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This chapter provides a comprehensive overview of cartel regulation in Japan, including the recent amendment to the Anti-Monopoly Act in 2019.
- Overview of cartel regulation in Japan – cease-and-desist orders, payment orders for surcharge and criminal sanctions
- The Leniency Programme and the Reduction System for Cooperation in Investigations
- Practical issues of leniency
- International cooperation
- Private enforcement
Referenced in this article
- Act on the Prohibition of Private Monopolisation and Maintenance of Fair Trade (Act No. 54 of 14 April 1947) (the Anti-Monopoly Act) (https://www.jftc.go.jp/en/policy_enforcement/21041301.pdf)
Cartel regulation in Japan
Cartels are prohibited in Japan as an ‘unreasonable restraint of trade’, stipulated in article 3 of Act No. 54 of 1947, as amended, otherwise known as the Anti-Monopoly Act (AMA). Although the AMA does not include any particular provisions about extraterritorial applicability, the position of the Japan Fair Trade Commission (JFTC), and the generally accepted view in Japan is that, even if alleged violators have no physical presence in Japan, the AMA could be applied to conduct occurring outside Japan as long as such conduct results in certain substantial effects on Japanese markets, and the Supreme Court of Japan confirmed this in 2017.
The JFTC has been consistently vigorous in its investigation of international cartels, and with the amendment to the AMA introduced in 2002, the JFTC is now able to service its orders against foreign companies by way of service by publication in cases where service though diplomatic routes proved to be unfeasible. Service by publication is a method of service in which an order is deemed to be served to the recipient after a certain period from the date the JFTC posts the order on the board in front of the JFTC office. Accordingly, if the JFTC intends to issue a reporting order to a foreign company, eventually, it is able to exercise its investigative power by simply making a service by publication against such foreign company (although it is customary for the JFTC to first request that the foreign company appoint an attorney in Japan and then serve the reporting order and other proceedings through such attorney).
The AMA explicitly requires substantial restraint of competition in the relevant market as an element to establish the illegality of cartels, and thus technically cartels are not illegal per se in Japan. However, naked cartels (ie, hardcore cartels), such as price cartels, quantity cartels and share cartels, are considered to have tendencies to generally restrain competition, and efficiency and other non-competition grounds will rarely justify the necessity of naked cartels. In most cases, the JFTC has no difficulty in proving that naked cartels cause a substantial restraint of competition in the market. As such, it would be fair to say that the JFTC enforces AMA cartel violations as vigorously as competition authorities in other jurisdictions of per se illegality do.
Under the AMA, the unreasonable restraint of trade is subject to administrative sanctions and criminal sanctions. In relation to administrative sanctions, cease-and-desist orders and payment orders for surcharge are available.
The JFTC may issue a cease-and-desist order pursuant to article 49, paragraph 1 of the AMA. A cease-and-desist order is an order to take measures necessary to eliminate the violation or to ensure that the violation is eliminated. Actions that can be ordered by a cease-and-desist order vary widely. In many cases, the JFTC may order the addressed company:
- to confirm that the violation has ceased;
- to notify consumers or users that it will perform business based on its own voluntary judgement, after taking corrective measures; and
- to report to the JFTC after taking such corrective measures.
There have also been cases where the addressed company was ordered to implement a compliance programme, including:
- preparing a code of conduct regarding compliance with the AMA;
- conducting regular training sessions for sales staff regarding compliance with the AMA; and
- having the legal department conduct audits regularly (eg, the Hard Disk Drive Suspension Assemblies price cartel case, JFTC cease-and-desist order, 9 February 2018).
In another case, the addressed company was ordered to transfer certain employees to different positions (eg, the Asphalt Mixture price cartel case, JFTC cease-and-desist order, 30 July 2019).
The statute of limitations for the JFTC to issue a cease-and-desist order is seven years. The statute of limitations starts from the date on which the company discontinues the violation.
