On March 12, 2019, the Japanese Government submitted to the Parliament a bill to propose major amendments to the Anti Monopoly Act (the “AMA”), the Japanese antitrust law (the “Bill”). Among the variety of amendments proposed, those having a large impact on business include (i) variable fines, (ii) attorney-client privilege and (iii) expanded scope of sales revenues as a basis to calculate fines.
This article will provide you with a brief summary of these important changes in the AMA.
2. Variable Fines (sairyo gata kachokin)
The first notable change is variable fines (sairyo gata kachokin). “Variable” fines means that the percentage rate to be used to calculate the actual amount of fines will vary depending on the level of cooperation from the suspected firms that allegedly committed an AMA violation with the Japan Fair Trade Commission (the “JFTC”) in the course of its investigation.
During the entire 40-year history of fines under the AMA, the amount of fines has been determined based on the sales revenues of the relevant products, multiplied by a “fixed” percentage rate, and the JFTC has never had flexibility to change it. After the amendments, the JFTC will decide the rate for a particular firm based on its cooperation with the JFTC.
The Bill introduces variable fines as part of the leniency (amnesty) program. Specifically, the initial rates of reductions of fines for the second or later-in-line firms are largely reduced, and additional reductions will be given to those firms, depending on their level of cooperation (value of evidence that the JFTC can receive).
There are upper limits on the rates for additional reduction, but the aggregate of the initial rate and the maximum additional rate are set slightly greater than the current fixed rate for reduction.
Also, only up to five firms per case are eligible for leniency under the current system. However, the Bill removes this cap, and an unlimited number of firms will be able to apply for leniency under the new system.
The benefit of the first-in-line firm (i.e., full immunity) remains unchanged.
The below chart illustrates a comparison of the benefits available under the current system and the proposed new system.
Cooperation with the JFTC for an additional reduction rate includes report of facts, production of materials, and/or consent to inspection of items. A firm that applied for leniency needs to first consult with the JFTC on its proposal of cooperation. The JFTC evaluates the value of proposed cooperation and then offers an additional reduction rate. Subject to an agreement between the firm and the JFTC, the firm will be eligible for an additional rate for reduction in exchange for the agreed upon cooperation. Failure to cooperate as agreed upon will result in forfeiture of all reduction rates (even the reduction in the initial rate will be no longer available).
What will actually constitute valuable evidence (the JFTC explains it to be “evidence to contribute to reveal truth”) and what extent of reduction is offered are not clear at this stage because the Bill only provides that they will be provided in the JFTC rules. For businesses, however, predictability and elimination of JFTC’s arbitrary or abusive operation on these issues will be the biggest concerns.
3. Attorney-Client Privilege
The second notable change is privilege for attorney-client communication. This privilege has been available in many jurisdictions, including the United States and EU, so that firms can exclude communication between counsel and client from items that have to be produced to the agency. The JFTC gave up submitting a bill similar to the Bill to the Parliament last year because of its aversion to the privilege.
Although the Bill itself says nothing about privilege, the JFTC made a clear statement that it will adopt the privilege in rules and/or guidelines other than law. According to the JFTC statement, the proposed privilege will likely be as summarized below.
It is significant that the privilege will be introduced for the first time ever in the history of the Japanese legal system. On the other hand, what practical impact it will bring is not necessarily clear because there are still many open issues. For instance, the JFTC published the statement, but details of the actual rules remain unknown. According to the JFTC statement, the proposed privilege will be available only in administrative investigations regarding unreasonable restraint of trade. In addition, the statement explains that it was designed to facilitate the leniency program (meaning encouraging firms to report their violations to the JFTC). It is therefore unclear from the JFTC statement what would happen if a firm decides not to apply for leniency after consultation with its counsel.
Firms should closely monitor the development of the JFTC rules and guidelines that will be published after the Bill becomes law.
4. Broader Scope of Sales Revenues for Calculation of Fines
The third notable change is broader scope of sales revenues as a basis to calculate fines. Most importantly, the duration of cartel activities to be considered will be up to ten years (as opposed to up to three years under the current law). Also, the sales revenues can be presumed based on various materials.
