Digital business in Japan: overview

A Q&A guide to digital business in Japan.

The Q&A gives a high level overview of matters relating to regulations and regulatory bodies for doing business online, setting up an online business, electronic contracts and signatures, data retention requirements, security of online transactions and personal data, licensing of domain names, jurisdiction and governing law, advertising, tax, liability for content online, insurance, and proposals for reform.

To compare answers across multiple jurisdictions, visit the Digital Business Country Q&A tool.

This Q&A is part of the global guide to digital business law. For a full list of jurisdictional Q&As visit www.practicallaw.com/digital-business-guide.

Contents

Regulatory overview

1. What are the relevant regulations for doing business online (for business-to-business and business-to-customer)?

Japan does not have a special legal regime governing digital business. There are a variety of laws and regulations relevant to digital business. Some of the laws are specific to online business, whereas others apply to all business activities.

Japan recognised the need to "promote measures for forming an advanced information and telecommunication network society expeditiously and intensively". It established the Strategic Headquarters for the Promotion of an Advanced Information and Telecommunication Network Society (the IT Strategy Headquarters), based within the Cabinet Office of the Prime Minister in July of 2000. An IT Strategy Council was created at the same time.

These are the main applicable laws and regulations:

  • Basic Law on the Formation of an Advanced Information and Telecommunications Network Society (Act No. 144 of 6 December 2000). This law stipulates the basic ideas and the basic policy for formulating measures.

  • Act on Special Provisions to the Civil Code on Electronic Consumer Contracts and Electronic Acceptance Notice (Electronic Contract Act, Act No. 95 of 29 June 2001). This act provides special provisions to the Civil Code (Act No. 89 of 1896) in cases where there are certain mistakes in the elements comprising an electronic consumer contract executed by a consumer, where an electronic acceptance notice is dispatched by a consumer under a contract made at a distance.

  • Consumer Contracts Act (Act No. 61 of 12 May 2000). This act permits a consumer to rescind the demonstration of his intention to offer or accept a contract when the consumer has misunderstood or was distressed by certain acts of the business operators. It also nullifies any clauses (in whole or in part) that exempt business operators from liability for damages, or that otherwise unfairly harm the interests of consumers.

  • Act on Specified Commercial Transactions (Act No. 57 of 4 June 1976). This act provides advertising regulations with respect to mail order sales.

  • Act on the Protection of Personal Information (Act No. 57 of 30 May 2003). This act prescribes the duties to be observed by entities handling personal information and data.

  • Act on Regulation of Transmission of Specified Electronic Mail (Act No. 26 of 17 April 2002). This act prohibits, among other things, transmission by e-mail of advertisements (like spam mail) against the wish of the recipient. It provides a duty on the part of the sender to label such e-mails and to provide the recipient with the legal name and address of the sender and an e-mail address to inform the sender of the recipient's desire not to receive further advertisement e-mails from them.

The Ministry of Economy, Trade and Industry issued Interpretative Guidelines on Electronic Commerce and Information Property Trading in March 2002. The Guidelines were created with a view to enhancing predictability for concerned parties and facilitating trade by clarifying how the Civil Code and other relevant laws are applied to various legal issues relating to electronic commerce and information property trading.

 
2. What legislative bodies are responsible for passing legislation in this area? What regulatory and industry bodies are responsible for passing regulations and codes in this area?

The Diet is the sole legislative body in Japan. Japanese laws passed by the Diet often set out broad parameters and objectives and then authorise relevant government ministers to make further, more detailed regulations.

The relevant statute specifies which regulatory body is responsible for enacting regulations. For example, the Personal Information Protection Commission enacts regulations under the Act on the Protection of Personal Information. The Ministry of Economy, Trade and Industry enacts regulations under the Electronic Contract Act and the Act on Specified Commercial Transactions. The Ministry of Internal Affairs and Communications enacts regulations under the Act on Regulation of Transmission of Specified Electronic Mail.

 

Setting up a business online

3. What are the common steps a company must take to set up an existing/new business online?

Setting up an online business in Japan involves the same legal process as setting up a "bricks and mortar" business. The first step is for the promoters of the new business to decide how they intend to do business in Japan. For example, if the online business is already established outside of Japan and wants to access the Japanese market, nothing further is required. They are free to offer goods and services (with standard limitations involving the regulation of certain industries such as banking, insurance and finance, or items that violate Japanese public policy such as obscenity or gambling) to the Japanese market via a .com or some other top-level domain.

Other entities might want to establish a Japanese company, typically in the form of a limited stock corporation (known as a kabushiki kaisha or a "KK" in short) in order to hire staff, rent office space, store inventory and so on, to facilitate market penetration. Having a Japanese KK demonstrates to the marketplace a degree of commitment, reliability and trust that a purely offshore company might not enjoy. The promoters can decide to establish a representative office or a branch instead of a wholly-owned or joint venture company. The standard legal rules regarding shareholder liability and tax will apply when deciding whether to form a representative office, a branch or a subsidiary in Japan.

