Japan: E-Commerce

Overview

Like other major competition authorities such as the European Commission and the two authorities in the US, the Japan Fair Trade Commission (JFTC) positions fair and free competition in the digital economy as one of the most important policy goal1 and has strong interests in inter-relationship between e-commerce and competition laws. The JFTC operates a Task Force focusing on Information Technology matters (IT-Task Force) already2 and in October 2016 opened a hotline for the IT/digital sector to gather information from whistle-blowers.3

The JFTC took some enforcement actions against alleged infringements by global e-commerce companies in the last couple of years. A part of such enforcement action is still ongoing. In addition, the JFTC disclosed that it has reviewed a couple of proposed mergers in the e-commerce sector in the past two fiscal years. With respect to a review of the administrative guidelines, the JFTC amended its guidelines for distribution. In the amendment, the JFTC shows, among other things, examples of issues relevant to the application of the Anti-Monopoly Act (AMA) to the e-commerce sector. At the same time, various policy and academic discussions relevant to e-commerce sectors have been taking place in the JFTC and other authorities. For instance, the JFTC released ‘Study Report on Data and Competition Policy’ in June 2017. The report focuses on how the AMA will be applied to issues relevant to collection and usage of ‘big data’. Furthermore, the JFTC has recently launched a sector inquiry into the e-commerce sector as a fact-finding effort for future policy making and enforcement action.

Recent enforcement actions

Amazon: parity clauses imposed by a platform company45

On 8 August 2016, the JFTC made a dawn raid on Amazon Japan GK (Amazon Japan). The JFTC suspected Amazon Japan’s conduct, of impositing certain parity clauses on sellers in its online sales platform (Amazon Marketplace). It took the view that they may be evaluated as restrictive trading prohibited by paragraph 12 of the Designation of Unfair Trade Practices and a violation of the AMA. The JFTC was concerned that when an online shopping platform imposes certain parity clauses on sellers, such clauses may exert the following negative effects on competition:

• restrict sellers’ business activities by limiting reduction of prices and the range of goods that the sellers sell via other sales channels;
• distort competition among online shopping platforms by allowing an online shopping platform to impose those parity clauses to achieve the lowest price sold in its online shopping platform without making any competitive effort; and
• reduce online shopping platforms’ incentives for innovation and hinder new entrants.

On 1 June 2017, the JFTC announced that it had terminated investigation of Amazon Japan based on the recognition that voluntary measures proposed by Amazon Japan could be evaluated as being sufficient to eliminate the JFTC’s concerns. The JFTC then announced on 15 August 2017, that it had received a report from Amazon Services International, Inc (ASII, a company that engages in the e-books delivery business on the Amazon.co.jp website). The report mentioned that ASII would take voluntary measures on the parity clauses contained in the agreements with publishers or distributors of the e-books delivered from the website. According to the JFTC’s announcement, it recognised that the voluntary measures proposed by ASII would basically eliminate the JFTC’s concerns regarding the e-books delivery business on the Amazon.co.jp website.6

Airbnb: exclusive dealing

In the autumn of 2017, the JFTC made a dawn raid on Airbnb Japan (a Japanese subsidiary of Airbnb, Inc) on suspicion that its business may violate the AMA by requiring exclusivity from its counterparties.7 Under the AMA, one party cannot trade with a counterparty on the condition that the counterparty does not trade with the party’s competitor if such restriction tends to reduce trading opportunities for one’s competitors (paragraph 11 of the Designation of Unfair Trade Practices; article 2, paragraph 9 of the AMA). In this case, although the Airbnb spokesperson announced that this was not the case,8 the JFTC was reportedly concerned that the Airbnb asks its property management agencies not to list properties on rival home-sharing platforms by, among other means, forcing agencies to accept an agreement that contains a clause that the property management agencies may not use rival sites. While the JFTC has not made any official announcement on the case yet, it is believed that the case is still ongoing and the JFTC is actively analysing it.

