Sayako, could you please tell us a bit about your background and area of specialization?
I’m a professor at the University of Tokyo, teaching Japanese competition law and policy.
How did you become interested in competition law and digital-competition regulation?
I’ve been interested in the dynamics and history surrounding the regulation of freedom of trade. Digital-platform regulations are not only of practical importance, but also theoretically interesting, because of the radical confrontation of this debate.
What do you mean by “radical confrontation”?
I mean confrontation between deregulation supporters, who promote innovation and warn of government failure by ensuring freedom of private business fields, and the pro-regulation camp that seeks to correct the concentration of the economy and ensure competitive opportunities.
Who supports more digital regulation and who opposes it in Japan? What is the Japan Fair Trade Commission (JFTC) leadership’s stance, and can you share some details about them?
Currently, the government is pretty much interested in digital-platform regulations, maybe to appeal to the public. In general, there seems to be a strong opinion in favor of regulating digital platforms that involve various problems related to all of us in our daily lives. That’s one of the reasons that Parliament enacted this Smartphone Act so quickly. The main opponents in Japan are the platform providers themselves, I suppose.
The JFTC is seeking to strengthen its regulations to take advantage of this trend, but it is struggling, because the platform cases are rather challenging, whereas the JFTC keeps a prudent enforcement policy.
I see. It seems that the Smartphone Act is at the center of the discussion. Can you tell us a bit more about this new piece of legislation?
The Smartphone Act, recently enacted, prohibits specific conduct and outlines compliance measures that must be followed. This act, similar in structure to the EU’s Digital Markets Act (DMA), was passed without significant criticism. The government and the JFTC conducted a market study three years ago and published a final report last year. After a period of little movement, the law was swiftly enacted this year.
The structure of the law consists of two steps. First, the JFTC designates software-service providers exceeding a certain scale (defined in a Cabinet order for each type of specified software). We believe that Google and Apple, at least, will be designated. Second, the act stipulates certain conduct that designated providers are prohibited from engaging in (“prohibited conduct”), and certain compliance measures they are obliged to take (“compliance requirements”).
Prohibited conduct mostly relates to the prohibition of self-preferencing—for example, not preventing third-party providers from offering their own application stores (but not being obliged to allow downloading of applications directly from websites, i.e., “sideloading”); from using third-party billing systems; and from outlinking or other “discriminatory or unfair practices.” Designated providers are also required to enable users to change default settings with simple procedures or offer choice screens for browsers, search services, etc.
Compared to the DMA, this act is characterized by the following two points. First, the area of application is limited. Basically, smartphone-application providers are the target, and only the designated companies have obligations. Second, the scope of justifications, such as security or privacy, are broader.
There are several enforcement mechanisms to ensure regulatory effectiveness, including fines of up to 20% of the turnover from the relevant activity.
Is the Smartphone Act a response to international pressure to harmonize Japan’s laws with the DMA, or were other factors at-play?
Whether international pressure has influenced this enactment is unclear, but politicians seemed eager to assert authority over digital platforms. This move comes against the backdrop of the JFTC’s reputation for cautious regulation, and criticism in Japan for being a weak enforcer. The law’s clear definitions of prohibited conduct should reassure the critics.
You mentioned that it is already known that the Smartphone Act will likely apply to Google and Apple. Do you think this was the legislators’ intent all along, and that the thresholds were designed with these two companies in mind?
Yes, since the final report of the market study for the mobile ecosystem on which this enactment is based was conducted with Google and Apple in mind. Although other companies could be covered by the Smartphone Act, they are the only two companies we currently know will be designated.
There is also the Transparency Act, which is revised triennially. Does the Transparency Act currently contain any provisions specifically aimed at digital platforms, or that would particularly affect digital platforms?
Yes, the Transparency Act is revised every three years, but the details of the current amendment are not yet clear.
Under this act, “specified digital platform providers,” which are subject to these regulations, are required to give advance notification of any changes to their terms and conditions; disclose the scope of use of the data obtained from digital-platform users; develop systems to ensure fair transactions; and submit a report to the Ministry of Economy, Trade, and Industry (METI) every fiscal year with an overview of the measures they have taken, along with self-assessments.
METI then reviews the reports, taking into account the opinions of a wide range of stakeholders (basically, competitors and users including U.S. tech firms like Microsoft or Epic, and Japanese game companies or startups), and will publish the results of its assessment of the transparency and fairness of these digital platforms. Based on the assessment, digital-platform providers will be expected to make voluntary improvements.
