abuse of dominant position and the public interest in ... · 4 gesetz über die einrichtung von...

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 Mi�brauch 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.


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).


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. The revision, which was adopted on 1 September 1953 (No 259/1953) over the opposition of farmers’ associations (who opposed a synthetic fertiliser cartel), the Housewives’ Federation and consumer groups (who feared price rises), formed the basis of the current Antimonopoly Act. Most of the per se prohibitions were removed; cartels were only illegal if they substantially restrained trade. New provisions, based on the then draft German Gesetz gegen Wettbewerbsbeschränkungen (GWB) (Law Against Restriction of Competition), authorized the FTC to approve “depression cartels” and “rationalisation cartels”,13 in order to avoid business closures if production costs exceeded sale prices and to rationalise industries, particularly to reduce waste. Improper abuse of economic power was no longer prohibited (although re-introduced in an amended fashion in 1977), and mergers and acquisitions were allowed unless they substantially restricted competition. Resale price maintenance for copyright items such as books and records was permitted (and later extended to such

13 These are found in § 8 and § 5 GWB respectively. The GWB was finally adopted by the Bundestag on 27 July 1957, ten years after work had begun on it.


other items of daily use as cosmetics, toiletries, medicine, alcohol and cameras).14 Overall, the 1953 revision of the Antimonopoly Act represented a substantial weakening of the antitrust rules imposed by SCAP and a consequent strengthening of Japanese (and German) elements, which better reflected Japanese commercial practices and the “fundamental tension between Japanese antitrust and industrial policies”.15 In this connection, the replacement of the original expression “unfair methods of competition” (fukosei na kyoso hoho) in § 2(7) by the term “unfair trade practices” (fukosei na torihiki hoho), 16 represented a strengthening of the prohibition against abuse of dominant position. The Antimonopoly Act has subsequently undergone further revisions (No 63/1977, No 107/1992 and No 87/1997), while Japanese competition policy as a whole has been affected by the tensions between MITI and the FTC. MITI’s opposition to competition law has been fuelled by its desire to steer economic development and its preference for large business undertakings, which it considers absolutely essential for Japanese international competition. The FTC’s stance is, however, supported by a variety of interests and influenced by the German experience with a “free market economy”. The dispute between MITI and the FTC, which is administratively under the Prime Minister’s Office, has centred on the use by MITI of “administrative guidance”, particularly during the “oil crisis” in 1974. “Administrative guidance” (gyosei shido or kankoku sotan), which is very similar to German Wirtschaftslenkung (steering economic development), is the exercise of non-statutory influence by administrative bodies through directions (shiji), requests (yobo), warnings (keikoku),

14 Kanazawa, ‘The regulation of corporate enterprise,’ 488-490 (see note 10); Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 11; Matsushita, M. 1993, International Trade and Competition Law in Japan, Oxford University Press, Oxford, 79-80. 15 Hiroshi, I., ‘Antitrust and industrial policy in Japan: competition and cooperation,’ in Saxonhouse, G.R. and Yamamura, K. (eds) 1986, Law and Trade Issues of the Japanese Economy. American and Japanese Perspectives, University of Washington Press, Seattle, 57. 16 This is often translated, somewhat misleadingly, as “unfair business practices” in English.


suggestions (kankoku) and encouragement (kansho).17 The definition of former MITI Vice-Minister Toshihiko Yano is quite instructive: “Administrative action to promote cooperation between government and industry on the basis of mutual trust and to persuade industry and obtain its understanding on that basis”.18 This “guidance” can, however, actually have quite significant anti-competitive effects - apart from the fact that it is not always entirely consensual. Four principal types of “administrative guidance” exist:

• cases where Ministries use “administrative guidance” to bring about price fixing or a reduction in production

• cases where trade associations provide “administrative guidance” to member companies

• cases where ‘administrative guidance’ restricts competition without a cartel being formed