Merger review cases

Yahoo Japan/eBOOK Initiative Japan9

In fiscal year 2016, the JFTC reviewed Yahoo Japan’s (a subsidiary of SoftBank Japan (SBJ)) acquisition of minor shares of eBOOK Initiative Japan (EIJ). Both SBJ group and EIJ group operate businesses relevant to e-books. Although the case itself was not so challenging because market shares of the parties in the relevant market are below safe harbor thresholds, the case is important since the JFTC indicated its view on market definition of e-book business. To elaborate, the JFTC analysed the substitutability between regular books and e-books and reached the conclusion that such substitutability is limited at least under current condition.10

Media Do/Digital Publishing Initiatives Japan11

In fiscal year 2016, the JFTC reviewed Media Do’s (MD) acquisition of majority shares of Digital Publishing Initiatives Japan (DPIJ). Both MD group and DPIJ group operate businesses relevant to e-books. In this case, the JFTC defined a two-sided relevant market in the e-book sector. To give more detail, the JFTC made a thorough analysis on distribution systems of e-books and defined a relevant market as ‘e-book brokerage’. Although the consolidated market shares of MD and DPIJ in e-book brokerage is approximately 60 per cent, the JFTC issued non-conditional clearance in this case. Among relevant factors in this case, the JFTC placed importance on:

• competition pressures from other e-book brokers;
• actual and potential new entrants; and
• competition pressures from customers who switch to other e-book brokers, to direct transactions between e-book publishers and e-book retailers, and to other e-book retailers that purchase e-books without using e-book brokers.

Yahoo Japan/Ikyu12

In FY 2015, the JFTC reviewed Yahoo Japan’s (Yahoo) acquisition of all shares of Ikyu Corporation (Ikyu). Yahoo operates a business relevant to internet advertisement. Meanwhile, Ikyu operates businesses relevant to online reservation of travels and restaurants. Although the case itself was not so challenging because market shares of the parties in the most of relevant markets are below safe harbour thresholds, the case is important since the JFTC publicly showed its views on a two-sided markets. To elaborate, the JFTC mentioned in this case that a two-sided market is a market which has:

• different multiple users;
• a platform which provides brokerage functions among different multiple users; and
• indirect network effects.

Based on this analysis, the JFTC defined the following as relevant markets in this case:

• Online Travel Reservation Service;
• Online Restaurant Reservation Service;
• Metasearch Service for Online Travel Reservation; and
• Metasearch Service for Online Restaurant Reservation.

Recent amendments of guidelines

Amendments of the Distribution Guidelines13

The amendment of the Guidelines Concerning Distribution Systems and Business Practices under the AMA14 (Distribution Guidelines) on 16 June 2016 is the first substantial change since the Distribution Guidelines’ enactment.15 The amendment covers a wide range of topics, but the three main features are as follows:

• clarification of review processes for suspected conduct;
• outlining of the JFTC’s policy regarding its attitude to online transactions; and
• increase in the number of references to administrative precedents and prior consultations that are relevant to vertical restraints.

With respect to the clarification of review processes for suspected conducts, the amendment was accomplished in light of similar guidelines in other jurisdictions, for instance, EU Commission’s Guidelines on Vertical Restraints.16 At the same time, the amended Distribution Guidelines categorise various vertical restraints by the scope of their anticompetitive effects. With respect to the online transactions, the amended Distribution Guidelines emphasise pro-competitiveness of the online transactions based on the recognition that online transactions generally broaden geographic and client reach compared to real-site transactions and provide efficiencies both with suppliers and consumers.17

The amended Distribution Guidelines demonstrate the JFTC’s position that online transactions should be reviewed under the same fundamental principles as real site transactions.18 In the guidelines, the JFTC explains that a platformer’s actions toward its users are also to be reviewed under the same fundamental principles as real site transactions.19 As for the details of the analysis of the vertical restraints by platform businesses, the amended Distribution Guidelines point out that competition status among platform businesses and network effects20 should be taken into account in addition to relevant factors, which the JFTC considers in the course of its review on traditional businesses (eg, inter-brand competition, intra-brand competition, relevant players’ market shares, competitive effects on counterparties, and numbers and market positions of counterparties)21 (section 1–3–(1)).

