The JFTC Released a Research Report on Unfair Competition by Abusive Conduct of Superior Bargaining Position in Relation to Know-how & Intellectual Property of Manufacturers

by Kozo YABE (YUASA & HARA – Japan)

In June 2019, the Japan Fair Trade Commission (JFTC) released their research report on unfair competition caused by the abusive conduct of superior bargaining position in relation to know-how & intellectual property. It is quite usual for an unfair trade regulation to balance the exclusivity and freedom of business activities in the market. Especially, there is a special category of abusive conduct of superior bargaining position for parties of transactions and deals to encourage all players in the market to take a fair attitude under a vertical relationship, e.g. a major retailer/purchaser and a smaller supplier, etc. This kind of category of unfair trade practice also works broadly under the Antimonopoly Act, Article 19, in Japan to liberate smaller/minority parties of deals from unreasonable and unfair demands to submit their own intellectual property and trade secrets to major/superior parties.

The research project gave a questionnaire of the JFTC to 30,000 manufacturing companies including both major and minor companies. The JFTC also interviewed 122 entities, companies and knowledgeable experts regarding manufacturing industries from October 2018. Among them, the JFTC received 15,875 answers and 726 individual example cases. The example cases included unfair submissions about not only technical know-how/intellectual property but also customer lists, etc.

According to the research report, the size of manufacturing companies is of little significance in determining whether they become victims of unfair trade practices by the abusive conduct of superior bargaining position of other companies. Both listed corporations and start-up ventures are equally exposed to the risks. For example, a technical know-how which is coercively disclosed, a very nominal/superficial “joint” research & development agreement to acquire “any and all” technical data and intellectual properties of one party, an unreasonable control on patent filing, an uncompensated transfer of intellectual property, and so on all fall under the superior bargaining position in the deal.

Under Article 21 of the Antimonopoly Act, it says that “(T)he provisions of this Act shall not apply to such acts recognizable as the exercise of rights under the Copyright Act, the Patent Act, the Utility Model Act, the Design Act, or the Trademark Act”. However, this means that the Antimonopoly Act may still apply to restrictions pertaining to the use of technology that are essentially not considered to be the exercise of rights. In addition to that, if the way to obtain intellectual property is not made under fair conditions for an inferior party under the influence of a superior bargaining position of another party, it should also be subject to the Antimonopoly Act and its regulations.

To implement the regulation against abusive use of a superior bargaining position, there are some JFTC guidelines depending on the various viewpoints of unfair trade practices, e.g., the Guidelines of Abuse of Superior Bargaining Position under the Antimonopoly Act, the Guidelines for the Use of Intellectual Property under the Antimonopoly Act, etc. These detailed guidelines are official annotations and introduction by way of JFTC judgements as to which kinds of conduct are considered unfair trade practices under the Antimonopoly Act, Article 2, Paragraph 9, sup-paragraph 5. Nevertheless, the research report revealed the very severe reality of unfair trade practices by the abusive use of superior bargaining positions.

After releasing this research report, the JFTC has published a list of unfair trade practices for all manufacturing industries in cooperation with METI and the JPO. The JFTC also announced their policy of strict enforcement on such unfair trade practices to the victim manufacturing companies. Therefore, it is quite a necessity for all types of manufacturing companies, including dominant global IT and Pharmaceutical companies, who have deals in the Japanese market, to pay attention more than before to the JFTC position and guidelines.