On June 3, 2009, the Japanese Diet passed a bill that will amend the Japanese Anti-Monopoly Act ("Amendments") to impose larger surcharges (administrative fines) on companies engaged in cartels and certain types of unilateral conduct and increased prison sentences for individuals participating in cartels. To further strengthen cartel enforcement, the Amendments permit affiliated companies to file a joint leniency application and increase the number of entities that can receive some degree of leniency. The Amendments also require pre-closing notification for share acquisitions. The Amendments will become effective within one year from the date of enactment, on a date to be announced by the Cabinet Office.
Cartel Enforcement Strengthened
The leniency system was introduced in 2005 and provided that up to three cartel participants could seek leniency, with the first applicant awarded leniency receiving 100 percent immunity from surcharges, the second, a 50 percent reduction, and the third, a reduction of 30 percent. The Amendments increase the maximum number of leniency recipients to five, with the third, fourth and fifth each receiving a 30 percent reduction, as well as permitting affiliated companies in a parent-subsidiary relationship to file a single joint leniency application. The Amendments also impose a 50 percent increase in applicable surcharges for companies found to be ringleaders of cartels. Surcharges for non-ringleaders will continue to be 10 to 15 percent of the company’s annual sales amount of the products or services subject to violation.
Prison sentences for individuals convicted of participation in cartels are also increased from three to five years. No actual prison sentences have been imposed to date in Japan for cartel violations, and all individual sentences have been probationary sentences. Courts cannot apply a probationary sentence to any prison sentence exceeding three years; therefore, the increased maximum sentence is expected to result in actual prison sentences being imposed in future cartel cases.
The Amendments also increase the statute of limitations for the JFTC to impose surcharges or enter cease-and-desist orders from three years to five years. Because cartel investigations often require years to complete, concerns had been expressed that the three-year statute of limitations risked allowing cartels to escape punishment if the cartel behavior terminated three years before the JFTC could complete its investigation. Under the AMA, surcharges can be imposed on the sales amount for three years prior to cessation of a cartel. Thus, if a cartel ends five years before a decision is rendered, the Amendments empower the JFTC to impose surcharges on the relevant sales amount for three years prior to cessation. The Amendments also allow the JFTC to impose surcharges on a company without regard to its subsequent divestiture or dissolution with the specific entity engaged in cartel conduct.
Additional Types of Unilateral Conduct Now Subject to Fines
Prior to the Amendments, only "controlling" types of single-firm conduct, in addition to cartel behavior, were subject to surcharges under the AMA. The Amendments now authorize the JFTC to impose surcharges on "exclusionary" unilateral conduct, including:
- monopolization, by excluding competitors from the market, whether the restraints were imposed jointly with other companies or unilaterally (subject to surcharges of 6 percent of turnover during the violation);
- unfair business practices, such as sales below cost, undue price discrimination, concerted refusals to deal, and resale price maintenance, if the violator is found to have engaged in such conduct more than once within a ten-year period (subject to surcharges of 3 percent of turnover during the violation); and
- abuse of a dominant bargaining position, such as coercing another party to purchase other goods and services by making use of dominant bargaining position over the other party (subject to surcharges of 1 percent of the amount of the transactions with the other party).
Prior Notification of Share Acquisitions Required; Thresholds for Notification of Mergers and Asset Acquisitions Increased
The new legislation also imposes the AMA’s pre-transaction notification requirements on acquisitions of shares, which already were in place for mergers and asset acquisitions. The Amendments require pre-closing notification and a 30-day waiting period for acquisitions of shares if the acquirer, as a group, has turnover in Japan of over 20 billion yen, the target, as a group, has turnover in Japan of over 5 billion yen, and the acquisition increases the percentage ownership in the target to exceed either 20 or 50 percent. The imposition of pre-closing notification and a 30-day waiting period for share acquisitions makes the AMA’s treatment of these transactions consistent with those for mergers and asset acquisitions.
The Amendments also increase filing thresholds for mergers and asset deals. Under the Amendments, mergers must be notified if one of the parties, as a group, has turnover in Japan exceeding 20 billion yen and the other party, as a group, has turnover in Japan exceeding 5 billion yen. Notification of asset acquisitions will be required if the acquirer, as a group, has turnover in Japan in excess of 20 billion yen and the target assets generate turnover in Japan of more than 3 billion yen, or are the entire business of a company with turnover in Japan exceeding 3 billion yen.
Increased International Cooperation; Restrictions on Review of JFTC Files; and Enhancing Discovery in Private Actions
The Amendments authorize the JFTC to provide information to foreign antitrust authorities that the agency believes may contribute to the foreign authorities’ performance of their enforcement duties. It is expected that this provision will increase the degree to which the JFTC cooperates with antitrust agencies of other countries in cartel investigations and merger reviews.
Another provision of the Amendments requires the JFTC to permit interested persons to review and copy JFTC records of hearings, unless the JFTC determines that interests of a third party may be harmed or there are other justifications to refuse the disclosure. The Amendments permit the JFTC to restrict the uses of copied records or impose other conditions deemed appropriate. This provision seeks to clarify the scope of the JFTC’s power to limit access to its records, following a ruling of the Tokyo High Court that the JFTC could not restrict the review and copying of such records absent specific statutory authority.
Under the Amendments, courts hearing AMA injunction cases may order production of documents, including trade secrets, necessary to prove a violation. It is anticipated that this provision may increase the number of private antitrust actions in Japan.