Japan: Antitrust Litigation
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Change in procedures to challenge JFTC orders
Under the Antimonopoly Act of Japan (AMA), the Japan Fair Trade Commission (JFTC) is empowered to issue cease-and-desist orders against enterprises that are in violation of the AMA. Furthermore, the JFTC is required to issue administrative surcharge payment orders against enterprises that engage in certain types of conduct including (i) ‘private monopolisation’, which is the ‘control’ of other enterprises that relates to or may affect the price, or the ‘exclusion’ of other enterprises; (ii) unreasonable restraint of trade that relates to or may affect price; or (iii) certain types of unfair trade practices provided for under the AMA as those subject to administrative surcharge payments, including resale price maintenance and abuse of superior bargaining position.
On 1 April 2015, the amendment to the AMA to change the proceedings to challenge the validity of the aforementioned orders issued by the JFTC (the Amendment) came into effect. Pursuant to the Amendment, the JFTC’s administrative hearing procedures through which its orders were reviewed under the AMA before the Amendment were abolished, and its orders are now subject to de novo judicial review. (It should be noted that, if the relevant advance notices of JFTC orders were issued prior to 1 April 2015, such orders remain subject to the JFTC’s administrative hearing procedures pursuant to the relevant provisions of the AMA that were in effect prior to the Amendment coming into effect.)
Prior to the coming into effect of the Amendment, under the AMA, an enterprise that is an addressee of a cease-and-desist order or administrative surcharge payment order issued by the JFTC may file a petition with the JFTC, within 60 days of receipt of the order, requesting the JFTC to initiate administrative hearing procedures to challenge such order. Under the AMA, prior to the coming into effect of the Amendment, JFTC orders were first reviewed by the JFTC itself through administrative hearing procedures. Under these administrative hearing procedures, JFTC investigators were required to adduce evidence to establish facts that proved the violation of the AMA specified in the JFTC orders, while the enterprise had the right to rebut the allegations and evidence adduced by the JFTC investigators. In practice, the administrative hearing procedures were presided over by administrative judges appointed and authorised by the JFTC. These administrative judges were in charge of preparing draft judgments on whether to rescind JFTC orders for the review by the chairperson and the commissioners of the JFTC. Administrative judges in charge of reviewing JFTC orders through the administrative hearing procedures were independent from the General Secretariat of the JFTC, the department to which JFTC investigators belong; however, the chairperson and the commissioners of the JFTC were authorised to make a decision to issue the original JFTC orders and also render a judgment on whether to rescind such JFTC orders based on a draft judgment prepared by the administrative judges through the administrative hearing procedures. Such a ‘self-contained’ decision-making system was criticised as unfair by Japanese and foreign businesses, which is considered to be one of the reasons the Amendment was enacted.
When the JFTC rendered a decision dismissing an enterprise’s petition to challenge the JFTC orders through the administrative hearing procedures, the enterprise could have filed a complaint with the Tokyo High Court to set aside the JFTC decision that affirmed the JFTC orders within 30 days of receipt of the JFTC decision, which meant that JFTC decisions rendered through the administrative hearing procedures were subject to judicial review (the enterprise was also entitled to file a final appeal against the High Court’s judgment to the Supreme Court). However, the court would have been bound by the JFTC’s fact-findings through the administrative hearing procedures as long as such fact-findings were supported by ‘substantial evidence’. A JFTC decision could have been set aside if: (i) the facts on which it was based were unsupported by substantial evidence; or (ii) the decision violated the Constitution or other laws. The court could have found that the JFTC’s fact-findings were not supported by substantial evidence only if it found that it was unreasonable for the JFTC to have found the facts based on the evidence submitted to the administrative hearing procedures. Submission of new evidence to the court was restricted, and an enterprise could submit new evidence to the court only if: (i) the JFTC previously refused to accept the evidence without any justifiable reason; or (ii) the enterprise was not grossly negligent for failing to adduce the evidence at the administrative hearing procedures.
Under the Amendment, the administrative hearing procedures were abolished, and the addressee of JFTC orders, including cease-and-desist orders and administrative surcharge payment orders, may file a complaint directly with the court seeking a rescindment of the JFTC orders within six months of receipt of such orders under the Administrative Litigation Act (ALA), without going through the administrative hearing procedures before the JFTC. Cases involving a claim for rescindment of JFTC orders are subject to the exclusive jurisdiction of the Tokyo District Court at first instance and a three-judge panel or a five-judge panel will preside over such cases. An enterprise may appeal against the Tokyo District Court’s decision to the Tokyo High Court and the Supreme Court in sequence.
