Japan: Merger Control

The In-House Lawyer Logo

This country-specific Q&A provides an overview to merger control laws and regulations that may occur in Japan.

It will cover jurisdictional thresholds, the substantive test, process, remedies, penalties, appeals as well as the author’s view on planned future reforms of the merger control regime.

This Q&A is part of the global guide to Merger Control. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/merger-control

  1. Overview

    In Japan, the Act on Prohibition of Private Monopolisation and Maintenance of Fair Trade (Antimonopoly Act) is the legislation that provides the general merger control regime. The Antimonopoly Act requires transactions that meet the thresholds to be notified prior to the closing and prohibits transactions that will substantially restrain competition in any relevant market. The Japan Fair Trade Commission (JFTC) has sole jurisdiction over the enforcement of merger control under the Antimonopoly Act.

    Pre-closing notification is mandatory for any transaction that meets the thresholds. A transaction that is subject to the mandatory prior notification cannot be implemented during the 30-day waiting period (Phase I), though the period may be shortened. The JFTC clears most transactions at Phase I. If the JFTC decides that it will need to review further, the transaction goes to Phase II. The JFTC must reach the final conclusion within either (i) 120 calendar days from the initial notification or (ii) 90 calendar days from the date when the JFTC receives from the parties all the information requested at the beginning of Phase II, whichever is longer.

    Although it is not mandatory, it is a common practice that parties seek pre-notification consultation with the JFTC before formal filing to clarify the contents of the notification (e.g., definition of relevant market). Also, the pre-notification consultation is often used to learn the JFTC’s preliminary view on the case. While the parties can quit the pre-notification consultation at any time, it usually takes a few weeks. If the parties spend a longer period for pre-notification consultation, such as several months, and respond fully to the JFTC’s questions during such consultation, it may reduce the possibility of going into Phase II.

  2. Is mandatory notification compulsory or voluntary?

    Notification is mandatory for any transaction that meets the thresholds.

  3. Is there a prohibition on completion or closing prior to clearance by the relevant authority? Are there possibilities for derogation or carve out?

    Any transaction that is subject to the mandatory notification cannot be implemented during the 30-day waiting period (Phase I). There is no exception to the prohibition to implement the reportable transaction, such as a waiver and a derogation. However, the 30-day waiting period may be shortened by the JFTC if the party files a request in writing and it is clear that the transaction may not substantially restrain competition in any relevant market.

  4. What are the conditions of the test for control?

    Japanese merger control rules (i.e., Antimonopoly Act and its administrative rules) describe qualifying transactions without using the concept of control. A qualifying transaction occurs where:

    • an undertaking acquires another undertaking’s shares and, as result of the acquisition, the holding ratio of voting rights governed by the acquirer’s group in the target exceeds either 20% or 50% (“share acquisition”);
    • two or more undertakings merge (“merger”);
    • an undertaking acquires the whole, or an important portion, of another undertaking’s business or asset (“business/asset transfer”);
    • an undertaking de-merges its business and transfers it to another undertaking through a measure called a “company split” (“company split”); or
    • two or more undertakings jointly establish their ultimate parent company through a measure called a “share transfer” (“joint share transfer”).

    A transaction made within the same corporate group does not constitute a qualifying transaction.

  5. What are the conditions on minority interest in your jurisdiction?

    A share acquisition constitutes a qualifying transaction if the holding ratio of voting rights governed by the buyer’s group in the target exceeds 20% as result of the acquisition.

  6. What are the jurisdictional thresholds (turnover, assets, market share and/or local presence)?

    Japanese rules provide the jurisdictional thresholds for each category of the qualifying transactions as follows:

    (a) Share acquisitions

    • Turnover in Japan of the acquirer and its group companies exceeds JPY 20 billion; AND
    • Turnover in Japan of the target and its subsidiaries exceeds JPY 5 billion.

    (b) Mergers

    • Turnover in Japan of one party and its group companies exceeds JPY 20 billion; AND
    • Turnover in Japan of the other party and its group companies exceeds JPY 5 billion.

    (c) Business/asset transfers

    • Turnover in Japan of the acquirer and its group companies exceeds JPY 20 billion; AND
    • Turnover in Japan of the target business/asset exceeds JPY 3 billion.

