i Characteristics of the regulations on private monopolisation and unfair business practices
The Japanese regulations on dominance and monopolies come in two forms: restrictions on private monopolisation and those on unfair business practices.
The concept of ‘private monopolisation’ is derived from Article 2 of the US Sherman Act, and was enacted at the time of the establishment of the Antimonopoly Act (AMA) in 1947, which is based on American judicial precedents on monopolisation. Two types of conduct are prescribed – ‘exclusionary conduct’ and ‘controlling conduct’ – with ‘controlling conduct’ being unique to Japanese law. There are also restrictions on such conduct being committed by multiple enterprises simultaneously, although there are few actual examples of this. Private monopolisation is defined in the provisions of the AMA as follows:
The term ‘private monopolisation’ as used in this Act means such business activities, by which any enterprise, individually or by combination, in conspiracy with other enterprises, or by any other manner, excludes or controls the business activities of other enterprises, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.2
While ‘any particular field of trade’ is the JFTC’s English translation, this has the same meaning as the term ‘relevant market’, which is generally used globally.
In actual practice, the provisions against controlling-type conduct are rarely applied, and five of the six private monopolisation cases that have taken place since 2000 have been exclusionary-type cases. While the title ‘private monopolisation’ is used, there is in fact no need for the subject of the relevant conduct to be a private company, so nowadays this expression is essentially meaningless. There is also no requirement for the subject of the conduct to be ‘monopolising’ the market in the economic sense of the term (that is, having only one seller or one buyer).
Unfair business practices
While ‘unfair business practice’ means a conduct that has a likelihood of impeding fair competition, and is derived from Article 5 of the US Federal Trade Commission Act, a notable feature of the provisions on such practices is that they prescribe various types of conduct.3 Essentially, while an unfair business practice is the same as private monopolisation in that the AMA regulates against anticompetitive conduct impeding the function of competition in the relevant market, it differs from private monopolisation in that the AMA also restricts unfair conduct that has a ‘likelihood’ of having such an effect. There are debates over what constitutes such a ‘likelihood’, as described later in this chapter.
While with private monopolisation there are no provisions imposing requirements on a company’s market share, under the Guidelines for Exclusionary Private Monopolisation under the Antimonopoly Act4 enacted by the JFTC (Guidelines), companies with a share of roughly 50 per cent or more are subject to the restrictions, and in actual cases to which private monopolisation has applied, the share of companies in the relevant market has been high.
For instance, from a general overview of cases since 2000, we see examples including a share of approximately 85 per cent in NIPRO, 70 per cent and above in NTT East (NTT’s share of fibre-optic lines in the East Japan region), 72 per cent in USEN Corporation (up from 68 per cent due to a implementation of exclusionary conduct), 89 per cent in Intel (up from 76 per cent, again due to the implementation of exclusionary conduct) and approximately 100 per cent in JASRAC.
In this way, all cases of private monopolisation since 2000 have identified exclusionary conduct by companies with a market share of 50 per cent or more as a breach of the prohibitions thereon. However, even companies that do not have a market share of 50 per cent or more are regulated by the rules against unfair business practices.
Exclusionary conduct and controlling conduct
In recent years there have been a series of important Supreme Court judgments concerning exclusionary conduct, in which the concept of ‘excluding the business activities of other enterprises’ was defined as ‘causing a clear obstruction to the business activities of a competitor, or clearly making it difficult for a competitor to enter the market, in each case through practices of an artificial nature which deviate from normal competitive methods’.5 While this definition has become generally accepted, opinion is divided when it comes to the actual determination of exclusionary conduct. However, there is no disputing the fact that there is no need for a company to completely expel a competitor from the market, or to bar it completely from entering it, for such conduct to be considered exclusionary. In addition, in the same judgment a ‘substantial restraint of competition’ is defined as ‘creating, maintaining or strengthening market power’, and so is consistent with actual practice to date.
On the other hand, controlling conduct is generally defined (albeit not in a Supreme Court judgment) as ‘conduct which imposes restrictions on another enterprise’s decision-making concerning their business activities, and so causes them to comply with one’s own wishes’.
While a company that creates market power is essentially free to raise prices, discriminatory price raises, etcetera, of a kind that prevent competitors from entering the market may be caught by the restrictions on private monopolisation.