When a foreign company intends to carry out transactions on a regular basis in Japan, it must specify its representatives in Japan and complete registration of a foreign company. One or more representatives must have a residential address in Japan (Article 817, Paragraph 1 and Article 818, Paragraph 1, Companies Act, Act No. 86 of 26 July 2005).

As a practical matter, to access the Japanese market effectively, the website of the entity, regardless of form, must be in Japanese. This is not a legal requirement, but it is a practical reality. Very few online businesses will succeed if their goods and services are available only through a website in a foreign language. Japanese is used by nearly 100% of the population. The non-Japanese speaking foreign community represents a small percentage of the total population. Nevertheless, businesses and other entities are increasingly including a bilingual button that allows individuals to switch between Japanese, English and sometimes Chinese. The content of the non-Japanese language webpage is frequently little more than a summary of what is included on the Japanese webpage.

 
4. What are the relevant types of parties that an online business can expect to contract with?

An online business can expect to contract with the following parties:

  • Internet service provider.

  • Web designer and/or web developer.

  • Domain name provider.

  • Inventory and supply chain management.

 
5. What are the procedures for developing and distributing an app?

There are no special legal requirements that apply to the development and distribution of apps. To be successful, the app must be in Japanese and able to run on a mobile or smart phone. The Japanese are increasingly using mobile or smart phones as their primary method of accessing the internet. Many app developers provide versions of their apps optimised for mobile use.

 

Running a business online

Electronic contracts

6. Is it possible to form a contract electronically? If so, what are the requirements for electronic contract formation? Please comment on the enforceability of click-wrap, browse-wrap and shrink-wrap contracts.

Japan is a freedom of contract jurisdiction and no special formalities are required.

Oral agreements are fully enforceable subject only to being proven by sufficient evidence. All that is required to form a contract is a valid offer and acceptance manifesting an intention to be legally bound. Exceptions to the general rule exist mainly in the area of consumer protection. For example, in business to consumer electronic transactions, if the company has not taken measures to reconfirm the consumer's offer, any contract made due to the consumer's error is invalid in principle (Article 3, Electronic Contract Act).

Conversely, if the company has taken reconfirmation measures and there is gross negligence on the part of the consumer, the company can assert the valid formation of a contract. For example, the business entity needs to construct a webpage on which either (I-1-2, Interpretative Guidelines on Electronic Commerce and Information Property Trading):

  • The consumer can clearly understand that he is making an offer by clicking a certain transmission button.

  • The concrete contents of the consumer's offer are plainly displayed and the consumer is given an opportunity to revise it before making the final offer.

There is no legal statutory "cooling off" period in mail order sales such as electronic transactions, apart from designated areas of business. However, unless the seller has indicated special provisions on withdrawal of the offer or cancellation in its advertisement, the person who made the offer (or the purchaser) can withdraw his offer for a sales contract or cancel the sales contract up to eight days after the date on which the purchaser delivered the goods or transferred the rights (Article 15-2 Paragraph 1, Act on Specified Commercial Transactions).

Click-wrap contract

If the user is aware of the contents of the licence agreement before clicking on the button "I Agree (to the licence agreement)", where he or she clicks the button with intent to conclude a licence agreement, the licence agreement is formed. In such case, the click-wrap contract is enforceable.

Browse-wrap contract

Where the online screen is configured in such a way that consumers move from an online contract screen to a licence agreement screen using a link, where the link is hard to find, and where the agreement of the consumer to the licence agreement is not required in order to click the Purchase Button, the offer or acceptance by the consumer would not be found and the licence agreement might not be formed. In such case, the browse-wrap contract would not be enforceable.

Shrink-wrap contract

There is a controversy as to validity of shrink-wrap contracts. If the user is aware of the contents of a licence agreement before breaking the seal of the media (such as the film wrap or seal) and he or she proceeds to break the seal with intent to conclude a licence agreement, the licence agreement is formed. In such case, the user cannot return the product on the grounds that he or she did not consent to the agreement. If information on the film wrap, seal or the like is adequate and recognisable to the user and the film wrap or seal was broken, it is generally difficult for the user to assert that he or she is not bound by the contents of a licence agreement depending on the facts in the actual case. However, if the user could have not been aware of the contents of the licence agreement, the user can return the product even after the user has broken the seal.

 
7. What laws govern contracting on the internet?

Contracts are governed generally by the provisions of the Civil Code (Act No. 89 of 1896, as amended). Business to business contracts are also governed by the provisions of the Commercial Code (Act No. 48 of 1899, as amended). In business to consumer electronic contracts, the Electronic Contract Act applies.

There is also no material difference whether the contract is for the supply of goods, services or digital products, other than generally applicable rules on certain regulated industries or prohibited by Japanese public policy.

