Cartels Comparative Guide -

1 Legal and enforcement framework

1.1 Which legislative and regulatory provisions apply to cartels in your jurisdiction?

The Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA) applies to cartels.

1.2 Do any special regimes apply to cartels in specific sectors?

The AMA sets forth exemptions for:

partnerships which meet certain requirements; and
resale price maintenance between an enterprise that publishes works or an enterprise that sells such published works and another enterprise that purchases these works.

Moreover, certain provisions in specific laws - such as Article 101 of the Insurance Business Act, Article 110 of the Civil Aeronautics Act and Article 28 of the Marine Transportation Act - set forth exemptions for cartel activities.

1.3 Which authorities are responsible for enforcing the cartel legislation?

The Japan Fair Trade Commission (JFTC) is the administrative authority responsible for enforcing the AMA. If the JFTC determines that a cartel activity should be criminally punished, it will file an accusation to the Public Prosecutor's Office, which will take charge of the criminal trial procedures. See also question 2.3.

1.4 How active are the enforcement authorities in investigating and taking action against cartels in your jurisdiction? What are the statistics regarding past and ongoing cartel investigations? What key decisions have the enforcement authorities adopted most recently?

The number of cartels subject to a JFTC cease and desist order was:

eight in FY 2014;
seven in FY 2015;
nine in FY 2016;
11 in FY 2017; and
seven in FY 2018.

The total amount of administrative surcharges ordered by the JFTC was approximately:

JPY 17.1 billion in FY 2014;
JPY 8.5 billion in FY 2015;
JPY 9.1 billion in FY 2016;
JPY 1.9 billion in FY 2017; and
JPY 0.3 billion in FY 2018.

See question 9.1 for an evaluation of recent statistics and trends.

Moreover, on 19 June 2019 a revision of the AMA introducing changes to the calculation of administrative surcharges passed the Diet. The revision will come into effect within 18 months from the date of promulgation of the bill (26 June 2019) (see question 9.1). The JFTC also plans to introduce a (partial) attorney-client privilege regime at the same time (see question 3.7).

2 Definitions and scope of application

2.1 How is a ‘cartel' defined in the cartel legislation?

A ‘cartel' is defined as an "unreasonable restraint of trade" under the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA). Article 2(6) of the AMA defines an ‘unreasonable restraint of trade' as:

such business activities, by which any enterprise, by contract, agreement or any other means irrespective of its name, in concert with other enterprises, 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 counterparties, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.

2.2 What specific offences are defined in the cartel legislation?

Other than what has been described in question 2.1, the AMA does not stipulate any specific offences.

2.3 Is liability under the cartel legislation civil, criminal or both?

Cartel participants may be subject to administrative, criminal and civil liabilities.

Administrative liability: The Japan Fair Trade Commission (JFTC) may issue a cease and desist order and/or an administrative surcharge order against cartel participants.

In a cease and desist order, the JFTC may order the relevant enterprise to:

cease and desist the relevant act(s);
transfer a part of its business; or
take any other measures necessary to eliminate the act in violation of the provisions.

An administrative surcharge order compels the recipient to pay a surcharge calculated pursuant to a certain formula set forth in the AMA. See question 6.3 for a detailed description of the calculation of the administrative surcharge.

Criminal liability: In addition to the administrative liabilities described above, cartel participants are subject to criminal penalties under the AMA. A JFTC accusation is a precondition for prosecuting crimes set forth in Articles 89 to 91 of the AMA, which include cartel activities. See question 6.1 for details of the criminal penalty.

In practice, the JFTC does not make criminal accusations against all violations that fall under Articles 89 to 91 of the AMA. The JFTC has made public its intention to actively seek criminal penalties in the following two types of cases in the Fair Trade Commission's Policy on Criminal Accusation and Compulsory Investigation of Criminal Cases Regarding Anti-monopoly Violations dated 7 October 2005:

vicious and serious violations which are considered to have a widespread influence on people's lives by substantially restraining competition in certain areas of trade, such as price-fixing cartels, supply restraint cartels, market allocations, bid rigging, group boycotts, private monopolisation and other violations; and
in the case of violations involving companies or industries that are repeat offenders or do not abide by the elimination measures, violations for which the administrative measures of the JFTC are not considered to fulfil the purpose of the AMA.

Civil liability: Cartel participants may also be subject to civil liabilities. See questions 8.1 to 8.6 for details.

2.4 Can both individuals and companies be prosecuted under the cartel legislation?

Yes. If a representative of a company or an agent, employee or any other worker of a company has, with regard to the business or property of the company, effected an unreasonable restraint of trade, in addition to the offender being punished, the company shall be sentenced to a fine of not more than JPY 500 million.

2.5 Can foreign companies be prosecuted under the cartel legislation?

In theory, it is considered that if some of the elements that constitute cartel activity or some of the outcomes of cartel activity occur in Japan, the participants in such cartel activity, including foreign companies, can be prosecuted under the Japanese cartel legislation. In practice, however, there have been no court precedents in which the extraterritorial reach of the criminal penalties of the AMA was at issue.

2.6 Does the cartel legislation have extraterritorial reach?

With respect to administrative sanctions, it is understood that, regardless of where cartel activity takes place, insofar as such activity has anti-competitive effects on the Japanese market, the AMA is applicable. However, the JFTC does not have authority to conduct compulsory investigations, such as dawn raids in foreign countries.

2.7 What is the statute of limitations to prosecute cartel offences in your jurisdiction?

The statute of limitations is five years for both a cease and desist order and an administrative surcharge order. The statute of limitations for an administrative surcharge order will be extended to seven years in the 2019 revision of the AMA (see also question 9.1).

