Looking at the Antitrust Law through the problem of the Amazon demand for “compensation payment”

Compliance/Internal Control


Author: Kenichi Yamakoshi

1. Introduction 

On March 15, 2018, the Fair Trade Commission implemented an on-site inspection of the internet sales operator Amazon Japan (“Amazon”) for a suspected violation of the Antitrust Law (abuse of superior position).
In addition to the service to provide to sellers a place for net sales, Amazon is also procuring products from makers, etc., and developing the business of sales through its own net and, according to reports, Amazon demanded from the makers a “compensation payment” of a part of the discount sales amount and seems to have compensated for the reduced portion of profits from the discount sales.
In regard to the Antitrust Law, in recent years newsworthy topics are increasing, such as the announcement of a policy to protect free lance personnel in February 2018 (see the separate “Application of the antitrust law to free lance activities”), and in the same way a recent topic is the amazon demand for a “compensation payment” and we would like to discuss the “abuse of superior position” that is prohibited by the Antitrust Law.

2. What is an abuse of superior position?

⑴ Outline
The “abuse of superior position” that was focused on in the Amazon issue, means an act against the other party to the transaction that causes an unfair disadvantage in light of normal commercial practices by use of the superior position of the party to the transaction.
In the normal case, it is a basic rule that the parties to the transaction will make their own decisions about the terms under which they will enter a transaction, and as a result of free negotiation it is natural that some inequalities will appear to one of the parties.
For example, in the case where company A is dependent on company B and a cessation of transactions will cause company A great harm, even if company B makes some materially unfair demands, etc., company A will need to accept such demands (in other words, in the case where company B “abuses its superior position” against company A), it is difficult for company A to negotiate freely with company B and make its own decisions, and if, as a result, company B sets unfair conditions then fair competition is harmed.
For this reason, “abuse of a superior position” is prohibited.

⑵ Types of Acts
As types of acts that fall under “abuse of superior position” the following are often given (Guideline of the Fair Trade Commission “Concept under the Antitrust Law of abuse of a superior position”):

mandatory purchase/use: for example, causing the other party to the transaction to make purchases by threatening to end the transaction if purchases are not made or if volume is lessened, etc., and transactions in the future may be negatively affected;

demand to bear sponsorship money, etc.: for example, to demand from or cause the other party to the transaction to bear sponsorship money, etc., for events, renovations of sales, advertisements, etc., that are not directly relevant to the sales promotions of the other party.

The demand for “compensation payment” by Amazon in this present case can be said to fall under the type of act under ② of the above Guideline.

⑶ Measures for a Violation
If an “abuse of superior position” is found as a result of an on-site inspection, etc., by the FTC, a demand to change the terms of the agreement, etc., will be the subject of a cease and desist order, and the content of the violation and the violator could be made public. Also, there are cases where an order to pay an assessment equal to 1% of the transaction amount for up to three (3) years will be issued.
At the time of writing this article, the measures against Amazon have not yet been issued, but if an “abuse of superior position” is found then there is a good possibility that the above measures will be enforced.

3. In conclusion

I am sure that many of you will have had the experience in a transaction with a large corporation or superior other party where disadvantageous conditions are unfairly demanded. It is possible that such acts by the other party fall under prohibited acts under the Antitrust Law. If you point out the details, it is possible that the other party will, under its compliance rules, withdraw its demands. If you have any problems, please feel free to contact us.

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