Smartphone Specific Software Competition Promotion Law
Ruben E. Rodriguez Samudio
I. Introduction
Initially, software was developed to run on specific computer systems before eventually evolving into the multiple operating systems (OS) available today. While these OS can run on most hardware as long as they meet the minimum requirements, some devices, such as video game consoles, smartphones, or tablets, still opt for proprietary systems. In many cases, these proprietary OS allow companies to provide a tailored customer experience, promising better security and features in exchange for more control over the operating environment.
Hence, companies can dictate what type of software can be used and even charge a commission for transactions made within the OS. In recent years, increasing scrutiny concerning these closed environments has led to legal disputes under consumer protection and antitrust law. For example, in 2020, Epic Games sued Apple for alleged monopolistic practices over the 30% purchase charge on the iOS App Store and other antitrust policies. While Apple ultimately triumphed in most counts, the court did find that it ran afoul of anti-steering regulations and issued a permanent injunction ordering Apple to allow developers to link to alternative payment methods outside the iOS environment. Recently, Epic sued Apple for what it considered ‘malicious compliance’ with the injunction.Moreover, in 2023, Epic sued Google for similar under similar premises, with a jury found Google liable for unlawful monopolistic practices. The videogame sales platform Steam is also involved in multiple lawsuits in the US and UK for their 30% commission on sales to market manipulation.
Multiple jurisdictions have enacted legislation in response to these challenges. The 2022 Digital Markets Act Regulation aims to solve these issues by designating certain companies as “Gatekeepers” and imposing specific obligations such as prohibitions on self-preferencing practices or reusing personal data, transaction fees, and actions that might obstruct data portability. The Act also establishes fines of up to 10% of global turnover for companies that fail to comply with their obligations.
In June 2024, the Japanese National Diet, considering smartphones’ importance in modern society and the effective control certain vendors or providers can exert, approved the Smartphone Specific Software Competition Promotion Law (SSCPL). The law is scheduled to come into force in 2025.
II. Smartphone Specific Software Competition Promotion Law
The SSCPL is composed of seven chapters: 1. General Provisions; 2. Designation of Specified Software Vendors; 3. Obligations of Specified Software Operators; 4. Measures against Infractions; 5. Injunctions and Damages; 6. Miscellaneous[4]; and 7. Penalties.
The law begins by defining a smartphone as a device that meets one of the following criteria: 1. A portable size (Art. 2.1-1); 2. That uses software to achieve a specific objective (Art. 2.1-2); or 3. Make phone calls and access the internet (Art. 2.1-3). Likewise, it defines OS as software installed on the smartphone that controls the device’s basic operation and calculations (Art. 2.2). It also defines applications (individual software) as software that utilizes the OS to send and receive emails, display maps, and any other uses provided to the users of the device (Art. 2-3), app stores as applications that provide applications either for a price or free (Art. 2-4), browsers as applications used to access the internet (Art. 2-5), and search engines as a software capable of outputting information of an unspecified number of website based on user’s input (Art. 2-6). These are considered “specific software” (Art. 2-7).
Under the SSCPL, specified software vendors must follow the regulations of the Japan Fair Trade Commission (FTC) based on their size, software provided, etc. (Act. 3). Moreover, the FTC can designate some vendors as designated vendors based on size, type of software, etc. These designated vendors and their subsidiaries cannot use the information gathered from applications, other vendors, or data specified by the FTA to provide products or services that compete with those applications unless the collected data is already public. The same limitations apply to data gathered from app stores or browsing history (Art. 5).
In addition, designated vendors are banned from engaging in anticompetitive practices, or in unjust or unfair treatment against specific software vendors (Art. 6). Moreover, OS vendors are subject to further scrutiny and are banned from limiting apps on the app store to their own apps or those of their subsidiaries on the app store, preventing users from using third-party apps, or limiting the functions or features of third-party software (Art. 7). However, these limitations do not apply if they would compromise the device’s security.
App store vendors, i.e., vendors in charge of the stores, are also subject to some limitations, except for browsers and if these measures would compromise the security of the device (Art. 8). First, they are banned from requiring app vendors from only using the payment methods provided within the app store as a requirement for listing their apps. App store vendors cannot obstruct vendors from providing payment methods that do not use the app store. If vendors offer the same products or services via a website, app store vendors cannot prohibit them from displaying the price listed on the website or obstruct users from accessing these services via the app.
There are also limitations concerning the browser used in app stores. App store vendors cannot require vendors to use their browsers as a condition for listing the app on the store. In addition, they cannot prevent vendors from implementing their own browsers within an app or force them to use user ID methods provided by the store. Lastly, search engine providers are banned from preferentially displaying their own goods or services and those of their subsidiaries (Art. 9).
The SSCPL also establishes some obligations regarding data processing, such as sharing data processing requirements (not the data itself) (Art. 10) and must allow for smooth data transfer (Art. 11). There are also requirements concerning default settings (Art. 12). For example, users must be able to change default settings or delete the app easily, and user consent must be obtained when introducing new functionalities. Likewise, specified vendors must take measures such as providing information or granting a grace period when performing significant changes to the settings, terms of use, or limitations to the use of their applications (Art. 13). They must submit annual reports to the FTA on their activities, measures taken, and any other information required to ensure their compliance with the law (Art. 14). These reports must be published, except if there are circumstances where it might affect the vendors’ business secrets, etc.,
The law also establishes a general right to report non-compliance to the FTA, including requesting corrective measures, which the agency is then required to investigate (Art. 15). Specified vendors are prohibited from retaliating against anyone who submits complaints to the FTA. In the course of any investigation, the FTA can, amongst other, summon any concerned parties, enter their business premises to ascertain their situation and check their accounting books, order any person who possesses said books to produce them, or it can also call upon the services of an appraiser (Art. 16). Moreover, the FTA also has the authority to decree exclusionary measures such as injunctions, order the transference of part of the business, issue recommendations, and impose administrative fines (Arts. 18- 30).
In addition to the FTA’s authority, the SSCPL also establishes judicial remedies such as injunctions (Art. 31) and damages (Art. 32). However, claims for damages must be brought within three years after the decision on exclusionary measures has been finalized. Moreover, the law establishes absolute liability by proving that the lack of intent or negligence does not absolve the responsible party (Art. 32-2).
Courts must inform the FTA of any injunction or damages procedures and can request their opinion on the matter (Arts. 34, 39). They can also order parties to provide security (Art. 33), produce documents (Art. 35), or decree measures to protect business secrets (Art. 36). Lastly, upon the FTA’s request, the courts can decree emergency measures such as ordering the temporary suspension of an allegedly infringing act (Art. 40).
The penalties section sets forth conditions for criminal liability. For example, any person who infringes an order to protect business secrets can be imprisoned for up to five years or a fine of up to JPY 5 million. The same applies even if the conduct occurs outside Japan (Art. 49). If a company’s representative or staff infringes the order, in addition to their individual responsibility, the company can be fined up to JPY 300 million for the company (Art. 54). Likewise, any person who infringes upon exclusionary measures after they have been finalized can be subject to penalties of up to two years imprisonment or a fine of up to JPY 3 million, or both (Art. 50). If a company’s representatives do the infringement then the fine can be of up to JPY 300 million.
This work was supported by JSPS KAKENHI Grant Number JP22K13274.