Cease and desist order: The JFTC will be unable to issue a cease and desist order if five years have passed from the discontinuation of the relevant act. For example, if a party withdraws from a cartel agreement, such party is deemed to have discontinued cartel activities. Discontinuation of cartel activities can also be triggered by external factors, such as a dawn raid conducted by the JFTC.

Administrative surcharge order: Once five years have passed since the end of the period of implementation, the JFTC may not order payment of a surcharge for the relevant violation. The ‘period of implementation' is the period from the date on which the enterprise began implementing the act in violation to the date on which it stopped implementing such act (if this period exceeds three years, during the three years preceding the date on which the business activities constituting the relevant act were discontinued). Thus, the maximum span of the period of implementation subject to an administrative surcharge order is three years. However, this period will be extended to 10 years once the 2019 revision of the AMA comes into effect (see also question 9.1).

3 Investigations – general

3.1 On what grounds may the enforcement authorities commence an investigation?

The Japan Fair Trade Commission (JFTC) typically commences its investigation based on either one or a combination of the following:

a report from the general public;
a leniency application;
an ex officio investigation by the JFTC; or
a request for action from the Small and Medium Enterprise Agency.

See questions 4.1 and 4.2 for further details on the preconditions for conducting an investigation.

3.2 What investigatory powers do the enforcement authorities have in conducting their investigation?

In general, three types of investigations are conducted by the JFTC:

administrative investigations;
criminal investigations; and
voluntary investigations.

The first two types of investigation are specified in the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA) and the JFTC's powers differ for each type of investigation. Voluntary investigations are conducted based on the voluntary cooperation of the party.

Administrative investigations: In an administrative investigation, the JFTC may undertake the following measures in order to conduct the necessary investigation with regard to a case:

Order persons concerned with a case or witnesses to appear to be interrogated or collect their opinions or reports;
Order expert witnesses to appear to give expert opinions;
Order persons holding books and documents and other objects to submit such objects to, or keep such submitted objects at, the JFTC; and
Enter any business office of the persons concerned or other relevant sites, and inspect conditions of business operation and property, books and documents, and other materials.

The evidence gathered during an administrative investigation cannot be used for criminal purposes.

Criminal investigations: Criminal investigations are conducted whenever necessary in the investigation of a criminal case (ie, cases relating to crimes set forth in Articles 89 to 91 of the AMA, including cartel activities).

In a criminal investigation, the JFTC may conduct the following measures:

Request a criminal suspect or witness to appear before the JFTC and question him or her, and inspect an object possessed or abandoned by, or retain an object voluntarily submitted or abandoned by, a criminal suspect or witness; and
Conduct an on-site inspection, search or seizure, by virtue of a warrant issued in advance by a judge.

The measures set out in the first bullet above are considered voluntary, as they may lead to self-incrimination. On the other hand, the JFTC can directly or physically exercise its power to conduct the measures set out in the second bullet above.

Voluntary investigations: Voluntary investigations are conducted based on the consent of the party and therefore the JFTC cannot exercise any investigatory powers under the AMA. However, the JFTC may attempt to shift from voluntary investigations to administrative or criminal investigations, as described above, if during the course of the investigation it identifies a specific alleged violation of the AMA or if the party refuses to cooperate in the investigation without any justifiable reason.

3.3 To what extent may the enforcement authorities cooperate with their counterparts in other jurisdictions during their investigation? How common is such cooperation in practice?

Under Article 43-2(1) of the AMA, the JFTC:

may provide any foreign authority responsible for enforcement of any foreign laws and regulations equivalent to those of this Act (a "Foreign Competition Authority") with information that is deemed helpful and necessary for the execution performance of the Foreign Competition Authority's duties…; provided, however, that this does not apply if the provision of said information is found likely to interfere with the proper execution of this Act or to infringe on the interests of Japan in any other way.

However, the JFTC is bound by confidentiality obligations set forth in Article 100 of the National Public Service Act and Article 39 of the AMA, and is thus unable to provide information to foreign competition authorities in violation of these articles. Further, Article 43-2(2) of the AMA sets forth the matters the JFTC must confirm when providing information to a foreign competition authority. The JFTC often cooperates with foreign authorities by exchanging information in international cartels.

Mutual agreements: Japan has entered into cooperation treaties with the United States, the European Union and Canada. Further, most economic partnership agreements that Japan has entered into have a section regarding cooperation between competition authorities. Moreover, the JFTC has entered into cooperation agreements with the competition authorities of the Philippines, Vietnam, Brazil, Korea, Australia, China, Kenya, Mongolia, Canada and Taiwan. These agreements are mainly focused on information exchange between competition authorities.

Cooperation in criminal investigations: Evidence necessary for criminal investigations will be provided to foreign authorities pursuant to the Act on International Assistance in Investigation and Other Related Matters. Japan has entered into a treaty on mutual legal assistance in criminal matters between the United States, Korea, China, Hong Kong, the European Union and Russia. In such cases, legal assistance for criminal investigation will be provided pursuant to the treaty.

Extradition of offenders: Upon request from a foreign country, on condition that there is a guarantee from the requesting country that it would honour a similar request from Japan, Japan may extradite an offender pursuant to the requirements and procedures set forth in the Act on Extradition. Japan has entered into a treaty for the extradition of offenders with the United States and Korea. There is no precedent in which the extradition of offenders in violation of the AMA has been at issue.

3.4 Is there an opportunity for third parties to participate in the investigation?

The AMA does not stipulate any right of a third party to participate in the investigation.

3.5 What are the general rights and obligations of the enforcement authorities during the investigation?

See question 4.3 with respect to the specific powers of the enforcement authority during a dawn raid.

