Japan Fair Trade Commission

Competition Policy -The Japanese experience-

24 March 2015

Hiroyuki ODAGIRI Commissioner Japan Fair Trade Commission

Japan Fair Trade Commission History • 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

2 Japan Fair Trade Commission The Number of Staff and Budget of the JFTC

The Number of Staff and Budget of JFTC

The Number of staff Budget [million Transferred the Act against yen] Unjustifiable Premiums and 1000 Misleading Representations to 9,500 Consumer Affairs Agency 950 8,962 8,915 9,000 8,742 8,802 900 8,682 8,416 8,446 8,338 8,500 850 823 8,131 795 791 799 799 800 779 Number of staff 7,853 7,819 765 8,000 7,686 Budget 750 737 706 7,500 700 672 643 650 7,000 607 600 6,500 550

500 6,000 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 Including 12 lawyers and 3 economists as fixed-term members

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Enforcement

Surcharge Amount 5years-average (million yen)

45000 40000 35000

30000 Surcharge

25000 Amount 5years- 20000 average (million yen) 15000 10000 5000 0 1978 ～1983 ～1988 ～1993 ～1998 ～2003 ～2008 ～2013

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

Promotion of fair and free competition Prohibition of behavior Prevention of excessive that falls under concentration of corporate violations power Private Unreasonable Unfair trade Merger regulation monopolization restraint of trade practices

Stimulation of Heightening the level of Encouragement of initiatives of employment and Business activities enterprises people’s actual income

Development of a democratic Assuring interests for and wholesome national general consumers economy

5 Japan Fair Trade Commission Structure of the Antimonopoly Act Three Pillars Any behavior that substantially Private Unreasonable restraints competition in any 1 monopolization restraint of trade particular field of trade is prohibited.

• Private monopolization (e.g. exclusion of competitors), • Unreasonable restraint of trade = Hard-core cartel (e.g. price fixing, output restriction, market division, bid rigging) Any behavior that tends to impede 2 Unfair trade practices fair competition is prohibited.

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

Preventive Any merger that substantially 3 Merger regulation regulation restraints competition in any (prior notification particular field of trade is prohibited. is required) 6 Japan Fair Trade Commission

Legal measures against violations of AMA

Conducts Legal Measures

Cease and Desist Order Private Monopolization Surcharge Payment Order Criminal Accusation

Cease and Desist Order Unreasonable Restraint of Trade Surcharge Payment Order (Price fixing cartel /Bid-rigging, etc.) Criminal Accusation Cease and Desist Order Unfair Trade Practices Surcharge Payment Order* Anticompetitive Merger Cease and Desist Order

*Only certain types of Unfair Trade Practices

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The JFTC’s Priorities

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

○ Enhancement of advocacy activities to improve competitive environment

○ Promotion of international cooperation to cope with globalized business activities

8 Japan Fair Trade Commission Recent cases Bid rigging, price-fixing cartels ○ 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

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Unfair trade practices : Abuse of superior bargaining position

○ 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 )

10 Japan Fair Trade Commission Globalization and competition policy • 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?

11 Japan Fair Trade Commission Case1. Marin Hose On-the-spot May 7,2007 inspection (Coordination with: DOJ, EC, etc.) Date of order February 22, 2008

Violators Bridgestone Corporation (Japan/✓/2,380,000yen), Dunlop Oil & (location/ cease Marine Limited (UK/✓/－), Trelleborg Industries SAS (France/✓/ and desist － ✓ － order/surcharge ), Parker ITR S.r.l. (Italy/ / ), Manuli Rubber Industries S.p.A payment order) (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

12 Japan Fair Trade Commission Case2. Wire Harness

On-the-spot February 24, 2010 inspection （Coordination with DOJ, EC, etc.） Date of order January 19,2012 Violators Yazaki Corporation（Japan/✓/9,607,130,000yen） (location/ cease Sumitomo Electric Industries Ltd.（Japan/－/2,102,220,000yen） and desist Fujikura Ltd.（Japan/✓/1,182,320,000yen） order/surcharge Furukawa Electric Co., Ltd.（Japan/－/－） payment order) Illegal The violators substantially restrained competition in the field of automotive wire harness and related products ordered by automobile conducts manufacturers (Toyota, Daihatsu, Honda, Nissan and Subaru) by jointly designating winning bidders and collaborating to have them win the biddings.

