Digitalization and Competition Policy in Japan

In this chapter, we have attempted to summarize the issues involved in facilitating the distribution of data, how large platform operators conduct their economic activities in the marketplace, and how they are actually regulated and dealt with. In particular, we briefly examined the actual antitrust litigation in the U.S. and summarized the issues. The U.S. DOJ’s lawsuits against Google are, first, to prevent Google from monopolizing (intentionally creating and maintaining monopoly power) general search services, second, to prevent Google from monopolizing search advertising, and third, to prevent Google from monopolizing general search text advertising. The U.S. FTC’s actions against Facebook are, first, to prevent Facebook from neutralizing an important independent competitor in personal social networking services through its acquisition and continued dominance of Instagram; second, to prevent Facebook from neutralizing a significant competitive threat to Facebook’s monopoly in personal social networking through its acquisition and continued control of Whatsapp;. third, to prevent Facebook from limiting the competitive threat to Facebook’s monopoly in personal social networking by imposing anti-competitive conditions on access to the API platform available to Facebook app developers. Against these we can argue from five perspectives. First, we emphasize the delineation of the relevant market, which is also the first entry point in the competition analysis. Second, the existence of monopoly power requires an analysis of barriers to entry and the transition of dominant firms. Third, the analysis of the act of forming, maintaining, or strengthening market dominance is at the core of the anti-competitive determination. The criterion for this determination is whether the conduct contributes to the expansion of demand in the market as a whole beyond the company’s own sales, or whether it merely deprives other companies of sales. Fourth, it is necessary to consider whether the conduct has caused substantial harm to consumers. Fifth, it is necessary to consider the appropriateness of antitrust action, resolution of the problem, and remedy. Besides these points, it is necessary to consider communication between competitors for joint actions.

Experience with various legal assistance projects for developing countries in Asia shows that the situation and level of development of competition law regimes differ greatly among Asian countries. What kind of legal assistance in the field of competition law each country needs therefore depends on the specific local situation. To improve legal assistance in Asia, the JFTC should develop a more sophisticated strategy of legal assistance for future medium-and-long-term assistance projects. It should also coordinate such projects better with other partners in Japan and with potential co-operation partners in other developed countries that also provide legal assistance to countries in Asia. Moreover, the specific needs, perceptions, and principal legal values of the recipient countries should be taken into account more. In particular, legal assistance in Asia has to consider that there is a general tendency in many Asian countries to put more emphasis on fair competition than on free competition. It is therefore not promising to only implement Western models of competition law frameworks, which at present often prioritize ensuring free competition and efficient markets. In this regard, Japan can be a good example for many Asian countries, because the regulation of unfair trade practices is a very important part of Japanese competition law.

This chapter develops a basic analytical framework for ICT infrastructure technology collaboration, focusing on how data and the Internet are linked, with particular attention to the competition stimulated by the prospect of “AI networking”. The chapter looks at how AI networking and the competitive ecosystem interact with each other. In this regard, traditional competition theories have difficulty adequately explaining the competition that arises between different layers of ICT networks, which can have a negative impact on disruptive innovation and new value creation. While cooperation is essential for the advancement of AI networks, competition is even more important. It is thus a question of how to balance coordination and competition, which in the context of competition law is a bipolar concept. With respect to the anticompetitive effects resulting from network effects, oligopolistic and monopolistic behavior in AI platforms may occur. In addition, the outputs and programs of AI systems may be modified by learning from the acquired data, creating difficulties in understanding, validating, and controlling the system. It remains unclear how to accurately assess the importance of the data from a competition law perspective. An analysis of the value of this data is recommended. In the context of data accumulation and use, we focused on six topics: market dominance, market definition, abuse of dominance, merger review, personal data protection and competition policy, data ownership and data portability.

Information and communication technology (ICT) is evolving at an accelerating pace. Competition law and policy aim to secure an active competition process in the market in order to protect customers in their own countries, regardless of the nationality of the actors, including the ICT industry. As the platforms become more oligopolistic, the Japanese government has established a data portability rule that enables users to transfer from any specific platform, at any time, to open up an environment where new platform-type businesses are created one after another and where active competition is carried out. In this policy discussion, it is necessary to seek methods that include realistic international cooperation that is not subject to regulation or intervention-oriented measures. In addition, discussion based on economic empirical analysis is particularly needed. From the viewpoints of ensuring innovative research and development (R&D) concerning artificial intelligence (AI) and fair competition generally, the way of the Governance of AI Networking should be a non-regulatory and anon-binding way, taking technical features and responsibility distribution among stakeholders (developers, providers, end-users and third parties) into account.

