The Private Competition Enforcement Review: Japan
Overview of recent private antitrust litigation activity
In Japan, the number of cases categorised as private antitrust litigation has been relatively small over the years. This is partly because claimants have to overcome difficulties in bringing claims before the court under Japanese civil court proceedings where there is no comprehensive discovery system or class action system, unlike in the United States. In addition, it appears that most of the disputes involving potential claims based on breach of antitrust law in Japan have been settled by negotiations between the parties prior to bringing the claims to the court.
Nevertheless, there is a recent trend of Japanese courts receiving claims for compensation for damages arising from 'unfair trade practice' such as 'abuse of a superior bargaining position', which is one of the major forms of conduct prohibited by the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (the Antimonopoly Act). As a background to this trend, the Antimonopoly Act was amended in 2009 to introduce an administrative surcharge payment order on certain types of unfair trade practices. Pursuant to the amendment, the Japan Fair Trade Commission (JFTC) rendered a series of cease-and-desist orders and administrative surcharge payment orders against business entities that allegedly engaged in abuse of superior bargaining position from 2011 to 2013. While the JFTC orders were challenged by the entities and some of the cases are still pending before the court, the authors are of the view that the JFTC orders encouraged private antitrust claimants to file claims for compensation for damage against the businesses that allegedly committed abuse of superior bargaining position. The JFTC's enforcement of law pursuant to the 2009 amendment have caused the above-mentioned trend in antitrust litigation.
Furthermore, in March 2021, the JFTC, the Small and Medium Enterprise Agency (an affiliated agency of the Ministry of Economy, Trade and Industry) and the Ministry of Health, Labour and Welfare jointly issued the Guidelines for Secure Working Conditions for Freelancers (the Freelancers Guidelines). On the basis of the perception that Japan should comprehensively develop rules to develop environments in which freelancers can work securely, the Japanese government decided to formulate the Freelancers Guidelines to clarify practices considered to be problematic under the Antimonopoly Act and the Act against Delay in Payment of Subcontract Proceeds to Subcontractors with regard to trade relationships between businesses and freelancers. Because these problematic practices mainly consist of 'abuse of a superior bargaining position', the Freelancers Guidelines provide a basic interpretation of the abuse of a superior bargaining position for freelancers in line with the Guidelines concerning Abuse of Superior Bargaining Position under the Antimonopoly Act issued by the JFTC in 2010. The Freelancers Guidelines are expected to encourage freelancers to bring claims against businesses largely based on abuse of a superior bargaining position.
General introduction to the legislative framework for private antitrust enforcement
i Damages claims
Article 709 of the Civil Code
Article 709 of the Civil Code provides the grounds for a claim for compensation for damage caused by general tort. Under Article 709, any person who has engaged in conduct violating the rights or legally protected interests of another person must compensate the damage arising from the conduct. A claimant who has suffered damage by anticompetitive conduct that constitutes private monopolisation, unreasonable restraint of trade or unfair trade practice in violation of the Antimonopoly Act is entitled to bring a stand-alone claim based on Article 709 of the Civil Code.2
A claimant must initiate claims for compensation for damage under Article 709 of the Civil Code within the earlier of: (1) 20 years of the date on which the alleged violation of the Antimonopoly Act first occurred; or (2) three years of the date on which the claimant first became aware of the alleged violation of the Antimonopoly Act.3
Article 25 of the Antimonopoly Act
Article 25 of the Antimonopoly Act provides the grounds for strict liability for a follow-on claim for compensation for damage caused by anticompetitive conduct that constitutes private monopolisation, unreasonable restraint of trade or unfair trade practice in violation of the Antimonopoly Act. To file a claim under Article 25, a claimant must demonstrate that the JFTC rendered either a cease-and-desist order or an administrative surcharge payment order, and that these orders have become irrevocable. In lawsuits based on Article 25 of the Antimonopoly Act, defendants are not allowed to deny their wilfulness or negligence for the violation of the Antimonopoly Act found by the JFTC orders.