In the amended Distribution Guidelines, the JFTC inserted an example of passive sales in a context of geographic restrictions. Like the European Commission’s Guidelines on Vertical Restraints,22 the amended guidelines state that a transaction constitutes a passive sale when:

• a customer gets to know a product on a website of a distributor and places an order for the distributor; or
• a customer who chooses to continuously receive information such as mail magazines from a distributor and the customer places an order with the distributor based upon the information and the order leads to a sale.

When a manufacturer imposes strict geographic restrictions on its distributors and prohibits them from making transactions via passive sales with a customer outside the distributor’s territory, the manufacturer’s conduct is prohibited under the AMA as an Unfair Trade Practice (paragraph 12 of the Unfair Trade Practices, article 2, paragraph 9 of the AMA)23 (section 2–3–(4)).

Policy discussions

Study report on Data and Competition Policy24

Big data is one of the most important competition factors in e-commerce industry. A policy report, which discusses interactive relationship between data and competition policy has been recently released by the JFTC Study Group on Data and Competition Policy. The study group mainly consisted of academic professionals and antitrust law practitioners. Their report, released 6 June 2017, discusses how Japan’s AMA may address issues caused by today’s data-driven society. The report clearly endorses the notion that accumulation and utilisation of data promotes competition and creates innovation. On the other hand, it also mentions that some situations justify intervention under the AMA, and provides possible application of the act in each such situation. The report provides some suggestions for analysing competition concerns when business combination accompanies significant data accumulation, including that free services such as social networking services can be recognised as a relevant market for the purpose of market definition. With respect to competition analysis, the report suggests that whether a proposed business combination with data accumulation harms competition should also be examined from the following perspectives:

• competition for artificial intelligence techniques or goods and services related to data; or
• competition in ‘data market’, in a situation where similar data is bought and sold in a data market.

As for data collection, the report says it may be an abuse of superior bargaining position when ‘Company A’ which has a superior bargaining position unilaterally demands that the other ‘Company B’ provide data to Company A, when the Company B wants to enter an alliance with Company A. In addition, the report points out that a digital platformer’s collection of personal information that is not in accord with relevant laws in Japan may be an issue for antitrust law if its service ‘locks in’ the customers, although such conduct is primarily addressed by the Act on the Protection of Personal Information.25 Regarding data hoarding, the report suggests that refusal of access to data by competitors or customers may be a violation of the AMA if the data is essential for competitors’ business in certain conditions, such as:

• the refusal of disclosure has no reasonable grounds other than exclusion of the competitor based on the fact that the data has been disclosed to the competitor; or
• the refusal of access may result in exclusion of competitor based on the fact that the company is obliged to allow customers to access the data.

The report also suggests that it may be a violation of the AMA in certain conditions if a company ties data provision and data analysis services together, or demands that its customers not trade with its competitors on the condition of providing data or analysis techniques. While the report indicates joint collection and joint use of data generally foster competition, it notes that businesses should pay attention to joint data collection that would allow businesses in the market to conjecture competitors’ price and quantity.

The report does not aim to provide a brand new approach to, nor a new way, of regulating competition in data-driven society. First of all, as mentioned before, the report generally emphasises positive effects on competition associated with accumulation and utilisation of data. In addition, while the report mentions some circumstances in which competition law issues may arise with regard to data accumulation or utilisation and tries to provide some suggestions on how to approach those issues, the suggestions provided in the report are essentially based on regular interpretation of the AMA. Since the act has no exemption for the accumulation or utilisation of data, it is natural that standard interpretations are applied to them. In this regard, the report may not contain anything greatly unexpected for antitrust law practice in Japan. Nonetheless, however, the report provides some suggestions based on the meticulous observation of the latest discussion in international arenas such as the OECD and various jurisdictions.

