Japan: JFTC’s shift from enforcement to advocacy continues to concern experts

In summary

In Japan, there are few enforcement cases and court cases under the Antimonopoly Act and the theory of the Act is not well-developed. Practitioners have to analyse cases based on their own intuition and experience. Consequently, the Japan Fair Trade Commission has begun to attach more importance to economic analysis and is focusing on advocacy activities. It has also enacted and amended laws and published guidelines in response to new issues, such as the publication of guidelines for the realisation of a green society.

Discussion points

• Peculiarities of the enforcement of the Japanese Antimonopoly Act
• The Japan Fair Trade Commission’s response to new issues
• Efforts to reduce greenhouse gas emissions
• Digital markets and digital providers

Referenced in this article

• Antimonopoly Act
• Labor Standards Act
• Green Guidelines
• Act on Promotion of Competition for Specified Smartphone Software
• Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operations
• Subcontract Act

The Japan Fair Trade Commission’s traditional enforcement and its limitations

Japan’s competition law is the Act on Prohibition of Private Monopolization and Maintenance of Fair Trade, generally abbreviated as the Antimonopoly Act (AMA). However, the antimonopoly aspect of the law is rarely enforced, and the name of the law does not match the reality of its enforcement. Traditional law enforcement by the Japan Fair Trade Commission (JFTC) has been marked by the detection of bid rigging and hardcore cartels that are clearly illegal at first glance, and the regulation of business combinations (merger filings), in addition to scattered cases of vertical restraints with clear exclusionary effects or predatory pricing.

In addition, since the AMA was enacted in 1947, there have been almost no legal amendments to the requirements for violations and compared to the competition jurisprudence in the European Union and the United States, which has developed through the accumulation of precedents. Japanese court precedents are still insufficient to predict the interpretation of the AMA. Practitioners tend to believe that submitting an economic analysis to the JFTC would not change its conclusion and that it would be a waste of money.

The JFTC does not make consumer welfare a direct objective of the AMA, nor does it communicate that the AMA is applicable to labour contracts that are subject to mandatory laws such as the Labor Standards Act. In addition, the JFTC does not always coordinate with other ministries and agencies that regulate specific industries, and practitioners sometimes have trouble dealing with the rather ‘stubborn’ JFTC to achieve specific policy goals, such as restructuring in industries where restructuring is seemingly necessary.

On the other hand, under-enforcement and over-enforcement of the law has been a potential problem, as the JFTC’s enforcement cases are limited and rarely contested in court. For example, regarding horizontal restraints on non-hardcore cartels, the legal requirement for violation is ‘a substantial restraint of competition’, the same as for hardcore cartels, and even for joint actions to improve efficiency, practitioners do not have ground rules and are sometimes faced with an excessively conservative view. Where the clearance requirement for a business combination (merger filing) is the existence of a ‘substantial restraint of competition’, as in the case of hardcore cartels, there is no guidance on whether a business combination could be allowed in a case where the HHI (Herfindahl–Hirschman Index) threshold set out in the Merger Guidelines has been exceeded, as no court cases exist. Practitioners are forced to analyse cases based on their own intuition and experience.

As for abuse of a superior bargaining position, the JFTC has stopped taking administrative actions and began to focus on law enforcement through the ‘firm commitment procedure’, which is a settlement, resulting in the stagnation of the development of the theory of what constitutes ‘abuse’.

This article discusses in detail the JFTC’s approach to the limitations in its law enforcement.

Different approaches to the limitations identified

The JFTC reported on its enforcement of the AMA for fiscal year 2023 as set out below.

It issued four cease-and-desist orders against 18 businesses, approved five commitment plans as settlements, issued three warnings (price cartel, order adjustment and unfair trade practices), and announced three cautions or investigation terminations (two for abuse of a superior bargaining position and one for interference with trade against a competitor). The JFTC issued administrative surcharge payment orders (ie, fines or penalties) totalling ¥223.4 million to 16 businesses. This is extremely low compared with past penalties. The number of leniency applications filed in 2023 was 156, about double the number filed before Covid-19.