There are provisions that enable measures to be taken where a market is in a situation whereby it is monopolised by a large company6 to remove such a situation; however, these have not actually been used in practice, and it is extremely unlikely that they will be in the future, either.
ii Relationship between private monopolisation and unfair business practices
It might be hard for readers in countries that do not have a system of dual restrictions to understand the relationship between private monopolisation and unfair business practices. While the enactment of restrictions on unfair business practices was (as previously mentioned) influenced by the US Federal Trade Commission Act,7 the AMA is distinct from the latter in that it has provisions on a diverse range of different types of conduct, such as:
- joint refusal to deal;
- restrictions on resale prices;
- discriminatory pricing;
- abuse of superior bargaining position;
- trading subject to exclusive or restrictive conditions; and
- tie-in arrangements and trading interference.
The major difference from private monopolisation is in the extent to which there is an anticompetitive effect on the market, and for private monopolisation to be realised, there must be a ‘substantial restraint of competition’ in the ‘relevant market’.
On the other hand, it is enough for there to be a ‘likelihood of impeding fair competition’ for unfair business practices. The question of to what extent a ‘likelihood’ there should be to satisfy this requirement is, in some cases, the most contested issue. While it also depends on the case in question and how companies compete, the JFTC often sets a low bar in cases to ensure that it wins, while on the other hand companies tend to set a high bar in a way that is substantially the same as a ‘substantial restraint of competition’.
On this point, while the JFTC ruled in the administrative hearing for the Microsoft case (16 September 2008) that ‘the quantitative or substantive effect on competition of the relevant conduct should be determined on a case-by-case basis’, this became the largest point of argument in the actual court case.
In many cases, if private monopolisation applies it will also constitute one of the types of unfair business practice. On the other hand, the relationship between them is such that conduct does not necessarily constitute private monopolisation just because it is an unfair business practice.
II Year in Review
As the JFTC has tended to enforce the restrictions on private monopolisation in waves, it is worth looking back at previous events to understand the current situation in Japan. There were no such cases between 1972 and 1996, and prior to 1972 there were only a few. During this period, conduct that constituted private monopolisation was regulated as an unfair business practice, as they were generally understood to be at the time, for which the evidential burden was low.
From 1996 to 2009, private monopolisation was actively enforced, with one case a year on average. However, in 2009 the JFTC lost the JASRAC case. JASRAC, which was the monopolistic managing operator for music rights in Japan, was initially determined by the JFTC to have committed a breach of private monopolisation by adopting a blanket collection method for broadcaster licensing fees, whereby it charged a fee by applying its prescribed rate to broadcasters’ broadcasting business revenue as a comprehensive licence for all music managed by JASRAC, regardless of the number of times that music was actually used.
JASRAC contested the decision in the administrative hearing held by the JFTC,8 which resulted in the JFTC taking the highly unusual step of revoking its own decision of breach.
While it seemed the matter would then be concluded, an action for revocation of administrative disposition was subsequently brought against the JFTC by JASRAC’s competitor, e-license, which claimed that it was excluded by JASRAC. The Tokyo High Court and the Supreme Court both determined that exclusionary conduct had taken place, and the case was referred back to the JFTC.9
In 2016, this case finally came to a close, with the withdrawal of JASRAC’S petition for redress, and during the period from 2009 to 2016, shackled as it was by its ongoing conflict with JASRAC, the JFTC did not expose any cases of private monopolisation, with the exception of one small and local case of a controlling-type private monopolisation. However, in recent years the JFTC has become more active again. It has exposed a string of cases that are fascinating from a competition law standpoint, each described later.
On 12 December 2017, the Supreme Court, albeit in an international cartel case, indicated that even where cartel agreements are reached outside Japan, the AMA will apply where these infringe Japan’s free competitive economic order. Although this is self-evident in actual practice, it makes sense that this was made explicitly clear, and it is surmised that this is also applicable to private monopolisation and unfair business practices.
Furthermore, according to press reports, on 15 March 2018 the JFTC conducted an on-site inspection of Amazon Japan’s offices on suspicion of the unfair business practice of ‘abuse of superior bargaining position’. It seems that the investigation will look into Amazon Japan’s conduct in demanding that its supplier companies pay several per cent of the cost of a discount provided to consumers as a form of support money.
Most recently, and again according to press reports, on 22 May 2018 the JFTC conducted an on-site inspection of Mainami Kuko Service, a company providing aviation refueling services, on suspicion of private monopolisation (of the exclusionary type).
