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Competition Policy

-The Japanese experience-

24 March 2015

Hiroyuki ODAGIRI Commissioner

Japan Fair Trade Commission

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• 1946-47 Dissolution of Zaibatsu – Liquidation of holding companies, e.g., Mitsui, Mitsubishi, and Sumitomo

• 1947 De-concentration Law – Splitting 11 companies, e.g., Nippon Steel, Mitsubishi Heavy Industries

(both later re-merged), and Dainippon Beer (today’s Asahi & Sapporo)

• 1947 Act on Prohibition of Private Monopolization and Maintenance of Fair Trade (so-called Anti-Monopoly Act or AMA) – Most recent revision to come in force in April 2015

– July 1947: Start of Fair Trade Commission (JFTC) with the Chairman and 4 Commissioners

– JFTC General Secretariat with about 800 staff

History


The Number of Staff and Budget of the JFTC

607

643 672

706

737 765

795 779 791 799 799

823

7,686 7,853 7,819

8,131 8,338 8,416

8,682

8,446

8,962 8,915 8,742 8,802

6,000

6,500

7,000

7,500

8,000

8,500

9,000

9,500

500

550

600

650

700

750

800

850

900

950

1000

FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013

Number of staff

Budget

The Number of staff Budget [million yen]

The Number of Staff and Budget of JFTC

Transferred the Act against Unjustifiable Premiums and Misleading Representations to Consumer Affairs Agency

Including 12 lawyers and 3 economists as fixed-term members

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Surcharge Amount 5years-average (million yen)


Enforcement

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

1978 ～1983 ～1988 ～1993 ～1998 ～2003 ～2008 ～2013

Surcharge Amount 5years-average (million yen)

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Encouragement of Business activities

Private monopolization

Unreasonable restraint of trade

Unfair trade practices

Prohibition of behavior that falls under

violations

Assuring interests for general consumers

Development of a democratic and wholesome national

economy

Promotion of fair and free competition

Merger regulation

Prevention of excessive concentration of corporate

power

Stimulation of initiatives of enterprises

Heightening the level of employment and

people’s actual income

Objectives of the Antimonopoly Act (as stated in Article 1)

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Private monopolization

Unreasonable restraint of trade

Unfair trade practices

Merger regulationPreventive regulation

(prior notification is required)

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Any behavior that substantially restraints competition in any particular field of trade is prohibited.

Any behavior that tends to impede fair competition is prohibited.

Any merger that substantially restraints competition in any particular field of trade is prohibited.

Three Pillars

• Private monopolization (e.g. exclusion of competitors), • Unreasonable restraint of trade = Hard-core cartel (e.g. price fixing, output

restriction, market division, bid rigging)

• Group boycotts, resale price restriction, unjust low price sales, trading on exclusive terms, interference with competitors’ transactions, abuse of superior bargaining position, etc.

Structure of the Antimonopoly Act

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Legal measures against violations of AMA

Conducts Legal Measures

Private Monopolization Cease and Desist Order Surcharge Payment Order Criminal Accusation

Unreasonable Restraint of Trade (Price fixing cartel /Bid-rigging, etc.)

Cease and Desist Order Surcharge Payment Order Criminal Accusation

Unfair Trade Practices Cease and Desist Order Surcharge Payment Order*

Anticompetitive Merger Cease and Desist Order

*Only certain types of Unfair Trade Practices


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The JFTC’s Priorities

○ Promotion of international cooperation to cope with globalized business activities

○ Enhancement of advocacy activities to improve competitive environment

○ Strict and expeditious enforcement against price-fixing cartels and bid riggings that have significant impacts on peoples' lives

