Japan Approves Sweeping Amendments to Its Anti-Monopoly Law

Amendments to Japan’s Anti-Monopoly Act (AMA) that will strengthen enforcement of the AMA as well as increase the penalties thereunder, have been approved by both houses of the Diet. The legislation provides for the amendments to become effective no later than one year following its passage but the expectation is that the amendments will become effective on an earlier date. While there are a number of elements to the AMA amendments, the principal changes involve: (1) increased exposure and penalties for exclusionary conduct by dominant firms; (2) the authorization of fines for unfair trade practices; (3) increased criminal exposure and penalties for cartel conduct; (4) enhancement of Japan’s cartel leniency program; and (5) revisions to the merger review process.

Increased Penalties for Exclusionary Conduct

In line with the global trend towards imposing fines for abuses of dominant market positions, the amendments authorize fines for exclusionary conduct by monopolists. Potential fines for exclusionary conduct can range as high as 6 percent of the volume of sales of the goods or services involved. Fines are lower for retailers and wholesalers. In conjunction with the amendments, the Japan Fair Trade Commission (JFTC) has stated that it will issue guidelines concerning exclusionary conduct.

Penalties for Unfair Trade Practices

The amendments authorize the imposition of fines upon parties who engage in certain types of unfair trade practices. These practices include concerted refusals to trade, discriminatory pricing, unjustifiably low price sales and resale price restrictions. While previously cease and desist orders were the sole remedy for such conduct, the amendments allow fines to be imposed of up to 3 percent of the sales of the goods and services at issue. The amendments also allow the imposition of fines for the abuse of superior bargaining position between trading partners involved in the retail trade of up to 1 percent of affected sales.

Increased Penalties for Cartel Participants

The amendments increase the fines for price-fixing and bid-rigging by 50 percent for those who: (1) initiate the conduct, and request other firms to participate in and/or continue to engage in the illegal conduct; (2) continuously fix prices, agree to input, output, or market share restraints or allocate customers in response to the conspirator’s request; or (3) carry out certain other acts that significantly aid the conspirator’s illegal conduct. The basic fine range is currently 10 percent, however, depending on the type of business and the size of the enterprise, the fine rate varies between 1 and 10 percent. Pursuant to the amendments, for those who played a key role, the fines will now range between 1 1/2 and 15 percent.

The amendments increase the potential sentence for participating in a cartel or engaging in bid-rigging from three to five years and increase the applicable statute of limitations to five years.

Enhanced Leniency Programs for Cartel Participants

The amendments address a significant perceived shortcoming in the Japanese leniency program by allowing two or more violators within the same corporate group to jointly file for a fine reduction or immunity. Under prior Japanese law, they had to file separately. The amendments also allow up to five applicants to qualify for a fine reduction or immunity, whereas under current law the limit is three applicants. The amendments retain the limitation that there can only be three applicants following the commencement of an investigation by the JFTC.

Revision of Merger Notification Thresholds

The amendments make two significant changes to the merger notification thresholds for most mergers and acquisitions. First, the amendments change the thresholds so that, instead of reliance on assets, the measure for notification thresholds will become the total Japanese turnover. Second, the amendments create the following as the notification thresholds for share acquisitions: (1) the total Japanese turnover of a “corporate group” that the acquiring corporation is a part of is more than ¥20 billion (approximately $211 million); and (2) the total of Japanese turnover of a target corporation and its subsidiaries is more than ¥5 billion (approximately $53 million). The amendments also change the standards for prior notification of share acquisitions.

Similar changes are made to the thresholds for other types of corporate combinations. The applicable thresholds, and particularly the issue of whether the turnover of the entire corporate group needs to be included in the assessment, may differ slightly based upon the structure of the transaction. During the transition period and for some time thereafter, companies acquiring or seeking to acquire companies with significant Japanese sales will have to give careful consideration to whether their transaction will be reviewable under Japanese law.