METI has designated several platforms as “specified digital platform providers” for the following four areas: online shopping malls, app stores, media-integrated digital advertising, and ad intermediaries. These are: Amazon.co.jp, Rakuten Ichiba, Yahoo Shopping for online shopping malls (e-commerce); Apple App Store (Apple & iTunes) and Google Play Store for app stores; Google, Meta, and Line-Yahoo for media-integrated digital advertisement; and Google for ad intermediation.
On Aug. 2, METI for the first time gave a recommendation order pursuant to the Transparency Act to Amazon Japan and Apple & iTunes because of their inadequate disclosure of terms and conditions, etc.
It seems to me that “transparency” is something every industry could, in principle, benefit from (e.g., gaming, tobacco, pharma, wholesale and retail, etc.). If the government thinks that a Transparency Act is the answer to address informational asymmetries, why not broaden its scope? Do you have any sense of why METI designated only digital-platform providers, and only those active in four areas?
The word “transparency” itself has a broad meaning, giving the impression that the regulatory scope could be broader, but the Transparency Act is merely an abbreviation of the formal title of the act. If you read its official title and the provisions, you will see that it is only dedicated to the regulation of digital platforms.
Do you think the Transparency Act will include a self-preferencing provision, or something similar?
I’m not sure what would be changed, but METI’s evaluation process could prompt the designated companies to correct their conduct, even though the Transparency Act doesn’t have any provisions prohibiting self-preferencing. In addition to that, METI will inform the JFTC to take action if it finds any problem that impedes transparency or fairness. On the other hand, the new Smartphone Act clearly includes provisions that prohibit self-preferencing.
Right. So METI’s recommendations under the Transparency Act are not binding, but could lead to subsequent antitrust scrutiny if a company doesn’t comply. On that note, how has competition law worked so far in Japan? Is it sufficiently flexible? Is it slow?
I would say it’s slow. The JFTC is the center of competition-law enforcement in Japan, but still, as I told you before, it tends to be prudent and cautious. It hasn’t taken many challenging cases, especially against digital platforms. So it needs some clear rules to take cases against them.
Does the JFTC have a lot of experience dealing with digital platforms?
Maybe not a lot, but the JFTC has definitely taken some important digital-platform cases. These have all been resolved through commitment decisions, rather than cease-and-desist or surcharge-payment orders. In addition to that, the JFTC has conducted market studies for many platform-related fields and given some guidance.
Recently, the JFTC made a significant commitment decision against Google concerning mobile-syndication transactions. This case involved Google’s transactions related to search-engine technology and search advertisements. Historically, Yahoo Japan relied on Yahoo US for these services. When Yahoo US stopped providing them, Yahoo Japan turned to Google. At that time, the JFTC was consulted by parties and responded that there would be no antitrust problem as long as the companies operate independently and keep information separate. However, Google imposed modified restrictive agreements with Yahoo Japan not to provide technology needed for mobile-syndication transactions. The JFTC’s commitment decision effectively addressed this issue by strengthening monitoring. You can find more details about the decision on the JFTC’s website. An English version of the press release was issued April 22.
Japan currently seems mostly concerned about smartphones. Does the nation plan to address other products and services at a later stage? For example, many consoles also do not allow third-party game stores (e.g., Nintendo Switch).
Three years ago, the government identified the social importance of smartphones and conducted a market study only on the smartphone ecosystem, and published a final report last year, which is the basis of this enactment. I’m not sure whether this is just an experiment, in which case, the experience would be extended to other fields. I’m not sure, but any future action might depend on the success of this act.
Do you think Japan is relying on, or learning from, the experience of the DMA in designing its Smartphone Act?
Yes, I think so.
On that note, what is your opinion of the DMA?
The DMA is a good experiment in regulating digital platforms, because the technology in this field evolves so rapidly. Essentially, the pace of investigations cannot keep up with the rapid evolution of technology, as things change while an investigation is ongoing. If the JFTC or competition authorities are to enforce digital platforms effectively, it is inevitable that these conduct-specific rules would be utilized. On the other hand, uniform and rigid rules will require frequent updates, and regulatory failures can be also expected.
What sort of regulatory failures are you referring to?
For example, the significant cost of strict interoperability slows down platform innovation, while the applications that are allowed to enter by interoperability lack novel innovations beyond conventional technologies. Hence, the benefits associated with regulation are generally not passed on to consumers.
There are some notable differences between the DMA and the Smartphone Act, including the more limited scope of the latter and its heavier emphasis on privacy and security exemptions. Is that correct?
