FALL 2019 TODAY’S GENER AL COUNSEL
Intellectual Property
A Fresh Look at Japanese Trade Secret Protection By Wakako Inaba and Gino Cheng
C
22
ountries in East Asia have been updating their respective trade secret protection regimes in quick succession. The latest amendments to mainland China’s Anti-Unfair Competition Law and the overhaul to South Korea’s trade secret and patent laws took effect in April and July, respectively. At about the same time Taiwan was adding criminal penalties to its Trade Secrets Act, Japanese companies were also feeling the sting of trade secret misappropriation. According to Japan’s National Police Agency, the number of criminal offenses involving trade secret theft was dramatically on the rise. The agency received 72 requests for advice
cedural amendments and additional protection against the circumvention of copy control. The aim of this article is to provide a basic understanding of Japan’s trade secret protection regime, examine how the amendment expands the legal framework and survey some notable, high-value cases. BIG CASES A BACKDROP
The massive data leak in 2014 from Benesse Holdings, the largest correspondence education provider in Japan, startled the nation. It was a harbinger for more mishaps to come. In Toshiba Corp. v. SK Hynix Inc., an engineer who was working in a
POSCO and one of the former employees in 2012, seeking 98.6 billion yen in damages and an injunction against the manufacture and sale of such steel sheets. In 2015, the corporate parties settled for 30 billion yen. Nippon Steel reached a settlement with the former employees in 2017 for an undisclosed amount. Under the Unfair Competition Prevention Act, a trade secret is “a production method, sales method, or any technical or operational information useful for business activities that is controlled as a secret and is not publicly known.” Similar to many other jurisdictions, this definition contains three basic requirements: (1) economic value, (2) maintenance
Bona fide downstream users or disclosers of trade secrets are protected unless they were aware of the impropriety or grossly negligent. in 2017, a five-fold increase from just four years prior. It brought charges in 18 cases in 2017, up from merely five cases in 2013. Although there is no specialized trade secret statute in Japan, trade secrets are afforded both civil and criminal protection under the broader Unfair Competition Prevention Act. In parallel with the public’s growing awareness of the systemic problem of trade secret theft and other types of unfair competition, and to deal with new threats enabled by the evolution of technology, the act’s coverage was further expanded to capture additional proscribed activity. The latest such amendment was made in mid-2018 to address issues of big data, and its provisions took effect on July 1, 2019. The amendment also includes pro-
joint venture manufacturing plant copied Toshiba’s confidential information regarding NAND flash memory technology and divulged it to SK Hynix, a competing South Korean company. Toshiba filed a civil lawsuit against SK Hynix in the Tokyo District Court, seeking roughly 110 billion yen (then US $1.08 billion) damages in 2014. The corporate parties settled for US $278 million. In the Tokyo High Court in 2015, the engineer was individually prosecuted, sentenced to five years’ imprisonment and fined three million yen. In Nippon Steel & Sumitomo Metal Corp. v. POSCO and POSCO Japan Co. Ltd., former Nippon Steel employees copied confidential information regarding grain-oriented electrical steel sheet technology and divulged it to POSCO. Nippon Steel filed a civil lawsuit against
of confidentiality and (3) non-public nature. The presence of the second element is subject to the most debate and where companies often find themselves vulnerable. In response to the requests from industry, the Ministry of Economy, Trade and Industry (METI) fully revised its Guidelines for the Management of Trade Secrets in January 2015 and further revised them in January 2019. Although the guidelines are not legally binding, they are respected as the competent authority’s formal understanding of the minimum requirements for safeguarding information as a trade secret. The guidelines explain that a company’s measures must clearly communicate to its employees its intent to manage the information as confidential information. Although what constitutes such reason-