JAPAN Law and Practice Contributed by: Tsuyoshi Ikeda, Aya Yasui, Takuya Ohata and Kohei Kohara, Ikeda & Someya
they may substantially restrain competition for each type of business combination. According to the Merger Guidelines, the JFTC takes the following factors into account in assessing the pro-/anti-competitive effect of the transaction: • competition in the relevant market – the number of competitors, market share, competitive landscape, supply capacity of competitors, competition in R&D, characteristics of the market (whether there are so-called direct or indirect network effects or multifaceted markets through various platforms), etc; • imports – barriers to importing, problems with dis - tribution, substitutability with imports, etc; • new entry to the market – barriers to entry, likeli - hood of entry; • competitive pressures arising from adjacent mar - kets – competing products, geographically adja - cent markets; • competitive pressure arising from customers – competition among users, ease of switching sup - pliers; • comprehensive business capabilities of the parties in question; • economic efficiencies; • the financial conditions of the parties in question; and • the scale of the relevant market. The Merger Guidelines set forth the safe harbour based on the Herfindahl-Hirschman Index (HHI). In principle, the JFTC does not conduct a substantive examination of a business combination that falls below the thresholds of the safe harbour. 4.2 Markets Affected by a Transaction The JFTC defines relevant markets that are affected by a business combination from the perspective of the scope of the product and the geography, considering the substitutability for customers and, if necessary, suppliers. The JFTC uses the factors described in the Merger Guidelines to define a “relevant market”.
The Merger Guidelines clearly state that the geo - graphic market may extend beyond the borders of Japan, depending on the international nature of the relevant business. In fact, in some cases, the JFTC has defined the global market as the relevant market. Another feature of the Merger Guidelines is that they establish safe harbours for three categories of busi - ness combination: horizontal, vertical and conglomer - ate (each category is subject to a specific safe har - bour). The JFTC believes that there is usually little or no likelihood of substantially restricting competition, and therefore no need to conduct a detailed examina - tion of the business combination when it meets the requirements of a safe harbour. In such a case, the JFTC does not generally conduct the examination described in 4.1 Substantive Test . The safe harbour standards for horizontal business combinations are as follows: • the HHI after the business combination is not more than 1,500; • the 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; and • the HHI after the business combination is more than 2,500, while the increment of HHI is not more than 150. If a horizontal business combination exceeds the safe harbour standards, the JFTC will examine whether it would substantially restrict competition in a relevant market through the test described in 4.1 Substantive Test . In addition, the Merger Guidelines clarify that, in light of past cases, if the HHI after the business combina - tion is 2,500 or less and the market share of the busi - ness group after the business combination is 35% or less, the risk of substantially restricting competition is generally considered to be small. The safe harbour standards for vertical or conglomer - ate business combinations are as follows:
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