21

History of General Designations No. 15 and 16 and the
Basic Principles of the Regulations of Unfair Trade
Practices
Research Fellow: Naoki Ohkubo“Interference with transaction” such as preventing the formation of a contract and “interference withinternal operation” such as encouraging a stockholder or an officer of a company to divulge secrets areprohibited under the Antimonopoly Act as unfair trade practices (General Designations No. 15 and 16). It is
often argued that these types of practices are problems that only bring about private wrongs between two parties
in a competitive relationship and they should normally be resolved under the Unfair Competition Prevention
Law. However, the earlier studies have yet to give an answer to the question as to why such provisions that
regulate these types of practices have been included in the Antimonopoly Act. Taking this question into
consideration, this study inquires into the history of Section 5 of the Federal Trade Commission Act of theUnited States (FTC Act), from which these provisions on unfair trade practices have derived. This study willoffer suggestions concerning basic principles of the regulations of unfair trade practices.

Ⅰ Statement of the Problem
The Act Concerning Prohibition of Private
Monopolization and Maintenance of Fair Trade(“Antimonopoly Act”) prohibits “unfair tradepractices” (Section 19), and authorizes the Japan
Fair Trade Commission (JFTC) to designate certain
acts as unfair trade practices (Section 2(9)). In
accordance with these provisions, the JFTC
announced two types of unfair trade practices,interference with transaction as General Designation
No. 15 and interference with internal operation as
General Designation No. 16. It is often argued thatboth interference with competition and interferencewith internal operation are problems that only bringabout private wrongs between two parties in acompetitive relationship and they should normallybe resolved under the Unfair Competition
Prevention Law. In reality, as if supporting suchargument, the act of encouraging a stockholder or an
officer of a company to divulge secrets, which isincluded in the category of interference with internal
operation, is addressed more comprehensively andspecifically in the provisions on protection of trade
secrets under the Unfair Competition Prevention
Law.
The earlier studies have yet to give an answer
to the question as to why such provisions havebeen included in the Antimonopoly Act. This reportintends to present the history of development of
Section 5(a) of the Federal Trade Commission Act
of the United States (“FTC Act”), from which theprovisions on unfair trade practices have been
derived, and the process of introduction of Section
5(a) of the FTC Act into the Antimonopoly Act. The
study from such a standpoint will not only clarify

the history of General Designations No. 15 and 16,
but also give suggestions concerning points of issue
in the interpretation of these provisions and basic
principles of the regulations of unfair tradepractices.

Ⅱ Development of the Regulations
under Section 5(a) of the FTC Act
1

The initial provision of Section 5(a) of the FTC
Act at the time of establishment in 1914 stated that
“unfair methods of competition” were illegal, and atthat time, there was a conflict of views as to what
was meant by the phrase “unfair methods ofcompetition.” The following sections present suchviews that were published rather earlier.
(1) Point of View of William H.S. Stevens (*1)
As to the question of what is the generalcriterion for identifying “unfair methods ofcompetition,” William H.S. Stevens considered asfollows: It cannot be helped that organizations thatare inferior in economic or production efficiency are
eliminated from the market, but in reality, it is often
the case that efficient organizations are eliminated,and such practices that eliminate the efficient are
regarded as “unfair methods of competition.”
Summarizing the above statement, Stevens
construed unfair methods of competition as
referring to practices that would eliminate
organizations that had no problem in terms ofefficiency.
Practices that Stevens considered to be
subject to Section 5(a) of the FTC Act were as(*1) William H.S. Stevens, Unfair Competition (1917)