• cases where “administrative guidance” precedes formal legislative action.19

In the Oil Cartel case,20 MITI argued that its “administrative guidance” (setting price guidelines, including requiring the oil companies to bear the burden of the first 10% of any price rise) was necessary to curb demand, control inflation and prevent foreign capital from controlling the Japanese market. The implication that the FTC did not have a price surveillance role and was not empowered to direct overall economic policy was not upheld by the Tokyo High Court in its judgement. However, on appeal, the Tokyo Supreme Court held on 28 February 1984 that MITI had particular, significant powers as far as the oil industry was concerned under the Oil Industry Act, but was still not permitted to set prices. However, the special situation of the “oil crisis” absolved MITI from justifying its use of “administrative guidance”. Furthermore, even if

17 See Tanaka, H. (ed) 1976, The Japanese Legal System. Introductory Cases and Materials, University of Tokyo Press, Tokyo, 353-358. 18 Cited in R Seeman, ‘Administrative Guidance & Oil Cartel’ http://www.cebu-online.com/japanlawbase/oil.htm, 15/8/99. 19 See I Hiroshi, ‘Antitrust and industrial policy in Japan,’ 69-71. See also T Nakagawa, ‘Administrative guidance: a tentative model of how Japanese lawyers understand it’ (1998) 32 Kobe U L Rev 1. 20 Idemitsu Kosan and Others, 26 September 1980, Hanrei Jiho 985, 3.


“administrative guidance” was employed illegally, firms that obeyed MITI had not broken the law. In future, “administrative guidance” had to be (a) consistent with the Antimonopoly Act, (b) not contrary to the “public interest”, and (c) considered socially acceptable. Under the latest revision to the Antimonopoly Act, which came into effect on 17 December 1997, holding companies are now permitted. Original fears in certain quarters that this would lead to yet more concentration of economic power have not been realised, as for a long time only one new holding company was established, by the supermarket chain Daiei. The reason for this is not that the legislative reforms are too restrictive. On the contrary, while prohibiting the establishment of holding companies if this would lead to “excessive concentration” of economic power, the new § 9 is quite vaguely worded. The explanation is to be found more in the operation of the Japanese taxation system, which will not permit losses in one division of a holding company to be offset against profits in another, and which values assets of holdings companies in a different manner to that of other companies.21 Over the last 20 years, Japanese competition policy has been affected by three important developments: the privatisation of State-owned enterprises, such as NTT, Japan Railways and the financial sector; the Structural Impediments Initiative (SII) and, more generally, the on-going United States-Japan trade dispute; and the relationship between technological progress and competition.22 To some extent, these same issues are facing competition authorities in most other countries, too, especially the nexus between privatisation, regulation and competition. Three Pillars The Antimonopoly Act applies to three types of conduct:

21 These matters were discussed at length in Nihon Keizai Shimbun, 9, 12, 18, 25/12/1997. 22 Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 15-16 (see note 1).


• private monopolisation • unreasonable restraints of trade • unfair trade practices

As Japanese competition policy shifts away from the earlier overriding emphasis on industry development under the influence of foreign pressure, globalisation of the economy and convergence, there is likely to be increased attention paid to regulation of these types of conduct. “Private monopolisation” is defined in § 2(5) Antimonopoly Act as:

business activities, by which any entrepreneur, individually or by combination or conspiracy with other entrepreneurs, or in any other manner, excludes or controls the business activities of other entrepreneurs, hereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade. 23

Of the three elements essential to “private monopolisation”, namely “contrary to the public interest”, “substantial restraint of competition” and “particular field of trade”, it is the first which is most problematic. There are three principal schools of thought in Japan as to the meaning to be applied to “public interest”. On the one hand, the FTC maintains that the “public interest” is met by securing competition. On the other, MITI, Keidanren (Keizai Dantai Rengokai, Federation of Economic Organisations) and other business groupings believe that the “public interest” embraces macroeconomic interests, including those of manufacturers. The third view was spelled out by the Tokyo High Court in the Oil Cartel case, when it equated the “public interest” with the

23 An English language version of the Antimonopoly Act can be found on the FTC's website (http://www.jftc.admix.go.jp/e-page/acts/amact.txt) although only the Japanese language version is authentic.


purpose of the Antimonopoly Act itself.24 Following this line of reasoning, “public interest” in Japan certainly has a much wider meaning than the FTC believes, because § 1 Antimonopoly Act lists several other purposes apart from the promotion of “free and fair competition” (which, admittedly, is the first aim), including:

• stimulation of the creative initiative of entrepreneurs • encouragement of the business activities of enterprises • increasing employment • improving real incomes • promotion of development of the national economy • assuring consumer interests.