13 Japan Fair Trade Commission Case3. Automotive Parts 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. Automobile Products Violators companies Honda Mitsubishi, Denso Generators Suzuki Mitsubishi, Hitachi Automotive , Hitachi, Denso Honda Mitsuba, Mitsubishi, Denso Starters Suzuki Mitsubishi, Hitachi Automotive, Hitachi, Denso Suzuki Mitsuba, Denso Windshield wiper Nissan Mitsuba, Denso systems Fuji (Subaru) Mitsuba, Denso Radiators and Honda T.RAD, Denso electrical fans Fuji (Subaru) Calsonic Kansei, Denso 14 Japan Fair Trade Commission Wire Harness case, Automotive Parts case + Headlamps and Rear Combination Lamps case + Bearing case

Headlamp Windshield Wiper system Rear Combination Lamp

Generator

Wire Harness Starter Bearing Radiator Electrical Fan 15 Japan Fair Trade Commission Case4. International Ocean Shipping On-the-spot September 6, 2012 inspection （Coordination with DOJ etc.） Date of order March 18, 2014 Violators Nippon Yusen Kabushiki Kaisha （Japan/✓/13,101,070,000yen） (location/ cease and Kawasaki Kisen Kaisha, Ltd.（Japan/✓/5,698,390,000yen） desist order/surcharge （ ✓ ） payment order) 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 (1) The violators fixed freight rate and/or colluded freight rate quotations to submit to consignors among those who have trade with conducts the same consignors; and (2) refrained from bidding against one another for the purpose of securing incumbent trades.

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 16 Japan Fair Trade Commission

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

①Requests for freight rate quotations

② Negotiation between violators and consignors Consignors （Automobile companies Violators ③Decision on freight rates and trading companies located in Japan）

（１） The Violators fixed freight rates and/or （２） The Violators refrained from bidding colluded freight rate quotations to submit to against one another for the purpose of consignors among the violators who have securing the incumbent trades. trade with the same consignors at negotiating Don`t submit with the consignors. lower freight A rates than mine Why don’t we おｓ to Automobile submit the same D Company Y. freight rates as last year to Sure. Automobile Companies X? C B O.K. A C 17 17 Japan Fair Trade Commission Case5. Cathode Ray Tubes (case of international division of labor) On-the-spot November 8, 2007 inspection (Coordination with :DOJ, EC, etc) Date of order October 7, 2009 Violators MT Picture Display Co.,Ltd.(Japan/✓/－) ,MT Picture Display (Malaysia) Sdn. Bhd. (location/ cease (Malaysia/－/650,830,000 yen) , PT. MT Picture Display Indonesia(Indonesia/－ and desist /580,270,000 yen), MT Picture Display (Thailand) Co., Ltd. (Thailand/－/566,140,000 order/surcharge yen), Samsung SDI Co., Ltd.(Korea/✓/－), Samsung SDI (Malaysia) payment order) 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

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Suppliers of the CRTs for Television Customers for the CRTs for Television

Violators (5 Parent Companies) Japanese manufacturing and sales companies : companies manufacturing and selling of CRT televisions the CRTs for television located in Japan, South Korea, Taiwan etc.