Another change ushered in by the Amendment is that the aforementioned substantial evidence rules no longer apply to the judicial review of JFTC orders, and an enterprise may submit new evidence to the court without the restriction as provided for under the AMA prior to the Amendment coming into effect. Accordingly, the role of the judicial court is not to review whether the JFTC’s fact-findings are reasonable but to conduct fact-findings based on new evidence submitted to the court.
It is also noteworthy that the Amendment established the procedure that hearings presided over by the JFTC are to be held before the JFTC issues cease-and-desist orders and administrative surcharge payment orders. The JFTC’s Rules on Hearings have been established to provide the rules on the pre-order hearing procedures related to cease-and-desist orders and administrative surcharge payment orders, and such procedures include those under which the enterprise is allowed to obtain copies of documentary evidence relied on by the JFTC in its fact-findings.
In general, the Amendment to the AMA is expected to create a more neutral and fair process for the judicial review of JFTC orders, as compared to the previous procedures, under which the JFTC itself reviewed its orders through the administrative hearing procedures. It is also considered to meet the requirement of due process more effectively by making JFTC orders subject to a three-tiered judicial review. It is generally considered that the JFTC will bear the burden of proving the facts supporting the alleged violation of the AMA before the judicial court, and the judiciary will review the evidence submitted by the JFTC on a de novo basis. Furthermore, since the substantial evidence rules no longer apply to the judicial review process, enterprises are allowed to submit rebuttal evidence to the court without any special restrictions. These evidence rules are expected to contribute to fair and reasonable fact-findings on the JFTC’s allegations of violations of the AMA.
Moreover, while the JFTC’s administrative hearing procedures before the Amendment generally took a substantial period of time (eg, three to four years) before the JFTC would render a decision, it is reasonably expected that the Tokyo District Court will render judgments at first instance within a shorter period of time.
Key strategy under new procedures
Under the new procedures, the court expects that plaintiff enterprises seeking rescindment of JFTC orders to provide specific reasons for rescindment in their complaints submitted to the court at the outset of the judicial proceedings. If such complaints are submitted to the court, the plaintiff enterprises could take the first step in persuading the court to rescind the JFTC orders by presenting more persuasive arguments based on the specific reasons for rescindment. In order for the attorneys for enterprises to prepare such complaints, it is desirable to utilise the results of the aforementioned pretrial hearing procedures under which the JFTC provides the enterprise with copies of documentary evidence supporting the cease-and-desist order and administrative surcharge payment order.
More specifically, the JFTC would first send a notice of the pre-order hearing procedures with a draft cease-and-desist order and administrative surcharge payment order, as well as a list of evidence to the enterprise subject to such orders, and would also provide the enterprise with an opportunity to obtain copies of the documentary evidence supporting such orders. The JFTC would then hold an in-person hearing session as part of the pre-order hearing procedure, to provide oral explanations of the reasons for issuing the orders. At the hearing session of the pre-order hearing procedure, the JFTC officers would orally explain the reasons for issuing the orders, and the enterprise would be allowed to make inquiries to the JFTC officers. For attorneys representing enterprises, it is strategically important to obtain sufficient explanations and copious information from the JFTC officers to the extent possible at this stage, in order to be well prepared for the subsequent judicial proceedings. To this end, it is helpful for attorneys representing an enterprise to persuade the JFTC to hold another hearing session for the purpose of providing additional explanations in response to the inquiries made by the enterprise. For that purpose, it is important to carefully analyse the evidence disclosed to the enterprise prior to the first hearing session, and devise thorough inquiries to be presented to the JFTC officers at the first hearing session.
In sum, attorneys representing enterprises before the judicial court should obtain more information and explanations from the JFTC officers through the pre-order hearing procedures in order to organise persuasive reasons for seeking rescindment of JFTC orders during the course of preparing a complaint to be submitted to the court.
Potential issues under new procedures
Prior to the Amendment coming into effect, Japanese antitrust practitioners have discussed some concerns about the new procedures notable to enterprises potentially subject to JFTC orders. Such concerns were considered as potential issues or risks that could arise in the new procedures for challenging JFTC orders.