It seems that the investigation will look into Mainami’s conduct of allegedly trying to restrict the entry of competitors into the market by asking airlines it has long-term partnerships with not to use refueling facilities provided by competitors.
iii Market definition and market power
i Market definition
A market is defined in terms of its product scope and geographical scope. However, markets are sometimes defined very narrowly when compared to merger control, such as in terms of specific areas, services or customers.
The most noteworthy case regarding market definition is NTT East. The JFTC defined the market somewhat narrowly as ‘FTTH [fibre to the home] services for detached residential properties in the East Japan region’. While the company naturally countered that the market should be defined as the broadband services market (including asymmetric digital subscriber line (ADSL) services), the Supreme Court affirmed the JFTC’s decision.10
In the later NIPRO case, the market was defined as ‘the field of supply for glass tubes in the West Japan region for which the consumers are ampoule processing companies with headquarters in the same region and the suppliers are NIPRO and processing companies’, in the USEN Corporation case, as the ‘transmission of music to retail shops in Japan’ and in the Intel case, as ‘the market for the sale of CPUs to Japanese computer manufacturers’.
There is also debate as to whether market definition is required for unfair business practices, and the JFTC’s position is to define markets as necessary on a case-by-case basis. That is to say, its basic position is that this is not necessary. However, in Microsoft, the JFTC did not shy away from defining the market, but instead defined it as the computer audio-video technology trading market. Even for unfair business practices, it is not possible to consider the anticompetitive effect if the market is not defined, and so there are many situations where companies and the JFTC contest the point.
ii Market power
As mentioned previously, under the Guidelines a company is required to have a share of over 50 per cent in the relevant market for private monopolisation to apply.
In the case of unfair business practices, there is no need for the company committing the conduct to have market power, and it is enough for them to have a strong position within that market. The Guidelines Concerning Distribution Systems and Business Practices under the Antimonopoly Act11 contain safe harbour provisions whereby an enterprise is not considered to have a strong position where it has a share of 20 per cent or less in respect of one type of conduct. Whether the safe harbour provisions apply varies depending on the type of conduct that is alleged to be an unfair trading practice, and the aforementioned Guidelines should be consulted accordingly.
For instance, safe harbour provisions are not available in the case of restrictions on resale prices or abuse of a superior bargaining position, and so may be breached even where the JFTC considers the company in question to have a market share of only 10 per cent. Furthermore, the market share is dependent on the market definition, so it is important to be mindful of the fact that a company’s relative market share will increase where the market is narrowly defined.
While conduct constituting private monopolisation may be either exclusionary conduct or controlling conduct, the former is at the heart of such conduct, and one should also be mindful of the following: it is highly likely that the JFTC makes its decisions regarding private monopolisation not only by paying attention to the anticompetitive nature of each such conduct, but also by considering overall the strength and weakness of factors such as (1) the company’s power in the market, (2) the anticompetitive nature of the conduct in question and (3) the effect on the relevant market, as well as the casual relationship between the three, and furthermore taking into account the existence or absence of any pro-competitive effects, and the extent thereof.
For (1), the JFTC takes into account not only the company’s market share itself, but also the characteristics of the market, the difference in share between the company and the player ranking second in the market, and, where necessary, the extent of excess profits, brand strength and so on.
Concerning (2), while the Supreme Court has proposed ‘practices of an artificial nature which deviate from methods of normal competition’, this can simply be taken to mean anticompetitive conduct. The extent of the anticompetitive nature of a conduct can be taken instead to mean the extent of the deviation from normal competition based on price and quality, that is to say from competition on the merits of the relevant products or services.
The effect on the relevant market (3) refers to effects such as competitors failing to enter or being delayed in entering a market, withdrawing therefrom, experiencing fluctuations in their share, or increases or decreases in customer trading.
Because (1) through (3) act on each other, if an anticompetitive effect is quantitatively assessed and given a numerical value, the anticompetitive effect is likely determined not through a summing up of such values, but by multiplying them and subtracting any pro-competitive effects instead. Once this is understood, the following examples become easier to comprehend.
In the Guidelines, four typical examples of exclusionary conduct constituting private monopolisation are given:
- a predatory pricing;
- b exclusive dealing;
- c tie-in arrangements; and
- d refusal to deal or discriminatory conduct.
While this is a simple way to classify such conduct, a much more broad and diverse range of types of conduct can be given.
i Exclusionary conduct (private monopolisation)
According to the Guidelines, a price is highly likely to constitute exclusionary conduct where it is lower than the ‘cost required to supply the product’. On the other hand, where the price is lower than the total cost required to supply a product, but greater than the ‘cost which does not arise if the product is not supplied’, and there are no special circumstances such as that the product is being supplied over a long period of time and in high volume, there is a low possibility of such pricing constituting exclusionary conduct.
