Silviase/jgov_v1.4_full_ann huggingface dataset:
Competition"

(1) Interpretation of “Substantially to Restrain Competition” In a precedent (decision of the Tokyo High Court on December 7, 1953 concerning Toho Company, Limited, et al), the following interpretation concerning “substantially to restrain competition” was held.

A. Shin-Toho Company Limited (hereinafter referred to as "Shin-Toho") was capable of distributing the films it produced through its own network. However, an agreement with Toho Company, Limited (hereinafter referred to as "Toho") consigned all film distribution to Toho and limited Shin-Toho solely to the production of films. Shin-Toho continued to adhere to the terms of the agreement even after the agreement had expired. However, in November 1949 Shin-Toho stated that it would independently distribute the films it produced because of the expiration of the agreement, causing a dispute with Toho. As a result of this dispute, a hearing was initiated by the JFTC on the grounds that the agreement violated the Act. In conclusion, the JFTC ruled in its decision of June 5, 1951 that the agreement between Toho and Shin-Toho violated Article 3 (unreasonable restraint of trade) and item 3, paragraph (1), Article 4 (See Note 4) of the Act.

Note 4: Paragraph (1), Article 4 of the Act (this provision does not exist in the current Act)

“Entrepreneurs shall not jointly engage in the following particular concerted practice”

Item 3 “concerned actions to restrain technologies, products, distribution channels, or customers”

B. In response to the respondent’s (Toho’s) action to revoke the decision of the JFTC, the Tokyo High Court handed down a ruling on the substantial restraint of competition, in which it noted “substantially to restrain competition means to bring about a state in which competition itself has significantly decreased and a situation has been created in which a specific business operator or a group of business operators can control the market by determining price, quality, volume, and various other terms with some latitude at its or their own volition.”

(2) Interpretation of “The Effect May Be”

The provisions of Chapter IV of the Act differ from the provisions of Articles 3 and 8 of the Act, and prohibit business combinations where “the effect may be” substantially to restrain competition in any particular field of trade. This “the effect may be” does not mean that substantial restraint of competition will inevitably result from the business
combinations. Rather, it means that it is probable that conditions that could easily lead to substantial restraint of competition are furthered by the business combination. Consequently, if the market structure is altered in a non-competitive way by the business combination, and if conditions are likely to emerge that would allow the company group a certain latitude to manipulate price, quality, volume, and other conditions by acting unilaterally or coordinately with other companies, then the effect of the business combination may be substantially to restrain competition in a particular field of trade, and it is prohibited by Chapter IV of the Act.

2. Type of Business Combination and Substantial Restraint of Competition There are various types of business combinations. They are divided into the following categories.

(1) Horizontal business combinations (Business combinations between companies with a competitive relationship in the same particular field of trade. The same shall apply hereinafter.)

(2) Vertical business combinations (Business combinations between companies which are in different trading positions, such as mergers between producers and its distributors. The same shall apply hereinafter.)

(3) Conglomerate business combinations (Business combinations that are neither horizontal nor vertical ones. For instance, mergers between companies that engage in different types of business, or shareholdings between companies whose product ranges are in the same particular field of trade but whose geographic ranges are different. The same shall apply hereinafter.)

Horizontal business combinations reduce the number of competing units in a particular field of trade. They consequently have the most direct effect on competition and are more likely than vertical and conglomerate business combinations to have an effect that may be substantially to restrain competition.

On the other hand, vertical and conglomerate business combinations do not reduce the number of units in a particular field of trade. They have less impact on competition than horizontal ones and, with certain exceptions, their effect may not be substantially to restrain competition in general. Depending on the types of business combinations, the JFTC uses different frameworks or determining factors to consider whether the effect of business combinations may be substantially to restrain competition in a
particular field of trade.

In the following Parts, the frameworks or the determining factors are explained for each type of business combination, horizontal, vertical and conglomerate.

