Japanese Court Holds That a Customer-Review Algorithm Change Abused "Superior Bargaining Power"
In a novel decision, the Tokyo District Court held that a restaurant review platform's unilateral change to its rankings algorithm violated a Japanese antitrust law that prohibits abuse of "superior bargaining power."
The Japanese Act on Prohibition of Private Monopolization and Maintenance of Fair Trade features extensive restrictions over unfair trade practices, including an "abuse of superior bargaining power," unique to the Japanese antitrust law and distinct from "abuse of dominance" under European antitrust law. That provision prohibits a business from taking advantage of its "superior bargaining power" and unjustly imposing transactional terms unfavorable to the counterparty in light of sound business practice. The most common application has been vertical agreements between large-scale retailers and their small suppliers in which retailers requested ex-post discounts or return of goods. In recent years, the Japan Fair Trade Commission ("JFTC") expanded application against, for example, franchisor requirements to operate a convenience store 24/7 and an online mall's free shipping requirements. An aggrieved party may recover damages in a civil claim, in addition to complaining to the JFTC. This regulatory framework often has faced criticism for being vague and intrusive to free market competition.
Tabelog is an influential restaurant review website in Japan, featuring consumer reviews and providing member restaurants with ads, analytics, and online booking services. The review includes rankings of up to five stars assigned through a unique algorithm based on consumers' voting. According to the judgment, Tabelog updated its algorithm, applying a "discount" to chain restaurants that lowered the star ranking on the plaintiff's chain of 21 restaurants by 0.2 points on average, favoring family run small restaurants. The plaintiff-subscriber to Tabelog's pay membership service claimed it suffered a loss of customers due to the updated evaluation scheme, to which the court agreed.
This case highlights the JFTC's recent focus on digital platforms—consistent with other antitrust enforcers around the world. The JFTC filed an amicus brief in response to the court's request, arguing that the algorithm change may abuse superior bargaining power with respect to subscribers who were dependent on the defendant's service. This case is the first litigation in Japan in which a court held that a digital platform's unilateral change of an algorithm was illegal, and the outcome is likely to lead to more cases in the near future. Digital platforms therefore may find themselves with a difficult choice—improving a product or enhancing the user experience may lead to an attack from an aggrieved customer (or the JFTC). Given the heightened scrutiny, digital platform companies operating in Japan that plan an algorithm update should evaluate different stakeholders' interests and document the consumer and stakeholder benefits of any such changes.
Both parties appealed to the Tokyo High Court. The judgment will not become final until those appeals are exhausted.
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