Enforcement of the Japanese
Antimonopoly Law Against
Use of Intellectual
Property in Competition
Keiji Kondo, D. Eng.
Attorney-at-Law
Fukuda & Kondo
Tokyo, Japan
Introduction
In Japan, the Antimonopoly Law was enacted in 1947 as part of democratization of Japan under the occupation by the United States. It is officially called the Law Concerning Prohibition of Private Monopolization and Maintenance of Fair Trade. It has helped Japan to have an effective market economy and economic democracy established.
As its name itself indicates, the principal purpose of the Antimonopoly Law is to prohibit private monopolization and to maintain fair trade. Although it does not prohibit monopolization as a result of free competition, it prohibits business activities setting obstacles for preventing others from entering the market.
On the other hand, Japan has various intellectual property laws that are more than a hundred years old. The Patent Law was first enacted in 1871, The Trademark Law, 1884, and The Copyright Law, 1899. Japan also has other intellectual property laws, such as the Unfair Competition Prevention Law and the Seeds and Saplings Law. These laws give owners of intellectual property a right to exclude others from using it. Therefore, they may contribute to monopolization.
It seems that the Japanese legislators were aware of the potential tension between the Antimonopoly Law and intellectual property laws. The Antimonopoly Law of Japan has an interesting article reading:
Article 21 [Acts under intellectual property rights]
The provisions of this Law shall not apply to such acts recognizable as the exercise of rights under the Copyright Law, the Patent Law, the Utility Model Law, the Design Law or the Trademark Law.
However, exercise of an intellectual property right is not automatically exempted from application of the Antimonopoly Law. We have a few, but not many, precedents in which certain business activities involving apparent exercise of intellectual property rights were regarded as violation of the Antimonopoly Law.
1 Legal Framework and
an Overview of Procedures
1.1 The Purpose of the Antimonopoly Law
Article 1 of the Antimonopoly Law reads as follows:
Article 1 [Purpose]
This Law, by prohibiting private monopolization, unreasonable restraint of trade and unfair trade practices, by preventing excessive concentration of economic power and by eliminating unreasonable restraint of production, sale, price, technology and the like, and all other unjust restriction of business activities through combinations, agreements and otherwise, aims to promote free and fair competition, to stimulate the creative initiative of entrepreneurs, to encourage business activities of enterprises, to heighten the level of employment and people's real income, and thereby to promote the democratic and wholesome development of the national economy as well as to assure the interests of consumers in general.
As can be seen from the above citation, there are three categories of activities that are prohibited by the Antimonopoly Law. They are private monopolization, unreasonable restraint of trade, and unfair trade practices.
1.2 Private Monopolization
The Antimonopoly Law defines "private monopolization" as follows:
The term “private monopolization” as used in this Law shall mean such business activities, by which any entrepreneur, individually or by combination or conspiracy with other entrepreneurs, or by in any other manner, excludes or controls the business activities of other entrepreneurs, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.
As the definition suggests, prohibition of private monopolization is necessary when the existing companies are trying to exclude a new competitor from entering the market. Such attempts are violation of the Antimonopoly Law regardless of whether they are committed individually by the market leader or collectively by the existing companies.
1.3 Unreasonable Restraint of Trade
The Antimonopoly Law defines "unreasonable restraint of trade" as follows:
The term "unreasonable restraint of trade" as used in this Act shall mean such business activities, by which any entrepreneur, by contract, agreement or any other concerted actions, irrespective of its names, with other entrepreneurs, mutually restrict or conduct their business activities in such a manner as to fix, maintain, or increase prices, or to limit production, technology, products, facilities, or customers or suppliers, thereby causing, contrary to the public interest, a substantial restraint of competition in any particular field of trade.
A typical unreasonable restraint of trade is a price cartel. By a multi-party agreement, the participants of the cartel restrict one another from changing the price of certain goods, and reduce price competition in the market.
1.4 Unfair Trade Practices
The Antimonopoly Law defines unfair trade practices as follows:
The term "unfair trade practices" as used in this Law shall mean any act coming under any one of following paragraphs, which tends to impede fair competition and which is designated by the Fair Trade Commission as such:
(i) Unjustly discriminating against other entrepreneurs;
(ii) Dealing at unjust prices;
(iii) Unjustly inducing or coercing customers of a competitor to deal with oneself;
(iv) Dealing with another party on such terms as will restrict unjustly the business activities of the said party;
(v) Dealing with another party by unjust use of one's bargaining position; or
(vi) Unjustly interfering with a transaction between an entrepreneur who competes in Japan with oneself or the company of which oneself is a stockholder or an officer and his another transacting party; or, in case such entrepreneur is a company, unjustly inducing, instigating, or coercing a stockholder or an officer of such company to act against the interest of such company.
