Japan: Cartels

In Japan, Article 3 of the Antimonopoly Act prohibits ‘unreasonable restraints of trade.’ An unreasonable restraint of trade is defined as ‘such business activities, by which any entrepreneur, by contract, agreement or any other means irrespective of its name, in concert with other entrepreneurs, mutually restrict or conduct their business activities in such a manner as to fix, maintain, or increase prices, or to limit production, technology, products, facilities, or counterparties, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.’ Under this Article 3, cartels (i.e., agreements with competitors concerning price-fixing, production restraints, market, customer and business areas sharing etc.,) are prohibited in principle.

There are some exemptions in specific industries (such as aviation, non-life insurance, and sea transportation industries) under individual law. For example, the Civil Aeronautics Law allows, under certain conditions, parties to manage domestic flights jointly to enable them to continuously offer certain routes, and permits agreements on liaison transportation, fares, and other transportation matters to promote public convenience. These exemptions are generally permitted only upon approval by the minister in charge after obtaining consent from the Japan Fair Trade Commission (JFTC) or consulting with the JFTC, etc.

To establish an infringement, the authorities must prove the following elements: (i) joint action with mutual restraint (namely an agreement), (iii) substantial restraint of competition in a relevant market, and (iii) contrary to the public interest. Thus, an anti-competitive effect in the relevant market must be proved to establish an infringement.

However, practically, an anti-competitive agreement between parties which have a combined market share of over 50 percent in the relevant market is assumed to have caused substantial restrictions of competition in the relevant market. In other words, such an agreement conducted by such parties are practically deemed illegal per se.

The Antimonopoly Act not only applies to a cartel that takes place in Japan, but also that which takes place outside Japan, if the cartel substantially restricts competition in the Japanese market.

1. Cartel investigation for administrative penalties

The JFTC can investigate cartels based on the administrative investigation procedure. After the investigation, the JFTC decides whether to issue a cease-and-desist order and/or administrative penalty (surcharge) payment order on the enterprise.

2. Cartel investigation for criminal penalties

As explained below, both the JFTC and the Public Prosecutor can launch a criminal cartel investigation. The criminal investigation is conducted against an enterprise as well as its executives and employees. In this respect, cartel investigations for criminal penalties differ from the administrative investigations.

The JFTC can use the criminal investigation procedure under the Antimonopoly Act. As a result of the investigation, if the JFTC believes that it is appropriate to impose criminal penalties, it will file an accusation with the Prosecutor General. The JFTC has published the criteria for proactively filing an accusation with the Prosecutor General, according to which, (i) vicious and serious cartels and other violation cases which are considered to have widespread influence on people’s lives, (ii) cases involving parties who are repeat offenders or who do not abide by the cease-and-desist order, for which the administrative penalties of the JFTC are not appropriate to achieve the purpose of the Antimonopoly Act, may be subject to active filing. In recent years, the JFTC has filed with the Prosecutor General in about one case every few years.

The Public Prosecutor also can investigate cartels under the Code of Criminal Procedure. Since an accusation by the JFTC is required in order to prosecute an enterprise and/or its executives and/or employees, the JFTC and Public Prosecutor co-investigate cartels for criminal prosecution in general. Thus, in practice, the Public Prosecutor prosecutes on the same day as the JFTC files an accusation with the Prosecutor General.

1. Cartel investigation for administrative penalties

The JFTC detects a suspicion of a cartel from various sources such as materials obtained by the JFTC through its secret investigations, applications under the leniency program, and complaints from the public. Once the JFTC becomes aware of a suspicion of a cartel, it proceeds to a more detailed investigation. Generally, when the JFTC concludes that a cartel is likely to exist, the JFTC may proceed to conduct dawn raids.

The timeline for cartel investigations for administrative penalties is determined on a case-by-case basis. However, in general, it takes one year or more from the start of the investigation to the end. In Japan, the JFTC does not have the ability to enter into a settlement agreement for cartels.

When seven years have elapsed from the date on which the cartel conduct ceased, no cease-and-desist order or surcharge payment order may be issued.

Based on the results of the investigation, the JFTC sends a draft of administrative orders to the parties and proceeds to the opinion hearing procedure. After such procedure, the JFTC will issue a cease-and-desist order and/or surcharge payment order while taking into consideration the minutes of the opinion hearing procedure and the report organized by the designated official that contains the relevant issues in the case.

2. Cartel investigation for criminal penalties

As stated above, both the JFTC and the Public Prosecutor can conduct investigations for criminal penalties. They can also conduct dawn raids. The timeline for cartel investigations for criminal penalties is also determined on a case-by-case basis. However, in general, the time of the case closure may vary greatly depending on whether the parties dispute the existence of a cartel or not.

