1. Legal and enforcement framework

1.1 Which legislative and regulatory provisions regulate dominance in your jurisdiction?

The primary legislative and regulatory provisions that regulate dominance in Japan are:

  • the Anti-monopoly Act (including its enforcement regulations) (AMA); and
  • the Guidelines on Exclusionary Private Monopolisation.

Dominance is mainly prohibited under Articles 2(5) and 3 of the AMA as 'private monopolisation'. In addition, conduct that qualifies as private monopolisation sometimes overlaps with, and is categorised as, an 'unfair trade practice' under Article 2(9) of the AMA.

Separately, Article 9 of the AMA prohibits companies from establishing control over or changing the control of other domestic companies, and from excessively concentrating market share by acquiring or holding the shares of competitors (defined as 'general concentration'). The Japan Fair Trade Commission (JFTC) has published Guidelines Concerning Companies Which Constitute an Excessive Concentration of Economic Power under Article 9(3) of the AMA. As the guidelines elaborate on when a company has excessive business control, we recommend that companies with potential dominant power keep these in mind as a material summary of the JFTC's view of dominant market control.

1.2 Do any special regimes apply in specific sectors?

Recently, the government has gradually been eliminating restrictions through deregulation, including allowing market access in specific sectors where exclusive monopolisation was formerly permitted for decades.

Exclusive monopolisation in the letter mail market is still allowed under the Postal Act. And for a long time, restrictions on participation in the retail electricity industry under the Electricity Business Act allowed for regional monopolised markets. However, in 2016, following the amendment of the act, the liberalisation of retail electricity was approved and private companies started entering the market. Subsequently, the JFTC and the Ministry of Economy, Trade and Industry jointly updated the Guidelines for Promoting Electric Power Trade on 27 September 2019. The retail gas industry soon followed suit and the Guidelines for Promoting Gas Trade were also jointly updated on 1 April 2021.

Regarding the water supply industry, in the past, a new market entrant required advance permission under the Water Supply Act and thus participation in the market was substantially limited. However, in 2018, the act was amended to permit privatisation, making it much easier for private companies to participate in the industry.

1.3 Is the legislation intended purely to protect economic interests or does it have other aims?

The purpose of the AMA, as set out in Article 1 of the act, is not only to protect economic interests (including general consumer interests), but also to promote the democratic and productive development of the national economy by encouraging the creativity of entrepreneurs and "promoting fair and free competition."

1.4 Which authorities are responsible for enforcing the legislation?

The JFTC is responsible for enforcing the legislation.

1.5 How active are the enforcement authorities in taking action against abuse of dominance in your jurisdiction? What key decisions have the enforcement authorities adopted most recently?

In the 2020 financial year (1 April 2020 to 31 March 2021), one cease-and-desist order against private monopolisation was issued, on 7 July 2020, in the Mainami Airport Services case. Mainami Aviation Services had a private monopoly over the sale of aviation fuel for into-plane fuelling at Yao Airport in Osaka Prefecture, southeast of Osaka City. It was alleged that Mainami was preventing its users from being refuelled by SGC Saga Aviation Co, Ltd as follows:

  • Stating that it would not bear responsibility for aircraft-related accidents caused by mixing its aviation fuel with that of SGC Saga, Mainami notified its users that it would cease refuelling their aircraft if they were refuelled by SGC Saga; and
  • As a condition of accepting refuelling requests from its users that were also refuelled by SGC Saga, Mainami requested its users either:
    • to sign a document declaring that they would not hold Mainami liable for any aircraft-related accidents caused by mixing its aviation fuel with that of SGC Saga; or
    • to remove fuel from their aircraft.

This is the first case in which a surcharge payment order was also issued against a private monopoly.

Only one cease-and-desist order was issued against a private monopoly in the 2019 financial year (1 April 2019 to 31 March 2020), making these the only two such cases in the last five fiscal years.

2. Definitions and scope of application

2.1 What parties are covered by the dominance legislation? Are any exemptions available?

There are no exceptions for parties covered under the Anti-monopoly Act (AMA), but the law against private monopolisation does not apply to general consumers.

2.2 How is 'dominance' defined in your jurisdiction?

The AMA includes no specific legal definition of the term 'dominance'. However, the Guidelines on Exclusionary Private Monopolisation clearly state that the Japan Fair Trade Commission (JFTC) will prioritise the investigation of "cases in which market share for goods (or services) supplied by a company exceeds approximately half of the market share and whose impact on consumers' lives is considered to be significant, considering overall market size, business scope, characteristics of the goods (or services), etc".

