December 2013: Japanese Litigation Update

by Quinn Emanuel Urquhart & Sullivan, LLP
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Japanese Government Tightens Insider Trading Regulations. On June 12, 2013, the Japanese Diet passed an amendment to the Japanese Financial Instruments and Exchange Act, including enhancements of many insider trading regulations. One change drawing attention is the strengthening of the law governing use of unpublished information with respect to third parties. Specifically, under the new regulation, a corporate insider—such as an officer or employee of a listed company or a managing underwriter—who learns an unpublished material fact regarding the listed company in the course of his/her duty is now prohibited from disclosing that information to a third party or soliciting a third party for the purpose of promoting the interest of that third party. Rather than seek to protect third parties, the regulation focuses on preventing the improper disclosure of information to third parties and ensuring the fairness and soundness of the securities market. The solicitation of the third party is therefore prohibited even if no insider information is actually disclosed. If the third party actually makes a sale based on the insider information, the person that provided the information or solicited that third party shall face imprisonment (with a five-year maximum sentence) and/or a fine not to exceed 5 million yen (approximately $50,000), and/or other fines. In addition, the guilty party’s name will be published. Moreover, if an officer or employee of a company breaches the regulation in the course of his/her work, the company is also liable. The amendments will take effect by June 19, 2014.

Intellectual Property High Court Expands Recovery for Non-Practicing Patent Holder. On February 1, 2013, the Grand Panel of Intellectual Property High Court (“IP High Court”) issued a judgment expanding the scope of Article 102, paragraph (2) of the Patent Act (“102(2)”) as it applies to entities not practicing their patent in Japan. Under Article 102(2), damages for patent infringement are presumed to be the amount of profit earned by the infringer. Numerous lower courts, including the decision of the Tokyo District Court from which the appeal originated, held that only a patentee that practiced his invention could claim presumed damages under Article 102(2). The IP High Court, however, reversed this decision and held that practicing one’s patent is not required to seek presumed damages under Article 102(2). Rather, a patentee could claim damages under Article 102(2) if the infringement harmed the patentee’s ability to obtain profits from the patent. In the case itself, the court awarded damages under the provision to a United Kingdom company that did not practice its patent in Japan, but did sell products through a distributor. By allowing the plaintiff to use Article 102(2), the decision increased the damage award by approximately seven times. It remains to be seen how Article 102(2) will be applied to a true non-practicing entity that only holds patents and does not sell products in the market at all.

Japanese Cabinet Approves New Bill Introducing a “Japanese Class Action.” A new bill recognizing a special civil procedure for collective recovery of consumers’ damages was approved by the Cabinet and submitted to the House of Representative in Japan (Shugi-in) on April 19, 2013. Scholars and practitioners are watching with interest as this furthers the introduction of a Japanese version of a limited class action suit. The bill will be discussed and considered in the Diet session starting in mid-October. This bill allows Specified Qualified Consumer Organizations (“SQCO,” a special type of Qualified Consumer Organization)—groups that must fulfill a number of requirements in order to be deemed a SQCO—to seek certain types of damages and restitution from consumer contracts on behalf of a number of individuals. The consumer contract is defined as a contract between an individual consumer and a business operator, excluding employment contracts. The proposed system consists of two phases. In phase one, a SQCO would file a declaratory judgment action asserting that a business operator has not fulfilled a monetary obligation to a substantial number of consumers who share common factual and legal grounds for recovery, based in contract. In the second phase, the court would assess the validity and amount of the individual consumer’s claims, provided the plaintiffs opted in to the class. The decision would also apply the first stage decision to SQCOs that did not participate in the first-stage procedure so as to prevent multiple lawsuits on the same issue. Consequential damages, lost profits, personal injury, and pain and suffering are categorically excluded from the proposed class action system.

METI Revises Its “Interpretative Guidelines on Electronic Commerce and Information Property Trading.” On September 6, 2013, the Ministry of Economy, Trade and Industry (“METI”) revised its Guideline addressing electronic commerce and information property trading. Originally issued in 2002 to clarify how relevant laws should be applied to electronic commerce and information exchange, the non-binding Guideline was revised to: (1) reconcile the Guideline with the Japanese Supreme Court’s 2012 decision on the right of publicity (the decision better defined the right of publicity and improper use of a likeness); (2) acknowledged that an internet seller (internet mall) could be liable for trademark infringement when products sold on its site infringe a third party’s trademark, as held by the IP High Court in 2012; and (3) better define the scope of copyright protection and the criminalization of illegal downloads. Each revision, while an attempt to bring the Guideline into line with emerging decisions and laws, is seen as an important move by METI as its Guideline is widely used by Japanese practitioners.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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