Payment order for surcharge
The JFTC must order a payment of surcharge when it finds an unreasonable restraint of trade that relates to consideration (article 7-2, paragraph 1 of the AMA). The amount of surcharge is basically calculated by multiplying the amount of sales of the relevant products during the period in which the unreasonable restraint of trade was implemented by the surcharge calculation rate of 10 per cent. In addition, some instances where the company is deemed to have obtained unjust gains due to the infringement would also be taken into consideration regarding the basis of calculation after the 2019 amendment.
The maximum period subject to the surcharge is 10 years (or more, if the infringement continues after the JFTC commences its investigation), which was extended from three years in 2019.
The 2019 amendment further allowed the JFTC to estimate the amounts of the basis of calculation listed above, if the company does not provide materials that should form the basis for the calculation (article 7-2, paragraph 3, of the AMA).
The calculation rate for the surcharge will be increased to 150 per cent of the original rate if the relevant company, its 100 per cent subsidiary or a business that it has acquired by merger, corporate split or business transfer has been subject to a payment order for surcharge resulting from unreasonable restraint of trade or private monopolisation within the past 10 years. In addition, the calculation rate for the surcharge will also be increased to 150 per cent of the original rate if the company played a major role in an unreasonable restraint of trade, required or requested other companies to obstruct the JFTC’s investigation, or required or requested other companies not to apply for leniency (including the Reduction System for Cooperation in Investigation). If a company falls under both of the above cases, the calculation rate of surcharge will be doubled.
If certain requirements are satisfied, a company that has not committed any particular violation, but that acquires a business that has committed a violation by merger, corporate split or business transfer, can still be subject to a payment order for surcharge.
The statute of limitations for a payment order for surcharge is seven years.
Criminal sanctions are available for unreasonable restraint of trade. If an employee or officer of a company commits an unreasonable restraint of trade, the company may be punished by a fine of up to ¥500 million. Any individual who commits an unreasonable restraint of trade may be punished by imprisonment with labour for up to five years, a fine of up to ¥5 million, or both.
A criminal penalty may be imposed only after the JFTC filed a criminal accusation with the Prosecutor-General and only the JFTC is entitled to file such criminal accusations (article 96, paragraph 1 of the AMA). In practice, the JFTC determines whether to file criminal accusations after consulting with the Public Prosecutors’ Office at the Accusation Council.
Criminal sanctions are generally imposed only on very serious offences, and as such are not very often brought (typically fewer than one case per year). According to a JFTC policy statement, the JFTC will only file criminal accusations against serious cartels that widely affect people’s lives, repeat offenders or offenders refusing to abide by the JFTC’s administrative orders.
The leniency system was introduced in 2005. Table 1 shows the number of applications for leniency for each fiscal year since 2005.
Table 1: Number of applications for leniency for each fiscal year following the 2005 amendment
|Fiscal year||No. of leniency applications|
|4 January 2006 to 31 March 2006||26|
|1 April 2006 to 31 March 2007||79|
|1 April 2007 to 31 March 2008||74|
|1 April 2008 to 31 March 2009||85|
|1 April 2009 to 31 March 2010||85|
|1 April 2010 to 31 March 2011||131|
|1 April 2011 to 31 March 2012||143|
|1 April 2012 to 31 March 2013||102|
|1 April 2013 to 31 March 2014||50|
|1 April 2014 to 31 March 2015||61|
|1 April 2015 to 31 March 2016||102|
|1 April 2016 to 31 March 2017||124|
|1 April 2017 to 31 March 2018||103|
|1 April 2018 to 31 March 2019||72|
|1 April 2019 to 31 March 2020||73|
|1 April 2020 to 31 March 2021||33|
The leniency system was significantly amended by the 2019 amendment to the AMA. The 2019 amendment introduced a new system (the Reduction System for Cooperation in Investigation) where the reduction rate would be determined according to the degree of the company’s cooperation to the JFTC’s investigation in addition to the existing Leniency Programme where the reduction rate for leniency applicants were determined solely based on the order of the application and the reduction rate was provided as a fixed rate. With the addition of the new system, the reduction rates of the original Leniency Programme were lowered. Further, the amended Leniency Programme removed the limits to the number of applicants that may qualify for the reduction.