2.3 How important is market share in assessing dominance in your jurisdiction? Do specific thresholds apply in this regard?

According to the Guidelines on Exclusionary Private Monopolisation, market share is one of the most important factors in determining whether a private monopoly exists, the threshold for which is set at approximately 50%. However, the JFTC will not necessarily find every company with a market share of 50% or more to be in violation. The JFTC also considers other factors, such as:

  • comparative market share;
  • brand power;
  • capacity for supply;
  • business size; and
  • ratio of products or services among all businesses.

2.4 What other factors are considered when assessing dominance?

According to the Guidelines on Exclusionary Private Monopolisation, the JFTC considers the following factors when assessing private monopolisation, depending on the type of conduct:

  • for below-cost pricing, tie-in sales, supply refusal and discriminatory treatment:
    • the duration of the monopolistic behaviour;
    • the value and quantity of sales; and
    • the conditions of the behaviour;
  • for exclusive trade:
    • the duration of the monopolistic behaviour;
    • the number of counterparties and their market share; and
    • the conditions of the behaviour; and
  • for exclusive rebates:
    • the standards of rebates and how they are provided;
    • the progressive degree of rebates; and
    • rebate retroactivity

Finally, the major factor in deciding whether any behaviour is monopolistic is a "substantial restraint of competition in a particular field of trade", which is interpreted as "forming, maintaining and strengthening a state in which competition itself decreases and specific entrepreneurs or groups thereof are able to control the market freely to a certain extent by influencing price, quality, quantity and various other conditions at will". According to the guidelines, the JFTC mainly considers:

  • the status of the potential monopoly and any competitors;
  • their potential competitiveness;
  • competitive bargaining power; and
  • efficiency.

2.5 How are the product and geographic markets defined in your jurisdiction?

How the relevant product and geographic markets are defined will differ for each type of violation in accordance with the scope of transactions pertaining to the monopolistic behaviour. Mercantile and geographical scope substitutable for the goods or services that are subject to trade for the purchaser or supplier is one of the most essential factors.

2.6 Does the dominance legislation make any distinction between dominant purchasers and suppliers?

No, the AMA makes no such distinction.

2.7 Is collective dominance recognized in your jurisdiction? If so, how is it defined?

Private monopolisation includes behaviour that is carried out collectively. Such collective behaviour may not be recognised as private monopolies, but rather as an unreasonable restraint of trade, such as a cartel.

2.8 What is the statute of limitations to prosecute abuse of dominance cases in your jurisdiction?

Cease-and-desist orders are no longer valid seven years after the date on which the monopoly ceased to exist (Article 7(2) of the AMA).

3. Abuse of dominance

3.1 How is 'abuse of dominance' defined in your jurisdiction?

Abuse of dominance is regulated under the Anti-monopoly Act (AMA) as private monopolisation, as described in questions 1.1 and 3.2. 'Private monopolisation' means that a company in a dominant position restrains competition by excluding the business activities of competitors or by acquiring control of the market.

3.2 What specific types of conduct constitute an abuse of dominance in your jurisdiction?

Private monopolisation is prohibited as dominant company behaviour in Articles 2(5) and 3 of the AMA. Conduct that constitutes private monopolisation may also be considered to be an unfair trade practice that reduces free competition (Article 2(9)). 'Private monopolisation' is interpreted as "business activities by which any entrepreneur, individually or by combination or in conspiracy with other entrepreneurs, or in any other manner, excludes or controls other competitors' business activities, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade". These can be divided into two broad categories:

  • exclusive-type private monopolisation; and
  • control-type private monopolisation

According to the Guidelines on Exclusionary Private Monopolisation, exclusive-type private monopolisation "makes it difficult for other competitors to, or prevents them from, continuing business activities due to artificial causes"; while control-type monopolisation "directly or indirectly restricts or controls other competitors and causes their business activities to comply with the will of the dominant company".

Where a company's conduct impedes fair competition even if it does not constitute private monopolisation, that conduct may constitute an unfair trade practice. In particular, companies should carefully examine whether their practices involve:

  • illegal price cutting (Article 2(9)(iii) of the AMA);
  • transactions with exclusive conditions (Article 11 of the General Designation for Unfair Trade Practices);
  • tie-in sales (Article 10 of the General Designation for Unfair Trade Practices);
  • refusal to supply (Article 2(9)(i) of the AMA);
  • discriminatory treatment (Article 4 of the General Designation for Unfair Trade Practices); or
  • abuse of a dominant bargaining position (Article 2(9)(vi)(e) of the AMA).

