JAPAN BIZLAW LITE 4 GAIJIN
FAIR COMPETITION LAWS
Rules governing fair competition in market mechanism is a major principle in a free economy. The Antimonopoly Law is the law that is the keystone to supporting healthy competition among businesses. This trend is now embedded in the legal conciousness of the US and Europe. Japan's well known development under an umbrella of government guided "industrial policy" tended to restrict competition. As the world globalizes, Japan must further integrate into the legal trends as well. Many in the West already have called tendencies in Japan to restrict compention as unfair and characterizes a closed market. Nevertheless, Japan does have an Antimonopoly Law administered by a Fair Trade Commission which does from time to time take action, sometimes painful actions.
Laws Protecting Fair Competition.
The Antimonopoly Law serves to promote fair and free competition and strives to exclude activities by corporations that work to hinder such principles. It also serves the important role of showing the boundaries between suitable competition and unfair competition in daily business life. Until recently the Antimonopoly Law has served more as an administrative law seeking to remedy situations of unfair competition. However, as the US has been pressuring Japan for transparency there is continuing movement to increase the power of the Fair Trade Commission for investigations and imposing sanctions on violating corporations.
As laws supplementary to the Antimonopoly Law there is the Law Prohibiting the Delayed Payments, etc to Subcontractors as well as the Law Prohibiting the Unfair Giveaways and Unfair Manifestations/Labelling.
Another law, separate from the Antimonopoly Law is the Law Prohibiting Unfair Competition. This is a law applying domestically in Japan to activities classified as unfair under international treaties, such as making counterfeit goods, using foreign trademarks without permission, unfairly using business secrets and bribing foreign government officials. However, this is a law restricting unfair competition among corporations, and as such consumers and consumers groups have no standing (no ability) to make complaints (leaving it to the Fair Trade Commission).
The Antimonopoly Law employs santions such as the imposition of administrative orders, criminal penalties and compensation for damages.
In the market mechanism of free economies new value is given to consumers based on price and quality competition by businesses, benefitting the welfare of the people and is tied to the growth of the economy.
Many believe that if a non-competitive environment takes hold, it weakens international competitiveness and invites economic stagnation. The Antimonopoly Law serves to avoid this situation and seeks to protect the interest of consumers and to seek a healthy democratic development of the economy. Nevertheless, even if there is a violation of the Antimonopoly Law, concrete evidence of damage may not be clear. In addition, what exactly constitutes unfair competition is not always clear because clear standards are few. Thus even perpetrators may not even be aware that they are violating the law. Yet, even as markets themselves and corporations become globalized getting a reputation for being unfair may prove fatal for the business. Thus it is important that due heed be given to not deviating from the rules of competition as a market participant.
The Role of the Fair Trade Commission
The Fair Trade Commission was established as an institution extablished to achieve the objectives of the Antimonopoly Law. It is made up of 5 members from business and academia. It is empowered to conduct investigations, issue orders and hold judicial like hearings. The Fair Trade Commission receives complaints from consumers or businesses and can initiate investigations on its own right. Upon investigating the facts it can issue advisory opinions or initiate judicial like procedures. Cease and desist measures can be issued against violations. These cease and desist orders are dispositions in a format like administrative courts.
With respect to price cartels in particular, it can impose penalties to recover unjust profits. It can make recommendations to government prosecutors for the filing of crminal cases.
In Japan the government has often take the lead role in industrial policy and administrative guidance, so that the application of the Antimonopoly Law is relatively flexible. The government has often even led the establishment of many kinds of cartels. This has in the past given the Fair Trade Commission a reputation for being toothless.
However, greatly due to trade demands made by the USA seeking market opening measures there are moves being made to strengthen penalties against violators and strengthening of the Fair Trade Commission.
The Three Prescriptions of the Antimonopoly Law
There are three prescriptions of the Antimonopoly Law which serve to achieve the law's objectives of protecting consumer interests and the democratic development of the economy.