Japan has extremely strict gun, sword, and drug control laws, including prescription drugs that have been approved in one country and are now available on the internet, but have not been approved for use in Japan. Importing regulated or prohibited products purchased online could result in the arrest and prosecution of the buyer. The seller could likewise be subject to arrest and prosecution, assuming the authorities can obtain jurisdiction over the person selling the prohibited articles in Japan.

Japan has also amended the Criminal Code and enacted laws aimed at protecting children on the internet such as the Act on Punishment of Activities relating to Child Prostitution and Child Pornography, and the Protection of Children (Act No. 52 of 26 May 1999). Of particular concern to the National Police Agency are internet dating sites that can be used to lure teenagers into prostitution and pornography.

 
8. Are there any limitations in relation to electronic contracts?

There are no major limitations in relation to electronic contracts and most contracts can be concluded electronically in Japan. However, in order to prevent future conflicts, there are some contracts that must be concluded in writing. The major contracts that cannot be formed electronically are:

  • Fixed term land lease agreements (Article 22, Act on Land and Building Leases).

  • Fixed term land lease agreements for business purposes (Article 23, Paragraph 3 of Act, Land and Building Leases).

  • Fixed term building lease agreements (Article 38, Paragraph 1, Act on Land and Building Leases).

  • Enterprise mortgage agreements (Article 3, Enterprise Hypothecation Act).

 
9. Are there any data retention requirements in relation to the formation of personal data collected and processed via electronic contracts?

The Act on the Protection of Personal Information (APPI) has been amended and the amendment will be effective before 9 September 2017. The amended APPI provides that when a business operator handling personal information provides personal data to a third party the following must take place:

  • The transferring party must record and save the date of the transfer and the name of a third party to whom information has been transferred.

  • A third party which receives personal data must confirm, record, and save the name of the entity which provided the personal data and the manner in which the original entity acquired that information. The exact details of the information required to be recorded or the retention period of such information will be determined by a Personal Information Protection Commission ruling.

 
10. Are there any trusted site accreditations available?

A number of internationally trusted site accreditation organisations operate in Japan. One domestic entity is the Japan Information Processing Development Centre (JIPDEC), established as a non-profit organisation in 1967 under the auspices of the Ministry of Economy and Industry.

The core mission of JIPDEC includes proposing and developing mechanisms for the use of IT and digital information and developing and operating framework infrastructures to ensure safety and security. JIPDEC certifies companies in the area of privacy protection.

 
11. What remedies are available for breach of an electronic contract?

The remedies for breach of an electronic contract are essentially the same as those for non-electronic contracts. These remedies include monetary damages, injunction and rescission.

E-signatures

 
12. Does the law recognise e-signatures? To what extent and when are e-signatures used in electronic contracting? Are they required in most transactions, or very few?

Japanese law recognises e-signatures.

Applicable legislation

The Act on Electronic Signatures and Certification Business (Act No. 102 of 31 May 2000) took effect from April 2001 (Electronic Signature Law).

Definition of e-signatures

An e-signature is a measure taken with respect to information that can be recorded in an electromagnetic record (a record in electronic, magnetic or any other form not perceivable by human senses and that is used for information processing by computers), and that falls under both of the following requirements:

  • It indicates that the person who has taken the measure created such information.

  • It confirms whether such information has been altered.

An e-signature is presumed to be authentic if it is performed by the principal in relation to information recorded in the electromagnetic record (Article 3, Act on Electronic Signatures and Certification Business).

Format of e-signatures

An e-signature must meet the requirements listed above. In addition, an e-signature that is presumed to be authentic is limited to one which can be performed only by the principal through appropriate management of codes and properties necessary to perform it (Article 3, Act on Electronic Signatures and Certification Business). An e-signature provided by the Japanese government is expected to be popular since it is stored on an individual card, to be issued to Japanese residents under the social security and tax number system starting in 2016.

Penetration of e-signature

According to Ministry of Economy, Trade and Industry, few e-signatures in electronic contracting are used in Japan. As of the end of 2011, there were approximately 300,000 issued electronic certificates used to confirm that the user has performed the e-signature.

 
13. Are there any limitations on the use of e-signatures?

There are no limitations on the use of e-signatures in Japan.

 

Implications of running a business online

 

Cyber security/privacy protection/data protection

14. Are there any laws that regulate the collection or use of personal data? To whom do the data protection laws apply?

The collection and use of personal data is regulated in the Act on the Protection of Personal Information (APPI). The APPI applies to any business operator handling personal information including an operator using a personal information database for its business. Entities that process less than 5,000 individuals' personal information are excluded. This exception will no longer be valid under the amended APPI, which is expected in 2017.

For further information on data protection laws in Japan, see Data Protection in Japan: overview.

 
15. What data is regulated?

Personal information is regulated by the Act on the Protection of Personal Information (APPI) and is defined as any information about a living individual which can identify the specific individual by name, date of birth or other description contained in the information (including information which allow easy reference to other information and enable the identification of the specific individual).