For criminal penalties, the statute of limitations for prosecution is five years.

1. Cartel investigation for administrative penalties

The JFTC has broad administrative investigative power under the Antimonopoly Act. Its main investigative powers are as follows:

• Dawn Raids

The JFTC staff can enter business offices or other necessary sites, if necessary, and inspect the conditions of business operation and property, documents, data, and other materials. In most cases, the JFTC dawn raids target business offices, but may also target the residences of executives and employees, if necessary.

• Interviews

In many cases, as a practical matter, on the first day of the dawn raids, the JFTC staff ask the executives and/or the employees of the targeted enterprise to be interviewed on a voluntary basis. The statements from the executives and/or the employees interviewed on the first day could have significant impacts on the future investigation. Throughout the investigation, the JFTC generally conducts a number of interviews, which often amount to 10 or more per person. The JFTC staff have the authority to order the executives and/or the employees to attend an interview, but this rarely happens. Their interview procedure is usually conducted through voluntary investigations.

• Submission order

The JFTC staff may order parties to submit any materials, etc. under their control that the JFTC deems necessary for the investigation. Thus, the JFTC may order parties to submit any materials found during a dawn raid. In such case, the JFTC can retain the original submitted document. From the perspective of the parties, the materials that the JFTC orders to be submitted on the day of a dawn raid are likely to be important for the parties in determining whether or not to apply for leniency. Thus, the parties need to consider requesting permission to make a copy of the materials while taking care not to interfere with the dawn raid.

• Report order

In general, the JFTC investigates the facts regarding alleged cartel activity through a careful examination of the submitted materials and interviews with the executives and/or the employees of the targeted enterprises. In addition, the JFTC normally orders a party to report on the other types of facts which are necessary to issue a cease-and-desist order and a surcharge payment order. In the early stages of the investigation, typically, the JFTC orders the parties to report on basic facts, such as providing a summary description of the parties and distribution channels for the subject goods or service. In the final stages of the investigation, the JFTC also orders reports on facts related to the legal compliance system and the sales volume of the subject goods or services. Such information will be the underlying basis of the contents of the cease-and-desist order and the amount of surcharge payment order by the JFTC.

2. Cartel investigation for criminal penalties

As stated above, both the JFTC and the Public Prosecutor have the authority to investigate cartels for criminal penalties, which may be conducted by way of direct compulsion with the authority of a search warrant issued in advance by a judge.

In 2020, the Antimonopoly Act introduced a so-called attorney-client privilege that was not previously recognized in Japan for the purpose of facilitating leniency cooperation. In particular, it created a system that will prevent investigators from accessing documents and data that contain confidential communications between a company and an outside attorney about legal advice regarding alleged cartels if certain strict conditions are met pursuant to the prescribed procedure (the ‘Privileged Treatment’). The JFTC’s guideline on the Privileged Treatment says that the attorney-client privilege will not attach to interview memos themselves. Also, the Privileged Treatment is also designed to cover only the JFTC’s administrative cartel investigations and not criminal cartel investigations. As such, the scope of the Privileged Treatment is significantly narrower than that granted in the United States.

The outside attorneys need to be qualified in Japan, which means that foreign attorneys are not included in the scope of ‘outside attorneys.’ Nevertheless, although communications between foreign attorneys and the enterprise are not subject to the Privileged Treatment, the JFTC’s guideline indicates that the JFTC shall not issue a submission order with respect to material recording confidential communications between the enterprise and its foreign attorney about legal advice relating to issues under foreign competition laws regarding the cartel, unless such material contains primary source materials or fact finding materials, or is otherwise considered necessary for the JFTC investigation of the relevant case. The JFTC’s actions on this matter will be the focus of much attention in the future.

In order for an enterprise to obtain full immunity, it must be the first applicant to submit reports and materials regarding the facts of the violation to the JFTC before the JFTC starts its investigation. In addition, it is required that the applicant has not continued to commit the violation in question on or after the start date of the JFTC’s investigation.

The first applicant must submit Form 1, which provides a very short summary of the violation (for example, the products/services that were the subject of the cartel, the manner of the conduct, and the duration of the violation) to the JFTC and then must also submit a written report using Form 2 (which describes in more detail the facts of the violation) and associated materials by the deadline notified by the JFTC (usually in two weeks from the submission of Form 1).

