Abuse of dominance in Japan

Abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

As the regulation in Japan does not take the form of abuse of dominance, abuse is not directly defined under the AMA. However, certain types of conduct by dominant firms may be regulated by the JFTC as private monopolisation or unfair trade practice, and those types of conduct are somewhat similar to the concept of abuse.

With respect to private monopolisation, the AMA and the Guidelines provide an illustrative list of problematic conduct. In particular, the Guidelines refer to past cases and describe the following four typical types of exclusionary conduct:

• below-cost pricing (setting a product price below the cost);
• exclusive dealing;
• tying; and
• refusal to supply, and discriminatory treatment.

For each type of conduct, the Guidelines provide factors to be considered when assessing whether the alleged conduct constitutes exclusionary conduct. The Guidelines also note that the type of exclusionary conduct that constitutes exclusionary private monopolisation is not limited to the types of conduct that fall under these four typical types of exclusionary conduct.

Additionally, based on an effects-based approach, the AMA further requires that a substantial restraint of competition caused by the exclusionary conduct should be proven in order for the conduct to be prohibited as private monopolisation.

Therefore, private monopolisation is defined by both form-based conditions and effect-based conditions, so both are required.

With respect to unfair trade practices, it is also defined by both form-based conditions (certain type of conducts in the JFTC’s General Designation) and effect-based conditions (tendency to impede fair competition), and the difference with private monopolisation is that the threshold for the effect-based conditions is somewhat lower.

For both private monopolisation and unfair trade practices, there is no conduct that is per se illegal under the AMA.

Does the concept of abuse cover both exploitative and exclusionary practices?

With respect to exclusionary practices, the Guideline explicitly covers these (see question 1).

With respect to exploitative practices, unlike exclusionary practices, the AMA is silent on this. Because the concept of private monopolisation is defined by general terms, theoretically any conduct may constitute private monopolisation. However, there has not been any such case to date.

Further, exploitative practices may be regulated as ‘abuse of superior bargaining position’, which is a type of unfair trade practice.

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

With respect to both private monopolisation and unfair trade practices, the JFTC needs to prove a linkage between the conduct and the result of substantial restraint of competition (for private monopolisation) or prove that the conduct has the tendency to impede fair competition (for unfair trade practice) in the relevant market.

With respect to an adjacent market, conduct by a dominant firm could be regarded as private monopolisation or an unfair trade practice in cases where the effect on competition occurs on a market adjacent to a dominant market. One such example would be a case of tying or bundling sales.

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

In general, if the conduct is somehow justified, allegations of private monopolisation or unfair trade practice cannot be established. The assessment of private monopolisation and unfair trade practice is carried out by considering the actual impact on competition.

The Guidelines state that, in addition to other standard market analysis components (ie, potential competitive pressure, customer’s bargaining power, etc), efficiency (efficiency of business activities that are caused by the economics of scale, integration of production facilities, specialisation of facilities, reduction of transportation costs, and improvement of the efficiency of research and development systems) or special circumstances in relation to the protection of consumer benefits may be considered in determining whether the conduct causes a ‘substantial restraint of competition’ or has the tendency to impede fair competition in the relevant market. This means various business justifications are available as defences.

As for special circumstances in relation to the protection of consumer benefits, the Guidelines give the following example: a case where a gas equipment sales company with approximately 50 per cent market share in a region sells gas equipment with a device that prevents imperfect combustion to those who still use gas equipment without such a device at a price lower than the cost required for its supply in order to stimulate replacement demands for gas equipment with such devices and prevent serious accidents caused by carbon monoxide poisoning. Under those circumstances, the conduct could be considered to be for the purpose of preventing serious accidents before they happen. Further, the conduct is considered to serve the interests of general consumers and more likely to have limited influence on competition. Therefore, the JFTC will consider such circumstances to assess whether or not competition is substantially restrained.

To constitute private monopolisation or unfair trade practice, there is no requirement that there be an intent to exclude a third party, though the Guidelines state that such an intent is one of the important factors that could lead to infer that the alleged conduct constitutes exclusionary conduct (abuse). Therefore defences can be shown even where there is intent, but the threshold would be higher.