    (d) Company splits
    Type 1: cases where two undertakings (X and Y) de-merge their businesses and jointly transfer those businesses to a new company

    • If both X and Y de-merge the whole of their businesses:
      • Turnover in Japan of one party and its group companies exceeds JPY 20 billion; AND
      • Turnover in Japan of the other party and its group companies exceeds JPY 5 billion.
    • If X de-merges its whole business and Y de-merges not the whole but an important portion of its business:
      • Turnover in Japan of X and its group companies exceeds JPY 20 billion; AND
      • Turnover in Japan of the de-merged business of Y exceeds JPY 3 billion. OR
      • Turnover in Japan of X and its group companies exceeds JPY 5 billion; AND
      • Turnover in Japan of the de-merged business of Y exceeds JPY 10 billion.
    • If both X and Y de-merge not the whole but an important portion of their businesses:
      • Turnover in Japan of one party and its group companies exceeds JPY 10 billion; AND
      • Turnover in Japan of the other party and its group companies exceeds JPY 3 billion.

    Type 2: cases where one undertaking (X) de-merges its business and transfer it to another undertaking (Y)

    • If X de-merges the whole of its business:
      • Turnover in Japan of one party and its group companies exceeds JPY 20 billion; AND
      • Turnover in Japan of the other party and its group companies exceeds JPY 5 billion.
    • If X de-merges not the whole but an important portion of its business:
      • Turnover in Japan of the de-merged business of X exceeds JPY 10 billion; AND
      • Turnover in Japan of Y and its group companies exceeds JPY 5 billion. OR
      • Turnover in Japan of the de-merged business of X exceeds JPY 3 billion; AND
      • Turnover in Japan of Y and its group companies exceeds JPY 20 billion.

    (e) Joint share transfers

    • Turnover in Japan of one party and its group companies exceeds JPY 20 billion; AND
    • Turnover in Japan of the other party and its group companies exceeds JPY 5 billion.
  7. How are turnover, assets and/or market shares valued or determined for the purposes of jurisdictional thresholds?

    “Turnover in Japan” means sales of products, including services, to customers located in Japan. However, sales to customers located outside Japan shall be included into “turnover in Japan” if the seller recognized that the buyer would re-sell the products to customers located in Japan without changing the characteristics of the products.

    Sales to customers located in Japan can be excluded from “turnover in Japan” if the seller recognized that the buyer would re-sell the products to customers located outside Japan without changing the characteristics of the products.

  8. Is there a particular exchange rate required to be used for turnover thresholds and asset values?

    A corporation should calculate turnover with the exchange rate that the corporation applied in its financial statements for the relevant accounting period. If a corporation does not have such rates, it may apply the average exchange rate for the relevant accounting period calculated from publicly available rates.

  9. Do merger control rules apply to joint ventures (both new joint ventures and acquisitions of joint control over an existing business?

    No special thresholds for transactions establishing joint ventures exist. This means that parties have to analyse whether the transaction structure includes any qualifying transactions, such as share acquisitions, mergers, and business/asset transfers, and if it includes any, then apply the thresholds designed for each category.

  10. In relation to “foreign-to-foreign” mergers, do the jurisdictional thresholds vary?

    There are no special thresholds or treatments for foreign-to-foreign transactions. Even if all relevant parties of a transaction are located outside Japan, the same standard of thresholds for domestic parties will apply to the transaction.

  11. For voluntary filing regimes (only), are there any factors not related to competition that might influence the decision as to whether or not notify?

    Not applicable.

  12. Additional information: Jurisdictional Test

    Under Japanese merger regulation, a single transaction may trigger multiple filings depending on the structure of the transaction. For example, if a transaction is composed of a share transfer and an asset transfer, the parties have to file two separate notifications for both the share transfer and the asset transfer, respectively, if they meet the thresholds designed for a share acquisition and an asset transfer, respectively. The parties should carefully analyse if multiple filings are necessary by looking into transactions composing the whole transaction. In particular, the establishment of a joint venture often triggers multiple filings.

  13. What is the substantive test applied by the relevant authority to assess whether or not to clear the merger, or to clear it subject to remedies?

    The substantive test under the Antimonopoly Act is whether a proposed merger may substantially restrain competition in any relevant market. In applying the substantive test to an actual case, the JFTC will consider unilateral and coordinated effects potentially caused by horizontal, vertical and conglomerate aspect of the merger.

    In the substantive analysis, the JFTC will consider every relevant factor, such as the market shares of the parties, the number of competitors in the market, the extent of import trade barriers and entry barriers, the likelihood of entry from adjacent markets, market power that customers possess, and efficiency that the transaction will bring about. Market shares and HHI basically take an important position in the JFTC’s analysis. The JFTC usually does not put significant weight on efficiency. The JFTC provides a “safe harbour” that applies to both horizontal and vertical effects analysis on the basis of the HHI.

  14. Are non-competitive factors relevant?

    Review by the JFTC under the Antimonopoly Act focuses on competition factors. While the Industrial Competitiveness Enhancement Act allows a government ministry relevant to the industry to which merging parties belong to discuss with the JFTC an applicable pending merger, the Act does not encourage the JFTC to take into account any non-competition factors in its review.