Subsequent applicants who apply for leniency before the JFTC starts its investigation will obtain a reduction of their surcharge as follows: (a) the second applicant will receive a reduction of 20%; (b) the third to fifth applicants will receive reductions of 10%; and (c) the sixth or later applicants will receive reductions of 5%. Parties may obtain an additional reduction of up to 40% (for example, the second applicant may obtain a total 60% reduction) according to the degree of their contribution to revealing the facts of the case. It is required that applicants submit reports and materials regarding the facts of the violation to the JFTC and have not continued to commit the violation in question on or after the start date of the JFTC’s investigation.

After the JFTC starts its investigation, partial leniency is still available. Parties can obtain a reduction of their surcharge as follows: (a) up to 3 applicants (and up to 5 applicants including applicants who apply for leniency before the start of the JFTC’s investigation) will receive a reduction of 10%; and (b) the other applicants will receive a reduction of 5%. They may obtain an additional reduction of up to 20% according to the degree of their contribution to revealing the facts of the case. Applicants must submit reports and materials regarding the facts of the violation to the JFTC within 20 business days from the start date of the JFTC’s investigation. They are required not to continue to commit the violation in question on or after the day when they submit the reports and materials.

Submitting Form 1 functions as a marker. Prior to the start of the JFTC’s investigation, the applicant’s position is reserved by submitting Form 1, which provides a very short summary of the violation (for example, the products/services that were the subject of the cartel, the manner of the conduct, and the duration of the violation) to the JFTC.

The leniency applicant must also submit a written report using Form 2 (which describes in more detail the facts of the violation) and associated materials by the submission deadline notified by the JFTC.

Thus, an enterprise may immediately apply for leniency with limited information, and thereafter supplement the application with additional information gathered through its internal investigation by the submission deadline.

After the first leniency applicant submits Form 1 and 2 as described in Section 3.3, the JFTC may request it to submit additional reports and relevant materials. If the first leniency applicant fails to do so, it will be disqualified. In that sense, the first leniency applicant is required to cooperate with the JFTC.

Other than the first leniency applicant, the other leniency applicants are likely to agree to cooperate with the JFTC’s investigation in order to obtain an additional reduction according to the degree of their contribution to revealing the facts of the case as described in Section 3.2. After the leniency applicants reach a written agreement regarding cooperation with the JFTC, they must cooperate with the JFTC in accordance with such agreement.

The leniency applicants are prohibited from disclosing the fact that they applied for leniency to any third party without justifiable grounds.

Under the Antimonopoly Act the grant of leniency does not extend to immunity from criminal prosecution.

However, the JFTC, which holds the exclusive right to file a criminal accusation of a violation of the Antimonopoly Act, has announced that it will not file a criminal accusation against the first leniency applicant who applies for leniency before the start of the JFTC’s investigation as well as such applicant’s current/former employees and directors.

There is no ‘amnesty plus’ programme in Japan.

The JFTC does not have the ability to enter into a settlement agreement for cartels in Japan. Japan introduced the Commitment Procedures into the JFTC procedures in December 2018, but the JFTC has made it clear that hard-core cartels are not subject to the Commitment Procedures.

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Japan and the JFTC have agreements and memorandums of understanding for promotion of cooperation among investigating authorities with many countries and regions (including the United States and the EU). Particularly among them, the JFTC has corporation agreements with the authorities in Australia and Canada that clearly describe the conditions for the sharing of information obtained through the investigation. However, even under these agreements, both competition authorities have complete discretion in deciding whether or not to share information.

In the JFTC’s practice, information provided by a leniency applicant will not be provided to the authorities without the consent of the applicant. In addition, the JFTC has clearly stated that any materials that were collected under its investigative authority and that could be subject to attorney-client privilege in the United States and the EU will not be shared with foreign authorities.

The JFTC may issue a cease-and-desist order to parties that engaged in cartel activity and impose an administrative penalty on such parties.

In addition, the JFTC may file a criminal accusation with the Prosecutor General against enterprises and individuals that engaged in cartel activity. If prosecuted by a Public Prosecutor upon such accusation and convicted by a court, an enterprise may receive a criminal fine of not more than five hundred million yen (approximately 4.2 million U.S. dollars), and individuals may be imprisoned for up to five years and/or receive a criminal fine of five million yen (approximately 42,000 U.S. dollars).

Under the 2019 amendments to the Antimonopoly Act, which fully came into force on December 25, 2020, the amount of administrative penalties is calculated as follows: the amount of the base penalty (X1) multiplied by the penalty calculation rate (X2) plus collusion benefits (X3) minus the leniency reduction amount (X4).

