Antitrust Alert: JFTC Issues Draft Guidelines on the Prohibition of Abuse of a Superior Bargaining Position Under the Japan Anti-Monopoly Act
The Japan Fair Trade Commission (JFTC) has issued draft guidelines on enforcement of the prohibition on abuse of a superior bargaining position, which long has been a violation of Japan's "Anti-Monopoly Law" (AML) and has been enforced mostly through the Japanese administrative guidance system. Abuse of a superior bargaining position constitutes an unfair business practice, in violation of the AML, and under 2009 AML amendments was made subject to fines of up to 1 percent of sales affected by a "continuous abuse."
In contrast to the better known offense of abuse of a dominant market position, abuse of a superior bargaining position does not require that a party have market power, only that its bargaining position in a given transaction be superior to that of its counterparty. Even parties with low market shares may be found to violate this prohibition. Parties doing business in Japan must be aware that dealing with parties with substantially inferior bargaining positions, especially in the context of an ongoing business relationship, presents risks under this provision. The draft guidelines provide some guidance on the circumstances that are likely to result in a finding of a violation. However, such conduct still is defined in broad and somewhat vague terms, and the draft guidelines make clear that each instance will be assessed on a case-by-case basis.
The AML specifically prohibits abusing a superior market position by (a) causing a counterparty in regular transactions to buy goods or services other than those covered by the regular transactions, (b) requiring a counterparty to provide money, services, or other benefits in addition to the value provided for the goods or services, or (c) refusing to receive or return goods, delaying or reducing payment, or otherwise changing terms or executing transactions in a way disadvantageous to the counterparty.
Context for enforcement. The Draft Guidelines seek to clarify circumstances that may be seen to violate those prohibitions. As a general proposition, the Draft Guidelines state that the conditions under which businesses conduct transactions are left to the free discretion of the parties to the transaction. However, they go on to define circumstances in which business conduct may constitute abuse of a superior bargaining position, emphasizing the wider competitive effect such conduct may have. Where a party with a superior bargaining position uses that position to the detriment of the counterparty, then in addition to preventing the counterparty from conducting a transaction at its own discretion, "the counterparty…is placed at a competitive disadvantage in relation to other competitors, and this creates a risk of placing the acting party at a competitive advantage to other competitors." The Draft Guidelines further provide that "matters are judged individually considering the level of disadvantage in question and the scope of the conduct."
Market dominance not required. The Draft Guidelines provide that market dominance is not required for a finding of a superior bargaining position. It is "relative dominance" that is required. In order to determine whether or not a specific party has a superior bargaining position, the following factors are reviewed: (1) to what degree the business of the Inferior Party depends on the Superior Party; (2) what is the position of the Superior Party relative to the overall relevant market; (3) the possibility that the Inferior Party could switch its business from the Superior Party to another; and (4) whether it is necessary for the Inferior Party to conduct its business with the Superior Party.
Normal trade practices. To constitute a violation, the conduct must be "unfair in view of normal trade practices." Unfortunately, this element is also not objectively defined, but is decided case-by-case "in view of the maintenance and promotion of fair competition." The Draft Guidelines make clear that conduct is not automatically justified simply because it is consistent with "currently existing business practices." Accordingly, parties should not assume that conduct will be safe from the AML's sanctions merely because their conduct is in line with their normal practices. Instead, the competitive impact of their dealings with a party with an inferior bargaining position must be considered.
Conduct violating AML. The Draft Guidelines state that the types of conduct that may constitute abuse of a superior bargaining position will be "centered on" the types of conduct prohibited in the AML, mentioned above. The Draft Guidelines provide numerous examples to illustrate the types of conduct that may be considered to constitute abuses. These are not exhaustive, however, and in many circumstances there are no "bright lines" that will permit companies to be certain that conduct will not be considered an abuse. Companies engaged in transactions in Japan that may have a superior bargaining position with counterparties therefore must weigh the benefits of contemplated terms and conditions of a specific transaction against the risk that they may constitute "continuous exercise" of a dominant bargaining position and thus be subject to fines of up to 1 percent of the affected sales.
The JFTC has received public comments on the Draft Guidelines and is expected to finalize and publish the final Guidelines in the near future.
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H. Stephen Harris, Jr.
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