What kinds of infringement has the antitrust authority been focusing on recently? Have any industry sectors been under particular scrutiny?
In recent times, the Japan Fair Trade Commission (JFTC) has turned its attention to enforcement against domestic cartels. In July 2019, in the biggest Japanese antitrust penalty on record at the time, the JFTC issued surcharge orders for a total amount of ¥39.9 billion against eight road-building companies relating to price-fixing cartels for asphalt mixtures. Subsequently, in March 2023, the JFTC issued cease and desist orders and administrative fines payment orders against Chubu Electric Power Company, Chubu Electric Power Miraiz Company, Chugoku Electric Power Company, Kyushu Electric Power Company and Kyuden Mirai Energy Company for forming cartels over electricity sales in a move that goes against the nation's efforts to free up the electric power market. The fines total ¥101 billion and are the highest ever imposed by the JFTC for a violation of the Antimonopoly Act (AMA).
Furthermore, in October 2024, the JFTC issued cease-and-desist orders and surcharge orders against Japan's top four casualty insurance companies and a non-life insurance broker for nine cartel cases on suspicion of forming a business insurance policy cartel, as described in more detail below.
Additionally, the JFTC has recently been focusing on enforcement in the digital economy sector due to a surge of economic activity in this area. In particular, it has published a series of reports including the Report Regarding Trade Practices on Digital Platforms in 2019, and reports in 2021, 2023 and 2024, focusing on e-commerce, mobile applications and operating systems, digital advertisements and connected TV and video on-demand service. These reports do not particularly focus on cartels, but they clarify the preferable approaches towards competition policy in the digital economy.
What do recent investigations in your jurisdiction teach us?
Since its introduction in January 2006, the leniency programme has become a key driver of cartel enforcement in Japan. In most instances, investigations are initiated by a leniency application. In recent years, almost all cartel or bid-rigging cases in which administrative formal orders were issued by the JFTC were initiated this way. Despite initial doubts, few can now contest the importance of the programme as a key investigative tool for cartel enforcement in Japan.
There continues to be a strong uptake of the leniency programme with a total number of 1,573 applications since 2006 (as at March 2024), and the leniency system has been praised as a huge success. Although the covid-19 pandemic significantly reduced the number of leniency applications to 22 last fiscal year, they have recovered to a significant extent and reached 156.
A unique aspect of the leniency programme in Japan is that once the initial application for leniency is lodged, there is a very high level of predictability as to the final outcome of the leniency order. In comparison with other major jurisdictions with effective leniency regimes, the striking difference in Japan is that there is no ‘leniency race' to secure or even improve on the original leniency rank provisionally allocated by the investigating authority. In that sense, the timing of the initial application for leniency is absolutely critical in Japan, as literally a few seconds can make the difference between complete immunity from the administrative surcharge and criminal indictment or a partial reduction only.
In this regard, it is important to note that the leniency policy was amended at the end of 2020. Under the new policy, there is no limitation to the number of leniency applicants. While the first applicant is granted full immunity under the new policy as before, the second applicant can only obtain a reduction in surcharge of between 20 and 60 per cent, depending on the extent of cooperation with the JFTC, instead of the fixed 50 per cent in the previous system. The third, fourth and fifth applicants are also eligible for a reduction in surcharge, but the reduction will vary from 10 to 50 per cent according to the extent of cooperation with the JFTC. The sixth or later applicants will be also eligible for a reduction, depending on the extent of their cooperation with the JFTC. Such changes would further align the Japanese leniency regime with those of other major competition authorities, such as the European Commission. Under the new policy, regulators and leniency applicants are expected to interact more closely than before to facilitate the investigation. As at 4 March 2024, there have been four cases in which the JFTC has applied the new leniency programme. All the applicants who agreed to cooperation with the JFTC under the new leniency programme received a reduction of the surcharge to the maximum extent possible for each of them. In other words, the JFTC has so far assessed that they cooperated with the JFTC to the maximum extent possible, and this trend is consistent with previous explanations by the JFTC on its enforcement of the new policy.
Have there been any recent developments in terms of dawn raids? Has the competition authority raided individual homes as part of any probes and have any of these searches been challenged successfully or otherwise?
The JFTC has returned to pre-pandemic levels of dawn raid activity. Private homes and cars owned by officers or employees may also be subject to dawn raids, to the extent that relevant evidence is reasonably expected to be found there. As long as the JFTC reasonably considers it necessary, it could even inspect the private homes of officers or employees involved in cartels. Please note that the JFTC dawn raid under the administrative investigation procedure is not compulsory and the consent of the homeowner to be inspected is required for the JFTC to carry out a dawn raid there. That said, it is not entirely up to the person to be inspected to accept the inspection, and the refusal without a justifiable reason will be subject to a fine.
