An Ounce of Prevention

Chain and Lock

A legal expert writes on protecting trade secrets and personal information in Japan

By Jiri Mestecky, Registered Foreign Attorney, Kitahama Partners

There is no doubt that one of the most important aspects of doing business in any country is protecting company trade secrets as well as individuals’ personal information. Nonetheless, trade secrets and personal information are not necessarily the same, and where different, are protected by different laws. This is true under the laws of Japan as well as those of other countries. The purpose of this article is to briefly explain the legal framework for the protection of these two types of extremely important proprietary and confidential information under Japanese law.

Trade secrets
Trade secrets are first and foremost a type of intellectual property, and the purpose of trade secret law is to protect the proprietary information and related rights of the owner. Like the laws of other countries, Japanese law protects trade secrets, specifically, under Japan’s Unfair Competition Prevention Law.

It is revealing to consider the meaning of the term “trade secret.” Under Japanese law, a trade secret is basically technical or business information which is:

1. Useful for commercial activities;
2. Kept secret; and
3. Not already publicly known.

Most businesspeople can readily identify this type of information, which may include technical specifications, formulas, plans, diagrams, test results and other “hard data” on the one hand, as well as client information, marketing plans and similar types of information on the other.

Japanese law prohibits certain types of acts in connection with the above trade secrets, specifically:

1. Wrongful acquisition;
2. Unauthorized use; and
3. Wrongful disclosure.

Taking these in turn, “wrongful acquisition” means that a party may not acquire the trade secret of another party through wrongful means such as theft, deception or threats. Importantly, this prohibition also applies to employers who hire employees from other companies with the knowledge that the new employee may possess trade secret information of the former employer, and such employers further engage in theft, deception or threats in order to obtain such trade secret information. As a general rule, when hiring a new employee, the employer should inform them that they do not wish to receive any trade secret information regarding the new employee’s former company.

The prohibition against “unauthorized use” means that a party in possession of wrongfully acquired trade secret information of another party cannot, for example, use it to develop new products, contact the other party’s customers based on a confidential customer list, or engage in other types of unfair competition.

Lastly, the prohibition against “unauthorized disclosure” means that one cannot disclose a trade secret without the permission of the owner, nor can one disclose a trade secret acquired by wrongful means to another party. For example, an employee may not disclose the misappropriated trade secrets of his former employer to his new employer. Once again, this prohibition also applies to the new employer, meaning that, if the employee were to disclose his former company’s misappropriated trade secrets to the new employer, the new employer would also be prohibited from further disclosing such trade secret information.

Penalties for trade secret theft or misappropriation under the Unfair Competition Prevention Law include the civil penalties of damages and injunctive relief, as well as criminal penalties of imprisonment, fines or both.

In Japan, as in other countries, the best method for a company to protect its trade secrets is to implement a comprehensive trade secrets program. Such a program has three integral parts. These are:

1. Physical Security, such as locks, computer passwords, limited access areas, “Confidential” stamps, etc

2. Contractual Protection, such as nondisclosure agreements and confidentiality provisions in company Work Rules and employment contracts; and

3. Education, such as company-wide trade secrets seminars, manager training, etc

All of the above are necessary for an effective trade secrets program, however, it is often not understood that, of the three, education is the least expensive and most effective method of preventing trade secret misappropriation. Therefore, it is important for companies to consult with their attorneys in the early stages of establishing Japan operations in order to develop a comprehensive trade secrets program which will protect the company going forward. This is a much better method of protecting trade secrets than having to initiate expensive, time-consuming litigation or other legal measures in an attempt to recover trade secrets which may have already been irretrievably lost.

Personal Information
In protecting personal information, it is useful to understand how this type of information is not necessarily the same as trade secret information, and how the laws that apply are different. In 2003, Japan enacted the Personal Information Protection Law. Under this statute, “personal information” is defined as information about a living individual which identifies such individual by name, date of birth, or other description contained within such information.

Confidential

As under Japan’s trade secrets law, wrongful acquisition, unauthorized use, and unauthorized disclosure (I.e. Without prior consent) of individuals’ personal information are all prohibited. This, however, is where the similarity to trade secrets law ends. This is because the purpose of the Personal Information Protection Law is to protect an individual’s right to privacy, and not a company’s intellectual property rights in economically valuable secrets as discussed above in connection with trade secrets law.

For example, if a company were to have a valuable client list which contained the personal information of such clients, and this list was stolen by a rival, the company may have a cause of action for trade secret misappropriation against the rival. This would only be the case if the client list was economically valuable, subject to reasonable efforts to maintain secrecy, and it was not already publicly known that the clients listed on it were clients of the company. The company would not, however, have a cause of action for violation of Japan’s Personal Information Protection Law, as this would rest only with the individual clients whose information was unlawfully acquired or disclosed. Moreover, such clients might have a cause of action against not only the rival, but possibly also against the company in the event the company was negligent in maintaining the secrecy of the clients’ personal information. This is a rather fine, but critical, distinction when considering trade secrets versus personal information protection.

Another important point to understand with respect to Japan’s Personal Information Protection Law is that it applies only to businesses maintaining a database that contains the personal information of over 5,000 individuals. Those in this category, such as insurance companies, banks and recruiting firms, are required to take specific steps to protect personal information in their possession, including creating an express policy to be distributed to those whose personal information they receive.

While there are no criminal penalties for violation of the Personal Information Protection Law, civil damages are available to those whose privacy has been violated. Such damages can be substantial in the event of the unauthorized disclosure of the personal information of a large number of individuals.

Consequently, companies covered by the Personal Information Protection Law should consult with their attorneys regarding applicable requirements as well as creating a proper personal information protection policy.

Virtually all companies in all industries have concerns relating to the protection of trade secrets and personal information. Therefore, those doing business in Japan must be aware of the relevant laws. The saying, “an ounce of prevention is worth a pound of cure,” is nowhere more true than in connection with the protection of trade secrets and personal information. Thus, those doing business in Japan are strongly encouraged to consult with their legal counsel in order to ensure compliance and avoid possible future civil and criminal liability. JI

Important Note: This article is provided for informational purposes only and should not in any way be considered legal advice.

Jiri Mestecky is a Registered Foreign Attorney and Partner with the law firm of Kitahama Partners, spending time in both the Osaka and Tokyo offices. He is an American attorney registered in the state of Illinois. He specializes in international intellectual property, corporate and commercial transactions. He is also an Adjunct Professor at both the Law School and the Institute of Business and Accounting of Kwansei Gakuin University near Kobe. He is the author or co-author of a number of books and articles regarding US and Japanese legal issues, and currently serves as Governor, as well as Chairman of the Business Programs Committee, of the Kansai Chapter of the American Chamber of Commerce in Japan. He is a graduate of the Washington University School of Law, where he received a joint J.D./M.A. East Asian Studies degree.

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