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.