This chapter examines necessary and sufficient conditions in terms of legitimacy with respect to digital platform regulation in the context of today’s development and refinement of sophisticated science and technology. With the increasing oligopoly of platforms, the government has established data portability that allow data to be shifted from a particular platform at any time, creating an environment in which new platform-based businesses can emerge and vigorous competition can take place. In terms of legitimacy, this article considers the following necessary conditions: first, sociological acceptance; second, moral legitimacy; and third, reliance on a foundation that is inherently uncertain but allowable through expectations of the future. As a sufficient condition, the chapter also discusses applying social psychology’s elaboration likelihood model, which explains how persuasion is particularly effective in changing people’s attitudes. This approach analyzes ‘resources’ and ‘reflectivity’ in terms of motivating content processing, and ‘expertise,’ ‘cognition,’ and ‘consequences’ in terms of judging the message based on non-essential peripheral cues. In addition, the point of causality is also examined, and, here, further empirical analysis is needed. In this regard, the digital platform regulation that has been introduced in Japan has not been clarified in terms of necessity and sufficiency.

This chapter provides an introduction and overview of the international rules for online platform operators, focusing on recent developments in the EU and the debate surrounding data transfer and distribution. The EU’s social and economic digitization policy can be divided into three periods. As for the Online Intermediation Services Regulation, it does not directly cover data transfer and distribution, but it is a major pillar of the EU’s online platform regulation; the content of the P2B Regulation focuses on the obligations of online intermediation services; and the EU Data Strategy is a report titled “European Strategy for Data,” which outlines how the EU aims to develop and realize artificial intelligence and new businesses, strengthen the EU’s international competitiveness, and reduce its environmental footprint by building institutions and fora for sharing industrial and administrative data of European companies. It is vital that the discussion on data transfer and distribution in Japan be designed from the perspective of facilitating trade and distribution of data, with respect to data transfer and distribution. On the other hand, big data-related service providers are making voluntary efforts to address this issue. Discussion points regarding data transfer and distribution include (1) the scope of target service providers, (2) the scope of target services, (3) the scope of target users, (4) the content of data transfer and disclosure rules, and (5) the approach to realize transfer and distribution. This chapter focuses on the need for and purpose of data transfer and disclosure rules. The relationship between the depositor who provides data and the receiver who analyzes the data is considered consistent with the concept of information fiduciary, or “the framework of a trust relationship in which a user entrusts his or her information to a partner.” Also, with respect to the applicability of the information fiduciary theory, the position and information asymmetry between end users and online platform operators, end users’ dependence on online platform operators, the expertise of online platform operators, and the importance of trust in the online platform operator, are mentioned. This concept of information fiduciary is increasingly being applied to laws, such as the New York State privacy bill.

This chapter examines the issue of the so-called “one country, two systems” regarding the application and enforcement of laws in Internet services, using TBL and APPI as examples. When a service is provided to Japanese consumers, the so-called “one country, two systems” issue arises when (1) the laws applicable to services provided from Japan differ from those applicable to services provided from overseas, and (2) Japanese law is not applied in an enforceable manner. From the perspective of law enforcement, there is the problem that Japanese law cannot be enforced in practice against foreign operators, and although the TBL is generally based on the principle of territoriality, the Japanese government has taken an official position on this issue and confirmed that jurisdiction under the TBL depends on whether the location where the facility is established, managed, and operated is in Japan. If a large amount of data of domestic users is leaked, the impact on Japanese citizens could be enormous. In this case, it would be necessary to consider whether to modify the traditional principle of territoriality and adopt the so-called effect principle, in which the Japanese TBL would apply even if an act is completed in another country provided that it has a substantial impact on Japanese nationals or markets. With regard to the one-country, two-country system issue, problems may also arise in some cases when the applicable rules do not distinguish between those for domestic and foreign entities. In addition to this, rules should also be considered with respect to regulations on data transfer and distribution. It is essential that the rules for data transfer and disclosure be designed from the perspective of facilitating data transactions and distribution, not from the perspective of hindering innovation or preventing new entrants.

This chapter examines multiple segments, conventionally analyzed from the perspective of business diversification, from multiple perspectives in a multisided market. Specifically, based on segmental financial data, we conduct an empirical analysis of whether increased sales in the transportation business increase the profit margin of the real estate business of a railroad company. The results show that there are two types of sidedness among many businesses. The effects of both positive and negative indirect network effects were found to exist. In addition, verification of the difference-in-differences based on the initiation event of the mutual traffic interconnection demonstrates the indirect network effect in the transportation business to a certain extent, and indicates that the effect is not uniform in each business, with some businesses showing strong effects and others showing less visible effects.

