(the Japanese Experience)

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Japan Fair Trade Commission

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1. Enforcement of the Antimonopoly Act (the AMA)

1. Enforcement Institutions of the AMA

The AMA prohibits private monopolization, unreasonable restraint of trade and unfair trade practices. Substantial restraint of competition and other activities by any trade association are also prohibited. Legal measures taken against violators include 1) administrative measures by the JFTC in the form of cease and desist order and surcharges, 2) criminal accusation and 3) civil damage suits (absolute liability). Since these measures are different in function, they can be applied to the same AMA violation. Any offense against substantive law violations is considered only after an accusation of the JFTC has been filed. Absolute liability stipulated in the AMA may not be pursued unless there has been a decision by the JFTC. In short, besides taking administrative measures, the JFTC has an important role to play in the enforcement of the AMA.

2. Structure and Authority of the JFTC

The JFTC is an administrative body under the council system, consisting of a Chairman and four commissioners. The members are appointed from among experts in law or economics.

1. Independence

The JFTC structurally belongs under the jurisdiction of the Prime Minister, and is positioned as an extra ministerial body of the Prime Minister's Office. However, the JFTC is an independent administrative body in that it independently executes its duties of enforcing the AMA without being directed or supervised by others. This independence is based on the belief that, fair enforcement of the AMA from an impartial perspective would be appropriate. This stems from the fact that the AMA, as a law prescribing fundamental rules of business activities under a free market system should not be influenced by political circumstances of the times.

2. Investigative Structure

The JFTC has a General Secretariat to discharge of its affairs. The number of staff members is 552 as of April 1, 1998. The General Secretariat is comprised of the Secretariat, the Economic Affairs Bureau and the Investigation Bureau. The number of staff members at the Investigation Bureau is 254 or 46 percent of the whole number of staffs. The Investigation Bureau is divided into divisions that gather complaints from the public regarding violations and detect violations on its own, that actually investigate cases, that administer surcharges, and that inspect cases.

3. Quasi-judicial role

The decisions given by the JFTC, which is the center of administrative measures, have a quasi-judicial characteristic. In consideration to fairness of the measure and protecting the interests of the related parties, very careful procedures are stipulated. Specifically, despite the fact that the proceedings of the JFTC is a form of administrative hearing, in order to secure fair measures it takes a form similar to a trial. In other words, the proceeding is composed of three parties; the Commission or a trial examiner, an investigator and a respondent. The Commission or trial examiner can be said to be analogous to a court judge and an investigator to a prosecutor.

Trial Examiners (AMA Article 51-2) are staff members delegated by the Commission to take part in the proceedings. One or three trial examiners would sit on any one case. Inspectors are staff members that investigate the cases. They take measures to commence proceedings, attend hearings and call for the examination of evidence. (AMA Article 51-3)

The respondent states why measures such as a cease and desist order or an order to pay surcharges are unreasonable and submits supporting evidence. Furthermore, the respondent may be represented by an attorney at law (AMA Article 52).

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3. Measures Against Violations

1. Administrative measures

The JFTC may initiate an investigation through the Investigation Bureau when there is suspicion of an AMA violation. When a violation has been established, the JFTC may take necessary measures in order to eliminate the violation.

This cease and desist order is called a decision. Decisions are rendered in writing and the written decisions show the facts of the violation, and the content of the cease and desist order. If a suit for revocation of a decision is not instituted within thirty days from the day on which the decision became effective, the decision is final. Any party who violates a decision which became final is subject to criminal sanctions.

There are three types of decisions given by the JFTC; the recommendation decision, the formal decision and the consent decision. The most common type of decision given by the JFTC is the recommendation decision. The JFTC may, when it finds that there exists any conduct in violation of the AMA, recommend to the respondent who has committed the violation to take appropriate measures. Any respondent who has received a recommendation must notify to the JFTC whether or not it accepts the said recommendation. And, if the respondent accepts the recommendation, the JFTC gives a decision with the same purpose as the recommendation. This is called a recommendation decision. This recommendation system has been implemented in order to resolve violation cases promptly. If the respondent does not accept the recommendation, proceedings similar to a court trial is initiated by the JFTC. A decision given at the end of the proceeding is called a formal decision. Furthermore, this proceeding may be instituted without taking the procedures in giving a recommendation. If the respondent admits to the findings of fact and the application of the law, and voluntarily submits a plan to eliminate the violation, the JFTC, after considering its content, may give a consent decision without further proceedings.

