On December 22, 2020, Ministry of Economy, Trade and Industry ("METI") proposed a draft of cabinet order ("Cabinet Order")1, implementing regulations ("Implementing Regulations")2 and guidelines ("Guidelines")for the Act3 on Improving Transparency and Fairness of the Specified Digital Platforms ("DP Act"). They are seeking comments from the public by January 20, 2021.
In accordance with the June 2018 and June 2019 cabinet decisions on preparing rules for digital platforms, the Headquarters for Digital Market Competition ("Digital Headquarters") were established on September 27, 2020 under the Cabinet's organization in order to implement competition policies for promoting competition and innovation in the digital market in a timely and effective manner. Under the Headquarters, the Digital Market Competition Council and the Digital Market Competition Working Group were established to discuss specific issues, including new laws for digital platforms.
On February 18, 2020, the METI submitted a bill for the DP Act4, which was passed on May 27, 2020 and promulgated on June 3, 2020. The DP Act will be effective within a year from June 3, 2020. More specifically, according to a draft of METI notice, the DP Act plans to be effective on February 1, 2021.
The purpose of the DP Act is to contribute to the improvement of people's lives and the sound development of Japan's economy by promoting fair and free competition for the specified digital platforms ("Specified DPOs"). As the basic principles of the DP Act, it provides that it is fundamental for digital platform operators ("DPOs") to voluntarily and proactively take initiatives to improve the transparency and fairness of digital platforms, and, as a result, it expects government involvement and other regulations to be the minimum necessary.
The Specified DPOs will be designated by the Minister of METI among DPOs that meet the thresholds of business size (e.g., total sales and/or number of users). Such thresholds will be provided by type of business in the Cabinet Order. The DPOs that meet the thresholds, but are not designated as the Specified DPOs will be required to provide information about their digital platform businesses to the Minister of METI in accordance with the Cabinet Order and the Implementing Regulations. Failure of this notification is subject to criminal fines.
The draft of Cabinet Order provides two business categories and the thresholds of business size respectively; the Minister of METI designates Specified DPOs among the DPOs that meet those two requirements. Two business categories identified by the draft of Cabinet Order are: (i) business of providing products to consumers by the Merchandise Providers5 and (ii) business of providing software or rights in software to consumers by the Merchandise Providers. For the thresholds for the business size is JPY 300 billion (approximately USD3 billion) for (i) and JPY200 billion (approximately USD 1.9 billion) for (ii), including Japanese turnover of sales by the Merchandise Providers and by a digital platform operator.
The DP Act requires the Specified DPOs (i) to disclose certain information, such as terms and conditions of the transactions, (ii) to maintain appropriate operations and systems in accordance with the Guidelines that will be provided by the Minister of METI, and (iii) to report annually the status of (i) and (ii) along with self-evaluation to the Minster of METI. Failure for these obligations by the Specified DPOs is subject to criminal fines. The Minister of METI will review and evaluate the reports and disclose the evaluation results.
With regard to (ii), a draft of the Guidelines provide a guidance as to (a) measures necessary to promote mutual understanding in a business relationship between the Specified DPOs and the Merchandise Providers, (b) systems and procedures necessary to ensure that the provision of digital platforms by the Specified DPOs to the Merchandise Providers is conducted fairly, (c) systems and procedures necessary to resolve complaints from the Merchandise Providers and/or disputes between the Specified DPOs and the Merchandise Providers, (d) appointment of personnel who manages the business necessary in Japan for the Specified DPOs to closely communicate with the Merchandise Providers, etc. and (e) any other measures for the Specified DPOs to give due consideration to Merchandise Providers' opinions, etc.
The Minister of METI has authority to issue a warning notice ("kankoku") to a Specified DPO when it finds a violation of the DP Act. When needed, it has authority to conduct a dawn raid. If and when there is any suspect of violating the Anti-Monopoly Act ("AMA"), the Minister of METI will refer it to the Japan Fair Trade Commission ("JFTC").
1 Draft of ordinance is available only in Japanese at https://public-comment.e-gov.go.jp/servlet/PcmFileDownload?seqNo=0000211688
2 Draft of implementing regulations is available only in Japanese at https://public-comment.e-gov.go.jp/servlet/PcmFileDownload?seqNo=0000211692
3 Draft of guidelines is available only in Japanese at https://public-comment.e-gov.go.jp/servlet/PcmFileDownload?seqNo=0000211690
4 The METI press release on February 18, 2020 is available in English at https://www.meti.go.jp/english/press/2020/0218_002.html; please also refer our previous Client Alerts at https://www.whitecase.com/publications/alert/japan-cabinet-proposed-direction-bill-digital-platform-transparency-act?s=digital, https://www.whitecase.com/publications/alert/bill-improving-transparency-and-fairness-digital-platforms?s=digital and https://www.whitecase.com/publications/alert/bill-improving-transparency-and-fairness-specified-digital-platforms-submitted?s=digital.
5 The Merchandise Provider is defined as a person or business that uses digital platforms for the purpose of providing products or services under Article 2, Paragraph 3 of the DP Act.
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