Non Price Restriction Conducts in Japan 5 th APEC Training Program on Competition Policy (6-8 December 2004 at Yogyakarta, Indonesia) Osamu IGARASHI Japan Fair Trade Commission Resident Advisor for KPPU 1. OVERVIEW Through debates among economists, nowadays largeness or high market share of an individual company itself is not thought to have negative effect to competition as unlawful level. This is because if such high market share resulted in normal competition, it is thought to show effectiveness of the company. But if a company intends to grow up by using trade methods that suffer effective competitors, such trade methods should be banned. This is the main reason why unfair trade practices are banned in competition law. Unfair trade practices are defined as practices has tendency to impede fair competition. As for the meaning of Fair Competition, that is thought to be interpreted to mean that any one of the following three situations exists in a market in Japan. First, free competition among entrepreneurs is not restricted and an entrepreneur is not prevented from entering into free competition. (Maintenance of free competition) Second, competition is centered on price, quality, and service, thus the free competitive order is maintained. (Maintenance of fairness in competitive method) Third, trading partners can engage in transactions based on free and voluntary decision-making, thus the basis for free competition is maintained. (Maintenance of the basis for free competition) 1
Therefore, the tendency to impede fair competition shall be found where any harm could be caused under any one of the above situations. Actually, the real business conditions are apt not to be so fair. But based on supposition of existence of Fair Competition in questioned area, in the case that questioned conduct has tendency of impede fair competition, such conduct could be unlawful. In the other ward, the regulation on unfair trade practices is ranked as prevention of private monopolization. As for private monopolization, substantial restraint of competition is required as effect requirement. 2. LEGISLATION Section 2(9) of the Antimonopoly Act provides that for an activity to qualify as an unfair trade practice, it must be fall within the scope of activities set forth in subparagraphs (i) to (vi) of the section, such activity must tend to impede fair competition, and the Japan Fair Trade Commission (JFTC) must have designated the activity as an unfair trade practice. The JFTC designated 16 types of conduct as unfair trade practices for allover industries, and the designation for allover industries called as General Designation. The 16 types of conducts contain both price restrictions and non price restrictions. This paper will introduce Tie-in Sales and Dealing on Exclusive Terms as examples of non-price restriction. 2
3. TIE-IN SALES (1) General Designation follows. Item 10 of General Designation provides requirements of Tie-in Sales as (Tie-in Sales, etc.) Unjustly causing the other party to purchase a commodity or service from oneself or from an entrepreneur designated by oneself by tying it to the supply of another commodity or service, or otherwise coercing the said party to deal with oneself or with an entrepreneur designated by oneself. (2) General Principle Tie-in sales should be regulated based on the degree of effect to the market of tied product. That is, in the case that the conduct has an effect to exclude the rival in the tied product market, the conduct should be prohibited. This is because tying sales could have efficiency, so if a tying sales don t have exclusive effect, the conduct could be justified. In this context, the concerned party must have certain market power in tying product market. The tendency of impede fair competition of tying sales is mainly based on the effect that lessening fair competition in tied product market. Tying Product Tied Product Market Competitor Tied Product 3
(3) Case Microsoft Co., Ltd. case (1998) a) Background In spread seat software market in Japan, Excel of Microsoft Co., Ltd. (hereinafter MS Japan ) is having number one position from around 1995. On the other hand, as for word processor software, MS Japan had already began to sell Word in Japan, but Japanese language needs transformation from Japanese symbols to Chinese characters and Word was week at such function, therefore they have to be occupying second position next to Japanese rival Ichitaro. b) Fact MS Japan has unjustly tied its word processor software Word to their spreadsheet software Excel since March 1995 and, has unjustly tied personal information manager software Outlook to Excel and Word since March 1997, when it licenses their software to personal