 
16. Are there any limitations on collecting or using personal data? Are there any specific limitations on storage of personal data in the cloud?

A business operator handling personal information must specify the purpose for which it is used. The statement of purpose can only be changed within the scope in which it is reasonably considered that the purpose after the change is related to that before the change (Article 15, Act on the Protection of Personal Information (APPI)).

A business operator handling personal information cannot handle the personal information without the prior consent from the person beyond the scope necessary for the achievement of the statement of purpose.

Acquiring personal information by deceptive or other wrongful means is prohibited (Article 17, APPI). When personal information is acquired, the acquiring business must notify every person either individually or by public notice of the purpose for which it is used (Article 18, APPI). A business must expressly show the purpose in advance when an acquisition of personal information from such person is made by written document or electronic method, except where its acquisition is urgently required for the protection of the life, body, or property of an individual (Article 18 second paragraph, APPI).

A business operator must take "necessary and proper measures for the prevention of leakage, loss, or damage, and for other security control of the personal data" (Article 20, APPI). A business operator is also required to exercise necessary and appropriate supervision over employees and other trustees with access to personal data. A business operator must keep retained personal information up to date within the scope of the statement of purpose (Article 19, APPI).

A business operator is prohibited from providing personal data to a third party without consent with the following exceptions (Article 23, APPI):

  • Delegation: where the entity processing personal information entrusts a third party with the processing of personal data for the purpose of achieving an aim which is within the scope of the purpose of use (for example, a data-processing company).

  • Joint use: where the entity processing personal information shares this processing and is entitled to share the personal data with another entity, usually an affiliate.

  • Opt-out: the entity processing personal data can provide personal data to a third party if it gives the customer a notice of such activities and allows the customer to suspend the transfer of data to the third party on request.

There is an obligation on a business operator retaining personal data to correct any false information at the request of a party whose personal data is being retained (Article 26, APPI). In a similar vein, the business operator is obliged to discontinue using or to erase retained personal data where it is found that the operator is handling the personal data in violation of Article 16, or has acquired the data in violation of Article 17. If it is not practical to discontinue use or to erase the data, the business operator must take "necessary alternative measures to protect the rights and interests of the person" (Article 27, APPI). Complaints about the handling of personal data must be dealt with appropriately and promptly.

There are no restrictions on the storage of personal information in the cloud provided that the storage arrangements meet the obligations of the APPI. The Ministry of Economy and Industry has published Guidelines on Information Security Management for Use of Cloud Service which describes what users of the cloud should do and what cloud operators should do to ensure information security.

Under the amended APPI, which will be effective before 9 September 2017, an entity processing personal data must not provide a third party located in another country with personal data without first obtaining the data subject's consent. However, an entity processing personal data may provide a third party in another country with personal data without such consent if such third party:

  • Is located in countries which are considered to have an adequate level of protection specified by the rule of Personal Information Protection Commission (PPC).

  • Has the adequate protection measures designated by the ruling of PPC.

 
17. Is the use of cookies allowed? If so, what conditions apply to their use that impact system design?

Cookies are permitted under Japanese law. Websites usually disclose when their site uses cookies. It might be considered illegal to acquire personal information from users without disclosing this fact. For example, where a business entity checks (using cookies) certain information such as website browsing history against personally-identifying information registered when the user subscribed for a membership. This conduct does not comply with Articles 17 and 18 of the Act on the Protection of Personal Information, or may constitute a tort or other cause of action under the Civil Code on the grounds of invasion of privacy.

 
18. What measures must be taken by companies or the internet providers to guarantee the security of internet transactions?

This is a matter of self-regulation. Most companies, especially in sensitive areas like online banking and sales, which involve providing credit card information, employ state of the art encryption.

 
19. Is the use of encryption required or prohibited in any circumstances?

Encryption is neither required nor prohibited. It is, however, used by online businesses to assure consumers and customers that the information they provide is safe.

 
20. Can government bodies access or compel disclosure of personal data in certain circumstances?

The police can access or compel disclosure of personal data under a lawfully issued search warrant. Also, a business operator handling personal information has an obligation to disclose personal data in some cases, including:

  • When reporting doubtful transactions by financial institutions (Article 8, Paragraph 1 criminal proceeds transfer prevention laws and regulations).

  • When reporting payment and notification of payment to the district director of the tax office (Article 225, Paragraph 1, Income Tax Act).

  • In response to requests from a competent minister (Article 32, Act on the Protection of Personal Information).

  • In response to a request from any investigative organisations (Article 197, Paragraph 2 of the Code of Criminal Procedure).

 
21. Are there any regulations in relation to electronic payments?

The Payment Services Act (Act No. 59 of 24 June 2009), regulates electronic payments by prepaid type electronic money. The Act stipulates various obligations such as notification, registration and establishment of information security management.