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Recent cases ○ Bid rigging (public projects) - Engineering works and paving works ordered by the Chiba Prefecture (February 2014) - Snow-Melting equipment engineering works for Hokuriku Shinkansen ordered by the Japan Railway Construction, Transport and Technology Agency (Filing criminal accusation: March 2014) ○ Bid rigging (private business projects) - Electricity transmission line works ordered by TEPCO (Tokyo Electric Power Co., Inc.) and KEPCO (Kansai Electric Power Co., Inc.) (TEPCO: December 2013, KEPCO: January 2014) - Low temperature air conditioning system work (January 2015) ○ Price cartels - Manufacturers of high-fructose corn syrup and manufactures of starch syrup and glucose (June 2013) - Steel ball manufacturers (September 2014) ○ International cartels - Automotive parts (November 2012) - EU, US, Canada - Industrial machinery bearings and automotive bearings (March 2013) - EU, US - International ocean shipping services for automobiles (March 2014) - EU ,US

Bid rigging, price-fixing cartels

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○ Recent cases of the abuse of superior bargaining position, causing undue losses to smaller companies (e.g., suppliers) - A supermarket in Hokkaido (July 2013) Forced purchase Request for dispatch of employees Request for payment of monetary contribution

- A discount store in Kyusyu (June 2014) Request for dispatch of employees Request for payment of monetary contribution

- Investigation is also made by the ‘Task Force on Abuse of Superior Bargaining

Position’ to effect fast remedies (warnings issued in 58 cases in FY2013 )

Unfair trade practices : Abuse of superior bargaining position

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• International cartels – Cartel among firms based in different countries – Collaboration of agencies is needed across countries

• International division of labor – Procurement, manufacturing, and sales across borders – Which jurisdiction should take action? – How to prevent duplication of sanctions?

• International (cross-border) mergers – How to coordinate reviews across different jurisdictions? – How to coordinate remedies?

Globalization and competition policy

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Case1. Marin Hose Japan Fair Trade Commission

On-the-spot inspection

May 7,2007 (Coordination with: DOJ, EC, etc.)

Date of order February 22, 2008

Violators (location/ cease and desist order/surcharge payment order)

Bridgestone Corporation (Japan/✓/2,380,000yen), Dunlop Oil & Marine Limited (UK/✓/－), Trelleborg Industries SAS (France/✓/－), Parker ITR S.r.l. (Italy/✓/－), Manuli Rubber Industries S.p.A (Italy/✓/－), Yokohama Rubber Co. (Japan/－/－), Comital Brands S.p.A(Italy/－/－), Manuli Oil & Marine (USA) INC.(U.S./－/－)

Case Summary The violators substantially restrained competition in the field of trade of specified marine hose ordered by customers located in Japan, by jointly determining the Champion and ensuring that the Champion would receive the orders.

Feature First case that JFTC took the cease and desist order against overseas company

International market allocation case

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Case2. Wire Harness Japan Fair Trade Commission


February 24, 2010 （Coordination with DOJ, EC, etc.）

Date of order January 19,2012 Violators (location/ cease and desist order/surcharge payment order)

Yazaki Corporation（Japan/✓/9,607,130,000yen） Sumitomo Electric Industries Ltd.（Japan/－/2,102,220,000yen） Fujikura Ltd.（Japan/✓/1,182,320,000yen） Furukawa Electric Co., Ltd.（Japan/－/－）

Illegal conducts

The violators substantially restrained competition in the field of automotive wire harness and related products ordered by automobile manufacturers (Toyota, Daihatsu, Honda, Nissan and Subaru) by jointly designating winning bidders and collaborating to have them win the biddings.

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Case3. Automotive Parts Japan Fair Trade Commission

On-the-spot inspection July 2011（Coordination with DOJ etc.）

Date of order November 22,2012

Illegal conducts The violators substantially restrained competition in the field of each of the following products ordered by the automobile company, by jointly designating successful bidders and collaborating to have them win the biddings.