The definition cited above may seem difficult to follow. For an act to be regarded as unfair trade practice, three conditions must be met. One, it falls one of the six categories listed in the above definition. Two, it must have tendency to impede fair competition in the market. Three, it must be designated by the Fair Trade Commission. Now the Fair Trade Commission has issued a general notice designating sixteen categories of trade practices as unfair trade practice within the meaning of the Antimonopoly Law. An English translation of the notice is attached at the end of this memorandum.
1.5 Fair Trade Commission
The Fair Trade Commission is established as an administrative organization to achieve the purpose of the Antimonopoly Law. The Fair Trade Commission is administratively attached to the Prime Minister, and is positioned as an extra ministerial body of the Prime Minister’s Office.
However, the Fair Trade Commission has the character of being an administrative organization under the council system, consisting of a Chairman and four Commissioners. In implementing the Antimonopoly Law, the Fair Trade Commission independently performs its duties without being directed or supervised by anyone else.
One of the reasons why the Fair Trade Commission takes the form of an independent administrative organization is to remove political clout associated with the implementation of these laws. Such political clout arises because the Antimonopoly Law, which prescribes basic rules of business activities in a free system and thereby constitutes the foundation of the Japanese economic system, handles various matters, including conflict of interests.
Another reason why the Japan Fair Trade Commission takes the form of an independent administrative organization is that, like a court trial, the settlement of violations of the Antimonopoly Law calls for neutrality and fairness. Furthermore, since these laws are applied to constantly changing situations, their implementation requires the expert judgment of experienced persons who have a wealth of knowledge in law and economics.
Nevertheless, given the fact that there is a constitutional problem with making the Fair Trade Commission, an administrative organization, completely independent of the Cabinet, the authority to appoint the Chairman and Commissioners, to submit relevant bills to the Diet (the Japanese national legislative body), and to compile the budget bill rests with the Prime Minister. The structure and activities of the Fair Trade Commission are checked by this system. Moreover, the appointment of the Chairman and Commissioners requires the consent of both Houses of the Diet, and the Japan Fair Trade Commission must submit to the Diet an annual report describing the status of enforcement of the Antimonopoly Law. These steps make sure that the Fair Trade Commission is also under the supervision of the Diet.
When the Antimonopoly Law refers to the Fair Trade Commission, it refers to the body consisting of the Chairman and the Commissioners. To support the Chairman and Commissioners, however, the General Secretariat is established. It is in charge of various affairs of the Fair Trade Commission. It is comprised of a Secretariat, an Economic Affairs Bureau and an Investigation Bureau. The Fair Trade Commission in a usual sense includes the offices of the Secretariat and the Bureaus. The work force of the General Secretariat (called the "Executive Office" at the time) was 478 in 1991, and 558 in 1999. The increase reflects the increased importance of the anti-monopolization.
The Fair Trade Commission provides a lot of information on its web site. English pages are also available. The URL is as follows:
http://www.jftc.go.jp/ .
The explanation given in this section, especially in this and the next sub-sections, is a summary of the pages found at the web site.
1.6 Enforcement of the Antimonopoly Law
The Fair Trade Commission may initiate an investigation of conduct that may violate the Antimonopoly Law based on the information that can be classified into the following three types:
(1) Report from the public;
(2) Detection by the Fair Trade Commission's own authority; or
(3) Notification by the Public Prosecutor General.
Of these types of information, reports from the public play a particularly important role.
Any person may request that the Fair Trade Commission should institute an investigation as to any suspected facts in violation of the Antimonopoly Law and ask for necessary measures to be taken. Since anyone can submit information and a request to the Commission, a victim of the acts violating the law, which can be a general consumer or a competitor of the violating entity, can do it as long as it believes that the acts violate the Antimonopoly Law. The report can be filed in writing or orally. But to enable the Fair Trade Commission to make a decision on whether to conduct an investigation based on the provided information, it would be desirable that the identity of the offender and the particulars of the offense, such as its date, place and other concrete facts, should be reported in writing.
Upon examining the preliminary information of the case, the Fair Trade Commission initiates an investigation on whether the alleged violation exists. The investigation may be conducted on a voluntary basis when the cooperation of the entities concerned can be obtained. However, there are cases when a forced investigation is conducted since an investigation on a voluntary basis alone is inadequate. The Fair Trade Commission can undertake an investigation by designating investigators, who enter the premises of companies, make them submit necessary reports, information or data, and order persons to appear to give detailed information.