Yes, that is correct. One of the main differences between the DMA and the new Japanese act is that the security and privacy justification is widely admitted in this act. And, you know, it is naturally expected to be claimed by designated companies.
My understanding is that security and privacy justifications are allowed in limited provisions under the DMA. Security (but not privacy) justifications are allowed under Art. 6(4) in the context of third-party apps and app stores, if they are strictly necessary and if there are no less-restrictive means available. Integrity, security, and privacy justifications are allowed in the context of the interoperability of messaging services, pursuant to Art. 7(9).
By contrast, the Smartphone Act allows wider justifications across most of the prohibited conduct. In Art. 7, which prohibits certain conduct by the designated basic software operators (the prohibition on preventing third parties from providing or using app stores, and the prohibition on preventing the use of functions related to the operation of smartphones for the provision of individual software), and in Art. 8, which prohibits certain conduct of designated operators in relation to app stores (such as the prohibition on providing or using billing systems other than their own, the prohibition on outlinking, etc.), justification is mostly approved when the conduct is necessary for the purpose of ensuring cybersecurity, protecting personal information, protecting youth, or other purposes specified by a Cabinet order, and when it is difficult to achieve such purposes through other conduct.
With regard to the prohibition on discriminatory treatment of individual app providers with regard to the terms and conditions for using the OS and app store (Art. 6) and the prohibition on self-preference of designated search-engine providers (Art. 9), the act just provides general terms, such as “without justifiable reason.” These potentially set out a broader scope for exemption under the Smartphone Act than the DMA.
Ultimately, the strength of the enforcement of the Japanese act will depend on whether the JFTC can handle these justification claims successfully or not. That would definitely be the most important part. Also, during the legislative discussions, the security, privacy, and protection of children were mentioned. They were so strong that legislatures couldn’t deny them. So, yeah, that’s why the Japanese act has justifications broader than those in the DMA: Japan is very sensitive to those arguments.
Is there anything else in the digital sector that Japan has passed or is considering—e.g., misinformation laws, Digital Services Act (DSA) style laws, regulation of artificial intelligence (AI), or the like?
An “Act for the Protection of Consumers Who Use Digital Platforms for Shopping” was newly enacted to support safe transactions and promote dispute resolution in online shopping malls (e-commerce). It imposes on platform operators an obligation to make efforts to implement measures to enable smooth communications between consumers and sellers, to secure appropriate representations of terms and conditions, or to provide information for identifying sellers. The prime minister may request that the platform operators suspend the fraudulent seller’s use of that digital platform.
There are many other laws related to digital platforms, but they are like a patchwork. We don’t have comprehensive and powerful regulations, like the DSA or DMA in the EU.
Are these laws that you mention new?
Most of them are old laws, but often amended to regulate digital platforms. For example, we have the Personal Information Protection Act, which was amended to protect personal data in the digital world. The Telecommunications Business Act was also amended to regulate cookies. Concerning misinformation, we have amended the Provider Liability Limitation Act, which clarifies the requirements for exemption from liability for damages of specified telecommunications-service providers in cases of infringement due to the distribution of misinformation (e.g., posting on social media ), as well as the right to request disclosure of misinformation distributors from the provider. The Act Against Misleading Presentations has introduced a stealth marketing ban since last October, and we already have one case this August.
Some countries, like Australia, have passed media-bargaining codes requiring digital platforms to compensate news outlets for their shared content. Is there anything like that in Japan?
No, we don’t have those codes. But the JFTC conducted a market survey and published a report on the issue last year, where the JFTC pointed out the possibility of exploitation or exclusionary conduct by platforms. The JFTC clarified that media companies collaborating to negotiate with platforms would not violate the Anti-Monopoly Law. This move aims to encourage negotiation by assuring that such cooperation is legal. However, Japanese newspapers haven’t taken significant steps in this direction, because it seems that they are more accustomed to competing rather than collaborating.
Do you sense that the JFTC is trying to protect one of the two sides? Is it trying to protect newspapers, media outlets, or platforms?
The JFTC report I mentioned points out the competitive problems of platforms for the purpose of protecting newspapers or media outlets.
So-called “fair share” laws have also been floated in Europe and in other countries. Is there anything like that in Japan?
Not so much, unfortunately.
You say “unfortunately.” Does that mean you would be in favor?
At least we should discuss it. But there is not so much discussion, despite the fact that we have good tools to discuss this problem—a regulation of abuse of a superior bargaining position by the Anti-Monopoly Act and Telecommunications Business Act.