2. Surcharges

Orders to pay surcharges are usually given after a violation has been established by a decision. Surcharges are ordered for violations of unreasonable restraint of trade and others which pertain to the counter value of commodity or service, or the matters having influence to the counter value thereof by substantially restraining the supply quantities of commodities or services. The JFTC orders violators to pay to the National Treasury the surcharge of the amount equivalent to the amount obtained by multiplying by a certain percentage the sales proceeds during the period that the violation has been in effect. This system has been introduced in the 1977 AMA amendment in order to strengthen the deterrence against mainly price-fixing cartel violations.

Furthermore, even if the JFTC cannot obtain sufficient evidence to take legal measures, the JFTC may render a "warning" to an enterprise or a trade association to eliminate the act. A "warning" does not constitute an administrative measure.

3. Criminal Accusation

The AMA provides for criminal punishment against substantive law violations such as price-fixing cartels. Criminal sanctions are not only imposed upon individual offenders who have actually participated in the cartel meetings, but also through dual punishment, to the corporation in which the offender is an employee. Furthermore, the maximum fine for corporations is set much higher than the maximum fine for the individual offender.

The penal provisions are applied pursuant to a public action upon an accusation of the JFTC and after a court decision. In 1990, the JFTC has announced that it will actively pursue criminal accusation against cartels, group boycotts and other conduct which are vicious and serious and that have a wide spread influence upon the citizen's lives and also which are in industries where violations are repeated.

4. Absolute Liability

The AMA sets forth absolute liability for victims against price-fixing cartels, etc. The right to claim for damages may not be exercised until after the JFTC has reached a decision. Since a decision is a requisite in bringing a suit, the AMA violation established in the decision serves as prima facie evidence under case law. If the defendant is to dispute this issue, the defendant must bring supportive evidence to the contrary.

This system aims to strengthen the right to claim for damages by lessening the victim's burden of proof concerning the violation and, to deter violations by increasing the responsibility of the respondents.

The victims of anticompetitive conduct can also file a civil damages suit, not under the AMA, but in accordance with the Civil Code.

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4. Prevention of Violations

1. Measures for Enhancing Certainty of AMA Enforcement

From the viewpoint of preventing violations of the AMA and maintaining transparency of enforcement, the JFTC makes public the contents of all legal measures and warnings as well as publishes various guidelines to clarify legal interpretations. The guidelines are, for example, "Guidelines Concerning the Activities of Trade Associations", "Guidelines Concerning Distribution Systems and Business Practices", "Guidelines Concerning the Activities of Firms and Trade Associations in Relation to Public Bids" and so forth.

2. Prior Consultation

In order to adequately and efficiently respond to consultation by enterprise and trade associations concerning problems arising under the AMA, the JFTC has established a Consultation and Guidance Office within the Economic Affairs Bureau. In this way, the JFTC is actively engaged in preventing AMA violations.

3. Measures to Prevent Bid-Rigging through Cooperation with the Procuring Agency

In order to prevent bid-rigging, it is very important to gain the cooperation of the procuring agencies. The procuring agencies have designated the accounting division head as liaison officers to provide information to the JFTC concerning potential AMA violations. In order to make even closer the correspondence and cooperation between the JFTC and laison officers, the JFTC has established correspondence meetings.

Furthermore, in order for the procuring agencies to more adequately confirm bid-rigging conduct and gather relevant information, the JFTC has cooperated in implementing training programs for the procurement officers of local governments and others.

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5. Measures for Enhancing Deterrence Against AMA Violation

In order to make the Japanese market more competitive and more internationally open, it is necessary to promote deregulation as well as to further promote free competition within the Japanese economy. To this extent, in addition to strict and active enforcement of the AMA, the JFTC has been enhancing deterrence against AMA violations and strengthening the investigation system.

As for measures to enhance deterrence against AMA violations, the 1991 amendment increased the percentage level for surcharges, and the 1992 amendment increased the upper limits for criminal penalties.

As for strengthening the investigation system, the JFTC has been recently increasing the number of staff member in the Investigation Bureau. Furthermore, in order to strengthen the function of the JFTC, structural reform has been instituted and within the Investigation Bureau, a Special Investigation Department has been established in 1996 in order to handle large scale cases.

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2. Management of Competition Policy

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In order to promote competition, along with enforcing the competition law, active management of competition policy in a broad sense is indispensable.

1. Enlarging the Areas in which Competition Law Applies

1. Minimizing the Scope of the Exemption System

Japan has had various exemption systems (cartels and etc.) from application of the AMA. Although these systems have originally been established to foster and rationalize domestic industries, many of them are loosing their necessity or rationality due to changes in business conditions. Revitalizing the economy through economic structural reforms and realization of open, free and fair competition based on market mechanism and individual self-responsibility is now sought. To this end, along with deregulation, active implementation of competition policy is indispensable. In this respect, Japan has last year abolished or limited 35 systems under 20 laws including import cartels and port-related cartels. In addition, the GOJ is scheduled to submit to the Diet a bill amending the AMA, which would repeal the exemptions for depression and rationalization cartels.