Table 2: Reduction rate after the 2019 amendment came into effect in 2020
|The date of application||The order of application for the Leniency Programme||Reduction rate according to the order of application(Leniency Programme)||Reduction rate according to the degree of cooperation(Reduction System for Cooperation in Investigation)||Total reduction rate|
|Before the investigation start date||1st||100%||N/A||100%|
+ up to 40%
|Up to 60%|
|3rd–5th||10%||Up to 50%|
|6th and after in order||5%||Up to 45%|
|After the investigation start date||Up to three*||10%||+ up to 20%||Up to 30%|
|Other than the above||5%||Up to 25%|
|*They can acquire the reduction rate on condition that the total number of applicants (the applicants who apply before the Investigation Start Date are included) is five or less.|
Source: JFTC website
Under the Leniency Programme of the AMA, the first company that reports its involvement in a cartel violation to the JFTC before a dawn raid is entitled to full exemption from administrative surcharges (article 7-4, paragraph 1 of the AMA). The second company to report before a dawn raid is entitled to a 20 per cent reduction of administrative surcharges, the third, fourth and fifth companies to report before a dawn raid are each entitled to a 10 per cent reduction, and the sixth company and after to report before a dawn raid is entitled to a 5 per cent reduction (article 7-4, paragraph 2 of the AMA). Even after a dawn raid, all companies that turn themselves in are entitled to a 10 per cent reduction of administrative surcharges as long as they are the fifth or earlier among both companies that self-reported before the dawn raid and companies that self-reported after the dawn raid, and are the third or earlier among companies that self-reported after the dawn raid, and any other companies that turn themselves in are entitled to a 5 per cent reduction (article 7-4, paragraph 3 of the AMA). An overview of the reduction rates under the Leniency Programme is described in Table 2. Application for leniency after a dawn raid is permitted only within 20 business days after the dawn raid.
Leniency applications must be filed by using a form prepared by the JFTC. Leniency applicants who submit Form 1 are granted the status of ‘marker’ and other applicants are prevented from leapfrogging such applicants. To obtain definitive leniency status (conditional on continuing cooperation, see below), those applicants must provide further detailed information by submitting a Form 2 within the period thereafter designated by the JFTC. The JFTC generally designates two weeks as such period, but may grant a longer period for foreign applicants, in consideration of the difficulties in communicating internationally and the time necessary for translation.
Leniency applicants after a dawn raid must submit Form 3 which requires the same extent of comprehensive information as Form 2. However, as a matter of practice, the JFTC will accept a submission with less comprehensive information accompanying submissions and allow the leniency applicant to supplement the information within 20 business days of the dawn raid. The definitive leniency status of an applicant after a dawn raid is also conditional on its continuing cooperation with the JFTC. All leniency application forms must be submitted in Japanese.
As mentioned above, the definitive leniency status of a leniency applicant is conditional upon its continuing cooperation with the JFTC; the leniency applicant must cooperate until a cease-and-desist order or a surcharge payment order is issued (or until the JFTC issues a notice that it will not issue such orders, in the case of the first applicant). Failure to submit reports and materials when required by the JFTC, or submission of false reports or materials, will disqualify the applicants from receiving leniency.
The JFTC also accepts oral leniency applications provided the JFTC deems there are special circumstances that make such type of application necessary. It is the JFTC’s policy never to disclose leniency materials in its possession upon the request of private plaintiffs or court orders, regardless of whether such requests are made in Japan or in foreign jurisdictions. According to the JFTC, by reporting orally and retaining no written copies of leniency application forms, leniency applicants should be able to avoid being subject to discovery obligations in relation to copies of leniency application forms.