As a general rule, do you think that the JFTC leadership is more technocratic than political?
It is.
Maybe this explains why there haven’t been any big cases against digital platforms, despite pressure from certain stakeholders and a popular sentiment that “something should be done about big tech.”
I agree.
For context: what are the goals of Japanese competition law? Has Japan traditionally looked more to the United States or to Europe for inspiration in the interpretation and enforcement of competition law?
This is a difficult question, but Article 1 of the Anti-Monopoly Act specifies the purpose of its legislation. It states that the direct purpose of the act is to promote fair and free competition and its ultimate goal is to secure the interest of general consumers. Therefore, when considering justification claims, for example, we are always thinking about the ultimate goal—i.e., about the consumers.
Japan’s Antimonopoly Act was enacted under the strong influence of the U.S., which has also influenced its application and policy since then. In recent years, however, reference has increasingly been made to the EU, which also has an administrative regulatory regime.
Does the Smartphone Act share the same ultimate goal as Japanese competition law?
Article 1 of the Smartphone Act also provides the purpose of its legislation. It states the direct purpose is to promote fair and free competition, just like the Anti-Monopoly Act, but it does not mention securing the interest of general consumers. Instead, the act stipulates a broader ultimate goal: improvement of people’s lives and development of the national economy.
Interesting. The DMA also elides consumers and focuses instead on achieving “fairness and contestability.” Do you have any thoughts as to why the Smartphone Act deviates from the ultimate goal of the Japanese Anti-Monopoly Act, as laid down in its Art. 1? How does “improving people’s lives and developing the national economy” differ from traditional notions of consumer welfare (in practice and/or in theory)?
I’m not so sure, but I think they should theoretically be the same in principle. My understanding is that the new Smartphone Act is a kind of a special act for a specific field of the Anti-Monopoly Act.
Do you think the Smartphone Act is necessary, considering that Japan’s competition law covers some, if not all, of the same conduct? Could it lead to some form of double jeopardy?
First, there’s a significant difference in enforcement speed. As I mentioned, the JFTC’s enforcement has been cautious. Without this act, the JFTC wouldn’t take on challenging cases, such as those against major platforms. This act provides a solid basis for the JFTC to pursue these cases. Second, even if there is some overlap in the regulatory scope, the JFTC will adjust it in actual enforcement.
What else could explain why the JFTC is hesitant to bring cases against platforms using the Anti-Monopoly Act?
The JFTC has limited personnel resources to prove illegal high-tech conduct, particularly their harms. Especially since there aren’t many economists or IT experts within the JFTC. Additionally, JFTC officials might prefer to avoid these challenging cases in order to get promoted. Unlike U.S. officials, who often change jobs, JFTC officials tend to stay within the organization, which might influence their willingness to take on such cases.
Perhaps some of the problems the Smartphone Act is trying to tackle could be effectively addressed by endowing the JFTC with better personnel (IT experts, economists, etc.) or giving it more enforcement powers, such as the ability to enforce commitments and encourage compliance by imposing heftier fines when companies renege on their promises?
Maybe so; that would be a good option. However, it appears that changing the current enforcement framework by amending the Anti-Monopoly Act is not so easy.
Do you have any sense of how the new Smartphone Act and other laws that parallel the DMA would affect innovation, startups, and consumers in Japan, or maybe even competitiveness?
I’m not certain at this point. I’m interested in seeing how the act will be enforced and hope it effectively boosts innovation in Japan. However, while the media have focused on the severe enforcement measure of high surcharges associated with the act, there are also commitment procedures for addressing prohibited practices. It’s unclear whether the JFTC will implement severe enforcement measures or rely mostly on commitment procedures. If the JFTC primarily uses these commitment procedures, enforcement might not be so effective. Japanese commitment procedures are relatively weak compared to those in the EU; for example, we have limited sanctions for violating commitments without robust monitoring systems. As a result, if cases are handled through commitment procedures, enforcement may be insufficient.
Ultimately, it’s kind of a trial-and-error process. You try to regulate, and if it goes too far, maybe the regulation can be adjusted. It’s a matter of trying and seeing what works.
To finalize, let’s assume that the Smartphone Act doesn’t work as intended. What is the likelihood that the act would be repealed? Or, alternatively, what would the process for amending the act be?
It is hard to imagine it would be abolished anytime soon, but it could be left unenforced. This act is expected to be reviewed in three years, at which time it could be amended for better law enforcement.