The Japan Fair Trade Commission (“JFTC”) published Market Research Report re: Convenience Stores and Franchisees

On September 2, 2020, the JFTC published a market research report (“Report”) on transactions between the headquarters of convenience stores (i.e., franchisers) and their franchisees.¹  Previously, the JFTC conducted a similar market research in 2011. The Report indicates some situations that could constitute unfair trade practices, such as customer inducement by unjust benefits and/or abuse of superior bargaining position (“ASBP”).

The market research was conducted from October 2019 to August 2020. It includes a web questionnaire survey and a hearing survey. The questionnaires were sent to 57,524 franchisees, based on the lists of franchisees prepared by the headquarters of convenience stores, and responses were provided by 12,093 franchisees (approximately 21% on a store count basis). The hearing survey was conducted for the headquarters of eight convenience stores. In addition, the JFTC interviewed the headquarters of non-convenience stores, such as retailers, restaurants and the trade association. Further, the JFTC considered the results of hearing survey done by the Ministry of Economy, Trade and Industry (“METI”) for the “Report of the Study Group on How Convenience Stores shall be - For Innovation of Convenience Stores in the era of Reiwa,” which was issued on February 10, 2020.² 

With respect to a relationship between the headquarters of convenience stores (i.e., franchisers) and their franchisees, the former provide licenses (e.g., trademarks), know-how and advice on store management, and the latter pay royalties. The Anti-Monopoly Act (“AMA”) generally applies to such a relationship.

Based on the market research, the Report indicates potential violations of unfair trade practices under the AMA by franchisers, such as customer inducement by unjust benefits and/or ASBP. 

For example, with regard to twenty-four/seven business, it does not violate the AMA when a franchiser and a franchisee enter into a franchise relationship under the condition that the franchisee operates the convenience store for twenty-four hours and seven days a week as long as a franchisee has been fully informed and agreed. However, for example, if a franchiser fails to adequately disclose on important matters when recruiting a franchisee, therefore misleads their franchise system is significantly better or more advantageous than it actually is, it may violate the AMA as a customer inducement by unjust benefits. In addition, if a franchiser using its position to unliterary refuse a negotiation with a franchisee for shortening operating hours, despite that a franchisee is allowed to shorten operating hours when a franchiser agrees under the contract, it may constitute an ASBP. The Report indicates that a superior bargaining position, which is one of the factors of the ASBP, is likely to be found in a relationship between the headquarters of convenience stores and their franchisees in many cases under the current situation found by the market research.

The JFTC’s Actions

With regard to the market research, the JFTC takes the following actions.

• Request for the headquarters of convenience stores

The JFTC informed the results of market research to headquarters of each convenience store. It also requested them to conduct an internal investigation and to take measures as necessary, and report back the result.

• Request for trade association
   

The JFTC requested the trade association disseminating the contents of the Report to their members.

• Amendments to the JFTC Guidelines

The JFTC provides guidance with respect to the relationship between franchisers and franchisees in its “Guidelines concerning the Franchise System under the Antimonopoly Act” (“Guidelines”), which was issued on April 24, 2002, amended on January 1, 2010 and June 23, 2011.³  Based on the market research, the JFTC will amend the Guidelines, including about the issues of unauthorized ordering, twenty-four/seven business and dominant store openings.

• Others

In addition to above, the JFTC makes the results of the market research widely known. It will continue to collect information on transactions between headquarters of convenience stores and franchisees, and will enforce the AMA if and when it finds violations.
 

_{1 The JFTC press release is available in Japanese at https://www.jftc.go.jp/houdou/pressrelease/2020/sep/200902_1.html
2 The report is available in Japanese at https://www.meti.go.jp/shingikai/mono_info_service/new_cvs/pdf/20200210_report_00.pdf 
3 The JFTC English translation of the Guidelines is available at https://www.jftc.go.jp/en/legislation_gls/imonopoly_guidelines_files/franchise.pdf} 

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