The effect of the Leniency Programme is to fully or partially exempt successful applicants from the payment of administrative surcharges, and technically the Leniency Programme has no relevance to criminal sanctions under the AMA. However, the JFTC has expressed its position in its policy statement regarding its criminal accusations, stating that the JFTC will not bring criminal accusations against the first applicant before a dawn raid. It is at the JFTC’s discretion whether leniency applicants other than the first applicant before a dawn raid are subject to criminal sanctions.
Prior to 1 June 2016, only the names of applicants that have made a request for publication were made public; however, currently, names of all leniency applicants are made public at the time of the issuing of the surcharge payment order.
Reduction System for Cooperation in Investigation
The 2019 amendment to the AMA introduced a new system for reduction of administrative surcharges (Reduction System for Cooperation in the Investigation, article 7-5 of the AMA). Under this new system, a company that has applied for leniency (excluding the company that first applied (before a dawn raid)), may request a conference with the JFTC to discuss potential additional reduction rates taking into consideration the extent of the company’s cooperation, and enter into an agreement with the JFTC to that effect. Under this new system, companies that applied for leniency before a dawn raid may qualify for up to an additional 40 per cent reduction rate, and companies that applied for leniency after a dawn raid may qualify up to an additional 20 per cent reduction rate.
Leniency applicants that wish to use this new system must file a form (Form 4) with the JFTC within 10 business days from the date the company has received a written notice from the JFTC confirming receipt of the submission of reports and materials required for the application for leniency.
At the conference, the company is to explain the content of its intended cooperation, including the submission of reports and materials it intends to make pursuant to the potential agreement with the JFTC, and, in response, the JFTC is to present the additional reduction rate. With respect to the intended cooperation, the company must commit to respond to any additional requests from the JFTC regarding submission of reports and materials and allow inspections.
In the agreement, the JFTC will either specify a certain reduction rate or identify a range of the reduction rate within the statutory maximum rate (40 per cent for leniency applicants before the dawn raid and 20 per cent for leniency applicants after the dawn raid) taking into consideration to what extent the cooperation is likely to contribute to revealing the truth of the case.
With respect to the evaluation of to what extent the cooperation contributes to revealing the truth of the case, the JFTC will consider three factors, namely, whether the reports and materials submitted: (1) are specific and detailed; (2) comprehensively cover items that would contribute to revealing the truth of the case such as items relating to the relevant product, manner of cartel conduct, participants, period, status of implementation of the violation, any other items concerning the violation, figures that form the basis of calculating the surcharge amount and surcharge rate; and (3) can be established based on the materials submitted by the company. Further details are provided for in the guidelines issued by the JFTC (the Guidelines to Reduction System for Cooperation in Investigation).
Table 3: Reduction rates according to the degree of contribution to revealing the truth of the case
|Before the investigation start date||After the investigation start date||Degree of contribution to revealing the truth of the case|
|40%||20%||High (satisfying all factors)|
|20%||10%||Medium (satisfying two factors)|
|10%||5%||Low (satisfying one factor)|
Source: JFTC website
Once the company and the JFTC conclude an agreement, the company shall perform the cooperation stipulated in the agreement by the date provided for in the agreement. If the company fails to perform by the agreed date, it would no longer be eligible for any reduction of the administrative surcharge (article 7-6, paragraph 6, item 7 of the AMA).
In Japan, there is no concept of attorney–client privilege. While the possibility of introducing attorney–client privilege was discussed during the deliberation of the amendments to the administrative surcharge system, the 2019 amendment of the AMA fell short of introducing attorney–client privilege. Instead, the JFTC established a new procedure called the ‘determination procedure’ in its investigation rules. Under the determination procedure, if the JFTC issued a submission order for documents or other objects, typically during a dawn raid, the JFTC shall return those recording the contents of the confidential communications between the attorney and the company without the JFTC officials engaged in the investigation of the relevant case having access to the contents, provided that certain conditions are confirmed pursuant to procedures set out in the Rules on Investigations by the Fair Trade Commission.