There is a duty to report designated payments into or out of Japan, to the Bank of Japan (Foreign Exchange and Foreign Trade Control Act (Act No. 228 of 1 December 1949, as amended)). There is also a duty to prevent money laundering, such as confirming designated information on making a transaction, or reporting a suspicious transaction to governmental agencies (Act on Prevention of Transfer of Criminal Proceeds (Act No. 22 of 31 March 2007, as amended)).

In addition to the major regulations mentioned above, there are a number of laws and regulations relating to financial services such as:

  • Money Lending Business Act (Act No. 32 of 1983).

  • Instalment Sales Act (Act No. 159 of 1 July 1961)

The Payment Services Act amendment regulating the exchange service company of virtual currency will be implemented in 2017.

 
22. If the site is aimed at children, are there any specific rules or guidance that apply?

There are no specific rules that apply if the site is aimed at children. An electronic contract by a minor (below the age of 20 years old) without parental consent, in principle, is valid unless he or she or the parent cancels the contract by rescinding his/her expression of intention (Paragraph 1 and 2, Article 5 of the Civil Code). However, if a minor acts fraudulently to make the other party believe mistakenly that he or she is an adult or has obtained parental consent, that minor cannot rescind the expression of the intention (Article 21, Civil Code). Furthermore, a business operator handling personal information must obtain prior consent of the data subject to provide the personal data to a third party (Article 23, APPI) (see Question 16). In such case as a child has no ability to understand the results arising from his or her consent to the handling of personal information, it is necessary to obtain the consent from the child's attorney-in-fact.

 

Linking

23. Are there any limitations on linking to a third party website and other practices such as framing, caching, spidering and the use of metatags?

Linking and framing

In principle, it is permitted to link to any third party website in Japan. However, where a link is configured so that a viewer could be confused between the contents of the linking website and the site to which it is linked, it can constitute an infringement of the copyright holder's moral rights under the Copyright Act.

Linking and framing can fall within the definition of unfair competition if the product identification of the operator of the linked page is configured so that users are misled into confusing the linking page with the linked page. The same applies where a well-known product identification is used as if it were the product identification of the operator of the linking page.

Finally, setting up a linked website can constitute infringement of a trade mark, if it appears to the website users that the linking site is the origin of another person's trade mark.

Caching and spidering

Caching in cache servers and reproduction in conjunction with the exploitation of works on a computer are both permitted (Article 47-5 and 47-8, Copyright Act).

Spidering by an internet search engine is also permitted (Article 47-6, Copyright Act).

Use of metatags

It can constitute an infringement of a trade mark to display a website using a metatag made up of a trade mark belonging to a competing company. It can also constitute an act of unfair competition.

 

Domain names

24. What regulations are there in relation to licensing of domain names?

In order to register a co.jp domain name, a company must be established in Japan. Foreign companies can register a co.jp domain name if they are registered in Japan, for example, by having a registered branch office.

 
25. Do domain names confer any additional rights (in relation to trade marks or passing off) beyond the rights that are vested in domain names?

Jp domain names are registered on a first come, first served basis, usually within a day or two of application. However, a registration made or used in bad faith can be contested at the agency authorised by the Japan Network Information Centre (JPNIC). The authorised agency is the Japan Intellectual Property Arbitration Centre (JIPAC) (www.ip-adr.gr.jp/eng).

Acquiring or holding a right to use a domain name that is identical or similar to another person's specific indication of goods (a name, trade name, trade mark, mark, or any other indication of goods or services relating to a person's business), or use of any such domain name to acquire an illicit gain or cause injury to another person is deemed to be unfair competition (Article 2, Section 1, Paragraph 12, Unfair Competition Prevention Act, Act No. 47 of 19 May 1993).

 
26. What restrictions apply to the selection of a business name, and what is the procedure for obtaining one?

For all Japanese companies, the government maintains a list of corporate names that have already been registered. If the proposed business name is not already in use, it will be available unless it violates the trade mark of another business.

A Japanese company must use in its trade name the words "Kabushiki-Kaisha" (stock company), "Gomei-Kaisha" (general partnership), "Goushi-Kaisha" (limited partnership) or "Goudou-Kaisha" (limited liability company).

Names contrary to public order, good morals or contrary to the laws of Japan are also prohibited. The same rules apply for domain name registration.

 

Jurisdiction and governing law

27. What rules do the courts apply to determine the jurisdiction for internet transactions (or disputes)?

In principle, Japanese courts honour choice of jurisdiction clauses in contracts, including the selection of arbitration over litigation. Where there is no choice of jurisdiction clause, a court in Japan will have jurisdiction over an action against the person who has a domicile in Japan or against a juridical person or any other association or foundation whose principal office or business office is located in Japan (Article 3-2, Code of Civil Procedure). Even if the defendant has no domicile, principal office or business office in Japan, a court in Japan may have jurisdiction depending on the circumstances of the case (Article 3-3, Code of Civil Procedure).

