Japan Update: Changes in Laws Concerning Product Liability

The Product Liability Law in Japan is a special law for the regulation of illegal acts under the Civil Code. Under the Product Liability Law, where a product defect causes damage to a person’s life, body or property, the maker, etc, may be held liable for damages even if there is no negligence on their part.

Various administrative laws such as (i) the Act against Unjustifiable Premiums and Misleading Representations ,and (ii) the Unfair Competition Prevention Act (in particular, regulations on misleading acts) have been enacted which cover the entire product. In addition, the Industrial Standardisation Act (targeting industrial products), the Act on Securing Quality, Efficacy and Safety of Products including Pharmaceuticals and Medical Devices (Pharmaceutical and Medical Devices Act), the Food Sanitation Act, the Electrical Appliances and Materials Safety Act, the Consumer Product Safety Act, and the Building Standards Act have been enacted to cover specific products.

These laws have recently been revised, as discussed below.

Amendment of the Product Liability Law in line with the revision of the Civil Code

On 26 May 2017, the Act on the Arrangement, etc of Related Acts in Line with the Enforcement of the Act for Partial Revision of the Civil Code (Act No 45 of 2017) was enacted (it was proclaimed on June 2 of the same year), and a partial revision of the Product Liability Law came into effect on 1 April 2020.

Amendment One

While the statute of limitations for claims for damages based on tort under the former Civil Code was fixed at “[t]hree years since the victim discovered them”, the statute of limitations for claims for damages based on the Product Liability Law due to the infringement of human life or bodily health was amended to “[f]ive years … since the victim discovered them”.

Amendment Two

Regarding the nature of the defeasance period, which is a lengthy period of ten years with respect to the right to claim damages under the Product Liability Law, it was interpreted under the old Civil Code as a period of exclusion where rights will be automatically extinguished with the passage of ten years. Under the new Civil Code, it is specified as a period of prescription whereby the occurrence of any claim, acknowledgement, attachment, provisional seizure, or provisional disposition would nullify the completion of ten years.

Revision of the Industrial Standardisation Law

In recent years, especially since 2017, there have been a series of large-scale quality data corruption cases involving falsification of product quality inspection results (Nissan, Kobe Steel, Subaru, Mitsubishi Materials, Toray, etc), and there have been a series of JIS mark certification cancellations. Therefore, as part of the revision of the Industrial Standardisation Law, the maximum fine for corporations that use JIS marks without certification was raised from JPY1 million to JPY100 million to ensure the reliability of business transactions using JIS marks. The revised law came into effect on 1 July 2019.

Amendment of the Act against Unjustifiable Premiums and Misleading Representations

The Act against Unjustifiable Premiums and Misleading Representations was amended to introduce a surcharge system, and came into effect on 1 April 2016. Prior to the introduction of the surcharge system, the Consumer Affairs Agency regulated business operators who made misleading representations by:

• taking control of the situation and putting an end to the ongoing violations;

• implementing measures to prevent recurrence;

• informing general consumers; and

• issuing orders to take certain measures.

However, as profits often increased due to misleading representations and general consumers were unable to subsequently recover damages, a surcharge system was introduced for misleading representations of substance of goods or services (yuryo gonin hyoji) and misleading representations of advantageous terms.

The amount of the surcharge is calculated by multiplying the amount of sales, which is calculated using the method specified by the Cabinet Order, for goods or services pertaining to acts subject to the surcharge, with which transactions were carried out during the period subject to the surcharge by 3% (main clause of Article 8.1 of the Act against Unjustifiable Premiums and Misleading Representations). Recently, there have been cases where surcharges of more than JPY100 million have been imposed, and in cases where labelling related to e-cigarette discount campaigns has become a problem, surcharges of more than JPY500 million have been imposed.

Revision of the Pharmaceutical and Medical Devices Law

As for the Pharmaceutical and Medical Devices Act, a surcharge system was introduced for false or exaggerated advertising of pharmaceuticals, medical devices, etc. (Article 66 (1)) (Promulgation date: 4 December 2019, enforcement date: 1 August 2021). The purpose of introducing the surcharge system is to deter violations by collecting economic gains resulting from false and exaggerated advertisements and preventing violators from retaining them, thereby ensuring the effectiveness of regulations.

The actions covered by the surcharge payment order (Article 75 quinquies bis) are false or exaggerated advertising campaigns regarding the name, manufacturing method, efficacy, effect or performance of pharmaceuticals or medical devices (paragraph 1 of the said Article). In principle, the surcharge shall be an amount calculated by multiplying the sales amount of the products during the period of violation by 4.5% (Same as above).

Recent Trends in Court Decisions Regarding the Product Liability Law

Under the Product Liability Law, unlike the usual tort requirements, the success of a claim is often determined by the presence or absence of a “defect” that infringes on the life, body or property of a person. Therefore, in many of the court cases, the existence of this “defect” has been disputed. The Supreme Court’s decision of 12 April 2013, which was the only Supreme Court decision that made a substantive judgment on the Product Liability Law, also disputed the existence of “defect” concerning side effects of lung cancer drugs.

