Competitive Enhancement involving Digital Platformers: Japanese authorities (METI, JFTC and MIAC) issue Report

On December 12, 2018, Japan's Ministry of Economy, Trade and Industry (the "METI"), the Japan Fair Trade Commission (the "JFTC") and the Ministry of Internal Affairs and Communications (the "MIAC") (collectively, the "Agencies") jointly published a 16-page report by the "Study Group for the Maintenance of Business Circumstances involving Digital Platformers" (the "Report"). "Digital Platformers" are defined as businesses operating digital platforms. Examples of the digital platforms (aka. online platforms) mentioned in the Report are; online shopping malls, internet auctions, online flea markets, application markets, search engines, content distribution services, online booking services, sharing economy platforms, social network services, shared video services, and electronic payment services.

In June 2018, the Cabinet of the Government of Japan concluded that, as part of the government's "Future Investment Strategies 2018," it would establish basic rules for "platform" businesses by the end of the year and take any necessary related action. To this end, the Study Group was established in June 2018. The Study Group is comprised of professors and private practitioners with expertise in competition law and policy, information policy, and consumer protection policy. The Personal Information Protection Commission (the "PIPC") and the Consumer Affairs Agency (the "CAA") attended the Study Group’s meetings as observers. On November 5, 2018, the Agencies jointly published a draft report and sought comments from the public, and on November 16 and 28, they conducted hearings with several domestic and foreign digital platformers in attendance. The Report reflected some of comments from the public and digital platformers.

The Report is comprised of seven sections, addressing: (i) the characteristics of digital "platformers," (ii) legal regulation of digital platformers, (iii) the responsibilities of digital platformers as innovators, (iv) transparency to help promote fairness, (v) enhancement of fair and free competition, (vi) consideration of rules for data transfer and/or open data, and (vii) regulatory harmonization throughout the world.

In the first section, the Report suggested that digital platformers – i.e., businesses operating digital platforms – often bring various benefits to users, including small-and-medium sized enterprises and consumers, but recognized that at the same time, certain digital platformers may be characterized as monopolies or oligopolies as the result of network effects.

In the second section, the Report points out that in Japan, platformers in general, have not been considered to bear legal responsibility because they are "merely" providing platforms (i.e., they are “only” acting as intermediaries). However, the Report recognizes that there are recent global trends towards regulating digital platformers, and suggested that Japan should consider such regulations as well. The Report addresses the idea of regulating digital platformers, in particular by applying the essential facility doctrine, and/or the public utility doctrine.

In the third section, the Report suggests that it may be necessary to amend certain industry-sector laws that were drafted at a time when the existence of digital platformers was not anticipated. A “regulatory sandbox” approach was among the options raised in the Report.

In the fourth section, the Report contended that the opaqueness of transactions between digital platformers and their users (including companies and individuals) created a possible hotbed for unfair business practices. The Report suggests using the JFTC's compulsory authority under Article 40 of the Anti-Monopoly Act (the "AMA") to study the underlying reality of transactions between the digital platformers and their users.

In the fifth section, the Report states that enforcement of antitrust/competition law becomes more important as digital platformers tend to either become monopolies or part of oligopolies while also becoming integral parts of the economy. In addition, the Report recognizes there has been an international discussion as to whether current competition law is applicable to digital platformers in its current state, and, if not, what amendments should be made.

In the sixth section, the Report addresses rulemaking for data transfer and/or open data, such as data portability and open API. The Report reasons that these are highly relevant to competition policy and the maintenance of competition, and therefore should be considered.

In the seventh section, the Report suggests that it is important for there to be international harmonization of rules involving digital platformers because these are companies that do business globally.

In recent years, digital platforms have grown dramatically in importance in our lives. They have brought and are expected to continue to bring substantial benefits to us. The impact of these digital platforms on competition is continuing to grow and their role is continuing to evolve in new ways, particularly in the area of network effects.

Accordingly, the Authorities on December 18, 2018 published the basic principles with regard to platform businesses that enhance the competitive environment in Japan.

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