Administrative investigations: In an administrative investigation, the JFTC cannot directly or physically exercise its powers to conduct the investigation if the party concerned refuses. However, if individuals or companies involved in an alleged violation do not comply with the JFTC's orders or interfere with the JFTC's investigation without justifiable reasons, they may be subject to criminal penalties.

Criminal investigations: In a criminal investigation, the JFTC can directly or physically exercise its power to conduct the investigation to the extent permitted by the warrant issued by a judge. Warrants for on-site inspections, searches or seizures must be shown to the person that is subject to such measures. When conducting questioning, inspections, retentions, on-site inspections, searches or seizures as part of criminal investigations, JFTC staff members must carry an identification card that indicates their official status and produce it at the request of the persons concerned.

3.6 What are the general rights and obligations of the target company during the investigation?

See question 4.4 with respect to the rights and obligations of the target company or individual during a dawn raid.

Administrative investigations: With respect to administrative investigations, it is understood that Article 35 of the Constitution, which requires a warrant issued by a judge for a search or seizure, is not applicable, as this article covers only criminal investigations or those investigations that directly lead to criminal prosecution. Therefore, a warrant is not required for administrative investigations.

It is also understood that Article 38(1) of the Constitution, which sets forth the right against self-incrimination, is not applicable for the same reason. As such, notwithstanding this article, if an individual refuses to appear or testify in violation of the JFTC's administrative order, he or she may be subject to a criminal penalty pursuant to the AMA. Further, the JFTC does not allow an attorney to be present during the interview of an individual.

Criminal investigations: Articles 35 and 38(1) of the Constitution are applicable to criminal investigations. Therefore, in a criminal investigation, a warrant issued by a judge is required for the JFTC to conduct an on-site inspection, search or seizure, and the JFTC cannot compel an individual to appear and testify before the JFTC. In practice, if an individual agrees to appear and testify before the JFTC, the JFTC will not allow his/her attorney to be present during the interview.

3.7 What principles of attorney-client privilege apply during a cartel investigation?

In Japan, it is generally understood that attorney-client privilege is not set forth in the law or explicitly recognised in judicial precedent. In a 12 September 2013 decision, the Tokyo High Court ruled that: "It is difficult to find reason to understand that the attorney-client privilege is guaranteed as a specific right or interest." The JFTC takes the same position and may order submission of communications between an attorney and his or her client.

However, concurrently with the 2019 revision of the AMA, which will come into effect within 18 months from the date of promulgation of the bill (26 June 2019), the JFTC plans to introduce (partial) attorney-client privilege. This privilege will be admitted only in administrative investigations and will apply to communications between an enterprise and its counsel containing legal opinions in connection with an unreasonable restraint of trade. There will be four requirements for the application of this privilege:

The enterprise must request the application of this privilege at the time of issuance of the JFTC's order for the submission of documents;
The relevant document must be handled appropriately (eg, title of the document, place of storage, maintenance of confidentiality);
The enterprise must submit a list of required information, such as the date of creation and the author of the document, within a certain timeframe; and
The enterprise must have no illegal purposes.

A designated staff member of the JFTC will decide whether the document submitted meets these requirements. If the staff member decides that the requirements are met, the document will be returned to the enterprise. As this regime is still under review at the JFTC, this may be subject to change.

3.8 Are details of the investigation publicly announced? If so, what principles of confidentiality apply?

The JFTC may, in order to ensure the proper operation of the AMA, make any necessary matters public except for the secrets of enterprises.

Though the JFTC will not officially make public the implementation of a dawn raid, dawn raids are often reported by the media.

The cease and desist order issued by the JFTC and a general outline of the case will be made public on the JFTC's homepage. Cease and desist orders are brief - usually only several pages in length. Documents submitted by the related parties are not made public. See also question 4.7 with respect to the inspection or photocopying of documents by the parties concerned during the hearing of opinions procedure.

The JFTC previously did not disclose information on enterprises that were granted leniency, unless the enterprise desired such publication. However, to enhance transparency, with respect to leniency applications made on or after 1 June 2016, the JFTC now publicly discloses information in this regard, including the name, location, name of representative and percentage of reduction (or immunity) of enterprises that are granted leniency.

4 Investigations – step by step

4.1 What initial steps do the enforcement authorities take to commence a cartel investigation?

Cartel investigations often commence internally at the Japan Fair Trade Commission (JFTC) in response to a leniency application made by a cartel participant. Once the JFTC believes that sufficient evidence has been collected from the leniency applicant, it will conduct simultaneous dawn raids (also called ‘on-site inspections') at the premises of all alleged cartel participants. The dawn raid is understood to be the ‘official' commencement of the investigation. If a cartel participant did not apply for leniency before the dawn raid, the dawn raid will be the first opportunity for such participant to learn that the JFTC has begun an investigation.

The term ‘dawn raid' here could mean either an administrative investigation or a criminal investigation (see also question 3.2). Since criminal prosecutions of cartel activities are not so common in Japan, a dawn raid as an administrative investigation is more usually conducted (see also question 2.3).

4.2 Are dawn raids commonly conducted in your jurisdiction? If so, what are the pre-conditions for conducting a dawn raid? When, where and by whom are they conducted? Do the enforcement authorities have the power to search private as well as company premises?

The JFTC will often conduct a dawn raid in the early stages of a cartel investigation. The dawn raid can be conducted as either an administrative investigation or a criminal investigation.