For example, the report clearly indicates that free services are to be recognised as relevant markets. Although the JFTC had an experience of defining a service-for-free business as a relevant market (eg, ‘non-paid video provision service’ was defined in Kadokawa/Dwango joint share transfer case),26 it is still remarkable that the report keeps an eye on multi-sided markets and provides a clear view of the market definition in such markets as a general matter. In the process of defining a service-for-free market, the report discusses that demand substitutability shall be evaluated based on the result of the review of the customers’ recognition on the target service – although the ‘small but significant and non-transitory increase in price’ test is difficult to apply in defining a service-for-free market. The report also provides an interesting discussion on merger review thresholds in Japan. Currently, merger review thresholds in Japan27 are defined primary by the relevant companies’ domestic turnovers in Japan. Although even non-notifiable M&A transactions may also be subject to merger review under existing system, the report suggests that the revision of the thresholds should be on the agenda when needed to make an appropriate assessment in the early stages of a deal that may create significant market power in relevant markets. This remark in the report may be an indication of the JFTC’s concern about M&A transactions that probably result in considerable data accumulation. As for specific conduct that may cause antitrust concerns with respect to accumulation and utilisation of data, the report discusses possible applications of the AMA to each type of conduct. For regulating anticompetitive practices, the AMA has two primary legal tools in addition to the prohibitions of cartels and bid-riggings. One is the prohibition of abuse of dominance, or private monopolisation, as defined in articles two, paragraph five and article three of the AMA; and the other is the prohibition of unfair trade practices as defined in articles 2, paragraph 9 and article 19 of the AMA. Considering that unfair trade practices include various types of conduct, some of which are not usually prohibited in other jurisdictions – eg, an abuse of superior bargaining position – and usually require fact-specific and elaborate analysis, the report may increase predictability and legal stability for businesses by showing examples of the AMA’s application for each situation where it matters. Unlike the European Commission’s active application of article 102 of the Treaty on the Functioning of the European Union against platform businesses such as Google,28, 29 the JFTC takes a conservative view toward making a case under the clause prohibiting private monopolisation. In this regard, the possible applications of that clause suggested in the report look relatively theoretical compared to those on the prohibition of unfair trade practices.

As well as discussions of possible applications of the relevant clauses of the AMA, the report provides some suggestions. It discusses a situation where a platformer with market power can form, maintain or strengthen its market power by changing its data policy for customers – the situation is similar to the investigation30 by Germany’s Federal Cartel Office against Facebook for alleged abuse of a dominant position in the social networking market. The report suggests that the Act on the Protection of Personal Information31 or other consumer protection laws are the primary choices to handle such situations. But it also argues that the AMA may be an option to address the issue when an anticompetitive effect arises, and identifies legal issues to consider when applying the prohibition of private monopolisation as well as prohibition of an abuse of superior bargaining position.

Report of the Study Group for Ideal Approaches to Competition Policies for the Fourth Industrial Revolution

The competition enhancement office of the Ministry of Economics, Trade and Industry (METI) set up ‘a Study Group for Ideal
Approaches to Competition Policies for the Fourth Industrial Revolution,’ which released its report dated 28 June 2017.32 Compared to the JFTC study group, the METI study group paid more attention to encouraging growth in data-related industries in Japan through maintaining a fair competition environment. It may be evaluated as a reflection of the METI’s industrial policy mission.33 In the report, the METI study group categorises data-related businesses into following four different models in accordance with the level of the utilisation of data:

• ‘Independent Growth Model’ (ie, data to be accumulated/utilised for improvement of products/services);
• ‘Concomitant Provision Model’ (ie, data gained from products/services to be utilised for incidental service);34
• ‘Other Field Utilisation Model’ (ie, data gained from products/services to be utilised in a different market);35 and
• ‘Multi Fields Interlocking Model’ (ie, data gained from many markets of products/services to be mutually accumulated/utilised).36

The report also presents factors to be considered together with the following three examination steps to analyse competition law issues in each model: the impact of data, the possibilities of accumulation and the possibilities of utilisation. Although the JFTC is the sole enforcer of the AMA, given that the METI is involved in the enhancement of sound competition environment in Japan, conducting further analysis on the report by the METI study group is also important to predict coming antitrust law and policy trends for data-related businesses including e-commerce.