The JFTC’s enforcement against hardcore cartel laws in 2023 was low compared to previous years, which is a reminder of the limits of law enforcement’s reliance on leniency. We have also seen a decline in the presence of the JFTC. In 2022, the first TV drama featuring the JFTC’s officers, the ‘Guardian of Competition’, was broadcast. However, that TV drama cantered on investigations and criminal investigations, which is sluggish in reality. At the moment, the raison d’être of the JFTC in the real world is being questioned.

Under these circumstances, the JFTC established the Office of Economic Analysis to introduce economic analysis into the AMA’s enforcement, following the international trends, and has begun employing economists as officers.

It has also recently put a noticeable emphasis on ‘advocacy’ activities, even stating that they are ‘a pair of wheels’ with law enforcement. For example, it has conducted investigations into certain sectors, such as electric vehicle charging services, TV and video distribution services and the electric power sector, and even though the JFTC has not found any illegality, it has identified problems with trade practices and encouraged voluntary changes by individual business operators.

The JFTC has also established the Green Guidelines, and in addition to cases where greenhouse gas reductions can be achieved, it has indicated the possibility of allowing various non-hardcore cartels, not limited to cases where greenhouse gas reductions can be achieved, and has stressed its willingness to respond actively to consultation from business operators.

In addition, where various government agencies are issuing policies across the board under political leadership to protect truck drivers, freelance workers and other businesses with weak bargaining power, the JFTC has followed the tide by declaring that it will actively apply abuse of superior bargaining position, and has also publicised the names of companies even though there is only a ‘suspicion’ of illegal activity.

Moreover, in line with global trends, the JFTC has enacted the Smartphone App Regulation Law to intervene in the digital market. These developments seem to indicate that the JFTC is transforming from the ‘Guardian of Competition’ to a political agency that uses the AMA to control and regulate the flow of society and industry.

The JFTC’s application of competition law to labour law is still very weak compared to its aggressive application of no-poach agreements overseas, and therefore this article does not address this topic. We will discuss some of the topics introduced in this section in more detail below.

Increase in the use of economic analysis

It has been said that the JFTC has not been very active in the use of economic analysis compared to the competition commissions in the United States and the European Union, but this trend has been reversing. The Office of Economic Analysis, established by the JFTC in April 2022, is in charge of reviewing various cases (private monopolies, unfair restraint of trade and unfair trade practices) including mergers. However, when the Office of Economic Analysis was established, the number of cases was declining due to the influence of Covid-19, and it did not seem that economic analysis began to be utilised very actively by the JFTC. In our experience, economic analysis seems to be used more frequently since 2023. It has become clear now that the JFTC is moving to actively utilise economic analysis. According to the most recent regular press conference by the Secretary General of the JFTC in March 2024, there are currently 15 staff members in the Economic Analysis Office. In addition, the website of the JFTC has a page titled ‘Efforts related to economic analysis’, which includes a description of the achievements in the use of economic analysis. In addition, on 31 May 2022, one month after the establishment of the Office of Economic Analysis, the JFTC published ‘Notes on the Submission of Economic Analysis Reports and Data Used in Economic Analysis, etc’, an equivalent of the best practices published by competition authorities in other countries.

Particularly noteworthy is the merger case referred to as ‘Results of the Examination Concerning the Acquisition of Shares in Asiana Airlines Co by Korean Airlines Co, Ltd’. In this case, the JFTC issued a clearance with a remedy, but the report on the results of the examination is based on a very long and detailed economic analysis. Specifically, the analysis used was a price analysis (to confirm the robustness of the regression analysis results) and an analysis of incentives to raise prices using the Gross Upward Pricing Pressure Index. The economic analysis was conducted by an outside expert (University of Tokyo Economic Consulting, Inc), and this is clearly stated in the announcement. The announcement is rare, but we expect to see more and more cases like this in the future. Therefore, it will become increasingly important to retain a consulting firm at an early stage to perform economic analysis in large merger cases. It should be noted that, as the Mergers and Acquisitions Division of the JFTC increasingly conducts economic analysis in merger examinations, there is a tendency for the examination to be more detailed, even for issues where economic analysis is not relevant. It is said that economic analysis is particularly effective for issues other than business combinations, especially with respect to private monopolies by stand-alone acts. Therefore, for a company with a large global market share, it may be necessary to confirm the legality of a new business scheme by economic analysis, not only when the company is investigated by the JFTC, but also in some cases when the company establishes a new business scheme.