Pre-conditions for conducting a dawn raid: Pursuant to Article 47(1) of the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA), the JFTC may conduct a dawn raid as an administrative investigation "in order to conduct the necessary investigation with regard to a case". Although the JFTC has discretion as to which powers to exercise in an investigation, it is understood that a certain specific suspicion of a violation is required to conduct a dawn raid; the general possibility of a violation is not sufficient.

For the JFTC to conduct a dawn raid as a criminal investigation, there must be a suspicion of the commission of a crime set forth in Articles 89 to 91 of the AMA. Further, a warrant issued by a judge is required.

Timing: As described in question 4.1, dawn raids are generally conducted in the early stages of an investigation. However, the JFTC may also conduct a second or third dawn raid if the investigation is not making progress or if the alleged violation continues after the first dawn raid. With respect to the limitations on the time of the day to conduct a dawn raid, see question 4.3.

Location: When a dawn raid is conducted as part of an administrative investigation, the JFTC may "[e]nter any business office of the persons concerned with a case or other necessary sites". Therefore, private premises may also be searched, insofar as material related to the alleged violation is suspected to be present there and the investigator reasonably considers this necessary for the investigation.

A dawn raid conducted as part of a criminal investigation may be conducted only at the site designated by the warrant issued by a judge. If the warrant designates private premises, it may also be searched.

Officers involved: A dawn raid conducted as part of an administrative investigation is usually conducted by designated staff members of the JFTC. In criminal investigations, staff members of the JFTC and the Public Prosecutor's Office may work in cooperation. If a criminal investigation is ongoing, a firewall will be established to prevent information gathered during an administrative investigation from being used in the criminal investigation (see also question 3.2).

4.3 What powers do officers have during the dawn raid? Are there any limitations on these powers?

See question 3.5 for the general rights and obligations of the JFTC.

Administrative investigations: In order to conduct a dawn raid as part of an administrative investigation, as the JFTC cannot exercise its power by force, consent from the person in charge of the premises is required. However, as non-compliance with the JFTC's investigation may lead to criminal penalties (see question 3.5), that party will basically be obliged to comply with the investigation.

At the beginning of a dawn raid, the investigator of the JFTC will present a document stating the following:

the title of the case;
the gist of the alleged facts in violation of the AMA; and;
the applicable provisions of the AMA.

Further, the JFTC must instruct the investigator to carry an identification card and present it to the persons concerned.

There are no specific rules which limit the time of the day at which a dawn raid may be conducted as part of an administrative investigation. In practice, dawn raids will normally be conducted simultaneously in the morning for all alleged participants in the cartel.

Criminal investigations: In a dawn raid conducted as part of a criminal investigation, the JFTC can directly or physically exercise its powers to conduct the investigation to the extent permitted by the warrant issued by a judge. The place where the dawn raid shall be conducted will be limited to the extent specified in the warrant. Further, a dawn raid conducted as part of a criminal investigation may not be conducted between sunset and sunrise, unless the warrant specifies that it may be executed at night; however, if this is considered necessary, a dawn raid initiated before sunset may be continued beyond sunset. In practice, dawn raids will generally be commenced simultaneously in the morning for all alleged participants in the cartel and may continue until the next day to avoid the destruction of evidence.

4.4 What are the rights and obligations of the target company and any individuals targeted during a dawn raid?

Administrative investigations: During a dawn raid, the person in charge of the premises must be present. On the request of a company involved in an alleged violation, its attorney may also be present, as long as this does not affect the smooth implementation of the dawn raid. However, the JFTC does not regard the presence of an attorney as a right and thus will not wait for the attorney to arrive before commencing a dawn raid.

On the day of a dawn raid, the JFTC will allow the company to copy materials to be submitted to the JFTC that are deemed necessary for its daily business activities, as long as this does not affect the smooth implementation of the raid. The JFTC will provide a list of items seized during a dawn raid to the person in charge of the premises. In addition, on the day of or the day after the dawn raid, upon the request of the company concerned, it may peruse and copy submitted (retained) materials at a place designated by the JFTC with an adjusted schedule, to the extent that this does not affect the investigation.

Criminal investigations: JFTC staff members may prohibit anyone from entering or leaving the site without permission while questioning, inspections, retentions, on-site inspections, searches or seizures are being conducted as part of a criminal investigation. The party concerned has no right to have an attorney present during the dawn raid. In practice, however, there are cases where attorneys have been allowed to be present during a dawn raid.

After carrying out retention or seizure, a JFTC staff member must prepare an inventory of the objects retained or seized and deliver a copy to the owner or holder of the objects retained or seized, or a person who can act in lieu of the owner or holder. However, the law does not provide a right for the company to take copies of the retained or seized documents.

4.5 What evidence can be seized during a dawn raid? Do the enforcement authorities have the power to interview witnesses and take statements during a dawn raid?

Administrative investigations: The AMA does not specifically state the subject of the seizure during a dawn raid. The JFTC has stated in its Guidelines on Administrative Investigation Procedures under the Anti-monopoly Act that "[a]n order to submit materials is given to the extent that the investigator reasonably considers such materials are necessary for Case Investigations". It is common practice that key personnel involved in the alleged conduct are interviewed during a dawn raid.

Criminal investigations: In conducting a dawn raid as part of a criminal investigation, the JFTC may seize only those items listed in a warrant issued by a judge (see question 4.3). However, comprehensive wording may be included at the end of the list, such as "any other items relevant to the case", and the subject of a seizure may become an issue.

4.6 How can a company best prepare itself for dawn raids? What best practices should it follow in the event of a dawn raid?

When a JFTC investigator appears at company premises to conduct a dawn raid, the company should immediately contact its legal counsel and legal division to seek appropriate advice. The legal division should then immediately issue a notice within the company group to prohibit the destruction of any documents or electronic data relating to the alleged violation.