②Negotiations for the prices for the CRTs for Television, based on the price decided by ①

①Jointly set Instruct the purchase price ③Instruct the sale price minimum target prices decided by ② decided by ② for CRTs for Television ⑤Sell the CRT among the violators televisions

Violators (6 Subsidiaries) Overseas manufacturing subsidiaries of (manufacturing base of the CRTs ④Sale of the CRTs for Japanese manufacturing and sales companies for Television located in Television at the price of CRT televisions （ Southeast Asia ） instructed by ③ manufacturing base of the CRT televisions located in Southeast Asia ）

【 Indonesia, Singapore, Thai, Philippines, Vietnam, Malaysia 】

In the Southeast Asia 19 Japan Fair Trade Commission

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-

21 Japan Fair Trade Commission Advocacy activities 1 – Electricity market “Policy on Regulatory and Institutional Reform in the Energy Sector” The Cabinet decision (April 3, 2012) 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. 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

22 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.

Government reform plan is in progress Step 3: Legal separation between Step 1: Step 2: electricity generators and Expanding use of Liberalization of the distributors, and abolishing retail the nationwide retail electricity price regulations grid (by 2015) sector (by 2016) (by 2020) (under discussion) 23 Japan Fair Trade Commission Advocacy activities 2 – Childcare Sector Study Report on Childcare Sector (June 2014)

○ 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)

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 -

25 Japan Fair Trade Commission Japan Fair Trade Commission

• 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).

26 Japan Fair Trade Commission Japan Fair Trade Commission Patent Pool • 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

• 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

27 Japan Fair Trade Commission Standard Setting • 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

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Appendix:

Amendments to the Antimonopoly Act

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Before 2005 amendment 2009 amendment 2013 amendment 2005 amendment (unenforced) Expanding Expanding target conduct target conduct Surcharge Base rate: 6% Raising base rate : 10% Repeat offense Offense leader : add 50% : add 50% Revising Leniency program leniency program

Criminal Exclusive right for Criminal Raising maximum Investigative Making Prior criminal accusation investigative power jail term Procedure power more sufficient Abolition of and transparent Recommendation recommendation system Procedures system for hearing Hearing prior to Final Prior procedure procedure Administrative Orders Consideration of Abolition of Ex ante hearing Ex post hearing Reform of ex post hearing procedure procedure hearing procedure procedure 30 Japan Fair Trade Commission

Current procedure New procedure Outline of Revision Investigation Investigation by JFTC by JFTC Procedures prior to issuing final orders Improving sufficiency and Notification by JFTC Notification by JFTC transparency of the procedure (expected content of order, (expected content of etc.) procedures order, etc.) ○ Inspection and copy of evidence that proves facts prior to final found by JFTC will be sanctioned administrative Procedures for hearing Procedures order prior to final Note: The recipient will be allowed to copy only its own opinion JFTC Explanation administrative property and the written statements of its employees. (presided over by an officer (expected content of order, Inspection order designated by JFTC) fact-finding, evidence, of evidence Introduction of the procedures for hearing presided etc.） ○ Explanation by Investigators and copying over by an officer designated by JFTC (expected content of order, recipient’s fact finding, evidence, etc.) own ○ Asking of questions and oral presentation of opinions property and will be allowed in the procedures for hearing written questions from recipient Opportunity for recipients statements to express opinions and of its offer evidence Presentation of opinions employees Abolition of hearing procedure for (oral/written) and offer of administrative appeal evidence by recipient Commission meeting Addressing the criticism that JFTC plays the role of both prosecutor and judge in the current JFTC hearing procedures Commission meeting

Cease and desist order/ Cease and desist order/ Surcharge payment order Appeal procedures Introduction of trial at the District surcharge payment order Court Court JFTC ○ Only Tokyo District Court has jurisdiction over the Hearing procedure for appeal suit pertaining to the cease and desist Appeal Tokyo District Court administrative appeal order/surcharge payment order as the court of first procedures Appeal instance (ensuring expertise in the court). procedures The court ○ Panel of three judges hears the case in Tokyo Tokyo High Court District Court (a five-judge panel may be set). Tokyo High Court ○ Setting a panel of five judges will be allowed in Tokyo High Court when the court hears the case. Supreme Court ○ Abolition of the substantial evidence rule and Supreme Court restriction on offering new evidence 31 Japan Fair Trade Commission

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.