JFTC’s advocacy activities

One of the recent high-profile initiatives of the JFTC is its advocacy activities. When it engages in such activities, the JFTC conducts fact-finding surveys and studies by experts on trade practices and regulatory systems in areas that are expected to grow in the future and in regulated areas to sort out problems, and it compiles the results into reports for publication. These reports clarify the thinking behind the JFTC’s competition policy, and in turn encourage businesses and business associations to voluntarily improve their trade practices and recommend that regulatory systems be revised by the competent authorities.

By nature, these proposals for improvements are not legally enforceable, but there are some companies that claim that the JFTC has been very vocal in urging them to improve. Recent fact-finding surveys include the ‘Secondary Fact-Finding Survey on Electric Vehicle Charging Services’ (released in May 2024), the ‘Fact-Finding Survey Report on Connected TV and Video Distribution Services’ (released in March 2024) and the ‘Fact-Finding Survey Report on the Electric Power Sector (Wholesale Sector)’ (released in January 2024).

It is difficult to determine what should be done if a business operator is required by the JFTC to make improvements and wishes to appeal. In particular, because it is not a mandatory administrative disposition, it is difficult to file a lawsuit. Therefore, it is important to negotiate with the JFTC through adequate communication. In addition, although Japan’s antitrust law is not as rich in formal dispositions and court cases as other countries such as the United States and the European Union, practitioners should be aware of all information sources announced by the JFTC other than the law, as these advocacy activities may increasingly reveal the JFTC’s thinking, practices and expectations, and thus compensate for a lack of case precedents.

Promoting horizontal collaboration to protect the environment

The JFTC issued the Green Guidelines in 2023 and revised them in April 2024. The Green Guidelines promote efforts to reduce greenhouse gas emissions and provide examples of when these efforts are legal. The Green Guidelines are attracting attention not only as guidelines under the AMA in efforts to reduce greenhouse gas emissions, but also as the first guideline to present the JFTC’s views on business alliances in general. The Green Guidelines also set forth the ‘basic concept’ that in many cases, the activities of enterprises towards the realisation of green society will not pose problems under the AMA. Such wording can be understood to mean that the JFTC is actively supporting companies in their efforts to reduce greenhouse gas emissions.

The Green Guidelines also divide the acts into three categories, which are acts with no anticompetitive effect (first category), acts with only anticompetitive effect (second category) and acts with both anticompetitive and pro-competitive effects (third category). The Green Guidelines provide for an overall assessment of the anticompetitive and pro-competitive effects on the lawfulness of the third category, by taking into account the reasonableness of its purposes and the appropriateness of its means. Furthermore, the third category is broadly divided into the establishment of voluntary standards and business alliances, and cooperative logistics are cited as one example of a business alliance.

The 2024 revision to the Green Guidelines goes further by stating that certain information exchange between horizontal business operators will not normally be a problem under the AMA if there is no exchange of information on matters that are important means of competition, such as prices. Moreover, the Green Guidelines also state that even in the case of exchange of information on matters that are important means of competition, if information-blocking measures or a ‘Chinese Wall’ are implemented, there are usually no impediments under the AMA.

Furthermore, the 2024 revision also adds room for joint production with restrictions on the movement of production equipment in hypercompetitive markets to be permitted in certain cases. Although these revisions reiterate many of the elements that were previously considered in business combinations and the Merger Guidelines, it is significant that they clearly state that there is room for horizontal joint activities, the content of which is more competition-preserving than business combinations such as mergers, to be recognised. In addition, the JFTC has clearly stated that it is willing to consult with businesses on individual cases. This can be evaluated as a move to eliminate the overload of law enforcement.