Subsequently, if the company did not file for leniency prior to the dawn raid, it should decide whether to apply for leniency within 20 business days of the date of the dawn raid. The company should:

conduct an internal investigation and determine whether cartel activity took place; and
contact the JFTC to confirm whether it is still possible to file a leniency application.

If the JFTC seeks to interview key personnel on a voluntary basis, the company should prioritise its own internal investigation to the extent possible and then cooperate with the JFTC promptly once the internal investigation is completed.

4.7 What are the next steps in the cartel investigation following a dawn raid? What timeframe do these typically follow?

After a dawn raid, the JFTC will continue its investigation by conducting interviews and requesting additional information or documents from the parties concerned.

Once the investigation is complete, if the JFTC seeks to issue a cease and desist order, it must conduct a hearing of opinions with the prospective addressee of the order. First, the JFTC will notify the prospective addressee in advance of matters such as:

the expected contents of the cease and desist order;
the facts found by the JFTC; and
the application of laws and regulations thereto.

The prospective addressee may submit a request to the JFTC to inspect or copy the evidence proving the facts found by the JFTC. On the hearing date, the party may state its opinions, submit evidence and address questions to the investigators. The JFTC will decide whether to issue a cease and desist order after carefully considering the report of such hearing.

Generally speaking, it takes approximately 12 to 18 months from the initial dawn raid until a cease and desist order is issued by the JFTC; but this period can vary significantly, depending on the case.

4.8 What factors will the enforcement authorities consider in assessing whether cartel activity has taken place?

Cartels are restricted as an unreasonable restraint of trade under the AMA. This activity must be conducted "in concert with other enterprises" (see question 2.1). It is understood that this requires ‘liaison of intention' (‘ishi-no-renraku') between enterprises. In this respect, the Tokyo High Court ruled in its judgment dated 25 September 1995 that "[t]he said ‘liaison of intention' means that an entrepreneur recognizes or predicts implementation of the same or similar kind of price-raising among entrepreneurs and, accordingly, intends to collaborate with such a price-raising. [. . .] ‘liaison of intention' can be proved by showing mutual recognition of other entrepreneurs' price-raising and tacit acceptance of such a price-raising of another."

In proving this "liaison of intention", the JFTC will likely consider the following factors:

previous exchanges of information regarding an increase in the prices of a certain product; and
coordinated or similar increases in prices as a result.

4.9 In case of a finding of cartel activity, can the company seek to negotiate a settlement, plea bargain or similar resolution? If so, what is the process for doing so?

There is no settlement procedure for cartel activities. In the 2016 revision to the AMA, which came into effect on 30 December 2018, a so-called ‘commitment system' (‘kakuyaku-seido') was introduced. In case of an alleged violation, the party concerned will propose a plan to the JFTC to cease and desist the alleged violation. If the JFTC determines that such plan is sufficient to cease the alleged violation, the JFTC will approve it and the party concerned will receive no administrative sanctions. However, the JFTC has announced in its guidelines that this commitment system will not apply to certain material violations including price cartels, supply restriction cartels and bid rigging.

In June 2018 a type of plea bargaining was introduced into the criminal procedure. This is applicable to cartel activities. If an individual or a company provides statements or other evidence of a third party's crime in cooperation with the prosecutor's investigation, the prosecutor may apply certain reduction or immunity measures (including non-indictment) against that individual or company, provided that consent is obtained from the defence counsel. However, there have been no cases as yet in which this plea bargaining system has been applied to cartel activity.

5 Leniency

5.1 Is a leniency programme in place in your jurisdiction? If so, how does this function?

Yes. A leniency programme was introduced in Japan by way of amendments to the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA) in 2006. The leniency programme applies only to administrative surcharges, not to civil and criminal penalties.

Under the leniency programme, if companies that have committed an unreasonable restraint of trade (eg, cartel activities) report their own misconduct to the JFTC and cooperate with the JFTC's investigation, they can be fully or partially exempted from administrative surcharges.

Whether and to what extent such companies can enjoy benefits from the leniency programme will depend on the order of filing of the application to the JFTC (see question 5.2).

However, forthcoming amendments to the AMA which passed the Diet on 19 June 2019 will change this scheme: the upper limit on the number of leniency applicants (previously five applicants) will be abandoned. In addition, the JFTC will consider not only the order of application, but also the degree of cooperation with the JFTC's investigation in determining the benefits from the leniency programme (see question 9.1).

Under the leniency programme, no extra credit is given for disclosing additional violations. If a leniency applicant would like to seek leniency with respect to other misconduct, it must report this separately to the JFTC.

5.2 What are the benefits of applying for leniency, both for the first mover and for subsequent applicants?

Prior to commencement of investigation: In the case of a leniency application prior to commencement of the JFTC's investigation (ie, a dawn raid), a company whose leniency application is accepted first by the JFTC may be fully exempted from administrative surcharges. In addition, the JFTC's policy is that it will not bring a criminal accusation against a first applicant (including its officers, directors or employees) that receives full exemption. Because a JFTC accusation is a precondition for the prosecution of relevant crimes (including cartel violations), in practice, the first applicant will also be exempted from criminal penalties.

Subsequent applicants can benefit from a 50% reduction (for the second applicant) and a 30% reduction (for the third, fourth and fifth applicants) of administrative surcharges, respectively. In order to qualify as a fourth or fifth applicant, an applicant must submit relevant materials on new facts to the JFTC.

In addition, the JFTC often will not issue cease and desist orders to companies whose leniency applications were accepted prior to commencement of the JFTC's investigation.