computer (hereinafter PC ) manufacturers (Fujitsu Ltd., NEC Corporation, IBM Japan, Ltd., Compaq Computer Co. Ltd. etc.) for the purpose of installing or bundling them to PCs. Figure: Distribution channels of word processor software etc. Company License contract MS Japan PC manufacturers Primary wholesalers Dealers Secondary Retailers users Individual users b) Measures On November 20, 1998, the JFTC issued a recommendation to MS Japan take some designated measures, based on the above fact that the conducts of the company fall into a violation of Section 19 of the AMA (Unfair Trade Practices), Item 10 of General Designation (Tie-in Sales). MS Japan accepted the recommendation, so the JFTC issued a cease and desist order to them on December 14, 1998. 4
c) Remedies In the cease and desist order, the JFTC ordered to MS Japan to take following measures. (i) MS Japan shall abolish the conduct to tie its word processor software Word to its spreadsheet software Excel, and the conduct to tie its personal information manager software Outlook to Word and Excel when it licenses these software to PC manufacturers for the purpose of installing or bundling them to PCs. (ii) MS Japan shall accept proposals by PC manufacturers to amend the existing licensing contracts of Word, Excel and Outlook for the purpose of installing or bundling them to PCs into contracts of one or two of those software, in case PC manufacturers propose to amend the contracts. (iii) MS Japan, in licensing Word or Excel to PC manufactures, shall not tie any other software when it licenses Word or Excel to PC manufacturers for the purpose of installing or bundling them to PCs. (iv) MS Japan shall make PC manufacturers and consumers informed of the measures it takes upon (i), (ii) and (iii). 4. DEALING ON EXCLUSIVE TERMS (1) General Designation Item 11 of General Designation provides requirements of Dealing on Exclusive Terms as follows. (Dealing on Exclusive Terms) 11. Unjustly dealing with the other party on condition that the said party shall not deal with a competitor, thereby tending to reduce transaction opportunities for the said competitor. (2) Guidelines Guidelines concerning Distribution Systems and Business Practices (July 11, 1991 The Japan Fair Trade Commission) (hereinafter Distribution Guidelines ) interprets on the above requirements on Dealing on Exclusive Terms as follows. 5
In the cases where an influential firm in a market* engages in transactions with its trading partners on condition that the trading partners shall not deal with competitors of the firm or another firm having close relations with the firm, or causes the trading partners to refuse to deal with those above-mentioned competitors, and if such conduct may result in reducing business opportunities of the competitors and make it difficult for them to easily find alternative trading partners, such conduct is illegal as unfair trade *Whether a firm is influential manufacture is in the first instance judged by a market share of the firm, that is, whether it has no less than 10% or its position is within the top three in the market. The difficulty in securing alternative distribution channels may depend on other manufactures behavior in a market, therefore, other manufacturers behavior in market needs to be considered. For example, if other manufacturers independently and simultaneously restrict the handling of competing products, it is more likely to produce the anticompetitive effects stated above. As mentioned above, the tendency of impede fair competition of Dealing on Exclusive Terms is based on the effect that lessening fair competition. Company A Competitor Trading with Exclusive term Distributor Distributor Distributor 6
(3) CASE -Toyo Rice Polishing Machine Works Case (1988) a) Background Toyo Rice Polishing Machine Works Ltd. (Hereinafter Toyo ) is manufacturer of food processor like rice polisher etc. Toyo sold their own products though whole sellers to rice retailers. The market share of Toyo was 28% in the market of rice polisher for rice retailer, 70% in the market of rice mixing machine, and 52% in the market of threshing machine in that time. b) Facts In the beginning of November 1976, Toyo closed contracts with whole sellers of rice polishing machine, rice mixing machine and threshing machine with following contents and carried out them. (i) Whole sellers don t treat rival s products compete to Toyo s products. (ii) Whole sellers don t sell Toyo s products to distributors other than whole sellers. (iii) As for the guarantee for above two conditions, whole sellers must refer bills to Toyo. c) Measures After the investigation, on May 2, 1977, the JFTC initiated a hearing procedure on this case, and issued a hireling decision that the conduct of Toyo infringed section 19 of the AMA. However Toyo appealed to Tokyo High Court, and Tokyo High Court ruled to reverse this case to the JFTC on February 17, 1984. In the litigation, Toyo insisted that the JFTC s way of calculation of market share is wrong, because the JFTC counted the sales volume to major rice polishing firms, not only to whole sellers and based on this fact, the JFTC overestimated the degree of influence of Toyo. On this matter, Tokyo High Court accepted Toyo s argument. Based on this court decision, the JFTC initiated a hearing procedure again and finally issued a consent order (cease and desist order) to Toyo on May 17, 1988. 7