Even in recent court cases, the question of whether or not there is a “defect” is often disputed. For example, for some food products, the “defect” in the food has been contested, for example, because teeth were damaged by consuming the food product (Tokyo District Court’s decision of 20 March 2019 for the ice cream incident, Tokyo District Court’s decision of 12 April 2019 for the sandwiches incident, Tokyo District Court’s decision of 30 August 2019 for the rice crackers incident, etc). On the whole, there have been many food items for which “the defect” has been denied because it could not be said that they lacked the safety normally required for such food items, but there have been some food products for which the existence of a defect was admitted because of the absence of cautionary or warning signs, even if contamination with foreign substances was unavoidable. It is in line with the above Supreme Court judgment that the absence of an appropriate warning or warning sign regarding the use of a product can be treated as a defect.

In cases where issues other than the defectiveness of a product are at stake, the causal relationship between the damage and the defect (and the burden of allegation and proof involved in proving this) often becomes a point of contention. In a recent court case, the causal relationship between a defect in an outdoor air conditioning unit and a fire was disputed (Tokyo High Court’s decision of 27 February 2020). It was found that there was no need to prove the details of the scientific mechanism leading to ignition due to a defect or even to a fire. As long as there were short-circuit marks in the temperature sensor of the outdoor unit concerned, and while there were no other ignition sources, there were no circumstances to prevent the presumption that the outdoor unit was the cause of ignition. There was no evidence that the resident used the outdoor unit in an unusual manner, and a causal relationship between the defect and the fire was found.

According to reports, a lawsuit has been filed against Apple, alleging a fire and injury incident caused by a fire while an iPhone was charging. In this case as well, it is highly likely that causality as well as defect will be contested (there have been cases in which product liability has been recognised for thermal ignition of electronic devices and batteries).

Recent Trends in Quality Improprieties

Recent quality control scandals in Japan

In 2017, a series of incidents occurred in Japan, including:

• improper inspections of rubber products for ship valves;

• improper inspections of finished automobiles (implementation of inspections by unqualified persons);

• falsification of product inspection data for aluminium and copper products;

• improper quality inspections of copper products and seal products; and

• falsification of quality inspection data for automotive tire reinforcing materials.

In response, on 4 December 2017, the chairman of the Japan Business Federation (Keidanren) issued a statement calling on member companies to investigate irregularities and ensure strict compliance with laws and contracts. In March 2018, industry groups (Japan Aluminium Association, Japan Copper and Brass Association, Japan Rubber Industries Association, and Japan Chemical Fibres Association) formulated their own quality assurance guidelines, setting out overall quality assurance guidelines and separate guidelines for improving test reliability. However, a number of cases were subsequently disclosed, including falsification of inspection data on industrial lead-acid batteries, rewriting of measured fuel consumption and exhaust emissions of automobiles, poor quality of power transmission and distribution cables and communication cables, shipment of seismic isolation devices that did not conform to national standards, and improper inspection of automobile batteries.

In 2019, further issues arose:

• the inspection values for products such as moving walkways were rewritten;

• there was deviation from the inspection rules for commercial aircraft engines and inappropriate inspection of aircraft seats, etc; and

• construction irregularities were discovered, such as inadequate construction of apartments and nonconformity with construction specifications for detached houses and apartments.

In 2020–01, it was discovered that:

• construction management engineers had insufficient practical experience in technical certification tests;

• quality of special steel products and magnetic material products had been compromised;

• quality of resins had been compromised; and

• improper acts had been committed in relation to the inclusion of periodic inspection reports on automobile brake products.

Enforcement by domestic and foreign authorities

In some cases of large-scale quality improprieties, corporations and individuals are prosecuted by the Public Prosecutor’s Office and subjected to criminal punishment. In the case of quality improprieties at Kobe Steel, corporations were fined JPY100 million (2018) for violation of the Unfair Competition Prevention Act (misrepresentation), and in the case of Mitsubishi Materials, three subsidiaries were fined JPY110 million in total (2019).

In some cases, not only Japanese authorities, but also foreign authorities have imposed severe sanctions on companies that exported their products overseas. For example, in a plea bargain (Announced on 13 January 2017) with the US Department of Justice, Takata pleaded guilty to the crime of telegram racket (wire fraud) and paid USD1.025 billion in fines plus USD975 million to establish a restitution foundation. In the case of Kobe Steel, the US Department of Justice ordered the company to submit documents under a subpoena with penalty, and the company is conducting an investigation (no sanctions were imposed).

As described above, in recent cases of quality improprieties, a tendency for strict enforcement by domestic and foreign authorities has been witnessed.

By Atsushi Nishitani & Kei Akagawa, Anderson Mori Tomotsune, Japan, a Transatlantic Law International Affiliated Firm. 

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

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