The USEN Corporation case12 is a typical example of this. USEN Corporation, which had a market-leading share in cable music broadcasting to retail offices (68 per cent rising to 72 per cent as a result of exclusionary conduct), lowered the monthly listening fee that it charged to customers of its largest rival, Cansystem (26 per cent decreasing to 20 per cent as a result of USEN’s exclusionary conduct) as a condition of the customers switching to use its own service, and also extended its promotional campaign to those customers (whereby those monthly fees were made free) from the standard three months to six, and so was determined to have engaged in exclusionary conduct.
This means conduct whereby a company that does business in both an upstream market and a downstream market tries to bring the price of an upstream product close to that of a downstream product. In some cases it is regulated as a refusal to deal.
The Supreme Court’s judgment in NTT East is a typical example of this. When providing new communication services using fibre optics to detached residential properties, NTT East, which owns more than 70 per cent of the fibre-optic lines in the East Japan region, provided users with such communication services under a system whereby one person used a single fibre-optic line (central wire direct connection system). However, the fact that the usage fee for this was less than the connection fee for other communications providers, when using the same central wire direct connection system, was treated as them being excluded. While the monthly usage fee was ¥5,800, the monthly connection fee was ¥6,328.13
The Guidelines attempt to draw a line under whether conduct is illegal by listing a diverse range of factors, including loyalty rebates, but are unsuccessful in doing so. As such, analysis of exclusionary conduct is at a developing stage, whereby factors such as the discount aspect of rebates and pro-competitive effects are also taken into account.
A representative example of this is Intel.14 Intel, which has a larger share of the market for central processing units (CPUs) installed in computers (rising from 76 to 89 per cent as a result of exclusionary conduct), provided its business partner computer manufacturers with rebates, etcetera, on the condition that they would use Intel CPUs for 90 to 100 per cent of their computers, and would not use CPUs from Intel’s competitor, AMD (with a share of 22 per cent falling to 10 per cent as a result of Intel’s exclusionary conduct), for those computers that had a high production volume. Intel’s conduct in causing them not to adopt the CPUs of its competitor was deemed to be exclusionary.
There are some situations in which various different types of exclusionary conduct are mixed together, or combine to form a consecutive series.
NIPRO15 is a typical example of mixed conduct. In this case, NAIGAI Group, a business partner of NIPRO that produces and sells glass tubes for use in ampoules (and has a share of 85 per cent) began dealing in non-Japanese made glass tubes, which were competitor products to NIPRO’s. To restrain the expansion of NAIGAI’s dealing in such glass tubes, and with the intention of imposing sanctions on it, NIPRO raised the sale price for glass tubes to NAIGAI Group only (price discrimination); refused to accept orders placed by NAIGAI Group (refusal to deal); and required NAIGAI Group alone to provide security or to settle invoices with cash payments (abuse of superior bargaining position).
The JFTC decided that exclusionary conduct had taken place after taking into account a series of conduct by NIPRO over some four years. While NIPRO was the first case of private monopolisation in which the JFTC’s findings were contested, it also alleged in the course of the hearing as a preliminary claim that NIPRO’s same series of conduct also constituted unfair business practices.16
As NAIGAI Group had not decreased its dealings in imported glass tubes despite such course of conduct, NIPRO was able to exclude the imported tubes, but only slightly, and accordingly the JFTC added a charge of unfair business practices, which have a low evidential burden and for which it is sufficient to show that there was a ‘likelihood of impeding fair competition’.
Finally, the JFTC returned to its claim of private monopolisation and won its case.
Hokkaido Shimbun17 is also an interesting example of a mixed conduct case. The Hokkaido Shimbun newspaper covered the entire Hokkaido area, and had a dominant position even within newspaper sales in the Hakodate region (which is located within the Hokkaido area). Given that Hokkaido Shimbun was established in the same region with the aim of publishing an evening paper, Hokkaido Shimbun both filed a trademark on title lettering that the new market entrant Hakodate Shimbun newspaper was likely to use, and also greatly reduced its newspaper advertising fees in the same region and put pressure on the press agency not to broadcast news to Hokkaido Shimbun. It further demanded that the TV stations would not broadcast its commercials. This conduct was treated as Hakodate Shimbun being excluded.