An “unreasonable restraint of trade” is, according to § 2(6) Antimonopoly Act a business activity

by which any entrepreneur, by contract, agreement or any other concerted actions, … other entrepreneurs, mutually restrict or conduct their business activities in such a manner as to fix, maintain, or increase prices, or to limit production, technology, products, facilities, or customers or supplies, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.

It thus has a broadly similar meaning to “restrictive trade practices” in Section 45 Trade Practices Act 1974 (Cth). The main problems are to prove the existence of a cartel in a society in which there is often no physical evidence (no “paper trail”), and to determine the meaning of “public interest”. A wide range of cartels is exempted from the operation of the Antimonopoly Act, including, as has been mentioned already, depression and rationalisation cartels (§ 24(3) and § 24(4)

24 Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 24-25 (see note 1); Y Yanigada et al 1994, Law and Investment in Japan. Cases and Materials, East Asian Legal Studies Program, Harvard Law School, Cambridge, Mass., 386-387.


respectively),25 as well as export and import cartels authorised under the Export and Import Transactions Act (No 299/1952),26 shipping conferences authorised by the Marine Transportation Act (No 187/1949), small business cartels authorised by the Small and Medium Business Organisation Act (No 185/1957) and agreements between insurance companies for the purpose of achieving uniformity in insurance contract terms authorised under the Insurance Business Act.27 Some other fields are also exempt, including airlines under the Aviation Act (No 231/1952), natural monopolies (railways, electricity and gas utilities - and “any other business constituting a monopoly by the inherent nature of the .. business”), activities under specific legislation (such as the Local Railways Act), activities under intellectual property rights and certain activities of cooperatives or federations of cooperatives.28 Japan is, of course, not alone in exempting certain conduct or sectors from the application of its competition laws. Both Portugal and the United States, for example, exempt public enterprises, and Belgium, France and Germany all exempt small and medium enterprises. On 11 July 1991, the FTC issued a Directive on Distribution and Trade Practices, which lists activities which are regarded as breaches of § 3 Antimonopoly Act if they lead to a significant restraint of competition in a particular field of trade. Included are such practices as would fall under the resale price maintenance and boycott provisions of the Trade Practices Act 1974 (Cth), the latter under the influence of the SII talks with the United States. With regard to price fixing and artificially limiting supply of a good, a number of court decisions have contributed to a clearer understanding of the FTC's attitude.29

25 Rationalisation cartels involve joint purchasing of raw materials, assignment of production, joint scrapping of facilities and transfer of business in order to help depressed industries regain their international competitiveness. 26 The United States similarly exempts export cartels from the operation of the Webb-Pomerene Act 1918 (15 USC § 61) and the Export Trading Company Act 1982 (15 USC § 4001). 27 Y Yanigada, Law and Investment in Japan, 388. (see note 24) 28 UNCTAD, ‘Issues related to competition law of particular relevance to development,’ TD/B/COM.2/CLP/6, 18 November 1998, 17. Also, H Oda, 1992, Japanese Law, Butterworths, London, 362-363. 29 See Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 27-30. (see Note 1)


“Unfair trade practices” are defined in § 2(9) Antimonopoly Act as:

any (of the following acts …), which tends to impede fair competition and which is designated by the Fair Trade Commission as such: (i) unjustly discriminating against other

entrepreneurs, (ii) dealing at unjust prices, (iii) unjustly inducing or coercing customers of a

competitor to deal with oneself, (iv) dealing with another party on such terms as will

restrict unjustly the business activities of that party,

(v) dealing with another party through unjust use of one’s bargaining position,

(vi) unjustly interfering with a transaction between an entrepreneur who competes in Japan with oneself or the company of which one is a shareholder or an officer and his contractual partner, or, in cases where the entrepreneur is a company, unjustly inducing, instigating or coercing a shareholder or an officer of the company to act against its interests.