When the Fair Trade Commission concludes that alleged acts violate the Antimonopoly Law, it may, either unofficially or officially, recommend the violating party to take measures to eliminate the violation. Any person who has received an official recommendation must notify in writing without delay the Fair Trade Commission whether he will accept the recommendation. When the person accepts the recommendation, the Fair Trade Commission can issue a decision in line with the recommendation without initiating hearing procedures. A decision issued without hearing procedures, but with acceptance of recommendation, is called "recommendation decision". This is a simple procedure for cases without disputes. Therefore, it is used for settling most cases.
However, if the recipient of the recommendation does not accept it, the Commission initiates a process consisting of a series of hearings. It is for hearing the offender's argument prior to issuing a decision. It is in principle open to the public, and similar to a process in a judicial court.
In some cases the respondent, in the middle of the hearing procedures, admits the existence of a violation and the application of the law and files a written statement setting forth a plan to implement concrete measures to eliminate the violation. If the Commission finds the plan appropriate, it may issue a decision in line with the submitted plan. This is called "consent decision."
Without a consent decision, the Commission must issue a decision upon completion of the hearing procedures. It states the facts, application of the law to them, and the remedies that the Commission considers are appropriate. If the respondent appeals from the decision, it will be subject to the judicial review by the Tokyo High Court, which has an exclusive jurisdiction over the Commission's decisions.
2 Precedents
and Guidelines
2.1 Patent Pool by Pachinko Machine Manufacturers
2.1.1 Facts
Ten manufacturers of pachinko machines formed a patent pool. The pooled patents were assigned to a patent management company also formed by the manufacturers.
Together with other pachinko machine manufacturers, the ten manufacturers formed an association of manufacturers that had nineteen members, which constituted almost all the manufacturers of pachinko machines in Japan.
The ten companies and the patent pool company adopted the licensing policy that no license should be granted to an outsider, that is, non-member of the manufacturers’ association. The pooled patents were essential for manufacturing pachinko machines, which were subject to certain gamble game business regulations. Therefore, the adopted policy created an effective obstacle preventing a new competitor from entering the market.
2.1.2 Recommendation Decision (August 6, 1997)
It was found that the adopted policy of the patent pool and its implementation substantially restricted competition in the field of manufacturing pachinko machines. Therefore, the activities of the participants were regarded as private monopolization defined under Paragraph 5 of Article 2 of the Antimonopoly Law.
Based on the above finding, the Commission ordered the participants to abolish the above patent pool policy, and to cancel all the measures taken under it.
2.2 Flooding Trademark Applications by a Regional Newspaper Company
2.2.1 Facts
Hokkaido Shimbun is the publisher of a newspaper distributed around the island of Hokkaido, which is the second largest island constituting the Islands of Japan. In an area called Hakodate, another publisher planed to launch a new newspaper.
In an attempt to prevent the new competitor from publishing the new newspaper, Hokkaido Shimbun took several measures. For example, it successfully asked a news agency not to provide news to the new competitor. It also asked local companies not to place advertisement on the new newspaper.
Among other measures, Hokkaido Shimbun filed a lot of trademark applications for newspapers covering almost all conceivable trademarks that could be used by the new competitor, for example, Hakodate Shimbun.
2.2.2 Consent Decision (February 28, 2000)
It was found that that the measures taken by Hokkaido Shimbun substantially restricted the competition in the field of publishing newspapers in the area of Hakodate. Therefore, it was concluded that they were against prohibition of private monopolization.
The Commission ordered, among others, that all trademark applications filed by Hokkaido Shimbun be withdrawn as far as they were associated with the area of Hakodate.
2.3 Bundling Word and Outlook with Excel
2.3.1 Facts
Excel of Microsoft was ranked No.1 among spreadsheet programs in 1994. However, Ichitaro of Just Systems and Organizer of Lotus were more popular than the products of Microsoft, that is, Word and Outlook, in the field of word-processors and scheduling management programs respectively.
Microsoft Japan took the licensing policy not to license Excel alone to PC manufacturers that pre-installed application programs in their PCs. Some PC manufacturers wanted only Excel pre-installed, but could not obtain a license without Word bundled. Later, Microsoft conditioned a license under Excel not only on a license under Word but also on a license under Outlook.
2.3.2 Recommendation Decision (December 14, 2000)
Microsoft tied its license of Excel to licenses of Word and Outlook. This is regarded as an unfair trade practice. Item 10 of the General Designation of Unfair Trade Practices designates as an unfair trade practice unjustly tying in a product to another product. Therefore, it was found that Microsoft was engaged in an unfair trade practice.
The Commission ordered that Microsoft Japan should abolish the tying-in policy. It further ordered that Microsoft Japan should accept a request from the existing licensees if they requested amendment of the license agreements so that they would have a license only with Excel, or Excel and Word.
