JFTC’s policy to actively promote competition in response to social economics, such as digitalization: Coordinating and strengthening advocacy and enforcement

On June 16, 2022, the Japan Fair Trade Commission ("JFTC") published a position paper, "Active promotion of competition policy in response to social economics, such as digitalization—coordinating and strengthening advocacy and enforcement" (the "Position Paper").¹ As one of the methods to strengthen enforcement, the JFTC may publicly announce suspected violations by digital platform operators even in the early stages of investigation, to solicit information and opinions from a wide range of third parties.

The JFTC will strengthen its response to social economics changes, such as digitalization, by making enforcement and advocacy the "two wheels of a cart" (i.e., two of the fundamental tools) for creating and maintaining competitive environments. The JFTC will eliminate violations and restore competition by strictly and properly enforcing the Anti-Monopoly Act ("AMA") against trade practices, regulations and systems that are problematic under the AMA and/or competition policy, including conduct that stifles innovation. At the same time, JFTC's advocacy efforts, in which it recommends improvements in trade practices and amendments of regulations and systems, will play an important role as well. Below are the main contents of the Position Paper.

1. Strengthening the effectiveness of advocacy

(1) Roles of market surveys

In order to properly implement advocacy, it is necessary to accurately understand the business activities and economic conditions of each industry, and a market survey is helpful for such understanding. One of the important pillars of advocacy is for the JFTC to issue reports and guidelines based on market survey results, point out issues under the AMA and competition policy, encourage stakeholders to voluntarily improve their practices as necessary, and make recommendations for regulatory authorities to review regulations and systems appropriately. Further, market survey results would also be helpful on the enforcement side when the JFTC finds conduct that constitutes a violation of the AMA.

(2) Target areas of market surveys

The JFTC will actively collect information on areas in which further promotion of fair and free competition is required in light of socioeconomic conditions, including the following areas.

• Areas where competition is considered to be insufficient due to regulations and business practices, etc.
• Areas where regulatory reform will expand opportunities for new entrants and where competition is expected to intensify.
• Areas in which general consumers and SMEs may be unfairly disadvantaged.
• Areas in which rapid market changes require prompt understanding of competition conditions and development of competitive rules, such as the digital market.

The JFTC will then conduct market surveys focusing on areas where antitrust and competition policy issues exist and where fair and free competition can be effectively promoted through the JFTC's advocacy.

In addition, the JFTC will follow-up on the status of areas where it has conducted market surveys in the past, as necessary, and will periodically conduct market surveys on the same subject areas in order to enhance the effectiveness of the advocacy function.

(3) Market survey methods

The JFTC usually requests that stakeholders and other companies respond on a voluntary basis. However, if it is difficult to obtain information through voluntary investigations, the JFTC exercises its investigative authority under Article 40 of the AMA. When a company does not comply with the JFTC's request under Article 40 of the AMA, it would be subject to a criminal fine of up to JPY3 million (approximately USD 22,000).²

(4) Publication of survey results

When the JFTC publishes market survey results, it will explain the report to the relevant government agencies and relevant companies. It will also request that relevant trade associations inform their members. In addition, it will request that relevant government agencies, companies and trade associations take necessary measures, such as reviewing systems and operations and correcting business practices. The JFTC may, if necessary, request that individual companies inspect and improve their operations and to submit a report on the details of improvement. This approach will encourage voluntary improvements by relevant companies and prevent violations of AMA rules.

2. Promoting linkages between advocacy and enforcement

The JFTC will actively utilize the information provided through market surveys, and if it suspects a violation of AMA rules, it will conduct an investigation, which will lead seamlessly from a market survey to enforcement on individual cases. The possibility of invoking enforcement is expected to further increase the effectiveness of advocacy, such as by further promoting voluntary improvements by relevant companies through market surveys.

3. Strengthening enforcement

(1) Solicitation of information and opinions on individual cases

To date, the JFTC has not made any public announcements on individual cases until the stage at which the JFTC takes action (e.g., issuing a cease-and-desist order) or closes an investigation, in consideration of the impact on the investigation and relevant companies.

Compared to cartels and bid-rigging that are conducted in secrecy, digital platform operators' transactions and business models are often conducted openly and are public knowledge, and the impact on investigations by publicizing individual cases raising competition concerns is not significant. Rather, the impact of digital platform operators' conduct is often multifaceted and far-reaching, and accurate analysis of their market impact requires the collection of diverse information from a wide range of companies.

Therefore, when it is necessary to collect information efficiently and effectively in a case involving a digital platform, etc., the JFTC may publish an overview of the case and broadly solicit information and opinions from third parties, even at the initial stage of the investigation, after carefully weighing the impact of disclosure on the investigation activities.

With regard to merger reviews, to date, the JFTC has publicly announced the initiation of Phase II review and sought opinions from third parties. In addition to this, the JFTC will publicly announce merger cases where it is considered necessary, to collect opinions from third parties more widely in complex and rapidly changing market conditions, such as in the digital market, and seek opinions from the public, as necessary, regardless of whether or not Phase II review has commenced.

(2) Investigative authority under Article 40 of the AMA

The JFTC usually uses a voluntary approach in gathering information to determine whether to initiate an investigation of a suspected violation of the AMA. However, the JFTC shall exercise its investigative authority under Article 40 of the AMA to the extent necessary and reasonable to achieve the purpose of such information collection when it is difficult to do by voluntary methods. The JFTC may also use its investigative authority under Article 40 of the AMA in merger reviews to the extent necessary and reasonable.

(3) Use of internal documents in merger review

In particular, for merger cases in the digital market, it is necessary to understand what the parties' intent and purpose of the merger are, how the parties view the impact of the merger on various stake holders (such as consumers and competitors), and how the parties predict the future of the market, etc., in rapidly changing market conditions. Therefore, the JFTC may request a submission of internal documents, including board meeting materials and internal competitive analyses, from the initial stage of merger review.

In this regard, the JFTC will be issuing a paper explaining what the JFTC's practice is when requesting submission of internal documents in order to contribute to smooth communication between the JFTC and interested parties.

(4) Use of economic analysis

The JFTC established a new office, the Economic Analysis Office, on April 1, 2022, in order to strengthen the system for high-quality economic analysis that can serve as a foundation for the enforcement of AMA and regulations and policy making. The JFTC will utilize more sophisticated economic analysis to ascertain the effect of alleged violations on competition and the effectiveness of the measures taken, etc.

4. Systematic enhancement and reinforcement of JFTC's functions and systems

In order to implement the above, the JFTC will endeavor to secure and enhance the necessary personnel and systems.

_{1 The Position Paper is available only in Japanese as of June 22, 2022.
2 Article 94-2 of the AMA.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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