The importance of this pillar lies both in its consumer protection aspect and its intention to regulate activities, which might lead to private monopolisation. Furthermore, it assists small business, which has always been one of the mainstays of Japanese society (a nation of shopkeepers, to borrow an expression from George Orwell). It covers a wide range of anti-competitive and deceptive practices, which are also illegal under the Trade Practices Act 1974 (Cth), including boycotts, refusal to deal, false representation, resale price maintenance, full line forcing and exclusive dealing.

The FTC promulgated a Directive on Unfair Trade Practices (Notification No 15) on 18 June 1982, which replaced the Directive issued in 1953 (Notification No 11), and which had been heavily influenced by German law. This expanded on the


provisions in the Antimonopoly Act and designated the following practices as tending to impede fair competition:

• concerted refusal to deal • other refusal to deal • discriminatory pricing • discriminatory treatment on transaction terms • discriminatory treatment in a Trade Association 30 • unjust low price sales • unjust high price purchasing • deceptive customer inducement • customer inducement by unjust benefits • tie-in sales • dealing on exclusive terms • resale price restriction • dealing on restrictive terms • abuse of dominant bargaining position • interference with a competition’s transaction • interference with internal operation of a competing

company.31

Abuse of Dominant Position As just mentioned, § 2(9) Antimonopoly Act describes an “unjust use of .. bargaining position” as an unfair trade practice. Just what actions comprise such abuse are detailed in Notification No 15. The FTC will take action in the case of any conduct, which is unjust in the context of “normal business practices” and which takes advantage of a “dominant bargaining position” to:

• cause another party to purchase a commodity or service other than that for which they have contracted

• cause another party to provide money, a service or other economic benefits

30 There are two kinds of trade associations (koeki hojin, ‘corporations for the public benefit’): peak bodies such as Keidanren or Nikkeiren, and industry associations (kyokai). 31 The text of the Directive can be found at http://www.jftc.admix.go.jp/e-page/act/gd.htm. See also Y Yanagida, Law and Investment in Japan, 392-395 for a comparison with the earlier version (see note 24); Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 31-50 (see note 1).


• set or change contractual terms in a disadvantageous way

• impose any other disadvantage on another party with regard to terms or execution of a contract

• cause a company to follow direction, or seek approval, to appoint officers (§ 14).

Leaving aside the issue of what is a “normal business practice”, the crucial element here is what is a “dominant position”. In the case of Japanese competition law, this term does not refer to market dominance, but only to dominance in a specific transaction. Thus, even a small firm can be in a “dominant position” vis-à-vis another firm if it is able to impose an unjust requirement - generally through intimidation. “Dominant position” is not defined in the Antimonopoly Act, which instead talks about “bargaining position”, the implication being that one party is able to exert undue influence over the other. § 14 of Notification No 15 is, in fact, similar to the equitable doctrine of “undue influence” in Australia. The decision of the Tokyo Supreme Court in the Miyagawa case, 32 in which a small credit association required a borrower to deposit a large sum with it in return for a loan, would have been considered in Australia as a case of presumed undue influence. The credit association had, in fact, made two loans to Miyagawa, a small manufacturer of paper lanterns and screens, requiring in return that the borrower:

• mortgage property worth half the value of the loans • provide guarantees from five parties • make term deposits with the credit association

amounting to more than half the value of the loans and attracting minimal interest

• pay the interest on the two loans in advance. Miyagawa defaulted, and in the Gifu District Court alleged that the loan agreements violated § 19 Antimonopoly Act and Notification No 11 (which was then still in force) on the grounds