Products Automobile companies Violators

Generators Honda Mitsubishi, Denso Suzuki Mitsubishi, Hitachi Automotive , Hitachi, Denso

Starters Honda Mitsuba, Mitsubishi, Denso Suzuki Mitsubishi, Hitachi Automotive, Hitachi, Denso

Windshield wiper systems

Suzuki Mitsuba, Denso Nissan Mitsuba, Denso Fuji (Subaru) Mitsuba, Denso

Radiators and electrical fans

Honda T.RAD, Denso Fuji (Subaru) Calsonic Kansei, Denso

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Wire Harness case, Automotive Parts case + Headlamps and Rear Combination Lamps case + Bearing case


Wire Harness

Bearing

Headlamp

Generator

Starter

Windshield Wiper system

Radiator Electrical Fan

Rear Combination

Lamp

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September 6, 2012 （Coordination with DOJ etc.）

Date of order March 18, 2014

Violators (location/ cease and desist order/surcharge payment order)

Nippon Yusen Kabushiki Kaisha （Japan/✓/13,101,070,000yen） Kawasaki Kisen Kaisha, Ltd.（Japan/✓/5,698,390,000yen） Wallenius Wilhelmsen Logistics, AS（Norway/✓/3,495,710,000yen） Nissan Motor Car Carrier Co. Ltd. （Japan/✓/423,310,000yen） Mitsui O.S.K Lines, Ltd. (Japan/－/－)

Illegal conducts

(1) The violators fixed freight rate and/or colluded freight rate quotations to submit to consignors among those who have trade with the same consignors; and (2) refrained from bidding against one another for the purpose of securing incumbent trades.

Case4. International Ocean Shipping

Ocean Route Violators North American Route NYK LINE, “K”LINE,WWL and MOL European Route NYK, “K”LINE,WWL,NMCC and MOL Middle and Near Eastern Route NYK, “K”LINE and MOL Oceanian Route NYK, “K”LINE and MOL

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おｓ D

A C

Consignors （Automobile companies and trading companies

located in Japan）

（１） The Violators fixed freight rates and/or colluded freight rate quotations to submit to consignors among the violators who have trade with the same consignors at negotiating with the consignors.

Violators

（２） The Violators refrained from bidding against one another for the purpose of securing the incumbent trades.

Don`t submit lower freight rates than mine to Automobile Company Y.

Sure.

A

B C O.K.

①Requests for freight rate quotations

②Negotiation between violators and consignors

③Decision on freight rates

Why don’t we submit the same freight rates as last year to Automobile Companies X?

The Violators agreed to mutually refrain from contending for customers by not offering lower freight rates and to raise or maintain freight rates.

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Case5. Cathode Ray Tubes (case of international division of labor)

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November 8, 2007 (Coordination with :DOJ, EC, etc)

Date of order October 7, 2009 Violators (location/ cease and desist order/surcharge payment order)

MT Picture Display Co.,Ltd.(Japan/✓/－) ,MT Picture Display (Malaysia) Sdn. Bhd. (Malaysia/－/650,830,000 yen) , PT. MT Picture Display Indonesia(Indonesia/－/580,270,000 yen), MT Picture Display (Thailand) Co., Ltd. (Thailand/－/566,140,000 yen), Samsung SDI Co., Ltd.(Korea/✓/－), Samsung SDI (Malaysia) BERHAD(Malaysia/－/1,373,620,000 yen), LG Philips Displays Korea Co., Ltd.(Korea/－/151,380,000 yen) , P.T. LP Displays Indonesia(Indonesia/－/932,680,000yen), Chunghwa Picture Tubes Co. Ltd.(Taipei/－/－), Chunghwa Picture Tubes (Malaysia) Sdn. Bhd.(Malaysia/－/－) , Thai CRT Co. Ltd(Thailand/－/－)

Case Summary The violators substantially restrained competition in the field of sales of the specified CRTs , by jointly setting minimum target prices to sell to overseas manufacturing subsidiaries of the Japanese TV manufacturing and sales companies.

Feature

First case that JFTC took surcharge payment order against overseas company

Difficulties in enforcement process for foreign enterprises

Japan Fair Trade Commission Suppliers of the CRTs for Television Customers for the CRTs for Television

Japanese manufacturing and sales companies of CRT televisions

Violators (5 Parent Companies) : companies manufacturing and selling

the CRTs for television located in Japan, South Korea, Taiwan etc.