1. The Prohibition Against Private Monopolies
Contrary to the public's interests, by controlling or excluding business competitors, transactions in certain areas have been restricted.
2. Restrictions on Unfair Transactions
Contrary to the public's interest, to substantially restrict competition in certain areas, based on agreements to restrict prices, volume or customers.
3. Unfair Business Methods
Actions designated by the Fair Trade Commission as giving rise to concerns over hindering fair competition. At present there are 16 such designations such as resale price maintenance, and abuse of superior position
There are also restrictions on monopolistic conditions and restrictions on concentration of business control. The Fair Trade Commission can order remedial measures to restore competition when it finds monopolistic conditions, which is defined as one company having a 50% market share or 2 companies which have a combined market share of 75% so long as the total domestic supply is valued at 100 billion yen or more. Restrictions are also placed on concentration of business control which hinders the market mechanism. Areas where the FTC gives close scrutiny include mergers, corporate split-ups, shareholdings and directors holding multiple positions at different companies.
Prohibitions on Restrictive Trade Practices (Cartels)
Exchange of information among competitors.
A manufacturing company's manager attends a monthly meeting of industry companies. At the meeting, although the companies do not promise to maintain certain prices, but they do exchange market pricing information. Would this kind of activity violate the law?
A representation of restrictive trade practices is cartels where there are restraints by competing companies. Cartels is where companies in competing relationships give indications among themselves and mutually restrain themselves on prices, sales volume, production volumes, production capacity, and customers, etc. This is an activity which substantially restrains trade in certain areas and decreases free trade. Although the mere exchange of information may not turn on alarm bells, once the competing firms agree to restrain trade in some way, there is legal danger. The Supreme Court of Japan has specifically found that after a group of competitors had some contacts they all raised their prices, there was the prohibited collusion.
Accordingly, as these business or industry associations have, as their very nature, implicit possiblities of cartel like activity, they must register themselves with the Fair Trade Commission within 30 days of their formation or dissolution. In addition, the Fair Trade Commission has in fact issued guidelines on the permitted activities of these business or industry associations.
The Onerous Liability on Cartels
Many corporations have engaged in illegal activities by forming cartels, and then initiating price increases, dividing up markets, restricting discounts, restricting sales volumes, determining shares of sales, deciding bidders on bids (bidd-rigging) or arranging to take turns on bids. Similar problems arise on production adjustment cartels or procurement cartels. Where there has been an illegal cartel, in addition to the Fair Trade Commission issuing orders such as a cease and desist order, or imposing penalties. On top of that, criminal cases may be filed and compensatory damages pursued.
If the Fair Trade Commission initiates a quasi-judicial hearing and the existence of a cartel can be confirmed, the company can be banned from participating in national and local government project bids. In face concious Japan, the company's image by such activities can be severely damaged.
Liability on Consultations/Bid Rigging
Consultations/bid rigging happens when the national government or local government organizations put out projects for competitive bids, but several companies in competitive positions give indications among themselves on biding parties, bidding prices etc. This is one kind of cartel and thus this kind of activity is in violation of the Antimonopoly Law. In addition, the people conducting these activities can be criminally charged with the crime of bid rigging. An amendment to the Antimonopoly Law in 2001 give civilians as well, the ability to seek an injunction or compensatory damages when they suspect that bid rigging is going on. In fact there has been an increase in the number of cases filed by civilians instead of government organizations against these violating corporations. There has also been a number of cases where disgruntled employees have spilled the beans on these kinds of activities. Since this kind of activity is dangerous for both the company and the individuals involved, it is critical that this kind of activity be cut off.
In these bids for national or local government bidding, if a government official directly or indirectly participates in the bid rigging process it is now in violation of the law since the enactment in 2003 of the Law Concerning the Exclusion and Prohibtion of Contributory Activity in Bid Rigging. That law makes clear the sanctions against such government employee violators.