A claimant must initiate claims for compensation for damage under Article 25 of the Antimonopoly Act within three years of the date on which the relevant cease-and-desist order or administrative surcharge payment order rendered by the JFTC became irrevocable.
Article 24 of the Antimonopoly Act provides the grounds for a petition for injunction for a claimant whose interests are infringed, or are likely to be infringed, by certain unfair trade practice, which includes violation of Article 8, Item 5 (activities by a business association that cause a member company to employ unfair trade practice) or Article 19 (unfair trade practice by a company) of the Antimonopoly Act.
There is no limitation period for an injunction pursuant to Article 24 of the Antimonopoly Act.
iii Recovery of unjust enrichment
Articles 703 and 704 of the Civil Code provide the grounds for an action to recover unjust enrichment. Based on these articles, a claimant can bring a claim for recovery of unjust enrichment, depending on the circumstances.
For instance, under Japanese law, agreements or contracts entered into by parties may be declared void by the court pursuant to Article 90 of the Civil Code if these agreements or contracts include a provision in violation of the Antimonopoly Act.4 A party to the invalid agreement or contract may file an action to recover the benefits provided to the other party pursuant to the agreement or contract as unjust enrichment, based on the grounds that the agreement or contract is void.
Under Article 166, Paragraph 1 of the Civil Code, a claimant must bring a claim for recovery of unjust enrichment pursuant to Articles 703 and 704 within 10 years of the date of the agreement or conduct at issue and within five years of the date on which the claimant first became aware of the alleged violation of the Antimonopoly Act.
The Antimonopoly Act has no provision specifically addressing the issue of extraterritorial application of the Act. There are no statutory exemptions provided for conduct by foreign parties or sovereigns or that occurs outside Japan under the Antimonopoly Act.
Regarding cartel cases, the Supreme Court held that the provisions of cease-and-desist orders and administrative surcharge payment orders under the Antimonopoly Act shall apply to cartels agreed outside Japan if the economic order based on free competition in Japan is infringed by these cartels.5 More specifically, the Supreme Court held that the economic order based on free competition in Japan should be considered to be infringed if the competitive function of the relevant market in Japan is infringed by price-fixing cartels; namely, if the cartel restricts competition in transactions involving a party located in Japan.
Any person who suffered damage due to the conduct of defendants in violation of the Antimonopoly Act, such as a competitor or customer, can bring a case seeking compensation for damage against the defendants. Even indirect purchasers have standing to file a lawsuit to claim damages arising from a cartel in violation of the Antimonopoly Act.
Any person whose interests are infringed or are likely to be infringed by activities in violation of Article 8, Item 5 (activities by a business association that cause a member company to employ unfair trade practice) or Article 19 (unfair trade practice by a company) of the Antimonopoly Act can file a petition for order of injunction pursuant to Article 24 of the Antimonopoly Act. 6
The process of discovery
Unlike common law jurisdictions, Japan has no comprehensive discovery scheme in civil proceedings. Alternatively, there are several schemes of disclosure available in Japan.
i Disclosure of documents
Court order of preservation of evidence
Under the Code of Civil Procedure, a potential plaintiff can obtain a court order of preservation of evidence before filing a lawsuit. To obtain the court order, it is necessary to prove with prima facie evidence that there are circumstances in which it will become difficult to use the evidence at issue unless it is reviewed by the court in advance. This scheme is expected to serve as an order of pre-action disclosure of evidence.
In addition, parties are entitled to ask the court to send a request to the other party or a third party to produce particular documents (see below) even before filing a claim with the court on condition that the parties gave prior notice of initiating the lawsuit to the opposing parties pursuant to the Code of Civil Procedure.
Court order of document production
During the course of civil proceedings, a party can ask the court to order the other party or a third party to produce particular documents, subject to certain limitations, under the Code of Civil Procedure. For instance, the court will not render an order to produce documents:
- relating to matters for which the holder or a certain related person is likely to be subject to criminal prosecution or conviction;
- concerning a secret in relation to a public officer's duties, which, if submitted, is likely to harm the public interest or substantially hinder the performance of public duties;
- containing any fact that certain professionals (e.g., doctors, attorneys-at-law, registered foreign lawyers) have learned in the course of their duties and that should be kept secret;
- containing matters concerning technical or professional secrets; or
- prepared exclusively for use by the holder.
