Japan Fair Trade Commission to Strengthen Monitoring;3rd Party to Report on Companies Ordered to Improve

Yomiuri Shimbun file photo
The building that houses the Japan Fair Trade Commission

The Japan Fair Trade Commission intends to strengthen its monitoring system for compliance with “commitment procedures,” which are administrative measures taken against companies suspected of violating the Antimonopoly Law, The Yomiuri Shimbun has learned.

The JFTC is considering requiring companies subject to commitment procedures to have a third party monitor the companies’ improvement efforts.

Commitment procedures account for most of the administrative actions imposed by the JFTC. In principle, the procedures target suspected violations of the law other than bid rigging and cartels. If companies voluntarily submit an improvement plan for problematic actions to the JFTC and the JFTC judges the plan to be fully effective, the companies will not face such penalties as surcharge payment orders or cease and desist orders.

As commitment procedures can lead to the prompt restoration of a competitive environment, they have been applied to 19 cases involving 21 business operators, or about 80% of the cases in which the JFTC has taken legal action since the procedures’ introduction in December 2018.

Commitment procedures have been applied to many companies, including U.S. tech giant Google LLC and major online retailer Amazon Japan. However, some antitrust experts have pointed out that after the imposition of the procedures, the companies are left to report on the improvement situation themselves and the actual status of improvements cannot be confirmed.

When Google, to which commitment procedures were applied in April this year, concluded a contract with Yahoo Japan Corp. (now LY Corp.) in 2010, it told the JFTC that it would “maintain a competitive relationship with Yahoo Japan.”

However, Google concluded a new contract in 2014 that restricted the business transactions of Yahoo Japan. For seven years from 2015, Google continued to engage in unfair business with Yahoo Japan. During that time, Google did not report any of these facts in multiple interviews with the JFTC, thereby delaying the discovery of the situation.

As there are concerns that the same malicious evasion of reporting could occur in the future regarding the commitment procedures, it is believed that the JFTC has judged it necessary to strengthen the monitoring system after approving companies’ improvement plans.

According to sources related to the matter, the JFTC will require the companies to have an “independent third party” monitor the implementation of all items included in the improvement plans in commitment procedures that will be discussed with the companies in the future.

In addition to confirming that problematic actions have been stopped, the JFTC will make companies specify in their improvement plans that the third party will check the current status of measures to prevent a recurrence, such as training sessions for employees and the creation of a code of conduct. The third party is expected to comprise experts, such as lawyers and an auditing firm, who will be appointed and paid by the company.

In European countries, there is a “trustee” system in which experts monitor the implementation of the commitment procedures and report violations to the competition authorities.

The establishment of an after-the-fact checking system by the JFTC will effectively be the Japanese version of the trustee system.

Furthermore, the current customary three-year period during which “cessation of problematic behavior” and “implementation of measures to prevent a recurrence” are required will be extended to five years or longer in principle. The period for annual status reports to the JFTC will also be extended to five years or longer in principle.

The JFTC will actively conduct mandatory hearings and document collection based on the Antimonopoly Law for companies that fail to fulfill their reporting obligations and refuse to provide new information — thereby raising questions about the implementation of their plans — even after their improvement plans have been approved.

If the companies do not comply, the responsible individuals will be subject to imprisonment for up to one year or a fine of up to ¥3 million.