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06 December 2018
As a result of recent amendments to the Anti-monopoly Act (AMA), from 1 January 2019 the Japan Fair Trade Commission (JFTC) will have the power to accept voluntary commitments from companies suspected of having infringed the AMA. At present, the JFTC can resolve cases only through findings of infringement, either by issuing cease and desist orders or by imposing fines. The changes will formally give the JFTC greater flexibility to deal with suspected infringement cases and align its powers with those of other competition authorities. However, in practice, the changes could have significant implications for the way in which the JFTC deals with both infringement and merger control cases.
The amendments follow Japan's ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) treaty, which requires each signatory to "authorise its national competition authorities to resolve alleged violations voluntarily by consent of the authority and the person subject to the enforcement action". At the same time, the amendments reflect a general trend over the past several years of providing the JFTC with greater flexibility in enforcement.
The amendments are due to enter into force together with the CPTPP itself at the beginning of 2019, after Australia became the sixth of 11 signatories to ratify the treaty on 31 October 2018. In the meantime, the JFTC has been finalising a set of more detailed guidelines on the commitment decision procedure, following a recent public consultation.
Based on the guidelines, the procedure appears to follow a similar course to the EU commitment decision procedure.
The JFTC can initiate the procedure by issuing a written notification to companies under investigation, setting out an overview of its concerns and inviting them to offer commitments. Companies will then have 60 days to offer proposed commitments and demonstrate that the suspected infringement has ceased. Companies under investigation will also be able to proactively approach the JFTC to explore the possibility of resolution by commitments. In either event, companies will not need to acknowledge the existence of an infringement in order to take advantage of the procedure.
As in the European Union, so-called 'hardcore' conduct (in particular, cartel conduct or bid rigging) will not be eligible for commitment decision treatment due to the overriding benefit of deterrence. The JFTC has also indicated that it will exclude cases involving criminal violations and cases where the company under investigation has carried out an infringement of the AMA in the previous 10 years (although the scope of this exclusion is arguably quite wide, catching entirely unrelated past conduct).
In order to be accepted by the JFTC, commitments offered by companies must be both sufficient to address the JFTC's concerns and capable of being implemented in practice. Notably, the guidelines indicate that this may include reimbursements to companies that have been subject to overcharging or bundling, in lieu of a public fine. This may well influence the incentives for companies to report potentially abusive behaviour to the JFTC.
The JFTC may market test and seek public comments on proposed commitments in order to determine whether they are capable of meeting these criteria, although this will not be mandatory as in the European Union. As yet, the JFTC has provided no additional guidance on the circumstances in which market testing will be appropriate.
However, where the JFTC takes a commitment decision, the guidelines require it to announce the decision and provide a public summary of the commitments accepted. Notably, this decision will not amount to a finding of infringement in respect of the conduct addressed by the commitments, potentially rendering the JFTC's decision less useful to claimants in follow-on damages claims.
Unlike in the European Union, the JFTC will be unable to penalise companies that fail to comply with their commitments; instead it can only revoke its decision and resume its earlier investigation.
As a unique deviation from the European Commission commitment system, the JFTC has taken the position that the commitments system under the guidelines applies equally to merger review. The JFTC has an existing power to impose remedies on merging parties, which is currently subject to informal consultation with them in accordance with a less formalised procedure and timeline. However, the more formal process under the commitment guidelines has several potential benefits over the existing system, including the 60-day window to negotiate commitments and a generally more formalised and transparent process, which may make it more attractive in complex cases.
Notably, the JFTC appears to intend to keep the existing system for remedies in parallel to the new commitment system. Companies should thus carefully evaluate the practical advantage of using the new system and how the JFTC presents its preference between them in actual cases.
Although subject to debate, commitment decisions in the European Union have largely been successful and demonstrated clear benefits for both the European Commission and companies under investigation. For the European Commission, the process is more efficient and leads to quicker resolutions. Simultaneously, companies under investigation can avoid substantial fines, while the absence of a finding of infringement limits their exposure to damages claims. Although the commitment decision procedure was originally introduced as an alternative to prohibition decisions, commitment decisions represent almost two-thirds of all European Commission antitrust decisions issued since 2003.
The procedure has also made it easier for the European Commission to resolve cases where the legal grounds of an infringement are less solid. The JFTC has traditionally focused on hardcore infringements that it is sure to prove. If, as in the European Union, the JFTC can rely on commitments to resolve less clear-cut cases, there may be a greater shift towards abuse of dominance and unilateral conduct cases. Conversely, this could also lead to a loss in legal certainty without explicit findings of infringement.
Companies given the opportunity to offer commitments in future investigations and merger cases will need to carefully weigh up the advantages and disadvantages of doing so.
For further information on this topic please contact Kaori Yamada or Joel Rheuben at Freshfields Bruckhaus Deringer LLP by telephone (+81 3 3584 8500) or email (email@example.com or firstname.lastname@example.org). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
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