RESTRICTIONS ON UNFAIR TRANSACTIONS
Restrictions on Resale Price Maintenance Activities
Right up their in the categories violating the Antimonopoly Law together with private monopolies and cartels is "Unfair Trade Practices."
Although unfair trade practices primarily involve illegal activities in the relationship between buyers and sellers, it does not apply where it involves transactions between a company and a subsidiary it majority owns.
One of the examples of unfair trade practices is resale price maintenance. In a free economy, prices should be established by free competition. Accordingly, when a maker tells a retailer that it can not sell its products below a certain price, or above a certain price, then there is a violation of the Antimonopoly Law. Thus many companies put on their products "recommended retail price" or "standard sales price" instead of "fixed price" precisely because of these legal concerns.
Nevertheless, the Antimonopoly Law itself excludes the application of the prohibition against resale price maintenance for a number products, including, among others, newspaper, magazines, books, records/cds, over-the-counter drugs, and some cosmetics.
Dumping and Sales with Giveaways
As a result of market competition, it is natural that products are sold at low prices. Nevertheless, when a company continuously sells products at low prices in order to drive out a competitor or to make the business of a competitor difficult it could be classified as an unfair trade practice. This is called dumping. The reason that this kind of dumping is said to be unfair is that after the competitor is driven out of the market, the surviving company may then raise prices after monopolozing the market. As to whether the sales price is too low, the general determination is whether the sales price is lower than the company's costs for the product. Yet the mere selling of a product below its costs in and of itself does not prove dumping as other factors must be taken into consideration. For example, if there is a rational reason such as adjusting excess inventory, there should be no problem. But if the objective is to drive out the competitor or make operations for a competitor difficult, that is another matter.
There is also the matter of "unfair customer inducements." For example, if a company makes a claim of "30% off market prices" when it is actually at the same level as the market price, then that constitutes an unfair customer inducement. Likewise, if a company gives away a wall sized liquid crystal display tv to all those buying air conditioners, it is completely out of balance and constitutes an unfair customer inducement. The law more closely covering this kind of activity is the Law Prohibiting the Unfair Giveaways and Unfair Manifestations/Labelling Law.
Restrictions on Regions or on to Whom One Can Sell
For most businesses, the building up of a retail network is of critical importance. However, in making contracts with these retailers, one must be careful not to be too restrictive in the conditions imposed for selling ones products as it could constitute an unfair trade practice. These are called transactions with restrictive conditions. Examples of such violating transactions could include strictly restricting the areas in which one can sell products, or to whom one can sell the products and permitting no exceptions. Or, even if a shop is not a specialty shop, refusing to do business with the shop if they deal in the products of competitors, or giving rebates conditioned on not dealing in the products of competitors.
On the other hand, there are situations where it is the seller that has the upper hand and they must take care as well not to illegally abuse their position. Violations might be found for example where the retailer tells a maker that for a certain time period, or in a certain region, the maker can not sell certain products through a competitor.
Restricting Subcontracting Transactions
The Antimonopoly Law prohibits as an "unfair trade practice" a company in a stronger position making unfair transactions with a company in a weaker position. This is more specifically called "abuse of position."
There has also been enacted the Law Prohibiting the Delayed Payment of Subcontractors such that one can easily judge one type of abuse of position. According to that law, where the parties fall under certain categories (primarily involving large differences in the size of capital of the two firms), then for subcontracting transactions between the parties, limited to manufacturing subcontracting, subcontracting repairs, subcontracting the preparation of data results, and subcontracting the provision of services, then the ordering company must make the orders in a written format that can be preserved, stored for 2 years and the ordering company must make payment within 60 days of delivery of the contracted matter. From time to time, the Fair Trade Commission or the Ministry of Economy, Trade and Industry can examine these documents. The law also prohibits the ordering company from unilaterally making cancellations, refusing to accept deliveries, or force the subcontractor to buy or use certain equipment or dispatch workers or pay cooperation assistance monies.
