Japan - Antitrust & Competition Guide 2016
Legal News & Analysis - Asia Pacific - Japan – Competition & Antitrust
21 April 2016
What is the main piece of legislation of general application which regulates anti-competitive behavior? What are the main prohibitions in the legislation?
The Antimonopoly and Fair Trade Maintenance Act 1947 (Antimonopoly Act). The Antimonopoly Act has four main types
of prohibition: unreasonable restraints of trade (cartels); “private monopolization” (which results from an intended exclusion or control of competitors); unfair trade practices; and mergers and acquisitions.
Which regulator is responsible for administering and enforcing competition laws?
The Antimonopoly Act is administered by the Fair Trade Commission (JFTC), which is an independent administrative commission. The JFTC’s powers include the power to establish fair competition rules, to designate unfair business practices, to investigate, adjudicate and dispose of a case and to issue cease-and-desist orders and surcharge payment orders to enterprises that violate the Antimonopoly Act.
Are there any exclusions from the competition legislation of general application? Are there any sector-speci c competition laws or regulations?
There are provisions which stipulate that in certain circumstances, the Antimonopoly Act does not apply to acts which constitute an exercise of intellectual property right, acts by partnership and resale price maintenance of the speci c products under certain conditions. However, these are not exclusions of general application as there are limitations to these exclusions.
The JFTC has designated three sectors as special type of abuse of super bargaining position, which is a form of unfair trade practice. The three sectors consist of the physical distribution business, the newspaper business and the large-scale retailing business (Special Designation of Unfair Trade Practice). In addition, the Subcontract Act (1956) was legislated as a special rule of abuse of superior bargaining position.
Does the competition legislation apply extraterritorially to persons, behaviour or action outside the jurisdiction?
An agreement made in a foreign country will be subject to Japanese jurisdiction so long as it affects the Japanese market. Any activities of a foreign subsidiary within Japan would be directly subject to the Antimonopoly Act in the same manner as a Japanese entity. The Antimonopoly Act also prohibits enterprises from entering into an international agreement or an international contract that pertains to matters constituting unreasonable restraints of trade or unfair trade practices.
What penalties and liabilities may be imposed for a breach of the competition law?
The Antimonopoly Act provides for surcharges, nes and imprisonment. The level of surcharge varies according to the type
of industry, the number of violations or the role in the accomplices. For a price- xing cartel, the offending parties may be ordered to pay an administrative surcharge up to 20% of sales during the period
the cartel or the control type private monopolization was in place (maximum three years). For a private monopolization, the surcharge is up to 15% of such sales. Surcharges for other infringements range from 1% to 3%.
Individuals who engage in unreasonable restraints on trade or private monopolization may be sentenced to imprisonment for up to ve years or criminally ned up to JPY5 million.
The maximum ne for a company under the Antimonopoly Act is JPY 500 million.
A plaintiff may bring a civil suit under the Antimonopoly Act for damages suffered as a result of conduct in breach off
the Antimonopoly Act. In addition to the remedies under the Antimonopoly Act, victims of anti-competitive conduct can le a civil damage suit in accordance with the Civil Code of Japan. They are also able to seek injunctions.
Prohibition on anti-competitive agreements
What kinds of agreement or conduct is illegal under the prohibition?
The prohibitions of the Antimonopoly Act cover both horizontal and vertical agreements. An information exchange of commercially sensitive information is explicitly listed as infringement, but may also be interpreted as a clue to anti-competitive agreements.
What types of agreements or conduct are illegal by object? And which are illegal only if they are signi cantly anti-competitive in effect?
There are no agreements or conduct which are illegal by object. Every agreement or conduct is examined to assess the extent of the restriction on competition before being identi ed as illegal. However, with regard to unreasonable restraints of trade, the JFTC and Courts’ treatment of price- xing cartels comes close to applying the principle of per se illegality.
Is there regulation of vertical agreements and if so, what type of vertical restraints or provisions in such agreements are typically examined?
Yes. Vertical agreements are regulated as private monopolization or unfair trade practices. The enforcement does not focus on any specific type of vertical restraints.
Is resale price maintenance allowed? Are recommended resale prices or maximum resale prices permitted?
No. Resale price maintenance is unlawful where the wholesaler or retailer is required to maintain wholesale or resale price without justifiable cause. Purely recommended resale prices are permitted. However, a restriction on maximum resale prices without justifiable cause is not permitted.
Are there any defenses or relief from liability provided by the legislation?
Yes. The Antimonopoly Law provides that the provisions of the law do not apply to acts found to constitute an exercise of rights under the Copyright Act, Patent Act, Utility Model Act, Design Act or Trademark Act. Other than this exemption, there are two types of the relief from liability provided by the legislation in certain conditions; (a) acts by partnership and (b) resale price maintenance of the speci c products designated by the JFTC.
Is there a leniency regime? If there is, please describe the extent of and process in seeking leniency?
