Japan: Japan Fair Trade Commission Publishes Draft Rules Under Anti Monopoly Act

Introduction

On June 30, 2005, the Japan Fair Trade Commission ("JFTC") published for public comment four draft rules implementing the new Anti Monopoly Act ("AMA"), which was enacted on April 20, 2005.1 The deadline for submission of comments is August 3, 2005.

The draft rules respectively address implementation of the recent AMA Amendments in the following substantive areas:

  1. Rules concerning JFTC administrative investigations ("Investigation Rules");
  2. Rules concerning JFTC administrative (Shimpan) hearings ("Shimpan Hearing Rules");
  3. Rules concerning JFTC criminal investigations ("Criminal Investigation Rules"); and
  4. Rules concerning the JFTC’s new leniency program ("Leniency Rules").

An overview of the structure and operation of these new rules is provided below.

Overview of Proposed Rules

Proposed Rules Concerning JFTC Administrative Investigations

Historically, the JFTC has not had separate rules governing administrative investigations and shimpan hearings. The AMA Amendments made a fundamental change in the shimpan hearing system, however, and the JFTC will no longer use that formal process prior to issuing a formal cease and desist order. For that reason, the JFTC’s proposed rules implementing the AMA Amendments have two separate sets of rules relating to administrative investigations before issuance of a formal order (Investigation Rules) and to shimpan hearings after the formal order (Shimpan Hearing Rules). The proposed Investigation Rules also contain new provisions relating to the issuance of cease and desist orders.

The JFTC’s proposed rules relating to administrative investigations is based upon the existing "Investigation and Shimpan Hearing Rules," with relatively minor changes.2 The most notable changes in the proposed rules include:

  • The new rules provide defending companies with a right to review or copy documents the JFTC has seized from the company.
  • The new rules require the JFTC, when conducting an on-site inspection of a company’s facility, to provide the company with a document indicating the name of case, summary of facts giving rise to the inspection, and applicable provision(s) of the AMA. The conduct described in this document would delineate the scope of company’s eligibility for leniency under the new leniency program (described below), as there is a substantial advantage for companies who seek leniency prior to a JFTC on-site inspection.

Pursuant to the AMA Amendments, the JFTC now may issue formal cease and desist orders without a formal shimpan hearing. Under the Amendments, the JFTC will simply give the allegedly offending company an opportunity to submit its arguments and evidence prior to a formal order, but the company is not entitled to formal hearing until after issuance of the order. To implement these changes, the JFTC has proposed new rules regarding the presentation of arguments and evidence prior to issuance of a cease and desist order:

The proposed rules do not require the JFTC to provide any minimum amount of time for a company to submit arguments and evidence in response to an advance notice of a proposed cease & desist order.

  • Companies must submit their arguments in writing, unless the JFTC specifies otherwise.
  • All evidence must be submitted in writing, which likely would mean that companies are no longer able to submit third-party testimony prior to issuance of an order because it is very difficult for companies to obtain a voluntary written statement from a neutral third party.
  • The proposed rules provide the JFTC with discretion to refuse to offer additional explanation, beyond what is offered on the face of the notice, regarding the proposed cease & desist order, findings of fact, and legal conclusions.
  • If the JFTC elects to offer additional explanation of the proposed order, then the JFTC must also explain its findings of fact to the extent necessary to make clear such additional explanation. This procedure would enable the JFTC, if it deems appropriate, to indicate to the companies the existence of decisive evidence so that the companies will not challenge the JFTC order.
  • The company is not afforded an opportunity to argue its position orally, unless the JFTC determines such oral argument is necessary.

The AMA Amendments, and these proposed rules, significantly limit a company’s ability to present evidence and argument once the JFTC has issued notice of a cease and desist order. It therefore has become considerably more important for companies to explore strategy and options earlier in the investigative process and, where appropriate, to engage the JFTC well before the JFTC issues formal notice of a cease and desist order.