Other examples of mixed conduct are outlined below. While these types of conduct are difficult to typify under the Guidelines, they are clear examples of exclusionary conduct.
In Japan Medical Foods Association, the Association, which used to exclusively carry out inspection work on medical food products (that is, it had a share of 100 per cent) through the public inspections system, colluded with Nisshin Healthcare Food Service Co, Ltd, a primary seller of food products for medical use, to construct a production and sale system that made it clearly difficult for new players to enter the market, such as requiring registration for medical food products and certification for production plants, and so was deemed to have excluded new market participants from producing and selling medical food products.18 This was the first private monopolisation case in Japan in 24 years.
In Pachinko machine production patent pool, 10 pachinko machine producers that held key patents on the manufacturing of such machines (and together held approximately 90 per cent of the pachinko machine market), and that had gathered their patents together and were managing them as a patent ‘pool’, were deemed to have committed exclusionary conduct for not granting new participants licence rights to those patents.19
In Paramount Bed, Paramount Bed placed pressure on the person at the Tokyo metropolitan government in charge of placing orders for medical-use beds (Paramount had an almost-100 per cent share of this market) to enable delivery only of beds for which Paramount Bed had utility model rights, so that competing providers could not supply other beds, and accordingly was found to have committed exclusionary conduct.20
In Nordion, Nordion, a Canadian company that held the majority of global production volume and a large part of the sales for Molybdenum 99 (a substance used in radiation therapy) and 100 per cent of the market in Japan, required its Japanese business partners to purchase all of the products they required from it over the course of 10 years, and accordingly was found to have excluded its competitors.21
ii Controlling conduct (private monopolisation)
There are few cases concerning controlling-type conduct; nor are there any guidelines thereon from the JFTC. An example that constitutes controlling is a company using a given investment in another company to restrict its sales areas against its wishes, and to prohibit the establishment of new factories.22
While Fukui Agricultural Cooperative23 is a controlling-type case, the scale thereof was small and it was extremely local in nature.
iii Unfair business practices
In Hokkaido Electric Power, the company set different fees for returning consumers that were higher than those for new consumers, and accordingly a JFTC warning was sounded on suspicion of price discrimination by the other party.24
While Japanese electric power companies once tended to dominate certain areas for long periods of time, the regulations were gradually eased to accommodate new market entrants. In particular, in recent years a liberalisation of retail electricity has begun, starting with the super-high voltage field (such as for large-scale power plants), then office buildings, and finally low-voltage family retail electricity as of April 2016, with the result that the Japanese electricity retail market has become completely liberalised. The case of Hokkaido Electric Power can be positioned as occurring in the midst of the retail electricity market’s shift to a competitive market.
The JFTC has made it clear to the energy industry (such as electricity and gas) that it will proactively investigate the situation going forward.
Microsoft Japan licensed its word processing software Word to computer manufacturers together with Excel (the spreadsheet software for which it has the leading market share) at the same time as licensing the latter, and accordingly was deemed to have engaged in ‘tying’.25 Following this, Ichitaro, competitor word processing software, suffered a notable reduction in its market share.
Non-assertion provisions clause
In this case, Microsoft US was found to have created an anticompetitive effect in the computer audio-video technology market by including in its contracts for licensing Windows (its core software for PCs) original equipment manufacturer (OEM) sales provisions whereby the OEM providers entering into those contracts promised not to sue Microsoft or other OEM providers for breaches of patent infringement by Windows (non-assertion provisions), and so this conduct was found to constitute trading subject to restrictive conditions.26
In the decision, it was determined that the non-assertion provisions were extremely unreasonable given that it enabled the OEM providers’ worldwide patents to be incorporated into the Windows series for free, and accordingly that there was a high probability of OEM providers losing the desire to research and develop new computer audio-video technology.
In addition, given that the OEM providers and Microsoft are competitors in the computer audio-visual technology market, those OEM providers would as a result of those non-assertion provisions lose the desire to research and develop computer audio-video technology if they had such powerful technology in their possession, and accordingly their position would be weakened, while on the other hand Microsoft could rapidly and widely distribute its computer audio-visual technology on a global scale by installing it within the Windows series.
Accordingly, it was determined that the non-assertion provisions had a likelihood of excluding competition in the computer audio-visual market, or causing it to stagnate, and so there was a high probability of an anticompetitive effect being extended to that market.