Yes. There is a leniency program for unreasonable restraints on trade . Under the leniency program, there is immunity from or
a reduction in surcharge payments if a violator of the rules of unreasonable restraints on trade applies for leniency by notifying the JFTC of suf cient information concerning the violation in accordance with the leniency rules. The leniency program is not applicable to nes but the JFTC has adopted a policy that it will not indict a rst leniency applicant to the Prosecutor’s Of ce. The rates of leniency are as follows:
(a) the rst application before investigation: total immunity from surcharge;
(b) the second application before investigation: 50% reduction in surcharge payments;
(c) the third application before investigation: 30% reduction in surcharge payments;
(d) thefourthand fthapplicationwithnewinformationprovided before investigation: 30% reduction in surcharge payments; and
(e) the application with new information provided within 20 business days after investigation to the extent of the third application after investigation and the fth application in total including the applications before investigation: 30% reduction in surcharge payments.
The JFTC is examining the system of surcharge payments to update the system, including possibility of introducing the JFTC’s discretion on surcharge amounts (rather than xed percentage).
Abuse of Dominance or Market Power
How is “dominance” or “market power” determined? Is there a market share test?
With regard to private monopolization, the JFTC says it focuses on cases where the party’s market share is more than 50%.
The Antimonopoly Law also prohibits abuse of superior bargaining position. A superior bargaining position does not mean that a party has a market-dominant position or an absolutely dominant bargaining position, but that it has a relatively superior bargaining position as compared to the other transacting party. Whether or not Party A has superior bargaining position in transactions with Party B is determined by comprehensively considering the following four factors; (a) degree of dependence by Party B on the transactions with Party A; (b) position of Party A in the market; (c) possibility of Party B changing its business counterpart; and (d) other concrete facts indicating the need for Party B to carry out transactions with Party A.
What type of conduct constitutes abuse of dominance or abuse of market power?
Private monopolization includes two types:
(a) “control type private monopolization” where an enterprise restrains other enterprises’ decision-making on their business activities and thereby bends them to their will; and
(b) “exclusionary type private monopolization” which involves conduct that would cause dif culty for other enterprises to continue their business activities or for new market entrants to commence their business activities.
The Antimonopoly Act also prohibits abuse of a superior bargaining position. The categories which constitute abuse of superior bargaining position consist of: (a) forced purchase/use; (b) request for economic bene ts; and (c) other conducts including refusal to receive goods, return of goods, delay in payment, price reduction and other establishments, etc. of trade terms in a way disadvantageous to the transacting party.
Are there any defenses or relief from liability or exclusions applicable for abusive conduct?
Is there a merger control regime? What is considered a “merger”?
Yes. Chapter 4 of the Antimonopoly Act introduces mergers control regime as Business Combination restriction (Business Combination). Business Combination includes acquisition of shares, mergers, joint incorporation-type splits, absorption-type splits, joint share transfers (this means a transfer whereby more than two companies cause all of its issued shares to be acquired by a newly incorporated Stock Company) and acquisition of business.
Is the merger notification a mandatory or voluntary process?
Mandatory. The Business Combinations which are to be conducted in certain conditions must be noti ed to the JFTC in advance. Such conditions are stipulated for each type of Business Combinations.
When must the merger be notified to the regulator?
The noti cation must be done 30 days prior to completion of the proposed Business Combination.
What are the ling thresholds and are there any exemptions from noti cation requirements?
The ling thresholds depend on the type of Business Combination:
(a) Mergers of companies:
(i) the group of combined companies to which one of the parties to the transaction belongs has sales in Japan of more than JPY 20 billion; and
(ii) the group of combined companies to which any other party to the transaction belongs has sales in Japan of more than JPY 5 billion
(b) Stock acquisitions by a company:
(i) the total amount of sales in Japan of the group of combined companies to which the acquirer belongs exceeds JPY 20 billion;
(ii) the total amount of sales in Japan of the target company and its subsidiary exceeds JPY 5 billion; and
(iii) as a result of the acquisition, the aggregate percentage shareholding (i.e., voting rights) of the group of combined companies to which the acquirer belongs would move
to above 20% or to above 50%, respectively, of the total issued shares (i.e., voting rights) of the target company.
(c) Other acquisitions (business acquisitions):
The acquirer belonging to the group of combined companies whose total amount of sales in Japan exceeds JPY 20 billion acquires any of the following:
(i) the entire business from a company with sales in Japan of more than JPY 3 billion; or
(ii) the substantial part of a business, or entire or substantial part of the xed assets of the business from a company with relevant sales in Japan of more than JPY 3 billion.
Please provide a brief description of the merger clearance process and the typical timeline for merger clearance.
A notification must be led with the JFTC in the prescribed form. When a noti cation is led with the JFTC, the JFTC reviews the said Business Combination to be conducted by the notifying company. Phase I is 30 calendar days from the date of acceptance of the notification. Phase II is 120 calendar days from the date of acceptance of the noti cation or 90 days from the date of acceptance of all necessary reports, whichever is later.
What are the consequences of failing to notify the regulator when required?
A maximum fine of JPY 2 million shall apply.
For further information, please contact:
Jeremy Pitts, Partner, Baker & McKenzie