For this reason, while the AMA previously was only seen as a ‘defensive’ barrier in preventing the exchange of information and business alliances among competitors from falling under cartel practices, now it seems to be an opportunity for the JFTC to turn to an ‘offensive’ strategy in which enterprises can actively propose and consult with the JFTC on an audacious business alliance that has not existed before. In particular, although there were hesitations up to now on discussing the minimum necessary level of measures to block the transfer of information, it might become possible to have a head-on discussion on the need to have a certain amount of information exchange to reduce greenhouse gas emissions. This could be a significant turning point in AMA enforcement.

The JFTC has announced that, where business operators have previously consulted with the JFTC and provide the evidence that the proposed activities are aimed at realising a green society, the effects of decarbonisation as pro-competitive effects of the proposed activities, changes in regulations and systems, and other arguments, as well as the information provided by the relevant ministries in addition to the explanations provided by the business operators, the JFTC will make its decision as to whether the matter is problematic under the AMA based on the foregoing factors. In particular, regarding the effects of decarbonisation, the JFTC has clarified that if information is provided by the relevant ministries, the JFTC will rely on this information to make its decision. The JFTC has never made such a clear statement about its response, and Japanese lawyers will be watching the JFTC’s handling of the cases closely.

Intervening in the principle of freedom of contract

Abuse of a superior bargaining position is a legal concept that does not exist in the United States and has developed differently in Japan in comparison to article 102 of the TFEU. Importantly, the JFTC stopped issuing formal orders on abuse of a superior bargaining position since the 2010s. Instead, the JFTC has entered into ‘firm commitment procedures’, which take the form of settlements in which companies voluntarily resolve the issue and the JFTC in turn does not recognise the illegal conduct.

However, the JFTC is still required to conduct investigations as part of the firm commitment procedures, and because of this the JFTC mainly targets major platform operators. In particular, the JFTC’s ability to conduct investigations is limited when there are a large number of targets, such as when one party is inferior to the other in terms of contract bargaining power in an industrial sector. For example, in the transportation industry, there are social problems like drivers being forced to work long hours at low wages due to the lack of progress in passing on labour costs to clients (such as shippers or major carriers). Recently, however, the JFTC shocked the society by beginning to publicise the names of shipping and transportation companies with a simple finding of ‘suspicion’ of illegal activities that exploit such vulnerable groups.

Although there are several subcategories of abuse of a superior bargaining position, the majority of subcategories are the breach of a contract by a superior party. In the traditional context of abuse of a superior bargaining position in the transportation and logistics industry, it was primarily the breach of contract of the shipper or major carrier that was the subject of detection and attention. In this practice, there was little practical support for not negotiating increase in price for future transaction agreements, or negotiating but not concluding such agreements, as these were not contract breaches.

However, on 29 November 2023, the Cabinet Secretariat and the JFTC released a document titled ‘Guidelines for Price Negotiations for Appropriate Passing of Labor Costs’, stating that top management must be involved in establishing a policy whereby the ordering party accepts price passing of increased labour costs of consignee or subcontractors, and if the shipper or major carrier does not comply with the guidelines, the JFTC will aggressively enforce the AMA and the Subcontract Act, among other laws.

The JFTC does not issue cease-and-desist orders or other administrative actions, but only sends warning letters and, in some cases, unilaterally announces the name of the company. Moreover, there is little that can be done to contest such findings and a lack of guidance from the JFTC. Although it is theoretically possible to dispute the illegality by filing damages claims against the nation of Japan, it would be difficult to succeed with this claim because it is difficult to prove the damage.

Furthermore, the JFTC repeatedly cites the road transportation industry as an industry with problems at every turn, and clearly gives priority to investigations of shippers and major carriers. The companies whose names have been made public are being forced to deal with the situation by reviewing the terms of their contracts with all suppliers and incurring very significant additional costs. Thus, the transportation industry is being forced to undergo rapid changes as politically driven soft-law rulemaking is about to take place as a policy to protect the weak in collaboration with other ministries and agencies in the name of the AMA. We note that this is a development that illustrates the politicisation of the JFTC.

