Keidanren Review

One U.S. View of Japanese Antitrust Law

Douglas E. Rosenthal *

September 20, 1995

(Japanese translation of this article will appear in the October issue of Gekkan Keidanren, the monthly publication of Keidanren in Japanese. This manuscript is carried in full under courtesy permission of Mr. Rosenthal.)


While many in the United States contend that Japanese antitrust law is not a significant factor in the Japanese economic regulatory system, I believe them to be in error.<*1> Though ideas, institutions and practices resistant to competition are still present in Japanese society, there is a greater acceptance of free market ideas than many in the West recognize. In fact, in a number of ways, antitrust law is being implemented in Japan similarly to the way it is applied in the West. In recent years, government bodies, especially the Japan Fair Trade Commission (JFTC), have succeeded in strengthening antitrust law considerably and seem intent on pursuing this end even further. Japan is presently at a historical juncture when, due to a period of some political inertia, organizations such as the JFTC have a clear opportunity to asset themselves in expanding antitrust enforcement to advance Japanese interests in promoting open, more efficient, less-regulated markets. Such an initiative can also help reduce frictions in the Japan-United States bilateral relationship.

Increasing Trend of Deregulation

Though Japan has been dramatically more protectionist than the United States and Europe, progress has been made over the last 10 years in increasing market access, especially for many foreign consumer goods, as opposed to durable goods, or services generally. Substantially more progress can and should be made in all sectors. Particular attention should be paid to financial and other basic product and (often) service markets regulated by ministries like Health, Construction, Agriculture, Telecommunications and Post, Energy and Housing which, even now, have little incentive to deregulate. The divisions of the Ministry of International Trade and Industry ("MITI") dealing with basic and intermediate industries have, so far, continued long-standing protectionist policies which cannot be reconciled with MITI's self-professed new market orientation. There are reforms already underway, however, which can be promoted to bring change -- if Western leaders take them seriously and make it their policy to encourage them.
The concept of deregulation is increasingly powerful today in Japan. Though some may oppose a deregulation policy quietly, no one seems to be doing so loudly. This reflects a general trend of change in Japan toward (1) stronger consumer sovereignty, (2) less central planning, (3) consensus on the need to reform the Japanese distribution system which makes goods too costly, and (4) more transparency in government decision-making.
An example of this new trend can be found in the Administrative Procedure Act of 1993 that seeks to promote transparency and fairness in the Japanese governmental process. In it, guidelines are set for awarding licenses to enterprises, and groundrules are laid for administrative guidance. The Japanese government has announced a deregulatory initiative of some 1091 items. These demonstrate a commitment to a regulatory reform and seem to herald meaningful institutional change.

Improvement in Application of Antitrust Law

Japanese antitrust enforcement is increasing. It has even occasionally been more stringent than in the United Sates. For example, a small independent company providing maintenance service for Toshiba elevators challenged the efforts of the manufacturer's service subsidiary, Toshiba Elevator, to nomopolize the aftermarket for maintenance of its own equipment by excluding independent elevator repair companies from gaining access to Toshiba Elevator parts. They cited the decision of the United States Ninth Circuit Court of Appeals (in Image Technical Services v. Kodak), and this influenced the Osaka court to reject defendant's motion to dismiss. This decision was rendered before the U.S. Supreme Court upheld the Ninth circuit decision in Kodak. The Supreme Court established the U.S. federal precedent that single brand equipment service aftermarkets may be separate markets open to monopolization and tying restrictions by a single equipment manufacturer. Two days ago, a jury in California awarded $67,000,000 in damages (plus attorney's fees) against Kodak.

Passive Application to Dango Cases

The Antimonopoly Law, however, has not been enforced aggressively against collusion in major industries. It has rarely addressed collusion through important trade associations or otherwise among heavy industrial firms in major product sectors, or other major Japanese enterprises -- especially by importers of key materials or providers of establishment financial services. Two exceptions are the Oil Cartel Cases and the Sheet Glass Case, and there have been a few others.<*2> This rarity was properly alluded to in a speech last year by Anne Bingaman U.S. Assistant Attorney General for Antitrust.<*3> She noted that at various points in modern history the Japanese government has tended to use trade associations to further official policy. Such a practice invites at least tacit horizontal collusion and can spill over rather easily into significant overt collusive agreements.