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Conflict of Views● 148 ●

follows: local price cutting; operation of bogus
independent concerns; fighting instruments;
conditional requirements (“tying clauses”);
exclusive arrangements; boycotts, etc.; rebates andpreferential
arrangements;
engrossing
manufacturing resources; espionage; coercion, etc.;
interference; manipulation. What is significant in
Stevens’ view to this report, which inquires into thehistory of General Designations No. 15 and 16, isthat Stevens included espionage and interference inthe scope of regulation by Section 5(a) of the FTC
Act. Espionage means obtaining information inregard to the business of competitors by using
spies and detectives or bribing railway and other
employees, instead of through ordinary businesschannels, and it may partly overlap with interferenceof internal operation (General Designation No. 16).
Stevens also provided examples of interference,such as following the salesmen of a competitor, solo
or in pairs, with an attempt to interrupt theconversation between the competitor’s salesmen
and their customers in order to dissuade thecustomers from purchasing the competitor’s goods,
and inducing the breach of contracts, sometimes
agreeing to protect violators in case of suit. These
practices correspond with “preventing theformation of a contract” and “inducing the breach ofa contract,” as examples of interference withtransaction.
Stevens first presented this view right at thetime when the FTC Act was under deliberation in
the Congress. His view was referred to in theCongress deliberation, and also in case laws
thereafter. However, Stevens’ view is merely one ofthe views regarding unfair methods of competition,and some people had different views. Among suchpeople, Harlan and McCandless were criticized by
Stevens by name.
(2) Point of View of Harlan and McCandless (*2)
The view of Harlan and McCandless can be
simply summarized as follows: methods ofcompetition would not be regarded as violating
Section 5(a) of the FTC Act unless they are not
only unfair and but also lessen competition or
create a monopoly, resulting in rigid price andquality.
The Clayton Act, which was enacted
concurrently with the legislation of the FTC Act,
specifically listed illegal practices, clearly providingthat certain practices must substantially lessen
competition or tend to create a monopoly as acondition of regarding them as illegal. Though
Section 5(a) of the FTC Act did not provide as such
literally, Harlan and McCandless tried to justify
their view by suggesting three statutory grounds.
The first and second grounds are explained in thissection, and the third ground will be explained in(3) below.

The first ground is that the statutory
proceedings under Section 5(a) of the FTC Act aresubstantially the same as those under the Clayton
Act. Harlan and McCandless argued that it was
because the practices to be regulated by the twolaws had common natures, that both laws were
enforced by substantially the same proceedings. As
mentioned above, the Clayton Act clearly provides
that certain practices must lessen competition,
restrict transactions, and create a monopoly as acondition of regarding them as illegal. In otherwords, the common natures in the practices
prohibited by the Clayton Act are the lessening ofcompetition, restriction of transactions, andcreation of a monopoly, and therefore certain
practices must have such natures as a condition ofregarding them as violating Section 5(a) of the FTCAct.
The second ground presented by Harlan and
McCandless is the fact that the majority opinion in
the Standard Oil judgment used the phrase “unfair
methods of competition” in the same meaning asthat employed by them. Though this judgment had
been rendered three years before Section 5(a) of
the FTC Act was enacted, the phrase “unfair
methods of competition” had been used in it. Thisphrase was also mentioned in the Senate during thedeliberation of the bill for the FTC Act.
Based on Harlan and McCandless’s view,
consisting of the general criterion and its grounds
mentioned above, after all, Section 5(a) of the FTC
Act did not add a new provision to the existing legal
system substantively; it is rather significant in thatit increased enforcement proceedings in addition topenal punishments and injunction issued by the
Department of Justice, which had been available
under the existing legal system.
The types of practices that Harlan and
McCandless definitely included in the scope of
regulation were: local price cutting; bogus
independent companies; full line forcing; boycotts
and black lists; and payment of rebates. On theother hand, they stated espionage was “used not as
in itself a means of suppressing competition,
restraining trade, or acquiring monopoly, but inorder to obtain information as a basis to accomplish
those ultimate ends by some other methods, as for
instance by local price cutting, or exclusive salearrangements.” This statement may lead to theconclusion that espionage itself, in principle, does
not fall under unfair methods of competition. They
did not exclude other practices from the scope of
unfair methods of competition, such as disparaging
the goods of a rival, supplying goods by fraudulent
or deceptive means, and sending out false noticethat a rival’s goods are made in infringement of apatent and threatening to sue the purchasers ofsuch goods as infringers, if these practices were(*2) John Maynard Harlan and Lewis McCandless, The Federal Trade Commission 115-36 (1916).
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employed for the purpose of lessening competitionor acquiring market power and found to be highly
likely to accomplish such purpose. Nevertheless,they held that these practices would ordinarily
result merely in private wrongs.
Comparing Harlan and McCandless’s view
with Stevens’ view, Stevens, without hesitation,
mentioned more practices than Harlan and
McCandless as candidates of practices to be
regulated. This difference seems to be due to thedifference in the general criteria that was applied.
As competition is lessened and a monopoly iscreated, an organization that has no problem interms of efficiency may be eliminated from themarket. In other words, all practices that Harlan
and McCandless judge to be illegal are always also
judged to be illegal by Stevens, but not vice versa.
If there are two or more organizations that have noproblem in terms of efficiency in the market, theelimination of some of these organizations will not
immediately lead to the lessening of competition or
creation of a monopoly, or result in rigid price andquality. In the figure shown below, even after X iseliminated, competition might continue to exist
with P, Q, and R. Stevens’ view may conclude thatsuch elimination would also be regarded as illegal,and Harlan and McCandless’s view seems to
restrict the scope of illegality.

