Member Article

A bill to amend the Anti-monopoly Act was passed on June 3, 2009 and regulations and guidelines clarifying the scope of the changes were published for public comment in July and August, 2009. The Fair Trade Commission in Japan (the ¡°FTC¡±) plans to implement the amended Anti-monopoly Act in January, 2010. This Briefing outlines the major revisions to be effected by the amendments.

 

1.        HIGHLIGHTS

The amendments will:

l       Expand the types of conduct subject to fines

l       Increase the fines applicable to those playing leading roles in cartels and bid-rigging

l       Expand the applicability of the leniency program to group companies

l       Increase the maximum prison terms for cartels and bid-rigging

l       Revise the regulations regarding share acquisitions to:

¨ª       introduce a prior notification system;

¨ª       simplify the percentage thresholds from three to two;

¨ª       apply domestic sales thresholds to both Japanese and non-Japanese companies; and

¨ª       consider domestic sales thresholds of the acquirer on a ¡°corporate group¡± basis

l       Introduce provisions for the exchange of information between domestic and foreign competition

l       authorities

l       Introduce powers for the FTC to restrict access to case records by interested parties

The most far-reaching revisions are the changes regarding filing requirements for share acquisitions.

 

2.        SHARE ACQUISITION FILINGS

2.1         Change of Procedure - Pre-closing Notification

The revisions require that share acquisitions (which are currently treated differently from mergers, business transfers, or divestitures, etc. and now only require a post-closing notification in more limited situations) that meet certain threshold requirements be notified to the FTC not less than 30 days prior to the closing of the acquisition and that the parties to the acquisition may not close it less than 30 days from the date of notification.  Willful breach of these requirements may result in criminal penalties.

It should be noted that the substantive rule that no acquisition or merger shall substantially restrain competition remains, and accordingly the FTC may issue an order to stop or change the business plan of such an acquisition or merger.

 

2.2         Share Thresholds

The need to make the new pre-closing filing will arise if the acquisition would result in the Corporate Group to which the acquirer belongs holding more than either 20% or 50% of the voting shares in the target (i.e., including shares already held).  The current thresholds are 10%, 25% and 50%.  ¡°Corporate Group¡± is a new concept and aggregates companies based on their ¡°substantial control¡± by an ultimate parent (rather than the share control standard now applicable).  The detailed rules clarifying the precise scope of ¡°substantial control¡± have yet to be settled.

 

2.3         Sales Thresholds            

Whether an acquirer needs to provide notification of a share acquisition which crosses the share thresholds referred to above is to be determined on the basis of (i) the total sales in Japan of the Corporate Group to which the acquirer belongs and (ii) the total sales in Japan of the target company and its subsidiaries (not the Corporate Group of the target). ¡°Total sales in Japan¡± will include both domestic production and imports and so will likely bring more share acquisitions within the scope of the filing requirements. The detailed rules for calculation of ¡°total sales in Japan" have yet to be finalized.

A share acquisition will be subject to the filling requirement if the total sales in Japan of the Corporate Group of the acquirer exceed JPY 20 billion AND the total sales in Japan of the target and its subsidiaries exceed JPY 5 billion.

The current thresholds are based on the value of the total assets of the acquirer and its direct subsidiaries and direct parent and either the total assets of the target or, if the target is a foreign company, the total sales in Japan of the target.

 

2.4         Funds

The new share acquisition filing rules will apply to acquisitions of shares through a partnership which is a ¡°subsidiary¡± of a company, the acquisition being deemed to be an acquisition by the ¡°Parent Company¡± substantially controlling the partnership.  The detailed rules defining the scope of ¡°Parent Company¡± have yet to be finalized.  ¡°Partnership¡± means a partnership under the Civil Code of Japan, a limited partnership for investment in Japan, a limited liability partnership in Japan, and any other similar entity or group established under the laws of another jurisdiction.

 

3.        MERGERS AND BUSINESS TRANSFERS

3.1         Mergers and business transfers are currently subject to pre-closing filing requirements; these requirements will remain and be revised by:

¨ª       inclusion of the ¡°Corporate Group¡± and ¡°total sales in Japan¡± concepts as referred to in section 2.;

¨ª       treating foreign and Japanese companies in the same way; and

¨ª       raising the monetary thresholds (the thresholds vary depending on whether the¡¡transaction is a merger, a business transfer, or a divestiture).

 

3.2         Reorganization Exemption

The revisions will exempt reorganization type mergers, etc. from the filing requirement if carried out within a ¡°Corporate Group¡±; this will widen the exemption as it is now only available for such transactions between parent & subsidiaries or subsidiaries of the same parent.

 

4.        CONDUCT SUBJECT TO FINES

Currently only cartels and bid-rigging are subject to fines; the changes will make following additional activities subject to fines:

¨ª       exclusionary private monopolies;

¨ª       concerted refusal of trade;

¨ª       discriminatory pricing;

¨ª       sales at an unfairly low price;

¨ª       resale price restriction; and

¨ª       abuse of dominant position.

A guideline is under discussion in respect of the detailed scope of ¡°exclusionary private monopolies¡±.

 

5.        CONCLUSIONS

-  The revisions generally bring Japanese anti-monopoly procedures more in line with those in other major jurisdictions and so make them more understandable to foreign entities acquiring shares in Japanese companies or in foreign companies with sales or businesses in Japan. 

-  The introduction of the pre-filing requirement and the ¡°Corporate Group¡± and ¡°total sales in Japan¡± concepts for share acquisitions will likely significantly increase the number of share acquisitions the subject of FTC filings.

- The new pre-closing notification in effect puts into law the advisable practice of pre-closing consultations with the FTC on any share acquisition that may have a material negative impact on competition.

Further Briefings will be issued as the regulations and guidelines implementing the changes become clearer.

 

This note is written as a general guide only.  It does not constitute and should not be relied on as constituting legal advice.  Specific advice should be sought in any given situation.

Any comment in this note on Japanese law, and any subsequent opinion or advice on Japanese law from Atsumi & Partners is or will be given by a Japanese lawyer (Bengoshi) at Atsumi & Partners.

Where Japanese legal concepts have been expressed in the English language, the concepts concerned may not be identical to the concepts described by the equivalent English terminology as they may be interpreted under the laws of other jurisdictions.

 

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