In addition, if a business combination consists of, for example, the horizontal and vertical aspects, the effects of each aspect are examined based on the frameworks or the determining factors for the horizontal and vertical combinations respectively.

Part IV. Effect of Horizontal Business Combination May Be Substantially to Restrain Competition

1. Basic Framework, etc.

As mentioned above, horizontal business combinations reduce the number of competing units in a particular field of trade. They therefore have the most direct effect on competition and it is more likely that the effect of the combinations may be substantially to restrain competition.

There are two potential ways in which the effect of horizontal business combinations may be substantially to restrain competition in a particular field of trade: through unilateral conduct by the company group and through coordinated conduct between the company group and one or more of its competitors (hereinafter referred to as "competitors"). Individual cases should be reviewed in respect of these two conducts. There will be a case, for example, in which a business combination may be substantially to restrain competition from the viewpoint of coordinated conduct even though it will not have this effect from the viewpoint of a unilateral conduct.

(1) Substantial Restraint of Competition by Unilateral Conduct Typical cases in which the effect of horizontal business combinations may be substantially to restrain competition in a particular field of trade by means of unilateral conducts are as follows, depending on whether goods are homogenous or differentiated in the field.

A. When Goods Are Characterized as Homogenous

When goods are characterized as homogenous, if the company group raises the price of the goods and the other business operators do not, users of the goods will switch suppliers to other business operators and, in general, sales of the company group will decrease and sales of the other business operators will increase. In many cases, then, it is difficult for the company group to control the price and other factors.

However, if, for example, the production or sales capacity of the company
group is large whereas that of the other business operators are small, then when the company group raises the price of the goods, in some cases other business operators may be unable to increase their sales without raising their prices or users may be unable to switch suppliers to the other business operators.

In these cases, a situation is likely to emerge in which the company group has some ability to control the price and other factors. As a result, the effect of the horizontal business combination may be substantially to restrain competition.

B. When Goods Are Characterized as Differentiated

When goods are characterized as differentiated by brand, etc. and the price of the goods of one brand is increased, the users of the brand do not necessarily intend to buy goods of other brands indiscriminately as a substitute. On the other hand, users may buy goods of another brand and that is next in their order of preference to the first brand; in other words, which has higher substitutability.

In this case, even though the company group increases the price of the first brand goods, if the group also sells the second brand goods that have high substitutability, the increase in sales of the second brand compensates for the loss of sales of the first.

It is then possible for the company group to increase the price without decreasing total sales.

Therefore, when goods are differentiated by brands, etc., if business combinations are formed between business operators that sell substitutable goods, and other business operators do not sell such goods, a situation is likely to emerge in which the company group has some ability to control the price and other factors. As a result, the effect of the horizontal business combinations may be substantially to restrain competition.

(2) Substantial Restraint of Competition by Coordinated Conduct

A typical case in which the effect of horizontal business combinations may be substantially to restrain competition in a particular field of trade through coordinated conduct is as follows.

For instance, when company X raises its price, other business operators Y and Z will try to increase their sales without raising their prices. In response, business operator X, in general, will reduce its price to the previous level or lower, and will try to retrieve the sales from business operators Y and Z.
However, in addition to the reduction in the number of competitors by horizontal business combinations, given the market structure, such as the concentration of the particular field of trade, the characteristics of the goods or trade practices, there may be cases in which the business operators will be able to anticipate each other's behavior with a high degree of accuracy and their coordinated conduct could bring profits to them. In such cases, when an increase in prices by business operator X is followed by an increase in prices by other business operators, even though business operator Y keeps the price at the original level in order to gain additional sales, the other business operators will be easily able to detect the deviation from the coordinated conduct of business operator Y and will likely reduce their price to the original level or lower in order to retrieve the sales that business operator Y had obtained. As a result, the expected profit that would otherwise be temporarily gained by business operator Y when it maintains its price is much less than the expected profits that would be gained if business operator Y were to raise its price following the price increase by business operator X.