Third parties subject to the court order of document production include the JFTC. In a shareholder derivative lawsuit filed by shareholders against company directors, the Tokyo District Court rendered an order against the JFTC to produce documents such as JFTC interview records and reports produced by the company in response to the JFTC's requests for information during the course of its investigation.7
As to sanctions, if a party that receives the order does not submit the documents at issue, the court is entitled to deem the other party's assertions related to the content of the documents as true.
A plaintiff filing an action for injunction under Article 24 of the Antimonopoly Act can ask the court to order the defendant to produce documents, even including trade secrets, to prove the infringement, unless there is any justifiable reason to refuse production of documents. Alternatively, a party can ask the court to render an order of 'protection' of trade secrets in the same proceedings so that the documents at issue will not be disclosed to third parties.
Court request for document production
During the course of civil proceedings, a party can ask the court to send a request to the other party or a third party to produce particular documents. This is used more frequently than the aforementioned court order of document production with sanctions – courts tend to suggest that parties take this procedure prior to resorting to a petition for court order of document production.
Upon request from the court in which the damage claim is brought by the plaintiffs, the JFTC may produce certain documents collected during its investigation, including those collected from third parties, except for documents including certain information, such as trade secrets and privacy information. Furthermore, certain attorney–client privileged documents will not be provided to the civil court proceedings by the JFTC, as discussed in Section XI.
Perusal of case record of civil court proceedings
Under the Code of Civil Procedure, any person can review case records of civil court proceedings, and any person who has legal 'interests' can obtain a copy of case records, including briefs and evidence submitted to the court. In the context of private antitrust litigation, plaintiffs or potential plaintiffs can review the record of cases in which the validity of the JFTC's cease-and-desist orders and administrative surcharge payment orders are challenged by companies (i.e., defendants or potential defendants), which may include documents collected by the JFTC during the course of its investigations. Plaintiffs or potential plaintiffs of private antitrust claims may obtain a copy of the documents collected during the JFTC's investigations as a person who has legal interests. While the company, as a party to the case against the JFTC, is entitled to file a petition requesting the court not to disclose the documents to any third parties, the scope of documents protected by this petition is limited to privacy information and trade secrets.8
ii Written responses and testimony from opposing parties and third parties
Under the Code of Civil Procedure, parties are entitled to send questions requesting a written response to the opposing parties during the course of hearings. In addition, parties are entitled to ask the opposing parties to provide a written response to questions even before filing a claim with the court, on condition that the parties gave prior notice of the initiation of the lawsuit to the opposing parties pursuant to the Code of Civil Procedure. The opposing parties are not legally obliged to respond to the questions.
In civil court proceedings in Japan, no deposition is available and claimants must ask the court to conduct witness examinations after filing a claim to obtain testimony from opposing parties and third parties.
Use of experts
In Japanese civil proceedings, a party may submit to the court a report prepared by an expert it has appointed, as documentary evidence to support claims. To examine the credibility of the expert report, the opposing party may ask the court to cross-examine the expert.
A party may also ask the court to appoint an independent expert to provide an expert opinion and the court then determines the necessity to appoint the expert. When an expert is appointed by the court, he or she is obliged to give his or her opinion in the relevant field.
Expert opinions are sometimes used in private antitrust litigation. For instance, plaintiffs sometimes appoint economists or economic consultants as experts, and obtain their analysis on how, and the extent to which, the cartel or bid rigging impacted the price of the relevant product, to establish violation of the Antimonopoly Act (i.e., unreasonable restraint of trade) and the amount of damage arising out of the violation.
Japanese law does not permit class action suits for claims based on violations of the Antimonopoly Act. However, there are several other systems available for collective actions based on violations of the Antimonopoly Act.
