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What are the legal sources that set out the antitrust law applicable to vertical restraints?
The Japanese Antimonopoly Act (Act No. 54 of 14 April 1947), as amended (JAMA), prohibits various ‘unfair trade practices’, including some vertical restraint conduct, under article 19 thereof.
Under the JAMA prior to the amendments in 2009, ‘unfair trade practice’ was defined as any act falling under the six basic categories statutorily provided that tends to impede fair competition and which is ‘designated by the Japan Fair Trade Commission’ (JFTC) (see question 2) under the then article 2, paragraph 9, thereof. Although from a theoretical perspective the scope has not been expanded, from an enforcement perspective the amendments in 2009 divided them into two categories: those subject to a monetary sanction (surcharge order) under items 1 to 5 of paragraph 9 of article 2 on certain conditions as defined respectively; and the remainder under item 6 thereof (see question 52).
‘Private monopolisation’ is prohibited under the first half of article 3 thereof, as defined under article 2, paragraph 5 of the JAMA, which is said to have some practical coverage sharing with said unfair trade practices. For the interaction between these two, see question 2.
The latter half of article 3 prohibits ‘unreasonable restraint of trade’, which has been narrowly interpreted as horizontal restraint, including cartel or bid rigging, based on the historical development of the law.
In addition to the statutory provisions above and the relevant guidelines issued by the authority referred to in the respective questions below, here is the list of the precedents constituting the legal sources about vertical restraints.
- Wakodo v JFTC, 22 Shinketsushu 237 (Sup Ct, 10 July 1975) (see questions 20 and 22);
- Meiji Shoji v JFTC, 22 Shinketsushu 201 (Sup Ct, 11 July 1975) (see questions 20 and 22);
- Toyo Seimaiki v JFTC, 30 Shinketsushu 136 (Tokyo High Ct, 17 February 1984) (see question 42);
- Shiseido v Fujiki, 45 Shinketsushu 455 (Sup Ct, 18 December 1998) (see question 37);
- Kao v Egawa Kikaku, 45 Shinketsushu 461 (Sup Ct, 18 December 1998) (see questions 30 and 40); and
- Hamanaka v JFTC, 58-2, Shinketsushu 1 (Tokyo High Ct, 22 April 2011) (see question 22).
- JFTC recommendation decision against Nordion, 45 Shinketsushu 148 (3 September 1998) (see question 43);
- JFTC recommendation decision against Tottori Chuo Agricultural Association, 45 Shinketsushu 197 (9 March 1999) (see question 45);
- JFTC recommendation decision against Himeji-shi Plumbing Business Cooperative Association, 47 Shinketsushu 263 (10 May 2000) (see question 45);
- JFTC recommendation decision against Sagisaka, 47 Shinketsushu 267 (16 May 2000) (see question 45);
- JFTC recommendation decision against Matsushita Electric Industrial, 48 Shinketsushu 187 (27 July 2001) (see question 30);
- JFTC hearing decision re Sony Computer Entertainment, 48 Shinketsushu 3 (1 August 2001) (see questions 30 and 40);
- JFTC Keikoku (warning) against Johnson & Johnson (12 December 2002) (see question 32);
- JFTC recommendation decision against Intel, 52 Shinketsushu 341 (13 April 2005) (see question 43);
- JFTC order against Oita Oyama-machi Agricultural Association, 56-2 Shinketsushu 79 (10 December 2009) (see question 44);
- JFTC order against Johnson & Johnson, 57-2 Shinketsushu 50 (1 December 2010) (see question 26);
- JFTC order against DeNA, 58-1 Shinketsushu 189 (9 June 2011) (see question 44); and
- JFTC order against Coleman Japan 63 Shinketsushu 133 (15 June 2016) (see questions 19 and 50).
Types of vertical restraint
List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?
For the purpose of unfair trade practices, in terms of describing the types of vertical restraints, the then Designation of Unfair Trade Practices (JFTC Public Notice No. 15 of 18 June 1982) (UTP Designation), which was in effect prior to, but is now amended by, the amendments in 2009, may still be appropriate. Under the authorisation pursuant to the then article 2, paragraph 9 of the JAMA, the then UTP Designation detailed and reorganised the six categories and reclassified them into 16 categories. The following describes the major categories among them.
Tie-in sales, etc
Unjustly causing another party to purchase goods or services from oneself or from another designated by oneself by tying the purchase to the supply of other goods or services, or otherwise coercing the said party to trade with oneself or with another designated by oneself.
Trading on exclusive terms
Unjustly trading with another party on condition that the said party shall not trade with a competitor, thereby tending to reduce trading opportunities for the said competitor.
Resale price restriction
Supplying goods to another party while imposing, without justifiable grounds, such restrictive terms as to cause the said party or subsequent repurchaser to maintain the selling price of the goods that one has determined, or otherwise restricting the said party’s free decision on the selling price of the goods.
Trading on restrictive terms
Other than any act falling under the trading on exclusive terms or the resale price restriction above, trading with another party on conditions that unjustly restrict any trade between the said party and its other transacting party or other business activities of the said party.
Interference with a competitor’s transaction
Unjustly interfering with a transaction between another party that is in a domestic competitive relationship with oneself with another of which oneself is an owner or an officer and its transacting party, by preventing the execution of a contract, or by inducing the breach of a contract, or by any other means whatsoever.
Abuse of superior bargaining position
Unjustly, in light of normal business practices, making use of one’s superior bargaining position over the other party, by engaging in such acts as: causing the said party in continuous transactions to purchase goods or services other than the one pertaining to the said transaction; causing the said party in continuous transactions to provide money, services or other economic benefits; imposing a disadvantage on the said party regarding terms or execution of transaction, and so on. See question 55.
For the purpose of exclusive private monopolisation, the applicable JFTC’s guidelines state that, while there is a wide variety of conduct deemed as exclusionary conduct, it lists four typical acts: below-cost pricing, exclusive dealing, tying and refusal to supply and discriminatory treatment (see page 5 of the Guidelines for Exclusionary Private Monopolisation under the Antimonopoly Act, the JFTC, 28 October 2009).
Is the only objective pursued by the law on vertical restraints economic, or does it also seek to promote or protect other interests?
The basic objective of the law is to protect and promote competition.
In this regard, the case law states that the direct purpose of the law is to protect and promote competition, while the ultimate purpose thereof is ‘to promote the democratic and wholesome development of the national economy as well as to assure the interests of general consumers’ (Idemitsu Kosan et al v Japan, 30 Shinketsushu 237 (Sup Ct, 24 February 1984)). While the Supreme Court issued this ruling in the context of horizontal restraints, it is also applicable to vertical restraints.
Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible authorities, how are cases allocated? Do governments or ministers have a role?
The JFTC is responsible for the enforcement of the JAMA.
What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially? Has it been applied in a pure internet context and if so, what factors were deemed relevant when considering jurisdiction?
