OECD kpcdb

1. Scope

 

Chapter IV of the AMA prohibits any business combination that would substantially restrain competition in a particular field of trade (i.e., the relevant market).

 

Article 10, Article 15, Article 15-2, Article 15-3 and Article 16 of the AMA stipulate that no company shall engage in acquisition of shares, merger, company split, joint share transfer and acquisition of business, respectively, if such activity would substantially restrain competition in any particular field of trade, nor may any company use unfair trade practices to do such activity.

2. Notification

The AMA provides for a prior notification system. Article 15 of the AMA stipulates that every merging company shall notify the JFTC in advance of its merger plan pursuant to the Rules of the Fair Trade Commission if the total domestic sales amount exceeds the thresholds provided by Cabinet Order.

 

Notification thresholds differ depending on the types of business combination at issue: share acquisitions (Article 10 of the AMA), merger (Article 15 of the AMA), company split (Article 15-2 of the AMA), joint share transfer (Article 15-3 of the AMA) and acquisition of business (Article 16 of the AMA). Information about notification thresholds for each type of transaction is available at the JFTC’s website, http://www.jftc.go.jp/en/policy_enforcement/mergers/index.files/Threshold for Notification.pdf.

As an example, in the case of acquisition of shares, a company acquiring shares of another company is obliged to notify the JFTC of its plan in advance when the company belonging to a group of combined companies (a company group consisting of its ultimate parent company and the subsidiaries of the ultimate parent company) with total domestic sales of its group exceeding 20 billion yen plans to acquire voting rights of another company with total domestic sales exceeding 5 billion yen including those of its subsidiaries, and the ratio of these voting rights exceeds the thresholds of 20% or 50% of total voting rights as a result of the acquisition.

 

The guidelines for business combinations explicitly state that establishing a joint investment company (joint venture) can be subject to the merger review under the framework for shareholdings regulation. They define a joint investment company as “a company jointly established or acquired by two or more companies through an agreement to pursue operations necessary to achieve mutual benefits”.

3. Procedural rules

The JFTC shall review the merger within 30 days (this may be shortened) as Phase I and shall give notice that a cease and desist order will not be issued when there are no competition concerns under the AMA. If necessary, the JFTC may request the company to submit additional information, leading to a Phase II investigation. In this case the review period shall be extended until 120 days after the receipt of the notification or 90 days after the date of receipt of all reports, etc., whichever is later.

A notifying enterprise is prohibited from implementing mergers until a period of 30 days has elapsed from the day when notification was received by the JFTC. It may be subject to a cease and desist order under Article 17-2 of the AMA.

 

Procedural fairness: The notifying party may request explanation about possible issues regarding the procedure and the JFTC will explain such issues. Also, pursuant to provisions of Article 7-2 of the Rules on Applications for Approval, Reporting, Notification, etc. Pursuant to the Provisions of Articles 9 to 16 of the AMA, a notifying company may submit to the JFTC written opinions or any other materials it believes necessary for the review by the JFTC.

4. Assessment

The JFTC’s merger review considers whether the merger at issue would substantially restrain competition in the market.

Assessment factors are described in Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination, such as combined market share and the market shares of the companies and differences from competitors (horizontal mergers) or the company group’s incentive to exclude their competitors and possible co‑ordinated effects (vertical mergers).

 

Safe harbours: The JFTC’s merger guidelines offer safe harbours, where the case at issue shall be presumed not to have substantial anti-competitive effect. The criteria for exemption are different for horizontal business combinations and vertical/conglomerate combinations.

 

- Horizontal business combination

a)  The Herfindahl-Hirschman Index (“HHI”) after the business combination is not more than 1,500

b)  HHI after the business combination is more than 2,500 while the increment of HHI is not more than 250.

c)  HHI after the business combination is more than 2,500 while the increment of HHI is not more than 150.

 

- Vertical or conglomerate business combinations

a)  The market share of the company group after the combination is not more than 10% in all of the particular fields of trade where the company group is involved.

b)  The HHI is not more than 2,500 and the market share of the company group after the business combination is not more than 25% in all of the particular fields of trade where the company group is involved.

5. Remedies and sanctions

Under Article 17-2 of the AMA the JFTC can issue cease and desist orders (an administrative measure) under the AMA when a business combination would substantially restrain competition in a particular field of trade, however, the JFTC has never issued such an order, for nearly half a century in the past.

 

For anti-competitive business combinations, the JFTC may clear them by accepting remedies.

 

According to the Guidelines to Application of the Antimonopoly Act Concerning Review of Business Combination the “remedies should, in principle, be structural measures such as the transfer of business and should basically be those that restore competition lost as a result of the combination in order to prevent the company group from controlling the price and other factors to a certain extent”.

 

Exceptionally, the guidelines also provide that “in a market featuring a rapidly changing market structure through technological innovations, there may be cases where it is appropriate to take certain types of behavioural measures.”

The remedies are proposed by the parties of the business combination and the JFTC will determine whether together with the remedies the business combination would substantially restrain competition. The JFTC will generally conduct a market test to confirm the effectiveness of those remedies.  

 

According to the Guidelines in principle “the remedies should be completed before the implementation of the combination”. Even if the remedies are to be completed after the implementation of the combination, then an appropriate and definite deadline for the remedies is set.

 

If the remedies are not implemented in the timeframe and manner stipulated in the approved plan the JFTC may issue cease and desist orders under Article 10(10) of the AMA.

 

Failure to notify: The failure to file a notification is subject to criminal fine of up to 2 million yen (article 91-2 of the AMA) for a corporation.

 

Implementation before clearance: As per Article 91-2 of the AMA, implementing a transaction before the expiration of the thirty-day waiting period from the date of acceptance of the notification is subject to a fine of up to 2 million yen for a corporation.

 

 

* This information is based on Competition Law in Asia-Pacific: A Guide to Selected Jurisdictions (2018).