Academic and policy discussions in the Competition Policy Research Center

The Competition Policy Research Center (CPRC) of the JFTC37 is a policy research institution sponsored by the JFTC and has the objective ‘to build and improve functional and sustainable cooperative platforms between intellectual resources of outside researchers and practitioners and staff members of the Fair Trade Commission, in order to reinforce theoretical foundation on which it operates Antitrust Law, and plan, propose and evaluate competition policy from medium- and long-term perspectives as well as from the perspective of utilising the platform to enforce measures for current issues’.38 As for the e-commerce sector, the CPRC regularly holds seminars and symposiums focusing on, among other things: ‘Digital Economy and Competition Policy’ (December 2017), discussing competition policy and business strategy of Japanese companies in Digital Economy Era;39 ‘Emerging Matchmakers Economy and Competition Policy’ (December 2016), discussing changes of competition law and policy by emerging multi-sided platformers;40 and ‘Vertical Restraints in E-Commerce: from the Competition Policy Perspectives’ (June 2016), discussing issues of vertical restraints which are unique to e-commerce transactions.41 It also regularly issues discussion papers focusing on e-commerce, such as Jérôme Fabre and Masako Wakui, ‘Booking.com Case and Commitment Procedure, Restraint of Trade by the Court and Sector Regulations: Focusing on Parity Clause in Online Tourism Business’ (January 2018);42 Mitsuru Kikkawa, ‘Issues of Competition Policy in the Era of Sharing Economy’ (March 2017);43 and Hiroshi Ohashi, Naoki Okubo, Chizuru Ikeda, et al, ‘Analysis of Characteristics of Platform Business and Issues of Merger Review’ (December 2015).44 Since the JFTC positions digital economy and e-commerce as one of the most important policy issues,45 it is likely the CPRC will keep providing advanced academic and policy discussions relevant to the e-commerce sector with government officials and private practitioners in Japan and all over the world.

Fact finding efforts

Sector inquiry for e-commerce

In January 2018, the JFTC launched a sector inquiry for e-commerce.46 Like the sector inquiry for e-commerce conducted by the European Commission,47 the JFTC plans to gather samples of transaction practices between manufacturers and distributors via websites and conduct a survey on online-market transactions. Furthermore, the JFTC is trying to gather information relevant to the usage of algorithms in the context of e-commerce through the inquiry. In the inquiry, the JFTC announced that it only focuses on transactions of goods (ie, the JFTC does not include transactions of service nor digital contents in the inquiry) and explained that the number of the addressees of the inquiry is approximately 4,000. Though the JFTC does not reveal the timing of the disclosure of its results, its outcome is likely to affect the JFTC’s future policy making and enforcement actions in the e-commerce sector.

What to expect

Though the JFTC has yet to conduct large number of investigations in the e-commerce sector, it has handled some cases both in infringement investigations and merger reviews. At the same time, the JFTC facilitates policy and academic discussions relevant to the sector and has just launched a sector inquiry into the sector. Judging from these facts, it is apparent that the JFTC maintaining considerable interest in e-commerce. On a separate note, there are some ongoing procedural reforms under the AMA. The main topics of the procedural reforms are introductions of the commitment procedure and the discretionary surcharge system.48 With these new enforcement tools, the JFTC will obtain more flexibility in launching enforcement actions. Along this line of thinking, it is likely that the JFTC will come to enforce the AMA more actively in the e-commerce sector in the near future.

Notes

1 This can be found in the JFTC Chairman’s message on January 2018 available at: www.jftc.go.jp/en/about_jftc/MessagefromChairma/180115.html.

2 See, page 6 of Enforcement of Antimonopoly Act in FY 2016 (Summary) available at: www.jftc.go.jp/en/pressreleases/yearly-2017/June/170607.files/170607_1.pdf.

3 Ibid.

4 www.jftc.go.jp/en/pressreleases/yearly-2017/June/170601.html.

5 www.jftc.go.jp/en/pressreleases/yearly-2017/August/170815.html.

6 The JFTC ‘Report on e-Books Agreements from Amazon Services International, Inc.’ 15 August 2017. Available at: www.jftc.go.jp/en/pressreleases/yearly-2017/August/170815.html.

7 https://www.competitionpolicyinternational.com/japan-regulators-raid-airbnb-over-suspected-antitrust-practices/.

8 Ibid.

9 Please refer to No.11 of Major Business Combination Cases in FY 2016 available at: www.jftc.go.jp/houdou/pressrelease/h29/jun/170614_01.files/170614.pdf.

