On August 6, the Global Antitrust Institute (the GAI, a division of the Antonin Scalia Law School at George Mason University) submitted a filing (GAI filing or filing) in response to the Japan Fair Trade Commission’s (JFTC’s) consultation on reforms to the Japanese system of administrative surcharges assessed for competition law violations (see here for a link to the GAI’s filing).  The GAI’s outstanding filing was authored by GAI Director Koren Wong Ervin and Professors Douglas Ginsburg, Joshua Wright, and Bruce Kobayashi of the Scalia Law School.

The GAI filing’s three sets of major recommendations, set forth in italics, are as follows:

(1)   Due Process

 While the filing recognizes that the process may vary depending on the jurisdiction, the filing strongly urges the JFTC to adopt the core features of a fair and transparent process, including:   

(a)        Legal representation for parties under investigation, allowing the participation of local and foreign counsel of the parties’ choosing;

(b)        Notifying the parties of the legal and factual bases of an investigation and sharing the evidence on which the agency relies, including any exculpatory evidence and excluding only confidential business information;

(c)        Direct and meaningful engagement between the parties and the agency’s investigative staff and decision-makers;

(d)        Allowing the parties to present their defense to the ultimate decision-makers; and

(e)        Ensuring checks and balances on agency decision-making, including meaningful access to independent courts.

(2)   Calculation of Surcharges

The filing agrees with the JFTC that Japan’s current inflexible system of surcharges is unlikely to accurately reflect the degree of economic harm caused by anticompetitive practices.  As a general matter, the filing recommends that under Japan’s new surcharge system, surcharges imposed should rely upon economic analysis, rather than using sales volume as a proxy, to determine the harm caused by violations of Japan’s Antimonopoly Act.   

In that light, and more specifically, the filing therefore recommends that the JFTC limit punitive surcharges to matters in which:

(a)          the antitrust violation is clear (i.e., if considered at the time the conduct is undertaken, and based on existing laws, rules, and regulations, a reasonable party should expect the conduct at issue would likely be illegal) and is without any plausible efficiency justification;

(b)          it is feasible to articulate and calculate the harm caused by the violation;

(c)           the measure of harm calculated is the basis for any fines or penalties imposed; and

(d)          there are no alternative remedies that would adequately deter future violations of the law. 

In the alternative, and at the very least, the filing urges the JFTC to expand the circumstances under which it will not seek punitive surcharges to include two types of conduct that are widely recognized as having efficiency justifications:

• unilateral conduct, such as refusals to deal and discriminatory dealing; and
• vertical restraints, such as exclusive dealing, tying and bundling, and resale price maintenance.

(3)   Settlement Process

The filing recommends that the JFTC consider incorporating safeguards that prevent settlement provisions unrelated to the violation and limit the use of extended monitoring programs.  The filing notes that consent decrees and commitments extracted to settle a case too often end up imposing abusive remedies that undermine the welfare-enhancing goals of competition policy.  An agency’s ability to obtain in terrorem concessions reflects a party’s weighing of the costs and benefits of litigating versus the costs and benefits of acquiescing in the terms sought by the agency.  When firms settle merely to avoid the high relative costs of litigation and regulatory procedures, an agency may be able to extract more restrictive terms on firm behavior by entering into an agreement than by litigating its accusations in a court.  In addition, while settlements may be a more efficient use of scarce agency resources, the savings may come at the cost of potentially stunting the development of the common law arising through adjudication.

In sum, the latest filing maintains the GAI’s practice of employing law and economics analysis to recommend reforms in the imposition of competition law remedies (see here, here, and here for summaries of prior GAI filings that are in the same vein).  The GAI’s dispassionate analysis highlights principles of universal application – principles that may someday point the way toward greater economically-sensible convergence among national antitrust remedial systems.