2.4 Licensing Guidelines
The Fair Trade Commission occasionally publishes guidelines explaining its policy relating to enforcing the Antimonopoly Law against licensing agreements. The first of such publication was made in 1968, and a comprehensive revision to it was made in 1989. The latest publication was made on July 30, 1999.
The guidelines take up terms and conditions of a license agreement that may be found in actual business transactions. Mostly from the viewpoint of unfair trade practices, they explain under what situation imposing certain restrictions on the licensee can be regarded as an act violating the Antimonopoly Law.
The English translation of the guidelines is found at the Commission’s web site: http://www.jftc.go.jp/ .
(End)
Appendix
General Designation of Unfair
Trade Practices
(Concerted Refusal to Deal)
1. Without proper justification, taking an act specified in one of the following paragraphs concertedly with another entrepreneur who are in a competitive relationship with oneself (hereinafter, referred to as a ''competitor''):
Refusing to deal with a certain entrepreneur or restricting the quantity or substance of a commodity or service involved in the transaction with a certain entrepreneur; or
Causing another entrepreneur to take an act which comes under the preceding paragraph.
(Other Refusal to Deal)
2. Unjustly refusing to deal, or restricting the quantity or substance of a commodity or service involved in the transaction with a certain entrepreneur, or causing another entrepreneur to take any act which comes under one of these categories.
(Discriminatory Pricing)
3. Unjustly supplying or accepting a commodity or service at prices which discriminate between regions or between the other parties.
(Discriminatory Treatment on Transaction Terms, etc.)
4. Unjustly affording favorable or unfavorable treatment to a certain entrepreneur in regard to the terms or execution of a transaction.
(Discriminatory Treatment in a Trade association, etc.)
5. Unjustly excluding a specific entrepreneur from a trade association or from a concerted activity, or unjustly discriminating against a specific entrepreneur in a trade association or a concerted activity, thereby causing difficulties in the business activities of the said entrepreneur.
(Unjust Low Price Sales)
6. Without proper justification, supplying a commodity or service continuously at a price which is excessively below cost incurred in the said supply, or otherwise unjustly supplying a commodity or service at a low price, thereby tending to cause difficulties to the business activities of other entrepreneurs.
(Unjust High Price Purchasing)
7. Unjustly purchasing a commodity or service at a high price, thereby tending to cause difficulties to the business activities of other entrepreneurs.
(Deceptive Customer Inducement)
8. Unjustly inducing customers of a competitor to deal with oneself by causing them to misunderstand that the substance of a commodity or service supplied by oneself, or terms of the transaction, or other matters relating to such transaction are much better or much favorable than the actual one or than those relating to the competitor.
(Customer Inducement by Unjust Benefits)
9. Inducing customers of a competitor to deal with oneself by offering unjust benefits in the light of normal business practices.
(Tie-in Sales, etc.)
10. 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.
(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.
(Resale Price Restriction)
12. Supplying a commodity to the other party who purchases the said commodity from oneself while imposing, without proper justification, one of the restrictive terms specified below:
Causing the said party to maintain the sales price of the commodity that one has determined, or otherwise restricting the said party's free decision on sales price of the commodity; or
Having the said party cause an entrepreneur who purchases the commodity from the said party to maintain the sales price of the commodity that one has determined, or otherwise causing the said party to restrict the said entrepreneurs free decision on sales price of the commodity.
(Dealing on Restrictive Terms)
13. Other than any act coming under the preceding two paragraphs, dealing with the other party on conditions which unjustly restrict any transaction between the said party and his other transacting party or other business activities of the said party.
(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:
Causing the said party in continuous transaction to purchase a commodity or service other than the one involved in the said transaction;
Causing the said party in continuous transaction to provide for oneself money, service or other economic benefits;
Setting or changing transaction terms in a way disadvantageous to the said party;
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
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 Paragraph 3 of Article 2 of the Law Concerning Prohibition of Private Monopoly and Maintenance of Fair Trade).
(Interference with a Competitor's Transaction)
15. Unjustly interfering with a transaction between another entrepreneur who is in a domestic competitive relationship with oneself or with the company of which one is a stockholder or an officer and its other party to such transaction. by preventing the formation of a contract, or by inducing the breach of a contract, or by any other means whatsoever.
(Interference with Internal Operation of a competing company)
16. Unjustly inducing, abetting, or coercing a stockholder or an officer of a company which is in a domestic competitive relationship with oneself or with a company of which one is a stockholder or an officer, to take an act disadvantageous to such company by the exercise of voting rights, transfer of stock, divulgence of secrets, or any other means whatsoever.