JAPAN: An Introduction to Competition/Antitrust

Introduction 

The Japan Fair Trade Commission (JFTC) continues to enforce Japan's antitrust law actively, cracking down on cartels and resulting in the largest-ever administrative fines in Japan. The JFTC has also increasingly utilised settlement (aka commitment) procedures to address challenges related to cutting-edge issues concerning digital platforms flexibly. In terms of legislation, the JFTC has shown interest in Green Transformation (GX) initiatives that contribute to reducing greenhouse gas emissions, and its guidelines have attracted attention among antitrust specialists in Japan and overseas.

Enforcement Trends 

Record Fine for Cartels 

In March 2023, the JFTC levied a record-breaking administrative fine of JPY 101 billion on four major power companies. The companies—Chugoku Electric Power, Kyushu Electric Power, Chubu Electric Power, and their subsidiaries—were found to have agreed not to compete in each other's service areas. This agreement undermined the government's policy of promoting competition in the electricity industry following the liberalisation of electricity sales.

The JFTC's investigation revealed that Kansai Electric and Chubu Electric agreed not to solicit each other's customers. Similar collisions were found between Kansai Electric and Chugoku Electric and between Kansai Electric and Kyushu Electric. The JFTC viewed these agreements as an undue attempt to stifle competition.

Commitment Proceedings for Single-firm Conducts 

The JFTC's commitment procedure, introduced in late 2018, allows investigations to conclude without a formal infringement finding, streamlining the process and aligning it with competition authorities like the EU. The procedure can offer advantages for both the JFTC and investigated companies; it allows the JFTC to pursue a broader range of cases, especially those involving complex competition issues related to digital platforms, and companies under investigation can avoid formal declarations of infringements and administrative fines by the JFTC, which also mitigate risks of follow-on damage suits. The commitment procedure has been applied to 19 cases to date, meaning that most single cases have been concluded by the JFTC's commitment decisions rather than formal cease and desist orders and administrative fines. The companies that have entered into settlement agreements include foreign companies and their subsidiaries, such as Amazon Japan, BMW, and Wilson, indicating that the commitment procedure is widely used regardless of the company's nationality.

Nevertheless, companies considering this route should be aware of potential drawbacks. JFTC may seek a finding of a more extensive violation than initially suspected, and excessive remedial measures may be required without sufficient evidence to prove the violation. This could lead to prolonged negotiations to design remedial measures. Therefore, Companies should carefully weigh the potential disadvantages against anticipated advantages before deciding to negotiate a settlement with the JFTC.

Legislative Developments 

"Green" Guidelines 

In March 2023, the JFTC published the "Guidelines Concerning the Activities of Enterprises Toward the Realization of a Green Society under the Antimonopoly Act" ("Green Guidelines") and revised them in April 2024. According to the JFTC, the Green Guidelines support businesses in achieving a "Green Society" that balances environmental impact with economic growth.

The JFTC explains its understanding in the Guidelines that they aim to prevent restrictions on innovation in green technologies and thus also enhance transparency and predictability of the AMA application for green business practices. The JFTC acknowledges that many business efforts to achieve a Green Society, including collaborations among competitors, do not restrict fair and free competition and often promote competition by creating new technologies and products, ultimately benefiting consumers through reduced greenhouse gas emissions.

The JFTC encourages companies to actively seek consultations with it to clarify its views on applying antitrust law to various green business practices. The JFTC recently announced the conclusion of such a consultation by a group of competitors in the petrochemical industry, to which the JFTC has granted clearance for collaboration.

"Japan's DMA" for Smartphone Software 

In April 2024, the Cabinet formally submitted to the Parliament the bill for the "Act on Promotion of Competition for Specified Smartphone Software," which the JFTC's commissioner called "Japan's DMA". This bill will cover specific categories of smartphone software (mobile operating systems, application stores, browsers, and search engines) and, considering the high entry barriers faced by potential competitors, will implement ex-ante regulation to create a competitive environment that can offer consumers greater options in services through a variety of new business activities.

We should note, however, that this "Japan's DMA" focuses specifically on smartphone software and has a very narrow scope compared to the EU DMA, which regulates gatekeepers across various platforms. It is also worth noting that only limited types of conduct will be subject to administrative surcharges, and even for such categories of conduct, companies are allowed to escape from cease-and-desist orders and administrative fines if there are justifications such as privacy and security.

The proposed law is expected to be passed in 2024, as there is little opposition. However, it is unclear how the JFTC will enforce it.