10 In a course of the analysis, the JFTC referred a report titled ‘Demand Substitutability between Online Service and Offline Service.’ The report was issued by the Competition Policy Research Center of the JFTC in 2015 and available at: www.jftc.go.jp/cprc/reports/index.files/cr-0315.pdf.

11 Please refer to No.12 of Major Business Combination Cases in FY 2016 available at: www.jftc.go.jp/houdou/pressrelease/h29/jun/170614_01.files/170614.pdf.

12 Please refer to No.8 of Major Business Combination Cases in FY 2015 available at: www.jftc.go.jp/houdou/pressrelease/h28/jun/160608_2.files/160608.pdf.

13 www.jftc.go.jp/en/pressreleases/yearly-2017/June/170616.html.

14 www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines.files/DistributionSystemsAndBusinessPractices.pdf.

15 The original version of the Distribution Guidelines was introduced on 11 July 1991.

16 The European Commission ‘Guidelines on Vertical Restraints’ (2010/C 130/01). Available at: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:130:0001:0046:EN:PDF.

17 Part I, Section 1-1-(1) of the Distribution Guidelines.

18 Ibid.

19 Ibid.

20 In the amended Distribution Guidelines, the JFTC provides both direct network effects and indirect network effects (Note 3 of Section 1-3-(1)).

21 Part I, section 1, 3-(1) of the Distribution Guidelines.

22 http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:130:0001:0046:EN:PDF.

23 Part I, section 2, 3-(4) of the Distribution Guidelines.

24 www.jftc.go.jp/en/pressreleases/yearly-2017/June/170606.files/170606-4.pdf.

25 www.japaneselawtranslation.go.jp/law/detail/?id=130&vm=04&re=02.

26 www.jftc.go.jp/en/pressreleases/yearly-2015/June/150610.files/170529.pdf.

27 www.jftc.go.jp/en/policy_enforcement/mergers/ICNmerger.html

28 http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=1_39740.

29 http://europa.eu/rapid/press-release_IP-17-1784_en.htm.

30 https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2016/02_03_2016_Facebook.html.

31 www.japaneselawtranslation.go.jp/law/detail/?id=2781&vm=04&re=01.

32 www.meti.go.jp/english/press/2017/pdf/0628_001b.pdf.

33 The METI announces that it aims to create a new type of industrial society called ‘Connected Industries,’ as a policy concept through which a variety of industries are connected and create new added value. Please refer to: www.meti.go.jp/english/press/2017/0628_001.html.

34 The report explains following data usage as an example: maintenance service utilising operation information gained from a product.

35 The report explains following data usage as an example: setting insurance premiums by utilising driving records gained through driving support apps.

36 The report explains following data usage as an example: mutual data utilisation among many different services including matching, sharing and other online services, various apps, and advertisements.

37 www.jftc.go.jp/en/cprc/index.html.

38 www.jftc.go.jp/en/cprc/center/index.html.

39 The relevant materials are available in Japanese at: www.jftc.go.jp/cprc/koukai/seminar/h29/45_notice.html.

40 The relevant materials are available in Japanese at: www.jftc.go.jp/cprc/koukai/seminar/h28/43_notice.html.

41 The relevant materials are available in Japanese at: www.jftc.go.jp/cprc/koukai/sympo/2016notice.html.

42 Available in Japanese at: www.jftc.go.jp/cprc/discussionpapers/h29/index.files/CPDP-67-J.pdf.

43 Available in Japanese at: www.jftc.go.jp/cprc/discussionpapers/h28/index.files/CPDP-65-J.pdf.

44 Available in Japanese at: www.jftc.go.jp/cprc/discussionpapers/h27/index.files/CPDP-62-J.pdf.

45 www.jftc.go.jp/en/about_jftc/MessagefromChairma/180115.html.

46 Available in Japanese at: www.jftc.go.jp/houdou/teirei/h30/jan_mar/kaikenkiroku180110.html.

47 As for the European Commission’s Sector Inquiry, please refer to: http://ec.europa.eu/competition/antitrust/sector_inquiries_e_commerce.html.

48 https://globalcompetitionreview.com/insight/the-asia-pacific-antitrust-review-2017/1138981/japan-fair-trade-commission.