Overseas manufacturing subsidiaries of Japanese manufacturing and sales companies

of CRT televisions （manufacturing base of the CRT televisions

located in Southeast Asia ）

Violators (6 Subsidiaries) (manufacturing base of the CRTs

for Television located in Southeast Asia ）

Instruct the purchase price decided by ②

①Jointly set minimum target prices

for CRTs for Television among the violators

③Instruct the sale price decided by ②

④Sale of the CRTs for Television at the price

instructed by ③

②Negotiations for the prices for the CRTs for Television, based on the

price decided by ①

【 Indonesia, Singapore, Thai, Philippines, Vietnam, Malaysia 】 In the Southeast Asia 19

⑤Sell the CRT televisions


International M&A cases

○ Semiconductor-manufacturing equipment (May 2013; approved with remedies)

ASML US Inc. - Cymer Inc.

- US, Korea

○ Hard disk drive (December 2011; approved with remedies)

Western Digital Ireland, Ltd. - Viviti Technologies Ltd.

Samsung Electronics Co., Ltd. - Seagate Technology International

- US, Korea, EU

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Policy Recommendation and Advocacy -As “a pair of wheels” with law enforcement-

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Advocacy activities 1 – Electricity market Japan Fair Trade Commission

The Cabinet decision instructed the JFTC to show its view from the standpoint of competition policy in light of the current situation that

i) “GEUs (general electricity utilities, like TEPCO) have the market power, while PPSs (power producers and suppliers) face difficulties in increasing their market share” and

ii) “there has been no competition among the GEUs beyond their respective service areas, and large-scale users cannot purchase electricity in a single contract covering the entire country.

“Policy on Regulatory and Institutional Reform in the Energy Sector” The Cabinet decision (April 3, 2012)

JFTC’s points of view - Are the purposes of regulations reasonable? - Are the contents and methods of regulations well-designed? - Inquiry into the characteristics of the electricity market and the enterprises’ behavior

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Japan Fair Trade Commission Proposals for the electricity market from competition policy

(September 2012) The JFTC suggests; ○ Promotion of incentives for enterprises - Independence of GEU’s retail units from the generation/wholesale units - Securing accessibility to and neutrality of GEU’s transmission and

distribution units ○ Securing appropriate terms and conditions for the use of facilities and

services provided by the monopolistic suppliers ○ Infrastructure improvements, bargaining power disparity in retail sectors,

etc.

Step 1: Expanding use of the nationwide grid (by 2015)

Step 2: Liberalization of the

retail electricity sector (by 2016)

Step 3: Legal separation between electricity generators and

distributors, and abolishing retail price regulations

(by 2020) (under discussion)

Government reform plan is in progress

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○ Difficulty in balancing child-raising and working is one of the factors for the declining birth rate

○ A large number of children are on a waiting list for childcare facilities ○ Childcare is one of “sectors which could become the driving force of

growth as vast new markets” (Japan Revitalization Strategy, June 2013)

Study Report on Childcare Sector (June 2014)

Advocacy activities 2 – Childcare Sector

In the Report, JFTC proposes; ○ Promotion of new entry of diverse businesses into the market ○ Impartiality in subsidy systems and taxation systems ○ Enhanced information disclosure and third-party evaluation ○ Enhancement of additional services

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Intellectual Property Rights and Competition Policy

- Another challenge -

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• Antimonopoly Act “shall not apply to such acts recognizable as the exercise of rights under … the Patent Act” and other IPR Acts (Article 21).

• However, “any act that may seem to be an exercise of a right cannot

be ‘recognizable as the exercise of the rights’ provided for in the aforesaid Article 21, provided that it is found to deviate from or run counter to the intent and objectives of the intellectual property systems, which are, namely, to motivate entrepreneurs to actualize their creative efforts and make use of technology” (JFTC, Guidelines for the Use of

Intellectual Property under the Antimonopoly Act, 2007).

