Shimano Manufacturing, Apple jurisdictional 'tug-of-law' set to resume as antitrust dispute nears four-year mark

17 April 2018 10:56am
Tokyo Skline

12 April 2018. By Sachiko Sakamaki.

Shimano Manufacturing and Apple are limbering up for the next bout in a long-running legal battle over the US tech giant's alleged abuse of its bargaining position with the Japanese components supplier. A key issue in the dispute is whether Japanese antitrust law should apply in the case, even though Tokyo District Court judges have expressed a view that Californian law should prevail.

Shimano Manufacturing, which supplied probe pins for Apple’s MacBook computers, sued the Californian firm in Tokyo in August 2014, invoking Japan's Antimonopoly Act to demand damages of about 10 billion ($94 million) for alleged abuses of a superior position. The two companies have been involved in preparatory proceedings behind closed doors since April 2016, when the last hearing in the case was held.

According to briefs from the two sides recently disclosed by the Tokyo District Court that date back more than a year from March, judges at that court said in June last year that Shimano’s claim should be handled according to Californian law, under which the main contract between the companies was drawn up.

That was despite an interim judgement by the Tokyo court in February 2016 that it should handle Shimano’s claim, rather than a Californian court, as Apple had requested. Two months later, the trial resumed.

Jurisdiction has been a major issue in the dispute, which involves an Apple supply chain of 756 contractors across 30 countries.

Apple argued that Californian law should apply because the dispute was over trading based on a “master development and supply agreement,” which said any disputes should be resolved in Californian courts and which was signed in California. Shimano insisted that Japanese law should apply because damages were owed to a Japanese company.

The opinion the judges expressed in June 2017 is good news for Apple, which later asked the court to issue an interlocutory judgement saying that the suit was to be handled under Californian law, and that Japanese antitrust law did not apply. The court has not responded to that request.

Shimano Manufacturing said that even if its damages claim were handled under Californian law, Japan's Antimonopoly Act should still apply in the consideration of whether its interests had been harmed, submitting opinions from international law experts to support that view. 

The Tokyo-based electronics maker claimed that its rights to conduct business under clear and unambiguous conditions and not to be put at an unreasonable disadvantage, protected under the Antimonopoly Act, had been violated, and that domestic law should apply because the Japanese market had been affected. 

For Shimano, it is critical that the Antimonopoly Act is applied because its claim is based on that law's prohibition of abuses of a superior bargaining position, a provision that focuses on the relationship between business partners rather than on market dominance.

Citing a Californian former judge, Apple argued in contrast that California’s antitrust law, the Cartwright Act, addresses only multi-party collusion, not unilateral conduct by a single firm.   

In March last year, Shimano added another reason to demand damages based on Californian law, saying that Apple had violated the “implicit covenant of good faith and fair dealing” when it drastically reduced its orders for probe pins in 2012, slashing an earlier forecast.  

Apple responded in briefs in May and November 2017 that the scope of an implicit covenant depended on the purposes of a contract and its specific clauses, and that it didn't protect one-sided expectations. Apple said it hadn't violated the master contract and had acted in good faith when it reduced its orders from Shimano because the reduction was due to weaker demand.

Shimano Manufacturing said it had been forced to agree to discounts of more than 50 percent on its probe pins, supplying them to Apple below cost because it had accumulated a massive inventory of the components. The company said that went against social norms and basic morality.

MLex was told that the next preparatory proceeding in the case will be held on July 10, following a postponement from May 22, to give the two companies more time to set out their arguments.

ABA 2019