The determination procedure is only applicable to confidential communications between the company and its attorney that: (1) satisfy the statutory requirements discussed below; and (2) pertains to legal opinions concerning acts alleged to be in violation of the AMA to which the Leniency Programme is applicable (ie, acts falling within unreasonable restraint of trade, such as cartels and bid-rigging. However, this procedure is only applicable to the administrative procedure that satisfies the statutory requirements discussed below). For such communication (Specified Communication) to qualify for the treatment under this procedure, requirements regarding indication (labelling); place of storage; and scope of persons who know the contents, as set out in the JFTC investigation rules must be met as well, and the company must promptly submit a written request for the application of this procedure to the JFTC official at the time of the submission order, which is typically issued on the day of the dawn raid. Further, the company must submit a log within two weeks of the day the submission order was issued, unless there are special circumstances.
The JFTC investigator that receives the request shall, after confirming the indication and situation concerning storage, place the object in an envelope and seal it, and then issue the submission order. The object would then be transferred to the determination officer designated by the JFTC for each case who would then within two weeks of the issuance of the submission order, confirm the description of the application, the submission of the log and the appropriate storage; and within another six weeks, confirm whether the contents of the communication qualify as Specified Communication and whether there are any documents that are outside the scope of the treatment under this procedure. Once the above are confirmed, the determination officer shall place the object in an envelope and seal it, and then notify the company for immediate return. However, objects that do not satisfy the requirements above shall be transferred to the JFTC investigator.
Practical issues of leniency
Scope of leniency
Naturally, leniency applicants benefit the most from having the coverage of leniency status as broad as possible. However, compared with when leniency was first introduced in 2005, the JFTC is becoming more inclined to grant leniency status to only an increasingly narrow scope of products, geographical areas or customers. For example, if an application was made regarding a group of similar products that are viewed as a broader product in the application, but the JFTC finds a cartel violation with regard to only one product, the JFTC may grant leniency status only with respect to that product and may not grant the same status with respect to the other different but related products. The JFTC appears to take a very formalistic and rigid view regarding delineation of the scope of leniency, and will sometimes only grant leniency on a customer-by-customer basis if such customers purchased large amounts of the relevant products. In such cases of customer-by-customer delineation, there may be more than one first applicant with full immunity from surcharge payment, and immunity may be restricted to sales from one customer only.
Group filing for leniency
Under the Japanese Leniency Programme, when more than one company within the same group is engaged in cartel violations, it is possible for those group companies to file a single joint application (article 7-4, paragraph 4 of the AMA), in which case the leniency status is granted to all group companies named as applicants on the application form. It is also possible for group companies to file separate applications individually (article 7-4, paragraphs 1–3 of the AMA), but in such cases, each company will be granted leniency status based solely on its own application.
In practice, however, there are cases where an applicant is not sure which companies within its group were engaged in the violation. This is often the case for multinational corporations. Of course, it is possible to file additional leniency applications with respect to group companies that are found at a later stage to have been engaged in the violation. However, such additional applications will not be considered to have been made retroactively at the time of the original application and thus will not be granted the same leniency status as was granted to the original application.
Another issue relating to group filing is how the concept of a ‘group’ is defined under the AMA. That is, for the purpose of the Leniency Programme, a company is considered to be a parent company of another company when that parent directly or indirectly owns more than 50 per cent of the voting rights in that other company (the subsidiary), and a group can only consist of a parent and its subsidiaries (article 7-4, paragraph 4 of the AMA). According to this definition of a ‘group’, for example, a joint venture that is equally owned by two joint venture partners is not considered a subsidiary of either partner. Therefore, that joint venture cannot file a leniency application jointly with either of the partners.