Under Article 38 of the Code of Civil Procedure, if rights or obligations as the subject matter of lawsuits are common to multiple parties or are based on the same factual or statutory causes, parties can jointly bring a suit as co-plaintiffs. It is also possible to bring a suit as co-plaintiffs in cases where rights or obligations as the subject matter of lawsuits are of a similar nature or based on the same kind of factual or statutory causes. While a large number of parties can be co-plaintiffs, this is not a system to pool a large number of claims.
Under the 'appointed-party system' provided by Article 30 of the Code of Civil Procedure, each plaintiff or defendant can appoint another plaintiff or defendant as his or her representative. It is possible for multiple claimants to use this system when bringing antitrust claims to Japanese civil courts. The system does not allow class action suits as the appointed party does not represent a 'class'.
In 2016, the Japanese government introduced a new system under which consumer protection organisations qualified by the government can file lawsuits with the court seeking compensation for damage arising out of consumer contracts. Plaintiffs can assert the defendants' violation of the Antimonopoly Act in this type of action.
It is common for courts to determine the amount of damages in cartel cases by calculating the difference between the price of the relevant product immediately before the alleged cartel conduct and its price as applied in the transaction at issue.
The Supreme Court held that the damages arising from cartel conduct is the difference between the actual sales price and the expected sales price (i.e., the sales price that would have been applied but for the cartel conduct at issue), based on the presumption that the sales price immediately before the cartel conduct is the expected sales price, unless significant changes in economic conditions and market structures occurred between the time when the cartel conduct occurred and the time when customers purchased the product at issue.9 However, the Supreme Court decision was criticised by scholars and practitioners because plaintiffs must bear the burden of almost impossible proof pursuant to the decision. Specifically, the decision required plaintiffs (i.e., indirect purchasers) to prove that there was no significant change in economic factors and, if not possible, required the plaintiffs to prove the expected sales price based on factors of price formation.
Courts can use several legal schemes in determining the amount of damages arising from violations of the Antimonopoly Act. For instance, in an action based on Article 25 of the Antimonopoly Act, courts can obtain the JFTC's opinion in calculating the amount of damages claimed pursuant to Article 84 of the Antimonopoly Act. Under Article 248 of the Code of Civil Procedure, courts can determine a reasonable amount of damages if it is extremely difficult for the parties to prove the precise amount due to the nature of the damage.
Japanese law does not allow claimants to collect punitive damages in civil proceedings because awarding these damages is contrary to public policy in Japan.
Japanese courts do not find attorneys' fees as damages in principle. However, if a claimant's claim is for compensation for damage arising from 'tort', such as a violation of the Antimonopoly Act, the court would generally award approximately 10 per cent of the claimant's attorney's fee as part of the damages.
In Japan, the 'passing-on defence' is brought by a defendant as the issue of scope of damages, as opposed to as the issue of standing. Under Japanese law, the amount that a direct purchaser collected from indirect purchasers may be taken into account when calculating the amount of damage suffered by the direct purchaser because the amount of damage 'actually' suffered by a plaintiff can be compensated. As such, a defendant can assert that the alleged loss suffered by the plaintiff (i.e., a direct purchaser) has been reduced by having passed on to its consumers any overcharge arising from the defendant's violation of the Antimonopoly Act.10 The plaintiff will then be required to prove the actual amount of damage by taking into account the passing-on value (i.e., the amount that the direct purchaser has collected from indirect purchasers). If a direct purchaser passed on the amount of loss to its customers, it would be difficult to prove that the direct purchaser suffered actual loss. It is also difficult to prove the causal relationship between the conduct at issue and the alleged damage. As a result, the amount of damages would be reduced accordingly.
Parties undergoing JFTC administrative investigations or criminal investigations, as well as immunity applicants in those investigations, are not exempt from civil liability arising from violations of the Antimonopoly Act. Accordingly, there are no limitations on private actions or awards against these parties in follow-on private litigation.
