Abuse of Dominant Position and the Public Interest in Japanese Competition Law

4 Mac LR 173 ABUSE OF DOMINANT POSITION AND THE PUBLIC INTEREST IN JAPANESE COMPETITION LAW Michael Underdown∗ BACKGROUND The first cartels emerged in Japan during the mid-Meiji era (around 1890) in the cotton spinning industry and, after the Russo-Japanese War (1904-1905), in the fertilizer, paper, sugar, kerosene and flour milling industries. There were also significant mergers of linen weavers and breweries.1 As a consequence of this activity, Japanese scholars began studying both United States antitrust law and German cartel law. There was little enthusiasm for the American opposition to “any contract in restraint of trade” (Sherman Act) however reasonable, but the German approach accorded with the Japanese desire to combat economic recession. 2 In the period between the wars, the formation of cartels was actually promoted by the Japanese Government through so- called “administrative guidance” (gyosei shido) and the promulgation of laws by the Japanese Parliament (Diet) in 1925 permitting the establishment of export associations with the power to impose restraints on their members and, in certain circumstances, on non-members, and dealing with strategic ∗ Faculty of Law, University of Western Sydney, Macarthur 1 H Iyori , A Uesugi, und C Heath, 1994, Das japanische Kartellrecht (Japanese Competition Law), 2nd ed., FIW-Schriftenreihe, Heft 151, Heymann, Cologne, 1-2. 2 The first German Gesetz gegen den unlauteren Wettbewerb (UWG) (Law against Unfair Competition) had been adopted on 27 May 1896, but as it was directed at a few concrete circumstances, it soon proved insufficient and was replaced by the second law on 7 June 1909. This law, which stills forms the basis of the current German legislation, contains the famous reference to “actions which contravene common decency” (§ 1 UWG). As far as cartels were concerned, the Reichsgericht (Supreme Court) in Berlin had recognized their validity in an 1897 decision, a stance followed by the Osaka Supreme Court in I. Nakaguchi et al v. T. Hata, 15.2.1907, Horitsu shinbun, No 426, 9. See Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 2-3. 174 MICHAEL UNDERDOWN (2000) export industries. Cartels were seen as necessary to combat “excessive competition” and as instruments of market regulation, in contrast to the policies then prevailing in both the United States and Germany. 3 As Japan embarked on military expansion from 1931, industry came increasingly under State control. New monopolies emerged in the iron and steel, vehicle and airline industries, and the zaibatsu (conglomerates; actually, “financial cliques”) were able to greatly expand their positions through takeovers. In Germany, mobilisation from 1933 led to forced cartellisation4 (Wirtschaftsgruppen, or “economic groupings”), with cartels becoming instruments of State economic policy “in line with the needs of the overall economy and the public good”. Similarly, in Italy legislation was passed (Law No 834/32) empowering the State to establish cartels. Even in the United States, where cartels were outlawed by a whole raft of legislation, the National Industry Recovery Act 1933 allowed their establishment in certain circumstances. In fact, in the period between the wars, 109 United States firms participated in 179 international cartels.5 In this connection, it is important to note the antitrust abuses by American oil companies ever since the formation of John D. Rockefeller's holding company, Standard Oil Trust, in 1882, increasingly with the diplomatic backing of the US Government.6 Indeed, official support for Standard-Vacuum Oil Company (Stanvac) in its Chinese and Japanese markets (where it enjoyed a duopoly with Royal Dutch-Shell), coupled with Stanvac’s connivance in an embargo of oil shipments to Japan from July 1941, was one of the “immediate causes of World War 3 In the case of Germany, the Verordnung gegen den Mibrauch wirtschaftlicher Machtstellungen (Regulation against Abuse of Economic Dominance) had been promulgated on 2 November 1923. 4 Gesetz über die Einrichtung von Zwangskartellen (Law on the Establishment of Compulsory Cartels), 15 July 1933. 5 Y Ohara, ‘International application of the Japanese Antimonopoly Act’ (1986) 28 Swiss Rev of Int Competition L 5, at 6. 6 This was the case, for example, in the Canton kerosene war in 1932, when Socony- Vacuum Oil Company (later Mobil) and The Texas Company (later Caltex) joined forces with the Asiatic Petroleum Company (Royal Dutch-Shell’s marketing subsidiary) to engage in predatory pricing. 