Breach of fair, reasonable and non-discriminatory terms
One-Blue, LLC manages and operates the patent pool for the standard essential patents for Blu-ray disc standards. Despite declaring that it would license these under fair, reasonable and non-discriminatory (FRAND) conditions, it did not reach an agreement with Imation Corporation, which wished to receive a licence under the FRAND conditions, and furthermore told its business partners that the Blu-ray discs produced and sold by Imation would infringe One-Blue, LLC’s patent rights. Accordingly, this conduct was determined to constitute trading interference.27
Most-favoured nation clause
Amazon Japan was found to have included in its seller display contracts for ‘Amazon Marketplace’ (its electronic shopping mall) a most-favoured nation clause that required sellers to set prices and terms and conditions for products sold by them on Amazon Marketplace at whichever were the most favourable prices and terms and conditions of the same product as sold by other sales routes, and accordingly was investigated by the JFTC on suspicion of trading subject to restrictive conditions.28 However, as Amazon Japan made a petition to the effect that it would take voluntary measures itself, and those measures dispelled that suspicion, the JFTC broke off its investigation.29
The provisions on unfair business practices contain prohibitions on ‘abuse of superior bargaining position’ that are unique to Japan. One aspect to these provisions is the traditional Japanese industrial policy of protecting small and medium-sized companies, and, while they are somewhat hard to understand in terms of pure competition law theory, the JFTC makes frequent use of these provisions, thus making them a key part of the regulations against unfair business practices.
It is enough for a company to have a superior bargaining position relative to its suppliers, and there is neither any need for the relevant company to have market power nor to have a strong position in the relevant market. Of course, if such elements exist, the chance of the company being targeted by the JFTC will increase.
As such companies are an important trading partner for suppliers, if they have a relationship with such companies whereby they must accept any demand made by them, no matter how unreasonable, the company in question will be deemed to have a ‘superior bargaining position’.
The rules primarily regulate against large companies such as mass electronics retailers, supermarkets, department stores, home centres and convenience stores demanding cooperation fees from their suppliers, requiring them to dispatch their employees on secondment without charge, and returning products or reducing payments therefor without due cause.
However, there are no restrictions on the types of industry that may be targeted, and in the past there have also been cases where banks were investigated.
Investigations conducted by the JFTC consist of either an on-site investigation or an order to report. While an on-site investigation is the method normally employed where there is strong suspicion of a breach, in recent years some investigations have been commenced through an order to report instead. Although at the time of commencing an investigation the JFTC gives a written notice of the suspected facts, it is common for the JFTC to describe both grounds for private monopolisation and unfair business practices, thereby investigating with the aim of finding both and proving at least one of the two, and for the applicable law to be determined mid-way through an investigation or indeed at the end thereof.
When the JFTC reaches a firm position, it will send the enterprise in question a draft of the measures to be taken, and provide the enterprise with an opportunity to refuse the allegations and view or copy evidence held by the JFTC. Formal measures are then issued once this process is completed. Where the enterprise in question objects to those measures, it must dispute them through an action for revocation of administrative disposition made to the Tokyo District Court.
The sanctions imposed for private monopolisation initially consist of a cease and desist order, which is an administrative measure taken by the JFTC through designated procedures to remove conduct in breach of the AMA. Where there is conduct of a kind that breaches the prohibition on private monopolisation, the JFTC may order the relevant enterprise to take measures concerning the relevant conduct, such as an injunction (Article 7, Paragraph 1). Even where the breach has already been extinguished, the JFTC may, where it deems particularly necessary, order the enterprise, for a period of five years after the extinguishment thereof, to take such measures as are required to ensure that the relevant conduct is removed, such as disseminating notices to the effect that the offending conduct is no longer taking place (Article 7, Paragraph 2). While there is debate over whether the JFTC can order enterprises to take structural measures such as a company split, there has been no case so far of such an order being given.
The revision of the AMA in 2005 led to administrative surcharges also being levied for controlling a private monopolisation. The JFTC does not have discretion over the amount thereof, but rather surcharges are charged at a maximum of 10 per cent of the consolidated annual sales affected by the conduct for the past three years (Article 7-2, Paragraph 2). Furthermore, with the 2009 revision of the AMA, administrative surcharges came to be imposed on exclusionary private monopolisation as well. These are charged at a maximum of 6 per cent of the consolidated annual sales affected by the conduct for the past three years (Article 7-2, Paragraph 4). However, to date there has been no case of an administrative surcharge being levied for private monopolisation. In addition, while criminal charges are also prescribed in respect of private monopolisation, there is no example of these having actually been imposed.
