Japan Legal Update Vol. 51 | January–February 2020
Amendment to the Civil Code Will Come Into Effect in April
On April 1, 2020, the Act to Partially Amend the Civil Code ("Amendment") will come into effect, with some exceptions. The Amendment will fundamentally change the provisions dealing with the law of obligations (including law of contracts) for the first time in about 120 years since the Civil Code was enacted in 1896. The Amendment is expected to have a significant impact on corporate practice in drafting and negotiating contracts. For further details regarding the Amendment, please see the May 2017 issue of this Newsletter.
In principle, the Amendment will apply to contracts that are executed on or after the effective date of April 1, 2020 (Article 34, Paragraph 1 of Appendix to the Amendment). Given that the effective date is fast approaching, it will be necessary for companies to consider on a timely basis whether the Amendment affects contracts which are currently under negotiation and will be executed on or after the effective date. Further, companies should also consider whether their internal standard form contracts that will be used going forward need to be revised based on the Amendment.
In this regard, many contracts include an automatic renewal clause in cases where the contractual relationship is expected to continue for an extended period. In these circumstances, the parties to the contract will not have expressly indicated any intention to enter into a contract on or after the effective date; therefore, whether the current Civil Code or the Amendment should apply where such contracts are automatically renewed is unclear. However, the government officials who were responsible for formulating the Amendment have separately expressed the view that the Amendment should apply in such cases. Until such time as this issue is made clear, it would be prudent for companies to proceed on the assumption that the Amendment will govern contracts which are automatically renewed following April 1, 2020.
In addition to this particular issue, the Amendment will likely raise various specific issues that parties to contracts need to consider and manage with respect to individual contracts under the Amendment.
Introduction of New Regulations on Digital Platform Businesses
Between December 2019 and February 2020, new regulations relating to digital platform businesses were introduced and a new bill was approved by the Japanese Cabinet.
On December 17, 2019, the Japan Fair Trade Commission ("JFTC") enacted and published the Guidelines Concerning Abuse of a Superior Bargaining Position under the Antimonopoly Act on the Transactions between Digital Platform Operators and Consumers that Provide Personal Information, etc. The key aspects of these Guidelines were discussed in the September-October 2019 issue of this Newsletter.
On the same day, the JFTC amended the Guidelines for the Application of the Antimonopoly Act Concerning Review of Business Combination ("Merger Guidelines") and the Policies Concerning Procedures of Review of Business Combination ("Merger Policies").
The amended Merger Guidelines incorporate a wide-ranging set of changes, including considerations for market definition in platform industries, network effects, competitive harm resulting from quality or innovation competition, and competition for data. The Merger Guidelines also adopt new theories of competitive harm that can result from vertical transactions or conglomerate transactions. Vertical mergers combine two or more companies operating at different levels of the same supply chain (e.g., a manufacturer and a retailer). Conglomerate mergers have been used to described transactions involving products that are neither in competition nor in the same vertical supply chain. The new conglomerate section of the Merger Guidelines details theories of competitive harm from mergers involving potential competitors, products supplied together, or products combined technologically.
The amended Merger Policies expand the type of transactions that the JFTC expects merging parties to notify to the agency. In particular, the Merger Policies request that merger parties voluntarily notify high value acquisitions expected to affect Japanese consumers. The JFTC recommends a notification if transaction consideration exceeds 40 billion yen and:
- The business base or R&D is located in Japan;
- The acquired company's activities target Japanese consumers (e.g., opening a Japanese website or using a Japanese pamphlet); or
- The acquire company's domestic sales in Japan exceed 100 million yen.
In addition, the amended Merger Policies provide that the JFTC may request the parties' internal documents during its review of the business combination.
On February 28, 2020, the Cabinet approved the bill on Improving Transparency and Fairness of Specified Digital Platforms ("Transparency and Fairness Bill"). The Transparency and Fairness Bill defines providers of digital platforms that have a particular need to improve transparency and fairness as "Specified Digital Platform Providers." It creates an obligation for Specified Digital Platform Providers to disclose certain information (including contract terms and conditions) and to provide prior notification of contract amendments to users. The Transparency and Fairness Bill also requires that Specified Digital Platform Providers establish procedures and systems based on the principles prescribed by the Minister of Economy, Trade and Industry ("METI"). In addition, the Transparency and Fairness Bill establishes a system under which the METI may request that the JFTC take action under the Antimonopoly Act where a possible violation of that Act has been identified.
Brexit Does Not Affect Transfer of Personal Data Between Japan and United Kingdom
On January 31, 2020, the Personal Information Protection Commission of Japan issued a notice confirming that the existing framework providing for easy transfer of personal data between Japan and the United Kingdom will remain in place following the withdrawal of the United Kingdom from the European Union. Please see the August 2018 issue and October 2018 issue of this Newsletter for a description of the existing framework between the two countries.
Amendment to Statute of Limitations on Claim of Wages
On February 4, 2020, the bill to partially amend the Labor Standards Act ("Labor Standards Bill") was submitted to the National Diet. The Labor Standards Bill extends the statute of limitations for claims of wages (other than retirement allowances) from the current period of two years to five years. It also clarifies that the statute of limitations begins to run when such claims become exercisable (i.e., on the due date for such wages). However, the extension is pending for the time being, and during this transition period, the statute of limitations will be set at three years. The Labor Standards Bill is scheduled to become law on April 1, 2020, such that the new statute of limitations will only apply to claims of wages that are due on or after April 1, 2020. The statute of limitations on claims for retirement allowances will remain five years.
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