Act on Promotion of Competition for Specified Smartphone Software

The Act on Promotion of Competition for Specified Smartphone Software (the Smartphone Software Competition Act) was enacted on 12 June 2024, and published in the Official Gazette on 19 June 2024. It will take effect on a date to be specified by a Cabinet Order by 19 December 2025.

The Smartphone Software Competition Act was enacted with reference to the EU Digital Markets Act (DMA) as a framework for the digital markets of Japan, for the country to align itself with the United States and Europe, as well as require fair competition from digital platform operators.

First, the JFTC designates business operators that provide Specified Software (mobile operating systems, app stores, browsers and search engines) that are particularly necessary for the use of smartphones and that exceed a certain size as specified by government ordinance for each type of specified software (designated providers). Under the DMA, gatekeepers may be individually designated based on market research, but the Smartphone Software Competition Act does not provide for such a designation process. In addition, the Smartphone Software Competition Act does not provide for the system permitted under the DMA, whereby an entity operating above a certain size may not be designated as a gatekeeper upon rebuttal of the requirements of the DMA.

Next, the Smartphone Software Competition Act prohibits designated providers from taking certain actions (prohibitions) and requires them to take certain actions (compliance). The main prohibitions and compliance requirements are as follows:

• Designated providers must not prevent third parties from offering their own application stores.
• Designated providers must not prevent other application developers from using third party billing systems, for example, by imposing conditions prohibiting third-party billing systems.
• Designated providers must not prevent application developers from displaying in-application information such as prices for items on websites or links leading to websites for items.
• Designated providers must not prevent other application developers from offering items, etc, through websites.
• Designated providers must not unjustly discriminate or unfairly treat application developers in transactions and terms of use of operating systems and application stores.
• Designated providers must not prevent other application developers from using other browser engines, for example, by imposing conditions that only allow the use of the designated provider’s own browser engine.
• Designated providers must enable users to change default settings through simple procedures. Designated providers must provide choice screens with similar services for browsers, search services, etc.
• Designated providers must not, without justification, give preference to their own services over those of competitors in the display of search results.
• Designated providers must not use acquired data, such as usage information and sales figures, for their own services in competition with third parties.
• Designated providers must not prevent other application developers from using functions controlled by the operating system with the same level of performance as that used by the designated providers.

While the Smartphone Software Competition Act also stipulates matters that are not illegal for justifiable reasons, there are no precedents unlike in the European Union. As the JFTC has only made a few decisions, lawyers in Japan will follow the evolution of competition law and enforcement in the country with great interest. There are many unknowns, such as how much manpower the JFTC will be able to devote to enforcing the Smartphone Software Competition Act, and whether the JFTC officials will be able to engage in discussions, etc, with designated providers. Therefore, it is necessary to monitor future developments.

If a designated provider violates a prohibition or compliance item, the JFTC may issue a cease-and-desist order against the designated provider, or issue a surcharge payment order in an amount equivalent to 20 per cent of the sales of the goods or services involved in the violation. However, the scope of the surcharge payment order is limited. In addition, the commitment procedure was introduced in the Smartphone Software Competition Act, and it is expected that, even if the Act is enforced, alleged infringement cases will be handled under the commitment procedure for the time being.

Recent updates

In November 2024, the Act on Ensuring Proper Transactions Involving Specified Entrusted Business Operations (the Freelance Act) came into effect.

The Freelance Act requires businesses (including individuals or Clients) that outsource work to sole proprietors or companies that work with only one person to ensure proper transactions and to maintain a good working environment.

In terms of ensuring proper transactions, what is required of the Clients is not much different from what is required under the Subcontract Act.

In addition, the JFTC and the Small and Medium Enterprise Agency released the report on their study of the amendment of the Subcontract Act. The amendment bill was submitted to the Diet on 11 March 2025.