How is the leniency system developing, and which factors should clients consider before applying for leniency?
Under the current leniency system, potential applicants should be attentive to the timing of the leniency applications, as this will determine the immunity or the percentage reduction granted for cooperation. A recent trend we have observed is that potential applicants have become quicker at deciding whether to cooperate with a JFTC investigation, including through applying for leniency. A key reason for this accelerated decision-making is that applying for leniency is now considered to be part of a company's culture of corporate compliance in Japan so that once a potential infringement has been identified, not reporting it promptly to the investigating authority is often no longer an option.
It is also important to note that, in contrast to many common law jurisdictions, there is no concept of attorney-client privilege in Japan. This means that during a JFTC investigation, documents held by a client containing attorney-client communications or any documents (including the results of internal investigations) held by in-house legal staff can be obtained by the JFTC in a dawn raid and used for the purpose of the investigation, except when the JFTC decides that these documents meet certain requirements under the Determination Procedure (described below) that was introduced at the end of 2020. Moreover, while the internal leniency programme (whereby employees who disclose cartel activities within a certain number of days receive immunity from punishment at company level) has proven to be effective, the report of this internal disclosure can also be seized. Accordingly, as a practical matter, we usually encourage clients to maintain any records of attorney–client communications, legal memoranda and results of investigations with the outside legal counsel firm rather than the in-house legal department, wherever possible.
Furthermore, clients should be aware that attorneys are not usually allowed to be present during interviews conducted by the JFTC. In December 2015, the JFTC issued guidelines recognising the right for external counsel to be present during interviews under very limited circumstances, such as during interviews with foreign nationals.
However, as mentioned above, the JFTC's amended leniency policy came into effect at the end of 2020. Following the passage of the amendment bill, the JFTC introduced a new system called the ‘Determination Procedure'. This system enables certain documents to be protected in administrative investigations regarding unreasonable restraints of trade (such as cartels and bid rigging) pursuant to article 76 of the AMA. When an alleged company receives a submission order for certain documents from the JFTC officers during dawn raids, the company will be entitled to claim that the documents should not be subject to the order because the documents contain attorney–client communications. In that case, the JFTC officers will order the submission of the documents, seal the documents and place the documents under the control of the Determination Officers at the Secretariat of the JFTC, which are independent from the Investigation Bureau. The determination officers will then determine whether the documents at issue satisfy the conditions provided under the new regulations and guidelines. If the conditions are satisfied, the documents will be promptly returned to the company. The rationale behind the introduction of this limited form of protection from disclosure is to protect communications between companies and outside attorneys in connection with investigations against unreasonable restraints of trade, resulting in a more efficient surcharge system. However, this protection under the Determination Procedure is severely limited and does not amount to the introduction of a form of attorney–client privilege as found in certain common law jurisdictions. For those reasons, it is fair to say that there is no concept of attorney–client privilege in Japan as at March 2025.
What means exist in your jurisdiction to speed up or streamline the authority's decision-making (eg, settlement procedure), and what are your experiences in this regard?
The JFTC is expected to complete its investigations within a reasonable time. Nevertheless, we have recently seen a trend of investigations lasting longer than one year, with more complex cases being investigated for 18 months or more.
Moreover, a plea bargaining and a commitment system were introduced in 2018. As regards plea bargaining, the Criminal Procedure Law was amended in 2016, and plea bargaining for certain types of crimes, including cartels, came into force on 1 June 2018. According to the amendment to the Criminal Procedure Law, if an officer or employee presents evidence and testimony against other offenders in a cartel case, prosecutors may agree not to indict the officer or employee, provided that such persons agree with the conditions made by the prosecutor and their attorney's consent is given. With respect to the introduction of a commitment system, the amendment to the AMA came into effect on 30 December 2018 when the modified version of the Trans-Pacific Partnership Agreement (TPP) known as ‘TPP 11' came into effect. Ten months after the introduction of a commitment system in Japan's antitrust law, the JFTC first applied it to Rakuten Travel. Rakuten Inc, which operates an online travel agency known as Rakuten Travel, allegedly unfairly restricted the businesses of accommodation operators by including most-favoured-nation clauses relating to the prices and number of rooms into contracts between Rakuten Inc and the accommodation operators seeking to place their information on the Rakuten Travel website. The JFTC approved a commitment plan presented by Rakuten Inc and completed its investigation against the company without finding a violation. There have been 20 cases resolved under the commitment procedures as at January 2025. The swift resolution of cases through such procedures ultimately benefits both the alleged parties and the JFTC, as it saves time and effort that should otherwise be invested into investigations. The parties are inevitably required to admit the alleged facts through a board decision and to notify stakeholders of this decision. From our experience, these requirements could be a potential downside of using the commitment procedures and also an important factor to be considered when deciding whether to use these procedures.