Although article 6 of the JAMA deals especially with international matters separately from regular prohibitions, owing to the recent developments regarding the international service of process, and so on, there seems to be a tendency toward dealing with both domestic and international cases under the same provisions. According to the broadly accepted interpretation, in order to find that the JAMA is applicable to a certain case, it is necessary that the case has a certain effect on the Japanese market. With respect to the extraterritorial application of the law especially for the purpose of horizontal restraints, on 22 May 2015, the JFTC issued its hearing decision and found that the application of the law in that case should be justified if, at least, the competition in a particular field of trade is the competition over customers in Japan and the competition in a particular field of trade is substantially restricted by the conduct at issue (decision against five companies, including MT Picture Display Co, Ltd (price cartel case involving manufacturers and distributors of television cathode-ray tubes)). This was subject to judicial review, and on 12 December 2017, the Supreme Court found that, if the particular field of trade in which the competition is substantially restricted by the conduct at issue includes Japan, then the JFTC should be entitled to issue its order (Samsung SDI Malaysia v JFTC (December 2017)). However, it is unclear whether the same finding also applies to vertical restraints. For the extraterritorial application, there is another issue of how to reach the prospective respondent for service and other procedural purposes. While the JFTC may attempt to reach a foreign entity via informal measures to request voluntary cooperation, or to ask it to retain Japanese legal counsel on its behalf, extraterritorial service of process via the Japanese consulate may apply for a vertical restraint case.
At this stage, there is no authoritative precedent that establishes a rule or criterion regarding the jurisdictional issue in a pure internet context.
Agreements concluded by public entities
To what extent does antitrust law apply to vertical restraints in agreements concluded by public entities?
The JAMA regulates ‘business activities’ by ‘entrepreneurs’. This concept of ‘entrepreneur’ is defined as ‘a person who operates a commercial, industrial, financial or any other business’ under article 2, paragraph 1 of the JAMA, and the case law shows that even a public entity may be found to fall under the definition of ‘entrepreneur’ if and as far as it deals with business activities, whether or not it generates profit (see Nippon Shokuhin KK v Tokyo Metropolitan Government, 36 Shinketsushu 570 (Sup Ct, 14 December 1989) (commonly known as the Tokyo Slaughterhouse case); see also Earth Meishi Co, Ltd et al v Japan, 45 Shinketsushu 467 (Sup Ct, 18 December 1998)).
Do particular laws or regulations apply to the assessment of vertical restraints in specific sectors of industry (motor cars, insurance, etc)? Please identify the rules and the sectors they cover.
There are three particular regulations applicable to specific sectors of industry, such as the newspaper business, the specific shipping or transport business and large-scale retailers, which mainly cover abuse of a superior bargaining position only (see question 55).
In addition, there are regulated industries, such as public transport and communications. Even if a certain matter in the industry is regulated by a certain competent regulatory agency, it would not necessarily exempt it from the application of the JAMA. However, depending on the nature or purpose of such regulation, it may be found to supersede the application of the JAMA (Softbank Telecom Corp v Nippon Telegraph and Telephone East Corp, 2232 Hanrei Jiho 102 (19 June 2014)).
Are there any general exceptions from antitrust law for certain types of agreement containing vertical restraints? If so, please describe.
There are some provisions regarding exemptions from the JAMA. Among others, article 21 provides for the matters regarding intellectual property (see question 14). Article 23 provides for the general exemption from the resale price restriction regarding, among others, copyrighted products. It is narrowly construed to include newspapers, books, magazines, records (which includes audio tapes and audio compact discs) only, and does not include other (relatively newly invented) items, such as videotapes and digital video discs.
Types of agreement
Is there a definition of ‘agreement’ - or its equivalent - in the antitrust law of your jurisdiction?
There is no definition of ‘agreement’ for the purpose of vertical restraints. Rather, under Japanese law, the subject matter of the prohibition of the vertical restraints is ‘restriction’ itself and an ‘agreement’ may be found to be a measure by which a party binds the other party to a certain obligation. Put differently, an ‘agreement’ is not an indispensable factor and, for example, in the case of resale price restriction, it would suffice if it is found that a party successfully compelled the other party to comply with its instruction regarding pricing by using the ‘carrot and stick’ approach.
In order to engage the antitrust law in relation to vertical restraints, is it necessary for there to be a formal written agreement or can the relevant rules be engaged by an informal or unwritten understanding?
Under Japanese law, in order to engage the JAMA in relation to vertical restraints, it is not necessary for there to be a formal written agreement (see question 9). Even an informal or unwritten understanding, or a certain mechanism for a party to motivate the other party to comply with its instruction, may suffice, depending on the situation.
Parent and company-related agreements
In what circumstances do the vertical restraints rules apply to agreements between a parent company and a related company (or between related companies of the same parent company)?
In theory, the vertical restraint rules would apply unless the agreement is between a parent and its wholly owned subsidiary (Guidelines concerning Distribution Systems and Business Practices under the Antimonopoly Act (DSBP Guidelines), JFTC, 11 July 1991). Under the DSBP Guidelines, it is also stated that, even if a parent owns less than 100 per cent of the shares of its subsidiary, if it is recognised that transactions between them are equivalent to intra-company transactions (in substance), the agreement would not be subject to the regulation of unfair trade practices. Whether or not transactions between a parent and its subsidiary are equivalent to intra-company transactions is to be determined on a case-by-case basis by means of comprehensive examination of various factors, for example, the ratio of shares of the subsidiary held by the parent, the business relationship between the parent and subsidiary, and so on.
In what circumstances does antitrust law on vertical restraints apply to agent-principal agreements in which an undertaking agrees to perform certain services on a supplier’s behalf for a sales-based commission payment?
The article of the JAMA dealing with vertical restraints (article 19), does not apply to such agreements. In this regard, the DSBP Guidelines state that if a dealer who purchases products from a manufacturer only functions as a commission agent or if in its essence the sale is actually occurring between the manufacturer and the real purchasers through said dealer or agent, even if the manufacturer instructs the resale price to said dealer or agent, it is usually not illegal.
Where antitrust rules do not apply (or apply differently) to agent-principal relationships, is there guidance (or are there recent authority decisions) on what constitutes an agent-principal relationship for these purposes?
There are no specific rules or recent authority decisions on what constitutes an agent-principal relationship, and it is basically determined on a case-by-case basis by means of comprehensive examination of various factors. For example, for the purpose of the resale price restriction, the DSBP Guidelines state that if it is a consignment sales transaction, and if the transaction is made with a consignor at its own risk and account so that a consignee bears no risk beyond that associated with its obligation to exercise the care of a good manager in shortage and handling of goods, collection of payments and so on, and therefore is not liable for loss of goods, damages to them, or for unsold goods, even if the manufacturer or consignor instructs resale price to the real purchaser (from the consignee), it is usually not illegal.
Intellectual property rights
Is antitrust law applied differently when the agreement containing the vertical restraint also contains provisions granting intellectual property rights (IPRs)?