After commencement of investigation: In the case of a leniency application filed after the commencement of a JFTC investigation, if the total number of leniency applicants (ie, both before and after the investigation is commenced) is five or fewer, up to three applicants can receive a 30% reduction of administrative surcharges, as long as:

they apply for leniency within 20 business days of commencement of the JFTC's investigation; and
they report and submit to the JFTC relevant materials on new facts.

As described in question 5.1, amendments to the AMA enacted on 19 June 2019 have revised the leniency programme in this regard (see question 9.1).

5.3 What steps does a leniency application involve? What timeframe do these typically follow?

Informal consultation with the JFTC: It is common for companies which have committed an unreasonable restraint of trade (including cartel activities) to consult informally with the JFTC prior to submitting a formal leniency application. Such companies normally attempt to confirm whether leniency applications can still be filed, the order of priority and the materials to submit to the JFTC.

Formal application for leniency: In order to qualify as a leniency applicant, a company which has committed an unreasonable restraint of trade must apply for the leniency programme by submitting specific forms by fax to the JFTC.

In the case of a leniency application submitted prior to commencement of a JFTC investigation, applicants must submit Form 1 (which identifies the applicant and summarises the misconduct) to the JFTC by fax. Upon receipt of Form 1, the JFTC will notify the applicant of the order of priority and the deadline for submission of Form 2 (which contains more detailed information of the misconduct) and materials relating to the misconduct. The deadline for submission of Form 2 and related materials is typically set at around 14 days following receipt of Form 1.

In case of a leniency application filed after commencement of a JFTC investigation, applicants must submit Form 3 (which contains detailed information of the misconduct) by fax, together with materials relating to the misconduct, within 20 business days of commencement of the JFTC's investigation.

5.4 What are the rights and obligations of the applicant during the leniency application and over the course of its cooperation with the enforcement authorities?

Leniency applicants must:

cease their involvement in the cartel activities;
cooperate fully with the JFTC's investigation;
respond to any requests to submit reports or materials relating to the alleged misconduct to the JFTC; and
not disclose or divulge the fact of their application to any third parties without justifiable reasons (eg, consulting outside counsel or reporting to relevant authorities in other jurisdictions).

5.5 Is the leniency programme open to individuals? Can employees or former employees benefit from a leniency application filed by their employer? Do the authorities operate a programme for individual whistleblowers separate to the leniency programme?

With the exception of self-employed individuals, the leniency programme does not apply to individuals (eg, officers, directors or employees of companies), because only enterprises (companies and self-employed individuals) are subject to administrative surcharge orders.

However, if a first leniency application is accepted by the JFTC, the JFTC's policy is not to bring a criminal accusation against the first applicant company and its officers, directors and employees. Because a JFTC accusation is a precondition for the prosecution of relevant crimes (including cartel activities), in practice, individuals of such company may be exempt from criminal penalties (see question 5.2).

In addition, individual whistleblowers who report a company's illegal activities (including cartel activities) to the relevant authorities may be protected by the Whistleblowers Protection Act, which prohibits companies from treating individual whistleblowers in a disadvantageous manner due to their whistleblowing.

5.6 Can leniency be denied or revoked? If so, on what grounds?

Leniency may be denied on either of the following grounds:

Reports or materials submitted by the leniency applicant to the JFTC contained false information;
The leniency applicant failed to submit requested reports or materials to the JFTC;
The leniency applicant coerced other enterprises to commit the violation or prevented them from ceasing the violation.
The leniency applicant failed to cease its involvement in the cartel activities; or
The leniency applicant breached its obligation of confidentiality in relation to the leniency application.

6 Penalties and sanctions

6.1 What penalties may be imposed in criminal proceedings on companies? What penalties may be imposed on individuals?

Companies that have committed an unreasonable restraint of trade (including cartel activities) may be subject to a criminal fine of up to JPY 500 million.

Self-employed individuals who have committed an unreasonable restraint of trade, and individuals (eg, officers, directors or employees) who have committed an unreasonable restraint of trade with respect to the business or property of companies, may be subject to a criminal fine of up to JPY 5 million and/or imprisonment for up to five years.

In addition, if a company has committed an unreasonable restraint of trade, a criminal fine of up to JPY 5 million may be imposed on company representatives who failed to take any necessary measures to prevent the violation or to rectify such violation, even though they were aware of it.

6.2 What penalties may be imposed in civil proceedings on companies? What penalties may be imposed on individuals?

Apart from administrative surcharges that may be imposed on enterprises (companies and self-employed individuals), in civil proceedings, person that suffered damages from cartel activities – including direct and indirect purchasers – may file a damage claim against cartel participants. Such claims are usually based on Article 709 of the Civil Code, which is a general clause for a tort claim; or Article 25 of the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA), which sets forth the requirements for a follow-on action (see question 8.4). Plaintiffs can only recover actual damages. Treble damages are not available in Japan.

Theoretically, a claim under Article 709 of the Civil Code can be brought against both companies and individuals. However, in practice, such claims are normally brought against companies only, taking into account the assets of the defendant. A claim under Article 25 of the AMA can be brought only against enterprises (companies and self-employed individuals). See questions 8.1 to 8.6 for details.

6.3 How are penalties in cartel cases determined? In deciding on the applicable penalties, will the enforcement authorities consider penalties imposed in other jurisdictions?

In cartel cases, administrative sanctions are imposed by the JFTC and criminal penalties are imposed by the competent courts.

Administrative sanctions: If the JFTC finds that a company has engaged in cartel activities, it can issue a cease and desist order and/or an administrative surcharge order against it, unless the total amount of the administrative surcharge is under JPY 1 million, after the hearing of opinion process set out in the AMA.