32 KK Miyagawa v Gifu Shoko Shinyo Kumiai, 20 June 1977, 31 Minshu 449.


of abuse of the credit association’s dominant position, and § 90 Civil Code on the grounds that the loan agreements were contrary to public order and good morals. The District Court concurred, but on appeal the Nagoya High Court held that, while the Antimonopoly Act had been breached, the agreements were not voidable. The Tokyo Supreme Court then ruled that the breach of § 19 Antimonopoly Act did not render the loan agreements void per se and, although the effective interest rate exceeded the maximum specified in the Interest Rate Restriction Act (No 100/1950), public order and good morals had not been harmed.33 This decision illustrates the importance of consideration of “public interest” in Japanese competition law, an issue that will be dealt with in more detail below. What constitutes “abuse” is also not clearly specified. Notification No 15 refers to a party “unjustly causing” another party to do something or accept a situation, which it would not otherwise do in the course of “normal business practice”. Inequality of bargaining power is common in commercial contracts because, for one thing, the stronger party cannot normally readily divest themselves of those things, which accord them an advantage. When English courts have had to consider this issue, they have tended to regard the cases as examples of driving a hard bargain, unlike the position in Australia and Canada, where the concept of unconscionable conduct is more developed.34 Of course, the situation is different if duress is proved, in other words, “a coercion of the will, which vitiates consent”.35 To prove abuse normally requires evidence of a threat or intimidation, which are difficult to show because they are so much part of “normal business practice” in Japan. In a case involving the leading department store Mitsukoshi, which never

33 See Yanagida, Law and Investment in Japan, , 410-411. (see note 24) 34 See, for example, Commercial Bank of Australia v Amadio (1983) 151 CLR 447; Harry v Kreutziger (1978) 95 DLR (3d) 231. Under UCC § 2-302, United States courts may refuse to enforce contracts for unconscionable conduct, but will accept evidence as to the “commercial setting.” 35 Lord Scarman in Pao On v Lau Yiu Long [1980] AC 614 (PC) at 636.


went to court because it was resolved by consent following an FTC decision on 17 June 1982,36 its suppliers were coerced into helping it increase its turnover by purchasing jewellery and air-conditioners, paying part of the cost of publicity campaigns, and contributing towards the cost of company festivals and renovation of Mitsukoshi stores. At first, the firm rejected the FTC’s recommendation (haki kankoku) that it desist, but finally consented to amend its business practices.37 In another leading case, the music instrument manufacturer Nihon Gakki Seizo forced distribution agents to only supply retailers who had concluded agreements with the firm and not to supply certain customers (notably, local authorities, who control schools). Retailers were obliged to sell to customers on advantageous terms, and to provide lessons on the instruments at their own expense. The firm rejected the FTC’s recommendation, and was able to draw out the compulsory hearing procedure for a further eight years before finally agreeing to alter its business practices.38 Two recent cases ended in warnings by the FTC. Lawson Inc, a company that franchises convenience stores, was able to compel its suppliers to pay extra money without any just cause as a result of its dominant bargaining position. Similarly, Taiyo Co Ltd was believed to have forced its suppliers to buy midyear gifts and Christmas cakes by abusing its dominant position.39 As we have seen, “abuse of dominant position” in Japan is not to be equated with “misuse of market power” under Section 46 Trade Practices Act 1974 (Cth) or Section 36 Commerce Act 1986 (NZ). The positions of the Australian and New Zealand courts are made clear in Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd40 and Commerce Commission v Port Nelson Ltd41 respectively. In Japan, it is not a question of whether a firm has

36 29 Kosei Torihiki Iinkai Shinketsushu [KTIS] 31. 37 Matsushita, International Trade and Competition Law in Japan, 160; Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 41. 38 30 June 1976, 32 KTIS 107. The FTC’s final decision was made on 18 June 1985. Iyori, Uesugi u Heath, Das japanische Kartellrecht, 41. (see note 1) 39 ‘A general overview of investigation cases in fiscal year 1998’ http://www.jftc.admix.go.jp/e-page/otheriss/case98.htm, 16/11/99. 40 (1989) 167 CLR 177. 41 (1995) 5 NZBLC 99-352.


a “substantial degree of power in a market” (s 46) or a “dominant position in a market” (s 36),42 despite the similar wording, but only of whether it has unequal position in a particular transaction or relationship with another firm. Nevertheless, in a number of vertical restraint cases, the firms involved have also occupied dominant positions in the market. One such case was Fuji X-Ray, which concerned restrictive dealing and territorial restrictions of sale. Fuji X-Ray controlled 53% of the X-ray film market, preventing its distributor from setting prices. The FTC found that Fuji X-Ray had breached § 19 Antimonopoly Act and issued a cease and desist order (haijo sochi), the only penalty which could be applied under the circumstances, since vertical restraints do not attract surcharges or criminal proceedings.43 Article 86 EC Treaty, despite the reference to “dominant position”, is even less comparable because of the economic policies underlying European competition law and because of the manner in which the Commission and the European Court of Justice (ECJ) have developed the concept of “dominance”. The whole point of European competition law is the proper functioning of the internal market (Common Market), and it is this emphasis which largely accounts for the divergent approaches in Europe and the United States, so that in determining whether a firm is dominant or not, it is natural that regard will also be had to the market for its products and to the geographic extent of that market. In Continental Can the ECJ held that

the definition of the relevant market is of essential significance, for the possibilities of competition can only

