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JFTC Issues Draft Policies Allowing for Resolution of Antitrust Violations Through Voluntary Commitments

July 27, 2018

Japan’s legislative body recently passed an amendment to the Antimonopoly Act (AMA) that would allow suspected violators to avoid fines by voluntarily committing to appropriate remedies.  The Japanese Federal Trade Commission (JFTC) has now issued for public consultation a set of proposed policies detailing how these commitment procedures (Commitment Procedures) will operate in practice.[1]  The public may submit comments on the proposed policies until August 10, 2018.  Key takeaways with respect to the Commitment Procedures include:

  • The JFTC now has flexibility in its enforcement efforts.  The Commitment Procedures allow the JFTC to identify and investigate anticompetitive behaviour without issuing cease-and-desist orders or fines.  Currently, the JFTC lacks this discretion.

  • The JFTC will notify appropriate entities of the potential for Commitment Procedures whenever it believes doing so is in the interest of promoting fair and free competition.

  • Once notified of the potential for Commitment Procedures, the relevant entity can draft its own remedies and submit them to the JFTC for review and approval.

  • A notification of potential Commitment Procedures, or approval of any remedies by the JFTC, does not constitute a finding that there has been a violation of the AMA.

  • The Commitment Procedures are not available in the cases of (1) suspected hard-core cartel behaviour, including price fixing and bid rigging; (2) repeat offenses by entities that have committed hard-core violations of the AMA within the last 10 years; and (3) criminal antitrust violations, which are similar in substance to hard-core violations but are reported to and prosecuted by the Supreme Public Prosecutors Office rather than the JFTC.

The Commitment Procedures are a product of Japan’s obligations under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP),[2] a free-trade pact between 11 countries[3] that was signed on March 8, 2018.  In particular, the CPTPP required each party to the trade agreement to “authorize its national competition authorities to resolve alleged violations voluntarily by consent of the authority and the person subject to the enforcement action.”

The Commitment Procedures will officially take effect when the CPTPP becomes operational, which will occur 60 days after six member countries give notice that all domestic legal procedures required by the trade agreement are complete.

I. The Commitment Procedures

The Commitment Procedures are intended to resolve certain suspected AMA violations without the JFTC resorting to cease-and-desist orders or fines.  They enable early and efficient resolution of competitive concerns through cooperation with companies.

A. Operation of the Commitment Procedures

When a suspected violation of the AMA is under investigation, the JFTC has the discretion to initiate Commitment Procedures whenever it believes the procedures are necessary for the promotion of free and fair competition.  Companies under investigation can also consult proactively with the JFTC regarding the availability of Commitment Procedures. 

In general, however, the JFTC will send a written notice to qualifying entities about the potential availability of Commitment Procedures.  The notification will include a summary of the suspected violation as well as the relevant legal basis, and will offer the entity an opportunity to propose commitments that eliminate the suspected violations or confirm that the entity has already eliminated the suspected violations.  Importantly, a notification does not represent a finding that the relevant entity has actually violated the AMA.

A JFTC notification opens a 60-day window during which the entity under investigation can submit an application laying out proposed remedies.  If the entity determines not to offer any commitment, the JFTC’s investigation will resume.  And while companies will not be penalized if they decide against proposing a remedy—or if they decide to withdraw from the Commitment Procedures—they must bear in mind that any materials provided to the JFTC during the Commitment Procedures can be used as evidence in a reinstated investigation.  Companies should also be aware that once they submit applications for commitments, the JFTC may (1) publicly disclose an overview of the potential remedies for public comment and (2) contact third parties to assess their views on any proposed remedy. 

Thereafter, the JFTC will approve or reject the proposed remedies.  Whatever the outcome, the JFTC’s decision does not constitute a finding that the company actually violated the AMA.  If the JFTC accepts the proposed remedies, it will publish a summary of the remedies on its website.