3.3 On what grounds may the enforcement authorities commence an abuse of dominance investigation?

The Japan Fair Trade Commission (JFTC) will commence an investigation if it finds a reasonable suspicion of a violation of the AMA. More specifically, under the AMA, if the JFTC believes there to be any facts in violation of the law or falling under the purview of a monopolistic situation, the commission may take appropriate measures on its own authority (Article 45(4)).

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

For the purpose of conducting investigations, the JFTC may take the following measures under Article 47 of the AMA:

  • ordering related persons or witnesses to appear at a designated location for interrogation or to present their opinions or a report;
  • ordering expert witnesses to appear at a designated location to present expert opinions;
  • ordering persons that hold accounting books, documents or other relevant items to submit them to the JFTC, possibly for retention; and
  • entering any business offices of the related persons or other related sites and inspecting the conditions of the business operations and property, books, documents and other materials.

In addition, the AMA provides the JFTC with criminal investigative powers, which include:

  • ordering appearances at designated locations;
  • examining and retaining witnesses;
  • making inquiries at government agencies; and
  • seizing electromagnetic records, mail and other such materials.

However, the JFTC has not criminally punished any company for having a private monopoly to date.

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

Yes. Any third party can inform the JFTC of a possible violation of the AMA by a third party pursuant to Article 45(1) of the AMA.

In practice, the JFTC appears to commence investigations based on information on possible violations provided by third parties.

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

During the investigation, the JFTC has various powers, including the power to conduct on-site inspections (please see question 3.4).

At the end of the investigation, the JFTC may conclude the investigation by:

  • terminating the procedure;
  • issuing a warning as administrative guidance; or
  • issuing a cease-and-desist order and a surcharge payment order.

If the JFTC's investigation was commenced in response to third-party information submitted in accordance with Article 45 (3) of the AMA, the JFTC must notify the third party of the measures it has taken in relation to the submitted information.

3.7 What are the general rights and obligations of the target company during the investigation? What are the general rights and obligations of individuals targeted during the investigation?

Essential issues that the target company and individuals should bear in mind include the following.

Attorneys' attendance at voluntary hearings: Attorneys are not permitted to attend voluntary hearings.

Taking notes during voluntary hearings: This is not permitted.

Attorney-client privilege: This is not legally granted under the AMA. However, similar arrangements have recently been introduced to limited types of investigations (eg, cartels), following an amendment of the JFTC's administrative rules. The arrangements do not apply to private monopolisation cases.

A fine of up to JPY 3 million (Article 94(2) of the AMA) will be imposed for obstructing an investigation.

3.8 What factors will the enforcement authorities consider in assessing whether an abuse of dominance has taken place?

The term 'exclusive behaviour' is applicable where a dominant company:

  • undertakes artificial (intentional) conduct with the effect of deviating from the scope of normal competitive actions; or
  • impedes the market entry of competitors.

According to a 17 December 2010 judgment of the Supreme Court, various factors such as the following will be comprehensively considered when analysing a case of abuse of dominance:

  • the substitutability of trade;
  • the characteristics of the goods or services;
  • the conditions of the behaviour;
  • the status of or relationship between the dominant company and competitors; and
  • the duration of the behaviour.

'Control behaviour' is "conduct to restrict or coerce business of competitors directly or indirectly, thereby causing their business to comply with the will of the controlling party".

3.9 In case of a finding of abuse of dominance, can the company seek to negotiate a settlement or similar resolution? If so, what is the process for doing so?

The company can avail of the commitment procedure in accordance with the AMA.

The commitment procedure commences when the JFTC gives written notice to the company. The JFTC may terminate the investigation after approving the cease-and-desist plan submitted by the company to implement measures that would ensure the elimination of the suspected violation.

4. Defences

4.1 What defences are available to companies in response to enforcement?

The Japan Fair Trade Commission (JFTC) may issue cease-and-desist or surcharge payment orders, or both, to enforce the Anti-monopoly Act (AMA). Companies that receive such orders from the JFTC may file suit at the Tokyo District Court to revoke them within six months of learning that the order has been issued.

During the investigation, the company may submit opinions and relevant evidence to deny the alleged violation, and ask the JFTC to conclude the investigation without issuing any orders. The company can submit opinions and relevant evidence during the opinion hearing process, which the JFTC must consider before issuing an administrative order.