First, under the AMA prior to the Amendment coming into effect, an enterprise that received a cease-and-desist order from the JFTC is entitled to file with the Tokyo High Court a petition for temporary waiver of enforcement of such order, upon filing a petition to initiate the JFTC’s administrative hearing procedures, in accordance with the relevant provision of the AMA. In response to such petition, the Tokyo High Court usually renders an order of temporary waiver of enforcement of the cease-and-desist order subject to the condition that the petitioner provided a certain amount of money as a security deposit, which is determined by the court at its discretion. However, the Amendment abolished the relevant provision under the AMA, and an enterprise needs to file a petition for order of suspension of enforcement of the cease-and-desist order upon filing a complaint with the Tokyo District Court to challenge the order, pursuant to article 25 of the ALA. It should be noted that article 25 of the ALA provides stricter requirements for suspension of enforcement of cease-and-desist orders, and thus, an enterprise would be required to demonstrate that there is an urgent necessity to avoid material damage arising from the enforcement of the cease-and-desist order. Given this, Japanese antitrust practitioners considered that the Amendment possibly made it difficult for an enterprise to obtain an order of suspension of enforcement of a cease-and-desist order.
Second, when multiple enterprises are involved in the conduct that violates the AMA (eg, a cartel), and the JFTC issues cease-and-desist orders and administrative surcharge payment orders against the enterprises, each enterprise is required to file a complaint with the Tokyo District Court seeking rescindment of the JFTC orders. Once complaints are submitted to the court by multiple enterprises, the court considers whether to consolidate the proceedings of those enterprises, and the JFTC generally makes a request to the court that the proceedings should be consolidated in order to achieve efficient carrying out of procedures. However, the attorneys for the enterprise should carefully consider whether to agree to the consolidation of the proceedings, since each enterprise may need to submit evidence that includes confidential information of each enterprise, such as cost price, and such evidence must be disclosed to other enterprises, namely, existing competitors in the same consolidated proceedings. Thus, while the court is expected to make a decision on whether to consolidate the proceedings based on the opinions of a plaintiff enterprise and the JFTC, the plaintiff enterprise should carefully examine whether to submit confidential evidence to the court, taking into consideration the possibility that the proceedings may be consolidated and the evidence may be disclosed to the competing enterprises.
Regarding the protection of enterprises’ confidential information submitted in the course of proceedings under which the JFTC orders are challenged, the former procedures protected such information more sufficiently because, while evidentiary documents submitted to the JFTC’s administrative hearing procedures can be disclosed only to the enterprise or aggrieved parties of the alleged violation of the AMA and the JFTC can refuse to disclose such documents if there are justifiable reasons, the Code of Civil Procedures allows any person to peruse evidentiary documents submitted to the court under the proceedings, excluding trade secrets, and, therefore, the confidential information submitted to the judicial proceedings as evidence can be disclosed to any third party unless the information is considered to be trade secrets under the laws of Japan. It should also be noted that there is no concept of attorney–client privilege or privilege of attorney work product in Japan, and thus, privileged information in other jurisdictions may be disclosed to any third party if such information is submitted to the judicial proceedings under which the JFTC orders are challenged. The court and the JFTC should establish the appropriate practice to minimise such concerns as the new procedures are being carried out.
Recent developments and the future
It has been reported that the first three complaints were filed by the enterprises with the Tokyo District Court pursuant to the Amendment to the AMA at the end of September 2016 regarding a price-fixing cartel on capacitor products. In the lawsuit, the first hearing session was held on 27 October 2016, and the subsequent preparatory proceeding was held on 16 January 2017. It has also been reported that one of the three plaintiff enterprises did not agree to the consolidation of the proceedings based on the ground that there is little evidence common to the three enterprises, and it is unnecessary to consolidate the proceedings for achieving efficient review by the court. In response, the court has requested the JFTC to explain the evidence to be submitted to the court in order to determine whether the evidence is in fact common or not. The court is expected to hand down a decision on whether to consolidate the proceedings shortly.
On 14 December 2016, the Tokyo District Court rejected the first enterprise’s petition for suspension of enforcement of the cease-and-desist order pursuant to Article 25 of the ALA, based on the ground that there is no urgent necessity to avoid material damage arising from the enforcement of the cease-and-desist order. Given that the court rejected the aforementioned petition for suspension of the enforcement of the orders, it is obvious that the Amendment has made it difficult for enterprises to obtain an order of suspension of enforcement of cease-and-desist orders. As a result, enterprises are likely to be required to implement cease-and-desist measures in line with the JFTC’s cease-and-desist orders, even if the enterprise has filed a complaint seeking rescindment of the cease-and-desist order and such lawsuit is still pending before the court.
The foregoing cases indicate that the aforementioned potential issues are expected to be discussed during the course of the aforementioned first case currently pending before the Tokyo District Court and subsequent cases to be heard by the court under the Amendment. In any event, more time is needed for the court to establish a reasonable practice under the new procedures to challenge the JFTC orders through the judicial proceedings, and antitrust practitioners should closely monitor how the Tokyo District Court handles the cases under the Amendment.