Article 21 of the JAMA provides, as an exemption, that the provisions thereof shall not apply to such acts recognisable as the exercise of IPRs. The Guidelines for the Use of Intellectual Property under the Antimonopoly Act, JFTC, 28 September 2007, state that the JAMA is applicable to restrictions pertaining to the use of technology that is essentially not considered to be the exercise of rights. In addition, while an act by the rights-holder to block other parties from using its technology or to limit the scope of use may seem, on its face, to be an exercise of rights, if it cannot be recognised substantially as an exercise of a right, then it may be subject to the JAMA enforcement if it is found to deviate from, or run counter to, the intent and objectives of the intellectual property systems (ie, to promote creative efforts and use of technology in view of the intent and manner of the act and its degree of impact on competition).
Analytical framework for assessment
Analytical framework for assessment
Explain the analytical framework that applies when assessing vertical restraints under antitrust law.
The ‘substantial restraint of competition’ is required for private monopolisation and the ‘impediment of fair competition’ is required for unfair trade practices. According to court precedent, the criteria for the former could be found more severe than that for the latter. However, some recent academic analysis pointed out that these two should be consolidated into one single standard as an appropriate and sufficient anticompetitive effect. In practice, vertical restraint cases have been mainly dealt with by the unfair trade practices enforcement.
The analytical framework for the ‘impediment of fair competition’ depends on the type of vertical restraint at issue. In this regard, the DSBP Guidelines state that, for the restriction on distributors’ handling of competing products, it should be assessed based on whether or not a restriction may cause a foreclosure effect, which the DSBP Guidelines state refers to cases where vertical restraints would be likely to create such circumstances where the said vertical restraint would result in making it difficult for new entrants or competitors to easily secure an alternative transactional counter-party, and excluding, or reducing the transactional opportunities of, such new entrants or competitors by raising costs for business activities or disincentivising new entry or developments of new products by them (see question 42). The restrictions on distributors’ sales territory or the restrictions on distributors’ customers should be assessed based on whether or not the price level of the product covered by the restriction is likely to be maintained, which the DSBP Guidelines states refers to cases where vertical restraints would be likely to create such circumstances where the said vertical restraint would impede competition between the contractual counterparties and their competitors and thereby enable the contractual counterparties to reasonably freely control their price by their own volition and thus maintain or raise their price of the product (see questions 28 and 30). Especially in furtherance of the latter, it is exceptional that the resale price restriction can be justified (see question 19).
In addition, analysis of whether the conduct at issue impairs transactions based on free and independent judgement by firms is required regarding an abuse of superior bargaining position (see question 55).
To what extent are supplier market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other suppliers relevant? Is it relevant whether certain types of restriction are widely used by suppliers in the market?
In assessing either the ‘substantial restraint of competition’ or the ‘impediment of fair competition’ referred to in question 15, the JFTC considers whether the infringement is done by a firm that is influential in a market, which requires a consideration of market shares, market structures and other economic factors. The DSBP Guidelines state that for the ‘impediment of fair competition’, depending on the type of the vertical restraint, it would be considered whether a firm is ‘influential in a market’, which is first assessed by ascertaining the market share of the firm; that is, whether it has more than 20 per cent. However, even if a firm matches said criterion, the firm’s conduct is not always illegal.
With respect to the consideration on the restriction widely used in the market, it is relevant from the perspective of the possible cumulative restrictive effects of such restriction. See also question 38 regarding multiple selective distribution systems operating in the same market.
To what extent are buyer market shares relevant when assessing the legality of individual restraints? Are the market positions and conduct of other buyers relevant? Is it relevant whether certain types of restriction are widely used by buyers in the market?
In assessing a buyer’s conduct, the rule basically conforms with what is discussed in question 16, in that the JFTC considers whether the infringement is done by a firm that is influential in a market, which requires a consideration of market shares, market structures and other economic factors, and whether a firm is ‘influential in a market’ is first assessed by ascertaining the market share of the firm.
Notwithstanding the above, as far as the abuse of superior bargaining position is concerned, it is rather typical that such a ‘power buyer’ (allegedly) abuses its superior bargaining position against its suppliers (although from the theoretical perspective, such a violation may not necessarily be classified as a typical vertical restraint).
On the other hand, in assessing a seller’s conduct, usually the anticompetitiveness of the conduct is to be evaluated by considering the factors listed in question 16, regardless of how the buyer may be found to be influential in a market. That is, sometimes certain factors, for example, the fact that a ‘power buyer’, or many buyers widely, agreed to certain types of restriction, may lead a fact-finder to find that the restriction at issue should be permissible. On the other hand, depending on the situation, similar facts may lead a fact-finder to find that the restriction at issue effectively works to an anticompetitive effect.
There is no such guidance or authoritative precedents that deal specifically with this issue in the online sector.
Block exemption and safe harbour
Is there a block exemption or safe harbour that provides certainty to companies as to the legality of vertical restraints under certain conditions? If so, please explain how this block exemption or safe harbour functions.
Among various types of vertical restraints, the DSBP Guidelines list substantially three types of conduct for which the issue of whether it is made by a firm that is influential in a market should be one of the key elements. They are: exclusive deal (ie, the restriction on its transaction counterpart not to deal with its competitor) or the restriction on distributors’ handling of competing products; certain types of restriction on the territory into which a buyer may resell contract products only passively (see question 28); and tie-in sales, for which said criterion of whether it has more than 20 per cent of market share (see question 16) is applicable. The reverse aspect of this criterion in practice works as a safe harbour for such vertical restraints.
Types of restraint
Assessment of restrictions
How is restricting the buyer’s ability to determine its resale price assessed under antitrust law?
As stated in question 2, the JAMA prohibits resale price restriction. There have been several formal administrative orders issued by the JFTC within the past 10 years, including the most recent case, Coleman Japan. This covers not only price-fixing and minimum resale price, but also any measures with equivalent effect, such as limiting the buyer’s ability to give rebates or discounts.
With respect to maximum resale price, it may be a strong argument that it may be beneficial for consumers or end users; however, at least on its face, the statutory provision for this prohibition does not differentiate the restriction on maximum price from that on minimum price, and it is also argued that in practice, restriction on the maximum resale price may (intentionally or inadvertently) function similarly to the minimum resale price by making it easier than otherwise for its competition to raise the price of their products or services close to that level. In addition, even such restriction on the maximum resale price would restrict the purchaser or reseller’s free decision on its pricing. At this stage, there is no precedent where maximum resale price maintenance is differentiated from minimum resale price maintenance and should be found to be legal. It is said that, while recently this matter was discussed at the Study Group on distribution systems and business practices held at the JFTC (the DSBP Study Group), a conclusion to make some definite changes about it was not reached, and it turned out that the report issued by the DSBP Guidelines, as amended in 2017, did not address this matter.
With regard to suggested resale price, the DSBP Guidelines state that if a manufacturer’s suggested retail price or quotation is indicated to distributors solely as a reference price, such conduct itself is not a problem. Whether or not it is referred to as a ‘suggested price’, however, if the manufacturer tries to have its distributors follow the reference price, such conduct would constitute resale price restriction.