Y

P

Q

R

X

The
conflict
between
Stevens
andHarlan/McCandless was not only seen in regard to
unfair methods of competition under Section 5(a) of
the FTC Act but also in regard to the interpretationof Section 5(b).
(3) Conflict of Views over Section 5(b) of the
FTC Act
Section 5(b) of the FTC Act provided that“whenever the Commission shall have reason tobelieve that any such person [partnership, or
corporation] has been or is using any unfair methodof competition, and if it shall appear to theCommission that a proceeding by it in respect
thereof would be to the interest of the public,” itshall issue and serve upon such person[partnership, or corporation] a complaint.
Harlan and McCandless pointed out theprovision of Section 5(b) of the FTC Act as the third
ground for justifying their view regarding unfair

methods of competition. When enacting the FTC
Act, the Congress did not intended to fully delegate
the FTC to consider whether regulation of any
unfair method of competition was in the interest of
the public, because it would raise constitutionalquestions, but believed that this issue should beconsidered in accordance with the pre-existing law.
The conduct that should be regulated for the public
interest under the pre-existing law means conductthat would lead to the lessening of competition or
creation of a monopoly.
According to Harlan and McCandless’ view,
conduct shall not be regarded as illegal unless it isproven that regulation of the conduct would be in
the public interest, or in other words, that the
conduct would lead to the lessening of competition
or creation of a monopoly. On the other hand,
Stevens stated that it was unnecessary that the
FTC either allege or attempt to prove the existenceof public interest. He considered that Harlan and
McCandless made a mistake in interpreting Section
5(b) of the FTC Act, and even if a certain conduct
fell under the unfair methods of competition,
whether or not to proceed against it was left to thediscretion of the FTC under the provision ofSection 5(b).
Summarizing the discussion so far, Stevens
gave a broad interpretation on the phrase “unfair
methods of competition” whereas Harlan and
McCandless interpreted it narrowly. This difference
in interpretation led to a conflict of views as towhether Section 5(b) of the FTC Act was intended
to authorize the FTC to exercise its discretion, or
intended merely to express the provision of Section
5(a) of the FTC Act in other words.
In light of the academic views presented above,
the next section will see the standpoints taken by
the FTC and courts, which are in charge of practicaloperations of Section 5 of the FTC Act.
2

According to the FTC’s Annual Reports andjudicial precedents (*3), the FTC and courts did notindicate any general formula for the scope of unfair
method of competition but they did not seem tolimit such scope to practices that would lead to thelessening of competition or creation of a monopoly.
Paying attention to the actual cases, the FTC,
when it was inaugurated, regulated a wide variety
of practices, which included “interference ofconclusion or fulfillment of contracts” and“espionage.” However, as these practices were notdealt with so frequently and the FTC’s decisions
only provided brief explanations, it cannot be
sufficiently ascertained whether the FTC intended
to regulate them on the ground that they would
restrain competition and create a monopoly. The(*3) Federal Trade Commission v. Keppel, 291 U.S. 304 (1934)

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Standpoints of the FTC and Courts● 150 ●

