- interference with internal operations of competitors.
The JFTC may issue a cease-and-desist order for unfair trade practices and may impose surcharges for certain types of unfair trade practice, as follows:
- concerted refusal to deal;
- discriminatory pricing;
- unjust low price sales;
- abuse of superior bargaining position; and
- resale price restriction.
Abuse of superior bargaining position
The JFTC has of late been proactively taking action against anticompetitive conduct deemed as abuse of superior bargaining position, in particular against activities of platform operators, including Amazon and Rakuten. The relationship between franchisor and franchisee has also been getting attention from the JFTC in terms of abusive conducts by franchisors.
When a company, by making use of its superior bargaining position over another party, establishes trade terms and conditions that are disadvantageous to the other party in light of normal business practices, it may be deemed to be committing an abuse of superior bargaining position.
The term ‘superior bargaining position’ means a relatively superior bargaining position as compared to the other transacting party. It is not required to have a dominant market position or an absolutely dominant bargaining position in a relevant market. For example, Company A makes a request that is substantially disadvantageous to Company B. Since Company B’s business would be substantially impeded if Company B encounters difficulty in continuing to deal with Company A, Company B is unable to refuse such a disadvantageous request. In such a case, Company A is deemed to have superior bargaining position over Company B. In determining the presence or absence of superior bargaining position, the JFTC considers:
- the degree of dependence by Company B on transactions with Company A;
- the position of Company A in the market;
- the possibility of Company B changing its business counterpart; and
- other facts that show Company B needs to carry out transactions with Company A.
This type of unfair trade practice has been found traditionally in the relationship between suppliers and retailers. The JFTC has been trying to expand the application of this regulation to several sectors, including digital markets, franchise business, the credit card market, start-up business and freelance business, and continues to monitor business activities in these sectors from the perspective of abuse of superior bargaining position.
New enforcement trends under the commitment procedures
Since the introduction of the commitment procedures in December 2018 under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the JFTC has closed several investigations regarding unfair trade practices under the commitment procedures. In 2020, five cases were closed after the suspected companies submitted the commitments, of which two cases related to abuse of superior bargaining position, two to restrictive conditions and one to private monopolisation and interference with a competitor’s transaction.
Under the CPTPP, a member country is required to ‘authorize its national competition authorities to resolve alleged violations voluntarily by consent of the authority and the person subject to the enforcement action’. The commitment procedures allow the JFTC to close an investigation into suspected violations of the AMA, following a commitment provided by the relevant party to the JFTC.
The guidelines on the commitment procedures (Policies Concerning Commitment Procedures)  issued by the JFTC in September 2018 include the basic framework for the commitment procedures, such as the scope of application and requirements of commitment measures to be submitted for approval, including typical examples, such as cessation of the suspected violation, development of compliance programme and amendments to contracts. The guidelines also clarify that the commitment procedures are not to be applied to:
- hard-core cartels, including bid rigging and price-fixing;
- repeated suspected violations by the same entities within the previous 10 years; and
- other vicious and serious suspected violation that would be subject to criminal prosecution.
The commitment procedures enable competition law concerns to be solved swiftly and a potential anticompetitive conduct to be terminated. When the proposed commitment measures are approved by the JFTC, neither a cease and desist order nor a surcharge payment order will be issued to the suspected party.
Cases closed under the commitment procedures
One of the cases related to abuse of superior bargaining position was an investigation against Amazon Japan. Amazon was suspected of abusive conduct, including requests to its suppliers to bear the cost of discounts because of competing prices; accepting unreasonable product returns; and providing excessive contributions to improving its system.
Amazon proposed commitments that included the termination of the alleged anticompetitive conducts and refunds for the suppliers. Amazon was expected to return approximately ¥2 billion in total to around 1,400 suppliers. Having accepted the commitment plan, the JFTC closed the case in September 2020  and did not rule on whether Amazon’s alleged conduct was an infringement of the AMA. Accordingly, no sanctions, including cease-and-desist orders, were imposed on Amazon.