Have the authorities considered in their decisions or guidelines resale price maintenance restrictions that apply for a limited period to the launch of a new product or brand, or to a specific promotion or sales campaign; or specifically to prevent a retailer using a brand as a ‘loss leader’?
It has been commonly understood that the assessment regarding the resale price restriction violation would not require the calculation and analysis of the respondent’s market share. In Wakodo v JFTC, the court declined Wakodo’s argument that it only had a minor presence in the market (approximately 10 per cent of the market share) and could strengthen its competitiveness by adopting the resale price restriction. From such a viewpoint, it is unlikely that the former factor listed in this question could justify the resale price restriction. However, some recent academic analysis pointed out that court precedent can be found to be fact-specific and can be differentiated. If so, it may still be possible to argue the ‘impediment of fair competition’ based on the facts specific to the case at issue.
Moreover, the Supreme Court of Japan has stated that the resale price restriction cannot be justified if its purpose is to prevent a retailer using a brand as a loss leader (Meiji Shoji v JFTC). However, in this regard, recent academic analysis pointed out that court precedent can be found to be silent or neutral regarding whether the resale price restriction can be justified if it is specifically introduced only for the retailers that use the brand as a loss leader.
Have decisions or guidelines relating to resale price maintenance addressed the possible links between such conduct and other forms of restraint?
Resale price maintenance is to be found not solely based on the existence of an ‘agreement’, but possibly based on the existence of a certain measure by which a party binds the other party to a certain obligation. Therefore, if such other forms of restraint work as an incentive to compel the other party to comply with the resale price restriction, such other forms of restraint may be found to be linked with the resale price maintenance (see question 9).
Have decisions or guidelines relating to resale price maintenance addressed the efficiencies that can arguably arise out of such restrictions?
With regard to the possible benefits that may be rendered by the resale price restriction, such as the prevention of free-riding or the promotion of new entry, according to the DSBP Guidelines, as amended in 2015, resale price maintenance is not illegal as an exception on the condition that it has ‘justifiable grounds’, which might be granted within reasonable scope and reasonable terms, in the case where such a resale price maintenance by a manufacturer will result in actual pro-competitive effects and will promote inter-brand competition, will increase demand for the product thus benefiting consumers, and pro-competitive effects will not result from less restrictive alternatives other than the resale price maintenance at issue. It also states that, for example, in connection with the ‘free-rider’ problem, when a manufacturer performs resale price maintenance, as above, it will be granted as having ‘justifiable grounds’ in the case where it actually results in pro-competitive effects through avoiding that problem, will promote inter-brand competition and will increase the demand for the product, thus benefiting consumers, and pro-competitive effects will not result from less restrictive alternatives.
It has also been commonly understood that resale price restriction cannot be justified solely because it is necessary and reasonable from a business management perspective, for example, that stable supply is required (see Wakodo v JFTC, Meiji Shoji v JFTC), or that it is necessary to conserve a traditional industry (Hamanaka v JFTC). However, some recent academic analysis suggested that certain justification should still be available for the resale price restriction, for example, from the perspective of the necessity to assure product safety.
Explain how a buyer agreeing to set its retail price for supplier A’s products by reference to its retail price for supplier B’s equivalent products is assessed.
Depending on the situation, some certain possible links with resale price maintenance may be found. See question 21. Otherwise, while there is no precedent regarding this issue at this stage, if a buyer has a substantial market share, this could be tantamount to substantially fixing retail market prices of such equivalent (or competing) products. Therefore, this could rather be found problematic from the perspective of such horizontal restraints.
Explain how a supplier warranting to the buyer that it will supply the contract products on the terms applied to the supplier’s most-favoured customer, or that it will not supply the contract products on more favourable terms to other buyers, is assessed.
While there is no precedent regarding this issue at this stage, it would probably be assessed as a possible violation of the prohibition of trading on restrictive terms (ie, the buyer’s restriction of the supplier’s activities), unless the promise practically works as a cartel or other horizontal restraint (eg, multiple suppliers’ widely warranting in the market, or a supplier’s warranting widely for its multiple dealers in the market)). That is, if it is found to have the aspects of avoiding competition, or that the price level of the product covered by the restriction is likely to be maintained, it may constitute the violation. Also, if it incentivises such a supplier not to deal with a new entrant buyer, one would need to examine whether aspects of excluding competitors exist.
It may also constitute the abuse of superior bargaining position. See question 55.
Explain how a supplier agreeing to sell a product via internet platform A at the same price as it sells the product via internet platform B is assessed.
As far as this works as a supplier’s warranting the most-favoured price to some certain specific platform (eg, platform A in this question), the same rule applies as discussed in question 24.
On 1 June 2017, the JFTC issued its press release on the closing of the investigation into the suspected violation of the JAMA by Amazon Japan GK. The alleged violating conduct consisted of price parity clauses and selection parity clauses in the seller contracts on Amazon Marketplace. The JFTC listed its concerns over the influence of this conduct as follows:
When an online shopping mall operator imposes price parity clauses and selection parity clauses … on sellers, such clauses may exert influence as shown below to negatively affect competition:
(i) restrict sellers’ business activities by limiting reduction of prices and expansions of lineups of goods that the sellers sell via other sales channels;
(ii) distort competition among online shopping mall operators by allowing an online shopping mall operator imposing those parity clauses to achieve the lowest price and the richest lineup of goods sold in its online shopping mall without making any competitive effort; or
(iii) reduce online shopping mall operators’ incentive for innovation and hinder new entrants as the reduction of fees charged by an online shopping mall operator for sellers does not result in these sellers’ reduction of prices and expansion of lineups.
The JFTC publicised that it recognised that the measures proposed by Amazon Japan, including the proposal that it will not exercise its rights in relation to these parity clauses, would eliminate the suspected violation of the JAMA, and decided to close the investigation on this case after confirming that the measures mentioned above had actually been taken.
In addition, on 15 August 2017, the JFTC issued another press release on the report on e-Books Agreements from Amazon Services International, Inc (ASII). This was also about parity clauses, whereby, concerning e-books of publishers that are delivered from the amazon.co.jp website, including retail prices to general consumers, the parity clauses oblige those publishers to ensure the parity between their transactions with ASII or with general consumers on the amazon.co.jp website, and their transactions with other e-books delivery platform operators or with general consumers on e-books delivery platforms operated by those other operators. Similarly to the above, ASII proposed, among other things, not to enforce the contractual obligations of publishers regarding the parity clauses, and to take such proposed measures for at least five years, and these were found to be satisfactory to eliminate potential anticompetitive concerns by the JFTC.
Some academic analyses find that the above may be understood to be authoritative in that it shows a rule or criterion regarding this issue. However, others do not necessarily agree that it establishes such a rule or criterion.
Explain how a supplier preventing a buyer from advertising its products for sale below a certain price (but allowing that buyer subsequently to offer discounts to its customers) is assessed.