2. Application of State Monopolies and Exclusive Rights

1. Application of State Monopolies

Historically, governments in most countries have played the main role in building the economic sectors (transportation, finance, telecommunications, and public utilities) which form the backbone of their nation's infrastructure. It has been seen inappropriate for private entities to develop such fields outside the supervision of governments due to market failures such as its public nature, existence of economies of scale, and inefficiencies of duplicate investment.

However, technological innovation and the globalization of the economy has made it ever so possible to introduce competition into these fields. The merits of introducing competition into these areas are substantial.

(case) Privatization of Nippon Telegraph and Telephone Public Corporation

In 1985, the GOJ privatized Nippon Telegraph and Telephone Public Corporation (presently, NTT Co., Ltd.). Since 1987, an increase in new entry has invigorated competition. This and the consequent technological innovation has led to a decline in rates and an increase in productivity. As a result, the rate between Tokyo and Osaka (approximately 500Km distance) in 1996 became only 27.5 percent of that in 1985. The total factor productivity (TFP) increased 89% between 1986 and 1995. 41% of the 89% increase in total factor productivity (TFP) between 1986 and 1995, has been brought about by the promotion of competition.

2. Application Towards Exclusive Rights

Since exclusive rights limit the avenue for transactions into one entity, it can easily result in an effect that impedes competition or trade. From this perspective, the JFTC has taken strict enforcement against exclusive rights.

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(case) Pachinko Machine Manufacturers case

(Recommendation Decision issued on August 6, 1997)

Ten Pachinko machine manufacturers holding a large number of patent rights relevant to Pachinko machines manufacture approximately 90% of the Pachinko machines supplied in Japan. Management of the intellectual property rights, including patent rights, was entrusted to an association established by amusement device manufacturers. Since they have effectively participated in granting patent and other licenses, they have excluded the business activity of potential entrants in manufacturing amusement devices by not granting non-exclusive licenses of patent and utility model rights to third parties.

The JFTC determined that this conduct, contrary to the public interest, substantially restrains competition in the field of Pachinko machine manufacturing. Moreover, this conduct was not recognized as a proper exercise of rights under the Patent Act or the Utility Model Act. As a violation under Article 3 of the AMA, the JFTC issued a recommendation and ordered a decision against measures preventing new entry to that market by not licensing patents and other rights related to pachinko manufacturing.

2. Measures Taken for Regulatory Schemes

1. Review of the Governments Regulatory Schemes

There are many industrial sectors in Japan which business activities concerning entry, facilities, volumes, prices, and other factors are regulated by the government for social or economic reasons.

Although it is believed that these regulation policies have played a certain role in the process of developing the Japanese economy, changes in socio-economic conditions have reduced the need for government regulations. Moreover, several government regulations have in face caused problems relating to restraints on competition such as inefficient management, hindrance of entrepreneurial spirit, and promotion of competition restricting behavior.

The "Second Revised Deregulation Action Plan" adopted by the Cabinet in March 1998 states that "In order to facilitate fair and free competition among entrepreneurs at home and abroad and to safeguard the interests of consumers, the following actions will be taken. From the viewpoint of competition policy, the JFTC will actively conduct surveys and make necessary proposals regarding the business fields where entry is restricted by supply-and-demand adjustment regulations and other regulations. Regarding business fields where entry regulations have been relaxed, the JFTC will survey the post-regulation conditions and issue necessary proposals." The role to be played by the JFTC in deregulation is thus very clear.

The JFTC has long been conducting surveys and studies on problems in government regulations and direction of reform from the viewpoint of competition policy. The results of these have been made public and the JFTC has pointed out to the administrative agencies problems in government regulations from the viewpoint of competition policy, and has urged them to review these regulations. In this way, the JFTC has been heavily involved in advocacy of competition policy. Furthermore, the JFTC organizes study groups (made up of academics and other experts) to research and examine competition issues, and publicizes the results in the form of study group reports.

Recently, a study group published a report on domestic air passenger transport in March 1997 and another on the electricity and gas industries in April 1997. Other initiatives to promote competition has also been actively pursued.

The report on the electric power and gas industry, for example, emphasizes the need for comprehensive regulatory reform from three points of view: promoting deregulation, fostering competitive conditions and strictly enforcing the AMA. The report proposes the following reforms with regard to injecting more competition into electric power generation and retailing:

1. Management of the bidding system and reform of the system itself so that it functions as pressure on the power generation division of electric power companies to initiate greater efficiency and cost reductions.
2. Expansion of retail supply, including the active utilization of household power generation, in order to promote direct competition with electric power companies.
3. Legalization of self-consignment and utilization of the wholesale consignment system to promote new entries.