Self-Initiated Investigation Necessary in Kodak Case

As this is written, Kodak has brought a Section 301 U.S. trade law complaint against Fuji Film. Kodak alleges that anticompetitive practices in the Japanese film market deny Kodak market access. This complaint provides an exceptional opportunity for the JFTC to assert itself constructively in the interests of promoting competition and assisting in the resolution of an international trade dispute. Even though it would be without precedent, the JFTC, in my personal view, should itself initiate, even if Kodak fails to approach it, an investigation under the Antimonopoly Law to determine after a full and careful investigation, whether or not Kodak's trade claims are supported by the facts. A responsible inquiry by the JFTC, whatever the conclusion, would go a long way to resolving the merits of the complaint. Under the informal and highly political process of review under Section 301 of United States trade law, it is unlikely that determination by the U.S. Trade Representative will be viewed as balanced, or equally professional.

For Effective Operation of Japanese Antitrust Law

There is much criticism in Japan of the extraterritorial application of U.S. trade and antitrust law. The more the JFTC, and Justice Ministry aggressively investigate and, where appropriate, prosecute anticompetitive private conduct in Japanese markets, the less pressure there will be in the United States for unilateral and extraterritorial U.S. law enforcement.
There are two institutional reforms which can significantly increase the effectiveness of antitrust enforcement in Japan. First, new legislation should be implemented to make it substantially easier for private parties to obtain preliminary injunctions in private cases brought in Japanese courts. Preliminary Japanese anti-monopoly injunctions should be made at least as easy to obtain as in the United States (where such suits are successful about 10-20% of the time).
In addition, the system of appointment of the five commissioners to the JFTC should be reformed. The Chairman of the JFTC has traditionally been appointed (by the Prime Minister, with consent from both Houses of the National Diet) from the Ministry of Finance. The Ministry of Justice often has a "reserved" seat for one of the Commissioners, as do MITI and the Ministry of Foreign Affairs. Securing seats for retired bureaucrats is not necessarily conducive to an independent JFTC engaged in vigorous enforcement. The Antimonopoly Law states that commissioners should be appointed from among those who have knowledge of law and economies. Strong, well-qualified and independent candidates should be sought as well from the bar, universities, journalism and commerce.
Economic relations between Japan and the United States should benefit considerably from a stronger, more aggressive, better-funded and more independent JFTC. The United States, however, should also make similar efforts to itself promote, more consistently, open and competitive access to United States markets, particularly in its intellectual property and trade laws and policies, if it wants convincingly to encourage Japanese officials to do the same.


< * >
Mr. Douglas E. Rosenthal, born in 1940, is a Partner in the Washington office of the 400 lawyer international firm, Sonnenschein, Nath & Rosenthal. Mr. Rosenthal is the immediate past Chief of the Foreign Commerce Section of the Antitrust Division of the U.S. Department of Justice. He has appeared in a dozen U.S. Supreme Court cases and in several domestic and international cartel, distribution and merger cases in the United States (and Europe) over the past twenty years. In 1992 he was Visiting Adjunct Professor of Law at Tokyo University.

<*1>
This viewpoint is discussed by Douglas E. Rosenthal and Mitsuo Matsushita in an article entitled "Competition in Japan and The West: Can The Approaches Be Reconciled?" to be published later this year in a book (from the Institute for International Economies), entitled Global Competition Policy (Graham and Richardson (eds).

<*2>
There have been more than 700 enforcement actions against trade associations in smaller industries - like barber shops.

<*3>
Before the Japan Society in New York City on March 3, 1994.


For further information and professional services, please contact:

Sonnenschein Nath & Rosenthal
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Warning:
The copyright of this article is retained by Mr. D.E. Rosenthal. Any reprints or publication without his prior permission may result in legal action. Keidanren reserves rights to carry this article under permission of Mr. Rosenthal for its publications.


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