In Johnson & Johnson (JFTC order, 1 December 2010), the JFTC found that, regardless of the price range, Johnson & Johnson’s forcing of its retailers not to refer to their retail prices of its products on their advertisements constituted a violation. It can be construed that, although it was not a restraint on pricing, but rather on sales methods, owing to such pricing aspects of the restraint at issue, it was subject to the level of higher scrutiny. That is, as far as such a restraint has any pricing aspects, it may be subject to higher scrutiny, namely, whether or not the price level of the product covered by the restriction is likely to be maintained (see question 15).
Explain how a buyer’s warranting to the supplier that it will purchase the contract products on terms applied to the buyer’s most-favoured supplier, or that it will not purchase the contract products on more favourable terms from other suppliers, is assessed.
As analysed in question 24, this is likely to be assessed as a possible violation of the prohibition of trading on restrictive terms (ie, the supplier’s restriction of the buyer’s activities), unless it in fact practically works as a cartel or other horizontal restraint (eg, among multiple suppliers to which such a buyer warrants similarly in parallel, or among multiple buyers that warrant similarly to said supplier in parallel). However, from the perspective of vertical restraints, practically, this may be less likely than that discussed in question 24, in that aspects of the impediment of fair competition will be found; that is, whether or not a restriction may result in making it difficult for new entrants or competitors to easily secure alternative distribution channels, or whether or not the price level of the product covered by the restriction is likely to be maintained. See question 15.
It may also constitute an abuse of a superior bargaining position. See question 55.
Restrictions on territory
How is restricting the territory into which a buyer may resell contract products assessed? In what circumstances may a supplier require a buyer of its products not to resell the products in certain territories?
Although there has been no precedent specifically analysing this matter in the past 10 years, as described in question 15, the DSBP Guidelines state that a restriction of this type is assessed from the perspective of whether the price level of the product covered by the restriction is likely to be maintained in connection with the prohibition of unfair trade practices. Whether or not the price level of the product covered by the restriction is likely to be maintained is to be determined, comprehensively taking into account the following factors: actual conditions of inter-brand competition, actual conditions of intra-brand competition for the product and so on.)
The Guidelines also state that, if the agreement assigns a specific area to each distributor but does not restrict the distributor from selling to customers outside each area upon request (ie, if it does not restrict ‘passive’ sales but ‘active’ sales only) whether the restriction is imposed by an influential supplier in the market may also be taken into account (see questions 16 and 18).
Have decisions or guidance on vertical restraints dealt in any way with restrictions on the territory into which a buyer selling via the internet may resell contract products?
While there is no precedent regarding this issue at this stage, the DSBP Guidelines, as amended in 2017, stated that such restrictions on the territory into which a buyer selling via the internet would constitute a restriction on passive sales (see question 28). Hence, a violation could be found depending on whether or not the price level of the product covered by the restriction is likely to be maintained.
Restrictions on customers
Explain how restricting the customers to whom a buyer may resell contract products is assessed. In what circumstances may a supplier require a buyer not to resell products to certain resellers or end-consumers?
This restriction is to be assessed from the perspective of whether the price level of the product covered by the restriction is likely to be maintained in connection with the prohibition of unfair trade practices. It is adopted by the DSBP Guidelines. In Matsushita Electric Industrial, a violation was found after a supplier had its contract dealers refuse to deal with non-contract price-cutting dealers (although the applicable type of conduct was indirect refusal to deal, another type of unfair trade practice, as opposed to trading on restrictive terms). If it could be found that said supplier traded on such restrictive terms, Matsushita Electric Industrial could be regarded as a case where said assessment criterion applied. On the other hand, even though vertical restraints may have a price maintenance effect to some extent, if it is to achieve something plausibly rational (eg, to improve brand image) and the restriction on the customers is found to be necessary for that purpose, then it could be allowed, to that extent. In Kao v Egawa Kikaku, it was found that as far as it is tailored to achieve a plausibly rational business purpose, in that buyers were only prohibited from selling the suppliers’ products to unauthorised or non-contract dealers, and it is applied non-discriminatorily, restricting the customers to whom a buyer may resell contract products could usually be found permissible. See question 37.
In Sony Computer Entertainment, however, the JFTC differentiated the case from what was found in Kao, and it was found that the price level of the product covered by the restriction is likely to be maintained, and also it is not reasonably tailored to achieve its purpose, and therefore the supplier’s requiring a buyer not to resell products to the other wholesalers or retailers violated the law. See also question 40.
With respect to the prevention of the customer’s ability to resell products to end-consumers, the same rule applies as in question 28.
Restrictions on use
How is restricting the uses to which a buyer puts the contract products assessed?
Restraints other than trading on exclusive terms and resale price restriction are classified as trading on restrictive terms. Although there is no authoritative precedent showing what kind of scrutiny is applicable to this issue, considering the analogy with the restriction on the buyer or distributor’s sales methods, if it is plausibly rational and non-discriminatory to the other distributor, it would usually be found to be permissible. This issue may also require analysis from the IP protection perspective.
Restrictions on online sales
How is restricting the buyer’s ability to generate or effect sales via the internet assessed?
This restriction is to be assessed as a possible violation of trading on restrictive terms. That is, the basic analytical framework is similar to the restriction on territory or customer (ie, whether the price level of the product covered by the restriction is likely to be maintained (see questions 28 and 30)).
At this stage, there is no court judgment regarding this issue and the only available material is Johnson & Johnson (JFTC’s warning, 12 December 2002) for restricting the buyer’s ability to sell its contact lenses via the internet. In this case, it was found that the restriction at issue practically hindered low pricing, in spite of the fact that the transactions were appropriately approved by an ophthalmologist. It was also found that Johnson & Johnson voluntarily ceased such practice more than one year prior to the issuance of the said warning, and the JFTC did not issue its formal cease-and-desist order in this case.
Have decisions or guidelines on vertical restraints dealt in any way with the differential treatment of different types of internet sales channel? In particular, have there been any developments in relation to ‘platform bans’?
At this stage, there is no court decision or guidelines from the JFTC about this issue. Although this is not restricting the customers to whom a buyer may resell contract products, but just restricting the type of sales channel, it is still likely that the same rule applies as in question 30. With regard to restrictions on internet sales (including the ban whereby such approved distributors are not allowed to sell the products on certain types of internet platforms, typically those owned or managed by a third party), question 32 is also applicable here.
Selective distribution systems
Briefly explain how agreements establishing ‘selective’ distribution systems are assessed. Must the criteria for selection be published?
The DSBP Guidelines, as amended in 2015, state that a manufacturer may set up certain criteria to limit the distributors that handle its product to those that meet the criteria, and in such a case, the manufacturer may prohibit distributors from reselling its product to other distributors that do not meet the criteria. This is called ‘selective distribution’, defined thereunder, which the Guidelines state may result in pro-competitive effects, and is generally not illegal in itself (even if such criteria of the selective distribution were to result in preventing certain incompetent price-cutters, etc, from handling the product) provided that the criteria are recognised to have plausibly rational reasons from the viewpoint of the consumers’ interests, such as related to the preservation of its qualities and assuring appropriate use, and that such criteria are equally applied to other distributors who want to deal in the product.