e) Remedy In the cease and desist order, the JFTC ordered to Toyo to take following measure. Toyo, in selling of their rice polishing machine, rice mixing machine, and threshing machine, shall not trade with restrict condition similar to Agent Agreement which was enacted with trading partners from November 1976 to September 1982. 5. ABUSE OF DOMINANT BARGAINING POSITION (1) General Designation Item 14 of General Designation provides requirements of Abuse of Dominant Bargaining Position as follows. (Abuse of Dominant Bargaining Position) 14. Taking any act specified in one of the following paragraphs, unjustly in the light of the normal business practices by making use of one's dominant bargaining position over the other party: 1. Causing the said party in continuous transaction to purchase a commodity or service other than the one involved in the said transaction; 2. Causing the said party in continuous transaction to provide for oneself money, service or other economic benefits; 3. Setting or changing transaction terms in a way disadvantageous to the said party; 4. In addition to any act coming under the preceding three paragraphs, imposing a disadvantage on the said party regarding terms or execution of transaction; or 5. Causing a company which is one's other transacting party to follow one's direction in advance, or to get one's approval, regarding the appointment of officers of the said company (meaning those as defined by Subsection 3 of Section 2 of the Act Concerning Prohibition of Private Monopoly and Maintenance of Fair Trade). As for major retailers like department stores, super markets etc., Designation on Specific Unfair Trade Practices in Department Store Industry (1954 Fair Trade Commission Designation No.7) also could be applied. 8
As for Designation on Department Store Industry, now the JFTC is in amending process. In recent designation, objects of implementation are limited to the retailers have shops with certain amplitude, but the JFTC is considering to expand the objects. (2) Guidelines Distribution Guidelines defines examples of abuse conduct by retailers with dominant bargaining position, that is, coercion to purchase, return of unsold goods, request for dispatch of sales persons to shops, coercive collection of contributions, or request for frequent delivery in small lots. The tendency of impede fair trade competition of abuse of dominant bargaining position is based on the effect that impede the basis of free competition. (3) Case Lawson Inc. Case (1998) a) Background Lawson Inc. (hereinafter Lawson ) was second largest convenience store chain and fifth position in allover retail sector in Japan. The individual stores of Lawson were getting trust of consumers that they were collecting popular goods. b) Facts Lawson forced supplier of sundries, by mainly use of its dominant bargaining position, to do below conducts on around January and February 1998, (i) To pay extra money without any calculate basis and any particular reasonable cause, and (ii) To sell sundries at one yen to Lawson s franchise stores. 9
c) Measures On July 16, 1998, The JFTC issued a recommendation to Lawson take some designated measures, based on the above fact that the conducts of the company fall into a violation of Section 19 of the AMA (Unfair Trade Practices), Item 14 of General Designation (Abuse of Dominant Bargaining Position). Lawson accepted the recommendation, so the JFTC issued a cease and desist order to them on July 30, 1998. d) Remedies In the cease and desist order, the JFTC ordered to Lawson to take following measure. Lawson shall make suppliers of sundries informed following (i) and (ii) and shall make staffs in charge of purchasing informed following (ii). (i) Lawson has stopped the conducts that forced supplier of sundries, to pay extra money without any calculate basis and any particular reasonable cause and to sell sundries at one yen to their own franchise stores. (ii) Lawson will never force the suppliers to offer economic gains in the similar manner. 10