42 Actually, the New Zealand courts tended to interpret ‘dominance’ as meaning a ‘high degree of market control,’ which arguably was a stricter test than that used in Australia. This difference was abolished earlier this year by the amendments to the Commerce Act, which brought s 36 into line with the Australian provision and overcame the raising of the threshold by the Court of Appeal decision in Telecom Corporation of New Zealand Limited v Commerce Commission (1991) 3 NZBLC 99-239. 43 11.5.1981, 28 Shinketsushu 39. See J Tamura, ‘Foreign firm access to Japanese distribution systems: trends in Japanese antitrust enforcement’ (1995) 4, 1 Pacific Rim Law & Policy J 267, at 273-275.


be judged in relation to those characteristics of the products in question by virtue of which those products are particularly apt to satisfy an inelastic need and are only to a limited extent interchangeable with other products. 44

The market is first determined, and then the firm’s dominance in that market assessed. Public Interest We have already noted that the Antimonopoly Act refers to the “public interest”, and that the Japanese courts comprehend this term in a distinct way. Of course, in both Australia and New Zealand, the competition authorities are required to take into account the “benefit to the public” in granting authorisations exempting certain, otherwise prohibited, conduct (but not “misuse of market power”) from the application of the competition legislation. In its Guide to Authorisations and Notifications, published in 1995, the Australian Competition and Consumer Commission (ACCC) noted: “It is necessary for applicants to demonstrate how community objectives can be efficiently met in ways other than through the operation of normal competition in the market.”45 In both countries, the competition authorities (ACCC and Commerce Commission), the Australian Competition Tribunal and the various courts have interpreted the “public benefit” quite widely, including

• fostering business efficiency • promoting industry rationalisation • producing expansion of employment • bringing about growth in export markets • increasing utilisation of local resources

44 Europemballage Corporation and Continental Can Co Inc v Commission [1973] ECR 215, at Para 32. 45 Cited in P Clarke and S Corones, 1999, Competition Law and Policy: Cases and Materials, Oxford University Press, Melbourne, 555-556 (my emphasis).


• leading to improvements to products.46 In Japan, the “public interest” is much harder to define although, as was mentioned earlier, § 1 Antimonopoly Act, in listing the purposes of the legislation, does refer to matters similar to those considered by competition authorities elsewhere. Actually, one of the problems stems from the fact that “public interest” almost does not need defining - and it is not defined in the Antimonopoly Act - because it is understood. The Japanese word for “public” already gives some indication of why this should be so: oyake derives from a term for “large house”, and originally referred to the Emperor’s palace. Nowadays, it is strongly equated with officialdom (meaning governmental matters). Every Japanese knows that public affairs are the realm of the government (akami no ryouiki, those above), while ordinary citizens quite naturally are shimojimo (those below). Of course, the very fact that there are legal proceedings over competition matters shows that the old order is beginning to break down, and that concepts of obligation (sekimu) and duty (gimu) are being redefined. However, one of the reasons why the United States SII and the more recent European Community efforts to pressure Japan into deregulating its economy have only been partially successful is that, while it is comparatively easy to identify such impediments to competition as the keiretsu system,47 ryuzuseido or the distribution system, which has often been described by foreign traders as a “black hole” and dango or rigged tendering processes,48 it is much more difficult to come to 46 See Clarke and Corones, Competition Law and Policy, 556; R Ahdar, ‘The authorisation process and the ‘public benefit’ test,’ in Ahdar, (ed) 1991, Competition Law and Policy in New Zealand, Law Book Company, Sydney, 239. 47 In point of fact, there is not much difference in practice between the Japanese attitude and the United States approach to agreements between car manufacturers and vehicle parts suppliers, to which a ‘rule of reason’ test is applied rather than a per se prohibition. 48 Other ‘unofficial practices’ include “the strong relationships (‘invisible handshakes’) between local suppliers and buyers , ‘just-in-time’ inventory practices that give nearby suppliers an edge,“ refusals to accept licence applications and delegation of regulatory authority to industry associations. See P Sheard, ‘The economics of Japanese corporate organisation and the ‘structural impediments’ debate: a critical review,’ Pacific Economic Papers No 205, 1992, Australia-Japan Research Centre, Canberra, 2; SM Chemtob, ‘The frustration and promise of Japanese deregulation,’ Japan Information Access Project, 4.7.1997 http://www.nmjc.org/jiap/dereg/papers/deregcon/appendixk.html, 20/8/99.