However, in this regard, recent academic analysis has pointed out that the above is the case only ‘generally’, and depending on the nature of the applicable restrictions, it could also be assessed in the light of the restrictions on trading on restrictive terms as in question 28 or 30. The DSBP Guidelines, as amended in 2017, did not change the analytical framework above. Hence, it is unclear whether there must be any control over the application, for example a right to challenge refusals to admit. However, considering that, as above, such criteria must be applied equally, refusals to admit should be able to be challenged from that perspective, and it would basically be difficult to limit the total number of distributors to be admitted to the system in advance.
Are selective distribution systems more likely to be lawful where they relate to certain types of product? If so, which types of product and why?
At this stage, there is no authoritative precedent showing that selective distribution systems may be more likely to be lawful where they relate to certain types of product. However, generally speaking, from a practical perspective, it is possible that, for a certain product, such plausibly rational reasons from the viewpoint of the consumers’ interests (eg, related to preservation of its qualities, assuring appropriate use) may be found more than in certain other products, by paying attention to whether or how such preservation of quality or assuring appropriate use could actually be an issue.
In selective distribution systems, what kinds of restrictions on internet sales by approved distributors are permitted and in what circumstances? To what extent must internet sales criteria mirror offline sales criteria?
At this stage, there is no recent decision that deals with internet sales restrictions imposed on approved buyers in connection with selective distribution systems, and generally speaking, it is likely that the same rule could apply as in question 34. This aspect of selective distribution systems could be analysed in light of the restrictions on trading on restrictive terms, and therefore, with respect to the restrictions on internet sales (including the ban whereby such approved distributors are not allowed to sell the products on certain types of internet platforms, typically those owned or managed by a third party), question 32 is also applicable here.
Has the authority taken any decisions in relation to actions by suppliers to enforce the terms of selective distribution agreements where such actions are aimed at preventing sales by unauthorised buyers or sales by authorised buyers in an unauthorised manner?
There is no decision specifically dealing with this issue.
Prior to the amendment of the DSBP Guidelines to introduce the concept of selective distribution systems therein in 2015, as far as this aspect of the restrictions on retailers’ sales methods is concerned, in Shiseido v Fujiki, one of the most famous cases regarding this matter in Japan, the Supreme Court of Japan issued its judgment that Shiseido, a manufacturer of cosmetics, could enforce its contractual terms regarding the distributorship if the terms themselves were plausibly rational and non-discriminatory towards the other distributors. The restriction at issue was to have the sales staff of its retailers provide appropriate support and explanation to end-user customers so that they could use the products appropriately; such conduct could be helpful to improve the supplier’s (products’) brand image, and was found plausibly rational and non-discriminatory.
Does the relevant authority take into account the possible cumulative restrictive effects of multiple selective distribution systems operating in the same market?
As far as such cumulative restrictive effects of trading on exclusive terms are concerned, in connection with the issue of whether or not a restriction may result in making it difficult for new entrants or competitors to easily secure alternative distribution channels, the DSBP Guidelines state that if two or more manufacturers, individually and in parallel, restrict the handling of competing products, it is more likely to result in making it difficult for new entrants or competitors to easily secure alternative distribution channels, compared to cases with only one manufacturer, and therefore it may be more likely to be found illegal.
On the other hand, in connection with the restriction on trading on restrictive terms, although there is no decision or guidelines dealing with this issue, if inter-brand competition does not work well owing to the oligopolistic structure of the market or product differentiation, price competition for the product of the manufacturer’s brand may be suppressed, and the price level of the product is likely to be maintained, such cumulative effects may lead the authority to find the likelihood of price maintenance. It is said that, while this matter was recently discussed at the DSBP Study Group, no conclusions were reached on taking a certain position or approach about it, and it turned out that the report issued by the DSBP Guidelines, as amended in 2017, did not address this matter.
Has the authority taken decisions (or is there guidance) concerning distribution arrangements that combine selective distribution with restrictions on the territory into which approved buyers may resell the contract products?
As analysed in question 28, although there is no precedent from the past 10 years specifically analysing the matter of restriction on the territory, under the DSBP Guidelines, the aspect of restricting territory is subject to the analysis of the framework described in questions 15 and 28 (whether or not the price level of the product covered by the restriction is likely to be maintained). Also, a selective distribution system would be subject to the same analytical framework above. Hence, this would be analysed on a combined basis by considering the relevant factors all together.
How is restricting the buyer’s ability to obtain the supplier’s products from alternative sources assessed?
With regard to the prevention of distributors buying or selling the supplier’s products among themselves, the DSBP Guidelines apply the same analytical framework that is used for the restriction of selling to certain customers (see question 30). Therefore, this is to be assessed from the perspective of whether the price level of the product covered by the restriction is likely to be maintained in connection with the prohibition of the unfair trade practices restriction. As discussed above, in Sony Computer Entertainment, the JFTC differentiated the case from what was found in Kao, and basically applied the same rule to the restriction at issue, and, where it was restricted to buy and sell even between the qualified dealers, it was found to be anticompetitive. In this regard, the DSBP Guidelines, as amended in 2017, made it clearer that, if the buyer’s ability to ‘provide’ the products to a price cutter as its alternative source is to be restricted, it should be assessed from the same criteria as for resale price maintenance (see question 19).
How is restricting the buyer’s ability to sell non-competing products that the supplier deems ‘inappropriate’ assessed?
As analysed in question 31, restraints other than trading on exclusive terms and the resale price restriction are classified as trading on restrictive terms. So, although there is no authoritative precedent showing what kind of scrutiny is applicable to this issue, considering the analogy with the restriction on buyers’ or distributors’ sales methods, if it is plausibly rational and non-discriminatory to the other distributors, it would usually be found to be permissible.
Explain how restricting the buyer’s ability to stock products competing with those supplied by the supplier under the agreement is assessed.
With respect to the restrictions on distributors’ handling of competing products, in Toyo Seimaiki v JFTC, the High Court stated that this is to be assessed from the perspective of how the restriction would make the distribution channel foreclosed or exclusive. Subsequently, the same rule was adopted by the DSBP Guidelines, stating that this type of restriction is to be assessed from the perspective of whether the restriction may result in making it difficult for new entrants or competitors to easily secure alternative distribution channels. It also points out that, if the restriction is carried out by an influential supplier in the market, it may lead to a finding that the restriction causes the ‘impediment of fair competition’ (see questions 43 and 44).
How is requiring the buyer to purchase from the supplier a certain amount or minimum percentage of the contract products or a full range of the supplier’s products assessed?