Rules governing fair competition in market mechanism is a major principle in a free economy. The Antimonopoly Law is the law that is the keystone to supporting healthy competition among businesses. This trend is now embedded in the legal conciousness of the US and Europe. Japan's well known development under an umbrella of government guided "industrial policy" tended to restrict competition. As the world globalizes, Japan must further integrate into the legal trends as well. Many in the West already have called tendencies in Japan to restrict compention as unfair and characterizes a closed market. Nevertheless, Japan does have an Antimonopoly Law administered by a Fair Trade Commission which does from time to time take action, sometimes painful actions.
Laws Protecting Fair Competition.
The Antimonopoly Law serves to promote fair and free competition and strives to exclude activities by corporations that work to hinder such principles. It also serves the important role of showing the boundaries between suitable competition and unfair competition in daily business life. Until recently the Antimonopoly Law has served more as an administrative law seeking to remedy situations of unfair competition. However, as the US has been pressuring Japan for transparency there is continuing movement to increase the power of the Fair Trade Commission for investigations and imposing sanctions on violating corporations.
As laws supplementary to the Antimonopoly Law there is the Law Prohibiting the Delayed Payments, etc to Subcontractors as well as the Law Prohibiting the Unfair Giveaways and Unfair Manifestations/Labelling.
Another law, separate from the Antimonopoly Law is the Law Prohibiting Unfair Competition. This is a law applying domestically in Japan to activities classified as unfair under international treaties, such as making counterfeit goods, using foreign trademarks without permission, unfairly using business secrets and bribing foreign government officials. However, this is a law restricting unfair competition among corporations, and as such consumers and consumers groups have no standing (no ability) to make complaints (leaving it to the Fair Trade Commission).
The Antimonopoly Law employs santions such as the imposition of administrative orders, criminal penalties and compensation for damages.
In the market mechanism of free economies new value is given to consumers based on price and quality competition by businesses, benefitting the welfare of the people and is tied to the growth of the economy.
Many believe that if a non-competitive environment takes hold, it weakens international competitiveness and invites economic stagnation. The Antimonopoly Law serves to avoid this situation and seeks to protect the interest of consumers and to seek a healthy democratic development of the economy. Nevertheless, even if there is a violation of the Antimonopoly Law, concrete evidence of damage may not be clear. In addition, what exactly constitutes unfair competition is not always clear because clear standards are few. Thus even perpetrators may not even be aware that they are violating the law. Yet, even as markets themselves and corporations become globalized getting a reputation for being unfair may prove fatal for the business. Thus it is important that due heed be given to not deviating from the rules of competition as a market participant.
The Role of the Fair Trade Commission
The Fair Trade Commission was established as an institution extablished to achieve the objectives of the Antimonopoly Law. It is made up of 5 members from business and academia. It is empowered to conduct investigations, issue orders and hold judicial like hearings. The Fair Trade Commission receives complaints from consumers or businesses and can initiate investigations on its own right. Upon investigating the facts it can issue advisory opinions or initiate judicial like procedures. Cease and desist measures can be issued against violations. These cease and desist orders are dispositions in a format like administrative courts.
With respect to price cartels in particular, it can impose penalties to recover unjust profits. It can make recommendations to government prosecutors for the filing of crminal cases.
In Japan the government has often take the lead role in industrial policy and administrative guidance, so that the application of the Antimonopoly Law is relatively flexible. The government has often even led the establishment of many kinds of cartels. This has in the past given the Fair Trade Commission a reputation for being toothless.
However, greatly due to trade demands made by the USA seeking market opening measures there are moves being made to strengthen penalties against violators and strengthening of the Fair Trade Commission.
The Three Prescriptions of the Antimonopoly Law
There are three prescriptions of the Antimonopoly Law which serve to achieve the law's objectives of protecting consumer interests and the democratic development of the economy.