In addition, in August 2020, the JFTC approved the commitments proposed by a drugstore chain suspected of abusive conduct and of using its superior bargaining position against its suppliers by forcing them to purchase unrelated products; provide labour for displaying merchandise on shelves in stores; and accept unreasonable product returns. 
With regard to restrictive terms and conditions, the JFTC raided three contact lens manufacturers in June 2019 on suspicion that they had requested retailers of their disposable contact lenses not to display the retail prices in their advertisements and not to sell the lenses online to customers who had a prescription. While the manufacturers’ alleged conduct may be deemed restrictive and the type of unfair trade practice prohibited by the AMA, two of them proposed commitment plans that the JFTC accepted in June and November 2020.  Their commitments included ceasing the alleged anticompetitive conduct; giving notice to retailers, customers and employees about the cessation; and conducting training for employees.
In another case, a radiopharmaceutical company submitted commitments that the JFTC approved in March 2020.  The company had been the sole manufacturer of fludeoxyglucose (FDG), a radioactive tracer used for neuroimages in cancer diagnosis, until a new company entered the market. The JFTC suspected the company of interrupting the new entrant by informing its wholesaler that the company would refuse the trade if the wholesaler purchased from the new entrant, as well as informing hospitals that the new entrant’s devices were incompatible with FDG produced by the company. While these conducts may be deemed private monopolisation and interference with a competitor’s transaction, the JFTC closed its investigation after having approved the commitments.
Digital markets and e-commerce
The JFTC has probed major companies in digital markets, including Amazon as mentioned above, and Rakuten, one of the biggest online mall operators in Japan, on suspicion of infringing the regulations of unfair trade practices.
With regard to Rakuten case, on 28 February 2020, the JFTC filed a petition for an urgent injunction order to the court against Rakuten’s planned free shipping services programmes,  which was withdrawn after Rakuten announced its decision to postpone the uniform introduction of the programmes. Under the free shipping services programmes, customers who spend ¥3,980 or more in Rakuten’s online mall would get free shipping, while suppliers would bear the shipping costs. The JFTC has been investigating on suspicion that the programmes may constitute abuse of superior bargaining position
In addition, a new law affecting digital markets came into force on 1 February 2021 to ensure that the platforms operate with transparency and fairness. Under the new law, major overseas/domestic digital platform operators designated by the authority are required to disclose the terms and conditions of their contracts with users; take other measures, including the establishment of procedures and administrative organs to ensure the fairness of transactions and dispute settlement procedures; and submit annual reports and self-assessments to the authority on the status of their implementation of the above measures. When the authority finds any conduct that is deemed likely to violate the AMA, it will request that the JFTC take actions under the AMA.
The number of merger filings at the JFTC has been relatively stable, with only a slight decrease compared to the immediately preceding year. From April 2019 to March 2020 (FY2020),  the JFTC accepted 310 notifications, of which 300 were cleared in Phase I (including 217 with early termination), nine were voluntarily withdrawn by the parties, and one was brought into Phase II. In terms of the competitive landscape between the parties, 187 involved horizontal overlaps, 128 involved vertical relationships and 135 involved conglomerate business combinations.
Effective use of pre-notification consultation with the JFTC was key to the high Phase I clearance rate. Parties may benefit from informal discussions with the authority during the pre-notification phase, which often extends to substantive competition issues. Sometimes, the parties discuss and agree on remedies to obtain conditional clearance during Phase I.
The JFTC is also keen to employ economic analysis in complex cases. Out of 10 notable decisions published by the authority in FY2020, two involved the use of economic analysis.
Two decisions relating to the digital market were published by the JFTC: Integration of Z Holdings Corporation and LINE Corporation  and Acquisition of Fitbit by Google.  These cases were reviewed in accordance with the amended portion of the Merger Review Guidelines  that provides key considerations for the authority’s scrutiny of digital markets.
