Development of Laws and Regulations Concerning Trade Secrets in Japan

Amendment to the Unfair Competition Prevention Act (UCPA)

With the aim to strengthen the protection of trade secrets and other data in Japan, the Japanese cabinet submitted the following amendment to the UCPA (“2023 Amendments”) to the Japanese legislature on 31 March 2023.

Increased protection for “Shared Data with Limited Access”

The 2018 amendment to the UCPA introduced “Shared Data with Limited Access” (SDLA) to extend legal protection to non-personal data shared among limited parties, commonly referred to as “big data”. SDLA aims to protect useful non-personal data that is not protected by copyright because it is not a creative expression, and not protected as trade secrets on the premise that such data is shared with other companies and not kept confidential. SDLA is loosely defined as data that is stored and managed in a considerable amount by electromagnetic means… to be provided to specific persons on a regular basis (Article 2(7) of the UCPA).

Upon the introduction of the SDLA, a carve-out in the definition was included to exclude “data maintained as confidential” from the scope of protection. This exclusion was intended to avoid an overlap of protection as both trade secret and SDLA. However, the carve-out inadvertently resulted in a gap in the scope protection. By the carve-out, SDLA that is “maintained as confidential” but is also shared among limited parties, will not be protected by either scheme. The 2023 amendment seeks to fill this gap by replacing the “except for data maintained as confidential” carve-out in the definition to “except for trade secrets”.

Expansion of statutory presumption of damages

The UCPA provides a statutory presumption of damages for acts of unfair competition (UCPA Article 5). However, the scope of the statutory presumption was limited in several aspects. In particular, the statutory presumption was limited to cases in which a “technical secret” was misappropriated, or the proprietor was “transferring goods”, or cases in which a trade secret was “used”. Although these limitations were reasonable in the past, they have become outdated considering the increased importance of non-technical data, non-tangible services, and the diverse methods in which data is being handled in actual business settings.

The 2023 Amendment seeks to expand the statutory presumption from misappropriation of “technical secrets” to trade secrets in general, and from “transferring of goods” to include the provision of data and services. In addition, the 2023 amendment expands the scope of statutory presumption to acts other than “use” to include all acts of unfair competition set forth in the UCPA, such as provision to third parties.

Furthermore, the 2023 Amendment adds a statute to calculate damages exceeding the production, sales and service capabilities of the infringed party, modelled on Article 102(1) of the Japanese Patent Act. This reflects the fact that an owner of a trade secret may be able to profit from the use of such trade secret by the owner itself, while licensing the trade secret to others for a license fee at the same time.

Moreover, the 2023 amendment also allows the trade secret owner to claim damages based on fees they would have received had an agreement on the use of the misappropriated trade secret been reached (UCPA Article 5(4)). Under this statute, relevant facts may be considered to increase the presumed amount of damages. Examples of such factors are the fact that the trade secret owner was deprived of the opportunity to decide whether to license the trade secrets, or the fact that the misappropriating party is exploiting the trade secret without having to pay due costs such as licence fees.

Expansion of jurisdiction over cross-border trade secret misappropriation

In cases of cross-border misappropriation of trade secrets, Article 3-3(8) of the Code of Civil Procedure determines whether the Japanese courts have jurisdiction. If the Japanese courts are found to have jurisdiction over the case, Article 17 of the “General Rules for Application of Laws” (International Private Law) determines the governing law of the case. However, both statutes consider the “place of occurrence”, which is subject to judicial interpretation. As there is currently no established interpretation of this element in court precedents, foreseeability by the parties was lacking. 

The 2023 Amendment seeks to expand the jurisdiction over cross-border trade secret misappropriation, and the scope of application of the UCPA in such cases. In particular, the 2023 Amendment establishes a statute allowing trade secret misappropriation claims in a Japanese court in the event of misappropriation of a trade secret by a Japanese company outside Japan (UCPA Article 19-3). Under the 2023 Amendment, if the Japanese courts are found to have jurisdiction over the case, the case will be determined under the UCPA, taking precedence over the choice of law rules set forth in the Act on General Rules for the Application of Laws (UCPA Article 19-2).

Updates to relevant METI Guidelines

Updates to the “Handbook for the Protection of Confidential Information”

The “Handbook for the Protection of Confidential Information” issued by the Ministry of Economy, Trade and Industry (“METI Handbook”) introduces practical tips and best practices in Japan for effectively preventing misuse of “Confidential Information”, which is a term adopted to cover not only trade secrets protected under the UCPA, but other confidential information commonly used in businesses. METI published the updated Handbook on 23 March 2022.The main points of the update are as follows.

(i) Updates reflecting changes in the business environment

The updated METI Handbook reflects the changes in the business environment in recent years, especially those caused by COVID-19, such as the increase in remote work. The updated METI Handbook also includes guidance on the appropriate security measures considering the technological progress related to data security, such as the adoption of internal monitoring systems using artificial intelligence. Also, the updated METI Handbook includes recommended protective measures regarding increased transfer of confidential information in supply chains.

(ii) Updates reflecting the diversification of Confidential Information

With rapid digitisation across all business sectors in Japan, the corporate portfolio of information assets has become increasingly diverse. It has come to include not only traditional trade secrets, but personal information protected under the Japanese “Act on the Protection of Personal Information”, and data that may be subject to export control regulations under the “Foreign Exchange Act”. The updated METI Handbook provides practical guidance by including specific examples of protection for these types of confidential information.