4.2 Can companies avail of leniency in abuse of dominance cases?

The Anti-monopoly Act stipulates a leniency programme for surcharge payment orders. However, the programme does not apply these orders to private monopolisation or unfair trade practices.

On the other hand, the commitment procedure does apply to private monopolies and unfair trade practices. The procedure is relatively new and came into effect on 30 December 2018. It allows the company to submit a cease-and-desist plan for measures to address the investigated conduct. If the JFTC approves the plan, it will not issue any orders against the conduct. However, the commitment procedure is initiated at the full discretion of the JFTC, and thus investigated companies cannot initiate the procedure themselves.

5. Remedies and sanctions

5.1 What remedies and sanctions may be imposed for abuse of dominance? Can sanctions be imposed on individuals?

The Japan Fair Trade Commission (JFTC) may issue cease-and-desist or surcharge payment orders, or both, against private monopolisation.

In addition, the Anti-monopoly Act (AMA) stipulates criminal sanctions for individuals and companies that have committed or attempted to commit private monopolisation. Any such individual may be subject to imprisonment for up to five years or a criminal fine of up to JPY 5 million (Article 89 of the Anti-monopoly Act (AMA)). Any such company may be subject to a criminal fine of up to JPY 500 million (Article 95 of the AMA). However, the JFTC has filed no criminal prosecutions against private monopolisation to date.

Surcharge payment orders were introduced to the AMA for control-type private monopolisation in 2005 and for exclusive-type private monopolisation in 2009 (see question 3.2). Since then, there has been only one case in which the JFTC has issued a surcharge payment order against a company (Mainami Aviation Services, JFTC surcharge payment order, 19 February 2021) (see question 1.5).

5.2 How are the remedies and sanctions in abuse of dominance cases determined?

If the JFTC finds a violation of the AMA, it will issue a cease-and-desist order. The order may include any measures necessary to eliminate the violation on a case-by-case basis. However, for private monopolisation, the JFTC mainly issues cease-and-desist orders that require companies:

  • to cease and desist from the infringing conduct;
  • not to engage in the same or similar conduct in the future; and
  • to take measures to prevent the recurrence of the conduct.

To date, the JFTC has issued only one cease-and-desist order against a control-type private monopolisation in which the relevant company's shares were required to be disposed of in order to relinquish the concerned control (Toyo Seikan, 18 September 1972).

In addition, surcharge payment orders were introduced to the AMA for control-type private monopolisation in 2005 and for exclusive-type private monopolisation in 2009 (see question 3.2). For control-type private monopolisation, the surcharge is calculated by multiplying the sales of the relevant products or services during the period in which the monopolisation took place by a surcharge rate of 10%. For exclusive-type private monopolisation, the surcharge is calculated by multiplying the same figure by a surcharge rate of 6%. If the relevant conduct constitutes both control-type and exclusive-type private monopolisation, then the surcharge rate for the former (ie, 10%) will apply. To date, there has been only one case in which the JFTC has issued a surcharge payment order (Mainami Aviation Services, 19 February 2021) (see question 1.5).

5.3 Can the enforcement authorities impose remedies and sanctions directly or is court action required?

The JFTC may directly issue cease-and-desist or surcharge payment orders, or both, without any need for a court action.

Moreover, in urgent cases, before it issues a cease-and-desist order, the JFTC may file a petition for an urgent injunction to request the court to order the suspected party to temporarily suspend the relevant conduct.

6. Appeal

6.1 Can the defendant company appeal the enforcement authorities' decision? If so, in what forum and what is the process for appeal?

Companies that receive a cease-and-desist or surcharge payment order, or both, may file suit at the Tokyo District Court to revoke the order within six months of learning that the order has been issued.

Since the execution of such orders cannot be suspended by filing a lawsuit, the company may apply for a stay of execution, which should be approved if the court finds that the order would cause serious damage in light of:

  • the nature and extent of the damage;
  • the degree of difficulty in remedying the damage; and
  • the details and nature of the original administrative disposition.

Since damages caused by surcharge payment orders may be recovered by ex-post monetary compensation, applications for a stay of execution of surcharge payment orders are unlikely to be approved.

Before the Anti-monopoly Act (AMA) was amended on 1 April 2015, companies that received cease-and-desist or surcharge payment orders, or both, from the Japan Fair Trade Commission (JFTC) could request an administrative hearing at the JFTC tribunal. However, this system was abolished by the amendment.

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

Third parties other than the addressees of orders cannot file suit to revoke such orders.

