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 imposing the largest-ever administrative fines in Japan. The JFTC has also increasingly utilised settlement (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 fines for cartels

In March 2023, the JFTC levied a record-breaking administrative fine of JPY101 billion on four major power companies. Chugoku Electric Power, Kyushu Electric Power, Chubu Electric Power, and their subsidiaries after they were found to have agreed not to compete in each other's service areas. The agreements 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 agreements 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. All of these companies initiated a lawsuit against the orders with the Tokyo District Court.

Commitment proceedings for single-firm conduct

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 in the EU. The procedure can offer advantages for both the JFTC and companies being investigated. It also 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 lawsuits.

The commitment procedure has been applied in 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. The 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. Companies should therefore carefully weigh the potential disadvantages against anticipated advantages before deciding to negotiate a settlement with the JFTC.

Investigation into foreign companies

The JFTC has recently been actively investigating anti-competitive conduct by foreign companies and their Japanese subsidiaries. From January to October 2024, the majority of the JFTC's on-site inspections of suspected violations of Japan's antitrust law by single companies were against Japanese subsidiaries of foreign companies.

Examples of these investigations include cases involving Harley Davidson, VISA Worldwide, and VMware. These investigations not only targeted their local Japanese subsidiaries but also their headquarters outside Japan. According to news coverage, the JFTC requested co-operation from the US headquarters of VISA Worldwide and the Irish headquarters of VMware as part of their respective investigations.

Foreign companies doing business in Japan should be fully mindful of this trend.

Legislative Developments

The green guidelines

In March 2023, the JFTC published the "Guidelines Concerning the Activities of Enterprises Toward the Realisation 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 impacts with economic growth.

The JFTC has explained that the Green Guidelines aim to prevent restrictions on innovation in green technologies and therefore 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 consult 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 the bill for the "Act on Promotion of Competition for Specified Smartphone Software" to the Japanese Parliament.

The JFTC's commissioner has called it "Japan's DMA" and the bill was approved in June 2024. The Act 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. According to news coverage, Google and Apple will soon be designated as regulated companies.

"Japan's DMA" prohibits a variety of activities such as self-preferencing, interoperability or data portability of Google and Apple, but 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 these 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 law is set to be enacted by December 2025. However, it is still unclear how the JFTC will enforce it.