The chairman of the JFTC, Kazuyuki Furuya, said in his 2024 New Year's message that in addition to cease-and-desist and surcharge payment orders, the JFTC would make use of a variety of methods to restore competition quickly and effectively, including the use of commitment procedures, particularly in the digital sector where the pace of technological change is rapid. This commitment system, nevertheless, does not apply to cases relating to certain types of unreasonable restraint of trade (eg, hardcore cartels), and there is currently no similar commitment system applying to cartels in Japan. There may be scope to argue that a similar commitment system, effectively granting more discretion to the JFTC, should be introduced for cartels.
Tell us about the authority's most important decisions over the year. What made them so significant?
In March 2023, the JFTC imposed fines totalling a record ¥101 billion on four electricity-related companies for forming price cartels to avoid competition that had intensified as a result of market liberalisation. According to the JFTC's press release, Chugoku Electric Power was fined about ¥70.7 billion, Chubu Electric Power and its subsidiary were fined about ¥27.56 billion and Kyushu Electric Power was fined about ¥2.76 billion, whereas Kansai Electric Power was immune from fines because it made the first leniency application. The JFTC determined that the four regional electricity utilities made collusive agreements to unfairly restrict business transactions, undermining the effects of the liberalisation. Between 2018 and 2020, Kansai Electric Power struck one-on-one deals with Chugoku Electric, Chubu Electric and Kyushu Electric power companies to restrict their business operations in selling power to large corporate customers within the other's territorial jurisdiction. The JFTC found that these deals constituted a cartel prohibited under the AMA.
Is the competition authority working with other agencies, be it nationally or internationally, in any cartel probes?
In October 2024, the JFTC issued cease-and-desist orders and surcharge orders including a fine totalling ¥2.07 billion against Japan's top four casualty insurance companies, Tokio Marine & Nichido Fire Insurance, Sompo Japan Insurance, Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance, and a non-life insurance broker, Kyoritsu, for nine cartel cases on suspicion of colluding to fix the prices of premiums sold to major corporate customers. In most cases, the said insurers maintained or increased the prices of insurance policies through a variety of means including fixing or agreeing to maintain premiums or pre-selecting the winner of bids. In contracts with the private sector, insurer collusion took place on large contracts involving co-insurance, where several insurers share risks and burdens. The JFTC asked the insurers to examine whether co-insurance is really necessary because this type of insurance seems to be prone to encourage communication and collusion, and the JFTC also asked the insurance-policy buyers to try to procure policies in a competitive setting. The JFTC summoned the heads of the four insurance companies and Kyoritsu to deliver its decision in person, and such an event was made public to the press because it was thought this case attracted public attention, even though there was probably no precedent for it.
What is the level of judicial review in your jurisdiction? Were there any notable challenges to the authority's decisions in the courts over the past year?
With the implementation of a new appellate system in April 2025, we expect to see a rise in the level of judicial review of JFTC decisions in Japan. The new appellate system aims to address the main criticism of the old administrative hearing procedure as being a rubber-stamping process, in which the JFTC tribunal heard challenges to orders issued by the JFTC. Following sustained criticism of this internal review system, legislative reform abolished the administrative hearing procedure and replaced it with a system where challenges to the JFTC's cease-and-desist orders and surcharge payment orders are to be heard by the commercial affairs division of the Tokyo District Court. Additionally, the legislative reform provided for a new procedure for hearings prior to the JFTC issuing an order, with a greater emphasis on due process.
As of the end of the 2023 fiscal year, there were seven pending cases under the new appellate system by the Tokyo District Court. There have been no notable challenges that are worthy of mention in the past year, but in December 2021, there was a notable case where the JFTC cancelled a cease-and-desist order and a payment order. In 2011, the JFTC issued a cease-and-desist order and imposed a fine of ¥222 million against Sanyo Marunaka, a supermarket chain based in western Japan, for alleged abuse of a superior bargaining position in its dealings with suppliers. The company has appealed to the higher courts, seeking to cancel the order after the JFTC upheld its decision at the administrative hearing requested by the company. In December 2021, the Tokyo High Court overturned the JFTC decision by ruling that it had made a procedural error by not including in its original orders the list of suppliers who were subjected to the supermarket chain's alleged abuse of a superior bargaining position. Following the court ruling, the JFTC cancelled the cease-and-desist order and the payment order.
How is private cartel enforcement developing in your jurisdiction?
Private cartel enforcement remains relatively rare in Japan, partly owing to Japanese companies' historic aversion to using the court system for damages claims. Private mediation or arbitration is likewise uncommon, and there are no class actions in Japan.