In the digital market, giant platform (PF) providers, represented by global players such as GAFA, are expanding their market position through the use of big data obtained from consumers. Since digital platform (DPF) firms are characterized by their tendency to monopolize by oligopolize the market, there has been an increasing number of competition law violations by DPF operators, the development of various legal systems, and academic discussions with the aim of protecting consumer rights and ensuring transparency and fairness in the trading environment. DPF operators should be subject to the duty of “information fiduciary” (duty of care, duty of loyalty, and duty of confidentiality) as a general guiding principle (preferably by legislative allowance). The Digital Platform Transparency Act is not an end point of consumer protection in dealings with DPF, but only a milestone. The legal formality of being an “intermediary” alone should not prevent DPF operators from being found liable. In principle, the question of who is responsible must not affect the efficiency of society (social welfare) as a whole. It is thus not appropriate to unilaterally place the risk of seller’s incapacity on consumers, considering the enforcement costs of consumers and the risk of the primarily responsible party’s inability to meet the obligations. From an economic point of view, it is not appropriate to make consumers bear such risks unilaterally. The contribution of this chapter to the development of competition law is that it organizes the discipline of competition law on DPF as a necessity from the aspect of ensuring trust and discusses the applicability of labeling regulations. In this way, the scope of consumer protection for DPFs is supplemented by competition law, and the possibility of realizing more appropriate competition in the market is shown, which has not been seen in previous discussions of competition law and is considered to be original. A limitation of this chapter is that it is based on the system of Japanese law. However, the subject of this chapter is the applicability of competition law and labeling regulations to the conduct of DPF, and it is applicable to the discussion of not only Japanese competition law but also competition laws around the world.

In recent years, clashes over the licensing of SEPs have emerged in numerous countries around the world due to the proliferation of standards and the increased intricacy of the technologies necessary for such standards. Behind such litigations lies a system where SEP holders gather patent licensing fees from end-product manufacturers, as SEP holders can anticipate higher licensing fees by targeting end-product manufacturers to excercise their rights instead of negotiating with upstream suppliers of the end-product manufacturers. Nevertheless, industry has raised concerns that end-product manufacturers and component manufacturers will not obtain suitable compensation while licensing fees become more expensive, making it infeasible for them to do business. In response to this, the necessity of forming rules such as the exchanging of information between the parties has been emphasized from the viewpoint of resolving and preventing disputes between the parties. In light of such discussions, this chapter examines (1) the issue of how the burden of SEP licensing fess should be borne within the supply chain, (2) the evaluation of patent pool, and (3) the necessity of rules concerning the provision of information, etc. between the parties during the negotiation process, given the vast gap in claims between the parties regarding the license conditions and whom to negotiate with. The chapter first reviews recent major contentious cases in Europe, and examines some of the issues involved in each case.When the inter-industry licensing in the supply chain becomes an issue, from the perspective of competition law, the “non-discrimination” requirement should be applied regardless of the level of the supply chain, as long as FRAND commitment has been made. The SEP holder with market dominance should not be allowed to unreasonably refuse the Tier 1 or Tier 2 suppliers’s request to obtain the SEP’s license. Second, in the assessment of patent pools, a monitoring system from the perspective of competition law is vital to ensure that license conditions are not unreasonable. Last, with regard to the need for information provision rules in the license negotiation process, a specific guidance may contribute to the reduction of SEP disputes, based on the existence of the obligation of both parties to negotiate in good faith. It is essential to visualize the rules with respect to the licensing of SEPs, which frequently results in disputes, based on the duty of good faith negotiation. Such rules, though based on the premise of private autonomy, may lead to the resolution of disputes between the parties.

With regard to the realization of digital society, there has been a call for an integrated reform of digital rules and public administration based on digital principles, and it is highly expected that progress towards legislation will accelerate based on these principles or policies. This chapter examines the issues and risks associated with the digitalization of society, as well as the legal state of a digital society. Concerning the issues of “RegTech”, it is expected that data in the cyber-physical system (CPS) context will become large-scale and extensive in the form of Big Data, and that AI and other entities may become the primary decision-makers. Moreover, there is a risk of market dominance by the firms typified by the so-called “BigTech”. In the discussion of regulations and systems in the digital era, the question of the legitimacy of regulations arises as the process of achieving public interest varies, and further research and examination on the voluntary regulation is also necessary. Additionally, it is important that citizens are aware of the fact that joint regulation advances the welfare of individual citizens. As to the discussion on the “public”, it is essential to clarify where responsibility lies, as well as to coordinate and harmonize the rules with traditional sector-specific regulations. As for the role of competition policy, it is imperative to increase the number of law enforcement cases, to monitor cartel-like price hikes in an inflationary world, and to seriously consider how to properly utilize AI in fact-finding and value judgment, which have been done by humans, in the evolution of generative AI.