FTC stopped dealing with these practices in thelatter half of the 1920s.
During the latter half of the 1920s, thefollowing operational policy and judicial precedents
addressing Section 5(b) appeared. In the Annual
Report for FY1927, the FTC declared the following
operational policy: “It shall be the policy of thecommission not to entertain proceedings of alleged
unfair practices where the alleged violation of law is
a purely private controversy redressable in the
courts except where said practices substantiallytend to affect the public. In cases where the alleged
injury is one to a competitor only and the interest of
the public is not substantially involved, theproceeding will not be entertained.” As Stevens’view, this operational policy also authorizes the
FTC to consider whether to enforce proceedings ofalleged unfair practices. However, this policy isdifferent from Stevens’ view because Stevens did
not seem to hesitate, in his books, in intervening ina dispute between individuals whereas the policy isnegative to such intervention.
One of judgments addressing Section 5(b) is
Federal Trade Commission v. Klesner, 280 U.S. 19(1929). This case draws the conclusion thatwhether regulation of a particular practice is in the“public interest” is a criterion for judicially
examining whether the FTC should have proceededwith the complaint concerned.
Five years later in the Keppel Case, theSupreme Court suggested the requirement of“public interest” as follows. The judgment in the
Keppel Case is cited below. It is important because
it offers suggestions for the Japanese laws.
The practice is carried on by forty or moremanufacturers…Sales of the break and takepackage by respondent aggregate about$234,000 per year…A practice so generally
adopted by manufacturers necessarily affects
not only competing manufacturers but the far
greater number of retailers to whom they sell,
and the consumers to whom the retailers sell.
Thus the effects of the device are felt
throughout the penny candy industry. A
practice so widespread and so far reaching in
its consequences is of public concern if inother respects within the purview of thestatue.
The circumstances pointed out in thisjudgment-Keppel’s sales amount and the fact that
Keppel’s practice was adopted by many
manufacturers-seem to correspond to “extendibilityof the act” under Japanese laws. This point will be
examined in Section “IV. Suggestions for theJapanese Laws.” These movements were seen in
the latter half of the 1920s during which the FTC
stoppeddealingwithcomplaints
about“interference of conclusion or fulfillment ofcontracts” and “espionage.” Since that period until
today, there have been further movements

concerning Section 5 of the FTC Act, and inparticular Section 5(a), but it would be sufficient tograsp the trends mentioned above for the purposeof clarifying the history of General Designations No.
15 and 16. Now, let us see how Section 5(a) of the
FTC Act was introduced into the Japanese laws.

Ⅲ Introduction of Section 5(a) of the
FTC Act into the Japanese Laws:
Draft Designations of 1950
The existing General Designations No. 15 and16, which regulate interference with competition andinterference with internal operation respectively,
were newly established upon legal revision in 1953.
At the time of establishment, only a brief
explanation was given that these designations were
aimed to regulate practices that might be used as
the means of taking over a corporation, so as toprevent corporations from being taken bycompetitors, and how the FTC Act was introduced
into the Japanese Antimonopoly Act is unclear.
The author of this report has found apreliminary movement that was intended to
introduce these provisions before the legal revisionin 1953: announcement of the draft designations in1950. At that time, “unfair trade practices” werereferred to as “unfair methods of competition,” andat the beginning of 1950, the JFTC tried todesignate the following acts as “unfair methods ofcompetition,” though these draft designations were
not accepted as formal designations due to strong
opposition from the industry.
1. The following acts committed by a company(including a foreign company), thereby
interfering in the operation of another Japanesecompany that is in a competitive relationshipwith the company in Japan:(a)Inducing or coercing a stockholder of anothercompany to follow one’s direction, exercise
voting rights, or sell or transfer the stock of
the company;(b)Inducing or coercing an officer or employee ofanother company to divulge the company’s
trade secrets, customer lists or otherconfidential information or to undertake an act
that is disadvantageous to the company or not
to undertake an act that is advantageous to thecompany in the course of performing theirduties.
(c)Omitted
2. Omitted
3. Interfering in the fulfillment of contracts between
another entrepreneur that is in a competitive
relationship with oneself in Japan and its
customers, suppliers, agents, or employees, by
inducing the breach of such contracts or any
other means whatsoever.
These draft designations obviously resemble● 151 ●IIP Bulletin 2004