  15. Are there different tests that apply to particular sectors?

    There are no sector specific substantive tests.

  16. Are ancillary restraints covered by the authority’s clearance decision?

    The JFTC’s primary focus in merger review is whether a notified transaction would substantially restrain any relevant market after its implementation, but the JFTC also examines any related ancillary restraints in its substantive review. However, the JFTC’s clearance decision on a notified transaction does not guarantee that ancillary restraints involved in or derived from the transaction are immune from the future investigation.

  17. What is the earliest time or stage in the transaction at which a notification can be made?

    No statutory time limitation as to an early filing exists. However, a notification must be filed with a document that can prove that the parties’ actual intention to complete the transaction. Such document does not need to be a copy of the signed binding agreement, but the parties have to prove their sincere intention to complete the transaction by a document such as a statement signed by the representatives of the parties.

  18. For mandatory filing regimes, is there a statutory deadline for notification of the transaction?

    No statutory filing deadline exists. In practice, however, a notification should be filed more than 30 calendar days prior to the expected closing date due to the 30-day waiting period. In addition, the JFTC suggests that the parties should take approximately 10 extra calendar days for a draft check by the JFTC before the formal filing. The parties should also consider a period for a pre-notification consultation if they choose to do it before the formal filing.

  19. What is the basic timetable for the authority’s review?

    Any transaction that is subject to prior notification cannot be closed during the 30-day waiting period (Phase I), though the period may be shortened by the JFTC. The JFTC clears most transactions at Phase I. In FY 2016, the JFTC cleared 308 cases out of 319 cases at Phase I.

    If the JFTC wishes to have a further review after Phase I, the transaction goes to the Phase II review. At the beginning of Phase II (which is normally at the last day of the 30-day review period of Phase I), the JFTC requests the parties to provide further information. The clock does not start running until the JFTC receives all requested information from the parties. The JFTC must reach the final conclusion within either 120 calendar days from the initial notification or 90 calendar days from the date when the JFTC receives all requested information from the parties, whichever is longer.

    If the parties wish to conduct a pre-notification consultation with the JFTC, the period for such consultation should also be considered.

  20. Under what circumstances the basic timetable may be extended, reset or frozen?

    In a normal situation, there is no extension, reset or freeze of the basic timetable of the JFTC’s review. The review period runs even though the JFTC requests further information during the review or the parties offer remedies.

    However, the JFTC is not bound by the time restraint in issuing an order for necessary action if it finds that the notification made by the parties includes a false statement on any important issue. Also, the JFTC can extend the time limitation to issue an order for necessary action if a proposed remedy is not completed within the deadline for completion. In such a case, the new deadline for the JFTC is one year from the deadline of the remedy.

  21. Are there any circumstances in which the review timetable can be shortened?

    The JFTC may shorten the 30-day waiting period if a party files a request in writing and it is clear that the transaction may not substantially restrain competition in any relevant market, such as where the transaction falls into the safe harbour provided by the JFTC’s guidelines. In FY 2016, the JFTC agreed to shorten the 30-day waiting period for 171 cases out of 319 cases notified in that period.

  22. Which party is responsible for submitting the filing? Who is responsible for filing in cases of acquisitions of joint control and the creation of new joint ventures?

    In stock acquisitions and business/asset transfers, the acquiring party is responsible for filing. In other types of transactions, both parties are responsible for filing.

  23. What information is required in the filing form?

    The parties have to fill out the specific format prescribed by the JFTC. While the formats vary depending on the types of the transactions (such as share acquisitions, mergers, etc.), they require, among other information, descriptions of the parties to the transactions, financial information for the last fiscal year, the purpose of and background to the transaction, the corporate group profile, market share information for each of the relevant markets. There is no simplified notification, so no simplified filing format exists.

    The JFTC may request further information at any time during the review period.

  24. Which supporting documents, if any, must be filed with the authority?

    The notifying party(ies) must submit certain supporting documents. While the necessary supporting documents are slightly different depending on the types of transactions, they include a copy of the signed transaction agreement, a copy of the resolution approving the transaction, a financial statement, a list of shareholders and a power of attorney. They need not be notarised or otherwise authenticated.

    The filing form must be written in Japanese. Some accompanying documents need to be translated into Japanese, but the translation may be limited to relevant sections only.

  25. Is there a filing fee? If so, please specify the amount in local currency.

    There is no filing fee.

  26. Is there a public announcement that a notification has been filed?

    The JFTC does not make a public announcement of the fact that a notification has been made during a Phase I review.

