JAPANESE ANTITRUST UPDATE

A concise analysis of competition law developments in Japan

• Summary

The Japanese Supreme Court ruled that blanket licensing of broadcasting rights by the dominant copyright collection society (JASRAC) would constitute an exclusionary conduct, when per work royalties are extraordinary high as a reasonable alternative to a blanket licensing.

• Legal Context

1. Japanese Antimonopoly Act prohibits conducts "that excludes the business of other undertakings" when such conducts lead to "a substantial restraint of competition in the relevant field of trade." Such exclusionary conducts are termed "private monopolization" by Article 2(5) and are prohibited by Article 3.
2. According to the Supreme Court, the statutory requirement of an exclusionary conduct is composed of two factors, both of which have to be satisfied:
   • the conduct has artificiality that deviates from normal methods of competition.
   • the conduct has foreclosure effects, e.g. by making other undertakings' entry extraordinarily difficult.

3. Though the artificiality factor has not been the issue before either the JFTC tribunal (trial proceeding in the competition authority) or the lower court (the Tokyo High Court), the Supreme Court ruled in dictum that the artificiality is almost clear in the record before the Court.

• Comments

1. The artificiality

   The Supreme Court seems to think that the blanket licensing in this case satisfies the artificiality prong, because consumers (broadcasters) are denied the choice of per-work licensing. In other words, if the instant licensing is a normal method of competition, JASRAC should offer more patterns of licensing for consumers. Such reasoning, which starts from a desirable outcome of competition rather than from a counterfactual, could be overreaching: Any profit maximizing conduct by a dominant firm could satisfy artificiality.

2. Methods of legal interpretation

The Supreme Court's artificiality prong goes back to the NTT East case: a price-squeeze case handed down in 2010. The court based their interpretation of exclusionary conducts on Art.1. Art. 1 of the Antimonopoly Act describes the purpose of the Act. Reliance on statutory text is a traditional way of interpretation for lawyers, but potentially puzzling for economists who focus on underlying facts and predicted equilibriums.

3. Obiter dictum

The Japanese system of reviewing JFTC's decisions has been changed by the 2013 amendment. The trial proceeding in JFTC tribunal will be replaced by that in Tokyo district court. The Supreme Court seems to be in haste to announce a guidepost on exclusionary conducts for the lower courts, though the JASRAC case will not be affected by the amendment.

• Summary

Japanese competition authority (Japanese Fair Trade Commission; JFTC) reduced its fine imposed on Toys"R"Us from about 369 million yen to 222 million yen, around a 40 percent reduction. Toys"R"Us decided NOT to appeal this decision to the Tokyo High Court.

• Legal Context

1. Japanese Antimonopoly Act prohibits certain conducts as "abuses of a superior bargaining position." It is commonplace to see that one party to the trade has a superior bargaining position against the other parties, such as large retailers against numerous suppliers; general contractors vis-a-vis subcontractors. However, if the former exploits its superior position to impose economic harm on the latter unilaterally, such conducts constitute illegal abuses and the superior party could face administrative fines.
2. Typical examples of abuses (abusive conducts) include: Large retailers requesting that suppliers purchase business suits or entertainment tickets which are sold by the retailers themselves; Large retailers requesting that suppliers reduce the wholesale price or refund after they have found the suppliers' products did not sell as expected. Toys"R"Us was found to have requested refunds or have returned goods after purchase.
3. Economists typically find it almost impossible to justify this regulation, whereas lawyers and small and medium enterprises argue that JFTC should apply this provision fully.

• Comments

1. The Commission (JFTC) reasoned that because abusive conducts are of such a nature that no reasonable suppliers would accept, abusive conducts would in themselves serve as the evidence from which to infer that the retailer has a superior bargaining position. Reading the JFTC's opinion, one might feel that the JFTC is staring their analysis from the conclusion that the retailer has a superior bargaining position, even if they have to prove it as a statutory requirement in Art. 2(9)(v).
2. Whether an alleged misconduct is abusive or not depends on who took the initiative in making such conducts. If suppliers spontaneously requested concessions, they are not abuses.