The method for calculating the amount of the administrative surcharge is set out below, although this will change as a result of amendments to the AMA enacted on 19 June 2019 (see question 9.1).

In principle, the administrative surcharge is calculated by multiplying the sales volumes generated from the cartel activities for up to three years by the following rates:

10% for large manufacturers;
4% for medium and small manufacturers;
3% for large retailers;
1.2% for medium and small retailers;
2% for large wholesalers; and
1% for medium and small wholesalers.

The rates listed above may be adjusted upwards or downwards as follows:

If the company ceased such cartel activities at least one month prior to implementation of the JFTC's investigation and the term of such cartel activities is under two years, the rate may be reduced by up to 20%.
If the company was engaged in such cartel activities repeatedly or played the leading role in such cartel activities, the rate may be increased by up to 50%.
If the company was engaged in such cartel activities repeatedly and played the leading role in such cartel activities, the rate may be doubled.

In addition, if both administrative surcharges and criminal penalties for the same cartel case are imposed on a company, the JFTC must deduct an amount equivalent to one-half of the criminal penalties from the amount of the administrative surcharges.

The JFTC does not consider any penalties imposed in other jurisdictions when calculating the amount of the administrative surcharges.

Criminal penalties: There are no clear thresholds for deciding the amount of criminal penalties under the AMA. The competent court will decide the amount of criminal penalties by taking into account various circumstances of the case.

6.4 Can a defendant company pay the legal costs incurred by and/or penalties imposed on its employees?

No rule explicitly prohibits a defendant company from paying the legal costs incurred by its employees. However, because there may be legal conflicts between the defendant company and its employees, payment by the defendant company of such legal fees could be problematic, in that it could trigger shareholder derivative suits against the officers of the defendant company.

On the other hand, the defendant company cannot pay any penalties imposed on employees on their behalf.

7 Appeal

7.1 Can the defendant company appeal the enforcement authorities' decision? If so, which decisions of the authority can be appealed (eg, all decisions or just the final decision) and to which reviewing authority? What is the standard of review applied by the reviewing authority (eg, limited to errors of law or a full review of all facts and evidence)?

Yes. The specific appeal process depends on the type of decision, as outlined below.

Administrative decisions: The defendant company may appeal the JFTC's administrative orders (cease and desist orders and administrative surcharge orders) before the Tokyo District Court within six months of the date of such orders. The judgment of the Tokyo District Court may be appealed before the Tokyo High Court within 14 days of issue; while the Tokyo High Court decision may be appealed before the Supreme Court within 14 days of issue.

Criminal decisions: Upon finding cartel activities, the JFTC may file a criminal accusation of the defendant company's cartel activities to the prosecutor general. The prosecutor can then bring a prosecution before the competent district court. If the competent district court finds the defendant company guilty, its judgment may be appealed before the competent high court within 14 days of issue; the high court decision may subsequently be appealed before the Supreme Court within 14 days of issue.

7.2 Can third parties appeal the enforcement authorities' decision, and if so, in what circumstances?

In theory, third parties may appeal an administrative decision of the JFTC if they have a legal interest in seeking revocation of the decision (see Article 9(1) of the Administrative Case Litigation Act). However, we are not aware of any cases in which a third-party appeal against such decision has been admitted in a cartel case.

On the other hand, third parties cannot appeal criminal decisions of the competent courts.

8 Private enforcement

8.1 Are private enforcement actions against cartels available in your jurisdiction? If so, where can they be brought?

Yes. Private enforcement actions against cartel participants for compensation of damages are available for persons that have suffered damages in relation to cartel activities insofar as the amount of damages and a causal relationship between the said damages and the cartel activity can be proven. Such private enforcement actions include a tort claim under Article 709 of the Civil Code and a damages claim under Article 25 of the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA).

A tort claim under Article 709 of the Civil Code may be brought regardless of whether the JFTC has issued an administrative order. As such, this type of tort claim is referred to as a standalone action.

On the other hand, in a damages claim under Article 25 of the AMA, plaintiffs can file such a claim only after a Japan Fair Trade Commission (JFTC) administrative order (ie, a cease and desist order and/or administrative surcharge order) has become final and binding. As such, this type of damages claim is referred to as a follow-on action.

A standalone action can be brought before the competent district court with jurisdiction over:

the location of the defendant's principal office or branch office;
the location of the plaintiff; or
the location where the cartel activities took place.

On the other hand, a follow-on action must be brought exclusively before the Tokyo District Court.

Private enforcement actions for injunctive relief under Article 24 of the AMA are not available in connection with an unreasonable restraint of trade (including cartel activities).

8.2 Can private enforcement actions be brought against both companies and individuals?

In theory, standalone actions may be brought against both companies and individuals, because there are no restrictions against whom a tort claim may be brought under the Civil Code. However, in practice, standalone actions are normally brought against companies, taking into account the assets of the defendant.

Follow-on actions can be brought only against enterprises (companies and self-employed individuals).

8.3 Are class actions or other forms of collective action available in your jurisdiction?

No, class actions and other forms of collective action are not available in Japan.

8.4 What process do private enforcement actions follow?

The process for a standalone action is the same as that for a tort claim pursuant to Article 709 of the Civil Code. It is subject to a statute of limitations of three years from the time when the plaintiff comes to know of the damages and the identity of the perpetrator. In order to establish the case, the plaintiffs must show:

intent or negligence of the cartel participants;
infringement of any right or interest;
the amount of damages; and
a causal relationship between the tortious act and the damages.