Proposed Rules Concerning JFTC Shimpan Hearings

Pursuant to the AMA Amendments, formal administrative or shimpan hearings will no longer be conducted prior to issuance of a formal cease and desist order, and shimpan hearings will now become a post-issuance review procedure. Except for this significant change in the timing of the shimpan hearing, the rules governing those procedures remain substantially the same. Notable provisions of the proposed rules include:

  • There is an apparent tension between the Amendments, which generally do not permit the JFTC staff to make new arguments detrimental to the defendant companies during a shimpan hearing, and the proposed rules, which permit new arguments unless doing so would result in a substantially different legal case.
  • The proposed rules provide only one week for a company to raise objections to an order or instruction issued by the examiner (this would include, for example, an examiner’s decision during the course of hearings, but not the final decision on the case).
  • The examiner may accept testimony of witnesses or defendants in distant places through video conference.
  • The examiner and the parties are obligated to make efforts to finish the shimpan hearing within two years.

In addition, while JFTC Commissioners continue to be technically required to preside over shimpan hearings, the proposed rules reflect the current practice that hearing examiners preside over almost all the cases.

Rules Concerning JFTC Criminal Investigations

The AMA Amendments provide the JFTC with significant new criminal investigative powers, and the proposed rules provide the details of the JFTC’s new authority.

Under the proposed Criminal Investigation Rules:

  • Only the staff in the tentatively-named Special Investigation Department within the JFTC Investigation Bureau will exercise the criminal investigation power.
  • The proposed rules create somewhat of a "firewall" between the criminal investigative staff and the administrative investigative staff, but limited exchange of information is permitted. Administrative investigators must report evidence of a potential crime to the Director General of Investigation Bureau, and may not directly inform the criminal investigation staff. However, the Director General of Investigation Bureau may provide information to the criminal investigation staff.

Rules Concerning New Leniency Program

The AMA Amendments created a new leniency or amnesty program3 somewhat similar to the successful programs in place in the United States and European Union, but the Amendments provide only the general structure of the system. The proposed Leniency Rules will provide the remaining details regarding the nature and operation of the new leniency program.

Most notably, the proposed Leniency Rules provide:

  • At a minimum, a company making an initial report to the JFTC regarding anticompetitive conduct must identify the affected products or services, the nature of the conduct, and the affected time period.
  • In addition to information provided in the initial report, the proposed rules require reporting companies to (a) identify officers or employees who actually committed the illegal conduct; (b) firms that participated in the illegal conduct and the employees of those firms who actually committed the illegal conduct; and (c) any other useful information.
  • The JFTC will accept a voluntary report up to 15 business days after a JFTC on-site inspection (raid) at the company’s facilities – although in such cases the company may not be entitled to full exemption from the applicable administrative fines.

The JFTC also explained in its press release that potential reporters may, prior to formally making a report to the JFTC, anonymously consult with the tentatively-named JFTC Information Control Officer regarding the order of companies making reports. The JFTC’s legal basis for this informal consultation is unclear, although private companies would certainly benefit from such a system.

Finally, the AMA Amendments and proposed Leniency Rules continue to leave a number of questions unanswered regarding the specific timing and content of voluntary reports. It will be important to monitor developments over the coming months to determine whether the JFTC offers further guidance in any of these areas.

Footnotes:

1. Please see "Amendments to Japanese Anti Monopoly Act: Japan Significantly Strengthens Its Antitrust Laws" (Legal Update, April 2005) with respect to the new AMA.

2. Investigation in this context means administrative investigations which have existed since before the Amendments as opposed to the criminal investigation which was newly introduced by the Amendments.

3. Under the Amendments, the first member of a cartel who reports its violation and provides the relevant information to the JFTC prior to the commencement of the JFTC’s investigation will generally be completely exempt from administrative fines. The second and the third reporting companies will be exempt from 50% and 30%, respectively, of the applicable administrative fines.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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