4 Mac LR Japanese Competition Law 175 II in the Pacific.”7 Of course, under United States antitrust law, a distinction has always been made between anti-competitive actions committed outside the United States by American firms and those occurring within the country - unlike the Japanese position. Throughout the war years, the official policy in support of cartels prevailed, with the interesting exception of the Tokyo High Court decision on 30 August 1940 against the Taiwanese Banana Wholesalers’ Association for refusal to supply. Basing its judgement on a number of decisions of the German Reichsgericht, the Court held that the cartel had “abused its dominant position (in a manner) which exceeded what was socially acceptable”.8 But, then, Taiwan was only a Japanese colony and obliged to support the war effort. At the end of the 2nd World War, the four largest zaibatsu controlled almost a quarter of all Japanese business firms, a total of 544 companies. On 6 November 1945, the Supreme Commander for the Allied Powers (SCAP) issued a directive (SCAPIN 244) requiring the Japanese Diet to pass legislation to disband and break up the zaibatsu, dissolve the wartime control organizations9 and eliminate the keiretsu (interlocking cross-shareholding relationships).10 These measures were designed to achieve the stated aim of United States policy of transferring “ownership of the means of production to as many (people) as possible” - the so-called democratisation of the Japanese economy. Many prominent Japanese companies, such as Sony and Honda, owe their existence to these SCAP policies. 7 See IH Anderson Jr 1975, The Standard-Vacuum Oil Company and United States East Asian Policy, 1933-1941, Princeton University Press, Princeton. Also JH Herzog, 1973, Closing the Open Door. American-Japanese Diplomatic Negotiations 1936-1941, Naval Institute Press, Annapolis, 92-101. 8 Minji Hanrei shu, Vol 19 No 19, 1521. See Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 7. 9 These had been established in accordance with § 18 of the National General Mobilisation Act (No 55/1938). 10 See Y Kanazawa, ‘The regulation of corporate enterprise: the Law of Unfair Competition and the control of monopoly power,’ in AT von Mehren (ed) 1963, Law in Japan. The Legal Order in a Changing Society, Harvard University Press, Cambridge, Mass., 484-485. 176 MICHAEL UNDERDOWN (2000) In January 1946, the General Affairs Department of the Ministry of Commerce and Industry (the precursor of the Ministry of International Trade and Industry) produced a draft Law on Economic Organisation, which leaned heavily on pre-war legislation and consequently was rejected outright by SCAP. In December of the same year, at the urging of Judge P.T. Kime of the SCAP Antitrust and Cartel Division, the Antimonopoly Law Study Committee of the Japanese Cabinet produced its own draft, which after some modifications was passed by the Diet on 31 March 1947, with the long title Act Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade11 [hereafter, Antimonopoly Act]. ANTIMONOPOLY ACT The Antimonopoly Act enacted by the Diet was strongly influenced by United States antitrust legislation (Sherman Anti- Trust Act 1890 (15 USC §§ 1-8, Clayton Act 1914 (15 USC §§ 12-27 and Federal Trade Commission Act (15 USC §§ 41-58) and, in particular, by the young New Deal advisers serving in the Military Government. Prohibited were, inter alia, private monopolies and restraint of trade (§ 3), improper abuse of economic power (§ 8), holding companies (§ 9), mergers and takeovers of competitors (§ 15) and unfair methods of competition (§ 19). A range of concerted practices, including price fixing, was declared to be illegal per se (§ 4). A Fair Trade Commission (FTC) was established (§§ 27-76) to both administer and enforce these provisions, with a right of appeal from its decisions to the Tokyo High Court.12 However, the Antimonopoly Act was not particularly relevant to the Japanese people and from the outset was opposed by business circles and the Ministry of International Trade and Industry (MITI). Not only was it stricter than the United States legislation on which it was based, but it was inappropriate for 11 (Shiteki dokusen no kinshi oyobi kosei torihiki no kakuho ni kansuru hontsu), No 54/1947 (14.4.1947). This is the official Japanese title in English. Often, the Japanese title is abbreviated as Dokusen kinshi ho (Antimonopoly Act). See also H Iyori, ‘A comparison of U.S.-Japan antitrust law: looking at the international harmonization of competition law’ (1995) 4, 1 Pacific Rim Law & Policy J 59, at 65. 12 Kanazawa, ‘The regulation of corporate enterprise,’ 485-487 (see note 10); Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 7-8 (see note 1). 4 Mac LR Japanese Competition Law 177 Japanese conditions. Japan lacked natural resources and to compete effectively as a trading nation it needed alliances of producers and exporters. The feeling in Japan was that the United States wanted to suppress Japanese industry for its own advantage. Nevertheless, in the early years the FTC and the Tokyo High Court strictly enforced the Antimonopoly Act. Over subsequent months a number of minor amendments were made and, in 1949, the first major revision occurred (No 214/1949), largely removing the prohibitions on keiretsu, and mergers and takeovers. The Korean War gave rise, of necessity, to a marked shift in United States policy towards Japanese industrialisation (especially heavy industry), which, coupled with the end of Occupation in April 1952, allowed the FTC to present amending legislation to the Diet in March 1953.

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