Digital Platformer Regulations in Japan

1. Definitions of Digital Platformer and Scope of the Act

(1) Digital Platforms

The Act on Improvement of Transparency and Fairness in Trading on Specified Digital Platforms ("SDPA") defines digital platforms as services that provides a place constructed by means of information processing using computers and is intended for use by a large number of persons, where information pertaining to the goods, services or rights (collectively "Goods") of a person who intends to provide the Goods is ordinarily displayed in said services (limited to those using any of the relationships listed in the SPDA.).
The SPDA lists the following relationships as elements of the definition of Digital Platform:

(i) a relationship in which the increase in the number of persons who intend to provide the Goods ("Product Provider") by using the services, significantly increases the benefit of persons who intend to receive the Goods ("Recipient"), thereby increases the number of Recipients, and as a result significantly increases the benefit of the Product Provider, thereby further increases the number of Product Providers.

(ii) a relationship in which the increase in the number of users of the services (excluding Product Providers), significantly enhances the benefit of other users of the services, thereby further increases the number of users of the services and significantly enhances the benefit of Product Providers as a result of such increase, thereby increases the number of Product Providers.

To summarize, Digital Platforms means services that meet three requirements: (i) services providing places to connect the Product Provider and Recipient (consumers) using digital technology, (ii) services provided through the internet, and (iii) services utilizing network effects.

(2) Specified Digital Platforms

Under the SPDA, Digital Platforms that are particularly required to improve transparency and fairness are to be designated as “Specified Digital Platforms” (“Specified DPF”). Service Providers of Specified DPF ("Specified DPF Providers") will subject to regulations under the SPDA.  The detailed requirements are to be stipulated by the Cabinet Order of the Ministry of Economy, Trade and Industry ("METI"), but the following elements are to be considered:

1. the genre’s impact on the lives of the people and the national economy;
2. the concentration of certain digital platforms in that genres;
3. the necessity for the protection of Product Providers;
4. current situation of other regulations or measures and policies; and
5. certain scales (e.g. sales) within that genre.

It is expected that large-scale online malls and app stores for would be subject to regulation under the SPDA.  The actual state of transactions is likely to be ascertained through surveys.

2. Obligations of Specified DPF Providers

Specified DPF Providers will need to comply with the following obligations as stipulated in the SPDA.

(1) Disclosure of Information by Specified DPF Providers

Specified DPF Providers are obliged to disclose certain information to the Product Providers and/or the users of the Platform.  The information Specified DPF Providers are obliged to disclose include the following:

• Criteria on determine to reject transactions
• When requiring the use of other services of or designated by the Specified DPF Providers, that fact and the reasons
• The basic matters for search rankings (including matters when there is a possibility that the advertising fees and other money paid by the Product Providers are likely to affect the ranking)
• The content and conditions of the data obtained and used by Specified DPF providers
• Whether Product Providers may obtain and use data, and the content and conditions of the acquisition and usage of such data.
• Matters regarding handling of inquiries and complaints (including the contact point, process of handling)
• When rejecting transactions, prior notification of the fact and the reasons
• When requesting amendment of a contract or change of operations, prior notification of the details and the reasons
• Other Matters stipulated in the Cabinet order of METI

(2) Establishment of operational procedures and systems by Specified DPF Providers

Specified DPF Providers are obliged to establish procedures and systems regarding the business relationship between Product Providers, in accordance with the guidelines to be stipulated by METI.  The SPDA mentions that the following factors need to be included in the guidelines:

• Establishment of systems to deal appropriately with Product Providers
• Establishment of procedures and systems to ensure fairness of transactions
• Establishment of dispute settlement systems
• Appointment of a person to manage business in Japan

(3) Reporting and monitoring of operational status

Specified DPF Providers are required to submit a report affixed with a self-evaluation thereof to METI for every fiscal year.  The report shall include, a) Business overview of the Specified DPF. b) Settlement of inquiries and complaints, c) Status on disclosure of Information, d) Status on operational procedures and systems.

The Minister of Economy, Trade and Industry ("Minister") is to review and evaluate the operational status of the Specified DPF based on the report.  The Minister may hear the opinions of users, organizations organized by users, persons with relevant knowledge and experience, and other persons deemed necessary when conducting the evaluation.  The evaluation will be disclosed to the public, together with the summary of the report.

3. Enforcement

(1) Issuance of recommendations and administrative orders.

In situations where the Specified DPF does not comply with the obligations under the SPDA, the Minister may issue recommendations to the Specified DPF provider, as well as making public announcements.  With regard to non-compliance to recommendations regarding disclosure of Information by Specified DPF Providers, the Minister may also issue administrative orders.

When issuing recommendations or administrative orders, the Minister may have the Specified DPF to report on its transactions.  The Minister may also have officials of METI to enter the office or other workplaces of the Specified DPF Provider to inspect books, documents, and any other objects.

(2) Report by Users

Users of the Specified DPF may report to and require the Minister to take appropriate measures, in cases where the user finds that the Specified DPF is not in compliance with its obligations  . The Specified DPF provider must not give any disadvantageous treatment to such user (including refusal to provide services on the Specified DPF).  The Minister may issue recommendations to cease the disadvantageous treatment when it finds the non-compliance of the Specified DPF to the preceding obligation.

(3) Cooperation with the Japan Fair Trade Commission

The Minister is obliged to, or can request the Japan Fair Trade Commission ("JFTC") to take actions under the Anti-monopoly Act when the Minister acknowledges that a case of possible violation of the Anti-monopoly Act has occurred¹.

¹The Minister is obliged to request to JFTC under the following cases:
(i) when it is found that the act is being performed against a large number of Product Providers.;
(ii) when it is found that the degree of disadvantage to Product Providers is likely to suffer is significant;
(iii) other material facts that impair the transparency and fairness of the specified digital platform.

Article provided by: Satoshi Shono (Matsuda & Partners, Japan)

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