An action relating to business to consumer contracts (excluding labour contracts), which is brought by a consumer against a business operator, can be filed with a court in Japan if the consumer is domiciled in Japan at the time the action is filed or the contract is concluded (Article 3-4, Paragraph 1, Code of Civil Procedure).

Even where Japanese courts have jurisdiction over an action (excluding those that can only be filed in Japan), the court can dismiss without prejudice the whole or part of it if hearing the case in Japan would impair fairness between the parties or hinder efficiency of the hearing. The circumstances it would take into consideration when making such a decision include (Article 3-9, Code of Civil Procedure):

  • The nature of the case.

  • The burden on the defendant to answer the claim.

  • The location of the evidence.

  • Any other factors.

 
28. What rules do the courts apply to determine the governing law for internet transactions (or disputes)?

Conflict of laws is governed by the Act on the General Rules of Application of Laws (Act No. 10 of 1898, as amended by Act No. 78 of 2006).

A choice of law provision made by the parties will be respected by the courts in Japan (Article 7, Act on the General Rules of Application of Laws). In the absence of a choice of law by the parties, the general rule is that a legal act will be governed by the law of the place with which the act is most closely connected at the time of the act. The law provides a number of more specific rules intended to assist a judge in selecting the applicable law.

There are also special rules for consumer contracts in favour of selecting the law of the habitual residence of the consumer. In consumer contracts, if the consumer has manifested his intention to the business operator that a specific mandatory provision in the law of the consumer's habitual residence should be applied, that provision will also apply to the matters specified under it with regard to the formation and effect of the consumer contract.

Finally, there is a public policy override in cases where foreign law governs. The classic example is punitive damages, which are void against public policy in Japan.

 
29. Are there any alternative dispute resolution/ online dispute resolution (ADR/ODR) options available to online traders and their customers? What remedies are available from the ADR/ODR methods? Are there any requirements to notify customers of the availability of these methods?

Online traders and customers can use standard Japanese ADR procedure, such as arbitration, conciliation and mediation of settlement.

In case of arbitration, the party who wants to use such procedure must have an arbitration agreement between the parties. The arbitration agreement confirms that the parties leave the resolution of civil disputes to arbitrator(s), and accept the arbitral award. If the parties agree with the arbitration agreement, they cannot file for a civil dispute. One party must respond to the application for arbitration of the other party. Moreover, the arbitral award has the same effect as a final and binding judgment.

On the other hand, in case of conciliation and mediation of settlement, participation or renouncement of the procedure, the parties choose to consent to or reject a settlement offer. However, as settlement agreement accepted in such procedure has the effect of a general agreement under the civil code, there is no power of enforcement.

There are several alternative dispute resolution organisations in Japan such as the:

  • Japan Commercial Arbitration Association (JCAA).

  • Dispute Resolution Centre in many bar associations in Japan.

  • Software dispute resolution centre by Software Information Centre.

  • Japan Intellectual Property Arbitration Centre.

  • Dispute Resolution Commission by National Consumer Affairs Centre of Japan.

The largest business to consumer alternative dispute resolution organisation in Japan is the EC Network. It was founded in 2006 as a non-profit organisation and is supported by a corporate membership scheme (the annual fee is JPY10,000) and funds from the Ministry of Economy, Trade and Industry.

Small and medium sized enterprises are targeted for membership because they often lack the experience and know-how to deal effectively with consumer complaints. The members of the EC Network can take advantage of ADR/ODR by the EC Network. Complaints are handled exclusively by e-mail and the service is free of charge to consumers. The EC Network handles around 50 to 60 complaints a month.

Under the Act on the Protection of Personal Information, a business operator handling personal information must make the following information accessible to persons if the business operator is the covered enterprise of an accredited Personal Information Protection Organisation:

  • The name of the accredited Personal Information Protection Organisation.

  • The way to submit an application to resolve the complaint.

 

Advertising/marketing

30. What are the relevant rules on advertising goods/services online/via social media?

Advertising goods and services online or via social media is subject to the same basic rules that apply to all advertising. Essentially, false or misleading advertising is prohibited. The following are of particular relevance:

  • The Act on Regulation of the Transmission of Specified Electronic Mail. It is prohibited under the Act for a sender to use e-mails as a means of advertisement or promotion of its own, or others', sales activities or to send such e-mails to a person who has not given his consent and to a person who requests that they not be sent to him. When such e-mails are used, the sender must include the information listed under the Act such as the following:

    • the name and address of the sender; and

    • the e-mail address of the sender to request not to send advertising e-mails.

No sender can send such e-mails falsifying the electronic mail address used or send e-mails to fictitious addresses for its own or others' sales activities.

  • The Act against Unjustifiable Premiums and Misleading Representations. It is prohibited under this act to make a misleading representation with respect to quality and price or any other trade terms in connection with transactions for goods or services (Article 4, Paragraph 1).

