[BreachExchange] Japan tightens its trade secrets law: Why businesses should be mindful

[Audrey McNeil]

http://www.lexology.com/library/detail.aspx?g=986fad0c-1994-4235-973e-134ee3eaf895

Big money cases litigated over the past couple of years in Japan revolving
around the misuse of trade secrets have contributed to a number of changes
to the Japanese trade secrets law. This is likely to affect companies
outside of Japan as Japanese companies increasingly seek to outsource
operations overseas and provide services on a more international scale. The
increase in litigation has also brought about a heightened awareness on the
part of Japanese companies regarding the risks associated with not taking
adequate measures to protect commercially sensitive information.

Previously, trade secrets cases in Japan were a rarity, however, a couple
of key cases involving employees defecting to foreign companies with
critical technical methodology has sparked a spate of similar litigation
and a review of Japan’s trade secrets law, which has been the subject of
numerous amendments in the past decade.

Effective 1 January 2016, the amendments to the Unfair Competition
Prevention Act (Act) generally broaden the scope of claims and remedies
available to claimants. The Act now includes liability for attempted
misappropriation of trade secrets, distribution of goods made via the use
of misappropriated trade secrets, and misappropriation of trade secrets
outside of Japan, where previously no adequate remedy or penalty was
available. Particularly important is the fact that the Act now protects any
trade secret held by a person “doing business in Japan”, greatly broadening
the application of the Act, which previously only applied to trade secrets
“controlled” in Japan. This means that the theft of trade secrets from a
Japanese person on business overseas, or from a Japanese company disclosing
or storing trade secrets overseas, now attracts criminal penalties under
Japanese law.

The Act as amended also significantly reduces the burden of proof on the
part of the plaintiff, increases the maximum fine payable for trade secrets
misappropriation, and doubles the statute of limitations to 20 years after
the beginning of infringing use.

Businesses looking to deal with Japanese companies in situations where the
exchange of trade secrets is expected to occur will likely experience the
effects of the changes in negotiations. As a result, businesses negotiating
deals such as joint ventures with Japanese companies will likely find these
companies are much more insistent on failsafe clauses that spell out terms
relating to the disclosure and use of confidential information and trade
secrets than previously experienced.

Those harbouring the trade secrets of a person or company doing business in
Japan, whether as a result of a working relationship or via the likes of
cloud storage services should ensure that effective control mechanisms and
policies are in place to limit access to the trade secrets and mitigate the
risk of misappropriation.
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