The amount of administrative penalty = X1 × X2 + X3 – X4

The amount of the base penalty (X1) is the volume of commerce which is subject to the cartel activity and produced by the violating party and/or certain of its subsidiaries for the duration of the violation. For seller-side cartels, such volume of commerce includes the amount of sales of the subject goods or services sold by the violating party and/or certain of its subsidiaries and consideration for businesses closely related to the subject goods or services (for instance, consideration for manufacture of the subject goods in return for letting another violator win a bid tender for the subject goods). As above, the calculation period of administrative penalty is the duration of the violation, but it may stretch back for a maximum of 10 years from the investigation start date.

The penalty calculation rate (X2) is basically 10 percent. It will be adjusted to 15 percent for (i) parties that have received a surcharge payment order etc. during the past ten years for violation of the Antimonopoly Act and (ii) parties that played a leading role in the cartel activity. If parties fall under both of the cases above, the penalty calculation rate will be adjusted to 20 percent for such parties. For parties that are small-and-medium sized enterprises, either of the penalty calculation rates as stated above will be reduced to 40 percent of the rate respectively.

The collusion benefits (X3) are, for example, the money provided by another violator in return for agreeing not to sell the subject goods to certain allocated customers. These collusion benefits will be added to all the amounts of the administrative fines.

To date, the largest administrative penalty imposed by the JFTC in a cartel case is 39.8 billion yen (approximately 334 million U.S. dollars) in 2019. In another case, the JFTC imposed a surcharge payment order of 13.1 billion yen (approximately 110 million U.S. dollars) against one party in 2014, which is the largest single administrative penalty imposed by the JFTC to date.

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A party that suffers damages from cartel activity may file a damage suit against the violators before district courts under Article 709 of the Civil Code or before the Tokyo District Court under Article 25 of the Antimonopoly Act.

A class action system was introduced in December of 2013 and came into effect from October of 2016. In general, the class action system only allows certain qualified consumer organizations to bring a suit against an enterprise on behalf of consumers that have directly transacted with such enterprise to recover their actual damages, which means that this system is not available for indirect consumers. Accordingly, in the context of cartel infringement, such certain qualified consumer organizations theoretically may bring a class action for recovery of their actual damages on behalf of the consumers that purchased the goods or services affected by cartel activity directly under contracts with an enterprise that engaged in the cartel activity. In reality, however, such a class action has never been brought in Japan to date.

Plaintiffs may recover their actual damages caused by cartel activity. In seller-side cartels, such actual damages are basically calculated as the amount of overcharge paid by the plaintiffs as a consequence of the cartel activity. Also, plaintiffs may recover liquidated damages under a liquidated damages clause in contracts with defendants who engaged in cartel activity.

On the other hand, punitive damages are not available.

The cease-and-desist order and surcharge payment order issued by the JFTC may be appealed to the Tokyo District Court on the grounds of factual and/or legal errors. The judgement of the Tokyo District Court also may be appealed to the Tokyo High Court on the same grounds, but the judgement of the Tokyo High Court may be appealed to the Supreme Court of Japan only on the grounds of legal errors.

When the Public Prosecutor files a criminal charge upon accusation by the JFTC (see Section 6.1), the accused may argue against such prosecution on the grounds of factual and/or legal errors or unreasonable sentencing before the district court. The accused also may appeal the judgment of the district court to the high court on the same grounds. However, the judgement of the high court may be appealed to the Supreme Court of Japan only on the grounds of legal errors.

Plaintiffs are required to file an appeal to the administrative orders within six months from the date when the plaintiffs became aware that the orders have been issued.

When the Public Prosecutor files a criminal charge upon accusation by the JFTC (see Section 6.1), the accused may argue against the prosecution under the three-tiered appeal system as mentioned in Section 8.1.

During the past three years, the JFTC’s cartel enforcement was relatively slow in general, but cartel investigations in pharmaceutical industries were a particular focus. Notably, the JFTC launched a criminal cartel investigation against major pharmaceutical wholesalers in 2019 and filed a criminal accusation against the companies and their employees in charge of bidding in 2020. As a result, the companies each received a criminal fine of 250 million yen (approximately 2.1 million U.S. dollars) respectively and each of the individuals received prison sentences from one and a half years to two years, with three years suspended.

There were only two cases where the JFTC issued administrative orders regarding cartels from January 2021 to March 24, 2022. Also, the number of leniency applications appears to have decreased as follows: 72 in FY 2018, 73 in FY 2019 and 33 in FY 2020. Considering the impact of COVID-19 in Japan, the above trends are expected to continue for a while.

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