Accordingly, if cartel activities continue for ten years, then the fines under the new law will be more than three times than under the current law (assuming the revenues are unchanged during the ten years). Also, if the sales revenues of the relevant products cannot be proved by financial/accounting records, then JFTC can presume the sales revenues based on other types of evidence (which, in theory, includes oral statements of employees or internal materials of estimated market size and market shares that another cartel participant retained for the business purpose). Therefore, different views are expected as to what methodology should be used and whether the selected methodology is reasonable.
Further, the following will be also included in the sales revenues for calculation of fines under the new law.
Addition of those items will further increase the fines under the new law.
The statute of limitations will be changed to seven years under the new law (five years under the current law).
The amendments will come in to force within 1.5 years from the promulgation. It is therefore expected that the amendments will be effective around fall of 2020.
6. Impact on Business
It is likely that the Bill will pass without strong objections because the JFTC agreed to introduce privilege (which was reportedly the direct cause of the JFTC’s failure last year).
Variable fines has not existed for the 40-year history of fines under the AMA. There has never been privilege in the Japanese legal system. No one can accurately predict what will happen after those new systems are introduced. Moreover, the JFTC’s practice will depend on its rules and guidelines that have not yet been revealed.
Nonetheless, the mutual trust of JFTC and firms/counsels will be the key for the success of the new system, and misunderstanding or miscommunication will heavily damage this mutual trust. In this regard, firms should well understand the framework of those new systems to avoid such misunderstanding and miscommunication. In particular, non-Japanese firms which are used to leniency and privilege in their home countries should well understand the differences of both systems.
The JFTC’s unfair or inappropriate operation will also heavily damage the mutual trust. Therefore, firms should closely look at the JFTC rules and guidelines to be published later and its actual operation in order to check if the rules and practices are not one-sided.
On the other hand, the broader scope of sales revenues will be applied to any cartels, including those on which firms do not use the leniency program. In some ways, therefore, this may be the most important change in the proposed amendments in the Bill.
The proposed variable fines will undoubtedly provide leniency applicants with more incentive for cooperation with the JFTC so that they can receive a better additional reduction rate. At the same time, uncertainty on the outcome (not only on the direct quid pro quo – additional reduction rate – but also the burden of continued cooperation and the potential risks of revealing another violation) may discourage firms to apply for leniency from the beginning.
Either way, it will be more important under the new system to analyze the benefit of applying for leniency, bearing in mind the potential benefit of cooperation and privilege, if a firm finds indication of a potential violation. It will be likewise more important to share the mind of compliance among employees and provide appropriate educational programs to them in order to avoid much heavier fines due to a violation.
 This article is purported to provide a brief report on the proposed amendments quickly after the Bill became available to public and is therefore subject to follow up revisions based on further analysis.
 Normally 10% under the current law.
 The initial rates are still fixed, depending on the order to self-report to the JFTC.
 The maximum rate of additional reduction available through cooperation.
 Up to five companies, including those which had applied before the investigation commenced.
 Strictly speaking, this consultation is voluntary and the leniency applicant is not required to request a consultation if it does not seek additional reduction.
 The JFTC was reluctant to adopt the privilege because it was concerned about possible expansion to other legal systems, such as criminal procedures. The ruling party reportedly did not support the bill last year because of such JFTC’s view.
 This is because the JFTC can emphasize that the proposed privilege will not be a legal right, but rather the JFTC specifically respects such a practice only within the AMA context.
 Determination officer (hambetsu kan) belongs to the Secretariat (kambo), a different section from the Investigation Bureau (shinsa kyoku), and will independently examine whether the material is covered by privilege, independently from the investigators.
 The report of the AMA Council that officially advised the JFTC for the Bill states that there is no practical meaning to protecting communications with counsel in such a context and that many members of the Council opposed the introduction of privilege itself.
 Under the current law, the amount of fines is calculated with the sales revenues of the relevant products or services during the period of cartel activities (up to three years for the purpose of calculation of fines), multiplied by the relevant (fixed) percentage rate.
 Those materials include those which the JFTC obtains from other cartel participants.
 As a result, it is likely that the reasonableness of methodologies, rather than the accuracy of sales revenues themselves, will be a major issue in the judicial review.