Japan Passes Act Mandating Third Party App Stores and Billing Systems, Among Other Provisions

Japan has announced the passage of an act similar to the EU's Digital Markets Act, requiring Apple and Google to allow third party app stores and third party billing systems.

In a vote yesterday, the House of Councillors passed the Act on Promotion of Competition for Specified Smartphone Software. The legislation is designed to address competition issues surrounding app stores, browsers, and search engines. The Act stipulates certain activities in which Designated Providers are prohibited from engaging ("Prohibited Conducts"), and certain measures they are obliged to take ("Compliance Requirements").

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As smartphones rapidly spread and become the basis of social lives and economic activities, the business operators that provide the specified software, etc., especially necessary for the use of smartphones (mobile operating systems (OS), application stores, browsers, and search engines – hereinafter referred to as "Specified Software" below) are in an oligopoly market with a small number of specific powerful providers. Fair and free competition in Specified Software markets is hindered by these providers' anticompetitive practices. However, it is difficult to restore fair and free competition due to issues in these markets; self-correction by market mechanisms such as new entries is difficult and it takes a remarkably long time to demonstrate anticompetitive activities in response to individual cases under the Antimonopoly Act.


In light of this situation, it is necessary to develop a competitive environment for Specified Software for smartphones, while ensuring security, privacy, etc., so that through competition, innovation by various entities will be fostered and then consumers will be able to select the various service that will be created by such innovation and enjoy the benefits of those services.
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Here's a look at some of the obligations under the new act:

Outlines of New Regulations (Prohibited Conducts and Compliance Requirements)

1. Regarding application store competition restriction

• Designated Providers shall not prevent third-party providers from offering their own application stores.
 ※ The Act does not oblige to allow downloading of applications directly from websites [Art.7-1].
 ※ Measures necessary to achieve the objectives of security, privacy, youth protection, etc., can be taken as long as it is difficult to achieve the objectives through other less competition-restricting measures ("Justifiable measures").

2. Regarding usage restrictions of other billing systems

• Designated Providers shall not prevent other application developers from using third-party billing systems, for example, via imposing conditions prohibiting third-party billing systems [Art.8-1].
※ Justifiable measures may be applied.

3. Regarding in-app restrictions of information to users

• Designated Providers shall not restrict application developers from showing in-app information such as prices for items on websites or links leading to websites for items.
• Designated Providers shall not prevent application developers from providing items, etc. through websites [Art.8-2].
※ Justifiable measures may be applied.

4. Regarding unfair treatment of application developers

• In transactions and usage conditions of operating systems and application stores, Designated Providers shall not unjustly discriminate against, or unfairly treat application developers [Art.6].

5. Regarding usage prohibition of browser engines other than those provided by Designated Providers

• Designated Providers shall not prevent other application developers from using other browser engines, for example, via conditions that only allow the usage of the Designated Provider's own browser engine [Art.8-3].
※ Justifiable measures may be applied.

6. Regarding Designated Providers' default settings of services

• Designated Providers shall enable users to change default settings with simple procedures [Art.12-1(a), 12-2(a)].
• Designated Providers shall offer choice screens with similar services for browsers, search services, etc. [Art.12-1(b), Art.12-2(b)].

7. Regarding self-preferential treatment in search results

• Designated Providers shall not engage in any form of preferential treatment of their services over those of competitors in the display of search results without justifiable reason [Art.9].

8. Regarding Designated Providers' unfair usage of data

• Designated Providers shall not use acquired data, such as usage information and sales numbers, for their own services in competition with third parties [Art.5].

9. Regarding the restriction of OS features to other businesses

• Designated Providers shall not prevent other application developers from using features controlled by the OS with the same level of performance as the one used by Designated Providers [Art.7-2].
※ Justifiable measures may be applied.

10. Others

• Disclosure obligations for data governance, etc. [Art.10].
• Obligations to provide data portability tools [Art.11].
• Disclosure obligations for changes in OS and browser specifications, etc. [Art.13].

The act will come into force within the next year and half on a date set by Cabinet order. More details in the presentation below...