Vertical agreements

Special rules and exemptions

Do any special rules or exemptions apply to the assessment of anticompetitive agreements between undertakings active at different levels of the supply chain in digital markets in your jurisdiction?

Although the Japan Fair Trade Commission (JFTC) will consider characteristics of digital markets compared to other industries when enforcing the Antimonopoly Act (AMA), no special rules or exemptions apply to vertical agreements in digital markets.

Online sales bans

How has the competition authority in your jurisdiction addressed absolute bans on online sales in digital markets?

The JFTC clarified its view in its Guidelines Concerning Distribution Systems and Business Practices (Distribution Guidelines). According to the Distribution Guidelines, restricting supply channels to sell products (including online sales) will be a violation of the AMA if the restriction has the ‘effect to maintain price’ of the products at issue. Moreover, even if the restriction has any price maintenance effect, if the restriction provides a reasonable ground to sell the products properly and the restriction is imposed in an indiscriminatory manner, the restriction is allowed. For example, if a medical device manufacturer sells its products through retailers to consumers and the products need to be adjusted based on each consumer’s needs and if adjustment can only be made with the customer’s physical presence, restricting retailers not to sell its products online would comply with the AMA.

Because an absolute ban on online sales usually has a price maintenance effect on a product, the JFTC has kept a close eye on this kind of practice. For example, the JFTC has recently taken enforcement actions under the commitment procedure to halt an online sales ban by contact lens manufacturers.

Resale price maintenance

How has the competition authority in your jurisdiction addressed online resale price maintenance?

The JFTC has taken numerous enforcement actions against resale price maintenance by famous brand manufacturers and online resale price maintenance is no exception. For example, in 2019, the JFTC issued cease-and-desist orders against two manufacturers of childcare products who sold products through both high street shops and the internet and which obliged retailers to sell the product with the ‘proposed price’ set by the manufacturers.

Geoblocking and territorial restrictions

How has the competition authority in your jurisdiction addressed geoblocking and other territorial restrictions?

The JFTC publicised its view in the Distribution Guidelines, which categorise territorial restrictions into the following three categories:

  • responsible territory: setting a certain responsible territory to each distributor and obligating it to make active sales efforts within this territory. This does not usually have a price maintenance effect and thus in principle complies with the AMA;
  • strict territorial restrictions: prohibiting a distributor from conducting sales activities outside of its territory. If this restriction has a price maintenance effect, it is illegal under the AMA; and
  • restriction on passive sales: prohibiting a distributor from taking on any customers outside of their territory. This is also judged by the standard of a ‘price maintenance effect’ but generally the restriction on passive sales has greater effect on price than strict territorial restriction as it prohibits sales to customers who choose the distributor at their discretion.
Platform bans

How has the competition authority in your jurisdiction addressed supplier-imposed restrictions on distributors’ use of online platforms or marketplaces and restrictions on online platform operators themselves?

The JFTC has been vigorously pursuing anticompetitive conduct by suppliers, including bans on online sales.

Targeted online advertising

How has the competition authority in your jurisdiction addressed restrictions on using or bidding for a manufacturer’s brand name for the purposes of targeted online advertising?

Although the JFTC has not addressed restrictions on the practice of online advertising, the Japanese government has been looking into this market closely to see whether any abusive or anticompetitive practices are prevalent, as digital advertisements have grown significantly as an alternative way of advertising for many companies. In February 2021, the JFTC issued the Final Report Regarding Digital Advertisement. The report identifies key players in the digital advertisement market as 'dominant players' or 'influential players' in each market whose conduct can be subject to antitrust scrutiny. The report also points out a number of practices that can be regarded as violating the AMA, including unilateral changes in contracts and self-preferential practice by dominant or influential players. As the JFTC makes it clear that it will continue to enforce the AMA vigorously, any enforcement activities in the digital market by the JFTC may follow.

Most-favoured-nation clauses

How has the competition authority in your jurisdiction addressed most-favoured-nation clauses?

The JFTC has been very active in eliminating most favoured nation (MFN) clauses regarding prices and other conditions in digital markets. The recent cases published by the JFTC include the following:

  • in 2017, the JFTC reached an agreement with an online marketplace operator to remedy its potential anticompetitive conduct, including an MFN clause in its agreement with shops; and
  • the JFTC initiated an investigation against online travel agencies (OTAs) regarding potential AMA violation. The conduct at issue was an MFN clause between OTAs and hotels. In 2019, one of the OTAs subject to the investigation utilised the commitment procedure and reached an agreement with the JFTC to exclude MFN clauses from agreements with hotels. In 2022, two non-Japanese OTAs utilised the commitment procedure on MFN issues, where the JFTC explicitly excluded narrow MFNs from problematic conduct.

The JFTC also identifies similar practice in its advisory reports, such as MFN clauses by restaurant booking platforms, which can be a violation of the AMA.

Multisided digital markets

How has the competition authority in your jurisdiction addressed vertical restraints imposed in multisided digital markets? How have potential efficiency arguments been addressed?

The JFTC in the Distribution Guidelines stipulates how it analyses vertical restraints imposed in multisided digital markets. 

The JFTC analyses vertical restraints based on a rule of reason approach, whereby the JFTC considers both anticompetitive effect (eg, restraint of intra-brand competition) and pro-competitive effect (eg, enabling new entry and achieving better quality service). For conduct by digital platforms specifically, the JFTC mentioned in the guidelines that network effect, both direct and indirect, needs to be considered when analysing the platforms’ market position, which is one of the main factors in determining anticompetitive effect.

Based on this framework, efficiency that will be achieved by a certain type of vertical restraint will be considered as one of the factors to determine pro-competitive effect by the vertical restraint.

Other issues

Have any other key issues emerged in your jurisdiction in relation to the application of competition law to vertical agreements in digital markets?

The JFTC generally follows the path set by other competition agencies like the European Commission and enforces the AMA aggressively against vertical agreements in digital markets. The following are some of the recent key matters enforced by the JFTC:

  • in September 2021, the JFTC issued a press release to explain the result of the investigation against an app store operator. The JFTC spotted anticompetitive conduct, such as allowing only in-app payment (IAP) as a payment method, where the store charges a 30 per cent fee, and the store agreed to take remedial actions to resolve antitrust concerns; and
  • the JFTC reached an agreement with a smartphone manufacturer to eliminate certain anticompetitive clauses in its contractual relationship with mobile network operators (MNOs). Using its strong market presence, the smartphone manufacturer imposed various restrictions on MNOs, such as a minimum purchase requirement, requiring the MNO to subsidise customers when selling the manufacture’s smartphone.