Follow-on actions can be brought only after an administrative order has become final and binding. In addition, they are subject to a statute of limitations of three years from the date on which the administrative order has become final and binding. Cartel participants may not be exempted from liability by proving the non-existence of intent or negligence on their part (ie, the plaintiffs need not show intent or negligence on the part of cartel participants), although the plaintiffs must still show a violation of law. Where a follow-on action has been filed, the court may seek the JFTC's opinion with respect to the amount of damages caused by the violation.

8.5 What types of relief may be sought and what types of relief are most commonly awarded? How is the relief awarded determined?

As described in question 8.1, private enforcement actions for injunctive relief under Article 24 of the AMA are not available in connection with an unreasonable restraint of trade (including cartel activities). Only damages claims (standalone actions and follow-on actions) may be brought against cartel participants. Plaintiffs can only recover actual damages. Treble damages are not available in Japan.

In both standalone actions and follow-on actions, the burden of proof in respect of the amount of damages lies with the plaintiffs. However, the court will not automatically dismiss the case if the plaintiffs have difficulty proving the amount of damages. Pursuant to Article 248 of the Code of Civil Procedure, the court has discretion to reach a finding on the amount of damages that is reasonable, based on the parties' arguments and the examination of evidence.

In our experience, standalone actions are more common than follow-on actions in cartel cases in Japan, partly because standalone actions can be flexibly filed without waiting until administrative orders (cease and desist orders and/or administrative surcharge orders) have become final and binding.

8.6 Can the decision in a private enforcement action be appealed? If so, to which reviewing authority?

Yes. As regards standalone actions, the judgment of the competent district court can be appealed to the competent high court of Japan. As regards follow-on actions, the judgment of the Tokyo District Court can be appealed exclusively to the Tokyo High Court.

9 Trends and predictions

9.1 How would you describe the current cartel enforcement landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Between April 2018 and March 2019, the Japan Fair Trade Commission (JFTC) issued seven cease and desist orders and imposed administrative surcharges of JPY 261.1 million in relation to cartel cases. The number of cease and desist orders issued was at a similar level as compared to the past few years. However, the amount of administrative surcharges imposed was at its lowest level since the leniency programme was introduced in 2006.

That said, as the amount of administrative surcharges imposed can fluctuate significantly, depending on the nature and extent of the violation, the low level of administrative surcharges imposed should not be construed as an indication that the JFTC has become less active in cartel enforcement.

In terms of new developments, on 19 June 2019 a bill to amend the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (AMA) passed the Diet. The main amendments are as follows.

Leniency programme:

The upper limit on the number of leniency applicants (currently five) will be abolished.
In the case of leniency applications filed prior to commencement of a JFTC investigation, leniency applicants will receive the following reductions:
- First applicant: full exemption.
- Second applicant: 20% reduction plus additional reduction of up to 40% (depending on the degree of cooperation with the JFTC investigation).
- Third to fifth applicants: 10% reduction plus additional reduction of up to 40% (depending on the degree of cooperation with the JFTC investigation).
- Sixth and subsequent applicants: 5% reduction plus additional reduction of up to 40% (depending on the degree of cooperation with the JFTC investigation).
In the case of leniency applications filed after commencement of the JFTC investigation, the leniency applicants will receive the following reductions:
- Up to three applicants (where the total number of leniency applicants, both before and after such investigation, is five or fewer): 10% reduction plus additional reduction of up to 20% (depending on the degree of cooperation with the JFTC investigation).
- All other applicants: 5% reduction plus additional reduction of up to 20% (depending on the degree of cooperation with the JFTC investigation).

Administrative surcharges:

The maximum period of implementation subject to an administrative surcharge order will be extended to 10 years (currently three years).
The statute of limitations to issue administrative surcharge orders will be extended to seven years (currently five years) from the end of the period of implementation.
The calculation rates by type of business (ie, manufacturers, wholesalers or retailers) will be abolished.

Timeframe for implementation: The amendments will come into effect on a date specified by cabinet order within a period not exceeding 18 months from the date of promulgation of the bill (26 June 2019). In addition, with the aim of making the new leniency programme more effective, the JFTC plans to introduce a (partial) attorney-client privilege regime, which will be implemented as of the date on which the amended AMA takes effect (see question 3.7).

10 Tips and traps

10.1 What would be your recommendations to companies faced with a cartel investigation and what potential pitfalls would you highlight?

Under the current leniency programme, leniency applicants benefit from a uniform and impartial reduction in the amount of administrative surcharges based on order of application, to the extent that certain predetermined requirements are met (eg, there are five or fewer leniency applicants; the leniency application is submitted within 20 business days of the investigation's start date). The Japan Fair Trade Commission (JFTC) cannot vary the amount of the reduction based on the degree of cooperation with its investigation, or the nature and extent of the violation. Thus, for companies faced with a cartel investigation, the decision on whether to seek leniency must be made as quickly as possible after the alleged cartel activities are discovered.

As stated in question 9.1, the bill to amend the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade passed the Diet on 19 June 2019. The new leniency programme is designed to increase the incentives for companies to cooperate with the JFTC's investigation and affords the JFTC some flexibility in determining the rates of reduction based on the degree of cooperation with its investigation. As a result of the amendment, the focus of JFTC cartel enforcement is expected to shift from the speed with which leniency applications are filed to the level of cooperation with the investigation. The new programme will thus increase the need for companies to consult outside counsel on how to cooperate with the JFTC in cartel investigations. Therefore, for companies faced with a cartel investigation, it will become even more important to engage competent and experienced local counsel to navigate the nuances inherent in communications with the JFTC.

Sho Tanaka and Hiroki Kikkawa contributed to this Guide.

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.

Japan: Cartels Comparative Guide