With the 2009 revision of the AMA, administrative surcharges also came to be imposed for certain types of unfair business practices. The basic rate for these is 3 per cent (but 1 per cent in the case of abuse of superior bargaining position). Administrative surcharges have only been imposed for unfair business practices in the case of abuses of a superior bargaining position. While such surcharges are imposed in respect of the first instance of the conduct in breach of the prohibition on abuse of superior bargaining position, for other unfair business practices they are imposed in respect of the second instance of the offending conduct where it is repeated.
VI Private Enforcement
i Claims for damages
A person who suffers damage as a result of private monopolisation or unfair business practices may make a claim for compensation against the offending person pursuant to Article 25 of the AMA or Article 709 of the Civil Code. In Japan, there is no system of punitive compensation for damages or triple damages, so in any case it will only be possible to claim the actual amount of loss suffered.
Claims for compensation made pursuant to Article 25 of the AMA cannot be made unless the JFTC’s order has been finalised (Article 26, Paragraph 1), and in the first instance the Tokyo District Court has exclusive jurisdiction (Article 85-2). Negligence is not required to establish liability, so the party engaging in the relevant conduct cannot avoid liability on the basis that it did not act wilfully or negligently (Article 25, Paragraph 2).
On the other hand, claims for compensation made pursuant to Article 709 of the Civil Code are made based on unlawful conduct in general, and so a claim can be made regardless of whether the JFTC has made an order or not.
These two rights of claim are separate from each other, and while it is in practice unusual, it is lawful to both bring a lawsuit pursuant to Article 25 of the AMA and at the same time another pursuant to Article 709 of the Civil Code, and provided the statute of limitations has not taken effect, it is also lawful for a claimant to bring a lawsuit pursuant to Article 25 of the AMA after losing a lawsuit brought under Article 709 of the Civil Code. While the limitation period is three years in either case, the starting point for calculating that period for lawsuits brought under Article 25 of the AMA is from the time at which the JFTC’s order is finalised (Article 26, Paragraph 2), whereas for lawsuits brought under Article 709 of the Civil Code, it is ‘the point in time at which the loss and the party causing that loss are known’ (Civil Code Article 724).
While at first sight lawsuits brought pursuant to Article 25 of the AMA, which do not require negligence to establish liability, may seem more advantageous to the affected party, these claims are restricted to breaching conduct that is identified by the JFTC, and accordingly it may not necessarily be advantageous to the affected party, inter alia, where the actual breaching conduct lasts longer than as identified by the JFTC. For this reason, when one excludes cases which that been statute-barred, in most cases affected parties choose to make a claim for compensation pursuant to Article 709 of the Civil Code.
ii Claims for injunction
Injunction lawsuits by private persons were first introduced in 2001. In Article 24 of the AMA, it is prescribed that a person whose interests are harmed due to unfair business practices, or which are at risk of being harmed thereby, and who clearly suffers loss as a result thereof or is likely to do so, may make a claim against the enterprise or trade association that is harming or at risk of harming its interests to have that infringement stopped or prevented. This system means that the party claiming does not have to wait for the JFTC to take enforcement measures, but can make an injunction claim in its own capacity as the harmed party. In the case of private monopolisation, the harmed party is not specified, and while this is a flaw of the legal system, as mentioned previously, in many cases private monopolisation also constitutes one of the forms of unfair business practices, so if one adjusts the legal configuration, it is in practice possible for a party harmed by private monopolisation to make an injunction claim.
While many lawsuits have been brought since the introduction of the system, there were for a long time no successful cases brought by claimants, with the first such case occurring 10 years after the system was introduced.
This was a case in which an enterprise that had an extremely powerful position in the dry ice market (the leading player with a share of 49 per cent) slandered its competitors to the effect that they were breaching their non-compete obligations, or repeatedly made allegations to stir up its exaggerated claim that they were not reliable suppliers, and in doing so weakened their position in the dry ice market, or tried to prevent them from entering the market altogether. In this case it was deemed that there was ‘a likelihood of impeding fair competition’.30
Following this was a case of a successful claim in the taxi industry (Shintetsu taxi).31
Situations where a person’s interests are ‘clearly harmed’ include ‘situations where damage arises due to conduct in breach of the Antimonopoly Act which is difficult to recover from, or where financial compensation is insufficient to remedy the situation, such as where the relevant enterprise is at risk of being expelled from the market or is being prevented from entering it as a new participant’ (Yamato transport postal service).32
Going forward, it is expected that private court actions will become more frequent. While to date affected persons have made declarations to the JFTC, there have been many cases where the JFTC did not respond, and so those persons ended up filing private actions instead. Consequently, in recent years there have been more cases of persons filing private actions without making any declaration to the JFTC at all.
