The Japan Fair Trade Commission (JFTC) has been noticeably vocal regarding its intention to keep a close eye on e-commerce. Indeed, it has been so active that some people have named the JFTC one of the most aggressive regulators in this space, following those of the European Union and its member states. In many ways, the JFTC is closely following the European Commission's enhanced antitrust focus in the e-commerce sector. By way of example, in the past two years, the JFTC has:
- included specific remarks on online sales and platform players in the most recent revision of its Guidelines Concerning Distribution Systems and Business Practices under the Anti-monopoly Act) (the Distribution Guidelines);
- published a Data and Competition Policy report;
- launched a sector inquiry into the e-commerce sector; and
- investigated several companies in the e-commerce sector, including Amazon.
Multiple investigations in e-commerce sector
In recent years, the JFTC has quite aggressively pursued major foreign players in the e-commerce sector. Some cases have followed investigations into the same behaviours that had already been investigated by EU regulators, but others have been unique investigations into Japan-specific conduct.
The JFTC has tried to challenge a variety of infringements – ranging from the new, and therefore still debated, enforcement concept of 'price parity' (ie, the most-favoured nation principle) to the rather traditional theory of harm known as 'abuse of a superior bargaining position'. The latter is a unique enforcement tool in Japan which essentially aims to stop more powerful contracting parties from bullying their weaker counterparts.
Amended Distribution Guidelines
The JFTC has stated on several occasions that securing a fair and free competitive environment in the digital market is a priority, and digital players must ensure compliance with Japan's Anti-monopoly Act and the Distribution Guidelines.
In its 2017 amendment of the guidelines, the JFTC included specific remarks on their application to online sales and platform players. This was another indication that enforcement of the Anti-monopoly Act and Distribution Guidelines in the digital world is high on the JFTC's agenda.
Application of Distribution Guidelines to e-commerce
In the revised Distributed Guidelines, the JFTC noted that the basic approaches (as described in the revised guidelines) apply to not only brick-and-mortar stores, but also online sales. The JFTC noted that the basic approaches described in the guidelines also apply to any platformer's actions toward users of its platform. In an effort to modernise the guidelines, the JFTC also amended the language slightly to expand the concept of the classic 'producer', 'distributor' and 'consumer'. For example, the JFTC replaced the term 'distributors' with the broader 'trading partners' in many parts of the guidelines. This was likely done to facilitate the application of the guidelines to various new business models, including e-commerce platforms.
The JFTC has noted that platforms, such as online marketplaces and travel booking services, serve two or more user groups (typically, consumers and companies offering products thereto). Companies operating and offering a platform are referred to as 'platformers' in the revised Distributed Guidelines. With respect to platforms, the JFTC has noted that the antitrust analysis regarding such platformers' behaviour should consider direct and indirect network effects. 'Direct network effects' refer to effects felt by users following an increase in users in the same group. By contrast, 'indirect network effects' refer to effects felt by users following an increase in users in a different group. These considerations mirror those of the European Commission. For example, in its recent impact assessment accompanying its proposal for a regulation on promoting fairness and transparency for business users of online intermediation services, the European Commission stated that:
Indirect network effects can be at the heart of the business model of online platforms: the increase in the number of users on one side of the platform (e.g. sellers, content creators, service providers) makes it more attractive to users on the other side (e.g. consumers, viewers) and the other way around. In the online world, these network effects are of an unprecedented magnitude, scale and speed.
Exclusion case reviewed by JFTC in relation to platform players
The JFTC regularly publishes a selection of consultations to which it has responded. One such case published recently was a consultation initiated by a platform operator with a view to obtaining the JFTC's informal sign-off before implementing its business model. The platform operator sought the JFTC's opinion on a temporary exclusivity clause that it was considering with a software developer. The restriction would last for several months, during which time the software developer could not supply the software via any other platform.
The JFTC analysed the expected foreclosure effect by applying the various criteria presented in the Distributed Guidelines, including the newly lifted safe harbour based on the party's market share of 20% (previously 10%). Although the JFTC concluded that the exclusive relationship would not lead to problematic foreclosure, this case was a good example of how the amended guidelines will apply to platforms. The fact that the JFTC proactively published this case on its website illustrates its strong interest in pursuing this type of case going forward.
Given that the JFTC has provided extensive guidance on the application of its guidelines in the digital world, particularly in relation to platforms, it is unsurprising that it has started to enforce these principles in practice. The JFTC has already targeted a handful of tech giants and its longstanding image of being a mature but subdued authority does not appear to apply to its role in the digital economy. If anything, the JFTC seems to be striving to be the frontrunner in this regard, ahead of other Asian authorities.
For further information on this topic please contact Kaori Yamada or Jitske Weber at Freshfields Bruckhaus Deringer LLP by telephone (+81 3 3584 8500) or email ([email protected] or [email protected]). The Freshfields Bruckhaus Deringer LLP website can be accessed at www.freshfields.com.
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