JFTC’s large backlog of leniency applications
Table 4 shows the number of cases of bid-rigging and price cartels for which the JFTC took legislative action and, among those, the number of cases and the number of companies for which leniency was applied.
|Fiscal year||No. of cases of bid-rigging and price cartels for which legislative action has been taken||No. of cases in which application of the leniency system was publicly released||No. of companies for which application of the leniency system was publicly released|
|4 January 2006 to|
31 March 2006
|1 April 2006 to|
31 March 2007
|1 April 2007 to|
31 March 2008
|1 April 2008 to|
31 March 2009
|1 April 2009 to|
31 March 2010
|1 April 2010 to|
31 March 2011
|1 April 2011 to|
31 March 2012
|1 April 2012 to|
31 March 2013
|1 April 2013 to|
31 March 2014
|1 April 2014 to|
31 March 2015
|1 April 2015 to|
31 March 2016
|1 April 2016 to|
31 March 2017
|1 April 2017 to|
31 March 2018
|1 April 2018 to|
31 March 2019
|1 April 2019 to|
31 March 2020
|1 April 2020 to|
31 March 2021
Based on this table and our experience, it can be said that substantial numbers of leniency applications have never led to investigations by the JFTC. In other words, the JFTC is likely to have a large backlog of leniency applications. Under the Japanese Leniency Programme, leniency applicants are required to cease cartel conduct before dawn raids, but in reality, most applicants choose to voluntarily cease cartel conduct immediately after their application unless the JFTC designates otherwise. When an applicant voluntarily ceases the violation but the JFTC does not investigate the violation, only that leniency applicant loses supra-competitive profits earned through the cartel, and other co-conspirators in the same cartel can continue to earn illegal supra-competitive profits by virtue of their cartel activities, even for years after. Although morally questionable, this situation places the leniency applicant in a dilemma since leniency applicants are not allowed to disclose to third parties that they filed a leniency application without a justifiable reason and, as a result, this dilemma may reduce incentives of corporations to apply for leniency.
The JFTC has entered into international cooperation agreements on enforcement of competition law with the United States, the European Union and Canada. Even prior to such formal cooperation agreements, however, the JFTC has been proactively cooperating with competition authorities in various jurisdictions.
The main part of the JFTC’s cooperation with other competition authorities is information exchange. The JFTC exchanges information by email and telephone, and discusses the progress of investigation subject to confidentiality (article 39 of the AMA). When necessary and appropriate, the JFTC may require leniency applicants to submit a waiver of confidentiality that permits the JFTC to disclose information in its hands to other specific competition authorities (however, the submission of a waiver is not a condition of a grant of leniency). However, as a matter of practice, the JFTC does not disclose evidence that it obtains from non-public sources (such as documents seized at a dawn raid or witness statements) to other competition authorities.
It is possible for companies or consumers that have suffered damage to file claims for civil damages against companies that committed an unreasonable restraint of trade. This can be achieved via a claim for damages based on the joint tort theory (articles 709 and 719 of the Civil Code and article 25 of the AMA) or a claim for unjust enrichment (article 703 of the Civil Code).
A consumer claiming for damages resulting from the unreasonable restraint of trade is required to establish the difference between the product price that increased because of the unreasonable restraint of trade and the price that would have been set without such unreasonable restraint of trade (the assumed price). In many cases, however, proving the assumed price is difficult. In addition, there is no treble-damage compensation requirement under the AMA. Because of this, such civil litigation is not so common in Japan.
Because of the difficulty in proving damage, if the local public agency or independent administrative institution goes through a bidding procedure, it is often provided for in the agreement that the bidder pay a certain amount of damages (eg, 10 per cent) or penalty if any bid-rigging or other misconduct is subsequently found (liquidated damages).
If a director of a company intentionally allows an unreasonable restraint of trade or negligently overlooks it by not paying reasonable attention, the shareholders may file a derivative action against such director for damages incurred to the company. To establish the director’s responsibility, the wilful misconduct or negligence of the director must be proved. Unless proved, the director’s liability will be denied.