    However, when the case goes to Phase II, the JFTC announces on its website that the proposed transaction is being reviewed and seeks public comments. The announcement normally just describes the parties and the relevant markets. The JFTC announces the result of a Phase II review on its website with certain redactions of business secrets.

    The JFTC also publishes an annual report of major cases in the last fiscal year. These cases include the Phase II cases and important Phase I cases.

  27. Does the authority seek or invite the views of third parties?

    Third parties such as customers and competitors may submit their opinions to the JFTC at any time. Also, the JFTC seeks public comments when it decides to initiate a Phase II review. Any person may to submit their opinions to the JFTC. The JFTC does not have to respond to such third party opinions, but normally takes them into account in its substantive review.

  28. What information may be published by the authority or made available to third parties?

    The JFTC publishes a summary of its decisions on Phase II cases and even Phase I cases which the JFTC considers important or useful. However, the JFTC redacts business secrets before making information public. Other than that, the information such as the parties’ notification, supporting documents and information submitted to the JFTC is not published by the JFTC.

  29. Does the authority cooperate with antitrust authorities in other jurisdictions?

    In international transactions, the JFTC normally asks the parties about the jurisdictions where they file notifications, and sometimes it wishes to communicate with authorities in other jurisdictions. The JFTC has executed cooperation agreements with certain authorities in other jurisdictions, including the US and EU, but most of such cooperation agreements are “first generation” agreements which do not allow the authorities to exchange case specific information. As a result, when the JFTC wishes to communicate with authorities in other jurisdictions during the review of a specific case, it requests the parties to submit a waiver. The request for waiver is not mandatory.

  30. What kind of remedies are acceptable to the authority? How often are behavioural remedies accepted in comparison with major merger control jurisdictions, such as the EU or US?

    The JFTC states in its merger guidelines that the remedies should be considered on a case-by-case basis, but in principle should be structural (e.g., divestiture of assets) so as to maintain competition which would otherwise be harmed by the transaction. However, the JFTC also states that behavioural remedies may be appropriate or sufficient in some cases. Behavioural remedies include: (i) supply of relevant products to the competitors at production cost so that the competitors can compete with the parties; (ii) license of IP which is necessary to enter into the relevant market and compete with the parties; and (iii) measures to maintain competition between the parents of the joint venture (e.g., setting firewalls between the parents and the joint venture company).

  31. What procedure applies in the event that remedies are required in order to secure clearance?

    The parties can begin negotiating remedies with the JFTC at any time during the review. The negotiation is typically triggered by the JFTC’s explanation to the parties of its competitive concerns on the notified transaction. The parties need to take initiative in proposing them. When the parties propose remedies, the JFTC will comment as to whether the proposed remedies are sufficient to resolve the concerns or not.

    The JFTC’s merger guidelines provide that remedies in principle should take place before the implementation of the transaction. Even if this is not possible, they should be implemented before the proper deadline which is to be clearly provided in the remedy proposal. In addition, if the remedies include the divestiture of any or all of the overlapping business, for example, the buyer of such business should be identified before the implementation of the transaction, otherwise the parties may have to obtain the JFTC’s approval of the buyer before divesting the business.

  32. What are the penalties for failure to notify, late notification and breaches of a prohibition on closing?

    Failure to notify, late notification and implementation of the transaction during the waiting period can trigger a criminal fine of up to JPY 2 million. It can be imposed on the party and its representative, director, and/or employee who implemented the transaction on behalf of the party. Such fine may be imposed regardless of the fact that a transaction has not brought a substantial restraint of competition in any relevant market.

    If the parties implement the transaction without obtaining necessary clearance, the JFTC may file a suit with the court to nullify any relevant merger, corporate split or joint share transfer.

  33. What are the penalties for incomplete or misleading information in the notification or in response to the authority’s questions?

    Providing incomplete or misleading information in the notification or in response to the JFTC’s questions can trigger a criminal fine of up to JPY 2 million. It can be imposed on the party and its representative, director and/or employee who implemented the transaction on behalf of the party.

  34. Can the authority’s decision be appealed to a court? In particular, can third parties who are not involved in the transaction appeal the decision?

    The parties can appeal the JFTC’s order to the Tokyo District Court within 6 months after the order.

  35. What are the recent trends in the approach of the relevant authority to enforcement, procedure and substantive assessment?

    The JFTC often attempts to conduct an economic analysis using its own economic experts. Accordingly, the JFTC tends to request the parties to submit more detailed information than before. To obtain the JFTC’s clearance safely and swiftly for a non-straightforward transaction (such as the cases in which the case team of the JFTC includes economic experts), it is advisable for the parties to employ their own economic experts.

  36. Are there any future developments or planned reforms of the merger control regime in your jurisdiction?

    As of today, there are no planned reforms in the merger control regime.