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• Pachinko Machine Patent Pool Case (1997) – 10 dominant incumbent firms formed a patent pool,

which refused to license the patents to new entrants.

– Violation of AMA’s prohibition of private monopolization

Patent Pool

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• Effective in preventing royalty stacking and reducing transaction costs

• However, it should not be used for anti-competitive purposes, e.g., to collude on product prices or to deter entry


• Standards are now indispensable for compatibility – E.g., 250 standards are involved in laptop computer

• Firms form ‘consortium’ or ‘forum’ to agree on standards. – They should not promote collusion in product markets

• Participating firms are supposed to offer license of their standard essential patents (SEPs) on a FRAND basis – What to do with non-participating firms? – How to decide an FRAND rate? – Recent private litigation case in Japan: Samsung vs. Apple

Standard Setting

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Appendix:

Amendments to the Antimonopoly Act

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Surcharge

Criminal Investigative

power

Base rate: 6% Raising base rate : 10%

Repeat offense : add 50%

Offense leader : add 50%

Leniency program Revising leniency program

Expanding target conduct

Expanding target conduct

Criminal investigative power

Raising maximum jail term

Exclusive right for criminal accusation

Hearing procedure

Recommendation system

Abolition of recommendation

system

Prior procedure

Ex ante hearing procedure

Ex post hearing procedure

Procedures for hearing

prior to Final Administrative

Orders Abolition of

ex post hearing procedure

Consideration of Reform of

hearing procedure

Making Prior Procedure more sufficient and transparent

Before 2005 amendment

2005 amendment 2009 amendment 2013 amendment (unenforced)


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Current procedure New procedure Investigation

by JFTC

Notification by JFTC (expected content of order,

etc.)

Explanation by Investigators (expected content of order, fact finding, evidence, etc.)

Procedures for hearing opinion

(presided over by an officer designated by JFTC)

Supreme Court

Tokyo District Court

Tokyo High Court

Cease and desist order/ surcharge payment order

questions from recipient

Presentation of opinions (oral/written) and offer of

evidence by recipient

Commission meeting

Investigation by JFTC

Opportunity for recipients to express opinions and

offer evidence

Notification by JFTC (expected content of

order, etc.)

JFTC Explanation (expected content of order,

fact-finding, evidence, etc.）

Commission meeting

Supreme Court

Tokyo High Court

Hearing procedure for administrative appeal

Cease and desist order/ Surcharge payment order

Outline of Revision

Appeal procedures Introduction of trial at the District

Court

Only Tokyo District Court has jurisdiction over the appeal suit pertaining to the cease and desist order/surcharge payment order as the court of first instance (ensuring expertise in the court).

○

Setting a panel of five judges will be allowed in Tokyo High Court when the court hears the case.

○

Abolition of the substantial evidence rule and restriction on offering new evidence

○

Procedures prior to issuing final orders Improving sufficiency and

transparency of the procedure

Inspection and copy of evidence that proves facts found by JFTC will be sanctioned

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Introduction of the procedures for hearing presided over by an officer designated by JFTC

○

Asking of questions and oral presentation of opinions will be allowed in the procedures for hearing ○

Note: The recipient will be allowed to copy only its own property and the written statements of its employees.

Abolition of hearing procedure for administrative appeal

Addressing the criticism that JFTC plays the role of both prosecutor and judge in the current JFTC hearing procedures

Panel of three judges hears the case in Tokyo District Court (a five-judge panel may be set).

○

Procedures prior to final

administrative order

Appeal procedures

JFTC

The court

procedures prior to final

administrative order

Appeal procedures

Court

Inspection of evidence and copying recipient’s

own property and

written statements

of its employees

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Thank you very much for your kind attention.

Opinions expressed in this presentation are those of the speaker and

are not necessarily those of the JFTC.


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