the existing designations, though there are minor
differences. There was no such explanation that theprovisions of the draft designations presented
above were aimed to regulate the means of taking
over a corporation.
The JFTC official who seems to have played asignificant role in preparing the draft designations
wrote a paper with the aim of winningunderstanding of the draft from the public. (*4) This
paper implies how the FTC Act was introduced into
the Japanese Antimonopoly Act. The statement inthis paper that outlines “what is unfair methods ofcompetition” is something like a summary of thecontents of Stevens’ books. This paper also cites 31
types of practices, from the Annual Report of theFederal Trade Commission for FY1947, referring tothem as “practices against which the FTC has
issued orders of elimination measures so far.”
If it is read taking into consideration theconflict of views mentioned in II above, this paper
raises questions as to the author’s view concerning
the following two points: Harlan and McCandless’sview could have been adopted; the FTC, in thelatter half of the 1920s, stopped regulating somesuch practices that the FTC had already regulated.
This paper cannot be regarded as providing enoughstatements to resolve the questions and it is notclear to what extent the draft was elaborated.
Nevertheless, when formulating the draft
designations of 1950, which are similar to existing
General Designations No. 15 and 16, reference wasmade to the general view that was in line with
Stevens’, and to the case examples that the FTC
had handled in the past nearly forty years.

Ⅳ Suggestions for the Japanese
Laws
As a prerequisite to consider what suggestions
can be obtained from the history of General
Designations No. 15 and 16 studied above, it isnecessary to review the current common view of
the JFTC concerning unfair trade practices.
As mentioned in the beginning of the report,
the authority to designate specific practices as
unfair trade practices is vested in the JFTC. The
JFTC includes not only interference with competition
and interference with internal operation but also
tying clauses, exclusive arrangements, andpredatory pricing (local price cutting is a kind of
predatory pricing) in the scope of designations,irrespective of industries. According to the current

common view of the JFTC, practices such as tying
clauses, exclusive arrangements, and predatory
pricing shall be regulated by the same criterion asthat adopted by Harlan and McCandless. In otherwords, these practices shall be regulated because
they “tend to impede fair competition in the market(lessen competition)” (It should be noted that the
JFTC used the term “tend,” which means that it
would only require a general or abstract likelihood
to impede or lessen competition). On the other
hand, the practices regulated by General
Designations No. 15 and 16 are considered as aproblem because they impede competition that is
intensified by providing products or services of abetter quality at a lower price. These practices
seem to be regulated for a similar reason to thatargued by Stevens. This is the summary of thecurrent common view of the JFTC.
There is controversy over the interpretation ofGeneral Designations No. 15 and 16. According to
the current common view of the JFTC, interferenceof transaction or interference of internal operationthat lacks “extendibility of the act” shall not be
deemed to be in violation of the Antimonopoly Act.
“Extendibility of the act” means the “number ofparties affected by an act, and continuity,
repetitiveness, and diffusibility of the act.” As this“extendibility of the act” is required, where anorganization commits an interference of transaction
only once against only one trading party and noother organizations follow such an act, theorganization shall not be regarded as violating the
Antimonopoly Act, even though its act has actuallyeliminated one competitor. However, there is an
opposite view that acts that do not have such“extendibility” shall also be in violation of the
Antimonopoly Act and the JFTC’s view only meansthat the JFTC would take no action against suchacts. This view is becoming influential recently.
The history of “extendibility of the act” is lessclear than the history of interference withtransaction and interaction with internal operation,and this report is also unable to clarify it. However,both the provision of Section 5(b) of the FTC Act
and the FTC’s operational policy have also been
mentioned in the past studies. As mentioned above,
the Supreme Court in the Keppel Case concluded,
on the ground of the Keppel’s sales amount and the
spread of its practice among competitors, that theregulation of Keppel’s practice was in the interestof the public. This implies that “extendibility of theact” has also derived from the U.S. laws.
“Extendibility of the act” shall be regarded as a(*4) Shigekazu Imamura, “Fukōsei kyōsōhōhō no kinshi ni tsuite—kōtori no daiichijisitei ni saishite—” (Prohibition of
unfair methods of competition: upon the first designations by the JFTC), Zaiseikeizaikōhō 178 (1950). Part of this paper
was later included in Shigekazu Imamura, Shitekidokusenkinshihō no kenkyū (Study on the private monopoly
prohibition law) (Yūhikaku, 1956), 112 and afterward. However, due to the deletion of its subtitles, this paper cannot berecognized any more as having been written upon the development of the draft designations in 1950.