If these circumstances are created by the business combination, a coordinated price increase is much more profitable for each business operator than trying to gain additional sales by keeping the price at the original level. As a consequence, a situation is likely to emerge in which the company group has some ability to control the price and other factors by coordinating its conduct with its competitors and the effect of the horizontal business combinations may be substantially to restrain competition in a particular field of trade.

(3) Effect may not be Substantially to Restrain Competition

It is decided by taking into consideration the factors described in Sections 2 and 3 below whether the effect of each horizontal business combination may be substantially to restrain competition in a particular field of trade. However, when the company group after the business combination falls under either of the following standard (a) to (c) below, it is normally considered that the effect of a horizontal business combination may not be substantially to restrain competition in a particular field of trade and consequently, analyses of each determining factor shown in Sections 2 and 3 below are generally not considered necessary. (Note 5)

(a) The Herfindahl-Herschmann Index (hereinafter referred to as "HHI") after the business combination is not more than 1,500. (Note 6)

(b) HHI after the business combination is more than 1,500 but not more than
2,500 while the increment of HHI is not more than 250. (Note 7)

(c) HHI after the business combination is more than 2,500 while the increment of

HHI is not more than 150.

For clarity even when a horizontal business combination does not meet the above-mentioned standards, it does not immediately mean that the effect of it may be substantially to restrain competition. This is rather decided based on the facts of each case. In light of past cases, if the HHI is not more than 2,500 and the market share of the company group after the business combination is not more than 35%, the possibility that a business combination may be substantially to restrain competition is usually thought to be small.

(Note 5) Suppose a case where a horizontal business combination meets the criterion (a), (b) or (c) above for the reason that the parties have a small market share in a particular field of trade but have potential competitiveness that is not reflected in such market share because the party has, for instance, certain important assets for competition purposes such as data or intellectual property rights. In such a case, it may become necessary to consider each of the determining factors set forth in Sections 2 and 3 below, and the JFTC will assess the importance that data has for competition purposes pursuant to the same prospective as described in Part VI, 2 (2) below.

Note that, in a case where the relevant business combination may not be substantially restrain competition in a particular field of trade pursuant to Part V, 1 (2), it may become necessary to consider each of the determining factors set forth in Part V, 2 and 3 below from the same perspectives as those set forth above.

(Note 6) HHI is the sum of the squared market share of each business operator in a particular field of trade. The market share of each company is the percentage of its sales volume (in the case of manufacturers) to total sales volume in a particular field of trade. However, when it is not appropriate to calculate the share based on the volume because there are considerable price differences among goods and sales results are usually calculated on monetary bases, the market share is calculated by sales in monetary terms. When there are imports for domestic users, the market shares of the imports are calculated as domestic supplies.

With respect to production capacity, the percentage of exports or in-house consumption, there are cases in which the excess capacity, exports or
in-house consumption will be directed to sales for the domestic market, in turn expanding the market share in response to the domestic demand. In these cases, the excess supply capacities, etc. are taken into consideration if necessary.

In a case, where due to a large number of business operators existing in the market, the JFTC can know only the market shares of the upper-ranked business operators, being unable therefore to calculate the precise value of HHI, then the JFTC will take into consideration a theoretical maximum value of HHI (on the assumption that the total combined market share held by lower-ranked business operators whose market shares are unknown are held by the business operators who have the same market shares as the lowest-ranked of the upper-ranked business operators whose market shares are known), as well as a theoretical minimum value of HHI (assuming that a large number of business operators with a limited market share exist among business operators with an unknown market share, the sum of the squared market shares of such business operators being more or less zero). (See the cases given below.)