This is to be assessed from the same perspective as stated in question 42, especially if in practice, the requirement restricts the buyer from dealing with competing products. The DSBP Guidelines address the situation of requiring distributors to deal with such a large volume of their products (which is close to their capacity) in the same manner as the restriction on distributors handling competing products.
In Nordion, the long-term, total amount of purchase obligation was found to be anticompetitive. Although it was found in the context of exclusionary private monopolisation (see questions 1 and 2), it is broadly understood that the foreclosure found therein should also be applicable to the trading on exclusive terms as unfair trade practices. In addition, in Intel, while it was not expressly required, Intel’s licensing terms and conditions, especially in connection with the applicable rebate settings, incentivised the licensees and PC original equipment manufacturers to purchase all or almost all of the central processing units to be installed in their PCs from Intel, and it was found that this constituted exclusionary private monopolisation. In this regard, Intel’s market share was found to be approximately 89 per cent of the Japanese market.
Further, such requirement for the buyer to purchase a full range of the supplier’s products may constitute tie-in sales etc, depending on the situation.
Explain how restricting the supplier’s ability to supply to other buyers is assessed.
The DSBP Guidelines apply the same analytical framework as described in question 42 to this issue - that is, whether the restriction may result in making it difficult for new entrants or competitors to easily secure alternative distribution channels. It also points out that if the restriction is carried out by an influential reseller or customer in the market, it may lead to a finding that the restriction causes the ‘impediment of fair competition’. The restriction may still be found to be legal if:
- a finished product manufacturer supplies materials to parts manufacturers, commissions them to make parts and requires them to sell all parts exclusively to itself; or
- a finished product manufacturer provides know-how to parts manufacturers, commissions them to make parts and requires them to sell all parts exclusively to itself, and if such restriction is deemed necessary for keeping the know-how confidential or preventing the unauthorised diversion of it.
In Oita Oyamacho Agriculture Association, the JFTC concluded that the restraint at issue made it difficult for a certain specific competitor to secure an alternative supply source, and was found anticompetitive. In this regard, in DeNA, although it was similarly intended to restrain the suppliers’ abilities to supply to a certain specific competitor, the category of the applied violation was not the trading on restrictive terms, but the interference with a competitor’s transactions. Although the reason why those two cases were differentiated has not been made clear, considering that interference with a competitor’s transaction does not necessarily require the level of the anticompetitiveness for the purpose of trading on restrictive terms in this context (ie, whether the restriction may result in making it difficult for new entrants or competitors to easily secure alternative sources of supply), close attention needs to be paid to whether, practically, making restraint of this kind illegal by such less strict scrutiny may be the case in the future.
Explain how restricting the supplier’s ability to sell directly to end-consumers is assessed.
In Tottori Chuo Agricultural Association, while the same restriction was found anticompetitive, the reasoning was not necessarily clear. See also Himeji-shi Plumbing Business Cooperative Association and Sagisaka.
While there is no guidance or authoritative precedents regarding this issue at this stage, the potential anticompetitive effect caused hereby could be found equivalent to the restriction on the distribution channel, although it is made by the distributor, as opposed to the supplier. Therefore, it should be assessed, in the context of trading on restrictive terms from the perspective of whether or not a restriction may result in making it difficult for new entrants or competitors to easily secure alternative distribution channels. See questions 15 and 44.
Have guidelines or agency decisions in your jurisdiction dealt with the antitrust assessment of restrictions on suppliers other than those covered above? If so, what were the restrictions in question and how were they assessed?
The DSBP Guidelines deal - as for the restrictions on suppliers other than those covered above - with the issue of how the request by a certain distributor A (appointed for a certain territory X) to the effect that the supplier should prevent another distributor B (appointed for another certain territory Y) from selling products into territory X, especially in connection with exclusive distributorship agreement should be dealt with. It is basically stated that it is permissible. On the other hand, assuming that territory X is Japan while territory Y is a foreign country, and a certain third-party customer of distributor B purchases products in territory Y and then tries to sell (export) them into territory X (Japan), if the distributor A (in Japan) requires the supplier (or its distributor B) to prevent said third party from such exporting to Japan in order to maintain prices of the products, it would be found to be anticompetitive, either as trading on restrictive terms or as interference with a competitor’s transaction, as the case may be.
Outline any formal procedure for notifying agreements containing vertical restraints to the authority responsible for antitrust enforcement.
There is no formal procedure for notification.
If there is no formal procedure for notification, is it possible to obtain guidance from the authority responsible for antitrust enforcement or a declaratory judgment from a court as to the assessment of a particular agreement in certain circumstances?
It is possible to obtain guidance from the JFTC through the consultation procedure.
Complaints procedure for private parties
Is there a procedure whereby private parties can complain to the authority responsible for antitrust enforcement about alleged unlawful vertical restraints?
Article 45, paragraph 1 of the JAMA provides that any person may, when he or she considers that a fact involving violation of the provisions of the JAMA exists, report the said fact to the JFTC and ask for appropriate measures to be taken. Paragraph 2 thereof provides that the JFTC, upon receipt of such report as prescribed in the preceding paragraph, shall make necessary investigations with respect to the case.
How frequently is antitrust law applied to vertical restraints by the authority responsible for antitrust enforcement? What are the main enforcement priorities regarding vertical restraints?
According to the JFTC’s annual report for 2017 (April 2017 to March 2018) issued in September 2018, the JFTC issued six formal orders regarding unfair trade practices within the past five years. Of these six cases, five concern the categories of violations discussed in this chapter, and two concern abuse of a superior bargaining position, one concerns interference with a competitor’s transaction, one concerns trading on restrictive terms and one deals with resale price restriction (ie, the JFTC issued its administrative order against Coleman Japan for its resale price restriction). In addition, it was publicly reported that, although the JFTC found that One Blue LLC’s conduct (ie, while making a FRAND declaration in connection with its IP consisting of the standard essential patent, notifying the transaction counterpart of Imation, the candidate for its licensing of the alleged infringement of its IP, because of its failure to get to an agreement with Imation on the terms and conditions of the licence) violated the law (ie, interference with a competitor’s transactions), considering the fact that the results of the violation were subsequently remedied appropriately, it would not issue its remedial orders. The JFTC press release regarding One Blue LLC, dated 18 November 2016, may be found at www.jftc.go.jp/en/pressreleases/yearly-2016/November/161118.html. See also ‘Update and trends’. These reports show these are the four major enforcement priorities regarding vertical restraints.
What are the consequences of an infringement of antitrust law for the validity or enforceability of a contract containing prohibited vertical restraints?
It is commonly understood that if it is found that a certain contract provision violates the law, it would basically be found void or unenforceable, although this is not necessarily an automatic decision. In addition, while the contractual provision that is found to violate antitrust law may be determined to be unenforceable, the other contractual provisions contained in the same agreement may still be found to be enforceable, even without such explicit severability clause.
May the authority responsible for antitrust enforcement directly impose penalties or must it petition another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?