1. The Prohibition Against Private Monopolies
Contrary to the public's interests, by controlling or excluding business competitors, transactions in certain areas have been restricted.
2. Restrictions on Unfair Transactions
Contrary to the public's interest, to substantially restrict competition in certain areas, based on agreements to restrict prices, volume or customers.
3. Unfair Business Methods
Actions designated by the Fair Trade Commission as giving rise to concerns over hindering fair competition. At present there are 16 such designations such as resale price maintenance, and abuse of superior position
There are also restrictions on monopolistic conditions and restrictions on concentration of business control. The Fair Trade Commission can order remedial measures to restore competition when it finds monopolistic conditions, which is defined as one company having a 50% market share or 2 companies which have a combined market share of 75% so long as the total domestic supply is valued at 100 billion yen or more. Restrictions are also placed on concentration of business control which hinders the market mechanism. Areas where the FTC gives close scrutiny include mergers, corporate split-ups, shareholdings and directors holding multiple positions at different companies.
Prohibitions on Restrictive Trade Practices (Cartels)
Exchange of information among competitors.
A manufacturing company's manager attends a monthly meeting of industry companies. At the meeting, although the companies do not promise to maintain certain prices, but they do exchange market pricing information. Would this kind of activity violate the law?
A representation of restrictive trade practices is cartels where there are restraints by competing companies. Cartels is where companies in competing relationships give indications among themselves and mutually restrain themselves on prices, sales volume, production volumes, production capacity, and customers, etc. This is an activity which substantially restrains trade in certain areas and decreases free trade. Although the mere exchange of information may not turn on alarm bells, once the competing firms agree to restrain trade in some way, there is legal danger. The Supreme Court of Japan has specifically found that after a group of competitors had some contacts they all raised their prices, there was the prohibited collusion.
Accordingly, as these business or industry associations have, as their very nature, implicit possiblities of cartel like activity, they must register themselves with the Fair Trade Commission within 30 days of their formation or dissolution. In addition, the Fair Trade Commission has in fact issued guidelines on the permitted activities of these business or industry associations.
The Onerous Liability on Cartels
Many corporations have engaged in illegal activities by forming cartels, and then initiating price increases, dividing up markets, restricting discounts, restricting sales volumes, determining shares of sales, deciding bidders on bids (bidd-rigging) or arranging to take turns on bids. Similar problems arise on production adjustment cartels or procurement cartels. Where there has been an illegal cartel, in addition to the Fair Trade Commission issuing orders such as a cease and desist order, or imposing penalties. On top of that, criminal cases may be filed and compensatory damages pursued.
If the Fair Trade Commission initiates a quasi-judicial hearing and the existence of a cartel can be confirmed, the company can be banned from participating in national and local government project bids. In face concious Japan, the company's image by such activities can be severely damaged.
Liability on Consultations/Bid Rigging
Consultations/bid rigging happens when the national government or local government organizations put out projects for competitive bids, but several companies in competitive positions give indications among themselves on biding parties, bidding prices etc. This is one kind of cartel and thus this kind of activity is in violation of the Antimonopoly Law. In addition, the people conducting these activities can be criminally charged with the crime of bid rigging. An amendment to the Antimonopoly Law in 2001 give civilians as well, the ability to seek an injunction or compensatory damages when they suspect that bid rigging is going on. In fact there has been an increase in the number of cases filed by civilians instead of government organizations against these violating corporations. There has also been a number of cases where disgruntled employees have spilled the beans on these kinds of activities. Since this kind of activity is dangerous for both the company and the individuals involved, it is critical that this kind of activity be cut off.
In these bids for national or local government bidding, if a government official directly or indirectly participates in the bid rigging process it is now in violation of the law since the enactment in 2003 of the Law Concerning the Exclusion and Prohibtion of Contributory Activity in Bid Rigging. That law makes clear the sanctions against such government employee violators.