The JFTC can revoke its approval of voluntary remedies if a company fails to adequately implement its commitments or if the JFTC discovers that any remedies are premised on false information.  In such instances, the JFTC’s investigation—including on-site inspections, report orders, and employee interviews—can resume within two years of revocation and may end in cease-and-desist orders and/or fines.

The JFTC has helpfully published a flowchart laying out the operation of the Commitment Procedures as described above:

B. Availability of Commitment Applications

The Commitment Procedures are not available in the following situations: 

  • Hard-Core Violations.  These comprise serious violations of the AMA and include price-fixing, bid-rigging, and other cartel behaviour.

  • Repeat Violations.  Hard-core violations of the AMA committed within the last 10 years.

  • Criminal Violations.  Antitrust violations—which are often similar in substance to hard-core violations, but are prosecuted by the Supreme Public Prosecutors Office and carry criminal penalties.

The Commitment Procedures are available for all other suspected violations of the AMA, including unfair trade practices like retail price maintenance and abuse of superior bargaining positions.

C. Commitment Requirements

The JFTC will review proposed commitment plans on a case-by-case basis, but will evaluate whether any proposal is (1) sufficient to eliminate the suspected violation or to confirm that the suspected violation has been eliminated; and (2) capable of being implemented reliably within a defined period of time.

Proposed remedies can be either behavioural or structural in nature.  The JFTC has identified a non-exhaustive list of potential remedies, which include:

  • Termination of the suspected violation or confirmation that it has ceased;

  • Notification to trading partners (or customers) of the violation and its termination;

  • Development of a compliance program;

  • Amendments to relevant contracts;

  • Transfer of business or sale of shares;

  • Financial compensation to trading partners (or customers) based on any illegal gains or losses resulting from the suspected violation; and

  • Periodic reporting regarding the implementation of any commitments.

II. Comparative Perspective with the European Union

In the European Union, voluntary commitment programs have proven to be an effective means of resolving competition law cases since the European Commission adopted Council Regulation 1/2003.[4]  The Japanese Commitment Procedures are similar to those in Europe. Notably:

  • The European Commission has discretion to accept any commitments. 

  • Companies can offer commitments on a voluntary basis. 

  • The European Commission seeks to ensure that any commitments (1) address the identified competition concerns and (2) are proportionate to those concerns. 

  • Commitments must be unambiguous and self-executing. 

  • The European Commission adopts a decision to make any commitments binding.

  • The EU commitment system does not apply to situations in which the “nature of the infringement calls for the imposition of a fine,” which in practice encompasses hard-core cartels.  

There are, however, differences between the European and Japanese commitment systems.  Among the most noteworthy differences are:

  • Whereas the JFTC may conduct a market testing of the commitments at its discretion, the European Commission must submit commitments to the public before making them binding.  Practice will show how the JFTC exercises its discretion.

  • Whereas the European Commission may impose a fine equal to 10% of total turnover in the preceding year against a company that does not comply with binding commitments, the Japanese Commitment Procedures do not provide for any sanctions.  They only specify that the JFTC’s investigation will resume after a breach.  This is arguably a weakness in the Japanese model from an enforcement perspective.

[1] Available here.

[2] Available here.

[3] Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

[4] See Article 9 of Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty, OJ L 1, 4.1.2003, p. 1–25; see also paragraphs 115-133 of the Commission notice on best practices for the conduct of proceedings concerning Articles 101 and 102 TFEU, OJ C 308, 20.10.2011, p. 6–32. Commitments under the merger review regime are governed by a different regulation: Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings, OJ L 024 , 29/01/2004 P. 0001 – 0022.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Philip Monaghan, an O'Melveny partner licensed to practice law in England & Wales, Ireland, and Hong Kong, Yoji Maeda, an O'Melveny partner licensed to practice law in Japan and New York, Hiroko Nihei, an O'Melveny counsel licensed to practice law in Japan, Scott Schaeffer, an O'Melveny counsel licensed to practice law in California and the District of Columbia, and Charles Paillard, an O'Melveny associate licensed to practice law in France and a registered foreign lawyer in Hong Kong, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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