The JFTC has the power to directly impose a monetary sanction (surcharge order), in addition to a cease-and-desist order, in connection with certain categories of the vertical restraints under the JAMA amendment in effect as of January 2010. Besides horizontal restraints, while those constituting private monopolisation or abuse of a superior bargaining position would be subject to a monetary sanction for the violation in question, for the four other categories subject thereto (ie, joint refusal to deal, discriminatory consideration, below-cost pricing and resale price restriction), it is applicable only when the same violation is repeated within 10 years.
Since the said amendment, there have been five cases where a monetary sanction was levied on target companies in connection with unfair trade practices (abuse of superior bargaining position), where it was alleged that the target companies forced their suppliers and so on to unduly bear additional costs for the benefit of those target companies, for instance, by forcing such suppliers to accept the return of unsold goods etc. The JFTC orders re Sanyo Marunaka, 58-1 Shinketsushu 312 (22 June 2011); Toys ‘R’ Us Japan, 58-1 Shinketsushu 352 (13 December 2011); Edion, 58-1 Shinketsushu 384 (16 February 2012); Ralse, 60-1 Shinketsushu 435 (3 July 2013); and Direx, 61 Shinketsushu 103 (5 June 2014) are all subject to the examination procedure with the JFTC’s hearing examiner. For Toys ‘R’ Us Japan, the JFTC issued its hearing decision on 4 June 2015, whereby JFTC’s order was partially reversed and partially retained.
See also question 55.
Investigative powers of the authority
What investigative powers does the authority responsible for antitrust enforcement have when enforcing the prohibition of vertical restraints?
Under article 47 of the JAMA, the JFTC may:
- order persons concerned with a case or witnesses to appear to be interrogated, or collect their opinions or reports;
- order expert witnesses to appear to give expert opinions;
- order persons holding books and documents and other materials to submit such materials, or keep such submitted materials in its custody; and
- enter any business office of the persons concerned with a case, or other necessary sites, and inspect conditions of business operation and property, books and documents, and other materials.
Although these powers are available only within its jurisdiction in Japan, the JFTC has demanded information from a supplier domiciled outside Japan (through its representative in Japan), based on the power in the first bullet point.
To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and bring damages claims? Can the parties to agreements themselves bring damages claims? What remedies are available? How long should a company expect a private enforcement action to take?
Non-parties do not have standing in private enforcement unless it is found that the agreement at issue causes an anticompetitive effect on such non-party. Parties to agreements can bring damage claims as well as injunction claims at the competent district court. The length of time that a company should expect for such a private enforcement action would depend on the facts and situation. Japanese courts do not usually conduct consecutive-day concentrated hearings or trials, so if witness examination is required, it would likely take at least one year.
Is there any unique point relating to the assessment of vertical restraints in your jurisdiction that is not covered above?
As stated in question 2, the unfair trade practices include the abuse of superior bargaining position. It has been commonly understood that the requirement of ‘impediment of fair competition’ for ascertaining the abuse of superior bargaining position is different for the other types of restraint. For example, the Guidelines concerning Abuse of Superior Bargaining Position (ASBP Guidelines), JFTC, 30 November 2010, state that this aims at eliminating these types of conduct if they are likely to impede fair competition among retailers or among suppliers, and also state that such conduct impairs transactions based on free and independent judgement by firms (as opposed to whether a restriction may result in making it difficult for new entrants or competitors to easily secure alternative distribution channels or whether the price level of the product covered by the restriction is likely to be maintained (see question 15)).
According to the ASBP Guidelines, a party shall be found to be ‘in a superior bargaining position’ over the other party to the transaction, based on comprehensive consideration that is to be given to such factors as degree of dependence on the party, position of the party in the market, changeability of the transactional partner from the other party’s perspective, and so on. For the possible sanction applicable hereto, see question 52.
Update and trends
What were the most significant two or three decisions or developments in this area in the last twelve months?
In addition to the investigations against Amazon-affiliated companies discussed in question 25, the JFTC made several investigations in the IT and digital sectors in 2018. On 23 May and 10 October 2018, the JFTC issued its press releases on its closing of the investigations on the suspected violations of JAMA by the online intermediary businesses Minna no Pet Online (pets) and Airbnb (private lodging services) respectively. For the former, the alleged violation concerned trading on exclusive terms, whereby the suspected online site allegedly required certain contracting breeders not to post information about their pets on competing intermediary pet websites. For the latter, the alleged violation concerned private monopolisation, trading on exclusive terms and trading on restrictive terms, whereby the suspected online site required certain co-hosting service providers and management tool providers not to provide lists of private lodging services on competing private lodging service platforms. During both JFTC investigations, the suspected entities voluntarily took remedial measures, which satisfied the JFTC.
On 11 July 2018, the JFTC also issued its press release on its closing of the investigation on the suspected violation of JAMA by Apple. The alleged violation concerned trading on restrictive terms, whereby Apple allegedly required all or some mobile network operators (ie, NTT Docomo, KDDI and SoftBank) to:
- place orders for particular quantities of iPhones;
- offer their iPhone customers certain service plans;
- follow certain restrictions on dealing with traded-in iPhones; and
- provide subsidies to their iPhone customers.
The JFTC found that, for the first three allegations, there was not a sufficient level of restriction on the relevant business activities or trading. For the last allegation, Apple voluntarily took remedial measures that the JFTC found sufficient.
On 5 November 2018, the Ministry of Economy, Trade and Industry (METI), the JFTC and the Ministry of Internal Affairs and Communications (MIC) jointly released a draft interim report of the Study Group on the Improvement of the Trade Environment Involving Digital Platform Businesses, with a statement that, in order to obtain opinions on the report from a wide range of parties, they will conduct interviews with businesses and invite public comments. The draft interim report raises, among others, the issue of how to ensure transparency and fairness in trade. This means that, in order to ensure transparency and fairness in trade practice, it may be recommendable to create an organisation specialised in conducting continuous research and analysis and to introduce regulations from the perspective of ensuring transparency and fairness, in addition to identifying the actual circumstances of trading through large-scale, comprehensive and in-depth investigation. It also raises the issue of how to redefine the concept of ‘fair and free competition’, implying that with the growing importance of competition law, it may be necessary to consider a desirable form of fair and free competition in the digital market (including assessment of the network effect in multi-sided markets and the combination of businesses that could lead to preventing the emergence of potential competitors).
The Future Investment Strategy 2018, approved by the Cabinet in June 2018, provides that, with a view to making rules in response to the rise of the platform business model, fundamental principles should be identified and specific measures should be implemented. In light of this, with the participation of experts from various disciplines including competition policy, information policy and consumer policy, METI, JFTC and MIC have held discussions regarding the study and evaluation of systems in other countries and the ongoing challenges and required responses in Japan in relation to digital platform businesses, in an effort to identify issues to be addressed. The public opinions collected by invitation will be taken into consideration in the next discussion phase, which will aim to formulate fundamental principles and implement specific measures.
In furtherance of the above, on 12 December 2018, the interim report was finalised and made public, and on 18 December 2018, the fundamental principles were identified.