(iii) Misuse of Confidential Information overseas

In recent years, the misuse of confidential information held by Japanese companies occurring outside Japan has become a growing concern. The updated METI Handbook seeks to address this issue by identifying typical patterns of misuse of confidential information occurring overseas; (i) theft of confidential information through cyber-attacks, (ii) theft of confidential information through industrial espionage, and (iii) theft of confidential information camouflaged behind economic and academic activities. The updated METI Handbook provides Japanese businesses with practical guidance on how to protect Confidential Information.

Updates to the “Guidelines on Share Data with Limited Access”

In 2018, METI published the “Guidelines for Shared Data with Limited Access” (“SDLA Guidelines”), to provide practical guidance on the newly introduced SDLA. The SDLA Guidelines include specific examples of handling of SDLA that would violate the UCPA, as well as insight into the interpretation of relevant statutes. The SDLA Guidelines are not legally binding as they represent an interpretation by METI. Nevertheless, they are a highly valuable source of practical reference for Japanese businesses, since there are not yet any published court precedents directly involving the SDLA to date. To promote the business use of SDLA, METI further updated and published the SDLA Guidelines in May 2022, the main points of which are outlined below.

First, the updated SDLA Guidelines provide clarification of the requirements to meet the definition of SDLA. SDLA is defined as “technical or business information that is accumulated to a significant extent and is managed by electronic or magnetic means… as information to be provided to specific persons on a regular basis”. For example, the SDLA Guidelines have set forth the relevant factors for determining whether the data in question has been “accumulated to a significant extent”. The updated SDLA Guideline includes “investment in data generation” as a factor to be considered, in addition to the following established factors, such as added value generated by the accumulation of such data, possibility of use, transaction value, effort, time and cost spent in collecting and analysing the data.

Second, the updated SDLA Guidelines also provide guidance on the manner of handling SDLA which may constitute acts of unfair competition and violate the UCPA. For example, the updated SDLA Guidelines clarify that when data is newly created by processing received SDLA, disclosing the processed data to a third party does not fall under unfair competition unless the disclosed data is also SDLA.

Third, the updated SDLA Guidelines provide guidance on determining the standing for injunction or damages claims against misuse of the SDLA. The updated SDLA Guidelines states that, generally, individual business entities using the SDLA in their business operation has standing to file these claims. However, the SDLA Guidelines also state that the data-sharing platforms, which play an important role in data-driven businesses involving the SDLA, may also be eligible for standing to file such claims depending on their role in the business scheme.

Trends of Trade Secret Misappropriation in Japan

Overall trend

In Japan, the number of criminally charged cases of trade secret misappropriation continues to rise. According to the annual report published by the National Police Agency of Japan, the number of criminal cases in which trade secrets were misappropriated was 29 cases, the highest in the past ten years.

Notable criminal cases

Violation of the UCPA by unlawful acquisition of trade secrets by certified tax accountant

In June 2020, a certified tax accountant in Kyoto illegally accessed the server computer of the tax accountant corporation where they worked, for the purpose of acquiring an illicit gain. By operating the personal computer owned by the corporation, the perpetrators unlawfully accessed trade secrets of the corporation, including financial information of its customers. They also accessed and obtained Individual Numbers, which are identification numbers assigned to individuals for tax filing and social security purposes. The accused persons downloaded this highly confidential data onto an electromagnetic recording medium, in breach of their professional and contractual duty of confidentiality. In January 2022, the tax accountant and others were arrested for violation of the UCPA and relevant laws.

Violations of the UCPA by unlawful acquisition of trade secrets of a competitor by executives of a major sushi restaurant chain

In November 2022, four men including an executive of a major sushi restaurant chain, who was hired from a competing sushi restaurant chain, were arrested for violation of the UCPA for unlawful acquisition of trade secrets. According to law enforcement sources, the accused executive illegally accessed the computer system of his former employer, and sent data files containing trade secrets including the cost data of the sushi ingredients. This case has attracted widespread attention from the media in Japan, as both sushi restaurant chains are very well known.

Practical Considerations

First, the Japanese government and METI are strongly promoting the use of SDLA to support data-driven businesses, by amending the UCPA to fill in the gap in statutory protection and updating the SDLA Guidelines to provide practical guidance. As the current political climate is relatively stable in Japan, this policy trend is expected to continue for the next several years. 

Second, increased enforcement will lead to increased awareness, both in the protection of trade secrets and enforcement against misappropriation among Japanese companies.

In particular, the criminal enforcement of the highly publicised sushi-chain restaurant case has attracted widespread attention of the media, which will likely trigger increased interest and awareness regarding the misappropriation of trade secrets through acquisition of human talent from competitors.

Third, the protection of the trade secret of Japanese businesses overseas continues to be a strong area of interest for Japanese policy makers. The 2023 UCPA amendment expanding the application of the UCPA and jurisdiction, will allow Japanese companies to file trade secret misappropriation claims in Japanese courts which will be decided under the UCPA. Therefore, it will be imperative to understand the UCPA for not only businesses operating in Japan but businesses having business relationships with Japanese companies or hiring Japanese business professionals from Japanese companies which may potentially be subject to UCPA.

By Anderson Mori Tomotsune, Japan, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact japan@transatlanticlaw.com

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