The JFTC conducted several market studies and published reports on digital markets, including online restaurant-review platforms,  retail reward-point systems  and digital advertising,  as well as other sectors such as fintech in the banking sector,  franchising business in the convenience stores sector  and start-up business. 
While the JFTC has not found any specific anticompetitive conducts in the market studies, it has flagged a number of potential anticompetitive conducts and promotes awareness to the relevant parties. The JFTC continues to carefully scrutinise digital markets as well as other sectors, and may conduct surveys or market research on these sectors if it considers it necessary.
Outlook in 2021
The JFTC is expected to continue to focus on cartel enforcements, enforcements against vertical restraints particularly in digital markets, and merger control enforcements. In the area of cartel enforcements, it is worth observing how the new leniency regimes and attorney–client privilege will be applied in actual cases going forward.
 ‘Report of the Study Group on the Antimonopoly Act’, published on 25 April 2017. See the JFTC press release of 25 April 2017 (www.jftc.go.jp/en/pressreleases/yearly-2017/April/170425.html).
 See the JFTC press release of 19 June 2019 (www.jftc.go.jp/en/pressreleases/yearly-2019/June/19061907.html).
 ‘Guidelines on treatment of objects recording confidential communications between an enterprise and an attorney’, the JFTC, published on 7 July 2020 (www.jftc.go.jp/en/legislation_gls/20122503.pdf.
 ‘The Fair Trade Commission’s Policy on Criminal Accusation and Compulsory Investigation of Criminal Cases Regarding Antimonopoly Violations’, the JFTC, revised 16 December 2020, p. 1 (www.jftc.go.jp/en/legislation_gls/210312.pdf).
 See the JFTC press release of 22 December 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/December/201222.html).
 See the JFTC press release of 9 December 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/December/201209.html).
 See the JFTC press release of 7 July 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/July/200707.html).
 See the JFTC press release of 19 February 2021 (www.jftc.go.jp/en/pressreleases/yearly-2021/February/210219.html.
 ‘Policies Concerning Commitment Procedures’, the JFTC, published on 26 September 2018 (www.jftc.go.jp/en/legislation_gls/antimonopoly_rules_files/policies_concerning_commitment_procedures.pdf).
 See the JFTC press release of 10 September 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/September/200910.html).
 See the JFTC press release of 5 August 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/August/200805.html).
 See the JFTC press release of 4 June 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/June/200604.html) and 12 November 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/November/201112.html).
 See the JFTC press release of 12 March 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/March/200312.html).
 See JFTC press release of 28 February 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/February/200228.html).
 See the JFTC press release of 22 June 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/July/200722.html).
 See the JFTC press release of 4 August 2020 (www.jftc.go.jp/en/pressreleases/yearly-2020/August/200804.html).
 See the JFTC press release of 14 January 2021 (www.jftc.go.jp/en/pressreleases/yearly-2021/January/210114.html).
 ‘Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination’, the JFTC, revised on 17 December 2019 (www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines_files/191217GL.pdf).
 See the JFTC press release of 18 March 2020 (www.jftc.go.jp/houdou/pressrelease/2020/mar/200318.html), which is available only in Japanese.
 See the JFTC press release of 12 June 2020 (www.jftc.go.jp/houdou/pressrelease/2020/jun/200612.html), which is available only in Japanese.
 See the JFTC press release of 17 February 2021 (www.jftc.go.jp/en/pressreleases/yearly-2021/February/210217.html).
 See the JFTC press release of 21 April 2020 (www.jftc.go.jp/houdou/pressrelease/2020/apr/200421.html), which is available only in Japanese.
 See the JFTC press release of 2 September 2020 (www.jftc.go.jp/houdou/pressrelease/2020/sep/200902_1.html), which is available only in Japanese.
 See the JFTC press release of 27 November 2020 (www.jftc.go.jp/houdou/pressrelease/2020/nov/201127pressrelease.html), which is available only in Japanese.