The report also stresses the need for strict enforcement of the AMA in deregulated fields and bottleneck areas.

The report also refers to the following as future issues for discussion: liberalization of retail supply; review and verification of efficiency from vertical integrations of power generation, transmission and distribution, as well as reviewing the proper role of regulation throughd industrial laws taking into account integration between energy sectors.

2. Active Application of the Law to Regulated Industry

Japan's regulatory laws are basically structured in such a way that individual firms are required to, based on their own decisions, make applications to engage in certain business activities. Then the regulatory agencies decide whether to grant approval based on the requirements stipulated by regulatory laws. Even when the regulatory agencies approval is obtained, actions are based on the decisions of the firms themselves, and business activities are not forced by regulatory agencies. Therefore, although business activities can be said to be regulated, a certain level of competition is expected. If this competition is restricted, then the AMA is applied. A typical example is a cartel formed by firms or trade associations to police the content of application for approval (for example, fares). There have been many instances of this type of violation.

(case) the Japan Medical Food Association and Nissin Medical Food Co., Ltd. Case

(Recommendation Decision issued on May 8, 1996)

The Japan Medical Food Association and Nissin Medical Food Co., Ltd. collaborated to restrain competition in sectors dealing in medical food products within Japan by controlling and excluding business activities of enterprises which manufacture or sell hospital food. These actions were made possible because the Association has been designated as the sole hospital food inspection agency by the Minister of Health and Welfare, so that it may implement a manufacturing plant certification system and vendor certification system for hospital food.

The JFTC determined that this conduct, contrary to the public interest, substantially restrains competition in the field of trade concerning medical foods. As a violation under Article 3 of the AMA, the JFTC issued a recommendation and ordered a decision against measures excluding the activities of business attempting to manufacture or sell medical food, and controlling the sales territories, sales prices and sales activities of manufactures and dealers of medical foods.

3. Coordination of the AMA and Other Economic Laws

In Japan, when a bill based on a Cabinet proposal is submitted to the Diet, the customary practice is for government agencies to carry out the necessary coordination in advance. Under this process, when a bill includes exemptions to the AMA or provisions that may cause anticompetitive effects, there is a mechanism for the JFTC, the competition authority, to have its views taken into account.

The non-life insurance sector is a recent example for introducing competition. The Fire and Marine Insurance's Rating Association of Japan until now, calculated the commercial insurance premium rates, and these rates were of mandatory use for members. The Associations actions were also exempt from application of the AMA. The relevant administrative agency has consulted with the JFTC at the stage of planning and drafting of the bill, and the JFTC has made adjustments from the viewpoint that free and fair competition should be promoted. Through a bill to amend the "Law concerning Non-Life Insurance Rating Organization" which was submitted to the ordinary session of the Diet as part of an omnibus bill to reform the financial system, the rating Association way only calculate risk premium rates (with the exception of government intervened specialized insurance). The AMA exemption were also to be abolished. This amendment bill was decided and passed in June and put into effect in July of this year.

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3. Review of Anticompetitive Administrative Guidance

In June 1994, the JFTC publicized "Guidelines for Administrative Guidance under the Antimonopoly Act" in order to clarify its position concerning administrative guidance with respect to the AMA. This guideline is based on cases where the JFTC has already coordinated with the administrative agencies concerned and cases investigated for AMA violations. The aim was to prevent administrative agencies from distorting free and fair competition and from inducing the AMA violations.

Recently, with respect to regulated industries, deregulation has increased the area in which competition functions, which means that the AMA functions on a wider scale than before.

(case) Administrative Coordination for Opening Health and Medical Service Facilities for the Elderly

From the viewpoint of ensuring cooperation between healthcare facilities for the elderly and general medical services, several local governments have requested enterprise to submit, as part of the application document, written opinions of local medical associations concerning the healthcare facilities, when granting approval for opening healthcare facilities for the elderly. This approval authority is based on the "Health and Medical Service Law for the Elderly."

Due to concern that this kind of management could encourage relations among firms which might conflict with the AMA, the JFTC requested that the Ministry of Health and Welfare issue a memorandum to local governments, stating that the written opinions of local medical associations were no longer necessary as application documents. A memorandum was subsequently issued as a result of this administrative coordination. There has been a cabinet decision stating that, the relevant ministries will have sufficient prior consultation with the JFTC to ensure that government regulations are not replaced by anti-competitive administrative guidance after deregulation.

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