  • Act on Specified Commercial Transactions. When a seller or service provider advertises terms and conditions through mail order sales, it must indicate certain information about the goods, rights, or services, such as selling price, delivery times, withdrawal or cancellation of the offer and so on, in the advertisement (Article 11). Exaggerated advertisements that give a false impression to consumers and sending e-mail advertising to a person who has not given his consent are prohibited in mail order sales (Articles 12 and 13).

 
31. Are there any types of services or products that are specifically regulated when advertised/sold online (for example, financial services or medications)? 

Japanese law has a number of regulated industries that require a licence. Chief among these are banking, insurance and securities. These industries are not permitted to offer their goods and services online to potential customers in Japan without obtaining the same licences as required by a domestic party engaged in these businesses.

In practice, it is virtually impossible to obtain the necessary licences without a physical presence in Japan. Regulated businesses must also have a bona fide resident representative in Japan, so there is a person available to the regulators for questioning if necessary.

Prescription drugs (which can be imported by foreigners when not available in Japan with appropriate permission) and weapons are also very strictly regulated. Other goods, such as illegal drugs (for example, marijuana even for medical use), operate under a zero tolerance policy. Online gambling is another example of a business that is prohibited under Japanese public policy.

In addition, it is prohibited to advertise or publicise false or exaggerated information with respect to the effect or efficacy of drugs (Article 66, Pharmaceutical Affairs Act).

 
32. Are there any rules or limitations in relation to text messages/spam emails?

The Act on Regulation of the Transmission of Specified Electronic Mail and the Act on Specified Commercial Transactions regulate text messages and spam emails (see Question 30 ).

 
33. Are there any language requirements in your jurisdiction for a website that targets your particular jurisdiction or whose target market includes your jurisdiction?

Online businesses can offer goods and services in any language. As indicated in Question 3 an online business will not be widely successful in Japan unless its goods and services are offered in Japanese. There are niche sites that target certain language groups such as English, Chinese or Korean speakers but these populations are relatively small, at about 1%, in relation to the total Japanese population.

 

Tax

34. Are sales concluded online subject to taxation?

Online sales are subject to taxation. Japan has a consumption tax of 8%, which is expected to rise to a maximum of 10% in the coming years. The consumption tax applies to domestic transactions for goods and services as well as to imports.

Previously, online service providers that provided services outside Japan to residents in Japan, were not obliged to collect consumption tax from consumers/customers and to pay it over to the National Tax Agency (NTA). The Diet amended the tax code earlier this year with effect from 1 October 2015, in the Act for Partial Revision of the Income Tax Act and Other Acts (Act No. 9 of 2015).

There are four key changes as a result of the Act:

  • Services such as e-books, music and advertisements, as well as allowing a party to use cloud services, are now taxed at the address of the recipient and not the address of the office of the service provider.

  • A Japanese business receiving business-to-business electronic services is responsible for filing and paying the consumption tax, instead of the provider (the so-called "reverse charge mechanism"). In this case, a foreign business providing business-to-business electronic services for a Japanese business must indicate beforehand that the service recipient will be liable to file and pay consumption tax when providing the services.

  • When a foreign business provides business-to-consumer electronic services, the foreign service provider must file and pay the consumption tax. A sole proprietor without an address or domicile in Japan and a corporation without a head office or an office in Japan must designate a tax agent to deal with submission of tax returns and notification documents, and tax payment.

  • A purchase tax credit can be claimed if the foreign business is registered with the NTA. The Act contains a safe harbour exemption for businesses with sales of less than JPY10 million in the relevant tax year.

 
35. Where and when must online companies register for VAT and other taxes? Which country's VAT rate will apply?

When a business is obliged to collect, file and make consumption tax payments in connection with its sale of goods or services, it must register with the Commissioner of the National Tax Agency. A business without a head office or other office in Japan must designate a tax agent for submitting tax returns, receiving notifications and making tax payments.

 

Protecting an online business

Liability for content online

36. What laws govern liability for website content?

Online businesses are subject to the same range of liability for content as domestic businesses without an internet presence. For example, content that violates the privacy of a third party or amounts to defamation is actionable in tort. Material information and advertising goods and services must be accurate and not misleading. Unlawful premiums and other inducements that give a business operator a competitive advantage over other competitors constitute an unfair trade practice.

 
37. What legal information must a website operator provide?

When a seller or service provider advertises terms and conditions through mail order sales, it must indicate certain information about the goods, rights, or services, such as selling price, delivery times, withdrawal or cancellation of the offer and so on, in the advertisement (Article 11, Act on Specified Commercial Transactions).

 
38. Who is liable for the content a website displays (including mistakes)?

The person or entity who placed the material on the website will be liable for its content. A website operator who permits defamatory or obscene material to be posted on its website will also be liable for its content only when at least one of the following conditions is met (Paragraph 1, Article 3 of the Provider Liability Limitation Act):

  • The deletion of information is technically possible and the website operator knew that the dissemination of information would cause certain infringement of rights.