terms with political interests, let alone the centuries of extra-legal cultural tradition. Political interests, for example, are behind the various exemptions to the Antimonopoly Act, as well as the widespread exemption of small business from the surcharge (kachokin seido) payable under § 7(2).49 Another example was the outcome of the FTC’s decision to impose fines and suspensions on a number of construction companies in Shizuoka Prefecture, which had rigged tenders for public contracts in contravention of § 8(1)(i) Antimonopoly Act. The Prefectural Government lifted the suspensions after one month because of the situation in the construction industry and the financial straits of some of the smaller firms. Industry representatives pointed out the contradiction between the goals of the Antimonopoly Act (“free and fair competition”) and the Construction Industry Act (“healthy development of the construction industry and the public welfare”). 50 CONCLUSION The primary goal of United States antitrust policy is to promote competition, while that of the European Community is to accomplish the integration of the national markets of the various Member States into the Common Market (something long since achieved in the United States), while at the same time preserving competition. However, it has to be recognised that competition does not always achieve efficiency. As Corones has pointed out in discussing the Hilmer Report, where “competition does not achieve economic efficiency, anti-competitive arrangements may have to be entertained on public benefits grounds”.51 The main concern of Japanese competition policy is to ensure that Japanese firms have the size and competitive edge to compete with major United States and European firms in international markets. This is the reason why enforcement of the Antimonopoly Act rests with the government, which of course knows what the “public interest” is. In any

49 Iyori, Uesugi u. Heath, Das japanische Kartellrecht, 89-92, 175. (see note 1) 50 R Seeman, ‘Fair Trade Commission,’ Japan LawLetter 1983 http://www.cebu-online.com/japanlawbase/ftc.htm, 15/8/99. 51 SG Corones, 1994, Restrictive Trade Practices Law, Law Book Company, Sydney, 24. The Report by the Independent Committee of Inquiry (Hilmer Committee) was 1993, National Competition Policy, AGPS, Sydney.


case, policy decisions are made after deliberations between the public servants and affected interest groups in so-called “deliberation councils” (shingikai). Pressuring the FTC to adopt stronger measures is to ignore these fundamental differences in approach and the political realities in Japan. Even where the FTC has succeeded in the courts, as occurred in the Oil Cartel case, it has been a Pyrrhic victory. A recent study by Japanese and British scholars concluded that the FTC was “a unique and vulnerable agency administering deeply unpopular laws based on a widely rejected model of market competition”.52 Since many of the FTC’s staff are seconded from various ministries and agencies under the staff exchange scheme (shukko), there are also doubts about where their loyalties lie. The reality is that MITI, and the Ministry of Finance, both of which are opposed to any increase in power for the FTC, are Cabinet-level ministries,53 support the continuance of the country’s “side-by-side competition” (yokonarabi kyoso)54 and have allegedly already concluded a deal on acquiring the booty of their reform programme (such as the splitting up of the Ministry of Posts and Telecommunications). While staff exchanges between the United States Department of Justice and the Federal Trade Commission on the one hand, and the Japanese FTC on the other, annual consultations and the conclusion of the Agreement Concerning Cooperation on Anticompetitive Activities on 7 October 1999 are all helpful measures, § 8(a)(3) of the International Antitrust Enforcement Assistance Act 1994 (15 USC §§ 6201-12) only permits United States antitrust authorities to assist foreign counterparts if an investigation is “consistent with the interests of the United States”. Of course, the Japanese FTC could retaliate if a request by the Department of Justice was contrary to Japan’s “public