Before the AMA was amended on 1 April 2015, companies that received cease-and-desist or surcharge payment orders, or both, from the JFTC could request an administrative hearing at the JFTC tribunal. If the order issued by the JFTC was revoked by the tribunal, a party that incurred damages as result of the conduct addressed in the order could file suit at the Tokyo High Court to revoke the tribunal's decision. However, this system was abolished by the amendment.

If the JFTC issues no orders against a company whose conduct is suspected of violating the AMA, a party that has incurred damages as a result of that conduct may file a mandamus action with the court to seek the JFTC's administrative disposition.

7. Private enforcement

7.1 Are private enforcement actions against abuse of dominance available in your jurisdiction? If so, where can they be brought?

Under the Anti-monopoly Act (AMA), private claimants may seek an injunction against conduct that constitutes an unfair trade practice to restore their position to that held prior to the violation. However, conduct that constitutes private monopolisation is not subject to such injunctions. Nevertheless, as certain types of conduct may constitute both private monopolisation and an unfair trade practice, private claimants may seek an injunction against such conduct as private monopolisation, while also alleging that it constitutes an unfair trade practice.

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

Under Japanese law, including the Anti-monopoly Act (AMA), class actions or other forms of collective action against private monopolisation or unfair trade practices are not available. Anyone that incurs damages due to private monopolisation may file suit for damages pursuant to Article 25 of the AMA or Article 709 of the Civil Code.

7.3 What process do private enforcement actions follow?

Under Japanese law, there are no special procedures for private enforcement against private monopolisation or unfair trade practices. Therefore, such actions will follow the ordinary civil procedures stipulated in the Code of Civil Procedure.

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

Anyone that incurs damages due to private monopolisation may file suit for damages pursuant to Article 25 of the AMA or Article 709 of the Civil Code.

A party that brings a claim under Article 709 of the Civil Code must prove:

  • an infringement of rights;
  • intention or negligence;
  • damages (including the amount thereof); and
  • causation (more precisely, reasonable causation between the infringement and the damages).

On the other hand, damages claims pursuant to Article 25 of the AMA may be brought once a cease-and-desist or surcharge payment order of the Japan Fair Trade Commission (JFTC) is finalised. A party that brings a claim under Article 25 of the AMA must prove:

  • an infringement of rights;
  • damages; and
  • causation.

It need not prove the defendant's intent or negligence. Further, the claimant may utilise the JFTC's findings from the relevant order as evidence of the alleged infringement.

Private claimants may seek an injunction against conduct that constitutes an unfair trade practice to restore their position to that held prior to the violation, pursuant to Article 24 of the AMA. However, conduct that constitutes private monopolisation is not subject to such injunctions. Nevertheless, as certain conduct may constitute both private monopolisation and an unfair trade practice, private claimants may seek an injunction against such conduct as private monopolisation, while also alleging that it constitutes an unfair trade practice.

Under Article 25 of the AMA, anyone whose interests are infringed or likely to be infringed by such conduct and who thereby incurs or is likely to incur serious damages can seek the suspension or prevention the infringement against any infringing company or trade association.

Moreover, in urgent cases, before it issues a cease-and-desist order, the JFTC may file a petition for an urgent injunction to request the court to order the suspected party to temporarily suspend the relevant conduct.

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

Court decisions against private enforcement actions may be appealed. As private enforcement follows the ordinary civil procedure pursuant to the Code of Civil Procedure, the district court's decision may be appealed to the relevant high court, whose decision may be further appealed to the Supreme Court.

8. Trends and predictions

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

On 17 February 2021, the Japan Fair Trade Commission (JFTC) released its Final Report on Digital Advertising. In this report, the JFTC stated that Google holds a dominant position in the market for search advertising. As such, the JFTC is strengthening its monitoring of Anti-monopoly Act (AMA) violations by digital platform operators. Thus, it is expected that the JFTC will apply the Anti-monopoly Act, including the provisions on private monopolisation, to the Big Five and other digital platform operators. Close attention should be paid to future enforcement efforts in this space.

9. Tips and traps

9.1 What would be your recommendations to companies to avoid an abuse of dominance charge and what potential pitfalls would you highlight?

Companies should gather and maintain information on whether they have any products or services with a relatively high market share (eg, over 50%) in the Japanese market. However, the Japan Fair Trade Commission will not necessarily find every company with a market share of 50% or more to be in violation of the Anti-monopoly Act. If a company has such products or services, it should continually monitor whether any of its conduct could constitute private monopolisation or unfair trade practices

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.