Administrative surcharges imposed by the JFTC and criminal fines imposed by criminal courts are not taken into consideration by the court in calculating the amount of damages in follow-on private litigation.
Unlike in common law jurisdictions, Japanese civil courts do not recognise attorney–client, attorney–work product or joint work product defences to protect attorney–client communication or attorney materials. Accordingly, documents cannot be withheld from disclosure on the basis of privilege.
Under the Code of Civil Procedure, attorneys are granted the right to refuse to give testimony regarding communications with their clients, and attorneys are not obliged to produce documents exchanged with their clients and regarded as 'document[s] containing any fact which certain professionals have learnt in the course of their duties and which should be kept secret' or 'document[s] containing matters regarding technical or professional secrets' as defined under the Code of Civil Procedure. On the other hand, clients are granted no right to protect communications with their attorneys on the basis of privilege.
As discussed in Section V, the JFTC may produce certain documents collected during its investigations at civil court proceedings upon request from the court in which a damages claim is brought by plaintiffs. Until recently, the JFTC could collect and hold attorney–client privileged documents during an investigation and could even produce these at civil court proceedings. In December 2020, however, the JFTC introduced the determination procedure under which documents it collected during investigations would be returned to businesses on condition that the documents included confidential communications between businesses and their attorneys regarding legal advice on conduct alleged to be a violation to which the leniency programme applies (e.g., unreasonable restraint of trade). As a result, certain attorney–client privileged documents will not be produced by the JFTC at civil court proceedings.
During the course of civil court proceedings, judges tend to attempt to urge parties to settle disputes amicably before the court, which is known as judicial settlement. Typically, judges wish to settle cases before preparing for a draft judgment. Accordingly, immediately before moving to, or immediately after completing, witness examinations, parties are asked by the court whether they are willing to seek an opportunity to resolve the dispute by judicial settlement. If both parties agree to proceed with judicial settlement, the judge holds discussions with plaintiffs and defendants respectively, persuading the parties to make concessions to reach terms and conditions that are agreeable to both parties. Once a settlement agreement has been reached between the parties, the agreement is set forth in the court record and the record has the same effect as a final and binding judgment on the merits.
Arbitration is available as a method of resolution of disputes involving private antitrust claims in Japan. The Arbitration Act provides that a civil dispute that may be resolved by settlement between the parties is arbitrable. A dispute involving private antitrust claims is also arbitrable under this Act. Japanese courts are expected to enforce an arbitration agreement even for a dispute involving private antitrust claims. There is no legislation or court precedent that provides exceptions to this rule.
In Japan, civil mediation proceedings before the court are frequently utilised as a method of alternative dispute resolution. This may be used for private antitrust claims. In the civil mediation proceedings, the court appoints mediation committee members from lawyers and experts who are familiar with the subject matter of each dispute. The mediation committee members are in charge of handling the proceedings that facilitate settlement discussions between the parties. When the parties reach an agreement on the settlement terms, the agreed terms set forth in the official court record have the same effect as a final and binding judgment rendered by a court through a lawsuit. Both parties may terminate the proceedings at any point during the course of the proceedings.
Indemnification and contribution
In Japanese civil proceedings, a defendant can seek contribution from co-defendants or third parties (such as potential co-defendants) that assume joint and several liability (e.g., joint tortfeasor). If the court renders a judgment in favour of a plaintiff against a defendant, the defendant may initiate another civil court proceeding to seek contribution from a third party. Under the Code of Civil Procedure, a defendant can give notice of a lawsuit to a third party that has a legal interest in the outcome of the lawsuit. In cases where a defendant could pass on liability to, or share its liability with, a third party, the third party is considered to have a legal interest. The third party that received the notice may join the lawsuit as an assisting intervener. Once a third party receives notice of a lawsuit from a defendant, it is not permitted to dispute the relevant facts in a subsequent lawsuit with the defendant.