52 Cited in M Wise, ‘Review of competition law and policy in Japan’ (1999) 1, 3 OECD J of Competition L and Policy 77, at 85. 53 The FTC is to become an external organ of the new Ministry of Management and Coordination, following enactment of the Basic Act on the Reform of Central Ministries and Agencies No 103/1998). 54 This expression actually signifies the absence of any real competition.


interest”.55 Despite the fact that Japan has not enacted blocking legislation specifically against United States antitrust laws, it could invoke § 200 Civil Procedure Act and § 24 Civil Enforcement Act against a judgement, which was felt to be contrary to public order or good morals - such as an award of treble damages. In launching the European Commission’s deregulation package for Japan in 1998, Sir Leon Brittan commented that

effective deregulation is an option for all. It will reduce costs, improve market access, and widen consumer choice in Japan. The needs of both Asia and the world economy, as well as the interests of Japan itself, make it intensely desirable for Japan to act now.56

Naturally, the Japanese authorities understand these arguments, just as they are aware that neither the European Community nor the United States really cares about prices in Japan or the welfare of Japanese consumers, except in so far as they are potential purchasers of foreign goods. Many industry sectors in European countries, particularly in Germany and the Netherlands, function in much the same way as Japanese cartels, and many aspects of their economies are just as impenetrable. Both MITI and the Economic Planning Agency support deregulation (kisei kanwa) of the Japanese economy, but their agenda is very different; they recognise that deregulation will create new businesses and increase employment in Japan.57 And regulatory reform is taking place; already a large number of exemptions from the Antimonopoly Act have been abolished, with others under review or facing a reduction in scope. Amongst those abolished are the former cartels involving fish catches, processed fruit, silk cocoons, trade union activities and ports. This last concession, which removed the system of “prior consultation” that required United States shippers to notify the Japan Harbor Transport Association of intended changes to

55 G Trujillo, ‘Mutual assistance under the International Antitrust Enforcement Assistance Act: obstacles to a United States-Japanese Agreement,’ (1998) 33 Texas Int Law J 613, at 619. 56 DG I, ‘Deregulation in Japan’ http://europa.eu.int/comm/dg01/0227dere.htm, 21/8/99. 57 On the present situation, see 1999, Regulatory Reform in Japan, OECD, Paris.


freight handling procedures at its member ports and was at the heart of the 1997 shipping dispute between the two countries, was particularly important. As far as the United States initiatives are concerned, Japan has its own response to anti-competitive practices and structural impediments, including the demand that the United States abolish the Maritime Security Program (which subsidises American shipping), the Cargo Preference Measures (which require that American vessels be used to ship Alaskan oil), the Jones Act requirement that vessels engaged in cabotage be constructed in the United States, and discriminatory measures under the Ocean Shipping Reform Act.58 There will probably never be complete agreement between the United States and Japan over such differences, particularly since prominent United States officials consider that the Japanese Government has no faith in market mechanisms. What the former regard as import restrictions, the latter consider industry adjustment measures. Nevertheless, there is considerable merit in such proposals as “permitting mergers rather than cartels, especially when they involve financially weak firms”.59 What will bring about change, in Japan as elsewhere, is the need for greater cooperation in competition policy, a need brought about by increased globalisation, global cartels, global mergers and “market power occurring on a global basis” (as instanced by Microsoft). Around the world competition authorities are considering convergence of legislation, bilateral cooperation, regional agreements, multilateral rules and enhanced enforcement as approaches to anti-competitive practices with global implications. 60

58 See ‘Submission by the Government of Japan to the Government of the United States Regarding Deregulation, Competition Policy, and Transparency and Other Government Practices,’ 9.10.1998 http://www.infojapan.org/region/n-america/us/economy/date/dereg9810.htm, 12.8.99. 59 Wise, ‘Review of competition law and policy in Japan,’ at 100. (see note 52) 60 See inter alia A Fels, ‘The international dimension to competition policy. An Australian perspective,’ International Association of Legal Science Colloquium, Melbourne, 17.2.2000.

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