RESTRICTIONS ON UNFAIR TRANSACTIONS
Restrictions on Resale Price Maintenance Activities
Right up their in the categories violating the Antimonopoly Law together with private monopolies and cartels is "Unfair Trade Practices."
Although unfair trade practices primarily involve illegal activities in the relationship between buyers and sellers, it does not apply where it involves transactions between a company and a subsidiary it majority owns.
One of the examples of unfair trade practices is resale price maintenance. In a free economy, prices should be established by free competition. Accordingly, when a maker tells a retailer that it can not sell its products below a certain price, or above a certain price, then there is a violation of the Antimonopoly Law. Thus many companies put on their products "recommended retail price" or "standard sales price" instead of "fixed price" precisely because of these legal concerns.
Nevertheless, the Antimonopoly Law itself excludes the application of the prohibition against resale price maintenance for a number products, including, among others, newspaper, magazines, books, records/cds, over-the-counter drugs, and some cosmetics.
Dumping and Sales with Giveaways
As a result of market competition, it is natural that products are sold at low prices. Nevertheless, when a company continuously sells products at low prices in order to drive out a competitor or to make the business of a competitor difficult it could be classified as an unfair trade practice. This is called dumping. The reason that this kind of dumping is said to be unfair is that after the competitor is driven out of the market, the surviving company may then raise prices after monopolozing the market. As to whether the sales price is too low, the general determination is whether the sales price is lower than the company's costs for the product. Yet the mere selling of a product below its costs in and of itself does not prove dumping as other factors must be taken into consideration. For example, if there is a rational reason such as adjusting excess inventory, there should be no problem. But if the objective is to drive out the competitor or make operations for a competitor difficult, that is another matter.
There is also the matter of "unfair customer inducements." For example, if a company makes a claim of "30% off market prices" when it is actually at the same level as the market price, then that constitutes an unfair customer inducement. Likewise, if a company gives away a wall sized liquid crystal display tv to all those buying air conditioners, it is completely out of balance and constitutes an unfair customer inducement. The law more closely covering this kind of activity is the Law Prohibiting the Unfair Giveaways and Unfair Manifestations/Labelling Law.
Restrictions on Regions or on to Whom One Can Sell
For most businesses, the building up of a retail network is of critical importance. However, in making contracts with these retailers, one must be careful not to be too restrictive in the conditions imposed for selling ones products as it could constitute an unfair trade practice. These are called transactions with restrictive conditions. Examples of such violating transactions could include strictly restricting the areas in which one can sell products, or to whom one can sell the products and permitting no exceptions. Or, even if a shop is not a specialty shop, refusing to do business with the shop if they deal in the products of competitors, or giving rebates conditioned on not dealing in the products of competitors.
On the other hand, there are situations where it is the seller that has the upper hand and they must take care as well not to illegally abuse their position. Violations might be found for example where the retailer tells a maker that for a certain time period, or in a certain region, the maker can not sell certain products through a competitor.
Restricting Subcontracting Transactions
The Antimonopoly Law prohibits as an "unfair trade practice" a company in a stronger position making unfair transactions with a company in a weaker position. This is more specifically called "abuse of position."
There has also been enacted the Law Prohibiting the Delayed Payment of Subcontractors such that one can easily judge one type of abuse of position. According to that law, where the parties fall under certain categories (primarily involving large differences in the size of capital of the two firms), then for subcontracting transactions between the parties, limited to manufacturing subcontracting, subcontracting repairs, subcontracting the preparation of data results, and subcontracting the provision of services, then the ordering company must make the orders in a written format that can be preserved, stored for 2 years and the ordering company must make payment within 60 days of delivery of the contracted matter. From time to time, the Fair Trade Commission or the Ministry of Economy, Trade and Industry can examine these documents. The law also prohibits the ordering company from unilaterally making cancellations, refusing to accept deliveries, or force the subcontractor to buy or use certain equipment or dispatch workers or pay cooperation assistance monies.
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