(Case) In a case where the top-ranked business operator has a 40% market share, the second-ranked operator a 20% market share, the third-ranked operator a 10% market share, and all the remaining operators an unknown market share, respectively, the maximum theoretical value of HHI is calculated as $ 40 \times 40 + 20 \times 20 + 10 \times 10 + 10 \times 10 \times 3 = 2,400 $ assuming that the remaining 30% market share is divided among the three business operators each of whom has the same market share as the third-ranked operator with a 10% market share. The minimum theoretical value of HHI is calculated as $ 40 \times 40 + 20 \times 20 + 10 \times 10 = 2,100 $ on the assumption that a large number of business operators, each with a scant market share, participate in the remaining 30% share of the market.

(Note 7) The increment of HHI derived from a business combination can be calculated by doubling the multiplied value of each market share of the company group, if it only concerns two parties.

2. Determining Factors in Deciding Substantial Restraint of Competition through Unilateral Conduct

To decide whether the effect of a horizontal business combination may be substantially to restrain competition in a particular field of trade through unilateral conduct, the following determining factors are given comprehensive consideration.
(1) The Position, etc. of the Company Group and their Competitors, the Competitive Situation in the Market, and Other Matters

A. Market Share and Ranking

The larger the market share of the company group after the combination, the more difficult it is for other business operators to maintain a sufficient supply in place of the company group while keeping the same price level, in response to an attempt by the company group to raise the price. It could therefore be said that the ability of

the other business operators to constrain the company group’s price rise is weaker.

As a result, the larger the market share of the company group or the larger the increment of market share after the business combination, the greater the impact of the business combination on competition.

Similarly, when the business combination raises the ranking of the company group in terms of market share to a high position or raises it to a great degree, the combination will have much more impact on competition.

For example, a business combination in which both companies involved have high rankings in terms of market share has much more impact on competition than a business combination involving companies with low rankings.

In calculating the change of market share by a business combination, the calculation should in principle be based on the most recently available market shares of the company group. However, if market shares after the business combination are expected to change significantly, taking into account a longer-term change in sales quantity and net sales, changes in user preferences, speed and the degree of technological innovation, state of product obsolescence and fluctuation in market share, or if competitors are no longer regarded as providing competitive pressure given declining investment, the impact on competition of a business combination is determined by considering these factors as well.

B. Competition among the Parties, etc. in the Past

There are cases in which vigorous competition among companies or actions by companies that increase market competition lead to a reduction in market prices or an improvement in the quality or variety of goods. In these cases, even though the combined market share of the parties or their combined rank is not high, a business combination would have a substantial impact on competition as it eliminates the possibility of the price reduction or quality improvement described above.

For example, there may have been vigorous competition between the parties
of the company group before the combination, such that the expansion of the market share of one party would have caused a reduction in the market share of the other party.

In this case, following the combination, as the loss of sales of one party in the company group would be offset by the increase in sales of the other, the parties will be able to raise the price of goods without a loss of overall group sales, and so this business combination will have a large impact on competition.

When goods are differentiated by brands and there is high substitutability between the goods sold by the parties, the loss of sales of one of goods would be offset by an increase in sales of the other good after the business combination. As a result, the company group will be able to raise the price of goods without an overall reduction in group sales, and so this business combination will have a large impact on competition.

C. Treatment of Joint Investment Company

If certain business departments of investing companies are completely spun off and consolidated into a joint investment company, the connection between the business of the investing companies and that of the joint investment company would be considered to be weak.

Therefore, when the entire business, including the production, sale, research and development of certain goods, is spun off and consolidated into a joint investment company, the market share of the joint investment company itself would be considered in the review.

On the other hand, if only part of the business departments of each investing company is transferred to joint investment company, there is a possibility that a coordinated relationship between the investing companies will arise through the operation of the joint investment company. To determine whether a coordinated relationship between the investing companies will emerge or not, the specific details of the joint investment agreement, the actual combination and the transactions between the companies, if any, are considered.

Suppose that, the production sections of goods are transferred to the joint investment company while each of the investing companies continues to sell the goods. When the possibility of a coordinated relationship between these investing companies occurring through the operation of the joint investment company is examined, the impact on competition is considered through such means as summing the market shares of the investing companies. On the other hand, even though the investing companies continue to sell goods after