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factor to be considered by the JFTC when choosing
the cases to be handled or a criterion for judicial
examination, and therefore, interference oftransaction and interference of internal operation
without “extendibility of the act” shall also be
regarded as violating the Antimonopoly Act. Thissuggestion can be obtained by examining thehistory of General Designations No. 15 and 16.
If “extendibility of the act” is construed
differently from the way it is construed in thecurrent common view of the JFTC, General
Designations No. 15 and 16 would appear to be
increasingly different from provisions regulatingother types of practices. However, what should berecalled in this respect is the fact that Stevens
considered all types of practices to be illegal if theywould eliminate organizations with no problem interms of efficiency.
In the United States, it is currently considered
as a matter of fact that a practice that will not leadto the creation of a monopoly or lessening ofcompetition does not fall under unfair methods ofcompetition. In other words, the majority currently
supports Harlan and McCandless’s view. As long as
this view is followed, if competition exists with P, Q,
and R even after Y requests its trading partners not
to have transactions with X and thereby eliminatesX, such exclusive arrangement will not be regarded
as falling under unfair methods of competition.
However, under the U.S. laws, the following
argument may be logically established: it isallowable to broadly construe the scope of unfair
methods of competition because, when a practicefalls under unfair methods of competition, it would
only result in the issuance of orders of elimination
measures by the FTC but would not result in penal
punishments or triple damages.
In Japan, unfair trade practice will not result inpenal punishments or triple damages. Exclusive
arrangements are regulated because they tend to
impede fair competition, and the use of the term
“tend” is construed as meaning that only a generalor abstract likelihood to impede or lessen
competition is required. Therefore, it is by nomeans outrageous to draw a conclusion that apractice shall be regarded as “tending to impede
fair competition” where the practice has made itdifficult for X to continue business operation even if
P, Q, and R remain in business.
This conclusion might face an objection that it
is inappropriate to adopt a view that is different
from the one established under the U.S. antitrust
laws, which are the basis of the Antimonopoly Act
and have a strong influence globally, but thefollowing points can be suggested against suchobjection.
Firstly, both the FTC Act and the Clayton Act

are “Federal” laws. Though, in Japan, reference isonly made to the “Federal” laws in most cases, theU.S. antitrust laws also include similar “State” laws.
While Harlan and McCandless’ view seems to besupported by “Federal” laws, it is not clear thesame shall apply to “State” laws. In this respect, it
is pointed out that some “State” laws do not require
the lessening of competition or creation of amonopoly as a criterion for identifying illegality toregulate predatory pricing. (*5)
Secondly, in Japan, an injunction may, inprinciple, only be issued against an act that falls
under the category of unfair trade practices underthe Antimonopoly Act or acts listed in Section 2(1)of the Unfair Competition Prevention Law. Under
such circumstances, if the majority view on the U.S.
laws is adopted, an injunction would not be issued
against an act that does not result in the lesseningof competition or creation of a monopoly and suchan act cannot be prohibited unless it falls under thelisting in Section 2(1) of the Unfair Competition
Prevention Law. On the other hand, in the UnitedStates, case laws play quite an important role inunfair competition laws, which seem to be more
flexible than the Japanese laws. If the Unfair
Competition Prevention Law was flexible, it would
not be inappropriate for the Antimonopoly Act toadopt the criterion of “restriction of competition or
creation of a monopoly”; however, as it is not, theAntimonopoly Act should adopt certain necessary
criteria.
Thus, it is necessary not to pay attention only
to the Antimonopoly Act and the FTC Act/Clayton
Act but to take a broader perspective. While bearing
this in mind, future research should be carried out
regarding the basic principle of regulations of unfair
trade practices.

(*5) Hiroko Nakagawa, Fitōrenbai to Nich-Bei-Ō kyōsōhō (Predatory Pricing and Competition Law in Japan, the UnitedStates and the European Community) (Yūhikaku, 2001), 179.
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