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Recent trends regarding abuse of superior bargaining position

Jiro Tamura, Japan Fair Trade Commission Watch, January 2011.
NB: This article has been nominated by the Business Steering Committee for the business category, unilateral conducts section of the 2012 Antitrust Writing Awards. Click here for all winning-awards articles

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The concept of abuse of superior bargaining position is becoming more important than ever in antitrust practice. This is a result of the introduction of surcharges for abuse of superior bargaining position, which are applied on an immediate basis to each offense. This differs from the previous situation whereby surcharges for unfair trade practices were only imposed on offenses that had been repeated within a ten-year period. This major change in the sanctions imposed against unlawful practices means that lawyers and businesspeople need to have a proper understanding of abuse of superior bargaining position.

In 2009, the JFTC established an internal task force to increase the restrictions in place against abuse of superior bargaining position. In the future it is predicted that the JFTC will crack down on abuses of superior bargaining position and that there will be an increase in such cases.

However, references to abuse of superior position in the law are couched in abstract terms. This has resulted in a lot of discretion being given to the JFTC, which led to the criticism that it is difficult for companies to predict whether a given act will be lawful. The JFTC responded to this criticism by publishing its Guidelines Concerning Abuse of Superior Bargaining Position in November 2010, which attempt to clarify the JFTC’s position on the implementation of the law. These guidelines do not introduce any new criteria, but rather reflect existing JFTC practices. What we must be most aware of is the criteria applied when determining whether abuse of superior bargaining position has occurred. Unlike the concept of “dominant position” under European competition law, its Japanese counterpart is assessed on the basis of not only the company’s rank in the market but also the degree to which the counterparty depends on its business. For example, in a case where a large-scale retail outlet asked a supplier to make monetary payments towards a store opening, under the pretext of a “contribution” (this refers not to a request to invest, but rather to a request to make a monetary contribution that carries no prospect of a return), at issue was not only the degree of influence of the large-scale retail outlet in the market but the trading relationship between the largescale retail outlet and its supplier. This means that even a retailer with a small market share may be deemed to enjoy a superior bargaining position in relation to its supplier on the basis of the trading relationship. Obviously the higher the retailer’s ranking in terms of market share, the greater the chance of its being judged to enjoy a superior bargaining position. Therefore even more caution is required if the company in question has a large market share. It should also be noted that superior bargaining position does not only affect transactions that involve the delivery of merchandise. Indeed, one banking corporation was found to have violated the Antimonopoly Act when it requested that recipients of loans purchase interest swap products.

In order to constitute abuse, the act in question must be unjust in the context of normal business practice. Conduct is particularly likely to be deemed abuse if it does not benefit the other party to the transaction whatsoever. However, the range of conduct that can be found to violate the Act is very broad, and includes late payment, non-payment, unjust returns of house brands and other unjust returns, and “negotiation of the amount of consideration payable for a transaction” (See (5)(a) of 4,3 of the Guidelines). Negotiation of the amount of consideration payable for a transaction is deemed to refer to “a case where a party that enjoys a superior bargaining position arbitrarily orders a party with which it trades to accept an extraordinarily low or high price, and said other party is forced to accept out of fear of jeopardizing future business.” The Guidelines also state that “when determining whether conduct constitutes abuse of superior bargaining position, a holistic assessment is performed, taking into account how the amount of consideration was determined (e.g., whether the parties carried out sufficient discussion in advance), whether the treatment of the other party could be seen to be discriminatory when compared with that afforded to other trading partners, whether the consideration paid was lower than the wholesale price paid by the vendor, and to what extent the sale/purchase price of the merchandise differed from the normal rate, in addition to the supply of/demand for the merchandise or service in question on the market.” This means that careful analysis must be performed in order to determine whether the details of contracts entered into between the parties could result in a violation.

When analyzing practices relating to abuse of superior bargaining position, the “Subcontract Act” is more useful than the Guidelines. While the Subcontract Act is applied in such a way that only certain types of entities can be deemed to violate it, almost all case studies of abuse of superior bargaining position given in the Guidelines are in fact cases that resulted in violations of the Subcontract Act. It follows that Subcontract Act case studies should be considered in order to understand the Guidelines. The term “abuse of superior bargaining position” is generally seen as referring to the act of exploiting a subcontractor or other entity in a weaker position than oneself for one’s own benefit. Therefore, media coverage of JFTC raids or ceaseand-desist orders may damage the image of that company.

However, unlike cartels or collusion, in the case of abuse of superior bargaining position, whether or not an act constitutes abuse of said superior bargaining position is determined on an individual and specific basis. Therefore irrespective of how detailed the Guidelines may be, the JFTC still needs to perform careful analysis and evaluate evidence when determining the illegality or otherwise of a given case. While companies for their part must obviously avoid any blatant violation, an overly cautious approach will actually have the result of impeding free competition. For this reason, when issuing cease-and-desist orders the JFTC needs to describe in detail what criteria it used to determine illegality. For their part, companies should seek expert advice when establishing whether given conduct would violate the restrictions on abuse of superior bargaining position.

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