  • The deletion of information is technically possible; the website operator knows of the dissemination of information, and should have reasonably known of the infringement of rights arising from such dissemination.

  • The website operator transmitted the information itself.

 
39. Can an internet service provider (ISP) shut down a website, remove content, or disable linking due to the website's content and without permission?

An ISP can shut down a website, remove content or disable linking if it has a reasonable basis to believe that the content violates the third party's right without permission (Act on the Limitation of Liability for Damages of Specified Telecommunications Service Providers and the Right to Demand Disclosure of Identification Information of the Senders (Act No. 137 of 30 November 2001)).

If an ISP does not delete the content and ignores the court order to do so, the claimant can seek a civil fine until the ISP complies with the court order.

 

Liability for products / services supplied online

40. Are there any rules that might apply to products or services supplied online?

In principle, the auction site bears no liability for any transactional problems between users, if the auction site is not directly involved in transaction, where the auction sites simply provide the brokering sales system for users. However, auction sites are held responsible to build a non-defective auction system, such as an obligation to take measures of a wake-up call not to become a victim of Internet fraud. On the other hand, if the auction site is substantially involved in transactions between users beyond simple provision of the brokering system, the auction site can be liable to the extent of the auction site's further involvement. For example, in cases where an auction site:

  • Actively supports the exhibition of a user and receive fees or bidding commissions.

  • Endorses a particular seller in some manner.

  • Is a seller.

Moreover, in principle, the cybermall (online shopping) operator is not liable for damages arising from any consumer transactions with individual cyber shops. However, the cybermall operator can be liable to the customer if the:

  • Appearance of the cybermall unavoidably misleads its consumers to believe that the business of the cyber shop is conducted by the cybermall operator itself.

  • Cybermall operator is somewhat responsible for the appearance.

  • Cybermall consumer executing the transaction misidentified the cyber shop operator without gross negligence.

 

Insurance

41. How should an online business be insured?

A website offering goods for sale online must have product liability insurance.

 

Reform

42. Are there any proposals to reform digital business law in your jurisdiction?

Digital business law is under continuous scrutiny and reforms are being proposed regularly, mainly through ministerial guidelines. The Act on the Protection of Personal Information is scheduled to be reformed, to:

  • Clarify the definition of personal information.

  • Secure the availability of personal information.

  • Strengthen the protection for personal data.

  • Globalise the protection of personal data.

The main goal of the reforms is to promote digital business in Japan by making it safe and secure for procuring goods and services.

 

Online resources

Basic Law on the Formation of an Advanced Information and Telecommunications Network Society

W http://japan.kantei.go.jp/it/it_basiclaw/it_basiclaw.html

Description. The Prime Minister of Japan and his cabinet maintain this website, and the English translation is for guidance only.

Interpretative Guidelines on Electronic Commerce and Information Property Trading

W www.meti.go.jp/policy/it_policy/ec/201408_ecip_guideline_english.pdf

Description. The Ministry of Economy and Industry maintains this website, and the English translation is for guidance only.

Japanese law translation

W www.japaneselawtranslation.go.jp

Description. The Minister of Justice maintains this website, and the translations are for guidance only. Only the Japanese originals have legal effect.



Contributor profiles

Hiroyasu Kageshima, Partner

Ushijima & Partners

T +81-3-5511-3233
F +81-3-5511-3258
Ehiroyasu.kageshima@ushijima-law.gr.jp
W www.ushijima-law.gr.jp/en/ attorneys/hiroyasu-kageshima

Professional qualifications. Lawyer, Japan

Areas of practice. Information security; IP law; entertainment; litigation; general corporate.

Non-professional qualifications. BA in Law, Hitotsubashi University

Languages. Japanese, English

Professional associations/memberships. Board member, the Committee on Information Economy of Japan Productivity Centre.

Hiroyuki Yamauchi, Associate

Ushijima & Partners

T +81-3-5511-3852
F +81-3-5511-3258
E hiroyuki.yamauchi@ushijima-law.gr.jp
W www.ushijima-law.gr.jp/en/ attorneys/hiroyuki-yamauchi

Professional qualifications. Lawyer, Japan

Areas of practice. Information security; IP law; entertainment; litigation; general corporate; securitisation.

Non-professional qualifications. BA in Law, Meiji Gakuin University; JD, Tokyo Metropolitan University

Languages. Japanese, English

Satoshi Yakushiji, Associate

Ushijima & Partners

T +81-3-5511-3608
F +81-3-5511-3258
E satoshi.yakushiji@ushijima-law.gr.jp
W www.ushijima-law.gr.jp/en/ attorneys/Satoshi-Yakushiji

Professional qualifications. Lawyer, Japan

Areas of practice. Information security; IP law; entertainment; litigation; general corporate

Non-professional qualifications. BA in Law, Chuo Law School; JD, Waseda University

Languages. Japanese, English


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