However, it is relevant to note that the large number of cartel enforcement cases is concentrated in the construction industry for the procurement of public works (typically for local government) where, generally, there is a stipulation in the contract providing that 10 to 20 per cent of the contract price is recoverable if the company is involved in illegal activities. Accordingly, given the existence of contractual protection and out-of-court settlement in the vast majority of cartel cases, as well as the historically low levels of damages claims, we expect that private cartel enforcement will continue to remain relatively limited in Japan.
What changes do you anticipate to cartel enforcement policy or antitrust rules in the coming year? What effect will this have on clients?
We anticipate that the introduction of a new system will bring significant implications for clients. According to the amended AMA, for example, the duration of the violation for which the amount of the surcharge is calculated, based on the relevant party's sales figures in respect of the product or service in question, will be up to a maximum of 10 years (ie, up to seven years longer than currently). The duration could even be longer than 10 years if the infringements continue after the JFTC's dawn raids. The difference in the surcharge calculation rate depending on the relevant party's type of business (eg, for a retailer or a wholesaler) will be abolished, and the rate will be fixed at 10 per cent of the sales figures in respect of the product or service in question. The reduction in surcharge due to early withdrawal from the conduct in question will also be abolished.
In addition, the introduction of a level of discretion would enable the JFTC to take into account various factors in determining the amount of the surcharges and the level of reduction to be granted to leniency applicants, including, for example, the degree of cooperation and the added value of evidence provided by a leniency application. As a result, we expect clients to compete increasingly harder for evidence, particularly for value-adding evidence (which is a requirement in some jurisdictions such as the European Union). The JFTC is also likely to impose higher surcharges for cartel conduct, which in turn is likely to have a greater deterrent effect for cartel activities in the future. Should the JFTC further align the basic tenets of its leniency system with that of other major jurisdictions with antitrust enforcement such as the European Union and the United States, the current discrepancy between the test applied by enforcers in Japan and other jurisdictions would make it easier and more cost-effective for leniency applicants in international cartel cases to obtain leniency in multiple jurisdictions by essentially relying on a single set of corporate statements and supporting evidence. Moreover, we also expect to see more appeals in the coming year as a result of the new appellate system and dedicated courts for judicial review.
The Inside Track
What was the most interesting case you worked on recently?
When it comes to cartel investigations, we were recently involved in the Capacitors case, involving several manufacturers of aluminium and tantalum electrolytic capacitor products. The JFTC found that the participants in the cartel communicated their intention to raise the prices of the capacitor products through regular meetings and consequently issued cease-and-desist orders and administrative fines amounting to approximately ¥6.7 billion. Parallel investigations in other jurisdictions are ongoing.
This case is of particular significance as it was the only decision delivered by the JFTC involving an international cartel in 2016–2017.
We were recently involved in a pharmaceutical wholesalers' cartel case. In December 2020, the JFTC filed a criminal complaint with the Japan public prosecutor against three major domestic pharmaceutical wholesalers, namely Alfresa, Toho and Suzuken, and seven individuals employed by these wholesale companies. On the same day, the public prosecutor indicted these three companies and seven individuals before the Tokyo District Court. The criminal accusation relates to public tenders conducted by the Japan Community Healthcare Organisation (JCHO) in 2016 and 2018 to order certain pharmaceutical drugs to be used at 57 hospitals and long-term care facilities that it runs nationwide. The seven individuals employed by these wholesale companies were suspected of having conspired with each other in connection with bidding and price negotiations on drug supply contracts ordered by the JCHO and to have repeatedly colluded to pre-determine the winning bidders. On 30 June 2021, the Tokyo District Court found all of the accused parties guilty and imposed a ¥250 million fine on each company. It also sentenced two former officials of those companies to a two-year prison term (suspended for three years) and five former officials to 18-month prison terms (suspended for three years). Following a criminal judgment, the JFTC also launched administrative investigations against the said major pharmaceutical wholesalers on 30 March 2023 and issued a cease-and-desist order and administrative surcharge order (for a total of more than ¥400 million) to the wholesalers, excluding the first leniency applicant.
If you could change one thing about the area of cartel enforcement in your jurisdiction, what would it be?
The amended AMA gives the JFTC some degree of discretion in the surcharge payment system. We expect that with this discretion, the JFTC will have more flexibility to create incentives for companies to cooperate with it, which should ultimately culminate in more sophisticated cartel enforcement in Japan as well as a more harmonised environment for international cartel enforcement. However, whereas the Determination Procedure, which is a limited protection from disclosure for certain types of documents, is also newly introduced into the AMA, the degree and scope of attorney–client communications that are protected from disclosure is still severely limited compared to other jurisdictions. This may hinder cartel enforcement in Japan and is not in line with international best practices. It is, therefore, hoped that the JFTC will further strengthen due process rules in its investigations, including by allowing for an increased role to be played by outside counsel during the all-important interview process.
Originally published by Global Competition Review.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