VII Future developments
With the Trans-Pacific Partnership agreement being reached after the withdrawal of the US, the bill to revise the AMA to introduce a commitment system procedure will soon be put under Diet deliberation. Although cartels and bid rigging are not within the scope of the commitment, private monopolisation and unfair business practices are precisely subject to this commitment. If the commitment procedure is adopted, there will immediately be more methods to resolve cases through negotiation with the JFTC.
1 Yusuke Kashiwagi is a partner at TMI Associates.
2 AMA, Article 2, Paragraph 5.
3 Conducts are designated as unfair by the AMA or the JFTC (AMA Article 2, Paragraph 9, Items 1–6, and JFTC General Designations (General Designations), pp. 1–16)).
5 Judgment of the Supreme Court in the NTT East case: Supreme Court decision – 17 December 2010 Minshu Vol. 64, No. 8, p. 2,067).
6 AMA, Article 8-4.
7 Although in Japan the only enforcing body is the JFTC.
8 The practice of which has since been abolished.
9 Supreme Court decision, 28 April 2015, Minshu, Vol. 69, No. 3, p. 518. The ruling was as follows:
A collection method which does not take into account the amount of broadcast usage when calculating broadcasting license fees will cause the overall amount of music usage fees borne by broadcasters to increase where they are paying music usage fees to other managing operators. Accordingly, coupled with the fact that the broadcasting usage of music is essentially interchangeable in nature, this has the effect of suppressing the usage by broadcasters of music which is managed by other managing operators, and when one takes into account that the scope of such suppression extends to almost all broadcasters, and that the continuation period thereof extends over a considerably long period of time, one should say that this method clearly has the effect of making it difficult for other managing operators to enter this market.
10 The Court stated that:
given it is clear that there actually existed consumers who prefer FTTH services in terms of the communications side, etc., regardless of the price difference with other broadband services such as ADSL, and so it can be understood that for such persons there was almost no demand substitutability as regards other broadband services, so the FTTH services market can be assessed independently as being the ‘relevant market’ for the purposes of Article 2, Paragraph 5 of the AMA.
12 JFTC recommendation decision, 13 October 2004.
13 The Supreme Court ruled as follows:
in the case of the conduct concerned, NTT East directly provided subscriber fiber optic equipment installed by it to its subscribers, and at the same time, when providing this equipment to other telecommunications providers with which it competed for connection purposes, made use of its position as effectively the sole supplier in the equipment connectivity market for subscriber fiber optics to set and present them with connectivity terms and conditions which those providers could not accept as reasonable in economic terms. This unilateral and one-sided act of refusal to deal and predatory pricing has an artificial nature which deviates from normal competitive methods, as seen in terms of them creating, maintaining or strengthening their own market power, and as it can be said that this had the effect of clearly making it difficult for those competitors to enter the market, this should be considered as constituting exclusionary conduct in that same market.
14 JFTC recommendation decision, 13 April 2005.
15 JFTC pretrial decision, 5 June 2006.
16 Trading subject to restrictive conditions, General Designations p. 12.
17 JFTC recommendation decision, 28 February 2000.
18 Japan Medical Foods Association, JFTC recommendation decision, 8 May 1996.
19 Pachinko machine production patent pool, JFTC recommendation decision, 6 August 1997.
20 Paramount Bed, JFTC recommendation decision, 3 September 1998.
21 Nordion, JFTC recommendation decision, 3 September 1998.
22 Toyo Seikan, JFTC recommendation decision, 18 September 1972.
23 16 January 2015.
24 JFTC warning, 30 June 2017.
25 General Designations p. 10, JFTC recommendation decision, 14 December 1998.
26 Current General Designations, p. 12, JFTC pretrial decision, 16 September 2008.
27 Trading interference, General Designations, p. 14, JFTC press release, 18 November 2016.
28 General Designations, p. 12.
29 JFTC press release, 1 June 2017.
30 Tokyo District Court judgment – 30 March 2011.
31 Osaka High Court judgment – 31 October 2014, Decisions, Vol. 61, p. 260.
32 Tokyo High Court judgment – 29 November 2007, Decisions, Vol. 24, p. 699.