Future developments and outlook
Among recent notable legislative changes in Japan, the amendment to the Antimonopoly Act introduced the 'commitment procedure' on 30 December 2018. The commitment procedure is a system to resolve potential violations of the Antimonopoly Act alleged by the JFTC through voluntary consent by entities. Upon receipt of a notification from the JFTC regarding an alleged violation of the Antimonopoly Act, an entity may devise a plan to take the necessary measures to cease the conduct allegedly violating the Antimonopoly Act and file a petition for approval of the plan with the JFTC. If approved, the JFTC determines not to render a cease-and-desist order or administrative surcharge payment order against the company.
While a summary of the company's conduct allegedly violating the Antimonopoly Act is set forth in a press release of the completion of the commitment procedure issued by the JFTC, the press release also stipulates that it does not mean that the JFTC found actual violation of the Antimonopoly Act. As such, private antitrust claimants would not be able to utilise the result of the commitment procedure as evidence supporting their claim against the company. Rather, if a case involving potential violation of the Antimonopoly Act is settled through the commitment procedure without rendering a cease-and-desist order and administrative surcharge payment order, it is not possible for potential plaintiffs to utilise such orders in bringing private antitrust claims. In this regard, under the commitment procedure, the JFTC has a policy that it may use the documents submitted by the petitioner during the course of the commitment procedure in its further investigations to be conducted in a case where the JFTC disapproves the petitioner's plan to take the necessary measures to cease the conduct allegedly violating the Antimonopoly Act. The extent to which documents submitted to the commitment procedures are protected from disclosure in future private antitrust suits will be a significant issue in this field.
1 Koki Yanagisawa is a partner at Nagashima Ohno & Tsunematsu.
2 Unreasonable restraint of trade (as defined in Article 2(6) and prohibited in Article 3, latter part of the Antimonopoly Act) includes cartels and bid rigging. Typical examples of the behaviour of cartels are agreements on price-fixing, production limitation and market and customer allocation. Unfair trade practice (as defined in Article 2(9) and prohibited in Article 19 of the Antimonopoly Act) includes price discrimination, restrictions on resale pricing, below-cost sales, anticompetitive divisions of territories, concerted refusal of trade and abuse of superior bargaining position.
3 Under Japanese law, even after the expiry of any of the limitation periods, the court may uphold the claims if the defendant does not bring the defence of limitation. The running of the limitation period can be suspended upon: (1) filing of a lawsuit on the merits based on the claim at issue with the court; (2) filing of a petition for attachment, provisional seizure or provisional disposition based on the claim at issue with the court; (3) entering into an agreement to engage in negotiations; or (4) any acknowledgement of the claim at issue by the defendant.
4 There is no specific provision that stipulates that agreements that violate antitrust law are void under Japanese law, unlike EU law.
5 Supreme Court decision of 12 December 2017, Case No. Heisei 28 (Gyo-Hi) 233.
6 A claimant is not entitled to file a petition for injunction pursuant to Article 24 against violation of the Antimonopoly Act other than unfair trade practice (e.g., unreasonable restriction of trade or private monopolisation). In this case, a claimant can file a petition for injunction to suspend or prevent the conduct based on general tort theory under the Civil Code and the Civil Preservation Act. However, these cases are very uncommon.
7 Tokyo District Court decision of 1 September 2006, Case No. Heisei 16 (Mo) 4715.
8 Prior to the amendment to the Antimonopoly Act in 2015, to challenge the validity of a cease-and-desist order and an administrative surcharge payment order rendered by the JFTC, a business needed to file a petition to initiate JFTC administrative hearing procedures. Private antitrust claimants, as victims of alleged violations of the Antimonopoly Act, may ask for the JFTC's permission to peruse the documents submitted to its administrative hearing by the business and JFTC administrative investigators. The documents may include evidentiary documents submitted by JFTC administrative investigators that were collected during the JFTC's investigations against the business (i.e., a potential defendant in private antitrust litigation).
9 Supreme Court decision of 8 December 1989, Case No. Showa 60 (O) 933, 1162 (Tsuruoka Kerosene case).
10 Supreme Court decision of 2 July 1987, Case No. Showa 56 (Gyo-Tsu) 178.